[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2010 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          12


          Parts 500 to 599

          Revised as of January 1, 2010


          Banks and Banking
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2010
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter V--Office of Thrift Supervision, Department 
          of the Treasury                                            3
  Finding Aids:
      Table of CFR Titles and Chapters........................     575
      Alphabetical List of Agencies Appearing in the CFR......     595
      List of CFR Sections Affected...........................     605

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 500.1 refers 
                       to title 12, part 500, 
                       section 1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

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evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

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OMB CONTROL NUMBERS

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Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
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the revision dates of the 50 CFR titles.




[[Page vii]]



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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2010.







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of seven volumes. The parts 
in these volumes are arranged in the following order: parts 1-199, 200-
219, 220-299, 300-499, 500-599, part 600-899, and 900-end. The first 
volume containing parts 1-199 is comprised of chapter I--Comptroller of 
the Currency, Department of the Treasury. The second and third volumes 
containing parts 200-299 are comprised of chapter II--Federal Reserve 
System. The fourth volume containing parts 300-499 is comprised of 
chapter III--Federal Deposit Insurance Corporation and chapter IV--
Export-Import Bank of the United States. The fifth volume containing 
parts 500-599 is comprised of chapter V--Office of Thrift Supervision, 
Department of the Treasury. The sixth volume containing parts 600-899 is 
comprised of chapter VI--Farm Credit Administration, chapter VII--
National Credit Union Administration, chapter VIII--Federal Financing 
Bank. The seventh volume containing part 900-end is comprised of chapter 
IX--Federal Housing Finance Board, chapter XI--Federal Financial 
Institutions Examination Council, chapter XII--Federal Housing Finance 
Agency, chapter XIV--Farm Credit System Insurance Corporation, chapter 
XV--Department of the Treasury, chapter XVII--Office of Federal Housing 
Enterprise Oversight, Department of Housing and Urban Development and 
chapter XVIII--Community Development Financial Institutions Fund, 
Department of the Treasury. The contents of these volumes represent all 
of the current regulations codified under this title of the CFR as of 
January 1, 2010.

    For this volume, Bonnie Fritts was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Michael L. 
White, assisted by Ann Worley.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                  (This book contains parts 500 to 599)

  --------------------------------------------------------------------
                                                                    Part

chapter v--Office of Thrift Supervision, Department of the 
  Treasury..................................................         500

[[Page 3]]



   CHAPTER V--OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter V appear at 59 FR 
18475, Apr. 19, 1994, and 60 FR 66715, Dec. 26, 1995.
Part                                                                Page
500             Agency organization and functions...........           5
502             Assessments and fees........................           6
503             Privacy Act.................................          12
505             Freedom of Information Act..................          14
506             Information collection requirements under 
                    the Paperwork Reduction Act.............          15
507             Restrictions on post-employment activities 
                    of senior examiners.....................          16
508             Removals, suspensions, and prohibitions 
                    where a crime is charged or proven......          18
509             Rules of practice and procedure in 
                    adjudicatory proceedings................          21
510             Miscellaneous organizational regulations....          46
512             Rules for investigative proceedings and 
                    formal examination proceedings..........          51
513             Practice before the Office..................          53
516             Application processing procedures...........          60
517             Contracting outreach programs...............          70
528             Nondiscrimination requirements..............          72
533             Disclosure and reporting of CRA-related 
                    agreements..............................          78
535             Prohibited consumer credit practices (Eff. 
                    until 7-1-2010).........................          90
535             Unfair or deceptive acts or practices (Eff. 
                    7-1-2010)...............................          92
536             Consumer protection in sales of insurance...         106
541             Definitions for regulations affecting 
                    Federal savings associations............         110
543             Federal mutual savings associations--
                    Incorporation, organization, and 
                    conversion..............................         112
544             Federal mutual savings associations--Charter 
                    and bylaws..............................         119
545             Federal savings associations--Operations....         126

[[Page 4]]

546             Federal mutual savings associations--Merger, 
                    dissolution, reorganization, and 
                    conversion..............................         131
550             Fiduciary powers of savings associations....         134
551             Recordkeeping and confirmation requirements 
                    for securities transactions.............         144
552             Federal stock associations--Incorporation, 
                    organization, and conversion............         152
555             Electronic operations.......................         171
557             Deposits....................................         172
558             Possession by conservators and receivers for 
                    Federal and State savings associations..         174
559             Subordinate organizations...................         174
560             Lending and investment......................         184
561             Definitions for regulations affecting all 
                    savings associations....................         207
562             Regulatory reporting standards..............         213
563             Savings associations--Operations............         215
563b            Conversions from mutual to stock form.......         243
563c            Accounting requirements.....................         270
563d            Securities of savings associations..........         279
563e            Community reinvestment......................         281
563f            Management official interlocks..............         302
563g            Securities offerings........................         307
564             Appraisals..................................         316
565             Prompt corrective action....................         321
567             Capital.....................................         331
568             Security procedures.........................         425
569             Proxies.....................................         426
570             Safety and soundness guidelines and 
                    compliance procedures...................         427
571             Fair Credit Reporting.......................         439
572             Loans in areas having special flood hazards.         473
573             Privacy of consumer financial information...         477
574             Acquisition of control of savings 
                    associations............................         505
575             Mutual holding companies....................         527
583             Definitions for regulations affecting 
                    savings and loan holding companies......         549
584             Savings and loan holding companies..........         551
585             Prohibited service at savings and loan 
                    holding companies.......................         559
590             Preemption of State usury laws..............         562
591             Preemption of State due-on-sale laws........         567
592-599         [Reserved]

[[Page 5]]



PART 500_AGENCY ORGANIZATION AND FUNCTIONS--Table of Contents




 Subpart A_Functions and Responsibilities of the Director of the Office 
                          of Thrift Supervision

Sec.
500.1 General statement and statutory authority.
500.2-500.5 [Reserved]
500.6 General statement concerning gender-related terminology.

                     Subpart B_General Organization

500.10 The OTS or The Office.

                          Subpart C_Procedures

500.30 General statement concerning procedures and forms.

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 54 FR 49440, Nov. 30, 1989, unless otherwise noted.



 Subpart A_Functions and Responsibilities of the Director of the Office 
                          of Thrift Supervision



Sec. 500.1  General statement and statutory authority.

    (a) The Director of the Office of Thrift Supervision (referred to in 
this chapter as ``Director'' or ``Office'') is responsible for the 
administration and enforcement of the Home Owners' Loan Act of 1933, 
(``HOLA''), and applicable portions of the Federal Deposit Insurance Act 
and with respect to savings associations subject to provisions of the 
foregoing acts and title, the Bank Protection Act of 1968, the Truth in 
Lending Act, and the Fair Credit Reporting Act.
    (b) The Office is authorized under such rules and regulations as it 
may prescribe to provide for the organization, incorporation, 
examination, operation, and regulation of Federal savings associations. 
Under this authority, the Office's functions include, but are not 
limited to, regulation of the corporate structure of such associations, 
regulation of the distribution of their earnings, regulation of their 
lending and other investment powers, acting upon their applications for 
facility offices (including branch offices, limited facilities, mobile 
facilities and satellite offices), the regulation of mergers, 
conversions, and dissolutions involving such associations, the 
appointment of conservators and receivers for such associations, and the 
enforcement of laws, regulations, or conditions against such 
associations or the officers or directors thereof by proceedings under 
section 5 of the Home Owners' Loan Act of 1933, as amended.
    (c) The Office regulates and examines savings associations within 
the authority conferred by the HOLA and the FDIA and is authorized to 
enforce applicable laws, regulations, or conditions against savings 
associations or the officers or directors thereof by proceedings under 
section 5 of the HOLA and section 8 of the FDIA as amended. The Office 
also regulates and supervises savings and loan holding companies 
pursuant to the provisions of section 10 of the HOLA, as amended, and 
section 8 of the FDIA.
    (d) The Office exercises supervisory and regulatory authority over 
all building and loan or savings and loan associations and similar 
institutions of or doing business in or maintaining offices in the 
District of Columbia.

[54 FR 49440, Nov. 30, 1989, as amended at 60 FR 66868, Dec. 27, 1995]



Sec. 500.2-500.5  [Reserved]



Sec. 500.6  General statement concerning gender-related terminology.

    The statutes administered by the Office and the rules, regulations, 
policies, practices, publications, directives, and guidelines 
promulgated pursuant to such statutes that prescribe the course and 
methods to be followed by the Office that inadvertently use or contain 
gender-related terminology are to be interpreted as equally applicable 
to either sex.



                     Subpart B_General Organization



Sec. 500.10  The OTS or The Office.

    The Office of Thrift Supervision (referred to as ``OTS'' or 
``Office'') is an

[[Page 6]]

office of the Department of the Treasury. Its functions are to charter, 
supervise, regulate and examine Federal savings associations and to 
supervise, regulate and examine all savings associations. It is directed 
by a Director, who is appointed by the President and confirmed by the 
Senate to a five-year term. The Director directs and carries out the 
mission of the OTS with the assistance of offices reporting directly to 
him. One of these offices oversees the direct examination and 
supervision of savings associations by regulatory staff to ensure the 
safety and soundness of the industry.

[57 FR 14335, Apr. 20, 1992, as amended at 60 FR 66869, Dec. 27, 1995]



                          Subpart C_Procedures



Sec. 500.30  General statement concerning procedures and forms.

    (a) Rules and procedures of the Office are published in chapter V of 
title 12 of the Code of Federal Regulations and in supplementary 
material published in the Federal Register. The statutes administered by 
the Office and the rules and regulations promulgated pursuant to such 
statutes prescribe the course and method of the formal procedures to be 
followed in proceedings of the Office. These are supplemented where 
practicable by informal procedures designed to aid the public and 
facilitate the execution of the Office's functions. The informal 
procedures of the Office consist principally in the rendering of advice 
and assistance to members of the public dealing with the Office. 
Opinions expressed by members of the staff do not constitute an official 
expression of the views of the Office, but do represent views of persons 
working with the provisions of the statute or regulation involved. The 
Director may, for good cause and to the extent permitted by statute, 
waive the applicability of any provision of this chapter.
    (b) Information with respect to procedures, forms, and instructions 
of the Office is available to the public at the headquarters of the 
Office. Forms of concern to the public consist principally of periodic 
financial reports and of applications to the Office. The Office may from 
time to time require the completion by individuals or savings 
associations of miscellaneous forms, questionnaires, reports, or other 
papers. In each instance, the individual or savings association is given 
actual and timely notice of the scope and contents of the papers in 
question.

[54 FR 49440, Nov. 30, 1989, as amended at 59 FR 53570, Oct. 25, 1994]



PART 502_ASSESSMENTS AND FEES--Table of Contents




Sec.
502.5 Who must pay assessments and fees?

                          Subpart A_Assessments

             Saving Associations--Calculation of Assessments

502.10 How does OTS calculate the semi-annual assessment for savings 
          associations?
502.15 How does OTS determine my size component?
502.20 How does OTS determine my condition component?
502.25 How does OTS determine my complexity component?

     Savings and Loan Holding Companies--Calculation of Assessments

502.26 How does OTS calculate the semi-annual assessment for savings and 
          loan holding companies?
502.27 How does OTS determine the risk/complexity component for a 
          savings and loan holding company?
502.28 How does OTS determine the organizational form component for a 
          savings and loan holding company?
502.29 How does OTS determine the condition component for a savings and 
          loan holding company?

                         Payment of Assessments

502.30 When must I pay my assessment?
502.35 How do I pay my assessment?
502.40 Will OTS refund or prorate my assessment?
502.45 What will happen if I do not pay my assessment on time?

                             Subpart B_Fees

502.50 What fees does OTS charge?
502.55 Where can I find OTS's fee schedule?
502.60 When will OTS adjust, add, waive, or eliminate a fee?
502.65 When is an application fee due?
502.70 How must I pay an application fee?
502.75 What if I do not pay my fees on time?

    Authority: 12 U.S.C. 1462a, 1463, 1467, 1467a.

    Source: 63 FR 65670, Nov. 30, 1998, unless otherwise noted.

[[Page 7]]



Sec. 502.5  Who must pay assessments and fees?

    (a) Authority. Section 9 of the HOLA, 12 U.S.C. 1467, authorizes the 
Director to charge assessments to recover the costs of examining savings 
associations and their affiliates, to charge fees to recover the costs 
of processing applications and other filings, and to charge fees to 
cover OTS's direct and indirect expenses in regulating savings 
associations and their affiliates.
    (b) Assessments. If you are a savings association or a responsible 
savings and loan holding company, and OTS regulates you on the last day 
of January or on the last day of July of each year, you must pay a semi-
annual assessment due on that day. Subpart A of this part describes 
OTS's assessment procedures and requirements.
    (c) Fees. If you make a filing with OTS or use OTS services, the 
Director may require you to pay a fee to cover the costs of processing 
your submission or providing those services. The Director may charge a 
fee for any filing including notices, applications, and securities 
filings. The Director may charge a fee for any service including 
publications, seminars, certifications for official copies of agency 
documents, and records or services requested by other agencies. The 
Director also assesses fees for examining and investigating savings 
associations that administer trust assets of $1 billion or less, and 
savings association affiliates. If OTS incurs extraordinary expenses 
related to examination, investigation, regulation, or supervision of a 
savings association or its affiliate, the Director may charge the 
savings association or the affiliate a fee to fund those expenses. 
Subpart B of this part describes OTS's fee procedures and requirements.

[63 FR 65670, Nov. 30, 1998, as amended at 67 FR 78151, Dec. 23, 2002; 
69 FR 30568, May 28, 2004]



                          Subpart A_Assessments

    Source: 69 FR 30568, May 28, 2004, unless otherwise noted.

            Savings Associations--Calculation of Assessments



Sec. 502.10  How does OTS calculate the semi-annual assessment for
savings associations?

    (a) If you are a savings association, OTS determines your semi-
annual assessment by totaling three components: your size, your 
condition, and the complexity of your business. OTS determines the 
amounts of each component under Sec. Sec. 502.15 through 502.25 of this 
part.
    (b) OTS uses the September 30 Thrift Financial Report to determine 
amounts due at the January 31 assessment; and the March 31 Thrift 
Financial Report to determine amounts due at the July 31 assessment. For 
purposes of Sec. Sec. 502.10 through 502.25 of this part, total assets 
are your total assets as reported on Thrift Financial Reports filed with 
OTS.



Sec. 502.15  How does OTS determine my size component?

    (a) Chart. If you are a savings association, OTS uses the following 
chart to calculate your size component:

----------------------------------------------------------------------------------------------------------------
              If your total assets are: . . .                              Your size component is:
----------------------------------------------------------------------------------------------------------------
              Over--*                   But not over--      This amount-- Plus--Marginal   Of assets over--Class
-----------------------------------------------------------     Base           rate                floor
                                                             assessment  ---------------------------------------
                                                               amount
             Column A                      Column B        --------------    Column D            Column E
                                                              Column C
----------------------------------------------------------------------------------------------------------------
0.................................  $67 million...........             C1           D1    0.
$67 million.......................  215 million...........             C2           D2    $67 million.
215 million.......................  1 billion.............             C3           D3    215 million.
1 billion.........................  6.03 billion..........             C4           D4    1 billion.
6.03 billion......................  18 billion............             C5           D5    6.03 billion.
18 billion........................  35 billion............             C6           D6    18 billion.
35 billion........................  ......................             C7           D7    35 billion.
----------------------------------------------------------------------------------------------------------------


[[Page 8]]

    (b) Calculation. To calculate your size component, find the row in 
Columns A and B that describes your total assets. Reading across in that 
same row, find your base assessment amount in Column C, your marginal 
rate in Column D, and your class floor in Column E. Calculate how much 
your total assets exceed your Column E class floor. Multiply this number 
by your Column D marginal rate. Add this number to your Column C base 
assessment amount. The total is your size component. OTS will establish 
the base assessment amounts and the marginal rates in columns C and D in 
a Thrift Bulletin.



Sec. 502.20  How does OTS determine my condition component?

    (a) If you are a savings association, OTS uses the following chart 
to determine your condition component:

------------------------------------------------------------------------
                                                 Then your condition
       If your composite  rating is:                component is:
------------------------------------------------------------------------
1 or 2....................................  Zero.
3.........................................  50 percent of your size
                                             component.
4 or 5....................................  100 percent of your size
                                             component.
------------------------------------------------------------------------

    (b) For the purposes of this section, OTS uses the most recent 
composite rating, as defined in 12 CFR part 516, of which you have been 
notified in writing before an assessment's due date.



Sec. 502.25  How does OTS determine my complexity component?

    If you are a savings association and your portfolio exceeds any of 
the thresholds in paragraph (a) of this section, OTS will calculate your 
complexity component according to paragraph (c) of this section. If your 
portfolio does not exceed any of the thresholds in paragraph (a) of this 
section, your complexity component is zero.
    (a) Thresholds for complexity component. OTS uses three separate 
thresholds in calculating your complexity component. You exceed a 
threshold if you have more than $1 billion in any of the following:
    (1) Trust assets that you administer.
    (2) The outstanding principal balances of assets that are covered, 
fully or partially, by your recourse obligations or direct credit 
substitutes.
    (3) The principal amount of loans that you service for others.
    (b) Assessment rates. OTS will establish one or more assessment 
rates for each of the types of activities listed in paragraph (a) of 
this section. OTS will publish those assessment rates in a Thrift 
Bulletin.
    (c) Calculation of complexity component. OTS separately considers 
each of the thresholds in paragraph (a) of this section in calculating 
your complexity component. OTS first calculates the amount by which you 
exceed any of those thresholds. OTS multiplies the amount by which you 
exceed any thresholds in paragraph (a) of this section by the applicable 
assessment rate(s) under paragraph (b) of this section. OTS then totals 
the results. This total is your complexity component.

     Savings and Loan Holding Companies--Calculation of Assessments



Sec. 502.26  How does OTS calculate the semi-annual assessment for 
savings and loan holding companies?

    (a) OTS calculates the semi-annual assessment savings and loan 
holding companies as follows:
    (1) OTS will assess a base assessment amount of $3,500 on 
responsible savings and loan holding companies. The base assessment 
amount reflects OTS's estimate of the base costs of conducting on- and 
off-site supervision of a noncomplex, low risk savings and loan holding 
company structure. OTS will periodically revise this amount to reflect 
changes in inflation based on a readily available index. OTS will 
establish the revised amount of the base assessment in a Thrift 
Bulletin.
    (2) OTS will add three components to the base assessment amount to 
compute the amount of the semi-annual assessment for responsible savings 
and loan holding companies: a component based on the risk or complexity 
of the savings and loan holding company's business, a component based on 
its organizational form, and a component based on its condition. OTS 
determines the amount of each component under Sec. Sec. 502.27 through 
502.29 of this part.
    (b) For purposes of the semi-annual assessment of savings and loan 
holding companies:

[[Page 9]]

    (1) The responsible holding company is the registered holding 
company at the highest level of ownership in a holding company 
structure, unless OTS designates another savings and loan holding 
company in the holding company structure. OTS may designate an 
intermediate-tier holding company if the assessment of this entity would 
more accurately reflect OTS costs of supervising the holding company 
structure and:
    (i) There are multiple top-tier holding companies in the holding 
company structure;
    (ii) The top-tier holding company is organized outside of the United 
States, and is subject to the consolidated review of a foreign 
regulator; or
    (iii) Other circumstances indicate that the assessment of the top-
tier holding company is inappropriate.
    (2) Total consolidated holding company assets are the total assets 
as reported on the Thrift Financial Report, Schedule HC. If Schedule HC 
is unavailable, OTS will use total assets reported on report H-(b)11. 
OTS uses information contained in the September 30 Schedule HC or report 
H-(b)11 to determine amounts due at the January 31 assessment; and the 
March 31 Schedule HC or report H-(b)11 to determine amounts due at the 
July 31 assessment.

[69 FR 30568, May 28, 2004, as amended at 74 FR 68665, Dec. 29, 2009]



Sec. 502.27  How does OTS determine the risk/complexity component for a
savings and loan holding company?

    (a) OTS computes the risk/complexity component for responsible 
savings and loan holding companies using schedules that set out charges 
based on OTS holding company risk/complexity classifications and total 
consolidated holding company assets. OTS will establish these schedules 
in a Thrift Bulletin.
    (b) For the purposes of this section, the holding company risk/
complexity classification is the most recent risk/complexity 
classification of which OTS notified the savings and loan holding 
company in writing before an assessment's due date.
    (1) OTS classifies holding companies as Category I (low risk, 
noncomplex holding company); Category II (complex or high risk holding 
company); or Category III (conglomerate).
    (2) The OTS holding company risk/complexity classifications reflect 
OTS's assessment of a holding company's financial condition, financial 
independence of the savings association and other affiliates that are 
regulated financial entities, operational independence of the savings 
association and other affiliates that are regulated financial entities, 
reputational risks raised by affiliation with the holding company, and 
management experience of the holding company, savings association, and 
affiliates. The OTS holding company risk/complexity classification 
system is more fully described in the OTS Holding Company Handbook.
    (3) A conglomerate is a holding company that: (i) is one of the most 
complex or highest risk holding companies under the holding company 
risk/complexity classification system; (ii) is made up of a number of 
different companies or legal enterprises that offer products from more 
than one financial sector (e.g., insurance, securities, and banking) or 
operate in diversified fields; and (iii) generally manages these 
companies and enterprises along functional lines, rather than as 
separate legal entities.
    (c) OTS uses the following chart to compute the risk/complexity 
component under this section. OTS will establish the amounts in column C 
and D in the Thrift Bulletin for each holding company risk/complexity 
classification. The amounts established for column C and D that are 
applicable to conglomerates will be three times the amounts established 
for column C and D for complex or higher risk holding company 
enterprises of the same asset size.

[[Page 10]]



----------------------------------------------------------------------------------------------------------------
         If your total consolidated assets are . . .                Your risk/complexity component is . . .
----------------------------------------------------------------------------------------------------------------
             Over . . .                 But not over . . .     This amount   Plus--this    Of assets over . . .
-------------------------------------------------------------     . . .       marginal   -----------------------
                                                             --------------  rate . . .
              Column A                       Column B                      --------------        Column E
                                                                Column C      Column D
----------------------------------------------------------------------------------------------------------------
$0.................................  $150 Million...........             C1          D1   $0
150 Million........................  250 Million............             C2          D2   150 Million
250 Million........................  500 Million............             C3          D3   250 Million
500 Million........................  1 Billion..............             C4          D4   500 Million
1 Billion..........................  5 Billion..............             C5          D5   1 Billion
5 Billion..........................  50 Billion.............             C6          D6   5 Billion
50 Billion.........................  100 Billion............             C7          D7   50 Billion
100 Billion........................  300 Billion............             C8          D8   100 Billion
Over 300 Billion............................................             C9          D9   300 Billion
----------------------------------------------------------------------------------------------------------------

    (d) To compute your risk/complexity component, find the row in the 
appropriate schedule that describes your total consolidated assets by 
referring to the amounts in Columns A and B. In that row, calculate how 
much your total consolidated assets exceed the class floor (Column E); 
multiply this number by your marginal rate (Column D); and add the 
product to the amount in Column C. The total is your risk/complexity 
component.



Sec. 502.28  How does OTS determine the organizational form component
for a savings and loan holding company?

    OTS will include an organizational form component if you are a 
responsible savings and loan holding company that OTS regulates under 
section 10(l) of the HOLA. OTS will compute your organizational form 
component by adding the base assessment to your risk/complexity 
component, and multiplying this amount by 25 percent.



Sec. 502.29  How does OTS determine the condition component for a 
savings and loan holding company?

    (a) If the most recent examination rating assigned to the 
responsible savings and loan holding company (or most recent examination 
rating assigned to any savings and loan holding company in the holding 
company structure) is a composite rating of 4 or 5, OTS will assess a 
charge under the condition component. The amount of the condition 
component is equal to 100 percent of the sum of the base assessment 
amount, the risk/complexity component, and any organizational form 
component.
    (b) For the purposes of this section, examination ratings are the 
ratings that OTS assigns under the OTS holding company rating system. 
OTS uses the most recent rating of which the savings and loan holding 
company has been notified in writing before an assessment's due date.

[69 FR 30568, May 28, 2004, as amended at 74 FR 68665, Dec. 29, 2009]

                         Payment of Assessments



Sec. 502.30  When must I pay my assessment?

    OTS will bill you semi-annually for your assessments. Assessments 
are due January 31 and July 31 of each year, unless that date is a 
Saturday, Sunday, or Federal holiday. If the due date is a Saturday, 
Sunday or Federal holiday, your assessment is due on the first day 
preceding the due date that is not a Saturday, Sunday or Federal 
holiday. At least seven days before your assessment is due, the Director 
will mail you a notice that indicates the amount of your assessment, 
explains how OTS calculated the amount, and specifies when payment is 
due.



Sec. 502.35  How do I pay my assessment?

    (a) Savings associations. (1) If you are a member of a Federal Home 
Loan Bank that offers demand deposit accounts which permit direct 
debits, you must maintain a demand deposit account at your Federal Home 
Loan Bank with sufficient funds to pay your assessment when due. OTS 
will notify your Federal Home Loan Bank of the amount of your 
assessment. OTS will debit your account for your assessments.

[[Page 11]]

    (2) If paragraph (a)(1) of this section does not apply to you, OTS 
will directly debit an account you must maintain at your association.
    (b) Savings and loan holding companies. You may establish an account 
at an insured depository institution and authorize OTS to debit the 
account for your semi-annual assessment. If you do not establish an 
account and maintain funds in the account sufficient to pay the semi-
annual assessment when due, OTS may charge you a fee to cover its 
administrative costs of collecting and billing your assessment. This fee 
is in addition to interest on delinquent assessments charged under Sec. 
502.45 of this part. OTS will establish the amount of the administrative 
fee and publish the amount of the fee in a Thrift Bulletin.



Sec. 502.40  Will OTS refund or prorate my assessment?

    (a) OTS will not refund or prorate your assessment, even if you 
cease to be a savings association or a savings and loan holding company.
    (b) If a conservator or receiver has been appointed, you must 
continue to pay assessments in accordance with this part. OTS will not 
increase or decrease your assessment based on events that occur after 
the date of the Thrift Financial Report or H-(b)11 Annual/Current Report 
upon which your assessment is based.



Sec. 502.45  What will happen if I do not pay my assessment on time?

    (a) Your assessment is delinquent if you do not pay it on the date 
it is due under Sec. 502.30 of this part. The Director will charge 
interest on delinquent assessments. Interest will accrue at a rate (that 
OTS will determine quarterly) equal to 150 percent of the average of the 
bond-equivalent rates of 13-week Treasury bills auctioned during the 
calendar quarter preceding the assessment.
    (b) If a savings and loan holding company fails to pay an assessment 
within 60 days of the date it is due under Sec. 502.30 of this part, 
the Director may assess and collect the assessment with interest from a 
subsidiary savings association. If a savings and loan holding company 
controls more than one savings association, the Director may assess and 
collect the assessment from each savings association as the Director may 
prescribe.



                             Subpart B_Fees



Sec. 502.50  What fees does OTS charge?

    (a) The Director assesses fees for examining or investigating 
savings associations that administer trust assets of $1 billion or less, 
and saving association affiliates. Because OTS recovers the ordinary 
costs of examining and investigating savings and loan holding companies 
through the semi-annual assessment under Sec. Sec. 502.25 through 
502.29 of this part, the Director will not generally charge an 
examination fee to a savings and loan holding company. ``Affiliate'' has 
the meaning in 12 U.S.C. 1462(9), except that, for this part only, 
``affiliate'' does not include any entity that is consolidated with a 
savings association on the Consolidated Statement of Condition of the 
Thrift Financial Report.
    (b) The Director assesses fees for processing notices, applications, 
securities filings, and requests, and for providing other services.

[69 FR 30571, May 28, 2004]



Sec. 502.55  Where can I find OTS's fee schedule?

    OTS will periodically publish a schedule of its fees in a Thrift 
Bulletin. OTS will publish these fees at least 30 days before they are 
effective.



Sec. 502.60  When will OTS adjust, add, waive, or eliminate a fee?

    Under unusual circumstances, the Director may deem it necessary or 
appropriate to adjust, add, waive, or eliminate a fee. For example, the 
Director may:
    (a) Reduce any fee to adjust for any inequities, efficiencies, or 
changed procedures that OTS projects will reduce its applications 
processing costs but that OTS did not consider in determining its fees;
    (b) Reduce or waive any fee if OTS determines that the fee would 
unduly or unjustifiably discourage particular types of applications or 
applications for particular categories of transactions;

[[Page 12]]

    (c) Add a fee for a new type of application;
    (d) Increase a fee for an application that presents unusual or 
particularly complex issues of law or policy or otherwise causes the 
agency to incur unusually high processing costs; or
    (e) Charge a fee to recover extraordinary expenses related to 
examination, investigation, regulation, or supervision of savings 
associations or their affiliates.



Sec. 502.65  When is an application fee due?

    (a) You must pay the application fee when you file an application. 
OTS will not process your application if you do not include the required 
fee.
    (b) If OTS cannot complete its review of your application because 
the application is materially deficient and it refuses to accept your 
application for processing, you must pay a new application fee upon 
filing a revised application.
    (c) If a transaction involves multiple applications, you must pay 
the appropriate fee for each application, unless OTS specifies otherwise 
by Thrift Bulletin.



Sec. 502.70  How must I pay an application fee?

    You must pay an application fee to the Office of Thrift Supervision. 
You must include a statement of the fee and how you calculated the fee.



Sec. 502.75  What if I do not pay my fees on time?

    (a) Interest. An examination or investigation fee is delinquent if 
OTS does not receive the fee within 30 days of the date specified in a 
bill. The Director will charge interest on a delinquent examination or 
investigation fee. Interest will accrue at a rate (that OTS will 
determine quarterly) equal to 150 percent of the average of the bond-
equivalent rates of 13-week Treasury bills auctioned during the 
preceding calendar quarter.
    (b) Failure to pay. If you are a savings association and your 
holding company, affiliate, or subsidiary fails to pay any fee within 60 
days of the date specified in a bill, the Director may assess and 
collect that fee, with interest, from you. If the holding company, 
affiliate, or subsidiary is related to more than one savings 
association, the Director may assess the fee against and collect it from 
each savings association as the Director may prescribe.

[63 FR 65670, Nov. 30, 1998, as amended at 69 FR 30571, May 28 1, 2004]



PART 503_PRIVACY ACT--Table of Contents




Sec.
503.1 Scope and procedures.
503.2 Exemptions of records containing investigatory material compiled 
          for law enforcement purposes.

    Authority: 5 U.S.C. 552a; 12 U.S.C. 1462a, 1463, 1464.

    Cross Reference: See 31 CFR part 1, subpart C.



Sec. 503.1  Scope and procedures.

    (a) In general. The Privacy Act regulations of the Department of the 
Treasury, 31 CFR part 1, subpart C, apply to the Office as a component 
part of the Department of the Treasury. This part 503 sets forth, for 
the Office, specific notification and access procedures with respect to 
particular systems of records, and identifies the officials designated 
to make the initial determinations with respect to notification and 
access to records and accountings of disclosures of records. This part 
503 also sets forth the specific procedures for requesting amendment of 
records and identifies the officials designated to make the initial and 
appellate determinations with respect to requests for amendment of 
records. It identifies the officials designated to grant extensions of 
time on appeal, the officials with whom ``Statements of Disagreement'' 
may be filed, the official designated to receive service of process and 
the addresses for delivery of requests, appeals, and service of process. 
In addition, it references the notice of systems of records and notices 
of the routine uses of the information in the system required by 5 
U.S.C. 552a(e) (4) and (11) and published annually by the Office of the 
Federal Register in ``Privacy Act Issuances.''
    (b) Requests for notification and access to records and accountings 
of disclosures. Initial determinations under 31 CFR

[[Page 13]]

1.26, whether to grant requests for notification and access to records 
and accountings of disclosures for the Office, will be made by the head 
of the organizational unit having immediate custody of the records 
requested or an official designated by this official. This is indicated 
in the appropriate system notice in ``Privacy Act Issuances'' published 
annually by the Office of the Federal Register. Requests for information 
and specific guidance on where to send requests for records may be 
mailed or delivered personally to: Privacy Act Request, Manager, 
Dissemination Branch, Information Management & Services Division, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
    (c) Requests for amendment of records. Initial determinations under 
31 CFR 1.27(a) through (d), whether to grant requests to amend records 
will be made by the head of the organizational unit having immediate 
custody of the records or the delegate of such official. Requests for 
amendment should be addressed to: Privacy Act Amendment Request, 
Manager, Dissemination Branch, Information Management & Services 
Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.
    (d) Administrative appeal of initial determinations refusing 
amendment of records. Appellate determinations refusing amendment of 
records under 31 CFR 1.27(e) including extensions of time on appeal, 
with respect to records of the Office will be made by the Director of 
the Office of Thrift Supervision (``Director'') or Chief Counsel or the 
delegate of the Director or Chief Counsel. Appeals made by mail should 
be addressed to, or delivered personally to: Privacy Act Amendment 
Appeal, Deputy Chief Counsel for General Law, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.
    (e) Statements of disagreement. ``Statements of Disagreement'' under 
31 CFR 1.27(e)(4)(i) shall be filed with the Deputy Director for 
Washington Operations at the address indicated in the letter of 
notification within 35 days of the date of such notification and should 
be limited to one page.
    (f) Service of process. Service of process will be received by the 
Chief Counsel's Office or the delegate of such official and shall be 
delivered to the following location: Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
    (g) Annual notice of systems of records. The annual notice of 
systems of records is published by the Office of the Federal Register, 
as specified in 5 U.S.C. 552a(f). The publication is entitled ``Privacy 
Act Issuance.'' Any specific requirements for access, including 
identification requirements, in addition to the requirements set forth 
in 31 CFR 1.26 and 1.27 are indicated in the notice for the pertinent 
system.

[54 FR 49443, Nov. 30, 1989, as amended at 59 FR 18475, Apr. 19, 1994; 
64 FR 69184, Dec. 10, 1999]



Sec. 503.2  Exemptions of records containing investigatory material 
compiled for law enforcement purposes.

    (a) Scope. The Office has established a system of records, entitled 
the ``Confidential Individual Information System.'' The purpose of this 
system is to assist the Office in the accomplishment of its statutory 
and regulatory responsibilities in connection with supervision of 
savings associations. This system will be exempt from certain provisions 
of the Privacy Act of 1974 for the reasons set forth in paragraph (c) of 
this section.
    (b) Exemptions Under 5 U.S.C. 552a(k)(2). (1) Pursuant to 5 U.S.C. 
552a(k)(2), the head of an agency may issue rules to exempt any system 
of records within the agency from certain provisions of the Privacy Act 
of 1974 if the system contains investigatory material compiled for law 
enforcement purposes.
    (2) Provisions of the Privacy Act of 1974 from which exemptions will 
be made under 5 U.S.C. 552a(k)(2) are as follows:
    (i) 5 U.S.C. 552a(c)(3);
    (ii) 5 U.S.C. 552a(d)(1), (d)(2), (d)(3), and (d)(4);
    (iii) 5 U.S.C. 552a(e)(1);
    (iv) 5 U.S.C. 552a(e)(4)(G), (e)(4)(H), and (e)(4)(I); and
    (v) 5 U.S.C. 552a(f).
    (c) Reasons for exemptions under 5 U.S.C. 552a(k)(2). (1) 5 U.S.C. 
552a(c)(3) requires that an agency make accountings of disclosures of 
records available

[[Page 14]]

to individuals named in the records at their request. These accountings 
must state the date, nature, and purpose of each disclosure of a record 
and the name and address of the recipient. The application of this 
provision would make known to subjects of an investigation that an 
investigation is taking place and that they are the subjects of it. 
Release of such information could result in the alteration or 
destruction of documentary evidence, improper influencing of witnesses, 
and reluctance of witnesses to offer information, and could otherwise 
impede or compromise an investigation.
    (2) 5 U.S.C. 552a(d)(1), (d)(2), (d)(3), and (d)(4), (e)(4)(G) and 
(e)(4)(H), and (f), relate to an individual's right to be notified of 
the existence of, and the right to examine, records pertaining to such 
individual. Notifying an individual at the individual's request of the 
existence of records and allowing the individual to examine an 
investigative file pertaining to such individual, or granting access to 
an investigative file, could:
    (i) Interfere with investigations and enforcement proceedings;
    (ii) Constitute an unwarranted invasion of the personal privacy of 
others;
    (iii) Disclose the identity of confidential sources and reveal 
confidential information supplied by those sources; or
    (iv) Disclose investigative techniques and procedures.
    (3) 5 U.S.C. 552a(e)(4)(I) requires the publication of the 
categories of sources of records in each system. Application of this 
provision could disclose investigative techniques and procedures and 
cause sources to refrain from giving such information because of fear of 
reprisal, or fear of breach of promises of anonymity and 
confidentiality, thus compromising the agency's ability to conduct 
investigations and to identify, detect, and apprehend violators.
    (4) 5 U.S.C. 552a(e)(1) requires each agency to maintain in its 
records only information about an individual that is relevant and 
necessary to accomplish a purpose of the agency required by statute or 
Executive Order. Limiting the system as described would impede 
enforcement activities because:
    (i) It is not always possible to determine the relevance or 
necessity of specific information in the early stages of an 
investigation; and
    (ii) In any investigation the Office may obtain information 
concerning violations of laws other than those within the scope of its 
jurisdiction. In the interest of effective law enforcement, the Office 
should retain this information to aid in establishing patterns of 
criminal activity, and to provide leads for those law enforcement 
agencies charged with enforcing criminal or civil laws.
    (d) Documents exempted. Exemptions will be applied only when 
appropriate under 5 U.S.C. 552a(k).

[55 FR 31371, Aug. 2, 1990]



PART 505_FREEDOM OF INFORMATION ACT--Table of Contents




Sec.
505.1 Basis and scope.
505.2 Public Reading Room.
505.3 Requests for records.
505.4 Administrative appeal of initial determination to deny records.
505.5 Delivery of process.

    Authority: 5 U.S.C. 552; 12 U.S.C. 1462a, 1463, 1464.

    Cross Reference: See 31 CFR part 1, subpart A.



Sec. 505.1  Basis and scope.

    (a) This part is issued by the Office of Thrift Supervision 
(``OTS'') as a supplement to the Freedom of Information Act regulations 
of the Department of the Treasury, 31 CFR part 1, subpart A, which apply 
to the OTS as a component part of the Department of the Treasury.
    (b) This part is issued by the OTS pursuant to the requirement of 
section 552 of title 5 of the United States Code, which requires every 
federal agency to publish in the Federal Register the established places 
at which, the employees from whom, and the methods whereby, the public 
may obtain information, make submittals on requests, or obtain 
decisions, and the forms available or the places at which forms and 
instructions as to the scope and contents of all papers, reports, or 
examinations may be found. Information about the Public Reading Room is 
set forth in Sec. 505.2 of this part. Procedures for requests for 
records are set forth in

[[Page 15]]

Sec. 505.3 of this part. Information about administrative appeals is 
set forth in Sec. 505.4 of this part. Provisions relating to delivery 
of process upon the OTS are set forth in Sec. 505.5 of this part.

[54 FR 49444, Nov. 30, 1989, as amended at 60 FR 66716, Dec. 26, 1995; 
66 FR 65819, Dec. 21, 2001]



Sec. 505.2  Public Reading Room.

    OTS will make materials available for review on an ad hoc basis when 
necessary. Contact the FOIA Office, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552, or you may visit the Public Reading 
Room at 1700 G Street, NW., by appointment only. (Please identify the 
materials you would like to inspect, to assist us in serving you.) We 
schedule appointments on business days between 10 a.m. and 4 p.m. In 
most cases, appointments will be available the next business day 
following the date we receive your request.

[66 FR 65819, Dec. 21, 2001, as amended at 67 FR 78151, Dec. 23, 2002]



Sec. 505.3  Requests for records.

    A designated official will make the initial determination under 31 
CFR 1.5(g) whether to grant a request for OTS records. Requests may be 
mailed to: Freedom of Information Act Request, FOIA Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, or marked 
``FOIA'' and delivered in person to the FOIA Office, 1700 G Street, NW., 
Washington, DC 20552. Requests may also be sent by e-mail or facsimile 
to the e-mail address and facsimile number in Sec. 505.2 of this part.

[67 FR 78151, Dec. 23, 2002]



Sec. 505.4  Administrative appeal of initial determination to 
deny records.

    A designated official will make appellate determinations under 31 
CFR 1.5(h) with respect to OTS records. Appeals by mail should be 
addressed to: FOIA Appeals, 1700 G Street, NW., Washington, DC 20552. 
Appeals may be delivered personally to FOIA Appeals, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552. Appeals may also 
be sent by e-mail or facsimile to the e-mail address and facsimile 
number in Sec. 505.2 of this part.

[67 FR 78151, Dec. 23, 2002]



Sec. 505.5  Delivery of process.

    Service of process will be received as set forth in Sec. 510.4 of 
this chapter.

[54 FR 49444, Nov. 30, 1989]



PART 506_INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK 
REDUCTION ACT--Table of Contents




    Authority: 44 U.S.C. 3501 et seq.



Sec. 506.1  OMB control numbers assigned pursuant to the Paperwork
Reduction Act.

    (a) Purpose. This part collects and displays the control numbers 
assigned to information collection requirements contained in regulations 
of the Office of Thrift Supervision by the Office of Management and 
Budget (OMB) pursuant to the Paperwork Reduction Act of 1995, Pub. L. 
104-13, 109 Stat. 163, and is adopted in compliance with the 
requirements of 5 CFR 1320.8. Information collection requirements that 
are not mandated by statute must be assigned control numbers by OMB in 
order to be enforceable. Respondents/recordkeepers are not required to 
comply with any collection of information unless it displays a currently 
valid OMB control number.
    (b) Display.

------------------------------------------------------------------------
  12 CFR part or section where identified
               and described                   Current OMB control No.
------------------------------------------------------------------------
502.70....................................  1550-0053.
510.......................................  1550-0081.
Part 516..................................  1550-0056.
Part 528..................................  1550-0021.
533.4.....................................  1550-0105.
533.6.....................................  1550-0105.
533.7.....................................  1550-0105.
536.40....................................  1550-0106.
543.2.....................................  1550-0005.
543.3.....................................  1550-0005
543.9.....................................  1550-0007.
544.2.....................................  1550-0018.
544.5.....................................  1550-0018.
544.8.....................................  1550-0011.
545.93 and 545.95.........................  1500-0006.
545.96(c).................................  1550-0011.
546.2.....................................  1550-0016.
546.4.....................................  1550-0066.
Part 550..................................  1550-0037.
Part 551..................................  1550-0109.
551.50....................................  1550-0109.
551.70 through 551.100....................  1550-0109.
551.140...................................  1550-0109.

[[Page 16]]

 
551.150...................................  1550-0109.
552.2-1...................................  1550-0005.
552.2-6...................................  1550-0007.
552.4.....................................  1550-0017.
552.5.....................................  1550-0018.
552.11....................................  1550-0011.
552.13....................................  1550-0016, 1550-0025.
555.300...................................  1550-0095.
555.310...................................  1550-0095.
557.20....................................  1550-0092.
559.3.....................................  1550-0077.
559.11....................................  1550-0077.
559.12....................................  1550-0013.
559.13....................................  1550-0065.
560.1.....................................  1550-0078.
560.2.....................................  1550-0078.
560.32....................................  1550-0078.
560.35....................................  1550-0078.
560.93(f).................................  1550-0078.
560.101...................................  1550-0078.
560.170(c)................................  1550-0078.
560.172...................................  1550-0078.
560.210...................................  1550-0078.
562.1.....................................  1550-0011.
562.1(b)..................................  1550-0078.
562.4.....................................  1550-0011.
563.1(b)..................................  1550-0011.
563.3.....................................  1550-0027.
563.22....................................  1550-0016, 1550-0025.
563.41(c)(3) and (4)......................  1550-0078
563.43....................................  1550-0075.
563.47(e).................................  1550-0011.
563.74....................................  1550-0050.
563.76(c).................................  1550-0011.
563.81....................................  1550-0030.
563.143 through 563.146...................  1550-0059.
563.170...................................  1550-0078.
563.177...................................  1550-0041.
563.180...................................  1550-0084.
563.180(d)................................  1550-0003.
563.180(e)................................  1550-0079.
Part 563b.................................  1550-0014.
Part 563d.................................  1550-0019.
Part 563e.................................  1550-0012.
Part 563f.................................  1550-0051.
Part 563g.................................  1550-0035.
Part 564..................................  1550-0078.
Part 568..................................  1550-0062.
572.6.....................................  1550-0088.
572.7.....................................  1550-0088.
572.9.....................................  1550-0088.
572.10....................................  1550-0088.
Part 573..................................  1550-0103.
574.3(b)..................................  1550-0032.
574.4.....................................  1550-0032.
574.5.....................................  1550-0032.
574.6.....................................  1550-0015.
Part 575..................................  1550-0072.
584.1(f)..................................  1550-0011.
584.2-1...................................  1550-0063.
584.2-2...................................  1550-0063.
584.9.....................................  1550-0063.
590.4(h)..................................  1550-0078.
------------------------------------------------------------------------


[60 FR 66716, Dec. 26, 1995, as amended by 61 FR 65178, Dec. 11, 1996; 
62 FR 54764, Oct. 22, 1997; 62 FR 66261, Dec. 18, 1997; 63 FR 71211, 
Dec. 24, 1998; 65 FR 78901, Dec. 18, 2000; 66 FR 15017, Mar. 15, 2001; 
66 FR 65819, Dec. 21, 2001; 67 FR 76298, Dec. 12, 2002; 67 FR 77916, 
Dec. 20, 2002; 67 FR 78151, Dec. 23, 2002; 68 FR 75109, Dec. 30, 2003; 
69 FR 68246, Nov. 24, 2004; 69 FR 76602, Dec. 22, 2004]



PART 507_RESTRICTIONS ON POST-EMPLOYMENT ACTIVITIES OF SENIOR 
EXAMINERS--Table of Contents




Sec.
507.1 What does this part do?
507.2 Who is a senior examiner?
507.3 What post-employment restrictions apply to senior examiners?
507.4 When will OTS waive the post-employment restrictions?
507.5 What are the penalties for violating the post-employment 
          restrictions?

    Authority: 12 U.S.C. 1462a, 1463 and 1820(k).

    Source: 70 FR 69640, Nov. 17, 2005, unless otherwise noted.



Sec. 507.1  What does this part do?

    This part implements section 10(k) of the Federal Deposit Insurance 
Act (FDIA), which prohibits senior examiners from accepting compensation 
from certain companies following the termination of their employment. 
See 12 U.S.C. 1820(k). Except where otherwise provided, the terms used 
in this part have the meanings given in section 3 of the FDIA (12 U.S.C. 
1813).



Sec. 507.2  Who is a senior examiner?

    An individual is a senior examiner for a particular savings 
association or savings and loan holding company if--
    (a) The individual is an officer or employee of OTS (including a 
special government employee) who has been authorized by OTS to conduct 
examinations or inspections of savings associations or savings and loan 
holding companies;
    (b) The individual has been assigned continuing, broad and lead 
responsibility for the examination or inspection of that savings 
association or savings and loan holding company; and
    (c) The individual's responsibilities for examining, inspecting, or 
supervising that savings association or savings and loan holding 
company:

[[Page 17]]

    (1) Represent a substantial portion of the individual's assigned 
responsibilities at OTS; and
    (2) Require the individual to interact on a routine basis with 
officers and employees of the savings association, savings and loan 
holding company, or its affiliates.



Sec. 507.3  What post-employment restrictions apply to senior examiners?

    (a) Prohibition. (1) Senior examiner of savings association. An 
individual who serves as a senior examiner of a savings association for 
two or more of the last 12 months of his or her employment with OTS may 
not, within one year after the termination date of his or her employment 
with OTS, knowingly accept compensation as an employee, officer, 
director, or consultant from--
    (i) The savings association; or
    (ii) A savings and loan holding company, bank holding company, or 
any other company that controls the savings association.
    (2) Senior examiner of a savings and loan holding company. An 
individual who serves as a senior examiner of a savings and loan holding 
company for two or more of the last 12 months of his or her employment 
with OTS may not, within one year after the termination date of his or 
her employment with OTS, knowingly accept compensation as an employee, 
officer, director, or consultant from--
    (i) The savings and loan holding company; or
    (ii) Any depository institution that is controlled by the savings 
and loan holding company.
    (b) Effective date. The post-employment restrictions in paragraph 
(a) of this section do not apply to any senior examiner who terminated 
his employment at OTS before December 17, 2005.
    (c) Definitions. For the purposes of this section--
    (1) Consultant. An individual acts as a consultant for a savings 
association or other company only if he or she directly works on matters 
for, or on behalf of, the savings association or company.
    (2) Control. Control has the same meaning given in part 574 of this 
chapter.



Sec. 507.4  When will OTS waive the post-employment restrictions?

    The post-employment restriction in Sec. 507.3 of this part will not 
apply to a senior examiner if the Director certifies in writing and on a 
case-by-case basis that a waiver of the restriction will not affect the 
integrity of OTS's supervisory program.



Sec. 507.5  What are the penalties for violating the post-employment
restrictions?

    (a) Penalties. A senior examiner who violates Sec. 507.3 shall, in 
accordance with 12 U.S.C. 1820(k)(6), be subject to one or both of the 
following penalties:
    (1) An order--
    (i) Removing the person from office or prohibiting the person from 
further participating in the conduct of the affairs of the relevant 
depository institution, savings and loan holding company, bank holding 
company or other company for up to five years, and
    (ii) Prohibiting the person from participating in the affairs of any 
insured depository institution for up to five years.
    (2) A civil money penalty not to exceed $250,000.
    (b) Scope of prohibition orders. Any senior examiner who is subject 
to an order issued under paragraph (a)(1) of this section shall be 
subject to 12 U.S. C. 1818(e)(6) and (7) in the same manner and to the 
same extent as a person subject to an order issued under 12 U.S.C. 
1818(e).
    (c) Procedures. 12 U.S.C. 1820(k) describes the procedures that are 
applicable to actions under paragraph (a) of this section and the 
appropriate Federal banking agency authorized to take the action, which 
may be an agency other than OTS. Where OTS is the appropriate Federal 
banking agency, it will conduct administrative proceedings under 12 CFR 
part 509.
    (d) Other penalties. The penalties under this section are not 
exclusive. A senior examiner who violates the restriction in Sec. 507.3 
may also be subject to other administrative, civil, or criminal remedy 
or penalty as provided by law.

[[Page 18]]



PART 508_REMOVALS, SUSPENSIONS, AND PROHIBITIONS WHERE A CRIME IS 
CHARGED OR PROVEN--Table of Contents




Sec.
508.1 Scope.
508.2 Definitions.
508.3 Issuance of Notice or Order.
508.4 Contents and service of the Notice or Order.
508.5 Petition for hearing.
508.6 Initiation of hearing.
508.7 Conduct of hearings.
508.8 Default.
508.9 Rules of evidence.
508.10 Burden of persuasion.
508.11 Relevant considerations.
508.12 Proposed findings and conclusions and recommended decision.
508.13 Decision of the Office.
508.14 Miscellaneous.

    Authority: 12 U.S.C. 1464, 1818.

    Source: 54 FR 49444, Nov. 30, 1989, unless otherwise noted.



Sec. 508.1  Scope.

    The rules in this part apply to hearings, which are exempt from the 
adjudicative provisions of the Administrative Procedure Act, afforded to 
any officer, director, or other person participating in the conduct of 
the affairs of a savings association, affiliate service corporation, 
savings and loan holding company, or subsidiary of such a holding 
company, where such person has been suspended or removed from office or 
prohibited from further participation in the conduct of the affairs of 
one of the aforementioned entities by a Notice or Order served by the 
Office upon the grounds set forth in section 8(g) of the Federal Deposit 
Insurance Act, (12 U.S.C. 1818(g)).



Sec. 508.2  Definitions.

    As used in this part--
    (a) The term Office means the Office of Thrift Supervision.
    (b) The term Secretary means the Secretary to the Office and any 
Assistant or Acting Secretary to the Office.
    (c) The term Notice means a Notice of Suspension or Notice of 
Prohibition issued by the Office pursuant to section 8(g) of the Federal 
Deposit Insurance Act.
    (d) The term Order means an Order of Removal or Order of Prohibition 
issued by the Office pursuant to section 8(g) of the Federal Deposit 
Insurance Act.
    (e) The term association means a savings association within the 
meaning of section 2(4) of the Home Owners' Loan Act of 1933, as 
amended, 12 U.S.C. 1462(4) (``HOLA''), an affiliate service corporation 
within the meaning of section 8(b)(8) of the Federal Deposit Insurance 
Act, as amended, 12 U.S.C. 1818(b)(8) (``FDIA''), a savings and loan 
holding company within the meaning of section 10(a)(1)(D) of the HOLA, 
12 U.S.C. 1467a(a)(1)(D) and a subsidiary of a savings and loan holding 
company (other than a savings association) within the meaning of section 
10(a)(1)(G) of the Home Owners' Loan Act of 1933.
    (f) The term subject individual means a person served with a Notice 
or Order.
    (g) The term petitioner means a subject individual who has filed a 
petition for informal hearing under this part.



Sec. 508.3  Issuance of Notice or Order.

    (a) The Office may issue and serve a Notice upon an officer, 
director, or other person participating in the conduct of the affairs of 
an association, where the individual is charged in any information, 
indictment, or complaint with the commission of or participation in a 
crime involving dishonesty or breach of trust that is punishable by 
imprisonment for a term exceeding one year under State or Federal law, 
if the Office, upon due deliberation, determines that continued service 
or participation by the individual may pose a threat to the interests of 
the association's depositors or may threaten to impair public confidence 
in the association. The Notice shall remain in effect until the 
information, indictment, or complaint is finally disposed of or until 
terminated by the Office.
    (b) The Office may issue and serve an Order upon a subject 
individual against whom a judgment of conviction, or an agreement to 
enter a pretrial diversion or other similar program has been rendered, 
where such judgment is not subject to further appellate review, and the 
Office, upon the deliberation, has determined that continued service or 
participation by the subject individual may pose a threat to the 
interests of the association's depositors or may

[[Page 19]]

threaten to impair public confidence in the association.



Sec. 508.4  Contents and service of the Notice or Order.

    (a) The Notice or Order shall set forth the basis and facts in 
support of the Office's issuance of such Notice or Order, and shall 
inform the subject individual of his right to a hearing, in accordance 
with this part, for the purpose of determining whether the Notice or 
Order should be continued, terminated, or otherwise modified.
    (b) The Secretary shall serve a copy of the Notice or Order upon the 
subject individual and the related association in the manner set forth 
in Sec. 509.11 of this chapter.
    (c) Upon receipt of the Notice or Order, the subject individual 
shall immediately comply with the requirements thereof.

[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]



Sec. 508.5  Petition for hearing.

    (a) To obtain a hearing, the subject individual must file two copies 
of a petition with the Secretary within 30 days of being served with the 
Notice or Order.
    (b) The petition filed under this section shall admit or deny 
specifically each allegation in the Notice or Order, unless the 
petitioner is without knowledge or information, in which case the 
petition shall so state and the statement shall have the effect of a 
denial. Any allegation not denied shall be deemed to be admitted. When a 
petitioner intends in good faith to deny only a part of or to qualify an 
allegation, he shall specify so much of it as is true and shall deny 
only the remainder.
    (c) The petition shall state whether the petitioner is requesting 
termination or modification of the Notice or Order, and shall state with 
particularity how the petitioner intends to show that his continued 
service to or participation in the conduct of the affairs of the 
association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or to impair public confidence 
in the association.



Sec. 508.6  Initiation of hearing.

    (a) Within 10 days of the filing of a petition for hearing, the 
Office shall notify the petitioner of the time and place fixed for 
hearing, and it shall designate one or more Office employees to serve as 
presiding officer.
    (b) The hearing shall be scheduled to be held no later than 30 days 
from the date the petition was filed, unless the time is extended at the 
request of the petitioner.
    (c) A petitioner may appear personally or through counsel, but if 
represented by counsel, said counsel is required to comply with Sec. 
509.6 of this chapter.
    (d) A representative(s) of the Office's Office of Enforcement also 
may attend the hearing and participate therein as a party.

[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]



Sec. 508.7  Conduct of hearings.

    (a) Hearings provided by this section are not subject to the 
adjudicative provisions of the Administrative Procedure Act (5 U.S.C. 
554-557). The presiding officer is, however, authorized to exercise all 
of the powers enumerated in Sec. 509.5 of this chapter.
    (b) Witnesses may be presented, within time limits specified by the 
presiding officer, provided that at least 10 days prior to the hearing 
date, the party presenting the witnesses furnishes the presiding officer 
and the opposing party with a list of such witnesses and a summary of 
the proposed testimony. However, the requirement for furnishing such a 
witness list and summary of testimony shall not apply to the 
presentation of rebuttal witnesses. The presiding officer may ask 
questions of any witness, and each party shall have an opportunity to 
cross-examine any witness presented by an opposing party.
    (c) Upon the request of either the petitioner or a representative of 
the Office of Enforcement, the record shall remain open for a period of 
5 business days following the hearing, during which time the parties may 
make any additional submissions for the record. Thereafter, the record 
shall be closed.

[[Page 20]]

    (d) Following the introduction of all evidence, the petitioner and 
the representative of the Office of Enforcement shall have an 
opportunity for oral argument; however, the parties may jointly waive 
the right to oral argument, and, in lieu thereof, elect to submit 
written argument.
    (e) All oral testimony and oral argument shall be recorded, and 
transcripts made available to the petitioner upon payment of the cost 
thereof. A copy of the transcript shall be sent directly to the 
presiding officer, who shall have authority to correct the record sua 
sponte or upon the motion of any party.
    (f) The parties may, in writing, jointly waive an oral hearing and 
instead elect a hearing upon a written record in which all evidence and 
argument would be submitted to the presiding officer in documentary form 
and statements of individuals would be made by affidavit.

[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]



Sec. 508.8  Default.

    If the subject individual fails to file a petition for a hearing, or 
fails to appear at a hearing, either in person or by attorney, or fails 
to submit a written argument where oral argument has been waived 
pursuant to Sec. 508.7(d) or (f) of this part, the Notice shall remain 
in effect until the information, indictment, or complaint is finally 
disposed of and the Order shall remain in effect until terminated by the 
Office.



Sec. 508.9  Rules of evidence.

    (a) Formal rules of evidence shall not apply to a hearing, but the 
presiding officer may limit the introduction of irrelevant, immaterial, 
or unduly repetitious evidence.
    (b) All matters officially noticed by the presiding officer shall 
appear on the record.



Sec. 508.10  Burden of persuasion.

    The petitioner has the burden of showing, by a preponderance of the 
evidence, that his or her continued service to or participation in the 
conduct of the affairs of the association does not, or is not likely to, 
pose a threat to the interests of the association's depositors or 
threaten to impair public confidence in the association.



Sec. 508.11  Relevant considerations.

    (a) In determining whether the petitioner has shown that his or her 
continued service to or participation in the conduct of the affairs of 
the association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or threaten to impair public 
confidence in the association, in order to decide whether the Notice or 
Order should be continued, terminated, or otherwise modified, the Office 
will consider:
    (1) The nature and extent of the petitioner's participation in the 
affairs of the association;
    (2) The nature of the offense with which the petitioner has been 
charged;
    (3) The extent of the publicity accorded the indictment and trial; 
and
    (4) Such other relevant factors as may be entered on the record.
    (b) When considering a request for the termination or modification 
of a Notice, the Office will not consider the ultimate guilt or 
innocence of the petitioner with respect to the criminal charge that is 
outstanding.
    (c) When considering a request for the termination or modification 
of an Order which has been issued following a final judgment of 
conviction against a subject individual, the Office will not 
collaterally review such final judgment of conviction.



Sec. 508.12  Proposed findings and conclusions and recommended decision.

    (a) Within 30 days after completion of oral argument or the 
submission of written argument where oral argument has been waived, the 
presiding officer shall file with the Secretary and certify to the 
Office for decision the entire record of the hearing, which shall 
include a recommended decision, the Notice or Order, and all other 
documents filed in connection with the hearing.
    (b) The recommended decision shall contain:
    (1) A statement of the issue(s) presented,
    (2) A statement of findings and conclusions, and the reasons or 
basis therefor, on all material issues of fact,

[[Page 21]]

law, or discretion presented on the record, and
    (3) An appropriate recommendation as to whether the suspension, 
removal, or prohibition should be continued, modified, or terminated.



Sec. 508.13  Decision of the Office.

    (a) Within 30 days after the recommended decision has been certified 
to the Office, the Office shall issue a final decision.
    (b) The Office's final decision shall contain a statement of the 
basis therefor. The Office may satisfy this requirement where it adopts 
the recommended decision of the presiding officer upon finding that the 
recommended decision satisfies the requirements of Sec. 509.38 of this 
chapter.
    (c) The Secretary shall serve upon the petitioner and the 
representative of the Office of Enforcement a copy of the Office's final 
decision and the related recommended decision.

[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991; 
59 FR 53570, Oct. 25, 1994]



Sec. 508.14  Miscellaneous.

    The provisions of Sec. Sec. 509.10, 509.11, and 509.12 of this 
chapter shall apply to proceedings under this part.

[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]



PART 509_RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY PROCEEDINGS--
Table of Contents




            Subpart A_Uniform Rules of Practice and Procedure

Sec.
509.1 Scope.
509.2 Rules of construction.
509.3 Definitions.
509.4 Authority of Director.
509.5 Authority of the administrative law judge.
509.6 Appearance and practice in adjudicatory proceedings.
509.7 Good faith certification.
509.8 Conflicts of interest.
509.9 Ex parte communications.
509.10 Filing of papers.
509.11 Service of papers.
509.12 Construction of time limits.
509.13 Change of time limits.
509.14 Witness fees and expenses.
509.15 Opportunity for informal settlement.
509.16 Office's right to conduct examination.
509.17 Collateral attacks on adjudicatory proceeding.
509.18 Commencement of proceeding and contents of notice.
509.19 Answer.
509.20 Amended pleadings.
509.21 Failure to appear.
509.22 Consolidation and severance of actions.
509.23 Motions.
509.24 Scope of document discovery.
509.25 Request for document discovery from parties.
509.26 Document subpoenas to nonparties.
509.27 Deposition of witness unavailable for hearing.
509.28 Interlocutory review.
509.29 Summary disposition.
509.30 Partial summary disposition.
509.31 Scheduling and prehearing conferences.
509.32 Prehearing submissions.
509.33 Public hearings.
509.34 Hearing subpoenas.
509.35 Conduct of hearings.
509.36 Evidence.
509.37 Post-hearing filings.
509.38 Recommended decision and filing of record.
509.39 Exceptions to recommended decision.
509.40 Review by the Director.
509.41 Stays pending judicial review.

                          Subpart B_Local Rules

509.100 Scope.
509.101 Appointment of Office of Financial Institution Adjudication.
509.102 Discovery.
509.103 Civil money penalties.
509.104 Additional procedures.

                         Subpart C_Special Rules

509.200 Scope.
509.201 Definitions.
509.202 Commencement of proceedings and contents of notice.
509.203 Answer, consequences of failure to answer, and consent.
509.204 Hearing Procedure.

          Subpart D_Exemptions under Section 19(e) of the FDIA

509.300 Scope.
509.301 Hearing procedures.

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a, 1468, 
1817(j), 1818, 1820(k), 1829(e), 3349, 4717; 15 U.S.C. 78(l), 78o-5, 
78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.

    Source: 56 FR 38306, Aug. 12, 1991, unless otherwise noted.

[[Page 22]]



            Subpart A_Uniform Rules of Practice and Procedure



Sec. 509.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure 
applicable to adjudicatory proceedings as to which hearings on the 
record are provided for by the following statutory provisions:
    (a) Cease-and-desist proceedings under section 8(b) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1818(b));
    (b) Removal and prohibition proceedings under section 8(e) of the 
FDIA (12 U.S.C. 1818(e));
    (c) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) to determine whether the Office should issue an 
order to approve or disapprove a person's proposed acquisition of an 
institution and/or institution holding company;
    (d) Proceedings under section 15C(c)(2) of the Securities Exchange 
Act of 1934 (Exchange Act) (15 U.S.C. 78o-5), to impose sanctions upon 
any government securities broker or dealer or upon any person associated 
or seeking to become associated with a government securities broker or 
dealer for which the Office is the appropriate Office;
    (e) Assessment of civil money penalties by the Office against 
institutions, institution-affiliated parties, and certain other persons 
for which it is the appropriate Office for any violation of:
    (1) Section 5 of the Home Owners' Loan Act (HOLA) or any regulation 
or order issued thereunder, pursuant to 12 U.S.C. 1464 (d), (s) and (v);
    (2) Section 9 of the HOLA or any regulation or order issued 
thereunder, pursuant to 12 U.S.C. 1467(d);
    (3) Section 10 of the HOLA, pursuant to 12 U.S.C. 1467a (i) and (r);
    (4) Any provisions of the Change in Bank Control Act, any regulation 
or order issued thereunder or certain unsafe or unsound practices or 
breaches of fiduciary duty, pursuant to 12 U.S.C. 1817(j)(16);
    (5) Sections 22(h) and 23 of the Federal Reserve Act, or any 
regulation issued thereunder or certain unsafe or unsound practices or 
breaches of fiduciary duty, pursuant to 12 U.S.C. 1468;
    (6) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (7) Section 1120 of Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (12 U.S.C. 3349), or any order or regulation 
issued thereunder;
    (8) The terms of any final or temporary order issued or enforceable 
pursuant to section 8 of the FDIA or of any written agreement executed 
by the Office, the terms of any conditions imposed in writing by the 
Office in connection with the grant of an application or request, 
certain unsafe or unsound practices or breaches of fiduciary duty, or 
any law or regulation not otherwise provided herein pursuant to 12 
U.S.C. 1818(i)(2);
    (9) Any provision of law referenced in section 102 of the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or 
regulation issued thereunder; and
    (10) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (f) Remedial action under section 102 of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g));
    (g) Proceedings under section 10(k) of the FDIA (12 U.S.C. 1820(k)) 
to impose penalties on senior examiners for violation of post-employment 
prohibitions; and
    (h) This subpart also applies to all other adjudications required by 
statute to be determined on the record after opportunity for an agency 
hearing, unless otherwise specifically provided for in the Local Rules.
    (i) Subpart D of this part governs hearings on denials of 
applications for case-by-case exemptions under 12 CFR part 585, which 
implements section 19(e) of the FDIA.

[56 FR 38306, Aug. 12, 1991, as amended at 56 FR 59866, Nov. 26, 1991; 
61 FR 20353, May 6, 1996; 70 FR 69641, Nov. 17, 2005; 72 FR 25955, May 
8, 2007]



Sec. 509.2  Rules of construction.

    For purposes of this subpart:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;

[[Page 23]]

    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate;
    (c) The term counsel includes a non-attorney representative; and
    (d) Unless the context requires otherwise, a party's counsel of 
record, if any, may, on behalf of that party, take any action required 
to be taken by the party.



Sec. 509.3  Definitions.

    For purposes of this subpart, unless explicitly stated to the 
contrary:
    (a) Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    (b) Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules and leading to the formulation of a final order other than a 
regulation.
    (c) Decisional employee means any member of the Office's or 
administrative law judge's staff who has not engaged in an investigative 
or prosecutorial role in a proceeding and who may assist the Office or 
the administrative law judge, respectively, in preparing orders, 
recommended decisions, decisions, and other documents under the Uniform 
Rules.
    (d) Director means the Director of the Office of Thrift Supervision 
or his or her designee.
    (e) Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the Office in an adjudicatory 
proceeding.
    (f) Final order means an order issued by the Office with or without 
the consent of the affected institution or the institution-affiliated 
party, that has become final, without regard to the pendency of any 
petition for reconsideration or review.
    (g) Institution includes any savings association as that term is 
defined in section 3(b) of the FDIA (12 U.S.C. 1813(b)), any savings and 
loan holding company or any subsidiary thereof whether wholly or partly 
owned (other than a bank) as those terms are defined in section 10(a) of 
the HOLA (12 U.S.C. 1467(a)).
    (h) Institution-affiliated party means any institution-affiliated 
party as that term is defined in section 3(u) of the FDIA (12 U.S.C. 
1813(u)).
    (i) Local Rules means those rules found in subpart B of this part.
    (j) Office means the Office of Thrift Supervision in the case of any 
savings association or any savings and loan holding company, and 
subsidiary (other than a bank or subsidiary of that bank) of a savings 
and loan holding company, any service corporation of a savings 
association, and any subsidiary of such service corporation, whether 
wholly or partly owned.
    (k) Office of Financial Institution Adjudication (OFIA) means the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the Office of the Comptroller 
of the Currency, the Board of Governors of the Federal Reserve Board, 
the Federal Deposit Insurance Corporation, the National Credit Union 
Administration and the Office.
    (l) Party means the Office and any person named as a party in any 
notice.
    (m) Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency or other entity or organization, including an 
institution as defined in paragraph (g) of this section.
    (n) Respondent means any party other than the Office.
    (o) Uniform Rules means those rules in subpart A of this part.
    (p) Violation includes any action (alone or with another or others) 
for or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.



Sec. 509.4  Authority of Director.

    The Director may, at any time during the pendency of a proceeding 
perform, direct the performance of, or waive performance of, any act 
which could be done or ordered by the administrative law judge.



Sec. 509.5  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in accordance with the provisions of chapter 5 of title 5 of 
the United States Code. The administrative law judge

[[Page 24]]

shall have all powers necessary to conduct a proceeding in a fair and 
impartial manner and to avoid unnecessary delay.
    (b) Powers. The administrative law judge shall have all powers 
necessary to conduct the proceeding in accordance with paragraph (a) of 
this section, including the following powers:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas and orders;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken as authorized by this 
subpart;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold scheduling and/or pre-hearing conferences as set forth 
in Sec. 509.31 of this subpart;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the 
Director shall have the power to grant any motion to dismiss the 
proceeding or to decide any other motion that results in a final 
determination of the merits of the proceeding;
    (8) To prepare and present to the Director a recommended decision as 
provided herein;
    (9) To recuse himself or herself by motion made by a party or on his 
or her own motion;
    (10) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (11) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.



Sec. 509.6  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before an Office or an administrative law judge--(1) 
By attorneys. Any member in good standing of the bar of the highest 
court of any state, commonwealth, possession, territory of the United 
States, or the District of Columbia may represent others before the 
Office if such attorney is not currently suspended or debarred from 
practice before the Office.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf; a member of a partnership may represent the partnership; a duly 
authorized officer, director, or employee of any government unit, 
agency, institution, corporation or authority may represent that unit, 
agency, institution, corporation or authority if such officer, director, 
or employee is not currently suspended or debarred from practice before 
the Office.
    (3) Notice of appearance. Any individual acting as counsel on behalf 
of a party, including the Director, shall file a notice of appearance 
with OFIA at or before the time that individual submits papers or 
otherwise appears on behalf of a party in the adjudicatory proceeding. 
The notice of appearance must include a written declaration that the 
individual is currently qualified as provided in paragraph (a)(1) or 
(a)(2) of this section and is authorized to represent the particular 
party. By filing a notice of appearance on behalf of a party in an 
adjudicatory proceeding, the counsel agrees and represents that he or 
she is authorized to accept service on behalf of the represented party 
and that, in the event of withdrawal from representation, he or she 
will, if required by the administrative law judge, continue to accept 
service until new counsel has filed a notice of appearance or until the 
represented party indicates that he or she will proceed on a pro se 
basis.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudicatory proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]



Sec. 509.7  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice shall be signed by at least one 
counsel of record in his or her individual name and shall state that 
counsel's address and telephone number. A party who acts as his or her

[[Page 25]]

own counsel shall sign his or her individual name and state his or her 
address and telephone number on every filing or submission of record.
    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read the 
filing or submission of record; to the best of his or her knowledge, 
information, and belief formed after reasonable inquiry, the filing or 
submission of record is well-grounded in fact and is warranted by 
existing law or a good faith argument for the extension, modification, 
or reversal of existing law; and the filing or submission of record is 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
administrative law judge shall strike the filing or submission of 
record, unless it is signed promptly after the omission is called to the 
attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, and 
belief formed after reasonable inquiry, his or her statements are well-
grounded in fact and are warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and are not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.



Sec. 509.8  Conflicts of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudicatory proceeding if it 
reasonably appears that such representation may be materially limited by 
that counsel's responsibilities to a third person or by the counsel's 
own interests. The administrative law judge may take corrective measures 
at any stage of a proceeding to cure a conflict of interest in 
representation, including the issuance of an order limiting the scope of 
representation or disqualifying an individual from appearing in a 
representative capacity for the duration of the proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudicatory proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec. 509.6(a):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-party; 
and
    (2) That each such party and non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]



Sec. 509.9  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding that was neither on the record nor on reasonable prior notice 
to all parties that takes place between:
    (i) An interested person outside the Office (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, the 
Director, or a decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the notice 
is issued by the Director until the date that the Director issues the 
final decision pursuant to Sec. 509.40(c) of this subpart:
    (1) No interested person outside the Office shall make or knowingly 
cause to be made an ex parte communication to the Director, the 
administrative law judge, or a decisional employee; and
    (2) The Director, administrative law judge, or decisional employee 
shall not make or knowingly cause to be made to any interested person 
outside the Office any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte

[[Page 26]]

communication is received by the administrative law judge, the Director 
or other person identified in paragraph (a) of this section, that person 
shall cause all such written communications (or, if the communication is 
oral, a memorandum stating the substance of the communication) to be 
placed on the record of the proceeding and served on all parties. All 
other parties to the proceeding shall have an opportunity, within ten 
days of receipt of service of the ex parte communication to file 
responses thereto and to recommend any sanctions, in accordance with 
paragraph (d) of this section, that they believe to be appropriate under 
the circumstances.
    (d) Sanctions. Any party or his or her counsel who makes a 
prohibited ex parte communication, or who encourages or solicits another 
to make any such communication, may be subject to any appropriate 
sanction or sanctions imposed by the Director or the administrative law 
judge including, but not limited to, exclusion from the proceedings and 
an adverse ruling on the issue which is the subject of the prohibited 
communication.
    (e) Separation-of-functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the administrative 
law judge may not consult a person or party on any matter relevant to 
the merits of the adjudication, unless on notice and opportunity for all 
parties to participate. An employee or agent engaged in the performance 
of investigative or prosecuting functions for the Office in a case may 
not, in that or a factually related case, participate or advise in the 
decision, recommended decision, or agency review of the recommended 
decision under Sec. 509.40 of this subpart, except as witness or 
counsel in public proceedings.

[56 FR 38306, Aug. 12, 1991, as amended at 60 FR 28035, May 30, 1995]



Sec. 509.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Sec. Sec. 
509.25 and 509.26 of this subpart, shall be filed with the OFIA, except 
as otherwise provided.
    (b) Manner of filing. Unless otherwise specified by the Director or 
the administrative law judge, filing may be accomplished by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if expressly authorized, 
and upon any conditions specified, by the Director or the administrative 
law judge. All papers filed by electronic media shall also concurrently 
be filed in accordance with paragraph (c) of this section as to form.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
filed must set forth the name, address, and telephone number of the 
counsel or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\x11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 509.7 of this subpart.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the Office and of the filing party, the 
title and docket number of the proceeding, and the subject of the 
particular paper.
    (4) Number of copies. Unless otherwise specified by the Director, or 
the administrative law judge, an original and one copy of all documents 
and papers shall be filed, except that only one copy of transcripts of 
testimony and exhibits shall be filed.



Sec. 509.11  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers shall serve a copy upon the counsel of record for all other 
parties to the proceeding so represented, and upon any party not so 
represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:

[[Page 27]]

    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 509.10(c) of this 
subpart as to form.
    (c) By the Director or the administrative law judge. (1) All papers 
required to be served by the Director or the administrative law judge 
upon a party who has appeared in the proceeding through a counsel of 
record, shall be served by any means specified in paragraph (b) of this 
section.
    (2) If a party has not appeared in the proceeding in accordance with 
Sec. 509.6 of this subpart, the Director or the administrative law 
judge shall make service by any of the following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) By delivery to an agent, which in the case of a corporation or 
other association, is delivery to an officer, managing or general agent, 
or to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual notice.
    (e) Area of service. Service in any state, territory, possession of 
the United States, or the District of Columbia, on any person or company 
doing business in any state, territory, possession of the United States, 
or the District of Columbia, or on any person as otherwise provided by 
law, is effective without regard to the place where the hearing is held, 
provided that if service is made on a foreign bank in connection with an 
action or proceeding involving one or more of its branches or agencies 
located in any state, territory, possession of the United States, or the 
District of Columbia, service shall be made on at least one branch or 
agency so involved.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]



Sec. 509.12  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
subpart, the date of the act or event that commences the designated 
period of time is not included. The last day so computed is included 
unless it is a Saturday, Sunday, or Federal holiday. When the last day 
is a Saturday, Sunday, or Federal holiday, the period runs until the end 
of the next day that is not a Saturday, Sunday, or Federal holiday. 
Intermediate Saturdays, Sundays, and Federal holidays are included in 
the computation of time. However, when the time period within which an 
act is to be performed is ten days or less, not including any additional 
time allowed for in paragraph (c) of this section, intermediate 
Saturdays, Sundays, and Federal holidays are not included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective:
    (i) In the case of personal service or same day commercial courier 
delivery, upon actual service;

[[Page 28]]

    (ii) In the case of overnight commercial delivery service, U.S. 
Express mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection; or
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing, and as 
agreed among the parties, in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Director or administrative 
law judge in the case of filing or by agreement of the parties in the 
case of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic media transmission, add one 
calendar day to the prescribed period, unless otherwise determined by 
the Director or the administrative law judge in the case of filing, or 
by agreement among the parties in the case of service.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]



Sec. 509.13  Change of time limits.

    Except as otherwise provided by law, the administrative law judge 
may, for good cause shown, extend the time limits prescribed by the 
Uniform Rules or any notice or order issued in the proceedings. After 
the referral of the case to the Director pursuant to Sec. 509.38 of 
this subpart, the Director may grant extensions of the time limits for 
good cause shown. Extensions may be granted at the motion of a party or 
on the Director's or the administrative law judge's own motion after 
notice and opportunity to respond is afforded all non-moving parties.



Sec. 509.14  Witness fees and expenses.

    Witnesses subpoenaed for testimony or deposition shall be paid the 
same fees for attendance and mileage as are paid in the United States 
district courts in proceedings in which the United States is a party, 
provided that, in the case of a discovery subpoena addressed to a party, 
no witness fees or mileage need be paid. Fees for witnesses shall be 
tendered in advance by the party requesting the subpoena, except that 
fees and mileage need not be tendered in advance where the Office is the 
party requesting the subpoena. The Office shall not be required to pay 
any fees to, or expenses of, any witness not subpoenaed by the Office.



Sec. 509.15  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to Enforcement Counsel written offers or proposals for settlement 
of a proceeding, without prejudice to the rights of any of the parties. 
No such offer or proposal shall be made to any Office representative 
other than Enforcement Counsel. Submission of a written settlement offer 
does not provide a basis for adjourning or otherwise delaying all or any 
portion of a proceeding under this part. No settlement offer or 
proposal, or any subsequent negotiation or resolution, is admissible as 
evidence in any proceeding.



Sec. 509.16  Office's right to conduct examination.

    Nothing contained in this subpart limits in any manner the right of 
the Office to conduct any examination, inspection, or visitation of any 
institution or institution-affiliated party, or the right of the Office 
to conduct or continue any form of investigation authorized by law.



Sec. 509.17  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court concerning all or any part of an adjudicatory proceeding, the 
challenged adjudicatory proceeding shall continue without regard to the 
pendency of that court proceeding. No default or other

[[Page 29]]

failure to act as directed in the adjudicatory proceeding within the 
times prescribed in this subpart shall be excused based on the pendency 
before any court of any interlocutory appeal or collateral attack.



Sec. 509.18  Commencement of proceeding and contents of notice.

    (a) Commencement of proceeding. (1)(i) Except for change-in-control 
proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), a 
proceeding governed by this subpart is commenced by issuance of a notice 
by the Director.
    (ii) The notice must be served by the Director upon the respondent 
and given to any other appropriate financial institution supervisory 
authority where required by law.
    (iii) The notice must be filed with the OFIA.
    (2) Change-in control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the 
Director.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the Office's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the 
Office is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time, place, and nature of the hearing as required by law or 
regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) The time within which to request a hearing as required by law or 
regulation; and
    (7) The answer and/or request for a hearing shall be filed with 
OFIA.



Sec. 509.19  Answer.

    (a) When. Within 20 days of service of the notice, respondent shall 
file an answer as designated in the notice. In a civil money penalty 
proceeding, respondent shall also file a request for a hearing within 20 
days of service of the notice.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has the 
effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice which is not denied in the answer must be deemed admitted for 
purposes of the proceeding. A respondent is not required to respond to 
the portion of a notice that constitutes the prayer for relief or 
proposed order. The answer must set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default--(1) Effect of failure to answer. Failure of a 
respondent to file an answer required by this section within the time 
provided constitutes a waiver of his or her right to appear and contest 
the allegations in the notice. If no timely answer is filed, Enforcement 
Counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the failure to file a 
timely answer, the administrative law judge shall file with the Director 
a recommended decision containing the findings and the relief sought in 
the notice. Any final order issued by the Director based upon a 
respondent's failure to answer is deemed to be an order issued upon 
consent.
    (2) Effect of failure to request a hearing in civil money penalty 
proceedings. If respondent fails to request a hearing as required by law 
within the time provided, the notice of assessment constitutes a final 
and unappealable order.

[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 78901, Dec. 18, 2000]



Sec. 509.20  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended notice, 
whichever period is longer, unless the Director or administrative law 
judge orders otherwise for good cause.

[[Page 30]]

    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
administrative law judge may admit the evidence when admission is likely 
to assist in adjudicating the merits of the action and the objecting 
party fails to satisfy the administrative law judge that the admission 
of such evidence would unfairly prejudice that party's action or defense 
upon the merits. The administrative law judge may grant a continuance to 
enable the objecting party to meet such evidence.

[61 FR 20354, May 6, 1996]



Sec. 509.21  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized counsel constitutes a waiver of respondent's right to a 
hearing and is deemed an admission of the facts as alleged and consent 
to the relief sought in the notice. Without further proceedings or 
notice to the respondent, the administrative law judge shall file with 
the Director a recommended decision containing the findings and the 
relief sought in the notice.



Sec. 509.22  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the 
administrative law judge's own motion, the administrative law judge may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule must be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The administrative law judge may, upon the motion of 
any party, sever the proceeding for separate resolution of the matter as 
to any respondent only if the administrative law judge finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.



Sec. 509.23  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the administrative law judge. Written memoranda, 
briefs, affidavits or other relevant material or documents may be filed 
in support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally on the record unless 
the administrative law judge directs that such motion be reduced to 
writing.
    (c) Filing of motions. Motions must be filed with the administrative 
law judge, but upon the filing of the recommended decision, motions must 
be filed with the Director.
    (d) Responses. (1) Except as otherwise provided herein, within ten 
days after service of any written motion, or within such other period of 
time as may be established by the administrative law judge or the 
Director, any party may file a written response to a motion. The 
administrative law judge shall not rule on any oral or written motion 
before each party has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.

[[Page 31]]

    (e) Dilatory motions. Frivolous, dilatory or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Sec. Sec. 509.29 and 509.30 of this subpart.



Sec. 509.24  Scope of document discovery.

    (a) Limits on discovery. (1) Subject to the limitations set out in 
paragraphs (b), (c), and (d) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained, or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (2) Discovery by use of deposition is governed by Sec. 509.102 of 
this part.
    (3) Discovery by use of interrogatories is not permitted.
    (b) Relevance. A party may obtain document discovery regarding any 
matter, not privileged, that has material relevance to the merits of the 
pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec. 509.25 of 
this subpart.
    (c) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative-process 
privilege, and any other privileges the Constitution, any applicable act 
of Congress, or the principles of common law provide.
    (d) Time limits. All discovery, including all responses to discovery 
requests, shall be completed at least 20 days prior to the date 
scheduled for the commencement of the hearing, except as provided in the 
Local Rules. No exceptions to this time limit shall be permitted, unless 
the administrative law judge finds on the record that good cause exists 
for waiving the requirements of this paragraph.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]



Sec. 509.25  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. The request must identify the documents to be produced either by 
individual item or by category, and must describe each item and category 
with reasonable particularity. Documents must be produced as they are 
kept in the usual course of business or must be organized to correspond 
with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place, and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests 250 pages or 
more of copying, the requesting party shall pay for the copying and 
shipping charges. Copying charges are the current per-page copying rate 
imposed under 12 CFR 502.7 for requests under the Freedom of Information 
Act (5 U.S.C. 552). The party to whom the request is addressed may 
require payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery

[[Page 32]]

request with a response that was complete when made is not required to 
supplement the response to include documents thereafter acquired, unless 
the responding party learns that:
    (1) The response was materially incorrect when made; or
    (2) The response, though correct when made, is no longer true and a 
failure to amend the response is, in substance, a knowing concealment.
    (d) Motions to limit discovery. (1) Any party that objects to a 
discovery request may, within ten days of being served with such 
request, file a motion in accordance with the provisions of Sec. 509.23 
of this subpart to revoke or otherwise limit the request. If an 
objection is made to only a portion of an item or category in a request, 
the portion objected to shall be specified. Any objections not made in 
accordance with this paragraph and Sec. 509.23 of this subpart are 
waived.
    (2) The party who served the request that is the subject of a motion 
to revoke or limit may file a written response within five days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, the 
producing party must reasonably identify all documents withheld on the 
grounds of privilege and must produce a statement of the basis for the 
assertion of privilege. When similar documents that are protected by 
deliberative process, attorney-work-product, or attorney-client 
privilege are voluminous, these documents may be identified by category 
instead of by individual document. The administrative law judge retains 
discretion to determine when the identification by category is 
insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 509.23 of this subpart for the issuance of a subpoena compelling 
production.
    (2) The party who asserted the privilege or failed to comply with 
the request may file a written response to a motion to compel within 
five days of service of the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses pursuant 
to this section has expired, the administrative law judge shall rule 
promptly on all motions filed pursuant to this section. If the 
administrative law judge determines that a discovery request, or any of 
its terms, calls for irrelevant material, is unreasonable, oppressive, 
excessive in scope, unduly burdensome, or repetitive of previous 
requests, or seeks to obtain privileged documents, he or she may deny or 
modify the request, and may issue appropriate protective orders, upon 
such conditions as justice may require. The pendency of a motion to 
strike or limit discovery or to compel production is not a basis for 
staying or continuing the proceeding, unless otherwise ordered by the 
administrative law judge. Notwithstanding any other provision in this 
part, the administrative law judge may not release, or order a party to 
produce, documents withheld on grounds of privilege if the party has 
stated to the administrative law judge its intention to file a timely 
motion for interlocutory review of the administrative law judge's order 
to produce the documents, and until the motion for interlocutory review 
has been decided.
    (h) Enforcing discovery subpoenas. If the administrative law judge 
issues a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the administrative law 
judge against a party who fails to produce subpoenaed documents.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]



Sec. 509.26  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the administrative law 
judge

[[Page 33]]

for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for making production in response to the document subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 509.24(d) of this subpart. The party 
obtaining the document subpoena is responsible for serving it on the 
subpoenaed person and for serving copies on all parties. Document 
subpoenas may be served in any state, territory, or possession of the 
United States, the District of Columbia, or as otherwise provided by 
law.
    (3) The administrative law judge shall promptly issue any document 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon such conditions as may be consistent with the Uniform Rules.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties, and any 
party may respond to such motion within ten days of service of the 
motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 509.25(d) of this 
subpart, and during the same time limits during which such an objection 
could be filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with so much of the document subpoena as the administrative 
law judge has not quashed or modified. A party's right to seek court 
enforcement of a document subpoena shall in no way limit the sanctions 
that may be imposed by the administrative law judge on a party who 
induces a failure to comply with subpoenas issued under this section.



Sec. 509.27  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party may apply in accordance with the procedures set forth 
in paragraph (a)(2) of this section, to the administrative law judge for 
the issuance of a subpoena, including a subpoena duces tecum, requiring 
the attendance of the witness at a deposition. The administrative law 
judge may issue a deposition subpoena under this section upon showing 
that:
    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness or infirmity, or will 
otherwise be unavailable;
    (ii) The witness' unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed at any place within the 
country in which that witness resides or has a regular place of 
employment or such other convenient

[[Page 34]]

place as the administrative law judge shall fix.
    (3) Any requested subpoena that sets forth a valid basis for its 
issuance must be promptly issued, unless the administrative law judge on 
his or her own motion, requires a written response or requires 
attendance at a conference concerning whether the requested subpoena 
should be issued.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the administrative law judge orders otherwise, no deposition under this 
section shall be taken on fewer than ten days' notice to the witness and 
all parties. Deposition subpoenas may be served in any state, territory, 
possession of the United States, or the District of Columbia, on any 
person or company doing business in any state, territory, possession of 
the United States, or the District of Columbia, or as otherwise 
permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion with the administrative law 
judge to quash or modify the subpoena prior to the time for compliance 
specified in the subpoena, but not more than ten days after service of 
the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The motion 
must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn, and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for the objection might have been avoided if the objection had 
been timely presented. All questions, answers, and objections must be 
recorded.
    (2) Any party may move before the administrative law judge for an 
order compelling the witness to answer any questions the witness has 
refused to answer or submit any evidence the witness has refused to 
submit during the deposition.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any order of the administrative law judge which directs compliance with 
all or any portion of a deposition subpoena under paragraph (b) or 
(c)(2) of this section, the subpoenaing party or other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with the 
portions of the subpoena that the administrative law judge has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
administrative law judge on a party who fails to comply with or procures 
a failure to comply with, a subpoena issued under this section.



Sec. 509.28  Interlocutory review.

    (a) General rule. The Director may review a ruling of the 
administrative law judge prior to the certification of the record to the 
Director only in accordance with the procedures set forth in this 
section and Sec. 509.23 of this subpart.
    (b) Scope of review. The Director may exercise interlocutory review 
of a ruling of the administrative law judge if the Director finds that:
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or

[[Page 35]]

    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any request for interlocutory review shall be filed 
by a party with the administrative law judge within ten days of his or 
her ruling and shall otherwise comply with Sec. 509.23 of this subpart. 
Any party may file a response to a request for interlocutory review in 
accordance with Sec. 509.23(d) of this subpart. Upon the expiration of 
the time for filing all responses, the administrative law judge shall 
refer the matter to the Director for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Director under this 
section suspends or stays the proceeding unless otherwise ordered by the 
administrative law judge or the Director.



Sec. 509.29  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Director issue a final order granting a motion for summary 
disposition if the undisputed pleaded facts, admissions, affidavits, 
stipulations, documentary evidence, matters as to which official notice 
may be taken, and any other evidentiary materials properly submitted in 
connection with a motion for summary disposition show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (b) Filing of motions and responses. (1) Any party who believes that 
there is no genuine issue of material fact to be determined and that he 
or she is entitled to a decision as a matter of law may move at any time 
for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such a motion, or 
within such time period as allowed by the administrative law judge, may 
file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may take the form of admissions in pleadings, 
stipulations, depositions, investigatory depositions, transcripts, 
affidavits and any other evidentiary materials that the moving party 
contends support his or her position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the moving party. Any party opposing a motion for 
summary disposition must file a statement setting forth those material 
facts as to which he or she contends a genuine dispute exists. Such 
opposition must be supported by evidence of the same type as that 
submitted with the motion for summary disposition and a brief containing 
the points and authorities in support of the contention that summary 
disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his or her 
own motion, the administrative law judge may hear oral argument on the 
motion for summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the administrative law judge 
shall determine whether the moving party is entitled to summary 
disposition. If the administrative law judge determines that summary 
disposition is warranted, the administrative law judge shall submit a 
recommended decision to that effect to the Director. If the 
administrative law judge finds that no party is entitled to summary 
disposition, he or she shall make a ruling denying the motion.



Sec. 509.30  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision as to those claims. A hearing on the 
remaining issues must be ordered. Those claims for which the 
administrative law judge has determined that summary disposition is 
warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.



Sec. 509.31  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order

[[Page 36]]

commencing a proceeding or such other time as parties may agree, the 
administrative law judge shall direct counsel for all parties to meet 
with him or her in person at a specified time and place prior to the 
hearing or to confer by telephone for the purpose of scheduling the 
course and conduct of the proceeding. This meeting or telephone 
conference is called a ``scheduling conference.'' The identification of 
potential witnesses, the time for and manner of discovery, and the 
exchange of any prehearing materials including witness lists, statements 
of issues, stipulations, exhibits and any other materials may also be 
determined at the scheduling conference.
    (b) Prehearing conferences. The administrative law judge may, in 
addition to the scheduling conference, on his or her own motion or at 
the request of any party, direct counsel for the parties to meet with 
him or her (in person or by telephone) at a prehearing conference to 
address any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact, and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The administrative law judge, in his or her 
discretion, may require that a scheduling or prehearing conference be 
recorded by a court reporter. A transcript of the conference and any 
materials filed, including orders, becomes part of the record of the 
proceeding. A party may obtain a copy of the transcript at its expense.
    (d) Scheduling or prehearing orders. At or within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the administrative law judge shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations made.

[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 78901, Dec. 18, 2000]



Sec. 509.32  Prehearing submissions.

    (a) Within the time set by the administrative law judge, but in no 
case later than 14 days before the start of the hearing, each party 
shall serve on every other party, his or her:
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 509.33  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Director, in the Director's discretion, determines that holding an 
open hearing would be contrary to the public interest. Within 20 days of 
service of the notice or, in the case of change-in-control proceedings 
under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), within 20 days 
from service of the hearing order, any respondent may file with the 
Director a request for a private hearing, and any party may file a reply 
to such a request. A party must serve on the administrative law judge a 
copy of any request or reply the party files with the Director. The form 
of, and procedure for, these requests and replies are governed by Sec. 
509.23 of this subpart. A party's failure to file a request or a reply 
constitutes a waiver of any objections regarding whether the hearing 
will be public or private.
    (b) Filing document under seal. Enforcement Counsel, in his or her 
discretion, may file any document or part of a document under seal if 
disclosure of the document would be contrary to the public interest. The 
administrative law

[[Page 37]]

judge shall take all appropriate steps to preserve the confidentiality 
of such documents or parts thereof, including closing portions of the 
hearing to the public.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]



Sec. 509.34  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other evidence 
sought, the administrative law judge may issue a subpoena or a subpoena 
duces tecum requiring the attendance of a witness at the hearing or the 
production of documentary or physical evidence at the hearing. The 
application for a hearing subpoena must also contain a proposed subpoena 
specifying the attendance of a witness or the production of evidence 
from any state, territory, or possession of the United States, the 
District of Columbia, or as otherwise provided by law at any designated 
place where the hearing is being conducted. The party making the 
application shall serve a copy of the application and the proposed 
subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of a hearing. During a hearing, a party may make an 
application for a subpoena orally on the record before the 
administrative law judge.
    (3) The administrative law judge shall promptly issue any hearing 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon any conditions consistent with this subpart. Upon issuance by 
the administrative law judge, the party making the application shall 
serve the subpoena on the person named in the subpoena and on each 
party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
the subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but not more 
than ten days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may seek enforcement of the subpoena pursuant to section 
Sec. 509.26(c) of this subpart.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]



Sec. 509.35  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted so as to provide 
a fair and expeditious presentation of the relevant disputed issues. 
Each party has the right to present its case or defense by oral and 
documentary evidence and to conduct such cross examination as may be 
required for full disclosure of the facts.
    (2) Order of hearing. Enforcement Counsel shall present its case-in-
chief first, unless otherwise ordered by the administrative law judge, 
or unless otherwise expressly specified by law or regulation. 
Enforcement Counsel shall be the first party to present an opening 
statement and a closing statement, and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order of 
presentation of their cases, but if they do not agree the administrative 
law judge shall fix the order.
    (3) Examination of witnesses. Only one counsel for each party may 
conduct an examination of a witness, except that in the case of 
extensive direct examination, the administrative law judge may permit 
more than one counsel for the party presenting the witness to

[[Page 38]]

conduct the examination. A party may have one counsel conduct the direct 
examination and another counsel conduct re-direct examination of a 
witness, or may have one counsel conduct the cross examination of a 
witness and another counsel conduct the re-cross examination of a 
witness.
    (4) Stipulations. Unless the administrative law judge directs 
otherwise, all stipulations of fact and law previously agreed upon by 
the parties, and all documents, the admissibility of which have been 
previously stipulated, will be admitted into evidence upon commencement 
of the hearing.
    (b) Transcript. The hearing must be recorded and transcribed. The 
reporter will make the transcript available to any party upon payment by 
that party to the reporter of the cost of the transcript. The 
administrative law judge may order the record corrected, either upon 
motion to correct, upon stipulation of the parties, or following notice 
to the parties upon the administrative law judge's own motion.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]



Sec. 509.36  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the APA and 
other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact which may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or state government agency.
    (2) All matters officially noticed by the administrative law judge 
or Director shall appear on the record.
    (3) If official notice is requested or taken of any material fact, 
the parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by the appropriate Office or state 
regulatory agency, is admissible either with or without a sponsoring 
witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the administrative law judge's discretion, be 
used with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear on the record.
    (2) When an objection to a question or line of questioning 
propounded to a witness is sustained, the examining counsel may make a 
specific proffer on the record of what he or she expected to prove by 
the expected testimony of the witness, either by representation of 
counsel or by direct interrogation of the witness.
    (3) The administrative law judge shall retain rejected exhibits, 
adequately marked for identification, for the record, and transmit such 
exhibits to the Director.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing, and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify

[[Page 39]]

at a hearing, and that witness has testified in a deposition to which 
all parties in a proceeding had notice and an opportunity to 
participate, a party may offer as evidence all or any part of the 
transcript of the deposition, including deposition exhibits, if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the administrative law judge may, on that basis, 
limit the admissibility of the deposition in any manner that justice 
requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.



Sec. 509.37  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the administrative law 
judge shall serve notice upon each party, that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the administrative law judge proposed findings of fact, 
proposed conclusions of law, and a proposed order within 30 days 
following service of this notice by the administrative law judge or 
within such longer period as may be ordered by the administrative law 
judge.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document. Any party who fails to file timely with the 
administrative law judge any proposed finding or conclusion is deemed to 
have waived the right to raise in any subsequent filing or submission 
any issue not addressed in such party's proposed finding or conclusion.
    (b) Reply briefs. Reply briefs may be filed within 15 days after the 
date on which the parties' proposed findings, conclusions, and order are 
due. Reply briefs must be strictly limited to responding to new matters, 
issues, or arguments raised in another party's papers. A party who has 
not filed proposed findings of fact and conclusions of law or a post-
hearing brief may not file a reply brief.
    (c) Simultaneous filing required. The administrative law judge shall 
not order the filing by any party of any brief or reply brief in advance 
of the other party's filing of its brief.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]



Sec. 509.38  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under Sec. 
509.37(b) of this subpart, the administrative law judge shall file with 
and certify to the Director, for decision, the record of the proceeding. 
The record must include the administrative law judge's recommended 
decision, recommended findings of fact, recommended conclusions of law, 
and proposed order; all prehearing and hearing transcripts, exhibits, 
and rulings; and the motions, briefs, memoranda, and other supporting 
papers filed in connection with the hearing. The administrative law 
judge shall serve upon each party the recommended decision, findings, 
conclusions, and proposed order.
    (b) Filing of index. At the same time the administrative law judge 
files with and certifies to the Director for final determination the 
record of the proceeding, the administrative law judge shall furnish to 
the Director a certified index of the entire record of the proceeding. 
The certified index shall include, at a minimum, an entry for each 
paper, document or motion filed with the administrative law judge in the 
proceeding, the date of the filing, and the identity of the filer. The 
certified index shall also include an exhibit index containing, at a 
minimum, an entry consisting of exhibit number and title or description 
for: Each exhibit introduced and admitted into evidence at the hearing; 
each exhibit introduced but not admitted into evidence at the hearing; 
each exhibit introduced and admitted into evidence after the completion 
of the hearing; and each exhibit

[[Page 40]]

introduced but not admitted into evidence after the completion of the 
hearing.

[61 FR 20356, May 6, 1996]



Sec. 509.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec. 509.38 of this subpart, a party may file with the Director written 
exceptions to the administrative law judge's recommended decision, 
findings, conclusions or proposed order, to the admission or exclusion 
of evidence, or to the failure of the administrative law judge to make a 
ruling proposed by a party. A supporting brief may be filed at the time 
the exceptions are filed, either as part of the same document or in a 
separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Director if the party 
taking exception had an opportunity to raise the same objection, issue, 
or argument before the administrative law judge and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in, or omissions 
from, the administrative law judge's recommendations to which that party 
takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
administrative law judge's recommendations to which exception is taken, 
the page or paragraph references to those portions of the record relied 
upon to support each exception, and the legal authority relied upon to 
support each exception.



Sec. 509.40  Review by the Director.

    (a) Notice of submission to the Director. When the Director 
determines that the record in the proceeding is complete, the Director 
shall serve notice upon the parties that the proceeding has been 
submitted to the Director for final decision.
    (b) Oral argument before the Director. Upon the initiative of the 
Director or on the written request of any party filed with the Director 
within the time for filing exceptions, the Director may order and hear 
oral argument on the recommended findings, conclusions, decision, and 
order of the administrative law judge. A written request by a party must 
show good cause for oral argument and state reasons why arguments cannot 
be presented adequately in writing. A denial of a request for oral 
argument may be set forth in the Director's final decision. Oral 
argument before the Director must be on the record.
    (c) Director's final decision. (1) Decisional employees may advise 
and assist the Director in the consideration and disposition of the 
case. The final decision of the Director will be based upon review of 
the entire record of the proceeding, except that the director may limit 
the issues to be reviewed to those findings and conclusions to which 
opposing arguments or exceptions have been filed by the parties.
    (2) The Director shall render a final decision within 90 days after 
notification of the parties that the case has been submitted for final 
decision, or 90 days after oral argument, whichever is later, unless the 
Director orders that the action or any aspect thereof be remanded to the 
administrative law judge for further proceedings. Copies of the final 
decision and order of the Director shall be served upon each party to 
the proceeding, upon other persons required by statute, and, if directed 
by the Director or required by statute, upon any appropriate state or 
Federal supervisory authority.



Sec. 509.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the Office may not, unless specifically ordered by 
the Director or a reviewing court, operate as a stay of any order issued 
by the Director. The Director may, in its discretion, and on such terms 
as it finds just, stay the effectiveness of all or any part of its order 
pending a final decision on a petition for review of the order.

[[Page 41]]



                          Subpart B_Local Rules



Sec. 509.100  Scope.

    The rules and procedures in this subpart B shall apply to those 
proceedings covered by subpart A of this part. In addition, subpart A of 
this part and this subpart shall apply to adjudicatory proceedings for 
which hearings on the record are provided for by the following statutory 
provisions:
    (a) Proceedings under section 10(a)(2)(D) of the HOLA (12 U.S.C. 
1467a(a)(2)(D)) to determine whether any person directly or indirectly 
exercises a controlling influence over the management or policies of a 
savings association or any other company, except to the extent the 
Director exercises his or her discretion to commence a proceeding of the 
kind identified in subpart C of this part;
    (b) Proceedings under section 10(g)(5)(A) of the HOLA (12 U.S.C. 
1467a(g)(5)(A)) to determine whether to terminate certain activities by 
savings and loan holding companies or to terminate ownership or control 
of a non-insured savings and loan holding company subsidiary; and
    (c) Proceedings under section 15(c)(4) of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78o(c)(4)) (Exchange Act) to determine 
whether any association or person subject to the jurisdiction of the 
Office pursuant to section 12(i) of the Exchange Act (15 U.S.C. 78l(i)) 
has failed to comply with the provisions of sections 12, 13, 14(a), 
14(c), 14(d) or 14(f) of the Exchange Act.

[56 FR 38306, Aug. 12, 1991, as amended at 70 FR 10023, Mar. 2, 2005]



Sec. 509.101  Appointment of Office of Financial Institution Adjudication.

    Unless otherwise directed by the Office, all hearings under subpart 
A of this part and this subpart shall be conducted by administrative law 
judges under the direction of the Office of Financial Institution 
Adjudication, 1700 G Street NW., Washington, DC 20552.



Sec. 509.102  Discovery.

    (a) In general. A party may take the deposition of an expert, or of 
a person, including another party, who has direct knowledge of matters 
that are non-privileged, relevant and material to the proceeding and 
where there is a need for the deposition. The deposition of experts 
shall be limited to those experts who are expected to testify at the 
hearing.
    (b) Notice. A party desiring to take a deposition shall give 
reasonable notice in writing to the deponent and to every other party to 
the proceeding. The notice must state the time and place for taking the 
deposition and the name and address of the person to be deposed.
    (c) Time limits. A party may take depositions at any time after the 
commencement of the proceeding, but no later than ten days before the 
scheduled hearing date, except with permission of the administrative law 
judge for good cause shown.
    (d) Conduct of the deposition. The witness must be duly sworn, and 
each party shall have the right to examine the witness with respect to 
all non-privileged, relevant and material matters of which the witness 
has factual, direct and personal knowledge. Objections to questions or 
exhibits shall be in short form, stating the grounds for objection. 
Failure to object to questions or exhibits is not a waiver except where 
the grounds for the objection might have been avoided if the objection 
had been timely presented. The court reporter shall transcribe or 
otherwise record the witness's testimony, as agreed among the parties.
    (e) Protective orders. At any time after notice of a deposition has 
been given, a party may file a motion for the issuance of a protective 
order. Such protective order may prohibit, terminate, or limit the scope 
or manner of the taking of a deposition. The administrative law judge 
shall grant such protective order upon a showing of sufficient grounds, 
including that the deposition:
    (1) Is unreasonable, oppressive, excessive in scope, or unduly 
burdensome;
    (2) Involves privileged, investigative, trial preparation, 
irrelevant or immaterial matters; or
    (3) Is being conducted in bad faith or in such manner as to 
unreasonably annoy, embarrass, or oppress the deponent.

[[Page 42]]

    (f) Fees. Deposition witnesses, including expert witnesses, shall be 
paid the same expenses in the same manner as are paid witnesses in the 
district courts of the United States in proceedings in which the United 
States Government is a party. Expenses in accordance with this paragraph 
shall be paid by the party seeking to take the deposition.
    (g) Deposition subpoenas--(1) Issuance. At the request of a party, 
the administrative law judge shall issue a subpoena requiring the 
attendance of a witness at a deposition. The attendance of a witness may 
be required from any place in any state or territory that is subject to 
the jurisdiction of the United States or as otherwise permitted by law.
    (2) Service. The party requesting the subpoena must serve it on the 
person named therein or upon that person's counsel, by any of the 
methods identified in Sec. 509.11(d) of this part. The party serving 
the subpoena must file proof of service with the administrative law 
judge.
    (3) Motion to quash. A person named in the subpoena or a party may 
file a motion to quash or modify the subpoena. A statement of the 
reasons for the motion must accompany it and a copy of the motion must 
be served on the party that requested the subpoena. The motion must be 
made prior to the time for compliance specified in the subpoena and not 
more than ten days after the date of service of the subpoena, or if the 
subpoena is served within 15 days of the hearing, within five days after 
the date of service.
    (4) Enforcement of deposition subpoena. Enforcement of a deposition 
subpoena shall be in accordance with the procedures of Sec. 509.27(d) 
of this part.

[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]



Sec. 509.103  Civil money penalties.

    (a) Assessment. In the event of consent, or if upon the record 
developed at the hearing the Office finds that any of the grounds 
specified in the notice issued pursuant to Sec. 509.18 of this part 
have been established, the Office may serve an order of assessment of 
civil money penalty upon the party concerned. The assessment order shall 
be effective immediately upon service or upon such other date as may be 
specified therein and shall remain effective and enforceable until it is 
stayed, modified, terminated, or set aside by the Office or by a 
reviewing court.
    (b) Payment. (1) Civil penalties assessed pursuant to subpart A of 
this part and this subpart B are payable and to be collected within 60 
days after the issuance of the notice of assessment, unless the Office 
fixes a different time for payment where it determines that the purpose 
of the civil money penalty would be better served thereby; however, if a 
party has made a timely request for a hearing to challenge the 
assessment of the penalty, the party may not be required to pay such 
penalty until the Office has issued a final order of assessment 
following the hearing. In such instances, the penalty shall be paid 
within 60 days of service of such order unless the Office fixes a 
different time for payment. Notwithstanding the foregoing, the Office 
may seek to attach the party's assets or to have a receiver appointed to 
secure payment of the potential civil money penalty or other obligation 
in advance of the hearing in accordance with section 8(i)(4) of the FDIA 
(12 U.S.C. 1818(i)(4)).
    (2) Checks in payment of civil penalties shall be made payable to 
the Treasurer of the United States and sent to the Controller's Division 
of the Office. Upon receipt, the Office shall forward the check to the 
Treasury of the United States.
    (c) Inflation adjustment. Under the Federal Civil Monetary Penalties 
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), OTS must adjust 
for inflation the civil money penalties in statutes that it administers. 
The following chart displays the adjusted civil money penalties. The 
amounts in this chart apply to violations that occur after October 27, 
2008:

------------------------------------------------------------------------
    U.S. Code citation          CMP description       New maximum amount
------------------------------------------------------------------------
12 U.S.C. 1464(v)(4).....  Reports of Condition--    $2,200
                            1st Tier.
12 U.S.C. 1464(v)(5).....  Reports of Condition--    32,500
                            2nd Tier.
12 U.S.C. 1464(v)(6).....  Reports of Condition--    1,375,000
                            3rd Tier.
12 U.S.C. 1467(d)........  Refusal to Cooperate in   7,500
                            Exam.

[[Page 43]]

 
12 U.S.C. 1467a(i)(2)....  Holding Company Act       32,500
                            Violation.
12 U.S.C. 1467a(i)(3)....  Holding Company Act       32,500
                            Violation.
12 U.S.C. 1467a(r)(1)....  Late/Inaccurate Reports-- 2,200
                            1st Tier.
12 U.S.C. 1467a(r)(2)....  Late/Inaccurate Reports-- 32,500
                            2nd Tier.
12 U.S.C. 1467a(r)(3)....  Late/Inaccurate Reports-- 1,375,000
                            3rd Tier.
12 U.S.C. 1817(j)(16)(A).  Change in Control--1st    7,500
                            Tier.
12 U.S.C. 1817(j)(16)(B).  Change in Control--2nd    37,500
                            Tier.
12 U.S.C. 1817(j)(16)(C).  Change in Control--3rd    1,375,000
                            Tier.
12 U.S.C. 1818(i)(2)(A)..  Violation of Law or       7,500
                            Unsafe or Unsound
                            Practice--1st Tier.
12 U.S.C. 1818(i)(2)(B)..  Violation of Law or       37,500
                            Unsafe or Unsound
                            Practice--2nd Tier.
12 U.S.C. 1818(i)(2)(C)..  Violation of Law or       1,375,000
                            Unsafe or Unsound
                            Practice--3rd Tier.
12 U.S.C.                  Violation of Post         275,000
 1820(k)(6)(A)(ii).         Employment Restrictions.
12 U.S.C. 1884...........  Violation of Security     110
                            Rules.
12 U.S.C. 3349(b)........  Appraisals Violation--    7,500
                            1st Tier.
12 U.S.C. 3349(b)........  Appraisals Violation--    37,500
                            2nd Tier.
12 U.S.C. 3349(b)........  Appraisals Violation--    1,375,000
                            3rd Tier.
42 U.S.C. 4012a(f).......  Flood Insurance.........  \1\ 385
                                                     \2\ 135,000
------------------------------------------------------------------------
\1\ Per day.
\2\ Per year.


[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 61262, Oct. 17, 2000; 
69 FR 64251, Nov. 4, 2004; 73 FR 63626, Oct. 27, 2008]



Sec. 509.104  Additional procedures.

    (a) Replies to exceptions. Replies to written exceptions to the 
administrative law judge's recommended decision, findings, conclusions 
or proposed order pursuant to Sec. 509.39 of this part shall be filed 
within 10 days of the date such written exceptions were required to be 
filed.
    (b) Motions. All motions shall be filed with the administrative law 
judge and an additional copy shall be filed with the Secretary to the 
Office, who receives adjudicatory filings, (``Secretary''); provided, 
however, that once the administrative law judge has certified the record 
to the Director pursuant to Sec. 509.38 of this part, all motions must 
be filed with the Director, to the attention of the Secretary, within 
the 10 day period following the filing of exceptions allowed for the 
filing of replies to exceptions. Responses to such motions filed in a 
timely manner with the Director, other than motions for oral argument 
before the Director, shall be allowed pursuant to the procedures at 
Sec. 509.23(d) of this part. No response is required for the Director 
to make a determination on a motion for oral argument.
    (c) Authority of administrative law judge. In addition to the powers 
listed in Sec. 509.5 of this part, the administrative law judge shall 
have the authority to deny any dispositive motion and shall follow the 
procedures set forth for motions for summary disposition at Sec. 509.29 
of this part and partial summary disposition at Sec. 509.30 of this 
part in making determinations on such motions.
    (d) Notification of submission of proceeding to the Director. Upon 
the expiration of the time for filing any exceptions, any replies to 
such exceptions or any motions and any ruling thereon, and after receipt 
of certified record, the Office shall notify the parties within ten days 
of the submission of the proceeding to the Director for final 
determination.
    (e) Extensions of time for final determination. The Director may, 
sua sponte, extend the time for final determination by signing an order 
of extension of time within the 90 day time period and notifying the 
parties of such extension thereafter.
    (f) Service upon the Office. Service of any document upon the Office 
shall be made by filing with the Secretary, in addition to the 
individuals and/or offices designated by the Office in its Notice issued 
pursuant to Sec. 509.18 of this part, or such other means reasonably 
suited to provide notice of the person and/or office designated to 
receive filings.
    (g) Filings with the Director. An additional copy of all materials 
required or permitted to be filed with or referred to the administrative 
law judge pursuant to subpart A and B of this part shall be filed with 
the Secretary. This rule shall not apply to the transcript of testimony 
and exhibits adduced at the hearing or to proposed exhibits submitted in 
advance of the hearing pursuant to an order of the administrative

[[Page 44]]

law judge under Sec. 509.32 of this part. Materials required or 
permitted to be filed with or referred to the Director pursuant to 
subparts A and B of this part shall be filed with the Director, to the 
attention of the Secretary.
    (h) Presence of cameras and other recording devices. The use of 
cameras and other recording devices, other than those used by the court 
reporter, shall be prohibited and excluded from the proceedings.

[56 FR 38306, Aug. 12, 1991, as amended at 58 FR 4311, Jan. 14, 1993; 61 
FR 20356, May 6, 1996]



                         Subpart C_Special Rules

    Source: 70 FR 10023, Mar. 2, 2005, unless otherwise noted.



Sec. 509.200  Scope.

    The rules and procedures in subpart C of this part and those rules 
and procedures in subparts A and B of this part that are identified in 
subpart C of this part shall apply to any proceedings under section 
10(a)(2)(D) of the HOLA (12 U.S.C. 1467a(a)(2)(D)) to determine for 
purposes of section 10 of the HOLA, other than subsections (c), (d), 
(f), (h)(2), (m), (n), (q) and (s), whether any company that owns at 
least one percent but no more than 10 percent of the outstanding shares 
of a savings association or savings and loan holding company directly or 
indirectly exercises a controlling influence over the management or 
policies of such savings association or savings and loan holding 
company.



Sec. 509.201  Definitions.

    The definitions contained in Sec. 509.3 of this part shall apply to 
this subpart.



Sec. 509.202  Commencement of proceedings and contents of notice.

    (a) Commencement of proceedings. The Director commences a proceeding 
by issuing a notice and having it served on the respondent in the manner 
provided for service by the Director in Sec. 509.11 of this part;
    (b) Contents of notice. The notice must set forth: (1) The legal 
authority for the proceeding and for the Office's jurisdiction over the 
proceeding;
    (2) A statement of the matters of fact or law showing the Office is 
entitled to issue an Order finding, for purposes of section 10 of the 
HOLA, other than subsections (c), (d), (f), (h)(2), (m), (n), (q) and 
(s), the respondent to be directly or indirectly exercising a 
controlling influence over the management or policies of a savings 
association or savings and loan holding company;
    (3) A proposed Order;
    (4) A statement that the respondent must file an answer and, if it 
so desires, request a hearing within 20 days of service of the notice; 
and
    (5) The time and place of the hearing if one is properly requested 
by the respondent.



Sec. 509.203  Answer, consequences of failure to answer, and consent.

    (a) Content of answer. (1) An answer must specifically respond to 
each paragraph or allegation of fact contained in the notice and must 
admit, deny, or state that the party lacks sufficient information to 
admit or deny each allegation of fact. A statement of lack of 
information has the effect of a denial. Denials must fairly meet the 
substance of each allegation of fact denied; general denials are not 
permitted. When a respondent denies part of an allegation, that part 
must be denied and the remainder specifically admitted. Any allegation 
of fact in the notice which is not denied in the answer must be deemed 
admitted for purposes of the proceeding. A respondent is not required to 
respond to the portion of a notice that constitutes a prayer for relief 
or proposed Order.
    (2) If a respondent does not contest the allegations in a notice, 
the respondent may file an answer that contains only a statement that 
the respondent consents to the entry of the proposed Order. At any time 
thereafter, the proposed Order may be issued as a final Order.
    (b) Default. Failure of a respondent to file an answer within the 
time provided constitutes a waiver of its right to appear and contest 
the allegations in the notice. If a timely answer is not filed, a 
default Order may be entered. A respondent that believes that there was 
good cause for it to not file an answer within the time allowed may 
request

[[Page 45]]

that the Office exercise its discretion to vacate such a default Order. 
A default Order based upon a respondent's failure to answer is deemed to 
be a final Order issued upon consent.



Sec. 509.204  Hearing Procedure.

    (a) (1) The Director shall preside at the hearing and enter the 
final decision of the agency, provided that no party seeks discovery or 
proffers any oral testimony;
    (2) Respondents shall provide two copies of any pleadings and other 
filings to the Office of the Chief Counsel, Business Transactions 
Division. The Office of the Chief Counsel, Business Transactions 
Division shall serve in the manner provided in Sec. 509.11 of this 
part, each respondent separately represented with a copy of any pleading 
or other filing made by the Office.
    (b) If any party seeks discovery or proffers any oral testimony, the 
procedures in subparts A and B of this part shall apply from that time 
until the conclusion of the proceeding.



          Subpart D_Exemptions under Section 19(e) of the FDIA

    Source: 72 FR 25955, May 8, 2007, unless otherwise noted.



Sec. 509.300  Scope.

    The procedures in this subpart D govern hearings on denials of 
applications for case-by-case exemptions under 12 CFR part 585. Part 585 
implements section 19(e) of the FDIA, which prohibits persons who have 
been convicted of certain criminal offenses or who have agreed to enter 
into a pre-trial diversion or similar program in connection with a 
prosecution for such criminal offenses from occupying various positions 
with a savings and loan holding company.



Sec. 509.301  Hearing procedures.

    (a) Hearings. The following procedures apply to hearings under 12 
CFR part 585.
    (1) The hearing shall be held in Washington, DC, or at another 
designated place, before a presiding officer designated by the Director.
    (2) An applicant may elect in writing to have the matter determined 
on the basis of written submissions, rather than an oral hearing.
    (3) The parties to the hearing are OTS Enforcement counsel and the 
applicant.
    (4) 12 CFR 509.2, 509.4, 509.6 through 509.12, and 509.16 apply to 
the hearing.
    (5) Discovery is not permitted.
    (6) A party may introduce relevant and material documents and make 
oral argument at the hearing.
    (7) At the discretion of the presiding officer, witnesses may be 
presented within specified time limits, provided that a list of 
witnesses is furnished to the presiding officer and to all other parties 
before to the hearing. Witnesses must be sworn, unless otherwise 
directed by the presiding officer. The presiding officer may ask 
questions of any witness. Each party may cross-examine any witness 
presented by the opposing party. OTS will furnish a transcript of the 
proceedings upon an applicant's request and upon the payment of the 
costs of the transcript.
    (8) The presiding officer has the power to administer oaths and 
affirmations, to take or cause to be taken depositions of unavailable 
witnesses, and to issue, revoke, quash, or modify subpoenas and 
subpoenas duces tecum. If the presentation of witnesses is permitted, 
the presiding officer may require the attendance of witnesses from any 
state, territory, or other place subject to the jurisdiction of the 
United States at any location where the proceeding is being conducted. 
Witness fees are paid in accordance with 12 CFR 509.14.
    (9) Upon the request of a party, the record will remain open for 
five business days following the hearing for additional submissions to 
the record.
    (10) OTS Enforcement Counsel has the burden of proving a prima facie 
case that a person is prohibited from a position under section 19(e) of 
the FDIA. The applicant has the burden of proof on all other matters.
    (11) The presiding officer must make recommendations to the 
Director, where possible, within 20 days after the last day for the 
parties to submit additions to the record.

[[Page 46]]

    (12) The presiding officer must forward his or her recommendation to 
the Director who shall promptly certify the entire record, including the 
presiding officer's recommendations. The Director's certification will 
close the record.
    (b) Decision. After the certification of the record, the Director 
will notify the parties of his or her decision by issuing an order 
approving or denying the application.
    (1) An approval order will require fidelity bond coverage for the 
position to the same extent as similar positions with the savings and 
loan holding company. The approval order may include such other 
conditions as may be appropriate.
    (2) A denial order will include a summary of the relevant factors 
under 12 CFR 585.120(b).



PART 510_MISCELLANEOUS ORGANIZATIONAL REGULATIONS--Table of Contents




Sec.
510.2 Provisions related to regulations of the Office.
510.4 Service of process.
510.5 Release of unpublished OTS information.

    Authority: 12 U.S.C. 1462a, 1463, 1464; Pub. L. 101-410, 104 Stat. 
890; Pub. L. 104-134, 110 Stat. 1321-358.

    Source: 54 FR 49456, Nov. 30, 1989, unless otherwise noted.



Sec. 510.2  Provisions related to regulations of the Office.

    (a) Amendments. The Office expressly reserves the right to amend 
(including the right to alter or repeal) the regulations set forth in 
this chapter.
    (b) Waiver or relaxation of regulatory provisions with respect to 
disaster or emergency areas. Whenever the President of the United States 
determines that a major disaster or emergency exists, or declares an 
area a major disaster or emergency area, the Office may, to the extent 
not inconsistent with law, by order waive or relax any limitations 
pertaining to the operations of Federal savings associations and savings 
associations in any area or areas affected by such disaster or emergency 
so declared.
    (c) Bar on participation in notice and comment rulemaking by 
suspended or disbarred persons. No person who has been suspended or 
debarred from practice before the Office in accordance with the 
provisions of part 513 of this chapter may submit to the Office, either 
directly or on behalf of an interested party, any written documents or 
petitions otherwise permitted by the Administrative Procedures Act.

[54 FR 49456, Nov. 30, 1989, as amended at 60 FR 66716, Dec. 26, 1995; 
70 FR 76675, Dec. 28, 2005]



Sec. 510.4  Service of process.

    (a) Service of Process. Service of process may be made upon the 
Office by delivering a copy of the summons and complaint to the U.S. 
Attorney for the district in which the action is brought or to an 
assistant U.S. Attorney or clerical employee designated by the U.S. 
Attorney in a writing filed with the clerk of the court, and by sending 
copies of the summons and of the complaint by registered or certified 
mail to the Attorney General of the United States, Washington, DC, and 
to the Secretary of the Office.
    (b) Subpoenas. Any subpoena to obtain information maintained by 
Office shall be duly issued and served upon the Secretary of the Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC, 20552.



Sec. 510.5  Release of unpublished OTS information.

    (a) Scope. (1) This section applies to requests by the public for 
unpublished OTS information, such as requests for records or testimony 
from parties to lawsuits in which the OTS is not a party.
    (2) Unpublished OTS information includes records created or obtained 
in connection with the OTS's performance of its responsibilities, such 
as records concerning supervision, regulation, and examination of 
savings associations, their holding companies, and affiliates, and 
records compiled in connection with the OTS's enforcement 
responsibilities. Unpublished OTS information also includes information 
that current and former employees, officers,

[[Page 47]]

and agents obtained in their official capacities. Examples of 
unpublished information include:
    (i) Information in the memory of a current or former employee, 
officer, or agent of the OTS (or the Federal Home Loan Bank Board, the 
predecessor agency of the OTS), by testimony or informal interview, that 
was acquired in the course of performing official duties or because of 
the employee's, officer's or agent's official status;
    (ii) Reports of examination, supervisory correspondence, internal 
agency memoranda and investigatory files compiled in connection with an 
investigation, whether such records are in the possession of the OTS or 
some other individual or entity; and
    (iii) Unpublished OTS records obtained by or in the possession of 
third parties, including other government agencies.
    (3) This section does not apply to:
    (i) Requests for records or testimony in proceedings in which the 
OTS is a party;
    (ii) Requests for information by other government agencies, except 
when specifically provided; and
    (iii) Requests for records that are required to be disclosed under 
the Freedom of Information Act, see 5 U.S.C. 552, and 31 CFR 1.1-1.6.
    (b) Purpose. The purposes of this section are:
    (1) To afford an orderly mechanism for the OTS to expeditiously 
process requests for unpublished OTS information and, where appropriate, 
for the OTS to assert evidentiary privileges in litigation;
    (2) To balance the need for confidentiality of unpublished OTS 
information with the private party's interest in obtaining disclosure of 
that information;
    (3) To ensure that the time of OTS employees is utilized in the most 
efficient manner consistent with the OTS's statutory mission;
    (4) To prevent undue burdens on the OTS;
    (5) To limit the expenditure of the OTS's funds for private 
purposes; and
    (6) To maintain the impartiality of the OTS among private litigants.
    (c) Procedure--(1) Requests for records and testimony in general. A 
request for unpublished OTS information must be in writing, furnish the 
caption of the lawsuit if the request arises in the course of 
litigation, and support the requester's claim that the information 
sought is highly relevant to the purpose for which it is sought. In 
demonstrating that the information is highly relevant, the requester 
must explain in detail how the requested OTS information relates to the 
issues in the case or the matter.
    (i) For requests arising in lawsuits, the submission also must 
include:
    (A) A copy of the complaint or equivalent document in the case and 
any other pleadings necessary to show relevance;
    (B) A description of any prior decisions or pending motions in the 
case that may bear on the asserted relevance of the information being 
sought from the OTS; and
    (C) The names, addresses and phone numbers of counsel to all other 
parties in the case.
    (ii) In all instances, in addition to demonstrating that the 
information sought is highly relevant to the purpose for which it is 
sought, the requester must:
    (A) Demonstrate that the information sought is not available from 
any other source; and
    (B) Demonstrate that the need for the information clearly outweighs 
the need to maintain the confidentiality of the OTS information and the 
burden on the OTS to produce the information.
    (iii) If a request seeks a response in fewer than 30 days, it must 
include an explanation of why the requester was unable to submit the 
request earlier and why expediting the request is required.
    (2) Additional provisions relating to requests for records. In 
addition to the requirements of paragraph (c)(1) of this section, the 
provisions in paragraphs (c)(2)(i) and (c)(2)(ii) of this section apply 
to requests for disclosure of records.
    (i) A request for records must list the categories of records sought 
and describe the specific information sought, including the relevant 
time period.
    (ii) When the OTS believes that another person has a claim of 
privilege regarding the information in the

[[Page 48]]

records and the records are in the possession or control of that person, 
such as reports prepared by a savings association's attorneys that are 
shared with the OTS, the OTS may respond to the request by authorizing 
that person to release the records pursuant to an appropriate 
confidentiality order rather than by the OTS releasing the records 
directly to the requesting party. This will enable the person possessing 
or controlling the records to argue any issues of privilege to the 
appropriate court.
    (3) Additional provisions relating to requests for testimony from 
OTS employees. In addition to the requirements of paragraph (c)(1) of 
this section, the provisions in paragraphs (c)(3)(i) through (c)(3)(iv) 
of this section apply to requests that current or former OTS employees 
be authorized to give testimony.
    (i) The request must specifically describe the substance of the 
testimony sought and show a compelling need for the testimony. A showing 
of compelling need should include a demonstration that the requested 
information is not available from any other source, such as the books 
and records of other persons or entities, OTS records that have been or 
might be released, or the testimony of other non-OTS persons, including 
retained experts.
    (ii) OTS employees will not be authorized to provide expert or 
opinion testimony for private parties.
    (iii) The OTS expects litigants to anticipate their need for OTS 
testimony in sufficient time to request and obtain that testimony in 
deposition form. A request for testimony at a trial or hearing may not 
be granted unless the requester shows that properly developed deposition 
testimony could not be used or would not be adequate at the trial or 
hearing.
    (iv) The OTS shall specify the scope of any authorized testimony and 
may take steps to ensure that the scope of testimony taken adheres to 
the scope authorized. Parties to the case who did not join in the 
request and who wish to question the witness beyond the authorized scope 
should request expanded authorization pursuant to this regulation. The 
OTS will attempt to render decisions on such requests in an expedited 
manner.
    (4) Information available to savings associations, holding 
companies, state and Federal agencies and requesters. (i) The regular 
report of examination of a savings association, savings and loan holding 
company, or other affiliate of a savings association is made available 
by the appropriate Regional Office to the entity examined.
    (ii) A subsidiary savings association of a savings and loan holding 
company may reproduce and furnish a copy of its report of examination 
and related supervisory correspondence of the savings association to its 
parent holding company(ies) without prior approval of the OTS. A savings 
and loan holding company may reproduce and furnish a copy of its report 
of examination and related supervisory correspondence to another 
affiliated savings and loan holding company that controls the same 
savings association or its subsidiary savings association(s) without 
prior approval of the OTS. This paragraph does not require such 
disclosure by a parent savings and loan holding company or subsidiary 
savings association.
    (iii) Reports of examination and other information relating to 
state-chartered savings associations and affiliates are made available, 
upon request, by the OTS to the state governmental authority having 
general supervision of such state-chartered savings associations.
    (iv) Reports of examination and other information may be made 
available by the OTS to other agencies of the United States, a state 
agency, or to the Federal Home Loan Banks, for use where necessary in 
the performance of their official duties.
    (v) All reports or other information made available to savings 
associations, holding companies, affiliates, other governmental agencies 
or requesters shall remain the property of the OTS and, except as 
permitted by this section or otherwise by the Director or his delegate, 
no person, company, agency, or authority to whom the information is made 
available, or any officer, director, employee or agent thereof, shall 
disclose any such information except published statistical material that

[[Page 49]]

would not disclose the identity of any individual or corporation.
    (5) Where to submit requests. In all matters covered by this 
section, notification of the issuance of subpoenas or compulsory process 
and requests for records or testimony covered by this section must be 
sent to the OTS at 1700 G Street NW., Washington, DC 20552, to the 
attention of the Corporate Secretary, and should be labelled ``Request 
for Release of Unpublished Information Under Section 510.5.'' Requesters 
may furnish copies of the request or subpoenas simultaneously to the 
appropriate OTS Regional Office, but the furnishing of such copies does 
not constitute service on the OTS.
    (d) Consideration of requests--(1) In general. The OTS will 
generally process requests in the order in which they are received. The 
OTS will endeavor to respond to requests within 30 days, but this may 
vary depending on the scope and precision of the request. The OTS will 
weigh requests for processing in less than 30 days against the burden to 
the OTS of expedited processing and the unfairness to other parties 
whose pending requests may be delayed.
    (2) Consultation with requester. The OTS may consult with the 
requester to:
    (i) Refine and limit the scope of the request so as to reduce the 
burden and expense on the OTS; or
    (ii) Obtain additional information necessary for the OTS to make an 
informed determination on the request. To the extent necessary to reach 
an informed determination on the request, the OTS may inquire into the 
circumstances of the underlying matter and rely on sources of 
information beyond the requester, including other interested parties.
    (3) Final determinations. Final determinations on requests will be 
made by the Director or his delegate. All such determinations are the 
sole discretion of the Director or his delegate. Requesters will be 
notified in writing of the disposition of the request.
    (4) Denial of requests. (i) The OTS may deny requests for records or 
testimony that seek information that the OTS deems to be:
    (A) Not highly relevant;
    (B) Privileged;
    (C) Available from other sources; or
    (D) Information that should not be disclosed for reasons that 
warrant restriction of discovery under the Federal Rules of Civil 
Procedure (28 U.S.C. appendix).
    (ii) The OTS may also deny a records or testimony request when it 
considers production of the information to be overly burdensome or 
contrary to the public interest, or where OTS determines that the need 
for the information does not clearly outweigh the need to maintain the 
confidentiality of the information, or where the requester seeks 
testimony and has not shown a compelling need for the testimony.
    (5) Confidentiality Orders and Agreements. As is set forth in 
paragraph (f) of this section, the OTS may condition release of 
information on the entry by the relevant tribunal of an order 
satisfactory to the OTS or, in a non-litigated matter, the execution of 
a confidentiality agreement that limits access of third parties to the 
unpublished OTS information. It shall be the duty of the requesting 
party to obtain such an order or to execute a confidentiality agreement.
    (e) Parties with access to OTS information; restriction on 
dissemination--(1) Current and former employees. Except as authorized by 
this section or as otherwise authorized by the Director or his delegate, 
no current or former employee, officer or agent of the OTS or a 
predecessor agency shall disclose or permit the disclosure of any 
unpublished information of the OTS to anyone (other than an employee, 
officer or agent of the OTS properly entitled to such information for 
the performance of their official duties), whether by giving out or 
furnishing such information or a copy thereof or by allowing any person 
to inspect, examine, or copy such information or copy thereof, or 
otherwise.
    (2) Duty of person served. If any person, whether or not a current 
or former employee, officer or agent of the OTS, has information of the 
OTS that may not be disclosed under the regulations of the OTS or other 
applicable law, and in connection therewith is served with

[[Page 50]]

a subpoena, order, or other process requiring personal attendance as a 
witness or production of records or information in any proceeding, that 
person shall promptly advise the OTS of such service or request for 
information. Upon such notice the OTS will take appropriate action to 
advise the court or tribunal that issued the process and the attorney 
for the party at whose instance the process was issued, if known, of the 
substance of this section. Such notice to the OTS shall be made by 
contacting the Litigation Division, Office of Chief Counsel, Office of 
Thrift Supervision, 1700 G Street NW., Washington, DC 20552. As provided 
in paragraph (e)(3) of this section, a person so served with process may 
not disclose OTS information without OTS authorization. To obtain OTS 
authorization, a request must be sent to the OTS in Washington, DC, in 
accordance with paragraph (c) of this section.
    (3) Appearance by person served. Except as the OTS has authorized 
disclosure of the relevant information, or except as authorized by law, 
any person who has information of the OTS that may not be disclosed 
under this section and is required to respond to a subpoena or other 
legal process shall attend at the time and place therein mentioned and 
respectfully decline to produce such records or give any testimony with 
respect thereto, basing such refusal on this part. If, notwithstanding, 
the court or other body orders the disclosure of such records or the 
giving of such testimony, the person having such information of the OTS 
shall continue respectfully to decline to produce such information and 
shall promptly advise the Litigation Division of the Chief Counsel's 
Office, Office of Thrift Supervision. Upon such notice the OTS will take 
appropriate action to advise the court or tribunal which issued the 
order, of the substance of this section.
    (4) Non-waiver of privilege. The possession by any entity or 
individual described in paragraph (c)(4) of this section of OTS records 
covered by this section shall not waive any privilege of the OTS or the 
OTS's right to supervise the further dissemination of these records.
    (f) Orders and agreements protecting the confidentiality of 
unpublished OTS information--(1) Records. Unless otherwise permitted by 
the OTS, release of records authorized pursuant to this section will be 
conditioned by the OTS upon entry of an acceptable protective order by 
the court or administrative tribunal presiding in the particular case, 
or, in non-litigated matters, upon execution of an acceptable 
confidentiality agreement. In cases where protective orders have already 
been entered, the OTS reserves the right to condition approval for 
release of information upon the inclusion of additional or amended 
provisions.
    (2) Testimony. The OTS may condition its authorization of deposition 
testimony on an agreement of the parties that the transcript of the 
testimony will be kept under seal, or will be made available only to the 
parties, the court and the jury, except to the extent that the OTS may 
allow use of the transcript in related litigation. The party who 
requested the testimony shall, at its expense, furnish to the OTS a copy 
of the transcript of testimony of the OTS employee or former employee.
    (g) Limitation of burden on the OTS in connection with released 
records--(1) Authentication for use as evidence. The OTS will 
authenticate released records to facilitate their use as evidence. 
Requesters who require authenticated records should request certified 
copies at least 30 days prior to the date they will be needed. The 
request should be sent to the OTS Public Disclosure Branch and shall 
identify the records, giving the office or record depository where they 
are located (if known) and include copies of the records and payment of 
the certification fee.
    (2) Responsibility of litigants to share released records. The party 
who has sought and obtained OTS records has the responsibility of:
    (i) Notifying other parties to the case of the release and, after 
entry of a protective order, providing copies of the records to the 
other parties who are subject to the protective order; and
    (ii) Retrieving any records from the court's file as soon as the 
records are no longer required by the court and returning them to the 
OTS. Where a

[[Page 51]]

party may be involved in related litigation, the OTS may, upon a request 
made to it pursuant to this section, authorize such party to transfer 
the records for use in that related case.
    (h) Fees--(1) Fees for records searches, copying and certifications. 
Requesters shall be charged fees in accordance with Treasury Department 
regulations, 31 CFR 1.7. With certain exceptions, the regulations in 31 
CFR 1.7 provide for recovery of the full direct costs of searching, 
reviewing, certifying and duplicating the records sought. An estimate of 
the statement of charges will be sent to requesters, and fees shall be 
remitted by check payable to the OTS prior to release of the requested 
records. Where it deems appropriate, the OTS may contract with 
commercial copying concerns to copy the records, with the cost billed to 
the requester.
    (2) Witness fees and allowances. (i) Litigants whose requests for 
testimony of current OTS employees are approved shall, upon completion 
of the testimonial appearance, promptly tender a check payable to the 
OTS for witness fees and allowances in accordance with 28 U.S.C. 1821.
    (ii) All litigants whose requests for testimony of former OTS 
employees are approved, shall also promptly tender witness fees and 
allowances to the witness in accordance with 28 U.S.C. 1821.

[54 FR 49456, Nov. 30, 1989, as amended at 60 FR 28031, May 30, 1995]



PART 512_RULES FOR INVESTIGATIVE PROCEEDINGS AND FORMAL EXAMINATION 
PROCEEDINGS--Table of Contents




Sec.
512.1 Scope of part.
512.2 Definitions.
512.3 Confidentiality of proceedings.
512.4 Transcripts.
512.5 Rights of witnesses.
512.6 Obstruction of the proceedings.
512.7 Subpoenas.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467, 1467a, 1813; 15 U.S.C. 
78 l.

    Source: 54 FR 49457, Nov. 30, 1989, unless otherwise noted.



Sec. 512.1  Scope of part.

    This part prescribes rules of practice and procedure applicable to 
the conduct of investigative proceedings under section 10(g)(2) of the 
Home Owners' Loan Act, as amended, 12 U.S.C. 1467a(g)(2) (``HOLA'') and 
to the conduct of formal examination proceedings with respect to savings 
associations and their affiliates under section 5(d)(1)(B) of the HOLA, 
as amended, 12 U.S.C. 1464(d)(1)(B) or section 7(j)(15) of the Federal 
Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) (``FDIA''), 
section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 10(c) of the 
FDIA, 12 U.S.C. 1820(c). This part does not apply to adjudicatory 
proceedings as to which hearings are required by statute, the rules for 
which are contained in part 509 of this chapter.



Sec. 512.2  Definitions.

    As used in this part:
    (a) Office means the Office of Thrift Supervision;
    (b) Investigative proceeding means an investigation conducted under 
section 10(g)(2) of the HOLA;
    (c) Formal examination proceeding means the administration of oaths 
and affirmations, taking and preserving of testimony, requiring the 
production of books, papers, correspondence, memoranda, and all other 
records, the issuance of subpoenas, and all related activities in 
connection with examination of savings associations and their affiliates 
conducted pursuant to section 5(d)(1)(B) of the HOLA, section 7(j)(15) 
of the FDIA, section 8(n) of the FDIA or section 10(c) of the FDIA; and
    (d) Designated representative means the person or persons empowered 
by the Office to conduct an investigative proceeding or a formal 
examination proceeding.



Sec. 512.3  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the Office, all investigative proceedings shall 
also be private. Unless otherwise ordered or permitted by the Office, or 
required by law, and except as provided in Sec. Sec. 512.4 and 512.5, 
the

[[Page 52]]

entire record of any investigative proceeding or formal examination 
proceeding, including the resolution of the Office or its delegate(s) 
authorizing the proceeding, the transcript of such proceeding, and all 
documents and information obtained by the designated representative(s) 
during the course of said proceedings shall be confidential.



Sec. 512.4  Transcripts.

    Transcripts or other recordings, if any, of investigative 
proceedings or formal examination proceedings shall be prepared solely 
by an official reporter or by any other person or means authorized by 
the designated representative. A person who has submitted documentary 
evidence or given testimony in an investigative proceeding or formal 
examination proceeding may procure a copy of his own documentary 
evidence or transcript of his own testimony upon payment of the cost 
thereof; provided, that a person seeking a transcript of his own 
testimony must file a written request with the Deputy Chief Counsel for 
Enforcement or the appropriate Regional Counsel for Enforcement stating 
the reason he desires to procure such transcript, and said persons may 
for good cause deny such request. In any event, any witness (or his 
counsel) shall have the right to inspect the transcript of the witness' 
own testimony.

[54 FR 49457, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]



Sec. 512.5  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish documentary 
evidence or give testimony at an investigative proceeding or formal 
examination proceeding shall have the right to examine, upon request, 
the Office resolution authorizing such proceeding. Copies of such 
resolution shall be furnished, for their retention, to such persons only 
with the written approval of the Deputy Chief Counsel for Enforcement or 
the appropriate Regional Counsel for Enforcement.
    (b) Any witness at an investigative proceeding or formal examination 
proceeding may be accompanied and advised by an attorney personally 
representing that witness.
    (1) Such attorney shall be a member in good standing of the bar of 
the highest court of any state, Commonwealth, possession, territory, or 
the District of Columbia, who has not been suspended or debarred from 
practice by the bar of any such political entity or before the Office in 
accordance with the provisions of part 513 of this chapter and has not 
been excluded from the particular investigative proceeding or formal 
examination proceeding in accordance with paragraph (b)(3) of this 
section.
    (2) Such attorney may advise the witness before, during, and after 
the taking of his testimony and may briefly question the witness, on the 
record, at the conclusion of his testimony, for the sole purpose of 
clarifying any of the answers the witness has given. During the taking 
of the testimony of a witness, such attorney may make summary notes 
solely for his use in representing his client. All witnesses shall be 
sequestered, and, unless permitted in the discretion of the designated 
representative, no witness or accompanying attorney may be permitted to 
be present during the taking of testimony of any other witness called in 
such proceeding. Neither attorney(s) for the association(s) that are the 
subjects of the investigative proceedings or formal examination 
proceedings, nor attorneys for any other interested persons, shall have 
any right to be present during the testimony of any witness not 
personally being represented by such attorney.
    (3) The Office, for good cause, may exclude a particular attorney 
from further participation in any investigation in which the Office has 
found the attorney to have engaged in dilatory, obstructionist, 
egregious, contemptuous or contumacious conduct. The person conducting 
an investigation may report to the Office instances of apparently 
dilatory, obstructionist, egregious, contemptuous or contumacious 
conduct on the part of an attorney. After due notice to the attorney, 
the Office may take such action as the circumstances warrant based upon 
a written record evidencing the conduct of the attorney in that 
investigation or such other or additional written or oral

[[Page 53]]

presentation as the Office may permit or direct.

[54 FR 49457, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]



Sec. 512.6  Obstruction of the proceedings.

    The designated representative shall report to the Office any 
instances where any witness or counsel has engaged in dilatory, 
obstructionist, or contumacious conduct or has otherwise violated any 
provision of this part during the course of an investigative proceeding 
or formal examination proceeding; and the Office may take such action as 
the circumstances warrant, including the exclusion of counsel from 
further participation in such proceeding.



Sec. 512.7  Subpoenas.

    (a) Service. Service of a subpoena in connection with any 
investigative proceeding or formal examination proceeding shall be 
effected in the following manner:
    (1) Service upon a natural person. Service of a subpoena upon a 
natural person may be effected by handing it to such person; by leaving 
it at his office with the person in charge thereof, or, if there is no 
one in charge, by leaving it in a conspicuous place therein; by leaving 
it at his dwelling place or usual place of abode with some person of 
suitable age and discretion then residing therein; by mailing it to him 
by registered or certified mail or by an express delivery service at his 
last known address; or by any method whereby actual notice is given to 
him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, service of the subpoena may be effected by handing the 
subpoena to a registered agent for service, or to any officer, director, 
or agent in charge of any office of such person; by mailing it to any 
such representative by registered or certified mail or by an express 
delivery service at his last known address; or by any method whereby 
actual notice is given to such person.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance, but in no event more 
than 10 days after the date of service of such subpoena, apply to the 
Chief Counsel or his designee to quash or modify such subpoena, 
accompanying such application with a statement of the reasons therefor. 
The Chief Counsel or his designee, as appropriate, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
Chief Counsel or his designee determines to be just, reasonable, and 
proper.
    (c) Attendance of witnesses. Subpoenas issued in connection with an 
investigative proceeding or formal examination proceeding may require 
the attendance and/or testimony of witnesses from any State or territory 
of the United States and the production by such witnesses of documentary 
or other tangible evidence at any designated place where the proceeding 
is being (or is to be) conducted. Foreign nationals are subject to such 
subpoenas if such service is made upon a duly authorized agent located 
in the United States.
    (d) Witness fees and mileage. Witnesses summoned in any proceeding 
under this part shall be paid the same fees and mileage that are paid 
witnesses in the district courts of the United States. Such fees and 
mileage need not be tendered when the subpoena is issued on behalf of 
the Office by any of its designated representatives.

[54 FR 49457, Nov. 30, 1989, as amended at 56 FR 38317, Aug. 12, 1991]



PART 513_PRACTICE BEFORE THE OFFICE--Table of Contents




Sec.
513.1 Scope of part.
513.2 Definitions.
513.3 Who may practice.
513.4 Suspension and debarment.
513.5 Reinstatement.
513.6 Duty to file information concerning adverse judicial or 
          administrative action.
513.7 Proceeding under this part.
513.8 Removal, suspension, or debarment of independent public 
          accountants and accounting firms performing audit services.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1813, 1831m, and 15 
U.S.C. 78.

    Source: 54 FR 49459, Nov. 30, 1989, unless otherwise noted.

[[Page 54]]



Sec. 513.1  Scope of part.

    This part prescribes rules with regard to general practice before 
the Office on one's own behalf or in a representative capacity and 
prescribes rules describing the circumstances under which attorneys, 
accountants, appraisers, or other persons may be suspended or debarred, 
either temporarily or permanently, from practicing before the Office. In 
connection with any particular matter, reference also should be made to 
any special requirements of procedure and practice that may be contained 
in the particular statute involved or the rules and forms adopted by the 
Office thereunder, which special requirements are controlling. In 
addition to any suspension hereunder, a person may be excluded from 
further participation under this chapter from a rulemaking hearing in 
accordance with Sec. 510.2, from an adjudicatory proceeding in 
accordance with Sec. 509.6(a)(1), from a removal hearing in accordance 
with Sec. 508.3, or from an investigatory proceeding in accordance with 
Sec. 512.5(b)(2) of this chapter.

[54 FR 49459, Nov. 30, 1989, as amended at 56 FR 38317, Aug. 12, 1991]



Sec. 513.2  Definitions.

    As used in this part:
    (a) Office means the Office;
    (b) The term Secretary means the Secretary and any Assistant or 
Acting Secretary to the Office;
    (c) The term presiding officer includes the Office, his delegatee or 
an administrative law judge appointed under section 3105 or detailed 
pursuant to section 3344 of title 5 of the U.S. Code and, as used in 
this part, the term shall be construed to refer to whichever of the 
above-identified individuals presides at a hearing or other proceeding, 
except as otherwise specified in the text;
    (d) The term attorney means any person who is a member in good 
standing of the bar of the highest court of any State, possession, 
territory, Commonwealth or the District of Columbia; and
    (e) The term practice means transacting any business with the 
Office, including:
    (1) The representation of another person at any adjudicatory, 
investigatory, removal or rulemaking proceeding conducted before the 
Office, a presiding officer or the Office's staff, including those 
proceedings covered in parts 508, 509, 510, and 512 of this chapter;
    (2) The preparation of any statement, opinion, financial statement, 
appraisal report, audit report, or other document or report by any 
attorney, accountant, appraiser or other licensed expert which is filed 
with or submitted to the Office, with such expert's consent or knowledge 
in connection with any application or other filing with the Office;
    (3) A presentation to the Office, a presiding officer or the 
Office's staff at a conference or meeting relating to an association's 
or other person's rights, privileges or liabilities under the laws 
administered by the Office and rules and regulations promulgated 
thereunder;
    (4) Any business correspondence or communication with the Office, a 
presiding officer or the Office's staff; and
    (5) The transaction of any other formal business with the Office on 
behalf of another, in the capacity of an attorney, accountant, appraiser 
or other licensed expert.



Sec. 513.3  Who may practice.

    (a) By non-attorneys. (1) An individual may appear on his own behalf 
(pro se); a member of a partnership may represent the partnership; a 
bona fide and duly authorized officer of a corporation, trust or 
association may represent the corporation, trust or association; and an 
officer or employee of a commission, department or political subdivision 
may represent that commission, department or political subdivision 
before the Office.
    (2) Any accountant, appraiser or other licensed expert may practice 
before the Office in a professional capacity.
    (b) By attorneys. Any association or other person may be represented 
in any proceeding or other matter before the Office by an attorney.
    (c) Any licensed expert or professional transacting business with 
the Office in a representative capacity may be required to show his 
authority to act in such capacity.

[[Page 55]]



Sec. 513.4  Suspension and debarment.

    (a) The Office may censure any person practicing before it or may 
deny, temporarily or permanently, the privilege of any person to 
practice before it if such person is found by the Office, after notice 
of and opportunity for hearing in the matter,
    (1) Not to possess the requisite qualifications to represent others,
    (2) To be lacking in character or professional integrity,
    (3) To have engaged in any dilatory, obstructionist, egregious, 
contemptuous, contumacious or other unethical or improper professional 
conduct before the Office, or
    (4) To have willfully violated, or willfully aided and abetted the 
violation of, any provision of the laws administered by the Office or 
the rules and regulations promulgated thereunder.
    (b) Automatic suspension. (1) Any person who, after being licensed 
as a professional or expert by any competent authority, has been 
convicted of a felony, or of a misdemeanor involving moral turpitude, 
personal dishonesty or breach of trust, shall be suspended forthwith 
from practicing before the Office.
    (2) Any accountant, appraiser or other licensed expert whose license 
to practice has been revoked in any State, possession, territory, 
Commonwealth or the District of Co1umbia, shall be suspended forthwith 
from practice before the Office.
    (3) Any attorney who has been suspended or disbarred by a court of 
the United States or in any State, possession, territory, Commonwealth 
or the District of Columbia, shall be suspended forthwith from 
practicing before the Office.
    (4) A conviction (including a judgment or order on a plea of nolo 
contendere), revocation, suspension or disbarment under paragraphs 
(b)(1), (b)(2) and (b)(3) of this section shall be deemed to have 
occurred when the convicting, revoking, suspending or disbarring agency 
or tribunal enters its judgment or order, regardless of whether an 
appeal is pending or could be taken.
    (5) For purposes of this section, it shall be irrelevant that any 
attorney, accountant, appraiser or other licensed expert who has been 
suspended, disbarred or otherwise disqualified from practice before a 
court or in a jurisdiction continues in professional good standing 
before other courts or in other jurisdictions.
    (c) Temporary suspension. (1) The Office, with due regard to the 
public interest and without preliminary hearing, by order, may 
temporarily suspend any person from appearing or practicing before it 
who, on or after June 20, 1984, by name, has been:
    (i) Permanently enjoined (whether by consent, default or summary 
judgment or after trial) by any court of competent jurisdiction or by 
the Office itself in a final administrative order, by reason of his 
misconduct in any action brought by the Office based upon violations of, 
or aiding and abetting the violation of, the Home Owners, Loan Act of 
1933, as amended, 12 U.S.C. 1461 et seq., the Federal Deposit Insurance 
Act, as amended, 12 U.S.C. 1811 et seq. or any provision of the 
Securities Exchange Act of 1934, as amended, 15 U.S.C. 78a, et seq., 
which is administered by the Office, or of any rule or regulation 
promulgated thereunder; or
    (ii) Found by any court of competent jurisdiction (whether by 
consent, default, or summary judgment, or after trial) in any action 
brought by the Office to which he is a party or found by the Office 
(whether by consent, default, upon summary judgment or after hearing) in 
any administrative proceeding in which the Office is a complainant and 
he is a party, to have willfully committed, caused or aided or abetted a 
violation of any provision of the Home Owners' Loan Act of 1933, as 
amended, 12 U.S.C. 1461 et seq., the Federal Deposit Insurance Act, as 
amended, 12 U.S.C. 1811 et seq. or any provision of the Securities 
Exchange Act of 1934, as amended, 15 U.S.C. 78a, et seq., which is 
administered by the Office, or of any rule or regulation promulgated 
thereunder.
    (2) An order of temporary suspension shall become effective when 
served by certified or registered mail directed to the last known 
business or residential address of the person involved. No order of 
temporary suspension shall be entered by the Office pursuant to 
paragraph (c)(1) of this section more than three months after the final 
judgment

[[Page 56]]

or order entered in a judicial or administrative proceeding described in 
paragraphs (c)(1)(i) or (c)(1)(ii) of this section has become effective 
and all review or appeal procedures have been completed or are no longer 
available.
    (3) Any person temporarily suspended from appearing and practicing 
before the Office in accordance with paragraph (c)(1) of this section 
may, within 30 days after service upon him of the order of temporary 
suspension, petition the Office to lift such suspension. If no petition 
is received by the Office within those 30 days, the suspension shall 
become permanent.
    (4) Within 30 days after the filing of a petition in accordance with 
paragraph (c)(3) of this section, the Office shall either lift the 
temporary suspension or set the matter down for hearing at a time and 
place to be designated by the Office, or both. After opportunity for 
hearing, the Office may censure the petitioner or may suspend the 
petitioner from appearing or practicing before the Office temporarily or 
permanently. In every case in which the temporary suspension has not 
been lifted, the hearing and any other action taken pursuant to this 
paragraph (c)(4) shall be expedited by the Office in order to ensure the 
petitioner's right to address the allegations against him.
    (5) In any hearing held on a petition filed in accordance with 
paragraph (c)(3) of this section, a showing that the petitioner has been 
enjoined or has been found to have committed, caused or aided or abetted 
violations as described in paragraph (c)(1) of this section, without 
more, may be a basis for suspension or debarment; that showing having 
been made, the burden shall then be on the petitioner to show why he 
should not be censured or be temporarily or permanently suspended or 
debarred. A petitioner will not be permitted to contest any findings 
against him or any admissions made by him in the judicial or 
administrative proceedings upon which the proposed censure, suspension 
or debarment is based. A petitioner who has consented to the entry of a 
permanent injunction or order as described in paragraph (c)(1)(i) of 
this section, without admitting the facts set forth in the complaint, 
shall nevertheless be presumed for all purposes under this section to 
have been enjoined or ordered by reason of the misconduct alleged in the 
complaint.



Sec. 513.5  Reinstatement.

    (a) Any person who is suspended from practicing before the Office 
under paragraph (a) or (c) of Sec. 513.4 of this part may file an 
application for reinstatement at any time. Denial of the privilege of 
practicing before the Office shall continue unless and until the 
applicant has been reinstated by order of the Office for good cause 
shown.
    (b) Any person suspended under paragraph (b) of Sec. 513.4 shall be 
reinstated by the Office, upon appropriate application, if all of the 
grounds for application of the provisions of paragraph (b) of Sec. 
513.4 subsequently are removed by a reversal of the conviction or 
termination of the suspension, disbarment or revocation. An application 
for reinstatement on any other grounds by any person suspended under 
paragraph (b) of Sec. 513.4 may be filed at any time. Such application 
shall state with particularity the relief desired and the grounds 
therefor and shall include supporting evidence, when available. The 
applicant shall be accorded an opportunity for an informal hearing in 
the matter, unless the applicant has waived a hearing in the application 
and, instead, has elected to have the matter determined on the basis of 
written submissions. Such hearing shall utilize the procedures 
established in Sec. 508.3 and paragraph (a) of Sec. 508.7 of this 
chapter. However, such suspension shall continue unless and until the 
applicant has been reinstated by order of the Office for good cause 
shown.

[54 FR 49459, Nov. 30, 1989, as amended at 56 FR 38318, Aug. 12, 1991]



Sec. 513.6  Duty to file information concerning adverse judicial 
or administrative action.

    Any person appearing or practicing before the Office who has been or 
is the subject of a conviction, suspension, debarment, license 
revocation, injunction or other finding of the kind described in Sec. 
513.4 (b) or (c) of this part in an action not instituted by the Office 
shall promptly file a copy of the relevant order, judgment or decree 
with the Secretary to the Office together with any

[[Page 57]]

related opinion or statement of the agency or tribunal involved. Any 
person who fails to so file a copy of the order, judgment or decree 
within 30 days after the later of June 15, 1984, the entry of the order, 
judgment or decree, or the date such person initiates practice before 
the Office, for that reason alone may be disqualified from practicing 
before the Office until such time as the appropriate filing shall be 
made, but neither the filing of these documents nor the failure of a 
person to file them shall in any way impair the operation of any other 
provision of this part.



Sec. 513.7  Proceeding under this part.

    (a) All hearings required or permitted to be held under paragraphs 
(a) and (c) of Sec. 513.4 of this part shall be held before a presiding 
officer utilizing the procedures established in the rules of practice 
and procedure in adjudicatory proceedings under part 509 of this 
chapter.
    (b) All hearings held under this part shall be closed to the public 
unless the Office on its own motion or upon the request of a party 
otherwise directs.
    (c) Any proceeding brought under any section of this part 513 shall 
not preclude a proceeding under any other section of this part or any 
other part of the Office's regulations.



Sec. 513.8  Removal, suspension, or debarment of independent public
accountants and accounting firms performing audit services.

    (a) Scope. This subpart, which implements section 36(g)(4) of the 
Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides 
rules and procedures for the removal, suspension, or debarment of 
independent public accountants and their accounting firms from 
performing independent audit and attestation services required by 
section 36 of the FDIA (12 U.S.C. 1831m) for insured savings 
associations and savings and loan holding companies.
    (b) Definitions. As used in this section, the following terms have 
the meaning given below unless the context requires otherwise:
    (1) Accounting firm. The term accounting firm means a corporation, 
proprietorship, partnership, or other business firm providing audit 
services.
    (2) Audit services. The term audit services means any service 
required to be performed by an independent public accountant by section 
36 of the FDIA Act and 12 CFR part 363, including attestation services. 
Audit services include any service performed with respect to a savings 
and loan holding company of a savings association that is used to 
satisfy requirements imposed by section 36 or part 363 on that savings 
association.
    (3) Independent public accountant. The term independent public 
accountant means any individual who performs or participates in 
providing audit services.
    (c) Removal, suspension, or debarment of independent public 
accountants. The Office may remove, suspend, or debar an independent 
public accountant from performing audit services for savings 
associations that are subject to section 36 of the FDIA if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the Office finds that the independent public accountant:
    (1) Lacks the requisite qualifications to perform audit services;
    (2) Has knowingly or recklessly engaged in conduct that results in a 
violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to independent 
public accountants through the Sarbanes-Oxley Act of 2002, Pub. L. 107-
204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and developed by the 
Public Company Accounting Oversight Board and the Securities and 
Exchange Commission;
    (3) Has engaged in negligent conduct in the form of: (i) A single 
instance of highly unreasonable conduct that results in a violation of 
applicable professional standards in circumstances in which an 
independent public accountant knows, or should know, that heightened 
scrutiny is warranted; or
    (ii) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (4) Has knowingly or recklessly given false or misleading 
information or

[[Page 58]]

knowingly or recklessly participated in any way in the giving of false 
or misleading information to the Office or any officer or employee of 
the Office;
    (5) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or securities 
laws or the rules and regulations thereunder, or any other law;
    (6) Has been removed, suspended, or debarred from practice before 
any federal or state agency regulating the banking, insurance, or 
securities industries, other than by action listed in paragraph (j) of 
this section, on grounds relevant to the provision of audit services; or
    (7) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (d) Removal, suspension or debarment of an accounting firm. If the 
Office determines that there is good cause for the removal, suspension, 
or debarment of a member or employee of an accounting firm under 
paragraph (c) of this section, the Office also may remove, suspend, or 
debar such firm or one or more offices of such firm. In considering 
whether to remove, suspend, or debar an accounting firm or office 
thereof, and the term of any sanction against an accounting firm under 
this section, the Office may consider, for example:
    (1) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (2) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (3) The selection, training, supervision, and conduct of members or 
employees of the accounting firm involved in the performance of audit 
services;
    (4) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly or indirectly through 
oversight or review, in the act or failure to act; and
    (5) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective internal 
controls to prevent its recurrence.
    (e) Remedies. The remedies provided in this section are in addition 
to any other remedies the Office may have under any other applicable 
provisions of law, rule, or regulation.
    (f) Proceedings to remove, suspend, or debar. (1) The Office may 
initiate a proceeding to remove, suspend, or debar an independent public 
accountant or accounting firm from performing audit services by issuing 
a written notice of intention to take such action that names the 
individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) An independent public accountant or accounting firm named as a 
respondent in the notice issued under paragraph (f)(1) of this section 
may request a hearing on the allegations in the notice. Hearings 
conducted under this paragraph shall be conducted in the same manner as 
other hearings under the Uniform Rules of Practice and Procedure (12 CFR 
part 509).
    (g) Immediate suspension from performing audit services. (1) If the 
Office serves written notice of intention to remove, suspend, or debar 
an independent public accountant or accounting firm from performing 
audit services, the Office may, with due regard for the public interest 
and without preliminary hearing, immediately suspend an independent 
public accountant or accounting firm from performing audit services for 
savings associations, if the Office:
    (i) Has a reasonable basis to believe that the independent public 
accountant or accounting firm engaged in conduct (specified in the 
notice served upon the independent public accountant or accounting firm 
under paragraph (f) of this section) that would constitute grounds for 
removal, suspension, or debarment under paragraph (c) or (d) of this 
section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors or 
to the depository system as a whole; and
    (iii) Serves such independent public accountant or accounting firm 
with

[[Page 59]]

written notice of the immediate suspension.
    (2) An immediate suspension notice issued under this paragraph will 
become effective upon service. Such suspension will remain in effect 
until the date the Office dismisses the charges contained in the notice 
of intention, or the effective date of a final order of removal, 
suspension, or debarment issued by the Office to the independent public 
accountant or accounting firm.
    (h) Petition to stay. (1) Any independent public accountant or 
accounting firm immediately suspended from performing audit services in 
accordance with paragraph (g) of this section may, within 10 calendar 
days after service of the notice of immediate suspension, file a 
petition with the Office for a stay of such suspension. If no petition 
is filed within 10 calendar days, the immediate suspension shall remain 
in effect.
    (2) Upon receipt of a stay petition, the Office will designate a 
presiding officer who shall fix a place and time (not more than 10 
calendar days after receipt of such petition, unless extended at the 
request of the petitioner), at which the immediately suspended party may 
appear, personally or through counsel, to submit written materials and 
oral argument. Any OTS employee engaged in investigative or prosecuting 
functions for the OTS in a case may not, in that or a factually related 
case, serve as a presiding officer or participate or advise in the 
decision of the presiding officer or of the OTS, except as witness or 
counsel in the proceeding. In the sole discretion of the presiding 
officer, upon a specific showing of compelling need, oral testimony of 
witnesses may also be presented. In hearings held pursuant to this 
paragraph, there will be no discovery and the provisions of Sec. Sec. 
509.6 through 509.12, 509.16, and 509.21 of the Uniform Rules will 
apply.
    (3) Within 30 calendar days after the hearing, the presiding officer 
shall issue a decision. The presiding officer will grant a stay upon a 
demonstration that a substantial likelihood exists of the respondent's 
success on the issues raised by the notice of intention and that, absent 
such relief, the respondent will suffer immediate and irreparable 
injury, loss, or damage. In the absence of such a demonstration, the 
presiding officer will notify the parties that the immediate suspension 
will be continued pending the completion of the administrative 
proceedings pursuant to the notice.
    (4) The parties may seek review of the presiding officer's decision 
by filing a petition for review with the presiding officer within 10 
calendar days after service of the decision. Replies must be filed 
within 10 calendar days after the petition filing date. Upon receipt of 
a petition for review and any reply, the presiding officer must promptly 
certify the entire record to the Director. Within 60 calendar days of 
the presiding officer's certification, the Director shall issue an order 
notifying the affected party whether or not the immediate suspension 
should be continued or reinstated. The order shall state the basis of 
the Director's decision.
    (i) Scope of any order of removal, suspension, or debarment. (1) 
Except as provided in paragraph (i)(2), any independent public 
accountant or accounting firm that has been removed, suspended 
(including an immediate suspension), or debarred from performing audit 
services by the Office may not, while such order is in effect, perform 
audit services for any savings association.
    (2) An order of removal, suspension (including an immediate 
suspension), or debarment may, at the discretion of the Office, be made 
applicable to a limited number of savings associations or savings and 
loan holding companies (limited scope order).
    (j) Automatic removal, suspension, and debarment. (1) An independent 
public accountant or accounting firm may not perform audit services for 
a savings association if the independent public accountant or accounting 
firm:
    (i) Is subject to a final order of removal, suspension, or debarment 
(other than a limited scope order) issued by the Board of Governors of 
the Federal Reserve System, the Federal Deposit Insurance Corporation, 
or the Office of the Comptroller of the Currency under section 36 of the 
FDIA;
    (ii) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent

[[Page 60]]

suspension or bar from further association with any registered public 
accounting firm issued by the Public Company Accounting Oversight Board 
or the Securities and Exchange Commission under sections 105(c)(4)(A) or 
(B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (iii) Is subject to an order of suspension or denial of the 
privilege of appearing or practicing before the Securities and Exchange 
Commission.
    (2) Upon written request, the Office, for good cause shown, may 
grant written permission to an independent public accountant or 
accounting firm to perform audit services for savings associations. The 
request must contain a concise statement of action requested. The Office 
may require the applicant to submit additional information.
    (k) Notice of removal, suspension, or debarment. (1) Upon issuance 
of a final order for removal, suspension, or debarment of an independent 
public accountant or accounting firm from providing audit services, the 
Office shall make the order publicly available and provide notice of the 
order to the other Federal banking agencies.
    (2) An independent public accountant or accounting firm that 
provides audit services to a savings association must provide the Office 
with written notice of:
    (i) Any currently effective order or other action described in 
paragraphs (c)(6) through (c)(7) or paragraphs (j)(1)(ii) through 
(j)(1)(iii) of this section; and
    (ii) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley 
Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (3) Written notice required by this paragraph shall be given no 
later than 15 calendar days following the effective date of an order or 
action or 15 calendar days before an independent public accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.
    (l) Application for reinstatement. (1) Unless otherwise ordered by 
the Office, an independent public accountant, accounting firm, or office 
of a firm that was removed, suspended or debarred under this section may 
apply for reinstatement in writing at any time. The request shall 
contain a concise statement of action requested. The Office may require 
the applicant to submit additional information.
    (2) An applicant for reinstatement under paragraph (l)(1) of this 
section may, in the Office's sole discretion, be afforded a hearing. The 
independent public accountant or accounting firm shall bear the burden 
of going forward with an application and the burden of proving the 
grounds supporting the application. The Office may, in its sole 
discretion, direct that any reinstatement proceeding be limited to 
written submissions. The removal, suspension, or debarment shall 
continue until the Office, for good cause shown, has reinstated the 
applicant or until, in the case of a suspension, the suspension period 
has expired. The filing of a petition for reinstatement shall not stay 
the effectiveness of the removal, suspension, or debarment of an 
independent public accountant or accounting firm.

[68 FR 48272, Aug. 13, 2003]



PART 516_APPLICATION PROCESSING PROCEDURES--Table of Contents




Sec.
516.1 What does this part do?
516.5 Do the same procedures apply to all applications under this part?
516.10 How does OTS compute time periods under this part?

               Subpart A_Pre-Filing and Filing Procedures

                          Pre-Filing Procedures

516.15 Must I meet with OTS before I file my application?
516.20 What information must I include in my draft business plan?

                            Filing Procedures

516.25 What type of application must I file?
516.30 What information must I provide with my application?
516.35 May I keep portions of my application confidential?
516.40 Where do I file my application?
516.45 What is the filing date of my application?
516.47 How do I amend or supplement my application?

[[Page 61]]

                   Subpart B_Publication Requirements

516.50 Who must publish a public notice of an application?
516.55 What information must I include in my public notice?
516.60 When must I publish the public notice?
516.70 Where must I publish the public notice?
516.80 What language must I use in my publication?

                      Subpart C_Comment Procedures

516.100 What does this subpart do?
516.110 Who may submit a written comment?
516.120 What information should a comment include?
516.130 Where are comments filed?
516.140 How long is the comment period?

                      Subpart D_Meeting Procedures

516.160 What does this subpart do?
516.170 When will OTS conduct a meeting on an application?
516.180 What procedures govern the conduct of the meeting?
516.185 Will OTS approve or disapprove an application at a meeting?
516.190 Will a meeting affect application processing time frames?

                          Subpart E_OTS Review

                           Expedited Treatment

516.200 If I file a notice under expedited treatment, when may I engage 
          in the proposed activities?

                           Standard Treatment

516.210 What will OTS do after I file my application?
516.220 If OTS requests additional information to complete my 
          application, how will it process my application?
516.230 Will OTS conduct an eligibility examination?
516.240 What may OTS require me to do after my application is deemed 
          complete?
516.250 Will OTS require me to publish a new public notice?
516.260 May OTS suspend processing of my application?
516.270 How long is the OTS review period?
516.280 How will I know if my application has been approved?
516.290 What will happen if OTS does not approve or disapprove my 
          application within two calendar years after the filing date?

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464, 2901 et 
seq.

    Source: 57 FR 14336, Apr. 20, 1992, unless otherwise noted.



Sec. 516.1  What does this part do?

    (a) This part explains OTS procedures for processing applications, 
notices, or filings (applications). Except as provided in paragraph (b) 
of this section, subparts A and E of this part apply whenever an OTS 
regulation requires any person (you) to file an application with OTS. 
Subparts B, C, and D, however, only apply when an OTS regulation 
incorporates the procedures in the subpart or where otherwise required 
by OTS.
    (b) This part does not apply to any of the following:
    (1) An application related to a transaction under section 13(c) or 
(k) of the Federal Deposit Insurance Act, 12 U.S.C. 1823(c) or (k).
    (2) A request for reconsideration, modification, or appeal of a 
final OTS action.
    (3) A request related to litigation, an enforcement proceeding, a 
supervisory directive or supervisory agreement. Such requests include a 
request seeking approval under, modification of, or termination of an 
order issued under part 508 or 509 of this chapter, a supervisory 
agreement, a supervisory directive, a consent merger agreement or a 
document negotiated in settlement of an enforcement matter or other 
litigation, unless an applicable OTS regulation specifically requires an 
application under this part.
    (4) An application filed under an OTS regulation that prescribes 
other application processing procedures and time frames for the approval 
of applications.
    (c) If an OTS regulation for a specific type of application 
prescribes some application processing procedures, or time frames, OTS 
will apply this part to the extent necessary to process the application. 
For example, if an OTS regulation for a specific type of application 
does not identify time periods for the processing of an application, the 
time periods in this part apply.

[66 FR 13000, Mar. 2, 2001]

[[Page 62]]



Sec. 516.5  Do the same procedures apply to all applications under this part?

    OTS processes applications under this part using two procedures, 
expedited treatment and standard treatment. To determine which treatment 
applies, you may use the following chart:

------------------------------------------------------------------------
                                              Then OTS will process your
                  If * * *                     application under * * *
------------------------------------------------------------------------
(a) The applicable regulation does not       Standard treatment.
 specifically state that expedited
 treatment is available.
(b) You are not a savings association......  Standard treatment.
(c) Your composite rating is 3, 4, or 5.     Standard treatment.
 The composite rating is the composite
 numeric rating that OTS or the other
 federal banking regulator assigned to you
 under the Uniform Financial Institutions
 Rating System \1\ or under a comparable
 rating system. The composite rating refers
 to the rating assigned and provided to
 you, in writing, as a result of the most
 recent examination.
(d) Your Community Reinvestment Act (CRA)    Standard treatment.
 rating is Needs to Improve or Substantial
 Noncompliance. The CRA rating is the
 Community Reinvestment Act performance
 rating that OTS or the other federal
 banking regulator assigned and provided to
 you, in writing, as a result of the most
 recent compliance examination. See, for
 example, Sec. 563e.28 of this chapter.
(e) Your compliance rating is 3, 4, or 5.    Standard treatment.
 The compliance rating is the numeric
 rating that OTS or the other federal
 banking regulator assigned to you under
 OTS compliance rating system, or a
 comparable rating system used by the other
 federal banking regulator. The compliance
 rating refers to the rating assigned and
 provided to you, in writing, as a result
 of the most recent compliance examination.
(f) You fail any one of your capital         Standard treatment.
 requirements under part 567 of this
 chapter.
(g) OTS has notified you that you are an     Standard treatment.
 association in troubled condition.
(h) Neither OTS nor any other federal        Standard treatment.
 banking regulator has assigned you a
 composite rating, a CRA rating or a
 compliance rating.
(i) You do not meet any of the criteria      Expedited treatment.
 listed in paragraphs (a) through (h) of
 this section.
------------------------------------------------------------------------
\1\ A savings association may obtain a copy of its composite rating from
  the appropriate Regional Office.


[66 FR 13000, Mar. 2, 2001]



Sec. 516.10  How does OTS compute time periods under this part?

    In computing time periods under this part, OTS does not include the 
day of the act or event that commences the time period. When the last 
day of a time period is a Saturday, Sunday, or Federal holiday, the time 
period runs until the end of the next day that is not a Saturday, 
Sunday, or Federal holiday.

[66 FR 13000, Mar. 2, 2001]



               Subpart A_Pre-Filing and Filing Procedures

    Source: 66 FR 13000, Mar. 2, 2001, unless otherwise noted.

                          Pre-Filing Procedures



Sec. 516.15  Must I meet with OTS before I file my application?

    (a) Chart. To determine whether you must attend a pre-filing meeting 
before you file an application, please consult the following chart:

------------------------------------------------------------------------
           If you file * * *                        Then * * *
------------------------------------------------------------------------
(1) An application for permission to     You must meet with OTS before
 organize a de novo federal savings       filing your application. You
 association.                             must submit a draft business
                                          plan before this meeting.
(2) An application to convert an         You must meet with OTS before
 existing insured depository              filing your application. OTS
 institution (other than a state-         may require you to submit a
 chartered savings association or a       draft business plan or other
 state-chartered savings bank) or a       relevant information before
 credit union to a federal savings        this meeting.
 association.
(3) An application to acquire control    OTS may require you to meet
 of a savings association.                with OTS before filing your
                                          application and may require
                                          you to submit a draft business
                                          plan or other relevant
                                          information before this
                                          meeting.
------------------------------------------------------------------------

    (b) Contacting the Regional Office. (1) You must contact the 
appropriate Regional Office a reasonable time before you file an 
application described in paragraph (a) of this section. Unless paragraph 
(a) already requires a pre-filing meeting or a draft business plan, the 
Regional Office will determine whether it will require a pre-filing 
meeting, and whether you must submit

[[Page 63]]

a business plan or other relevant information before the meeting. The 
Regional Office will also establish a schedule for any meeting and the 
submission of any information.
    (2) All other applicants are encouraged to contact the appropriate 
Regional Office to determine whether a pre-filing meeting or the 
submission of a draft business plan or other relevant information would 
expedite the application review process.



Sec. 516.20  What information must I include in my draft business plan?

    If you must submit a draft business plan under Sec. 516.15, your 
plan must:
    (a) Clearly and completely describe the savings association's 
projected operations and activities;
    (b) Describe the risks associated with the transaction and the 
impact of this transaction on any existing activities and operations of 
the savings association, including financial projections for a minimum 
of three years;
    (c) Identify the majority of the proposed board of directors and the 
key senior executive officers (as defined in Sec. 563.555 of this 
chapter) of the savings association and demonstrate that these 
individuals have the expertise to prudently manage the activities and 
operations described in the savings association's draft business plan; 
and
    (d) Demonstrate how applicable requirements regarding serving the 
credit and lending needs in the market areas served by the savings 
association will be met.

                            Filing Procedures



Sec. 516.25  What type of application must I file?

    (a) Expedited treatment. If you are eligible for expedited treatment 
under Sec. 516.5, you may file your application in the form of a notice 
that includes all information required by the applicable substantive 
regulation. If OTS has designated a form for your notice, you must file 
that form. Your notice is an application for the purposes of all 
statutory and regulatory references to ``applications.''
    (b) Standard treatment. If you are subject to standard treatment 
under Sec. 516.5, you must file your application following all 
applicable substantive regulations and guidelines governing the filing 
of applications. If OTS has a designated form for your application, you 
must file that form.
    (c) Waiver requests. If you want OTS to waive a requirement that you 
provide certain information with the notice or application, you must 
include a written waiver request:
    (1) Describing the requirement to be waived and
    (2) Explaining why the information is not needed to enable OTS to 
evaluate your notice or application under applicable standards.



Sec. 516.30  What information must I provide with my application?

    (a) Required information. You may obtain information about required 
certifications, other regulations and guidelines affecting particular 
notices and applications, appropriate forms, and instructions from any 
OTS Regional Office. You may also obtain forms and instructions on OTS's 
web page at www.ots.treas.gov.
    (b) Captions and exhibits. You must caption the original application 
and required copies with the type of filing, and must include all 
exhibits and other pertinent documents with the original application and 
all required copies. You are not required to include original signatures 
on copies if you include a copy of the signed signature page or the copy 
otherwise indicates that the original was signed.



Sec. 516.35  May I keep portions of my application confidential?

    (a) Confidentiality. OTS makes submissions under this part available 
to the public, but may keep portions of your application confidential 
based on the rules in this section.
    (b) Confidentiality request. (1) You may request OTS to keep 
portions of your application confidential. You must submit your request 
in writing with your application and must explain in detail how your 
request is consistent with the standards under the Freedom of 
Information Act (5 U.S.C. 552) and part 505 of this chapter. For 
example, you should explain how you will be

[[Page 64]]

substantially harmed by pubic disclosure of the information. You must 
separately bind and mark the portions of the application you consider 
confidential and the portions you consider non-confidential.
    (2) OTS will not treat as confidential the portion of your 
application describing how you plan to meet your Community Reinvestment 
Act (CRA) objectives. OTS will make information in your CRA plan, 
including any information incorporated by reference from other parts of 
your application, available to the public upon request.
    (c) OTS determination on confidentiality. OTS will determine whether 
information that you designate as confidential may be withheld from the 
public under the Freedom of Information Act (5 U.S.C. 552) and part 505 
of this chapter. OTS will advise you before it makes information you 
designate as confidential available to the public.



Sec. 516.40  Where do I file my application?

    (a) Regional Office. (1) You must file the original application and 
the number of copies indicated on the applicable form with the 
applications filing division of the appropriate OTS Regional Office. You 
should address the filings to ``Attn: Applications Filing Room'' at the 
Regional address listed in paragraph (a)(2) of this section. If the form 
does not indicate the number of copies you must file or if OTS has not 
prescribed a form for your application, you must file the original 
application and two copies.
    (2) The addresses of each Regional Office and the states covered by 
each office are:

------------------------------------------------------------------------
       Region              Office address             States served
------------------------------------------------------------------------
Northeast...........  Office of Thrift          Connecticut, Delaware,
                       Supervision, Harborside   Maine, Massachusetts,
                       Financial Center, Plaza   New Hampshire, New
                       Five, Suite 1600,         Jersey, New York,
                       Jersey City, New Jersey   Pennsylvania, Rhode
                       07311.                    Island, Vermont, West
                                                 Virginia.
Southeast...........  Office of Thrift          Alabama, District of
                       Supervision, 1475         Columbia, Florida,
                       Peachtree Street, NW.,    Georgia, Kentucky,
                       Atlanta, Georgia 30309    Maryland, North
                       (Mail Stop: P.O. Box      Carolina, Puerto Rico,
                       105217, Atlanta,          South Carolina,
                       Georgia 30348-5217).      Virginia, the Virgin
                                                 Islands.
Central.............  Office of Thrift          Illinois, Indiana, Ohio,
                       Supervision, 1 South      Michigan, Wisconsin.
                       Wacker Drive, Suite
                       2000, Chicago, Illinois
                       60606.
Midwest.............  Office of Thrift          Arkansas, Iowa, Kansas,
                       Supervision, 225 E.       Louisiana, Mississippi,
                       John Carpenter Freeway,   Missouri Nebraska,
                       Suite 500, Irving,        Oklahoma, Tennessee,
                       Texas 75062-2326 (Mail    Texas.
                       to: P.O. Box 619027,
                       Dallas/Ft. Worth, Texas
                       75261-9027.
West................  Office of Thrift          Alaska, Arizona,
                       Supervision, Pacific      California, Colorado,
                       Plaza, 2001 Junipero      Guam, Hawaii, Idaho,
                       Serra Boulevard, Suite    Montana, Nevada, New
                       650, Daly City,           Mexico, North Dakota,
                       California.               Northern Mariana
                                                 Islands, Oregon, South
                                                 Dakota, Utah,
                                                 Washington, Wyoming.
------------------------------------------------------------------------

    (b) Additional filings with OTS Headquarters. (1) In addition to 
filing in the Regional Office, if your application involves a 
significant issue of law or policy or if an applicable regulation or 
form directs you to file with OTS Headquarters, you must also file 
copies of your application with the Applications Filing Room at OTS 
headquarters, 1700 G Street, NW., Washington, DC 20552. You must file 
the number of copies indicated on the applicable form. If the form does 
not indicate the number of copies you must file or if OTS has not 
prescribed a form for your application, you must file three copies.
    (2)(i) You may obtain a list of applications involving significant 
issues of law or policy at the OTS website at www.ots.treas.gov or by 
contacting a Regional Office.
    (ii) OTS reserves the right to identify significant issues of law or 
policy in a particular application. OTS will advise you, in writing, if 
it makes this determination.

[66 FR 13000, Mar. 2, 2001, as amended at 66 FR 65820, Dec. 21, 2001; 67 
FR 78152, Dec. 23, 2002; 69 FR 76602, Dec. 22, 2004; 73 FR 76939, Dec. 
18, 2008]



Sec. 516.45  What is the filing date of my application?

    (a) Your application's filing date is the date that you complete all 
of the following requirements.

[[Page 65]]

    (1) You attend a pre-filing meeting and submit a draft business plan 
or relevant information, if OTS requires you to do so under Sec. 
516.15.
    (2) You file your application and all required copies with OTS, as 
described under Sec. 516.40.
    (i) If you are required to file with a Regional Office and with OTS 
Headquarters, you have not filed with OTS until you file with both 
offices.
    (ii) You have not filed with a Regional Office or OTS Headquarters 
until you file the application and the required number of copies with 
that office.
    (iii) If you file after the close of business established by a 
Regional Office or OTS Headquarters, you have filed with that office on 
the next business day.
    (3) You pay the applicable fee. You have not paid the fee until you 
submit the fee to the appropriate Regional Office, or OTS waives the 
fee. You may pay by check, money order, cashier's check or wire transfer 
payable to OTS.
    (b) OTS may notify you that it has adjusted your application filing 
date if you fail to meet any applicable publication requirements.
    (c) If, after you properly file your application with the Regional 
Office, OTS determines that a significant issue of law or policy exists 
under Sec. 516.40(b)(2)(ii), the filing date of your application is the 
day you filed with the Regional Office. The 30-day review period under 
Sec. Sec. 516.200 or 516.210 of this part will restart in its entirety 
when the Regional Office forwards the appropriate number of copies of 
your application to OTS Headquarters.



Sec. 516.47  How do I amend or supplement my application?

    To amend or supplement your application, you must file the amendment 
or supplemental information at the appropriate OTS office(s) along with 
the number of copies required under Sec. 516.40. Your amendment or 
supplemental information also must meet the caption and exhibit 
requirements at Sec. 516.30(b).



                   Subpart B_Publication Requirements

    Source: 62 FR 64143, Dec. 4, 1997, unless otherwise noted.



Sec. 516.50  Who must publish a public notice of an application?

    This subpart applies whenever an OTS regulation requires an 
applicant (``you'') to follow the public notice procedures in this 
subpart.



Sec. 516.55  What information must I include in my public notice?

    Your public notice must include the following:
    (a) Your name and address.
    (b) The type of application.
    (c) The name of the depository institution(s) that is the subject 
matter of the application.
    (d) A statement indicating that the public may submit comments to 
the appropriate OTS office(s).
    (e) The address of the appropriate OTS offices where the public may 
submit comments.
    (f) The date that the comment period closes.
    (g) A statement indicating that the nonconfidential portions of the 
application are on file in the Regional Office, and are available for 
public inspection during regular business hours.
    (h) Any other information that OTS requires you to publish. You may 
find the format for various publication notices in the appendix to OTS 
application processing handbook.

[66 FR 13002, Mar. 2, 2001]



Sec. 516.60  When must I publish the public notice?

    You must publish a public notice of the application no earlier than 
seven days before and no later than the date of filing of the 
application.



Sec. 516.70  Where must I publish the public notice?

    You must publish the notice in a newspaper having a general 
circulation in the communities indicated in the following chart:

[[Page 66]]



------------------------------------------------------------------------
                                                You must publish in the
              If you file . . .                following communities . .
                                                           .
------------------------------------------------------------------------
(a) An application for permission to          The community in which
 organize under Sec. 543.2 of this           your home office is
 chapter, a Bank Merger Act application        located.
 under 563.22(a) of this chapter, an
 application to convert to is a federal
 charter under Sec. 543.8 or Sec. 552.2-
 6 of this chapter, or an application for a
 mutual to stock conversion under part 563b
 of this chapter . . .
(b) An application to establish a branch      The community to be served
 office under Sec. 545.95 of this chapter    by the branch office.
 . . .
(c) An application for the change of          The community in which the
 permanent location of a home or branch        existing office is
 office under Sec. 545.95 of this chapter    located and the community
 . . .                                         to be served by the new
                                               office.
(d) A holding company application or a        The community in which the
 change of control notice under part 574 of    home office of the
 this chapter . . .                            savings association whose
                                               stock is to be acquired
                                               is located and, if
                                               applicable, the community
                                               in which the home office
                                               of the acquiror's largest
                                               subsidiary savings
                                               association is located.
------------------------------------------------------------------------


[69 FR 68246, Nov. 24, 2004]



Sec. 516.80  What language must I use in my publication?

    (a) English. You must publish the notice in a newspaper printed in 
the English language.
    (b) Other than English. If the OTS determines that the primary 
language of a significant number of adult residents of the community is 
a language other than English, the OTS may require that you 
simultaneously publish additional notice(s) in the community in the 
appropriate language(s).



                      Subpart C_Comment Procedures

    Source: 62 FR 64144, Dec. 4, 1997, unless otherwise noted.



Sec. 516.100  What does this subpart do?

    This subpart contains the procedures governing the submission of 
public comments on certain types of applications or notices 
(``applications'') pending before the OTS. It applies whenever a 
regulation incorporates the procedures in this subpart, or where 
otherwise required by the OTS.



Sec. 516.110  Who may submit a written comment?

    Any person may submit a written comment supporting or opposing an 
application.

[62 FR 64144, Dec. 4, 1997, as amended at 66 FR 13003, Mar. 2, 2001]



Sec. 516.120  What information should a comment include?

    (a) A comment should recite relevant facts, including any 
demographic, economic, or financial data, supporting the commenter's 
position. A comment opposing an application should also:
    (1) Address at least one of the reasons why OTS may deny the 
application under the relevant statute or regulation;
    (2) Recite any relevant facts and supporting data addressing these 
reasons; and;
    (3) Address how the approval of the application could harm the 
commenter or any community.
    (b) A commenter must include any request for a meeting under Sec. 
516.170 in its comment. The commenter must describe the nature of the 
issues or facts to be discussed and the reasons why written submissions 
are insufficient to adequately address these facts or issues.

[66 FR 13003, Mar. 2, 2001, as amended at 69 FR 68247, Nov. 24, 2004]



Sec. 516.130  Where are comments filed?

    A commenter must file with the appropriate OTS Regional Office (See 
table at Sec. 516.40(a)(2)). The commenter must simultaneously send a 
copy of the comment to the applicant.

[66 FR 13003, Mar. 2, 2001]



Sec. 516.140  How long is the comment period?

    (a) General. Except as provided in paragraph (b) of this section, a 
commenter must file a written comment with OTS within 30 calendar days 
after the date of publication of the initial public notice.

[[Page 67]]

    (b) Late-filed comments. OTS may consider late-filed comments if OTS 
determines that the comment will assist in the disposition of the 
application.

[69 FR 68247, Nov. 24, 2004]



                      Subpart D_Meeting Procedures

    Source: 69 FR 68247, Nov. 24, 2004, unless otherwise noted.



Sec. 516.160  What does this subpart do?

    This subpart contains meeting procedures. It applies whenever a 
regulation incorporates the procedures in this subpart, or when 
otherwise required by OTS.



Sec. 516.170  When will OTS conduct a meeting on an application?

    (a) OTS will grant a meeting request or conduct a meeting on its own 
initiative, if it finds that written submissions are insufficient to 
address facts or issues raised in an application, or otherwise 
determines that a meeting will benefit the decision-making process. OTS 
may limit the issues considered at the meeting to issues that OTS 
decides are relevant or material.
    (b) OTS will inform the applicant and all commenters requesting a 
meeting of its decision to grant or deny a meeting request, or of its 
decision to conduct a meeting on its own initiative.
    (c) If OTS decides to conduct a meeting, OTS will invite the 
applicant and any commenters requesting a meeting and raising an issue 
that OTS intends to consider at the meeting. OTS may also invite other 
interested persons to attend. OTS will inform the participants of the 
date, time, location, issues to be considered, and format for the 
meeting a reasonable time before the meeting.



Sec. 516.180  What procedures govern the conduct of the meeting?

    (a) OTS may conduct meetings in any format including, but not 
limited to, a telephone conference, a face-to-face meeting, or a more 
formal meeting.
    (b) The Administrative Procedure Act (5 U.S.C. 551 et seq.), the 
Federal Rules of Evidence (28 U.S.C. Appendix), the Federal Rules of 
Civil Procedure (28 U.S.C. Rule 1 et seq.) and the OTS Rules of Practice 
and Procedure in Adjudicatory Proceedings (12 CFR part 509) do not apply 
to meetings under this section.



Sec. 516.185  Will OTS approve or disapprove an application at a meeting?

    OTS will not approve or deny an application at a meeting under this 
subpart.



Sec. 516.190  Will a meeting affect application processing time frames?

    If OTS decides to conduct a meeting, it may suspend applicable 
application processing time frames, including the time frames for 
deeming an application complete and the applicable approval time frames 
in subpart E of this part. If OTS suspends applicable application 
processing time frames, the time period will resume when OTS determines 
that a record has been developed that sufficiently supports a 
determination on the issues considered at the meeting.



                          Subpart E_OTS Review

    Source: 66 FR 13003, Mar. 2, 2001, unless otherwise noted.

                           Expedited Treatment



Sec. 516.200  If I file a notice under expedited treatment, when may
I engage in the proposed activities?

    If you are eligible for expedited treatment and you have 
appropriately filed your notice with OTS, you may engage in the proposed 
activities upon the expiration of 30 days after the filing date of your 
notice, unless OTS takes one of the following actions before the 
expiration of that time period:
    (a) OTS notifies you in writing that you must file additional 
information supplementing your notice. If you are required to file 
additional information, you may engage in the proposed activities upon 
the expiration of 30 calendar days after the date you file the 
additional information, unless OTS takes one of the actions described in 
paragraphs (b) through (d) of this section before the expiration of that 
time period;

[[Page 68]]

    (b) OTS notifies you in writing that your notice is subject to 
standard treatment under this subpart. OTS will subject your notice to 
standard treatment if it raises a supervisory concern, raises a 
significant issue of law or policy, or requires significant additional 
information;
    (c) OTS notifies you in writing that it is suspending the applicable 
time frames under Sec. 516.190; or
    (d) OTS notifies you that it disapproves your notice.

                           Standard Treatment



Sec. 516.210  What will OTS do after I file my application?

    (a) OTS action. Within 30 calendar days after the filing date of 
your application, OTS will take one of the following actions:

------------------------------------------------------------------------
              If OTS * * *                          Then * * *
------------------------------------------------------------------------
(1) Notifies you, in writing, that your  The applicable review period
 application is complete * * *.           will begin on the date that
                                          OTS deems your application
                                          complete.
(2) Notifies you, in writing, that you   You must submit the required
 must submit addition information to      additional information under
 complete your application * * *.         Sec. 516.220.
(3) Notifies you, in writing, that your  OTS will not process your
 application is materially deficient *    application.
 * *.
(4) Takes no action * * *..............  Your application is deemed
                                          complete. The applicable
                                          review period will begin on
                                          the day the 30-day time period
                                          expires.
------------------------------------------------------------------------

    (b) Waiver requests. If your application includes a request for 
waiver of an information requirement under Sec. 516.25(b), and OTS has 
not notified you that you must submit additional information under 
paragraph (a)(2) of this section, your request for waiver is granted.



Sec. 516.220  If OTS requests additional information to complete my 
application, how will it process my application?

    (a) You may use the following chart to determine the procedure that 
applies to your submission of additional information under Sec. 
516.210(a)(1):

------------------------------------------------------------------------
   If, within 30 calendar days
 after the date of OTS's request   Then, OTS may * *      And * * *.
for additional information * * *          *.
------------------------------------------------------------------------
(1) You file a response to all    (i) Notify you in   The applicable
 information requests * * *.       writing within 15   review period
                                   days after the      will begin on the
                                   filing date of      date tha t OTS
                                   your response       deems your
                                   that your           application
                                   application is      complete.
                                   complete * * *
                                   applicable to all
                                   response that
                                   your application
                                   is complete * * *.
                                  (ii) Notify you in  You must respond
                                   writing within 15   to the additional
                                   calendar days       information
                                   after the filing    request within
                                   date of your        the time period
                                   response that you   required by OTS.
                                   must submit         OTS will review
                                   additional          your response
                                   information         under the
                                   regarding matters   procedures
                                   derived from or     described in this
                                   prompted by         section.
                                   information
                                   already furnished
                                   or any additional
                                   information
                                   information
                                   necessary to
                                   resolve the
                                   issues presented
                                   in your
                                   application * * *.
                                  (iii) Notify you    OTS will not
                                   in writing within   process your
                                   15 calendar days    application.
                                   after the filing
                                   date of your
                                   response that
                                   your application
                                   is materially
                                   deficient * * *.
                                  (iv) Take no        Your application
                                   action within 15    is deemed
                                   calendar days       complete. The
                                   after the filing    applicable review
                                   date of your        period will begin
                                   response * * *.     on the day that
                                                       the 15-day time
                                                       period expires.
(2) You request an extension of   (i) Grant an        You must fully
 time to file additional           extension, in       respond within
 information * * *.                writing,            the extended time
                                   specifying the      period specified
                                   number of days      by OTS. OTS will
                                   for the extension   review your
                                   * * *.              response under
                                                       the procedures
                                                       described under
                                                       this section.
                                  (ii) Notify you in  OTS will not
                                   writing that your   process your
                                   extension request   application
                                   is disapproved *    further. You may
                                   * *.                resubmit the
                                                       application for
                                                       processing as a
                                                       new filing under
                                                       the applicable
                                                       regulation.

[[Page 69]]

 
(3) You fail to respond           (i) Notify you in   OTS will not
 completely * * *.                 writing that your   process your
                                   application is      application
                                   deemed withdrawn    further. You may
                                   * * *.              resubmit the
                                                       application for
                                                       processing as a
                                                       new filing under
                                                       the applicable
                                                       regulation.
                                  (ii) Notify you,    You must fully
                                   in writing, that    respond within
                                   your response is    the extended time
                                   incomplete and      period specified
                                   extend the          by OTS. OTS will
                                   response period,    review your
                                   specifying the      response under
                                   number of days      the procedures
                                   for the respond     described under
                                   extension * * *.    this section.
------------------------------------------------------------------------

    (b) OTS may extend the 15-day period referenced in paragraph (a)(1) 
of this section by up to 15 calendar days, if OTS requires the 
additional time to review your response. OTS will notify you that it has 
extended the period before the end of the initial 15-day period and will 
briefly explain why the extension is necessary.
    (c) If your response filed under paragraph (a)(1) of this section 
includes a request for a waiver of an informational requirement, your 
request for a waiver is granted if OTS fails to act on it within 15 
calendar days after the filing of your response, unless OTS extends the 
review period under paragraph (b). If OTS extends the review period 
under paragraph (b), your request is granted if OTS fails to act on it 
by the end of the extended review period.

[66 FR 13003, Mar. 2, 2001; 67 FR 3264, Jan. 23, 2002]



Sec. 516.230  Will OTS conduct an eligibility examination?

    (a) Eligibility examination. OTS may notify you at any time before 
it deems your application complete that it will conduct an eligibility 
examination. If OTS decides to conduct an eligibility examination, it 
will not deem your application complete until it concludes the 
examination.
    (b) Additional information. OTS may, as a result of the eligibility 
examination, notify you that you must submit additional information to 
complete your application. If so, you must respond to the additional 
information request within the time period required by OTS. OTS will 
review your response under the procedures described in Sec. 516.220.



Sec. 516.240  What may OTS require me to do after my application is
deemed complete?

    After your application is deemed complete, but before the end of the 
applicable review period,
    (a) OTS may require you to provide additional information if the 
information is necessary to resolve or clarify the issues presented by 
your application.
    (b) OTS may determine that a major issue of law or a change in 
circumstances arose after you filed your application, and that the issue 
or changed circumstances will substantially effect your application. If 
OTS identifies such an issue or changed circumstances, it may:
    (1) Notify you, in writing, that your application is now incomplete 
and require you to submit additional information to complete the 
application under the procedures described at Sec. 516.220; and
    (2) Require you to publish a new public notice of your application 
under Sec. 516.250.



Sec. 516.250  Will OTS require me to publish a new public notice?

    (a) If your application was subject to a publication requirement, 
OTS may require you to publish a new public notice of your application 
if:
    (1) You submitted a revision to the application, you submitted new 
or additional information, or a major issue of law or a change in 
circumstances arose after the filing of your application; and
    (2) OTS determines that additional comment on these matters is 
appropriate because of the significance of the new information or 
circumstances.

[[Page 70]]

    (b) OTS will notify you in writing if you must publish a new public 
notice of your revised application.
    (c) If you are required to publish a new public notice of your 
revised application, you must notify OTS after you publish the new 
public notice.



Sec. 516.260  May OTS suspend processing of my application?

    (a) Suspension. OTS may, at any time, indefinitely suspend 
processing of your application if:
    (1) OTS, another governmental entity, or a self-regulatory trade or 
professional organization initiates an investigation, examination, or 
administrative proceeding that is relevant to OTS's evaluation of your 
application;
    (2) You request the suspension or there are other extraordinary 
circumstances that have a significant impact on the processing of your 
application.
    (b) Notice. OTS will promptly notify you, in writing, if it suspends 
your application.



Sec. 516.270  How long is the OTS review period?

    (a) General. The applicable OTS review period is 60 calendar days 
after the date that your application is deemed complete, unless an 
applicable OTS regulation specifies a different review period.
    (b) Multiple applications. If you submit more than one application 
in connection with a proposed action or if two or more applicants submit 
related applications, the applicable review period for all applications 
is the review period for the application with the longest review period, 
subject to statutory review periods.
    (c) Extensions. (1) OTS may extend the review period for up to 30 
calendar days beyond the period described in paragraph (a) or (b) of 
this section. OTS must notify you in writing of the extension and the 
duration of the extension. OTS must issue the written extension before 
the end of the review period.
    (2) OTS may also extend the review period as needed until it acts on 
the application, if the application presents a significant issue of law 
or policy that requires additional time to resolve. OTS must notify you 
in writing of the extension and the general reasons for the extension. 
OTS must issue the written extension before the end of the review 
period, including any extension of that period under paragraph (c)(1) of 
this section. This section applies to applications and notices filed 
under Sec. 575.3(b) and part 574 of this chapter.



Sec. 516.280  How will I know if my application has been approved?

    (a) OTS approval or denial. (1) OTS will approve or deny your 
application before the expiration of the applicable review period, 
including any extensions of the review period.
    (2) OTS will promptly notify you in writing of its decision to 
approve or deny your application.
    (b) No OTS action. If OTS fails to act under paragraph (a)(1) of 
this section, your application is approved.



Sec. 516.290  What will happen if OTS does not approve or disapprove
my application within two calendar years after the filing date?

    (a) Withdrawal. If OTS has not approved or denied your pending 
application within two calendar years after the filing date under Sec. 
516.45, OTS will notify you, in writing, that your application is deemed 
withdrawn unless OTS determines that you are actively pursuing a final 
OTS determination on your application. You are not actively pursuing a 
final OTS determination if you have failed to timely take an action 
required under this part, including filing required additional 
information, or OTS has suspended processing of your application under 
Sec. 516.260 based on circumstances that are, in whole or in part, 
within your control and you have failed to take reasonable steps to 
resolve these circumstances.
    (b) Effective date. This section is effective July 1, 2001.



PART 517_CONTRACTING OUTREACH PROGRAMS--Table of Contents




Sec.
517.1 Purpose and scope.
517.2 Definitions.
517.3 Policy.
517.4 Oversight and monitoring.
517.5 Outreach.
517.6 Certification.

[[Page 71]]

517.7 Contract award guidelines.

    Authority: 12 U.S.C. 1833(e); 42 U.S.C. 12101 et seq.

    Source: 58 FR 33324, June 17, 1993, unless otherwise noted.



Sec. 517.1  Purpose and scope.

    The purpose of the OTS Minority-, Women- and Individuals with 
Disabilities-Owned Businesses Outreach Program (Outreach Program) is to 
ensure that firms owned and operated by minorities, women and 
individuals with disabilities are given the opportunity to participate 
to the maximum extent possible in all contracts entered into by the OTS. 
Sections 517.5 through 517.7 of this part apply to all contracting 
activities, with the exception of contracting for legal services, 
engaged in by OTS in any of its capacities, for all OTS functions 
authorized by law. These contracts will typically pertain to services in 
support of OTS's business operations, such as consulting, programming, 
auditing, expert witnesses, customized training, relocation services, 
information systems technology (computer systems, database management, 
software and office automation), or micrographic services; or in support 
of its day-to-day operations, such as facilities management, mail and 
printing services, or procurement of office supplies, furniture and 
office equipment.



Sec. 517.2  Definitions.

    The definitions included in this part are derived from common usage 
of these terms. A term in this part includes all those who are commonly 
understood to be included within that term.
    (a) Minority- and/or women-owned (small and large) businesses and 
entities owned by minorities and women means firms at least fifty-one 
(51) percent owned by individuals who are members of the minority group 
or women and who are citizens of the United States. In the case of 
publicly-owned companies, at least fifty-one (51) percent of each class 
of voting stock must be owned by one or more members of the minority 
group or by one or more women, who are citizens of the United States. In 
the case of partnerships, at least fifty-one (51) percent of the 
partnership interest must be owned by one or more members of the 
minority group or by one or more women, who are citizens of the United 
States. Additionally, the management and daily business operations of 
the firm must be controlled by one or more such individuals.
    (b) Minority means any Black/African-American; Native American 
(American Indians, Eskimos, Aleuts and Native Hawaiians); Hispanic 
American; Asian-Pacific American; or Subcontinent-Asian American.
    (c) Small and large businesses and entities owned by individuals 
with disabilities means firms at least fifty-one (51) percent owned by 
individuals with disabilities who are citizens of the United States. In 
the case of publicly-owned companies, at least fifty-one (51) percent of 
each class of voting stock must be owned by individuals with 
disabilities who are citizens of the United States. In the case of 
partnerships, at least fifty-one (51) percent of the partnership 
interest must be owned by individuals with disabilities who are citizens 
of the United States. Additionally, the management and daily business 
operations must be controlled by one or more such individuals.
    (d) Disability, as used in this part, has the same meaning as the 
term used in section 3 of the Americans With Disabilities Act of 1990, 
Public Law 101-336, 104 Stat. 327 (42 U.S.C. 12101 et seq).



Sec. 517.3  Policy.

    It is the policy of the OTS that minorities, women and individuals 
with disabilities and entities owned by minorities, women and 
individuals with disabilities are given the opportunity to participate 
to the maximum extent possible in all contracts entered into by the OTS.



Sec. 517.4  Oversight and monitoring.

    The Director of OTS shall appoint an Outreach Program Advocate, who 
shall have primary responsibility for furthering the purposes of the 
Outreach Program.



Sec. 517.5  Outreach.

    (a) The outreach program advocate shall perform outreach activities 
and

[[Page 72]]

act as liaison between the OTS and the public on outreach program 
issues.
    (b) Outreach activities include the identification and registration 
of minority-, women-owned (small and large) businesses and entities 
owned by individuals with disabilities who can provide goods and 
services utilized by the OTS. This includes distributing information 
concerning the Outreach Program and providing appropriate registration 
materials for use by vendors and contractors. Identification will 
primarily be accomplished by:
    (1) Obtaining various lists and directories maintained by other 
federal, state and local governmental agencies of Outreach Program 
businesses;
    (2) Participating in conventions, seminars and professional meetings 
oriented towards Outreach Programs;
    (3) Conducting seminars, meetings, workshops and various other 
functions; and
    (4) Monitoring proposed purchases and contracts to assure that OTS 
contracting staff understand and actively promote the Outreach Program.



Sec. 517.6  Certification.

    In order to qualify as an Outreach Program participant, each 
business or contractor must either:
    (a) Self-certify ownership status by filing with the OTS Outreach 
Program Advocate a completed and signed Solicitation Mailing List 
Application, Standard Form 129 (SF-129), as prescribed by the Federal 
Acquisition Regulation (48 CFR part 53);
    (b) Self-certify ownership status by filing with the OTS Outreach 
Program Advocate a completed and signed ABELS Registration/Certification 
Form, as prescribed by the U.S. Department of Commerce's Minority 
Business Development Agency and available from the Outreach Program 
Advocate at the headquarters address of the OTS listed in Sec. 
516.40(b) of this chapter.
    (c) Submit a valid Outreach Program certification received from a 
Federal agency, or a designated state or authorized local agency.

[58 FR 33324, June 17, 1993, as amended at 66 FR 13005, Mar. 2, 2001]



Sec. 517.7  Contract award guidelines.

    Contracts for goods or services shall be awarded in accordance with 
OTS procurement rules and policies (48 CFR chapter 1 and FIRMR, 41 CFR 
chapter 201). The OTS Outreach Program Advocate shall work to facilitate 
the maximum participation of minority-, women-owned (small and large) 
businesses and entities owned by individuals with disabilities in the 
OTS procurement of goods or services.



PART 528_NONDISCRIMINATION REQUIREMENTS--Table of Contents




Sec.
528.1 Definitions.
528.1a Supplementary guidelines.
528.2 Nondiscrimination in lending and other services.
528.2a Nondiscriminatory appraisal and underwriting.
528.3 Nondiscrimination in applications.
528.4 Nondiscriminatory advertising.
528.5 Equal Housing Lender Poster.
528.6 Loan application register.
528.7 Nondiscrimination in employment.
528.8 Complaints.
528.9 Guidelines relating to nondiscrimination in lending.

    Authority: 12 U.S.C. 1464, 2810 et seq., 2901 et seq.; 15 U.S.C. 
1691; 42 U.S.C. 1981, 1982, 3601-3619.

    Source: 55 FR 1388, Jan. 16, 1990, unless otherwise noted.



Sec. 528.1  Definitions.

    As used in this part 528--
    (a) Application. For purposes of this part, an application for a 
loan or other service is as defined in Regulation C, 12 CFR 203.2(b).
    (b) Savings association. The term ``savings association'' means any 
savings association as defined in 12 U.S.C. 1813(b).
    (c) Dwelling. The term ``dwelling'' means a residential structure 
(whether or not it is attached to real property) located in a state of 
the United States of America, the District of Colombia, or the 
Commonwealth of Puerto Rico. The term includes an individual condominium 
unit, cooperative unit, or mobile or manufactured home.

[55 FR 1388, Jan. 16, 1990, as amended at 58 FR 4312, Jan. 14, 1993; 63 
FR 71212, Dec. 24, 1998; 71 FR 19811, Apr. 18, 2006]

[[Page 73]]



Sec. 528.1a  Supplementary guidelines.

    The Office's policy statement found at 12 CFR 528.9 supplements this 
part and should be read together with this part. Refer also to the HUD 
Fair Housing regulations at 24 CFR parts 100 et seq., Federal Reserve 
Regulation B at 12 CFR part 202, and Federal Reserve Regulation C at 12 
CFR part 203.

[63 FR 71212, Dec. 24, 1998]



Sec. 528.2  Nondiscrimination in lending and other services.

    (a) No savings association may deny a loan or other service, or 
discriminate in the purchase of loans or securities or discriminate in 
fixing the amount, interest rate, duration, application procedures, 
collection or enforcement procedures, or other terms or conditions of 
such loan or other service on the basis of the age or location of the 
dwelling, or on the basis of the race, color, religion, sex, handicap, 
familial status (having one or more children under the age of 18), 
marital status, age (provided the person has the capacity to contract) 
or national origin of:
    (1) An applicant or joint applicant;
    (2) Any person associated with an applicant or joint applicant 
regarding such loan or other service, or with the purposes of such loan 
or other service;
    (3) The present or prospective owners, lessees, tenants, or 
occupants of the dwelling(s) for which such loan or other service is to 
be made or given;
    (4) The present or prospective owners, lessees, tenants, or 
occupants of other dwellings in the vicinity of the dwelling(s) for 
which such loan or other service is to be made or given.
    (b) A savings association shall consider without prejudice the 
combined income of joint applicants for a loan or other service.
    (c) No savings association may discriminate against an applicant for 
a loan or other service on any prohibited basis (as defined in 12 CFR 
202.2(z) and 24 CFR part 100).

    Note: See also, Sec. 528.9 (b) and (c).

[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]



Sec. 528.2a  Nondiscriminatory appraisal and underwriting.

    (a) Appraisal. No savings association may use or rely upon an 
appraisal of a dwelling which the savings association knows, or 
reasonably should know, is discriminatory on the basis of the age or 
location of the dwelling, or is discriminatory per se or in effect under 
the Fair Housing Act of 1968 or the Equal Credit Opportunity Act.
    (b) Underwriting. Each savings association shall have clearly 
written, non-discriminatory loan underwriting standards, available to 
the public upon request, at each of its offices. Each association shall, 
at least annually, review its standards, and business practices 
implementing them, to ensure equal opportunity in lending

    Note: See also, Sec. 528.9(b), (c)(6), and (c)(7).

[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]



Sec. 528.3  Nondiscrimination in applications.

    (a) No savings association may discourage, or refuse to allow, 
receive, or consider, any application, request, or inquiry regarding a 
loan or other service, or discriminate in imposing conditions upon, or 
in processing, any such application, request, or inquiry on the basis of 
the age or location of the dwelling, or on the basis of the race, color, 
religion, sex, handicap, familial status (having one or more children 
under the age of 18), marital status, age (provided the person has the 
capacity to contract), national origin, or other characteristics 
prohibited from consideration in Sec. 528.2(c) of this part, of the 
prospective borrower or other person, who:
    (1) Makes application for any such loan or other service;
    (2) Requests forms or papers to be used to make application for any 
such loan or other service; or
    (3) Inquires about the availability of such loan or other service.
    (b) A savings association shall inform each inquirer of his or her 
right to file a written loan application, and to receive a copy of the 
association's underwriting standards.


[[Page 74]]


    Note: See also, Sec. 528.9(a) through (d).

[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]



Sec. 528.4  Nondiscriminatory advertising.

    No savings association may directly or indirectly engage in any form 
of advertising that implies or suggests a policy of discrimination or 
exclusion in violation of title VIII of the Civil Rights Acts of 1968, 
the Equal Credit Opportunity Act, or this part 528. Advertisements for 
any loan for the purpose of purchasing, constructing, improving, 
repairing, or maintaining a dwelling or any loan secured by a dwelling 
shall include a facsimile of the following logotype and legend:
[GRAPHIC] [TIFF OMITTED] TC07SE91.000


[55 FR 1388, Jan. 16, 1990, as amended at 69 FR 68247, Nov. 24, 2004]



Sec. 528.5  Equal Housing Lender Poster.

    (a) Each savings association shall post and maintain one or more 
Equal Housing Lender Posters, the text of which is prescribed in 
paragraph (b) of this section, in the lobby of each of its offices in a 
prominent place or places readily apparent to all persons seeking loans. 
The poster shall be at least 11 by 14 inches in size, and the text shall 
be easily legible. It is recommended that savings associations post a 
Spanish language version of the poster in offices serving areas with a 
substantial Spanish-speaking population.
    (b) The text of the Equal Housing Lender Poster shall be as follows:
    [GRAPHIC] [TIFF OMITTED] TC07SE91.001
    
    We Do Business In Accordance With Federal Fair Lending Laws.
    UNDER THE FEDERAL FAIR HOUSING ACT, IT IS ILLEGAL, ON THE BASIS OF 
RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX, HANDICAP, OR FAMILIAL 
STATUS (HAVING CHILDREN UNDER THE AGE OF 18) TO:
    [ ]Deny a loan for the purpose of purchasing, constructing, 
improving, repairing or maintaining a dwelling or to deny any loan 
secured by a dwelling; or
    [ ]Discriminate in fixing the amount, interest rate, duration, 
application procedures, or other terms or conditions of such a loan or 
in appraising property.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD:
    SEND A COMPLAINT TO:
    Assistant Secretary for Fair Housing and Equal Opportunity, 
Department of Housing and Urban Development, Washington, DC 20410.
    For processing under the Federal Fair Housing Act
    AND TO:
    Director, Consumer Affairs, Office of Thrift Supervision, 
Washington, DC 20552.
    For processing under Office of Thrift Supervision Regulations.

    UNDER THE EQUAL CREDIT OPPORTUNITY ACT, IT IS ILLEGAL TO 
DISCRIMINATE IN ANY CREDIT TRANSACTION:
    [ ]On the basis of race, color, national origin, religion, sex, 
marital status, or age;
    [ ]Because income is from public assistance; or
    [ ]Because a right has been exercised under the Consumer Credit 
Protection Act.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD SEND 
A COMPLAINT TO:
    Director, Consumer Affairs, Office of Thrift Supervision, 
Washington, DC 20552.



Sec. 528.6  Loan application register.

    Savings associations and other lenders required to file Home 
Mortgage

[[Page 75]]

Disclosure Act Loan Application Registers with the Office of Thrift 
Supervision in accordance with 12 CFR part 203 must enter the reason for 
denial, using the codes provided in 12 CFR part 203, with respect to all 
loan denials.

[58 FR 4312, Jan. 14, 1993]



Sec. 528.7  Nondiscrimination in employment.

    (a) No savings association shall, because of an individual's race, 
color, religion, sex, or national origin:
    (1) Fail or refuse to hire such individual;
    (2) Discharge such individual;
    (3) Otherwise discriminate against such individual with respect to 
such individual's compensation, promotion, or the terms, conditions, or 
privileges of such individual's employment; or
    (4) Discriminate in admission to, or employment in, any program of 
apprenticeship, training, or retraining, including on-the-job training.
    (b) No savings association shall limit, segregate, or classify its 
employees in any way which would deprive or tend to deprive any 
individual of employment opportunities or otherwise adversely affect 
such individual's status as an employee because of such individual's 
race, color, religion, sex, or national origin.
    (c) No savings association shall discriminate against any employee 
or applicant for employment because such employee or applicant has 
opposed any employment practice made unlawful by Federal, State, or 
local law or regulation or because he has in good faith made a charge of 
such practice or testified, assisted, or participated in any manner in 
an investigation, proceeding, or hearing of such practice by any 
lawfully constituted authority.
    (d) No savings association shall print or publish or cause to be 
printed or published any notice or advertisement relating to employment 
by such savings association indicating any preference, limitation, 
specification, or discrimination based on race, color, religion, sex, or 
national origin.
    (e) This regulation shall not apply in any case in which the Federal 
Equal Employment Opportunities law is made inapplicable by the 
provisions of section 2000e-1 or sections 2000e-2 (e) through (j) of 
title 42, United States Code.
    (f) Any violation of the following laws or regulations by a savings 
association shall be deemed to be a violation of this part 528:
    (1) The Equal Employment Opportunity Act, as amended, 42 U.S.C. 
2000e-2000h-2, and Equal Employment Opportunity Commission (EEOC) 
regulations at 29 CFR part 1600;
    (2) The Age Discrimination in Employment Act, 29 U.S.C. 621-633, and 
EEOC and Department of Labor regulations;
    (3) Department of the Treasury regulations at 31 CFR part 12 and 
Office of Federal Contract Compliance Programs (OFCCP) regulations at 41 
CFR part 60;
    (4) The Veterans Employment and Readjustment Act of 1972, 38 U.S.C. 
2011-2012, and the Vietnam Era Veterans Readjustment Adjustment 
Assistance Act of 1974, 38 U.S.C. 2021-2026;
    (5) The Rehabilitation Act of 1973, 29 U.S.C. 701 et al.; and
    (6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS 
regulations at 8 CFR part 274a.



Sec. 528.8  Complaints.

    Complaints regarding discrimination in lending by a savings 
association shall be referred to the Assistant Secretary for Fair 
Housing and Equal Opportunity, U.S. Department of Housing and Urban 
Development, Washington, DC 20410 for processing under the Fair Housing 
Act, and to the Director, Consumer Affairs, Office of Thrift 
Supervision, Washington, DC 20552 for processing under Office 
regulations. Complaints regarding discrimination in employment by a 
savings association should be referred to the Equal Employment 
Opportunity Commission, Washington, DC 20506 and a copy, for information 
only, sent to the Director, Consumer Affairs, Office of Thrift 
Supervision, Washington, DC 20552.



Sec. 528.9  Guidelines relating to nondiscrimination in lending.

    (a) General. Fair housing and equal opportunity in home financing is 
a policy of the United States established by Federal statutes and 
Presidential orders and proclamations. In furtherance

[[Page 76]]

of the Federal civil rights laws and the economical home financing 
purposes of the statutes administered by the Office, the Office has 
adopted, in part 528 of this chapter, nondiscrimination regulations 
that, among other things, prohibit arbitrary refusals to consider loan 
applications on the basis of the age or location of a dwelling, and 
prohibit discrimination based on race, color, religion, sex, handicap, 
familial status (having one or more children under the age of 18), 
marital status, age (provided the person has the capacity to contract), 
or national origin in fixing the amount, interest rate, duration, 
application procedures, collection or enforcement procedures, or other 
terms or conditions of housing related loans. Such discrimination is 
also prohibited in the purchase of loans and securities. This section 
provides supplementary guidelines to aid savings associations in 
developing and implementing nondiscriminatory lending policies. Each 
savings association should reexamine its underwriting standards at least 
annually in order to ensure equal opportunity.
    (b) Loan underwriting standards. The basic purpose of the Office's 
nondiscrimination regulations is to require that every applicant be 
given an equal opportunity to obtain a loan. Each loan applicant's 
creditworthiness should be evaluated on an individual basis without 
reference to presumed characteristics of a group. The use of lending 
standards which have no economic basis and which are discriminatory in 
effect is a violation of law even in the absence of an actual intent to 
discriminate. However, a standard which has a discriminatory effect is 
not necessarily improper if its use achieves a genuine business need 
which cannot be achieved by means which are not discriminatory in effect 
or less discriminatory in effect.
    (c) Discriminatory practices--(1) Discrimination on the basis of sex 
or marital status. The Civil Rights Act of 1968 and the National Housing 
Act prohibit discrimination in lending on the basis of sex. The Equal 
Credit Opportunity Act, in addition to this prohibition, forbids 
discrimination on the basis of marital status. Refusing to lend to, 
requiring higher standards of creditworthiness of, or imposing different 
requirements on, members of one sex or individuals of one marital 
status, is discrimination based on sex or marital status. Loan 
underwriting decisions must be based on an applicant's credit history 
and present and reasonably foreseeable economic prospects, rather than 
on the basis of assumptions regarding comparative differences in 
creditworthiness between married and unmarried individuals, or between 
men and women.
    (2) Discrimination on the basis of language. Requiring fluency in 
the English language as a prerequisite for obtaining a loan may be a 
discriminatory practice based on national origin.
    (3) Income of husbands and wives. A practice of discounting all or 
part of either spouse's income where spouses apply jointly is a 
violation of section 527 of the National Housing Act. As with other 
income, when spouses apply jointly for a loan, the determination as to 
whether a spouse's income qualifies for credit purposes should depend 
upon a reasonable evaluation of his or her past, present, and reasonably 
foreseeable economic circumstances. Information relating to child-
bearing intentions of a couple or an individual may not be requested.
    (4) Supplementary income. Lending standards which consider as 
effective only the non-overtime income of the primary wage-earner may 
result in discrimination because they do not take account of variations 
in employment patterns among individuals and families. The Office favors 
loan underwriting which reasonably evaluates the credit worthiness of 
each applicant based on a realistic appraisal of his or her own past, 
present, and foreseeable economic circumstances. The determination as to 
whether primary income or additional income qualifies as effective for 
credit purposes should depend upon whether such income may reasonably be 
expected to continue through the early period of the mortgage risk. 
Automatically discounting other income from bonuses, overtime, or part-
time employment, will cause some applicants to be denied financing 
without a realistic analysis of their credit worthiness. Since 
statistics show that minority group members and

[[Page 77]]

low- and moderate-income families rely more often on such supplemental 
income, the practice may be racially discriminatory in effect, as well 
as artificially restrictive of opportunities for home financing.
    (5) Applicant's prior history. Loan decisions should be based upon a 
realistic evaluation of all pertinent factors respecting an individual's 
creditworthiness, without giving undue weight to any one factor. The 
savings association should, among other things, take into consideration 
that:
    (i) In some instances, past credit difficulties may have resulted 
from discriminatory practices;
    (ii) A policy favoring applicants who previously owned homes may 
perpetuate prior discrimination;
    (iii) A current, stable earnings record may be the most reliable 
indicator of credit-worthiness, and entitled to more weight than factors 
such as educational level attained;
    (iv) Job or residential changes may indicate upward mobility; and
    (v) Preferring applicants who have done business with the lender can 
perpetuate previous discriminatory policies.
    (6) Income level or racial composition of area. Refusing to lend or 
lending on less favorable terms in particular areas because of their 
racial composition is unlawful. Refusing to lend, or offering less 
favorable terms (such as interest rate, downpayment, or maturity) to 
applicants because of the income level in an area can discriminate 
against minority group persons.
    (7) Age and location factors. Sections 528.2, 528.2a, and 528.3 of 
this chapter prohibit loan denials based upon the age or location of a 
dwelling. These restrictions are intended to prohibit use of unfounded 
or unsubstantiated assumptions regarding the effect upon loan risk of 
the age of a dwelling or the physical or economic characteristics of an 
area. Loan decisions should be based on the present market value of the 
property offered as security (including consideration of specific 
improvements to be made by the borrower) and the likelihood that the 
property will retain an adequate value over the term of the loan. 
Specific factors which may negatively affect its short-range future 
value (up to 3-5 years) should be clearly documented. Factors which in 
some cases may cause the market value of a property to decline are 
recent zoning changes or a significant number of abandoned homes in the 
immediate vicinity of the property. However, not all zoning changes will 
cause a decline in property values, and proximity to abandoned buildings 
may not affect the market value of a property because of rehabilitation 
programs or affirmative lending programs, or because the cause of 
abandonment is unrelated to high risk. Proper underwriting 
considerations include the condition and utility of the improvements, 
and various physical factors such as street conditions, amenities such 
as parks and recreation areas, availability of public utilities and 
municipal services, and exposure to flooding and land faults. However, 
arbitrary decisions based on age or location are prohibited, since many 
older, soundly constructed homes provide housing opportunities which may 
be precluded by an arbitrary lending policy.
    (8) Fair Housing Act (title VIII, Civil Rights Act of 1968, as 
amended). Savings associations, must comply with all regulations 
promulgated by the Department of Housing and Urban Development to 
implement the Fair Housing Act, found at 24 CFR part 100 et seq., except 
that they shall use the Equal Housing Lender logo and poster prescribed 
by Office regulations at 12 CFR 528.4 and 528.5 rather than the Equal 
Housing Opportunity logo and poster required by 24 CFR parts 109 and 
110.
    (d) Marketing practices. Savings associations should review their 
advertising and marketing practices to ensure that their services are 
available without discrimination to the community they serve. 
Discrimination in lending is not limited to loan decisions and 
underwriting standards; a savings association does not meet its 
obligations to the community or implement its equal lending 
responsibility if its marketing practices and business relationships 
with developers and real estate brokers improperly restrict its 
clientele to segments of the community. A review of marketing practices 
could

[[Page 78]]

begin with an examination of an association's loan portfolio and 
applications to ascertain whether, in view of the demographic 
characteristics and credit demands of the community in which the 
institution is located, it is adequately serving the community on a 
nondiscriminatory basis. The Office will systematically review marketing 
practices where evidence of discrimination in lending is discovered.

[54 FR 49666, Nov. 30, 1989, as amended at 60 FR 66870, Dec. 27, 1995. 
Redesignated at 63 FR 71212, Dec. 24, 1998]



PART 533_DISCLOSURE AND REPORTING OF CRA-RELATED AGREEMENTS--
Table of Contents




Sec.
533.1 Purpose and scope of this part.
533.2 Definition of covered agreement.
533.3 CRA communications.
533.4 Fulfillment of the CRA.
533.5 Related agreements considered a single agreement.
533.6 Disclosure of covered agreements.
533.7 Annual reports.
533.8 Release of information under FOIA.
533.9 Compliance provisions.
533.10 Transition provisions.
533.11 Other definitions and rules of construction used in this part.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, and 1831y.

    Source: 66 FR 2106, Jan. 10, 2001, unless otherwise noted.



Sec. 533.1  Purpose and scope of this part.

    (a) General. This part implements section 711 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1831y). That section requires any nongovernmental 
entity or person (NGEP), insured depository institution, or affiliate of 
an insured depository institution that enters into a covered agreement 
to--
    (1) Make the covered agreement available to the public and the 
appropriate Federal banking agency; and
    (2) File an annual report with the appropriate Federal banking 
agency concerning the covered agreement.
    (b) Scope of this part. The provisions of this part apply to--
    (1) Savings associations and their subsidiaries;
    (2) Savings and loan holding companies;
    (3) Affiliates of savings associations and savings and loan holding 
companies, other than bank holding companies, banks, and subsidiaries of 
bank holding companies and banks; and
    (4) NGEPs that enter into covered agreements with any company listed 
in paragraphs (b)(1) through (b)(3) of this section.
    (c) Relation to Community Reinvestment Act. This part does not 
affect in any way the Community Reinvestment Act of 1977 (CRA) (12 
U.S.C. 2901 et seq.), OTS's Community Reinvestment rule (12 CFR Part 
563e), or OTS's interpretations or administration of the CRA or 
Community Reinvestment rule.
    (d) Examples. (1) The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.
    (2) Examples in a paragraph illustrate only the issue described in 
the paragraph and do not illustrate any other issues that may arise in 
this part.



Sec. 533.2  Definition of covered agreement.

    (a) General definition of covered agreement. A covered agreement is 
any contract, arrangement, or understanding that meets all of the 
following criteria--
    (1) The agreement is in writing.
    (2) The parties to the agreement include--
    (i) One or more insured depository institutions or affiliates of an 
insured depository institution; and
    (ii) One or more NGEPs.
    (3) The agreement provides for the insured depository institution or 
any affiliate to--
    (i) Provide to one or more individuals or entities (whether or not 
parties to the agreement) cash payments, grants, or other consideration 
(except loans) that have an aggregate value of more than $10,000 in any 
calendar year; or
    (ii) Make to one or more individuals or entities (whether or not 
parties to the agreement) loans that have an aggregate principal amount 
of more than $50,000 in any calendar year.

[[Page 79]]

    (4) The agreement is made pursuant to, or in connection with, the 
fulfillment of the CRA, as defined in Sec. 533.4 of this part.
    (5) The agreement is with a NGEP that has had a CRA communication as 
described in Sec. 533.3 of this part prior to entering into the 
agreement.
    (b) Examples concerning written arrangements or understandings--(1) 
Example 1. A NGEP meets with an insured depository institution and 
states that the institution needs to make more community development 
investments in the NGEP's community. The NGEP and insured depository 
institution do not reach an agreement concerning the community 
development investments the institution should make in the community, 
and the parties do not reach any mutual arrangement or understanding. 
Two weeks later, the institution unilaterally issues a press release 
announcing that it has established a general goal of making $100 million 
of community development grants in low- and moderate-income 
neighborhoods served by the insured depository institution over the next 
5 years. The NGEP is not identified in the press release. The press 
release is not a written arrangement or understanding.
    (2) Example 2. A NGEP meets with an insured depository institution 
and states that the institution needs to offer new loan programs in the 
NGEP's community. The NGEP and the insured depository institution reach 
a mutual arrangement or understanding that the institution will provide 
additional loans in the NGEP's community. The institution tells the NGEP 
that it will issue a press release announcing the program. Later, the 
insured depository institution issues a press release announcing the 
loan program. The press release incorporates the key terms of the 
understanding reached between the NGEP and the insured depository 
institution. The written press release reflects the mutual arrangement 
or understanding of the NGEP and the insured depository institution and 
is, therefore, a written arrangement or understanding.
    (3) Example 3. An NGEP sends a letter to an insured depository 
institution requesting that the institution provide a $15,000 grant to 
the NGEP. The insured depository institution responds in writing and 
agrees to provide the grant in connection with its annual grant program. 
The exchange of letters constitutes a written arrangement or 
understanding.
    (c) Loan agreements that are not covered agreements. A covered 
agreement does not include--
    (1) Any individual loan that is secured by real estate; or
    (2) Any specific contract or commitment for a loan or extension of 
credit to an individual, business, farm, or other entity, or group of 
such individuals or entities, if--
    (i) The funds are loaned at rates that are not substantially below 
market rates; and
    (ii) The loan application or other loan documentation does not 
indicate that the borrower intends or is authorized to use the borrowed 
funds to make a loan or extension of credit to one or more third 
parties.
    (d) Examples concerning loan agreements--(1) Example 1. An insured 
depository institution provides an organization with a $1 million loan 
that is documented in writing and is secured by real estate owned or to-
be-acquired by the organization. The agreement is an individual mortgage 
loan and is exempt from coverage under paragraph (c)(1) of this section, 
regardless of the interest rate on the loan or whether the organization 
intends or is authorized to re-loan the funds to a third party.
    (2) Example 2. An insured depository institution commits to provide 
a $500,000 line of credit to a small business that is documented by a 
written agreement. The loan is made at rates that are within the range 
of rates offered by the institution to similarly situated small 
businesses in the market and the loan documentation does not indicate 
that the small business intends or is authorized to re-lend the borrowed 
funds. The agreement is exempt from coverage under paragraph (c)(2) of 
this section.
    (3) Example 3. An insured depository institution offers small 
business loans that are guaranteed by the Small Business Administration 
(SBA). A small

[[Page 80]]

business obtains a $75,000 loan, documented in writing, from the 
institution under the institution's SBA loan program. The loan 
documentation does not indicate that the borrower intends or is 
authorized to re-lend the funds. Although the rate charged on the loan 
is well below that charged by the institution on commercial loans, the 
rate is within the range of rates that the institution would charge a 
similarly situated small business for a similar loan under the SBA loan 
program. Accordingly, the loan is not made at substantially below market 
rates and is exempt from coverage under paragraph (c)(2) of this 
section.
    (4) Example 4. A bank holding company enters into a written 
agreement with a community development organization that provides that 
insured depository institutions owned by the bank holding company will 
make $250 million in small business loans in the community over the next 
5 years. The written agreement is not a specific contract or commitment 
for a loan or an extension of credit and, thus, is not exempt from 
coverage under paragraph (c)(2) of this section. Each small business 
loan made by the insured depository institution pursuant to this general 
commitment would, however, be exempt from coverage if the loan is made 
at rates that are not substantially below market rates and the loan 
documentation does not indicate that the borrower intended or was 
authorized to re-lend the funds.
    (e) Agreements that include exempt loan agreements. If an agreement 
includes a loan, extension of credit or loan commitment that, if 
documented separately, would be exempt under paragraph (c) of this 
section, the exempt loan, extension of credit or loan commitment may be 
excluded for purposes of determining whether the agreement is a covered 
agreement.
    (f) Determining annual value of agreements that lack schedule of 
disbursements. For purposes of paragraph (a)(3) of this section, a 
multi-year agreement that does not include a schedule for the 
disbursement of payments, grants, loans or other consideration by the 
insured depository institution or affiliate, is considered to have a 
value in the first year of the agreement equal to all payments, grants, 
loans and other consideration to be provided at any time under the 
agreement.



Sec. 533.3  CRA communications.

    (a) Definition of CRA communication. A CRA communication is any of 
the following--
    (1) Any written or oral comment or testimony provided to a Federal 
banking agency concerning the adequacy of the performance under the CRA 
of the insured depository institution, any affiliated insured depository 
institution, or any CRA affiliate.
    (2) Any written comment submitted to the insured depository 
institution that discusses the adequacy of the performance under the CRA 
of the institution and must be included in the institution's CRA public 
file.
    (3) Any discussion or other contact with the insured depository 
institution or any affiliate about--
    (i) Providing (or refraining from providing) written or oral 
comments or testimony to any Federal banking agency concerning the 
adequacy of the performance under the CRA of the insured depository 
institution, any affiliated insured depository institution, or any CRA 
affiliate;
    (ii) Providing (or refraining from providing) written comments to 
the insured depository institution that concern the adequacy of the 
institution's performance under the CRA and must be included in the 
institution's CRA public file; or
    (iii) The adequacy of the performance under the CRA of the insured 
depository institution, any affiliated insured depository institution, 
or any CRA affiliate.
    (b) Discussions or contacts that are not CRA communications--(1) 
Timing of contacts with a Federal banking agency. An oral or written 
communication with a Federal banking agency is not a CRA communication 
if it occurred more than 3 years before the parties entered into the 
agreement.
    (2) Timing of contacts with insured depository institutions and 
affiliates. A communication with an insured depository institution or 
affiliate is not a CRA communication if the communication occurred--

[[Page 81]]

    (i) More than 3 years before the parties entered into the agreement, 
in the case of any written communication;
    (ii) More than 3 years before the parties entered into the 
agreement, in the case of any oral communication in which the NGEP 
discusses providing (or refraining from providing) comments or testimony 
to a Federal banking agency or written comments that must be included in 
the institution's CRA public file in connection with a request to, or 
agreement by, the institution or affiliate to take (or refrain from 
taking) any action that is in fulfillment of the CRA; or
    (iii) More than 1 year before the parties entered into the 
agreement, in the case of any other oral communication not described in 
paragraph (b)(2)(ii).
    (3) Knowledge of communication by insured depository institution or 
affiliate. (i) A communication is only a CRA communication under 
paragraph (a) of this section if the insured depository institution or 
its affiliate has knowledge of the communication under paragraph 
(b)(3)(ii) or (b)(3)(iii) of this section.
    (ii) Communication with insured depository institution or affiliate. 
An insured depository institution or affiliate has knowledge of a 
communication by the NGEP to the institution or its affiliate under this 
paragraph only if one of the following representatives of the insured 
depository institution or any affiliate has knowledge of the 
communication--
    (A) An employee who approves, directs, authorizes, or negotiates the 
agreement with the NGEP; or
    (B) An employee designated with responsibility for compliance with 
the CRA or executive officer if the employee or executive officer knows 
that the institution or affiliate is negotiating, intends to negotiate, 
or has been informed by the NGEP that it expects to request that the 
institution or affiliate negotiate an agreement with the NGEP.
    (iii) Other communications. An insured depository institution or 
affiliate is deemed to have knowledge of--
    (A) Any testimony provided to a Federal banking agency at a public 
meeting or hearing;
    (B) Any comment submitted to a Federal banking agency that is 
conveyed in writing by the agency to the insured depository institution 
or affiliate; and
    (C) Any written comment submitted to the insured depository 
institution that must be and is included in the institution's CRA public 
file.
    (4) Communication where NGEP has knowledge. A NGEP has a CRA 
communication with an insured depository institution or affiliate only 
if any of the following individuals has knowledge of the communication--
    (i) A director, employee, or member of the NGEP who approves, 
directs, authorizes, or negotiates the agreement with the insured 
depository institution or affiliate;
    (ii) A person who functions as an executive officer of the NGEP and 
who knows that the NGEP is negotiating or intends to negotiate an 
agreement with the insured depository institution or affiliate; or
    (iii) Where the NGEP is an individual, the NGEP.
    (c) Examples of CRA communications--(1) Examples of actions that are 
CRA communications. The following are examples of CRA communications. 
These examples are not exclusive and assume that the communication 
occurs within the relevant time period as described in paragraph (b)(1) 
or (b)(2) of this section and the appropriate representatives have 
knowledge of the communication as specified in paragraphs (b)(3) and 
(b)(4) of this section.
    (i) Example 1. A NGEP files a written comment with a Federal banking 
agency that states than an insured depository institution successfully 
addresses the credit needs of its community. The written comment is in 
response to a general request from the agency for comments on an 
application of the insured depository institution to open a new branch 
and a copy of the comment is provided to the institution.
    (ii) Example 2. A NGEP meets with an executive officer of an insured 
depository institution and states that the institution must improve its 
CRA performance.
    (iii) Example 3. A NGEP meets with an executive officer of an 
insured depository institution and states that the

[[Page 82]]

institution needs to make more mortgage loans in low- and moderate-
income neighborhoods in its community.
    (iv) Example 4. A bank holding company files an application with a 
Federal banking agency to acquire an insured depository institution. Two 
weeks later, the NGEP meets with an executive officer of the bank 
holding company to discuss the adequacy of the performance under the CRA 
of the target insured depository institution. The insured depository 
institution was an affiliate of the bank holding company at the time the 
NGEP met with the target institution. (See Sec. 533.11(a) of this 
part.) Accordingly, the NGEP had a CRA communication with an affiliate 
of the bank holding company.
    (2) Examples of actions that are not CRA communications. The 
following are examples of actions that are not by themselves CRA 
communications. These examples are not exclusive.
    (i) Example 1. A NGEP provides to a Federal banking agency comments 
or testimony concerning an insured depository institution or affiliate 
in response to a direct request by the agency for comments or testimony 
from that NGEP. Direct requests for comments or testimony do not include 
a general invitation by a Federal banking agency for comments or 
testimony from the public in connection with a CRA performance 
evaluation of, or application for a deposit facility (as defined in 
section 803 of the CRA (12 U.S.C. 2902(3)) by, an insured depository 
institution or an application by a company to acquire an insured 
depository institution.
    (ii) Example 2. A NGEP makes a statement concerning an insured 
depository institution or affiliate at a widely attended conference or 
seminar regarding a general topic. A public or private meeting, public 
hearing, or other meeting regarding one or more specific institutions, 
affiliates or transactions involving an application for a deposit 
facility is not considered a widely attended conference or seminar.
    (iii) Example 3. A NGEP, such as a civil rights group, community 
group providing housing and other services in low- and moderate-income 
neighborhoods, veterans organization, community theater group, or youth 
organization, sends a fundraising letter to insured depository 
institutions and to other businesses in its community. The letter 
encourages all businesses in the community to meet their obligation to 
assist in making the local community a better place to live and work by 
supporting the fundraising efforts of the NGEP.
    (iv) Example 4. A NGEP discusses with an insured depository 
institution or affiliate whether particular loans, services, 
investments, community development activities, or other activities are 
generally eligible for consideration by a Federal banking agency under 
the CRA. The NGEP and insured depository institution or affiliate do not 
discuss the adequacy of the CRA performance of the insured depository 
institution or affiliate.
    (v) Example 5. A NGEP engaged in the sale or purchase of loans in 
the secondary market sends a general offering circular to financial 
institutions offering to sell or purchase a portfolio of loans. An 
insured depository institution that receives the offering circular 
discusses with the NGEP the types of loans included in the loan pool, 
whether such loans are generally eligible for consideration under the 
CRA, and which loans are made to borrowers in the institution's local 
community. The NGEP and insured depository institution do not discuss 
the adequacy of the institution's CRA performance.
    (d) Multiparty covered agreements. (1) A NGEP that is a party to a 
covered agreement that involves multiple NGEPs is not required to comply 
with the requirements of this part if--
    (i) The NGEP has not had a CRA communication; and
    (ii) No representative of the NGEP identified in paragraph (b)(4) of 
this section has knowledge at the time of the agreement that another 
NGEP that is a party to the agreement has had a CRA communication.
    (2) An insured depository institution or affiliate that is a party 
to a covered agreement that involves multiple insured depository 
institutions or affiliates is not required to comply with the 
requirements in Sec. Sec. 533.6 and 533.7 if--

[[Page 83]]

    (i) No NGEP that is a party to the agreement has had a CRA 
communication concerning the insured depository institution or any 
affiliate; and
    (ii) No representative of the insured depository institution or any 
affiliate identified in paragraph (b)(3) of this section has knowledge 
at the time of the agreement that an NGEP that is a party to the 
agreement has had a CRA communication concerning any other insured 
depository institution or affiliate that is a party to the agreement.



Sec. 533.4  Fulfillment of the CRA

    (a) List of factors that are in fulfillment of the CRA. Fulfillment 
of the CRA, for purposes of this part, means the following list of 
factors--
    (1) Comments to a Federal banking agency or included in CRA public 
file. Providing or refraining from providing written or oral comments or 
testimony to any Federal banking agency concerning the performance under 
the CRA of an insured depository institution or CRA affiliate that is a 
party to the agreement or an affiliate of a party to the agreement or 
written comments that are required to be included in the CRA public file 
of any such insured depository institution; or
    (2) Activities given favorable CRA consideration. Performing any of 
the following activities if the activity is of the type that is likely 
to receive favorable consideration by a Federal banking agency in 
evaluating the performance under the CRA of the insured depository 
institution that is a party to the agreement or an affiliate of a party 
to the agreement--
    (i) Home-purchase, home-improvement, small business, small farm, 
community development, and consumer lending, as described in Sec. 
563e.22 of this chapter, including loan purchases, loan commitments, and 
letters of credit;
    (ii) Making investments, deposits, or grants, or acquiring 
membership shares, that have as their primary purpose community 
development, as described in Sec. 563e.23 of this chapter;
    (iii) Delivering retail banking services, as described in Sec. 
563.24(d) of this chapter;
    (iv) Providing community development services, as described in Sec. 
563e.24(e) of this chapter;
    (v) In the case of a wholesale or limited-purpose insured depository 
institution, community development lending, including originating and 
purchasing loans and making loan commitments and letters of credit, 
making qualified investments, or providing community development 
services, as described in Sec. 563e.25(c) of this chapter;
    (vi) In the case of a small insured depository institution, any 
lending or other activity described in Sec. 563e.26(a) of this chapter; 
or
    (vii) In the case of an insured depository institution that is 
evaluated on the basis of a strategic plan, any element of the strategic 
plan, as described in Sec. 563e.27(f) of this chapter.
    (b) Agreements relating to activities of CRA affiliates. An insured 
depository institution or affiliate that is a party to a covered 
agreement that concerns any activity described in paragraph (a) of this 
section of a CRA affiliate must, prior to the time the agreement is 
entered into, notify each NGEP that is a party to the agreement that the 
agreement concerns a CRA affiliate.



Sec. 533.5  Related agreements considered a single agreement.

    The following rules must be applied in determining whether an 
agreement is a covered agreement under Sec. 533.2 of this part.
    (a) Agreements entered into by same parties. All written agreements 
to which an insured depository institution or an affiliate of the 
insured depository institution is a party shall be considered to be a 
single agreement if the agreements--
    (1) Are entered into with the same NGEP;
    (2) Were entered into within the same 12-month period; and
    (3) Are each in fulfillment of the CRA.
    (b) Substantively related contracts. All written contracts to which 
an insured depository institution or an affiliate of the insured 
depository institution is a party shall be considered to be a single 
agreement, without regard to whether the other parties to the contracts 
are the same or whether each such contract is in fulfillment of the CRA, 
if

[[Page 84]]

the contracts were negotiated in a coordinated fashion and a NGEP is a 
party to each contract.



Sec. 533.6  Disclosure of covered agreements.

    (a) Applicability date. This section applies only to covered 
agreements entered into after November 12, 1999.
    (b) Disclosure of covered agreements to the public--(1) Disclosure 
required. Each NGEP and each insured depository institution or affiliate 
that enters into a covered agreement must make a copy of the covered 
agreement available to any individual or entity upon request.
    (2) Nondisclosure of confidential and proprietary information 
permitted. In responding to a request for a covered agreement from any 
individual or entity under paragraph (b)(1) of this section, a NGEP, 
insured depository institution, or affiliate may withhold from public 
disclosure confidential or proprietary information that the party 
believes the relevant supervisory agency could withhold from disclosure 
under the Freedom of Information Act (5 U.S.C. 552 et seq.) (FOIA).
    (3) Information that must be disclosed. Notwithstanding paragraph 
(b)(2) of this section, a party must disclose any of the following 
information that is contained in a covered agreement--
    (i) The names and addresses of the parties to the agreement;
    (ii) The amount of any payments, fees, loans, or other consideration 
to be made or provided by any party to the agreement;
    (iii) Any description of how the funds or other resources provided 
under the agreement are to be used;
    (iv) The term of the agreement (if the agreement establishes a 
term); and
    (v) Any other information that the relevant supervisory agency 
determines is not properly exempt from public disclosure.
    (4) Request for review of withheld information. Any individual or 
entity may request that the relevant supervisory agency review whether 
any information in a covered agreement withheld by a party must be 
disclosed. Any requests for agency review of withheld information must 
be filed, and will be processed in accordance with, the relevant 
supervisory agency's rules concerning the availability of information 
(see part 505 of this chapter and the Department of Treasury's rules (31 
CFR part 1)).
    (5) Duration of obligation. The obligation to disclose a covered 
agreement to the public terminates 12 months after the end of the term 
of the agreement.
    (6) Reasonable copy and mailing fees. Each NGEP and each insured 
depository institution or affiliate may charge an individual or entity 
that requests a copy of a covered agreement a reasonable fee not to 
exceed the cost of copying and mailing the agreement.
    (7) Use of CRA public file by insured depository institution or 
affiliate. An insured depository institution and any affiliate of an 
insured depository institution may fulfill its obligation under this 
paragraph (b) by placing a copy of the covered agreement in the insured 
depository institution's CRA public file if the institution makes the 
agreement available in accordance with the procedures set forth in Sec. 
563e.43 of this chapter.
    (c) Disclosure by NGEPs of covered agreements to the relevant 
supervisory agency. (1) Each NGEP that is a party to a covered agreement 
must provide the following within 30 days of receiving a request from 
the relevant supervisory agency--
    (i) A complete copy of the agreement; and
    (ii) In the event the NGEP proposes the withholding of any 
information contained in the agreement in accordance with paragraph 
(b)(2) of this section, a public version of the agreement that excludes 
such information and an explanation justifying the exclusions. Any 
public version must include the information described in paragraph 
(b)(3) of this section.
    (2) The obligation to provide a covered agreement to the relevant 
supervisory agency terminates 12 months after the end of the term of the 
covered agreement.
    (d) Disclosure by insured depository institution or affiliate of 
covered agreements to the relevant supervisory agency--(1) In general. 
Within 60 days of the end of each calendar quarter, each insured 
depository institution and affiliate must provide each relevant 
supervisory agency with--

[[Page 85]]

    (i)(A) A complete copy of each covered agreement entered into by the 
insured depository institution or affiliate during the calendar quarter; 
and
    (B) In the event the institution or affiliate proposes the 
withholding of any information contained in the agreement in accordance 
with paragraph (b)(2) of this section, a public version of the agreement 
that excludes such information (other than any information described in 
paragraph (b)(3) of this section) and an explanation justifying the 
exclusions; or
    (ii) A list of all covered agreements entered into by the insured 
depository institution or affiliate during the calendar quarter that 
contains--
    (A) The name and address of each insured depository institution or 
affiliate that is a party to the agreement;
    (B) The name and address of each NGEP that is a party to the 
agreement;
    (C) The date the agreement was entered into;
    (D) The estimated total value of all payments, fees, loans and other 
consideration to be provided by the institution or any affiliate of the 
institution under the agreement; and
    (E) The date the agreement terminates.
    (2) Prompt filing of covered agreements contained in list required. 
(i) If an insured depository institution or affiliate files a list of 
the covered agreements entered into by the institution or affiliate 
pursuant to paragraph (d)(1)(ii) of this section, the institution or 
affiliate must provide any relevant supervisory agency a complete copy 
and public version of any covered agreement referenced in the list 
within 7 calendar days of receiving a request from the agency for a copy 
of the agreement.
    (ii) The obligation of an insured depository institution or 
affiliate to provide a covered agreement to the relevant supervisory 
agency under this paragraph (d)(2) terminates 36 months after the end of 
the term of the covered agreement.
    (3) Joint filings. In the event that 2 or more insured depository 
institutions or affiliates are parties to a covered agreement, the 
insured depository institution(s) and affiliate(s) may jointly file the 
documents required by this paragraph (d) of this section. Any joint 
filing must identify the insured depository institution(s) and 
affiliate(s) for whom the filings are being made.



Sec. 533.7  Annual reports.

    (a) Applicability date. This section applies only to covered 
agreements entered into on or after May 12, 2000.
    (b) Annual report required. Each NGEP and each insured depository 
institution or affiliate that is a party to a covered agreement must 
file an annual report with each relevant supervisory agency concerning 
the disbursement, receipt, and uses of funds or other resources under 
the covered agreement.
    (c) Duration of reporting requirement--(1) NGEPs. A NGEP must file 
an annual report for a covered agreement for any fiscal year in which 
the NGEP receives or uses funds or other resources under the agreement.
    (2) Insured depository institutions and affiliates. An insured 
depository institution or affiliate must file an annual report for a 
covered agreement for any fiscal year in which the institution or 
affiliate--
    (i) Provides or receives any payments, fees, or loans under the 
covered agreement that must be reported under paragraphs (e)(1)(iii) and 
(e)(1)(iv) of this section; or
    (ii) Has data to report on loans, investments, and services provided 
by a party to the covered agreement under the covered agreement under 
paragraph (e)(1)(vi) of this section.
    (d) Annual reports filed by NGEP--(1) Contents of report. The annual 
report filed by a NGEP under this section must include the following--
    (i) The name and mailing address of the NGEP filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by providing the names 
of the parties to the agreement and the date the agreement was entered 
into or by providing a copy of the agreement;
    (iii) The amount of funds or resources received under the covered 
agreement during the fiscal year; and
    (iv) A detailed, itemized list of how the funds or resources 
received by the NGEP under the covered agreement

[[Page 86]]

were used during the fiscal year, including the total amount used for--
    (A) Compensation of officers, directors, and employees;
    (B) Administrative expenses;
    (C) Travel expenses;
    (D) Entertainment expenses;
    (E) Payment of consulting and professional fees; and
    (F) Other expenses and uses (specify expense or use).
    (2) More detailed reporting of uses of funds or resources 
permitted--(i) In general. If a NGEP allocated and used funds received 
under a covered agreement for a specific purpose, the NGEP may fulfill 
the requirements of paragraph (d)(1)(iv) of this section with respect to 
such funds by providing--
    (A) A brief description of each specific purpose for which the funds 
or other resources were used; and
    (B) The amount of funds or resources used during the fiscal year for 
each specific purpose.
    (ii) Specific purpose defined. A NGEP allocates and uses funds for a 
specific purpose if the NGEP receives and uses the funds for a purpose 
that is more specific and limited than the categories listed in 
paragraph (d)(1)(iv) of this section.
    (3) Use of other reports. The annual report filed by a NGEP may 
consist of or incorporate a report prepared for any other purpose, such 
as the Internal Revenue Service Return of Organization Exempt From 
Income Tax on Form 990, or any other Internal Revenue Service form, 
state tax form, report to members or shareholders, audited or unaudited 
financial statements, audit report, or other report, so long as the 
annual report filed by the NGEP contains all of the information required 
by this paragraph (d).
    (4) Consolidated reports permitted. A NGEP that is a party to 2 or 
more covered agreements may file with each relevant supervisory agency a 
single consolidated annual report covering all the covered agreements. 
Any consolidated report must contain all the information required by 
this paragraph (d). The information reported under paragraphs (d)(1)(iv) 
and (d)(2) of this section may be reported on an aggregate basis for all 
covered agreements.
    (5) Examples of annual report requirements for NGEPs--(i) Example 1. 
A NGEP receives an unrestricted grant of $15,000 under a covered 
agreement, includes the funds in its general operating budget and uses 
the funds during its fiscal year. The NGEP's annual report for the 
fiscal year must provide the name and mailing address of the NGEP, 
information sufficient to identify the covered agreement, and state that 
the NGEP received $15,000 during the fiscal year. The report must also 
indicate the total expenditures made by the NGEP during the fiscal year 
for compensation, administrative expenses, travel expenses, 
entertainment expenses, consulting and professional fees, and other 
expenses and uses. The NGEP's annual report may provide this information 
by submitting an Internal Revenue Service Form 990 that includes the 
required information. If the Internal Revenue Service Form does not 
include information for all of the required categories listed in this 
part, the NGEP must report the total expenditures in the remaining 
categories either by providing that information directly or by providing 
another form or report that includes the required information.
    (ii) Example 2. An organization receives $15,000 from an insured 
depository institution under a covered agreement and allocates and uses 
the $15,000 during the fiscal year to purchase computer equipment to 
support its functions. The organization's annual report must include the 
name and address of the organization, information sufficient to identify 
the agreement, and a statement that the organization received $15,000 
during the year. In addition, since the organization allocated and used 
the funds for a specific purpose that is more narrow and limited than 
the categories of expenses included in the detailed, itemized list of 
expenses, the organization would have the option of providing either the 
total amount it used during the year for each category of expenses 
included in paragraph (d)(1)(iv) of this section, or a statement that it 
used the $15,000 to purchase computer equipment and a brief description 
of the equipment purchased.

[[Page 87]]

    (iii) Example 3. A community group receives $50,000 from an insured 
depository institution under a covered agreement. During its fiscal 
year, the community group specifically allocates and uses $5,000 of the 
funds to pay for a particular business trip and uses the remaining 
$45,000 for general operating expenses. The group's annual report for 
the fiscal year must include the name and address of the group, 
information sufficient to identify the agreement, and a statement that 
the group received $50,000. Because the group did not allocate and use 
all of the funds for a specific purpose, the group's annual report must 
provide the total amount of funds it used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section. 
The group's annual report also could state that it used $5,000 for a 
particular business trip and include a brief description of the trip.
    (iv) Example 4. A community development organization is a party to 
two separate covered agreements with two unaffiliated insured depository 
institutions. Under each agreement, the organization receives $15,000 
during its fiscal year and uses the funds to support its activities 
during that year. If the organization elects to file a consolidated 
annual report, the consolidated report must identify the organization 
and the two covered agreements, state that the organization received 
$15,000 during the fiscal year under each agreement, and provide the 
total amount that the organization used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section.
    (e) Annual report filed by insured depository institution or 
affiliate--(1) General. The annual report filed by an insured depository 
institution or affiliate must include the following--
    (i) The name and principal place of business of the insured 
depository institution or affiliate filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by providing the names 
of the parties to the agreement and the date the agreement was entered 
into or by providing a copy of the agreement;
    (iii) The aggregate amount of payments, aggregate amount of fees, 
and aggregate amount of loans provided by the insured depository 
institution or affiliate under the covered agreement to any other party 
to the agreement during the fiscal year;
    (iv) The aggregate amount of payments, aggregate amount of fees, and 
aggregate amount of loans received by the insured depository institution 
or affiliate under the covered agreement from any other party to the 
agreement during the fiscal year;
    (v) A general description of the terms and conditions of any 
payments, fees, or loans reported under paragraphs (e)(1)(iii) and 
(e)(1)(iv) of this section, or, in the event such terms and conditions 
are set forth--
    (A) In the covered agreement, a statement identifying the covered 
agreement and the date the agreement (or a list identifying the 
agreement) was filed with the relevant supervisory agency; or
    (B) In a previous annual report filed by the insured depository 
institution or affiliate, a statement identifying the date the report 
was filed with the relevant supervisory agency; and
    (vi) The aggregate amount and number of loans, aggregate amount and 
number of investments, and aggregate amount of services provided under 
the covered agreement to any individual or entity not a party to the 
agreement--
    (A) By the insured depository institution or affiliate during its 
fiscal year; and
    (B) By any other party to the agreement, unless such information is 
not known to the insured depository institution or affiliate filing the 
report or such information is or will be contained in the annual report 
filed by another party under this section.
    (2) Consolidated reports permitted--(i) Party to multiple 
agreements. An insured depository institution or affiliate that is a 
party to 2 or more covered agreements may file a single consolidated 
annual report with each relevant supervisory agency concerning all the 
covered agreements.
    (ii) Affiliated entities party to the same agreement. An insured 
depository institution and its affiliates that are parties to the same 
covered agreement

[[Page 88]]

may file a single consolidated annual report relating to the agreement 
with each relevant supervisory agency for the covered agreement.
    (iii) Content of report. Any consolidated annual report must contain 
all the information required by this paragraph (e). The amounts and data 
required to be reported under paragraphs (e)(1)(iv) and (e)(1)(vi) of 
this section may be reported on an aggregate basis for all covered 
agreements.
    (f) Time and place of filing--(1) General. Each party must file its 
annual report with each relevant supervisory agency for the covered 
agreement no later than six months following the end of the fiscal year 
covered by the report.
    (2) Alternative method of fulfilling annual reporting requirement 
for a NGEP. (i) A NGEP may fulfill the filing requirements of this 
section by providing the following materials to an insured depository 
institution or affiliate that is a party to the agreement no later than 
six months following the end of the NGEP's fiscal year--
    (A) A copy of the NGEP's annual report required under paragraph (d) 
of this section for the fiscal year; and
    (B) Written instructions that the insured depository institution or 
affiliate promptly forward the annual report to the relevant supervisory 
agency or agencies on behalf of the NGEP.
    (ii) An insured depository institution or affiliate that receives an 
annual report from a NGEP pursuant to paragraph (f)(2)(i) of this 
section must file the report with the relevant supervisory agency or 
agencies on behalf of the NGEP within 30 days.



Sec. 533.8  Release of information under FOIA.

    OTS will make covered agreements and annual reports available to the 
public in accordance with the Freedom of Information Act (5 U.S.C. 552 
et seq.), OTS's rules (part 505 of this chapter), and the Department of 
Treasury's rules (31 CFR part 1). A party to a covered agreement may 
request confidential treatment of proprietary and confidential 
information in a covered agreement or an annual report under those 
procedures.



Sec. 533.9  Compliance provisions.

    (a) Willful failure to comply with disclosure and reporting 
obligations. (1) If OTS determines that a NGEP has willfully failed to 
comply in a material way with Sec. Sec. 533.6 or 533.7 of this part, 
OTS will notify the NGEP in writing of that determination and provide 
the NGEP a period of 90 days (or such longer period as OTS finds to be 
reasonable under the circumstances) to comply.
    (2) If the NGEP does not comply within the time period established 
by OTS, the agreement shall thereafter be unenforceable by that NGEP by 
operation of section 48 of the Federal Deposit Insurance Act (12 U.S.C. 
1831y).
    (3) OTS may assist any insured depository institution or affiliate 
that is a party to a covered agreement that is unenforceable by a NGEP 
by operation of section 48 of the Federal Deposit Insurance Act (12 
U.S.C. 1831y) in identifying a successor to assume the NGEP's 
responsibilities under the agreement.
    (b) Diversion of funds. If a court or other body of competent 
jurisdiction determines that funds or resources received under a covered 
agreement have been diverted contrary to the purposes of the covered 
agreement for an individual's personal financial gain, OTS may take 
either or both of the following actions--
    (1) Order the individual to disgorge the diverted funds or resources 
received under the agreement;
    (2) Prohibit the individual from being a party to any covered 
agreement for a period not to exceed 10 years.
    (c) Notice and opportunity to respond. Before making a determination 
under paragraph (a)(1) of this section, or taking any action under 
paragraph (b) of this section, OTS will provide written notice and an 
opportunity to present information to OTS concerning any relevant facts 
or circumstances relating to the matter.
    (d) Inadvertent or de minimis errors. Inadvertent or de minimis 
errors in annual reports or other documents filed with OTS under 
Sec. Sec. 533.6 or 533.7 of this part will not subject the reporting 
party to any penalty.
    (e) Enforcement of provisions in covered agreements. No provision of 
this part shall be construed as authorizing OTS

[[Page 89]]

to enforce the provisions of any covered agreement.



Sec. 533.10  Transition provisions.

    (a) Disclosure of covered agreements entered into before the 
effective date of this part. The following disclosure requirements apply 
to covered agreements that were entered into after November 12, 1999, 
and that terminated before April 1, 2001.
    (1) Disclosure to the public. Each NGEP and each insured depository 
institution or affiliate that was a party to the agreement must make the 
agreement available to the public under Sec. 533.6 of this part until 
at least April 1, 2002.
    (2) Disclosure to the relevant supervisory agency. (i) Each NGEP 
that was a party to the agreement must make the agreement available to 
the relevant supervisory agency under Sec. 533.6 of this part until at 
least April 1, 2002.
    (ii) Each insured depository institution or affiliate that was a 
party to the agreement must, by June 30, 2001, provide each relevant 
supervisory agency either--
    (A) A copy of the agreement under Sec. 533.6(d)(1)(i) of this part; 
or
    (B) The information described in Sec. 533.6(d)(1)(ii) of this part 
for each agreement.
    (b) Filing of annual reports that relate to fiscal years ending on 
or before December 31, 2000. In the event that a NGEP, insured 
depository institution or affiliate has any information to report under 
Sec. 533.7 of this part for a fiscal that ends on or before December 
31, 2000, and that concerns a covered agreement entered into between May 
12, 2000, and December 31, 2000, the annual report for that fiscal year 
must be provided, no later than June 30, 2001, to--
    (1) Each relevant supervisory agency; or
    (2) In the case of a NGEP, to an insured depository institution or 
affiliate that is a party to the agreement in accordance with Sec. 
533.7(f)(2) of this part.



Sec. 533.11  Other definitions and rules of construction used in this part.

    (a) Affiliate. Affiliate means--
    (1) Any company that controls, is controlled by, or is under common 
control with another company; and
    (2) For the purpose of determining whether an agreement is a covered 
agreement under Sec. 533.2, an affiliate includes any company that 
would be under common control or merged with another company on 
consummation of any transaction pending before a Federal banking agency 
at the time--
    (i) The parties enter into the agreement; and
    (ii) The NGEP that is a party to the agreement makes a CRA 
communication, as described in Sec. 533.3 of this part.
    (b) Control. Control is defined in section 2(a) of the Bank Holding 
Company Act (12 U.S.C. 1841(a)).
    (c) CRA affiliate. A CRA affiliate of an insured depository 
institution is any company that is an affiliate of an insured depository 
institution to the extent, and only to the extent, that the activities 
of the affiliate were considered by the appropriate Federal banking 
agency when evaluating the CRA performance of the institution at its 
most recent CRA examination prior to the agreement. An insured 
depository institution or affiliate also may designate any company as a 
CRA affiliate at any time prior to the time a covered agreement is 
entered into by informing the NGEP that is a party to the agreement of 
such designation.
    (d) CRA public file. CRA public file means the public file 
maintained by an insured depository institution and described in Sec. 
563.43 of this chapter.
    (e) Executive officer. The term executive officer has the same 
meaning as in Sec. 215.2(e)(1) of the Board of Governors of the Federal 
Reserve's Regulation O (12 CFR 215.2(e)(1)). In applying this definition 
under this part, the term savings association shall be used in place of 
the term bank.
    (f) Federal banking agency; appropriate Federal banking agency. The 
terms Federal banking agency and appropriate Federal banking agency have 
the same meanings as in section 3 of the Federal Deposit Insurance Act 
(12 U.S.C. 1813).
    (g) Fiscal year. (1) The fiscal year for a NGEP that does not have a 
fiscal year shall be the calendar year.
    (2) Any NGEP, insured depository institution, or affiliate that has 
a fiscal

[[Page 90]]

year may elect to have the calendar year be its fiscal year for purposes 
of this part.
    (h) Insured depository institution. Insured depository institution 
has the same meaning as in section 3 of the Federal Deposit Insurance 
Act (12 U.S.C. 1813).
    (i) Nongovernmental entity or person or NGEP--(1) General. A 
nongovernmental entity or person or NGEP is any partnership, 
association, trust, joint venture, joint stock company, corporation, 
limited liability corporation, company, firm, society, other 
organization, or individual.
    (2) Exclusions. A nongovernmental entity or person does not 
include--
    (i) The United States government, a state government, a unit of 
local government (including a county, city, town, township, parish, 
village, or other general-purpose subdivision of a state) or an Indian 
tribe or tribal organization established under Federal, state or Indian 
tribal law (including the Department of Hawaiian Home Lands), or a 
department, agency, or instrumentality of any such entity;
    (ii) A federally-chartered public corporation that receives Federal 
funds appropriated specifically for that corporation;
    (iii) An insured depository institution or affiliate of an insured 
depository institution; or
    (iv) An officer, director, employee, or representative (acting in 
his or her capacity as an officer, director, employee, or 
representative) of an entity listed in paragraphs (i)(2)(i), (i)(2)(ii), 
or (i)(2)(iii) of this section.
    (j) Party. The term party with respect to a covered agreement means 
each NGEP and each insured depository institution or affiliate that 
entered into the agreement.
    (k) Relevant supervisory agency. The relevant supervisory agency for 
a covered agreement means the appropriate Federal banking agency for--
    (1) Each insured depository institution (or subsidiary thereof) that 
is a party to the covered agreement;
    (2) Each insured depository institution (or subsidiary thereof) or 
CRA affiliate that makes payments or loans or provides services that are 
subject to the covered agreement; and
    (3) Any company (other than an insured depository institution or 
subsidiary thereof) that is a party to the covered agreement.
    (l) Term of agreement. An agreement that does not have a fixed 
termination date is considered to terminate on the last date on which 
any party to the agreement makes any payment or provides any loan or 
other resources under the agreement, unless the relevant supervisory 
agency for the agreement otherwise notifies each party in writing.



PART 535_PROHIBITED CONSUMER CREDIT PRACTICES (Eff. until 7-1-2010)--
Table of Contents




Sec.
535.1 Definitions.
535.2 Unfair credit practices.
535.3 Unfair or deceptive cosigner practices.
535.4 Late charges.
535.5 State exemptions.

    Authority: Sec. 18, as added by sec. 202, 88 Stat. 2193, as amended 
(15 U.S.C. 57a).

    Source: 54 FR 49479, Nov. 30, 1989, unless otherwise noted.

    Effective Date Note: At 74 FR 5567, Jan. 29, 2009, part 535 was 
revised, effective July 1, 2010. The revised text follows this part.



Sec. 535.1  Definitions.

    (a) Act. For the purposes of this part, ``Act'' means the Federal 
Trade Commission Act, 15 U.S.C. 41 et seq.
    (b) Consumer. The term ``consumer'' means a natural person who seeks 
or acquires goods, services, or money for personal, family, or household 
purposes, and who applies for or is extended ``consumer credit'' as 
defined in Sec. 561.12 of this chapter.
    (c) Cosigner. The term ``cosigner'' means a natural person who 
assumes liability for the obligation of a consumer without receiving 
goods, services, or money in return for the obligation, or in the case 
of an open-end credit obligation, without receiving the contractual 
right to obtain extensions of credit under the account. The term shall 
include any person whose signature is requested as a condition to 
granting credit to a consumer, or as a condition for forbearance on 
collection of a consumer's obligation that is in default. The term shall 
not include a

[[Page 91]]

spouse or other person whose signature is required on a credit 
obligation to perfect a security interest pursuant to state law. A 
person is a cosigner within the meaning of this definition whether or 
not he or she is designated as such on a credit obligation.
    (d) Creditor. The term ``creditor'' means a savings association.
    (e) Debt. The term ``debt'' means money that is due or alleged to be 
due from one to another.
    (f) Earnings. The term ``earnings'' means compensation paid or 
payable to an individual or for his or her account for personal services 
rendered or to be rendered by him or her, whether denominated as wages, 
salary, commission, bonus, or otherwise, including periodic payments 
pursuant to a pension, retirement, or disability program.
    (g) Household goods. The term ``household goods'' means clothing, 
furniture, appliances, linens, china, crockery, kitchenware, and 
personal effects of the consumer and his or her dependents, provided 
that the following are not included within the scope of the term 
``household goods'':
    (1) Works of art;
    (2) Electronic entertainment equipment (except one television and 
one radio);
    (3) Antiques, i.e., any item over one hundred years of age, 
including such items that have been repaired or renovated without 
changing their original form or character, and
    (4) Jewelry (other than wedding rings).
    (h) Savings association. For purposes of this part, the term 
``savings association'' includes any savings association, and any 
service corporation that is wholly owned by one or more savings 
association, that engages in the business of providing credit to 
consumers.
    (i) Obligation. The term ``obligation'' means an agreement between a 
consumer and a creditor.
    (j) Person. The term ``person'' means an individual, corporation, or 
other business organization.



Sec. 535.2  Unfair credit practices.

    (a) In connection with the extension of credit to consumers after 
January 1, 1986, it is an unfair act or practice within the meaning of 
section 5 of the Act for a savings association directly or indirectly to 
enter into a consumer credit obligation that constitutes or contains, or 
to enforce in a consumer credit obligation purchased by a savings 
association, any of the following provisions:
    (1) A cognovit or confession of judgment (for purposes other than 
executory process in the State of Louisiana), warrant of attorney, or 
other waiver of the right to notice and the opportunity to be heard in 
the event of suit or process thereon;
    (2) An executory waiver or a limitation of exemption from 
attachment, execution, or other process on real or personal property 
held, owned by, or due to the consumer, unless the waiver applies solely 
to property subject to a security interest executed in connection with 
the obligation;
    (3) An assignment of wages or other earnings, unless:
    (i) The assignment by its terms is revocable at the will of the 
debtor,
    (ii) The assignment is a payroll deduction plan or preauthorized 
payment plan, commencing at the time of the transaction, in which the 
consumer authorizes a series of wage deductions as a method of making 
each payment, or
    (iii) The assignment applies only to wages or other earnings already 
earned at the time of the assignment.
    (4) A nonpossessory security interest in household goods other than 
a purchase-money security interest.



Sec. 535.3  Unfair or deceptive cosigner practices.

    (a) General. In connection with the extension of credit to consumers 
after January 1, 1986, it is:
    (1) A deceptive act or practice within the meaning of section 5 of 
the Act for a savings association, directly or indirectly, to 
misrepresent the nature or extent of cosigner liability to any person.
    (2) An unfair act or practice within the meaning of section 5 of the 
Act for a savings association, directly or indirectly, to obligate a 
cosigner unless the cosigner is informed, prior to becoming obligated, 
of the nature of his or her liability as cosigner.
    (b) Disclosure requirement. (1) A clear and conspicuous document 
that shall

[[Page 92]]

contain the following statement or one which is substantially 
equivalent, shall be given to the consigner prior to becoming obligated 
(which, in the case of open-end credit, shall mean prior to the time 
that the cosigner becomes obligated for any fees or transaction on the 
account):

                           Notice of Cosigner

    You are being asked to guarantee this debt. Think carefully before 
you do. If the borrower doesn't pay the debt, you will have to. Be sure 
you can afford to pay if you have to, and that you want to accept this 
responsibility.
    You may have to pay up to the full amount of the debt if the 
borrower does not pay. You may also have to pay late fees or collection 
costs, which increase this amount.
    The creditor can collect this debt from you without first trying to 
collect from the borrower. The creditor can use the same collection 
methods against you that can be used against the borrower, such as suing 
you, garnishing your wages, etc. If this debt is ever in default, that 
fact may become a part of your credit record.

    (2) Compliance with the disclosure requirement under paragraph 
(b)(1) of this section shall constitute compliance with the consumer 
information requirement of paragraph (a)(2) of this section.
    (3) If the notice is a separate document, nothing other than the 
following times may appear with the notice:
    (i) The name and address of the savings association;
    (ii) An identification of the debt to be cosigned (e.g., a loan 
identification number);
    (iii) The date; and
    (iv) The statement, ``This notice is not the contract that makes you 
liable for the debt.''



Sec. 535.4  Late charges.

    (a) In connection with collecting a debt arising out of an extension 
of credit to a consumer after January 1, 1986, it is an unfair act or 
practice within the meaning of section 5 of the Act for a savings 
association, directly or indirectly, to levy or collect any delinquency 
charge on a payment, which payment is otherwise a full payment for the 
applicable period and is paid on its due date or within an applicable 
grace period, when the only delinquency is attributable to late fee(s) 
or delinquency charge(s) assessed on earlier installment(s).
    (b) For the purposes of this part, ``collecting a debt'' means any 
activity, other than the use of judicial process, that is intended to 
bring about or does bring about repayment of all or part of a consumer 
debt.



Sec. 535.5  State exemptions.

    (a) Upon application to the Office by an appropriate state agency, 
the Office shall determine if:
    (1) There is a state requirement or prohibition in effect that 
applies to any transaction to which a provision of this rule applies; 
and
    (2) The state requirement or prohibition affords a level of 
protection to consumers that is substantially equivalent to, or greater 
than, the protection afforded by this rule.
    (b) If the Office makes a determination as specified under paragraph 
(a) of this section, then that provision of this section will not be in 
effect in that state to the extent specified by the Office in its 
determination, for as long as the state administers and enforces the 
state requirement or prohibition effectively, as determined by the 
Office.
    (c) The Director of Consumer Affairs in consultation with the Chief 
Counsel shall have delegated authority to make such determinations as 
are required under this part 535.

    Effective Date Note: At 74 FR 5567, Jan. 29, 2009, part 535 was 
revised, effective July 1, 2010. For the convenience of the user, the 
revised text is set forth as follows:



PART 535_UNFAIR OR DECEPTIVE ACTS OR PRACTICES (Eff. 7-1-2010)

                      Subpart A_General Provisions

Sec.
535.1 Authority, purpose, and scope.

                   Subpart B_Consumer Credit Practices

535.11 Definitions.
535.12 Unfair credit contract provisions.
535.13 Unfair or deceptive cosigner practices.
535.14 Unfair late charges.

            Subpart C_Consumer Credit Card Account Practices

535.21 Definitions.
535.22 Unfair time to make payment.
535.23 Unfair allocation of payments.

[[Page 93]]

535.24 Unfair increases in annual percentage rates.
535.25 Unfair balance computation method.
535.26 Unfair charging of security deposits and fees for the issuance or 
          availability of credit to consumer credit card accounts.

Appendix A to Part 535--Official Staff Commentary

    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 57a.



                      Subpart A_General Provisions



Sec. 535.1  Authority, purpose and scope.

    (a) Authority. This part is issued by OTS under section 18(f) of the 
Federal Trade Commission Act, 15 U.S.C. 57a(f) (section 202(a) of the 
Magnuson-Moss Warranty--Federal Trade Commission Improvement Act, Pub. 
L. 93-637) and the Home Owners' Loan Act, 12 U.S.C. 1461 et seq.
    (b) Purpose. The purpose of this part is to prohibit unfair or 
deceptive acts or practices in violation of section 5(a)(1) of the 
Federal Trade Commission Act, 15 U.S.C. 45(a)(1). Subparts B and C 
define and contain requirements prescribed for the purpose of preventing 
specific unfair or deceptive acts or practices of savings associations. 
The prohibitions in subparts B and C do not limit OTS's authority to 
enforce the FTC Act with respect to any other unfair or deceptive acts 
or practices. The purpose of this part is also to prohibit unsafe and 
unsound practices and protect consumers under the Home Owners' Loan Act, 
12 U.S.C. 1461 et seq.
    (c) Scope. This part applies to savings associations and 
subsidiaries owned in whole or in part by a savings association 
(``you'').



                   Subpart B_Consumer Credit Practices



Sec. 535.11  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Consumer means a natural person who seeks or acquires goods, 
services, or money for personal, family, or household purposes, other 
than for the purchase of real property, and who applies for or is 
extended consumer credit.
    (b) Consumer credit means credit extended to a natural person for 
personal, family, or household purposes. It includes consumer loans; 
educational loans; unsecured loans for real property alteration, repair 
or improvement, or for the equipping of real property; overdraft loans; 
and credit cards. It also includes loans secured by liens on real estate 
and chattel liens secured by mobile homes and leases of personal 
property to consumers that may be considered the functional equivalent 
of loans on personal security but only if you rely substantially upon 
other factors, such as the general credit standing of the borrower, 
guaranties, or security other than the real estate or mobile home, as 
the primary security for the loan.
    (c) Earnings means compensation paid or payable to an individual or 
for the individual's account for personal services rendered or to be 
rendered by the individual, whether denominated as wages, salary, 
commission, bonus, or otherwise, including periodic payments pursuant to 
a pension, retirement, or disability program.
    (d) Obligation means an agreement between you and a consumer.
    (e) Person means an individual, corporation, or other business 
organization.



Sec. 535.12  Unfair credit contract provisions.

    It is an unfair act or practice for you, directly or indirectly, to 
enter into a consumer credit obligation that constitutes or contains, or 
to enforce in a consumer credit obligation you purchased, any of the 
following provisions:
    (a) Confession of judgment. A cognovit or confession of judgment 
(for purposes other than executory process in the State of Louisiana), 
warrant of attorney, or other waiver of the right to notice and the 
opportunity to be heard in the event of suit or process thereon.
    (b) Waiver of exemption. An executory waiver or a limitation of 
exemption from attachment, execution, or other process on real or 
personal property held, owned by, or due to the consumer, unless the 
waiver applies solely to property subject to a security interest 
executed in connection with the obligation.
    (c) Assignment of wages. An assignment of wages or other earnings 
unless:
    (1) The assignment by its terms is revocable at the will of the 
debtor;
    (2) The assignment is a payroll deduction plan or preauthorized 
payment plan, commencing at the time of the transaction, in which the 
consumer authorizes a series of wage deductions as a method of making 
each payment; or
    (3) The assignment applies only to wages or other earnings already 
earned at the time of the assignment.
    (d) Security interest in household goods. A nonpossessory security 
interest in household goods other than a purchase-money security 
interest. For purposes of this paragraph, household goods:
    (1) Means clothing, furniture, appliances, linens, china, crockery, 
kitchenware, and personal effects of the consumer and the consumer's 
dependents.
    (2) Does not include:
    (i) Works of art;
    (ii) Electronic entertainment equipment (except one television and 
one radio);
    (iii) Antiques (any item over one hundred years of age, including 
such items that have been repaired or renovated without changing their 
original form or character); or

[[Page 94]]

    (iv) Jewelry (other than wedding rings).



Sec. 535.13  Unfair or deceptive cosigner practices.

    (a) Prohibited deception. It is a deceptive act or practice for you, 
directly or indirectly in connection with the extension of credit to 
consumers, to misrepresent the nature or extent of cosigner liability to 
any person.
    (b) Prohibited unfairness. It is an unfair act or practice for you, 
directly or indirectly in connection with the extension of credit to 
consumers, to obligate a cosigner unless the cosigner is informed, 
before becoming obligated, of the nature of the cosigner's liability.
    (c) Disclosure requirement--(1) Disclosure statement. A clear and 
conspicuous statement must be given in writing to the cosigner before 
becoming obligated. In the case of open-end credit, the disclosure 
statement must be given to the cosigner before the time that the 
cosigner becomes obligated for any fees or transactions on the account. 
The disclosure statement must contain the following statement or one 
that is substantially similar:

                           Notice of Cosigner

    You are being asked to guarantee this debt. Think carefully before 
you do. If the borrower doesn't pay the debt, you will have to. Be sure 
you can afford to pay if you have to, and that you want to accept this 
responsibility.
    You may have to pay up to the full amount of the debt if the 
borrower does not pay. You may also have to pay late fees or collection 
costs, which increase this amount.
    The creditor can collect this debt from you without first trying to 
collect from the borrower. The creditor can use the same collection 
methods against you that can be used against the borrower, such as suing 
you, garnishing your wages, etc. If this debt is ever in default, that 
fact may become a part of your credit record.

    (2) Compliance. Compliance with paragraph (d)(1) of this section 
constitutes compliance with the consumer disclosure requirement in 
paragraph (b) of this section.
    (3) Additional content limitations. If the notice is a separate 
document, nothing other than the following items may appear with the 
notice:
    (i) Your name and address;
    (ii) An identification of the debt to be cosigned (e.g., a loan 
identification number);
    (iii) The date (of the transaction); and
    (iv) The statement, ``This notice is not the contract that makes you 
liable for the debt.''
    (d) Cosigner defined--(1) Cosigner means a natural person who 
assumes liability for the obligation of a consumer without receiving 
goods, services, or money in return for the obligation, or, in the case 
of an open-end credit obligation, without receiving the contractual 
right to obtain extensions of credit under the account.
    (2) Cosigner includes any person whose signature is requested as a 
condition to granting credit to a consumer, or as a condition for 
forbearance on collection of a consumer's obligation that is in default. 
The term does not include a spouse or other person whose signature is 
required on a credit obligation to perfect a security interest pursuant 
to state law.
    (3) A person who meets the definition in this paragraph is a 
cosigner, whether or not the person is designated as such on a credit 
obligation.



Sec. 535.14  Unfair late charges.

    (a) Prohibition. In connection with collecting a debt arising out of 
an extension of credit to a consumer, it is an unfair act or practice 
for you, directly or indirectly, to levy or collect any delinquency 
charge on a payment, when the only delinquency is attributable to late 
fees or delinquency charges assessed on earlier installments and the 
payment is otherwise a full payment for the applicable period and is 
paid on its due date or within an applicable grace period.
    (b) Collecting a debt defined-- Collecting a debt means, for the 
purposes of this section, any activity, other than the use of judicial 
process, that is intended to bring about or does bring about repayment 
of all or part of money due (or alleged to be due) from a consumer.



            Subpart C_Consumer Credit Card Account Practices



Sec. 535.21  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Annual percentage rate means the product of multiplying each 
periodic rate for a balance or transaction on a consumer credit card 
account by the number of periods in a year. The term ``periodic rate'' 
has the same meaning as in 12 CFR 226.2.
    (b) Consumer means a natural person to whom credit is extended under 
a consumer credit card account or a natural person who is a co-obligor 
or guarantor of a consumer credit card account.
    (c) Consumer credit card account means an account provided to a 
consumer primarily for personal, family, or household purposes under an 
open-end credit plan that is accessed by a credit card or charge card. 
The terms open-end credit, credit card, and charge card have the same 
meanings as in 12 CFR 226.2. The following are not consumer credit card 
accounts for purposes of this subpart:
    (1) Home equity plans subject to the requirements of 12 CFR 226.5b 
that are accessible by a credit or charge card;

[[Page 95]]

    (2) Overdraft lines of credit tied to asset accounts accessed by 
check-guarantee cards or by debit cards;
    (3) Lines of credit accessed by check-guarantee cards or by debit 
cards that can be used only at automated teller machines; and
    (4) Lines of credit accessed solely by account numbers.



Sec. 535.22  Unfair time to make payment.

    (a) General rule. Except as provided in paragraph (c) of this 
section, you must not treat a payment on a consumer credit card account 
as late for any purpose unless you have provided the consumer a 
reasonable amount of time to make the payment.
    (b) Compliance with general rule--(1) Establishing compliance. You 
must be able to establish that you have complied with paragraph (a) of 
this section.
    (2) Safe harbor. You comply with paragraph (a) of this section if 
you have adopted reasonable procedures designed to ensure that periodic 
statements specifying the payment due date are mailed or delivered to 
consumers at least 21 days before the payment due date.
    (c) Exception for grace periods. Paragraph (a) of this section does 
not apply to any time period you provided within which the consumer may 
repay any portion of the credit extended without incurring an additional 
finance charge.



Sec. 535.23  Unfair allocation of payments.

    When different annual percentage rates apply to different balances 
on a consumer credit card account, you must allocate any amount paid by 
the consumer in excess of the required minimum periodic payment among 
the balances using one of the following methods:
    (a) High-to-low method. The amount paid by the consumer in excess of 
the required minimum periodic payment is allocated first to the balance 
with the highest annual percentage rate and any remaining portion to the 
other balances in descending order based on the applicable annual 
percentage rate.
    (b) Pro rata method. The amount paid by the consumer in excess of 
the required minimum periodic payment is allocated among the balances in 
the same proportion as each balance bears to the total balance.



Sec. 535.24  Unfair increases in annual percentage rates.

    (a) General rule. At account opening, you must disclose the annual 
percentage rates that will apply to each category of transactions on the 
consumer credit card account. You must not increase the annual 
percentage rate for a category of transactions on any consumer credit 
card account except as provided in paragraph (b) of this section.
    (b) Exceptions. The prohibition in paragraph (a) of this section on 
increasing annual percentage rates does not apply where an annual 
percentage rate may be increased pursuant to one of the exceptions in 
this paragraph.
    (1) Account opening disclosure exception. An annual percentage rate 
for a category of transactions may be increased to a rate disclosed at 
account opening upon expiration of a period of time disclosed at account 
opening.
    (2) Variable rate exception. An annual percentage rate for a 
category of transactions that varies according to an index that is not 
under your control and is available to the general public may be 
increased due to an increase in the index.
    (3) Advance notice exception. An annual percentage rate for a 
category of transactions may be increased pursuant to a notice under 12 
CFR 226.9(c) or (g) for transactions that occur more than seven days 
after provision of the notice. This exception does not permit an 
increase in any annual percentage rate during the first year after the 
account is opened.
    (4) Delinquency exception. An annual percentage rate may be 
increased due to your not receiving the consumer's required minimum 
periodic payment within 30 days after the due date for that payment.
    (5) Workout arrangement exception. An annual percentage rate may be 
increased due to the consumer's failure to comply with the terms of a 
workout arrangement between you and the consumer, provided that the 
annual percentage rate applicable to a category of transactions 
following any such increase does not exceed the rate that applied to 
that category of transactions prior to commencement of the workout 
arrangement.
    (c) Treatment of protected balances. For purposes of this paragraph, 
``protected balance'' means the amount owed for a category of 
transactions to which an increased annual percentage rate cannot be 
applied after the rate for that category of transactions has been 
increased pursuant to paragraph (b)(3) of this section.
    (1) Repayment. You must provide the consumer with one of the 
following methods of repaying a protected balance or a method that is no 
less beneficial to the consumer than one of the following methods:
    (i) An amortization period of no less than five years, starting from 
the date on which the increased rate becomes effective for the category 
of transactions; or
    (ii) A required minimum periodic payment that includes a percentage 
of the protected balance that is no more than twice the percentage 
required before the date on which the increased rate became effective 
for the category of transactions.
    (2) Fees and charges. You must not assess any fee or charge based 
solely on a protected balance.

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Sec. 535.25  Unfair balance computation method.

    (a) General rule. Except as provided in paragraph (b) of this 
section, you must not impose finance charges on balances on a consumer 
credit card account based on balances for days in billing cycles that 
precede the most recent billing cycle as a result of the loss of any 
time period you provided within which the consumer may repay any portion 
of the credit extended without incurring a finance charge.
    (b) Exceptions. Paragraph (a) of this section does not apply to:
    (1) Adjustments to finance charges as a result of the resolution of 
a dispute under 12 CFR 226.12 or 12 CFR 226.13; or
    (2) Adjustments to finance charges as a result of the return of a 
payment for insufficient funds.



Sec. 535.26  Unfair charging of security deposits and fees for the 
          issuance or availability of credit to consumer credit card 
          accounts.

    (a) Limitation for first year. During the first year, you must not 
charge to a consumer credit card account security deposits and fees for 
the issuance or availability of credit that in total constitute a 
majority of the initial credit limit for the account.
    (b) Limitations for first billing cycle and subsequent billing 
cycles--(1) First billing cycle. During the first billing cycle, you 
must not charge to a consumer credit card account security deposits and 
fees for the issuance or availability of credit that in total constitute 
more than 25 percent of the initial credit limit for the account.
    (2) Subsequent billing cycles. Any additional security deposits and 
fees for the issuance or availability of credit permitted by paragraph 
(a) of this section must be charged to the account in equal portions in 
no fewer than the five billing cycles immediately following the first 
billing cycle.
    (c) Evasion prohibited. You must not evade the requirements of this 
section by providing the consumer with additional credit to fund the 
payment of security deposits and fees for the issuance or availability 
of credit that exceed the total amounts permitted by paragraphs (a) and 
(b) of this section.
    (d) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Fees for the issuance or availability of credit means:
    (i) Any annual or other periodic fee that may be imposed for the 
issuance or availability of a consumer credit card account, including 
any fee based on account activity or inactivity; and
    (ii) Any non-periodic fee that relates to opening an account.
    (2) First billing cycle means the first billing cycle after a 
consumer credit card account is opened.
    (3) First year means the period beginning with the date on which a 
consumer credit card account is opened and ending twelve months from 
that date.
    (4) Initial credit limit means the credit limit in effect when a 
consumer credit card account is opened.



         Sec. Appendix A to Part 535--Official Staff Commentary

       Subpart A--General Provisions for Consumer Protection Rules

              Section 535.1--Authority, Purpose, and Scope

                               1(c) Scope

    1. Penalties for noncompliance. Administrative enforcement of the 
rule for savings associations may involve actions under section 8 of the 
Federal Deposit Insurance Act (12 U.S.C. 1818), including cease-and-
desist orders requiring that actions be taken to remedy violations and 
civil money penalties.
    2. Application to subsidiaries. The term ``savings association'' as 
used in this Appendix also includes subsidiaries owned in whole or in 
part by a savings association.

            Subpart C--Consumer Credit Card Account Practices

               Section 535.22--Unfair Time To Make Payment

                           22(a) General Rule

    1. Treating a payment as late for any purpose. Treating a payment as 
late for any purpose includes increasing the annual percentage rate as a 
penalty, reporting the consumer as delinquent to a credit reporting 
agency, or assessing a late fee or any other fee based on the consumer's 
failure to make a payment within the amount of time provided to make 
that payment under this section.
    2. Reasonable amount of time to make payment. Whether an amount of 
time is reasonable for purposes of making a payment is determined from 
the perspective of the consumer, not the savings association. Under 
Sec. 535.22(b)(2), a savings association provides a reasonable amount 
of time to make a payment if it has adopted reasonable procedures 
designed to ensure that periodic statements specifying the payment due 
date are mailed or delivered to consumers at least 21 days before the 
payment due date.

                   22(b) Compliance with General Rule

    1. Reasonable procedures. A savings association is not required to 
determine the specific date on which periodic statements are mailed or 
delivered to each individual consumer. A savings association provides a 
reasonable amount of time to make a payment if it has adopted reasonable 
procedures designed to ensure that periodic statements are mailed or 
delivered to consumers no

[[Page 97]]

later than a certain number of days after the closing date of the 
billing cycle and adds that number of days to the 21-day period in Sec. 
535.24(b)(2) when determining the payment due date. For example, if a 
savings association has adopted reasonable procedures designed to ensure 
that periodic statements are mailed or delivered to consumers no later 
than three days after the closing date of the billing cycle, the payment 
due date on the periodic statement must be no less than 24 days after 
the closing date of the billing cycle.
    2. Payment due date. For purposes of Sec. 535.22(b)(2), ``payment 
due date'' means the date by which the savings association requires the 
consumer to make the required minimum periodic payment in order to avoid 
being treated as late for any purpose, except as provided in Sec. 
535.22(c).
    3. Example of alternative method of compliance. Assume that, for a 
particular type of consumer credit card account, a savings association 
only provides periodic statements electronically and only accepts 
payments electronically (consistent with applicable law and regulatory 
guidance). Under these circumstances, the savings association could 
comply with Sec. 535.22(a) even if it does not provide periodic 
statements 21 days before the payment due date consistent with Sec. 
535.22(b)(2).

              Section 535.23--Unfair Allocation of Payments

    1. Minimum periodic payment. Section 535.23 addresses the allocation 
of amounts paid by the consumer in excess of the minimum periodic 
payment required by the savings association. Section 535.23 does not 
limit or otherwise address the savings association's ability to 
determine, consistent with applicable law and regulatory guidance, the 
amount of the required minimum periodic payment or how that payment is 
allocated. A savings association may, but is not required to, allocate 
the required minimum periodic payment consistent with the requirements 
in Sec. 535.23 to the extent consistent with other applicable law or 
regulatory guidance.
    2. Adjustments of one dollar or less permitted. When allocating 
payments, the savings association may adjust amounts by one dollar or 
less. For example, if a savings association is allocating $100 pursuant 
to Sec. 535.23(b) among balances of $1,000, $2,000, and $4,000, the 
savings association may apply $14 to the $1,000 balance, $29 to the 
$2,000 balance, and $57 to the $4,000 balance.
    3. Applicable balances and annual percentage rates. Section 535.23 
permits a savings association to allocate an amount paid by the consumer 
in excess of the required minimum periodic payment based on the balances 
and annual percentage rates on the date the preceding billing cycle 
ends, on the date the payment is credited to the account, or on any day 
in between those two dates. For example, assume that the billing cycles 
for a consumer credit card account start on the first day of the month 
and end on the last day of the month. On the date the March billing 
cycle ends (March 31), the account has a purchase balance of $500 at a 
variable annual percentage rate of 14% and a cash advance balance of 
$200 at a variable annual percentage rate of 18%. On April 1, the rate 
for purchases increases to 16% and the rate for cash advances increases 
to 20% consistent with Sec. 535.24(b)(2). On April 15, the purchase 
balance increases to $700. On April 25, the savings association credits 
to the account $400 paid by the consumer in excess of the required 
minimum periodic payment. Under Sec. 535.23, the savings association 
may allocate the $400 based on the balances in existence and rates in 
effect on any day from March 31 through April 25.
    4. Use of permissible allocation methods. A savings association is 
not prohibited from changing the allocation method for a consumer credit 
card account or from using different allocation methods for different 
consumer credit card accounts, so long as the methods used are 
consistent with Sec. 535.23. For example, a savings association may 
change from allocating to the highest rate balance first pursuant to 
Sec. 535.23(a) to allocating pro rata pursuant to Sec. 535.23(b) or 
vice versa. Similarly, a savings association may allocate to the highest 
rate balance first pursuant to Sec. 535.23(a) on some of its accounts 
and allocate pro rata pursuant to Sec. 535.23(b) on other accounts.
    5. Claims or defenses under Regulation Z, 12 CFR 226.12(c). When a 
consumer has asserted a claim or defense against the card issuer 
pursuant to 12 CFR 226.12(c), the savings association must allocate 
consistent with 12 CFR 226.12 comment 226.12(c)-4.
    6. Balances with the same annual percentage rate. When the same 
annual percentage rate applies to more than one balance on an account 
and a different annual percentage rate applies to at least one other 
balance on that account, Sec. 535.23 does not require that any 
particular method be used when allocating among the balances with the 
same annual percentage rate. Under these circumstances, a savings 
association may treat the balances with the same rate as a single 
balance or separate balances. See comments 23(a)-1.iv and 23(b)-2.iv.

                        23(a) High-to-Low Method

    1. Examples. For purposes of the following examples, assume that 
none of the required minimum periodic payment is allocated to the 
balances discussed (unless otherwise stated).
    i. Assume that a consumer's account has a cash advance balance of 
$500 at an annual percentage rate of 20% and a purchase balance of 
$1,500 at an annual percentage rate of

[[Page 98]]

15% and that the consumer pays $800 in excess of the required minimum 
periodic payment. A savings association using this method would allocate 
$500 to pay off the cash advance balance and then allocate the remaining 
$300 to the purchase balance.
    ii. Assume that a consumer's account has a cash advance balance of 
$500 at an annual percentage rate of 20% and a purchase balance of 
$1,500 at an annual percentage rate of 15% and that the consumer pays 
$400 in excess of the required minimum periodic payment. A savings 
association using this method would allocate the entire $400 to the cash 
advance balance.
    iii. Assume that a consumer's account has a cash advance balance of 
$100 at an annual percentage rate of 20%, a purchase balance of $300 at 
an annual percentage rate of 18%, and a $600 protected balance on which 
the 12% annual percentage rate cannot be increased pursuant to Sec. 
535.24. If the consumer pays $500 in excess of the required minimum 
periodic payment, a savings association using this method would allocate 
$100 to pay off the cash advance balance, $300 to pay off the purchase 
balance, and $100 to the protected balance.
    iv. Assume that a consumer's account has a cash advance balance of 
$500 at an annual percentage rate of 20%, a purchase balance of $1,000 
at an annual percentage rate of 15%, and a transferred balance of $2,000 
that was previously at a discounted annual percentage rate of 5% but is 
now at an annual percentage rate of 15%. Assume also that the consumer 
pays $800 in excess of the required minimum periodic payment. A savings 
association using this method would allocate $500 to pay off the cash 
advance balance and allocate the remaining $300 among the purchase 
balance and the transferred balance in the manner the savings 
association deems appropriate.

                          23(b) Pro Rata Method

    1. Total balance. A savings association may, but is not required to, 
deduct amounts paid by the consumer's required minimum periodic payment 
when calculating the total balance for purposes of Sec. 535.23(b)(3). 
See comment 23(b)-2.iii.
    2. Examples. For purposes of the following examples, assume that 
none of the required minimum periodic payment is allocated to the 
balances discussed (unless otherwise stated) and that the amounts 
allocated to each balance are rounded to the nearest dollar.
    i. Assume that a consumer's account has a cash advance balance of 
$500 at an annual percentage rate of 20% and a purchase balance of 
$1,500 at an annual percentage rate of 15% and that the consumer pays 
$555 in excess of the required minimum periodic payment. A savings 
association using this method would allocate 25% of the amount ($139) to 
the cash advance balance and 75% of the amount ($416) to the purchase 
balance.
    ii. Assume that a consumer's account has a cash advance balance of 
$100 at an annual percentage rate of 20%, a purchase balance of $300 at 
an annual percentage rate of 18%, and a $600 protected balance on which 
the 12% annual percentage rate cannot be increased pursuant to Sec. 
535.24. If the consumer pays $130 in excess of the required minimum 
periodic payment, a savings association using this method would allocate 
10% of the amount ($13) to the cash advance balance, 30% of the amount 
($39) to the purchase balance, and 60% of the amount ($78) to the 
protected balance.
    iii. Assume that a consumer's account has a cash advance balance of 
$300 at an annual percentage rate of 20% and a purchase balance of $600 
at an annual percentage rate of 15%. Assume also that the required 
minimum periodic payment is $50 and that the savings association 
allocates this payment first to the balance with the lowest annual 
percentage rate (the $600 purchase balance). If the consumer pays $300 
in excess of the $50 minimum payment, a savings association using this 
method could allocate based on a total balance of $850 (consisting of 
the $300 cash advance balance plus the $550 purchase balance after 
application of the $50 minimum payment). In this case, the savings 
association would apply 35% of the $300 ($105) to the cash advance 
balance and 65% of that amount ($195) to the purchase balance. In the 
alternative, the savings association could allocate based on a total 
balance of $900 (which does not reflect the $50 minimum payment). In 
that case, the savings association would apply one third of the $300 
excess payment ($100) to the cash advance balance and two thirds ($200) 
to the purchase balance.
    iv. Assume that a consumer's account has a cash advance balance of 
$500 at an annual percentage rate of 20%, a purchase balance of $1,000 
at an annual percentage rate of 15%, and a transferred balance of $2,000 
that was previously at a discounted annual percentage rate of 5% but is 
now at an annual percentage rate of 15%. Assume also that the consumer 
pays $800 in excess of the required minimum periodic payment. A savings 
association using this method would allocate 14% of the excess payment 
($112) to the cash advance balance and allocate the remaining 86% ($688) 
among the purchase balance and the transferred balance in the manner the 
savings association deems appropriate.

       Section 535.24--Unfair Increases in Annual Percentage Rates

    1. Relationship to Regulation Z, 12 CFR part 226. A savings 
association that complies with the applicable disclosure requirements in 
Regulation Z, 12 CFR part 226, has complied with the disclosure 
requirements in Sec. 535.24. See 12 CFR 226.5a, 226.6, 226.9. For 
example, a

[[Page 99]]

savings association may comply with the requirement in Sec. 535.24(a) 
to disclose at account opening the annual percentage rates that will 
apply to each category of transactions by complying with the disclosure 
requirements in 12 CFR 226.5a regarding applications and solicitations 
and the requirements in 12 CFR 226.6 regarding account-opening 
disclosures. Similarly, in order to increase an annual percentage rate 
on new transactions pursuant to Sec. 535.24(b)(3), a savings 
association must comply with the disclosure requirements in 12 CFR 
226.9(c) or (g). However, nothing in Sec. 535.24 alters the 
requirements in 12 CFR 226.9(c) and (g) that creditors provide consumers 
with written notice at least 45 days prior to the effective date of 
certain increases in the annual percentage rates on open-end (not home-
secured) credit plans.

                           24(a) General Rule

    1. Rates that will apply to each category of transactions. Section 
535.24(a) requires savings associations to disclose, at account opening, 
the annual percentage rates that will apply to each category of 
transactions on the account. A savings association cannot satisfy this 
requirement by disclosing at account opening only a range of rates or 
that a rate will be ``up to'' a particular amount.
    2. Application of prohibition on increasing rates. Section 535.24(a) 
prohibits savings associations from increasing the annual percentage 
rate for a category of transactions on any consumer credit card account 
unless specifically permitted by one of the exceptions in Sec. 
535.24(b). The following examples illustrate the application of the 
rule:
    i. Assume that, at account opening on January 1 of year one, a 
savings association discloses that the annual percentage rate for 
purchases is a non-variable rate of 15% and will apply for six months. 
The savings association also discloses that, after six months, the 
annual percentage rate for purchases will be a variable rate that is 
currently 18% and will be adjusted quarterly by adding a margin of 8 
percentage points to a publicly-available index not under the savings 
association's control. Finally, the savings association discloses that 
the annual percentage rate for cash advances is the same variable rate 
that will apply to purchases after six months. The payment due date for 
the account is the twenty-fifth day of the month and the required 
minimum periodic payments are applied to accrued interest and fees but 
do not reduce the purchase and cash advance balances.
    A. On January 15, the consumer uses the account to make a $2,000 
purchase and a $500 cash advance. No other transactions are made on the 
account. At the start of each quarter, the savings association adjusts 
the variable rate that applies to the $500 cash advance consistent with 
changes in the index (pursuant to Sec. 535.24(b)(2)). All required 
minimum periodic payments are received on or before the payment due date 
until May of year one, when the payment due on May 25 is received by the 
savings association on May 28. The savings association is prohibited by 
Sec. 535.24 from increasing the rates that apply to the $2,000 
purchase, the $500 cash advance, or future purchases and cash advances. 
Six months after account opening (July 1), the savings association 
begins accruing interest on the $2,000 purchase at the previously-
disclosed variable rate determined using an 8-point margin (pursuant to 
Sec. 535.24(b)(1)). Because no other increases in rate were disclosed 
at account opening, the savings association may not subsequently 
increase the variable rate that applies to the $2,000 purchase and the 
$500 cash advance (except due to increases in the index pursuant to 
Sec. 535.24(b)(2)). On November 16, the savings association provides a 
notice pursuant to 12 CFR 226.9(c) informing the consumer of a new 
variable rate that will apply on January 1 of year two (calculated using 
the same index and an increased margin of 12 percentage points). On 
January 1 of year two, the savings association increases the margin used 
to determine the variable rate that applies to new purchases to 12 
percentage points (pursuant to Sec. 535.24(b)(3)). On January 15 of 
year two, the consumer makes a $300 purchase. The savings association 
applies the variable rate determined using the 12-point margin to the 
$300 purchase but not the $2,000 purchase.
    B. Same facts as above except that the required minimum periodic 
payment due on May 25 of year one is not received by the savings 
association until June 30 of year one. Because the savings association 
received the required minimum periodic payment more than 30 days after 
the payment due date, Sec. 535.24(b)(4) permits the savings association 
to increase the annual percentage rate applicable to the $2,000 
purchase, the $500 cash advance, and future purchases and cash advances. 
However, the savings association must first comply with the notice 
requirements in 12 CFR 226.9(g). Thus, if the savings association 
provided a 12 CFR 226.9(g) notice on June 25 stating that all rates on 
the account would be increased to a non-variable penalty rate of 30%, 
the savings association could apply that 30% rate beginning on August 9 
to all balances and future transactions.
    ii. Assume that, at account opening on January 1 of year one, a 
savings association discloses that the annual percentage rate for 
purchases will increase as follows: A non-variable rate of 5% for six 
months; a non-variable rate of 10% for an additional six months; and 
thereafter a variable rate that is currently 15% and will be adjusted 
monthly by adding a margin of 5 percentage points to a publicly 
available index not under the

[[Page 100]]

savings association's control. The payment due date for the account is 
the fifteenth day of the month and the required minimum periodic 
payments are applied to accrued interest and fees but do not reduce the 
purchase balance. On January 15, the consumer uses the account to make a 
$1,500 purchase. Six months after account opening (July 1), the savings 
association begins accruing interest on the $1,500 purchase at the 
previously disclosed 10% non-variable rate (pursuant to Sec. 
535.24(b)(1)). On September 15, the consumer uses the account for a $700 
purchase. On November 16, the savings association provides a notice 
pursuant to 12 CFR 226.9(c) informing the consumer of a new variable 
rate that will apply on January 1 of year two (calculated using the same 
index and an increased margin of 8 percentage points). One year after 
account opening (January 1 of year two), the savings association begins 
accruing interest on the $2,200 purchase balance at the previously 
disclosed variable rate determined using a 5-point margin (pursuant to 
Sec. 535.24(b)(1)). Because the variable rate determined using the 8-
point margin was not disclosed at account opening, the savings 
association may not apply that rate to the $2,200 purchase balance. 
Furthermore, because no other increases in rate were disclosed at 
account opening, the savings association may not subsequently increase 
the variable rate that applies to the $2,200 purchase balance (except 
due to increases in the index pursuant to Sec. 535.24(b)(2)). The 
savings association may, however, apply the variable rate determined 
using the 8-point margin to purchases made on or after January 1 of year 
two (pursuant to Sec. 535.24(b)(3)).
    iii. Assume that, at account opening on January 1 of year one, a 
savings association discloses that the annual percentage rate for 
purchases is a variable rate determined by adding a margin of 6 
percentage points to a publicly available index outside of the savings 
association's control. The savings association also discloses that, to 
the extent consistent with Sec. 535.24 and other applicable law, a non-
variable penalty rate of 28% may apply if the consumer makes a late 
payment. The due date for the account is the fifteenth of the month. On 
May 30 of year two, the account has a purchase balance of $1,000. On May 
31, the creditor provides a notice pursuant to 12 CFR 226.9(c) informing 
the consumer of a new variable rate that will apply on July 16 for all 
purchases made on or after June 8 (calculated by using the same index 
and an increased margin of 8 percentage points). On June 7, the consumer 
makes a $500 purchase. On June 8, the consumer makes a $200 purchase. On 
June 25, the savings association has not received the payment due on 
June 15 and provides the consumer with a notice pursuant to 12 CFR 
226.9(g) stating that the penalty rate of 28% will apply as of August 9 
to all transactions made on or after July 3. On July 4, the consumer 
makes a $300 purchase.
    A. The payment due on June 15 of year two is received on June 26. On 
July 16, Sec. 535.24(b)(3) permits the savings association to apply the 
variable rate determined using the 8-point margin to the $200 purchase 
made on June 8 but does not permit the savings association to apply this 
rate to the $1,500 purchase balance. On August 9, Sec. 535.24(b)(3) 
permits the savings association to apply the 28% penalty rate to the 
$300 purchase made on July 4 but does not permit the savings association 
to apply this rate to the $1,500 purchase balance (which remains at the 
variable rate determined using the 6-point margin) or the $200 purchase 
(which remains at the variable rate determined using the 8-point 
margin).
    B. Same facts as above except the payment due on September 15 of 
year two is received on October 20. Section 535.24(b)(4) permits the 
savings association to apply the 28% penalty rate to all balances on the 
account and to future transactions because it has not received payment 
within 30 days after the due date. However, in order to apply the 28% 
penalty rate to the entire $2,000 purchase balance, the savings 
association must provide an additional notice pursuant to 12 CFR 
226.9(g). This notice must be sent no earlier than October 16, which is 
the first day the account became more than 30 days' delinquent.
    C. Same facts as paragraph A. above except the payment due on June 
15 of year two is received on July 20. Section 535.24(b)(4) permits the 
savings association to apply the 28% penalty rate to all balances on the 
account and to future transactions because it has not received payment 
within 30 days after the due date. Because the savings association 
provided a 12 CFR 226.9(g) notice on June 24 stating the 28% penalty 
rate, the savings association may apply the 28% penalty rate to all 
balances on the account as well as any future transactions on August 9 
without providing an additional notice pursuant to 12 CFR 226.9(g).

                            24(b) Exceptions

              24(b)(1) Account Opening Disclosure Exception

    1. Prohibited increases in rate. Section 535.24(b)(1) permits an 
increase in the annual percentage rate for a category of transactions to 
a rate disclosed at account opening upon expiration of a period of time 
that was also disclosed at account opening. Section 535.24(b)(1) does 
not permit application of increased rates that are disclosed at account 
opening but are contingent on a particular event or occurrence or may be 
applied at the savings association's discretion.

[[Page 101]]

The following examples illustrate rate increases that are not permitted 
by Sec. 535.24(a):
    i. Assume that a savings association discloses at account opening on 
January 1 of year one that a non-variable rate of 15% applies to 
purchases but that all rates on an account may be increased to a non-
variable penalty rate of 30% if a consumer's required minimum periodic 
payment is received after the payment due date, which is the fifteenth 
of the month. On March 1, the account has a $2,000 purchase balance. The 
payment due on March 15 is not received until March 20. Section 535.24 
does not permit the savings association to apply the 30% penalty rate to 
the $2,000 purchase balance. However, pursuant to Sec. 535.24(b)(3), 
the savings association could provide a 12 CFR 226.9(c) or (g) notice on 
November 16 informing the consumer that, on January 1 of year two, the 
30% rate (or a different rate) will apply to new transactions.
    ii. Assume that a savings association discloses at account opening 
on January 1 of year one that a non-variable rate of 5% applies to 
transferred balances but that this rate will increase to a non-variable 
rate of 18% if the consumer does not use the account for at least $200 
in purchases each billing cycle. On July 1, the consumer transfers a 
balance of $4,000 to the account. During the October billing cycle, the 
consumer uses the account for $150 in purchases. Section 535.24 does not 
permit the savings association to apply the 18% rate to the $4,000 
transferred balance. However, pursuant to Sec. 535.24(b)(3), the 
savings association could provide a 12 CFR 226.9(c) or (g) notice on 
November 16 informing the consumer that, on January 1 of year two, the 
18% rate (or a different rate) will apply to new transactions.
    iii. Assume that a savings association discloses at account opening 
on January 1 of year one that interest on purchases will be deferred for 
one year, although interest will accrue on purchases during that year at 
a non-variable rate of 20%. The savings association further discloses 
that, if all purchases made during year one are not paid in full by the 
end of that year, the savings association will begin charging interest 
on the purchase balance and new purchases at 20% and will retroactively 
charge interest on the purchase balance at a rate of 20% starting on the 
date of each purchase made during year one. On January 1 of year one, 
the consumer makes a purchase of $1,500. No other transactions are made 
on the account. On January 1 of year two, $500 of the $1,500 purchase 
remains unpaid. Section 535.24 does not permit the savings association 
to reach back to charge interest on the $1,500 purchase from January 1 
through December 31 of year one. However, the savings association may 
apply the previously disclosed 20% rate to the $500 purchase balance 
beginning on January 1 of year two (pursuant to Sec. 535.24(b)(1)).
    2. Loss of grace period. Nothing in Sec. 535.24 prohibits a savings 
association from assessing interest due to the loss of a grace period to 
the extent consistent with Sec. 535.25.
    3. Application of rate that is lower than disclosed rate. Section 
Sec. 535.24(b)(1) permits an increase in the annual percentage rate for 
a category of transactions to a rate disclosed at account opening upon 
expiration of a period of time that was also disclosed at account 
opening. Nothing in Sec. 535.24 prohibits a savings association from 
applying a rate that is lower than the disclosed rate upon expiration of 
the period. However, if a lower rate is applied to an existing balance, 
the savings association cannot subsequently increase the rate on that 
balance unless it has provided the consumer with advance notice of the 
increase pursuant to 12 CFR 226.9(c). Furthermore, the savings 
association cannot increase the rate on that existing balance to a rate 
that is higher than the increased rate disclosed at account opening. The 
following example illustrates the application of this rule:
    i. Assume that, at account opening on January 1 of year one, a 
savings association discloses that a non-variable annual percentage rate 
of 15% will apply to purchases for one year and discloses that, after 
the first year, the savings association will apply a variable rate that 
is currently 20% and is determined by adding a margin of 10 percentage 
points to a publicly available index not under the savings association's 
control. On December 31 of year one, the account has a purchase balance 
of $3,000.
    A. On November 16 of year one, the savings association provides a 
notice pursuant to 12 CFR 226.9(c) informing the consumer of a new 
variable rate that will apply on January 1 of year two (calculated using 
the same index and a reduced margin of 8 percentage points). The notice 
further states that, on July 1 of year two, the margin will increase to 
the margin disclosed at account opening (10 percentage points). On July 
1 of year two, the savings association increases the margin used to 
determine the variable rate that applies to new purchases to 10 
percentage points and applies that rate to any remaining portion of the 
$3,000 purchase balance (pursuant to Sec. 535.24(b)(1)).
    B. Same facts as above except that the savings association does not 
send a notice on November 16 of year one. Instead, on January 1 of year 
two, the savings association lowers the margin used to determine the 
variable rate to 8 percentage points and applies that rate to the $3,000 
purchase balance and to new purchases. 12 CFR 226.9 does not require 
advance notice in these circumstances. However, unless the account 
becomes more than 30 days' delinquent, the

[[Page 102]]

savings association may not subsequently increase the rate that applies 
to the $3,000 purchase balance except due to increases in the index 
(pursuant to Sec. 535.24(b)(2)).

                    24(b)(2) Variable Rate Exception

    1. Increases due to increase in index. Section 535.24(b)(2) provides 
that an annual percentage rate for a category of transactions that 
varies according to an index that is not under the savings association's 
control and is available to the general public may be increased due to 
an increase in the index. This section does not permit a savings 
association to increase the annual percentage rate by changing the 
method used to determine a rate that varies with an index (such as by 
increasing the margin), even if that change will not result in an 
immediate increase.
    2. External index. A savings association may increase the annual 
percentage rate if the increase is based on an index or indices outside 
the savings association's control. A savings association may not 
increase the rate based on its own prime rate or cost of funds. A 
savings association is permitted, however, to use a published prime 
rate, such as that in the Wall Street Journal, even if the savings 
association's own prime rate is one of several rates used to establish 
the published rate.
    3. Publicly available. The index or indices must be available to the 
public. A publicly-available index need not be published in a newspaper, 
but it must be one the consumer can independently obtain (by telephone, 
for example) and use to verify the rate applied to the outstanding 
balance.
    4. Changing a non-variable rate to a variable rate. Section 535.24 
generally prohibits a savings association from changing a non-variable 
annual percentage rate to a variable rate because such a change can 
result in an increase in rate. However, Sec. 535.24(b)(1) permits a 
savings association to change a non-variable rate to a variable rate if 
the change was disclosed at account opening. Furthermore, following the 
first year after the account is opened, Sec. 535.24(b)(3) permits a 
savings association to change a non-variable rate to a variable rate 
with respect to new transactions (after complying with the notice 
requirements in 12 CFR 226.9(c) or (g)). Finally, Sec. 535.24(b)(4) 
permits a savings association to change a non-variable rate to a 
variable rate if the required minimum periodic payment is not received 
within 30 days of the payment due date (after complying with the notice 
requirements in 12 CFR 226.9(g)).
    5. Changing a variable annual percentage rate to a non-variable 
annual percentage rate. Nothing in Sec. 535.24 prohibits a savings 
association from changing a variable annual percentage rate to an equal 
or lower non-variable rate. Whether the non-variable rate is equal to or 
lower than the variable rate is determined at the time the savings 
association provides the notice required by 12 CFR 226.9(c). For 
example, assume that on March 1 a variable rate that is currently 15% 
applies to a balance of $2,000 and the savings association sends a 
notice pursuant to 12 CFR 226.9(c) informing the consumer that the 
variable rate will be converted to a non-variable rate of 14% effective 
April 17. On April 17, the savings association may apply the 14% non-
variable rate to the $2,000 balance and to new transactions even if the 
variable rate on March 2 or a later date was less than 14%.
    6. Substitution of index. A savings association may change the index 
and margin used to determine the annual percentage rate under Sec. 
535.24(b)(2) if the original index becomes unavailable, as long as 
historical fluctuations in the original and replacement indices were 
substantially similar, and as long as the replacement index and margin 
will produce a rate similar to the rate that was in effect at the time 
the original index became unavailable. If the replacement index is newly 
established and therefore does not have any rate history, it may be used 
if it produces a rate substantially similar to the rate in effect when 
the original index became unavailable.

                    24(b)(3) Advance Notice Exception

    1. First year after the account is opened. A savings association may 
not increase an annual percentage rate pursuant to Sec. 535.24(b)(3) 
during the first year after the account is opened. This limitation does 
not apply to accounts opened prior to July 1, 2010.
    2. Transactions that occur more than seven days after notice 
provided. Section 535.24(b)(3) generally prohibits a savings association 
from applying an increased rate to transactions that occur within seven 
days after provision of the 12 CFR 226.9(c) or (g) notice. This 
prohibition does not, however, apply to transactions that are authorized 
within seven days after provision of the 12 CFR 226.9(c) or (g) notice 
but are settled more than seven days after the notice was provided.
    3. Examples.
    i. Assume that a consumer credit card account is opened on January 1 
of year one. On March 14 of year two, the account has a purchase balance 
of $2,000 at a non-variable annual percentage rate of 15%. On March 15, 
the savings association provides a notice pursuant to 12 CFR 226.9(c) 
informing the consumer that the rate for new purchases will increase to 
a non-variable rate of 18% on May 1. The notice further states that the 
18% rate will apply for six months (until November 1) and states that 
thereafter the savings association will apply a variable rate that is 
currently 22% and is determined by adding a margin of 12 percentage 
points to a publicly-available index that is not under

[[Page 103]]

the savings association's control. The seventh day after provision of 
the notice is March 22 and, on that date, the consumer makes a $200 
purchase. On March 24, the consumer makes a $1,000 purchase. On May 1, 
Sec. 535.24(b)(3) permits the savings association to begin accruing 
interest at 18% on the $1,000 purchase made on March 24. The savings 
association is not permitted to apply the 18% rate to the $2,200 
purchase balance as of March 22. After six months (November 2), the 
savings association may begin accruing interest on any remaining portion 
of the $1,000 purchase at the previously-disclosed variable rate 
determined using the 12-point margin.
    ii. Same facts as above except that the $200 purchase is authorized 
by the savings association on March 22 but is not settled until March 
23. On May 1, Sec. 535.24(b)(3) permits the savings association to 
start charging interest at 18% on both the $200 purchase and the $1,000 
purchase. The savings association is not permitted to apply the 18% rate 
to the $2,000 purchase balance as of March 22.
    iii. Same facts as in paragraph i. above except that on September 17 
of year two (which is 45 days before expiration of the 18% non-variable 
rate), the savings association provides a notice pursuant to 12 CFR 
226.9(c) informing the consumer that, on November 2, a new variable rate 
will apply to new purchases and any remaining portion of the $1,000 
balance (calculated by using the same index and a reduced margin of 10 
percentage points). The notice further states that, on May 1 of year 
three, the margin will increase to the margin disclosed at account 
opening (12 percentage points). On May 1 of year three, Sec. 
535.24(b)(3) permits the savings association to increase the margin used 
to determine the variable rate that applies to new purchases to 12 
percentage points and to apply that rate to any remaining portion of the 
$1,000 purchase as well as to new purchases. See comment 24(b)(1)-3. The 
savings association is not permitted to apply this rate to any remaining 
portion of the $2,200 purchase balance as of March 22.

                 24(b)(5) Workout Arrangement Exception

    1. Scope of exception. Nothing in Sec. 535.24(b)(5) permits a 
savings association to alter the requirements of Sec. 535.24 pursuant 
to a workout arrangement between a consumer and the savings association. 
For example, a savings association cannot increase an annual percentage 
rate pursuant to a workout arrangement unless otherwise permitted by 
Sec. 535.24. In addition, a savings association cannot require the 
consumer to make payments with respect to a protected balance that 
exceed the payments permitted under Sec. 535.24(c).
    2. Variable annual percentage rates. If the annual percentage rate 
that applied to a category of transactions prior to commencement of the 
workout arrangement varied with an index consistent with Sec. 
535.24(b)(2), the rate applied to that category of transactions 
following an increase pursuant to Sec. 535.24(b)(5) must be determined 
using the same formula (index and margin).
    3. Example. Assume that, consistent with Sec. 535.24(b)(4), the 
margin used to determine a variable annual percentage rate that applies 
to a $5,000 balance is increased from 5 percentage points to 15 
percentage points. Assume also that the savings association and the 
consumer subsequently agree to a workout arrangement that reduces the 
margin back to 5 points on the condition that the consumer pay a 
specified amount by the payment due date each month. If the consumer 
does not pay the agreed-upon amount by the payment due date, the savings 
association may increase the margin for the variable rate that applies 
to the $5,000 balance up to 15 percentage points. 12 CFR 226.9 does not 
require advance notice of this type of increase.

                  24(c) Treatment of Protected Balances

    1. Protected balances. Because rates cannot be increased pursuant to 
Sec. 535.24(b)(3) during the first year after account opening, Sec. 
535.24(c) does not apply to balances during the first year. Instead, the 
requirements in Sec. 535.24(c) apply only to ``protected balances,'' 
which are amounts owed for a category of transactions to which an 
increased annual percentage rate cannot be applied after the rate for 
that category of transactions has been increased pursuant to Sec. 
535.24(b)(3). For example, assume that, on March 15 of year two, an 
account has a purchase balance of $1,000 at a non-variable rate of 12% 
and that, on March 16, the savings association sends a notice pursuant 
to 12 CFR 226.9(c) informing the consumer that the rate for new 
purchases will increase to a non-variable rate of 15% on May 2. On March 
20, the consumer makes a $100 purchase. On March 24, the consumer makes 
a $150 purchase. On May 2, Sec. 535.24(b)(3) permits the savings 
association to start charging interest at 15% on the $150 purchase made 
on March 24 but does not permit the savings association to apply that 
15% rate to the $1,100 purchase balance as of March 23. Accordingly, 
Sec. 535.24(c) applies to the $1,100 purchase balance as of March 23 
but not the $150 purchase made on March 24.

                           24(c)(1) Repayment

    1. No less beneficial to the consumer. A savings association may 
provide a method of repaying the protected balance that is different 
from the methods listed in Sec. 535.24(c)(1) so long as the method used 
is no less beneficial to the consumer than one of

[[Page 104]]

the listed methods. A method is no less beneficial to the consumer if 
the method amortizes the protected balance in five years or longer or if 
the method results in a required minimum periodic payment that is equal 
to or less than a minimum payment calculated consistent with Sec. 
535.24(c)(1)(ii). For example, a savings association could increase the 
percentage of the protected balance included in the required minimum 
periodic payment from 2% to 5% so long as doing so would not result in 
amortization of the protected balance in less than five years. 
Alternatively, a savings association could require a consumer to make a 
minimum payment that amortizes the protected balance in less than five 
years so long as the payment does not include a percentage of the 
balance that is more than twice the percentage included in the minimum 
payment before the effective date of the increased rate. For example, a 
savings association could require the consumer to make a minimum payment 
that amortizes the protected balance in four years so long as doing so 
would not more than double the percentage of the balance included in the 
minimum payment prior to the effective date of the increased rate.
    2. Lower limit for required minimum periodic payment. If the 
required minimum periodic payment under Sec. 535.24(c)(1)(i) or 
(c)(1)(ii) is less than the lower dollar limit for minimum payments 
established in the cardholder agreement before the effective date of the 
rate increase, the savings association may set the minimum payment 
consistent with that limit. For example, if at account opening the 
cardholder agreement stated that the required minimum periodic payment 
would be either the total of fees and interest charges plus 1% of the 
total amount owed or $20 (whichever is greater), the savings association 
may require the consumer to make a minimum payment of $20 even if doing 
so would pay off the protected balance in less than five years or 
constitute more than 2% of the protected balance plus fees and interest 
charges.

                          Paragraph 24(c)(1)(i)

    1. Amortization period starting from date on which increased rate 
becomes effective. Section 535.24(c)(1)(i) provides for an amortization 
period for the protected balance of no less than five years, starting 
from the date on which the increased annual percentage rate becomes 
effective. A savings association is not required to recalculate the 
required minimum periodic payment for the protected balance if, during 
the amortization period, that balance is reduced as a result of the 
allocation of amounts paid by the consumer in excess of the minimum 
payment consistent with Sec. 535.23 or any other practice permitted by 
these rules and other applicable law.
    2. Amortization when applicable annual percentage rate is variable. 
If the annual percentage rate that applies to the protected balance 
varies with an index consistent with Sec. 535.24(b)(2), the savings 
association may adjust the interest charges included in the required 
minimum periodic payment for that balance accordingly in order to ensure 
that the outstanding balance is amortized in five years. For example, 
assume that a variable rate that is currently 15% applies to a protected 
balance and that, in order to amortize that balance in five years, the 
required minimum periodic payment must include a specific amount of 
principal plus all accrued interest charges. If the 15% variable rate 
increases due to an increase in the index, the savings association may 
increase the required minimum periodic payment to include the additional 
interest charges.

                         Paragraph 24(c)(1)(ii)

    1. Required minimum periodic payment on other balances. Section 
535.24(c)(1)(ii) addresses the required minimum periodic payment on the 
protected balance. Section 535.24(c)(1)(ii) does not limit or otherwise 
address the savings association's ability to determine the amount of the 
required minimum periodic payment for other balances.
    2. Example. Assume that the method used by a savings association to 
calculate the required minimum periodic payment for a consumer credit 
card account requires the consumer to pay either the total of fees and 
interest charges plus 1% of the total amount owed or $20, whichever is 
greater. Assume also that the account has a purchase balance of $2,000 
at an annual percentage rate of 15% and a cash advance balance of $500 
at an annual percentage rate of 20% and that the savings association 
increases the rate for purchases to 18% but does not increase the rate 
for cash advances. Under Sec. 535.24(c)(1)(ii), the savings association 
may require the consumer to pay fees and interest plus 2% of the $2,000 
purchase balance. Section 535.24(c)(1)(ii) does not prohibit the savings 
association from increasing the required minimum periodic payment for 
the cash advance balance.

                        24(c)(2) Fees and Charges

    1. Fee or charge based solely on the protected balance. A savings 
association is prohibited from assessing a fee or charge based solely on 
balances to which Sec. 535.24(c) applies. For example, a savings 
association is prohibited from assessing a monthly maintenance fee that 
would not be charged if the account did not have a protected balance. A 
savings association is not, however, prohibited from assessing fees such 
as late payment fees or fees for exceeding the credit limit even if such 
fees are based in part on the protected balance.

[[Page 105]]

            Section 535.25--Unfair Balance Computation Method

                           25(a) General Rule

    1. Two-cycle method prohibited. When a consumer ceases to be 
eligible for a time period provided by the savings association within 
which the consumer may repay any portion of the credit extended without 
incurring a finance charge (a grace period), the savings association is 
prohibited from computing the finance charge using the so-called two-
cycle average daily balance computation method. This method calculates 
the finance charge using a balance that is the sum of the average daily 
balances for two billing cycles. The first balance is for the current 
billing cycle, and is calculated by adding the total balance (including 
or excluding new purchases and deducting payments and credits) for each 
day in the billing cycle, and then dividing by the number of days in the 
billing cycle. The second balance is for the preceding billing cycle.
    2. Examples.
    i. Assume that the billing cycle on a consumer credit card account 
starts on the first day of the month and ends on the last day of the 
month. The payment due date for the account is the twenty-fifth day of 
the month. Under the terms of the account, the consumer will not be 
charged interest on purchases if the balance at the end of a billing 
cycle is paid in full by the following payment due date. The consumer 
uses the credit card to make a $500 purchase on March 15. The consumer 
pays the balance for the February billing cycle in full on March 25. At 
the end of the March billing cycle (March 31), the consumer's balance 
consists only of the $500 purchase and the consumer will not be charged 
interest on that balance if it is paid in full by the following due date 
(April 25). The consumer pays $400 on April 25, leaving a $100 balance. 
The savings association may charge interest on the $500 purchase from 
the start of the April billing cycle (April 1) through April 24 and 
interest on the remaining $100 from April 25 through the end of the 
April billing cycle (April 30). The savings association is prohibited, 
however, from reaching back and charging interest on the $500 purchase 
from the date of purchase (March 15) to the end of the March billing 
cycle (March 31).
    ii. Assume the same circumstances as in the previous example except 
that the consumer does not pay the balance for the February billing 
cycle in full on March 25 and therefore, under the terms of the account, 
is not eligible for a time period within which to repay the $500 
purchase without incurring a finance charge. With respect to the $500 
purchase, the savings association may charge interest from the date of 
purchase (March 15) through April 24 and interest on the remaining $100 
from April 25 through the end of the April billing cycle (April 30).

 Section 535.26--Unfair Charging of Security Deposits and Fees for the 
   Issuance or Availability of Credit to Consumer Credit Card Accounts

                     26(a) Limitation for First Year

    1. Majority of the credit limit. The total amount of security 
deposits and fees for the issuance or availability of credit constitutes 
a majority of the initial credit limit if that total is greater than 
half of the limit. For example, assume that a consumer credit card 
account has an initial credit limit of $500. Under Sec. 535.26(a), a 
savings association may charge to the account security deposits and fees 
for the issuance or availability of credit totaling no more than $250 
during the first year (consistent with Sec. 535.26(b)).

 26(b) Limitations for First Billing Cycle and Subsequent Billing Cycles

    1. Adjustments of one dollar or less permitted. When dividing 
amounts pursuant to Sec. 535.26(b)(2), a savings association may adjust 
amounts by one dollar or less. For example, if a savings association is 
dividing $87 over five billing cycles, the savings association may 
charge $18 for two months and $17 for the remaining three months.
    2. Examples.
    i. Assume that a consumer credit card account opened on January 1 
has an initial credit limit of $500. Assume also that the billing cycles 
for this account begin on the first day of the month and end on the last 
day of the month. Under Sec. 535.26(a), the savings association may 
charge to the account no more than $250 in security deposits and fees 
for the issuance or availability of credit during the first year after 
the account is opened. If it charges $250, the savings association may 
charge up to $125 during the first billing cycle. If it charges $125 
during the first billing cycle, it may then charge no more than $25 in 
each of the next five billing cycles. If it chooses, the savings 
association may spread the additional security deposits and fees over a 
longer period, such as by charging $12.50 in each of the ten billing 
cycles following the first billing cycle.
    ii. Same facts as above except that on July 1 the savings 
association increases the credit limit on the account from $500 to $750. 
Because the prohibition in Sec. 535.26(a) is based on the initial 
credit limit of $500, the increase in credit limit does not permit the 
savings association to charge to the account additional security 
deposits and fees for the issuance or availability of credit (such as a 
fee for increasing the credit limit).

[[Page 106]]

                        26(c) Evasion Prohibited

    1. Evasion. Section 535.26(c) prohibits a savings association from 
evading the requirements of this section by providing the consumer with 
additional credit to fund the consumer's payment of security deposits 
and fees that exceed the total amounts permitted by Sec. 535.26(a) and 
(b). For example, assume that on January 1 a consumer opens a consumer 
credit card account with an initial credit limit of $400 and the savings 
association charges to that account $100 in fees for the issuance or 
availability of credit. Assume also that the billing cycles for the 
account coincide with the days of the month and that the savings 
association will charge $20 in fees for the issuance or availability of 
credit in the February, March, April, May, and June billing cycles. The 
savings association violates Sec. 535.26(c) if it provides the consumer 
with a separate credit product to fund additional security deposits or 
fees for the issuance or availability of credit.
    2. Payment with funds not obtained from the savings association. A 
savings association does not violate Sec. 535.26(c) if it requires the 
consumer to pay security deposits or fees for the issuance or 
availability of credit using funds that are not obtained, directly or 
indirectly, from the savings association. For example, a savings 
association does not violate Sec. 535.26(c) if a $400 security deposit 
paid by a consumer to obtain a consumer credit card account with a 
credit line of $400 is not charged to a credit account provided by the 
savings association or its affiliate.

                            26(d) Definitions

    1. Membership fees. Membership fees for opening an account are fees 
for the issuance or availability of credit. A membership fee to join an 
organization that provides a credit or charge card as a privilege of 
membership is a fee for the issuance or availability of credit only if 
the card is issued automatically upon membership. If membership results 
merely in eligibility to apply for an account, then such a fee is not a 
fee for the issuance or availability of credit.
    2. Enhancements. Fees for optional services in addition to basic 
membership privileges in a credit or charge card account (for example, 
travel insurance or card-registration services) are not fees for the 
issuance or availability of credit if the basic account may be opened 
without paying such fees. Issuing a card to each primary cardholder (not 
authorized users) is considered a basic membership privilege and fees 
for additional cards, beyond the first card on the account, are fees for 
the issuance or availability of credit. Thus, a fee to obtain an 
additional card on the account beyond the first card (so that each 
cardholder would have his or her own card) is a fee for the issuance or 
availability of credit even if the fee is optional; that is, if the fee 
is charged only if the cardholder requests one or more additional cards.
    3. One-time fees. Non-periodic fees related to opening an account 
(such as application fees or one-time membership or participation fees) 
are fees for the issuance or availability of credit. Fees for reissuing 
a lost or stolen card, statement reproduction fees, and fees for late 
payment or other violations of the account terms are examples of fees 
that are not fees for the issuance or availability of credit.



PART 536_CONSUMER PROTECTION IN SALES OF INSURANCE--Table of Contents




Sec.
536.10 Purpose and scope.
536.20 Definitions.
536.30 Prohibited practices.
536.40 What you must disclose.
536.50 Where insurance activities may take place.
536.60 Qualification and licensing requirements for insurance sales 
          personnel.

Appendix A to Part 536--Consumer Grievance Process.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, and 1831x.

    Source: 65 FR 75845, Dec. 4, 2000, unless otherwise noted.



Sec. 536.10  Purpose and scope.

    (a) General rule. This part establishes consumer protections in 
connection with retail sales practices, solicitations, advertising, or 
offers of any insurance product or annuity to a consumer by:
    (1) Any savings association; or
    (2) Any other person that is engaged in such activities at an office 
of a savings association or on behalf of a savings association.
    (b) Application to operating subsidiaries. For purposes of Sec. 
559.3(h) of this chapter, an operating subsidiary is subject to this 
part only to the extent that it sells, solicits, advertises, or offers 
insurance products or annuities at an office of a savings association or 
on behalf of a savings association.



Sec. 536.20  Definitions.

    As used in this part:
    Affiliate means a company that controls, is controlled by, or is 
under common control with another company.
    Company means any corporation, partnership, business trust, 
association or similar organization, or any other

[[Page 107]]

trust (unless by its terms the trust must terminate within twenty-five 
years or not later than twenty-one years and ten months after the death 
of individuals living on the effective date of the trust). It does not 
include any corporation the majority of the shares of which are owned by 
the United States or by any State, or a qualified family partnership, as 
defined in section 2(o)(10) of the Bank Holding Company Act of 1956, as 
amended (12 U.S.C. 1841(o)(10)).
    Consumer means an individual who purchases, applies to purchase, or 
is solicited to purchase from a covered person insurance products or 
annuities primarily for personal, family, or household purposes.
    Control of a company has the same meaning as in section 3(w)(5) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(5)).
    Domestic violence means the occurrence of one or more of the 
following acts by a current or former family member, household member, 
intimate partner, or caretaker:
    (1) Attempting to cause or causing or threatening another person 
physical harm, severe emotional distress, psychological trauma, rape, or 
sexual assault;
    (2) Engaging in a course of conduct or repeatedly committing acts 
toward another person, including following the person without proper 
authority, under circumstances that place the person in reasonable fear 
of bodily injury or physical harm;
    (3) Subjecting another person to false imprisonment; or
    (4) Attempting to cause or causing damage to property so as to 
intimidate or attempt to control the behavior of another person.
    Electronic media includes any means for transmitting messages 
electronically between a covered person and a consumer in a format that 
allows visual text to be displayed on equipment, for example, a personal 
computer monitor.
    Office means the premises of a savings association where retail 
deposits are accepted from the public.
    Subsidiary has the same meaning as in section 3(w)(4) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(w)(4)).
    You means:
    (1) A savings association, as defined in Sec. 561.43 of this 
chapter; or
    (2) Any other person only when the person sells, solicits, 
advertises, or offers an insurance product or annuity to a consumer at 
an office of a savings association, or on behalf of a savings 
association. For purposes of this definition, activities on behalf of a 
savings association include activities where a person, whether at an 
office of the savings association or at another location, sells, 
solicits, advertises, or offers an insurance product or annuity and at 
least one of the following applies:
    (i) The person represents to a consumer that the sale, solicitation, 
advertisement, or offer of any insurance product or annuity is by or on 
behalf of the savings association;
    (ii) The savings association refers a consumer to a seller of 
insurance products and annuities and the savings association has a 
contractual arrangement to receive commissions or fees derived from a 
sale of an insurance product or annuity resulting from that referral; or
    (iii) Documents evidencing the sale, solicitation, advertising, or 
offer of an insurance product or annuity identify or refer to the 
savings association.



Sec. 536.30  Prohibited practices.

    (a) Anticoercion and antitying rules. You may not engage in any 
practice that would lead a consumer to believe that an extension of 
credit, in violation of section 5(q) of the Home Owners' Loan Act (12 
U.S.C. 1464(q)), is conditional upon either:
    (1) The purchase of an insurance product or annuity from a savings 
association or any of its affiliates; or
    (2) An agreement by the consumer not to obtain, or a prohibition on 
the consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (b) Prohibition on misrepresentations generally. You may not engage 
in any practice or use any advertisement at any office of, or on behalf 
of, a savings association or a subsidiary of a savings association that 
could mislead any person or otherwise cause a reasonable

[[Page 108]]

person to reach an erroneous belief with respect to:
    (1) The fact that an insurance product or annuity you or any 
subsidiary of a savings association sell or offer for sale is not backed 
by the Federal government or a savings association, or the fact that the 
insurance product or annuity is not insured by the Federal Deposit 
Insurance Corporation;
    (2) In the case of an insurance product or annuity that involves 
investment risk, the fact that there is an investment risk, including 
the potential that principal may be lost and that the product may 
decline in value; or
    (3) In the case of a savings association or subsidiary of a savings 
association at which insurance products or annuities are sold or offered 
for sale, the fact that:
    (i) The approval of an extension of credit to a consumer by the 
savings association or subsidiary may not be conditioned on the purchase 
of an insurance product or annuity by the consumer from the savings 
association or a subsidiary of a savings association; and
    (ii) The consumer is free to purchase the insurance product or 
annuity from another source.
    (c) Prohibition on domestic violence discrimination. You may not 
sell or offer for sale, as principal, agent, or broker, any life or 
health insurance product if the status of the applicant or insured as a 
victim of domestic violence or as a provider of services to victims of 
domestic violence is considered as a criterion in any decision with 
regard to insurance underwriting, pricing, renewal, or scope of coverage 
of such product, or with regard to the payment of insurance claims on 
such product, except as required or expressly permitted under State law.



Sec. 536.40  What you must disclose.

    (a) Insurance disclosures. In connection with the initial purchase 
of an insurance product or annuity by a consumer from you, you must 
disclose to the consumer, except to the extent the disclosure would not 
be accurate, that:
    (1) The insurance product or annuity is not a deposit or other 
obligation of, or guaranteed by, a savings association or an affiliate 
of a savings association;
    (2) The insurance product or annuity is not insured by the Federal 
Deposit Insurance Corporation (FDIC) or any other agency of the United 
States, a savings association, or (if applicable) an affiliate of a 
savings association; and
    (3) In the case of an insurance product or annuity that involves an 
investment risk, there is investment risk associated with the product, 
including the possible loss of value.
    (b) Credit disclosures. In the case of an application for credit in 
connection with which an insurance product or annuity is solicited, 
offered, or sold, you must disclose that a savings association may not 
condition an extension of credit on either:
    (1) The consumer's purchase of an insurance product or annuity from 
the savings association or any of its affiliates; or
    (2) The consumer's agreement not to obtain, or a prohibition on the 
consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (c) Timing and method of disclosures--(1) In general. The 
disclosures required by paragraph (a) of this section must be provided 
orally and in writing before the completion of the initial sale of an 
insurance product or annuity to a consumer. The disclosure required by 
paragraph (b) of this section must be made orally and in writing at the 
time the consumer applies for an extension of credit in connection with 
which an insurance product or annuity is solicited, offered, or sold.
    (2) Exception for transactions by mail. If you conduct an insurance 
product or annuity sale by mail, you are not required to make the oral 
disclosures required by paragraph (a) of this section. If you take an 
application for credit by mail, you are not required to make the oral 
disclosure required by paragraph (b) of this section.
    (3) Exception for transactions by telephone. If a sale of an 
insurance product or annuity is conducted by telephone, you may provide 
the written disclosures required by paragraph (a) of this section by 
mail within 3 business days beginning on the first business day after 
the sale, solicitation, or offer, excluding Sundays and the legal public

[[Page 109]]

holidays specified in 5 U.S.C. 6103(a). If you take an application for 
credit by telephone, you may provide the written disclosure required by 
paragraph (b) of this section by mail, provided you mail it to the 
consumer within three days beginning the first business day after the 
application is taken, excluding Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a).
    (4) Electronic form of disclosures. (i) Subject to the requirements 
of section 101(c) of the Electronic Signatures in Global and National 
Commerce Act (12 U.S.C. 7001(c)), you may provide the written 
disclosures required by paragraph (a) and (b) of this section through 
electronic media instead of on paper, if the consumer affirmatively 
consents to receiving the disclosures electronically and if the 
disclosures are provided in a format that the consumer may retain or 
obtain later, for example, by printing or storing electronically (such 
as by downloading).
    (ii) You are not required to provide orally any disclosures required 
by paragraphs (a) or (b) of this section that you provide by electronic 
media.
    (5) Disclosures must be readily understandable. The disclosures 
provided shall be conspicuous, simple, direct, readily understandable, 
and designed to call attention to the nature and significance of the 
information provided. For instance, you may use the following 
disclosures in visual media, such as television broadcasting, ATM 
screens, billboards, signs, posters and written advertisements and 
promotional materials, as appropriate and consistent with paragraphs (a) 
and (b) of this section:

 NOT A DEPOSIT
 NOT FDIC-INSURED
 NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
 NOT GUARANTEED BY THE SAVINGS ASSOCIATION
 MAY GO DOWN IN VALUE

    (6) Disclosures must be meaningful. (i) You must provide the 
disclosures required by paragraphs (a) and (b) of this section in a 
meaningful form. Examples of the types of methods that could call 
attention to the nature and significance of the information provided 
include:
    (A) A plain-language heading to call attention to the disclosures;
    (B) A typeface and type size that are easy to read;
    (C) Wide margins and ample line spacing;
    (D) Boldface or italics for key words; and
    (E) Distinctive type size, style, and graphic devices, such as 
shading or sidebars, when the disclosures are combined with other 
information.
    (ii) You have not provided the disclosures in a meaningful form if 
you merely state to the consumer that the required disclosures are 
available in printed material, but do not provide the printed material 
when required and do not orally disclose the information to the consumer 
when required.
    (iii) With respect to those disclosures made through electronic 
media for which paper or oral disclosures are not required, the 
disclosures are not meaningfully provided if the consumer may bypass the 
visual text of the disclosures before purchasing an insurance product or 
annuity.
    (7) Consumer acknowledgment. You must obtain from the consumer, at 
the time a consumer receives the disclosures required under paragraphs 
(a) or (b) of this section, or at the time of the initial purchase by 
the consumer of an insurance product or annuity, a written 
acknowledgment by the consumer that the consumer received the 
disclosures. You may permit a consumer to acknowledge receipt of the 
disclosures electronically or in paper form. If the disclosures required 
under paragraphs (a) or (b) of this section are provided in connection 
with a transaction that is conducted by telephone, you must:
    (i) Obtain an oral acknowledgment of receipt of the disclosures and 
maintain sufficient documentation to show that the acknowledgment was 
given; and
    (ii) Make reasonable efforts to obtain a written acknowledgment from 
the consumer.
    (d) Advertisements and other promotional material for insurance 
products or annuities. The disclosures described in paragraph (a) of 
this section are required in advertisements and promotional material for 
insurance products or annuities unless the advertisements and 
promotional material are of

[[Page 110]]

a general nature describing or listing the services or products offered 
by a savings association.



Sec. 536.50  Where insurance activities may take place.

    (a) General rule. A savings association must, to the extent 
practicable:
    (1) Keep the area where the savings association conducts 
transactions involving insurance products or annuities physically 
segregated from areas where retail deposits are routinely accepted from 
the general public;
    (2) Identify the areas where insurance product or annuity sales 
activities occur; and
    (3) Clearly delineate and distinguish those areas from the areas 
where the savings association's retail deposit-taking activities occur.
    (b) Referrals. Any person who accepts deposits from the public in an 
area where such transactions are routinely conducted in a savings 
association may refer a consumer who seeks to purchase an insurance 
product or annuity to a qualified person who sells that product only if 
the person making the referral receives no more than a one-time, nominal 
fee of a fixed dollar amount for each referral that does not depend on 
whether the referral results in a transaction.



Sec. 536.60  Qualification and licensing requirements for insurance 
sales personnel.

    A savings association may not permit any person to sell or offer for 
sale any insurance product or annuity in any part of the savings 
association's office or on its behalf, unless the person is at all times 
appropriately qualified and licensed under applicable State insurance 
licensing standards with regard to the specific products being sold or 
recommended.



         Sec. Appendix A to Part 536--Consumer Grievance Process

    Any consumer who believes that any savings association or any other 
person selling, soliciting, advertising, or offering insurance products 
or annuities to the consumer at an office of the savings association or 
on behalf of the savings association has violated the requirements of 
this part should contact the Director, Consumer Programs, Office of 
Thrift Supervision, at the following address: 1700 G Street, NW., 
Washington, DC 20552, or telephone 202-906-6237 or 800-842-6929, or e-
mail [email protected].



PART 541_DEFINITIONS FOR REGULATIONS AFFECTING FEDERAL SAVINGS 
ASSOCIATIONS--Table of Contents




Sec.
541.1 When do the definitions in this part apply?
541.2 Act.
541.5 Commercial paper.
541.7 Corporate debt security.
541.8 Debit card.
541.10 Dwelling unit.
541.11 Federal savings association.
541.14 Home.
541.15 Improved nonresidential real estate.
541.16 Improved residential real estate.
541.18 Interim Federal savings association.
541.19 Interim state savings association.
541.20 Loans.
541.21 Nonresidential real estate.
541.22 [Reserved]
541.23 Residential real estate.
541.25 Single-family dwelling.
541.26 Surplus.
541.27 Unimproved real estate.
541.28 Withdrawal value of a savings account.

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 54 FR 49480, Nov. 30, 1989, unless otherwise noted.



Sec. 541.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 561 apply throughout 
this chapter, unless another definition is specifically provided.

[67 FR 78152, Dec. 23, 2002]



Sec. 541.2  Act.

    The term Act means the Home Owners' Loan Act of 1933, as amended.



Sec. 541.5  Commercial paper.

    The term commercial paper means any note, draft, or bill of exchange 
which arises out of a current transaction or the proceeds of which have 
been or are to be used for current transactions, and which has a 
maturity at the time of issuance of not exceeding nine months, exclusive 
of days of grace, or any renewal thereof the maturity of which is 
likewise limited.

[[Page 111]]



Sec. 541.7  Corporate debt security.

    The term corporate debt security means a marketable obligation, 
evidencing the indebtedness of any corporation in the form of a bond, 
note and/or debenture which is commonly regarded as a debt security and 
is not predominantly speculative in nature. A security is marketable if 
it may be sold with reasonable promptness at a price which corresponds 
reasonably to its fair value.



Sec. 541.8  Debit card.

    The term debit card means a card that enables an accountholder to 
obtain access to a savings account for the purpose of making withdrawals 
or of transferring funds to a third party by non-transferable order or 
authorization.



Sec. 541.10  Dwelling unit.

    The term dwelling unit means the unified combination of rooms 
designed for residential use by one family, other than a single-family 
dwelling.



Sec. 541.11  Federal savings association.

    The term Federal savings association means a Federal savings 
association or Federal savings bank chartered under section 5(o) of the 
Act.



Sec. 541.14  Home.

    The term home means real estate comprising a single-family 
dwelling(s) or a dwelling unit(s) for four or fewer families in the 
aggregate.



Sec. 541.15  Improved nonresidential real estate.

    The term improved nonresidential real estate means nonresidential 
real estate:
    (a) Containing a permanent structure(s) constituting at least 25 
percent of its value; or
    (b) Containing improvements which make it usable by a business or 
industrial enterprise; or
    (c) Used, or to be used within a reasonable time, for commercial 
farming, excluding hobby and vacation property.



Sec. 541.16  Improved residential real estate.

    The term improved residential real estate means residential real 
estate containing offsite or other improvements sufficient to make the 
property ready for primarily residential construction, and real estate 
in the process of being improved by a building or buildings to be 
constructed or in the process of construction for primarily residential 
use.



Sec. 541.18  Interim Federal savings association.

    The term interim Federal savings association means a Federal savings 
association chartered by the Office under section 5 of the Act to 
facilitate the acquisition of 100 percent of the voting shares of an 
existing Federal stock savings association or other insured stock 
savings association by a newly formed company or an existing savings and 
loan holding company or to facilitate any other transaction the Office 
may approve.



Sec. 541.19  Interim state savings association.

    The term interim state savings association means a savings 
association, other than a Federal savings association, the accounts of 
which are insured by the FDIC to facilitate the acquisition of 100 
percent of the voting shares of an existing Federal stock savings 
association or other insured stock savings association by a newly formed 
company or an existing savings and loan holding company or to facilitate 
any other transaction the Office may approve.



Sec. 541.20  Loans.

    The term loans means obligations and extensions or advances of 
credit; and any reference to a loan or investment includes an interest 
in such a loan or investment.



Sec. 541.21  Nonresidential real estate.

    The terms nonresidential real estate or nonresidential real property 
mean real estate that is not residential real estate, as that term is 
defined in Sec. 541.23 of this part.



Sec. 541.22  [Reserved]



Sec. 541.23  Residential real estate.

    The terms residential real estate or residential real property mean:
    (a) Homes (including a dwelling unit in a multi-family residential 
property

[[Page 112]]

such as a condominium or a cooperative);
    (b) Combinations of homes and business property (i.e., a home used 
in part for business);
    (c) Other real estate used for primarily residential purposes other 
than a home (but which may include homes);
    (d) Combinations of such real estate and business property involving 
only minor business use (i.e., where no more than 20 percent of the 
total appraised value of the real estate is attributable to the business 
use);
    (e) Farm residences and combinations of farm residences and 
commercial farm real estate;
    (f) Property to be improved by the construction of such structures; 
or
    (g) Leasehold interests in the above real estate.

[64 FR 46564, Aug. 26, 1999]



Sec. 541.25  Single-family dwelling.

    The term single-family dwelling means a structure designed for 
residential use by one family, or a unit so designed, whose owner owns, 
directly or through a non-profit cooperative housing organization, an 
undivided interest in the underling real estate, including property 
owned in common with others which contributes to the use and enjoyment 
of the structure or unit.

[69 FR 76602, Dec. 22, 2004]



Sec. 541.26  Surplus.

    The term surplus means undistributed earnings held as unallocated 
reserves for general corporate use.



Sec. 541.27  Unimproved real estate.

    The term unimproved real estate means real estate that will be 
improved, as defined in Sec. 541.15 or Sec. 541.16 of this part.



Sec. 541.28  Withdrawal value of a savings account.

    The term withdrawal value of a savings account means the amount 
invested in a savings account plus earnings credited thereto, less 
lawful deductions therefrom.



PART 543_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_INCORPORATION, 
ORGANIZATION, AND CONVERSION--Table of Contents




Sec.
543.1 Corporate title.

                              Organization

543.2 Application for permission to organize.
543.3 ``De novo'' applications for a Federal savings association 
          charter.
543.5 Issuance of charter.
543.6 Completion of organization.
543.7 Limitations on transaction of business.
543.7-1 Federal savings association created in connection with an 
          association in default or in danger of default.

                               Conversion

543.8 Conversion of depository institutions to Federal mutual charter.
543.9 Application for conversion to Federal mutual charter.
543.10 Organization after conversion.
543.11 Organization plan for governance during first years after 
          issuance of Federal mutual savings bank charter.
543.11-1 Grandfathered authority.
543.14 Continuity of existence.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq.

    Source: 54 FR 49482, Nov. 30, 1989, unless otherwise noted.



Sec. 543.1  Corporate title.

    (a) General. A Federal savings association shall not adopt a title 
that misrepresents the nature of the institution or the services it 
offers.
    (b) Title change. Prior to changing its corporate title, an 
association must file with the OTS a written notice indicating the 
intended change. The OTS, shall provide to the association a timely 
written acknowledgment stating when the notice was received. If, within 
30 days of receipt of notice, the OTS does not notify the association of 
its objection on the grounds set forth in paragraph (a) of this section, 
the association may change its title by amending its charter in 
accordance with Sec. 544.2(b) or Sec. 552.4 and the amendment 
provisions of its charter, except that an association chartered as a 
Federal Savings and Loan Association may change its title to indicate 
that it is a

[[Page 113]]

Federal Savings Bank, and an association chartered as a Federal Savings 
Bank may change its title to indicate that it is a Federal Savings and 
Loan Association.

[54 FR 49482, Nov. 30, 1989, as amended at 57 FR 14338, Apr. 20, 1992; 
58 FR 4312, Jan. 14, 1993; 61 FR 64015, Dec. 3, 1996]

                              Organization



Sec. 543.2  Application for permission to organize.

    (a) General. Recommendations by employees of the OTS regarding 
applications for permission to organize a Federal savings association 
are privileged, confidential, and subject to Sec. 510.5 (b) and (c) of 
this chapter.
    (b)-(c) [Reserved]
    (d) Public notice and inspection. (1) The applicant must publish a 
public notice of the application to organize in accordance with the 
procedures specified in subpart B of part 516 of this chapter.
    (2) Promptly after publication, the applicant(s) shall transmit 
copies of each notice and publisher's affidavit of publication in the 
same manner as the original filing.
    (3) The OTS shall give notice of the application to the State 
official who supervises savings associations in the State in which the 
new association is to be located.
    (4) Any person may inspect the application and all related 
communications at the Regional Office during regular business hours, 
unless such information is exempt from public disclosure.
    (e) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 516 of this chapter.
    (f) Meetings. OTS may arrange a meeting in accordance with the 
procedures in subpart D of part 516 of this chapter.
    (g) Approval. (1) Factors that will be considered are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the association's 
usefulness and success;
    (iv) Whether the association can be established without undue injury 
to properly conducted existing local thrift and home financing 
institutions;
    (v) Whether the association will perform a role of providing credit 
for housing consistent with safe and sound operation of a Federal 
savings association; and
    (vi) Whether the factors set forth in Sec. 543.3 are met, in the 
case of an application that would result in the formation of a de novo 
association, as defined in Sec. 543.3(a).
    (2) Approvals of applications will be conditioned on the following:
    (i) Receipt by the Office of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the Federal savings 
association will be insured by the Federal Deposit Insurance 
Corporation;
    (ii) A minimum amount of capital to be paid into the association's 
accounts prior to commencing business;
    (iii) The submission of a statement that--
    (A) The applicants have complied in all respects with the Act and 
these rules and regulations regarding organization of a Federal savings 
association;
    (B) The applicants have incurred no expense in forming the 
association which is chargeable to it, and no such expense will be 
incurred;
    (C) No funds have been collected on account of the association 
before the Office's approval;
    (D) An organization committee has been created (naming the committee 
and its officers);
    (E) The committee will organize the association and serve as 
temporary officers of the association until officers are elected by the 
association's board of directors under Sec. 543.6 of this part; and
    (F) No funds will be accepted for deposit by the association until 
organization has been completed; and
    (iv) The satisfaction of any other requirement the Director, or his 
or her designee, may impose.

[[Page 114]]

    (h) Alternative procedures for interim Federal savings associations. 
(1) Applications for permission to organize an interim Federal savings 
association are not subject to paragraphs (d), (e), (f) or (g)(2) of 
this section.
    (2) Approval of an application for permission to organize an interim 
Federal savings association shall be conditioned on approval by the 
Office of an application to merge the interim Federal savings 
association and an existing insured stock association or on approval by 
the Office of such other transaction which the interim was chartered to 
facilitate. In evaluating the application, the Director or his or her 
designee will consider the purpose for which the association will be 
organized, the form of any proposed transactions involving the 
organizing association, the effect of the transactions on existing 
associations involved in the transactions, and the factors specified in 
section Sec. 543.2(g)(1) to the extent relevant.

[54 FR 49482, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 
57 FR 14338, Apr. 20, 1992; 62 FR 27180, May 19, 1997; 62 FR 64145, Dec. 
4, 1997; 69 FR 68247, Nov. 24, 2004]



Sec. 543.3  ``De novo'' applications for a Federal savings association charter.

    (a) Definitions. For purposes of this section, the term ``de novo 
association'' means any Federal savings association chartered by the 
Office, the business of which has not been conducted previously under 
any charter or conducted in the previous three years in substantially 
the same form as is proposed by the de novo association. A ``de novo 
applicant'' means any person or persons who apply to establish a de novo 
association.
    (b) Minimum initial capitalization. (1) A de novo association must 
have at least two million dollars in initial capital stock (stock 
institutions) or initial pledged savings or cash (mutual institutions), 
except as provided in paragraph (b)(2) of this section. The minimum 
initial capitalization is the amount of proceeds net of all incurred and 
anticipated securities issuance expenses, organization expenses, pre-
opening expenses, or any expenses paid (or funds advanced) by organizers 
that are to be reimbursed from the proceeds of a securities offering. In 
securities offerings for a de novo association, all securities of a 
particular class in the initial offering shall be sold at the same 
price.
    (2) On a case by case basis, the Director may, for good cause, 
approve a de novo association that has less than two million dollars in 
initial capital or may require a de novo association to have more than 
two million dollars in initial capital.
    (c) Business and investment plans of de novo associations. (1) To 
assist the Office in making the determinations required under section 
5(e) of the Home Owners' Loan Act, a de novo applicant shall submit a 
business plan describing, for the first three years of operation of the 
de novo association, the major areas of operation, including:
    (i) Lending, leasing and investment activity, including plans for 
meeting Qualified Thrift Lender requirements;
    (ii) Deposit, savings and borrowing activity;
    (iii) Interest-rate risk management;
    (iv) Internal controls and procedures;
    (v) Plans for meeting the credit needs of the proposed de novo 
association's community (including low- and moderate-income 
neighborhoods);
    (vi) Projected statements of condition;
    (vii) Projected statements of operations; and
    (viii) Any other information requested by the Office.
    (2) The business plan shall:
    (i) Provide for the continuation or succession of competent 
management subject to the approval of the Regional Director;
    (ii) Provide that any material change in, or deviation from, the 
business plan must receive the prior approval of the Regional Director;
    (iii) Demonstrate the de novo association's ability to maintain 
required minimum regulatory capital under 12 CFR parts 565 and 567 for 
the duration of the plan.
    (d) Composition of the board of directors. (1) A majority of a de 
novo association's board of directors must be representative of the 
state in which the savings association is located. The Office generally 
will consider a director to be representative of the state if the

[[Page 115]]

director resides, works or maintains a place of business in the state in 
which the savings association is located. If the association is located 
in a Metropolitan Statistical Area (MSA), Primary Metropolitan 
Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area 
(CMSA) that incorporates portions of more than one state, a director 
will be considered representative of the association's state if he or 
she resides, works or maintains a place of business in the MSA, PMSA or 
CMSA in which the association is located.
    (2) The de novo association's board of directors must be diversified 
and composed of individuals with varied business and professional 
experience. In addition, except in the case of a de novo association 
that is wholly-owned by a holding company, no more than one-third of a 
board of directors may be in closely related businesses. The background 
of each director must reflect a history of responsibility and personal 
integrity, and must show a level of competence and experience sufficient 
to demonstrate that such individual has the ability to direct the 
policies of the association in a safe and sound manner. Where a de novo 
association is owned by a holding company that does not have substantial 
independent economic substance, the foregoing standards will be applied 
to the board of directors of the holding company.
    (e) Management Officials. Proposed stockholders of ten percent or 
more of the stock of a de novo association will be considered management 
officials of the association for the purpose of the Office's evaluation 
of the character and qualifications of the management of the 
association. In connection with the Office's consideration of an 
application for permission to organize and subsequent to issuance of a 
Federal savings association charter to the association by the Office, 
any individual or group of individuals acting in concert under 12 CFR 
part 574, who owns or proposes to acquire, directly or indirectly, ten 
percent or more of the stock of an association subject to this section, 
shall submit a Biographical and Financial Report, on forms prescribed by 
the Office, to the Regional Director.
    (f) Supervisory transactions. This section does not apply to any 
application for a Federal savings association charter submitted in 
connection with a transfer or an acquisition of the business or accounts 
of a savings association if the Office determines that such transfer or 
acquisition is instituted for supervisory purposes, or in connection 
with applications for Federal charters for interim de novo associations 
chartered for the purpose of facilitating mergers, holding company 
reorganizations, or similar transactions.

[62 FR 27180, May 19, 1997; 62 FR 28983, May 29, 1997]



Sec. 543.5  Issuance of charter.

    Approval by the Office of the organization of a Federal savings 
association or the conversion of an insured association to Federal 
savings association form shall constitute issuance of a charter and 
shall be final, provided that the association complies with the 
procedures set out at Sec. 544.2(a) of this chapter. The charter shall 
conform with the requirements of Sec. 544.1 of this chapter, the 
permissible provisions of Sec. 544.2, or other provisions specifically 
approved by the Office.



Sec. 543.6  Completion of organization.

    (a)(1) Temporary officers. When the Office approves an application 
for permission to organize a Federal savings association, the applicants 
shall constitute the organization committee and elect a chairperson, 
vice-chairperson, and a secretary, who shall act as the temporary 
officers of the association until their successors are duly elected and 
qualified. The temporary officers may effect compliance with any 
conditions prescribed by the Office.
    (2) Organization meeting. Promptly upon receipt of a charter, the 
temporary officers shall call a meeting of the association's capital 
subscribers; notice of such meeting shall be mailed to each subscriber 
at least 5 days before the meeting day. Subscribers who have subscribed 
for a majority of the association's capital, present in person or by 
proxy, shall constitute a quorum. At such meeting, directors of the 
association shall be elected according to the association's charter and 
bylaws, and any other action permitted by such

[[Page 116]]

charter and bylaws may be taken; any such action shall be considered an 
acceptance by the association of such charter and of such bylaws, which 
shall be in the form provided in parts 544 and 552 of this chapter.
    (b) First meeting of directors. Upon election, the association's 
board of directors shall hold a meeting to elect officers of the 
association as provided by its charter and bylaws and to take any other 
action necessary to permit operation of the association in accordance 
with law, the association's charter and bylaws, and these rules and 
regulations. When such officers have been bonded under Sec. 563.190 of 
this chapter, they shall immediately collect the sums due on 
subscriptions to the association's capital.
    (c) Membership in Federal Home Loan Bank and insurance of accounts. 
When a Federal savings association's charter is issued it must promptly 
qualify as a member of a Federal Home Loan Bank and meet all 
requirements necessary to obtain insurance of its accounts by the 
Federal Deposit Insurance Corporation.
    (d) Failure to complete. Organization of a Federal savings 
association is completed when the organization meeting and the first 
meeting of its directors have been held, permanent officers have been 
bonded, the association holds the cash required to be paid on 
subscriptions to its capital, if required, Federal Home Loan Bank 
membership has been obtained and Federal Deposit Insurance Corporation 
insurance of accounts has been confirmed and any conditions imposed by 
the Office in connection with approval of the application have been met. 
If organization is not so completed within six months after issuance of 
a charter, or within such additional period as the Director or his or 
her designee may for good cause grant, and in the case of an interim 
Federal savings association, if a merger, or other transaction 
facilitated by the existence of an interim association, has not been 
approved, the charter shall become void and all cash collected on 
subscriptions shall thereupon be returned.



Sec. 543.7  Limitations on transaction of business.

    No person may organize a Federal savings association, collect money 
from others for such purpose, or represent himself or herself as 
authorized to do so, and no Federal savings association shall transact 
any business prior to completion of its organization, except as provided 
in this part.



Sec. 543.7-1  Federal savings association created in connection with
an association in default or in danger of default.

    The preceding sections of this part do not apply to a Federal 
savings association which is proposed by the Federal Deposit Insurance 
Corporation or the Resolution Trust Corporation under section 11(c) of 
the Federal Deposit Insurance Act (12 U.S.C. 1821(c)) or section 21A of 
the Federal Home Loan Bank Act (12 U.S.C. 1441A), or is otherwise 
chartered by the Office in connection with an association in default or 
in danger of default. Incorporation and organization of such 
associations are complete when the Director or his or her designee so 
determines.

                               Conversion



Sec. 543.8  Conversion of depository institutions to Federal mutual charter.

    (a) With the approval of the OTS, any depository institution, as 
defined in Sec. 552.13 of this chapter, that is in mutual form, may 
convert into a Federal mutual savings association, provided that:
    (1) The depository institution, upon conversion, will have its 
deposits insured by the Federal Deposit Insurance Corporation;
    (2) The depository institution, in accomplishing the conversion, 
complies with all applicable state and federal statutes and regulations, 
and OTS policies, and obtains all necessary regulatory and member 
approvals; and
    (3) The resulting Federal mutual association conforms, within the 
time prescribed by the OTS, to the requirements of section 5(c) of the 
Home Owners' Loan Act.
    (b) Recommendations regarding applications for issuance of Federal 
charters are privileged, confidential and

[[Page 117]]

subject to Sec. 510.5 (b) and (c) of this chapter.

[54 FR 49482, Nov. 30, 1989, as amended at 57 FR 14339, Apr. 20, 1992; 
60 FR 66717, Dec. 26, 1995; 62 FR 45309, Aug. 27, 1997]



Sec. 543.9  Application for conversion to Federal mutual charter.

    (a)(1) Filing. Any depository institution that proposes to convert 
to a Federal mutual association as provided in Sec. 543.8 must, after 
approval by its board of directors, file an application on forms 
obtained from OTS. The applicant must submit any financial statements or 
other information OTS may require.
    (2) Procedures. An application for conversion filed under this 
section is subject to the procedures for organization of a federal 
mutual association at Sec. 543.2(d) through (f) of this chapter.
    (b) Plan of conversion. The applicant shall submit with its 
application a plan of conversion specifying the location of the home 
office and any branch offices to be maintained by the Federal savings 
association, and providing for:
    (1) Appropriate reserves and surplus for the Federal savings 
association;
    (2) Satisfaction in full or assumption by the Federal savings 
association of all creditor obligations of the applicant;
    (3) Issuance by the Federal savings association of savings accounts 
to current holders of withdrawable accounts in an amount equalling the 
value of such accounts; and
    (4) If applicable, issuance of additional savings accounts to 
current holders of nonwithdrawable capital stock of the applicant in an 
amount equalling the value of their nonwithdrawable capital stock, 
including the present value of any preference to which such holders are 
entitled.
    (c) Action on application. The OTS will consider such application 
and any information submitted with the application, and may approve the 
application in accordance with section 5(e) of the Home Owners' Loan Act 
and Sec. 543.2(g)(1). Converting depository institutions that have been 
in existence less than three years will be subject to all approval 
criteria and other requirements applicable to de novo Federal 
associations. Approval of an application and issuance by the OTS of a 
charter will be subject to:
    (1) Compliance by the applicant with all conditions prescribed in 
the approval;
    (2) Receipt by the applicant of approval of the plan of conversion 
by such vote as may be required by the laws of the applicant's 
jurisdiction to consider such action;
    (3) In the case of a converting association the accounts of which 
are not insured by the Federal Deposit Insurance Corporation, receipt by 
the OTS of written confirmation from the Federal Deposit Insurance 
Corporation that the accounts of the converting association will be 
insured by the Federal Deposit Insurance Corporation; and
    (4) Receipt by the OTS of written confirmation from the appropriate 
Federal Home Loan Bank of approval of the converting institution's 
application for Federal Home Loan Bank membership, if the institution is 
not a member.

[54 FR 49482, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 
57 FR 14339, Apr. 20, 1992; 62 FR 45309, Aug. 27, 1997; 66 FR 13005, 
Mar. 2, 2001]



Sec. 543.10  Organization after conversion.

    Except as provided in Sec. 543.11, after a Federal charter is 
issued under Sec. 543.9 the association's members shall, after due 
notice, or upon a valid adjournment of a previous legal meeting, hold a 
meeting to elect directors and take all other action necessary fully to 
effect the conversion and operate the association in accordance with law 
and these rules and regulations. Immediately thereafter the board of 
directors shall meet, elect officers, and transact any other appropriate 
business.



Sec. 543.11  Organization plan for governance during first years after
issuance of Federal mutual savings bank charter.

    (a) Organizational meeting. Except as provided in paragraph (c)(1) 
of this section, promptly upon receipt of a charter, the officers of a 
Federal mutual savings bank which, immediately prior to conversion, was 
a state chartered mutual savings bank, shall call a meeting of the 
members. Notice for, and

[[Page 118]]

conduct of, such meeting shall be in accordance with the bank's Federal 
charter and bylaws. Business to be conducted at the organizational 
meeting shall include the election of trustees (who may also be known as 
a board of directors) and any other matters permitted by the charter and 
bylaws. Any action taken at such meeting shall be deemed an acceptance 
of the charter and bylaws approved by the Office pursuant to Sec. 544.1 
of this chapter.
    (b) First meeting of trustees. Upon election or appointment, the 
board of trustees shall hold a meeting to elect the officers of the bank 
in accordance with its Federal charter and bylaws, and to take other 
action necessary to permit the operation of the bank in accordance with 
the Home Owners' Loan Act of 1933, as amended, the bank's charter and 
bylaws, these rules and regulations, and orders of the Office.
    (c) Plan for governance of association during first six years after 
issuance of Federal charter. (1)(i) An applicant for a Federal mutual 
savings bank charter may submit a plan which provides that each member 
of its governing board, i.e., board of trustees, managers, or directors, 
may continue to serve, provided that within two years of the issuance of 
a Federal charter at least one-fifth of the members of such board shall 
have been elected by vote, either in person or by proxy, of the bank's 
membership as provided in its Federal charter, that within three years 
of the issuance of its Federal charter at least two-fifths of the 
members of such board shall have been elected by such a membership vote, 
that within four years of the issuance of its Federal charter at least 
three-fifths of the members of such board shall have been elected by 
such a membership vote, that within five years of the issuance of its 
Federal charter at least four-fifths of the members of such board shall 
have been elected by such a membership vote, and that within six years 
of the issuance of its Federal charter all of the members of such board 
shall have been elected by such a membership vote.
    (ii) The plan:
    (A) Shall set forth the names of those persons who are being 
proposed for service on the applicant's governing board after conversion 
to a Federal charter,
    (B) Shall show how trustees not elected by the converted bank's 
membership will be appointed or otherwise selected, and
    (C) Shall provide that no trustees may be appointed or elected to 
terms of more than three years.
    (iii) The plan may provide that
    (A) After receipt of its Federal charter the bank will be organized 
by its existing governing board,
    (B) Within the first two years following receipt of its Federal 
charter, the bank's charter may be amended without a membership vote, 
provided any such amendment is first approved by a two-thirds vote of 
its board of trustees and is thereafter approved by the Office, and
    (C) The bank's first annua1 membership meeting need not take place 
until two years after receipt of its Federal charter.
    (2) Except to the extent that the Office approves a plan under this 
paragraph (c) which is inconsistent with other provisions of this 
section, a Federal mutual savings bank shall in all respects comply with 
those other provisions.

[54 FR 49482, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]



Sec. 543.11-1  Grandfathered authority.

    (a) A Federal savings bank formerly chartered or designated as a 
mutual savings bank under state law may exercise any authority it was 
authorized to exercise as a mutual savings bank under state law at the 
time of its conversion from a state mutual savings bank to a Federal or 
other state charter. Except to the extent such authority may be 
exercised by Federal savings associations not enjoying grandfathered 
rights hereunder, such authority may be exercised only to the degree 
authorized under state law at the time of such conversion. Unless 
otherwise determined by the Director, an association, in the exercise of 
grandfathered authority, may continue to follow applicable state laws 
and regulations in effect at the time of such conversion.

[[Page 119]]

    (b) A Federal savings association that acquires, or has acquired, a 
Federal savings bank by merger or consolidation may itself exercise any 
grandfathered rights enjoyed by the disappearing institution, whether 
such rights were obtained directly through conversion or through merger 
or consolidation. The extent of the grandfathered rights of a Federal 
savings association that disappeared prior to the effective date of this 
section shall be determined exclusively pursuant to this section.
    (c) This section shall not be construed to prevent the exercise by a 
Federal savings association enjoying grandfathered rights hereunder of 
authority that is available under the applicable state law only upon the 
occurrence of specific preconditions, such as the attainment of a 
particular future date or specified level of regulatory capital, which 
have not occurred at the time of conversion from a state mutual savings 
bank, provided they occur thereafter.
    (d) This section shall not be construed to permit the exercise of 
any particular authority on a more liberal basis than is allowable under 
the most liberal construction of either state or Federal law or 
regulation.



Sec. 543.14  Continuity of existence.

    The corporate existence of an association converting under this part 
shall continue in its successor. Each savings or demand accountholder 
shall receive a savings account or accounts in the converted association 
equal in amount to the value of accounts held in the former association.

[54 FR 49482, Nov. 30, 1989, as amended at 61 FR 64015, Dec. 3, 1996]



PART 544_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_CHARTER AND BYLAWS--
Table of Contents




                                 Charter

Sec.
544.1 Federal mutual charter.
544.2 Charter amendments.
544.4 Issuance of charter.

                                 Bylaws

544.5 Federal mutual savings association bylaws.
544.6 Effect of subsequent charter or bylaw change.

                              Availability

544.7 In association offices.
544.8 Communication between members of a Federal mutual savings 
          association.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq.

    Source: 54 FR 49486, Nov. 30, 1989, unless otherwise noted.

                                 Charter



Sec. 544.1  Federal mutual charter.

    A Federal mutual savings association shall have a charter in the 
following form, which may include any of the additional provisions set 
forth in Sec. 544.2 of this Part, if such provisions are specifically 
requested. A charter for a Federal mutual savings bank shall substitute 
the term ``savings bank'' for ``association.'' The term ``trustee'' may 
be substituted for the term ``director.'' Associations adopting this 
charter with existing borrower members must grandfather those borrower 
members who were members as of the date of issuance of the new charter 
by the Office. Such borrowers shall have one vote for the period of time 
such borrowings are in existence.

                         Federal Mutual Charter

    Section 1. Corporate title. The full corporate title of the Federal 
savings association is ------.
    Section 2. Office. The home office shall be located in ------ [city, 
state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal mutual savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all the express, implied, and incidental powers conferred 
thereby and by all acts amendatory thereof and supplemental thereto, 
subject to the Constitution and laws of the United States as they are 
now in effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office of 
Thrift Supervision (``Office'').
    Section 5. Capital. The association may raise capital by accepting 
payments on savings and demand accounts and by any other means 
authorized by the Office.

[[Page 120]]

    Section 6. Members. All holders of the association's savings, 
demand, or other authorized accounts are members of the association. In 
the consideration of all questions requiring action by the members of 
the association, each holder of an account shall be permitted to cast 
one vote for each $100, or fraction thereof, of the withdrawal value of 
the member's account. No member, however, shall cast more than 1000 
votes. All accounts shall be nonassessable.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors shall not be 
fewer than five nor more than fifteen persons, as fixed in the 
association's bylaws, except that the number of directors may be 
decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the Director of the Office or 
his or her delegate.
    Section 8. Capital, surplus, and distribution of earnings. The 
association shall maintain for the purpose of meeting losses the amount 
of capital required by section 5 of the Home Owners' Loan Act and by 
regulations of the Office. The association shall distribute net earnings 
on its accounts on such basis and in accordance with such terms and 
conditions as may from time to time be authorized by the Director of the 
Office: Provided, That the association may establish minimum-balance 
requirements for accounts to be eligible for distribution of earnings.
    All holders of accounts of the association shall be entitled to 
equal distribution of assets, pro rata to the value of their accounts, 
in the event of voluntary or involuntary liquidation, dissolution, or 
winding up of the association. Moreover, in any such event, or in any 
other situation in which the priority of such accounts is in 
controversy, all such accounts shall, to the extent of their withdrawal 
value, be debts of the association having the same priority as the 
claims of general creditors of the association not having priority 
(other than any priority arising or resulting from consensual 
subordination) over other general creditors of the association.
    Section 9. Amendment of charter. Adoption of any preapproved charter 
amendment shall be effective after such preapproved amendment has been 
approved by the members at a legal meeting. Any other amendment, 
addition, change, or repeal of this charter must be approved by the 
Office prior to approval by the members at a legal meeting, and shall be 
effective upon filing with the Office in accordance with regulatory 
procedures.

Attest:_________________________________________________________________
 Secretary of the Association

By:_____________________________________________________________________
 President or Chief Executive Officer of the Association

Attest:_________________________________________________________________
 Secretary of the Office of Thrift Supervision

By:_____________________________________________________________________
 Director of the Office of Thrift Supervision

Effective Date:_________________________________________________________

[54 FR 49486, Nov. 30, 1989, as amended at 61 FR 64015, Dec. 3, 1996]



Sec. 544.2  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal mutual 
savings association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment that 
states the text of such amendment;
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would: render more difficult or discourage a merger, 
proxy contest, the assumption of control by a mutual account holder of 
the association, or the removal of incumbent management; or involve a 
significant issue of law or policy; then, the association shall file the 
proposed amendment and obtain the prior approval of the OTS.
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of this 
section and is permissible under all applicable laws, rules and 
regulations, then the association shall submit the proposed amendment to 
the OTS, at least 30 days prior to the effective date of the proposed 
charter amendment.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter in adopting such amendment. This 
automatic approval does not apply if, prior to the expiration of such 
30-day period, the OTS notifies the association that such amendment is 
rejected or that such amendment is deemed to be filed under the 
provisions of paragraph (a)(2)(i) of this section. In addition, 
notwithstanding anything in paragraph (a) of this section to the 
contrary, the following charter amendments, including the adoption of 
the Federal mutual charter as set forth in

[[Page 121]]

Sec. 544.1 of this part, shall be effective and deemed approved at the 
time of adoption, if adopted without change and filed with OTS, within 
30 days after adoption, provided the association follows the 
requirements of its charter in adopting such amendments:
    (1) Purpose and powers. Add a second paragraph to section 4, as 
follows:

    Section 4. Purpose and powers. * * * The association shall have the 
express power: (i) To act as fiscal agent of the United States when 
designated for that purpose by the Secretary of the Treasury, under such 
regulations as the Secretary may prescribe, to perform all such 
reasonable duties as fiscal agent of the United States as may be 
required, and to act as agent for any other instrumentality of the 
United States when designated for that purpose by any such 
instrumentality; (ii) To sue and be sued, complain and defend in any 
court of law or equity; (iii) To have a corporate seal, affixed by 
imprint, facsimile or otherwise; (iv) To appoint officers and agents as 
its business shall require and allow them suitable compensation; (v) To 
adopt bylaws not inconsistent with the Constitution or laws of the 
United States and rules and regulations adopted thereunder and under 
this Charter; (vi) To raise capital, which shall be unlimited, by 
accepting payments on savings, demand, or other accounts, as are 
authorized by rules and regulations made by the Office, and the holders 
of all such accounts or other accounts as shall, to such extent as may 
be provided by such rules and regulations, be members of the association 
and shall have such voting rights and such other rights as are thereby 
provided; (vii) To issue notes, bonds, debentures, or other obligations, 
or securities, provided by or under any provision of Federal statute as 
from time to time is in effect; (viii) To provide for redemption of 
insured accounts; (ix) To borrow money without limitation and pledge and 
otherwise encumber any of its assets to secure its debts; (x) To lend 
and otherwise invest its funds as authorized by statute and the rules 
and regulations of the Office; (xi) To wind up and dissolve, merge, 
consolidate, convert, or reorganize; (xii) To purchase, hold, and convey 
real estate and personalty consistent with its objects, purposes, and 
powers; (xiii) To mortgage or lease any real estate and personalty and 
take such property by gift, devise, or bequest; and (xiv) To exercise 
all powers conferred by law. In addition to the foregoing powers 
expressly enumerated, this association shall have power to do all things 
reasonably incident to the accomplishment of its express objects and the 
performance of its express powers.

    (2) Title change. A Federal mutual savings association that has 
complied with Sec. 543.1(b) of this chapter may amend its charter by 
substituting a new corporate title in section 1.
    (3) Home office. A Federal mutual savings association may amend its 
charter by substituting a new home office in section 2, if it has 
complied with applicable requirements of Sec. 545.95 of this chapter.
    (4) Maximum number of votes. A Federal mutual savings association 
may amend its charter by substituting ------ votes per member in section 
6. [Fill in a number from 1 to 1000.]
    (c) Reissuance of charter. A Federal mutual savings association that 
has amended its charter may apply to have its charter, including the 
amendments, reissued by the Office. Such request for reissuance should 
be filed with the Corporate Secretary at the Washington Headquarters 
Office at the address listed at Sec. 516.40(b) of this chapter and 
contain signatures required under Sec. 544.1 of this part, together 
with such supporting documents as may be needed to demonstrate that the 
amendments were properly adopted.

[54 FR 49486, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 
57 FR 14339, Apr. 20, 1992; 61 FR 64016, Dec. 3, 1996; 63 FR 46160, Aug. 
31, 1998; 66 FR 13005, Mar. 2, 2001; 69 FR 68248, Nov. 24, 2004]



Sec. 544.4  Issuance of charter.

    Issuance by the Office of a charter to a Federal mutual savings 
association within the meaning of Sec. 543.5 of this chapter 
constitutes the incorporation of that association by the Office.

                                 Bylaws



Sec. 544.5  Federal mutual savings association bylaws.

    (a) General. A Federal mutual savings association shall operate 
under bylaws that contain provisions that comply with all requirements 
specified by the OTS in this section and that are not otherwise 
inconsistent with the provisions of this section, the association's 
charter, and all other applicable laws, rules, and regulations provided 
that, a bylaw provision inconsistent with the provisions of this section 
may be adopted with the approval of the OTS. Bylaws may be adopted, 
amended or repealed by a majority of the votes cast

[[Page 122]]

by the members at a legal meeting or a majority of the association's 
board of directors. The bylaws for a Federal mutual savings bank shall 
substitute the term ``savings bank'' for ``association''. The term 
``trustee'' may be substituted for the term ``director''.
    (b) The following requirements are applicable to Federal mutual 
savings associations:
    (1) Annual meetings of members. An association shall provide for and 
conduct an annual meeting of its members for the election of directors 
and at which any other business of the association may be conducted. 
Such meeting shall be held, as designated by its board of directors, at 
a location within the state that constitutes the principal place of 
business of the association, or at any other convenient place the board 
of directors may designate, and at a date and time within 150 days after 
the end of the association's fiscal year. At each annual meeting, the 
officers shall make a full report of the financial condition of the 
association and of its progress for the preceding year and shall outline 
a program for the succeeding year.
    (2) Special meetings of members. Procedures for calling any special 
meeting of the members and for conducting such a meeting shall be set 
forth in the bylaws. The subject matter of such special meeting must be 
established in the notice for such meeting. The board of directors of 
the association or the holders of 10 percent or more of the voting 
capital shall be entitled to call a special meeting. For purposes of 
this section, ``voting capital'' means FDIC-insured deposits as of the 
voting record date.
    (3) Notice of meeting of members. Notice specifying the date, time, 
and place of the annual or any special meeting and adequately describing 
any business to be conducted shall be published for two successive weeks 
immediately prior to the week in which such meeting shall convene in a 
newspaper of general circulation in the city or county in which the 
principal place of business of the association is located, or mailed 
postage prepaid at least 15 days and not more than 45 days prior to the 
date on which such meeting shall convene to each of its members of 
record at the last address appearing on the books of the association. A 
similar notice shall be posted in a conspicuous place in each of the 
offices of the association during the 14 days immediately preceding the 
date on which such meeting shall convene. The bylaws may permit a member 
to waive in writing any right to receive personal delivery of the 
notice. When any meeting is adjourned for 30 days or more, notice of the 
adjournment and reconvening of the meeting shall be given as in the case 
of the original meeting.
    (4) Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the bylaws shall provide for the fixing of a 
record date and a method for determining from the books of the 
association the members entitled to vote. Such date shall be not more 
than 60 days nor fewer than 10 days prior to the date on which the 
action, requiring such determination of members, is to be taken. The 
same determination shall apply to any adjourned meeting.
    (5) Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. At any adjourned meeting, any business 
may be transacted that might have been transacted at the meeting as 
originally called. Members present at a duly constituted meeting may 
continue to transact business until adjournment.
    (6) Voting by proxy. Procedures shall be established for voting at 
any annual or special meeting of the members by proxy pursuant to the 
rules and regulations of the Office, including the placing of such 
proxies on file with the secretary of the association, for verification, 
prior to the convening of such meeting. Proxies may be given 
telephonically or electronically as long as the holder uses a procedure 
for verifying the identity of the member. All proxies with a term 
greater than

[[Page 123]]

eleven months or solicited at the expense of the association must run to 
the board of directors as a whole, or to a committee appointed by a 
majority of such board.
    (7) Communications between members. Provisions relating to 
communications between members shall be consistent with Sec. 544.8 of 
this part. No member, however, shall have the right to inspect or copy 
any portion of any books or records of a Federal mutual savings 
association containing:
    (i) A list of depositors in or borrowers from such association;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.
    (8) Number of directors, membership. The bylaws shall set forth a 
specific number of directors, not a range. The number of directors shall 
be not fewer than five nor more than fifteen, unless a higher or lower 
number has been authorized by the Director of the Office or his or her 
designee. Each director of the association shall be a member of the 
association. Directors may be elected for periods of one to three years 
and until their successors are elected and qualified, but if a staggered 
board is chosen, provision shall be made for the election of 
approximately one-third or one-half of the board each year, as 
appropriate. State-chartered savings banks converting to Federal savings 
banks may include alternative provisions for the election and term of 
office of directors so long as such provisions are authorized by the 
Office, and provide for compliance with the standard provisions of this 
section no later than six years after the conversion to a Federal 
savings association.
    (9) Meetings of the board. The board of directors shall determine 
the place, frequency, time, procedure for notice, which shall be at 
least 24 hours unless waived by the directors, and waiver of notice for 
all regular and special meetings. The meetings shall be under the 
direction of a chairman, appointed annually by the board; or in the 
absence of the chairman, the meetings shall be under the direction of 
the president. The board also may permit telephonic participation at 
meetings. The bylaws may provide for action to be taken without a 
meeting if unanimous written consent is obtained for such action. A 
majority of the authorized directors shall constitute a quorum for the 
transaction of business. The act of a majority of the directors present 
at any meeting at which there is a quorum shall be the act of the board.
    (10) Officers, employees. and agents. (i) The bylaws shall contain 
provisions regarding the officers of the association, their functions, 
duties, and powers. The officers of the association shall consist of a 
president, one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected annually by the board of 
directors. Such other officers and assistant officers and agents as may 
be deemed necessary may be elected or appointed by the board of 
directors or chosen in such other manner as may be prescribed in the 
bylaws. Any two or more offices may be held by the same person, except 
the offices of president and secretary.
    (ii) All officers and agents of the association, as between 
themselves and the association, shall have such authority and perform 
such duties in the management of the association as may be provided in 
the bylaws, or as may be determined by resolution of the board of 
directors not inconsistent with the bylaws. In the absence of any such 
provision, officers shall have such powers and duties as generally 
pertain to their respective offices. Any officer may be removed by the 
board of directors with or without cause, but such removal, other than 
for cause, shall be without prejudice to the contractual rights, if any, 
of the person so removed.
    (iii) Any indemnification provision must provide that any 
indemnification is subject to applicable Federal law, rules, and 
regulations.
    (11) Vacancies, resignation or removal of directors. Members of the 
association shall elect directors by ballot: Provided, that in the event 
of a vacancy on the board, the board of directors may, by their 
affirmative vote, fill such vacancy, even if the remaining directors 
constitute less than a quorum. A director elected to fill a vacancy 
shall be elected to serve only until the next

[[Page 124]]

election of directors by the members. The bylaws shall set out the 
procedure for the resignation of a director, which shall be by written 
notice or by any other procedure established in the bylaws. Directors 
may be removed only for cause as defined in Sec. 563.39 of this 
chapter, by a vote of the holders of a majority of the shares then 
entitled to vote at an election of directors.
    (12) Powers of the board. The board of directors shall have the 
power:
    (i) By resolution, to appoint from among its members and remove an 
executive committee and one or more other committees, which committee[s] 
shall have and may exercise all the powers of the board between the 
meetings or the board; but no such committee shall have the authority of 
the board to amend the charter or bylaws, adopt a plan of merger, 
consolidation, dissolution, or provide for the disposition of all or 
substantially all the property and assets of the association. Such 
committee shall not operate to relieve the board, or any member thereof, 
of any responsibility imposed by law;
    (ii) To fix the compensation of directors, officers, and employees; 
and to remove any officer or employee at any time with or without cause;
    (iii) To exercise any and all of the powers of the association not 
expressly reserved by the charter to the members.
    (13) Nominations for directors. The bylaws shall provide that 
nominations for directors may be made at the annual meeting by any 
member and shall be voted upon, except, however, the bylaws may require 
that nominations by a member must be submitted to the secretary and then 
prominently posted in the principal place of business, at least 10 days 
prior to the date of the annual meeting. However, if such provision is 
made for prior submission of nominations by a member, then the bylaws 
must provide for a nominating committee, which, except in the case of a 
nominee substituted as a result of death or other incapacity, must 
submit nominations to the secretary and have such nominations similarly 
posted at least 15 days prior to the date of the annual meeting.
    (14) New business. The bylaws shall provide procedures for the 
introduction of new business at the annual meeting. Those provisions may 
require that such new business be stated in writing and filed with the 
secretary prior to the annual meeting at least 30 days prior to the date 
of the annual meeting.
    (15) Amendment. Bylaws may include any provision for their amendment 
that would be consistent with applicable law, rules, and regulations and 
adequately addresses its subject and purpose.
    (i) Amendments shall be effective:
    (A) After approval by a majority vote of the authorized board, or by 
a majority of the vote cast by the members of the association at a legal 
meeting; and
    (B) After receipt of any applicable regulatory approval.
    (ii) When an association fails to meet its quorum requirement, 
solely due to vacancies on the board, the bylaws may be amended by an 
affirmative vote of a majority of the sitting board.
    (16) Miscellaneous. The bylaws may also address the subject of age 
limitations for directors or officers as long as they are consistent 
with applicable Federal law, rules or regulations, and any other 
subjects necessary or appropriate for effective operation of the 
association.
    (c) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the OTS if it would:
    (A) Render more difficult or discourage a merger, proxy contest, the 
assumption of control by a mutual account holder of the association, or 
the removal of incumbent management;
    (B) Involve a significant issue of law or policy, including 
indemnification, conflicts of interest, and limitations on director or 
officer liability; or
    (C) Be inconsistent with the requirements of this section or with 
applicable laws, rules, regulations, or the association's charter.
    (ii) Applications submitted under paragraph (c)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
516, subparts A and E of this chapter.
    (iii) For purposes of this paragraph (c), bylaw provisions that 
adopt the language of the model or optional bylaws in OTS's Application 
Processing Handbook, if adopted without change,

[[Page 125]]

and filed with OTS within 30 days after adoption, are effective upon 
adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (c)(1) or (c)(3) 
of this section, then the association shall submit the amendment to the 
OTS at least 30 days prior to the date the bylaw amendment is to be 
adopted by the association.
    (3) Corporate governance procedures. A Federal mutual association 
may elect to follow the corporate governance procedures of the laws of 
the state where the main office of the institution is located, provided 
that such procedures may be elected only to the extent not inconsistent 
with applicable Federal statutes, regulations, and safety and soundness, 
and such procedures are not of the type described in paragraph (c)(1) of 
this section. If this election is selected, a Federal mutual association 
shall designate in its bylaws the provision or provisions from the body 
of law selected for its corporate governance procedures, and shall file 
a copy of such bylaws, which are effective upon adoption, within 30 days 
after adoption. The submission shall indicate, where not obvious, why 
the bylaw provisions meet the requirements stated in paragraph (c)(1) of 
this section.
    (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(c)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the association follows 
the requirements of its charter and bylaws in adopting such amendment. 
This automatic effective date does not apply if, prior to the expiration 
of such 30-day period, the OTS notifies the association that such 
amendment is rejected or that such amendment requires an application to 
be filed pursuant to paragraph (c)(1) of this section.

[54 FR 49486, Nov. 30, 1989, as amended at 55 FR 13511, Apr. 11, 1990; 
57 FR 14339, Apr. 20, 1992; 61 FR 64016, Dec. 3, 1996; 62 FR 66262, Dec. 
18, 1997; 66 FR 13006, Mar. 2, 2001; 66 FR 15020, Mar. 15, 2001]



Sec. 544.6  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal mutual savings association to engage in any 
transaction shall be determined only by the association's charter or 
bylaws then in effect.

                              Availability



Sec. 544.7  In association offices.

    A Federal mutual savings association shall make available to its 
members at all times in its offices a true copy of its charter and 
bylaws, including any amendments, and shall deliver such a copy to any 
member on request.



Sec. 544.8  Communication between members of a Federal mutual
savings association.

    (a) Right of communication with other members. A member of a Federal 
mutual savings association has the right to communicate, as prescribed 
in paragraph (b) of this section, with other members of the Federal 
savings association regarding any matter related to the Federal savings 
association's affairs, except for ``improper'' communications, as 
defined in paragraph (c) of this section. The association may not defeat 
that right by redeeming a savings member's savings account in the 
Federal mutual savings association.
    (b) Member communication procedures. If a member of a Federal mutual 
savings association desires to communicate with other members, the 
following procedures shall be followed:
    (1) The member shall give the Federal mutual savings association a 
written request to communicate;
    (2) If the proposed communication is in connection with a meeting of 
the Federal savings association's members, the request shall be given at 
least thirty days before the annual meeting or 10 days before a special 
meeting;
    (3) The request shall contain--
    (i) The member's full name and address;
    (ii) The nature and extent of the member's interest in the Federal 
savings association at the time the information is given;
    (iii) A copy of the proposed communication; and
    (iv) If the communication is in connection with a meeting of the 
members, the date of the meeting;

[[Page 126]]

    (4) The Federal savings association shall reply to the request 
within either--
    (i) Fourteen days;
    (ii) Ten days, if the communication is in connection with the annual 
meeting; or
    (iii) Three days, if the communication is in connection with a 
special meeting;
    (5) The reply shall provide either--
    (i) The number of the Federal savings association's members and the 
estimated reasonable cost to the Federal savings association of mailing 
to them the proposed communication; or
    (ii) Notification that the Federal savings association has 
determined not to mail the communication because it is ``improper'', as 
defined in paragraph (c) of this section;
    (6) After receiving the amount of the estimated costs of mailing and 
sufficient copies of the communication, the Federal savings association 
shall mail the communication to all members, by a class of mail 
specified by the requesting member, either--
    (i) Within fourteen days;
    (ii) Within seven days, if the communication is in connection with 
the annual meeting;
    (iii) As soon as practicable before the meeting, if the 
communication is in connection with a special meeting; or
    (iv) On a later date specified by the member;
    (7) If the Federal savings association refuses to mail the proposed 
communication, it shall return the requesting member's materials 
together with a written statement of the specific reasons for refusal, 
and shall simultaneously send to the Regional Director two copies each 
of the requesting member's materials, the Federal savings association's 
written statement, and any other relevant material. The materials shall 
be sent within:
    (i) Fourteen days,
    (ii) Ten days if the communication is in connection with the annual 
meeting, or
    (iii) Three days, if the communication is in connection with a 
special meeting,

after the Federal savings association receives the request for 
communication.
    (c) Improper communication. A communication is an ``improper 
communication'' if it contains material which:
    (1) At the time and in the light of the circumstances under which it 
is made:
    (i) Is false or misleading with respect to any material fact; or
    (ii) Omits a material fact necessary to make the statements therein 
not false or misleading, or necessary to correct a statement in an 
earlier communication on the same subject which has become false or 
misleading;
    (2) Relates to a personal claim or a personal grievance, or is 
solicitous of personal gain or business advantage by or on behalf of any 
party;
    (3) Relates to any matter, including a general economic, political, 
racial, religious, social, or similar cause, that is not significantly 
related to the business of the Federal savings association or is not 
within the control of the Federal savings association; or
    (4) Directly or indirectly and without expressed factual foundation:
    (i) Impugns character, integrity, or personal reputation,
    (ii) Makes charges concerning improper, illegal, or immoral conduct, 
or
    (iii) Makes statements impugning the stability and soundness of the 
Federal savings association.

[54 FR 49492, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995. 
Redesignated at 61 FR 64018, Dec. 3, 1996.]



PART 545_FEDERAL SAVINGS ASSOCIATIONS_OPERATIONS--Table of Contents




Sec.
545.1 General authority.
545.2 Federal preemption.
545.16 Public deposits, depositaries, and fiscal agents.
545.17 Funds transfer services.
545.91 Home office.
545.92 Branch offices.
545.93 Application and notice requirements for branch and home offices.
545.95 What processing procedures apply to my home or branch office 
          application or notice?
545.96 Agency office.
545.101 Fiscal agency.
545.121 Indemnification of directors, officers and employees.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.

    Source: 54 FR 49492, Nov. 30, 1989, unless otherwise noted.

[[Page 127]]



Sec. 545.1  General authority.

    A Federal savings association may exercise all authority granted it 
by the Home Owners' Loan Act of 1933 (``Act''), 12 U.S.C. 1464, as 
amended, and its charter and bylaws, whether or not implemented 
specifically by Office regulations, subject to the limitations and 
interpretations contained in this part.



Sec. 545.2  Federal preemption.

    The regulations in this part 545 are promulgated pursuant to the 
plenary and exclusive authority of the Office to regulate all aspects of 
the operations of Federal savings associations, as set forth in section 
5(a) of the Act. This exercise of the Office's authority is preemptive 
of any state law purporting to address the subject of the operations of 
a Federal savings association.



Sec. 545.16  Public deposits, depositaries, and fiscal agents.

    (a) Definitions. As used in this section--
    (1) Moneys includes monies and has the meaning it has in applicable 
state law;
    (2) State law includes actions by a governmental body which has a 
charter adopted under the constitution of the state with provisions 
respecting deposits of public money of that body;
    (3) Surety means surety under real and/or personal suretyship, and 
includes guarantor; and
    (4) Terms in paragraph (b) of this section have the meanings they 
have under applicable state law.
    (b) Authority to act as surety for public deposits. (1) A Federal 
savings association that is a deposit association may give bond or 
security for deposit in it of public moneys or investment in it by a 
governmental unit if required to do so by state law, either as an 
alternative condition or otherwise, regardless of the amount required. 
Any bond or security may be given and any substitution or increase 
thereof may be made under this section at any time.
    (2) If state law requires as a condition of such deposit or 
investment that the Federal savings association or its bond or security, 
or any combination thereof, be surety for or with respect to other 
deposits or instruments, whether of that depositor or investor or of any 
other(s), and whether in the Federal savings association or in any other 
institution(s) having, when the investments or deposits were made, 
insurance by the Federal Deposit Insurance Corporation, the same shall 
become, or if the state law is self-executing shall be, such surety.
    (c) Depositaries and fiscal agents. Subject to regulation of the 
United States Treasury Department, a Federal savings association may 
serve as a depositary for Federal taxes, as a Treasury tax and loan 
depositary, or as a depositary of public money and fiscal agent of the 
Government or any other instrumentality thereof when designated for that 
purpose by such instrumentality and approved by the Office, and may 
satisfy any requirement in connection therewith, including maintaining 
accounts described in Sec. Sec. 561.33, 561.52, 561.53, and 561.54 of 
this chapter; pledging collateral; and performing the services outlined 
in 31 CFR 202.3(b) or any section that supersedes or amends Sec. 
202.3(b).



Sec. 545.17  Funds transfer services.

    A Federal savings association is authorized to transfer, with or 
without fee, its customers' funds from any account (including a line of 
credit) of the customer at the Federal savings association or at another 
financial intermediary to third parties or other accounts of the 
customer on the customer's order or authorization by any mechanism or 
device, including cashier's checks, conforming with applicable laws and 
established commercial practices.



Sec. 545.91  Home office.

    (a) All operations of a Federal savings association (``you'') are 
subject to direction from the home office.
    (b) You must notify the appropriate OTS Regional Office if the 
permanent address of your home office changes, unless you have submitted 
an application or notice regarding the change under Sec. Sec. 545.93 
and 545.95 of this chapter.

[69 FR 68248, Nov. 24, 2004]

[[Page 128]]



Sec. 545.92  Branch offices.

    (a) Definition. A branch office of a Federal savings association 
(``you'') is any office other than your home office, agency office, 
administrative office, data processing office, or an electronic means or 
facility under part 555 of this chapter.
    (b) Branching. Subject to the application and notice requirements at 
Sec. Sec. 545.93 and 545.95 of this chapter, you may branch in any 
State or States of the United States and its territories unless the 
location would violate:
    (1) Section 5(r) of the HOLA (12 U.S.C. 1464(r));
    (2) Section 10(e)(3) of the HOLA (12 U.S.C. 1467a(e)(3)); or
    (3) Section 13(k)(4) of the FDIA (12 U.S.C. 1823(k)(4)).
    (c) Preemption. This exercise of OTS authority is preemptive of any 
State law purporting to address the subject of branching by a Federal 
savings association.

[69 FR 68248, Nov. 24, 2004]



Sec. 545.93  Application and notice requirements for branch and home offices.

    (a) Application and notice requirements. A Federal savings 
association (``you'') must file an application or notice and receive OTS 
approval or non-objection under Sec. 545.95 before you change the 
permanent location of, or establish a new, home or branch office, except 
as provided in this section.
    (b) Exceptions. You are not required to submit an application or 
notice and receive OTS approval or non-objection under Sec. 545.95 
under the following circumstances:
    (1) Drive-in or pedestrian offices. You may establish a drive-in or 
pedestrian office that is located within 500 feet of a public entrance 
to your existing home or branch office, provided the functions performed 
at the office are limited to functions that are ordinarily performed at 
a teller window.
    (2) Short-distance relocation. You may change the permanent location 
of an existing home or branch office to a site that is within the market 
area and short-distance location area of the existing home or branch 
office. The short-distance relocation area of an existing office is the 
area that is within:
    (i) A 1000-foot radius of an existing office that is within a 
Principal City in a Metropolitan Statistical Area (MSA) designated by 
the U.S. Department of Commerce;
    (ii) A one-mile radius of an existing office that is within an MSA, 
but is not within a Principal City; or
    (iii) A two-mile radius of an existing office that is not in an MSA.
    (3) Highly-rated Federal savings associations. You may change the 
permanent location of, or establish a new, branch or home office if you 
meet all of the following requirements:
    (i) You are eligible for expedited treatment under Sec. 516.5 of 
this chapter. For the purposes of that section, you must meet the 
capital requirements under part 567 of this chapter before and 
immediately after you change the location of your home or branch office 
or establish a new branch office.
    (ii) You published a notice of your intent to change the location of 
your home or branch office or establish a new branch office. To satisfy 
this publication requirement, you must follow the procedures in subpart 
B of part 516 of this chapter except that:
    (A) Under Sec. 516.55(d) and (e) of this chapter, your public 
notice must state that the public may submit comments to you and to the 
appropriate OTS office(s), and must provide addresses for you and for 
the appropriate OTS office(s) where the public may submit comments;
    (B) Section 516.55(g) of this chapter, which addresses public 
inspections of filings with OTS, does not apply; and
    (C) Under Sec. 516.60 of this chapter, you must publish the public 
notice at least 35 days before you take the proposed action. If you 
publish a public notice more than 12 months before you take the proposed 
action, the publication is invalid.
    (iii) If you intend to change the location of an existing office, 
you posted a notice of your intent in a prominent location in the 
existing office to be relocated. You must post the notice for 30 days 
from the date of publication of the initial public notice described in 
paragraph (b)(3)(ii) of this section.

[[Page 129]]

    (iv)(A) No person files a comment opposing the proposed action 
within 30 days after the date of the publication of the proposed notice, 
or (B) A person files a comment opposing the proposed action and OTS 
determines that the comment raises issues that are not relevant to the 
approval standards in Sec. 545.95(b) of this chapter or that OTS action 
in response to the comment is not required.
    (4) Re-designations of home and branch offices. You may re-designate 
an existing branch office as a home office at the same time that you re-
designate your existing home office as a branch office.
    (c) Section 5(m) of the HOLA. If you are incorporated under the laws 
of, organized in, or do business in the District of Columbia and you 
satisfy the requirements of paragraph (b) of this section, the Director 
of OTS has approved your home or branch office changes under section 
5(m) of the HOLA.
    (d) Maintenance of branch and home office following conversion, 
consolidation, purchase of bulk assets, merger, or purchase from 
receiver. An existing savings association that converts to a federal 
savings association may maintain an existing office and a federal 
savings association may maintain any office acquired through 
consolidation, purchase of bulk assets, merger or purchase from the 
receiver of an association, except to the extent that the approval of 
the conversion, consolidation, merger, or purchase specifies otherwise.
    (e) Prohibition. You may not file an application or notice (or 
utilize any exception described in paragraph (b) of this section) to 
establish a branch office, if you filed an application to merge or 
otherwise surrender your charter and the application has been pending 
for less than six months.

[69 FR 68248, Nov. 24, 2004, as amended at 70 FR 51586, Aug. 31, 2005]



Sec. 545.95  What processing procedures apply to my home or branch
office application or notice?

    (a) Processing procedures. Applications and notices under Sec. 
545.93 are subject to expedited or standard treatment under the 
application processing procedures at part 516 of this chapter.
    (1) Publication and posting requirements. (i) You must publish a 
public notice of your application or notice in accordance with the 
procedures in subpart B of part 516 of this chapter. Promptly after 
publication, you must transmit copies of the public notice and the 
publisher's affidavit to OTS.
    (ii) If you propose to change the location of an existing office, 
you must also post a notice of the application in a prominent location 
in the office to be relocated. You must post the notice for 30 days from 
the date of publication of the initial public notice.
    (2) Comment procedures. Commenters may submit comments on your 
application or notice in accordance with the procedures in subpart C of 
part 516 of this chapter.
    (3) Meeting procedures. OTS may arrange a meeting in accordance with 
the procedures in subpart D of part 516 of this chapter.
    (4) OTS Review. OTS will process your application or notice in 
accordance with the procedures in subpart E of part 516 of this chapter. 
The applicable review period for applications filed under standard 
treatment is 30 days rather than the time period specified at Sec. 
516.270(a) of this chapter.
    (b) Approval standards. (1) OTS will approve an application (or not 
object to a notice), if your overall policies, condition, and operations 
afford no basis for supervisory objection.
    (i) You should meet or exceed minimum capital requirements under 
part 567 of this chapter and should be at least adequately capitalized 
as described in Sec. 565.4(b)(2) of this chapter, before and 
immediately after the proposed action. If you are undercapitalized as 
described in Sec. 565.4(b)(3), OTS will deny your application (or 
disapprove your notice), unless the proposed action is otherwise 
permitted under section 38(e)(4) of the FDIA.
    (ii) OTS will evaluate your record of helping to meet the credit 
needs of your entire community, including low- and moderate-income 
neighborhoods, under part 563e of this chapter. OTS may:
    (A) Deny your application or disapprove your notice based upon this 
evaluation; or

[[Page 130]]

    (B) Impose a condition to the approval of your application (or non-
objection to your notice) requiring you to improve specific practices 
and/or aspects of your performance under part 563e of this chapter. In 
most cases, a commitment to improve will not be sufficient to overcome a 
seriously deficient record.
    (iii) OTS will review the application or notice under the National 
Environmental Policy Act (42 U.S.C. 3421 et seq.) and the National 
Historic Preservation Act (16 U.S.C. 470).
    (2) In reviewing your application and notice, OTS may consider 
information available from any source, including any comments submitted 
by interested parties or views expressed by interested parties at 
meetings with OTS.
    (3) OTS may approve an amendment to your charter in connection with 
a home office relocation under this section.
    (c) Expiration of OTS approval. (1) You must open or relocate your 
office within twelve months of OTS approval of your application (or the 
date of OTS non-objection to your notice), unless OTS prescribes another 
time period. OTS may extend the time period if it determines that you 
are making a good-faith effort to promptly open or relocate the proposed 
office.
    (2) If you do not open or relocate the proposed office within this 
time period, you must comply with the application and notice 
requirements of this section before you may open or relocate the 
proposed office.

[69 FR 68249, Nov. 24, 2004, as amended at 70 FR 51586, Aug. 31, 2005]



Sec. 545.96  Agency office.

    (a) General. A Federal savings association may establish or maintain 
an agency office to engage in one or more of the following activities: 
(1) Servicing, originating, or approving loans and contracts; (2) 
managing or selling real estate owned by the Federal savings 
association; and (3) conducting fiduciary activities or activities 
ancillary to the association's fiduciary business in compliance with 
subpart A of part 550 of this chapter.
    (b) Additional services. A Federal savings association may request, 
and OTS may approve, any service not listed in paragraph (a) of this 
section, except for payment on savings accounts.
    (c) Records. A Federal savings association must maintain records of 
all business it transacts at an agency office. It must maintain these 
records at the agency office, and must transmit copies to a home or 
branch office.

[69 FR 68249, Nov. 24, 2004]



Sec. 545.101  Fiscal agency.

    A Federal savings association designated fiscal agent by the 
Secretary of the Treasury or with Office approval by another 
instrumentality of the United States, shall, as such, perform such 
reasonable duties and exercise only such powers and privileges as the 
Secretary of the Treasury or such instrumentality may prescribe.



Sec. 545.121  Indemnification of directors, officers and employees.

    A Federal savings association shall indemnify its directors, 
officers, and employees in accordance with the following requirements:
    (a) Definitions and rules of construction. (1) Definitions for 
purposes of this section.
    (i) Action. The term ``action'' means any judicial or administrative 
proceeding, or threatened proceeding, whether civil, criminal, or 
otherwise, including any appeal or other proceeding for review;
    (ii) Court. The term ``court'' includes, without limitation, any 
court to which or in which any appeal or any proceeding for review is 
brought.
    (iii) Final judgment. The term ``final judgment'' means a judgment, 
decree, or order which is not appealable or as to which the period for 
appeal has expired with no appeal taken.
    (iv) Settlement. The term ``settlement'' includes entry of a 
judgment by consent or confession or a plea of guilty or nolo 
contendere.
    (2) References in this section to any individual or other person, 
including any association, shall include legal representatives, 
successors, and assigns thereof.
    (b) General. Subject to paragraphs (c) and (g) of this section, a 
savings association shall indemnify any person against whom an action is 
brought or threatened because that person is or

[[Page 131]]

was a director, officer, or employee of the association, for:
    (1) Any amount for which that person becomes liable under a judgment 
if such action; and
    (2) Reasonable costs and expenses, including reasonable attorney's 
fees, actually paid or incurred by that person in defending or settling 
such action, or in enforcing his or her rights under this section if he 
or she attains a favorable judgment in such enforcement action.
    (c) Requirements. Indemnification shall be made to such period under 
paragraph (b) of this section only if:
    (1) Final judgment on the merits is in his or her favor; or
    (2) In case of:
    (i) Settlement,
    (ii) Final judgment against him or her, or
    (iii) Final judgment in his or her favor, other than on the merits, 
if a majority of the disinterested directors of the savings association 
determine that he or she was acting in good faith within the scope of 
his or her employment or authority as he or she could reasonably have 
perceived it under the circumstances and for a purpose he or she could 
reasonably have believed under the circumstances was in the best 
interests of the savings association or its members.

However, no indemnification shall be made unless the association gives 
the Office at least 60 days' notice of its intention to make such 
indemnification. Such notice shall state the facts on which the action 
arose, the terms of any settlement, and any disposition of the action by 
a court. Such notice, a copy thereof, and a certified copy of the 
resolution containing the required determination by the board of 
directors shall be sent to the Regional Director, who shall promptly 
acknowledge receipt thereof. The notice period shall run from the date 
of such receipt. No such indemnification shall be made if the OTS 
advises the association in writing, within such notice period, of his or 
her objection thereto.
    (d) Insurance. A savings association may obtain insurance to protect 
it and its directors, officers, and employees from potential losses 
arising from claims against any of them for alleged wrongful acts, or 
wrongful acts, committed in their capacity as directors, officers, or 
employees. However, no savings association may obtain insurance which 
provides for payment of losses of any person incurred as a consequence 
of his or her willful or criminal misconduct.
    (e) Payment of expenses. If a majority of the directors of a savings 
association concludes that, in connection with an action, any person 
ultimately may become entitled to indemnification under this section, 
the directors may authorize payment of reasonable costs and expenses, 
including reasonable attorneys' fees, arising from the defense or 
settlement of such action. Nothing in this paragraph (e) shall prevent 
the directors of a savings association from imposing such conditions on 
a payment of expenses as they deem warranted and in the interests of the 
savings association. Before making advance payment of expenses under 
this paragraph (e), the savings association shall obtain an agreement 
that the savings association will be repaid if the person on whose 
behalf payment is made is later determined not to be entitled to such 
indemnification.
    (f) Exclusiveness of provisions. No savings association shall 
indemnify any person referred to in paragraph (b) of this section or 
obtain insurance referred to in paragraph (d) of the section other than 
in accordance with this section. However, an association which has a 
bylaw in effect relating to indemnification of its personnel shall be 
governed solely by that bylaw, except that its authority to obtain 
insurance shall be governed by paragraph (d) of this section.
    (g) The indemnification provided for in paragraph (b) of this 
section is subject to and qualified by 12 U.S.C. 1821(k).

[54 FR 49492, Nov. 30, 1989, as amended at 56 FR 59866, Nov. 26, 1991; 
60 FR 66717, Dec. 26, 1995]



PART 546_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_MERGER, DISSOLUTION, 
REORGANIZATION, AND CONVERSION--Table of Contents




Sec.
546.1 Definitions.

[[Page 132]]

546.2 Procedure; effective date.
546.3 Transfer of assets upon merger or consolidation.
546.4 Voluntary dissolution.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq.

    Source: 54 FR 49517, Nov. 30, 1989, unless otherwise noted.



Sec. 546.1  Definitions.

    The terms used in Sec. Sec. 546.2 and 546.3 shall have the same 
meaning as set forth in Sec. Sec. 552.13(b) and 563.22(g) of this 
chapter.

[59 FR 44622, Aug. 30, 1994]



Sec. 546.2  Procedure; effective date.

    (a) A Federal mutual savings association may combine with any 
depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the requirements 
for Federal Home Loan Bank membership and insurance of accounts;
    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OTS to the requirements of sections 5(c) and 
10(m) of the Home Owners' Loan Act; and
    (4) The resulting institution shall be a mutually held savings 
association, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 563b of this chapter; or
    (iii) The transaction involves a transfer in the context of a mutual 
holding company reorganization under section 10(o) of the Home Owners' 
Loan Act.
    (b) Each Federal mutual savings association, by a two-thirds vote of 
its board of directors, shall approve a plan of combination evidenced by 
a combination agreement. The agreement shall state:
    (1) That the combination shall not be effective unless and until the 
combination receives any necessary approval from the Office pursuant to 
Sec. 563.22 (a) or (c), or in the case of a transaction requiring a 
notice pursuant to Sec. 563.22(c), the notice has been filed, and the 
appropriate period of time has passed or the OTS has advised the parties 
that it will not disapprove the transaction;
    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the resulting institution's savings 
accounts will be issued;
    (8) If the Federal mutual savings association is the resulting 
institution, the number, names, residence addresses, and terms of 
directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (c) Prior written notification to, notice to, or prior written 
approval of, the Office pursuant to Sec. 563.22 of this chapter is 
required for every combination. In the case of applications and notices 
pursuant to 563.22 (a) or (c), the Office shall apply the criteria set 
out in Sec. 563.22 of this chapter and shall impose any conditions it 
deems necessary or appropriate to ensure compliance with those criteria 
and the requirements of this chapter.
    (d) Where the resulting institution is a Federal mutual savings 
association, the Office may approve a temporary increase in the number 
of directors of the resulting institution provided that the association 
submits a plan for bringing the board of directors into compliance with 
the requirements of Sec. 544.1 of this chapter within a reasonable 
period of time.
    (e) Notwithstanding any other provision of this part, the Office may 
require that a plan of combination be submitted to the voting members of 
any of the mutual savings associations that are constituent institutions 
at a duly called meeting(s), and that the plan, to be effective, be 
approved by such voting members.

[[Page 133]]

    (f) A conservator or receiver for a Federal mutual savings 
association may combine the association with another insured depository 
institution without submitting the plan to the association's board of 
directors or members for their approval.
    (g) If a plan of combination provides for a resulting Federal mutual 
savings association's name or location to be changed, its charter shall 
be amended accordingly. If the resulting institution is a Federal mutual 
savings association, the effective date of the combination shall be the 
date specified in the approval; if the resulting institution is not a 
Federal savings association, the effective date shall be that prescribed 
under applicable law. Approval of a merger automatically cancels the 
Federal charter of a Federal association that is a disappearing 
institution as of the effective date of merger, and the association 
shall, on that date, surrender its charter to the Office.

[59 FR 44622, Aug. 30, 1994, as amended at 71 FR 19811, Apr. 18, 2006]



Sec. 546.3  Transfer of assets upon merger or consolidation.

    On the effective date of a merger or consolidation in which the 
resulting institution is a Federal association, all assets and property 
of the disappearing institutions shall immediately, without any further 
act, become the property of the resulting institution to the same extent 
as they were the property of the disappearing institutions, and the 
resulting institution shall be a continuation of the entity which 
absorbed the disappearing institutions. All rights and obligations of 
the disappearing institutions shall remain unimpaired, and the resulting 
institution shall, on the effective date of the merger or consolidation, 
succeed to all those rights and obligations, subject to the Home Owners' 
Loan Act and other applicable statutes.

[59 FR 44623, Aug. 30, 1994]



Sec. 546.4  Voluntary dissolution.

    A Federal savings association's board of directors may propose a 
plan for dissolution of the association. The plan may provide for 
either:
    (a) Appointment of the Federal Deposit Insurance Corporation (under 
section 5 of the Act and section 11 of the Federal Deposit Insurance 
Act, as amended or section 21A of the Federal Home Loan Bank Act, as 
amended) as receiver for the purpose of liquidation;
    (b) Transfer of all the association's assets to another association 
or home-financing institutions under Federal or State charter either for 
cash sufficient to pay all obligations of the association and retire all 
outstanding accounts or in exchange for that association's payment of 
all the association's outstanding obligations and issuance of share 
accounts or other evidence of interest to the association's members on a 
pro rata basis; or
    (c) Dissolution in a manner proposed by the directors which they 
consider best for all concerned.

The plan, and a statement of reasons for proposing dissolution and for 
proposing the plan, shall be submitted to the OTS for approval. The OTS 
will approve the plan if the OTS believes dissolution is advisable and 
the plan best for all concerned, but if the OTS considers the plan 
inadvisable, the OTS may either make recommendations to the association 
concerning the plan or disapprove it. When the plan is approved by the 
association's board of directors and by the OTS, it shall be submitted 
to the association's members at a duly called meeting and, when approved 
by a majority of votes cast at that meeting, shall become effective. 
After dissolution in accordance with the plan, a certificate evidencing 
dissolution, supported by such evidence as the OTS may require, shall 
immediately be filed with the OTS. When the OTS receives such evidence 
satisfactory to the OTS, it will terminate the corporate existence of 
the dissolved association and the association's charter shall thereby be 
canceled. A Federal savings association is not required to obtain 
approval under this section where the Federal savings association 
transfers all of its assets and liabilities to a bank in a transaction 
that is subject to Sec. 563.22(b) of this chapter.

[54 FR 49517, Nov. 30, 1989, as amended at 55 FR 13512, Apr. 11, 1990; 
57 FR 14342, Apr. 20, 1992; 59 FR 44623, Aug. 30, 1994; 70 FR 76675, 
Dec. 28, 2005]

[[Page 134]]



PART 550_FIDUCIARY POWERS OF SAVINGS ASSOCIATIONS--Table of Contents




Sec.
550.10 What regulations govern the fiduciary operations of savings 
          associations?
550.20 What are fiduciary powers?
550.30 What fiduciary capacities does this part cover?
550.40 When do I have investment discretion?
550.50 What is a fiduciary account?
550.60 What other definitions apply to this part?

                  Subpart A_Obtaining Fiduciary Powers

550.70 Must I obtain OTS approval or file a notice before I exercise 
          fiduciary powers?
550.80 How do I obtain OTS approval?
550.90 What information must I include in my application?
550.100 What factors may the OTS consider in its review of my 
          application?
550.110 Who will act on my application?
550.120 What action will the OTS take on my application?
550.125 How do I file the notice under Sec. 550.70(c)?

                  Subpart B_Exercising Fiduciary Powers

550.130 How may I conduct multi-state operations?
550.135 How do I determine which State's laws apply to my operations?
550.136 To what extent do State laws apply to my fiduciary operations?
550.140 Must I adopt and follow written policies and procedures in 
          exercising fiduciary powers?

                   Fiduciary Personnel and Facilities

550.150 Who is responsible for the exercise of fiduciary powers?
550.160 What personnel and facilities may I use to perform fiduciary 
          services?
550.170 May my other departments or affiliates use fiduciary personnel 
          and facilities to perform other services?
550.180 May I perform fiduciary services for, or purchase fiduciary 
          services from, another association or entity?
550.190 Must fiduciary officers and employees be bonded?

                      Review of a Fiduciary Account

550.200 Must I review a prospective account before I accept it?
550.210 Must I conduct another review of an account after I accept it?
550.220 Are any other account reviews required?

                      Custody and Control of Assets

550.230 Who must maintain custody or control of assets in a fiduciary 
          account?
550.240 May I hold investments of a fiduciary account off-premises?
550.250 Must I keep fiduciary assets separate from other assets?

                 Investing Funds of a Fiduciary Account

550.260 How may I invest funds of a fiduciary account?

                Funds Awaiting Investment or Distribution

550.290 What must I do with fiduciary funds awaiting investment or 
          distribution?
550.300 Where may I deposit fiduciary funds awaiting investment or 
          distribution?
550.310 What if the FDIC does not insure the deposits?
550.320 What is acceptable collateral for uninsured deposits?

                      Restrictions on Self Dealing

550.330 Are there investments in which I may not invest funds of a 
          fiduciary account?
550.340 May I exercise rights to purchase additional stock or fractional 
          shares of my stock or obligations or the stock or obligations 
          of my affiliates?
550.350 May I lend, sell, or transfer assets of a fiduciary account if I 
          have an interest in the transaction?
550.360 May I make a loan to a fiduciary account that is secured by an 
          interest in the assets in the account?
550.370 May I sell assets or lend money between fiduciary accounts?

                    Compensation, Gifts, and Bequests

550.380 May I earn compensation for acting in a fiduciary capacity?
550.390 May my officer or employee retain compensation for acting as a 
          co-fiduciary?
550.400 May my fiduciary officer or employee accept a gift or bequest?

                       Recordkeeping Requirements

550.410 What records must I keep?
550.420 How long must I keep these records?
550.430 Must I keep fiduciary records separate and distinct from other 
          records?

                           Audit Requirements

550.440 When do I have to audit my fiduciary activities?
550.450 What standards govern the conduct of the audit?
550.460 Who may conduct an audit?
550.470 Who directs the conduct of the audit?
550.480 How do I report the results of the audit?

[[Page 135]]

         Subpart C_Depositing Securities With State Authorities

550.490 When must I deposit securities with State authorities?
550.500 How much must I deposit if I administer fiduciary assets in more 
          than one State?
550.510 What must I do if State authorities refuse my deposit?

               Subpart D_Terminating Fiduciary Activities

                       Receivership or Liquidation

550.520 What happens if I am placed in receivership or voluntary 
          liquidation?

                      Surrender of Fiduciary Powers

550.530 How do I surrender fiduciary powers?
550.540 When will the OTS terminate my fiduciary powers?
550.550 May I recover my deposit from State authorities?

                     Revocation of Fiduciary Powers

550.560 When may the OTS revoke my fiduciary powers?
550.570 What procedures govern the revocation?

               Subpart E_Activities Exempt From This Part

550.580 When may I conduct fiduciary activities without obtaining OTS 
          approval?
550.590 What standards must I observe when acting in exempt fiduciary 
          capacities?
550.600 How may funds be invested when I act in an exempt fiduciary 
          capacity?
550.610 What disclosures must I make when acting in exempt fiduciary 
          capacities?
550.620 May I receive compensation for acting in exempt fiduciary 
          capacities?

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 62 FR 67703, Dec. 30, 1997, unless otherwise noted.



Sec. 550.10  What regulations govern the fiduciary operations of savings
associations?

    (a) Federal savings associations. A Federal savings association 
(``you'') must conduct its fiduciary operations in accordance with 12 
U.S.C. 1464(n) and this part.
    (b) State-chartered savings associations. (1) A State-chartered 
savings association must conduct its fiduciary operations in accordance 
with applicable State law, and must exercise its fiduciary powers in a 
safe and sound manner. To ensure safe and sound operations, State-
chartered savings associations and their subsidiaries should follow the 
standards for the exercise of fiduciary powers in this part.
    (2) The OTS will monitor the fiduciary operations of State-chartered 
savings associations and their subsidiaries to ensure that those 
operations are conducted in a safe and sound manner. The OTS may object 
to practices that deviate materially from the practices described in 
this part, and may restrict or prohibit activities that threaten the 
safety and soundness of a State-chartered savings association.



Sec. 550.20  What are fiduciary powers?

    Fiduciary powers are the authority that OTS permits you to exercise 
under 12 U.S.C. 1464(n).

[67 FR 76298, Dec. 12, 2002]



Sec. 550.30  What fiduciary capacities does this part cover?

    You are subject to this part if you act in a fiduciary capacity, 
except as described in subpart E of this part. You act in a fiduciary 
capacity when you act in any of the following capacities:
    (a) Trustee.
    (b) Executor.
    (c) Administrator.
    (d) Registrar of stocks and bonds.
    (e) Transfer agent.
    (f) Assignee.
    (g) Receiver.
    (h) Guardian or conservator of the estate of a minor, an incompetent 
person, an absent person, or a person over whose estate a court has 
taken jurisdiction, other than under bankruptcy or insolvency laws.
    (i) A fiduciary in a relationship established under a State law that 
is substantially similar to the Uniform Gifts to Minors Act or the 
Uniform Transfers to Minors Act as published by the American Law 
Institute.
    (j) Investment adviser, if you receive a fee for your investment 
advice.
    (k) Any capacity in which you have investment discretion on behalf 
of another.
    (l) Any other similar capacity that the OTS may authorize under 12 
U.S.C. 1464(n).



Sec. 550.40  When do I have investment discretion?

    (a) General. You have investment discretion when you have, with 
respect to

[[Page 136]]

a fiduciary account, the sole or shared authority to determine what 
securities or other assets to purchase or sell on behalf of that 
account. It does not matter whether you have exercised this authority.
    (b) Delegations. You retain investment discretion if you delegate 
investment discretion to another. You also have investment discretion if 
you receive delegated authority to exercise investment discretion from 
another.



Sec. 550.50  What is a fiduciary account?

    A fiduciary account is an account that you administer acting in a 
fiduciary capacity.



Sec. 550.60  What other definitions apply to this part?

    Activities ancillary to your fiduciary business include advertising, 
marketing, or soliciting fiduciary business, contacting existing or 
potential customers, answering questions and providing information to 
customers related to their accounts, acting as liaison between you and 
your customer (for example, forwarding requests for distribution, 
changes in investment objectives, forms, or funds received from the 
customer), and inspecting or maintaining custody of fiduciary assets or 
holding title to real property. This list is illustrative and not 
comprehensive. Other activities may also be ``ancillary activities'' for 
purposes of this definition.
    Affiliate has the same meaning as in 12 U.S.C. 221a(b). For purposes 
of this part, substitute the term ``Federal savings association'' for 
the term ``member bank'' whenever it appears in 12 U.S.C. 221a(b).
    Applicable law means the law of a State or other jurisdiction 
governing your fiduciary relationships, any Federal law governing those 
relationships, the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the relationship.
    Fiduciary activities include accepting a fiduciary appointment, 
executing fiduciary-related documents, providing investment advice for a 
fee regarding fiduciary assets, or making discretionary decisions 
regarding investment or distribution of assets.
    Fiduciary officers and employees means the officers and employees of 
a Federal savings association to whom the board of directors or its 
designee has assigned functions involving the exercise of the 
association's fiduciary powers.

[62 FR 67703, Dec. 30, 1997, as amended at 67 FR 76298, Dec. 12, 2002]



                  Subpart A_Obtaining Fiduciary Powers



Sec. 550.70  Must I obtain OTS approval or file a notice before I 
exercise fiduciary powers?

    You should refer to the following chart to determine if you must 
obtain OTS approval or file a notice with OTS before you exercise 
fiduciary powers. This chart does not apply to activities that are 
exempt under subpart E of this part.

------------------------------------------------------------------------
       If you will conduct . . .                    Then . . .
------------------------------------------------------------------------
(a) Fiduciary activities for the first   You must obtain prior approval
 time and OTS has not previously          from OTS under Sec. Sec.
 approved an application that you         550.80 through 550.120 before
 submitted under this part.               you conduct the activities
(b) Fiduciary activities that are        You must obtain prior approval
 materially different from the            from OTS under Sec. Sec.
 activities that OTS has previously       550.80 through 550.120 before
 approved for you, including fiduciary    you conduct the activities
 activities that OTS has previously
 approved for you that you have not
 exercised for at least five years.
(c) Fiduciary activities that are not    You must file a written notice
 materially different from the            described at Sec. 550.125 if
 activities that OTS has previously       you commence the activities in
 approved for you.                        a new State. You do not need
                                          to file a written notice if
                                          you commence the activities at
                                          a new location in a State
                                          where you already conduct
                                          these activities.
(d) Activities that are ancillary to     You do not have to obtain prior
 your fiduciary business.                 OTS approval or file a notice
                                          with OTS.
------------------------------------------------------------------------


[67 FR 76298, Dec. 12, 2002; 68 FR 2108, Jan. 15, 2003, as amended at 68 
FR 75109, Dec. 30, 2003]

[[Page 137]]



Sec. 550.80  How do I obtain OTS approval?

    You must file an application under part 516, subparts A and E of 
this chapter.

[66 FR 13006, Mar. 2, 2001]



Sec. 550.90  What information must I include in my application?

    You must describe the fiduciary powers that you or your affiliate 
will exercise. You must also include information necessary to enable the 
OTS to make the determinations described in Sec. 550.100.



Sec. 550.100  What factors may the OTS consider in its review of
my application?

    The OTS may consider the following factors when reviewing your 
application:
    (a) Your financial condition.
    (b) Your capital and whether that capital is sufficient under the 
circumstances.
    (c) Your overall performance.
    (d) The fiduciary powers you propose to exercise.
    (e) Your proposed supervision of those powers.
    (f) The availability of legal counsel.
    (g) The needs of the community to be served.
    (h) Any other facts or circumstances that the OTS considers proper.



Sec. 550.110  Who will act on my application?

    The Director of OTS may act on any application. The Regional 
Director may act on an application if it does not raise any significant 
issues of law or policy on which the OTS has not taken a formal 
position.



Sec. 550.120  What action will the OTS take on my application?

    The OTS may approve or deny your application. If your application is 
approved, the OTS may impose conditions to ensure that the requirements 
of this part are met.



Sec. 550.125  How do I file the notice under Sec. 550.70(c)?

    (a) If you are required to file a notice under Sec. 550.70(c), 
within ten days after you commence the fiduciary activities in a new 
State, you must file a written notice that identifies each new State in 
which you conduct or will conduct fiduciary activities, describe the 
fiduciary activities that you conduct or will conduct in each new State, 
and provide sufficient information supporting a conclusion that the 
activities are permissible in the State.
    (b) You must file the notice with the appropriate OTS Regional 
Office at the address in Sec. 516.40(a) of this chapter.

[67 FR 76299, Dec. 12, 2002]



                  Subpart B_Exercising Fiduciary Powers



Sec. 550.130  How may I conduct multi-state operations?

    (a) Conducting fiduciary activities in more than one State. You may 
conduct fiduciary activities in any State, subject to the application 
and notice requirements in subpart A of this part.
    (b) Serving customers in more than one State. When you conduct 
fiduciary activities in a State:
    (1) You may market your fiduciary services to, and act as a 
fiduciary for, customers located in any State, may act as a fiduciary 
for relationships that include property located in other States, and may 
act as a testamentary trustee for a testator located in other States.
    (2) You may establish or utilize an office in any State to perform 
activities that are ancillary to your fiduciary business.

[67 FR 76299, Dec. 12, 2002]



Sec. 550.135  How do I determine which State's laws apply to my operations?

    (a) The State laws that apply to you by virtue of 12 U.S.C. 1464(n) 
are the laws of the States in which you conduct fiduciary activities. 
For each individual State, you may conduct fiduciary activities in the 
capacity of trustee, executor, administrator, guardian, or in any other 
fiduciary capacity the State permits for its State banks, trust 
companies, or other corporations that compete with Federal savings 
associations in the State.
    (b) For each fiduciary relationship, the State referred to in 12 
U.S.C.

[[Page 138]]

1464(n) is the State in which you conduct fiduciary activities for that 
relationship.

[67 FR 76299, Dec. 12, 2002]



Sec. 550.136  To what extent do State laws apply to my fiduciary operations?

    (a) Occupation of field. To enhance safety and soundness and to 
enable Federal savings associations to conduct their fiduciary 
activities in accordance with the best practices of thrift institutions 
in the United States (by efficiently delivering fiduciary services to 
the public free from undue regulatory duplication and burden), OTS 
occupies the field of the regulation of the fiduciary activities of 
Federal savings associations. In so doing, OTS intends to give Federal 
savings associations maximum flexibility to exercise their fiduciary 
powers in accordance with a uniform scheme of Federal regulation. 
Accordingly, Federal savings associations may exercise fiduciary powers 
as authorized under Federal law, including this part, without regard to 
State laws that purport to regulate or otherwise affect their fiduciary 
activities, except to the extent provided in 12 U.S.C. 1464(n) (State 
laws regarding scope of fiduciary powers, access to examination reports 
regarding trust activities, deposits of securities, oaths and 
affidavits, and capital) or in paragraph (c) of this section. For 
purposes of this section, ``State law'' includes any State statute, 
regulation, ruling, order, or judicial decision.
    (b) Illustrative examples. Examples of State laws that are preempted 
by the HOLA and this section include those regarding:
    (1) Registration and licensing;
    (2) Recordkeeping;
    (3) Advertising and marketing;
    (4) The ability of a federal savings association conducting 
fiduciary activities to maintain an action or proceeding in State court; 
and
    (5) Fiduciary-related fees.
    (c) State laws that are not preempted. State laws of the following 
types are not preempted to the extent that they only incidentally affect 
the fiduciary operations of Federal savings associations or are 
otherwise consistent with the purposes of paragraph (a) of this section:
    (1) Contract and commercial law;
    (2) Real property law;
    (3) Tort law;
    (4) Criminal law;
    (5) Probate law; and
    (6) Any other law that OTS, upon review, finds:
    (i) Furthers a vital State interest; and
    (ii) Either has only an incidental effect on fiduciary operations or 
is not otherwise contrary to the purposes expressed in paragraph (a) of 
this section.

[67 FR 76299, Dec. 12, 2002, as amended at 68 FR 53026, Sept. 9, 2003]



Sec. 550.140  Must I adopt and follow written policies and procedures
in exercising fiduciary powers?

    You must adopt and follow written policies and procedures adequate 
to maintain your fiduciary activities in compliance with applicable law. 
Among other relevant matters, the policies and procedures should 
address, where appropriate, the following areas:
    (a) Your brokerage placement practices.
    (b) Your methods for ensuring that your fiduciary officers and 
employees do not use material inside information in connection with any 
decision or recommendation to purchase or sell any security.
    (c) Your methods for preventing self-dealing and conflicts of 
interest.
    (d) Your selection and retention of legal counsel who is ready and 
available to advise you and your fiduciary officers and employees on 
fiduciary matters.
    (e) Your investment of funds held as fiduciary, including short-term 
investments and the treatment of fiduciary funds awaiting investment or 
distribution.

                   Fiduciary Personnel and Facilities



Sec. 550.150  Who is responsible for the exercise of fiduciary powers?

    The exercise of your fiduciary powers must be managed by or under 
the direction of your board of directors. In discharging its 
responsibilities, the board may assign any function related to the 
exercise of fiduciary powers to

[[Page 139]]

any director, officer, employee, or committee of directors, officers, or 
employees.



Sec. 550.160  What personnel and facilities may I use to perform
fiduciary services?

    You may use your qualified personnel and facilities or an 
affiliate's qualified personnel and facilities to perform services 
related to the exercise of fiduciary powers.



Sec. 550.170  May my other departments or affiliates use fiduciary 
personnel and facilities to perform other services?

    Your other departments or affiliates may use fiduciary officers, 
employees, and facilities to perform services unrelated to the exercise 
of fiduciary powers, to the extent not prohibited by applicable law.



Sec. 550.180  May I perform fiduciary services for, or purchase fiduciary
services from, another association or entity?

    You may perform services related to the exercise of fiduciary powers 
for another association or other entity under a written agreement. You 
may also purchase services related to the exercise of fiduciary powers 
from another association or other entity under a written agreement.



Sec. 550.190  Must fiduciary officers and employees be bonded?

    You must obtain an adequate bond for all fiduciary officers and 
employees.

                      Review of a Fiduciary Account



Sec. 550.200  Must I review a prospective account before I accept it?

    Before accepting a prospective fiduciary account, you must review it 
to determine whether you can properly administer the account.



Sec. 550.210  Must I conduct another review of an account after I accept it?

    After you accept a fiduciary account for which you have investment 
discretion, you must conduct a prompt review of all assets of the 
account to evaluate whether they are appropriate, individually and 
collectively, for the account.



Sec. 550.220  Are any other account reviews required?

    At least once every calendar year, you must conduct a review of all 
assets of each fiduciary account for which you have investment 
discretion. In this review, you must evaluate whether the assets are 
appropriate, individually and collectively, for the account.

                      Custody and Control of Assets



Sec. 550.230  Who must maintain custody or control of assets in
a fiduciary account?

    You must place assets of fiduciary accounts in the joint custody or 
control of not fewer than two fiduciary officers or employees designated 
for that purpose by the board of directors.



Sec. 550.240  May I hold investments of a fiduciary account off-premises?

    You may hold the investments of a fiduciary account off-premises, if 
this practice is consistent with applicable law, and you maintain 
adequate safeguards and controls.



Sec. 550.250  Must I keep fiduciary assets separate from other assets?

    You must keep the assets of fiduciary accounts separate from your 
other assets. You must also keep the assets of each fiduciary account 
separate from all other accounts, or you must identify the investments 
as the property of a particular account, except as provided in 
Sec. Sec. 550.260.

                 Investing Funds of a Fiduciary Account



Sec. 550.260  How may I invest funds of a fiduciary account?

    (a) General. You must invest funds of a fiduciary account in a 
manner consistent with applicable law.
    (b) Collective investment funds. (1) You may invest funds of a 
fiduciary account in a collective investment fund, including a 
collective investment fund that you have established. In establishing 
and administering such funds, you must comply with 12 CFR 9.18.
    (2) If you must file a document with the Comptroller of the Currency 
under

[[Page 140]]

12 CFR 9.18, you must also file that document with the appropriate 
Regional Office at Sec. 516.40(a) of this chapter. The OTS may review 
such documents for compliance with this part and other laws and 
regulations.
    (3) ``Bank'' and ``national bank'' as used in 12 CFR 9.18 shall be 
deemed to include a Federal savings association.

[62 FR 67703, Dec. 30, 1997, as amended at 66 FR 13006, Mar. 2, 2001]

                Funds Awaiting Investment or Distribution



Sec. 550.290  What must I do with fiduciary funds awaiting investment 
or distribution?

    If you have investment discretion or discretion over distributions 
for a fiduciary account which contains funds awaiting investment or 
distribution, you must ensure that those funds do not remain uninvested 
and undistributed any longer than is reasonable for the proper 
management of the account and consistent with applicable law. You also 
must obtain a rate of return for those funds that is consistent with 
applicable law.



Sec. 550.300  Where may I deposit fiduciary funds awaiting investment 
or distribution?

    (a) Self deposits. You may deposit funds of a fiduciary account that 
are awaiting investment or distribution in your other departments, 
unless prohibited by applicable law.
    (b) Affiliate deposits. You may also deposit funds of a fiduciary 
account that are awaiting investment or distribution with an affiliated 
insured depository institution, unless prohibited by applicable law.



Sec. 550.310  What if the FDIC does not insure the deposits?

    If the FDIC does not insure the entire amount of a self deposit, you 
must set aside collateral as security. If the FDIC does not insure the 
entire amount of an affiliate deposit, you or your affiliate must set 
aside collateral as security. The market value of the collateral must at 
all times equal or exceed the amount of the uninsured fiduciary funds. 
You must place the collateral under the control of appropriate fiduciary 
officers and employees.

[62 FR 67703, Dec. 30, 1997, as amended at 67 FR 76299, Dec. 12, 2002]



Sec. 550.320  What is acceptable collateral for uninsured deposits?

    Any of the following is acceptable collateral for self deposits or 
affiliate deposits under Sec. 550.310:
    (a) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest.
    (b) Readily marketable securities of the classes in which State-
chartered corporate fiduciaries are permitted to invest fiduciary funds 
under applicable State law.
    (c) Other readily marketable securities as the OTS may determine.
    (d) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law.
    (e) Any other assets that qualify under applicable State law as 
appropriate security for deposits of fiduciary funds.

                      Restrictions on Self Dealing



Sec. 550.330  Are there investments in which I may not invest funds 
of a fiduciary account?

    You may not invest funds of a fiduciary account for which you have 
investment discretion in the following assets, unless authorized by 
applicable law:
    (a) The stock or obligations of, or assets acquired from, you or any 
of your directors, officers, or employees.
    (b) The stock or obligations of, or assets acquired from, your 
affiliates or any of their directors, officers, or employees.
    (c) The stock or obligations of, or assets acquired from, other 
individuals or organizations if you have an interest in the individual 
or organization that might affect the exercise of your best judgment.



Sec. 550.340  May I exercise rights to purchase additional stock or 
fractional shares of my stock or obligations or the stock or obligations

of my affiliates?

    If the retention of investments in your stock or obligations or the 
stock

[[Page 141]]

or obligations of an affiliate in fiduciary accounts is consistent with 
applicable law, you may do either of the following:
    (a) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when these rights are offered pro 
rata to stockholders.
    (b) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or through the receipt of a 
stock dividend resulting in fractional share holdings.



Sec. 550.350  May I lend, sell, or transfer assets of a fiduciary 
account if I have an interest in the transaction?

    (a) General restriction. Except as provided in paragraph (b) of this 
section, you may not lend, sell, or otherwise transfer assets of a 
fiduciary account for which you have investment discretion to yourself 
or any of your directors, officers, or employees; to your affiliates or 
any of their directors, officers, or employees; or to other individuals 
or organizations with whom you have an interest that might affect the 
exercise of your best judgment.
    (b) Exceptions--(1) Funds for which you have investment discretion. 
You may lend, sell or otherwise transfer assets of a fiduciary account 
for which you have investment discretion to yourself or any of your 
directors, officers, or employees; to your affiliates or any of their 
directors, officers, or employees; or to other individuals or 
organizations with whom you have an interest that might affect the 
exercise of your best judgment, if you meet one of the following 
conditions:
    (i) The transaction is authorized by applicable law.
    (ii) Legal counsel advises you in writing that you have incurred, in 
your fiduciary capacity, a contingent or potential liability. Upon the 
sale or transfer of assets, you must reimburse the fiduciary account in 
cash in an amount equal to the greater of book or market value of the 
assets.
    (iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for 
defaulted fixed-income investments.
    (iv) The OTS requires you to do so.
    (2) Funds held as trustee. You may make loans of funds held in trust 
to any of your directors, officers, or employees if the funds are held 
in an employee benefit plan and the loan is made in accordance with the 
exemptions found at section 408 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1108).



Sec. 550.360  May I make a loan to a fiduciary account that is secured 
by an interest in the assets of the account?

    You may make a loan to a fiduciary account that is secured by an 
interest in the assets of the account, if the transaction is fair to the 
account and is not prohibited by applicable law.



Sec. 550.370  May I sell assets or lend money between fiduciary accounts?

    You may sell assets or lend money between fiduciary accounts, if the 
transaction is fair to both accounts and is not prohibited by applicable 
law.

                    Compensation, Gifts, and Bequests



Sec. 550.380  May I earn compensation for acting in a fiduciary capacity?

    If the amount of your compensation for acting in a fiduciary 
capacity is not set or governed by applicable law, you may charge a 
reasonable fee for your services.



Sec. 550.390  May my officer or employee retain compensation for 
acting as a co-fiduciary?

    You may not permit your officers or employees to retain any 
compensation for acting as a co-fiduciary with you in the administration 
of a fiduciary account, except with the specific approval of your board 
of directors.



Sec. 550.400  May my fiduciary officer or employee accept a gift 
or bequest?

    You may not permit any fiduciary officer or employee to accept a 
bequest or gift of fiduciary assets, unless the bequest or gift is 
directed or made by a relative of the officer or employee or is 
specifically approved by your board of directors.

                       Recordkeeping Requirements



Sec. 550.410  What records must I keep?

    You must keep adequate records for all fiduciary accounts. For 
example,

[[Page 142]]

you must keep documents on the establishment and termination of each 
fiduciary account.



Sec. 550.420  How long must I keep these records?

    You must keep fiduciary records for three years after the 
termination of the account or the termination of any litigation relating 
to the account, whichever is later.



Sec. 550.430  Must I keep fiduciary records separate and distinct
from other records?

    You must keep fiduciary records separate and distinct from your 
other records.

                           Audit Requirements



Sec. 550.440  When do I have to audit my fiduciary activities?

    (a) Annual Audit. If you do not use a continuous audit system 
described in paragraph (b) of this section, then you must arrange for a 
suitable audit of all significant fiduciary activities at least once 
during each calendar year.
    (b) Continuous audit. Instead of an annual audit, you may adopt a 
continuous audit system. Under a continuous audit system, you must 
arrange for a discrete audit of each significant fiduciary activity 
(i.e., on an activity-by-activity basis) at an interval commensurate 
with the nature and risk of that activity. Some fiduciary activities may 
receive audits at intervals greater or less than one year, as 
appropriate.



Sec. 550.450  What standards govern the conduct of the audit?

    Auditors must follow generally accepted standards for attestation 
engagements and other standards established by the OTS. An audit must 
ascertain whether your internal control policies and procedures provide 
reasonable assurance of three things:
    (a) You are administering fiduciary activities in accordance with 
applicable law.
    (b) You are properly safeguarding fiduciary assets.
    (c) You are accurately recording transactions in appropriate 
accounts in a timely manner.



Sec. 550.460  Who may conduct an audit?

    Internal auditors, external auditors, or other qualified persons who 
are responsible only to the board of directors, may conduct an audit.



Sec. 550.470  Who directs the conduct of the audit?

    Your fiduciary audit committee directs the conduct of the audit. 
Your fiduciary audit committee may consist of a committee of your 
directors or an audit committee of an affiliate. There are two 
restrictions on who may serve on the committee:
    (a) Your officers and officers of an affiliate who participate 
significantly in administering your fiduciary activities may not serve 
on the audit committee.
    (b) A majority of the members of the audit committee may not serve 
on any committee to which the board of directors has delegated power to 
manage and control your fiduciary activities.



Sec. 550.480  How do I report the results of the audit?

    (a) Annual audit. If you conduct an annual audit, you must note the 
results of the audit (including significant actions taken as a result of 
the audit) in the minutes of the board of directors.
    (b) Continuous audit. If you adopt a continuous audit system, you 
must note the results of all discrete audits conducted since the last 
audit report (including significant actions taken as a result of the 
audits) in the minutes of the board of directors at least once during 
each calendar year.



         Subpart C_Depositing Securities With State Authorities



Sec. 550.490  When must I deposit securities with State authorities?

    You must deposit securities with a State's authorities or, if 
applicable, a Federal Home Loan Bank under Sec. 550.510, if you meet 
all of the following:
    (a) You are located in the State.
    (b) You act as a private or court-appointed trustee.

[[Page 143]]

    (c) The law of the State requires corporations acting in a fiduciary 
capacity to deposit securities with State authorities for the protection 
of private or court trusts.



Sec. 550.500  How much must I deposit if I administer fiduciary assets
in more than one State?

    If you administer fiduciary assets in more than one State, you must 
compute the amount of deposit required for each State on the basis of 
fiduciary assets that you administer primarily from offices located in 
that State.



Sec. 550.510  What must I do if State authorities refuse my deposit?

    If State authorities refuse to accept your deposit under Sec. 
550.490, you must deposit the securities with the Federal Home Loan Bank 
of which you are a member. The Federal Home Loan Bank will hold the 
securities for the protection of private or court trusts to the same 
extent as if the securities had been deposited with State authorities.



               Subpart D_Terminating Fiduciary Activities

                       Receivership or Liquidation



Sec. 550.520  What happens if I am placed in receivership or voluntary
liquidation?

    If the OTS appoints a conservator or receiver for you under part 558 
of this chapter, or if you place yourself in voluntary liquidation, the 
receiver, conservator, or liquidating agent must promptly close or 
transfer all fiduciary accounts to a substitute fiduciary, in accordance 
with OTS instructions and the orders of the court having jurisdiction.

                      Surrender of Fiduciary Powers



Sec. 550.530  How do I surrender fiduciary powers?

    If you want to surrender your fiduciary powers, you must file a 
certified copy of a resolution of your board of directors evidencing 
that intent. You must file the resolution with the appropriate Regional 
Office at the address listed in Sec. 516.40(a) of this chapter.

[62 FR 66703, Dec. 30, 1997, as amended at 66 FR 13006, Mar. 2, 2001]



Sec. 550.540  When will the OTS terminate my fiduciary powers?

    If, after appropriate investigation, the Regional Director is 
satisfied that you have been discharged from all fiduciary duties, the 
Regional Director will issue a written notice indicating that you are no 
longer authorized to exercise fiduciary powers.



Sec. 550.550  May I recover my deposit from State authorities?

    Upon issuance of the OTS written notice under Sec. 550.540, you may 
recover any securities deposited with State authorities, or a Federal 
Home Loan Bank, under subpart C of this part.

                     Revocation of Fiduciary Powers



Sec. 550.560  When may the OTS revoke my fiduciary powers?

    The OTS may revoke your fiduciary powers if it determines that you 
have done any of the following:
    (a) Exercised those fiduciary powers unlawfully or unsoundly.
    (b) Failed to exercise those fiduciary powers for five consecutive 
years.
    (c) Otherwise failed to follow the requirements of this part.



Sec. 550.570  What procedures govern the revocation?

    The procedures for revocation of fiduciary powers are set forth in 
12 U.S.C. 1464(n)(10). The OTS will conduct the hearing required under 
12 U.S.C. 1464(n)(10)(B) under part 509 of this chapter.



               Subpart E_Activities Exempt From This Part



Sec. 550.580  When may I conduct fiduciary activities without obtaining
OTS approval?

    Subject to the requirements of this subpart E, you do not need OTS 
approval under subpart B if you conduct fiduciary activities in the 
following fiduciary capacities:
    (a) Trustee of a trust created or organized in the United States and 
forming

[[Page 144]]

part of a stock bonus, pension, or profit-sharing plan qualifying for 
specific tax treatment under section 401(d) of the Internal Revenue Code 
of 1954 (26 U.S.C. 401(d)).
    (b) Trustee or custodian of a Individual Retirement Account within 
the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 408(a)).

[62 FR 67703, Dec. 30, 1997, as amended at 67 FR 76299, Dec. 12, 2002]



Sec. 550.590  What standards must I observe when acting in exempt
fiduciary capacities?

    You must observe principles of sound fiduciary administration, 
including those related to recordkeeping and segregation of assets.



Sec. 550.600  How may funds be invested when I act in an exempt 
fiduciary capacity?

    If you act in an exempt fiduciary capacity under Sec. 550.580, the 
funds of the fiduciary account may be invested only in the following:
    (a) Your accounts, deposits, obligations, or securities.
    (b) Other assets as the customer may direct, provided you do not 
exercise any investment discretion and do not directly or indirectly 
provide any investment advice for the fiduciary account.

[62 FR 67703, Dec. 30, 1997, as amended at 67 FR 76299, Dec. 12, 2002]



Sec. 550.610  What disclosures must I make when acting in exempt 
fiduciary capacities?

    If you act in an exempt fiduciary capacity under Sec. 550.580 and 
fiduciary investments are not limited to accounts or deposits insured by 
the FDIC, you must include the following language in bold type on the 
first page of any contract documents:

    Funds invested pursuant to this agreement are not insured by the 
Federal Deposit Insurance Corporation (``FDIC'') merely because the 
trustee or custodian is a Federal savings association the accounts of 
which are covered by such insurance. Only investments in the accounts of 
a Federal savings association are insured by the FDIC, subject to its 
rules and regulations.



Sec. 550.620  May I receive compensation for acting in exempt fiduciary
capacities?

    You may receive reasonable compensation.



PART 551_RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES
TRANSACTIONS--Table of Contents




Sec.
551.10 What does this part do?
551.20 Must I comply with this part?
551.30 What requirements apply to all transactions?
551.40 What definitions apply to this part?

                  Subpart A_Recordkeeping Requirements

551.50 What records must I maintain for securities transactions?
551.60 How must I maintain my records?

                 Subpart B_Content and Timing of Notice

551.70 What type of notice must I provide when I effect a securities 
          transaction for a customer?
551.80 How do I provide a registered broker-dealer confirmation?
551.90 How do I provide a written notice?
551.100 What are the alternate notice requirements?
551.110 May I provide a notice electronically?
551.120 May I charge a fee for a notice?

             Subpart C_Settlement of Securities Transactions

551.130 When must I settle a securities transaction?

          Subpart D_Securities Trading Policies and Procedures

551.140 What policies and procedures must I maintain and follow for 
          securities transactions?
551.150 How do my officers and employees file reports of personal 
          securities trading transactions?

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 67 FR 76299, Dec. 12, 2002, unless otherwise noted.



Sec. 551.10  What does this part do?

    This part establishes recordkeeping and confirmation requirements 
that apply when a savings association (``you'') effects certain 
securities transactions for customers.

[[Page 145]]



Sec. 551.20  Must I comply with this part?

    (a) General. Except as provided under paragraph (b) of this section, 
you must comply with this part when:
    (1) You effect a securities transaction for a customer.
    (2) You effect a transaction in government securities.
    (3) You effect a transaction in municipal securities and are not 
registered as a municipal securities dealer with the SEC.
    (4) You effect a securities transaction as fiduciary. If you are a 
Federal savings association, you also must comply with 12 CFR part 550 
when you effect such a transaction. If you are a State savings 
association, you must comply with applicable law when you effect such a 
transaction.
    (b) Exceptions--(1) Small number of transactions. You are not 
required to comply with Sec. 551.50(b) through (d) (recordkeeping) and 
Sec. 551.140(a) through (c) (policies and procedures), if you effected 
an average of fewer than 500 securities transactions per year for 
customers over the three prior calendar years. You may exclude 
transactions in government securities when you calculate this average.
    (2) Government securities. If you effect fewer than 500 government 
securities brokerage transactions per year, you are not required to 
comply with Sec. 551.50 (recordkeeping) for those transactions. This 
exception does not apply to government securities dealer transactions. 
See 17 CFR 404.4(a).
    (3) Municipal securities. If you are registered with the SEC as a 
``municipal securities dealer,'' as defined in 15 U.S.C. 78c(a)(30) (see 
15 U.S.C. 78o-4), you are not required to comply with this part when you 
conduct municipal securities transactions.
    (4) Foreign branches. You are not required to comply with this part 
when you conduct a transaction at your foreign branch.
    (5) Transactions by registered broker-dealers. You are not required 
to comply with this part for securities transactions effected by a 
registered broker-dealer, if the registered broker-dealer directly 
provides the customer with a confirmation. These transactions include a 
transaction effected by your employee who also acts as an employee of a 
registered broker-dealer (``dual employee'').



Sec. 551.30  What requirements apply to all transactions?

    You must effect all transactions, including transactions excepted 
under Sec. 551.20, in a safe and sound manner. You must maintain 
effective systems of records and controls regarding your customers' 
securities transactions. These systems must clearly and accurately 
reflect all appropriate information and provide an adequate basis for an 
audit.



Sec. 551.40  What definitions apply to this part?

    Asset-backed security means a security that is primarily serviced by 
the cash flows of a discrete pool of receivables or other financial 
assets, either fixed or revolving, that by their terms convert into cash 
within a finite time period. Asset-backed security includes any rights 
or other assets designed to ensure the servicing or timely distribution 
of proceeds to the security holders.
    Common or collective investment fund means any fund established 
under 12 CFR 550.260(b) or 12 CFR 9.18.
    Completion of the transaction means:
    (1) If the customer purchases a security through or from you, except 
as provided in paragraph (2) of this definition, the time the customer 
pays you any part of the purchase price. If payment is made by a 
bookkeeping entry, the time you make the bookkeeping entry for any part 
of the purchase price.
    (2) If the customer purchases a security through or from you and 
pays for the security before you request payment or notify the customer 
that payment is due, the time you deliver the security to or into the 
account of the customer.
    (3) If the customer sells a security through or to you, except as 
provided in paragraph (4) of this definition, the time the customer 
delivers the security to you. If you have custody of the security at the 
time of sale, the time you transfer the security from the customer's 
account.

[[Page 146]]

    (4) If the customer sells a security through or to you and delivers 
the security to you before you request delivery or notify the customer 
that delivery is due, the time you pay the customer or pay into the 
customer's account.
    Customer means a person or account, including an agency, trust, 
estate, guardianship, or other fiduciary account for which you effect a 
securities transaction. Customer does not include a broker or dealer, or 
you when you: act as a broker or dealer; act as a fiduciary with 
investment discretion over an account; are a trustee that acts as the 
shareholder of record for the purchase or sale of securities; or are the 
issuer of securities that are the subject of the transaction.
    Debt security means any security, such as a bond, debenture, note, 
or any other similar instrument that evidences a liability of the issuer 
(including any security of this type that is convertible into stock or a 
similar security). Debt security also includes a fractional or 
participation interest in these debt securities. Debt security does not 
include securities issued by an investment company registered under the 
Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq.
    Government security means:
    (1) A security that is a direct obligation of, or an obligation that 
is guaranteed as to principal and interest by, the United States;
    (2) A security that is issued or guaranteed by a corporation in 
which the United States has a direct or indirect interest if the 
Secretary of the Treasury has designated the security for exemption as 
necessary or appropriate in the public interest or for the protection of 
investors;
    (3) A security issued or guaranteed as to principal and interest by 
a corporation if a statute specifically designates, by name, the 
corporation's securities as exempt securities within the meaning of the 
laws administered by the SEC; or
    (4) Any put, call, straddle, option, or privilege on a government 
security described in this definition, other than a put, call, straddle, 
option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    Investment discretion means the same as under 12 CFR 550.40(a).
    Investment company plan means any plan under which:
    (1) A customer purchases securities issued by an open-end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940, making the payments directly to, or made payable to, the 
registered investment company, or the principal underwriter, custodian, 
trustee, or other designated agent of the registered investment company; 
or
    (2) A customer sells securities issued by an open-end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940 under:
    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code; or
    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, securities in specified amounts (calculated 
in security units or dollars) at specified time intervals, and stating 
the commissions or charges (or the means of calculating them) that the 
customer will pay in connection with the purchase.
    Municipal security means:
    (1) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision.
    (2) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security that is an industrial development bond, the interest 
on which is excludable from gross income under section 103(a) of the 
Code (26 U.S.C. 103(a)).
    Periodic plan means a written document that authorizes you to act as 
agent to purchase or sell for a customer a specific security or 
securities (other than securities issued by an

[[Page 147]]

open end investment company or unit investment trust registered under 
the Investment Company Act of 1940). The written document must authorize 
you to purchase or sell in specific amounts (calculated in security 
units or dollars) or to the extent of dividends and funds available, at 
specific time intervals, and must set forth the commission or charges to 
be paid by the customer or the manner of calculating them.
    SEC means the Securities and Exchange Commission.
    Security means any note, stock, treasury stock, bond, debenture, 
certificate of interest or participation in any profit-sharing agreement 
or in any oil, gas, or other mineral royalty or lease, any collateral-
trust certificate, preorganization certificate or subscription, 
transferable share, investment contract, voting-trust certificate, and 
any put, call, straddle, option, or privilege on any security or group 
or index of securities (including any interest therein or based on the 
value thereof), or, in general, any instrument commonly known as a 
``security'; or any certificate of interest or participation in, 
temporary or interim certificate for, receipt for, or warrant or right 
to subscribe to or purchase, any of the foregoing. Security does not 
include currency; any note, draft, bill of exchange, or banker's 
acceptance which has a maturity at the time of issuance of less than 
nine months, exclusive of days of grace, or any renewal thereof, the 
maturity of which is likewise limited; a deposit or share account in a 
Federal or State chartered depository institution; a loan participation; 
a letter of credit or other form of bank indebtedness incurred in the 
ordinary course of business; units of a collective investment fund; 
interests in a variable amount (master) note of a borrower of prime 
credit; U.S. Savings Bonds; or any other instrument OTS determines does 
not constitute a security for purposes of this part.
    Sweep account means any prearranged, automatic transfer or sweep of 
funds above a certain dollar level from a deposit account to purchase a 
security or securities, or any prearranged, automatic redemption or sale 
of a security or securities when a deposit account drops below a certain 
level with the proceeds being transferred into a deposit account.



                  Subpart A_Recordkeeping Requirements



Sec. 551.50  What records must I maintain for securities transactions?

    If you effect securities transactions for customers, you must 
maintain all of the following records for at least three years:
    (a) Chronological records. You must maintain an itemized daily 
record of each purchase and sale of securities in chronological order, 
including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) The name and amount of the securities;
    (3) The unit and aggregate purchase or sale price;
    (4) The trade date; and
    (5) The name or other designation of the registered broker-dealer or 
other person from whom you purchased the securities or to whom you sold 
the securities.
    (b) Account records. You must maintain account records for each 
customer reflecting:
    (1) Purchases and sales of securities;
    (2) Receipts and deliveries of securities;
    (3) Receipts and disbursements of cash; and
    (4) Other debits and credits pertaining to transactions in 
securities.
    (c) Memorandum (order ticket). You must make and keep current a 
memorandum (order ticket) of each order or any other instruction given 
or received for the purchase or sale of securities (whether executed or 
not), including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) Whether the transaction was a market order, limit order, or 
subject to special instructions;
    (3) The time the trader received the order;
    (4) The time the trader placed the order with the registered broker-
dealer, or if there was no registered broker-dealer, the time the trader 
executed or cancelled the order;
    (5) The price at which the trader executed the order;

[[Page 148]]

    (6) The name of the registered broker-dealer you used.
    (d) Record of registered broker-dealers. You must maintain a record 
of all registered broker-dealers that you selected to effect securities 
transactions and the amount of commissions that you paid or allocated to 
each registered broker-dealer during each calendar year.
    (e) Notices. You must maintain a copy of the written notice required 
under subpart B of this part.



Sec. 551.60  How must I maintain my records?

    (a) You may maintain the records required under Sec. 551.50 in any 
manner, form, or format that you deem appropriate. However, your records 
must clearly and accurately reflect the required information and provide 
an adequate basis for an audit of the information.
    (b) You, or the person that maintains and preserves records on your 
behalf, must:
    (1) Arrange and index the records in a way that permits easy 
location, access, and retrieval of a particular record;
    (2) Separately store, for the time required for preservation of the 
original record, a duplicate copy of the record on any medium allowed by 
this section;
    (3) Provide promptly any of the following that OTS examiners or your 
directors may request:
    (i) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (ii) A legible, true, and complete printout of the record; and
    (iii) Means to access, view, and print the records.
    (4) In the case of records on electronic storage media, you, or the 
person that maintains and preserves records for you, must establish 
procedures:
    (i) To maintain, preserve, and reasonably safeguard the records from 
loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, your directors, and OTS examiners; and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (c) You may contract with third party service providers to maintain 
the records.



                 Subpart B_Content and Timing of Notice



Sec. 551.70  What type of notice must I provide when I effect a securities
transaction for a customer?

    If you effect a securities transaction for a customer, you must give 
or send the customer the registered broker-dealer confirmation described 
at Sec. 551.80, or the written notice described at Sec. 551.90. For 
certain types of transactions, you may elect to provide the alternate 
notices described in Sec. 551.100.



Sec. 551.80  How do I provide a registered broker-dealer confirmation?

    (a) If you elect to satisfy Sec. 551.70 by providing the customer 
with a registered broker-dealer confirmation, you must provide the 
confirmation by having the registered broker-dealer send the 
confirmation directly to the customer or by sending a copy of the 
registered broker-dealer's confirmation to the customer within one 
business day after you receive it.
    (b) If you have received or will receive remuneration from any 
source, including the customer, in connection with the transaction, you 
must provide a statement of the source and amount of the remuneration in 
addition to the registered broker-dealer confirmation described in 
paragraph (a) of this section.



Sec. 551.90  How do I provide a written notice?

    If you elect to satisfy Sec. 551.70 by providing the customer a 
written notice, you must give or send the written notice at or before 
the completion of the securities transaction. You must include all of 
the following information in a written notice:
    (a) Your name and the customer's name.
    (b) The capacity in which you acted (for example, as agent).

[[Page 149]]

    (c) The date and time of execution of the securities transaction (or 
a statement that you will furnish this information within a reasonable 
time after the customer's written request), and the identity, price, and 
number of shares or units (or principal amount in the case of debt 
securities) of the security the customer purchased or sold.
    (d) The name of the person from whom you purchased or to whom you 
sold the security, or a statement that you will furnish this information 
within a reasonable time after the customer's written request.
    (e) The amount of any remuneration that you have received or will 
receive from the customer in connection with the transaction unless the 
remuneration paid by the customer is determined under a written 
agreement, other than on a transaction basis.
    (f) The source and amount of any other remuneration you have 
received or will receive in connection with the transaction. If, in the 
case of a purchase, you were not participating in a distribution, or in 
the case of a sale, were not participating in a tender offer, the 
written notice may state whether you have or will receive any other 
remuneration and state that you will furnish the source and amount of 
the other remuneration within a reasonable time after the customer's 
written request.
    (g) That you are not a member of the Securities Investor Protection 
Corporation, if that is the case. This does not apply to a transaction 
in shares of a registered open-end investment company or unit investment 
trust if the customer sends funds or securities directly to, or receives 
funds or securities directly from, the registered open-end investment 
company or unit investment trust, its transfer agent, its custodian, or 
a designated broker or dealer who sends the customer either a 
confirmation or the written notice in this section.
    (h) Additional disclosures. You must provide all of the additional 
disclosures described in the following chart for transactions involving 
certain debt securities:

------------------------------------------------------------------------
                                      You must provide the following
   If you effect a transaction    additional information in your written
         involving . . .                       notice . . .
------------------------------------------------------------------------
(1) A debt security subject to    A statement that the issuer may redeem
 redemption before maturity.       the debt security in whole or in part
                                   before maturity, that the redemption
                                   could affect the represented yield,
                                   and that additional redemption
                                   information is available upon
                                   request.
(2) A debt security that you      (i) The dollar price at which you
 effected exclusively on the       effected the transaction; and
 basis of a dollar price.         (ii) The yield to maturity calculated
                                   from the dollar price. You do not
                                   have to disclose the yield to
                                   maturity if:
                                     (A) The issuer may extend the
                                      maturity date of the security with
                                      a variable interest rate; or
                                     (B) The security is an asset-backed
                                      security that represents an
                                      interest in, or is secured by, a
                                      pool of receivables or other
                                      financial assets that are subject
                                      continuously to prepayment.
(3) A debt security that you      (i) The yield at which the
 effected on basis of yield.       transaction, including the percentage
                                   amount and its characterization
                                   (e.g., current yield, yield to
                                   maturity, or yield to call). If you
                                   effected the transaction at yield to
                                   call, you must indicate the type of
                                   call, the call date, and the call
                                   price;
                                  (ii) The dollar price calculated from
                                   that yield; and
                                  (iii) The yield to maturity and the
                                   represented yield, if you effected
                                   the transaction on a basis other than
                                   yield to maturity and the yield to
                                   maturity is lower than the
                                   represented yield. You are not
                                   required to disclose this information
                                   if:
                                     (A) The issuer may extend the
                                      maturity date of the security with
                                      a variable interest rate; or
                                     (B) The security is an asset-backed
                                      security that represents an
                                      interest in, or is secured by, a
                                      pool of receivables or other
                                      financial assets that are subject
                                      continuously to prepayment.
(4) A debt security that is an    (i) A statement that the actual yield
 asset-backed security that        of the asset-backed security may vary
 represents an interest in, or     according to the rate at which the
 is secured by, a pool of          underlying receivables or other
 receivables or other financial    financial assets are prepaid; and
 assets that are subject          (ii) A statement that you will furnish
 continuously to prepayment.       information concerning the factors
                                   that affect yield (including at a
                                   minimum estimated yield, weighted
                                   average life, and the prepayment
                                   assumptions underlying yield) upon
                                   the customer's written request.
(5) A debt security, other than   A statement that the security is
 a government security.            unrated by a nationally recognized
                                   statistical rating organization, if
                                   that is the case.
------------------------------------------------------------------------


[[Page 150]]



Sec. 551.100  What are the alternate notice requirements?

    You may elect to satisfy Sec. 551.70 by providing the alternate 
notices described in the following chart for certain types of 
transactions.

------------------------------------------------------------------------
 If you effect a securities transaction
                 . . .                     Then you may elect to . . .
------------------------------------------------------------------------
(a) For or with the account of a         Give or send to the customer
 customer under a periodic plan, sweep    within five business days
 account, or investment company plan.     after the end of each
                                          quarterly period a written
                                          statement disclosing:
                                         (1) Each purchase and
                                          redemption that you effected
                                          for or with, and each dividend
                                          or distribution that you
                                          credited to or reinvested for,
                                          the customer's account during
                                          the period;
                                            (2) The date of each
                                             transaction;
                                            (3) The identity, number,
                                             and price of any securities
                                             that the customer purchased
                                             or redeemed in each
                                             transaction;
                                            (4) The total number of
                                             shares of the securities in
                                             the customer's account;
                                            (5) Any remuneration that
                                             you received or will
                                             receive in connection with
                                             the transaction; and
                                            (6) That you will give or
                                             send the registered broker-
                                             dealer confirmation
                                             described in Sec. 551.80
                                             or the written notice
                                             described in Sec. 551.90
                                             within a reasonable time
                                             after the customer's
                                             written request.
(b) For or with the account of a         Give or send to the customer
 customer in shares of an open-ended      the written statement
 management company registered under      described at paragraph (a) of
 the Investment Company Act of 1940       this section on a monthly
 that holds itself out as a money         basis. You may not use the
 market fund and attempts to maintain a   alternate notice, however, if
 stable net asset value per share.        you deduct sales loads upon
                                          the purchase or redemption of
                                          shares in the money market
                                          fund.
(c) For an account for which you do not  Give or send to the customer a
 exercise investment discretion, and      written notice at the agreed-
 for which you and the customer have      upon time and with the agreed-
 agreed in writing to an arrangement      upon content, and include a
 concerning the time and content of the   statement that you will
 written notice.                          furnish the registered broker-
                                          dealer confirmation described
                                          in Sec. 551.80 or the
                                          written notice described in
                                          Sec. 551.90 within a
                                          reasonable time after the
                                          customer's written request.
(d) For an account for which you         Give or send the registered
 exercise investment discretion other     broker-dealer confirmation
 than in an agency capacity, excluding    described in Sec. 551.80 or
 common or collective investment funds.   the written notice described
                                          in Sec. 551.90 within a
                                          reasonable time after a
                                          written request by the person
                                          with the power to terminate
                                          the account or, if there is no
                                          such person, any person
                                          holding a vested beneficial
                                          interest in the account.
(e) For an account in which you          Give or send each customer a
 exercise investment discretion in an     written itemized statement
 agency capacity.                         specifying the funds and
                                          securities in your custody or
                                          possession and all debits,
                                          credits, and transactions in
                                          the customer's account. You
                                          must provide this information
                                          to the customer not less than
                                          once every three months. You
                                          must give or send the
                                          registered broker-dealer
                                          confirmation described in Sec.
                                            551.80 or the written notice
                                          described in Sec. 551.90
                                          within a reasonable time after
                                          a customer's written request.
(f) For a common or collective           (1) Give or send to a customer
 investment fund.                         who invests in the fund a copy
                                          of the annual financial report
                                          of the fund, or
                                         (2) Notify the customer that a
                                          copy of the report is
                                          available and that you will
                                          furnish the report within a
                                          reasonable time after a
                                          written request by a person to
                                          whom a regular periodic
                                          accounting would ordinarily be
                                          rendered with respect to each
                                          participating account.
------------------------------------------------------------------------



Sec. 551.110  May I provide a notice electronically?

    You may provide any written notice required under this subpart B 
electronically. If a customer has a facsimile machine, you may send the 
notice by facsimile transmission. You may use other electronic 
communications if:
    (a) The parties agree to use electronic instead of hard copy 
notices;
    (b) The parties are able to print or download the notice;
    (c) Your electronic communications system cannot automatically 
delete the electronic notice; and
    (d) Both parties are able to receive electronic messages.

[[Page 151]]



Sec. 551.120  May I charge a fee for a notice?

    You may not charge a fee for providing a notice required under this 
subpart B, except that you may charge a reasonable fee for the notices 
provided under Sec. Sec. 551.100(a), (d), and (e).



             Subpart C_Settlement of Securities Transactions



Sec. 551.130  When must I settle a securities transaction?

    (a) You may not effect or enter into a contract for the purchase or 
sale of a security that provides for payment of funds and delivery of 
securities later than the latest of:
    (1) The third business day after the date of the contract. This 
deadline is no later than the fourth business day after the contract for 
contracts involving the sale for cash of securities that are priced 
after 4:30 p.m. Eastern Standard Time on the date the securities are 
priced and are sold by an issuer to an underwriter under a firm 
commitment underwritten offering registered under the Securities Act of 
1933, 15 U.S.C. 77a, et seq., or are sold by you to an initial purchaser 
participating in the offering;
    (2) Such other time as the SEC specifies by rule (see SEC Rule 15c6-
1, 17 CFR 240.15c6-1); or
    (3) Such time as the parties expressly agree at the time of the 
transaction. The parties to a contract are deemed to have expressly 
agreed to an alternate date for payment of funds and delivery of 
securities at the time of the transaction for a contract for the sale 
for cash of securities under a firm commitment offering, if the managing 
underwriter and the issuer have agreed to the date for all securities 
sold under the offering and the parties to the contract have not 
expressly agreed to another date for payment of funds and delivery of 
securities at the time of the transaction.
    (b) The deadlines in paragraph (a) of this section do not apply to 
the purchase or sale of limited partnership interests that are not 
listed on an exchange or for which quotations are not disseminated 
through an automated quotation system of a registered securities 
association.



          Subpart D_Securities Trading Policies and Procedures



Sec. 551.140  What policies and procedures must I maintain and follow 
for securities transactions?

    If you effect securities transactions for customers, you must 
maintain and follow policies and procedures that meet all of the 
following requirements:
    (a) Your policies and procedures must assign responsibility for the 
supervision of all officers or employees who:
    (1) Transmit orders to, or place orders with, registered broker-
dealers;
    (2) Execute transactions in securities for customers; or
    (3) Process orders for notice or settlement purposes, or perform 
other back office functions for securities transactions that you effect 
for customers. Policies and procedures for personnel described in this 
paragraph (a)(3) must provide supervision and reporting lines that are 
separate from supervision and reporting lines for personnel described in 
paragraphs (a)(1) and (2) of this section.
    (b) Your policies and procedures must provide for the fair and 
equitable allocation of securities and prices to accounts when you 
receive orders for the same security at approximately the same time and 
you place the orders for execution either individually or in 
combination.
    (c) Your policies and procedures must provide for securities 
transactions in which you act as agent for the buyer and seller 
(crossing of buy and sell orders) on a fair and equitable basis to the 
parties to the transaction, where permissible under applicable law.
    (d) Your policies and procedures must require your officers and 
employees to file the personal securities trading reports described at 
Sec. 551.150, if the officer or employee:
    (1) Makes investment recommendations or decisions for the accounts 
of customers;
    (2) Participates in the determination of these recommendations or 
decisions; or
    (3) In connection with their duties, obtains information concerning 
which securities you intend to purchase, sell, or recommend for purchase 
or sale.

[[Page 152]]



Sec. 551.150  How do my officers and employees file reports of personal 
securities trading transactions?

    An officer or employee described in Sec. 551.140(d) must report all 
personal transactions in securities made by or on behalf of the officer 
or employee if he or she has a beneficial interest in the security.
    (a) Contents and filing of report. The officer or employee must file 
the report with you no later than 30 calendar daysafter the end of each 
calendar quarter. The report must include the following information:
    (1) The date of each transaction, the title and number of shares, 
the interest rate and maturity date (if applicable), and the principal 
amount of each security involved.
    (2) The nature of each transaction (i.e., purchase, sale, or other 
type of acquisition or disposition).
    (3) The price at which each transaction was effected.
    (4) The name of the broker, dealer, or other intermediary effecting 
the transaction.
    (5) The date the officer or employee submitted the report.
    (b) Report not required for certain transactions. Your officer or 
employee is not required to report a transaction if:
    (1) He or she has no direct or indirect influence or control over 
the account for which the transaction was effected or over the 
securities held in that account;
    (2) The transaction was in shares issued by an open-end investment 
company registered under the Investment Company Act of 1940;
    (3) The transaction was in direct obligations of the government of 
the United States;
    (4) The transaction was in bankers' acceptances, bank certificates 
of deposit, commercial paper or high quality short term debt 
instruments, including repurchase agreements; or
    (5) The officer or employee had an aggregate amount of purchases and 
sales of $10,000 or less during the calendar quarter.
    (c) Alternate report. When you act as an investment adviser to an 
investment company registered under the Investment Company Act of 1940, 
an officer or employee that is an ``access person'' may fulfill his or 
her reporting requirements under this section by filing with you the 
``access person'' personal securities trading report required by SEC 
Rule 17j-1(d), 17 CFR 270.17j-1(d).

[67 FR 76299, Dec. 12, 2002, as amended at 72 FR 30474, June 1, 2007]



PART 552_FEDERAL STOCK ASSOCIATIONS_INCORPORATION, ORGANIZATION, 
AND CONVERSION--Table of Contents




Sec.
552.2-1 Procedure for organization of Federal stock association.
552.2-2 Procedures for organization of interim Federal stock 
          association.
552.2-3 Federal stock association created in connection with an 
          association in default or in danger of default.
552.2-6 Conversion from stock form depository institution to Federal 
          stock association.
552.2-7 Conversion to National banking association or State bank.
552.3 Charters for Federal stock associations.
552.4 Charter amendments.
552.5 Bylaws.
552.6 Shareholders.
552.6-1 Board of directors.
552.6-2 Officers.
552.6-3 Certificates for shares and their transfer.
552.6-4 [Reserved]
552.9 [Reserved]
552.10 Annual reports to stockholders.
552.11 Books and records.
552.12 [Reserved]
552.13 Combinations involving Federal stock associations.
552.14 Dissenter and appraisal rights.
552.15 Supervisory combinations.
552.16 Effect of subsequent charter or bylaw change.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.

    Source: 54 FR 49523, Nov. 30, 1989, unless otherwise noted.



Sec. 552.2-1  Procedure for organization of Federal stock association.

    (a) Application for permission to organize. Applications for 
permission to organize a Federal stock association are subject to this 
section and to Sec. 543.3 of this chapter. Recommendations by employees 
of the OTS regarding applications for permission to organize are 
privileged, confidential, and subject to

[[Page 153]]

Sec. 510.5 (b) and (c) of this chapter. The processing of an 
application under this section shall be subject to the following 
procedures:
    (1) Publication. (i) The applicant shall publish a public notice of 
the application to organize in accordance with the procedures specified 
in subpart B of part 516 of this chapter.
    (ii) Promptly after publication of the public notice, the applicant 
shall transmit copies of the public notice and publisher's affidavit of 
publication to the OTS in the same manner as the original filing.
    (iii) Any person may inspect the application and all related 
communications at the Regional Office during regular business hours, 
unless such information is exempt from public disclosure.
    (2) Notification to interested parties. The OTS shall give notice of 
the application to the State official who supervises savings 
associations in the State in which the new association is to be located.
    (3) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 516 of this chapter.
    (4) Meetings. OTS may arrange a meeting in accordance with the 
procedures in subpart D of part 516 of this chapter.
    (b) Conditions of approval. The OTS will decide all applications for 
permission to organize a Federal stock association.
    (1) Factors that will be considered on all applications for 
permission to organize a Federal stock association are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the association's 
usefulness and success;
    (iv) Whether the association can be established without undue injury 
to properly conducted existing local thrift and home financing 
institutions; and
    (v) Whether the association will perform a role of providing credit 
for housing consistent with safe and sound operation of a Federal 
savings association.
    (2) [Reserved]
    (3) Approvals of applications will be conditioned on the following:
    (i) Receipt by the Office of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the association will 
be insured by the Federal Deposit Insurance Corporation;
    (ii) The sale of a minimum amount of fully-paid capital stock of the 
association prior to commencing business;
    (iii) The submission of a statement that:
    (A) The applicants have incurred no expense in organization which is 
chargeable to the association, and that no such expense will be 
incurred, and
    (B) No funds will be accepted for deposit by the association until 
organization has been completed;
    (iv) Compliance with all applicable laws, rules, and regulations; 
and
    (v) The satisfaction of any other requirement or condition the 
Director or his or her designee may impose.
    (c) Issuance of charter. Upon approval of an application, the Office 
shall issue to the association a charter for a Federal stock savings 
association or for a Federal stock savings bank, as requested by the 
applicants, which shall be in the form provided in this part. Issuance 
of the charter shall be subject to the condition subsequent that the 
organization of the association is completed pursuant to this section.
    (d) Interim board of directors and officers. Upon approval of the 
application and the issuance of the charter, the applicants shall 
constitute the interim board of directors of the association until the 
board of directors of the association are elected by its stockholders at 
the organizational meeting required by paragraph (g) of this section, 
and the interim officers of the association shall be those persons set 
forth in the application for permission to organize.
    (e) Sale of capital stock. Upon the issuance of the charter, the 
association shall proceed to offer and sell its capital stock pursuant 
to the requirements of part 563g of this chapter.
    (f) Bank membership and insurance of accounts. Promptly upon the 
issuance

[[Page 154]]

of the charter, a Federal stock association must qualify as a member of 
the appropriate Federal Home Loan Bank and meet all requirements 
necessary to obtain insurance of accounts by the Federal Deposit 
Insurance Corporation.
    (g) Organizational meeting. Promptly upon the completion of the sale 
of its capital stock, the association shall provide notice, pursuant to 
Sec. 552.6(b), of a meeting of its stockholders to elect a board of 
directors. Immediately following such election, the directors shall meet 
to elect the officers of the association and to undertake any other 
action necessary under the charter or bylaws to complete corporate 
organization.
    (h) Completion of organization. Organization of a Federal stock 
association shall be deemed complete for the purposes of this part when:
    (1) The association has obtained Federal Home Loan Bank membership 
and insurance of its accounts from the Federal Deposit Insurance 
Corporation;
    (2) It has completed the sale of and received full payment for its 
capital stock;
    (3) It has complied with all requirements of part 563g of this 
chapter;
    (4) It has held its organizational meeting for the election of 
directors and all directors have been elected;
    (5) Its officers have been elected and bonded; and
    (6) It has met the requirements and conditions imposed by the Office 
in connection with approval of the application.
    (i) Failure of completion. If organization of a Federal stock 
association is not completed within six months after the OTS approves 
the application, or within such additional period as the OTS for good 
cause may grant, the charter shall become null and void and all 
subscriptions to capital stock shall be returned.

[54 FR 49523, Nov. 30, 1989, as amended at 57 FR 14342, Apr. 20, 1992; 
62 FR 27181, May 19, 1997; 62 FR 64146, Dec. 4, 1997; 69 FR 68249, Nov. 
24, 2004]



Sec. 552.2-2  Procedures for organization of interim Federal stock association.

    (a) Applications for permission to organize an interim Federal 
savings association are not subject to subparts B, C and D of part 516 
of this chapter or Sec. 552.2-1(b)(3) of this part.
    (b) Approval of an application for permission to organize an interim 
Federal stock association shall be conditioned upon approval by the 
Office of an application to merge the interim Federal stock association, 
or upon approval by the Office of other transaction which the interim 
was chartered to facilitate. Applications for permission to organize an 
interim Federal stock association shall be submitted in the same manner 
as the related filing(s). In evaluating the application, the Office will 
consider the purpose for which the association will be organized, the 
form of any proposed transactions involving the association, the effect 
of the transactions on existing associations involved in the 
transactions, and the factors specified in Sec. 552.1(b)(1) to the 
extent relevant.
    (c) If a merger or other transaction facilitated by the existence of 
the interim Federal stock association has not been approved within six 
months of the approval of the application for permission to organize, 
unless extended by OTS for good cause shown, the charter shall be void 
and all subscriptions for capital stock shall be returned.

[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13513, Apr. 11, 1990; 
57 FR 14342, Apr. 20, 1992; 62 FR 64146, Dec. 4, 1997]



Sec. 552.2-3  Federal stock association created in connection with an
association in default or in danger of default.

    Sections 552.2-1 and 552.2-2 of this part do not apply to a Federal 
stock association which is proposed by the Federal Deposit Insurance 
Corporation, or the Resolution Trust Corporation under section 5(p) of 
the Home Owner's Loan Act of 1933, section 11(c) of the Federal Deposit 
Insurance Act, or section 21A of the Federal Home Loan Bank Act, or is 
otherwise chartered by the Office in connection with an association in 
default or in danger of default. Incorporation and organization of such 
associations are complete when and under such conditions as the Director 
or his or her designee so determines.

[[Page 155]]



Sec. 552.2-6  Conversion from stock form depository institution to 
Federal stock association.

    (a) With the approval of the Office, any stock depository 
institution that is, or is eligible to become, a member of a Federal 
Home Loan Bank, may convert to a Federal stock association, provided 
that the depository institution, at the time of the conversion, has 
deposits insured by the Federal Deposit Insurance Corporation, and 
provided further, that the depository institution, in accomplishing the 
conversion, complies with all applicable statutes and regulations, 
including, without limitation, section 5(d) of the Federal Deposit 
Insurance Act. The resulting Federal stock association must conform 
within the time prescribed by the OTS to the requirements of section 
5(c) of the Home Owners' Loan Act. For purposes of this section, the 
term ``depository institution'' shall have the meaning set forth at 12 
CFR 552.13(b). An application for conversion filed under this section is 
subject to the procedures for organization of a federal stock 
organization at Sec. 552.2-1.
    (b) Any and all of the assets and other property (whether real, 
personal, mixed, tangible or intangible, including choses in action, 
rights, and credits) of the former stock form depository institution 
become assets and property of the Federal stock association when the 
conversion occurs. Similarly, any and all of the obligations and debts 
of or claims against the former stock form depository institution become 
obligations and debts of and claims against the Federal stock 
association when the conversion occurs. In effect, the Federal stock 
association is the same as the former stock form depository institution 
with respect to any and all assets, property, claims and debts of or 
claims against the former stock form depository institution.

[59 FR 44623, Aug. 30, 1994, as amended at 66 FR 13006, Mar. 2, 2001; 66 
FR 23154, May 8, 2001]



Sec. 552.2-7  Conversion to National banking association or State bank.

    A Federal stock association may convert to a National banking 
association or a State bank after filing a notification or application, 
as appropriate, with the Office in accordance with the applicable 
provisions of Sec. 563.22(b) of this chapter.

[59 FR 44623, Aug. 30, 1994]



Sec. 552.3  Charters for Federal stock associations.

    The charter of a Federal stock association shall be in the following 
form, except that an association that has converted from the mutual form 
pursuant to part 563b of this chapter shall include in its charter a 
section establishing a liquidation account as required by Sec. 
563b.3(c)(13) of this chapter. A charter for a Federal stock savings 
bank shall substitute the term ``savings bank'' for ``association.'' 
Charters may also include any preapproved optional provision contained 
in Sec. 552.4 of this part.

                          Federal Stock Charter

    Section 1. Corporate title. The full corporate title of the 
association is ------.
    Section 2. Office. The home office shall be located in ------ [city, 
state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all of the express, implied, and incidental powers conferred 
thereby and by all acts amendatory thereof and supplemental thereto, 
subject to the Constitution and laws of the United States as they are 
now in effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office of 
Thrift Supervision (``Office'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the association has the authority to issue is 
------, all of which shall be common stock of par [or if no par is 
specified then shares shall have a stated] value of ------ per share. 
The shares may be issued from time to time as authorized by the board of 
directors without the approval of its shareholders, except as otherwise 
provided in this Section 5 or to the extent that such approval is 
required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither promissory 
notes nor future services shall constitute payment or part payment for 
the issuance of shares of the association. The consideration for the 
shares shall be

[[Page 156]]

cash, tangible or intangible property (to the extent direct investment 
in such property would be permitted to the association), labor, or 
services actually performed for the association, or any combination of 
the foregoing. In the absence of actual fraud in the transaction, the 
value of such property, labor, or services, as determined by the board 
of directors of the association, shall be conclusive. Upon payment of 
such consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the association that is transferred to common stock 
or paid-in capital accounts upon the issuance of shares as a stock 
dividend shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association from 
the mutual to stock form of capitalization, no shares of capital stock 
(including shares issuable upon conversion, exchange, or exercise of 
other securities) shall be issued, directly or indirectly, to officers, 
directors, or controlling persons of the association other than as part 
of a general public offering or as qualifying shares to a director, 
unless the issuance or the plan under which they would be issued has 
been approved by a majority of the total votes eligible to be cast at a 
legal meeting.
    The holders of the common stock shall exclusively possess all voting 
power. Each holder of shares of common stock shall be entitled to one 
vote for each share held by such holder, except as to the cumulation of 
votes for the election of directors, unless the charter provides that 
there shall be no such cumulative voting. Subject to any provision for a 
liquidation account, in the event of any liquidation, dissolution, or 
winding up of the association, the holders of the common stock shall be 
entitled, after payment or provision for payment of all debts and 
liabilities of the association, to receive the remaining assets of the 
association available for distribution, in cash or in kind. Each share 
of common stock shall have the same relative rights as and be identical 
in all respects with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
association shall not be entitled to preemptive rights with respect to 
any shares of the association which may be issued.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors, as stated 
in the association's bylaws, shall not be fewer than five nor more than 
fifteen except when a greater or lesser number is approved by the 
Director of the Office, or his or her delegate.
    Section 8. Amendment of charter. Except as provided in Section 5, no 
amendment, addition, alteration, change or repeal of this charter shall 
be made, unless such is proposed by the board of directors of the 
association, approved by the shareholders by a majority of the votes 
eligible to be cast at a legal meeting, unless a higher vote is 
otherwise required, and approved or preapproved by the Office.
Attest:_________________________________________________________________
 Secretary of the Association

By:_____________________________________________________________________
 President or Chief Executive Officer of the Association

Attest:_________________________________________________________________
 Secretary of the Office of Thrift Supervision

By:_____________________________________________________________________
 Director of the Office of Thrift Supervision

Effective Date:_________________________________________________________

[54 FR 49523, Nov. 30, 1989, as amended at 59 FR 53571, Oct. 25, 1994; 
61 FR 64018, Dec. 3, 1996]



Sec. 552.4  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal stock 
association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment that 
states the text of such amendment.
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
tender offer, or proxy contest, the assumption of control by a holder of 
a block of the association's stock, the removal of incumbent management, 
or involve a significant issue of law or policy, the association shall 
file the proposed amendment and shall obtain the prior approval of the 
OTS; and
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of this 
section and such amendment is permissible under all applicable laws, 
rules or regulations, then the association shall submit the proposed 
amendments to the OTS, at least 30 days prior to the date the proposed 
charter amendment is to be mailed for consideration by the association's 
shareholders.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of

[[Page 157]]

this section shall automatically be approved 30 days from the date of 
filing of such amendment, provided that the association follows the 
requirements of its charter in adopting such amendment, unless prior to 
the expiration of such 30-day period the OTS notifies the association 
that such amendment is rejected or that such amendment is deemed to be 
filed under the provisions of paragraph (a)(2)(i) of this section. In 
addition, the following charter amendments, including the adoption of 
the Federal stock charter as set forth in Sec. 552.3 of this part, 
shall be approved at the time of adoption, if adopted without change and 
filed with OTS within 30 days after adoption, provided the association 
follows the requirements of its charter in adopting such amendments:
    (1) Title change. A Federal stock association that has complied with 
Sec. 543.1(b) of this chapter may amend its charter by substituting a 
new corporate title in section 1.
    (2) Home office. A Federal savings association may amend its charter 
by substituting a new home office in section 2, if it has complied with 
applicable requirements of Sec. 545.95 of this chapter.
    (3) Number of shares of stock and par value. A Federal stock 
association may amend Section 5 of its charter to change the number of 
authorized shares of stock, the number of shares within each class of 
stock, and the par or stated value of such shares.
    (4) Capital stock. A Federal stock association may amend its charter 
by revising Section 5 to read as follows:

    Section 5. Capital stock. The total number of shares of all classes 
of capital stock that the association has the authority to issue is ----
--, of which ------ shall be common stock of par [or if no par value is 
specified the stated] value of ------ per share and of which [list the 
number of each class of preferred and the par or if no par value is 
specified the stated value per share of each such class]. The shares may 
be issued from time to time as authorized by the board of directors 
without further approval of shareholders, except as otherwise provided 
in this Section 5 or to the extent that such approval is required by 
governing law, rule, or regulation. The consideration for the issuance 
of the shares shall be paid in full before their issuance and shall not 
be less than the par [or stated] value. Neither promissory notes nor 
future services shall constitute payment or part payment for the 
issuance of shares of the association. The consideration for the shares 
shall be cash, tangible or intangible property (to the extent direct 
investment in such property would be permitted), labor, or services 
actually performed for the association, or any combination of the 
foregoing. In the absence of actual fraud in the transaction, the value 
of such property, labor, or services, as determined by the board of 
directors of the association, shall be conclusive. Upon payment of such 
consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the association that is transferred to common stock 
or paid-in capital accounts upon the issuance of shares as a stock 
dividend shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association from 
the mutual to the stock form of capitalization, no shares of capital 
stock (including shares issuable upon conversion, exchange, or exercise 
of other securities) shall be issued, directly or indirectly, to 
officers, directors, or controlling persons of the association other 
than as part of a general public offering or as qualifying shares to a 
director, unless their issuance or the plan under which they would be 
issued has been approved by a majority of the total votes eligible to be 
cast at a legal meeting.
    Nothing contained in this Section 5 (or in any supplementary 
sections hereto) shall entitle the holders of any class of a series of 
capital stock to vote as a separate class or series or to more than one 
vote per share, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting: Provided, That this restriction on voting 
separately by class or series shall not apply:
    (i) To any provision which would authorize the holders of preferred 
stock, voting as a class or series, to elect some members of the board 
of directors, less than a majority thereof, in the event of default in 
the payment of dividends on any class or series of preferred stock;
    (ii) To any provision that would require the holders of preferred 
stock, voting as a class or series, to approve the merger or 
consolidation of the association with another corporation or the sale, 
lease, or conveyance (other than by mortgage or pledge) of properties or 
business in exchange for securities of a corporation other than the 
association if the preferred stock is exchanged for securities of such 
other corporation: Provided, That no provision may require such approval 
for transactions undertaken with the assistance

[[Page 158]]

or pursuant to the direction of the Office or the Federal Deposit 
Insurance Corporation;
    (iii) To any amendment which would adversely change the specific 
terms of any class or series of capital stock as set forth in this 
Section 5 (or in any supplementary sections hereto), including any 
amendment which would create or enlarge any class or series ranking 
prior thereto in rights and preferences. An amendment which increases 
the number of authorized shares of any class or series of capital stock, 
or substitutes the surviving association in a merger or consolidation 
for the association, shall not be considered to be such an adverse 
change.
    A description of the different classes and series (if any) of the 
association's capital stock and a statement of the designations, and the 
relative rights, preferences, and limitations of the shares of each 
class of and series (if any) of capital stock are as follows:
    A. Common stock. Except as provided in this Section 5 (or in any 
supplementary sections thereto) the holders of the common stock shall 
exclusively possess all voting power. Each holder of shares of the 
common stock shall be entitled to one vote for each share held by each 
holder, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting.
    Whenever there shall have been paid, or declared and set aside for 
payment, to the holders of the outstanding shares of any class of stock 
having preference over the common stock as to the payment of dividends, 
the full amount of dividends and of sinking fund, retirement fund, or 
other retirement payments, if any, to which such holders are 
respectively entitled in preference to the common stock, then dividends 
may be paid on the common stock and on any class or series of stock 
entitled to participate therewith as to dividends out of any assets 
legally available for the payment of dividends.
    In the event of any liquidation, dissolution, or winding up of the 
association, the holders of the common stock (and the holders of any 
class or series of stock entitled to participate with the common stock 
in the distribution of assets) shall be entitled to receive, in cash or 
in kind, the assets of the association available for distribution 
remaining after: (i) Payment or provision for payment of the 
association's debts and liabilities; (ii) distributions or provision for 
distributions in settlement of its liquidation account; and (iii) 
distributions or provision for distributions to holders of any class or 
series of stock having preference over the common stock in the 
liquidation, dissolution, or winding up of the association. Each share 
of common stock shall have the same relative rights as and be identical 
in all respects with all the other shares of common stock.
    B. Preferred stock. The association may provide in supplementary 
sections to its charter for one or more classes of preferred stock, 
which shall be separately identified. The shares of any class may be 
divided into and issued in series, with each series separately 
designated so as to distinguish the shares thereof from the shares of 
all other series and classes. The terms of each series shall be set 
forth in a supplementary section to the charter. All shares of the same 
class shall be identical except as to the following relative rights and 
preferences, as to which there may be variations between different 
series:
    (a) The distinctive serial designation and the number of shares 
constituting such series;
    (b) The dividend rate or the amount of dividends to be paid on the 
shares of such series, whether dividends shall be cumulative and, if so, 
from which date(s), the payment date(s) for dividends, and the 
participating or other special rights, if any, with respect to 
dividends;
    (c) The voting powers, full or limited, if any, of shares of such 
series;
    (d) Whether the shares of such series shall be redeemable and, if 
so, the price(s) at which, and the terms and conditions on which, such 
shares may be redeemed;
    (e) The amount(s) payable upon the shares of such series in the 
event of voluntary or involuntary liquidation, dissolution, or winding 
up of the association;
    (f) Whether the shares of such series shall be entitled to the 
benefit of a sinking or retirement fund to be applied to the purchase or 
redemption of such shares, and if so entitled, the amount of such fund 
and the manner of its application, including the price(s) at which such 
shares may be redeemed or purchased through the application of such 
fund;
    (g) Whether the shares of such series shall be convertible into, or 
exchangeable for, shares of any other class or classes of stock of the 
association and, if so, the conversion price(s) or the rate(s) of 
exchange, and the adjustments thereof, if any, at which such conversion 
or exchange may be made, and any other terms and conditions of such 
conversion or exchange.
    (h) The price or other consideration for which the shares of such 
series shall be issued; and
    (i) Whether the shares of such series which are redeemed or 
converted shall have the status of authorized but unissued shares of 
serial preferred stock and whether such shares may be reissued as shares 
of the same or any other series of serial preferred stock.
    Each share of each series of serial preferred stock shall have the 
same relative rights as and be identical in all respects with all the 
other shares of the same series.
    The board of directors shall have authority to divide, by the 
adoption of supplementary

[[Page 159]]

charter sections, any authorized class of preferred stock into series, 
and, within the limitations set forth in this section and the remainder 
of this charter, fix and determine the relative rights and preferences 
of the shares of any series so established.
    Prior to the issuance of any preferred shares of a series 
established by a supplementary charter section adopted by the board of 
directors, the association shall file with the Secretary to the Office a 
dated copy of that supplementary section of this charter established and 
designating the series and fixing and determining the relative rights 
and preferences thereof.

    (5) Limitations on subsequent issuances. A Federal stock association 
may amend its charter to require shareholder approval of the issuance or 
reservation of common stock or securities convertible into common stock 
under circumstances which would require shareholder approval under the 
rules of the New York or American Stock Exchange if the shares were then 
listed on the New York or American Stock Exchange.
    (6) Cumulative voting. A Federal stock association may amend its 
charter by substituting the following sentence for the second sentence 
in the third paragraph of Section 5: ``Each holder of shares of common 
stock shall be entitled to one vote for each share held by such holder 
and there shall be no right to cumulate votes in an election of 
directors.''
    (7) [Reserved]
    (8) Anti-takeover provisions following mutual to stock conversion. 
Notwithstanding the law of the state in which the association is 
located, a Federal stock association may amend its charter by 
renumbering existing sections as appropriate and adding a new section 8 
as follows:

    Section 8. Certain Provisions Applicable for Five Years. 
Notwithstanding anything contained in the Association's charter or 
bylaws to the contrary, for a period of [specify number of years up to 
five] years from the date of completion of the conversion of the 
Association from mutual to stock form, the following provisions shall 
apply:
    A. Beneficial Ownership Limitation. No person shall directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of any class of an equity security of the association. 
This limitation shall not apply to a transaction in which the 
association forms a holding company without change in the respective 
beneficial ownership interests of its stockholders other than pursuant 
to the exercise of any dissenter and appraisal rights, the purchase of 
shares by underwriters in connection with a public offering, or the 
purchase of shares by a tax-qualified employee stock benefit plan which 
is exempt from the approval requirements under Sec. 574.3(c)(1)(vi) of 
the Office's regulations.
    In the event shares are acquired in violation of this section 8, all 
shares beneficially owned by any person in excess of 10% shall be 
considered ``excess shares'' and shall not be counted as shares entitled 
to vote and shall not be voted by any person or counted as voting shares 
in connection with any matters submitted to the stockholders for a vote.
    For purposes of this section 8, the following definitions apply:
    (1) The term ``person'' includes an individual, a group acting in 
concert, a corporation, a partnership, an association, a joint stock 
company, a trust, an unincorporated organization or similar company, a 
syndicate or any other group formed for the purpose of acquiring, 
holding or disposing of the equity securities of the association.
    (2) The term ``offer'' includes every offer to buy or otherwise 
acquire, solicitation of an offer to sell, tender offer for, or request 
or invitation for tenders of, a security or interest in a security for 
value.
    (3) The term ``acquire'' includes every type of acquisition, whether 
effected by purchase, exchange, operation of law or otherwise.
    (4) The term ``acting in concert'' means (a) knowing participation 
in a joint activity or conscious parallel action towards a common goal 
whether or not pursuant to an express agreement, or (b) a combination or 
pooling of voting or other interests in the securities of an issuer for 
a common purpose pursuant to any contract, understanding, relationship, 
agreement or other arrangements, whether written or otherwise.
    B. Cumulative Voting Limitation. Stockholders shall not be permitted 
to cumulate their votes for election of directors.
    C. Call for Special Meetings. Special meetings of stockholders 
relating to changes in control of the association or amendments to its 
charter shall be called only upon direction of the board of directors.

    (c) Anti-takeover provisions. The Office may grant approval to a 
charter amendment not listed in paragraph (b) of this section regarding 
the acquisition by any person or persons of its equity securities 
provided that the association shall file as part of its application for 
approval an opinion, acceptable to the OTS, of counsel independent from 
the association that the proposed charter provision would be

[[Page 160]]

permitted to be adopted by a corporation chartered by the state in which 
the principal office of the association is located. Any such provision 
must be consistent with applicable statutes, regulations, and OTS 
policies. Further, any such provision that would have the effect of 
rendering more difficult a change in control of the association and 
would require for any corporate action (other than the removal of 
directors) the affirmative vote of a larger percentage of shareholders 
than is required by this Part, shall not be effective unless adopted by 
a percentage of shareholder vote at least equal to the highest 
percentage that would be required to take any action under such 
provision.
    (d) Reissuance of charter. A Federal stock association that has 
amended its charter may apply to have its charter, including the 
amendments, reissued by the Office. Such requests for reissuance should 
be filed with the Corporate Secretary at Washington Headquarters Office 
at the address listed in Sec. 516.40(b) of this chapter, and contain 
signatures required under Sec. 552.3 of this part, together with such 
supporting documents as needed to demonstrate that the amendments were 
properly adopted.

[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13513, Apr. 11, 1990; 
57 FR 14343, Apr. 20, 1992; 59 FR 18476, Apr. 19, 1994; 61 FR 64018, 
Dec. 3, 1996; 62 FR 66262, Dec. 18, 1997; 66 FR 13006, Mar. 2, 2001; 69 
FR 68249, Nov. 24, 2004]



Sec. 552.5  Bylaws.

    (a) General. At its first organizational meeting, the board of 
directors of a Federal stock association shall adopt a set of bylaws for 
the administration and regulation of its affairs. Bylaws may be adopted, 
amended or repealed by either a majority of the votes cast by the 
shareholders at a legal meeting or a majority of the board of directors. 
The bylaws shall contain sufficient provisions to govern the association 
in accordance with the requirements of Sec. Sec. 552.6, 552.6-1, 552.6-
2, and 552.6-3 of this part and shall not contain any provision that is 
inconsistent with those sections or with applicable laws, rules, 
regulations or the association's charter, except that a bylaw provision 
inconsistent with Sec. Sec. 552.6, 552.6-1, 552.6-3, and 552.6-4 of 
this part may be adopted with the approval of the OTS.
    (b) Form of Filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the OTS for approval if it would:
    (A) Render more difficult or discourage a merger, tender offer, or 
proxy contest, the assumption of control by a holder of a large block of 
the association's stock, or the removal of incumbent management; or
    (B) Be inconsistent with Sec. Sec. 552.6, 552.6-1, 552.6-2, and 
552.6-3 of this part, with applicable laws, rules, regulations or the 
association's charter or involve a significant issue of law or policy, 
including indemnification, conflicts of interest, and limitations on 
director or officer liability.
    (ii) Applications submitted under paragraph (b)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
516, subparts A and E of this chapter.
    (iii) Bylaw provisions that adopt the language of the model or 
optional bylaws in OTS's Application Processing Handbook, if adopted 
without change, and filed with OTS within 30 days after adoption, are 
effective upon adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (b)(1) or (b)(3) 
of this section and is permissible under all applicable laws, rules, or 
regulations, then the association shall submit the amendment to the OTS 
at least 30 days prior to the date the bylaw amendment is to be adopted 
by the association.
    (3) Corporate governance procedures. A Federal stock association may 
elect to follow the corporate governance procedures of: The laws of the 
state where the main office of the association is located; the laws of 
the state where the association's holding company, if any, is 
incorporated or chartered; Delaware General Corporation law; or The 
Model Business Corporation Act, provided that such procedures may be 
elected to the extent not inconsistent with applicable Federal statutes 
and regulations and safety and soundness, and such procedures are not of 
the type described in paragraph (b)(1) of this section. If this election 
is selected, a Federal stock association shall designate

[[Page 161]]

in its bylaws the provision or provisions from the body or bodies of law 
selected for its corporate governance procedures, and shall file a copy 
of such bylaws, which are effective upon adoption, within 30 days after 
adoption. The submission shall indicate, where not obvious, why the 
bylaw provisions meet the requirements stated in paragraph (b)(1) of 
this section.
    (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(b)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the association follows 
the requirements of its charter and bylaws in adopting such amendment, 
unless prior to the expiration of such 30-day period the OTS notifies 
the association that such amendment is rejected or that such amendment 
requires an application to be filed pursuant to paragraph (b)(1) of this 
section.
    (d) Effect of subsequent charter or bylaw change. Notwithstanding 
any subsequent change to its charter or bylaws, the authority of a 
Federal stock association to engage in any transaction shall be 
determined only by the association's charter or bylaws then in effect, 
unless otherwise provided by Federal law or regulation.

[57 FR 14343, Apr. 20, 1992, as amended at 60 FR 66718, Dec. 26, 1995; 
61 FR 64019, Dec. 3, 1996; 66 FR 13006, Mar. 2, 2001; 66 FR 15020, Mar. 
15, 2001]



Sec. 552.6  Shareholders.

    (a) Shareholder meetings. An annual meeting of the shareholders of 
the association for the election of directors and for the transaction of 
any other business of the association shall be held annually within 150 
days after the end of the association's fiscal year. Unless otherwise 
provided in the association's charter, special meetings of the 
shareholders may be called by the board of directors or on the request 
of the holders of 10 percent or more of the shares entitled to vote at 
the meeting, or by such other persons as may be specified in the bylaws 
of the association. All annual and special meetings of shareholders 
shall be held at such place as the board of directors may determine in 
the state in which the association has its principal place of business, 
or at any other convenient place the board of directors may designate.
    (b) Notice of shareholder meetings. Written notice stating the 
place, day, and hour of the meeting and the purpose or purposes for 
which the meeting is called shall be delivered not fewer than 20 nor 
more than 50 days before the date of the meeting, either personally or 
by mail, by or at the direction of the chairman of the board, the 
president, the secretary, or the directors, or other persons calling the 
meeting, to each shareholder of record entitled to vote at such meeting. 
If mailed, such notice shall be deemed to be delivered when deposited in 
the mail, addressed to the shareholder at the address appearing on the 
stock transfer books or records of the association as of the record date 
prescribed in paragraph (c) of this section, with postage thereon 
prepaid. When any shareholders' meeting, either annual or special, is 
adjourned for 30 days or more, notice of the adjourned meeting shall be 
given as in the case of an original meeting. Notwithstanding anything in 
this section, however, a Federal stock association that is wholly owned 
shall not be subject to the shareholder notice requirement.
    (c) Fixing of record date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment thereof, or shareholders entitled to 
receive payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not less than 10 days prior to the 
date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment thereof.
    (d) Voting lists. (1) At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for the shares

[[Page 162]]

of the association shall make a complete list of the stockholders of 
record entitled to vote at such meeting, or any adjournments thereof, 
arranged in alphabetical order, with the address and the number of 
shares held by each. This list of shareholders shall be kept on file at 
the home office of the association and shall be subject to inspection by 
any shareholder of record or the stockholder's agent during the entire 
time of the meeting. The original stock transfer book shall constitute 
prima facie evidence of the stockholders entitled to examine such list 
or transfer books or to vote at any meeting of stockholders. 
Notwithstanding anything in this section, however, a Federal stock 
association that is wholly owned shall not be subject to the voting list 
requirements.
    (2) In lieu of making the shareholders list available for inspection 
by any shareholders as provided in paragraph (d)(1) of this section, the 
board of directors may perform such acts as required by paragraphs (a) 
and (b) of Rule 14a-7 of the General Rules and Regulations under the 
Securities and Exchange Act of 1934 (17 CFR 240.14a-7) as may be duly 
requested in writing, with respect to any matter which may be properly 
considered at a meeting of shareholders, by any shareholder who is 
entitled to vote on such matter and who shall defray the reasonable 
expenses to be incurred by the association in performance of the act or 
acts required.
    (e) Shareholder quorum. A majority of the outstanding shares of the 
association entitled to vote, represented in person or by proxy, shall 
constitute a quorum at a meeting of shareholders. The shareholders 
present at a duly organized meeting may continue to transact business 
until adjournment, notwithstanding the withdrawal of enough shareholders 
to leave less than a quorum. If a quorum is present, the affirmative 
vote of the majority of the shares represented at the meeting and 
entitled to vote on the subject matter shall be the act of the 
stockholders, unless the vote of a greater number of stockholders voting 
together or voting by classes is required by law or the charter. 
Directors, however, are elected by a plurality of the votes cast at an 
election of directors.
    (f) Shareholder voting--(1) Proxies. Unless otherwise provided in 
the association's charter, at all meetings of shareholders, a 
shareholder may vote in person or by proxy executed in writing by the 
shareholder or by a duly authorized attorney in fact. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the shareholder. A proxy may 
designate as holder a corporation, partnership or company as defined in 
Part 574 of this chapter, or other person. Proxies solicited on behalf 
of the management shall be voted as directed by the shareholder or, in 
the absence of such direction, as determined by a majority of the board 
of directors. No proxy shall be valid more than eleven months from the 
date of its execution except for a proxy coupled with an interest.
    (2) Shares controlled by association. Neither treasury shares of its 
own stock held by the association nor shares held by another 
corporation, if a majority of the shares entitled to vote for the 
election of directors of such other corporation are held by the 
association, shall be voted at any meeting or counted in determining the 
total number of outstanding shares at any given time for purposes of any 
meeting.
    (g) Nominations and new business submitted by shareholders. 
Nominations for directors and new business submitted by shareholders 
shall be voted upon at the annual meeting if such nominations or new 
business are submitted in writing and delivered to the secretary of the 
association at least five days prior to the date of the annual meeting. 
Ballots bearing the names of all the persons nominated shall be provided 
for use at the annual meeting.
    (h) Informal action by stockholders. If the bylaws of the 
association so provide, any action required to be taken at a meeting of 
the stockholders, or any other action that may be taken at a meeting of 
the stockholders, may be taken without a meeting if consent in writing 
has been given by all the stockholders entitled to vote with respect to 
the subject matter.

[54 FR 49523, Nov. 30, 1989, as amended at 59 FR 18476, Apr. 19, 1994; 
61 FR 64019, Dec. 3, 1996]

[[Page 163]]



Sec. 552.6-1  Board of directors.

    (a) General powers and duties. The business and affairs of the 
association shall be under the direction of its board of directors. The 
board of directors shall annually elect a chairman of the board from 
among its members and shall designate the chairman of the board, when 
present, to preside at its meeting. Directors need not be stockholders 
unless the bylaws so require.
    (b) Number and term. The bylaws shall set forth a specific number of 
directors, not a range. The number of directors shall be not fewer than 
five nor more than fifteen, unless a higher or lower number has been 
authorized by the Director of the Office or his or her delegate. 
Directors shall be elected for a term of one to three years and until 
their successors are elected and qualified. If a staggered board is 
chosen, the directors shall be divided into two or three classes as 
nearly equal in number as possible and one class shall be elected by 
ballot annually. In the case of a converting or newly chartered 
association where all directors shall be elected at the first election 
of directors, if a staggered board is chosen, the terms shall be 
staggered in length from one to three years.
    (c) Regular meetings. A regular meeting of the board of directors 
shall be held immediately after, and at the same place as, the annual 
meeting of shareholders. The board of directors shall determine the 
place, frequency, time and procedure for notice of regular meetings.
    (d) Quorum. A majority of the number of directors shall constitute a 
quorum for the transaction of business at any meeting of the board of 
directors. The act of the majority of the directors present at a meeting 
at which a quorum is present shall be the act of the board of directors, 
unless a greater number is prescribed by regulation of the Office.
    (e) Vacancies. Any vacancy occurring in the board of directors may 
be filled by the affirmative vote of a majority of the remaining 
directors although less than a quorum of the board of directors. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the shareholders. Any directorship to 
be filled by reason of an increase in the number of directors may be 
filled by election by the board of directors for a term of office 
continuing only until the next election of directors by the 
shareholders.
    (f) Removal or resignation of directors. (1) At a meeting of 
shareholders called expressly for that purpose, any director may be 
removed only for cause, as defined in Sec. 563.39 of this chapter, by a 
vote of the holders of a majority of the shares then entitled to vote at 
an election of directors. Associations may provide for procedures 
regarding resignations in the bylaws.
    (2) If less than the entire board is to be removed, no one of the 
directors may be removed if the votes cast against the removal would be 
sufficient to elect a director if then cumulatively voted at an election 
of the class of directors of which such director is a part.
    (3) Whenever the holders of the shares of any class are entitled to 
elect one or more directors by the provisions of the charter or 
supplemental sections thereto, the provisions of this section shall 
apply, in respect to the removal of a director or directors so elected, 
to the vote of the holders of the outstanding shares of that class and 
not to the vote of the outstanding shares as a whole.
    (g) Executive and other committees. The board of directors, by 
resolution adopted by a majority of the full board, may designate from 
among its members an executive committee and one or more other 
committees each of which, to the extent provided in the resolution or 
bylaws of the association, shall have and may exercise all of the 
authority of the board of directors, except no committee shall have the 
authority of the board of directors with reference to: the declaration 
of dividends; the amendment of the charter or bylaws of the association; 
recommending to the stockholders a plan of merger, consolidation, or 
conversion; the sale, lease, or other disposition of all, or 
substantially all, of the property and assets of the association 
otherwise than in the usual and regular course of its business; a 
voluntary dissolution of the association; a revocation of any of the

[[Page 164]]

foregoing; or the approval of a transaction in which any member of the 
executive committee, directly or indirectly, has any material beneficial 
interest. The designation of any committee and the delegation of 
authority thereto shall not operate to relieve the board of directors, 
or any director, of any responsibility imposed by law or regulation.
    (h) Notice of special meetings. Written notice of at least 24 hours 
regarding any special meeting of the board of directors or of any 
committee designated thereby shall be given to each director in 
accordance with the bylaws, although such notice may be waived by the 
director. The attendance of a director at a meeting shall constitute a 
waiver of notice of such meeting, except where a director attends a 
meeting for the express purpose of objecting to the transaction of any 
business because the meeting is not lawfully called or convened. Neither 
the business to be transacted at, nor the purpose of, any meeting need 
be specified in the notice or waiver of notice of such meeting. The 
bylaws may provide for telephonic participation at a meeting.
    (i) Action without a meeting. Any action required or permitted to be 
taken by the board of directors at a meeting may be taken without a 
meeting if a consent in writing, setting forth the actions so taken, 
shall be signed by all of the directors.
    (j) Presumption of assent. A director of the association who is 
present at a meeting of the board of directors at which action on any 
association matter is taken shall be presumed to have assented to the 
action taken unless his or her dissent or abstention shall be entered in 
the minutes of the meeting or unless a written dissent to such action 
shall be filed with the person acting as the secretary of the meeting 
before the adjournment thereof or shall be forwarded by registered mail 
to the secretary of the association within five days after the date on 
which a copy of the minutes of the meeting is received. Such right to 
dissent shall not apply to a director who voted in favor of such action.
    (k) Age limitation on directors. A Federal association may provide a 
bylaw on age limitation for directors. Bylaws on age limitations must 
comply with all Federal laws, rules and regulations.

[54 FR 49523, Nov. 30, 1989, as amended at 58 FR 4312, Jan. 14, 1993; 61 
FR 64020, Dec. 3, 1996; 62 FR 66262, Dec. 18, 1997]



Sec. 552.6-2  Officers.

    (a) Positions. The officers of the association shall be a president, 
one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected by the board of directors. 
The board of directors may also designate the chairman of the board as 
an officer. The offices of the secretary and treasurer or comptroller 
may be held by the same person and the vice president may also be either 
the secretary or the treasurer or comptroller. The board of directors 
may designate one or more vice presidents as executive vice president or 
senior vice president. The board of directors may also elect or 
authorize the appointment of such other officers as the business of the 
association may require. The officers shall have such authority and 
perform such duties as the board of directors may from time to time 
authorize or determine. In the absence of action by the board of 
directors, the officers shall have such powers and duties as generally 
pertain to their respective offices.
    (b) Removal. Any officer may be removed by the board of directors 
whenever in its judgment the best interests of the association will be 
served thereby; but such removal, other than for cause, shall be without 
prejudice to the contractual rights, if any, of the person so removed. 
Employment contracts shall conform with Sec. 563.39 of this chapter.
    (c) Age limitation on officers. A Federal association may provide a 
bylaw on age limitation for officers. Bylaws on age limitations must 
comply with all Federal laws, rules, and regulations.

[54 FR 49523, Nov. 30, 1989, as amended at 56 FR 59866, Nov. 26, 1991; 
60 FR 66869, Dec. 27, 1995; 61 FR 64020, Dec. 3, 1996]



Sec. 552.6-3  Certificates for shares and their transfer.

    (a) Certificates for shares. Certificates representing shares of 
capital stock of the association shall be in such form as

[[Page 165]]

shall be determined by the board of directors and approved by the OTS. 
The certificates shall be signed by the chief executive officer or by 
any other officer of the association authorized by the board of 
directors, attested by the secretary or an assistant secretary, and 
sealed with the corporate seal or a facsimile thereof. The signatures of 
such officers upon a certificate may be facsimiles if the certificate is 
manually signed on behalf of a transfer agent or a registrar other than 
the association itself or one of its employees. Each certificate for 
shares of capital stock shall be consecutively numbered or otherwise 
identified. The name and address of the person to whom the shares are 
issued, with the number of shares and date of issue, shall be entered on 
the stock transfer books of the association. All certificates 
surrendered to the association for transfer shall be cancelled and no 
new certificate shall be issued until the former certificate for a like 
number of shares shall have been surrendered and cancelled, except that 
in the case of a lost or destroyed certificate a new certificate may be 
issued upon such terms and indemnity to the association as the board of 
directors may prescribe.
    (b) Transfer of shares. Transfer of shares of capital stock of the 
association shall be made only on its stock transfer books. Authority 
for such transfer shall be given only by the holder of record or by a 
legal representative, who shall furnish proper evidence of such 
authority, or by an attorney authorized by a duly executed power of 
attorney and filed with the association. The transfer shall be made only 
on surrender for cancellation of the certificate for the shares. The 
person in whose name shares of capital stock stand on the books of the 
association shall be deemed by the association to be the owner for all 
purposes.

[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13514, Apr. 11, 1990; 
57 FR 14343, Apr. 20, 1992]



Sec. 552.6-4  [Reserved]



Sec. 552.9  [Reserved]



Sec. 552.10  Annual reports to stockholders.

    A Federal stock association not wholly-owned by a holding company 
shall, within 130 days after the end of its fiscal year, mail to each of 
its stockholders entitled to vote at its annual meeting an annual report 
containing financial statements that satisfy the requirements of rule 
14a-3 under the Securities Exchange Act of 1934. (17 CFR 240.14a-3). 
Concurrently with such mailing a certification of such mailing signed by 
the chairman of the board, the president or a vice president of the 
association, together with copies of the report, shall be transmitted by 
the association to the OTS.

[57 FR 14343, Apr. 20, 1992, as amended at 62 FR 66262, Dec. 18, 1997]



Sec. 552.11  Books and records.

    (a) Each Federal stock association shall keep correct and complete 
books and records of account; shall keep minutes of the proceedings of 
its stockholders, board of directors, and committees of directors; and 
shall keep at its home office or at the office of its transfer agent or 
registrar, a record of its stockholders, giving the names and addresses 
of all stockholders, and the number, class and series, if any, of the 
shares held by each.
    (b) Any stockholder or group of stockholders of a Federal stock 
association, holding of record the number of voting shares of such 
association specified below, upon making written demand stating a proper 
purpose, shall have the right to examine, in person or by agent or 
attorney, at any reasonable time or times, nonconfidential portions of 
its books and records of account, minutes and record of stockholders and 
to make extracts therefrom. Such right of examination is limited to a 
stockholder or group of stockholders holding of record:
    (1) Voting shares having a cost of not less than $100,000 or 
constituting not less than one percent of the total outstanding voting 
shares, provided in either case such stockholder or group of 
stockholders have held of record such

[[Page 166]]

voting shares for a period of at least six months before making such 
written demand, or
    (2) Not less than five percent of the total outstanding voting 
shares.

No stockholder or group of stockholders of a Federal stock association 
shall have any other right under this section or common law to examine 
its books and records of account, minutes and record of stockholders, 
except as provided in its bylaws with respect to inspection of a list of 
stockholders.
    (c) The right to examination authorized by paragraph (b) of this 
section and the right to inspect the list of stockholders provided by a 
Federal stock association's bylaws may be denied to any stockholder or 
group of stockholders upon the refusal of any such stockholder or group 
of stockholders to furnish such association, its transfer agent or 
registrar an affidavit that such examination or inspection is not 
desired for any purpose which is in the interest of a business or object 
other than the business of the association, that such stockholder has 
not within the five years preceding the date of the affidavit sold or 
offered for sale, and does not now intend to sell or offer for sale, any 
list of stockholders of the association or of any other corporation, and 
that such stockholder has not within said five-year period aided or 
abetted any other person in procuring any list of stockholders for 
purposes of selling or offering for sale such list.
    (d) Notwithstanding any provision of this section or common law, no 
stockholder or group of stockholders shall have the right to obtain, 
inspect or copy any portion of any books or records of a Federal stock 
association containing:
    (1) A list of depositors in or borrowers from such association;
    (2) Their addresses;
    (3) Individual deposit or loan balances or records; or
    (4) Any data from which such information could be reasonably 
constructed.

[54 FR 49523, Nov. 30, 1989, as amended at 61 FR 64020, Dec. 3, 1996]



Sec. 552.12  [Reserved]



Sec. 552.13  Combinations involving Federal stock associations.

    (a) Scope and authority. Federal stock associations may enter into 
combinations only in accordance with the provisions of this section, 
section 18(c) of the Federal Deposit Insurance Act, sections 5(d)(3)(A) 
and 10(s) of the Home Owners' Loan Act, and Sec. 563.22 of this part.
    (b) Definitions. The following definitions apply to Sec. Sec. 
552.13 and 552.14 of this part:
    (1) Combination. A merger or consolidation with another depository 
institution, or an acquisition of all or substantially all of the assets 
or assumption of all or substantially all of the liabilities of a 
depository institution by another depository institution. Combine means 
to be a constituent institution in a combination.
    (2) Consolidation. Fusion of two or more depository institutions 
into a newly-created depository institution.
    (3) Constituent institution. Resulting, disappearing, acquiring, or 
transferring depository institution in a combination.
    (4) Depository institution means any commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank or a credit union, chartered in the 
United States and having its principal office located in the United 
States.
    (5) Disappearing institution. A depository institution whose 
corporate existence does not continue after a combination.
    (6) Merger. Uniting two or more depository institutions by the 
transfer of all property rights and franchises to the resulting 
depository institution, which retains its corporate identity.
    (7) Mutual savings association. Any savings association organized in 
a form not requiring non-withdrawable stock under Federal or State law.
    (8) Resulting institution. The depository institution whose 
corporate existence continues after a combination.

[[Page 167]]

    (9) Savings association has the same meaning as defined in Sec. 
561.43 of this chapter.
    (10) State. Includes the District of Columbia, Commonwealth of 
Puerto Rico, and States, territories, and possessions of the United 
States.
    (11) Stock association. Any savings association organized in a form 
requiring non-withdrawable stock.
    (c) Forms of combination. A Federal stock association may combine 
with any depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the requirements 
for Federal Home Loan Bank membership and insurance of accounts;
    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OTS to the requirements of sections 5(c) and 
10(m) of the Home Owners' Loan Act; and
    (4) If any constituent savings association is a mutual savings 
association, the resulting institution shall be mutually held, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 563b of this chapter;
    (iii) The transaction involves an interim Federal stock association 
or an interim State stock savings association; or
    (iv) The transaction involves a transfer in the context of a mutual 
holding company reorganization under section 10(o) of the Home Owners' 
Loan Act.
    (d) Combinations. Prior written notification to, notice to, or prior 
written approval of, the Office pursuant to Sec. 563.22 of this chapter 
is required for every combination. In the case of applications and 
notices pursuant to Sec. 563.22 (a) or (c), the Office shall apply the 
criteria set out in Sec. 563.22 of this chapter and shall impose any 
conditions it deems necessary or appropriate to ensure compliance with 
those criteria and the requirements of this chapter.
    (e) Approval of the board of directors. Before filing a notice or 
application for any combination involving a Federal stock association, 
the combination shall be approved:
    (1) By a two-thirds vote of the entire board of each constituent 
Federal savings association; and
    (2) As required by other applicable Federal or state law, for other 
constituent institutions.
    (f) Combination agreement. All terms, conditions, agreements or 
understandings, or other provisions with respect to a combination 
involving a Federal savings association shall be set forth fully in a 
written combination agreement. The combination agreement shall state:
    (1) That the combination shall not be effective unless and until:
    (i) The combination receives any necessary approval from the Office 
pursuant to Sec. 563.22 (a) or (c);
    (ii) In the case of a transaction requiring a notification pursuant 
to Sec. 563.22(b), notification has been provided to the OTS; or
    (iii) In the case of a transaction requiring a notice pursuant to 
Sec. 563.22(c), the notice has been filed, and the appropriate period 
of time has passed or the OTS has advised the parties that it will not 
disapprove the transaction;
    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the savings accounts of the resulting 
institution shall be issued;
    (8) If a Federal association is the resulting institution, the 
number, names, residence addresses, and terms of directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (g) [Reserved]

[[Page 168]]

    (h) Approval by stockholders--(1) General rule. Except as otherwise 
provided in this section, an affirmative vote of two-thirds of the 
outstanding voting stock of any constituent Federal savings association 
shall be required for approval of the combination agreement. If any 
class of shares is entitled to vote as a class pursuant to Sec. 552.4 
of this part, an affirmative vote of a majority of the shares of each 
voting class and two-thirds of the total voting shares shall be 
required. The required vote shall be taken at a meeting of the savings 
association.
    (2) General exception. Stockholders of the resulting Federal stock 
association need not authorize a combination agreement if:
    (i) It does not involve an interim Federal savings association or an 
interim state savings association;
    (ii) The association's charter is not changed;
    (iii) Each share of stock outstanding immediately prior to the 
effective date of the combination is to be an identical outstanding 
share or a treasury share of the resulting Federal stock association 
after such effective date; and
    (iv) Either:
    (A) No shares of voting stock of the resulting Federal stock 
association and no securities convertible into such stock are to be 
issued or delivered under the plan of combination, or
    (B) The authorized unissued shares or the treasury shares of voting 
stock of the resulting Federal stock association to be issued or 
delivered under the plan of combination, plus those initially issuable 
upon conversion of any securities to be issued or delivered under such 
plan, do not exceed 15% of the total shares of voting stock of such 
association outstanding immediately prior to the effective date of the 
combination.
    (3) Exceptions for certain combinations involving an interim 
association. Stockholders of a Federal stock association need not 
authorize by a two-thirds affirmative vote combinations involving an 
interim Federal savings association or interim state savings association 
when the resulting Federal stock association is acquired pursuant to 
Sec. 574.7(a)(2) of this chapter. In those cases, an affirmative vote 
of 50 percent of the shares of the outstanding voting stock of the 
Federal stock association plus one affirmative vote shall be required. 
If any class of shares is entitled to vote as a class pursuant to Sec. 
552.4 of this part, an affirmative vote of 50 percent of the shares of 
each voting class plus one affirmative vote shall be required. The 
required votes shall be taken at a meeting of the association.
    (i) Disclosure. The OTS may require, in connection with a 
combination under this section, such disclosure of information as the 
OTS deems necessary or desirable for the protection of investors in any 
of the constituent associations.
    (j) Articles of combination. (1) Following stockholder approval of 
any combination in which a Federal savings association is the resulting 
institution, articles of combination shall be executed in duplicate by 
each constituent institution, by its chief executive officer or 
executive vice president and by its secretary or an assistant secretary, 
and verified by one of the officers of each institution signing such 
articles, and shall set forth:
    (i) The plan of combination;
    (ii) The number of shares outstanding in each depository 
institution; and
    (iii) The number of shares in each depository institution voted for 
and against such plan.
    (2) Both sets of articles of combination shall be filed with the 
Office. If the Office determines that such articles conform to the 
requirements of this section, the Office shall endorse the articles and 
return one set to the resulting institution.
    (k) Effective date. No combination under this section shall be 
effective until receipt of any approvals required by the Office. The 
effective date of a combination in which the resulting institution is a 
Federal stock association shall be the date of consummation of the 
transaction or such other later date specified on the endorsement of the 
articles of combination by the Office. If a disappearing institution 
combining under this section is a Federal stock association, its charter 
shall be deemed to be cancelled as of the effective date of the 
combination and such

[[Page 169]]

charter must be surrendered to the Office as soon as practicable after 
the effective date.
    (l) Mergers and consolidations: transfer of assets and liabilities 
to the resulting institution. Upon the effective date of a merger or 
consolidation under this section, if the resulting institution is a 
Federal savings association, all assets and property (real, personal and 
mixed, tangible and intangible, choses in action, rights, and credits) 
then owned by each constituent institution or which would inure to any 
of them, shall, immediately by operation of law and without any 
conveyance, transfer, or further action, become the property of the 
resulting Federal savings association. The resulting Federal savings 
association shall be deemed to be a continuation of the entity of each 
constituent institution, the rights and obligations of which shall 
succeed to such rights and obligations and the duties and liabilities 
connected therewith, subject to the Home Owners' Loan Act and other 
applicable statutes.

[54 FR 49523, Nov. 30, 1989, as amended at 57 FR 14343, Apr. 20, 1992; 
59 FR 44623, Aug. 30, 1994; 71 FR 19811, Apr. 18, 2006]



Sec. 552.14  Dissenter and appraisal rights.

    (a) Right to demand payment of fair or appraised value. Except as 
provided in paragraph (b) of this section, any stockholder of a Federal 
stock association combining in accordance with Sec. 552.13 of this part 
shall have the right to demand payment of the fair or appraised value of 
his stock: Provided, That such stockholder has not voted in favor of the 
combination and complies with the provisions of paragraph (c) of this 
section.
    (b) Exceptions. No stockholder required to accept only qualified 
consideration for his or her stock shall have the right under this 
section to demand payment of the stock's fair or appraised value, if 
such stock was listed on a national securities exchange or quoted on the 
National Association of Securities Dealers' Automated Quotation System 
(``NASDAQ'') on the date of the meeting at which the combination was 
acted upon or stockholder action is not required for a combination made 
pursuant to Sec. 552.13(h)(2) of this part. ``Qualified consideration'' 
means cash, shares of stock of any association or corporation which at 
the effective date of the combination will be listed on a national 
securities exchange or quoted on NASDAQ, or any combination of such 
shares of stock and cash.
    (c) Procedure--(1) Notice. Each constituent Federal stock 
association shall notify all stockholders entitled to rights under this 
section, not less than twenty days prior to the meeting at which the 
combination agreement is to be submitted for stockholder approval, of 
the right to demand payment of appraised value of shares, and shall 
include in such notice a copy of this section. Such written notice shall 
be mailed to stockholders of record and may be part of management's 
proxy solicitation for such meeting.
    (2) Demand for appraisal and payment. Each stockholder electing to 
make a demand under this section shall deliver to the Federal stock 
association, before voting on the combination, a writing identifying 
himself or herself and stating his or her intention thereby to demand 
appraisal of and payment for his or her shares. Such demand must be in 
addition to and separate from any proxy or vote against the combination 
by the stockholder.
    (3) Notification of effective date and written offer. Within ten 
days after the effective date of the combination, the resulting 
association shall:
    (i) Give written notice by mail to stockholders of constituent 
Federal stock associations who have complied with the provisions of 
paragraph (c)(2) of this section and have not voted in favor of the 
combination, of the effective date of the combination;
    (ii) Make a written offer to each stockholder to pay for dissenting 
shares at a specified price deemed by the resulting association to be 
the fair value thereof; and
    (iii) Inform them that, within sixty days of such date, the 
respective requirements of paragraphs (c)(5) and (c)(6) of this section 
(set out in the notice) must be satisfied.

The notice and offer shall be accompanied by a balance sheet and 
statement of income of the association the

[[Page 170]]

shares of which the dissenting stockholder holds, for a fiscal year 
ending not more than sixteen months before the date of notice and offer, 
together with the latest available interim financial statements.
    (4) Acceptance of offer. If within sixty days of the effective date 
of the combination the fair value is agreed upon between the resulting 
association and any stockholder who has complied with the provisions of 
paragraph (c)(2) of this section, payment therefor shall be made within 
ninety days of the effective date of the combination.
    (5) Petition to be filed if offer not accepted. If within sixty days 
of the effective date of the combination the resulting association and 
any stockholder who has complied with the provisions of paragraph (c)(2) 
of this section do not agree as to the fair value, then any such 
stockholder may file a petition with the Office, with a copy by 
registered or certified mail to the resulting association, demanding a 
determination of the fair market value of the stock of all such 
stockholders. A stockholder entitled to file a petition under this 
section who fails to file such petition within sixty days of the 
effective date of the combination shall be deemed to have accepted the 
terms offered under the combination.
    (6) Stock certificates to be noted. Within sixty days of the 
effective date of the combination, each stockholder demanding appraisal 
and payment under this section shall submit to the transfer agent his 
certificates of stock for notation thereon that an appraisal and payment 
have been demanded with respect to such stock and that appraisal 
proceedings are pending. Any stockholder who fails to submit his or her 
stock certificates for such notation shall no longer be entitled to 
appraisal rights under this section and shall be deemed to have accepted 
the terms offered under the combination.
    (7) Withdrawal of demand. Notwithstanding the foregoing, at any time 
within sixty days after the effective date of the combination, any 
stockholder shall have the right to withdraw his or her demand for 
appraisal and to accept the terms offered upon the combination.
    (8) Valuation and payment. The Director shall, as he or she may 
elect, either appoint one or more independent persons or direct 
appropriate staff of the Office to appraise the shares to determine 
their fair market value, as of the effective date of the combination, 
exclusive of any element of value arising from the accomplishment or 
expectation of the combination. Appropriate staff of the Office shall 
review and provide an opinion on appraisals prepared by independent 
persons as to the suitability of the appraisal methodology and the 
adequacy of the analysis and supportive data. The Director after 
consideration of the appraisal report and the advice of the appropriate 
staff shall, if he or she concurs in the valuation of the shares, direct 
payment by the resulting association of the appraised fair market value 
of the shares, upon surrender of the certificates representing such 
stock. Payment shall be made, together with interest from the effective 
date of the combination, at a rate deemed equitable by the Director.
    (9) Costs and expenses. The costs and expenses of any proceeding 
under this section may be apportioned and assessed by the Director as he 
or she may deem equitable against all or some of the parties. In making 
this determination the Director shall consider whether any party has 
acted arbitrarily, vexatiously, or not in good faith in respect to the 
rights provided by this section.
    (10) Voting and distribution. Any stockholder who has demanded 
appraisal rights as provided in paragraph (c)(2) of this section shall 
thereafter neither be entitled to vote such stock for any purpose nor be 
entitled to the payment of dividends or other distributions on the stock 
(except dividends or other distribution payable to, or a vote to be 
taken by stockholders of record at a date which is on or prior to, the 
effective date of the combination): Provided, That if any stockholder 
becomes unentitled to appraisal and payment of appraised value with 
respect to such stock and accepts or is deemed to have accepted the 
terms offered upon the combination, such stockholder shall thereupon be 
entitled to vote and receive the distributions described above.
    (11) Status. Shares of the resulting association into which shares 
of the

[[Page 171]]

stockholders demanding appraisal rights would have been converted or 
exchanged, had they assented to the combination, shall have the status 
of authorized and unissued shares of the resulting association.



Sec. 552.15  Supervisory combinations.

    Notwithstanding the foregoing provisions of this part, the Director 
of the Office may waive or deem inapplicable any provision of Sec. 
552.13 or Sec. 552.14 of this part if he or she determines that grounds 
exist, or may imminently exist, for appointment of a conservator or 
receiver for an association under subsection 5(d) of the Home Owners' 
Loan Act.



Sec. 552.16  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal stock association to engage in any transaction 
shall be determined only by the association's charter or bylaws then in 
effect.



PART 555_ELECTRONIC OPERATIONS--Table of Contents




Sec.
555.100 What does this part do?

     Subpart A_Authority of Federal Savings Associations To Conduct 
                          Electronic Operations

555.200 How may I use or participate with others to use electronic means 
          and facilities?
555.210 What precautions must I take?

      Subpart B_Requirements Applicable to All Savings Associations

555.300 Must I inform OTS before I use electronic means or facilities?
555.310 How do I notify OTS?

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 63 FR 65682, Nov. 30, 1998, unless otherwise noted.



Sec. 555.100  What does this part do?

    Subpart A of this part describes how a Federal savings association 
may provide products and services through electronic means and 
facilities. Subpart B of this part contains requirements applicable to 
all savings associations.



     Subpart A_Authority of Federal Savings Associations To Conduct 
                          Electronic Operations



Sec. 555.200  How may I use or participate with others to use electronic
means and facilities?

    (a) General. A Federal savings association (``you'') may use, or 
participate with others to use, electronic means or facilities to 
perform any function, or provide any product or service, as part of an 
authorized activity. Electronic means or facilities include, but are not 
limited to, automated teller machines, automated loan machines, personal 
computers, the Internet, the World Wide Web, telephones, and other 
similar electronic devices.
    (b) Other. To optimize the use of your resources, you may market and 
sell, or participate with others to market and sell, electronic 
capacities and by-products to third-parties, if you acquired or 
developed these capacities and by-products in good faith as part of 
providing financial services.



Sec. 555.210  What precautions must I take?

    If you use electronic means and facilities under this subpart, your 
management must:
    (a) Identify, assess, and mitigate potential risks and establish 
prudent internal controls; and
    (b) Implement security measures designed to ensure secure 
operations. Such measures must be adequate to:
    (1) Prevent unauthorized access to your records and your customers' 
records;
    (2) Prevent financial fraud through the use of electronic means or 
facilities; and
    (3) Comply with applicable security devices requirements of part 568 
of this chapter.

[[Page 172]]



      Subpart B_Requirements Applicable to All Savings Associations



Sec. 555.300  Must I inform OTS before I use electronic means or facilities?

    (a) General. A savings association (``you'') are not required to 
inform OTS before you use electronic means or facilities, except as 
provided in paragraphs (b) and (c) of this section. However, OTS 
encourages you to consult with your Regional Office before you engage in 
any activities using electronic means or facilities.
    (b) Activities requiring advance notice. You must file a written 
notice as described in Sec. 555.310 before you establish a 
transactional web site. A transactional web site is an Internet site 
that enables users to conduct financial transactions such as accessing 
an account, obtaining an account balance, transferring funds, processing 
bill payments, opening an account, applying for or obtaining a loan, or 
purchasing other authorized products or services.
    (c) Other procedures. If the OTS Regional Office informs you of any 
supervisory or compliance concerns that may affect your use of 
electronic means or facilities, you must follow any procedures it 
imposes in writing.



Sec. 555.310  How do I notify OTS?

    (a) Notice requirement. You must file a written notice with the 
appropriate Regional Office listed at Sec. 516.40(a) of this chapter at 
least 30 days before you establish a transactional website. The notice 
must do three things:
    (1) Describe the transactional web site.
    (2) Indicate the date the transactional web site will become 
operational.
    (3) List a contact familiar with the deployment, operation, and 
security of the transactional web site.
    (b) Transition provision. If you established a transactional web 
site after the date of your last regular onsite OTS safety and soundness 
examination but before January 1, 1999, you must file a notice 
describing your activity by February 1, 1999.

[63 FR 65682, Nov. 30, 1998, as amended at 66 FR 13006, Mar. 2, 2001]



PART 557_DEPOSITS--Table of Contents




                            Subpart A_General

Sec.
557.1 What does this part do?

      Subpart B_Deposit Activities of Federal Savings Associations

557.10 What authorities govern the issuance of deposit accounts by a 
          federal savings association?
557.11 To what extent does Federal law preempt deposit-related State 
          laws?
557.12 What are some examples of preempted state laws affecting 
          deposits?
557.13 What State laws affecting deposits are not preempted?
557.14 What interest rate may I pay on savings accounts?
557.15 Who owns a deposit account?

        Subpart C_Deposit Activities of All Savings Associations

557.20 What records should I maintain on deposit activities?

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    Source: 62 FR 54764, Oct. 22, 1997, unless otherwise noted.



                            Subpart A_General



Sec. 557.1  What does this part do?

    This part applies to the deposit activities of savings associations. 
If you are a federal savings association, subpart B of this part applies 
to your deposit activities. Subpart C of this part applies to the 
deposit activities of all federal and state-chartered savings 
associations.



      Subpart B_Deposit Activities of Federal Savings Associations



Sec. 557.10  What authorities govern the issuance of deposit accounts
by a federal savings association?

    A federal savings association (``you'') may raise funds through 
accounts and may issue evidence of accounts under section 5(b)(1) of the 
HOLA (12 U.S.C. 1464(b)(1)), your charter, and this part. Additionally, 
12 CFR parts 204 and 230 apply to your deposit activities.

[[Page 173]]



Sec. 557.11  To what extent does Federal law preempt deposit-related State laws?

    (a) Under sections 4(a), 5(a), and 5(b) of the HOLA, 12 U.S.C. 
1463(a), 1464(a), and 1464(b), OTS is authorized to promulgate 
regulations that preempt state laws affecting the operations of federal 
savings associations when appropriate to:
    (1) Facilitate the safe and sound operations of federal savings 
associations;
    (2) Enable federal savings associations to operate according to the 
best thrift institutions practices in the United States; or
    (3) Further other purposes of HOLA.
    (b) To further these purposes without undue regulatory duplication 
and burden, OTS hereby occupies the entire field of federal savings 
associations' deposit-related regulations. OTS intends to give federal 
savings associations maximum flexibility to exercise deposit-related 
powers according to a uniform federal scheme of regulation. Federal 
savings associations may exercise deposit-related powers as authorized 
under federal law, including this part, without regard to state laws 
purporting to regulate or otherwise affect deposit activities, except to 
the extent provided in Sec. 557.13. State law includes any statute, 
regulation, ruling, order, or judicial decision.

[62 FR 54764, Oct. 22, 1997, as amended at 63 FR 71212, Dec. 24, 1998; 
64 FR 69184, Dec. 10, 1999; 67 FR 78152, Dec. 23, 2002]



Sec. 557.12  What are some examples of preempted state laws 
affecting deposits?

    The OTS preempts state laws that purport to impose requirements 
governing the following:
    (a) Abandoned and dormant accounts;
    (b) Checking accounts;
    (c) Disclosure requirements;
    (d) Funds availability;
    (e) Savings account orders of withdrawal;
    (f) Service charges and fees;
    (g) State licensing or registration requirements; and
    (h) Special purpose savings services.



Sec. 557.13  What State laws affecting deposits are not preempted?

    (a) The OTS has not preempted the following types of state law, to 
the extent that the law only incidentally affects your deposit-related 
activities or is otherwise consistent with the purposes of Sec. 557.11:
    (1) Contract and commercial law;
    (2) Tort law; and
    (3) Criminal law.
    (b) The OTS will not preempt any other state law if the OTS, upon 
review, finds that the law:
    (1) Furthers a vital state interest; and
    (2) Either only incidentally affects your deposit-related activities 
or is not otherwise contrary to the purposes expressed in Sec. 557.11.



Sec. 557.14  What interest rate may I pay on savings accounts?

    (a) You may pay interest at any rate or anticipated rate of return 
on savings accounts, either in deposit or in share form, as provided in 
your charter and the account's terms.
    (b) You may pay fixed or variable rates. If you pay a variable rate, 
you must base it on a schedule, index, or formula that you specify in 
the account's terms.



Sec. 557.15  Who owns a deposit account?

    You may treat the holder of record as the account owner, even if you 
receive contrary notice, until you transfer the account on your records.



        Subpart C_Deposit Activities of All Savings Associations



Sec. 557.20  What records should I maintain on deposit activities?

    All federal and state chartered savings associations (``you'') 
should establish and maintain deposit documentation practices and 
records that demonstrate that you appropriately administer and monitor 
deposit-related activities. Your records should adequately evidence 
ownership, balances, and all transactions involving each account. You 
may maintain records on deposit activities in any format that is 
consistent with standard business practices.

[[Page 174]]



PART 558_POSSESSION BY CONSERVATORS AND RECEIVERS FOR FEDERAL AND 
STATE SAVINGS ASSOCIATIONS--Table of Contents




Sec.
558.1 Procedure upon taking possession.
558.2 Notice of appointment.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.



Sec. 558.1  Procedure upon taking possession.

    (a) The conservator or receiver for a Federal or state savings 
association shall take possession of the savings association by taking 
possession of the principal office of the Federal or state savings 
association in accordance with the terms of the Director's appointment.
    (b) Upon taking possession, the conservator or receiver shall 
immediately:
    (1) Take possession of the savings association's books, records and 
assets.
    (2) Notify in writing, served personally or by registered mail or 
telegraph, all persons and entities that the conservator or receiver 
knows to be holding or in possession of assets of the savings 
association, that the conservator or receiver has succeeded to all 
rights, titles, powers and privileges of the savings associations.
    (3) File with the Corporate Secretary a statement that possession 
was taken, including the time of the taking, which statement shall be 
conclusive evidence thereof.
    (4) Post a notice on the door of the principal and other offices of 
the savings association in the form prescribed by the Director of the 
OTS.
    (5) By operation of law and without any conveyance or other 
instrument, act or deed, succeed to the rights, titles, powers and 
privileges of the savings association, and to the rights, powers, and 
privileges of its stockholders, members, accountholders, depositors, 
officers, and directors. No stockholder, member, accountholder, 
depositor, officer or director shall thereafter have or exercise any 
right, power, or privilege, or act in connection with any of the savings 
association's assets or property.

[58 FR 4312, Jan. 14, 1993, as amended at 59 FR 53571, Oct. 25, 1994; 73 
FR 18, Jan. 2, 2008]



Sec. 558.2  Notice of appointment.

    (a) When the Director of OTS issues an order for the appointment of 
a conservator or receiver, the Director will designate the persons or 
entities whose employees or agents must, before the conservator or 
receiver takes possession of the savings association:
    (1) Give notice of the appointment to any officer or employee who is 
present in and appears to be in charge at the principal office of the 
savings association as determined by OTS.
    (2) Serve a copy of the order for the appointment upon the savings 
association or upon the conservator by:
    (i) Leaving a certified copy of the order of appointment at the 
principal office of the savings association as determined by OTS; or
    (ii) Handing a certified copy of the order of appointment to the 
previous conservator of the savings association, or to the officer or 
employee of the savings association, or to the previous conservator who 
is present in and appears to be in charge at the principal office of the 
savings association as determined by OTS.
    (3) File with the Secretary of OTS a statement that includes the 
date and time that notice of the appointment was given and service of 
the order of appointment was made.
    (b) If the Director of OTS appoints a conservator or receiver under 
this part, OTS will immediately file a notice of the appointment for 
publication in the Federal Register.

[73 FR 18, Jan. 2, 2008]



PART 559_SUBORDINATE ORGANIZATIONS--Table of Contents




Sec.
559.1 What does this part cover?
559.2 Definitions.

    Subpart A_Regulations Applicable to Federal Savings Associations

559.3 What are the characteristics of, and what requirements apply to, 
          subordinate

[[Page 175]]

          organizations of Federal savings associations?
559.4 What activities are preapproved for service corporations?
559.5 How much may a savings association invest in service corporations 
          or lower-tier entities?

      Subpart B_Regulations Applicable to All Savings Associations

559.10 How must separate corporate identities be maintained?
559.11 What notices are required to establish or acquire a new 
          subsidiary or engage in new activities through an existing 
          subsidiary?
559.12 How may a subsidiary of a savings association issue securities?
559.13 How may a savings association exercise its salvage power in 
          connection with its service corporation or lower-tier 
          entities?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828.

    Source: 61 FR 66571, Dec. 18, 1996, unless otherwise noted.



Sec. 559.1  What does this part cover?

    (a) OTS is issuing this part 559 pursuant to its general rulemaking 
and supervisory authority under the Home Owners' Loan Act, 12 U.S.C. 
1462 et seq., and its specific authority under section 18(m) of the 
Federal Deposit Insurance Act, 12 U.S.C. 1828(m). Subpart A of this part 
559 applies to subordinate organizations of federal savings 
associations. Subpart B of this part applies to subordinate 
organizations of all savings associations. OTS may, at any time, limit a 
savings association's investment in any of these entities, or may limit 
or refuse to permit any activities of any of these entities for 
supervisory, legal, or safety and soundness reasons.
    (b) Notices under this part are applications for purposes of 
statutory and regulatory references to ``applications.'' Any conditions 
that OTS imposes in approving any application are enforceable as a 
condition imposed in writing by the OTS in connection with the granting 
of a request by a savings association within the meaning of 12 U.S.C. 
1818(b) or 1818(i).



Sec. 559.2  Definitions.

    For purposes of this part:
    Control has the same meaning as in part 574 of this chapter.
    GAAP-consolidated subsidiary means an entity in which a savings 
association has a direct or indirect ownership interest and whose assets 
are consolidated with those of the savings association for purposes of 
reporting under Generally Accepted Accounting Principles (GAAP). 
Generally, these are entities in which a savings association has a 
majority ownership interest.
    Lower-tier entity includes any company in which an operating 
subsidiary or a service corporation has a direct or indirect ownership 
interest.
    Operating subsidiary means any entity that satisfies all of the 
requirements for an operating subsidiary set forth in Sec. 559.3 of 
this part and that is designated by the parent savings association as an 
operating subsidiary pursuant to Sec. 559.3 of this part. More than 50% 
of the voting shares of an operating subsidiary must be owned, directly 
or indirectly, by a federal savings association and no other person or 
entity may exercise effective operating control. An operating subsidiary 
may only engage in activities permissible for a federal savings 
association.
    Ownership interest means any equity interest in a business 
organization, including stock, limited or general partnership interests, 
or shares in a limited liability company.
    Service corporation means any entity that satisfies all of the 
requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and 
Sec. 559.3 of this part and that is designated by the investing savings 
association as a service corporation pursuant to Sec. 559.3 of this 
part. A service corporation must be organized under the laws of the 
state where the federal savings association's home office is located, 
may only be owned by savings associations with home offices in that 
state, and may engage in the activities identified in Sec. Sec. 
559.3(e)(2) and 559.4 of this part.
    Subordinate organization means any corporation, partnership, 
business trust, association, joint venture, pool, syndicate, or other 
similar business organization in which a savings association has a 
direct or indirect ownership interest, unless that ownership interest 
qualifies as a pass-through investment

[[Page 176]]

pursuant to Sec. 560.32 of this chapter and is so designated by the 
investing savings association.
    Subsidiary means any subordinate organization directly or indirectly 
controlled by a savings association.



    Subpart A_Regulations Applicable to Federal Savings Associations



Sec. 559.3  What are the characteristics of, and what requirements
apply to, subordinate organizations of Federal savings associations?

    A federal savings association (``you'') that meets the requirements 
of this section, as detailed in the following chart, may establish, or 
obtain an interest in an operating subsidiary or a service corporation. 
For ease of reference, this section cross-references other regulations 
in this chapter affecting operating subsidiaries and service 
corporations. You should refer to those regulations for the details of 
how they apply. The chart also discusses the regulations that may apply 
to lower-tier entities in which you have an indirect ownership interest 
through your operating subsidiary or service corporation. The chart 
follows:

----------------------------------------------------------------------------------------------------------------
                                              Operating subsidiary                   Service corporation
----------------------------------------------------------------------------------------------------------------
(a) How may a federal savings         (1) You must file a notice            (2) You must file a notice
 association (``you'') establish an    satisfying Sec. 559.11. Any         satisfying Sec. 559.11. Depending
 operating subsidiary or a service     finance subsidiary that existed on    upon your condition and the
 corporation?                          January 1, 1997 is deemed an          activities in which the service
                                       operating subsidiary without          corporation will engage, Sec.
                                       further action on your part.          559.3(e)(2) may require you to file
                                                                             an application.
----------------------------------------------------------------------------------------------------------------
(b) Who may be an owner?              (1) Anyone may have an ownership      (2) Only savings associations with
                                       interest in an operating              home offices in the state where you
                                       subsidiary.                           have your home office may have an
                                                                             ownership interest in any service
                                                                             corporation in which you invest.
----------------------------------------------------------------------------------------------------------------
(c) What ownership requirements       (1) You must own, directly or         (2) You are not required to have any
 apply?                                indirectly, more than 50% of the      particular percentage ownership
                                       voting shares of the operating        interest and need not have control
                                       subsidiary. No one else may           of the service corporation.
                                       exercise effective operating
                                       control.
----------------------------------------------------------------------------------------------------------------
(d) What geographic restrictions      (1) An operating subsidiary may be    (2) A service corporation must be
 apply?                                organized in any geographic           organized in the state where your
                                       location.                             home office is located.
----------------------------------------------------------------------------------------------------------------
(e) What activities are permissible?  (1) After you have notified OTS in    (2)(i) If you are eligible for
                                       accordance with Sec. 559.11, an     expedited treatment under Sec.
                                       operating subsidiary may engage in    516.5 of this chapter, and notify
                                       any activity that you may conduct     OTS as required by Sec. 559.11,
                                       directly. You may hold another        your service corporation may engage
                                       insured depository institution as     in the preapproved activities
                                       an operating subsidiary.              listed in Sec. 559.4. You may
                                                                             request OTS approval for your
                                                                             service corporation to engage in
                                                                             any other activity reasonably
                                                                             related to the activities of
                                                                             financial institutions by filing an
                                                                             application in accordance with
                                                                             standard treatment processing
                                                                             procedures at part 516, subparts A
                                                                             and E of this chapter.

[[Page 177]]

 
                                                                            (ii) If you are subject to standard
                                                                             treatment under Sec. 516.5 of
                                                                             this chapter, and notify OTS as
                                                                             required by Sec. 559.11, your
                                                                             service corporation may engage in
                                                                             any activity that you may conduct
                                                                             directly except taking deposits.
                                                                             You may request OTS approval for
                                                                             your service corporation to engage
                                                                             in any other activity reasonably
                                                                             related to the activities of
                                                                             financial institutions, including
                                                                             the activities set forth in Sec.
                                                                             559.4(b)-(j), by filing an
                                                                             application in accordance with
                                                                             standard treatment processing
                                                                             procedures at part 516, subparts A
                                                                             and E of this chapter.
----------------------------------------------------------------------------------------------------------------
(f) May the operating subsidiary or   (1)(i) An operating subsidiary may    (2) A service corporation may invest
 service corporation invest in lower-  itself hold an operating              in all types of lower-tier entities
 tier entities?                        subsidiary. Part 559 applies          as long as the lower-tier entity is
                                       equally to a lower-tier operating     engaged solely in activities that
                                       subsidiary. In applying the           are permissible for a service
                                       regulations in this part, the         corporation. All of the
                                       investing operating subsidiary        requirements of this part apply to
                                       should substitute ``investing         such entities except for paragraphs
                                       operating subsidiary'' wherever the   (b)(2) and (d)(2) of this section.
                                       part uses ``you'' or ``savings
                                       association.''
 
                                      (ii) An operating subsidiary may
                                       also invest in other types of lower-
                                       tier entities. These entities must
                                       comply with all of the requirements
                                       of this part 559 that apply to
                                       service corporations except for
                                       paragraphs (b)(2) and (d)(2) of
                                       this section.
----------------------------------------------------------------------------------------------------------------
(g) How much may a federal savings    (1) There are no limits on the        (2) Section 559.5 limits your
 association invest?                   amount you may invest in your         aggregate investments in service
                                       operating subsidiaries, either        corporations and indicates when
                                       separately or in the aggregate.       your investments (both debt and
                                                                             equity) in lower-tier entities must
                                                                             be aggregated with your investments
                                                                             in service corporations.
----------------------------------------------------------------------------------------------------------------
(h) Do federal statutes and           (1) Unless otherwise specifically     (2) (i) If the federal statute or
 regulations that apply to the         provided by statute, regulation, or   regulation specifically refers to
 savings association apply?            OTS policy, all federal statutes      ``service corporation,'' it applies
                                       and regulations apply to operating    to all service corporations, even
                                       subsidiaries in the same manner as    if you do not control the service
                                       they apply to you. You and your       corporation or it is not a GAAP-
                                       operating subsidiary are generally    consolidated subsidiary.
                                       consolidated and treated as a unit   (ii) If the federal statute or
                                       for statutory and regulatory          regulation refers to
                                       purposes.                             ``subsidiary,'' it applies only to
                                                                             service corporations that you
                                                                             directly or indirectly control.
----------------------------------------------------------------------------------------------------------------

[[Page 178]]

 
(i) Do the investment limits that     (1) Your assets and those of your     (2) Your service corporation's
 apply to federal savings              operating subsidiary are aggregated   assets are not subject to the same
 associations (HOLA section 5(c) and   when calculating investment           investment limitations that apply
 part 560 of this chapter) apply?      limitations.                          to you. The investment activities
                                                                             of your service corporation are
                                                                             governed by paragraph (e)(2) of
                                                                             this section and Sec. 559.4.
----------------------------------------------------------------------------------------------------------------
(j) How does the capital regulation   (1) Your assets and those of your     (2) The capital treatment of a
 (part 567 of this chapter) apply?     operating subsidiary are              service corporation depends upon
                                       consolidated for all capital          whether it is an includable
                                       purposes.                             subsidiary. That determination is
                                                                             based upon factors set forth in
                                                                             part 567 of this chapter, including
                                                                             your percentage ownership of the
                                                                             service corporation and the
                                                                             activities in which the service
                                                                             corporation engages. Both debt and
                                                                             equity investments in service
                                                                             corporations that are GAAP-
                                                                             consolidated subsidiaries are
                                                                             considered investments in
                                                                             subsidiaries for purposes of the
                                                                             capital regulation, regardless of
                                                                             the authority under which they are
                                                                             made.
----------------------------------------------------------------------------------------------------------------
(k) How does the loans-to-one-        (1) The LTOB regulation does not      (2) The LTOB regulation does not
 borrower (LTOB) regulation (Sec. apply to loans from you to your       apply to loans from you to your
 560.93 of this chapter) apply?        operating subsidiary or loans from    service corporation or from your
                                       your operating subsidiary to you.     service corporation to you.
                                       Other loans made by your operating    However, Sec. 559.5 imposes
                                       subsidiary are aggregated with your   restrictions on the amount of loans
                                       loans for LTOB purposes.              you may make to certain service
                                                                             corporations. Loans made by a
                                                                             service corporation that you
                                                                             control to entities other than you
                                                                             or your subordinate organizations
                                                                             are aggregated with your loans for
                                                                             LTOB purposes.
----------------------------------------------------------------------------------------------------------------

[[Page 179]]

 
(l) How do the transactions with      (1) Section 563.41 of this chapter    (2) Section 563.41 of this chapter
 affiliates (TWA) regulations (Sec. explains how TWA applies.             explains how TWA applies.
  563.41 of this chapter) apply?       Generally, an operating subsidiary    Generally, a service corporation is
                                       is not an affiliate, unless it is a   not an affiliate, unless it is a
                                       depository institution; is directly   depository institution; is directly
                                       controlled by another affiliate of    controlled by another affiliate of
                                       the savings association or by         the savings association or by
                                       shareholders that control the         shareholders that control the
                                       savings association; or is an         savings association; or is an
                                       employee stock option plan, trust,    employee stock option plan, trust,
                                       or similar organization that exists   or similar organization that exists
                                       for the benefit of shareholders,      for the benefit of shareholders,
                                       partners, members, or employees of    partners, members, or employees of
                                       the savings association or an         the savings association or an
                                       affiliate. A non-affiliate            affiliate. If a savings association
                                       operating subsidiary is treated as    directly or indirectly controls a
                                       a part of the savings association     service corporation and the service
                                       and its transactions with             corporation is not otherwise an
                                       affiliates of the savings             affiliate under Sec. 563.41 of
                                       association are aggregated with       this chapter, the service
                                       those of the savings association      corporation is treated as a part of
                                                                             the savings association and its
                                                                             transactions with affiliates of the
                                                                             savings association are aggregated
                                                                             with those of the savings
                                                                             association.
----------------------------------------------------------------------------------------------------------------
(m) How does the Qualified Thrift     (1) Under 12 U.S.C. 1467a(m)(5), you  (2) Under 12 U.S.C. 1467a(m)(5), you
 Lender (QTL) (12 U.S.C. 1467a(m))     may determine whether to              may determine whether to
 test apply?                           consolidate the assets of a           consolidate the assets of a
                                       particular operating subsidiary for   particular service corporation for
                                       purposes of calculating your          purposes of calculating your
                                       qualified thrift investments. If      qualified thrift investments. If a
                                       the operating subsidiary's assets     service corporation's assets are
                                       are not consolidated with yours for   not consolidated with yours for
                                       that purpose, your investment in      that purpose, your investment in
                                       the operating subsidiary will be      the service corporation will be
                                       considered in calculating your        considered in calculating your
                                       qualified thrift investments.         qualified thrift investments.
----------------------------------------------------------------------------------------------------------------
(n) Does state law apply?             (1) State law applies to operating    (2) State law applies to service
                                       subsidiaries only to the extent it    corporations regardless of whether
                                       applies to you.                       it applies to you, except where
                                                                             there is a conflict with federal
                                                                             law.
----------------------------------------------------------------------------------------------------------------
(o) May OTS conduct examinations?     (1) An operating subsidiary is        (2) A service corporation is subject
                                       subject to examination by OTS.        to examination by OTS.
----------------------------------------------------------------------------------------------------------------
(p) What must be done to redesignate  (1) Before redesignating an           (2) Before redesignating a service
 an operating subsidiary as a          operating subsidiary as a service     corporation as an operating
 service corporation or a service      corporation, you should consult       subsidiary, you should consult with
 corporation as an operating           with the OTS Regional Director for    the OTS Regional Director for the
 subsidiary?                           the Region in which your home         Region in which your home office is
                                       office is located. You must           located. You must maintain adequate
                                       maintain adequate internal records,   internal records, available for
                                       available for examination by OTS,     examination by OTS, demonstrating
                                       demonstrating that the redesignated   that the redesignated operating
                                       service corporation meets all of      subsidiary meets all of the
                                       the applicable requirements of this   applicable requirements of this
                                       part and that your board of           part and that your board of
                                       directors has approved the            directors has approved the
                                       redesignation.                        redesignation.
----------------------------------------------------------------------------------------------------------------

[[Page 180]]

 
(q) What are the consequences of      (1) If an operating subsidiary, or    (2) If a service corporation, or any
 failing to comply with the            any lower-tier entity in which the    lower-tier entity in which the
 requirements of this part?            operating subsidiary invests          service corporation invests
                                       pursuant to paragraph (f)(1) of       pursuant to paragraph (f)(2) of
                                       this section fails to meet any of     this section, fails to meet any of
                                       the requirements of this section,     the requirements of this section,
                                       you must notify OTS. Unless           you must notify OTS. Unless
                                       otherwise advised by OTS, if the      otherwise advised by OTS, if the
                                       company cannot comply within 90       company cannot comply within 90
                                       days with all of the requirements     days with all of the requirements
                                       for either an operating subsidiary    for either an operating subsidiary
                                       or a service corporation under this   or a service corporation under this
                                       section, or any other investment      section, or any other investment
                                       authorized by 12 U.S.C. 1464(c) or    authorized by 12 U.S.C. 1464(c) or
                                       part 560 of this chapter, you must    part 560 of this chapter, you must
                                       promptly dispose of your              promptly dispose of your
                                       investment.                           investment.
----------------------------------------------------------------------------------------------------------------


[61 FR 66571, Dec. 18, 1996, as amended at 62 FR 66262, Dec. 18, 1997; 
63 FR 65683, Nov. 30, 1998; 66 FR 13006, Mar. 2, 2001; 67 FR 77916, Dec. 
20, 2002; 67 FR 78152, Dec. 23, 2002; 68 FR 57796, Oct. 7, 2003]



Sec. 559.4  What activities are preapproved for service corporations?

    This section sets forth the activities that have been preapproved 
for service corporations. Section 559.3(e)(2) of this part sets forth 
the procedures for engaging in a broader scope of activities on a case-
by-case basis. You should read these two sections together to determine 
whether you must file a notice with OTS under Sec. 559.11 of this part, 
or whether you must file an application under part 516 of this chapter 
and receive prior written OTS approval for your service corporation to 
engage in a particular activity. To the extent permitted by Sec. 
559.3(e)(2) of this part, a service corporation may engage in the 
following activities:
    (a) Any activity that all federal savings associations may conduct 
directly, except taking deposits.
    (b) Business and professional services. The following services are 
preapproved for service corporations only when they are limited to 
financial documents or financial clients or are generally finance-
related:
    (1) Accounting or internal audit;
    (2) Advertising, marketing research and other marketing;
    (3) Clerical;
    (4) Consulting;
    (5) Courier;
    (6) Data processing;
    (7) Data storage facilities operation and related services;
    (8) Office supplies, furniture, and equipment purchasing and 
distribution;
    (9) Personnel benefit program development or administration;
    (10) Printing and selling forms that require Magnetic Ink Character 
Recognition (MICR) encoding;
    (11) Relocation of personnel;
    (12) Research studies and surveys;
    (13) Software development and systems integration; and
    (14) Remote service unit operation, leasing, ownership or 
establishment.
    (c) Credit-related activities.
    (1) Abstracting;
    (2) Acquiring and leasing personal property;
    (3) Appraising;
    (4) Collection agency;
    (5) Credit analysis;
    (6) Check or credit card guaranty and verification;
    (7) Escrow agent or trustee (under deeds of trust, including 
executing and deliverance of conveyances, reconveyances and transfers of 
title); and
    (8) Loan inspection.
    (d) Consumer services.
    (1) Financial advice or consulting;
    (2) Foreign currency exchange;
    (3) Home ownership counseling;
    (4) Income tax return preparation;
    (5) Postal services;
    (6) Stored value instrument sales;

[[Page 181]]

    (7) Welfare benefit distribution;
    (8) Check printing and related services; and
    (9) Remote service unit operation, leasing, ownership, or 
establishment.
    (e) Real estate related services.
    (1) Acquiring real estate for prompt development or subdivision, for 
construction of improvements, for resale or leasing to others for such 
construction, or for use as manufactured home sites, in accordance with 
a prudent program of property development;
    (2) Acquiring improved real estate or manufactured homes to be held 
for rental or resale, for remodeling, renovating, or demolishing and 
rebuilding for sale or rental, or to be used for offices and related 
facilities of a stockholder of the service corporation;
    (3) Maintaining and managing real estate; and
    (4) Real estate brokerage for property owned by a savings 
association that owns capital stock of the service corporation, the 
service corporation, or a lower-tier entity in which the service 
corporation invests.
    (f) Securities activities, liquidity management, and coins.
    (1) Execution of transactions in securities on an agency or riskless 
principal basis solely upon the order and for the account of customers 
or the provision of investment advice. The service corporation must 
register with the Securities and Exchange Commission and State 
securities regulators, as required by applicable Federal and State law 
and regulations.
    (2) Liquidity management;
    (3) Issuing notes, bonds, debentures, or other obligations or 
securities;
    (4) Purchase or sale of coins issued by the U.S. Treasury.
    (g) Investments. (1) Tax-exempt bonds used to finance residential 
real property for family units;
    (2) Tax-exempt obligations of public housing agencies used to 
finance housing projects with rental assistance subsidies;
    (3) Small business investment companies and new markets venture 
capital companies licensed by the U.S. Small Business Administration;
    (4) Rural business investment companies; and
    (5) Investing in savings accounts of an investing thrift.
    (h) Community development and charitable activities:
    (1) Investments in governmentally insured, guaranteed, subsidized or 
otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments designed primarily to promote the public welfare, 
including the welfare of low- and moderate-income communities or 
families (such as providing housing, services, or jobs);
    (3) Investments in low-income housing tax credit and new markets tax 
credit projects and entities authorized by statute (e.g., community 
development financial institutions) to promote community, inner city, 
and community development purposes; and
    (4) Establishing a corporation that is recognized by the Internal 
Revenue Service as organized for charitable purposes under 26 U.S.C. 
501(c)(3) of the Internal Revenue Code and making a reasonable 
contribution to capitalize it, provided that the corporation engages 
exclusively in activities designed to promote the well-being of 
communities in which the owners of the service corporation operate.
    (i) Activities conducted on behalf of a customer on an other than 
``as principal'' basis.
    (j) Activities reasonably incident to those listed in paragraphs (a) 
through (i) of this section if the service corporation engages in those 
activities.

[61 FR 66571, Dec. 18, 1996, as amended by 66 FR 13007, Mar. 2, 2001; 66 
FR 65824, Dec. 21, 2001; 69 FR 68249, Nov. 24, 2004; 70 FR 76675, Dec. 
28, 2005]



Sec. 559.5  How much may a savings association invest in service
corporations or lower-tier entities?

    The amount that a federal savings association (``you'') may invest 
in a service corporation or any lower-tier entity depends upon several 
factors. These include your total assets, your capital, the purpose of 
the investment, and your ownership interest in the service corporation 
or entity.
    (a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% of 
your assets in the capital stock, obligations, and other securities of 
service

[[Page 182]]

corporations. Any investment you make under this paragraph that would 
cause your investment, in the aggregate, to exceed 2% of your assets 
must serve primarily community, inner city, or community development 
purposes. You must designate the investments serving those purposes, 
which include:
    (1) Investments in governmentally insured, guaranteed, subsidized or 
otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments for the preservation or revitalization of either 
urban or rural communities;
    (3) Investments designed to meet the community development needs of, 
and primarily benefit, low- and moderate-income communities; or
    (4) Other community, inner city, or community development-related 
investments approved by OTS.
    (b) In addition to the amounts you may invest under paragraph (a) of 
this section, and to the extent that you have authority under other 
provisions of section 5(c) of the HOLA and part 560 of this chapter, and 
available capacity within any applicable investment limits, you may make 
loans to any service corporation and any lower-tier entity, subject to 
the following conditions:
    (1) You and your GAAP-consolidated subsidiaries may, in the 
aggregate, make loans of up to 15% of your total capital, as described 
in part 567 of this chapter to each subordinate organization that does 
not qualify as a GAAP-consolidated subsidiary. All loans made under this 
paragraph (b)(1) may not, in the aggregate, exceed 50% of your total 
capital, as described in part 567 of this chapter.
    (2) The Regional Director may limit the amount of loans to a GAAP-
consolidated subsidiary, or may adjust the limits set forth in paragraph 
(b)(1) of this section where safety and soundness considerations warrant 
such action.
    (c) For purposes of this section, the terms ``loans'' and 
``obligations'' include all loans and other debt instruments (except 
accounts payable incurred in the ordinary course of business and paid 
within 60 days) and all guarantees or take-out commitments of such loans 
or debt instruments.

[61 FR 66571, Dec. 18, 1996, as amended at 72 FR 69438, Dec. 7, 2007]



      Subpart B_Regulations Applicable to All Savings Associations



Sec. 559.10  How must separate corporate identities be maintained?

    (a) Each savings association and subordinate organization thereof 
must be operated in a manner that demonstrates to the public that each 
maintains a separate corporate existence. Each must operate so that:
    (1) Their respective business transactions, accounts, and records 
are not intermingled;
    (2) Each observes the formalities of their separate corporate 
procedures;
    (3) Each is adequately financed as a separate unit in light of 
normal obligations reasonably foreseeable in a business of its size and 
character;
    (4) Each is held out to the public as a separate enterprise; and
    (5) Unless the parent savings association has guaranteed a loan to 
the subordinate organization, all borrowings by the subordinate 
organization indicate that the parent is not liable.
    (b) OTS regulations that apply both to savings associations and 
subordinate organizations shall not be construed as requiring a savings 
association and its subordinate organizations to operate as a single 
entity.



Sec. 559.11  What notices are required to establish or acquire a new
subsidiary or engage in new activities through an existing subsidiary?

    When required by section 18(m) of the Federal Deposit Insurance Act, 
a savings association (``you'') must file a notice (``Notice'') under 
part 516, subpart A of this chapter at least 30 days before establishing 
or acquiring a subsidiary or engaging in new activities in a subsidiary. 
The Notice must contain all of the information the Federal Deposit 
Insurance Corporation (FDIC) requires under 12 CFR 362.15. Providing OTS 
with a copy of the notice you file with the FDIC will satisfy this 
requirement. If OTS notifies you within 30 days that

[[Page 183]]

the Notice presents supervisory concerns, or raises significant issues 
of law or policy, you must apply for and receive OTS's prior written 
approval under the standard treatment processing procedures at part 516, 
subpart A and E of this chapter before establishing or acquiring the 
subsidiary or engaging in new activities in the subsidiary.

[61 FR 66571, Dec. 18, 1996, as amended at 64 FR 69185, Dec. 10, 1999; 
66 FR 13007, Mar. 2, 2001]



Sec. 559.12  How may a subsidiary of a savings association issue securities?

    (a) A subsidiary may issue, either directly or through a third party 
intermediary, any securities that its parent savings association 
(``you'') may issue. The subsidiary must not state or imply that the 
securities it issues are covered by federal deposit insurance. A 
subsidiary may not issue any security the payment, maturity, or 
redemption of which may be accelerated upon the condition that you are 
insolvent or have been placed into receivership.
    (b) You must file a notice with OTS in accordance with Sec. 559.11 
of this part at least 30 days before your first issuance of any 
securities through an existing subsidiary or in conjunction with 
establishing or acquiring a new subsidiary. If OTS notifies you within 
30 days that the notice presents supervisory concerns or raises 
significant issues of law or policy, you must receive OTS's prior 
written approval before issuing securities through your subsidiary.
    (c) For as long as any securities are outstanding, you must maintain 
all records generated through each securities issuance in the ordinary 
course of business, including a copy of any prospectus, offering 
circular, or similar document concerning such issuance, and make such 
records available for examination by OTS. Such records must include, but 
are not limited to:
    (1) The amount of your assets or liabilities (including any 
guarantees you make with respect to the securities issuance) that have 
been transferred or made available to the subsidiary; the percentage 
that such amount represents of the current book value of your assets on 
an unconsolidated basis; and the current book value of all such assets 
of the subsidiary;
    (2) The terms of any guarantee(s) issued by you or any third party;
    (3) A description of the securities the subsidiary issued;
    (4) The net proceeds from the issuance of securities (or the pro 
rata portion of the net proceeds from securities issued through a 
jointly owned subsidiary); the gross proceeds of the securities 
issuance; and the market value of assets collateralizing the securities 
issuance (any assets of the subsidiary, including any guarantees of its 
securities issuance you have made);
    (5) The interest or dividend rates and yields, or the range thereof, 
and the frequency of payments on the subsidiary's securities;
    (6) The minimum denomination of the subsidiary's securities; and
    (7) Where the subsidiary marketed or intends to market the 
securities.

[61 FR 66571, Dec. 18, 1996, as amended at 69 FR 68249, Nov. 24, 2004]



Sec. 559.13  How may a savings association exercise its salvage power 
in connection with a service corporation or lower-tier entities?

    (a) In accordance with this section, a savings association (``you'') 
may exercise your salvage power to make a contribution or a loan 
(including a guarantee of a loan made by any other person) to your 
service corporation or lower-tier entity (``salvage investment'') that 
exceeds the maximum amount otherwise permitted under law or regulation. 
You must notify OTS at least 30 days before making such a salvage 
investment. This notice must demonstrate that:
    (1) The salvage investment protects your interest in the service 
corporation or lower-tier entity;
    (2) The salvage investment is consistent with safety and soundness; 
and
    (3) You considered alternatives to the salvage investment and 
determined that such alternatives would not adequately satisfy 
paragraphs (a)(1) and (a)(2) of this section.
    (b) If OTS notifies you within 30 days that the Notice presents 
supervisory concerns, or raises significant issues of law or policy, you 
must apply for and receive OTS's prior written approval

[[Page 184]]

under the standard treatment processing procedures at part 516, subparts 
A and E of this chapter before making a salvage investment.
    (c) If your service corporation or lower-tier entity is a GAAP-
consolidated subsidiary, your salvage investment under this section will 
be considered an investment in a subsidiary for purposes of part 567 of 
this chapter.

[61 FR 66571, Dec. 18, 1996, as amended at 66 FR 13007, Mar. 2, 2001]



PART 560_LENDING AND INVESTMENT--Table of Contents




Sec.
560.1 General.
560.2 Applicability of law.
560.3 Definitions.

Subpart A_Lending and Investment Powers for Federal Savings Associations

560.30 General lending and investment powers of Federal savings 
          associations.
560.31 Election regarding categorization of loans or investments and 
          related calculations.
560.32 Pass-through investments.
560.33 Late charges.
560.34 Prepayments.
560.35 Adjustments to home loans.
560.36 De minimis investments.
560.37 Real estate for office and related facilities.
560.40 Commercial paper and corporate debt securities.
560.41 Leasing.
560.42 State and local government obligations.
560.43 Foreign assistance investments.
560.50 Letters of credit and other independent undertakings--authority.
560.60 Suretyship and guaranty.

 Subpart B_Lending and Investment Provisions Applicable to all Savings 
                              Associations

560.93 Lending limitations.
560.100 Real estate lending standards; purpose and scope.
560.101 Real estate lending standards.
560.110 Most favored lender usury preemption.
560.120 Letters of credit and other independent undertakings to pay 
          against documents.
560.121 Investment in State housing corporations.
560.130 Prohibition on loan procurement fees.
560.160 Asset classification.
560.170 Records for lending transactions.
560.172 Re-evaluation of real estate owned.

               Subpart C_Alternative Mortgage Transactions

560.210 Disclosures for variable rate transactions.
560.220 Alternative Mortgage Transaction Parity Act.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 
3803, 3806; 42 U.S.C. 4106.

    Source: 61 FR 50971, Sept. 30, 1996, unless otherwise noted.



Sec. 560.1  General.

    (a) Authority and scope. This part is being issued by OTS under its 
general rulemaking and supervisory authority under the Home Owners' Loan 
Act (HOLA), 12 U.S.C. 1462 et seq. Subpart A of this part sets forth the 
lending and investment powers of Federal savings associations. Subpart B 
of this part contains safety-and-soundness based lending and investment 
provisions applicable to all savings associations. Subpart C of this 
part addresses alternative mortgages and applies to all savings 
associations.
    (b) General lending standards. Each savings association is expected 
to conduct its lending and investment activities prudently. Each 
association should use lending and investment standards that are 
consistent with safety and soundness, ensure adequate portfolio 
diversification and are appropriate for the size and condition of the 
institution, the nature and scope of its operations, and conditions in 
its lending market. Each association should adequately monitor the 
condition of its portfolio and the adequacy of any collateral securing 
its loans.



Sec. 560.2  Applicability of law.

    (a) Occupation of field. Pursuant to sections 4(a) and 5(a) of the 
HOLA, 12 U.S.C. 1463(a), 1464(a), OTS is authorized to promulgate 
regulations that preempt state laws affecting the operations of federal 
savings associations when deemed appropriate to facilitate the safe and 
sound operation of federal savings associations, to enable federal 
savings associations to conduct their operations in accordance with the 
best practices of thrift institutions in the

[[Page 185]]

United States, or to further other purposes of the HOLA. To enhance 
safety and soundness and to enable federal savings associations to 
conduct their operations in accordance with best practices (by 
efficiently delivering low-cost credit to the public free from undue 
regulatory duplication and burden), OTS hereby occupies the entire field 
of lending regulation for federal savings associations. OTS intends to 
give federal savings associations maximum flexibility to exercise their 
lending powers in accordance with a uniform federal scheme of 
regulation. Accordingly, federal savings associations may extend credit 
as authorized under federal law, including this part, without regard to 
state laws purporting to regulate or otherwise affect their credit 
activities, except to the extent provided in paragraph (c) of this 
section or Sec. 560.110 of this part. For purposes of this section, 
``state law'' includes any state statute, regulation, ruling, order or 
judicial decision.
    (b) Illustrative examples. Except as provided in Sec. 560.110 of 
this part, the types of state laws preempted by paragraph (a) of this 
section include, without limitation, state laws purporting to impose 
requirements regarding:
    (1) Licensing, registration, filings, or reports by creditors;
    (2) The ability of a creditor to require or obtain private mortgage 
insurance, insurance for other collateral, or other credit enhancements;
    (3) Loan-to-value ratios;
    (4) The terms of credit, including amortization of loans and the 
deferral and capitalization of interest and adjustments to the interest 
rate, balance, payments due, or term to maturity of the loan, including 
the circumstances under which a loan may be called due and payable upon 
the passage of time or a specified event external to the loan;
    (5) Loan-related fees, including without limitation, initial 
charges, late charges, prepayment penalties, servicing fees, and 
overlimit fees;
    (6) Escrow accounts, impound accounts, and similar accounts;
    (7) Security property, including leaseholds;
    (8) Access to and use of credit reports;
    (9) Disclosure and advertising, including laws requiring specific 
statements, information, or other content to be included in credit 
application forms, credit solicitations, billing statements, credit 
contracts, or other credit-related documents and laws requiring 
creditors to supply copies of credit reports to borrowers or applicants;
    (10) Processing, origination, servicing, sale or purchase of, or 
investment or participation in, mortgages;
    (11) Disbursements and repayments;
    (12) Usury and interest rate ceilings to the extent provided in 12 
U.S.C. 1735f-7a and part 590 of this chapter and 12 U.S.C. 1463(g) and 
Sec. 560.110 of this part; and
    (13) Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j-3 
and part 591 of this chapter.
    (c) State laws that are not preempted. State laws of the following 
types are not preempted to the extent that they only incidentally affect 
the lending operations of Federal savings associations or are otherwise 
consistent with the purposes of paragraph (a) of this section:
    (1) Contract and commercial law;
    (2) Real property law;
    (3) Homestead laws specified in 12 U.S.C. 1462a(f);
    (4) Tort law;
    (5) Criminal law; and
    (6) Any other law that OTS, upon review, finds:
    (i) Furthers a vital state interest; and
    (ii) Either has only an incidental effect on lending operations or 
is not otherwise contrary to the purposes expressed in paragraph (a) of 
this section.



Sec. 560.3  Definitions.

    For purposes of this part and any determination under 12 U.S.C. 
1467a(m):
    Consumer loans include loans for personal, family, or household 
purposes and loans reasonably incident thereto, and may be made as 
either open-end or closed-end consumer credit (as defined at 12 CFR 
226.2(a) (10) and (20)). Consumer loans do not include credit extended 
in connection with credit card loans, bona fide overdraft loans, and

[[Page 186]]

other loans that the savings association has designated as made under 
investment or lending authority other than section 5(c)(2)(D) of the 
HOLA.
    Credit card is any card, plate, coupon book, or other single credit 
device that may be used from time to time to obtain credit.
    Credit card account is a credit account established in conjunction 
with the issuance of, or the extension of credit through, a credit card. 
This term includes loans made to consolidate credit card debt, including 
credit card debt held by other lenders, and participation certificates, 
securities and similar instruments secured by credit card receivables.
    Home loans include any loans made on the security of a home 
(including a dwelling unit in a multi-family residential property such 
as a condominium or a cooperative), combinations of homes and business 
property (i.e., a home used in part for business), farm residences, and 
combinations of farm residences and commercial farm real estate.
    Loan commitment includes a loan in process, a letter of credit, or 
any other commitment to extend credit.
    Real estate loan, for purposes of this part, is a loan for which the 
savings association substantially relies upon a security interest in 
real estate given by the borrower as a condition of making the loan. A 
loan is made on the security of real estate if:
    (1) The security property is real estate pursuant to the law of the 
state in which the property is located;
    (2) The security interest of the Federal savings association may be 
enforced as a real estate mortgage or its equivalent pursuant to the law 
of the state in which the property is located;
    (3) The security property is capable of separate appraisal; and
    (4) With regard to a security property that is a leasehold or other 
interest for a period of years, the term of the interest extends, or is 
subject to extension or renewal at the option of the Federal savings 
association for a term of at least five years following the maturity of 
the loan.
    Small business includes a small business concern or entity as 
defined by section 3(a) of the Small Business Act, 15 U.S.C. 632(a), and 
implemented by the regulations of the Small Business Administration at 
13 CFR Part 121.
    Small business loans and loans to small businesses include any loan 
to a small business as defined in this section; or a loan that does not 
exceed $2 million (including a group of loans to one borrower) and is 
for commercial, corporate, business, or agricultural purposes.

[61 FR 50971, Sept. 30, 1996, as amended at 61 FR 60184, Nov. 27, 1996; 
62 FR 15825, Apr. 3, 1997; 64 FR 46565, Aug. 26, 1999; 66 FR 65825, Dec. 
21, 2001]



Subpart A_Lending and Investment Powers for Federal Savings Associations



Sec. 560.30  General lending and investment powers of Federal
savings associations.

    Pursuant to section 5(c) of the Home Owners' Loan Act (``HOLA''), 12 
U.S.C. 1464(c), a Federal savings association may make, invest in, 
purchase, sell, participate in, or otherwise deal in (including 
brokerage or warehousing) all loans and investments allowed under 
section 5(c) of the HOLA including, without limitation, the following 
loans, extensions of credit, and investments, subject to the limitations 
indicated and any such terms, conditions, or limitations as may be 
prescribed from time to time by OTS by policy directive, order, or 
regulation:

                   Lending and Investment Powers Chart
------------------------------------------------------------------------
                                                    Statutory investment
                                                   limitations (Endnotes
           Category                 Statutory       contain  applicable
                                authorization \1\        regulatory
                                                        limitations)
------------------------------------------------------------------------
Bankers' bank stock...........  5(c)(4)(E).......  Same terms as
                                                    applicable to
                                                    national banks.
Business development credit     5(c)(4)(A).......  The lesser of .5% of
 corporations.                                      total outstanding
                                                    loans or $250,000.

[[Page 187]]

 
Commercial loans..............  5(c)(2)(A).......  20% of total assets,
                                                    provided that
                                                    amounts in excess of
                                                    10% of total assets
                                                    may be used only for
                                                    small business
                                                    loans.
Commercial paper and corporate  5(c)(2)(D).......  Up to 35% of total
 debt securities.                                   assets. 2,3
Community development loans     5(c)(3)(A).......  5% of total assets,
 and equity investments.                            provided equity
                                                    investments do not
                                                    exceed 2% of total
                                                    assets. \4\
Construction loans without      5(c)(3)(C).......  In the aggregate, the
 security.                                          greater of total
                                                    capital or 5% of
                                                    total assets.
Consumer loans................  5(c)(2)(D).......  Up to 35% of total
                                                    assets. 2,5
Credit card loans or loans      5(c)(1)(T).......  None. \6\
 made through credit card
 accounts.
Deposits in insured depository  5(c)(1)(G).......  None. \6\
 institutions.
Education loans...............  5(c)(1)(U).......  None. \6\
Federal government and          5(c)(1)(C),        None. \6\
 government-sponsored            5(c)(1)(D),
 enterprise securities and       5(c)(1)(E),
 instruments.                    5(c)(1)(F).
Finance leasing...............  5(c)(1)(B),        Based on purpose and
                                 5(c)(2)(A),        property financed.
                                 5(c)(2)(B),        \7\
                                 5(c)(2)(D).
Foreign assistance investments  5(c)(4)(C).......  1% of total assets.
                                                    \8\
General leasing...............  5(c)(2)(C).......  10% of assets. \7\
Home improvement loans........  5(c)(1)(J).......  None. \6\
Home (residential) loans \9\..  5(c)(1)(B).......  None. 6,10
HUD-insured or guaranteed       5(c)(1)(O).......  None. \6\
 investments.
Insured loans.................  5(c)(1)(I),        None. \6\
                                 5(c)(1)(K).
Liquidity investments.........  5(c)(1)(M).......  None. \6\
Loans secured by deposit        5(c)(1)(A).......  None. 6,11
 accounts.
Loans to financial              5(c)(1)(L).......  None. 6,12
 institutions, brokers, and
 dealers.
Manufactured home loans.......  5(c)(1)(J).......  None. 6,13
Mortgage-backed securities....  5(c)(1)(R).......  None. \6\
National Housing Partnership    5(c)(1)(N).......  None. \6\
 Corporation and related
 partnerships and joint
 ventures.
New markets venture capital     5(c)(4)(F).......  5% of total capital.
 companies.
Nonconforming loans...........  5(c)(3)(B).......  5% of total assets.
Nonresidential real property    5(c)(2)(B).......  400% of total
 loans.                                             capital. \14\
Open-end management investment  5(c)(1)(Q).......  None. \6\
 companies \15\.
Rural business investment       7 U.S.C. 2009cc-9  Five percent of total
 companies.                                         capital.
Service corporations..........  5(c)(4)(B).......  3% of total assets,
                                                    as long as any
                                                    amounts in excess of
                                                    2% of total assets
                                                    further community,
                                                    inner city, or
                                                    community
                                                    development
                                                    purposes. \16\
Small business investment       15 U.S.C.          5% of total capital.
 companies.                      682(b)(2).
Small-business-related          5(c)(1)(S).......  None. \6\
 securities.
State and local government      5(c)(1)(H).......  None for general
 obligations.                                       obligations. Per
                                                    issuer limitation of
                                                    10% of capital for
                                                    other obligations.
                                                    \6,17\
State housing corporations....  5(c)(1)(P).......  None. \6,18\
Transaction account loans,      5(c)(1)(A).......  None. \6,19\
 including overdrafts.
------------------------------------------------------------------------

                                Endnotes

    1. All references are to section 5 of the Home Owners' Loan Act (12 
U.S.C. 1464) unless otherwise indicated.
    2. For purposes of determining a Federal savings association's 
percentage of assets limitation, investment in commercial paper and 
corporate debt securities must be aggregated with the Federal savings 
association's investment in consumer loans.
    3. A Federal savings association may invest in commercial paper and 
corporate debt securities, which includes corporate debt securities 
convertible into stock, subject to the provisions of Sec. 560.40 of 
this part. Amounts in excess of 30% of assets, in the aggregate, may be 
invested only in obligations purchased by the association directly from 
the original obligor and for which no finder's or referral fees have 
been paid.
    4. The 2% of assets limitation is a sublimit for investments within 
the overall 5% of assets limitation on community development loans and 
investments. The qualitative standards for such loans and investments 
are set forth in HOLA section 5(c)(3)(A) (formerly 5(c)(3)(B), as 
explained in an opinion of the OTS Chief Counsel dated May 10, 1995 
(available at www.ots.treas.gov)).
    5. Amounts in excess of 30% of assets, in the aggregate, may be 
invested only in loans made by the association directly to the original 
obligor and for which no finder's or referral fees have been paid. A 
Federal savings association may include loans to dealers in consumer 
goods to finance inventory and

[[Page 188]]

floor planning in the total investment made under this section.
    6. While there is no statutory limit on certain categories of loans 
and investments, including credit card loans, home improvement loans, 
education loans, and deposit account loans, OTS may establish an 
individual limit on such loans or investments if the association's 
concentration in such loans or investments presents a safety and 
soundness concern.
    7. A Federal savings association may engage in leasing activities 
subject to the provisions of Sec. 560.41 of this part.
    8. This 1% of assets limitation applies to the aggregate outstanding 
investments made under the Foreign Assistance Act and in the capital of 
the Inter-American Savings and Loan Bank. Such investments may be made 
subject to the provisions of Sec. 560.43 of this part.
    9. A home (or residential) loan includes loans secured by one-to-
four family dwellings, multi-family residential property, and loans 
secured by a unit or units of a condominium or housing cooperative.
    10. A Federal savings association may make home loans subject to the 
provisions of Sec. Sec. 560.33, 560.34, and 560.35 of this part.
    11. Loans secured by savings accounts and other time deposits may be 
made without limitation, provided the Federal savings association 
obtains a lien on, or a pledge of, such accounts. Such loans may not 
exceed the withdrawable amount of the account.
    12. A Federal savings association may only invest in these loans if 
they are secured by obligations of, or by obligations fully guaranteed 
as to principal and interest by, the United States or any of its 
agencies or instrumentalities, the borrower is a financial institution 
insured by the Federal Deposit Insurance Corporation or is a broker or 
dealer registered with the Securities and Exchange Commission, and the 
market value of the securities for each loan at least equals the amount 
of the loan at the time it is made.
    13. If the wheels and axles of the manufactured home have been 
removed and it is permanently affixed to a foundation, a loan secured by 
a combination of a manufactured home and developed residential lot on 
which it sits may be treated as a home loan.
    14. Without regard to any limitations of this part, a Federal 
savings association may make or invest in the fully insured or 
guaranteed portion of nonresidential real estate loans insured or 
guaranteed by the Economic Development Administration, the Farmers Home 
Administration, or the Small Business Administration. Unguaranteed 
portions of guaranteed loans must be aggregated with uninsured loans 
when determining an association's compliance with the 400% of capital 
limitation for other real estate loans.
    15. This authority is limited to investments in open-end management 
investment companies that are registered with the Securities and 
Exchange Commission under the Investment Company Act of 1940. The 
portfolio of the investment company must be restricted by the company's 
investment policy (changeable only if authorized by shareholder vote) 
solely to investments that a Federal savings association may, without 
limitation as to percentage of assets, invest in, sell, redeem, hold, or 
otherwise deal in. Separate and apart from this authority, a Federal 
savings association may make pass-through investments to the extent 
authorized by Sec. 560.32 of this part.
    16. A Federal savings association may invest in service corporations 
subject to the provisions of part 559 of this chapter.
    17. This category includes obligations issued by any state, 
territory, or possession of the United States or political subdivision 
thereof (including any agency, corporation, or instrumentality of a 
state or political subdivision), subject to Sec. 560.42 of this part.
    18. A Federal savings association may invest in state housing 
corporations subject to the provisions of Sec. 560.121 of this part.
    19. Payments on accounts in excess of the account balance 
(overdrafts) on commercial deposit or transaction accounts shall be 
considered commercial loans for purposes of determining the 
association's percentage of assets limitation.

[66 FR 65825, Dec. 21, 2001, as amended at 68 FR 75109, Dec. 30, 2003; 
70 FR 76675, Dec. 28, 2005]



Sec. 560.31  Election regarding categorization of loans or investments 
and related calculations.

    (a) If a loan or other investment is authorized under more than one 
section of the HOLA, as amended, or this part, a Federal savings 
association may designate under which section the loan or investment has 
been made. Such a loan or investment may be apportioned among 
appropriate categories, and may be moved, in whole or part, from one 
category to another. A loan commitment shall be counted as an investment 
and included in total assets of a Federal savings association for 
purposes of calculating compliance with HOLA section 5(c)'s investment 
limitations only to the extent that funds have been advanced and not 
repaid pursuant to the commitment.
    (b) Loans or portions of loans sold to a third party shall be 
included in the calculation of a percentage-of-assets or

[[Page 189]]

percentage-of-capital investment limitation only to the extent they are 
sold with recourse.
    (c) A Federal savings association may make a loan secured by an 
assignment of loans to the extent that it could, under applicable law 
and regulations, make or purchase the underlying assigned loans.



Sec. 560.32  Pass-through investments.

    (a) A federal savings association (``you'') may make pass-through 
investments. A pass-through investment occurs when you invest in an 
entity (``company'') that engages only in activities that you may 
conduct directly and the investment meets the requirements of this 
section. If an investment is authorized under both this section and some 
other provision of law, you may designate under which authority or 
authorities the investment is made. When making a pass-through 
investment, you must comply with all the statutes and regulations that 
would apply if you were engaging in the activity directly. For example, 
your proportionate share of the company's assets will be aggregated with 
the assets you hold directly in calculating investment limits (e.g., no 
more than 400% of total capital may be invested in nonresidential real 
property loans).
    (b) You may make a pass-through investment without prior notice to 
OTS if all of the following conditions are met:
    (1) You do not invest more than 15% of your total capital in one 
company;
    (2) The book value of your aggregate pass-through investments does 
not exceed 50% of your total capital after making the investment;
    (3) Your investment would not give you direct or indirect control of 
the company;
    (4) Your liability is limited to the amount of your investment; and
    (5) The company falls into one of the following categories:
    (i) A limited partnership;
    (ii) An open-end mutual fund;
    (iii) A closed-end investment trust;
    (iv) A limited liability company; or
    (v) An entity in which you are investing primarily to use the 
company's services (e.g., data processing).
    (c) If you want to make other pass-through investments, you must 
provide OTS with 30 days' advance notice. If within that 30-day period 
OTS notifies you that an investment presents supervisory, legal, or 
safety and soundness concerns, you must apply for and receive OTS prior 
written approval under the standard treatment processing procedures at 
part 516, subparts A and E of this chapter before making the investment. 
Notices under this section are deemed to be applications for purposes of 
statutory and regulatory references to ``applications.'' Any conditions 
that OTS imposes on any pass-through investment shall be enforceable as 
a condition imposed in writing by the OTS in connection with the 
granting of a request by a savings association within the meaning of 12 
U.S.C. 1818(b) or 1818(i).

[61 FR 66578, Dec. 18, 1996, as amended at 66 FR 13007, Mar. 2, 2001]



Sec. 560.33  Late charges.

    A Federal savings association may include in a home loan contract a 
provision authorizing the imposition of a late charge with respect to 
the payment of any delinquent periodic payment. With respect to any loan 
made after July 31, 1976, on the security of a home occupied or to be 
occupied by the borrower, no late charge, regardless of form, shall be 
assessed or collected by a Federal savings association, unless any 
billing, coupon, or notice the Federal savings association may provide 
regarding installment payments due on the loan discloses the date after 
which the charge may be assessed. A Federal savings association may not 
impose a late charge more than one time for late payment of the same 
installment, and any installment payment made by the borrower shall be 
applied to the longest outstanding installment due. A Federal savings 
association shall not assess a late charge as to any payment received by 
it within fifteen days after the due date of such payment. No form of 
such late charge permitted by this paragraph shall be considered as 
interest to the Federal savings association and the Federal savings 
association shall not deduct late charges from the regular periodic 
installment payments on the

[[Page 190]]

loan, but must collect them as such from the borrower.



Sec. 560.34  Prepayments.

    Any prepayment on a real estate loan must be applied directly to 
reduce the principal balance on the loan unless the loan contract or the 
borrower specifies otherwise. Subject to the terms of the loan contract, 
a Federal savings association may impose a fee for any prepayment of a 
loan.



Sec. 560.35  Adjustments to home loans.

    (a) For any home loan secured by borrower-occupied property, or 
property to be occupied by the borrower, adjustments to the interest 
rate, payment, balance, or term to maturity must comply with the 
limitations of this section and the disclosure and notice requirements 
of Sec. 560.210 of this part.
    (b) Adjustments to the interest rate shall correspond directly to 
the movement of an index satisfying the requirements of paragraph (d) of 
this section. A Federal savings association also may increase the 
interest rate pursuant to a formula or schedule that specifies the 
amount of the increase, the time at which it may be made, and which is 
set forth in the loan contract. A Federal savings association may 
decrease the interest rate at any time.
    (c) Adjustments to the payment and the loan balance that do not 
reflect an interest-rate adjustment may be made if:
    (1) The adjustments reflect a change in an index that may be used 
pursuant to paragraph (d) of this section;
    (2) In the case of a payment adjustment, the adjustment reflects a 
change in the loan balance or is made pursuant to a formula, or to a 
schedule specifying the percentage or dollar change in the payment as 
set forth in the loan contract; or
    (3) In the case of an open-end line-of-credit loan, the adjustment 
reflects an advance taken by the borrower under the line-of-credit and 
is permitted by the loan contract.
    (d)(1) Any index used must be readily available and independently 
verifiable. If set forth in the loan contract, an association may use 
any combination of indices, a moving average of index values, or more 
than one index during the term of a loan.
    (2) Except as provided in paragraph (d)(3) of this section, any 
index used must be a national or regional index.
    (3) A Federal savings association may use an index not satisfying 
the requirements of paragraph (d)(2) of this section 30 days after 
filing a notice unless, within that 30-day period, OTS has notified the 
association that the notice presents supervisory concerns or raises 
significant issues of law or policy. If OTS notifies the association of 
such concerns or issues, the Federal savings association may not use 
such an index unless it applies for and receives OTS's prior written 
approval under the standard treatment processing procedures at part 516, 
subparts A and E of this chapter.

[61 FR 50971, Sept. 30, 1996, as amended at 66 FR 13007, Mar. 2, 2001]



Sec. 560.36  De minimis investments.

    A Federal savings association may invest in the aggregate up to the 
greater of 1% of its total capital or $250,000 in community development 
investments of the type permitted for a national bank under 12 CFR part 
24.

[66 FR 65826, Dec. 21, 2001]



Sec. 560.37  Real estate for office and related facilities.

    A federal savings association may invest in real estate (improved or 
unimproved) to be used for office and related facilities of the 
association, or for such office and related facilities and for rental or 
sale, if such investment is made and maintained under a prudent program 
of property acquisition to meet the federal savings association's 
present needs or its reasonable future needs for office and related 
facilities. A federal savings association may not make an investment 
that would cause the outstanding book value of all such investments 
(including investments under Sec. 559.4(e)(2) of this chapter) to 
exceed its total capital.

[61 FR 66579, Dec. 18, 1996]

[[Page 191]]



Sec. 560.40  Commercial paper and corporate debt securities.

    Pursuant to HOLA section 5(c)(2)(D), a Federal savings association 
may invest in, sell, or hold commercial paper and corporate debt 
securities subject to the provisions of this section.
    (a) Limitations. (1) Commercial paper must be:
    (i) As of the date of purchase, rated in either one of the two 
highest categories by at least two nationally recognized investment 
ratings services as shown by the most recently published rating made of 
such investments; or
    (ii) If unrated, guaranteed by a company having outstanding paper 
that is rated as provided in paragraph (a)(1)(i) of this section.
    (2) Corporate debt securities must be:
    (i) Securities that may be sold with reasonable promptness at a 
price that corresponds reasonably to their fair value; and
    (ii) Rated in one of the four highest categories as to the portion 
of the security in which the association is investing by a nationally 
recognized investment ratings service at its most recently published 
rating before the date of purchase of the security.
    (3) A Federal savings association's total investment in the 
commercial paper and corporate debt securities of any one issuer, or 
issued by any one person or entity affiliated with such issuer, together 
with other loans, shall not exceed the general lending limitations 
contained in Sec. 560.93(c) of this part.
    (4) Investments in corporate debt securities convertible into stock 
are subject to the following additional limitations:
    (i) The purchase of securities convertible into stock at the option 
of the issuer is prohibited;
    (ii) At the time of purchase, the cost of such securities must be 
written down to an amount that represents the investment value of the 
securities considered independently of the conversion feature; and
    (iii) Federal savings associations are prohibited from exercising 
the conversion feature.
    (5) A Federal savings association shall maintain information in its 
files adequate to demonstrate that it has exercised prudent judgment in 
making investments under this section.
    (b) Notwithstanding the limitations contained in this section, the 
Office may permit investment in corporate debt securities of another 
savings association in connection with the purchase or sale of a branch 
office or in connection with a supervisory merger or acquisition.
    (c) Underwriting. Before committing to acquire any investment 
security, a Federal savings association must determine whether the 
investment is safe and sound and suitable for the association. The 
Federal savings association must consider, as appropriate, the interest 
rate, credit, liquidity, price, transaction, and other risks associated 
with the investment activity. The Federal savings association must also 
determine that the issuer has adequate resources and the willingness to 
provide for all required payments on its obligations in a timely manner.

[61 FR 50971, Sept. 30, 1996, as amended at 66 FR 65826, Dec. 21, 2001]



Sec. 560.41  Leasing.

    (a) Permissible activities. Subject to the limitations of this 
section, a Federal savings association may engage in leasing activities. 
These activities include becoming the legal or beneficial owner of 
tangible personal property or real property for the purpose of leasing 
such property, obtaining an assignment of a lessor's interest in a lease 
of such property, and incurring obligations incidental to its position 
as the legal or beneficial owner and lessor of the leased property.
    (b) Definitions. For the purposes of this section:
    (1) The term net lease means a lease under which the Federal savings 
association will not, directly or indirectly, provide or be obligated to 
provide for:
    (i) The servicing, repair or maintenance of the leased property 
during the lease term;
    (ii) The purchasing of parts and accessories for the leased 
property, except that improvements and additions to the leased property 
may be leased to the lessee upon its request in accordance with the 
full-payout requirements of paragraph (c)(2)(i) of this section;

[[Page 192]]

    (iii) The loan of replacement or substitute property while the 
leased property is being serviced;
    (iv) The purchasing of insurance for the lessee, except where the 
lessee has failed to discharge a contractual obligation to purchase or 
maintain insurance; or
    (v) The renewal of any license, registration, or filing for the 
property unless such action by the Federal savings association is 
necessary to protect its interest as an owner or financier of the 
property.
    (2) The term full-payout lease means a lease transaction in which 
any unguaranteed portion of the estimated residual value relied on by 
the association to yield the return of its full investment in the leased 
property, plus the estimated cost of financing the property over the 
term of the lease, does not exceed 25% of the original cost of the 
property to the lessor. In general, a lease will qualify as a full-
payout lease if the scheduled payments provide at least 75% of the 
principal and interest payments that a lessor would receive if the 
finance lease were structured as a market-rate loan.
    (3) The term realization of investment means that a Federal savings 
association that enters into a lease financing transaction must 
reasonably expect to realize the return of its full investment in the 
leased property, plus the estimated cost of financing the property over 
the term of the lease from:
    (i) Rentals;
    (ii) Estimated tax benefits, if any; and
    (iii) The estimated residual value of the property at the expiration 
of the term of the lease.
    (c) Finance leasing--(1) Investment limits. A Federal savings 
association may exercise its authority under HOLA sections 5(c)(1)(B) 
(residential real estate loans), 5(c)(2)(A) (commercial, business, 
corporate or agricultural loans), 5(c)(2)(B) (nonresidential real estate 
loans), and 5(c)(2)(D) (consumer loans) by conducting leasing activities 
that are the functional equivalent of loans made under those HOLA 
sections. These activities are commonly referred to as financing leases. 
Such financing leases are subject to the same investment limits that 
apply to loans made under those sections. For example, a financing lease 
of tangible personal property made to a natural person for personal, 
family or household purposes is subject to all limitations applicable to 
the amount of a Federal savings association's investment in consumer 
loans. A financing lease made for commercial, corporate, business, or 
agricultural purposes is subject to all limitations applicable to the 
amount of a Federal savings association's investment in commercial 
loans. A financing lease of residential or nonresidential real property 
is subject to all limitations applicable to the amount of a Federal 
savings association's investment in these types of real estate loans.
    (2) Functional equivalent of lending. To qualify as the functional 
equivalent of a loan:
    (i) The lease must be a net, full-payout lease representing a non-
cancelable obligation of the lessee, notwithstanding the possible early 
termination of the lease;
    (ii) The portion of the estimated residual value of the property 
relied upon by the lessor to satisfy the requirements of a full-payout 
lease must be reasonable in light of the nature of the leased property 
and all relevant circumstances so that realization of the lessor's full 
investment plus the cost of financing the property depends primarily on 
the creditworthiness of the lessee, and not on the residual market value 
of the leased property; and
    (iii) At the termination of a financing lease, either by expiration 
or default, property acquired must be liquidated or released on a net 
basis as soon as practicable. Any property held in anticipation of re-
leasing must be reevaluated and recorded at the lower of fair market 
value or book value.
    (d) General leasing. Pursuant to section 5(c)(2)(C) of the HOLA, a 
Federal savings association may invest in tangible personal property, 
including vehicles, manufactured homes, machinery, equipment, or 
furniture, for the purpose of leasing that property. In contrast to 
financing leases, lease investments made under this authority need not 
be the functional equivalent of loans.

[[Page 193]]

    (e) Leasing salvage powers. If, in good faith, a Federal savings 
association believes that there has been an unanticipated change in 
conditions that threatens its financial position by significantly 
increasing its exposure to loss, it may:
    (1) As the owner and lessor, take reasonable and appropriate action 
to salvage or protect the value of the property or its interest arising 
under the lease;
    (2) As the assignee of a lessor's interest in a lease, become the 
owner and lessor of the leased property pursuant to its contractual 
right, or take any reasonable and appropriate action to salvage or 
protect the value of the property or its interest arising under the 
lease; or
    (3) Include any provisions in a lease, or make any additional 
agreements, to protect its financial position or investment in the 
circumstances set forth in paragraphs (e)(1) and (e)(2) of this section.



Sec. 560.42  State and local government obligations.

    (a) What limitations apply? Pursuant to HOLA section 5(c)(1)(H), a 
Federal savings association (``you'') may invest in obligations issued 
by any state, territory, possession, or political subdivision thereof 
(``governmental entity''), subject to appropriate underwriting and the 
following conditions:

------------------------------------------------------------------------
                                       Aggregate          Per-issuer
                                      limitation          limitation
------------------------------------------------------------------------
(1) General obligations.........  None..............  None.
(2) Other obligations of a        None..............  10% of total
 governmental entity (e.g.,                            capital.
 revenue bonds) that hold one of
 the four highest investment
 grade ratings by a nationally
 recognized rating agency or
 that are nonrated but of
 investment quality.
(3) Obligations of a              As approved by      10% of total
 governmental entity that do not   your Regional       capital.
 qualify under any other           Director
 paragraph but are approved by
 your Regional Director.
------------------------------------------------------------------------

    (b) What is a political subdivision? Political subdivision means a 
county, city, town, or other municipal corporation, a public authority, 
or a publicly-owned entity that is an instrumentality of a state or a 
municipal corporation.
    (c) What is a general obligation of a state or political 
subdivision? A general obligation is an obligation that is guaranteed by 
the full faith and credit of a state or political subdivision that has 
the power to tax. Indirect payments, such as through a special fund, may 
qualify as general obligations if a state or political subdivision with 
taxing authority has unconditionally agreed to provide funds to cover 
payments.
    (d) What is appropriate underwriting for this type of investment? In 
the case of a security rated in one of the four highest investment 
grades by a nationally recognized rating agency, your assessment of the 
obligor's credit quality may be based, in part, on reliable rating 
agency estimates of the obligor's performance. For all other securities, 
you must perform your own detailed analysis of credit quality. In doing 
so, you must consider, as appropriate, the interest rate, credit, 
liquidity, price, transaction, and other risks associated with the 
investment activity and determine that such investment is appropriate 
for your institution. You must also determine that the obligor has 
adequate resources and willingness to provide for all required payments 
on its obligations in a timely manner.

[66 FR 65826, Dec. 21, 2001]



Sec. 560.43  Foreign assistance investments.

    Pursuant to HOLA section 5(c)(4)(C), a Federal savings association 
may make foreign assistance investments in an aggregate amount not to 
exceed one percent of its assets, subject to the following conditions:
    (a) For any investment made under the Foreign Assistance Act, the 
loan agreement shall specify what constitutes an event of default, and 
provide that upon default in payment of principal or interest under such 
agreement, the entire amount of outstanding indebtedness thereunder 
shall become immediately due and payable, at the lender's option. 
Additionally,

[[Page 194]]

the contract of guarantee shall cover 100% of any loss of investment 
thereunder, except for any portion of the loan arising out of fraud or 
misrepresentation for which the party seeking payment is responsible, 
and provide that the guarantor shall pay for any such loss in U.S. 
dollars within a specified reasonable time after the date of application 
for payment.
    (b) To make any investments in the share capital and capital reserve 
of the Inter-American Savings and Loan Bank, a Federal savings 
association must be adequately capitalized and have adequate allowances 
for loan and lease losses. The Federal savings association's aggregate 
investment in such capital or capital reserve, including the amount of 
any obligations undertaken to provide said Bank with reserve capital in 
the future (call-able capital), must not, as a result of such 
investment, exceed the lesser of one-quarter of 1% of its assets or 
$100,000.



Sec. 560.50  Letters of credit and other independent undertakings--authority.

    A Federal savings association may issue letters of credit and may 
issue such other independent undertakings as are approved by OTS, 
subject to the restrictions in Sec. 560.120.

[64 FR 46565, Aug. 26, 1999]



Sec. 560.60  Suretyship and guaranty.

    Pursuant to section 5(b)(2) of the HOLA, a Federal savings 
association may enter into a repayable suretyship or guaranty agreement, 
subject to the conditions in this section.
    (a) What is a suretyship or guaranty agreement? Under a suretyship, 
a Federal savings association is bound with its principal to pay or 
perform an obligation to a third person. Under a guaranty agreement, a 
Federal savings association agrees to satisfy the obligation of the 
principal only if the principal fails to pay or perform.
    (b) What requirements apply to suretyship and guaranty agreements 
under this section? A Federal savings association may enter into a 
suretyship or guaranty agreement under this section, subject to each of 
the following requirements:
    (1) The Federal savings association must limit its obligations under 
the agreement to a fixed dollar amount and a specified duration.
    (2) The Federal savings association's performance under the 
agreement must create an authorized loan or other investment.
    (3) The Federal savings association must treat its obligation under 
the agreement as a loan to the principal for purposes of Sec. Sec. 
560.93 and 563.43 of this chapter.
    (4) The Federal savings association must take and maintain a 
perfected security interest in collateral sufficient to cover its total 
obligation under the agreement.
    (c) What collateral is sufficient? (1) The Federal savings 
association must take and maintain a perfected security interest in real 
estate or marketable securities equal to at least 110 percent of its 
obligation under the agreement, except as provided in paragraph (c)(2) 
of this section.
    (i) If the collateral is real estate, the Federal savings 
association must establish the value by a signed appraisal or evaluation 
in accordance with part 564 of this chapter. In determining the value of 
the collateral, the Federal savings association must factor in the value 
of any existing senior mortgages, liens or other encumbrances on the 
property, except those held by the principal to the suretyship or 
guaranty agreement.
    (ii) If the collateral is marketable securities, the Federal savings 
association must be authorized to invest in that security taken as 
collateral. The Federal savings association must ensure that the value 
of the security is 110 percent of the obligation at all times during the 
term of agreement.
    (2) The Federal savings association may take and maintain a 
perfected security interest in collateral which is at all times equal to 
at least 100 percent of its obligation, if the collateral is:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guarantied by the United States or its 
agencies as to principal and interest; or

[[Page 195]]

    (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
that are eligible for rediscount or purchase by a Federal Reserve Bank.

[64 FR 46565, Aug. 26, 1999]



 Subpart B_Lending and Investment Provisions Applicable to all Savings 
                              Associations



Sec. 560.93  Lending limitations.

    (a) Scope. This section applies to all loans and extensions of 
credit to third parties made by a savings association and its 
subsidiaries. This section does not apply to loans made by a savings 
association or a GAAP-consolidated subsidiary to subordinate 
organizations or affiliates of the savings association. The terms 
subsidiary, GAAP-consolidated subsidiary, and subordinate organization 
have the same meanings as specified in Sec. 559.2 of this chapter. The 
term affiliate has the same meaning as specified in Sec. 563.41 of this 
chapter.
    (b) Definitions. In applying these lending limitations, savings 
associations shall apply the definitions and interpretations promulgated 
by the Office of the Comptroller of the Currency consistent with 12 
U.S.C. 84. See 12 CFR part 32. In applying these definitions, pursuant 
to 12 U.S.C. 1464, savings associations shall use the terms savings 
association, savings associations, and savings association's in place of 
the terms national bank and bank, banks, and bank's, respectively. For 
purposes of this section:
    (1) The term one borrower has the same meaning as the term person 
set forth at 12 CFR part 32. It also includes, in addition to the 
definition cited therein, a financial institution as defined at Sec. 
561.19 of this chapter.
    (2) The term company means a corporation, partnership, business 
trust, association, or similar organization and, unless specifically 
excluded, the term company includes a savings association and a bank.
    (3) Contractual commitment to advance funds has the meaning set 
forth in 12 CFR part 32.
    (4) Loans and extensions of credit has the meaning set forth in 12 
CFR part 32, and includes investments in commercial paper and corporate 
debt securities. The Office expressly reserves its authority to deem 
other arrangements that are, in substance, loans and extensions of 
credit to be encompassed by this term.
    (5) The term loans as used in the phrase Loans to one borrower to 
finance the sale of real property acquired in satisfaction of debts 
previously contracted for in good faith does not include an 
association's taking of a purchase money mortgage note from the 
purchaser provided that:
    (i) No new funds are advanced by the association to the borrower; 
and
    (ii) The association is not placed in a more detrimental position as 
a result of the sale.
    (6) [Reserved]
    (7) Readily marketable collateral has the meaning set forth in 12 
CFR part 32.
    (8) Residential housing units has the same meaning as the term 
residential real estate set forth in Sec. 541.23 of this chapter. The 
term to develop includes the various phases necessary to produce housing 
units as an end product, to include: acquisition, development and 
construction; development and construction; construction; 
rehabilitation; or conversion. The term domestic includes units within 
the fifty states, the District of Columbia, Puerto Rico, the Virgin 
Islands, Guam, and the Pacific Islands.
    (9) Single family dwelling unit has the meaning set forth in Sec. 
541.25 of this chapter.
    (10) A standby letter of credit has the meaning set forth in 12 CFR 
part 32.
    (11) Unimpaired capital and unimpaired surplus means--
    (i) A savings association's core capital and supplementary capital 
included in its total capital under part 567 of this chapter; plus
    (ii) The balance of a savings association's allowance for loan and 
lease losses not included in supplementary capital under part 567 of 
this chapter; plus
    (iii) The amount of a savings association's loans to, investments 
in, and advances to subsidiaries not included in calculating core 
capital under part 567 of this chapter.
    (c) General limitation. Section 5200 of the Revised Statutes (12 
U.S.C. 84)

[[Page 196]]

shall apply to savings associations in the same manner and to the same 
extent as it applies to national banks. This statutory provision and 
lending limit regulations and interpretations promulgated by the Office 
of the Comptroller of the Currency pursuant to a rulemaking conducted in 
accordance with the provisions of the Administrative Procedure Act, 5 
U.S.C. 553 et seq. (including the regulations appearing at 12 CFR part 
32) shall apply to savings associations in the same manner and to the 
same extent as these provisions apply to national banks:
    (1) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and not fully 
secured, as determined in the same manner as determined under 12 U.S.C. 
84(a)(2), by collateral having a market value at least equal to the 
amount of the loan or extension of credit shall not exceed 15 percent of 
the unimpaired capital and unimpaired surplus of the association.
    (2) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and fully secured by 
readily marketable collateral having a market value, as determined by 
reliable and continuously available price quotations, at least equal to 
the amount of the funds outstanding shall not exceed 10 per centum of 
the unimpaired capital and unimpaired surplus of the association. This 
limitation shall be separate from and in addition to the limitation 
contained in paragraph (c)(1) of this section.
    (d) Exceptions to the general limitation--(1) $500,000 exception. If 
a savings association's aggregate lending limitation calculated under 
paragraphs (c)(1) and (c)(2) of this section is less than $500,000, 
notwithstanding this aggregate limitation in paragraphs (c)(1) and 
(c)(2) of this section, such savings association may have total loans 
and extensions of credit, for any purpose, to one borrower outstanding 
at one time not to exceed $500,000.
    (2) Statutory exceptions. The exceptions to the lending limits set 
forth in 12 U.S.C. 84 and 12 CFR part 32 are applicable to savings 
associations in the same manner and to the extent as they apply to 
national banks.
    (3) Loans to develop domestic residential housing units. Subject to 
paragraph (d)(4) of this section, a savings association may make loans 
to one borrower to develop domestic residential housing units, not to 
exceed the lesser of $30,000,000 or 30 percent of the savings 
association's unimpaired capital and unimpaired surplus, including all 
amounts loaned under the authority of the General Limitation set forth 
under paragraphs (c)(1) and (c)(2) of this section, provided that:
    (i) The final purchase price of each single family dwelling unit the 
development of which is financed under this paragraph (d)(3) does not 
exceed $500,000;
    (ii) The savings association is, and continues to be, in compliance 
with its capital requirements under part 567 of this chapter.
    (iii) OTS permits, subject to conditions it may impose, the savings 
association to use the higher limit set forth under this paragraph 
(d)(3). A savings association that meets the requirements of paragraphs 
(d)(3)(i), (ii), (iv) and (v) of this section and that meets the 
requirements for ``expedited treatment'' under Sec. 516.5 of this 
chapter may use the higher limit set forth under this paragraph (d)(3) 
if the savings association has filed a notice with OTS that it intends 
to use the higher limit at least 30 days prior to the proposed use. A 
savings association that meets the requirements of paragraphs (d)(3)(i), 
(ii), (iv), and (v) of this section and that meets the requirements for 
``standard treatment'' under Sec. 516.5 of this chapter may use the 
higher limit set forth under this paragraph (d)(3) if the savings 
association has filed an application with OTS and OTS has approved the 
use the higher limit;
    (iv) Loans made under this paragraph (d)(3) to all borrowers do not, 
in aggregate, exceed 150 percent of the savings association's unimpaired 
capital and unimpaired surplus; and
    (v) Such loans comply with the applicable loan-to-value requirements 
that apply to Federal savings associations.
    (4) The authority of a savings association to make a loan or 
extension of

[[Page 197]]

credit under the exception in paragraph (d)(3) of this section ceases 
immediately upon the association's failure to comply with any one of the 
requirements set forth in paragraph (d)(3) of this section or any 
condition(s) set forth in a Director's order under paragraph (d)(3)(iii) 
of this section.
    (5) Notwithstanding the limit set forth in paragraphs (c)(1) and 
(c)(2) of this section, a savings association may invest up to 10 
percent of unimpaired capital and unimpaired surplus in the obligations 
of one issuer evidenced by:
    (i) Commercial paper rated, as of the date of purchase, as shown by 
the most recently published rating by at least two nationally recognized 
investment rating services in the highest category; or
    (ii) Corporate debt securities that may be sold with reasonable 
promptness at a price that corresponds reasonably to their fair value, 
and that are rated in one of the two highest categories by a nationally 
recognized investment rating service in its most recently published 
ratings before the date of purchase of the security.
    (e) Loans to finance the sale of REO. A savings association's loans 
to one borrower to finance the sale of real property acquired in 
satisfaction of debts previously contracted for in good faith shall not, 
when aggregated with all other loans to such borrower, exceed the 
General Limitation in paragraph (c)(1) of this section.
    (f) Calculating compliance and recordkeeping. (1) The amount of an 
association's unimpaired capital and unimpaired surplus pursuant to 
paragraph (b)(11) of this section shall be calculated as of the 
association's most recent periodic report required to be filed with OTS 
prior to the date of granting or purchasing the loan or otherwise 
creating the obligation to repay funds, unless the association knows, or 
has reason to know, based on transactions or events actually completed, 
that such level has changed significantly, upward or downward, 
subsequent to filing of such report.
    (2) If a savings association or subsidiary thereof makes a loan or 
extension of credit to any one borrower, as defined in paragraph (b)(1) 
of this section, in an amount that, when added to the total balances of 
all outstanding loans owed to such association and its subsidiary by 
such borrower, exceeds the greater of $500,000 or 5 percent of 
unimpaired capital and unimpaired surplus, the records of such 
association or its subsidiary with respect to such loan shall include 
documentation showing that such loan was made within the limitations of 
paragraphs (c) and (d) of this section; for the purpose of such 
documentation such association or subsidiary may require, and may accept 
in good faith, a certification by the borrower identifying the persons, 
entities, and interests described in the definition of one borrower in 
paragraph (b)(1) of this section.
    (g) [Reserved]
    (h) More stringent restrictions. The Director may impose more 
stringent restrictions on a savings association's loans to one borrower 
if the Director determines that such restrictions are necessary to 
protect the safety and soundness of the savings association.

                Appendix to Sec. 560.93--Interpretations

 Section 560.93-100 Interrelation of General Limitation With Exception 
         for Loans To Develop Domestic Residential Housing Units

    1. The Sec. 560.93(d)(3) exception for loans to one person to 
develop domestic residential housing units is characterized in the 
regulation as an ``alternative'' limit. This exceptional $30,000,000 or 
30 percent limitation does not operate in addition to the 15 percent 
General Limitation or the 10 percent additional amount an association 
may loan to one borrower secured by readily marketable collateral, but 
serves as the uppermost limitation on a savings association's lending to 
any one person once an association employs this exception. An example 
will illustrate the Office's interpretation of the application of this 
rule:

    Example: Savings Associations A's lending limitation as calculated 
under the 15 percent General Limitation is $800,000. If Association A 
lends Y $800,000 for commercial purposes, Association A cannot lend Y an 
additional $1,600,000, or 30 percent of capital and surplus, to develop 
residential housing units under the paragraph (d)(3) exception. The 
(d)(3) exception operates as the uppermost limitation on all lending to 
one borrower (for associations that may employ this exception) and 
includes any amounts loaned to the same borrower under the General 
Limitation. Association A, therefore, may lend only an additional 
$800,000 to Y, provided the paragraph (d)(3) prerequisites have been 
met. The

[[Page 198]]

amount loaned under the authority of the General Limitation ($800,000), 
when added to the amount loaned under the exception ($800,000), yields a 
sum that does not exceed the 30 percent uppermost limitation 
($1,600,000).

    2. This result does not change even if the facts are altered to 
assume that some or all of the $800,000 amount of lending permissible 
under the General Limitation's 15 percent basket is not used, or is 
devoted to the development of domestic residential housing units.
    In other words, using the above example, if Association A lends Y 
$400,000 for commercial purposes and $300,000 for residential purposes--
both of which would be permitted under the Association's $800,000 
General Limitation--Association A's remaining permissible lending to Y 
would be: first, an additional $100,000 under the General Limitation, 
and then another $800,000 to develop domestic residential housing units 
if the Association meets the paragraph (d)(3) prerequisites. (The latter 
is $800,000 because in no event may the total lending to Y exceed 30 
percent of unimpaired capital and unimpaired surplus). If Association A 
did not lend Y the remaining $100,000 permissible under the General 
Limitation, its permissible loans to develop domestic residential 
housing units under paragraph (d)(3) would be $900,000 instead of 
$800,000 (the total loans to Y would still equal $1,600,000).
    3. In short, under the paragraph (d)(3) exception, the 30 percent or 
$30,000,000 limit will always operate as the uppermost limitation, 
unless of course the association does not avail itself of the exception 
and merely relies upon its General Limitation.

Section 560.93-101 Interrelationship Between the General Limitation and 
  the 150 Percent Aggregate Limit on Loans to all Borrowers To Develop 
                   Domestic Residential Housing Units

    1. The Office has already received numerous questions regarding the 
allocation of loans between the different lending limit ``baskets,'' 
i.e., the 15 percent General Limitation basket and the 30 percent 
Residential Development basket. In general, the inquiries concern the 
manner in which an association may ``move'' a loan from the General 
Limitation basket to the Residential Development basket. The following 
example is intended to provide guidance:

    Example: Association A's General Limitation under section 5(u)(1) is 
$15 million. In January, Association A makes a $10 million loan to 
Borrower to develop domestic residential housing units. At the time the 
loan was made, Association A had not received approval under a Director 
order to avail itself of the residential development exception to 
lending limits. Therefore, the $10 million loan is made under 
Association A's General Limitation.

    2. In June, Association A receives authorization to lend under the 
Residential Development exception. In July, Association A lends $3 
million to Borrower to develop domestic residential housing units. In 
August, Borrower seeks an additional $12 million commercial loan from 
Association A. Association A cannot make the loan to Borrower, however, 
because it already has an outstanding $10 million loan to Borrower that 
counts against Association A's General Limitation of $15 million. Thus, 
Association A may lend only up to an additional $5 million to Borrower 
under the General Limitation.
    3. However, Association A may be able to reallocate the $10 million 
loan it made to Borrower in January to its Residential Development 
basket provided that: (1) Association A has obtained authority under a 
Director's order to avail itself of the additional lending authority for 
residential development and maintains compliance with all prerequisites 
to such lending authority; (2) the original $10 million loan made in 
January constitutes a loan to develop domestic residential housing units 
as defined; and (3) the housing unit(s) constructed with the funds from 
the January loan remain in a stage of ``development'' at the time 
Association A reallocates the loan to the domestic residential housing 
basket. The project must be in a stage of acquisition, development, 
construction, rehabilitation, or conversion in order for the loan to be 
reallocated.
    4. If Association A is able to reallocate the $10 million loan made 
to Borrower in January to its Residential Development basket, it may 
make the $12 million commercial loan requested by Borrower in August. 
Once the January loan is reallocated to the Residential Development 
basket, however, the $10 million loan counts towards Association's 150 
percent aggregate limitation on loans to all borrowers under the 
residential development basket (section 5(u)(2)(A)(ii)(IV)).
    5. If Association A reallocates the January loan to its domestic 
residential housing basket and makes an additional $12 million 
commercial loan to Borrower, Association A's totals under the respective 
limitations would be: $12 million under the General Limitation; and $13 
million under the Residential Development limitation. The full $13 
million residential development loan counts toward Association A's 
aggregate 150 percent limitation.

[61 FR 50976, Sept. 30, 1996, as amended at 61 FR 66579, Dec. 18, 1996; 
62 FR 66262, Dec. 18, 1997; 66 FR 13007, Mar. 2, 2001; 69 FR 76602, Dec. 
22, 2004]

[[Page 199]]



Sec. 560.100  Real estate lending standards; purpose and scope.

    This section, and Sec. 560.101 of this subpart, issued pursuant to 
section 304 of the Federal Deposit Insurance Corporation Improvement Act 
of 1991, 12 U.S.C. 1828(o), prescribe standards for real estate lending 
to be used by savings associations and all their includable 
subsidiaries, as defined in 12 CFR 567.1, over which the savings 
associations exercise control, in adopting internal real estate lending 
policies.

[61 FR 50971, Sept. 30, 1996, as amended at 62 FR 66262, Dec. 18, 1997]



Sec. 560.101  Real estate lending standards.

    (a) Each savings association shall adopt and maintain written 
policies that establish appropriate limits and standards for extensions 
of credit that are secured by liens on or interests in real estate, or 
that are made for the purpose of financing permanent improvements to 
real estate.
    (b)(1) Real estate lending policies adopted pursuant to this section 
must:
    (i) Be consistent with safe and sound banking practices;
    (ii) Be appropriate to the size of the institution and the nature 
and scope of its operations; and
    (iii) Be reviewed and approved by the savings association's board of 
directors at least annually.
    (2) The lending policies must establish:
    (i) Loan portfolio diversification standards;
    (ii) Prudent underwriting standards, including loan-to-value limits, 
that are clear and measurable;
    (iii) Loan administration procedures for the savings association's 
real estate portfolio; and
    (iv) Documentation, approval, and reporting requirements to monitor 
compliance with the savings association's real estate lending policies.
    (c) Each savings association must monitor conditions in the real 
estate market in its lending area to ensure that its real estate lending 
policies continue to be appropriate for current market conditions.
    (d) The real estate lending policies adopted pursuant to this 
section should reflect consideration of the Interagency Guidelines for 
Real Estate Lending Policies established by the Federal bank and thrift 
supervisory agencies.

   Appendix to Sec. 560.101--Interagency Guidelines for Real Estate 
                            Lending Policies

    The agencies' regulations require that each insured depository 
institution adopt and maintain a written policy that establishes 
appropriate limits and standards for all extensions of credit that are 
secured by liens on or interests in real estate or made for the purpose 
of financing the construction of a building or other improvements. \1\ 
These guidelines are intended to assist institutions in the formulation 
and maintenance of a real estate lending policy that is appropriate to 
the size of the institution and the nature and scope of its individual 
operations, as well as satisfies the requirements of the regulation.
---------------------------------------------------------------------------

    \1\ The agencies have adopted a uniform rule on real estate lending. 
See 12 CFR Part 365 (FDIC); 12 CFR Part 208, Subpart C (FRB); 12 CFR 
Part 34, Subpart D (OCC); and 12 CFR 560.100-560.101 (OTS).
---------------------------------------------------------------------------

    Each institution's policies must be comprehensive, and consistent 
with safe and sound lending practices, and must ensure that the 
institution operates within limits and according to standards that are 
reviewed and approved at least annually by the board of directors. Real 
estate lending is an integral part of many institutions' business plans 
and, when undertaken in a prudent manner, will not be subject to 
examiner criticism.

                Loan Portfolio Management Considerations

    The lending policy should contain a general outline of the scope and 
distribution of the institution's credit facilities and the manner in 
which real estate loans are made, serviced, and collected. In 
particular, the institution's policies on real estate lending should:
     Identify the geographic areas in which the 
institution will consider lending.
     Establish a loan portfolio diversification policy 
and set limits for real estate loans by type and geographic market 
(e.g., limits on higher risk loans).
     Identify appropriate terms and conditions by type 
of real estate loan.
     Establish loan origination and approval 
procedures, both generally and by size and type of loan.
     Establish prudent underwriting standards that are 
clear and measurable, including loan-to-value limits, that are 
consistent with these supervisory guidelines.
     Establish review and approval procedures for 
exception loans, including loans with

[[Page 200]]

loan-to-value percentages in excess of supervisory limits.
     Establish loan administration procedures, 
including documentation, disbursement, collateral inspection, 
collection, and loan review.
     Establish real estate appraisal and evaluation 
programs.
     Require that management monitor the loan 
portfolio and provide timely and adequate reports to the board of 
directors.
    The institution should consider both internal and external factors 
in the formulation of its loan policies and strategic plan. Factors that 
should be considered include:
     The size and financial condition of the 
institution.
     The expertise and size of the lending staff.
     The need to avoid undue concentrations of risk.
     Compliance with all real estate related laws and 
regulations, including the Community Reinvestment Act, anti-
discrimination laws, and for savings associations, the Qualified Thrift 
Lender test.
     Market conditions.
    The institution should monitor conditions in the real estate markets 
in its lending area so that it can react quickly to changes in market 
conditions that are relevant to its lending decisions. Market supply and 
demand factors that should be considered include:
     Demographic indicators, including population and 
employment trends.
     Zoning requirements.
     Current and projected vacancy, construction, and 
absorption rates.
     Current and projected lease terms, rental rates, 
and sales prices, including concessions.
     Current and projected operating expenses for 
different types of projects.
     Economic indicators, including trends and 
diversification of the lending area.
     Valuation trends, including discount and direct 
capitalization rates.

                         Underwriting Standards

    Prudently underwritten real estate loans should reflect all relevant 
credit factors, including:
     The capacity of the borrower, or income from the 
underlying property, to adequately service the debt.
     The value of the mortgaged property.
     The overall creditworthiness of the borrower.
     The level of equity invested in the property.
     Any secondary sources of repayment.
     Any additional collateral or credit enhancements 
(such as guarantees, mortgage insurance or takeout commitments).
    The lending policies should reflect the level of risk that is 
acceptable to the board of directors and provide clear and measurable 
underwriting standards that enable the institution's lending staff to 
evaluate these credit factors. The underwriting standards should 
address:
     The maximum loan amount by type of property.
     Maximum loan maturities by type of property.
     Amortization schedules.
     Pricing structure for different types of real 
estate loans.
     Loan-to-value limits by type of property.
    For development and construction projects, and completed commercial 
properties, the policy should also establish, commensurate with the size 
and type of the project or property:
     Requirements for feasibility studies and 
sensitivity and risk analyses (e.g., sensitivity of income projections 
to changes in economic variables such as interest rates, vacancy rates, 
or operating expenses).
     Minimum requirements for initial investment and 
maintenance of hard equity by the borrower (e.g., cash or unencumbered 
investment in the underlying property).
     Minimum standards for net worth, cash flow, and 
debt service coverage of the borrower or underlying property.
     Standards for the acceptability of and limits on 
non-amortizing loans.
     Standards for the acceptability of and limits on 
the use of interest reserves.
     Pre-leasing and pre-sale requirements for income-
producing property.
     Pre-sale and minimum unit release requirements 
for non-income-producing property loans.
     Limits on partial recourse or nonrecourse loans 
and requirements for guarantor support.
     Requirements for takeout commitments.
     Minimum covenants for loan agreements.

                           Loan Administration

    The institution should also establish loan administration procedures 
for its real estate portfolio that address:
     Documentation, including:
    Type and frequency of financial statements, including requirements 
for verification of information provided by the borrower;
    Type and frequency of collateral evaluations (appraisals and other 
estimates of value).
     Loan closing and disbursement.
     Payment processing.
     Escrow administration.
     Collateral administration.
     Loan payoffs.
     Collections and foreclosure, including:
    Delinquency follow-up procedures;
    Foreclosure timing;
    Extensions and other forms of forbearance;
    Acceptance of deeds in lieu of foreclosure.

[[Page 201]]

     Claims processing (e.g., seeking recovery on a 
defaulted loan covered by a government guaranty or insurance program).
     Servicing and participation agreements.

                    Supervisory Loan-to-Value Limits

    Institutions should establish their own internal loan-to-value 
limits for real estate loans. These internal limits should not exceed 
the following supervisory limits:

------------------------------------------------------------------------
                                                               Loan-to-
                       Loan category                         value limit
                                                               (percent)
------------------------------------------------------------------------
Raw land...................................................           65
Land development...........................................           75
Construction:
    Commercial, multifamily, \1\ and other nonresidential..           80
    1- to 4-family residential.............................           85
Improved property..........................................           85
Owner-occupied 1- to 4-family and home equity..............       (\2\)
------------------------------------------------------------------------
\1\ Multifamily construction includes condominiums and cooperatives.
\2\ A loan-to-value limit has not been established for permanent
  mortgage or home equity loans on owner-occupied, 1- to 4-family
  residential property. However, for any such loan with a loan-to-value
  ratio that equals or exceeds 90 percent at origination, an institution
  should require appropriate credit enhancement in the form of either
  mortgage insurance or readily marketable collateral.

    The supervisory loan-to-value limits should be applied to the 
underlying property that collateralizes the loan. For loans that fund 
multiple phases of the same real estate project (e.g., a loan for both 
land development and construction of an office building), the 
appropriate loan-to-value limit is the limit applicable to the final 
phase of the project funded by the loan; however, loan disbursements 
should not exceed actual development or construction outlays. In 
situations where a loan is fully cross-collateralized by two or more 
properties or is secured by a collateral pool of two or more properties, 
the appropriate maximum loan amount under supervisory loan-to-value 
limits is the sum of the value of each property, less senior liens, 
multiplied by the appropriate loan-to-value limit for each property. To 
ensure that collateral margins remain within the supervisory limits, 
lenders should redetermine conformity whenever collateral substitutions 
are made to the collateral pool.
    In establishing internal loan-to-value limits, each lender is 
expected to carefully consider the institution-specific and market 
factors listed under ``Loan Portfolio Management Considerations,'' as 
well as any other relevant factors, such as the particular subcategory 
or type of loan. For any subcategory of loans that exhibits greater 
credit risk than the overall category, a lender should consider the 
establishment of an internal loan-to-value limit for that subcategory 
that is lower than the limit for the overall category.
    The loan-to-value ratio is only one of several pertinent credit 
factors to be considered when underwriting a real estate loan. Other 
credit factors to be taken into account are highlighted in the 
``Underwriting Standards'' section above. Because of these other 
factors, the establishment of these supervisory limits should not be 
interpreted to mean that loans at these levels will automatically be 
considered sound.

         Loans in Excess of the Supervisory Loan-to-Value Limits

    The agencies recognize that appropriate loan-to-value limits vary 
not only among categories of real estate loans but also among individual 
loans. Therefore, it may be appropriate in individual cases to originate 
or purchase loans with loan-to-value ratios in excess of the supervisory 
loan-to-value limits, based on the support provided by other credit 
factors. Such loans should be identified in the institutions' records, 
and their aggregate amount reported at least quarterly to the 
institution's board of directors. (See additional reporting requirements 
described under ``Exceptions to the General Policy.'') The aggregate 
amount of all loans in excess of the supervisory loan-to-value limits 
should not exceed 100 percent of total capital. \2\ Moreover, within the 
aggregate limit, total loans for all commercial, agricultural, 
multifamily or other non-1-to- 4 family residential properties should 
not exceed 30 percent of total capital. An institution will come under 
increased supervisory scrutiny as the total of such loans approaches 
these levels.
---------------------------------------------------------------------------

    \2\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in Appendix A to 12 CFR Part 
208. For insured state non-member banks, ``total capital'' refers to 
that term described in table I of Appendix A to 12 CFR Part 325. For 
national banks, the term ``total capital'' is defined at 12 CFR 3.2(e). 
For savings associations, the term ``total capital'' as described in 
part 567 of this chapter.
---------------------------------------------------------------------------

    In determining the aggregate amount of such loans, institutions 
should: (a) Include all loans secured by the same property if any one of 
those loans exceeds the supervisory loan-to-value limits; and (b) 
include the recourse obligation of any such loan sold with recourse. 
Conversely, a loan should no longer be reported to the directors as part 
of aggregate totals when reduction in principal or senior liens, or 
additional contribution of collateral or equity (e.g., improvements to 
the real property securing the loan), bring the loan-to-value ratio into 
compliance with supervisory limits.

[[Page 202]]

                          Excluded Transactions

    The agencies also recognize that there are a number of lending 
situations in which other factors significantly outweigh the need to 
apply the supervisory loan-to-value limits.
    These include:
     Loans guaranteed or insured by the U.S. 
government or its agencies, provided that the amount of the guaranty or 
insurance is at least equal to the portion of the loan that exceeds the 
supervisory loan-to-value limit.
     Loans backed by the full faith and credit of a 
state government, provided that the amount of the assurance is at least 
equal to the portion of the loan that exceeds the supervisory loan-to-
value limit.
     Loans guaranteed or insured by a state, municipal 
or local government, or an agency thereof, provided that the amount of 
the guaranty or insurance is at least equal to the portion of the loan 
that exceeds the supervisory loan-to-value limit, and provided that the 
lender has determined that the guarantor or insurer has the financial 
capacity and willingness to perform under the terms of the guaranty or 
insurance agreement.
     Loans that are to be sold promptly after 
origination, without recourse, to a financially responsible third party.
     Loans that are renewed, refinanced, or 
restructured without the advancement of new funds or an increase in the 
line of credit (except for reasonable closing costs), or loans that are 
renewed, refinanced, or restructured in connection with a workout 
situation, either with or without the advancement of new funds, where 
consistent with safe and sound banking practices and part of a clearly 
defined and well-documented program to achieve orderly liquidation of 
the debt, reduce risk of loss, or maximize recovery on the loan.
     Loans that facilitate the sale of real estate 
acquired by the lender in the ordinary course of collecting a debt 
previously contracted in good faith.
     Loans for which a lien on or interest in real 
property is taken as additional collateral through an abundance of 
caution by the lender (e.g., the institution takes a blanket lien on all 
or substantially all of the assets of the borrower, and the value of the 
real property is low relative to the aggregate value of all other 
collateral).
     Loans, such as working capital loans, where the 
lender does not rely principally on real estate as security and the 
extension of credit is not used to acquire, develop, or construct 
permanent improvements on real property.
     Loans for the purpose of financing permanent 
improvements to real property, but not secured by the property, if such 
security interest is not required by prudent underwriting practice.

                Exceptions to the General Lending Policy

    Some provision should be made for the consideration of loan requests 
from creditworthy borrowers whose credit needs do not fit within the 
institution's general lending policy. An institution may provide for 
prudently underwritten exceptions to its lending policies, including 
loan-to-value limits, on a loan-by-loan basis. However, any exceptions 
from the supervisory loan-to-value limits should conform to the 
aggregate limits on such loans discussed above.
    The board of directors is responsible for establishing standards for 
the review and approval of exception loans. Each institution should 
establish an appropriate internal process for the review and approval of 
loans that do not conform to its own internal policy standards. The 
approval of any such loan should be supported by a written justification 
that clearly sets forth all of the relevant credit factors that support 
the underwriting decision. The justification and approval documents for 
such loans should be maintained as a part of the permanent loan file. 
Each institution should monitor compliance with its real estate lending 
policy and individually report exception loans of a significant size to 
its board of directors.

    Supervisory Review of Real Estate Lending Policies and Practices

    The real estate lending policies of institutions will be evaluated 
by examiners during the course of their examinations to determine if the 
policies are consistent with safe and sound lending practices, these 
guidelines, and the requirements of the regulation. In evaluating the 
adequacy of the institution's real estate lending policies and 
practices, examiners will take into consideration the following factors:
     The nature and scope of the institution's real 
estate lending activities.
     The size and financial condition of the 
institution.
     The quality of the institution's management and 
internal controls.
     The expertise and size of the lending and loan 
administration staff.
     Market conditions.
    Lending policy exception reports will also be reviewed by examiners 
during the course of their examinations to determine whether the 
institutions' exceptions are adequately documented and appropriate in 
light of all of the relevant credit considerations. An excessive volume 
of exceptions to an institution's real estate lending policy may signal 
a weakening of its underwriting practices, or may suggest a need to 
revise the loan policy.

[[Page 203]]

                               Definitions

    For the purposes of these Guidelines:
    Construction loan means an extension of credit for the purpose of 
erecting or rehabilitating buildings or other structures, including any 
infrastructure necessary for development.
    Extension of credit or loan means:
    (1) The total amount of any loan, line of credit, or other legally 
binding lending commitment with respect to real property; and
    (2) The total amount, based on the amount of consideration paid, of 
any loan, line of credit, or other legally binding lending commitment 
acquired by a lender by purchase, assignment, or otherwise.
    Improved property loan means an extension of credit secured by one 
of the following types of real property:
    (1) Farmland, ranchland or timberland committed to ongoing 
management and agricultural production;
    (2) 1- to 4-family residential property that is not owner-occupied;
    (3) Residential property containing five or more individual dwelling 
units;
    (4) Completed commercial property; or
    (5) Other income-producing property that has been completed and is 
available for occupancy and use, except income-producing owner-occupied 
1- to 4-family residential property.
    Land development loan means an extension of credit for the purpose 
of improving unimproved real property prior to the erection of 
structures. The improvement of unimproved real property may include the 
laying or placement of sewers, water pipes, utility cables, streets, and 
other infrastructure necessary for future development.
    Loan origination means the time of inception of the obligation to 
extend credit (i.e., when the last event or prerequisite, controllable 
by the lender, occurs causing the lender to become legally bound to fund 
an extension of credit).
    Loan-to-value or loan-to-value ratio means the percentage or ratio 
that is derived at the time of loan origination by dividing an extension 
of credit by the total value of the property(ies) securing or being 
improved by the extension of credit plus the amount of any readily 
marketable collateral and other acceptable collateral that secures the 
extension of credit. The total amount of all senior liens on or 
interests in such property(ies) should be included in determining the 
loan-to-value ratio. When mortgage insurance or collateral is used in 
the calculation of the loan-to-value ratio, and such credit enhancement 
is later released or replaced, the loan-to-value ratio should be 
recalculated.
    Other acceptable collateral means any collateral in which the lender 
has a perfected security interest, that has a quantifiable value, and is 
accepted by the lender in accordance with safe and sound lending 
practices. Other acceptable collateral should be appropriately 
discounted by the lender consistent with the lender's usual practices 
for making loans secured by such collateral. Other acceptable collateral 
includes, among other items, unconditional irrevocable standby letters 
of credit for the benefit of the lender.
    Owner-occupied, when used in conjunction with the term 1- to 4-
family residential property means that the owner of the underlying real 
property occupies at least one unit of the real property as a principal 
residence of the owner.
    Readily marketable collateral means insured deposits, financial 
instruments, and bullion in which the lender has a perfected interest. 
Financial instruments and bullion must be salable under ordinary 
circumstances with reasonable promptness at a fair market value 
determined by quotations based on actual transactions, on an auction or 
similarly available daily bid and ask price market. Readily marketable 
collateral should be appropriately discounted by the lender consistent 
with the lender's usual practices for making loans secured by such 
collateral.
    Value means an opinion or estimate, set forth in an appraisal or 
evaluation, whichever may be appropriate, of the market value of real 
property, prepared in accordance with the agency's appraisal regulations 
and guidance. For loans to purchase an existing property, the term 
``value'' means the lesser of the actual acquisition cost or the 
estimate of value.
    1- to 4-family residential property means property containing fewer 
than five individual dwelling units, including manufactured homes 
permanently affixed to the underlying property (when deemed to be real 
property under state law).

[61 FR 50971, Sept. 30, 1996, as amended at 66 FR 65821, Dec. 21, 2001; 
72 FR 69438, Dec. 7, 2007]



Sec. 560.110  Most favored lender usury preemption.

    (a) Definition. The term ``interest'' as used in 12 U.S.C. 1463(g) 
includes any payment compensating a creditor or prospective creditor for 
an extension of credit, making available of a line of credit, or any 
default or breach by a borrower of a condition upon which credit was 
extended. It includes, among other things, the following fees connected 
with credit extension or availability: numerical periodic rates, late 
fees, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash 
advance fees, and membership fees. It does not ordinarily include 
appraisal

[[Page 204]]

fees, premiums and commissions attributable to insurance guaranteeing 
repayment of any extension of credit, finders' fees, fees for document 
preparation or notarization, or fees incurred to obtain credit reports.
    (b) Authority. A savings association located in a state may charge 
interest at the maximum rate permitted to any state-chartered or 
licensed lending institution by the law of that state. If state law 
permits different interest charges on specified classes of loans, a 
federal savings association making such loans is subject only to the 
provisions of state law relating to that class of loans that are 
material to the determination of the permitted interest. For example, a 
federal savings association may lawfully charge the highest rate 
permitted to be charged by a state-licensed small loan company, without 
being so licensed, but subject to state law limitations on the size of 
loans made by small loan companies. Except as provided in this 
paragraph, the applicability of state law to Federal savings 
associations shall be determined in accordance with Sec. 560.2 of this 
part. State supervisors determine the degree to which state-chartered 
savings associations must comply with state laws other than those 
imposing restrictions on interest, as defined in paragraph (a) of this 
section.
    (c) Effect on state definitions of interest. The Federal definition 
of the term ``interest'' in paragraph (a) of this section does not 
change how interest is defined by the individual states (nor how the 
state definition of interest is used) solely for purposes of state law. 
For example, if late fees are not ``interest'' under state law where a 
savings association is located but state law permits its most favored 
lender to charge late fees, then a savings association located in that 
state may charge late fees to its intrastate customers. The savings 
association may also charge late fees to its interstate customers 
because the fees are interest under the Federal definition of interest 
and an allowable charge under state law where the savings association is 
located. However, the late fees would not be treated as interest for 
purposes of evaluating compliance with state usury limitations because 
state law excludes late fees when calculating the maximum interest that 
lending institutions may charge under those limitations.



Sec. 560.120  Letters of credit and other independent undertakings 
to pay against documents.

    (a) General authority. A savings association may issue and commit to 
issue letters of credit within the scope of applicable laws or rules of 
practice recognized by law. It may also issue other independent 
undertakings within the scope of such laws or rules of practice 
recognized by law, that have been approved by OTS (approved 
undertaking). \1\ Under such letters of credit and approved 
undertakings, the savings association's obligation to honor depends upon 
the presentation of specified documents and not upon nondocumentary 
conditions or resolution of questions of fact or law at issue between 
the account party and the beneficiary. A savings association may also 
confirm or otherwise undertake to honor or purchase specified documents 
upon their presentation under another person's independent undertaking 
within the scope of such laws or rules.
---------------------------------------------------------------------------

    \1\ Samples of laws or rules of practice applicable to letters of 
credit and other independent undertakings include, but are not limited 
to: the applicable version of Article 5 of the Uniform Commercial Code 
(UCC) (1962, as amended 1990) or revised Article 5 of the UCC (as 
amended 1995) (available from West Publishing Co., 1/800/328-4880); the 
Uniform Customs and Practice for Documentary Credits (International 
Chamber of Commerce (ICC) Publication No. 500) (available from ICC 
Publishing, Inc., 212/206-1150; the United Nations Convention on 
Independent Guarantees and Standby Letters of Credit (adopted by the 
U.N. General Assembly in 1995 and signed by the U.S. in 1997) (available 
from the U.N. Commission on International Trade Law, 212/963-5353); and 
the Uniform Rules for Bank-to-Bank Reimbursements Under Documentary 
Credits (ICC Publication No. 525) (available from ICC Publishing, Inc., 
212/206-1150).
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, savings associations that issue letters 
of credit or approved undertakings should not be exposed to undue risk. 
At a minimum, savings associations should consider the following:

[[Page 205]]

    (i) The independent character of the letter of credit or approved 
undertaking should be apparent from its terms (such as terms that 
subject it to laws or rules providing for its independent character);
    (ii) The letter of credit or approved undertaking should be limited 
in amount;
    (iii) The letter of credit or approved undertaking should:
    (A) Be limited in duration; or
    (B) Permit the savings association to terminate the letter of credit 
or approved undertaking, either on a periodic basis (consistent with the 
savings association's ability to make any necessary credit assessments) 
or at will upon either notice or payment to the beneficiary; or
    (C) Entitle the savings association to cash collateral from the 
account party on demand (with a right to accelerate the customer's 
obligations, as appropriate); and
    (iv) The savings association either should be fully collateralized 
or have a post-honor right of reimbursement from its customer or from 
another issuer of a letter of credit or an independent undertaking. 
Alternatively, if the savings association's undertaking is to purchase 
documents of title, securities, or other valuable documents, it should 
obtain a first priority right to realize on the documents if the savings 
association is not otherwise to be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
letters of credit and approved undertakings require particular 
protections against credit, operational, and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the savings association should ensure 
that market fluctuations that affect the value of the item will not 
cause the savings association to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should allow the savings association to 
make any necessary credit assessment prior to renewal;
    (iii) In the event that a savings association issues an undertaking 
for its own account, the underlying transaction for which it is issued 
must be within the savings association's authority and comply with any 
safety and soundness requirements applicable to that transaction.
    (3) Operational expertise. The savings association should possess 
operational expertise that is commensurate with the sophistication of 
its letter of credit or independent undertaking activities.
    (4) Documentation. The savings association must accurately reflect 
its letters of credit or approved undertakings in its records, including 
any acceptance or deferred payment or other absolute obligation arising 
out of its contingent undertaking.

[61 FR 50971, Sept. 30, 1996, as amended at 64 FR 46565, Aug. 26, 1999]



Sec. 560.121  Investment in State housing corporations.

    (a) Any savings association to the extent it has legal authority to 
do so, may make investments in, commitments to invest in, loans to, or 
commitments to lend to any state housing corporation; provided, that 
such obligations or loans are secured directly, or indirectly through a 
fiduciary, by a first lien on improved real estate which is insured 
under the National Housing Act, as amended, and that in the event of 
default, the holder of such obligations or loans has the right directly, 
or indirectly through a fiduciary, to subject to the satisfaction of 
such obligations or loans the real estate described in the first lien, 
or the insurance proceeds.
    (b) Any savings association that is adequately capitalized may, to 
the extent it has legal authority to do so, invest in obligations 
(including loans) of, or issued by, any state housing corporation 
incorporated in the state in which such savings association has its home 
or a branch office; provided (except with respect to loans), that:
    (1) The obligations are rated in one of the four highest grades as 
shown by the most recently published rating made of such obligations by 
a nationally recognized rating service; or
    (2) The obligations, if not rated, are approved by the Office. The 
aggregate

[[Page 206]]

outstanding direct investment in obligations under paragraph (b) of this 
section shall not exceed the amount of the savings association's total 
capital.
    (c) Each state housing corporation in which a savings association 
invests under the authority of paragraph (b) of this section shall 
agree, before accepting any such investment (including any loan or loan 
commitment), to make available at any time to the Office such 
information as the Office may consider to be necessary to ensure that 
investments are properly made under this section.



Sec. 560.130  Prohibition on loan procurement fees.

    If you are a director, officer, or other natural person having the 
power to direct the management or policies of a savings association, you 
must not receive, directly or indirectly, any commission, fee, or other 
compensation in connection with the procurement of any loan made by the 
savings association or a subsidiary of the savings association.

[61 FR 60178, Nov. 27, 1996]



Sec. 560.160  Asset classification.

    (a)(1) Each savings association must evaluate and classify its 
assets on a regular basis in a manner consistent with, or reconcilable 
to, the asset classification system used by OTS in its Thrift Activities 
Handbook (Available at the address of Washington Headquarters Office at 
Sec. 516.40(b) of this chapter).
    (2) In connection with the examination of a savings association or 
its affiliates, OTS examiners may identify problem assets and classify 
them, if appropriate. The association must recognize such examiner 
classifications in its subsequent reports to OTS.
    (b) Based on the evaluation and classification of its assets, each 
savings association shall establish adequate valuation allowances or 
charge-offs, as appropriate, consistent with generally accepted 
accounting principles and the practices of the federal banking agencies.

[61 FR 50971, Sept. 30, 1996, as amended at 66 FR 13007, Mar. 2, 2001]



Sec. 560.170  Records for lending transactions.

    In establishing and maintaining its records pursuant to Sec. 
563.170 of this chapter, each savings association and service 
corporation should establish and maintain loan documentation practices 
that:
    (a) Ensure that the institution can make an informed lending 
decision and can assess risk on an ongoing basis;
    (b) Identify the purpose and all sources of repayment for each loan, 
and assess the ability of the borrower(s) and any guarantor(s) to repay 
the indebtedness in a timely manner;
    (c) Ensure that any claims against a borrower, guarantor, security 
holders, and collateral are legally enforceable;
    (d) Demonstrate appropriate administration and monitoring of its 
loans; and
    (e) Take into account the size and complexity of its loans.



Sec. 560.172  Re-evaluation of real estate owned.

    A savings association shall appraise each parcel of real estate 
owned at the earlier of in-substance foreclosure or at the time of the 
savings association's acquisition of such property, and at such times 
thereafter as dictated by prudent management policy; such appraisals 
shall be consistent with the requirements of part 564 of this chapter. 
The Regional Director or his or her designee may require subsequent 
appraisals if, in his or her discretion, such subsequent appraisal is 
necessary under the particular circumstances. The foregoing requirement 
shall not apply to any parcel of real estate that is sold and reacquired 
less than 12 months subsequent to the most recent appraisal made 
pursuant to this part. A dated, signed copy of each report of appraisal 
made pursuant to any provisions of this part shall be retained in the 
savings association's records.



               Subpart C_Alternative Mortgage Transactions



Sec. 560.210  Disclosures for variable rate transactions.

    A savings association must provide the initial disclosures described 
at 12

[[Page 207]]

CFR 226.19(b) and the adjustment notices described at 12 CFR 226.20(c) 
for variable rate transactions, as described in those regulations. The 
OTS administers and enforces those provisions for savings associations.

[63 FR 38463, July 17, 1998]



Sec. 560.220  Alternative Mortgage Transaction Parity Act.

    (a) Applicable housing creditors. A housing creditor that is not a 
commercial bank, a credit union, or a federal savings association, may 
make an alternative mortgage transaction as defined at 12 U.S.C. 
3802(1), by following the regulations identified in paragraph (b) of 
this section, notwithstanding any state constitution, law, or 
regulation. See 12 U.S.C. 3803.
    (b) Applicable regulations. OTS identifies Sec. Sec. 560.35 and 
560.210 as appropriate and applicable for state housing creditors. All 
other OTS regulations are not identified, and are inappropriate and 
inapplicable for state housing creditors. State housing creditors 
engaged in credit sales should read the term ``loan'' as ``credit sale'' 
wherever applicable in applying these regulations.

[67 FR 60554, Sept. 26, 2002]



PART 561_DEFINITIONS FOR REGULATIONS AFFECTING ALL SAVINGS 
ASSOCIATIONS--Table of Contents




Sec.
561.1 General.
561.2 Account.
561.3 Accountholder.
561.4 Affiliate.
561.5 Affiliated person.
561.6 Audit period.
561.7-561.8 [Reserved]
561.9 Certificate account.
561.12 Consumer credit.
561.14 Controlling person.
561.15 Corporation.
561.16 Demand accounts.
561.18 Director.
561.19 Financial institution.
561.24 Immediate family.
561.26 Land loan.
561.27 Low-rent housing.
561.28 Money Market Deposit Accounts.
561.29 Negotiable Order of Withdrawal Accounts.
561.30 Nonresidential construction loan.
561.31 Nonwithdrawable account.
561.33 Note account.
561.34 Office.
561.35 Officer.
561.37 Parent company; subsidiary.
561.38 Political subdivision.
561.39 Principal office.
561.40 Public unit.
561.41 [Reserved]
561.42 Savings account.
561.43 Savings association.
561.44 Security.
561.45 Service corporation.
561.49 [Reserved]
561.50 State.
561.51 Subordinated debt security.
561.52 Tax and loan account.
561.53 United States Treasury General Account.
561.54 United States Treasury Time Deposit Open Account.
561.55 With recourse.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.

    Source: 54 FR 49545, Nov. 30, 1989, unless otherwise noted.



Sec. 561.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 541 apply throughout 
this chapter, unless another definition is specifically provided.

[67 FR 78152, Dec. 23, 2002]



Sec. 561.2  Account.

    The term account means any savings account, demand account, 
certificate account, tax and loan account, note account, United States 
Treasury general account or United States Treasury time deposit-open 
account, whether in the form of a deposit or a share, held by an 
accountholder in a savings association.



Sec. 561.3  Accountholder.

    The term accountholder means the holder of an account or accounts in 
a savings association insured by the Deposit Insurance Fund. The term 
does not include the holder of any subordinated debt security or any 
mortgage-backed bond issued by the savings association.

[54 FR 49545, Nov. 30, 1989, as amended at 71 FR 19811, Apr. 18, 2006]



Sec. 561.4  Affiliate.

    The term affiliate of a savings association, unless otherwise 
defined, means any corporation, business trust,

[[Page 208]]

association, or other similar organization:
    (a) Of which a savings association, directly or indirectly, owns or 
controls either a majority of the voting shares or more than 50 
percentum of the number of shares voted for the election of its 
directors, trustees, or other persons exercising similar functions at 
the preceding election, or controls in any manner the election of a 
majority of its directors, trustees, or other persons exercising similar 
functions; or
    (b) Of which control is held, directly or indirectly through stock 
ownership or in any other manner, by the shareholders of a savings 
association who own or control either a majority of the shares of such 
savings association or more than 50 per centum of the number of shares 
voted for the election of directors of such savings association at the 
preceding election, or by trustees for the benefit of the shareholders 
of any such savings association; or
    (c) Of which a majority of its directors, trustees, or other persons 
exercising similar functions are directors of any one savings 
association.



Sec. 561.5  Affiliated person.

    The term affiliated person of a savings association means the 
following:
    (a) A director, officer, or controlling person of such association;
    (b) A spouse of a director, officer, or controlling person of such 
association;
    (c) A member of the immediate family of a director, officer, or 
controlling person of such association, who has the same home as such 
person or who is a director or officer of any subsidiary of such 
association or of any holding company affiliate of such association;
    (d) Any corporation or organization (other than the savings 
association or a corporation or organization through which the savings 
association operates) of which a director, officer or the controlling 
person of such association:
    (1) Is chief executive officer, chief financial officer, or a person 
performing similar functions;
    (2) Is a general partner;
    (3) Is a limited partner who, directly or indirectly either alone or 
with his or her spouse and the members of his or her immediate family 
who are also affiliated persons of the association, owns an interest of 
10 percent or more in the partnership (based on the value of his or her 
contribution) or who, directly or indirectly with other directors, 
officers, and controlling persons of such association and their spouses 
and their immediate family members who are also affiliated persons of 
the association, owns an interest of 25 percent or more in the 
partnership; or
    (4) Directly or indirectly either alone or with his or her spouse 
and the members of his or her immediate family who are also affiliated 
persons of the association, owns or controls 10 percent or more of any 
class of equity securities or owns or controls, with other directors, 
officers, and controlling persons of such association and their spouses 
and their immediate family members who are also affiliated persons of 
the association, 25 percent or more of any class of equity securities; 
and
    (5) Any trust or other estate in which a director, officer, or 
controlling person of such association or the spouse of such person has 
a substantial beneficial interest or as to which such person or his or 
her spouse serves as trustee or in a similar fiduciary capacity.

[59 FR 18476, Apr. 19, 1994]



Sec. 561.6  Audit period.

    The audit period of a savings association means the twelve month 
period (or other period in the case of a change in audit period) covered 
by the annual audit conducted to satisfy Sec. 563.170.



Sec. Sec. 561.7-561.8  [Reserved]



Sec. 561.9  Certificate account.

    The term certificate account means a savings account evidenced by a 
certificate that must be held for a fixed or minimum term.



Sec. 561.12  Consumer credit.

    The term consumer credit means credit extended to a natural person 
for personal, family, or household purposes, including loans secured by 
liens on real estate and chattel liens secured by mobile homes and 
leases of personal property to consumers that may be considered the 
functional equivalent of loans on personal security: Provided, the 
savings association relies substantially

[[Page 209]]

upon other factors, such as the general credit standing of the borrower, 
guaranties, or security other than the real estate or mobile home, as 
the primary security for the loan. Appropriate evidence to demonstrate 
justification for such reliance should be retained in a savings 
association's files. Among the types of credit included within this term 
are consumer loans; educational loans; unsecured loans for real property 
alteration, repair or improvement, or for the equipping of real 
property; loans in the nature of overdraft protection; and credit 
extended in connection with credit cards.



Sec. 561.14  Controlling person.

    The term controlling person of a savings association means any 
person or entity which, either directly or indirectly, or acting in 
concert with one or more other persons or entities, owns, controls, or 
holds with power to vote, or holds proxies representing, ten percent or 
more of the voting shares or rights of such savings association; or 
controls in any manner the election or appointment of a majority of the 
directors of such savings association. However, a director of a savings 
association will not be deemed to be a controlling person of such 
savings association based upon his or her voting, or acting in concert 
with other directors in voting, proxies:
    (a) Obtained in connection with an annual solicitation of proxies, 
or
    (b) Obtained from savings account holders and borrowers if such 
proxies are voted as directed by a majority vote of the entire board of 
directors of such association, or of a committee of such directors if 
such committee's composition and authority are controlled by a majority 
vote of the entire board and if its authority is revocable by such a 
majority.



Sec. 561.15  Corporation.

    The terms Corporation and FDIC mean the Federal Deposit Insurance 
Corporation.



Sec. 561.16  Demand accounts.

    The term demand accounts means non-interest-bearing demand deposits 
that are subject to check or to withdrawal or transfer on negotiable or 
transferable order to the savings association and that are permitted to 
be issued by statute, regulation, or otherwise and are payable on 
demand.

[54 FR 49545, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993; 62 
FR 54765, Oct. 22, 1997; 70 FR 76676, Dec. 28, 2005]



Sec. 561.18  Director.

    (a) The term director means any director, trustee, or other person 
performing similar functions with respect to any organization whether 
incorporated or unincorporated. Such term does not include an advisory 
director, honorary director, director emeritus, or similar person, 
unless the person is otherwise performing functions similar to those of 
a director.
    (b) The term Director means the Director of the Office of Thrift 
Supervision as established in section 3 of the Act.



Sec. 561.19  Financial institution.

    The term financial institution has the same meaning as the term 
depository institution set forth in 12 U.S.C. 1813(c)(1).



Sec. 561.24  Immediate family.

    The term immediate family of any natural person means the following 
(whether by the full or half blood or by adoption):
    (a) Such person's spouse, father, mother, children, brothers, 
sisters, and grandchildren;
    (b) The father, mother, brothers, and sisters of such person's 
spouse; and
    (c) The spouse of a child, brother, or sister of such person.



Sec. 561.26  Land loan.

    The term land loan means a loan:
    (a) Secured by real estate upon which all facilities and 
improvements have been completely installed, as required by local 
regulations and practices, so that it is entirely prepared for the 
erection of structures;
    (b) To finance the purchase of land and the accomplishment of all 
improvements required to convert it to developed building lots; or
    (c) Secured by land upon which there is no structure.

[[Page 210]]



Sec. 561.27  Low-rent housing.

    The term low-rent housing means real estate which is, or which is 
being constructed, remodeled, rehabilitated, modernized, or renovated to 
be, the subject of an annual contributions contract for low-rent housing 
under the provisions of the United States Housing Act of 1937, as 
amended.



Sec. 561.28  Money Market Deposit Accounts.

    (a) Money Market Deposit Accounts (MMDAs) offered by Federal savings 
associations in accordance with 12 U.S.C. 1464(b)(1) and by state-
chartered savings associations in accordance with applicable state law 
are savings accounts on which interest may be paid if issued subject to 
the following limitations:
    (1) The savings association shall reserve the right to require at 
least seven days' notice prior to withdrawal or transfer of any funds in 
the account; and
    (2)(i) The depositor is authorized by the savings association to 
make no more than six transfers per calendar month or statement cycle 
(or similar period) of at least four weeks by means of preauthorized, 
automatic, telephonic, or data transmission agreement, order, or 
instruction to another account of the depositor at the same savings 
association to the savings association itself, or to a third party: 
Provided, That no more than three of the six transfers provided for in 
this paragraph (a)(2)(i) may be by check, draft, debit card, or similar 
order made by the depositor and payable to third parties.
    (ii) Savings associations may permit holders of MMDAs to make 
unlimited transfers for the purpose of repaying loans (except overdraft 
loans on the depositor's demand account) and associated expenses at the 
same savings association (as originator or servicer), to make unlimited 
transfers of funds from this account to another account of the same 
depositor at the same savings association or to make unlimited payments 
directly to the depositor from the account when such transfers or 
payments are made by mail, messenger, automated teller machine, or in 
person, or when such payments are made by telephone (via check mailed to 
the depositor).
    (3) In order to ensure that no more than the number of transfers 
specified in paragraph (a)(2)(i) of this section are made, a savings 
association must either:
    (i) Prevent transfers of funds in excess of the limitations; or
    (ii) Adopt procedures to monitor those transfers on an after-the-
fact basis and contact customers who exceed the limits on more than an 
occasional basis. For customers who continue to violate those limits 
after being contacted by the depository savings association the 
depository savings association must either place funds in another 
account that the depositor is eligible to maintain or take away the 
account's transfer and draft capacities.
    (iii) Insured savings association at their option, may use on a 
consistent basis either the date on a check or the date it is paid in 
determining whether the transfer limitations within the specified 
interval are exceeded.
    (b) Federal savings associations may offer MMDAs to any depositor, 
and state-chartered savings associations may offer MMDAs to any 
depositor not inconsistent with applicable state law.



Sec. 561.29  Negotiable Order of Withdrawal Accounts.

    (a) Negotiable Order of Withdrawal (NOW) accounts are savings 
accounts authorized by 12 U.S.C. 1832 on which the savings association 
reserves the right to require at least seven days' notice prior to 
withdrawal or transfer of any funds in the account.
    (b) For purposes of 12 U.S.C. 1832:
    (1) An organization shall be deemed ``operated primarily for 
religious, philanthropic, charitable, educational, or other similar 
purposes and * * * not * * * for profit'' if it is described in sections 
501(c)(3) through (13), 501(c)(19), or 528 of the Internal Revenue Code; 
and
    (2) The funds of a sole proprietorship or unincorporated business 
owned by a husband and wife shall be deemed beneficially owned by ``one 
or more individuals.''

[[Page 211]]



Sec. 561.30  Nonresidential construction loan.

    The term nonresidential construction loan means a loan for 
construction of other than one or more dwelling units.



Sec. 561.31  Nonwithdrawable account.

    The term nonwithdrawable account means an account which by the terms 
of the contract of the accountholder with the savings association or by 
provisions of state law cannot be paid to the accountholder until all 
liabilities, including other classes of share liability of the savings 
association have been fully liquidated and paid upon the winding up of 
the savings association is referred to as a nonwithdrawable account.



Sec. 561.33  Note account.

    The term note account means a note, subject to the right of 
immediate call, evidencing funds held by depositories electing the note 
option under applicable United States Treasury Department regulations. 
Note accounts are not savings accounts or savings deposits.



Sec. 561.34  Office.

    The term Office means the Office as established in section 3 of the 
Act or any official duly authorized to act on its behalf. Where 
appropriate in context, it also refers to the Federal Home Loan Bank 
Board and the Federal Savings and Loan Insurance Corporation as 
predecessor agencies to the Office.



Sec. 561.35  Officer.

    The term Officer means the president, any vice-president (but not an 
assistant vice-president, second vice-president, or other vice president 
having authority similar to an assistant or second vice-president), the 
secretary, the treasurer, the comptroller, and any other person 
performing similar functions with respect to any organization whether 
incorporated or unincorporated. The term officer also includes the 
chairman of the board of directors if the chairman is authorized by the 
charter or by-laws of the organization to participate in its operating 
management or if the chairman in fact participates in such management.



Sec. 561.37  Parent company; subsidiary.

    The terms parent company and subsidiary have the meanings given to 
them by Sec. Sec. 583.15 and 583.23 of this chapter, respectively.



Sec. 561.38  Political subdivision.

    The term political subdivision includes any subdivision of a public 
unit, any principal department of such public unit:
    (a) The creation of which subdivision or department has been 
expressly authorized by state statute,
    (b) To which some functions of government have been delegated by 
state statute, and
    (c) To which funds have been allocated by statute or ordinance for 
its exclusive use and control. It also includes drainage, irrigation, 
navigation, improvement, levee, sanitary, school or power districts and 
bridge or port authorities and other special districts created by state 
statute or compacts between the states. Excluded from the term are 
subordinate or nonautonomous divisions, agencies or boards within 
principal departments.



Sec. 561.39  Principal office.

    The term principal office means the home office of a savings 
association established as such in conformity with the laws under which 
the savings association is organized.



Sec. 561.40  Public unit.

    The term public unit means the United States, any state of the 
United States, the District of Columbia, any territory of the United 
States, Puerto Rico, the Virgin Islands, any county, any municipality or 
any political subdivision thereof.



Sec. 561.41  [Reserved]



Sec. 561.42  Savings account.

    The term savings account means any withdrawable account, except a 
demand account as defined in Sec. 561.16 of this chapter, a tax and 
loan account, a note account, a United States Treasury general account, 
or a United States Treasury time deposit-open account.

[54 FR 49545, Nov. 30, 1989, as amended at 62 FR 54765, Oct. 22, 1997]

[[Page 212]]



Sec. 561.43  Savings association.

    The term savings association means a savings association as defined 
in section 3 of the Federal Deposit Insurance Act, the deposits of which 
are insured by the Corporation. It includes a Federal savings 
association or Federal savings bank, chartered under section 5 of the 
Act, or a building and loan, savings and loan, or homestead association, 
or a cooperative bank (other than a cooperative bank which is a State 
bank as defined in section 3(a)(2) of the Federal Deposit Insurance Act) 
organized and operating according to the laws of the State in which it 
is chartered or organized, or a corporation (other than a bank as 
defined in section 3(a)(1) of the Federal Deposit Insurance Act) that 
the Board of Directors of the Federal Deposit Insurance Corporation and 
the Director of the Office of Thrift Supervision jointly determine to be 
operating substantially in the same manner as a savings association.



Sec. 561.44  Security.

    The term security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, or, in general, any interest or instrument commonly known 
as a security, or any certificate of interest or participation in, 
temporary or interim certificate for, receipt for, guarantee of, or 
warrant or right to subscribe to or purchase, any of the foregoing, 
except that a security shall not include an account or deposit insured 
by the Federal Deposit Insurance Corporation.



Sec. 561.45  Service corporation.

    The term service corporation means any corporation, the majority of 
the capital stock of which is owned by one or more savings associations 
and which engages, directly or indirectly, in any activities similar to 
activities which may be engaged in by a service corporation in which a 
Federal savings association may invest under part 559 of this chapter.

[54 FR 49545, Nov. 30, 1989, as amended at 62 FR 66262, Dec. 18, 1997]



Sec. 561.50  State.

    The term State means a State, the District of Columbia, Guam, Puerto 
Rico, and the Virgin Islands of the United States.



Sec. 561.51  Subordinated debt security.

    The term subordinated debt security means any unsecured note, 
debenture, or other debt security issued by a savings association and 
subordinated on liquidation to all claims having the same priority as 
account holders or any higher priority.



Sec. 561.52  Tax and loan account.

    The term tax and loan account means an account, the balance of which 
is subject to the right of immediate withdrawal, established for receipt 
of payments of Federal taxes and certain United States obligations. Such 
accounts are not savings accounts or savings deposits.



Sec. 561.53  United States Treasury General Account.

    The term United States Treasury General Account means an account 
maintained in the name of the United States Treasury the balance of 
which is subject to the right of immediate withdrawal, except in the 
case of the closure of the member, and in which a zero balance may be 
maintained. Such accounts are not savings accounts or savings deposits.



Sec. 561.54  United States Treasury Time Deposit Open Account.

    The term United States Treasury Time Deposit Open Account means a 
non-interest-bearing account maintained in the name of the United States 
Treasury which may not be withdrawn prior to the expiration of 30 days' 
written notice from the United States Treasury, or such other period of 
notice as the Treasury may require. Such accounts are not savings 
accounts or savings deposits.

[[Page 213]]



Sec. 561.55  With recourse.

    (a) The term with recourse means, in connection with the sale of a 
loan or a participation interest in a loan, an agreement or arrangement 
under which the purchaser is to be entitled to receive from the seller a 
sum of money or thing of value, whether tangible or intangible 
(including any substitution), upon default in payment of any loan 
involved or any part thereof or to withhold or to have withheld from the 
seller a sum of money or anything of value by way of security against 
default. The recourse liability resulting from a sale with recourse 
shall be the total book value of any loan sold with recourse less:
    (1) The amount of any insurance or guarantee against loss in the 
event of default provided by a third party,
    (2) The amount of any loss to be borne by the purchaser in the event 
of default, and
    (3) The amount of any loss resulting from a recourse obligation 
entered on the books and records of the savings association.
    (b) The term with recourse does not include loans or interests 
therein where the agreement of sale provides for the savings association 
directly or indirectly
    (1) To hold or retain a subordinate interest in a specified 
percentage of the loans or interests; or
    (2) To guarantee against loss up to a specified percentage of the 
loans or interests, which specified percentage shall not exceed ten 
percent of the outstanding balance of the loans or interests at the time 
of sale: Provided, That the savings association designates adequate 
reserves for the subordinate interest or guarantee.
    (c) This definition does not apply for purposes of determining the 
capital adequacy requirements under part 567 of this chapter.

[54 FR 49545, Nov. 30, 1989, as amended at 57 FR 33437, July 29, 1992]



PART 562_REGULATORY REPORTING STANDARDS--Table of Contents




Sec.
562.1 Regulatory reporting requirements.
562.2 Regulatory reports.
562.4 Audit of savings associations and savings association holding 
          companies.

    Authority: 12 U.S.C. 1463.

    Source: 57 FR 40090, Sept. 2, 1992, unless otherwise noted.



Sec. 562.1  Regulatory reporting requirements.

    (a) Authority and scope. This part is issued by the Office of Thrift 
Supervision (OTS) pursuant to section 4(b) and 4(c) of the Home Owners' 
Loan Act (HOLA). It applies to all savings associations regulated by the 
OTS.
    (b) Records and reports--general--(1) Records. Each savings 
association and its affiliates shall maintain accurate and complete 
records of all business transactions. Such records shall support and be 
readily reconcilable to any regulatory reports submitted to the OTS and 
financial reports prepared in accordance with GAAP. The records shall be 
maintained in the United States and be readily accessible for 
examination and other supervisory purposes within 5 business days upon 
request by the OTS, at a location acceptable to the OTS.
    (2) Reports. For purposes of examination by and regulatory reports 
to the OTS and compliance with this chapter, all savings associations 
shall use such forms and follow such regulatory reporting requirements 
as the OTS may require by regulation or otherwise.



Sec. 562.2  Regulatory reports.

    (a) Definition and scope. This section applies to all regulatory 
reports, as defined herein. A regulatory report is any report that the 
OTS prepares, or is submitted to, or is used by the OTS, to determine 
compliance with its rules and regulations, and to evaluate the safe and 
sound condition and operation of savings associations. The Report of 
Examination and the Thrift Financial Report (TFR) are examples of 
regulatory reports. Regulatory reports are regulatory documents, not 
accounting documents.
    (b) Regulatory reporting requirements--(1) General. The instructions 
to regulatory reports are referred to as ``regulatory reporting 
requirements.'' Regulatory reporting requirements include, but are not 
limited to, the accounting

[[Page 214]]

instructions provided in the TFR, guidance contained in OTS regulations, 
bulletins, and examination handbooks, and safe and sound practices. 
Regulatory reporting requirements are not limited to the minimum 
requirements under generally accepted accounting principles (GAAP) 
because of the special supervisory, regulatory, and economic policy 
needs served by such reports. Regulatory reporting by savings 
associations that purports to comply with GAAP shall incorporate the 
GAAP that best reflects the underlying economic substance of the 
transaction at issue. Regulatory reporting requirements shall, at a 
minimum:
    (i) Incorporate GAAP whenever GAAP is the referenced accounting 
instruction for regulatory reports to the Federal banking agencies;
    (ii) Incorporate safe and sound practices contained in OTS 
regulations, bulletins, examination handbooks and instructions to 
regulatory reports. Such safety and soundness requirements shall be no 
less stringent than those applied by the Comptroller of the Currency for 
national banks; and
    (iii) Incorporate additional safety and soundness requirements more 
stringent than GAAP, as the Director may prescribe.
    (2) Exceptions. Regulatory reporting requirements that are not 
consistent with GAAP, if any, are not required to be reflected in 
audited financial statements, including financial statements contained 
in securities filings submitted to the OTS pursuant to the Securities 
and Exchange Act of 1934 or parts 563b, 563d, or 563g of this chapter.
    (3) Compliance. When the OTS determines that a savings association's 
regulatory reports did not conform to regulatory reporting requirements 
in previous reporting periods, the association shall correct its 
regulatory reports in accordance with the directions of the OTS.



Sec. 562.4  Audit of savings associations and savings association 
holding companies.

    (a) General. The OTS may require, at any time, an independent audit 
of the financial statements of, or the application of procedures agreed 
upon by the OTS to a savings association, savings and loan holding 
company, or affiliate (as defined by 12 CFR 563.41) by qualified 
independent public accountants when needed for any safety and soundness 
reason identified by the Director.
    (b) Audits required for safety and soundness purposes. The OTS 
requires an independent audit for safety and soundness purposes:
    (1) If a savings association has received a composite rating of 3, 4 
or 5, as defined at Sec. 516.5(c) of this chapter; or
    (2) If, as of the beginning of its fiscal year, a savings and loan 
holding company controls savings association subsidiary(ies) with 
aggregate consolidated assets of $500 million or more.
    (c) Procedures. (1) When the OTS requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
Director shall determine whether the audit was conducted and filed in a 
manner satisfactory to the OTS.
    (2) The Director may waive the independent audit requirement 
described at paragraph (b)(1) of this section, if the Director 
determines that an audit would not provide further information on safety 
and soundness issues relevant to the examination rating.
    (3) When the OTS requires the application of procedures agreed upon 
by the OTS for safety and soundness purposes, the Director shall 
identify the procedures to be performed. The Director shall also 
determine whether the agreed upon procedures were conducted and filed in 
a manner satisfactory to the OTS.
    (d) Qualifications for independent public accountants. The audit 
shall be conducted by an independent public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the savings association's or 
holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the OTS with access 
to and copies of any work papers, policies, and procedures relating to 
the services performed;

[[Page 215]]

    (3)(i) Is in compliance with the American Institute of Certified 
Public Accountants' (AICPA) Code of Professional Conduct; and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff; and
    (4) Has received, or is enrolled in, a peer review program that 
meets guidelines acceptable to the OTS.
    (e) Voluntary audits. When a savings association, savings and loan 
holding company, or affiliate (as defined by 12 CFR 563.41) obtains an 
independent audit voluntarily, it must be performed by an independent 
public accountant who satisfies the requirements of paragraphs (d)(1), 
(d)(2), and (d)(3)(i) of this section.

[59 FR 60304, Nov. 23, 1994, as amended at 62 FR 3780, Jan. 27, 1997; 66 
FR 13007, Mar. 2, 2001; 67 FR 70531, Nov. 25, 2002; 67 FR 77917, 
December 20, 2002]



PART 563_SAVINGS ASSOCIATIONS_OPERATIONS--Table of Contents




                           Subpart A_Accounts

Sec.
563.1 Chartering documents.
563.4 [Reserved]
563.5 Securities: Statement of non-insurance.

                    Subpart B_Operation and Structure

563.22 Merger, consolidation, purchase or sale of assets, or assumption 
          of liabilities.
563.27 Advertising.
563.33 Directors, officers, and employees.
563.36 Tying restriction exception.
563.39 Employment contracts.
563.41 Transactions with affiliates.
563.43 Loans by savings associations to their executive officers, 
          directors and principal shareholders.
563.47 Pension plans.

                   Subpart C_Securities and Borrowings

563.74 Mutual capital certificates.
563.76 Offers and sales of securities at an office of a savings 
          association.
563.80 Borrowing limitations.
563.81 Inclusion of subordinated debt securities and mandatorily 
          redeemable preferred stock as supplementary capital.

Subpart D [Reserved]

                     Subpart E_Capital Distributions

563.140 What does this subpart cover?
563.141 What is a capital distribution?
563.142 What other definitions apply to this subpart?
563.143 Must I file with OTS?
563.144 How do I file with the OTS?
563.145 May I combine my notice or application with other notices or 
          applications?
563.146 Will the OTS permit my capital distribution?

                 Subpart F_Financial Management Policies

563.161 Management and financial policies.
563.170 Examinations and audits; appraisals; establishment and 
          maintenance of records.
563.171 Frequency of safety and soundness examination.
563.172 Financial derivatives.
563.176 Interest-rate-risk-management procedures.
563.177 Procedures for monitoring Bank Secrecy Act (BSA) compliance.

                     Subpart G_Reporting and Bonding

563.180 Suspicious Activity Reports and other reports and statements.
563.190 Bonds for directors, officers, employees, and agents; form of 
          and amount of bonds.
563.191 Bonds for agents.
563.200 Conflicts of interest.
563.201 Corporate opportunity.

   Subpart H_Notice of Change of Director or Senior Executive Officer

563.550 What does this subpart do?
563.555 What definitions apply to this subpart?
563.560 Who must give prior notice?
563.565 What procedures govern the filing of my notice?
563.570 What information must I include in my notice?
563.575 What procedures govern OTS review of my notice for completeness?
563.580 What standards and procedures will govern OTS review of the 
          substance of my notice?
563.585 When may a proposed director or senior executive officer begin 
          service?
563.590 When will the OTS waive the prior notice requirement?

    Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
1817, 1820, 1828, 1831o, 3806; 31 U.S.C. 5318; 42 U.S.C. 4106.

    Source: 54 FR 49552, Nov. 30, 1989, unless otherwise noted.

[[Page 216]]



                           Subpart A_Accounts



Sec. 563.1  Chartering documents.

    (a) Submission for approval. Any de novo savings association prior 
to commencing operations shall file its charter and bylaws with the OTS 
for approval, together with a certification that such charter and bylaws 
are permissible under all applicable laws, rules and regulations.
    (b) Availability of chartering documents. Each savings association 
shall cause a true copy of its charter and bylaws and all amendments 
thereto to be available to accountholders at all times in each office of 
the savings association, and shall upon request deliver to any 
accountholders a copy of such charter and bylaws or amendments thereto.

[57 FR 14344, Apr. 20, 1992]



Sec. 563.4  [Reserved]



Sec. 563.5  Securities: Statement of non-insurance.

    Every security issued by a savings association must include in its 
provisions a clear statement that the security is not insured by the 
Federal Deposit Insurance Corporation.



                    Subpart B_Operation and Structure



Sec. 563.22  Merger, consolidation, purchase or sale of assets, or 
assumption of liabilities.

    (a) No savings association may, without application to and approval 
by the Office:
    (1) Combine with any insured depository institution, if the 
acquiring or resulting institution is to be a savings association; or
    (2) Assume liability to pay any deposit made in, any insured 
depository institution.
    (b)(1) No savings association may, without notifying the Office, as 
provided in paragraph (h)(1) of this section:
    (i) Combine with another insured depository institution where a 
savings association is not the resulting institution; or
    (ii) In the case of a savings association that meets the conditions 
for expedited treatment under Sec. 516.5 of this chapter, convert, 
directly or indirectly, to a national or state bank.
    (2) A savings association that does not meet the conditions for 
expedited treatment under Sec. 516.5 of this chapter may not, directly 
or indirectly, convert to a national or state bank without prior 
application to and approval of OTS, as provided in paragraph (h)(2)(ii) 
of this section.
    (c) No savings association may make any transfer (excluding 
transfers subject to paragraphs (a) or (b) of this section) without 
notice or application to the Office, as provided in paragraph (h)(2) of 
this section. For purposes of this paragraph, the term ``transfer'' 
means purchases or sales of assets or liabilities in bulk not made in 
the ordinary course of business including, but not limited to, transfers 
of assets or savings account liabilities, purchases of assets, and 
assumptions of deposit accounts or other liabilities, and combinations 
with a depository institution other than an insured depository 
institution.
    (d)(1) In determining whether to confer approval for a transaction 
under paragraphs (a), (b)(2), or (c) of this section, the Office shall 
take into account the following:
    (i) The capital level of any resulting savings association;
    (ii) The financial and managerial resources of the constituent 
institutions;
    (iii) The future prospects of the constituent institutions;
    (iv) The convenience and needs of the communities to be served;
    (v) The conformity of the transaction to applicable law, regulation, 
and supervisory policies;
    (vi) Factors relating to the fairness of and disclosure concerning 
the transaction, including, but not limited to:
    (A) Equitable treatment. The transaction should be equitable to all 
concerned--savings account holders, borrowers, creditors and 
stockholders (if any) of each savings association--giving proper 
recognition of and protection to their respective legal rights and 
interests. The transaction will be closely reviewed for fairness where 
the transaction does not appear to be the

[[Page 217]]

result of arms' length bargaining or, in the case of a stock savings 
association, where controlling stockholders are receiving different 
consideration from other stockholders. No finder's or similar fee should 
be paid to any officer, director, or controlling person of a savings 
association which is a party to the transaction.
    (B) Full disclosure. The filing should make full disclosure of all 
written or oral agreements or understandings by which any person or 
company will receive, directly or indirectly, any money, property, 
service, release of pledges made, or other thing of value, whether 
tangible or intangible, in connection with the transaction.
    (C) Compensation to officers. Compensation, including deferred 
compensation, to officers, directors and controlling persons of the 
disappearing savings association by the resulting institution or an 
affiliate thereof should not be in excess of a reasonable amount, and 
should be commensurate with their duties and responsibilities. The 
filing should fully justify the compensation to be paid to such persons. 
The transaction will be particularly scrutinized where any of such 
persons is to receive a material increase in compensation above that 
paid by the disappearing savings association prior to the commencement 
of negotiations regarding the proposed transaction. An increase in 
compensation in excess of the greater of 15% or $10,000 gives rise to 
presumptions of unreasonableness and sale of control. In the case of 
such an increase, evidence sufficient to rebut such presumptions should 
be submitted.
    (D) Advisory boards. Advisory board members should be elected for a 
term not exceeding one year. No advisory board fees should be paid to 
salaried officers or employees of the resulting savings association. The 
filing should describe and justify the duties and responsibilities and 
any compensation paid to any advisory board of the resulting savings 
association that consists of officers, directors or controlling persons 
of the disappearing institution, particularly if the disappearing 
institution experienced significant supervisory problems prior to the 
transaction. No advisory board fees should exceed the director fees paid 
by the resulting savings association. Advisory board fees that are in 
excess of 115 percent of the director fees paid by the disappearing 
savings association prior to commencement of negotiations regarding the 
transaction give rise to presumptions of unreasonableness and sale of 
control unless sufficient evidence to rebut such presumptions is 
submitted. Rebuttal evidence is not required if:
    (1) The advisory board fees do not exceed the fee that advisory 
board members of the resulting institution receive for each monthly 
meeting attended or $150, whichever is greater; or
    (2) The advisory board fees do not exceed $100 per meeting attended 
for disappearing savings associations with assets greater than 
$10,000,000 or $50 per meeting attended for disappearing savings 
associations with assets of $10,000,000 or less, based on a schedule of 
12 meetings per year.
    (E) The accounting and tax treatment of the transaction; and
    (F) Fees paid and professional services rendered in connection with 
the transaction.
    (2) In conferring approval of a transaction under paragraph (a) of 
this section, the Office also will consider the competitive impact of 
the transaction, including whether:
    (i) The transaction would result in a monopoly, or would be in 
furtherance of any monopoly or conspiracy to monopolize or to attempt to 
monopolize the savings association business in any part of the United 
States; or
    (ii) The effect of the transaction on any section of the country may 
be substantially to lessen competition, or tend to create a monopoly, or 
in any other manner would be in restraint of trade, unless the Office 
finds that the anticompetitive effects of the proposed transaction are 
clearly outweighed in the public interest by the probable effect of the 
transaction in meeting the convenience and needs of the communities to 
be served.
    (3) Applications and notices filed under this section shall be upon 
forms prescribed by the Office.
    (4) Applications filed under paragraph (a) of this section must be 
processed in accordance with the time

[[Page 218]]

frames set forth in Sec. Sec. 516.210 through 516.290 of this chapter, 
provided that the period for review may be extended only if the Office 
determines that the applicant has failed to furnish all requested 
information or that the information submitted is substantially 
inaccurate, in which case the review period may be extended for up to 30 
days.
    (e)(1) The following procedures apply to applications described in 
paragraph (a) of this section, unless OTS finds that it must act 
immediately to prevent the probable default of one of the depository 
institutions involved:
    (i) The applicant must publish a public notice of the application in 
accordance with the procedures in subpart B of part 516 of this chapter. 
In addition to the initial publication, the applicant must also publish 
on a weekly basis during the public comment period.
    (ii) Commenters may submit comments on an application in accordance 
with the procedures in subpart C of part 516 of this chapter. The public 
comment period is 30 calendar days after the date of publication of the 
initial public notice. However, if OTS has advised the Attorney General 
that an emergency exists requiring expeditious action, the public 
comment period is 10 calendar days after the date of publication of the 
initial public notice.
    (iii) OTS may arrange a meeting in accordance with the procedures in 
subpart D of part 516 of this chapter.
    (iv) OTS will request the Attorney General, the Office of the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, and the Federal Deposit Insurance Corporation to provide 
reports on the competitive impacts involved in the transaction.
    (v) OTS will immediately notify the Attorney General of the approval 
of the transaction. The applicant may not consummate the transaction 
before the date established under 12 U.S.C. 1828(c)(6).
    (2) For applications described in Sec. 563.22, certain savings 
associations described below must provide affected accountholders with a 
notice of a proposed account transfer and an option of retaining the 
account in the transferring savings association. The notice must allow 
affected accountholders at least 30 days to consider whether to retain 
their accounts in the transferring savings association. The following 
savings associations must provide the notices:
    (i) A savings association transferring account liabilities to an 
institution the accounts of which are not insured by the Deposit 
Insurance Fund or the National Credit Union Share Insurance Fund; and
    (ii) Any mutual savings association transferring account liabilities 
to a stock form depository institution.
    (f) Automatic approvals by the Office. Applications filed pursuant 
to paragraph (a) of this section shall be deemed to be approved 
automatically by the Office 30 calendar days after the Office sends 
written notice to the applicant that the application is complete, 
unless:
    (1) The acquiring savings association does not meet the criteria for 
expedited treatment under Sec. 516.5 of this chapter;
    (2) The OTS recommends the imposition of non-standard conditions 
prior to approving the application;
    (3) The OTS suspends the applicable processing time frames under 
Sec. 516.190 of this chapter;
    (4) The OTS raises objections to the transaction;
    (5) The resulting savings association would be one of the 3 largest 
depository institutions competing in the relevant geographic area where 
before the transaction there were 5 or fewer depository institutions, 
the resulting savings association would have 25 percent or more of the 
total deposits held by depository institutions in the relevant 
geographic area, and the share of total deposits would have increased by 
5 percent or more;
    (6) The resulting savings association would be one of the 2 largest 
depository institutions competing in the relevant geographic area where 
before the transaction there were 6 to 11 depository institutions the 
resulting savings association would have 30 percent or more of the total 
deposits held by depositing institutions in the relevant geographic 
area, and the share of total deposits would have increased by 10 percent 
or more;

[[Page 219]]

    (7) The resulting savings association would be one of the 2 largest 
depository institutions competing in the relevant geographic area where 
before the transaction there were 12 or more depository institutions, 
the resulting savings association would have 35 percent or more of the 
total deposits held by the depository institutions in the relevant 
geographic area, and the share of total deposits would have increased by 
15 percent or more;
    (8) The Herfindahl-Hirschman Index (HHI) in the relevant geographic 
area was more than 1800 before the transaction, and the increase in the 
HHI used by the transaction would be 50 or more;
    (9) In a transaction involving potential competition, the OTS 
determines that the acquiring savings association is one of three or 
fewer potential entrants into the relevant geographic area;
    (10) The acquiring savings association has assets of $1 billion or 
more and proposes to acquire assets of $1 billion or more;
    (11) The savings association that will be the resulting savings 
association in the transaction has a composite Community Reinvestment 
Act rating of less than satisfactory, or is otherwise seriously 
deficient with respect to the Office's nondiscrimination regulations and 
the deficiencies have not been resolved to the satisfaction of the OTS;
    (12) The transaction involves any supervisory or assistance 
agreement with the Office, the Resolution Trust Corporation, or the 
Federal Deposit Insurance Corporation;
    (13) The transaction is part of a conversion under part 563b of this 
chapter;
    (14) The transaction raises a significant issue of law or policy; or
    (15) The transaction is opposed by any constituent institution or 
contested by a competing acquiror.
    (g) Definitions. (1) The terms used in this section shall have the 
same meaning as set forth in Sec. 552.13(b) of this chapter.
    (2) Insured depository institution. Insured depository institution 
has the same meaning as defined in section 3(c)(2) of the Federal 
Deposit Insurance Act.
    (3) With regard to paragraph (f) of this section, the term relevant 
geographic area is used as a substitute for relevant geographic market, 
which means the area within which the competitive effects of a merger or 
other combination may be evaluated. The relevant geographic area shall 
be delineated as a county or similar political subdivision, an area 
smaller than a county, or an aggregation of counties within which the 
merging or combining insured depository institutions compete. In 
addition, the Office may consider commuting patterns, newspaper and 
other advertising activities, or other factors as the Office deems 
relevant.
    (h) Special requirements and procedures for transactions under 
paragraphs (b) and (c) of this section--(1) Certain transactions with no 
surviving savings association. The Office must be notified of any 
transaction under paragraph (b)(1) of this section. Such notification 
must be submitted to the OTS at least 30 days prior to the effective 
date of the transaction, but not later than the date on which an 
application relating to the proposed transaction is filed with the 
primary regulator of the resulting institution; the Office may, upon 
request or on its own initiative, shorten the 30-day prior notification 
requirement. Notifications under this paragraph must demonstrate 
compliance with applicable stockholder or accountholder approval 
requirements. Where the savings association submitting the notification 
maintains a liquidation account established pursuant to part 563b of 
this chapter, the notification must state that the resulting institution 
will assume such liquidation account.
    The notification may be in the form of either a letter describing 
the material features of the transaction or a copy of a filing made with 
another Federal or state regulatory agency seeking approval from that 
agency for the transaction under the Bank Merger Act or other applicable 
statute. If the action contemplated by the notification is not completed 
within one year after the Office's receipt of the notification, a new 
notification must be submitted to the Office.
    (2) Other transfer transactions--(i) Expedited treatment. A notice 
in conformity with Sec. 516.25(a) of this chapter may be submitted to 
OTS under Sec. 516.40 of this chapter for any transaction

[[Page 220]]

under paragraph (c) of this section, provided all constituent savings 
associations meet the conditions for expedited treatment under Sec. 
516.5 of this chapter. Notices submitted under this paragraph must be 
deemed approved automatically by OTS 30 days after receipt, unless OTS 
advises the applicant in writing prior to the expiration of such period 
that the proposed transaction may not be consummated without OTS's 
approval of an application under paragraphs (h)(2)(ii) or (h)(2)(iii) of 
this section.
    (ii) Standard treatment. An application in conformity with Sec. 
516.25(b) of this chapter and paragraph (d) of this section must be 
submitted to OTS under Sec. 516.40 by each savings association 
participating in a transaction under paragraph (b)(2) or (c) of this 
section, where any constituent savings association does not meet the 
conditions for expedited treatment under Sec. 516.5 of this chapter. 
Applications under this paragraph must be processed in accordance with 
the procedures in part 516, subparts A and E of this chapter.

[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 13514, Apr. 11, 1990; 
57 FR 14344, Apr. 20, 1992; 59 FR 44624, Aug. 30, 1994; 59 FR 66159, 
Dec. 23, 1994; 62 FR 64146, Dec. 4, 1997; 66 FR 13007, Mar. 2, 2001; 69 
FR 68250, Nov. 24, 2004; 71 FR 19811, Apr. 18, 2006]



Sec. 563.27  Advertising.

    No savings association shall use advertising (which includes print 
or broadcast media, displays or signs, stationery, and all other 
promotional materials), or make any representation which is inaccurate 
in any particular or which in any way misrepresents its services, 
contracts, investments, or financial condition.

[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993]



Sec. 563.33  Directors, officers, and employees.

    (a) Directors--(1) Requirements. The composition of the board of 
directors of a savings association must be in accordance with the 
following requirements:
    (i) A majority of the directors must not be salaried officers or 
employees of the savings association or of any subsidiary or (except in 
the case of a savings association having 80% or more of any class of 
voting shares owned by a holding company) any holding company affiliate 
thereof.
    (ii) Not more than two of the directors may be members of the same 
immediate family.
    (iii) Not more than one director may be an attorney with a 
particular law firm.
    (2) Prospective application. In the case of an association whose 
board of directors does not conform with any requirement set forth in 
paragraph (a)(1) of this section as of October 5, 1983, this paragraph 
(a) shall not prohibit the uninterrupted service, including re-election 
and re-appointment, of any person serving on the board of directors at 
that date.
    (b) [Reserved]

[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993]



Sec. 563.36  Tying restriction exception.

    (a) Safe harbor for combined-balance discounts. A savings and loan 
holding company or any savings association or any affiliate of either 
may vary the consideration for any product or package of products based 
on a customer's maintaining a combined minimum balance in certain 
products specified by the company varying the consideration (eligible 
products), if:
    (1) That company (if it is a savings association) or a savings 
association affiliate of that company (if it is not a savings 
association) offers deposits, and all such deposits are eligible 
products; and
    (2) Balances in deposits count at least as much as non-deposit 
products toward the minimum balance.
    (b) Limitations on exception. This exception shall terminate upon a 
finding by the OTS that the arrangement is resulting in anti-competitive 
practices. The eligibility of a savings and loan holding company or 
savings association or affiliate of either to operate under this 
exception shall terminate upon a finding by the OTS that its exercise of 
this authority is resulting in anti-competitive practices.

[61 FR 60184, Nov. 27, 1996]

[[Page 221]]



Sec. 563.39  Employment contracts.

    (a) General. A savings association may enter into an employment 
contract with its officers and other employees only in accordance with 
the requirements of this section. All employment contracts shall be in 
writing and shall be approved specifically by an association's board of 
directors. An association shall not enter into an employment contract 
with any of its officers or other employees if such contract would 
constitute an unsafe or unsound practice. The making of such an 
employment contract would be an unsafe or unsound practice if such 
contract could lead to material financial loss or damage to the 
association or could interfere materially with the exercise by the 
members of its board of directors of their duty or discretion provided 
by law, charter, bylaw or regulation as to the employment or termination 
of employment of an officer or employee of the association. This may 
occur, depending upon the circumstances of the case, where an employment 
contract provides for an excessive term.
    (b) Required provisions. Each employment contract shall provide 
that:
    (1) The association's board of directors may terminate the officer 
or employee's employment at any time, but any termination by the 
association's board of directors other than termination for cause, shall 
not prejudice the officer or employee's right to compensation or other 
benefits under the contract. The officer or employee shall have no right 
to receive compensation or other benefits for any period after 
termination for cause. Termination for cause shall include termination 
because of the officer or employee's personal dishonesty, incompetence, 
willful misconduct, breach of fiduciary duty involving personal profit, 
intentional failure to perform stated duties, willful violation of any 
law, rule, or regulation (other than traffic violations or similar 
offenses) or final cease-and-desist order, or material breach of any 
provision of the contract.
    (2) If the officer or employee is suspended and/or temporarily 
prohibited from participating in the conduct of the association's 
affairs by a notice served under section 8 (e)(3) or (g)(1) of Federal 
Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) the 
association's obligations under the contract shall be suspended as of 
the date of service unless stayed by appropriate proceedings. If the 
charges in the notice are dismissed, the association may in its 
discretion (i) pay the officer or employee all or part of the 
compensation withheld while its contract obligations were suspended, and 
(ii) reinstate (in whole or in part) any of its obligations which were 
suspended.
    (3) If the officer or employee is removed and/or permanently 
prohibited from participating in the conduct of the association's 
affairs by an order issued under section 8 (e)(4) or (g)(1) of the 
Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all 
obligations of the association under the contract shall terminate as of 
the effective date of the order, but vested rights of the contracting 
parties shall not be affected.
    (4) If the savings association is in default (as defined in section 
3(x)(1) of the Federal Deposit Insurance Act), all obligations under the 
contract shall terminate as of the date of default, but this paragraph 
(b)(4) shall not affect any vested rights of the contracting parties: 
Provided, that this paragraph (b)(4) need not be included in an 
employment contract if prior written approval is secured from the 
Director or his or her designee.
    (5) All obligations under the contract shall be terminated, except 
to the extent determined that continuation of the contract is necessary 
of the continued operation of the association
    (i) By the Director or his or her designee, at the time the Federal 
Deposit Insurance Corporation or Resolution Trust Corporation enters 
into an agreement to provide assistance to or on behalf of the 
association under the authority contained in 13(c) of the Federal 
Deposit Insurance Act; or
    (ii) By the Director or his or her designee, at the time the 
Director or his or her designee approves a supervisory merger to resolve 
problems related to operation of the association or when the association 
is determined by the Director to be in an unsafe or unsound condition.

[[Page 222]]


Any rights of the parties that have already vested, however, shall not 
be affected by such action.



Sec. 563.41  Transactions with affiliates.

    (a) Scope. (1) This section implements section 11(a) of the Home 
Owners' Loan Act (12 U.S.C. 1468(a)). Section 11(a) applies sections 23A 
and 23B of the FRA (12 U.S.C. 371c and 371c1) to every savings 
association in the same manner and to the same extent as if the 
association were a member bank; prohibits certain types of transactions 
with affiliates; and authorizes OTS to impose additional restrictions on 
a savings association's transactions with affiliates.
    (2) For the purposes of this section, ``savings association'' is 
defined at section 3 of the Federal Deposit Insurance Act (12 U.S.C. 
1813), and also includes any savings bank or any cooperative bank that 
is a savings association under 12 U.S.C. 1467a(l). A non-affiliate 
subsidiary of a savings association as described in paragraph (b)(11) of 
this section is treated as part of the savings association.
    (b) Sections 23A and 23B of the FRA/Regulation W. A savings 
association must comply with sections 23A and 23B of the Federal Reserve 
Act and the implementing regulations at 12 CFR part 223 (Regulation W) 
as if it were a member bank, except as described in the following chart. 
In addition, a savings association should read all references to ``the 
Board'' or ``appropriate federal banking agency'' to refer only to 
``OTS,'' except for references at 12 CFR 223.2(a)(9)(iv), 223.3(h), 
223.3(z), 223.14(c)(4), 223.43, and 223.55.

------------------------------------------------------------------------
       Provision of Regulation W                   Application
------------------------------------------------------------------------
(1) 12 CFR 223.1--Authority, purpose,    Does not apply. Section
 and scope.                               563.41(a) addresses these
                                          matters.
(2) 12 CFR 223.2(a)(8)--``Affiliate''    Does not apply. Savings
 includes a financial subsidiary.         association subsidiaries do
                                          not meet the statutory
                                          definition of financial
                                          subsidiary.
(3) 12 CFR 223.2(a)(12)--Determination   Read to include the following
 that ``affiliate'' includes other        statement: ``Affiliate also
 types of companies.                      includes any company that OTS
                                          determines, by order or
                                          regulation, to present a risk
                                          to the safety and soundness of
                                          the savings association.''
(4) 12 CFR 223.2(b)(1)(ii)--             Does not apply. Savings
 ``Affiliate'' includes a subsidiary      association subsidiaries do
 that is a financial subsidiary.          not meet the statutory
                                          definition of financial
                                          subsidiary.
(5) 12 CFR 223.3(d)--Definition of       Does not apply. Capital stock
 ``capital stock and surplus.''.          and surplus means ``unimpaired
                                          capital and unimpaired
                                          surplus,'' as defined in 12
                                          CFR 560.93(b)(11).
(6) 12 CFR 223.3(h)(1)--Section 23A      Read to incorporate Sec.
 covered transactions include an          563.41(c)(1), which prohibits
 extension of credit to the affiliate.    loans or extensions of credit
                                          to an affiliate, unless the
                                          affiliate is engaged only in
                                          the activities described at 12
                                          U.S.C. 1467a(c)(2)(F)(i), as
                                          defined in Sec. 584.2-2 of
                                          this chapter.
(7) 12 CFR 223.3(h)(2)--Section 23A      Read to incorporate Sec.
 covered transactions include a           563.41(c)(2), which prohibits
 purchase of or investment in             purchases and investments in
 securities issued by an affiliate.       securities issued by an
                                          affiliate, other than with
                                          respect to shares of a
                                          subsidiary.
(8) 12 CFR 223.3(k)--Definition of       Read to include the following
 ``depository institution.''.             statement: ``For the purposes
                                          of this definition, a non-
                                          affiliate subsidiary of a
                                          savings association is treated
                                          as part of the depository
                                          institution.''
(9) 12 CFR 223.3(p)--Definition of       Does not apply. Savings
 ``financial subsidiary.''.               association subsidiaries do
                                          not meet the statutory
                                          definition of financial
                                          subsidiary.
(10) 12 CFR 223.3(w)--Definition of      Read to include the following
 ``member bank.''.                        statement: ``Member bank also
                                          includes a savings
                                          association. For purposes of
                                          this definition, a non-
                                          affiliate subsidiary of a
                                          savings association is treated
                                          as part of the savings
                                          association.''
(11) 12 CFR 223.3(aa)--Definition of     Does not apply. Other OTS
 ``operating subsidiary.''.               regulations include a
                                          conflicting definition of this
                                          same term. Instead, OTS uses
                                          the phrase ``non-affiliate
                                          subsidiary.'' A non-affiliate
                                          subsidiary is a subsidiary of
                                          a savings association other
                                          than a subsidiary described at
                                          12 CFR 223.2(b)(1)(i), (iii)
                                          through (v).
(12) 12 CFR 223.3(ii)--Definition of     Read to include the following
 ``subsidiary.''.                         statement: ``A subsidiary of a
                                          savings association means a
                                          company that is controlled by
                                          the savings association.''
(13) 12 CFR 223.3(kk)--Definition of     Read to include the following
 ``well capitalized.''.                   statement: ``For a savings and
                                          loan holding company, however,
                                          well-capitalized means that
                                          the holding company
                                          significantly exceeds OTS
                                          expectations for the amount of
                                          capital needed to adequately
                                          support the holding company's
                                          risk profile, as determined by
                                          OTS on a case-by-case basis.''
(14) 12 CFR 223.31--Application of       Read to refer to ``a non-
 section 23A to an acquisition of an      affiliate subsidiary'' instead
 affiliate that becomes an operating      of ``operating subsidiary.''
 subsidiary.
(15) 12 CFR 223.32--Rules that apply to  Does not apply. Savings
 financial subsidiaries of a bank.        association subsidiaries do
                                          not meet the statutory
                                          definition of financial
                                          subsidiary.

[[Page 223]]

 
(16) 12 CFR 223.42(f)(2)--Exemption for  Read to refer to ``Thrift
 purchasing certain marketable            Financial Report'' instead of
 securities.                              ``Call Report.'' References to
                                          ``state member bank'' are
                                          unchanged.
(17) 12 CFR 223.42(g)(2)--Exemption for  Read to refer to ``Thrift
 purchasing municipal securities.         Financial Report'' instead of
                                          ``Call Report.'' References to
                                          ``state member bank'' are
                                          unchanged.
(18) 12 CFR 223.61--Application of       Does not apply to savings
 sections 23A and 23B to U.S. branches    associations or their
 and agencies of foreign banks.           subsidiaries.
------------------------------------------------------------------------

    (c) Additional prohibitions and restrictions. A savings association 
must comply with the additional prohibitions and restrictions in this 
paragraph. Except as described in paragraph (b) of this section, the 
definitions in 12 CFR part 223 apply to these additional prohibitions 
and restrictions.
    (1) Loans and extensions of credit. (i) A savings association may 
not make a loan or other extension of credit to an affiliate, unless the 
affiliate is solely engaged in the activities described at 12 U.S.C. 
1467a(c)(2)(F)(i), as defined in Sec. 584.2-2 of this chapter. A loan 
or extension of credit to a third party is not prohibited merely because 
proceeds of the transaction are used for the benefit of, or are 
transferred to, an affiliate.
    (ii) If OTS determines that a particular transaction is, in 
substance, a loan or extension of credit to an affiliate that is engaged 
in activities other than those described at 12 U.S.C. 1467a(c)(2)(F)(i), 
as defined in Sec. 584.2-2 of this chapter, or OTS has other 
supervisory concerns concerning the transaction, OTS may inform the 
savings association that the transaction is prohibited under this 
paragraph (c)(1), and require the savings association to divest the 
loan, unwind the transaction, or take other appropriate action.
    (2) Purchases or investments in securities. A savings association 
may not purchase or invest in securities issued by any affiliate other 
than with respect to shares of a subsidiary. For the purposes of this 
paragraph (c)(2), subsidiary includes a bank and a savings association.
    (3) Recordkeeping. A savings association must make and retain 
records that reflect, in reasonable detail, all transactions between the 
savings association and its affiliates and any other person to the 
extent that the proceeds of a transaction are used for the benefit of, 
or transferred to, an affiliate. At a minimum, these records must:
    (i) Identify the affiliate;
    (ii) Specify the dollar amount of the transaction and demonstrate 
that this amount is within the quantitative limits in 12 CFR 223.11 and 
223.12, or that the transaction is not subject to those limits;
    (iii) Indicate whether the transaction involves a low-quality asset;
    (iv) Identify the type and amount of any collateral involved in the 
transaction and demonstrate that this collateral meets the requirements 
in 12 CFR 223.14 or that the transaction is not subject to those 
requirements;
    (v) Demonstrate that the transaction complies with 12 CFR part 223, 
subpart F or that the transaction is not subject to those requirements;
    (vi) Demonstrate that all loans and extensions of credit to 
affiliates comply with paragraph (c)(1) of this section; and
    (vii) Be readily accessible for examination and supervisory 
purposes.
    (4) Notice requirement. (i) OTS may require a savings association to 
notify the agency before the savings association may engage in a 
transaction with an affiliate or a subsidiary (other than exempt 
transactions under 12 CFR part 223). OTS may impose this requirement if:
    (A) The savings association is in troubled condition as defined at 
Sec. 563.555 of this part;
    (B) The savings association does not meet its regulatory capital 
requirements;
    (C) The savings association commenced de novo operations within the 
past two years;
    (D) OTS approved an application or notice under 12 CFR part 574 
involving the savings association or its holding company within the past 
two years;
    (E) The savings association entered into a consent to merge or a 
supervisory agreement within the past two years; or

[[Page 224]]

    (F) OTS or another banking agency initiated a formal enforcement 
proceeding against the savings association and the proceeding is 
pending.
    (ii) OTS must notify the savings association in writing that it has 
imposed the notice requirement and must identify the circumstance listed 
in paragraph (c)(4)(i) of this section that supports the imposition of 
the notice requirement.
    (iii) If OTS has imposed the notice requirement under this 
paragraph, a savings association must provide a written notice to OTS at 
least 30 days before the savings association may enter into a 
transaction with an affiliate or a subsidiary. The written notice must 
include a full description of the transaction. If OTS does not object 
during the 30-day period, the savings association may proceed with the 
proposed transaction.

[68 FR 57797, Oct. 7, 2003, as amended at 68 FR 75110, Dec. 30, 2003]



Sec. 563.43  Loans by savings associations to their executive officers, 
directors and principal shareholders.

    Pursuant to 12 U.S.C. 1463(a) and 1468, a savings association, its 
subsidiaries and its insiders (as defined) shall be subject to the 
restrictions contained in the Federal Reserve Board's Regulation O (12 
CFR part 215), in the same manner and to the same extent as if the 
association were a bank and a member bank of the Federal Reserve System, 
except that:
    (a) Such provisions shall be administered and enforced by the OTS;
    (b) References to the term ``bank holding company'' shall be deemed 
to refer to ``savings and loan holding company'';
    (c) References to ``report of condition filed under 12 U.S.C. 
1817(a)(3)'' shall be deemed to refer to ``Thrift Financial Report'';
    (d) The term subsidiary includes a savings association that is 
controlled by a company (including for this purpose an insured 
depository institution) that is a savings and loan holding company. A 
company has control over a saving association if it: directly or 
indirectly, or acting through one or more other persons owns, controls, 
or has the power to vote 25 percent or more of any class of voting 
securities; or would be deemed to control the company under Sec. 
574.4(a) of this chapter or presumed to control the company under Sec. 
574.4(b) of this chapter, and in the latter case, control has not been 
rebutted. Notwithstanding any other provision of this section, no 
company shall be deemed to own or control another by virtue of its 
ownership or control of shares in a fiduciary capacity. When used to 
refer to a subsidiary of a savings association, the term subsidiary 
means a ``subsidiary'' that is controlled by the savings association 
within the meaning of 12 CFR part 574 of this chapter.
    (e) References to the Reserve Bank or the Comptroller shall be 
deemed to include the Director of OTS; and
    (f) References to the term ``unimpaired capital and unimpaired 
surplus'' shall be deemed to refer to ``unimpaired capital and 
unimpaired surplus'' as defined at Sec. 560.93(b)(11) of this part.

[57 FR 45980, Oct. 6, 1992, as amended at 59 FR 53571, Oct. 25, 1994; 60 
FR 66869, Dec. 27, 1995; 67 FR 77918, Dec. 20, 2002; 68 FR 57798, Oct. 
7, 2003; 69 FR 76602, Dec. 22, 2004; 73 FR 18, Jan. 2, 2008]



Sec. 563.47  Pension plans.

    (a) General. No savings association or service corporation thereof 
shall sponsor an employee pension plan which, because of unreasonable 
costs or any other reason, could lead to material financial loss or 
damage to the sponsor. For purposes of this section, an employee pension 
plan is defined in section 3(2) of the Employee Retirement Income 
Security Act of 1974, as amended. The prospective obligation or 
liability of a plan sponsor to each plan participant shall be stated in 
or determinable from the plan, and, for a defined benefit plan, shall 
also be based upon an actuarial estimate of future experience under the 
plan.
    (b) Funding. Actuarial cost methods permitted under the Employee 
Retirement Income Security Act of 1974 and the Internal Revenue Code of 
1954, as amended, shall be used to determine plan funding.
    (c) Plan amendment. A plan may be amended to provide reasonable 
annual

[[Page 225]]

cost-of-living increases to retired participants: Provided, That
    (1) Any such increase shall be for a period and amount determined by 
the sponsor's board of directors, but in no event shall it exceed the 
annual increase in the Consumer Price Index published by the Bureau of 
Labor Statistics; and
    (2) No increase shall be granted unless (i) anticipated charges to 
net income for future periods have first been found by such board of 
directors to be reasonable and are documented by appropriate resolution 
and supporting analysis; and (ii) the increase will not reduce the 
association's regulatory capital below its regulatory capital 
requirement.
    (d) Termination. The plan shall permit the sponsor's board of 
directors and its successors to terminate such plan. Notice of intent to 
terminate shall be filed with the OTS at least 60 days prior to the 
proposed termination date.
    (e) Records. Each savings association or service corporation 
maintaining a plan not subject to recordkeeping and reporting 
requirements of the Employee Retirement Income Security Act of 1974, and 
the Internal Revenue Code of 1954, as amended, shall establish and 
maintain records containing the following:
    (1) Plan description;
    (2) Schedule of participants and beneficiaries;
    (3) Schedule of participants and beneficiaries' rights and 
obligations;
    (4) Plan's financial statements; and
    (5) Except for defined contribution plans, an opinion signed by an 
enrolled actuary (as defined by the Employee Retirement Income Security 
Act of 1974) affirming that actuarial assumptions in the aggregate are 
reasonable, take into account the plan's experience and expectations, 
and represent the actuary's best estimate of the plan's projected 
experiences.

[59 FR 66159, Dec. 23, 1994]



                   Subpart C_Securities and Borrowings



Sec. 563.74  Mutual capital certificates.

    (a) General. No savings association that is in the mutual form shall 
issue mutual capital certificates pursuant to this section or amend the 
terms of such certificates unless it has obtained written approval of 
the Office. No approval shall be granted unless the proposed issuance of 
the mutual capital certificates and the form and manner of filing of the 
application are in accordance with the provisions of this section.
    (b) Eligibility Requirements. The Office will consider and process 
an application for approval of the issuance of mutual capital 
certificates pursuant to this section only if the issuance is authorized 
by applicable law and regulation and is not inconsistent with any 
provision of the applicant's charter, constitution or bylaws.
    (c) Application form; supporting information. An application for 
approval of the issuance of mutual capital certificates pursuant to this 
section shall be in the form prescribed by the Office. Such application 
and instructions may be obtained from the OTS. Information and exhibits 
shall be furnished in support of the application in accordance with such 
instructions, setting forth all of the terms and provisions relating to 
the proposed issue and showing that all of the requirements of this 
section have been or will be met.
    (d) Charter amendment. No application for approval of the issuance 
of mutual capital certificates pursuant to this section may be filed 
unless the amendment to the mutual association's charter, constitution 
or bylaws or other actions conferring such authority shall have been 
approved pursuant to the procedures and requirements set forth in the 
mutual association's charter, constitution or bylaws, or as may 
otherwise be required by applicable law.
    (e) Filing requirements. The application for issuance of mutual 
capital certificates shall be publicly filed with the OTS.
    (f) Supervisory objection. No application or approval of the 
issuance of mutual capital certificates pursuant to this section shall 
be approved if, in the opinion of the Office, the policies, condition, 
or operation of the applicant afford a basis for supervisory objection 
to the application.
    (g) Limitation on offering period. Following the date of the 
approval of the

[[Page 226]]

application by the Office, the association shall have an offering period 
of not more than one year in which to complete the sale of the mutual 
capital certificates issued pursuant to this section. The Office may in 
its discretion extend such offering period if a written request showing 
good cause for such extension is filed with it not later than 30 days 
before the expiration of such offering period or any extension thereof.
    (h) Reports. Within 30 days after completion of the sale of mutual 
capital certificates issued pursuant to this section, the association 
shall transmit to the OTS a written report stating the total dollar 
amount of securities sold, and the amount of net proceeds received by 
the association, and within 90 days it shall transmit a written report 
stating the number of purchasers.
    (i) Requirements as to mutual capital certificates--(1) Form of 
certificate. Each mutual capital certificate and any governing agreement 
evidencing a mutual capital certificate issued by an association 
pursuant to this section:
    (i) Shall bear on its face, in bold-face type, the following legend: 
``This security is not a savings account or a deposit and it is not 
insured by the United States or any agency or fund of the United 
States''; and
    (ii) Shall clearly state that the certificate is subject to the 
requirements of Sec. 563.74(i)(2).
    (2) Legal requirements. Mutual capital certificates issued pursuant 
to this section shall:
    (i) Be subordinate to all claims against the association having the 
same priority as savings accounts, savings certificates, debt 
obligations or any higher priority;
    (ii) Not be eligible for use as collateral for any loan made by the 
issuing association;
    (iii) Constitute a claim in liquidation not exceeding the face value 
plus accrued dividends of the certificates, on the general reserves, 
surplus and undivided profits of the association remaining after the 
payment in full of all savings accounts, savings certificates and debt 
obligations;
    (iv) Be entitled to the payment of dividends, which may be fixed, 
variable, participating, or cumulative, or any combination thereof, only 
if, when and as declared by the association's board of directors out of 
funds legally available for that purpose, provided that no dividend may 
be declared or paid without the approval of the Office if such payment 
would cause the association to fail to meet its regulatory capital 
requirements under part 567 of this chapter, and provided further that 
no dividend may be paid if such payment would constitute a violation of 
12 U.S.C. 1828(b);
    (v) Not be redeemable, except: (A) Where the dollar weighted average 
term of each issue of mutual capital certificates to be redeemed is 
seven years or more and redemption is to be made pursuant to a 
redemption schedule; (B) in the event of a merger, consolidation or 
reorganization approved by the Office; or (C) where the funds for 
redemption are raised by the issuance of mutual capital certificates 
approved pursuant to this section, or in conjunction with the issuance 
of capital stock pursuant to part 563b of this chapter: Provided, that 
mandatory redemption shall not be required; that mutual capital 
certificates shall not be redeemable on the demand or at the option of 
the holder; and that mutual capital certificates shall not receive, 
benefit from, be credited with or otherwise be entitled to or due 
payments in or for redemption if such payments would cause the 
association to fail to meet its regulatory capital requirements under 
part 567 of this chapter; And Provided further, for the purposes of this 
paragraph (i)(2)(v), the ``dollar weighted average term'' of an issue of 
mutual capital certificates shall be the sum of the products calculated 
for each year that the mutual capital certificates in the issue have 
been redeemed or are scheduled to be redeemed. Each product shall be 
calculated by multiplying the number of years of each mutual capital 
certificate of a given term by a fraction, the numerator of which shall 
be the total dollar amount of each mutual capital certificate in the 
issue with the same term and the denominator of which shall be the total 
dollar amount of mutual capital certificates in the entire issue;
    (vi) Not have preemptive rights;

[[Page 227]]

    (vii) Not have voting rights, except that an association may provide 
for voting rights if:
    (A) The savings association fails to pay dividends for a minimum of 
three consecutive dividend periods, and then the holders of the class or 
classes of mutual capital certificates granted such voting rights, and 
voting as a single class, with one vote for each outstanding 
certificate, may elect by a majority vote a maximum of one-third of the 
association's board of directors, the directors so elected to serve 
until the next annual meeting of the association succeeding the payment 
of all current and past dividends;
    (B) Any merger, consolidation, or reorganization (except in a 
supervisory case) is sought to be authorized, where the issuing 
association is not the survivor, provided that the regulatory capital of 
the resulting association available for payment of any class of mutual 
capital certificate on liquidation is less than the regulatory capital 
available for such class prior to the merger, consolidation, or 
reorganization;
    (C) Action is sought to be authorized which would create any class 
of mutual capital certificates having a preference or priority over an 
outstanding class or classes of mutual capital certificates;
    (D) Any action is sought to be authorized which would adversely 
change the specific terms of any class of mutual capital certificates;
    (E) Action is sought to be authorized which would increase the 
number of a class of mutual capital certificates, or the number of a 
class of mutual capital certificates ranking prior to or on parity with 
another class of mutual capital certificates; or
    (F) Action is sought which would authorize the issuance of an 
additional class or classes of mutual capital certificates without the 
association having met specific financial standards;
    (viii) Not constitute an obligation of the association and shall 
confer no rights which would give rise to any claim of or action for 
default;
    (ix) Not be convertible into any account, security, or interest, 
except that mutual capital certificates may be surrendered in exchange 
for preferred stock issued in connection with the conversion of the 
issuing savings association to the stock form pursuant to part 563b of 
this chapter, provided that the preferred stock shall have substantially 
the same voting rights, designations, preferences and relative, 
participating optional, or other special rights, and qualifications, 
limitations, and restrictions, as the mutual capital certificates 
exchanged for the preferred stock.
    (x) Provide for charging of losses after the exhaustion of all other 
items in the regulatory capital account.

[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 13515, Apr. 11, 1990; 
57 FR 14345, Apr. 20, 1992; 59 FR 66159, Dec. 23, 1994; 72 FR 69438, 
Dec. 7, 2007]



Sec. 563.76  Offers and sales of securities at an office of a savings
association.

    (a) A saving association may not offer or sell debt or equity 
securities issued by the association or an affiliate of the association 
at an office of the association; except that equity securities issued by 
the association or an affiliate in connection with the association's 
conversion from the mutual to stock form of organization in a conversion 
approved pursuant to part 563b of this chapter may be offered and sold 
at the association's offices: Provided, That:
    (1) The Regional Director does not object on supervisory grounds 
that the offer and sale of the securities at the offices of the 
association;
    (2) No commissions, bonuses, or comparable payments are paid to any 
employee of the savings association or its affiliates or to any other 
person in connection with the sale of securities at an office of a 
savings association; except that compensation and commissions consistent 
with industry norms may be paid to securities personnel of registered 
broker-dealers;
    (3) No offers or sales are made by tellers or at the teller counter, 
or by comparable persons at comparable locations;
    (4) Sales activity is conducted in a segregated or separately 
identifiable area of the savings association's offices apart from the 
area accessible to the general public for the purposes of making or 
withdrawing deposits;

[[Page 228]]

    (5) Offers and sales are made only by regular, full-time employees 
of the savings association or by securities personnel who are subject to 
supervision by a registered broker-dealer;
    (6) An acknowledgment, in the form set forth in paragraph (c) of 
this section, is signed by any customer to whom the security is sold in 
the savings association's offices prior to the sale of any such 
securities;
    (7) A legend that the security is not a deposit or account and is 
not federally insured or guaranteed appears conspicuously on the 
security and in all offering documents and advertisements for the 
securities; the legend must state in bold or other prominent type at 
least as large as other textual type in the document that ``This 
security is not a deposit or account and is not federally insured or 
guaranteed''; and
    (8) The savings association will be in compliance with its current 
capital requirements upon completion of the conversion stock offering.
    (b) Securities sales practices, advertisements, and other sales 
literature used in connection with offers and sales of securities by 
savings associations shall be subject to Sec. 563g.10 of this chapter.
    (c) Offers and sales of securities of a savings association or its 
affiliates in any office of the savings association must use a one-page, 
unambiguous, certification in substantially the following form:

                          FORM OF CERTIFICATION

    I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS 
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name of savings 
association] OR BY THE FEDERAL GOVERNMENT.
    If anyone asserts that this security is federally insured or 
guaranteed, or is as safe as an insured deposit, I should call the 
Office of Thrift Supervision Regional Director [insert Regional 
Director's name and telephone number with area code].
    I further certify that, before purchasing the [description of 
security being offered] of [name of issuer, name of savings association 
and affiliation to issuer (if different)], I received an offering 
circular.
    The offering circular that I received contains disclosure concerning 
the nature of the security being offered and describes the risks 
involved in the investment, including:
    [List briefly the principal risks involved and cross reference 
certain specified pages of the offering circular where a more complete 
description of the risks is made.]

Signature:______________________________________________________________
Date:___________________________________________________________________

    (d) For purposes of this section, an ``office'' of an association 
means any premises used by the association that are identified to the 
public through advertising or signage using the association's name, 
trade name, or logo.

[57 FR 46088, Oct. 7, 1992]



Sec. 563.80  Borrowing limitations.

    (a) General. Except as the Office otherwise may permit by advice in 
writing, a savings association may borrow only in accordance with the 
provisions of this section.
    (b) Amount of borrowing. A savings association may borrow up to the 
amount authorized by the laws under which the savings association 
operates.
    (c) Security. An association may give security for borrowings 
subject to any requirements imposed by the Office or the FDIC regarding 
notice of default on borrowings and any FDIC right of first refusal to 
purchase collateral.
    (d) Required statement for all securities evidencing outside 
borrowings. Each security shall bear on its face, in a prominent place, 
the following legend:

    This security is not a savings account or a deposit and it is not 
insured by the United States or any agency or fund of the United States.

    (e) Filing requirements for outside borrowings with maturities in 
excess of one year. (1) Unless the savings association meets its capital 
requirement under part 567 of this chapter, it shall, at least ten 
business days prior to issuance, file with the Regional Director or his 
or her designee a notice of intent to issue securities evidencing such 
borrowings. Such notice shall contain a summary of the items of the 
security, including:
    (i) Principal amount of the securities;
    (ii) Anticipated interest rate range and price range at which the 
securities are to be sold;
    (iii) Minimum denomination;
    (iv) Stated and average effective maturity;

[[Page 229]]

    (v) Mandatory and optional prepayment provisions;
    (vi) Description, amount, and maintenance of collateral if any;
    (vii) Trustee provisions if any;
    (viii) Events of default and remedies of default;
    (ix) Any provisions which restrict, conditionally or otherwise, the 
operations of the association.
    (2) The OTS shall have 10 business days after receipt of such filing 
to object to the issuance of such securities. The OTS shall object if 
the terms or covenants of the proposed issue place unreasonable burdens 
on, or control over, the operations of the association. If no objection 
is taken, the savings association shall have 120 calendar days within 
which to issue such securities.
    (f) Note accounts. For purposes of this section, note accounts are 
not borrowings.

[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 7300, Mar. 1, 1990; 55 
FR 13515, Apr. 11, 1990; 57 FR 14345, Apr. 20, 1992; 57 FR 33438, July 
29, 1992]



Sec. 563.81  Inclusion of subordinated debt securities and mandatorily 
redeemable preferred stock as supplementary capital.

    (a) Scope. A savings association must comply with this section in 
order to include subordinated debt securities or mandatorily redeemable 
preferred stock (``covered securities'') in supplementary capital (tier 
2 capital) under part 567 of this chapter. If a savings association does 
not include covered securities in supplementary capital, it is not 
required to comply with this section.
    (b) Application and notice procedures. (1) A savings association 
must file an application or notice under 12 CFR part 516, subpart A 
seeking OTS approval of, or non-objection to, the inclusion of covered 
securities in supplementary capital. The savings association may file 
its application or notice before or after it issues covered securities, 
but may not include covered securities in supplementary capital until 
OTS approves the application or does not object to the notice.
    (2) A savings association must also comply with the securities 
offering rules at 12 CFR part 563g by filing an offering circular for a 
proposed issuance of covered securities, unless the offering qualifies 
for an exemption under that part.
    (c) Securities requirements. To be included in supplementary 
capital, covered securities must meet the following requirements:
    (1) Form. (i) Each certificate evidencing a covered security must:
    (A) Bear the following legend on its face, in bold type: ``This 
security is not a savings account or deposit and it is not insured by 
the United States or any agency or fund of the United States;''
    (B) State that the security is subordinated on liquidation, as to 
principal, interest, and premium, to all claims against the savings 
association that have the same priority as savings accounts or a higher 
priority;
    (C) State that the security is not secured by the savings 
association's assets or the assets of any affiliate of the savings 
association, as defined in 12 CFR 583.2;
    (D) State that the security is not eligible collateral for a loan by 
the savings association;
    (E) State the prohibition on the payment of dividends or interest at 
12 U.S.C. 1828(b) and, in the case of subordinated debt securities, 
state the prohibition on the payment of principal and interest at 12 
U.S.C. 1831o(h);
    (F) For subordinated debt securities, state or refer to a document 
stating the terms under which the savings association may prepay the 
obligation; and
    (G) State or refer to a document stating that the savings 
association must obtain OTS approval before the voluntarily prepayment 
of principal on subordinated debt securities, the acceleration of 
payment of principal on subordinated debt securities, or the voluntarily 
redemption of mandatorily redeemable preferred stock (other than 
scheduled redemptions), if the savings association is undercapitalized, 
significantly undercapitalized, or critically undercapitalized as 
described in Sec. 565.4(b) of this chapter, fails to meet the 
regulatory capital requirements at 12 CFR part 567, or would fail to 
meet any of these standards following the payment.

[[Page 230]]

    (ii) A savings association must include such additional statements 
as OTS may prescribe for certificates, purchase agreements, indentures, 
and other related documents. OTS will prescribe the text of these 
additional statements in its Application Processing Handbook.
    (2) Maturity requirements. Covered securities must have an original 
weighted average maturity or original weighted average period to 
required redemption of at least five years.
    (3) Mandatory prepayment. Subordinated debt securities and related 
documents may not provide events of default or contain other provisions 
that could result in a mandatory prepayment of principal, other than 
events of default that:
    (i) Arise from the savings association's failure to make timely 
payment of interest or principal;
    (ii) Arise from its failure to comply with reasonable financial, 
operating, and maintenance covenants of a type that are customarily 
included in indentures for publicly offered debt securities; or
    (iii) Relate to bankruptcy, insolvency, receivership, or similar 
events.
    (4) Indenture. (i) Except as provided in paragraph (c)(4)(ii) of 
this section, a savings association must use an indenture for 
subordinated debt securities. If the aggregate amount of subordinated 
debt securities publicly offered (excluding sales in a non-public 
offering as defined in 12 CFR 563g.4) and sold in any consecutive 12-
month or 36-month period exceeds $5,000,000 or $10,000,000 respectively 
(or such lesser amount that the Securities and Exchange Commission shall 
establish by rule or regulation under 15 U.S.C. 77ddd), the indenture 
must provide for the appointment of a trustee other than the savings 
association or an affiliate of the savings association (as defined at 12 
CFR 583.2) and for collective enforcement of the security holders' 
rights and remedies.
    (ii) A savings association is not required to use an indenture if 
the subordinated debt securities are sold only to accredited investors, 
as that term is defined in 15 U.S.C. 77d(6). A savings association must 
have an indenture that meets the requirements of paragraph (c)(4)(i) of 
this section in place before any debt securities for which an exemption 
from the indenture requirement is claimed, are transferred any non-
accredited investor. If a savings association relies on this exemption 
from the indenture requirement, it must place a legend on the debt 
securities indicating that an indenture must be in place before the debt 
securities are transferred to any non-accredited investor.
    (d) OTS review. (1) OTS will review notices and applications under 
12 CFR part 516, subpart E.
    (2) In reviewing notices and applications under this section, OTS 
will consider whether:
    (i) The issuance of the covered securities is authorized under 
applicable laws and regulations and is consistent with the savings 
association's charter and bylaws.
    (ii) The savings association is at least adequately capitalized 
under Sec. 565.4(b) of this chapter and meets the regulatory capital 
requirements at part 567 of this chapter.
    (iii) The savings association is or will be able to service the 
covered securities.
    (iv) The covered securities are consistent with the requirements of 
this section.
    (v) The covered securities and related transactions sufficiently 
transfer risk from the Deposit Insurance Fund.
    (vi) OTS has no objection to the issuance based on the savings 
association's overall policies, condition, and operations.
    (3) OTS approval or non-objection is conditioned upon no material 
changes to the information disclosed in the application or notice 
submitted to OTS. OTS may impose such additional requirements or 
conditions as it may deem necessary to protect purchasers, the savings 
association, OTS, or the Deposit Insurance Fund.
    (e) Amendments. If a savings association amends the covered 
securities or related documents following the completion of OTS review, 
it must obtain OTS approval or non-objection under this section before 
it may include the amended securities in supplementary capital.
    (f) Sale of covered securities. The savings association must 
complete the

[[Page 231]]

sale of covered securities within one year after OTS approval or non-
objection under this section. A savings association may request an 
extension of the offering period by filing a written request with OTS. 
The savings association must demonstrate good cause for the extension 
and file the request at least 30 days before the expiration of the 
offering period or any extension of the offering period.
    (g) Reports. A savings association must file the following 
information with OTS within 30 days after the savings association 
completes the sale of covered securities includable as supplementary 
capital. If the savings association filed its application or notice 
following the completion of the sale, it must submit this information 
with its application or notice:
    (1) A written report indicating the number of purchasers, the total 
dollar amount of securities sold, the net proceeds received by the 
savings association from the issuance, and the amount of covered 
securities, net of all expenses, to be included as supplementary 
capital;
    (2) Three copies of an executed form of the securities and a copy of 
any related documents governing the issuance or administration of the 
securities; and
    (3) A certification by the appropriate executive officer indicating 
that the savings association complied with all applicable laws and 
regulations in connection with the offering, issuance, and sale of the 
securities.

[72 FR 1927, Jan. 17, 2007, as amended at 72 FR 69438, Dec. 7, 2007]

Subpart D [Reserved]



                     Subpart E_Capital Distributions

    Source: 64 FR 2809, Jan. 19, 1999, unless otherwise noted.



Sec. 563.140  What does this subpart cover?

    This subpart applies to all capital distributions by a savings 
association (``you'').



Sec. 563.141  What is a capital distribution?

    A capital distribution is:
    (a) A distribution of cash or other property to your owners made on 
account of their ownership, but excludes:
    (1) Any dividend consisting only of your shares or rights to 
purchase your shares; or
    (2) If you are a mutual savings association, any payment that you 
are required to make under the terms of a deposit instrument and any 
other amount paid on deposits that the OTS determines is not a 
distribution for the purposes of this section;
    (b) Your payment to repurchase, redeem, retire or otherwise acquire 
any of your shares or other ownership interests, any payment to 
repurchase, redeem, retire, or otherwise acquire debt instruments 
included in your total capital under part 567 of this chapter, and any 
extension of credit to finance an affiliate's acquisition of your shares 
or interests;
    (c) Any direct or indirect payment of cash or other property to 
owners or affiliates made in connection with a corporate restructuring. 
This includes your payment of cash or property to shareholders of 
another association or to shareholders of its holding company to acquire 
ownership in that association, other than by a distribution of shares;
    (d) Any other distribution charged against your capital accounts if 
you would not be well capitalized, as set forth in Sec. 565.4(b)(1) of 
this chapter, following the distribution; and
    (e) Any transaction that the OTS or the Corporation determines, by 
order or regulation, to be in substance a distribution of capital.

[64 FR 2809, Jan. 19, 1999, as amended at 72 FR 69438, Dec. 7, 2007]



Sec. 563.142  What other definitions apply to this subpart?

    The following definitions apply to this subpart:
    Affiliate means an affiliate, as defined under Sec. 563.41(b) of 
this part.
    Capital means total capital, as computed under part 567 of this 
chapter.
    Net income means your net income computed in accordance with 
generally accepted accounting principles.

[[Page 232]]

    Retained net income means your net income for a specified period 
less total capital distributions declared in that period.
    Shares means common and preferred stock, and any options, warrants, 
or other rights for the acquisition of such stock. The term ``share'' 
also includes convertible securities upon their conversion into common 
or preferred stock. The term does not include convertible debt 
securities prior to their conversion into common or preferred stock or 
other securities that are not equity securities at the time of a capital 
distribution.

[64 FR 2809, Jan. 19, 1999, as amended at 72 FR 69438, Dec. 7, 2007]



Sec. 563.143  Must I file with OTS?

    Whether and what you must file with the OTS depends on whether you 
and your proposed capital distribution fall within certain criteria.
    (a) Application required.

------------------------------------------------------------------------
             If:                               Then you:
------------------------------------------------------------------------
(1) You are not eligible for   Must file an application with the OTS.
 expedited treatment under
 Sec. 516.5 of this chapter.
------------------------------------------------------------------------
(2) The total amount of all    Must file an application with the OTS.
 of your capital
 distributions (including the
 proposed capital
 distribution) for the
 applicable calendar year
 exceeds your net income for
 that year to date plus your
 retained net income for the
 preceding two years.
------------------------------------------------------------------------
(3) You would not be at least  Must file an application with the OTS.
 adequately capitalized, as
 set forth in Sec.
 565.4(b)(2) of this chapter,
 following the distribution.
------------------------------------------------------------------------
(4) Your proposed capital      Must file an application with the OTS.
 distribution would violate a
 prohibition contained in any
 applicable statute,
 regulation, or agreement
 between you and the OTS (or
 the Corporation), or violate
 a condition imposed on you
 in an OTS-approved
 application or notice.
------------------------------------------------------------------------

    (b) Notice required.

------------------------------------------------------------------------
  If you are not required to
  file an application under
    paragraph (a) of this                      Then you:
        section, but:
------------------------------------------------------------------------
(1) You would not be well      Must file a notice with the OTS.
 capitalized, as set forth
 under Sec. 565.4(b)(1),
 following the distribution.
------------------------------------------------------------------------
(2) Your proposed capital      Must file a notice with the OTS.
 distribution would reduce
 the amount of or retire any
 part of your common or
 preferred stock or retire
 any part of debt instruments
 such as notes or debentures
 included in capital under
 part 567 of this chapter
 (other than regular payments
 required under a debt
 instrument approved under
 Sec. 563.81).
------------------------------------------------------------------------
(3) You are a subsidiary of a  Must file a notice with the OTS.
 savings and loan holding
 company.
------------------------------------------------------------------------

    (c) No prior notice required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
If neither you nor your        Then you do not need to file a notice or
 proposed capital               an application with the OTS before
 distribution meet any of the   making a capital distribution.
 criteria listed in
 paragraphs (a) and (b) of
 this section.
------------------------------------------------------------------------


[64 FR 2809, Jan. 19, 1999, as amended at 66 FR 13008, Mar. 2, 2001]



Sec. 563.144  How do I file with the OTS?

    (a) Contents. Your notice or application must:
    (1) Be in narrative form.
    (2) Include all relevant information concerning the proposed capital 
distribution, including the amount, timing, and type of distribution.
    (3) Demonstrate compliance with Sec. 563.146.
    (b) Schedules. Your notice or application may include a schedule 
proposing

[[Page 233]]

capital distributions over a specified period, not to exceed 12 months.
    (c) Timing. You must file your notice or application at least 30 
days before the proposed declaration of dividend or approval of the 
proposed capital distribution by your board of directors.



Sec. 563.145  May I combine my notice or application with other notices
or applications?

    You may combine the notice or application required under Sec. 
563.143 with any other notice or application, if the capital 
distribution is a part of, or is proposed in connection with, another 
transaction requiring a notice or application under this chapter. If you 
submit a combined filing, you must:
    (a) State that the related notice or application is intended to 
serve as a notice or application under this subpart; and
    (b) Submit the notice or application in a timely manner.



Sec. 563.146  Will the OTS permit my capital distribution?

    The OTS will review your notice or application under the review 
procedures in 12 CFR part 516, subpart E. The OTS may disapprove your 
notice or deny your application filed under Sec. 563.143, in whole or 
in part, if the OTS makes any of the following determinations.
    (a) You will be undercapitalized, significantly undercapitalized, or 
critically undercapitalized as set forth in Sec. 565.4(b) of this 
chapter, following the capital distribution. If so, the OTS will 
determine if your capital distribution is permitted under 12 U.S.C. 
1831o(d)(1)(B).
    (b) Your proposed capital distribution raises safety or soundness 
concerns.
    (c) Your proposed capital distribution violates a prohibition 
contained in any statute, regulation, agreement between you and the OTS 
(or the Corporation), or a condition imposed on you in an OTS-approved 
application or notice. If so, the OTS will determine whether it may 
permit your capital distribution notwithstanding the prohibition or 
condition.

[64 FR 2809, Jan. 19, 1999, as amended at 67 FR 78152, Dec. 23, 2002]



                 Subpart F_Financial Management Policies



Sec. 563.161  Management and financial policies.

    (a)(1) For the protection of depositors and other savings 
associations, each savings association and each service corporation must 
be well managed and operate safely and soundly. Each also must pursue 
financial policies that are safe and consistent with economical home 
financing and the purposes of savings associations. In implementing this 
section, OTS will consider that service corporations may be authorized 
to engage in activities that involve a higher degree of risk than 
activities permitted to savings associations.
    (2) As part of meeting its requirements under paragraph (a)(1) of 
this section, each savings association and service corporation must 
maintain sufficient liquidity to ensure its safe and sound operation.
    (b) Compensation to officers, directors, and employees of each 
savings association and its service corporations shall not be in excess 
of that which is reasonable and commensurate with their duties and 
responsibilities. Former officers, directors, and employees of savings 
association or its service corporation who regularly perform services 
therefor under consulting contracts are employees thereof for purposes 
of this paragraph (b).

[54 FR 49552, Nov. 30, 1989, as amended at 66 FR 15017, Mar. 15, 2001]



Sec. 563.170  Examinations and audits; appraisals; establishment and
maintenance of records.

    (a) Examinations and audits. Each savings association and affiliate 
thereof shall be examined periodically, and may be examined at any time, 
by the Office, with appraisals when deemed advisable, in accordance with 
general policies from time to time established by the Office. The costs, 
as computed by the Office, of any examinations made by it, including 
office analysis, overhead, per diem, travel expense, other supervision 
by the Office, and other indirect costs, shall be paid by the savings 
associations examined, except that in the case of service corporations 
of Federal savings associations

[[Page 234]]

the cost of examinations, as determined by the Office, shall be paid by 
the service corporations. Payments shall be made in accordance with a 
schedule of annual assessments based upon each savings association's 
total assets and of rates for examiner time in amounts determined by the 
Office.
    (b) Appraisals. (1) Unless otherwise ordered by the Office, 
appraisal of real estate by the Office in connection with any 
examination or audit of a savings association, affiliate, or service 
corporation shall be made by an appraiser, or by appraisers, selected by 
the Office's Regional Director of the Region in which such savings 
association is located. The cost of such appraisal shall promptly be 
paid by such savings association, affiliate, or service corporation 
direct to such appraiser or appraisers upon receipt by the savings 
association, affiliate, or service corporation of a statement of such 
cost as approved by such Regional Director. A copy of the report of each 
appraisal made by the Office pursuant to any of the foregoing provisions 
of this section shall be furnished to the savings association, 
affiliate, or service corporation, as appropriate within a reasonable 
time, not to exceed 90 days, following the completion of such appraisals 
and the filing of a report thereof by the appraiser, or appraisers, with 
such Regional Director.
    (2) The Office may obtain at any time, at its expense, such 
appraisals of any of the assets, including the security therefor, of a 
savings association, affiliate, or service corporation as the Office 
deems appropriate.
    (c) Establishment and maintenance of records. To enable the Office 
to examine savings associations and affiliates and audit savings 
associations, affiliates, and service corporations pursuant to the 
provisions of paragraph (a) of this section, each savings association, 
affiliate, and service corporation shall establish and maintain such 
accounting and other records as will provide an accurate and complete 
record of all business it transacts. This includes, without limitation, 
establishing and maintaining such other records as are required by 
statute or any other regulation to which the savings association, 
affiliate, or service corporation is subject. The documents, files, and 
other material or property comprising said records shall at all times be 
available for such examination and audit wherever any of said records, 
documents, files, material, or property may be.
    (d) Change in location of records. A savings association shall not 
transfer the location of any of its general accounting or control 
records, or the maintenance thereof, from its home office to a branch or 
service office, or from a branch or service office to its home office or 
to another branch or service office unless prior to the date of transfer 
its board of directors has:
    (1) By resolution authorized the transfer or maintenance and;
    (2) Sent a certified copy of the resolution to the Regional Director 
of the OTS Region in which the principal office of the savings 
association is located.
    (e) Use of data processing services for maintenance of records. A 
savings association which determines to maintain any of its records by 
means of data processing services shall so notify the Regional Director 
of the Region in which the principal office of such savings association 
is located, in writing, at least 90 days prior to the date on which such 
maintenance of records will begin. Such notification shall include 
identification of the records to be maintained by data processing 
services and a statement as to the location at which such records will 
be maintained. Any contract, agreement, or arrangement made by a savings 
association pursuant to which data processing services are to be 
performed for such savings association shall be in writing and shall 
expressly provide that the records to be maintained by such services 
shall at all times be available for examination and audit.

[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 34547, Aug. 23, 1990; 
57 FR 14335, Apr. 20, 1992; 57 FR 40092, Sept. 2, 1992; 58 FR 28348, May 
13, 1993; 59 FR 29502, June 7, 1994; 59 FR 53571, Oct. 25, 1994; 59 FR 
60304, Nov. 23, 1994; 60 FR 66718, Dec. 26, 1995; 61 FR 50984, Sept. 30, 
1996]

[[Page 235]]



Sec. 563.171  Frequency of safety and soundness examination.

    (a) General. The OTS examines savings associations pursuant to 
authority conferred by 12 U.S.C. 1463 and the requirements of 12 U.S.C. 
1820(d). The OTS is required to conduct a full-scope, on-site 
examination of every savings association at least once during each 12-
month period.
    (b) 18-month rule for certain small institutions. The OTS may 
conduct a full-scope, on-site examination of a savings association at 
least once during each 18-month period, rather than each 12-month period 
as provided in paragraph (a) of this section, if the following 
conditions are satisfied:
    (1) The savings association has total assets of less than $500 
million;
    (2) The savings association is well capitalized as defined in Sec. 
565.4 of this chapter;
    (3) At its most recent examination, the OTS--
    (i) Assigned the savings association a rating of 1 or 2 for 
management as part of the savings association's composite rating under 
the Uniform Financial Institutions Rating System (commonly referred to 
as CAMELS), and
    (ii) Determined that the savings association was in outstanding or 
good condition, that is, it received a composite rating, as defined in 
Sec. 516.5(c) of this chapter, of 1 or 2;
    (4) The savings association currently is not subject to a formal 
enforcement proceeding or order by the OTS or the FDIC; and
    (5) No person acquired control of the savings association during the 
preceding 12-month period in which a full-scope, on-site examination 
would have been required but for this section.
    (c) Authority to conduct more frequent examinations. This section 
does not limit the authority of the OTS to examine any savings 
association as frequently as the agency deems necessary.

[63 FR 16381, Apr. 2, 1998, as amended at 64 FR 69185, Dec. 10, 1999; 66 
FR 13008, Mar. 2, 2001; 72 FR 17803, Apr. 10, 2007]



Sec. 563.172  Financial derivatives.

    (a) What is a financial derivative? A financial derivative is a 
financial contract whose value depends on the value of one or more 
underlying assets, indices, or reference rates. The most common types of 
financial derivatives are futures, forward commitments, options, and 
swaps. A mortgage derivative security, such as a collateralized mortgage 
obligation or a real estate mortgage investment conduit, is not a 
financial derivative under this section.
    (b) May I engage in transactions involving financial derivatives? 
(1) If you are a Federal savings association, you may engage in a 
transaction involving a financial derivative if you are authorized to 
invest in the assets underlying the financial derivative, the 
transaction is safe and sound, and you otherwise meet the requirements 
in this section.
    (2) If you are a state-chartered savings association, you may engage 
in a transaction involving a financial derivative if your charter or 
applicable State law authorizes you to engage in such transactions, the 
transaction is safe and sound, and you otherwise meet the requirements 
in this section.
    (3) In general, if you engage in a transaction involving a financial 
derivative, you should do so to reduce your risk exposure.
    (c) What are my board of directors' responsibilities with respect to 
financial derivatives? (1) Your board of directors is responsible for 
effective oversight of financial derivatives activities.
    (2) Before you may engage in any transaction involving a financial 
derivative, your board of directors must establish written policies and 
procedures governing authorized financial derivatives. Your board of 
directors should review Thrift Bulletin 13a, ``Management of Interest 
Rate Risk, Investment Securities, and Derivatives Activities,'' and 
other applicable agency guidance on establishing a sound risk management 
program.
    (3) Your board of directors must periodically review:
    (i) Compliance with the policies and procedures established under 
paragraph (c)(2) of this section; and
    (ii) The adequacy of these policies and procedures to ensure that 
they continue to be appropriate to the nature and scope of your 
operations and existing market conditions.
    (4) Your board of directors must ensure that management establishes 
an adequate system of internal controls

[[Page 236]]

for transactions involving financial derivatives.
    (d) What are management's responsibilities with respect to financial 
derivatives? (1) Management is responsible for daily oversight and 
management of financial derivatives activities. Management must 
implement the policies and procedures established by the board of 
directors and must establish a system of internal controls. This system 
of internal controls should, at a minimum, provide for periodic 
reporting to the board of directors and management, segregation of 
duties, and internal review procedures.
    (2) Management must ensure that financial derivatives activities are 
conducted in a safe and sound manner and should review Thrift Bulletin 
13a, ``Management of Interest Rate Risk, Investment Securities, and 
Derivatives Activities'' (available at the address listed at Sec. 516.1 
of this chapter), and other applicable agency guidance on implementing a 
sound risk management program.
    (e) What records must I keep on financial derivative transactions? 
You must maintain records adequate to demonstrate compliance with this 
section and with your board of directors' policies and procedures on 
financial derivatives.

[63 FR 66349, Dec. 1, 1998]



Sec. 563.176  Interest-rate-risk-management procedures.

    Savings associations shall take the following actions:
    (a) The board of directors or a committee thereof shall review the 
savings association's interest-rate-risk exposure and devise a policy 
for the savings association's management of that risk.
    (b) The board of directors shall formerly adopt a policy for the 
management of interest-rate risk. The management of the savings 
association shall establish guidelines and procedures to ensure that the 
board's policy is successfully implemented.
    (c) The management of the savings association shall periodically 
report to the board of directors regarding implementation of the savings 
association's policy for interest-rate-risk management and shall make 
that information available upon request to the Office.
    (d) The savings association's board of directors shall review the 
results of operations at least quarterly and shall make such adjustments 
as it considers necessary and appropriate to the policy for interest-
rate-risk management, including adjustments to the authorized acceptable 
level of interest-rate risk.

[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 45813, Aug. 31, 1993; 
59 FR 53571, Oct. 25, 1994]



Sec. 563.177  Procedures for monitoring Bank Secrecy Act (BSA) compliance.

    (a) Purpose. The purpose of this regulation is to require savings 
associations (as defined by Sec. 561.43 of this chapter) to establish 
and maintain procedures reasonably designed to assure and monitor 
compliance with the requirements of subchapter II of chapter 53 of title 
31, United States Code, and the implementing regulations promulgated 
thereunder by the U.S. Department of Treasury, 31 CFR part 103.
    (b) Establishment of a BSA compliance program--(1) Program 
requirement. Each savings association shall develop and provide for the 
continued administration of a program reasonably designed to assure and 
monitor compliance with the recordkeeping and reporting requirements set 
forth in subchapter II of chapter 53 of title 31, United States Code and 
the implementing regulations issued by the Department of the Treasury at 
31 CFR part 103. The compliance program must be written, approved by the 
savings association's board of directors, and reflected in the minutes 
of the savings association.
    (2) Customer identification program. Each savings association is 
subject to the requirements of 31 U.S.C. 5318(l) and the implementing 
regulation jointly promulgated by the OTS and the Department of the 
Treasury at 31 CFR 103.121, which require a customer identification 
program to be implemented as part of the BSA compliance program required 
under this section.
    (c) Contents of compliance program. The compliance program shall, at 
a minimum:
    (1) Provide for a system of internal controls to assure ongoing 
compliance;
    (2) Provide for independent testing for compliance to be conducted 
by a

[[Page 237]]

savings association's in-house personnel or by an outside party;
    (3) Designate individual(s) responsible for coordinating and 
monitoring day-to-day compliance; and
    (4) Provide training for appropriate personnel.

(Approved by the Office of Management and Budget under control number 
3068-0530)

[54 FR 49552, Nov. 30, 1989, as amended at 68 FR 25112, May 9, 2003]



                     Subpart G_Reporting and Bonding



Sec. 563.180  Suspicious Activity Reports and other reports 
and statements.

    (a) Periodic reports. Each savings association and service 
corporation thereof shall make such periodic or other reports of its 
affairs in such manner and on such forms as the Office may prescribe. 
The Office may provide that reports filed by savings associations or 
service corporations to meet the requirements of other regulations also 
satisfy requirements imposed under this section.
    (b) False or misleading statements or omissions. No savings 
association or director, officer, agent, employee, affiliated person, or 
other person participating in the conduct of the affairs of such 
association nor any person filing or seeking approval of any application 
shall knowingly:
    (1) Make any written or oral statement to the Office or to an agent, 
representative or employee of the Office that is false or misleading 
with respect to any material fact or omits to state a material fact 
concerning any matter within the jurisdiction of the Office; or
    (2) Make any such statement or omission to a person or organization 
auditing a savings association or otherwise preparing or reviewing its 
financial statements concerning the accounts, assets, management 
condition, ownership, safety, or soundness, or other affairs of the 
association.
    (c) Notifications of loss and reports of increase in deductible 
amount of bond. A savings association maintaining bond coverage as 
required by Sec. 563.190 of this part shall promptly notify its bond 
company and file a proof of loss under the procedures provided by its 
bond, concerning any covered losses greater than twice the deductible 
amount.
    (d) Suspicious Activity Reports--(1) Purpose and scope. This 
paragraph (d) ensures that savings associations and service corporations 
file a Suspicious Activity Report when they detect a known or suspected 
violation of Federal law or a suspicious transaction related to a money 
laundering activity or a violation of the Bank Secrecy Act.
    (2) Definitions. For the purposes of this paragraph (d):
    (i) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (ii) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(9) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(9)).
    (iii) SAR means a Suspicious Activity Report on the form prescribed 
by the OTS.
    (3) SARs required. A savings association or service corporation 
shall file a SAR with the appropriate Federal law enforcement agencies 
and the Department of the Treasury in accordance with the form's 
instructions, by sending a completed SAR to FinCEN in the following 
circumstances:
    (i) Insider abuse involving any amount. Whenever the savings 
association or service corporation detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the savings association or service corporation or 
involving a transaction or transactions conducted through the savings 
association or service corporation, where the savings association or 
service corporation believes that it was either an actual or potential 
victim of a criminal violation, or series of criminal violations, or 
that it was used to facilitate a criminal transaction, and it has a 
substantial basis for identifying one of its directors, officers, 
employees, agents or other institution-affiliated parties as having 
committed or aided in the commission of a criminal act, regardless of 
the amount involved in the violation.
    (ii) Violations aggregating $5,000 or more where a suspect can be 
identified. Whenever the savings association or service corporation 
detects any known

[[Page 238]]

or suspected Federal criminal violation, or pattern of criminal 
violations, committed or attempted against the savings association or 
service corporation or involving a transaction or transactions conducted 
through the savings association or service corporation and involving or 
aggregating $5,000 or more in funds or other assets, where the savings 
association or service corporation believes that it was either an actual 
or potential victim of a criminal violation or series of criminal 
violations, or that it was used to facilitate a criminal transaction, 
and it has a substantial basis for identifying a possible suspect or 
group of suspects. If it is determined prior to filing this report that 
the identified suspect or group of suspects has used an alias, then 
information regarding the true identity of the suspect or group of 
suspects, as well as alias identifiers, such as drivers' license or 
social security numbers, addresses and telephone numbers, must be 
reported.
    (iii) Violations aggregating $25,000 or more regardless of potential 
suspects. Whenever the savings association or service corporation 
detects any known or suspected Federal criminal violation, or pattern of 
criminal violations, committed or attempted against the savings 
association or service corporation or involving a transaction or 
transactions conducted through the savings association or service 
corporation and involving or aggregating $25,000 or more in funds or 
other assets, where the savings association or service corporation 
believes that it was either an actual or potential victim of a criminal 
violation or series of criminal violations, or that it was used to 
facilitate a criminal transaction, even though there is no substantial 
basis for identifying a possible suspect or group of suspects.
    (iv) Transactions aggregating $5,000 or more that involve potential 
money laundering or violations of the Bank Secrecy Act. Any transaction 
(which for purposes of this paragraph (d)(3)(iv) means a deposit, 
withdrawal, transfer between accounts, exchange of currency, loan, 
extension of credit, purchase or sale of any stock, bond, certificate of 
deposit, or other monetary instrument or investment security, or any 
other payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected) conducted or attempted by, at 
or through the savings association or service corporation and involving 
or aggregating $5,000 or more in funds or other assets, if the savings 
association or service corporation knows, suspects, or has reason to 
suspect that:
    (A) The transaction involves funds derived from illegal activities 
or is intended or conducted in order to hide or disguise funds or assets 
derived from illegal activities (including, without limitation, the 
ownership, nature, source, location, or control of such funds or assets) 
as part of a plan to violate or evade any law or regulation or to avoid 
any transaction reporting requirement under Federal law;
    (B) The transaction is designed to evade any regulations promulgated 
under the Bank Secrecy Act; or
    (C) The transaction has no business or apparent lawful purpose or is 
not the sort in which the particular customer would normally be expected 
to engage, and the institution knows of no reasonable explanation for 
the transaction after examining the available facts, including the 
background and possible purpose of the transaction.
    (4) Service corporations. When a service corporation is required to 
file a SAR under paragraph (d)(3) of this section, either the service 
corporation or a savings association that wholly or partially owns the 
service corporation may file the SAR.
    (5) Time for reporting. A savings association or service corporation 
is required to file a SAR no later than 30 calendar days after the date 
of initial detection of facts that may constitute a basis for filing a 
SAR. If no suspect was identified on the date of detection of the 
incident requiring the filing, a savings association or service 
corporation may delay filing a SAR for an additional 30 calendar days to 
identify a suspect. In no case shall reporting be delayed more than 60 
calendar days after the date of initial detection of a reportable 
transaction. In situations involving violations requiring immediate 
attention, such as when a reportable violation is ongoing, the savings

[[Page 239]]

association or service corporation shall immediately notify, by 
telephone, an appropriate law enforcement authority and the OTS in 
addition to filing a timely SAR.
    (6) Reports to state and local authorities. A savings association or 
service corporation is encouraged to file a copy of the SAR with state 
and local law enforcement agencies where appropriate.
    (7) Exception. A savings association or service corporation need not 
file a SAR for a robbery or burglary committed or attempted that is 
reported to appropriate law enforcement authorities.
    (8) Retention of records. A savings association or service 
corporation shall maintain a copy of any SAR filed and the original or 
business record equivalent of any supporting documentation for a period 
of five years from the date of the filing of the SAR. Supporting 
documentation shall be identified and maintained by the savings 
association or service corporation as such, and shall be deemed to have 
been filed with the SAR. A savings association or service corporation 
shall make all supporting documentation available to appropriate law 
enforcement agencies upon request.
    (9) Notification to board of directors--(i) Generally. Whenever a 
savings association (or a service corporation in which the savings 
association has an ownership interest) files a SAR pursuant to this 
paragraph (d), the management of the savings association or service 
corporation shall promptly notify its board of directors, or a committee 
of directors or executive officers designated by the board of directors 
to receive notice.
    (ii) Suspect is a director or executive officer. If the savings 
association or service corporation files a SAR pursuant to this 
paragraph (d) and the suspect is a director or executive officer, the 
savings association or service corporation may not notify the suspect, 
pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who are 
not suspects.
    (10) Compliance. Failure to file a SAR in accordance with this 
section and the instructions may subject the savings association or 
service corporation, its directors, officers, employees, agents, or 
other institution-affiliated parties to supervisory action.
    (11) Obtaining SARs. A savings association or service corporation 
may obtain SARs and the instructions from the appropriate OTS Regional 
Office listed in Sec. 516.40(a) of this chapter.
    (12) Confidentiality of SARs. SARs are confidential. Any institution 
or person subpoenaed or otherwise requested to disclose a SAR or the 
information contained in a SAR shall decline to produce the SAR or to 
provide any information that would disclose that a SAR has been prepared 
or filed, citing this paragraph (d), applicable law (e.g., 31 U.S.C. 
5318(g)), or both, and shall notify the OTS.
    (13) Safe harbor. The safe harbor provision of 31 U.S.C. 5318(g), 
which exempts any financial institution that makes a disclosure of any 
possible violation of law or regulation from liability under any law or 
regulation of the United States, or any constitution, law or regulation 
of any state or political subdivision, covers all reports of suspected 
or known criminal violations and suspicious activities to law 
enforcement and financial institution supervisory authorities, including 
supporting documentation, regardless of whether such reports are filed 
pursuant to this paragraph (d), or are filed on a voluntary basis.
    (e) Adjustable-rate mortgage indices--(1) Reporting obligation. Upon 
the request of a Federal Home Loan Bank, all savings associations within 
the jurisdiction of that Federal Home Loan Bank shall report the data 
items set forth in paragraph (e)(2) of this section for the Federal Home 
Loan Bank to use in calculating and publishing an adjustable-rate 
mortgage index.
    (2) Data to be reported. For purposes of paragraph (e)(1) of this 
section, the term ``data items'' means the data items previously 
collected from the monthly Thrift Financial Report and such data items 
as may be altered, amended, or substituted by the requesting Federal 
Home Loan Bank.
    (3) Applicable indices. For the purpose of this reporting 
requirement, the term ``adjustable-rate mortgage index'' means any of 
the adjustable-rate mortgage indices calculated and published by a 
Federal Home Loan Bank or the

[[Page 240]]

Federal Home Loan Bank Board on or before August 9, 1989.

[54 FR 49552, Nov. 30, 1989, as amended at 56 FR 29566, June 28, 1991; 
56 FR 32474, July 16, 1991; 57 FR 61251, Dec. 24, 1992; 59 FR 66159, 
Dec. 23, 1994; 61 FR 6105, Feb. 16, 1996; 66 FR 13008, Mar. 2, 2001; 68 
FR 75110, Dec. 30, 2003]



Sec. 563.190  Bonds for directors, officers, employees, and agents;
form of and amount of bonds.

    (a) Each savings association shall maintain fidelity bond coverage. 
The bond shall cover each director, officer, employee, and agent who has 
control over or access to cash, securities, or other property of the 
savings association.
    (b) The amount of coverage to be required for each savings 
association shall be determined by the association's management, based 
on its assessment of the level that would be safe and sound in view of 
the association's potential exposure to risk; provided, such 
determination shall be subject to approval by the association's board of 
directors.
    (c) Each savings association may maintain bond coverage in addition 
to that provided by the insurance underwriter industry's standard forms, 
through the use of endorsements, riders, or other forms of supplemental 
coverage, if, in the judgment of the association's board of directors, 
additional coverage is warranted.
    (d) The board of directors of each savings association shall 
formally approve the association's bond coverage. In deciding whether to 
approve the bond coverage, the board shall review the adequacy of the 
standard coverage and the need for supplemental coverage. Documentation 
of the board's approval shall be included as a part of the minutes of 
the meeting at which the board approves coverage. Additionally, the 
board of directors shall review the association's bond coverage at least 
annually to assess the continuing adequacy of coverage.

[57 FR 12698, Apr. 13, 1992]



Sec. 563.191  Bonds for agents.

    In lieu of the bond provided in Sec. 563.190 of this part in the 
case of agents appointed by a savings association, a fidelity bond may 
be provided in an amount at least twice the average monthly collections 
of such agents, provided such agents shall be required to make 
settlement with the savings association at least monthly, and provided 
such bond is approved by the board of directors of the savings 
association. No bond need be obtained for any agent that is a financial 
institution insured by the Federal Deposit Insurance Corporation.



Sec. 563.200  Conflicts of interest.

    If you are a director, officer, or employee of a savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a savings association:
    (a) You must not advance your own personal or business interests, or 
those of others with whom you have a personal or business relationship, 
at the expense of the savings association; and
    (b) You must, if you have an interest in a matter or transaction 
before the board of directors:
    (1) Disclose to the board all material nonprivileged information 
relevant to the board's decision on the matter or transaction, 
including:
    (i) The existence, nature and extent of your interests; and
    (ii) The facts known to you as to the matter or transaction under 
consideration;
    (2) Refrain from participating in the board's discussion of the 
matter or transaction; and
    (3) Recuse yourself from voting on the matter or transaction (if you 
are a director).

[61 FR 60178, Nov. 27, 1996]



Sec. 563.201  Corporate opportunity.

    (a) If you are a director or officer of a savings association, or 
have the power to direct its management or policies, or otherwise owe a 
fiduciary duty to a savings association, you must not take advantage of 
corporate opportunities belonging to the savings association.
    (b) A corporate opportunity belongs to a savings association if:
    (1) The opportunity is within the corporate powers of the savings 
association or a subsidiary of the savings association; and

[[Page 241]]

    (2) The opportunity is of present or potential practical advantage 
to the savings association, either directly or through its subsidiary.
    (c) OTS will not deem you to have taken advantage of a corporate 
opportunity belonging to the savings association if a disinterested and 
independent majority of the savings association's board of directors, 
after receiving a full and fair presentation of the matter, rejected the 
opportunity as a matter of sound business judgment.

[61 FR 60179, Nov. 27, 1996]



   Subpart H_Notice of Change of Director or Senior Executive Officer

    Source: 63 FR 51274, Sept. 25, 1998, unless otherwise noted.



Sec. 563.550  What does this subpart do?

    This subpart implements 12 U.S.C. 1831i, which requires certain 
savings associations and savings and loan holding companies to notify 
the OTS before appointing or employing directors and senior executive 
officers.



Sec. 563.555  What definitions apply to this subpart?

    The following definitions apply to this subpart:
    Director means an individual who serves on the board of directors of 
a savings association or savings and loan holding company. This term 
does not include an advisory director who:
    (1) Is not elected by the shareholders;
    (2) Is not authorized to vote on any matters before the board of 
directors or any committee of the board of directors;
    (3) Provides only general policy advice to the board of directors or 
any committee of the board of directors; and
    (4) Has not been identified by the OTS in writing as an individual 
who performs the functions of a director, or who exercises significant 
influence over, or participates in, major policymaking decisions of the 
board of directors.
    Senior executive officer means an individual who holds the title or 
performs the function of one or more of the following positions (without 
regard to title, salary, or compensation): president, chief executive 
officer, chief operating officer, chief financial officer, chief lending 
officer, or chief investment officer. Senior executive officer also 
includes any other person identified by the OTS in writing as an 
individual who exercises significant influence over, or participates in, 
major policymaking decisions, whether or not hired as an employee.
    Troubled condition means:
    (1) A savings association that has a composite rating of 4 or 5, as 
composite rating is defined in Sec. 516.5(c) of this chapter.
    (2) A savings and loan holding company that has an unsatisfactory 
rating under the OTS's holding company rating system, or that is 
informed in writing by the OTS that it has an adverse effect on its 
subsidiary savings association;
    (3) A savings association or savings and loan holding company that 
is subject to a capital directive, a cease-and-desist order, a consent 
order, a formal written agreement, or a prompt corrective action 
directive relating to the safety and soundness or financial viability of 
the savings association, unless otherwise informed in writing by the 
OTS; or
    (4) A savings association or savings and loan holding company that 
is informed in writing by the OTS that it is in troubled condition based 
on information available to the OTS.

[63 FR 51274, Sept. 25, 1998, as amended by 66 FR 13008, Mar. 2, 2001]



Sec. 563.560  Who must give prior notice?

    (a) Savings association or savings and loan holding company. Except 
as provided under Sec. 563.590, you must notify the OTS at least 30 
days before adding or replacing any member of your board of directors, 
employing any person as a senior executive officer, or changing the 
responsibilities of any senior executive officer so that the person 
would assume a different senior executive position if:
    (1) You are a savings association and at least one of the following 
circumstances apply:

[[Page 242]]

    (i) You do not comply with all minimum capital requirements under 
part 567 of this chapter;
    (ii) You are in troubled condition; or
    (iii) The OTS has notified you, in connection with its review of a 
capital restoration plan required under section 38 of the Federal 
Deposit Insurance Act or part 565 of this chapter or otherwise, that a 
notice is required under this subpart; or
    (2) You are a savings and loan holding company and you are in 
troubled condition.
    (b) Notice by individual. If you are an individual seeking election 
to the board of directors of a savings association or savings and loan 
holding company described in paragraph (a) of this section, and have not 
been nominated by management, you must either provide the prior notice 
required under paragraph (a) of this section or follow the process under 
Sec. 563.590(b).



Sec. 563.565  What procedures govern the filing of my notice?

    The procedures found in part 516, subpart A of this chapter govern 
the filing of your notice under Sec. 563.560.

[66 FR 13009, Mar. 2, 2001]



Sec. 563.570  What information must I include in my notice?

    (a) Content requirements. Your notice must include:
    (1) The information required under 12 U.S.C. 1817(j)(6)(A), and the 
information prescribed in the Interagency Notice of Change in Director 
or Senior Executive Officer and the Interagency Biographical and 
Financial Report which are available from OTS headquarters at the 
address in part 516 of this chapter; or from any OTS regional office;
    (2) Legible fingerprints of the proposed director or senior 
executive officer. You are not required to file fingerprints if, within 
three years prior to the date of submission of the notice, the proposed 
director or senior executive officer provided legible fingerprints as 
part of a notice filed with the OTS under 12 U.S.C. 1831i; and
    (3) Such other information required by the OTS.
    (b) Modification of content requirements. The OTS may require or 
accept other information in place of the content requirements in 
paragraph (a) of this section.



Sec. 563.575  What procedures govern OTS review of my notice for completeness?

    The OTS will first review your notice to determine whether it is 
complete.
    (a) If your notice is complete, the OTS will notify you in writing 
of the date that the OTS received the complete notice.
    (b) If your notice is not complete, the OTS will notify you in 
writing what additional information you need to submit, why we need the 
information, and when you must submit it. You must, within the specified 
time period, provide additional information or request that the OTS 
suspend processing of the notice. If you fail to act within the 
specified time period, the OTS may treat the notice as withdrawn or may 
review the application based on the information provided.



Sec. 563.580  What standards and procedures will govern OTS review of
the substance of my notice?

    The OTS will disapprove a notice if, pursuant to the standard set 
forth in 12 U.S.C. 1831i(e), the OTS finds that the competence, 
experience, character, or integrity of the proposed director or senior 
executive officer indicates that it would not be in the best interests 
of the depositors of the savings association or of the public to permit 
the individual to be employed by, or associated with, the savings 
association or savings and loan holding company. If the OTS disapproves 
a notice, it will issue a written notice that explains why the OTS 
disapproved the notice. The OTS will send the notice to the savings 
association or savings and loan holding company and the individual.



Sec. 563.585  When may a proposed director or senior executive 
officer begin service?

    (a) A proposed director or senior executive officer may begin 
service 30 days after the date the OTS receives all required 
information, unless:
    (1) The OTS notifies you that it has disapproved the notice; or
    (2) The OTS extends the 30-day period for an additional period not 
to exceed

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60 days. If the OTS extends the 30-day period, it will notify you in 
writing that the period has been extended, and will state the reason for 
the extension. The proposed director or senior executive officer may 
begin service upon expiration of the extended period, unless the OTS 
notifies you that it has disapproved the notice during the extended 
period.
    (b) Notwithstanding paragraph (a) of this section, a proposed 
director or senior executive officer may begin service after the OTS 
notifies you, in writing, of its intention not to disapprove the notice.



Sec. 563.590  When will the OTS waive the prior notice requirement?

    (a) Waiver request. (1) An individual may serve as a director or 
senior executive officer before filing a notice under this subpart if 
the OTS issues a written finding that:
    (i) Delay would threaten the safety or soundness of the savings 
association;
    (ii) Delay would not be in the public interest; or
    (iii) Other extraordinary circumstances exist that justify waiver of 
prior notice.
    (2) If the OTS grants a waiver, you must file a notice under this 
subpart within the time period specified by the OTS.
    (b) Automatic waiver. An individual may serve as a director before 
filing a notice under this subpart, if the individual was not nominated 
by management and the individual submits a notice under this subpart 
within seven days after election as a director.
    (c) Subsequent OTS action. The OTS may disapprove a notice within 30 
days after the OTS issues a waiver under paragraph (a) of this section 
or within 30 days after the election of an individual who has filed a 
notice and is serving pursuant to an automatic waiver under paragraph 
(b) of this section.



PART 563b_CONVERSIONS FROM MUTUAL TO STOCK FORM--Table of Contents




Sec.
563b.5 What does this part do?
563b.10 May I form a holding company as part of my conversion?
563b.15 May I form a charitable organization as part of my conversion?
563b.20 May I acquire another insured stock depository institution as 
          part of my conversion?
563b.25 What definitions apply to this part?

                     Subpart A_Standard Conversions

                           Prior to Conversion

563b.100 What must I do before a conversion?
563b.105 What information must I include in my business plan?
563b.110 Who must review my business plan?
563b.115 How will OTS review my business plan?
563b.120 May I discuss my plans to convert with others?

                           Plan of Conversion

563b.125 Must my board of directors adopt a plan of conversion?
563b.130 What must I include in my plan of conversion?
563b.135 How do I notify my members that my board of directors approved 
          a plan of conversion?
563b.140 May I amend my plan of conversion?

                           Filing Requirements

563b.150 What must I include in my application for conversion?
563b.155 How do I file my application for conversion?
563b.160 May I keep portions of my application for conversion 
          confidential?
563b.165 How do I amend my application for conversion?

           Notice of Filing of Application and Comment Process

563b.180 How do I notify the public that I filed an application for 
          conversion?
563b.185 How may a person comment on my application for conversion?

              OTS Review of the Application for Conversion

563b.200 What actions may OTS take on my application?
563b.205 May a court review OTS's final action on my conversion?

                             Vote by Members

563b.225 Must I submit the plan of conversion to my members for 
          approval?
563b.230 Who is eligible to vote?
563b.235 How must I notify my members of the meeting?
563b.240 What must I submit to OTS after the members' meeting?

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                           Proxy Solicitation

563b.250 Who must comply with these proxy solicitation provisions?
563b.255 What must the form of proxy include?
563b.260 May I use previously executed proxies?
563b.265 How may I use proxies executed under this part?
563b.270 What must I include in my proxy statement?
563b.275 How do I file revised proxy materials?
563b.280 Must I mail a member's proxy solicitation material?
563b.285 What solicitations are prohibited?
563b.290 What will OTS do if a solicitation violates these prohibitions?
563b.295 Will OTS require me to re-solicit proxies?

                            Offering Circular

563b.300 What must happen before OTS declares my offering circular 
          effective?
563b.305 When may I distribute the offering circular?
563b.310 When must I file a post-effective amendment to the offering 
          circular?

                        Offers and Sales of Stock

563b.320 Who has priority to purchase my conversion shares?
563b.325 When may I offer to sell my conversion shares?
563b.330 How do I price my conversion shares?
563b.335 How do I sell my conversion shares?
563b.340 What sales practices are prohibited?
563b.345 How may a subscriber pay for my conversion shares?
563b.350 Must I pay interest on payments for conversion shares?
563b.355 What subscription rights must I give to each eligible account 
          holder and each supplemental eligible account holder?
563b.360 Are my officers, directors, and their associates eligible 
          account holders?
563b.365 May other voting members purchase conversion shares in the 
          conversion?
563b.370 Does OTS limit the aggregate purchases by officers, directors, 
          and their associates?
563b.375 How do I allocate my conversion shares if my shares are 
          oversubscribed?
563b.380 May my employee stock ownership plan purchase conversion 
          shares?
563b.385 May I impose any purchase limitations?
563b.390 Must I provide a purchase preference to persons in my local 
          community?
563b.395 What other conditions apply when I offer conversion shares in a 
          community offering, a public offering, or both?

                       Completion of the Offering

563b.400 When must I complete the sale of my stock?
563b.405 How do I extend the offering period?

                      Completion of the Conversion

563b.420 When must I complete my conversion?
563b.425 Who may terminate the conversion?
563b.430 What happens to my old charter?
563b.435 What happens to my corporate existence after conversion?
563b.440 What voting rights must I provide to stockholders after the 
          conversion?
563b.445 What must I provide my savings account holders?

                           Liquidation Account

563b.450 What is a liquidation account?
563b.455 What is the initial balance of the liquidation account?
563b.460 How do I determine the initial balances of liquidation sub-
          accounts?
563b.465 Do account holders retain any voting rights based on their 
          liquidation sub-accounts?
563b.470 Must I adjust liquidation sub-accounts?
563b.475 What is a liquidation?
563b.480 Does the liquidation account affect my net worth?
563b.485 What provision must I include in my new federal charter?

                             Post-Conversion

563b.500 What management stock benefit plans may I implement?
563b.505 May my directors, officers, and their associates freely trade 
          shares?
563b.510 May I repurchase shares after conversion?
563b.515 What information must I provide to OTS before I repurchase my 
          shares?
563b.520 May I declare or pay dividends after I convert?
563b.525 Who may acquire my shares after I convert?
563b.530 What other requirements apply after I convert?

                Contributions to Charitable Organizations

563b.550 May I donate conversion shares or conversion proceeds to a 
          charitable organization?
563b.555 How do my members approve a charitable contribution?
563b.560 How much may I contribute to a charitable organization?

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563b.565 What must the charitable organization include in its 
          organizational documents?
563b.570 How do I address conflicts of interest involving my directors?
563b.575 What other requirements apply to charitable organizations?

              Subpart B--Voluntary Supervisory Conversions

563b.600 What does this subpart do?
563b.605 How may I conduct a voluntary supervisory conversion?
563b.610 Do my members have rights in a voluntary supervisory 
          conversion?

                               Eligibility

563b.625 When is a savings association eligible for a voluntary 
          supervisory conversion?
563b.630 When is a state-chartered savings bank eligible for a voluntary 
          supervisory conversion?

                     Plan of Supervisory Conversion

563b.650 What must I include in my plan of voluntary supervisory 
          conversion?

              Voluntary Supervisory Conversion Application

563b.660 What must I include in my voluntary supervisory conversion 
          application?

     OTS Review of the Voluntary Supervisory Conversion Application

563b.670 Will OTS approve my voluntary supervisory conversion 
          application?
563b.675 What conditions will OTS impose on an approval?

                        Offers and Sales of Stock

563b.680 How do I sell my shares?

                             Post-Conversion

563b.690 Who may not acquire additional shares after the voluntary 
          supervisory conversion?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 U.S.C. 
78c, 78l, 78m, 78n, 78w.

    Source: 67 FR 52020, Aug. 9, 2002, unless otherwise noted.



Sec. 563b.5  What does this part do?

    (a) General. This part governs how a savings association (``you'') 
may convert from the mutual to the stock form of ownership. Subpart A of 
this part governs standard mutual-to-stock conversions. Subpart B of 
this part governs voluntary supervisory mutual-to-stock conversions. 
This part supersedes all inconsistent charter and bylaw provisions of 
federal savings associations converting to stock form.
    (b) Prescribed forms. You must use the forms prescribed under this 
part and provide such information as OTS may require under the forms by 
regulation or otherwise. The forms required under this part include: 
Form AC (Application for Conversion); Form PS (Proxy Statement); Form OC 
(Offering Circular); and Form OF (Order Form).
    (c) Waivers. OTS may waive any requirement of this part or a 
provision in any prescribed form. To obtain a waiver, you must file a 
written request with OTS that:
    (1) Specifies the requirement(s) or provision(s) you want OTS to 
waive;
    (2) Demonstrates that the waiver is equitable; is not detrimental to 
you, your account holders, or other savings associations; and is not 
contrary to the public interest; and
    (3) Includes an opinion of counsel demonstrating that applicable law 
does not conflict with the requirement or provision.



Sec. 563b.10  May I form a holding company as part of my conversion?

    You may convert to the stock form of ownership as part of a 
transaction where you organize a holding company to acquire all of your 
shares upon their issuance. In such a transaction, your holding company 
will offer rights to purchase its shares instead of your shares. All of 
the requirements of subpart A generally apply to the holding company as 
they apply to the savings association. Section 574.6 of this chapter 
contains OTS's holding company application requirements.



Sec. 563b.15  May I form a charitable organization as part of my conversion?

    When you convert to the stock form, you may form a charitable 
organization. Your contributions to the charitable organization are 
governed by the requirements of Sec. Sec. 563b.550 through 563b.575.



Sec. 563b.20  May I acquire another insured stock depository institution
as part of my conversion?

    When you convert to stock form, you may acquire for cash or stock 
another

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insured depository institution that is already in the stock form of 
ownership.



Sec. 563b.25  What definitions apply to this part?

    The following definitions apply to this part and the forms 
prescribed under this part:
    Acting in concert has the same meaning as in Sec. 574.2(c) of this 
chapter. The rebuttable presumptions of Sec. 574.4(d) of this chapter, 
other than Sec. Sec. 574.4(d)(1) and (d)(2) of this chapter, apply to 
the share purchase limitations at Sec. Sec. 563b.355 through 563b.395.
    Affiliate of, or a person affiliated with, a specified person is a 
person that directly or indirectly, through one or more intermediaries, 
controls, is controlled by, or is under common control with the 
specified person.
    Associate of a person is:
    (1) A corporation or organization (other than you or your majority-
owned subsidiaries), if the person is a senior officer or partner, or 
beneficially owns, directly or indirectly, 10 percent or more of any 
class of equity securities of the corporation or organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Sec. Sec. 563b.370, 563b.380, 
563b.385, 563b.390, 563b.395 and 563b.505, a person who has a 
substantial beneficial interest in your tax-qualified or non-tax-
qualified employee stock benefit plan, or who is a trustee or a 
fiduciary of the plan, is not an associate of the plan. For the purposes 
of Sec. 563b.370, your tax-qualified employee stock benefit plan is not 
an associate of a person.
    (3) Any person who is related by blood or marriage to such person 
and:
    (i) Who lives in the same home as the person; or
    (ii) Who is your director or senior officer, or a director or senior 
officer of your holding company or your subsidiary.
    Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.
    Control (including controlling, controlled by, and under common 
control with) means the direct or indirect power to direct or exercise a 
controlling influence over the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise as described in part 574 of this chapter.
    Eligibility record date is the date for determining eligible account 
holders. The eligibility record date must be at least one year before 
the date your board of directors adopts the plan of conversion.
    Eligible account holders are any persons holding qualifying deposits 
on the eligibility record date.
    IRS is the Internal Revenue Service.
    Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which you have a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in your Community Reinvestment Act assessment 
area; and
    (4) Any other area or category you set out in your plan of 
conversion, as approved by OTS.
    Offer, offer to sell, or offer for sale is an attempt or offer to 
dispose of, or a solicitation of an offer to buy, a security or interest 
in a security for value. Preliminary negotiations or agreements with an 
underwriter, or among underwriters who are or will be in privity of 
contract with you, are not offers, offers to sell, or offers for sale.
    Person is an individual, a corporation, a partnership, an 
association, a joint-stock company, a limited liability company, a 
trust, an unincorporated organization, or a government or political 
subdivision of a government.
    Proxy soliciting material includes a proxy statement, form of proxy, 
or other written or oral communication regarding the conversion.
    Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. Your plan of conversion

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may provide that only savings accounts with total deposit balances of 
$50 or more will qualify.
    Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by OTS is not a sale.
    Savings account is any withdrawable account as defined in Sec. 
561.42 of this chapter, including a demand account as defined in Sec. 
561.16 of this chapter.
    Solicitation and solicit is a request for a proxy, whether or not 
accompanied by or included in a form of proxy; a request to execute, not 
execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause your members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec. 563b.355;
    (2) Tax-qualified employee stock ownership plans under Sec. 
563b.380;
    (3) Supplemental eligible account holders under Sec. 563b.355; and
    (4) Other voting members under Sec. 563b.365.
    Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before OTS approves 
your conversion and will only occur if OTS has not approved your 
conversion within 15 months after the eligibility record date.
    Supplemental eligible account holders are any persons, except your 
officers, directors, and their associates, holding qualifying deposits 
on the supplemental eligibility record date.
    Tax-qualified employee stock benefit plan is any defined benefit 
plan or defined contribution plan, such as an employee stock ownership 
plan, stock bonus plan, profit-sharing plan, or other plan, and a 
related trust, that is qualified under sec. 401 of the Internal Revenue 
Code (26 U.S.C. 401).
    Underwriter is any person who purchases any securities from you with 
a view to distributing the securities, offers or sells securities for 
you in connection with the securities' distribution, or participates or 
has a direct or indirect participation in the direct or indirect 
underwriting of any such undertaking. Underwriter does not include a 
person whose interest is limited to a usual and customary distributor's 
or seller's commission from an underwriter or dealer.



                     Subpart A_Standard Conversions

                           Prior to Conversion



Sec. 563b.100  What must I do before a conversion?

    (a) Your board, or a subcommittee of your board, must meet with OTS 
before you pass your plan of conversion. The meeting may occur at OTS or 
your offices at your option. At that meeting you must provide OTS with a 
written strategic plan that outlines the objectives of the proposed 
conversion and the intended use of the conversion proceeds.
    (b) You should also consult with OTS before you file your 
application for conversion. OTS will discuss the information that you 
must include in the application for conversion, general issues that you 
may confront in the conversion process, and any other pertinent issues.



Sec. 563b.105  What information must I include in my business plan?

    (a) Prior to filing an application for conversion, you must adopt a 
business plan reflecting your intended plans for deployment of the 
proposed conversion proceeds. Your business plan is required, under 
Sec. 563b.150, to be included in your conversion application. At a 
minimum, your business plan must address:
    (1) Your projected operations and activities for three years 
following the conversion. You must describe how you will deploy the 
conversion proceeds at the converted savings association (and holding 
company, if applicable), what

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opportunities are available to reasonably achieve your planned 
deployment of conversion proceeds in your proposed market areas, and how 
your deployment will provide a reasonable return on investment 
commensurate with investment risk, investor expectations, and industry 
norms, by the final year of the business plan. You must include three 
years of projected financial statements. The business plan must provide 
that the converted savings association must retain at least 50 percent 
of the net conversion proceeds. OTS may require that a larger percentage 
of proceeds remain in the institution.
    (2) Your plan for deploying conversion proceeds to meet credit and 
lending needs in your proposed market areas. OTS strongly discourages 
business plans that provide for a substantial investment in mortgage 
securities or other securities, except as an interim measure to 
facilitate orderly, prudent deployment of proceeds during the three 
years following the conversion, or as part of a properly managed 
leverage strategy.
    (3) The risks associated with your plan for deployment of conversion 
proceeds, and the effect of this plan on management resources, staffing, 
and facilities.
    (4) The expertise of your management and board of directors, or that 
you have planned for adequate staffing and controls to prudently manage 
the growth, expansion, new investment, and other operations and 
activities proposed in your business plan.
    (b) You may not project returns of capital or special dividends in 
any part of the business plan. A newly converted company may not plan on 
stock repurchases in the first year of the business plan.



Sec. 563b.110  Who must review my business plan?

    (a) Your chief executive officer and members of the board of 
directors must review, and at least two-thirds of your board of 
directors must approve, the business plan.
    (b) Your chief executive officer and at least two-thirds of the 
board of directors must certify that the business plan accurately 
reflects the intended plans for deployment of conversion proceeds, and 
that any new initiatives reflected in the business plan are reasonably 
achievable. You must submit these certifications with your business 
plan, as part of your conversion application under Sec. 563b.150.



Sec. 563b.115  How will OTS review my business plan?

    (a) OTS will review your business plan to determine that it 
demonstrates a safe and sound deployment of conversion proceeds, as part 
of its review of your conversion application. In making its 
determination, OTS will consider how you have addressed the applicable 
factors of Sec. 563b.105. No single factor will be determinative. OTS 
will review every case on its merits.
    (b) You must file your business plan with the Regional Office. OTS 
may request additional information, if necessary, to support its 
determination under paragraph (a) of this section. You must file your 
business plan as a confidential exhibit to the Form AC.
    (c) If OTS approves your application for conversion and you complete 
your conversion, you must operate within the parameters of your business 
plan. You must obtain the prior written approval of the Regional 
Director for any material deviations from your business plan.



Sec. 563b.120  May I discuss my plans to convert with others?

    (a) You may discuss information about your conversion with 
individuals that you authorize to prepare documents for your conversion.
    (b) Except as permitted under paragraph (a) of this section, you 
must keep all information about your conversion confidential until your 
board of directors adopts your plan of conversion.
    (c) If you violate this section, OTS may require you to take 
remedial action. For example, OTS may require you to take any or all of 
the following actions:
    (1) Publicly announce that you are considering a conversion;
    (2) Set an eligibility record date acceptable to OTS;

[[Page 249]]

    (3) Limit the subscription rights of any person who violates or aids 
a violation of this section; or
    (4) Take any other action to assure that your conversion is fair and 
equitable.

                           Plan of Conversion



Sec. 563b.125  Must my board of directors adopt a plan of conversion?

    Prior to filing an application for conversion, your board of 
directors must adopt a plan of conversion that conforms to Sec. Sec. 
563b.320 through 563b.485 and 563b.505. Your board of directors must 
adopt the plan by at least a two-thirds vote. Your plan of conversion is 
required, under Sec. 563b.150, to be included in your conversion 
application.



Sec. 563b.130  What must I include in my plan of conversion?

    You must include the information included in Sec. Sec. 563b.320 
through 563b.485 and 563b.505 in your plan of conversion. OTS may 
require you to delete or revise any provision in your plan of conversion 
if OTS determines the provision is inequitable; is detrimental to you, 
your account holders, or other savings associations; or is contrary to 
public interest.



Sec. 563b.135  How do I notify my members that my board of directors
approved a plan of conversion?

    (a) Notice. You must promptly notify your members that your board of 
directors adopted a plan of conversion and that a copy of the plan is 
available for the members' inspection in your home office and in your 
branch offices. You must mail a letter to each member or publish a 
notice in the local newspaper in every local community where you have an 
office. You may also issue a press release. OTS may require broader 
publication, if necessary, to ensure adequate notice to your members.
    (b) Contents of notice. You may include any of the following 
statements and descriptions in your letter, notice, or press release.
    (1) Your board of directors adopted a proposed plan to convert from 
a mutual to a stock savings institution.
    (2) You will send your members a proxy statement with detailed 
information on the proposed conversion before you convene a members' 
meeting to vote on the conversion.
    (3) Your members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (4) You will not vote existing proxies to approve or disapprove the 
conversion. You will solicit new proxies for voting on the proposed 
conversion.
    (5) OTS, and in the case of a state-chartered savings association, 
the appropriate state regulator, must approve the conversion before the 
conversion will be effective. Your members will have an opportunity to 
file written comments, including objections and materials supporting the 
objections, with OTS.
    (6) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of your 
conversion before OTS will approve the conversion. The ruling or opinion 
must indicate the conversion will be a tax-free reorganization.
    (7) OTS, and in the case of a state-chartered savings association, 
the appropriate state regulator, might not approve the conversion, and 
the IRS or a tax expert might not issue a favorable tax ruling or tax 
opinion.
    (8) Savings account holders will continue to hold accounts in the 
converted savings association with the same dollar amounts, rates of 
return, and general terms as existing deposits. FDIC will continue to 
insure the accounts.
    (9) Your conversion will not affect borrowers' loans, including the 
amount, rate, maturity, security, and other contractual terms.
    (10) Your business of accepting deposits and making loans will 
continue without interruption.
    (11) Your current management and staff will continue to conduct 
current services for depositors and borrowers under current policies and 
in existing offices.
    (12) You may continue to be a member of the Federal Home Loan Bank 
System.
    (13) You may substantively amend your proposed plan of conversion 
before the members' meeting.

[[Page 250]]

    (14) You may terminate the proposed conversion.
    (15) After OTS, and in the case of a state-chartered savings 
association, the appropriate state regulator, approves the proposed 
conversion, you will send proxy materials providing additional 
information. After you send proxy materials, members may telephone or 
write to you with additional questions.
    (16) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase your 
shares.
    (17) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase your shares.
    (18) A brief description of how voting members may participate in 
the conversion.
    (19) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (20) A brief description of the proposed plan of conversion.
    (21) The par value (if any) and approximate number of shares you 
will issue and sell in the conversion.
    (c) Other requirements. (1) You may not solicit proxies, provide 
financial statements, describe the benefits of conversion, or estimate 
the value of your shares upon conversion in the letter, notice, or press 
release.
    (2) If you respond to inquiries about the conversion, you may 
address only the matters listed in paragraph (b) of this section.



Sec. 563b.140  May I amend my plan of conversion?

    You may amend your plan of conversion before you solicit proxies. 
After you solicit proxies, you may amend your plan of conversion only if 
OTS concurs.

                           Filing Requirements



Sec. 563b.150  What must I include in my application for conversion?

    (a) Your application for conversion must include all of the 
following information.
    (1) Your plan of conversion.
    (2) Pricing materials meeting the requirements of Sec. 563b.200(b).
    (3) Proxy soliciting materials under Sec. 563b.270, including:
    (i) A preliminary proxy statement with signed financial statements;
    (ii) A form of proxy meeting the requirements of Sec. 563b.255; and
    (iii) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions, radio or television 
scripts that you plan to use or furnish to your members, and a legal 
opinion indicating that any marketing materials comply with all 
applicable securities laws.
    (4) An offering circular described in Sec. 563b.300.
    (5) The documents and information required by Form AC. You may 
obtain Form AC from OTS Washington and Regional Offices (see Sec. 
516.40 of this chapter) and OTS's website (www.ots.treas.gov).
    (6) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (7) Your business plan, submitted as a separately bound, 
confidential exhibit. See Sec. 563b.160.
    (8) Any additional information OTS requests.
    (b) OTS will not accept for filing, and will return, any application 
for conversion that is improperly executed, materially deficient, 
substantially incomplete, or that provides for unreasonable conversion 
expenses.



Sec. 563b.155  How do I file my application for conversion?

    You must file seven copies of your application for conversion on 
Form AC. You must file the original and three conformed copies with the 
Applications Filing Room in Washington, and three conformed copies with 
the appropriate Regional Office at the addresses in Sec. 516.40 of this 
chapter.



Sec. 563b.160  May I keep portions of my application for conversion
confidential?

    (a) OTS makes all filings under this part available to the public, 
but may keep portions of your application for

[[Page 251]]

conversion confidential under paragraph (b) of this section.
    (b) You may request OTS to keep portions of your application 
confidential. To do so, you must separately bind and clearly designate 
as ``confidential'' any portion of your application for conversion that 
you deem confidential. You must provide a written statement specifying 
the grounds supporting your request for confidentiality. OTS will not 
treat as confidential the portion of your application describing how you 
plan to meet your Community Reinvestment Act (CRA) objectives. The CRA 
portion of your application may not incorporate by reference information 
contained in the confidential portion of your application.
    (c) OTS will determine whether confidential information must be made 
available to the public under 5 U.S.C. 552 and part 505 of this chapter. 
OTS will advise you before it makes information you designated as 
``confidential'' available to the public.



Sec. 563b.165  How do I amend my application for conversion?

    To amend your application for conversion, you must:
    (a) File an amendment with an appropriate facing sheet;
    (b) Number each amendment consecutively;
    (c) Respond to all issues raised by OTS; and
    (d) Demonstrate that the amendment conforms to all applicable 
regulations.

           Notice of Filing of Application and Comment Process



Sec. 563b.180  How do I notify the public that I filed an application
for conversion?

    (a) You must publish a public notice of the application in 
accordance with the procedures in subpart B of part 516 of this chapter. 
You must simultaneously prominently post the notice in your home office 
and all branch offices.
    (b) Promptly after publication, you must file four copies of any 
public notice and an affidavit of publication from each publisher. You 
must file the original and one copy with the Applications Filing Room in 
Washington, and two copies with the appropriate Regional Office at the 
addresses in Sec. 516.40 of this chapter.
    (c) If OTS does not accept your application for conversion under 
Sec. 563b.200 and requires you to file a new application, you must 
publish and post a new notice and allow an additional 30 days for 
comment.

[69 FR 68250, Nov. 24, 2004]



Sec. 563b.185  How may a person comment on my application for conversion?

    Commenters may submit comments on your application in accordance 
with the procedures in subpart C of part 516 of this chapter. A 
commenter must file the original and one copy of any comments with the 
Applications Filing Room in Washington and two copies with the 
appropriate Regional Office at the addresses in Sec. 516.40 of this 
chapter.

[69 FR 68250, Nov. 24, 2004]

              OTS Review of the Application for Conversion



Sec. 563b.200  What actions may OTS take on my application?

    (a) OTS may approve your application for conversion only if:
    (1) Your conversion complies with this part;
    (2) You will meet your regulatory capital requirements under part 
567 of this chapter after the conversion; and
    (3) Your conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (b) OTS will review the appraisal required by Sec. 563b.150(a)(2) 
in determining whether to approve your application. OTS will review the 
appraisal under the following requirements.
    (1) Independent persons experienced and expert in corporate 
appraisal, and acceptable to OTS, must prepare the appraisal report.
    (2) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if you ensure that the appraiser is separate from the 
underwriter or selling agent affiliate and the underwriter or selling 
agent affiliate does not make recommendations or affect the appraisal.
    (3) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.

[[Page 252]]

    (4) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (5) If the appraisal is based on a capitalization of your pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (6) If the appraisal is based on a comparison of your shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (7) OTS may decline to process the application for conversion and 
deem it materially deficient or substantially incomplete if the initial 
appraisal report is materially deficient or substantially incomplete.
    (8) You may not represent or imply that OTS approved the appraisal.
    (c) OTS will review your compliance record under part 563e of this 
chapter and your business plan to determine how you will serve the 
convenience and needs of your communities after the conversion.
    (1) Based on this review, OTS may approve your application, deny 
your application, or approve your application on the condition that you 
will improve your CRA performance or that you will address the 
particular credit or lending needs of the communities that you will 
serve.
    (2) OTS may deny your application if your business plan does not 
demonstrate that your proposed use of conversion proceeds will help you 
to meet the credit and lending needs of the communities that you will 
serve.
    (d) OTS may request that you amend your application if further 
explanation is necessary, material is missing, or material must be 
corrected.
    (e) OTS will deny your application if the application does not meet 
the requirements of this subpart, unless OTS waives the requirement 
under Sec. 563b.5(c).



Sec. 563b.205  May a court review OTS's final action on my conversion?

    (a) Any person aggrieved by OTS's final action on your application 
for conversion may ask the court of appeals of the United States for the 
circuit in which the principal office or residence of such person is 
located, or the U.S. Court of Appeals for the District of Columbia 
Circuit, to review the action under 12 U.S.C. 1464(i)(2)(B).
    (b) To obtain court review of the action, this statute requires the 
aggrieved person to file a written petition requesting that the court 
modify, terminate, or set aside the final OTS action. The aggrieved 
person must file the petition with the court within the later of 30 days 
after OTS publishes notice of OTS's final action in the Federal Register 
or 30 days after you mail the proxy statement to your members under 
Sec. 563b.235.

                             Vote by Members



Sec. 563b.225  Must I submit the plan of conversion to my members
for approval?

    (a) After OTS approves your plan of conversion, you must submit your 
plan of conversion to your members for approval. You must obtain this 
approval at a meeting of your members, which may be a special or annual 
meeting, unless you are a state-chartered savings association and state 
law requires you to obtain approval at an annual meeting.
    (b) Your members must approve your plan of conversion by a majority 
of the total outstanding votes, unless you are a state-chartered savings 
association and state law prescribes a higher percentage.
    (c) Your members may vote in person or by proxy.
    (d) You may notify eligible account holders or supplemental eligible 
account holders who are not voting members of your proposed conversion. 
You may include only the information in Sec. 563b.135 in your notice.



Sec. 563b.230  Who is eligible to vote?

    You determine members' eligibility to vote by setting a voting 
record date. You must set a voting record date that is not more than 60 
days nor less than

[[Page 253]]

20 days before your meeting, unless you are a state-chartered savings 
association and state law requires a different voting record date.



Sec. 563b.235  How must I notify my members of the meeting?

    (a) You must notify your members of the meeting to consider your 
conversion by sending the members a proxy statement authorized by OTS.
    (b) You must notify your members 20 to 45 days before your meeting, 
unless you are a state-chartered savings association and state law 
requires a different notice period.
    (c) You must also notify each beneficial holder of an account held 
in a fiduciary capacity:
    (1) If you are a federal association and the name of the beneficial 
holder is disclosed on your records; or
    (2) If you are a state-chartered association and the beneficial 
holder possesses voting rights under state law.



Sec. 563b.240  What must I submit to OTS after the members' meeting?

    (a) Promptly after the members' meeting, you must file all of the 
following information with OTS:
    (1) A certified copy of each adopted resolution on the conversion.
    (2) The total votes eligible to be cast.
    (3) The total votes represented in person or by proxy.
    (4) The total votes cast in favor of and against each matter.
    (5) The percentage of votes necessary to approve each matter.
    (6) An opinion of counsel that you conducted the members' meeting in 
compliance with all applicable state or federal laws and regulations.
    (b) Promptly after completion of the conversion, you must submit an 
opinion of counsel that you complied with all laws applicable to the 
conversion.

                           Proxy Solicitation



Sec. 563b.250  Who must comply with these proxy solicitation provisions?

    (a) You must comply with these proxy solicitation provisions when 
you provide proxy solicitation material to members for the meeting to 
vote on your plan of conversion.
    (b) Your members must comply with these proxy solicitation 
provisions when they provide proxy solicitation materials to members for 
the meeting to vote on your conversion, pursuant to Sec. 563b.280, 
except where:
    (1) The member solicits 50 people or fewer and does not solicit 
proxies on your behalf; or
    (2) The member solicits proxies through newspaper advertisements 
after your board of directors adopts the plan of conversion. Any 
newspaper advertisements may include only the following information:
    (i) Your name;
    (ii) The reason for the advertisement;
    (iii) The proposal or proposals to be voted upon;
    (iv) Where a member may obtain a copy of the proxy solicitation 
material; and
    (v) A request for your members to vote at the meeting.



Sec. 563b.255  What must the form of proxy include?

    The form of proxy must include all of the following:
    (a) A statement in bold face type stating that management is 
soliciting the proxy.
    (b) Blank spaces where the member must date and sign the proxy.
    (c) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. You must include any 
proposed charitable contribution as an item to be voted on separately.
    (d) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (e) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (f) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (g) The date, time, and the place of the meeting, when available.
    (h) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (i) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (j) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.

[[Page 254]]



Sec. 563b.260  May I use previously executed proxies?

    You may not use previously executed proxies for the plan of 
conversion vote. If members consider your plan of conversion at an 
annual meeting, you may vote proxies obtained through other proxy 
solicitations only on matters not related to your plan of conversion.



Sec. 563b.265  How may I use proxies executed under this part?

    You may vote a proxy obtained under this part on matters that are 
incidental to the conduct of the meeting. You may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on your plan of conversion.



Sec. 563b.270  What must I include in my proxy statement?

    (a) Content requirements. You must prepare your proxy statement in 
compliance with this part and Form PS. You may obtain Form PS from OTS 
Washington and Regional Offices (see Sec. 516.40 of this chapter) and 
OTS's website (http://www.ots.treas.gov).
    (b) Other requirements. (1) OTS will review your proxy solicitation 
material when it reviews the application for conversion and will 
authorize the use of proxy solicitation material.
    (2) You must provide an authorized written proxy statement to your 
members before or at the same time you provide any other soliciting 
material. You must mail authorized proxy solicitation material to your 
members within ten days after OTS authorizes the solicitation.



Sec. 563b.275  How do I file revised proxy materials?

    (a) You must file revised proxy materials as an amendment to your 
application for conversion. See Sec. 563b.155 for where to file.
    (b) To revise your proxy solicitation materials, you must file:
    (1) Seven copies of your revised proxy materials as required by Form 
PS;
    (2) Seven copies of your revised form of proxy, if applicable; and
    (3) Seven copies of any additional proxy solicitation material 
subject to Sec. 563b.270.
    (c) You must mark four of the seven required copies to clearly 
indicate changes from the prior filing.
    (d) You must file seven definitive copies of all proxy solicitation 
material, in the form in which you furnish the material to your members. 
You must file no later than the date that you send or give the proxy 
solicitation material to your members. You must indicate the date that 
you will release the materials.
    (e) Unless OTS requests you to do so, you do not have to file copies 
of replies to inquiries from your members or copies of communications 
that merely request members to sign and return proxy forms.



Sec. 563b.280  Must I mail a member's proxy solicitation material?

    (a) You must mail the member's authorized proxy solicitation 
material if:
    (1) Your board of directors adopted a plan of conversion;
    (2) A member requests in writing that you mail the proxy 
solicitation material;
    (3) OTS has authorized the member's proxy solicitation; and
    (4) The member agrees to defray your reasonable expenses.
    (b) As soon as practicable after you receive a request under 
paragraph (a) of this section, you must mail or otherwise furnish the 
following information to the member:
    (1) The approximate number of members that you solicited or will 
solicit, or the approximate number of members of any group of account 
holders that the member designates; and
    (2) The estimated cost of mailing the proxy solicitation material 
for the member.
    (c) You must mail authorized proxy solicitation material to the 
designated members promptly after the member furnishes the materials, 
envelopes (or other containers), and postage (or payment for postage) to 
you.
    (d) You are not responsible for the content of a member's proxy 
solicitation material.
    (e) A member may furnish other members its own proxy solicitation 
material, authorized by OTS, subject to the rules in this section.

[[Page 255]]



Sec. 563b.285  What solicitations are prohibited?

    (a) False or misleading statements. (1) No one may use proxy 
solicitation material for the members' meeting if the material contains 
any statement which, considering the time and the circumstances of the 
statement:
    (i) Is false or misleading with respect to any material fact;
    (ii) Omits any material fact that is necessary to make the 
statements not false or misleading; or
    (iii) Omits any material fact that is necessary to correct a 
statement in an earlier communication that has become false or 
misleading.
    (2) No one may represent or imply that OTS determined that the proxy 
solicitation material is accurate, complete, not false or not 
misleading, or passed upon the merits of or approved any proposal.
    (b) Other prohibited solicitations. No person may solicit:
    (1) An undated or post-dated proxy;
    (2) A proxy that states it will be dated after the date it is signed 
by a member;
    (3) A proxy that is not revocable at will by the member; or
    (4) A proxy that is part of another document or instrument.



Sec. 563b.290  What will OTS do if a solicitation violates these
prohibitions?

    (a) If a solicitation violates Sec. 563b.285, OTS may require 
remedial measures, including:
    (1) Correction of the violation by a retraction and a new 
solicitation;
    (2) Rescheduling the members' meeting; or
    (3) Any other actions necessary to ensure a fair vote.
    (b) OTS may also bring an enforcement action against the violator.



Sec. 563b.295  Will OTS require me to re-solicit proxies?

    If you amend your application for conversion, OTS may require you to 
re-solicit proxies for your members' meeting as a condition of approval 
of the amendment.

                            Offering Circular



Sec. 563b.300  What must happen before OTS declares my offering 
circular effective?

    (a) You must prepare and file your offering circular with OTS in 
compliance with this part and Form OC and, where applicable, part 563g 
of this chapter. Section 563b.155 governs where to file your offering 
circular. You may obtain Form OC from OTS Washington and Regional 
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://
www.ots.treas.gov).
    (b) You must condition your stock offering upon member approval of 
your plan of conversion.
    (c) OTS will review the Form OC and may comment on the included 
disclosures and financial statements.
    (d) You must file seven copies of each revised offering circular, 
final offering circular, and any post-effective amendment to the final 
offering circular.
    (e) OTS will not approve the adequacy or accuracy of the offering 
circular or the disclosures.
    (f) After you satisfactorily address OTS's concerns, you must 
request OTS to declare your Form OC effective for a time period. The 
time period may not exceed the maximum time period for the completion of 
the sale of all of your shares under Sec. 563b.400.



Sec. 563b.305  When may I distribute the offering circular?

    (a) You may distribute a preliminary offering circular at the same 
time as or after you mail the proxy statement to your members.
    (b) You may not distribute an offering circular until OTS declares 
it effective. You must distribute the offering circular in accordance 
with this part.
    (c) You must distribute your offering circular to persons listed in 
your plan of conversion within 10 days after OTS declares it effective.



Sec. 563b.310  When must I file a post-effective amendment to 
the offering circular?

    (a) You must file a post-effective amendment to the offering 
circular with OTS when a material event or change of circumstance 
occurs.
    (b) After OTS declares the post-effective amendment effective, you 
must

[[Page 256]]

immediately deliver the amendment to each person who subscribed for or 
ordered shares in the offering.
    (c) Your post-effective amendment must indicate that each person may 
increase, decrease, or rescind their subscription or order.
    (d) The post-effective offering period must remain open no less than 
10 days nor more than 20 days, unless OTS approves a longer rescission 
period.

                        Offers and Sales of Stock



Sec. 563b.320  Who has priority to purchase my conversion shares?

    You must offer to sell your shares in the following order:
    (a) Eligible account holders.
    (b) Tax-qualified employee stock ownership plans.
    (c) Supplemental eligible account holders.
    (d) Other voting members who have subscription rights.
    (e) Your community, your community and the general public, or the 
general public.



Sec. 563b.325  When may I offer to sell my conversion shares?

    (a) You may offer to sell your conversion shares after OTS approves 
your conversion, authorizes your proxy statement, and declares your 
offering circular effective.
    (b) The offer may commence at the same time you start the proxy 
solicitation of your members.



Sec. 563b.330  How do I price my conversion shares?

    (a) You must sell your conversion shares at a uniform price per 
share and at a total price that is equal to the estimated pro forma 
market value of your shares after you convert.
    (b) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in your offering circular.
    (c) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in your offering circular.
    (d) If OTS permits, you may increase the maximum price of conversion 
shares sold. The maximum price, as adjusted, must be no more than 15 
percent above the maximum price computed under paragraph (b) of this 
section.
    (e) The maximum price must be between $5 and $50 per share.
    (f) You must include the estimated price in any preliminary offering 
circular.



Sec. 563b.335  How do I sell my conversion shares?

    (a) You must distribute order forms to all eligible account holders, 
supplemental eligible account holders, and other voting members to 
enable them to subscribe for the conversion shares they are permitted 
under the plan of conversion. You may either send the order forms with 
your offering circular or after you distribute your offering circular.
    (b) You may sell your conversion shares in a community offering, a 
public offering, or both. You may begin the community offering, the 
public offering, or both at any time during the subscription offering or 
upon conclusion of the subscription offering.
    (c) You may pay underwriting commissions (including underwriting 
discounts). OTS may object to the payment of unreasonable commissions. 
You may reimburse an underwriter for accountable expenses in a 
subscription offering if the public offering is limited. If no public 
offering occurs, you may pay an underwriter a consulting fee. OTS may 
object to the payment of unreasonable consulting fees.
    (d) If you conduct the community offering, the public offering, or 
both at the same time as the subscription offering, you must fill all 
subscription orders first.
    (e) You must prepare your order form in compliance with this part 
and Form OF. You may obtain Form OF from OTS Washington and Regional 
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://
www.ots.treas.gov).



Sec. 563b.340  What sales practices are prohibited?

    (a) In connection with offers, sales, or purchases of conversion 
shares under this part, you and your directors, officers, agents, or 
employees may not:
    (1) Employ any device, scheme, or artifice to defraud;

[[Page 257]]

    (2) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or
    (3) Engage in any act, transaction, practice, or course of business 
that operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (b) During your conversion, no person may:
    (1) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
your conversion shares or the underlying securities to the account of 
another;
    (2) Make any offer, or any announcement of an offer, to purchase any 
of your conversion shares from anyone but you; or
    (3) Knowingly acquire more than the maximum purchase allowable under 
your plan of conversion.
    (c) The restrictions in paragraphs (b)(1) and (b)(2) of this section 
do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (1) An underwriter or a selling group, acting on your behalf, that 
makes the offer with a view toward public resale; or
    (2) One or more of your tax-qualified employee stock ownership plans 
so long as the plan or plans do not beneficially own more than 25 
percent of any class of your equity securities in the aggregate.
    (d) If any person is found to have violated the restrictions in 
paragraphs (b)(1) and (b)(2) of this section, they may face prosecution 
or other legal action.



Sec. 563b.345  How may a subscriber pay for my conversion shares?

    (a) A subscriber may purchase conversion shares with cash, by a 
withdrawal from a savings account, or a withdrawal from a certificate of 
deposit. If a subscriber purchases shares by a withdrawal from a 
certificate of deposit, you may not assess a penalty for the withdrawal.
    (b) You may not extend credit to any person to purchase your 
conversion shares.



Sec. 563b.350  Must I pay interest on payments for conversion shares?

    (a) You must pay interest from the date you receive a payment for 
conversion shares until the date you complete or terminate the 
conversion. You must pay interest at no less than your passbook rate for 
amounts paid in cash, check, or money order.
    (b) If a subscriber withdraws money from a savings account to 
purchase conversion shares, you must pay interest on the payment until 
you complete or terminate the conversion as if the withdrawn amount 
remained in the account.
    (c) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, you may cancel the certificate 
and pay interest at no less than your passbook rate on any remaining 
balance.



Sec. 563b.355  What subscription rights must I give to each eligible 
account holder and each supplemental eligible account holder?

    (a) You must give each eligible account holder subscription rights 
to purchase conversion shares in an amount equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering or the public offering under Sec. 563b.395;
    (2) One-tenth of one percent of the total stock offering; or
    (3) Fifteen times the following number: The total number of 
conversion shares that you will issue, multiplied by the following 
fraction. The numerator is the total qualifying deposit of the eligible 
account holder. The denominator is the total qualifying deposits of all 
eligible account holders. You must round down the product of this 
multiplied fraction to the next whole number.
    (b) You must give subscription rights to purchase shares to each 
supplemental eligible account holder in the same amount as described in 
paragraph (a) of this section, except that you must compute the fraction 
described in

[[Page 258]]

paragraph (a)(3) of this section as follows: The numerator is the total 
qualifying deposit of the supplemental eligible account holder. The 
denominator is the total qualifying deposits of all supplemental 
eligible account holders.



Sec. 563b.360  Are my officers, directors, and their associates 
eligible account holders?

    Your officers, directors, and their associates may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, you must subordinate 
subscription rights for these deposits to subscription rights exercised 
by other eligible account holders.



Sec. 563b.365  May other voting members purchase conversion shares 
in the conversion?

    (a) You must give rights to purchase your conversion shares in the 
conversion to voting members who are neither eligible account holders 
nor supplemental eligible account holders. You must allocate rights to 
each voting member that are equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering and the public offering under Sec. 563b.395; or
    (2) One-tenth of one percent of the total stock offering.
    (b) You must subordinate the voting members' rights to the rights of 
eligible account holders, tax-qualified employee stock ownership plans, 
and supplemental eligible account holders.



Sec. 563b.370  Does OTS limit the aggregate purchases by officers,
directors, and their associates?

    (a) When you convert, your officers, directors, and their associates 
may not purchase, in the aggregate, more than the following percentage 
of your total stock offering:

------------------------------------------------------------------------
                                                                Officer
                                                                  and
                       Institution size                         director
                                                               purchases
                                                               (percent)
------------------------------------------------------------------------
$50,000,000 or less..........................................         35
$50,000,001-100,000,000......................................         34
$100,000,001-150,000,000.....................................         33
$150,000,001-200,000,000.....................................         32
$200,000,001-250,000,000.....................................         31
$250,000,001-300,000,000.....................................         30
$300,000,001-350,000,000.....................................         29
$350,000,001-400,000,000.....................................         28
$400,000,001-450,000,000.....................................         27
$450,000,001-500,000,000.....................................         26
Over $500,000,000............................................         25
------------------------------------------------------------------------

    (b) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are attributable 
to your officers, directors, and their associates.



Sec. 563b.375  How do I allocate my conversion shares if my shares 
are oversubscribed?

    (a) If your conversion shares are oversubscribed by your eligible 
account holders, you must allocate shares among the eligible account 
holders so that each, to the extent possible, may purchase 100 shares.
    (b) If your conversion shares are oversubscribed by your 
supplemental eligible account holders, you must allocate shares among 
the supplemental eligible account holders so that each, to the extent 
possible, may purchase 100 shares.
    (c) If a person is an eligible account holder and a supplemental 
eligible account holder, you must include the eligible account holder's 
allocation in determining the number of conversion shares that you may 
allocate to the person as a supplemental eligible account holder.
    (d) For conversion shares that you do not allocate under paragraphs 
(a) and (b) of this section, you must allocate the shares among the 
eligible or supplemental eligible account holders equitably, based on 
the amounts of qualifying deposits. You must describe this method of 
allocation in your plan of conversion.
    (e) If shares remain after you have allocated shares as provided in 
paragraphs (a) and (b) of this section, and if your voting members 
oversubscribe, you must allocate your conversion shares among those 
members equitably. You must describe the method of allocation in your 
plan of conversion.

[[Page 259]]



Sec. 563b.380  May my employee stock ownership plan purchase 
conversion shares?

    (a) Your tax-qualified employee stock ownership plan may purchase up 
to 10 percent of the total offering of your conversion shares.
    (b) If OTS approves a revised stock valuation range as described in 
Sec. 563b.330(e), and the final conversion stock valuation range 
exceeds the former maximum stock offering range, you may allocate 
conversion shares to your tax-qualified employee stock ownership plan, 
up to the 10 percent limit in paragraph (a) of this section.
    (c) If your tax-qualified employee stock ownership plan is not able 
to or chooses not to purchase stock in the offering, it may, with prior 
OTS approval and appropriate disclosure in your offering circular, 
purchase stock in the open market, or purchase authorized but unissued 
conversion shares.
    (d) You may include stock contributed to a charitable organization 
in the conversion in the calculation of the total offering of conversion 
shares under paragraphs (a) and (b) of this section, unless OTS objects 
on supervisory grounds.



Sec. 563b.385  May I impose any purchase limitations?

    (a) You may limit the number of shares that any person, group of 
associated persons, or persons otherwise acting in concert, may 
subscribe to up to five percent of the total stock sold.
    (b) If you set a limit of five percent under paragraph (a) of this 
section, you may modify that limit with OTS approval to provide that any 
person, group of associated persons, or persons otherwise acting in 
concert subscribing for five percent, may purchase between five and ten 
percent as long as the aggregate amount that the subscribers purchase 
does not exceed 10 percent of the total stock offering.
    (c) You may require persons exercising subscription rights to 
purchase a minimum number of conversion shares. The minimum number of 
shares must equal the lesser of the number of shares obtained by a $500 
subscription or 25 shares.
    (d) In setting purchase limitations under this section, you may not 
aggregate conversion shares attributed to a person in your tax-qualified 
employee stock ownership plan with shares purchased directly by, or 
otherwise attributable to, that person.

[67 FR 52020, Aug. 9, 2002, as amended at 72 FR 35149, June 27, 2007]



Sec. 563b.390  Must I provide a purchase preference to persons
in my local community?

    (a) In your subscription offering, you may give a purchase 
preference to eligible account holders, supplemental eligible account 
holders, and voting members residing in your local community.
    (b) In your community offering, you must give a purchase preference 
to natural persons residing in your local community.



Sec. 563b.395  What other conditions apply when I offer conversion
shares in a community offering, a public offering, or both?

    (a) You must offer and sell your stock to achieve a widespread 
distribution of the stock.
    (b) If you offer shares in a community offering, a public offering, 
or both, you must first fill orders for your stock up to a maximum of 
two percent of the conversion stock on a basis that will promote a 
widespread distribution of stock. You must allocate any remaining shares 
on an equal number of shares per order basis until you fill all orders.

                       Completion of the Offering



Sec. 563b.400  When must I complete the sale of my stock?

    You must complete all sales of your stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under Sec. 563b.405.



Sec. 563b.405  How do I extend the offering period?

    (a) You must request, in writing, an extension of any offering 
period.
    (b) OTS may grant extensions of time to sell your shares. OTS will 
not grant

[[Page 260]]

any single extension of more than 90 days.
    (c) If OTS grants your request for an extension of time, you must 
provide a post-effective amendment to the offering circular under Sec. 
563b.310 to each person who subscribed for or ordered stock. Your 
amendment must indicate that OTS extended the offering period and that 
each person who subscribed for or ordered stock may increase, decrease, 
or rescind their subscription or order within the time remaining in the 
extension period.

                      Completion of the Conversion



Sec. 563b.420  When must I complete my conversion?

    (a) In your plan of conversion, you must set a date by which the 
conversion must be completed. This date must not be more than 24 months 
from the date that your members approve the plan of conversion. The 
date, once set, may not be extended by you or by OTS. You must terminate 
the conversion if it is not completed by that date.
    (b) Your conversion is complete on the date that you accept the 
offers for your stock.



Sec. 563b.425  Who may terminate the conversion?

    (a) Your members may terminate the conversion by failing to approve 
the conversion at your members' meeting.
    (b) You may terminate the conversion before your members' meeting.
    (c) You may terminate the conversion after the members' meeting only 
if OTS concurs.



Sec. 563b.430  What happens to my old charter?

    (a) If you are a federally chartered mutual savings association or 
savings bank, and you convert to a federally chartered stock savings 
association or savings bank, you must apply to OTS to amend your charter 
and bylaws consistent with part 552 of this chapter, as part of your 
application for conversion. You may only include OTS pre-approved anti-
takeover provisions in your amended charter and bylaws. See 12 CFR 
552.4(b)(8).
    (b) If you are a federally chartered mutual savings association or 
savings bank and you convert to a state-chartered stock savings 
association under this part, you must surrender your federal charter to 
OTS for cancellation promptly after the state issues your charter. You 
must promptly file a copy of your new state stock charter with OTS.
    (c) If you are a state-chartered mutual savings association or 
savings bank, and you convert to a federally chartered stock savings 
association or savings bank, you must apply to OTS for a new charter and 
bylaws consistent with part 552 of this chapter. You may only include 
OTS pre-approved anti-takeover provisions in your charter and bylaws. 
See 12 CFR 552.4(b)(8).
    (d) Your new or amended charter must require you to establish and 
maintain a liquidation account for eligible and supplemental eligible 
account holders under Sec. 563b.450.



Sec. 563b.435  What happens to my corporate existence after conversion?

    Your corporate existence will continue following your conversion, 
unless you convert to a state-chartered stock savings association and 
state law prescribes otherwise.



Sec. 563b.440  What voting rights must I provide to stockholders 
after the conversion?

    You must provide your stockholders with exclusive voting rights, 
except as provided in Sec. 563b.445(c).



Sec. 563b.445  What must I provide my savings account holders?

    (a) You must provide each savings account holder, without payment, a 
withdrawable savings account or accounts in the same amount and under 
the same terms and conditions as their accounts before your conversion.
    (b) You must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec. 563b.450.
    (c) If you are a state-chartered savings association and state law 
requires you to provide voting rights to savings account holders or 
borrowers, your charter must:
    (1) Limit these voting rights to the minimum required by state law; 
and

[[Page 261]]

    (2) Require you to solicit proxies from the savings account holders 
and borrowers in the same manner that you solicit proxies from your 
stockholders.

                           Liquidation Account



Sec. 563b.450  What is a liquidation account?

    (a) A liquidation account represents the potential interest of 
eligible account holders and supplemental eligible account holders in 
your net worth at the time of conversion. You must maintain a sub-
account to reflect the interest of each account holder.
    (b) Before you may provide a liquidation distribution to common 
stockholders, you must give a liquidation distribution to those eligible 
account holders and supplemental eligible account holders who hold 
savings accounts from the time of conversion until liquidation.
    (c) You may not record the liquidation account in your financial 
statements. You must disclose the liquidation account in the footnotes 
to your financial statements.



Sec. 563b.455  What is the initial balance of the liquidation account?

    The initial balance of the liquidation account is your net worth in 
the statement of financial condition included in the final offering 
circular.



Sec. 563b.460  How do I determine the initial balances of liquidation
sub-accounts?

    (a)(1) You determine the initial sub-account balance for a savings 
account held by an eligible account holder by multiplying the initial 
balance of the liquidation account by the following fraction: The 
numerator is the qualifying deposit in the savings account expressed in 
dollars on the eligibility record date. The denominator is total 
qualifying deposits of all eligible account holders on that date.
    (2) You determine the initial sub-account balance for a savings 
account held by a supplemental eligible account holder by multiplying 
the initial balance of the liquidation account by the following 
fraction: The numerator is the qualifying deposit in the savings account 
expressed in dollars on the supplemental eligibility record date. The 
denominator is total qualifying deposits of all supplemental eligible 
account holders on that date.
    (3) If an account holder holds a savings account on the eligibility 
record date and a separate savings account on the supplemental 
eligibility record date, you must compute separate sub-accounts for the 
qualifying deposits in the savings account on each record date.
    (b) You may not increase the initial sub-account balances. You must 
decrease the initial balance under Sec. 563b.470 as depositors reduce 
or close their accounts.



Sec. 563b.465  Do account holders retain any voting rights based on 
their liquidation sub-accounts?

    Eligible account holders or supplemental eligible account holders do 
not retain any voting rights based on their liquidation sub-accounts.



Sec. 563b.470  Must I adjust liquidation sub-accounts?

    (a)(1) You must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of business 
on any annual closing date, which for purposes of this section is your 
fiscal year end, after the relevant eligibility record dates is less 
than:
    (i) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (ii) The qualifying deposits in the account holder's savings account 
on the relevant eligibility record date.
    (2) The reduction must be proportionate to the reduction in the 
deposit balance.
    (b) If you reduce the balance of a liquidation sub-account, you may 
not subsequently increase it if the deposit balance increases.
    (c) You are not required to adjust the liquidation account and sub-
account balances at each annual closing date if you maintain sufficient 
records to make the computations if a liquidation subsequently occurs.

[[Page 262]]

    (d) You must maintain the liquidation sub-account for each account 
holder as long as the account holder maintains an account with the same 
social security number.
    (e) If there is a complete liquidation, you must provide each 
account holder with a liquidation distribution in the amount of the sub-
account balance.



Sec. 563b.475  What is a liquidation?

    (a) A liquidation is a sale of your assets and settlement of your 
liabilities with the intent to cease operations and close. Upon 
liquidation, you must return your charter to the governmental agency 
that issued it. The government agency must cancel your charter.
    (b) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If you are 
involved in such a transaction, the surviving institution must assume 
the liquidation account.



Sec. 563b.480  Does the liquidation account affect my net worth?

    The liquidation account does not affect your net worth.



Sec. 563b.485  What provision must I include in my new federal charter?

    If you convert to federal stock form, you must include the following 
provision in your new charter: ``Liquidation Account. Under OTS 
regulations, the association must establish and maintain a liquidation 
account for the benefit of its savings account holders as of ----------. 
If the association undergoes a complete liquidation, it must comply with 
OTS regulations with respect to the amount and priorities on liquidation 
of each of the savings account holder's interests in the liquidation 
account. A savings account holder's interest in the liquidation account 
does not entitle the savings account holder to any voting rights.''

                             Post-Conversion



Sec. 563b.500.  What management stock benefit plans may I implement?

    (a) During the 12 months after your conversion, you may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan (collectively, ESOP), 
and a management recognition plan (MRP), provided you meet all of the 
following requirements.
    (1) You disclose the plans in your proxy statement and offering 
circular and indicate in your offering circular that there will be a 
separate shareholder vote on the Option Plan and the MRP at least six 
months after the conversion. No shareholder vote is required to 
implement the ESOP. Your ESOP must be tax-qualified.
    (2) Your Option Plan does not encompass more than ten percent of the 
number of shares that you issued in the conversion.
    (3)(i) Your ESOP and MRP do not encompass, in the aggregate, more 
than ten percent of the number of shares that you issued in the 
conversion. If you have tangible capital of ten percent or more 
following the conversion, OTS may permit your ESOP and MRP to encompass, 
in the aggregate, up to 12 percent of the number of shares issued in the 
conversion; and
    (ii) Your MRP does not encompass more than three percent of the 
number of shares that you issued in the conversion. If you have tangible 
capital of ten percent or more after the conversion, OTS may permit your 
MRP to encompass up to four percent of the number of shares that you 
issued in the conversion.
    (4) No individual receives more than 25 percent of the shares under 
any plan.
    (5) Your directors who are not your officers do not receive more 
than five percent of the shares of your MRP or Option Plan individually, 
or 30 percent of any such plan in the aggregate.
    (6) Your shareholders approve each of the Option Plan and the MRP by 
a majority of the total votes eligible to be cast at a duly called 
meeting before you establish or implement the plan. You may not hold 
this meeting until six months after your conversion.
    (7) When you distribute proxies or related material to shareholders 
in connection with the vote on a plan, you state that the plan complies 
with OTS regulations and that OTS does not endorse or approve the plan 
in any way. You may not make any written or oral representations to the 
contrary.

[[Page 263]]

    (8) You do not grant stock options at less than the market price at 
the time of grant.
    (9) You do not fund the Option Plan or the MRP at the time of the 
conversion.
    (10) Your plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.
    (11) Your plan permits accelerated vesting only for disability or 
death, or if you undergo a change of control.
    (12) Your plan provides that your executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized (as defined in Sec. 565.4 of this 
chapter), is subject to OTS enforcement action, or receives a capital 
directive under Sec. 565.7 of this chapter.
    (13) You file a copy of the proposed Option Plan or MRP with OTS and 
certify to OTS that the plan approved by the shareholders is the same 
plan that you filed with, and disclosed in, the proxy materials 
distributed to shareholders in connection with the vote on the plan.
    (14) You file the plan and the certification with OTS within five 
calendar days after your shareholders approve the plan.
    (b) You may provide dividend equivalent rights or dividend 
adjustment rights to allow for stock splits or other adjustments to your 
stock in your ESOP, MRP, and Option Plan.
    (c) The restrictions in paragraph (a) of this section do not apply 
to plans implemented more than 12 months after the conversion, provided 
that materials pertaining to any shareholder vote regarding such plans 
are not distributed within the 12 months after the conversion. If a plan 
adopted in conformity with paragraph (a) of this section is amended more 
than 12 months following your conversion, your shareholders must ratify 
any material deviations to the requirements in paragraph (a).

[72 FR 35149, June 27, 2007]



Sec. 563b.505  May my directors, officers, and their associates freely 
trade shares?

    (a) Directors and officers who purchase conversion shares may not 
sell the shares for one year after the date of purchase, except that in 
the event of the death of the officer or director, the successor in 
interest may sell the shares.
    (b) You must include notice of the restriction described in 
paragraph (a) of this section on each certificate of stock that a 
director or officer purchases during the conversion or receives in 
connection with a stock dividend, stock split, or otherwise with respect 
to such restricted shares.
    (c) You must instruct your stock transfer agent about the transfer 
restrictions in this section.
    (d) For three years after you convert, your officers, directors, and 
their associates may purchase your stock only from a broker or dealer 
registered with the Securities and Exchange Commission. However, your 
officers, directors, and their associates may engage in a negotiated 
transaction involving more than one percent of your outstanding stock, 
and may purchase stock through any of your management or employee stock 
benefit plans.



Sec. 563b.510  May I repurchase shares after conversion?

    (a) You may not repurchase your shares in the first year after the 
conversion except:
    (1) In extraordinary circumstances, you may make open market 
repurchases of up to five percent of your outstanding stock in the first 
year after the conversion if you file a notice under Sec. 563b.515(a) 
and OTS does not disapprove your repurchase. OTS will not approve such 
repurchases unless the repurchase meets the standards in Sec. 
563b.515(c), and the repurchase is consistent with paragraph (c) of this 
section.
    (2) You may repurchase qualifying shares of a director or conduct an 
OTS approved repurchase pursuant to an offer made to all shareholders of 
your association.

[[Page 264]]

    (3) Repurchases to fund management recognition plans that have been 
ratified by shareholders do not count toward the repurchase limitations 
in this section. Repurchases in the first year to fund such plans 
require prior written notification to OTS.
    (4) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.
    (b) After the first year, you may repurchase your shares, subject to 
all other applicable regulatory and supervisory restrictions and 
paragraph (c) of this section.
    (c) All stock repurchases are subject to the following restrictions.
    (1) You may not repurchase your shares if the repurchase will reduce 
your regulatory capital below the amount required for your liquidation 
account under Sec. 563b.450. You must comply with the capital 
distribution requirements at part 563, subpart E of this chapter.
    (2) The restrictions on share repurchases apply to a charitable 
organization under Sec. 563b.550. You must aggregate purchases of 
shares by the charitable organization with your repurchases.



Sec. 563b.515  What information must I provide to OTS before I 
repurchase my shares?

    (a) To repurchase stock in the first year following conversion, 
other than repurchases under Sec. 563b.510(a)(3) or (a)(4), you must 
file a written notice with the OTS. You must provide the following 
information:
    (1) Your proposed repurchase program;
    (2) The effect of the repurchases on your regulatory capital; and
    (3) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (b) You must file your notice with your Regional Director, with a 
copy to the Applications Filing Room, at least ten days before you begin 
your repurchase program.
    (c) You may not repurchase your shares if OTS objects to your 
repurchase program. OTS will not object to your repurchase program if:
    (1) Your repurchase program will not adversely affect your financial 
condition;
    (2) You submit sufficient information to evaluate your proposed 
repurchases;
    (3) You demonstrate extraordinary circumstances and a compelling and 
valid business purpose for the share repurchases; and
    (4) Your repurchase program would not be contrary to other 
applicable regulations.



Sec. 563b.520  May I declare or pay dividends after I convert?

    You may declare or pay a dividend on your shares after you convert 
if:
    (a) The dividend will not reduce your regulatory capital below the 
amount required for your liquidation account under Sec. 563b.450;
    (b) You comply with all capital requirements under part 567 of this 
chapter after you declare or pay dividends;
    (c) You comply with the capital distribution requirements under part 
563, subpart E, of this chapter; and
    (d) You do not return any capital, other than ordinary dividends, to 
purchasers during the term of the business plan submitted with the 
conversion.



Sec. 563b.525  Who may acquire my shares after I convert?

    (a) For three years after you convert, no person may, directly or 
indirectly, acquire or offer to acquire the beneficial ownership of more 
than ten percent of any class of your equity securities without OTS's 
prior written approval. If a person violates this prohibition, you may 
not permit the person to vote shares in excess of ten percent, and may 
not count the shares in excess of ten percent in any shareholder vote.
    (b) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of your stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Sec. Sec. 574.4(a) and (b) of this chapter. OTS 
will presume that a person has acquired shares if the acquiror entered 
into a binding written agreement for the transfer of shares. For 
purposes of this section, an offer is made when it is

[[Page 265]]

communicated. An offer does not include non-binding expressions of 
understanding or letters of intent regarding the terms of a potential 
acquisition.
    (c) Notwithstanding the restrictions in this section:
    (1) Paragraphs (a) and (b) of this section do not apply to any offer 
with a view toward public resale made exclusively to you, to the 
underwriters, or to a selling group acting on your behalf.
    (2) Unless OTS objects in writing, any person may offer or announce 
an offer to acquire up to one percent of any class of shares. In 
computing the one percent limit, the person must include all of his or 
her acquisitions of the same class of shares during the prior 12 months.
    (3) A corporation whose ownership is, or will be, substantially the 
same as your ownership may acquire or offer to acquire more than ten 
percent of your common stock, if it makes the offer or acquisition more 
than one year after you convert.
    (4) One or more of your tax-qualified employee stock benefit plans 
may acquire your shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of your shares in the aggregate.
    (5) An acquiror does not have to file a separate application to 
obtain OTS approval under paragraph (a) of this section, if the acquiror 
files an application under part 574 of this chapter that specifically 
addresses the criteria listed under paragraph (d) of this section and 
you do not oppose the proposed acquisition.
    (d) OTS may deny an application under paragraph (a) of this section 
if the proposed acquisition:
    (1) Is contrary to the purposes of this part;
    (2) Is manipulative or deceptive;
    (3) Subverts the fairness of the conversion;
    (4) Is likely to injure you;
    (5) Is inconsistent with your plan to meet the credit and lending 
needs of your proposed market area;
    (6) Otherwise violates laws or regulations; or
    (7) Does not prudently deploy your conversion proceeds.



Sec. 563b.530  What other requirements apply after I convert?

    After you convert, you must:
    (a) Promptly register your shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). You may not deregister the 
shares for three years.
    (b) Encourage and assist a market maker to establish and to maintain 
a market for your shares. A market maker for a security is a dealer who:
    (1) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (2) Furnishes bona fide competitive bid and offer quotations for the 
security on request; or
    (3) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (c) Use your best efforts to list your shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (d) File all post-conversion reports that OTS requires.

                Contributions to Charitable Organizations



Sec. 563b.550  May I donate conversion shares or conversion proceeds
to a charitable organization?

    You may contribute some of your conversion shares or proceeds to a 
charitable organization if:
    (a) Your plan of conversion provides for the proposed contribution;
    (b) Your members approve the proposed contribution; and
    (c) The IRS either has approved, or approves within two years after 
formation, the charitable organization as a tax-exempt charitable 
organization under the Internal Revenue Code.



Sec. 563b.555  How do my members approve a charitable contribution?

    At the meeting to consider your conversion, your members must 
separately approve by at least a majority of the total eligible votes, a 
contribution of conversion shares or proceeds. If you are in mutual 
holding company form and adding a charitable contribution as

[[Page 266]]

part of a second step stock conversion, you must also have your minority 
shareholders separately approve the charitable contribution by a 
majority of their total eligible votes.



Sec. 563b.560  How much may I contribute to a charitable organization?

    You may contribute a reasonable amount of conversion shares or 
proceeds to a charitable organization, if your contribution will not 
exceed limits for charitable deductions under the Internal Revenue Code 
and OTS does not object on supervisory grounds. If you are a well-
capitalized savings association, OTS generally will not object if you 
contribute an aggregate amount of eight percent or less of the 
conversion shares or proceeds.



Sec. 563b.565  What must the charitable organization include in its 
organizational documents?

    The charitable organization's charter (or trust agreement) and gift 
instrument must provide that:
    (a) The charitable organization's primary purpose is to serve and 
make grants in your local community;
    (b) As long as the charitable organization controls shares, it must 
vote those shares in the same ratio as all other shares voted on each 
proposal considered by your shareholders;
    (c) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from your local 
community. This director may not be your officer, director, or employee, 
or your affiliate's officer, director, or employee, and should have 
experience with local community charitable organizations and grant 
making; and
    (d) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from your board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of your organization.



Sec. 563b.570  How do I address conflicts of interest involving 
my directors?

    (a) A person who is your director, officer, or employee, or a person 
who has the power to direct your management or policies, or otherwise 
owes a fiduciary duty to you (for example, holding company directors) 
and who will serve as an officer, director, or employee of the 
charitable organization, is subject to Sec. 563.200 of this chapter. 
See Form AC (Exhibit 9) for further information on operating plans and 
conflict of interest plans.
    (b) Before your board of directors may adopt a plan of conversion 
that includes a charitable organization, you must identify your 
directors that will serve on the charitable organization's board. These 
directors may not participate in your board's discussions concerning 
contributions to the charitable organization, and may not vote on the 
matter.



Sec. 563b.575  What other requirements apply to charitable organizations?

    (a) The charitable organization's charter (or trust agreement) and 
the gift instrument for the contribution must provide that:
    (1) OTS may examine the charitable organization at the charitable 
organization's expense;
    (2) The charitable organization must comply with all supervisory 
directives that OTS imposes;
    (3) The charitable organization must annually provide OTS with a 
copy of the annual report that the charitable organization submitted to 
the IRS;
    (4) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (5) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.
    (b) You must include the following legend in the stock certificates 
of shares that you contribute to the charitable organization or that the 
charitable organization otherwise acquires: ``The board of directors 
must consider the shares that this stock certificate represents as voted 
in the same ratio

[[Page 267]]

as all other shares voted on each proposal considered by the 
shareholders, as long as the shares are controlled by the charitable 
organization.''
    (c) As long as the charitable organization controls shares, you must 
consider those shares as voted in the same ratio as all of the shares 
voted on each proposal considered by your shareholders.
    (d) After you complete your stock offering, you must submit four 
executed copies of the following documents to the OTS Applications 
Filing Room in Washington, and three executed copies to the OTS Regional 
Office: the charitable organization's charter and bylaws (or trust 
agreement), operating plan (within six months after your stock 
offering), conflict of interest policy, and the gift instrument for your 
contributions of either stock or cash to the charitable organization.



               Subpart B_Voluntary Supervisory Conversions



Sec. 563b.600  What does this subpart do?

    (a) You must comply with this subpart to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under secs. 5(i)(1), (i)(2), and (p) of the Home 
Owners' Loan Act (HOLA), 12 U.S.C. 1464(i)(1), (i)(2), and (p).
    (b) Subpart A of this part also applies to a voluntary supervisory 
conversion, unless a requirement is clearly inapplicable.



Sec. 563b.605  How may I conduct a voluntary supervisory conversion?

    (a) You may sell your shares or the shares of a holding company to 
the public under the requirements of subpart A of this part.
    (b) You may convert to stock form by merging into an interim 
federal-or state-chartered stock association.
    (c) You may sell your shares directly to an acquiror, who may be a 
person, company, depository institution, or depository institution 
holding company.
    (d) You may merge or consolidate with an existing or newly created 
depository institution. The merger or consolidation must be authorized 
by, and is subject to, other applicable laws and regulations.



Sec. 563b.610  Do my members have rights in a voluntary supervisory
conversion?

    Your members do not have the right to approve or participate in a 
voluntary supervisory conversion, and will not have any legal or 
beneficial ownership interests in the converted association, unless OTS 
provides otherwise. Your members may have interests in a liquidation 
account, if one is established.

                               Eligibility



Sec. 563b.625  When is a savings association eligible for a voluntary 
supervisory conversion?

    (a) If you are an insured savings association, you may be eligible 
to convert under this subpart if:
    (1) You are significantly undercapitalized (or you are 
undercapitalized and a standard conversion that would make you 
adequately capitalized is not feasible) and you will be a viable entity 
following the conversion;
    (2) Severe financial conditions threaten your stability and a 
conversion is likely to improve your financial condition;
    (3) FDIC will assist you under section 13 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823; or
    (4) You are in receivership and a conversion will assist you.
    (b) You will be a viable entity following the conversion if you 
satisfy all of the following:
    (1) You will be adequately capitalized as a result of the 
conversion;
    (2) You, your proposed conversion, and your acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in your best interest, and the best interest 
of the Deposit Insurance Fund and the public; and
    (4) The transaction will not injure or be detrimental to you, the 
Deposit Insurance Fund, or the public interest.

[67 FR 52020, Aug. 9, 2002, as amended at 71 FR 19811, Apr. 18, 2006]



Sec. 563b.630  When is a state-chartered savings bank eligible for a
voluntary supervisory conversion?

    If you are a state-chartered savings bank you may be eligible to 
convert to

[[Page 268]]

a federal stock savings bank under this subpart if:
    (a) FDIC certifies under section 5(o)(2)(C) of the HOLA that severe 
financial conditions threaten your stability and that the voluntary 
supervisory conversion is likely to improve your financial condition, 
and OTS concurs with this certification; or
    (b) You meet the following conditions:
    (1) Your liabilities exceed your assets, as calculated under 
generally accepted accounting principles, assuming you are a going 
concern; and
    (2) You will issue a sufficient amount of permanent capital stock to 
meet your applicable FDIC capital requirement immediately upon 
completion of the conversion, or FDIC determines that you will achieve 
an acceptable capital level within an acceptable time period.

[67 FR 52020, Aug. 9, 2002, as amended at 71 FR 19811, Apr. 18, 2006]

                     Plan of Supervisory Conversion



Sec. 563b.650  What must I include in my plan of voluntary supervisory
conversion?

    A majority of your board of directors must adopt a plan of voluntary 
supervisory conversion. You must include all of the following 
information in your plan of voluntary supervisory conversion.
    (a) Your name and address.
    (b) The name, address, date and place of birth, and social security 
number of each proposed purchaser of conversion shares and a description 
of that purchaser's relationship to you.
    (c) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that you will issue.
    (d) The number and percentage of shares that each investor will 
purchase.
    (e) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (f) A description of any liquidation account.
    (g) Certified copies of all resolutions of your board of directors 
relating to the conversion.

              Voluntary Supervisory Conversion Application



Sec. 563b.660  What must I include in my voluntary supervisory 
conversion application?

    You must include all of the following information and documents in a 
voluntary supervisory conversion application to OTS under this subpart:
    (a) Eligibility. (1) Evidence establishing that you meet the 
eligibility requirements under Sec. Sec. 563b.625 or 563b.630.
    (2) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (3) An opinion of independent counsel indicating that applicable 
state law authorizes the voluntary supervisory conversion, if you are a 
state-chartered savings association converting to state stock form.
    (b) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with Sec. 563b.650.
    (c) Business plan. A business plan that complies with Sec. 
563b.105, when required by OTS.
    (d) Financial data. (1) Your most recent audited financial 
statements and Thrift Financial Report. You must explain how your 
current capital levels make you eligible to engage in a voluntary 
supervisory conversion under Sec. Sec. 563b.625 or 563b.630.
    (2) A description of your estimated conversion expenses.
    (3) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to OTS and the non-cash 
asset must meet all other OTS policy guidelines. See Thrift Activities 
Handbook Section 110 for guidelines at OTS's website 
(www.ots.treas.gov).
    (4) Pro forma financial statements that reflect the effects of the 
transaction. You must identify your tangible, core, and risk-based 
capital levels and show the adjustments necessary to compute the capital 
levels. You must prepare your pro forma statements in conformance with 
OTS regulations and policy.

[[Page 269]]

    (e) Proposed documents. (1) Your proposed charter and bylaws.
    (2) Your proposed stock certificate form.
    (f) Agreements. (1) A copy of any agreements between you and 
proposed purchasers.
    (2) A copy and description of all existing and proposed employment 
contracts. You must describe the term, salary, and severance provisions 
of the contract, the identity and background of the officer or employee 
to be employed, and the amount of any conversion shares to be purchased 
by the officer or employee or his or her affiliates or associates.
    (g) Related applications. (1) All filings required under the 
securities offering rules of parts 563b and 563g of this chapter.
    (2) Any required Holding Company Act application, Control Act 
notice, or rebuttal submission under part 574 of this chapter, including 
prior-conduct certifications under Regulatory Bulletin 20.
    (3) A subordinated debt application, if applicable.
    (4) Applications for permission to organize a stock association and 
for approval of a merger, if applicable, and a copy of any application 
for Federal Home Loan Bank membership or FDIC insurance of accounts, if 
applicable.
    (5) A statement describing any other applications required under 
federal or state banking laws for all transactions related to your 
conversion, copies of all dispositive documents issued by regulatory 
authorities relating to the applications, and, if requested by OTS, 
copies of the applications and related documents.
    (h) Waiver request. A description of any of the features of your 
application that do not conform to the requirements of this subpart, 
including any request for waiver of these requirements.

     OTS Review of the Voluntary Supervisory Conversion Application



Sec. 563b.670  Will OTS approve my voluntary supervisory conversion 
application?

    OTS will generally approve your application to engage in a voluntary 
supervisory conversion unless it determines:
    (a) You do not meet the eligibility requirements for a voluntary 
supervisory conversion under Sec. Sec. 563b.625 or 563b.630 or because 
the proceeds from the sale of your conversion stock, less the expenses 
of the conversion, would be insufficient to satisfy any applicable 
viability requirement;
    (b) The transaction is detrimental to or would cause potential 
injury to you or the Deposit Insurance Fund or is contrary to the public 
interest;
    (c) You or your acquiror, or the controlling parties or directors 
and officers of you or your acquiror, have engaged in unsafe or unsound 
practices in connection with the voluntary supervisory conversion; or
    (d) You fail to justify an employment contract incidental to the 
conversion, or the employment contract will be an unsafe or unsound 
practice or represent a sale of control. In a voluntary supervisory 
conversion, OTS generally will not approve employment contracts of more 
than one year for your existing management.

[67 FR 52020, Aug. 9, 2002, as amended at 71 FR 19812, Apr. 18, 2006]



Sec. 563b.675  What conditions will OTS impose on an approval?

    (a) OTS will condition approval of a voluntary supervisory 
conversion application on all of the following.
    (1) You must complete the conversion stock sale within three months 
after OTS approves your application. OTS may grant an extension for good 
cause.
    (2) You must comply with all filing requirements of parts 563b and 
563g of this chapter.
    (3) You must submit an opinion of independent legal counsel 
indicating that the sale of your shares complies with all applicable 
state securities law requirements.
    (4) You must comply with all applicable laws, rules, and 
regulations.
    (5) You must satisfy any other requirements or conditions OTS may 
impose.
    (b) OTS may condition approval of a voluntary supervisory conversion 
application on either of the following:

[[Page 270]]

    (1) You must satisfy any conditions and restrictions OTS imposes to 
prevent unsafe or unsound practices, to protect the Deposit Insurance 
Fund and the public interest, and to prevent potential injury or 
detriment to you before and after the conversion. OTS may impose these 
conditions and restrictions on you (before and after the conversion), 
your acquiror, controlling parties, or directors and officers of you or 
your acquiror; or
    (2) You must infuse a larger amount of capital, if necessary, for 
safety and soundness reasons.

[67 FR 52020, Aug. 9, 2002, as amended at 71 FR 19812, Apr. 18, 2006]

                        Offers and Sales of Stock



Sec. 563b.680  How do I sell my shares?

    If you convert under this subpart, you must offer and sell your 
shares under part 563g of this chapter.

                             Post-Conversion



Sec. 563b.690  Who may not acquire additional shares after the voluntary
supervisory conversion?

    For three years after the completion of a voluntary supervisory 
conversion, neither you nor your controlling shareholder(s) may acquire 
shares from minority shareholders without OTS's prior approval.



PART 563c_ACCOUNTING REQUIREMENTS--Table of Contents




           Subpart A_Form and Content of Financial Statements

Sec.
563c.1 Form and content of financial statements.
563c.2 Definitions.
563c.3 Qualification of public accountant.
563c.4 Condensed financial information [Parent only].

Subpart B [Reserved]

               Subpart C_Financial Statement Presentation

563c.101 Application of this subpart.
563c.102 Financial statement presentation.

    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 78c(b), 78m, 78n, 
78w.

    Source: 54 FR 49627, Nov. 30, 1989, unless otherwise noted.



           Subpart A_Form and Content of Financial Statements



Sec. 563c.1  Form and content of financial statements.

    (a) This subpart A states the requirements as to form and content of 
financial statements included by a savings association in the following 
documents. However, the Office's regulations governing the applicable 
documents specify the actual financial statements that are to be 
included in that document.
    (1) Any proxy statement or offering circular required to be used in 
connection with a conversion under part 563b of this chapter.
    (2) Any offering circular or nonpublic offering materials required 
to be used in connection with an offer or sale of securities under part 
563g of this chapter.
    (3) Any filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., made pursuant to the requirements of part 563d of this 
chapter.
    (b) Except as otherwise provided by the Office by rule, regulation, 
or order made specifically applicable to financial statements governed 
by this section, financial statements shall:
    (1) Be prepared and presented in accordance with generally accepted 
accounting principles;
    (2) Comply with subpart C of this part;
    (3) Consistent with the provisions of this subpart, comply with 
articles 1, 2, 3, 4, 10, and 11 of Regulation S-X adopted by the 
Securities and Exchange Commission (17 CFR 210.l-210.4, 210.10, and 
210.11).
    (4) Be audited, when required, by an independent auditor in 
accordance with the standards imposed by the American Institute of 
Certified Public Accountants.
    (c) The term ``financial statements'' includes all notes to the 
statements and related schedules.



Sec. 563c.2  Definitions.

    (See also 17 CFR 210.1-02.)

[[Page 271]]

    (a) Registrant. The term ``registrant'' means an applicant, a 
savings association, or any other person required to prepare financial 
statements in accordance with this subpart.
    (b) Significant subsidiary. The term ``significant subsidiary'' 
means a subsidiary, including its subsidiaries, which meets any of the 
following conditions:
    (1) The association's and its other subsidiaries' investments in and 
advances to the subsidiary exceed 10 percent of the total assets of the 
association and its subsidiaries consolidated as of the end of the most 
recently completed fiscal year (for purposes of determining whether 
financial statements of a business acquired or to be acquired in a 
business combination accounted for as a pooling of interests are 
required pursuant to 17 CFR 210.3-05, this condition is also met when 
the number of common shares exchanged by the association exceeds 10 
percent of its total common shares outstanding at the date the 
combination is initiated); or
    (2) The association's and its other subsidiaries' proportionate 
share of the total assets (after intercompany eliminations) of the 
subsidiary exceeds 10 percent of the total assets of the association and 
its subsidiaries consolidated as of the end of the most recently 
completed fiscal year; or
    (3) The association's and its other subsidiaries' equity in the 
income from continuing operations before income taxes, extraordinary 
items, and cumulative effect of a change in accounting principle of the 
subsidiary exceeds 10 percent of such income of the association and its 
subsidiaries consolidated for the most recently completed fiscal year.

    Computational note: For purposes of making the prescribed income 
test the following guidance should be applied:
    1. When a loss has been incurred by either the parent or its 
consolidated subsidiaries or the tested subsidiary, but not both, the 
equity in the income or loss of the tested subsidiary should be excluded 
from the income of the association and its subsidiaries consolidated for 
purposes of the computation.
    2. If income of the association and its subsidiaries consolidated 
for the most recent fiscal year is at least 10 percent lower than the 
average of the income for the last five fiscal years, such average 
income should be substituted for purposes of the computation. Any loss 
years should be omitted for purposes of computing average income.



Sec. 563c.3  Qualification of public accountant.

    (See also 17 CFR 210.2-01.)
    The term ``qualified public accountant'' means a certified public 
accountant or licensed public accountant certified or licensed by a 
regulatory authority of a State or other political subdivision of the 
United States who is in good standing as such under the laws of the 
jurisdiction where the home office of the registrant to be audited is 
located. Any person or firm who is suspended from practice before the 
Securities and Exchange Commission or other governmental agency is not a 
``qualified public accountant'' for purposes of this section.

[54 FR 49627, Nov. 30, 1989, as amended at 60 FR 66718, Dec. 26, 1995]



Sec. 563c.4  Condensed financial information [Parent only].

    (a) The information prescribed by Schedule III required by section 
IV of Sec. 563c.102 of this part shall be presented in a note to the 
financial statements when the restricted net assets (17 CFR 210.4-
08(e)(3)) of consolidated subsidiaries exceed 25 percent of consolidated 
net assets as of the end of the most recently completed fiscal year. The 
investment in and indebtedness of and to association subsidiaries shall 
be stated separately in the condensed balance sheet from amounts for 
other subsidiaries; and the amount of cash dividends paid to the parent 
association for each of the last three years by association subsidiaries 
shall be stated separately in the condensed income statement from 
amounts for other subsidiaries.
    (b) For purposes of the above test, restricted net assets of 
consolidated subsidiaries shall mean that amount of the association's 
proportionate share of net assets of consolidated subsidiaries (after 
intercompany eliminations) which as of the end of the most recent year 
may not be transferred to the parent company by subsidiaries in the form 
of loans, advances, or cash dividends without the consent of a third

[[Page 272]]

party (i.e., lender, regulatory agency, foreign government, etc.).
    (c) Where restrictions on the amount of funds which may be loaned or 
advanced differ from the amount restricted as to transfer in the form of 
cash dividends, the amount least restrictive to the subsidiary shall be 
used. Redeemable preferred stocks (See item I (22) in Sec. 563c.102) 
and minority interest (See item I (21) in Sec. 563c.102) shall be 
deducted in computing net assets for purposes of this test.

Subpart B [Reserved]



               Subpart C_Financial Statement Presentation



Sec. 563c.101  Application of this subpart.

    This subpart contains rules pertaining to the form and content of 
financial statements included as part of:
    (a) A conversion application under part 563b, including financial 
statements in proxy statements and offering circulars,
    (b) A filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., and
    (c) Any offering circular required to be used in connection with the 
issuance of mutual capital certificates under Sec. 563.74 and debt 
securities under Sec. 563.80 and Sec. 563.81 of this chapter.

[54 FR 49627, Nov. 30, 1989, as amended at 65 FR 16305, Mar. 28, 2000]



Sec. 563c.102  Financial statement presentation.

    This section specifies the various line items which should appear on 
the face of the financial statements governed by this subpart C and 
additional disclosures which should be included with the financial 
statements in related notes.

                            I. Balance Sheet

    Balance sheets shall comply with the following provisions:

                                 Assets

    1. Cash and amounts due from depository institutions. (a) The 
amounts in this caption should include noninterest-bearing deposits with 
depository institutions.
    (b) State in a note the amount and terms of any deposits in 
depository institutions held as compensating balances against long- or 
short-term borrowing arrangements. This disclosure should include the 
provisions of any restrictions as to withdrawal or usage. Restrictions 
may include legally restricted deposits held as compensating balances 
against short-term borrowing arrangements, contracts entered into with 
others, or company statements of intention with regard to particular 
deposits; however, time deposits and short-term certificates of deposits 
are not generally included in legally restricted deposits. In cases 
where compensating balance arrangements exist but are not agreements 
which legally restrict the use of cash amounts shown on the balance 
sheet, describe in the notes to the financial statements these 
arrangements and the amount involved, if determinable, for the most 
recent audited balance sheet required and for any subsequent unaudited 
balance sheet required. Compensating balances that are maintained under 
an agreement to ensure future credit availability shall be disclosed in 
the notes to the financial statements along with the amount and terms of 
the agreement.
    (c) Checks outstanding in excess of an applicant's book balance in a 
demand deposit account shall be shown as a liability.
    2. Interest-bearing deposits in other banks.
    3. Federal funds sold and securities purchased under resale 
agreements or similar arrangements. These amounts should be presented, 
i.e., gross and not netted against Federal funds purchased and 
securities sold under agreement to repurchase, as reported in caption 
15.
    4. Trading account assets. Include securities considered to be held 
for trading purposes.
    5. Other short-term investments.
    6. Investment securities. (a) Include securities considered to be 
held for investment purposes. Disclose the aggregate book value of 
investment securities as the line item on the balance sheet; and also 
show on the face of the balance sheet the aggregate market value at the 
balance sheet date. The aggregate amounts should include securities 
pledged, loaned, or sold under repurchase agreements and similar 
arrangements. Borrowed securities and securities purchased under resale 
agreements or similar arrangements should be excluded.
    (b) Disclose in a note the carrying value and market value of 
securities of (i) the U.S. Treasury and other U.S. Government agencies 
and corporations; (ii) states of the U.S. and political subdivisions 
thereof; and (iii) other securities.
    7. Assets held for sale. Investments in assets considered to be held 
for sale purposes should be reported separately in the statement of 
financial condition.
    8. Loans. (a) Disclose separately: (i) Total loans (including 
financing type leases), (ii)

[[Page 273]]

allowance for loan losses, (iii) unearned income on installment loans, 
(iv) discount on loans purchased, and (v) loans in process.
    (b) State on the balance sheet or in a note the amount of loans in 
each of the following categories: (i) Real estate mortgage; (ii) real 
estate construction; (iii) installment; and (iv) commercial, financial, 
and agricultural.
    (c)(i) Include under the real estate mortgage category loans payable 
in monthly, quarterly, or other periodic installments and secured by 
developed income property and/or personal residences.
    (ii) Include under the real estate construction category loans 
secured by real estate which are made for the purpose of financing 
construction of real estate and land development projects.
    (iii) Include under the installment category loans to individuals 
generally repayable in monthly installments. This category shall 
include, but not be limited to, credit card and related activities, 
individual automobile loans, other installment loans, mobile home loans, 
and residential repair and modernization loans.
    (iv) Include under the commercial, financial, and agricultural 
category all loans not included in another category. This category shall 
include, but not be limited to, loans to real estate investment trusts, 
mortgage companies, banks, and other financial institutions; loans for 
carrying securities; and loans for agricultural purposes. Do not include 
loans secured primarily by developed real estate.
    (d) State separately any other loan category regardless of relative 
size if necessary to reflect any unusual risk concentration.
    (e) Unearned income on installment loans shall be shown and deducted 
separately from total loans.
    (f) Unamortized discounts on purchased loans shall be deducted 
separately from total loans.
    (g) Loans in process shall be deducted separately from total loans.
    (h) A series of categories other than those specified in item (b) of 
paragraph 8. may be used to present details of loans if considered a 
more appropriate presentation. The categories specified in item (b) of 
paragraph 8. should be considered the minimum categories that may be 
presented.
    (i) For each period for which an income statement is presented, 
disclose in a note the total dollar amount of loans being serviced by 
the association for the benefit of others.
    (j)(i)(A) As of each balance sheet date, disclose in a note the 
aggregate dollar amount of loans (exclusive of loans to any such persons 
which in the aggregate do not exceed $60,000 during the last year) made 
by the association or any of its subsidiaries to directors, executive 
officers, or principal holders of equity securities (17 CFR 210.1-02) of 
the association or any of its significant subsidiaries (17 CFR 210.1-02) 
or to any associate of such persons. For the latest fiscal year, an 
analysis of activity with respect to such aggregate loans to related 
parties should be provided. The analysis should include at the beginning 
of the period new loans, repayments, and other changes. (Other changes, 
if significant, should be explained.)
    (B) This disclosure need not be furnished when the aggregate amount 
of such loans at the balance sheet date (or with respect to the latest 
fiscal year, the maximum amount outstanding during the period) does not 
exceed 5 percent of stockholders' equity at the balance sheet date.
    (ii) If a significant portion of the aggregate amount of loans 
outstanding at the end of the fiscal year disclosed pursuant to item 
(i)(A) of this paragraph (j) relates to nonaccrual, past due, 
restructured, and potential problem loans (see Securities and Exchange 
Commission's Securities Act Industry Guide 3, section III.C.), so state 
and disclose the aggregate amount of such loans along with such other 
information necessary to an understanding of the effects of the 
transactions on the financial statements.
    (iii) Notwithstanding the aggregate disclosure called for by 
paragraph (j)(i) of this balance sheet caption 8, if any loans were not 
made in the ordinary course of business during any period for which an 
income statement is required to be filed, provide an appropriate 
description of each such loan (see 17 CFR 210.9-03.7(e)(3)).
    (iv) For purposes only of Balance Sheet item 8(j), the following 
definitions shall apply:
    (A) Associate used to indicate a relationship with any person means 
(1) any corporation, venture, or organization of which such person is a 
general partner or is, directly or indirectly, the beneficial owner of 
10 percent or more of any class of equity securities; (2) any trust or 
other estate in which such person has a substantial beneficial interest 
or for which such person serves as trustee or in a similar capacity; and 
(3) any member of the immediate family of any of the foregoing persons.
    (B) Executive officer means the president, any vice president in 
charge of a principal business unit, division, or function (such as 
loans, investments, operations, administration, or finance), and any 
other officer or person who performs similar policy-making functions.
    (C) Immediate family with regard to a person means such person's 
spouse, parents, children, siblings, mother- and father-in-law, sons- 
and daughters-in-law, and brothers- and sisters-in-law.
    (D) Ordinary course of business with regard to loans means those 
loans which were made on substantially the same terms, including 
interest rate and collateral, as those prevailing at the same time for 
comparable

[[Page 274]]

transactions with unrelated persons and did not involve more than the 
normal risk of collectibility or present other unfavorable features.
    (k) For each period for which an income statement is presented, 
furnish in a note a statement of changes in the allowance for loan 
losses, showing balances at beginning and end of the period, provision 
charged to income, recoveries of amounts previously charged off, and 
losses charged to the allowance.
    9. Premises and equipment.
    10. Real estate owned. State, parenthetically or otherwise:
    (a) The amount of real estate owned by class as described in item 
(b) of paragraph 10. and the basis for determining that amount; and
    (b) A description of each class of real estate owned (i) acquired by 
foreclosure or by deed in lieu of foreclosure, (ii) in judgment and 
subject to redemption, or (iii) acquired for development or resale. Show 
separately any accumulated depreciation or valuation allowances. 
Disclose the policies regarding, and amounts of, capitalized costs, 
including interest.
    11. Investment in joint ventures. In a note, present summarized 
aggregate financial statements for investments in real estate or other 
joint ventures which individually (a) are 20 percent or more owned by 
the association or any of its subsidiaries, or (b) have liabilities 
(including contingent liabilities) to the parent exceeding 10 percent of 
the parent's regulatory capital. If an allowance for real estate losses 
subsequent to acquisition is maintained, the amount shall be disclosed, 
deducted from the other real estate owned, and a statement of changes in 
the allowance showing balances at beginning and end of period should be 
included. Provision charged to income and losses charged to the 
allowance account shall be furnished for each period for which an income 
statement is filed.
    12. Other assets. (a) Disclose separately on the balance sheet or in 
a note thereto any of the following assets or any other asset the amount 
of which exceeds 30 percent of stockholders' equity. The remaining 
assets may be shown as one amount.
    (i) Accrued interest receivable. State separately those amounts 
relating to loans and those amounts relating to investments.
    (ii) Excess of cost over assets acquired (net of amortization).
    (b) State in a note (i) amounts representing investments in 
affiliates and investments in other persons which are accounted for by 
the equity method, and (ii) indebtedness of affiliates and other 
persons, the investments in which are accounted for by the equity 
method. State the basis of determining the amounts reported under 
paragraph (b)(i).
    13. Total assets.

                  Liabilities, and Stockholders' Equity

    14. Deposits. (a) Disclose separately on the balance sheet or in a 
note the amounts in the following categories of interest-bearing and 
noninterest-bearing deposits: (i) NOW account and MMDA deposits, (ii) 
savings deposits, and (iii) time deposits.
    (b) Include under the savings-deposits category interest-bearing 
deposits without specified maturity or contractual provisions requiring 
advance notice of intention to withdraw funds. Include deposits for 
which an association may require at its option written notice of 
intended withdrawal not less than 14 days in advance.
    (c) Include under the time-deposits category deposits subject to 
provisions specifying maturity or other withdrawal conditions such as 
time certificates of deposits, open account time deposits, and deposits 
accumulated for the payment of personal loans.
    (d) Include accrued interest or dividends, if appropriate.
    15. Short-term borrowings. (a) State separately, here or in a note, 
the amounts payable for (i) Federal funds purchased and securities sold 
under agreements to repurchase, (ii) commercial paper, and (iii) other 
short-term borrowings.
    (b) Federal funds purchased and sales of securities under repurchase 
agreements shall be reported gross and not netted against sales of 
Federal funds and purchase of securities under resale agreements.
    (c) Include as securities sold under agreements to repurchase all 
transactions of this type regardless of (i) whether they are called 
simultaneous purchases and sales, buy-backs, turnarounds, overnight 
transactions, delayed deliveries, or other terms signifying the same 
substantive transaction, and (ii) whether the transactions are with the 
same or different institutions, if the purpose of the transactions is to 
repurchase identical or similar securities.
    (d) The amount and terms (including commitment fees and the 
conditions under which lines may be withdrawn) of unused lines of credit 
for short-term financing shall be disclosed, if significant, in the 
notes to the financial statements. The amount of these lines of credit 
which support a commercial paper borrowing arrangement or similar 
arrangements shall be separately identified.
    16. Advance payments by borrowers for taxes and insurance.
    17. Other liabilities. Disclose separately on the balance sheet or 
in a note any of the following liabilities or any other items which are 
individually in excess of 30 percent of stockholders' equity (except 
that amounts in excess of 5 percent of stockholders' equity should be 
disclosed with respect to item (d)). The remaining items may be shown as 
one amount.

[[Page 275]]

    (a) Income taxes payable.
    (b) Deferred income taxes.
    (c) Indebtedness to affiliate and other persons the investment in 
which is accounted for by the equity method.
    (d) Indebtedness to directors, executive officers, and principal 
holders of equity securities of the registrant or any of its significant 
subsidiaries. (The guidance in balance sheet caption ``8(j)'' shall be 
used to identify related parties for purposes of this disclosure.)
    18. Bonds, mortgages, and similar debt. (a) Include bonds, Federal 
Home Loan Bank advances, capital notes, debentures, mortgages, and 
similar debt.
    (b) For each issue or type of obligation state in a note:
    (i) The general character of each type of debt, including: (A) The 
rate of interest, (B) the date of maturity, or, if maturing serially, a 
brief indication of the serial maturities, such as ``maturing serially 
from 1980 to 1990,'' (C) if the payment of principal or interest is 
contingent, an appropriate indication of such contingency, (D) a brief 
indication of priority, and (E) if convertible, the basis. For amounts 
owed to related parties see 17 CFR 210.4-08(k).
    (ii) The amount and terms (including commitment fees and the 
conditions under which commitments may be withdrawn) of unused 
commitments for long-term financing arrangements that, if used, would be 
disclosed under this caption shall be disclosed in the notes to the 
financial statements, if significant.
    (c) State in the notes with appropriate explanations (i) the title 
and amount of each issue of debt of a subsidiary included in item (a) of 
paragraph 18 which has not been assumed or guaranteed by the 
association, and (ii) any liens on premises of a subsidiary or its 
consolidated subsidiaries which have not been assumed by the subsidiary 
or its consolidated subsidiaries.
    19. Deferred credits. State separately those items which exceed 30 
percent of stockholders' equity.
    20. Commitments and contingent liabilities. Total commitments to 
fund loans should be disclosed. The dollar amounts and terms of other 
than floating market-rate commitments should also be disclosed.
    21. Minority interest in consolidated subsidiaries.
    22. Preferred stock subject to mandatory redemption requirements or 
the redemption of which is outside the control of the issuer. (a) 
Include under this caption amounts applicable to any class of stock 
which has any of the following characteristics: (i) it is redeemable at 
a fixed or determinable price on a fixed or determinable date or dates, 
whether by operation of a sinking fund or otherwise; (ii) it is 
redeemable at the option of the holder; or (iii) it has conditions for 
redemption which are not solely within the control of the issuer, such 
as stock which must be redeemed out of future earnings. Amounts 
attributable to preferred stock which is not redeemable or is redeemable 
solely at the option of the issuer shall be included under caption 23 
unless it meets one or more of the above criteria.
    (b) State on the face of the balance sheet the title, carrying 
amount, and redemption amount of each issue. (If there is more than one 
issue, these amounts may be aggregated on the face of the balance sheet 
and details concerning each issue may be presented in the note required 
by item (c) of paragraph 22.) Show also the dollar amount of any shares 
subscribed for but unissued, and show the deduction of subscriptions 
receivable therefrom. If the carrying value is different from the 
redemption amount, describe the accounting treatment for such difference 
in the note required by item (c) of paragraph 22. Also state in this 
note or on the face of the balance sheet, for each issue, the number of 
shares authorized and the number of shares issued or outstanding, as 
appropriate. (See 17 CFR 210.4-07.)
    (c) State in a separate note captioned ``Redeemable Preferred 
Stock'' (i) a general description of each issue, including its 
redemption features (e.g., sinking fund, at option of holders, out of 
future earnings) and the rights, if any, of holders in the event of 
default, including the effect, if any, on junior securities in the event 
a required dividend, sinking fund, or other redemption payment(s) is not 
made, (ii) the combined aggregate amount of redemption requirements for 
all issues each year for the five years following the date of the latest 
balance sheet, and (iii) the changes in each issue for each period for 
which an income statement is required to be presented. (See also 17 CFR 
210.4-08(d).
    (d) Securities reported under this caption are not to be included 
under a general heading ``stockholders' equity'' or combined in a total 
with items described in captions 23, 24 or 25, which follow.
    23. Preferred stock which is not redeemable or is redeemed solely at 
the option of the issuer. State on the face of the balance sheet, or, if 
more than one issue is outstanding, state in a note, the title of each 
issue and the dollar amount thereof. Show also the dollar amount of any 
shares subscribed for but unissued, and show the deduction of 
subscriptions receivable. State on the face of the balance sheet or in a 
note, for each issue, the number of shares authorized and the number of 
shares issued or outstanding, as appropriate. (See 17 CFR 210.4-07.) 
Show in a note or separate statement the changes in each class of 
preferred shares reported under this caption for each period for which 
an income statement is required to be presented. (See also 17 CFR 210.4-
08(d)).

[[Page 276]]

    24. Common stock. For each class of common shares state, on the face 
of the balance sheet, the number of shares issued or outstanding, as 
appropriate (see 17 CFR 210.4-07), and the dollar amount thereof. If 
convertible, this fact should be indicated on the face of the balance 
sheet. For each class of common stock state, on the face of the balance 
sheet or in a note, the title of the issue, the number of shares 
authorized, and, if convertible, the basis for conversion (see also 17 
CFR 210.4-08(d).) Show also the dollar amount of any common stock 
subscribed for but unissued, and show the deduction of subscriptions 
receivable. Show in a note or statement the changes in each class of 
common stock for each period for which an income statement is required 
to be presented.
    25. Other stockholders' equity. (a) Separate captions shall be shown 
on the face of the balance sheet for (i) additional paid-in capital, 
(ii) other additional capital, and (iii) retained earnings, both (A) 
restricted and (B) unrestricted. (See 17 CFR 210.4-08(e).) Additional 
paid-in capital and other additional capital may be combined with the 
stock caption to which it applies, if appropriate. State whether or not 
the association is in compliance with the Federal regulatory capital 
requirements (and state requirements where applicable). Also include the 
dollar amount of those regulatory capital requirements and the amount by 
which the association exceeds or fails to meet those requirements.
    (b) For a period of at least 10 years subsequent to the effective 
date of a quasi-reorganization, any description of retained earnings 
shall indicate the point in time from which the new retained earnings 
dates, and for a period of at least three years shall indicate, on the 
face of the balance sheet, the total amount of the deficit eliminated.
    (c) Changes in stockholders' equity shall be disclosed in accordance 
with the requirements of 17 CFR 210.3-04.
    26. Total liabilities and stockholders' equity.

                          II. Income Statement

    Income statements shall comply with the following provisions:
    1. Interest and fees on loans. (a) Include interest, service 
charges, and fees which are related to or are an adjustment of the loan 
interest yield.
    (b) Current amortization of premiums on mortgages or other loans 
shall be deducted from interest on loans, and current accretion of 
discount on such items shall be added to interest on loans.
    (c) Discounts and other deferred amounts which are related to or are 
an adjustment of the loan interest yield shall be amortized into income 
using the interest (level yield) method.
    2. Interest and dividends on investment securities. Include 
accretion of discount on securities and deduct amortization of premiums 
on securities.
    3. Trading account interest. Include interest from securities 
carried in a dealer trading account or accounts that are held 
principally for resale to customers.
    4. Other interest income. Include interest on short-term investments 
(Federal funds sold and securities purchased under agreements to resell) 
and interest on bank deposits.
    5. Total interest income.
    6. Interest on deposits. Include interest on all deposits. On the 
income statement or in a note, state separately, in the same categories 
as those specified for deposits at balance sheet caption 14(a), the 
interest on those deposits. Early withdrawal penalties should be netted 
against interest on deposits and, if material, disclosed on the income 
statement.
    7. Interest on short-term borrowings. Include interest on borrowed 
funds, including Federal funds purchased, securities sold under 
agreements to repurchase, commercial paper, and other short-term 
borrowings.
    8. Interest on long-term borrowings. Include interest on bonds, 
capital notes, debentures, mortgages on association premises, 
capitalized leases, and similar debt.
    9. Total interest expense.
    10. Net interest income.
    11. Provision for loan losses.
    12. Net interest income after provision for loan losses.
    13. Other income. Disclose separately any of the following amounts, 
or any other item of other income, which exceeds 1 percent of the 
aggregate of total interest income and other income. The remaining 
amount may be shown as one amount, except for investment securities 
gains or losses which shall be shown separately regardless of size.
    (a) Commissions and fees from fiduciary activities.
    (b) Fees for other services to customers.
    (c) Commissions, fees, and markups on securities underwriting and 
other securities activities.
    (d) Profit or loss on transactions in investment securities.
    (e) Equity in earnings of unconsolidated subsidiaries and 50-
percent- or less-owned persons.
    (f) Gains or losses on disposition of investments in securities of 
subsidiaries and 50-percent- or less-owned persons.
    (g) Profit or loss from real estate operations.
    (h) Other fees related to loan originations or commitments not 
included in income statement caption 1.
    The remaining other income may be shown in one amount.
    (i) Investment securities gains or losses. The method followed in 
determining the cost of investments sold (e.g., ``average cost,''

[[Page 277]]

``first-in, first-out,'' or ``identified certificate'') and related 
income taxes shall be disclosed.
    14. Other expenses. Disclose separately any of the following 
amounts, or any other item of other expense, which exceeds 1 percent of 
the aggregate of total interest income and other income. The remaining 
amounts may be shown as one amount.
    (a) Salaries and employee benefits.
    (b) Net occupancy expense of premises.
    (c) Net cost of operations of other real estate (including 
provisions for real estate losses, rental income, and gains and losses 
on sales of real estate).
    (d) Minority interest in income of consolidated subsidiaries.
    (e) Goodwill amortization.
    15. Other income and expenses. State separately material events or 
transactions that are unusual in nature or occur infrequently, but not 
both, and therefore do not meet both criteria for classification as an 
extraordinary item. Examples of items which would be reported separately 
are gain or loss from the sale of premises and equipment, provision for 
loss on real estate owned, or provision for gain or loss on the sale of 
loans.
    16. Income or losses before income tax expense.
    17. Income tax expense. The information required by 17 CFR 210.4-
08(h) should be disclosed.
    18. Income or loss before extraordinary items effects of changes in 
accounting principles.
    19. Extraordinary items, less applicable tax.
    20. Cumulative effects of changes in accounting principles.
    21. Net income or loss.
    22. Earnings-per-share data.
    23. Conversion footnote. If the association is an applicant for 
conversion from a mutual to a stock association or has converted within 
the last three years, describe in a note the general terms of the 
conversion and restrictions on the operations of the association imposed 
by the conversion. Also, state the amount of net proceeds received from 
the conversion and costs associated with the conversion.
    24. Mergers and acquisitions. For the period in which a business 
combination occurs and is accounted for by the purchase method of 
accounting, in addition to those disclosures required by Accounting 
Principles Board Opinion No. 16, the association shall make those 
disclosures as noted below for all combinations involving significant 
acquisitions. (A significant acquisition is defined for this purpose to 
be one in which the assets of the acquired association, or group of 
associations, exceed 10 percent of the assets of the consolidated 
association at the end of the most recent period being reported upon.)
    (a) Amounts and descriptions of discounts and premiums related to 
recording the aggregate interest-bearing assets and liabilities at their 
fair market value. The disclosure should also include the methods of 
amortization or accretion and the estimated remaining lives.
    (b) The net effect on net income before taxes of the amortization 
and accretion of discounts, premiums, and intangible assets related to 
the purchase accounting transaction(s). For subsequent periods, the 
association shall disclose the remaining total unamortized or unaccreted 
amounts of discounts, premiums, and intangible assets as of the date of 
the most recent balance sheet presented. In addition, the association 
shall disclose the net effect on net income before taxes of the 
amortization and accretion of discounts, premiums, and intangible assets 
related to prior business combinations accounted for by the purchase 
method of accounting. Such disclosures need not be made if the total 
amounts of discounts, premiums, or intangible assets do not exceed 30 
percent of stockholders' equity as of the date of the most recent 
balance sheet presented.

                      III. Statement of Cash Flows

    The amounts shown in this statement should be those items which 
materially enhance the reader's understanding of the association's 
business. For example, gains from sales of loans should be segregated 
from sales of mortgage-backed securities and other securities, if 
material, proceeds from principal repayments and maturities from loans 
and mortgage-backed securities should be segregated from proceeds from 
sales of loans and mortgage-backed securities, purchases of loans, 
mortgage-backed securities and other securities should be segregated, if 
material. Additional guidance may be found in the FASB's Statement of 
Financial Accounting Standards No. 95 Statement of Cash Flows.

                   IV. Schedules Required to be Filed

    The following schedules, which should be examined by an independent 
accountant, shall be filed unless the required information is not 
applicable or is presented in the related financial statements:
    (1) Schedule I--Indebtedness of and to related parties--Not Current. 
For each period for which an income statement is required, the following 
schedule should be filed in support of the amounts required to be 
reported by balance sheet items 8(j) and 17(c) unless such aggregate 
amount does not exceed 5 percent of stockholders' equity at either the 
beginning or the end of the period:

[[Page 278]]



           Indebtedness of and to Related Parties--Not Current
------------------------------------------------------------------------
                            Indebtedness of--
-------------------------------------------------------------------------
   Name of       Balance at                    Deductions    Balance at
  person \1\     beginning    Additions \2\       \3\            end
------------------------------------------------------------------------
A              B              C              D              E
------------------------------------------------------------------------


           Indebtedness of and to Related Parties--Not Current
------------------------------------------------------------------------
                     Indebtedness to--
-----------------------------------------------------------  Balance at
   Name of       Balance at                    Deductions        end
  person \1\     beginning    Additions \2\       \3\
------------------------------------------------------------------------
A              F              G              H              I
------------------------------------------------------------------------
\1\ The persons named shall be grouped as in the related schedule
  required for investments in related parties. The information called
  for shall be shown separately for any persons whose investments were
  shown separately in such related schedule.
\2\ For each person named in column A, explain in a note the nature and
  purpose of any increase during the period that is in excess of 10
  percent of the related balance at either the beginning or end of the
  period.
\3\ If deduction was other than a receipt or disbursement of cash,
  explain.

    (2) Schedule II--Guarantees of securities of other issuers. The 
following schedule should be filed as of the date of the most recently 
audited balance sheet with respect to any guarantees of securities of 
other issuers by the person for which the statements are being filed:

                                  Guarantees of Securities of Other Issuers \1\
----------------------------------------------------------------------------------------------------------------
                                                                                         Col. D. Amount owned by
 Col. A. Name of issuer of securities   Col. B. Title of issue    Col. C. Total amount    person or persons for
    guaranteed by person for which         of each class of          guaranteed and         which statement is
          statement is filed            securities guaranteed       outstanding \2\               filed
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------


                                  Guarantees of Securities of Other Issuers \1\
----------------------------------------------------------------------------------------------------------------
                                                                                          Col. G. Nature of any
                                                                                           default by issue of
                                                                                          securities guaranteed
 Col. A. Name of issuer of securities     Col. E. Amount in        Col. F. Nature of     in principal, interest,
    guaranteed by person for which      treasury of issuer of        guarantee \3\           sinking fund or
          statement is filed            securities guaranteed                             redemption provisions,
                                                                                         or payment of dividends
                                                                                                   \4\
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
 \1\ Indicate in a note to the most recent schedule being filed for a particular person or group any significant
  changes since the date of the related balance sheet. If this schedule is filed in support of consolidated or
  combined statements, there shall be set forth guarantees by any person included in the consolidation or
  combination, except that such guarantees of securities which are included in the consolidated or combined
  balance sheet need not be set forth.
\2\ Indicate any amounts included in column C which are included also in column D or E.
\3\ There need be made only a brief statement of the nature of the guarantee, such as ``Guarantee of principal
  and interest,'' or ``Guarantee of dividends.'' If the guarantee is of
  interest or dividends, state the annual
  aggregate amount of interest or dividends so guaranteed.
\4\ Only a brief statement as to any such defaults need be made.

    (3) Schedule III--Condensed financial information. The following 
schedule shall be filed as of the dates and for the periods specified in 
the schedule.
    Condensed Financial Information
    [Parent only]
    [Association may determine disclosure based on information provided 
in footnotes below]
    (a) Provide condensed financial information as to financial 
position, changes in financial position, and results of operations of 
the association as of the same dates and for the same periods for which 
audited consolidated financial statements are required. The financial 
information required need not be presented in greater detail than is 
required for condensed statement by 17 CFR 210.10-01(a) (2), (3), (4). 
Detailed footnote disclosure which would normally be included with 
complete financial statements may be omitted with the exception of 
disclosure regarding material contingencies, long-term obligations, and 
guarantees. Description of significant provisions of the association's 
long-term obligations, mandatory dividend, or redemption requirements of 
redeemable stocks, and guarantees of the association shall be provided 
along with a 5-year schedule of maturities of debt. If the material 
contingencies, long-term obligations, redeemable stock requirements, and 
guarantees of the association have been separately disclosed in the 
consolidated statements, they need not be repeated in this schedule.
    (b) Disclose separately the amount of cash dividends paid to the 
association for each of the last three fiscal years by consolidated 
subsidiaries, unconsolidated subsidiaries,

[[Page 279]]

and 50-percent- or less-owned persons accounted for by the equity 
method, respectively.

[54 FR 49627, Nov. 30, 1989, as amended at 57 FR 26990, June 17, 1992]



PART 563d_SECURITIES OF SAVINGS ASSOCIATIONS--Table of Contents




                          Subpart A_Regulations

Sec.
563d.1 Requirements under certain sections of the Securities Exchange 
          Act of 1934.
563d.2 Mailing requirements for securities filings.
563d.3b-6 Liability for certain statements by savings associations.
563d.210 Form and content of financial statements.

                        Subpart B_Interpretations

563d.801 Application of this subpart.
563d.802 Description of business.

    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 78c(b), 78l, 78m, 
78w, 78d-1.

    Source: 54 FR 49634, Nov. 30, 1989, unless otherwise noted.



                          Subpart A_Regulations



Sec. 563d.1  Requirements under certain sections of the Securities
Exchange Act of 1934.

    In respect to any securities issued by savings associations, the 
powers, functions, and duties vested in the Securities and Exchange 
Commission (the ``Commission'') to administer and enforce sections 12, 
13, 14(a), 14(c), 14(d), 14(f), and 16 of the Securities Exchange Act of 
1934 (the ``Act'') are vested in the Office. The rules, regulations and 
forms prescribed by the Commission pursuant to those sections or 
applicable in connection with obligations imposed by those sections, 
shall apply to securities issued by savings associations, except as 
otherwise provided in this part. The term ``Commission'' as used in 
those rules and regulations shall with respect to securities issued by 
savings associations be deemed to refer to the Office unless the context 
otherwise requires. All filings with respect to securities issued by 
savings associations required by those rules and regulations to be made 
with the Commission shall be made with the Business Transactions 
Division, Chief Counsel's Office, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552, by submitting such filings to the 
Securities Filing Desk at the above address, except as noted in Sec. 
563d.2 of this part. Except to the extent otherwise specifically 
provided by the Office in the application fee schedule published in the 
Thrift Bulletin pursuant to 12 CFR part 502, all filing fees specified 
by the Commission's rules shall be paid to the Office. If, after the 
Office reviews a Form 10-K, Form 10-Q, Schedule 13D or Schedule 13G and 
determines that the filing is materially deficient such that the Office 
requires that an amendment be filed to correct the deficiency, then, 
upon the filing of the amendment to the Form 10-K, Form 10-Q, Schedule 
13D or Schedule 13G, as the case may be, the filer shall pay an 
additional filing fee to the Office, in the amount specified by the 
Office in the application fee schedule published in the Thrift Bulletin 
pursuant to 12 CFR part 502.

[54 FR 49634 Nov. 30, 1989, as amended at 55 FR 34531, Aug. 23, 1990; 60 
FR 66718, Dec. 26, 1995; 61 FR 65179, Dec. 11, 1996; 66 FR 65821, Dec. 
21, 2001]



Sec. 563d.2  Mailing requirements for securities filings.

    Any savings association or other party required to file reports with 
the Business Transactions Division, as set forth in Sec. 563d.1 of this 
part, shall file one of the required number of copies with the Regional 
Office of the Region in which the association is located or in the case 
of an association located in more than one Region, the Region where the 
association's home office is located. Such copies shall be marked to the 
attention of the Regional Director. The originally-signed copy and all 
remaining copies of each filing shall be sent to the Business 
Transactions Division by submitting such filings to the Securities 
Filing Desk at the address specified in Sec. 563d.1 of this part. 
Copies sent to the Regional Offices shall be mailed on the same day as 
the original and remaining copies are forwarded to the Business 
Transactions Division.

[55 FR 3041, Jan. 30, 1990, as amended at 60 FR 66718, Dec. 26, 1995; 66 
FR 65821, Dec. 21, 2001]

[[Page 280]]



Sec. 563d.3b-6  Liability for certain statements by savings associations.

    This section replaces adherence to 17 CFR 240.3b-6 and applies as 
follows:
    (a) A statement within the coverage of paragraph (b) of this section 
which is made by or on behalf of an issuer or by an outside reviewer 
retained by the issuer shall be deemed not to be a fraudulent statement 
(as defined in paragraph (d) of this section), unless it is shown that 
such statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.
    (b) This section applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a proxy statement or offering circular filed with the 
Office under part 563b of this chapter; in a registration statement 
filed with the Office under the Act on Form 10 (17 CFR 249.210); in part 
I of a quarterly report filed with the Office on Form 10-Q (17 CFR 
241.308a); in an annual report to shareholders meeting the requirements 
of Sec. 563d.1 of this part, particularly 17 CFR 240.14a-3 (b) and (c) 
or 17 CFR 240.14c-3 (a) and (b) under the Act; in a statement 
reaffirming such forward-looking statement subsequent to the date the 
document was filed or the annual report was made publicly available; or 
a forward-looking statement made prior to the date the document was 
filed or the date the annual report was made publicly available if such 
statement is reaffirmed in a filed document or annual report made 
publicly available within a reasonable time after the making of such 
forward-looking statement: Provided, That
    (i) At the time such statements are made or reaffirmed, either:
    (A) The issuer is subject to the reporting requirements of section 
13(a) or 15(d) of the Act and has complied with the requirements of 17 
CFR 240.13a-1 or 240.15d-1 thereunder, if applicable, to file its most 
recent annual report on Form 10-K; or
    (B) If the issuer is not subject to the reporting requirements of 
section 13(a) or 15(d) of the Act, the statements are made either in a 
registration statement filed under the Securities Act of 1933 or 
pursuant to section 12 (b) or (g) of the Act, or in a proxy statement or 
offering circular filed with the Office under part 563b of this chapter 
if such statements are reaffirmed in a registration statement under the 
Act on Form 10, filed with the Office within 180 days of the savings 
association's conversion, and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940;
    (2) Information (i) relating to the effects of changing prices on 
the business enterprise presented voluntarily or pursuant to item 303 of 
Regulation S-K (17 CFR 229.303), management's discussion and analysis of 
financial condition and results of operations, or item 302 of Regulation 
S-K (17 CFR 229.302), supplementary financial information, and (ii) 
disclosed in a document filed with the Office or in an annual report to 
shareholders meeting the requirements of 17 CFR 240.14a-3 (b) and (c) or 
17 CFR 240.14c-3 (a) and (b) under the Act: Provided, That such 
information included in a proxy statement or offering circular filed 
pursuant to part 563b of this chapter shall be reaffirmed in a 
registration statement under the Act on Form 10 filed with the Office 
within 180 days of the association's conversion.
    (c) For purposes of this section, the term ``forward-looking 
statement'' shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure, or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations pursuant to item 303 of Regulation S-K; or
    (4) A statement of the assumptions underlying or relating to any of 
the statements described in paragraph (c)(1), (c)(2), or (c)(3) of this 
section.
    (d) For purposes of this section, the term ``fraudulent statement'' 
shall mean a statement which is an untrue statement of a material fact, 
a statement false or misleading with respect

[[Page 281]]

to any material fact, an omission to state a material fact necessary to 
make a statement not misleading, or which constitutes the employment of 
a manipulative, deceptive, or fraudulent device, contrivance, scheme, 
transaction, act, practice, course of business, or an artifice to 
defraud, as those terms are used in the Securities Act of 1933 or the 
rules or regulations promulgated thereunder.



Sec. 563d.210  Form and content of financial statements.

    The financial statements required to be contained in filings with 
the Office under the Act are as set out in the applicable form and 
Regulation S-X, 17 CFR part 210. Those financial statements, however, 
shall conform as to form and content to the requirements of Sec. 563c.1 
of this chapter.



                        Subpart B_Interpretations



Sec. 563d.801  Application of this subpart.

    This subpart contains interpretations pertaining to the requirements 
of the Act and the rules and regulations thereunder as applied to 
savings associations by the Office.



Sec. 563d.802  Description of business.

    (a) This section applies to the description-of-business portion of:
    (1) Registration statements filed on Form 10 (item 1) (17 CFR 
249.210),
    (2) Proxy and information statements relating to mergers, 
consolidations, acquisitions, and similar matters (item 14 of Schedule 
14A and item 1 of Schedule 14C) (17 CFR 240.14a-101 and 240.14c-101), 
and
    (3) Annual reports filed on Form 10-K (item 7) (17 CFR 249.310).
    (b) The description of business should conform to the description of 
business required by item 7 of Form PS under part 563b of this chapter.
    (c) No repetitive disclosure is required by virtue of similar 
requirements in item 7 of Form PS and items 301 and 303 of Regulation S-
K (17 CFR 229.301, 303). However, there should be included appropriate 
disclosure which arises by virtue of the registrant being a stock 
savings association. For example, the table regarding return on equity 
and assets, item 7(d)(5), should include a line item for ``dividend 
payout ratio (dividends declared per share divided by net income per 
share).''



PART 563e_COMMUNITY REINVESTMENT--Table of Contents




                            Subpart A_General

Sec.
563e.11 Authority, purposes, and scope.
563e.12 Definitions.

              Subpart B_Standards for Assessing Performance

563e.21 Performance tests, standards, and ratings, in general.
563e.22 Lending test.
563e.23 Investment test.
563e.24 Service test.
563e.25 Community development test for wholesale or limited purpose 
          savings associations.
563e.26 Small savings association performance standards.
563e.27 Strategic plan.
563e.28 Assigned ratings.
563e.29 Effect of CRA performance on applications.

        Subpart C_Records, Reporting, and Disclosure Requirements

563e.41 Assessment area delineation.
563e.42 Data collection, reporting, and disclosure.
563e.43 Content and availability of public file.
563e.44 Public notice by savings associations.
563e.45 Publication of planned examination schedule.

Appendix A to Part 563e--Ratings
Appendix B to Part 563e--CRA Notice

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816, 1828(c), 
and 2901 through 2907.

    Source: 54 FR 49635, Nov. 30, 1989, unless otherwise noted.



                            Subpart A_General

    Source: 60 FR 22212, May 4, 1995, unless otherwise noted.



Sec. 563e.11  Authority, purposes, and scope.

    (a) Authority and OMB control number--(1) Authority. This part is 
issued under the Community Reinvestment Act of 1977 (CRA), as amended 
(12 U.S.C. 2901 et seq.); section 5, as amended, and sections 3, 4, and 
10, as added,

[[Page 282]]

of the Home Owners' Loan Act of 1933 (12 U.S.C. 1462a, 1463, 1464, and 
1467a); and sections 4, 6, and 18(c), as amended of the Federal Deposit 
Insurance Act (12 U.S.C. 1814, 1816, 1828(c)).
    (2) OMB control number. The information collection requirements 
contained in this part were approved by the Office of Management and 
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB control number 1550-0012.
    (b) Purposes. In enacting the CRA, the Congress required each 
appropriate Federal financial supervisory agency to assess an 
institution's record of helping to meet the credit needs of the local 
communities in which the institution is chartered, consistent with the 
safe and sound operation of the institution, and to take this record 
into account in the agency's evaluation of an application for a deposit 
facility by the institution. This part is intended to carry out the 
purposes of the CRA by:
    (1) Establishing the framework and criteria by which the OTS 
assesses a savings association's record of helping to meet the credit 
needs of its entire community, including low- and moderate-income 
neighborhoods, consistent with the safe and sound operation of the 
savings association; and
    (2) Providing that the OTS takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. This part applies to all savings 
associations except as provided in paragraph (c)(2) of this section.
    (2) Certain special purpose savings associations. This part does not 
apply to special purpose savings associations that do not perform 
commercial or retail banking services by granting credit to the public 
in the ordinary course of business, other than as incident to their 
specialized operations. These associations include banker's banks, as 
defined in 12 U.S.C. 24 (Seventh), and associations that engage only in 
one or more of the following activities: providing cash management 
controlled disbursement services or serving as correspondent 
associations, trust companies, or clearing agents.

[60 FR 22212, May 4, 1995, as amended at 62 FR 67708, Dec. 30, 1997]



Sec. 563e.12  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is 
under common control with another company if both companies are directly 
or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in accordance 
with Sec. 563e.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
savings association at which deposits are received, cash dispersed, or 
money lent.
    (e) [Reserved]
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize--
    (i) Low- or moderate-income geographies;

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    (ii) Designated disaster areas; or
    (iii) Distressed or underserved, nonmetropolitan middle-income 
geographies designated by OTS based on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, including 
needs of low- and moderate-income individuals.
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose savings 
association:
    (i) Has not been reported or collected by the savings association or 
an affiliate for consideration in the savings association's assessment 
as a home mortgage, small business, small farm, or consumer loan, unless 
it is a multifamily dwelling loan (as described in appendix A to part 
203 of this title); and
    (ii) Benefits the savings association's assessment area(s) or a 
broader statewide or regional area that includes the savings 
association's assessment area(s).
    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the savings 
association's retail banking services under Sec. 563e.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec. 226.2 of this 
title;
    (3) Home equity loan, which is a consumer loan secured by a 
residence of the borrower;
    (4) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (5) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a ``home improvement loan,'' ``home 
purchase loan,'' or a ``refinancing'' as defined in Sec. 203.2 of this 
title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income or a median family income that is 
less than 50 percent in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income or a 
median family income that is at least 50 and less than 80 percent in the 
case of a geography.
    (3) Middle-income, which means an individual income that is at least 
80 percent and less than 120 percent of the area median income or a 
median family income that is at least 80 and less than 120 percent in 
the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income or a median family income that 
is 120 percent or more in the case of a geography.
    (n) Limited purpose savings association means a savings association 
that offers only a narrow product line (such as credit card or motor 
vehicle loans) to a regional or broader market and for which a 
designation as a limited purpose savings association is in effect, in 
accordance with Sec. 563e.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;

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    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (q) Metropolitan division means a metropolitan division as defined 
by the Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.
    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small savings association--(1) Definition. Small savings 
association means a savings association that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1.098 
billion. Intermediate small savings association means a small savings 
association with assets of at least $274 million as of December 31 of 
both of the prior two calendar years and less than $1.098 billion as of 
December 31 of either of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OTS, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Thrift Financial Report.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the Thrift 
Financial Report.
    (x) Wholesale savings association means a savings association that 
is not in the business of extending home mortgage, small business, small 
farm, or consumer loans to retail customers, and for which a designation 
as a wholesale savings association is in effect, in accordance with 
Sec. 563e.25(b).

[60 FR 22212, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 61 
FR 21364, May 10, 1996; 69 FR 41188, July 8, 2004; 69 FR 51161, Aug. 18, 
2004; 71 FR 18618, Apr. 12, 2006; 72 FR 13435, Mar. 22, 2007; 72 FR 
72573, Dec. 21, 2007; 73 FR 78155, Dec. 22, 2008; 74 FR 68664, Dec. 29, 
2009]



              Subpart B_Standards for Assessing Performance

    Source: 60 FR 22213, May 4, 1995, unless otherwise noted.



Sec. 563e.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The OTS assesses the CRA 
performance of a savings association in an examination as follows:
    (1) Lending, investment, and service tests. The OTS applies the 
lending, investment, and service tests, as provided in Sec. Sec. 
563e.22 through 563e.24, in evaluating the performance of a savings 
association, except as provided in paragraphs (a)(2), (a)(3), and (a)(4) 
of this section.
    (2) Community development test for wholesale or limited purpose 
savings associations. The OTS applies the community development test for 
a wholesale or limited purpose savings association, as provided in Sec. 
563e.25, except as provided in paragraph (a)(4) of this section.
    (3) Small savings association performance standards. The OTS applies 
the small savings association performance standards as provided in Sec. 
563e.26 in evaluating the performance of a small savings association or 
a savings association that was a small savings association during the 
prior calendar year, unless the savings association elects to be 
assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this 
section. The savings association may elect to be assessed as provided in 
paragraph (a)(1) of this section only if it collects and reports the 
data required for other savings associations under Sec. 563e.42.

[[Page 285]]

    (4) Strategic plan. The OTS evaluates the performance of a savings 
association under a strategic plan if the savings association submits, 
and the OTS approves, a strategic plan as provided in Sec. 563e.27.
    (b) Performance context. The OTS applies the tests and standards in 
paragraph (a) of this section and also considers whether to approve a 
proposed strategic plan in the context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a savings association's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the savings association's assessment area(s) maintained 
by the savings association or obtained from community organizations, 
state, local, and tribal governments, economic development agencies, or 
other sources;
    (3) The savings association's product offerings and business 
strategy as determined from data provided by the savings association;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the savings association, the economic climate 
(national, regional, and local), safety and soundness limitations, and 
any other factors that significantly affect the savings association's 
ability to provide lending, investments, or services in its assessment 
area(s);
    (5) The savings association's past performance and the performance 
of similarly situated lenders;
    (6) The savings association's public file, as described in Sec. 
563e.43, and any written comments about the savings association's CRA 
performance submitted to the savings association or the OTS; and
    (7) Any other information deemed relevant by the OTS.
    (c) Assigned ratings. The OTS assigns to a savings association one 
of the following four ratings pursuant to Sec. 563e.28 and Appendix A 
of this part: ``outstanding''; ``satisfactory''; ``needs to improve''; 
or ``substantial noncompliance,'' as provided in 12 U.S.C. 2906(b)(2). 
The rating assigned by the OTS reflects the savings association's record 
of helping to meet the credit needs of its entire community, including 
low- and moderate-income neighborhoods, consistent with the safe and 
sound operation of the savings association.
    (d) Safe and sound operations. This part and the CRA do not require 
a savings association to make loans or investments or to provide 
services that are inconsistent with safe and sound operations. To the 
contrary, the OTS anticipates savings associations can meet the 
standards of this part with safe and sound loans, investments, and 
services on which the savings associations expect to make a profit. 
Savings associations are permitted and encouraged to develop and apply 
flexible underwriting standards for loans that benefit low- or moderate-
income geographies or individuals, only if consistent with safe and 
sound operations.

[60 FR 22213, May 4, 1995, as amended at 70 FR 10030, Mar. 2, 2005; 72 
FR 13435, Mar. 22, 2007]



Sec. 563e.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) through its lending activities by considering a 
savings association's home mortgage, small business, small farm, and 
community development lending. If consumer lending constitutes a 
substantial majority of a savings association's business, the OTS will 
evaluate the savings association's consumer lending in one or more of 
the following categories: motor vehicle, credit card, home equity, other 
secured, and other unsecured loans. In addition, at a savings 
association's option, the OTS will evaluate one or more categories of 
consumer lending, if the savings association has collected and 
maintained, as required in Sec. 563e.42(c)(1), the data for each 
category that the savings association elects to have the OTS evaluate.
    (2) The OTS considers originations and purchases of loans. The OTS 
will also consider any other loan data the savings association may 
choose to provide, including data on loans outstanding, commitments and 
letters of credit.

[[Page 286]]

    (3) A savings association may ask the OTS to consider loans 
originated or purchased by consortia in which the savings association 
participates or by third parties in which the savings association has 
invested only if the loans meet the definition of community development 
loans and only in accordance with paragraph (d) of this section. The OTS 
will not consider these loans under any criterion of the lending test 
except the community development lending criterion.
    (b) Performance criteria. The OTS evaluates a savings association's 
lending performance pursuant to the following criteria:
    (1) Lending activity. The number and amount of the savings 
association's home mortgage, small business, small farm, and consumer 
loans, if applicable, in the savings association's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
savings association's home mortgage, small business, small farm, and 
consumer loans, if applicable, based on the loan location, including:
    (i) The proportion of the savings association's lending in the 
savings association's assessment area(s);
    (ii) The dispersion of lending in the savings association's 
assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the savings association's assessment 
area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
savings association's assessment area(s), of the savings association's 
home mortgage, small business, small farm, and consumer loans, if 
applicable, based on borrower characteristics, including the number and 
amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, and 
upper-income individuals;
    (4) Community development lending. The savings association's 
community development lending, including the number and amount of 
community development loans, and their complexity and innovativeness; 
and
    (5) Innovative or flexible lending practices. The savings 
association's use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies.
    (c) Affiliate lending. (1) At a savings association's option, the 
OTS will consider loans by an affiliate of the savings association, if 
the savings association provides data on the affiliate's loans pursuant 
to Sec. 563e.42.
    (2) The OTS considers affiliate lending subject to the following 
constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a savings association elects to have the OTS consider loans 
within a particular lending category made by one or more of the savings 
association's affiliates in a particular assessment area, the savings 
association shall elect to have the OTS consider, in accordance with 
paragraph (c)(1) of this section, all the loans within that lending 
category in that particular assessment area made by all of the savings 
association's affiliates.
    (3) The OTS does not consider affiliate lending in assessing a 
savings association's performance under paragraph (b)(2)(i) of this 
section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the savings 
association participates or by a third party in which the savings 
association has invested:
    (1) Will be considered, at the savings association's option, if the 
savings association reports the data pertaining to these loans under 
Sec. 563e.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:

[[Page 287]]

    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The OTS rates a savings 
association's lending performance as provided in Appendix A of this 
part.



Sec. 563e.23  Investment test.

    (a) Scope of test. The investment test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) through qualified investments that benefit its 
assessment area(s) or a broader statewide or regional area that includes 
the savings association's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a savings association's option, the OTS 
will consider, in its assessment of a savings association's investment 
performance, a qualified investment made by an affiliate of the savings 
association, if the qualified investment is not claimed by any other 
institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the savings 
association that is located in a predominantly minority neighborhood to 
a minority depository institution or women's depository institution (as 
these terms are defined in 12 U.S.C. 2907(b)) will be considered as a 
qualified investment.
    (e) Performance criteria. The OTS evaluates the investment 
performance of a savings association pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The OTS rates a savings 
association's investment performance as provided in Appendix A of this 
part.



Sec. 563e.24  Service test.

    (a) Scope of test. The service test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) by analyzing both the availability and effectiveness 
of a savings association's systems for delivering retail banking 
services and the extent and innovativeness of its community development 
services.
    (b) Area(s) benefitted. Community development services must benefit 
a savings association's assessment area(s) or a broader statewide or 
regional area that includes the savings association's assessment 
area(s).
    (c) Affiliate service. At a savings association's option, the OTS 
will consider, in its assessment of a savings association's service 
performance, a community development service provided by an affiliate of 
the savings association, if the community development service is not 
claimed by any other institution.
    (d) Performance criteria--retail banking services. The OTS evaluates 
the availability and effectiveness of a savings association's systems 
for delivering retail banking services, pursuant to the following 
criteria:
    (1) The current distribution of the savings association's branches 
among low-,moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the savings 
association's branches, the savings association's record of opening and 
closing branches, particularly branches located in low- or moderate-
income geographies or primarily serving low- or moderate-income 
individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the savings association, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs) in

[[Page 288]]

low- and moderate-income geographies and to low- and moderate-income 
individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The OTS 
evaluates community development services pursuant to the following 
criteria:
    (1) The extent to which the savings association provides community 
development services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The OTS rates a savings 
association's service performance as provided in Appendix A of this 
part.



Sec. 563e.25  Community development test for wholesale or limited 
purpose savings associations.

    (a) Scope of test. The OTS assesses a wholesale or limited purpose 
savings association's record of helping to meet the credit needs of its 
assessment area(s) under the community development test through its 
community development lending, qualified investments, or community 
development services.
    (b) Designation as a wholesale or limited purpose savings 
association. In order to receive a designation as a wholesale or limited 
purpose savings association, a savings association shall file a request, 
in writing, with the OTS, at least three months prior to the proposed 
effective date of the designation. If the OTS approves the designation, 
it remains in effect until the savings association requests revocation 
of the designation or until one year after the OTS notifies the savings 
association that the OTS has revoked the designation on its own 
initiative.
    (c) Performance criteria. The OTS evaluates the community 
development performance of a wholesale or limited purpose savings 
association pursuant to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development loan 
data provided by the savings association, such as data on loans 
outstanding, commitments, and letters of credit), qualified investments, 
or community development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The savings association's responsiveness to credit and community 
development needs.
    (d) Indirect activities. At a savings association's option, the OTS 
will consider in its community development performance assessment:
    (1) Qualified investments or community development services provided 
by an affiliate of the savings association, if the investments or 
services are not claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and third 
parties, subject to the requirements and limitations in Sec. 563e.22 
(c) and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The OTS considers all qualified investments, community 
development loans, and community development services that benefit areas 
within the savings association's assessment area(s) or a broader 
statewide or regional area that includes the savings association's 
assessment area(s).
    (2) Benefit outside assessment area(s). The OTS considers the 
qualified investments, community development loans, and community 
development services that benefit areas outside the savings 
association's assessment area(s), if the savings association has 
adequately addressed the needs of its assessment area(s).
    (f) Community development performance rating. The OTS rates a 
savings association's community development performance as provided in 
Appendix A of this part.



Sec. 563e.26  Small savings association performance standards.

    (a) Performance criteria--(1) Small savings associations that are 
not intermediate

[[Page 289]]

small savings associations. The OTS evaluates the record of a small 
savings association that is not, or that was not during the prior 
calendar year, an intermediate small savings association, of helping to 
meet the credit needs of its assessment area(s) pursuant to the criteria 
set forth in paragraph (b) of this section.
    (2) Intermediate small savings associations. The OTS evaluates the 
record of a small savings association that is, or that was during the 
prior calendar year, an intermediate small savings association, of 
helping to meet the credit needs of its assessment area(s) pursuant to 
the criteria set forth in paragraphs (b) and (c) of this section.
    (b) Lending test. A small savings association's lending performance 
is evaluated pursuant to the following criteria:
    (1) The savings association's loan-to-deposit ratio, adjusted for 
seasonal variation, and, as appropriate, other lending-related 
activities, such as loan originations for sale to the secondary markets, 
community development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the savings association's assessment 
area(s);
    (3) The savings association's record of lending to and, as 
appropriate, engaging in other lending-related activities for borrowers 
of different income levels and businesses and farms of different sizes;
    (4) The geographic distribution of the savings association's loans; 
and
    (5) The savings association's record of taking action, if warranted, 
in response to written complaints about its performance in helping to 
meet credit needs in its assessment area(s).
    (c) Community development test. An intermediate small savings 
association's community development performance also is evaluated 
pursuant to the following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the savings association provides community 
development services; and
    (4) The savings association's responsiveness through such activities 
to community development lending, investment, and services needs.
    (d) Small savings association performance rating. The OTS rates the 
performance of a savings association evaluated under this section as 
provided in Appendix A of this part.

[72 FR 13435, Mar. 22, 2007, as amended at 72 FR 72573, Dec. 21, 2007]



Sec. 563e.27  Strategic plan.

    (a) Alternative election. The OTS will assess a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) under a strategic plan if:
    (1) The savings association has submitted the plan to the OTS as 
provided for in this section;
    (2) The OTS has approved the plan;
    (3) The plan is in effect; and
    (4) The savings association has been operating under an approved 
plan for at least one year.
    (b) Data reporting. The OTS's approval of a plan does not affect the 
savings association's obligation, if any, to report data as required by 
Sec. 563e.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the OTS will evaluate the savings 
association's performance.
    (2) Multiple assessment areas. A savings association with more than 
one assessment area may prepare a single plan for all of its assessment 
areas or one or more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the OTS for approval, a savings association shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;

[[Page 290]]

    (2) Once the savings association has developed a plan, formally 
solicit public comment on the plan for at least 30 days by publishing 
notice in at least one newspaper of general circulation in each 
assessment area covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of the 
savings association in any assessment area covered by the plan and 
provide copies of the plan upon request for a reasonable fee to cover 
copying and mailing, if applicable.
    (e) Submission of plan. The savings association shall submit its 
plan to the OTS at least three months prior to the proposed effective 
date of the plan. The savings association shall also submit with its 
plan a description of its informal efforts to seek suggestions from 
members of the public, any written public comment received, and, if the 
plan was revised in light of the comment received, the initial plan as 
released for public comment.
    (f) Plan content--(1) Measurable goals. (i) A savings association 
shall specify in its plan measurable goals for helping to meet the 
credit needs of each assessment area covered by the plan, particularly 
the needs of low- and moderate-income geographies and low- and moderate-
income individuals, through lending, investment, and services, as 
appropriate.
    (ii) A savings association shall address in its plan all three 
performance categories and, unless the savings association has been 
designated as a wholesale or limited purpose savings association, shall 
emphasize lending and lending-related activities. Nevertheless, a 
different emphasis, including a focus on one or more performance 
categories, may be appropriate if responsive to the characteristics and 
credit needs of its assessment area(s), considering public comment and 
the savings association's capacity and constraints, product offerings, 
and business strategy.
    (2) Confidential information. A savings association may submit 
additional information to the OTS on a confidential basis, but the goals 
stated in the plan must be sufficiently specific to enable the public 
and the OTS to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A savings association shall 
specify in its plan measurable goals that constitute ``satisfactory'' 
performance. A plan may specify measurable goals that constitute 
``outstanding'' performance. If a savings association submits, and the 
OTS approves, both ``satisfactory'' and ``outstanding'' performance 
goals, the OTS will consider the savings association eligible for an 
``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A savings 
association may elect in its plan that, if the savings association fails 
to meet substantially its plan goals for a satisfactory rating, the OTS 
will evaluate the savings association's performance under the lending, 
investment, and service tests, the community development test, or the 
small savings association performance standards, as appropriate.
    (g) Plan approval--(1) Timing. The OTS will act upon a plan within 
60 calendar days after the OTS receives the complete plan and other 
material required under paragraph (e) of this section. If the OTS fails 
to act within this time period, the plan shall be deemed approved unless 
the OTS extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the OTS 
considers the public's involvement in formulating the plan, written 
public comment on the plan, and any response by the savings association 
to public comment on the plan.
    (3) Criteria for evaluating plan. The OTS evaluates a plan's 
measurable goals using the following criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related activities, 
including, as appropriate, the distribution of loans among different 
geographies, businesses and farms of different sizes, and individuals of 
different income levels, the extent of community development lending, 
and the use of innovative or flexible lending practices to address 
credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the savings association's qualified investments; and

[[Page 291]]

    (iii) The availability and effectiveness of the savings 
association's systems for delivering retail banking services and the 
extent and innovativeness of the savings association's community 
development services.
    (h) Plan amendment. During the term of a plan, a savings association 
may request the OTS to approve an amendment to the plan on grounds that 
there has been a material change in circumstances. The savings 
association shall develop an amendment to a previously approved plan in 
accordance with the public participation requirements of paragraph (d) 
of this section.
    (i) Plan assessment. The OTS approves the goals and assesses 
performance under a plan as provided for in Appendix A of this part.

[60 FR 22216, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 69 
FR 41188, July 8, 2004]



Sec. 563e.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and(c) of this 
section, the OTS assigns to a savings association a rating of 
``outstanding,'' ``satisfactory,'' ``needs to improve,'' or 
``substantial noncompliance'' based on the savings association's 
performance under the lending, investment and service tests, the 
community development test, the small savings association performance 
standards, or an approved strategic plan, as applicable.
    (b) Lending, investment, and service tests. The OTS assigns a rating 
for a savings association assessed under the lending, investment, and 
service tests in accordance with the following principles:
    (1) A savings association that receives an ``outstanding'' rating on 
the lending test receives an assigned rating of at least 
``satisfactory'';
    (2) A savings association that receives an ``outstanding'' rating on 
both the service test and the investment test and a rating of at least 
``high satisfactory'' on the lending test receives an assigned rating of 
``outstanding''; and
    (3) No savings association may receive an assigned rating of 
``satisfactory'' or higher unless it receives a rating of at least ``low 
satisfactory'' on the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The OTS's evaluation of a savings association's CRA 
performance is adversely affected by evidence of discriminatory or other 
illegal credit practices in any geography by the savings association or 
in any assessment area by any affiliate whose loans have been considered 
as part of the savings association's lending performance. In connection 
with any type of lending activity described in Sec. 563e.22(a), 
evidence of discriminatory or other credit practices that violate an 
applicable law, rule, or regulation includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the savings association's assigned 
rating, the OTS considers the nature, extent, and strength of the 
evidence of the practices; the policies and procedures that the savings 
association (or affiliate, as applicable) has in place to prevent the 
practices; any corrective action that the savings association (or 
affiliate, as applicable) has taken or has committed to take, including 
voluntary corrective action resulting from self-assessment; and any 
other relevant information.

[60 FR 22213, May 4, 1995, as amended at 70 FR 10030, Mar. 2, 2005; 72 
FR 13435, Mar. 22, 2007; 72 FR 19110, Apr. 17, 2007]



Sec. 563e.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the OTS takes into account 
the record of performance under the CRA of each applicant savings 
association, and for applications under section 10(e) of the Home 
Owners' Loan Act (12

[[Page 292]]

U.S.C. 1467a(e)), of each proposed subsidiary savings association, in 
considering an application for:
    (1) The establishment of a domestic branch or other facility that 
would be authorized to take deposits;
    (2) The relocation of the main office or a branch;
    (3) The merger or consolidation with or the acquisition of the 
assets or assumption of the liabilities of an insured depository 
institution requiring OTS approval under the Bank Merger Act (12 U.S.C. 
1828(c));
    (4) A Federal thrift charter; and
    (5) Acquisitions subject to section 10(e) of the Home Owners' Loan 
Act (12 U.S.C. 1467a(e)).
    (b) Charter application. An applicant for a Federal thrift charter 
shall submit with its application a description of how it will meet its 
CRA objectives. The OTS takes the description into account in 
considering the application and may deny or condition approval on that 
basis.
    (c) Interested parties. The OTS takes into account any views 
expressed by interested parties that are submitted in accordance with 
the applicable comment procedures in considering CRA performance in an 
application listed in paragraphs (a) and (b) of this section.
    (d) Denial or conditional approval of application. A savings 
association's record of performance may be the basis for denying or 
conditioning approval of an application listed in paragraph (a) of this 
section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.



        Subpart C_Records, Reporting, and Disclosure Requirements

    Source: 60 FR 22217, May 4, 1995, unless otherwise noted.



Sec. 563e.41  Assessment area delineation.

    (a) In general. A savings association shall delineate one or more 
assessment areas within which the OTS evaluates the savings 
association's record of helping to meet the credit needs of its 
community. The OTS does not evaluate the savings association's 
delineation of its assessment area(s) as a separate performance 
criterion, but the OTS reviews the delineation for compliance with the 
requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose savings 
associations. The assessment area(s) for a wholesale or limited purpose 
savings association must consist generally of one or more MSAs or 
metropolitan divisions (using the MSA or metropolitan division 
boundaries that were in effect as of January 1 of the calendar year in 
which the delineation is made) or one or more contiguous political 
subdivisions, such as counties, cities, or towns, in which the savings 
association has its main office, branches, and deposit-taking ATMs.
    (c) Geographic area(s) for other savings associations. The 
assessment area(s) for a savings association other than a wholesale or 
limited purpose savings association must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the savings association has its 
main office, its branches, and its deposit-taking ATMs, as well as the 
surrounding geographies in which the savings association has originated 
or purchased a substantial portion of its loans (including home mortgage 
loans, small business and small farm loans, and any other loans the 
savings association chooses, such as those consumer loans on which the 
savings association elects to have its performance assessed).
    (d) Adjustments to geographic area(s). A savings association may 
adjust the boundaries of its assessment area(s) to include only the 
portion of a political subdivision that it reasonably can be expected to 
serve. An adjustment is particularly appropriate in the case of an 
assessment area that otherwise would be extremely large, of unusual 
configuration, or divided by significant geographic barriers.

[[Page 293]]

    (e) Limitations on the delineation of an assessment area. Each 
savings association's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income geographies, 
taking into account the savings association's size and financial 
condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a savings association serves a geographic area that extends 
substantially beyond a state boundary, the savings association shall 
delineate separate assessment areas for the areas in each state. If a 
savings association serves a geographic area that extends substantially 
beyond an MSA boundary, the savings association shall delineate separate 
assessment areas for the areas inside and outside the MSA.
    (f) Savings associations serving military personnel. Notwithstanding 
the requirements of this section, a savings association whose business 
predominantly consists of serving the needs of military personnel or 
their dependents who are not located within a defined geographic area 
may delineate its entire deposit customer base as its assessment area.
    (g) Use of assessment area(s). The OTS uses the assessment area(s) 
delineated by a savings association in its evaluation of the savings 
association's CRA performance unless the OTS determines that the 
assessment area(s) do not comply with the requirements of this section.

[60 FR 22217, May 4, 1995, as amended at 69 FR 41188, July 8, 2004]



Sec. 563e.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
savings association, except a small savings association, shall collect, 
and maintain in machine readable form (as prescribed by the OTS) until 
the completion of its next CRA examination, the following data for each 
small business or small farm loan originated or purchased by the savings 
association:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A savings association, 
except a small savings association or a savings association that was a 
small savings association during the prior calendar year, shall report 
annually by March 1 to the OTS in machine readable form (as prescribed 
by the OTS) the following data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the savings association originated or purchased a small business 
or small farm loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the savings association 
considered in making its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or purchased; 
and
    (3) Home mortgage loans. If the savings association is subject to 
reporting under part 203 of this title, the location of each home 
mortgage loan application, origination, or purchase outside the MSAs in 
which the savings association has a home or branch office (or outside 
any MSA) in accordance with the requirements of part 203 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
savings association may collect and maintain in machine readable form 
(as prescribed by the OTS) data for consumer loans originated or 
purchased by the savings association for consideration under the lending 
test. A savings association may maintain data for one or more of the 
following categories of consumer loans:

[[Page 294]]

motor vehicle, credit card, home equity, other secured, and other 
unsecured. If the savings association maintains data for loans in a 
certain category, it shall maintain data for all loans originated or 
purchased within that category. The savings association shall maintain 
data separately for each category, including for each loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the savings 
association considered in making its credit decision.
    (2) Other loan data. At its option, a savings association may 
provide other information concerning its lending performance, including 
additional loan distribution data.
    (d) Data on affiliate lending. A savings association that elects to 
have the OTS consider loans by an affiliate, for purposes of the lending 
or community development test or an approved strategic plan, shall 
collect, maintain, and report for those loans the data that the savings 
association would have collected, maintained, and reported pursuant to 
paragraphs (a), (b), and (c) of this section had the loans been 
originated or purchased by the savings association. For home mortgage 
loans, the savings association shall also be prepared to identify the 
home mortgage loans reported under part 203 of this title by the 
affiliate.
    (e) Data on lending by a consortium or a third-party. A savings 
association that elects to have the OTS consider community development 
loans by a consortium or third party, for purposes of the lending or 
community development tests or an approved strategic plan, shall report 
for those loans the data that the savings association would have 
reported under paragraph (b)(2) of this section had the loans been 
originated or purchased by the savings association.
    (f) Small savings associations electing evaluation under the 
lending, investment, and service tests. A savings association that 
qualifies for evaluation under the small savings association performance 
standards but elects evaluation under the lending, investment, and 
service tests shall collect, maintain, and report the data required for 
other savings associations pursuant to paragraphs (a) and (b) of this 
section.
    (g) Assessment area data. A savings association, except a small 
savings association or a savings association that was a small savings 
association during the prior calendar year, shall collect and report to 
the OTS by March 1 of each year a list for each assessment area showing 
the geographies within the area.
    (h) CRA Disclosure Statement. The OTS prepares annually for each 
savings association that reports data pursuant to this section a CRA 
Disclosure Statement that contains, on a state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the 
savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-, 
and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the savings association 
reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the 
savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 or 
more but less than 20 percent, 20 or more but less than 30 percent, 30 
or more but less than 40 percent, 40 or more but less

[[Page 295]]

than 50 percent, 50 or more but less than 60 percent, 60 or more but 
less than 70 percent, 70 or more but less than 80 percent, 80 or more 
but less than 90 percent, 90 or more but less than 100 percent, 100 or 
more but less than 110 percent, 110 or more but less than 120 percent, 
and 120 percent or more;
    (ii) A list grouping each geography in the county or assessment area 
according to whether the median income in the geography relative to the 
area median income is less than 10 percent, 10 or more but less than 20 
percent, 20 or more but less than 30 percent, 30 or more but less than 
40 percent, 40 or more but less than 50 percent, 50 or more but less 
than 60 percent, 60 or more but less than 70 percent, 70 or more but 
less than 80 percent, 80 or more but less than 90 percent, 90 or more 
but less than 100 percent, 100 or more but less than 110 percent, 110 or 
more but less than 120 percent, and 120 percent or more;
    (iii) A list showing each geography in which the savings association 
reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the savings association 
and the number and amount of small business and small farm loans located 
outside the assessment area(s) reported by the savings association; and
    (4) The number and amount of community development loans reported as 
originated or purchased.
    (i) Aggregate disclosure statements. The OTS, in conjunction with 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, and the Office of the Comptroller of the 
Currency, prepares annually, for each MSA or metropolitan division 
(including an MSA or metropolitan division that crosses a state 
boundary) and the nonmetropolitan portion of each state, an aggregate 
disclosure statement of small business and small farm lending by all 
institutions subject to reporting under this part or parts 25, 228, or 
345 of this title. These disclosure statements indicate, for each 
geography, the number and amount of all small business and small farm 
loans originated or purchased by reporting institutions, except that the 
OTS may adjust the form of the disclosure if necessary, because of 
special circumstances, to protect the privacy of a borrower or the 
competitive position of an institution.
    (j) Central data depositories. The OTS makes the aggregate 
disclosure statements, described in paragraph (i) of this section, and 
the individual savings association CRA Disclosure Statements, described 
in paragraph (h) of this section, available to the public at central 
data depositories. The OTS publishes a list of the depositories at which 
the statements are available.

[60 FR 22217, May 4, 1995, as amended at 69 FR 41189, July 8, 2004]



Sec. 563e.43  Content and availability of public file.

    (a) Information available to the public. A savings association shall 
maintain a public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the savings association's performance in helping to meet community 
credit needs, and any response to the comments by the savings 
association, if neither the comments nor the responses contain 
statements that reflect adversely on the good name or reputation of any 
persons other than the savings association or publication of which would 
violate specific provisions of law;
    (2) A copy of the public section of the savings association's most 
recent CRA Performance Evaluation prepared by the OTS. The savings 
association shall place this copy in the public file within 30 business 
days after its receipt from the OTS;
    (3) A list of the savings association's branches, their street 
addresses, and geographies;
    (4) A list of branches opened or closed by the savings association 
during the current year and each of the prior two

[[Page 296]]

calendar years, their street addresses, and geographies;
    (5) A list of services (including hours of operation, available loan 
and deposit products, and transaction fees) generally offered at the 
savings association's branches and descriptions of material differences 
in the availability or cost of services at particular branches, if any. 
At its option, a savings association may include information regarding 
the availability of alternative systems for delivering retail banking 
services (e.g., ATMs, ATMs not owned or operated by or exclusively for 
the savings association, banking by telephone or computer, loan 
production offices, and bank-at-work or bank-by-mail programs);
    (6) A map of each assessment area showing the boundaries of the area 
and identifying the geographies contained within the area, either on the 
map or in a separate list; and
    (7) Any other information the savings association chooses.
    (b) Additional information available to the public--(1) Savings 
associations other than small savings associations. A savings 
association, except a small savings association or a savings association 
that was a small savings association during the prior calendar year, 
shall include in its public file the following information pertaining to 
the savings association and its affiliates, if applicable, for each of 
the prior two calendar years:
    (i) If the savings association has elected to have one or more 
categories of its consumer loans considered under the lending test, for 
each of these categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the savings association's assessment area(s) and 
outside the savings association's assessment area(s); and
    (ii) The savings association's CRA Disclosure Statement. The savings 
association shall place the statement in the public file within three 
business days of its receipt from the OTS.
    (2) Savings associations required to report Home Mortgage Disclosure 
Act (HMDA) data. A savings association required to report home mortgage 
loan data pursuant to part 203 of this title shall include in its public 
file a copy of the HMDA Disclosure Statement provided by the Federal 
Financial Institutions Examination Council pertaining to the savings 
association for each of the prior two calendar years. In addition, a 
savings association that elected to have the OTS consider the mortgage 
lending of an affiliate for any of these years shall include in its 
public file the affiliate's HMDA Disclosure Statement for those years. 
The savings association shall place the statement(s) in the public file 
within three business days after its receipt.
    (3) Small savings associations. A small savings association or a 
savings association that was a small savings association during the 
prior calendar year shall include in its public file:
    (i) The savings association's loan-to-deposit ratio for each quarter 
of the prior calendar year and, at its option, additional data on its 
loan-to-deposit ratio; and
    (ii) The information required for other savings associations by 
paragraph (b)(1) of this section, if the savings association has elected 
to be evaluated under the lending, investment, and service tests.
    (4) Savings associations with strategic plans. A savings association 
that has been approved to be assessed under a strategic plan shall 
include in its public file a copy of that plan. A savings association 
need not include information submitted to the OTS on a confidential 
basis in conjunction with the plan.
    (5) Savings associations with less than satisfactory ratings. A 
savings association that received a less than satisfactory rating during 
its most recent examination shall include in its public file a 
description of its current efforts to improve its performance in helping 
to meet the credit needs of its entire community. The savings 
association shall update the description quarterly.
    (c) Location of public information. A savings association shall make 
available to the public for inspection upon

[[Page 297]]

request and at no cost the information required in this section as 
follows:
    (1) At the main office and, if an interstate savings association, at 
one branch office in each state, all information in the public file; and
    (2) At each branch:
    (i) A copy of the public section of the savings association's most 
recent CRA Performance Evaluation and a list of services provided by the 
branch; and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a savings association shall provide 
copies, either on paper or in another form acceptable to the person 
making the request, of the information in its public file. The savings 
association may charge a reasonable fee not to exceed the cost of 
copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a 
savings association shall ensure that the information required by this 
section is current as of April 1 of each year.



Sec. 563e.44  Public notice by savings associations.

    A savings association shall provide in the public lobby of its main 
office and each of its branches the appropriate public notice set forth 
in Appendix B of this part. Only a branch of a savings association 
having more than one assessment area shall include the bracketed 
material in the notice for branch offices. Only a savings association 
that is an affiliate of a holding company shall include the last two 
sentences of the notices.



Sec. 563e.45  Publication of planned examination schedule.

    The OTS publishes at least 30 days in advance of the beginning of 
each calendar quarter a list of savings associations scheduled for CRA 
examinations in that quarter.



                  Sec. Appendix A to Part 563e--Ratings

    (a) Ratings in general. (1) In assigning a rating, the OTS evaluates 
a savings association's performance under the applicable performance 
criteria in this part, in accordance with Sec. 563e.21 and Sec. 
563e.28, which provides for adjustments on the basis of evidence of 
discriminatory or other illegal credit practices.
    (2) A savings association's performance need not fit each aspect of 
a particular rating profile in order to receive that rating, and 
exceptionally strong performance with respect to some aspects may 
compensate for weak performance in others. The savings association's 
overall performance, however, must be consistent with safe and sound 
banking practices and generally with the appropriate rating profile as 
follows.
    (b) Savings associations evaluated under the lending, investment, 
and service tests--(1) Lending performance rating. The OTS assigns each 
savings association's lending performance one of the five following 
ratings.
    (i) Outstanding. The OTS rates a savings association's lending 
performance ``outstanding'' if, in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A substantial majority of its loans are made in its assessment 
area(s);
    (C) An excellent geographic distribution of loans in its assessment 
area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the savings association;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Extensive use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The OTS rates a savings association's 
lending performance ``high satisfactory'' if, in general, it 
demonstrates:
    (A) Good responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the savings association;
    (E) A good record of serving the credit needs of highly economically 
disadvantaged

[[Page 298]]

areas in its assessment area(s), low-income individuals, or businesses 
(including farms) with gross annual revenues of $1 million or less, 
consistent with safe and sound operations;
    (F) Use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The OTS rates a savings association's 
lending performance ``low satisfactory'' if, in general, it 
demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) An adequate percentage of its loans are made in its assessment 
area(s);
    (C) An adequate geographic distribution of loans in its assessment 
area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the savings association;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made an adequate level of community development loans.
    (iv) Needs to improve. The OTS rates a savings association's lending 
performance ``needs to improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to low- or 
moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the savings association;
    (E) A poor record of serving the credit needs of highly economically 
disadvantaged areas in its assessment area(s), low-income individuals, 
or businesses (including farms) with gross annual revenues of $1 million 
or less, consistent with safe and sound operations;
    (F) Little use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The OTS rates a savings association's 
lending performance as being in ``substantial noncompliance'' if, in 
general, it demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A very small percentage of its loans are made in its assessment 
area(s);
    (C) A very poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the savings association;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) No use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The OTS assigns each savings 
association's investment performance one of the five following ratings.
    (i) Outstanding. The OTS rates a savings association's investment 
performance ``outstanding'' if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly those 
that are not routinely provided by private investors, often in a 
leadership position;
    (B) Extensive use of innovative or complex qualified investments; 
and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The OTS rates a savings association's 
investment performance ``high satisfactory'' if, in general, it 
demonstrates:
    (A) A significant level of qualified investments, particularly those 
that are not routinely provided by private investors, occasionally in a 
leadership position;

[[Page 299]]

    (B) Significant use of innovative or complex qualified investments; 
and
    (C) Good responsiveness to credit and community development needs.
    (iii) Low satisfactory. The OTS rates a savings association's 
investment performance ``low satisfactory'' if, in general, it 
demonstrates:
    (A) An adequate level of qualified investments, particularly those 
that are not routinely provided by private investors, although rarely in 
a leadership position;
    (B) Occasional use of innovative or complex qualified investments; 
and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The OTS rates a savings association's 
investment performance ``needs to improve'' if, in general, it 
demonstrates:
    (A) A poor level of qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development needs.
    (v) Substantial noncompliance. The OTS rates a savings association's 
investment performance as being in ``substantial noncompliance'' if, in 
general, it demonstrates:
    (A) Few, if any, qualified investments, particularly those that are 
not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The OTS assigns each savings 
association's service performance one of the five following ratings.
    (i) Outstanding. The OTS rates a savings association's service 
performance ``outstanding'' if, in general, the savings association 
demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has improved the accessibility of its delivery systems, 
particularly in low- or moderate-income geographies or to low- or 
moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) are 
tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The OTS rates a savings association's 
service performance ``high satisfactory'' if, in general, the savings 
association demonstrates:
    (A) Its service delivery systems are accessible to geographies and 
individuals of different income levels in its assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has not adversely affected the accessibility of its 
delivery systems, particularly in low- and moderate-income geographies 
and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The OTS rates a savings association's 
service performance ``low satisfactory'' if, in general, the savings 
association demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has generally not adversely affected the accessibility 
of its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides an adequate level of community development services.
    (iv) Needs to improve. The OTS rates a savings association's service 
performance ``needs to improve'' if, in general, the savings association 
demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
portions of its assessment area(s), particularly to low- or moderate-
income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has adversely affected the accessibility of its 
delivery systems, particularly in low- or moderate-income geographies or 
to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that inconveniences its assessment area(s), particularly low- 
or moderate-income geographies or low- or moderate-income individuals; 
and
    (D) It provides a limited level of community development services.

[[Page 300]]

    (v) Substantial noncompliance. The OTS rates a savings association's 
service performance as being in ``substantial noncompliance'' if, in 
general, the savings association demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
significant portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has significantly adversely affected the accessibility 
of its delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that significantly inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose savings associations. The OTS 
assigns each wholesale or limited purpose savings association's 
community development performance one of the four following ratings.
    (1) Outstanding. The OTS rates a wholesale or limited purpose 
savings association's community development performance ``outstanding'' 
if, in general, it demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Excellent responsiveness to credit and community development 
needs in its assessment area(s).
    (2) Satisfactory. The OTS rates a wholesale or limited purpose 
savings association's community development performance ``satisfactory'' 
if, in general, it demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Adequate responsiveness to credit and community development 
needs in its assessment area(s).
    (3) Needs to improve. The OTS rates a wholesale or limited purpose 
savings association's community development performance as ``needs to 
improve'' if, in general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development needs 
in its assessment area(s).
    (4) Substantial noncompliance. The OTS rates a wholesale or limited 
purpose savings association's community development performance in 
``substantial noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community development 
services, or qualified investments, particularly investments that are 
not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community development 
needs in its assessment area(s).
    (d) Savings associations evaluated under the small savings 
association performance standards.--(1) Lending test ratings. (i) 
Eligibility for a satisfactory lending test rating. The OTS rates a 
small savings association's lending performance ``satisfactory'' if, in 
general, the savings association demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the savings association's size, financial condition, 
the credit needs of its assessment area(s), and taking into account, as 
appropriate, other lending-related activities such as loan originations 
for sale to the secondary markets and community development loans and 
qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other lending-
related activities for individuals of different income levels (including 
low- and moderate-income individuals) and businesses and farms of 
different sizes that is reasonable given the demographics of the savings 
association's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the savings association's 
performance in helping to meet the credit needs of its assessment 
area(s); and
    (E) A reasonable geographic distribution of loans given the savings 
association's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A small 
savings association that

[[Page 301]]

meets each of the standards for a ``satisfactory'' rating under this 
paragraph and exceeds some or all of those standards may warrant 
consideration for a lending test rating of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A small 
savings association may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree to 
which its performance has failed to meet the standard for a 
``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
savings associations--(i) Eligibility for a satisfactory community 
development test rating. The OTS rates an intermediate small savings 
association's community development performance ``satisfactory'' if the 
savings association demonstrates adequate responsiveness to the 
community development needs of its assessment area(s) through community 
development loans, qualified investments, and community development 
services. The adequacy of the savings association's response will depend 
on its capacity for such community development activities, its 
assessment area's need for such community development activities, and 
the availability of such opportunities for community development in the 
savings association's assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The OTS rates an intermediate small savings association's 
community development performance ``outstanding'' if the savings 
association demonstrates excellent responsiveness to community 
development needs in its assessment area(s) through community 
development loans, qualified investments, and community development 
services, as appropriate, considering the savings association's capacity 
and the need and availability of such opportunities for community 
development in the savings association's assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small savings association may also receive a community 
development test rating of ``needs to improve'' or ``substantial 
noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small savings association may receive an 
assigned overall rating of ``satisfactory'' unless it receives a rating 
of at least ``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small savings association that receives an ``outstanding'' 
rating on one test and at least ``satisfactory'' on the other test may 
receive an assigned overall rating of ``outstanding.''
    (B) A small savings association that is not an intermediate small 
savings association that meets each of the standards for a 
``satisfactory'' rating under the lending test and exceeds some or all 
of those standards may warrant consideration for an overall rating of 
``outstanding.'' In assessing whether a savings association's 
performance is ``outstanding,'' the OTS considers the extent to which 
the savings association exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other services 
and delivery systems that enhance credit availability in its assessment 
area(s).
    (iii) Needs to improve or substantial noncompliance overall ratings. 
A small savings association may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree to 
which its performance has failed to meet the standards for a 
``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory goals. 
The OTS approves as ``satisfactory'' measurable goals that adequately 
help to meet the credit needs of the savings association's assessment 
area(s).
    (2) Outstanding goals. If the plan identifies a separate group of 
measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the OTS will approve those goals as ``outstanding.''
    (3) Rating. The OTS assesses the performance of a savings 
association operating under an approved plan to determine if the savings 
association has met its plan goals:
    (i) If the savings association substantially achieves its plan goals 
for a satisfactory rating, the OTS will rate the savings association's 
performance under the plan as ``satisfactory.''
    (ii) If the savings association exceeds its plan goals for a 
satisfactory rating and substantially achieves its plan goals for an 
outstanding rating, the OTS will rate the savings association's 
performance under the plan as ``outstanding.''
    (iii) If the savings association fails to meet substantially its 
plan goals for a satisfactory rating, OTS will rate the savings 
association as either ``needs to improve'' or ``substantial 
noncompliance,'' depending on the extent to which it falls short of its 
plan goals, unless the savings association elected in its plan to be 
rated otherwise, as provided in Sec. 563e.27(f)(4).

[60 FR 22220, May 4, 1995, as amended at 67 FR 78152, Dec. 23, 2002; 72 
FR 13435, Mar. 22, 2007; 72 FR 19110, Apr. 17, 2007]



                Sec. Appendix B to Part 563e--CRA Notice

    (a) Notice for main offices and, if an interstate savings 
association, one branch office in each state.

[[Page 302]]

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Office of 
Thrift Supervision (OTS) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The OTS also takes this record into account when deciding on 
certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA, including, for example, information about our 
branches, such as their location and services provided at them; the 
public section of our most recent CRA Performance Evaluation, prepared 
by the OTS; and comments received from the public relating to our 
performance in helping to meet community credit needs, as well as our 
responses to those comments. You may review this information today.
    At least 30 days before the beginning of each quarter, the OTS 
publishes a nationwide list of the savings associations that are 
scheduled for CRA examination in that quarter. This list is available 
from the Regional Director (address). You may send written comments 
about our performance in helping to meet community credit needs to (name 
and address of official at savings association) and OTS (address). Your 
letter, together with any response by us, will be considered by the OTS 
in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the Regional 
Director. You may also request from the Regional Director an 
announcement of our applications covered by the CRA filed with the OTS. 
We are an affiliate of (name of holding company), a savings and loan 
holding company. You may request from the Regional Director an 
announcement of applications covered by the CRA filed by savings and 
loan holding companies.
    (b) Notice for branch offices.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Office of 
Thrift Supervision (OTS) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The OTS also takes this record into account when deciding on 
certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA. You may review today the public section of 
our most recent CRA evaluation, prepared by the OTS, and a list of 
services provided at this branch. You may also have access to the 
following additional information, which we will make available to you at 
this branch within five calendar days after you make a request to us: 
(1) A map showing the assessment area containing this branch, which is 
the area in which the OTS evaluates our CRA performance in this 
community; (2) information about our branches in this assessment area; 
(3) a list of services we provide at those locations; (4) data on our 
lending performance in this assessment area; and (5) copies of all 
written comments received by us that specifically relate to our CRA 
performance in this assessment area, and any responses we have made to 
those comments. If we are operating under an approved strategic plan, 
you may also have access to a copy of the plan.
    [If you would like to review information about our CRA performance 
in other communities served by us, the public file for our entire 
savings association is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each quarter, the OTS 
publishes a nationwide list of the savings associations that are 
scheduled for CRA examination in that quarter. This list is available 
from the Regional Director (address). You may send written comments 
about our performance in helping to meet community credit needs to (name 
and address of official at savings association) and the Regional 
Director (address). Your letter, together with any response by us, will 
be considered by the OTS in evaluating our CRA performance and may be 
made public.
    You may ask to look at any comments received by the Regional 
Director. You may also request from the Regional Director an 
announcement of our applications covered by the CRA filed with the OTS. 
We are an affiliate of (name of holding company), a savings and loan 
holding company. You may request from the Regional Director an 
announcement of applications covered by the CRA filed by savings and 
loan holding companies.

[60 FR 22223, May 4, 1995]



PART 563f_MANAGEMENT OFFICIAL INTERLOCKS--Table of Contents




Sec.
563f.1 Authority, purpose, and scope.
563f.2 Definitions.
563f.3 Prohibitions.
563f.4 Interlocking relationships permitted by statute.
563f.5 Small market share exemption.
563f.6 General exemption.
563f.7 Change in circumstances.
563f.8 Enforcement.
563f.9 Interlocking relationships permitted pursuant to Federal Deposit 
          Insurance Act.

    Authority: 12 U.S.C. 3201-3208.

[[Page 303]]


    Source: 61 FR 40308, Aug. 2, 1996, unless otherwise noted.



Sec. 563f.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the provisions of the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended.
    (b) Purpose. The purpose of the Interlocks Act and this part is to 
foster competition by generally prohibiting a management official from 
serving two nonaffiliated depository organizations in situations where 
the management interlock likely would have an anticompetitive effect.
    (c) Scope. This part applies to management officials of savings 
associations, savings and loan holding companies, and affiliates of 
either.



Sec. 563f.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of that 
section 202, shares held by an individual include shares held by members 
of his or her immediate family. ``Immediate family'' means spouse, 
mother, father, child, grandchild, sister, brother, or any of their 
spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a savings 
association or savings and loan holding company based on common 
ownership does not exist if the OTS determines, after giving the 
affected persons the opportunity to respond, that the asserted 
affiliation was established in order to avoid the prohibitions of the 
Interlocks Act and does not represent a true commonality of interest 
between the depository organizations. In making this determination, the 
OTS considers, among other things, whether a person, including members 
of his or her immediate family, whose shares are necessary to constitute 
the group owns a nominal percentage of the shares of one of the 
organizations and the percentage is substantially disproportionate to 
that person's ownership of shares in the other organization.
    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or
    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.
    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road miles of each other at their closest points. The property 
line of an office located in an unincorporated city, town, or village is 
the boundary line of that city, town, or village for the purpose of this 
definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank, or a credit union, chartered under 
the laws of the United States and having a principal office located in 
the United States. Additionally, a United States office, including a 
branch or agency, of a foreign commercial bank is a depository 
institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.

[[Page 304]]

    (j) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in Sec. 
563.555 of this chapter;
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragraph (j)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (k) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
Primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (n) Representative or nominee means a natural person who serves as a 
management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The OTS will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management responsibilities. 
The OTS will determine, after giving the affected persons an opportunity 
to respond, whether a person is a representative or nominee.
    (o) Savings association means:
    (1) Any Federal savings association (as defined in section 3(b)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2));
    (2) Any state savings association (as defined in section 3(b)(3) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3)) the deposits of 
which are insured by the Federal Deposit Insurance Corporation; and
    (3) Any corporation (other than a bank as defined in section 3(a)(1) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1)) the deposits 
of which are insured by the Federal Deposit Insurance Corporation, that 
the Board of Directors of the Federal Deposit Insurance Corporation and 
the Director of the Office of Thrift Supervision jointly determine to be 
operating in substantially the same manner as a savings association.
    (p) Total assets. (1) The term total assets means assets measured on 
a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) other than the assets of its depository institution 
affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.

[61 FR 40308, Aug. 2, 1996, as amended at 63 FR 51275, Sept. 25, 1998; 
64 FR 51680, Sept. 24, 1999; 72 FR 1276, Jan. 11, 2007]

[[Page 305]]



Sec. 563f.3  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices in 
the same community.
    (b) RMSA. A management official of a depository organization may not 
serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $50 million or 
more.
    (c) Major assets. A management official of a depository organization 
with total assets exceeding $2.5 billion (or any affiliate of such an 
organization) may not serve at the same time as a management official of 
an unaffiliated depository organization with total assets exceeding $1.5 
billion (or any affiliate of such an organization), regardless of the 
location of the two depository organizations. The OTS will adjust these 
thresholds, as necessary, based on the year-to-year change in the 
average of the Consumer Price Index for the Urban Wage Earners and 
Clerical Workers, not seasonally adjusted, with rounding to the nearest 
$100 million. The OTS will announce the revised thresholds by publishing 
a final rule without notice and comment in the Federal Register.

[61 FR 40308, Aug. 2, 1996, as amended at 64 FR 51680, Sept. 24, 1999; 
72 FR 1276, Jan. 11, 2007]



Sec. 563f.4  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 563f.3 do not apply in the case of any one 
or more of the following organizations or to a subsidiary thereof:
    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United States except as an incident to its activities outside the United 
States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository institutions 
regulatory agency and is acquired by another depository organization. 
This exemption lasts for five years, beginning on the date the 
depository organization is acquired;
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository institutions regulatory agency at least 60 days before the 
dual service is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The OTS may disapprove a notice of proposed service if it finds 
that:
    (i) The service cannot be structured or limited so as to preclude an 
anticompetitive effect in financial services in any part of the United 
States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the OTS.

[[Page 306]]

    (3) The OTS may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the notice 
period; and
    (i) Any savings association or any savings and loan holding company 
(as defined in section 10(a)(1)(D) of the Home Owners' Loan Act) which 
has issued stock in connection with a qualified stock issuance pursuant 
to section 10(q) of such Act, except that this paragraph (i) shall apply 
only with regard to service by a single management official of such 
savings association or holding company, or any subsidiary of such 
savings association or holding company, by a single management official 
of the savings and loan holding company which purchased the stock issued 
in connection with such qualified stock issuance, and shall apply only 
when the OTS has determined that such service is consistent with the 
purposes of the Interlocks Act and the Home Owners' Loan Act.



Sec. 563f.5  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec. 
563f.3 is permissible, if:
    (1) The interlock is not prohibited by Sec. 563f.3(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have offices. 
The amount of deposits shall be determined by reference to the most 
recent annual Summary of Deposits published by the FDIC for the RMSA or 
community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.

[64 FR 51680, Sept. 24, 1999]



Sec. 563f.6  General exemption.

    (a) Exemption. The OTS may by agency order exempt an interlock from 
the prohibitions in Sec. 563f.3 if the OTS finds that the interlock 
would not result in a monopoly or substantial lessening of competition 
and would not present safety and soundness concerns. A depository 
organization may apply to OTS for an exemption under part 516, subpart 
E, of this chapter.
    (b) Presumptions. In reviewing an application for an exemption under 
this section, the OTS will apply a rebuttable presumption that an 
interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low- and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that or has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in Sec. 
563.555 of this chapter.
    (c) Duration. Unless a shorter expiration period is provided in the 
OTS approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the OTS grants an 
interlock exemption in reliance upon a presumption under paragraph (b) 
of this section, the interlock may continue for three years, unless 
otherwise provided by the OTS in writing.

[64 FR 51680, Sept. 24, 1999, as amended at 66 FR 13009, Mar. 2, 2001]



Sec. 563f.7  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in asset size of an organization, a change in the 
delineation of the RMSA or community, the establishment of an office, an 
increase in the aggregate deposits of the depository organization, or an 
acquisition, merger, consolidation, or reorganization of the ownership 
structure of a depository organization that

[[Page 307]]

causes a previously permissible interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the change 
in circumstances. The OTS may shorten this period under appropriate 
circumstances.

[61 FR 40308, Aug. 2, 1996, as amended at 64 FR 51681, Sept. 24, 1999]



Sec. 563f.8  Enforcement.

    Except as provided in this section, the OTS administers and enforces 
the Interlocks Act with respect to savings associations, savings and 
loan holding companies, and affiliates of either, and may refer any case 
of a prohibited interlocking relationship involving these entities to 
the Attorney General of the United States to enforce compliance with the 
Interlocks Act and this part. If an affiliate of a savings association 
or savings and loan holding company is subject to the primary regulation 
of another Federal depository organization supervisory agency, then the 
OTS does not administer and enforce the Interlocks Act with respect to 
that affiliate.



Sec. 563f.9  Interlocking relationships permitted pursuant to Federal 
Deposit Insurance Act.

    A management official or prospective management official of a 
depository organization may enter into an otherwise prohibited 
interlocking relationship with another depository organization for a 
period of up to 10 years if such relationship is approved by the Federal 
Deposit Insurance Corporation pursuant to section 13(k)(1)(A)(v) of the 
Federal Deposit Insurance Act, as amended (12 U.S.C. 1823(k)(1)(A)(v)).



PART 563g_SECURITIES OFFERINGS--Table of Contents




Sec.
563g.1 Definitions.
563g.2 Offering circular requirement.
563g.3 Exemptions.
563g.4 Non-public offering.
563g.5 Filing and signature requirements.
563g.6 Effective date.
563g.7 Form, content, and accounting.
563g.8 Use of the offering circular.
563g.9 Escrow requirement.
563g.10 Unsafe or unsound practices.
563g.11 Withdrawal or abandonment.
563g.12 Securities sale report.
563g.13 Public disclosure and confidential treatment.
563g.14 Waiver.
563g.15 Requests for interpretive advice or waiver.
563g.16 Delayed or continuous offering and sale of securities.
563g.17 Sales of securities at an office of a savings association.
563g.18 Current and periodic reports.
563g.19 Approval of the security.
563g.20 Form for securities sale report.
563g.21 Filing of copies of offering circulars in certain exempt 
          offerings.

    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 78c(b), 78l, 78m, 
78n, 78p, 78w.

    Source: 54 FR 49641, Nov. 30, 1989, unless otherwise noted.



Sec. 563g.1  Definitions.

    (a) For purposes of this part, the following definitions apply:
    (1) Accredited investor means the same as in Commission Rule 501(a) 
(17 CFR 230.501(a)) under the Securities Act, and includes any savings 
association.
    (2) Commission means the Securities and Exchange Commission.
    (3) Dividend or interest reinvestment plan means a plan which is 
offered solely to existing security holders of the savings association 
which allows such persons to reinvest dividends or interest paid to them 
on securities issued by the savings association, and which also may 
allow additional cash amounts to be contributed by the participants in 
the plan, provided that the securities to be issued are newly issued, or 
are purchased for the account of plan participants, at prices not in 
excess of current market prices at the time of purchase, or at prices 
not in excess of an amount determined in accordance with a pricing 
formula specified in the plan and based upon average or current market 
prices at the time of purchase.
    (4) Employee benefit plan means any purchase, savings, option, 
rights, bonus, ownership, appreciation, profit sharing, thrift, 
incentive, pension or similar plan solely for officers, directors or 
employees.
    (5) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a-78jj).
    (6) Filing date means the date on which a document is actually 
received

[[Page 308]]

during business hours, 9:00 a.m. to 5:00 p.m. Eastern Standard Time, by 
the Chief Counsel, Business Transactions Division, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552. However if the 
last date on which a document can be accepted falls on a Saturday, 
Sunday, or holiday, such document may be filed on the next business day.
    (7) Issuer means a savings association which issues or proposes to 
issue any security.
    (8) Offer; Sale or sell. For purposes of this part, the term offer, 
offer to sell, or offer for sale shall include every attempt or offer to 
dispose of, or solicitation of an offer to buy, a security or interest 
in a security, for value. However, these terms shall not include 
preliminary negotiations or agreements between an issuer and any 
underwriter or among underwriters who are or are to be in privity of 
contract with the issuer. Sale and sell includes every contract to sell 
or otherwise dispose of a security or interest in a security for value. 
Every offer or sale of a warrant or right to purchase or subscribe to 
another security of the same or another issuer, as well as every sale or 
offer of a security which gives the holder a present or future right or 
privilege to convert the security into another security of the same or 
another issuer, includes an offer and sale of the other security only at 
the time of the offer or sale of the warrant or right or convertible 
security; but neither the exercise of the right to purchase or subscribe 
or to convert nor the issuance of securities pursuant thereto is an 
offer or sale.
    (9) Person means the same as in Sec. 563b.25 of this chapter, and 
includes a savings association.
    (10) Purchase and buy mean the same as in Sec. 563b.25 of this 
chapter.
    (11) Savings association has the same meaning as in part 561 of this 
chapter, and includes a federally-chartered savings association in 
organization under this chapter, and a state-chartered savings 
association in organization which is granted conditional approval of 
insurance of accounts by the Federal Deposit Insurance Corporation. In 
addition, for purposes of Sec. 563g.2 of this part, savings association 
includes any underwriter participating in the distribution of securities 
of a savings association.
    (12) Securities Act means the Securities Act of 1933 (15 U.S.C. 77a-
77aa).
    (13) Security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization or subscription, 
transferable share, investment contract, voting trust certificate or, in 
general, any interest or instrument commonly known as a security, or any 
certificate of interest or participation in, temporary or interim 
certificate for, receipt for, guarantee of, or warrant or right to 
subscribe to or purchase any of the foregoing, except that a security 
shall not include an account insured, in whole or in part, by the 
Federal Deposit Insurance Corporation.
    (14) Underwriter means any person who has purchased from an issuer 
with a view to, or offers or sells for an issuer in connection with, the 
distribution of any security, or participates or has a participation in 
the direct or indirect underwriting of any such undertaking; but such 
term shall not include a person whose interest is limited to a 
commission from an underwriter or dealer not in excess of the usual and 
customary distributors' or sellers' commission and such term shall also 
not include any person who has continually held the securities being 
transferred for a period of two (2) consecutive years provided that the 
securities sold in any one (1) transaction shall be less than ten 
percent (10%) of the issued and outstanding securities of the same 
class. The following shall apply for the purpose of determining the 
period securities have been held:
    (i) Stock dividends, splits and recapitalizations. Securities 
acquired from the issuer as a dividend or pursuant to a stock split, 
reverse split or recapitalization shall be deemed to have been acquired 
at the same time as the securities on which the dividend or, if more 
than one, the initial dividend was paid, the securities involved in the 
split or reverse split, or the securities surrendered in connection with 
the recapitalization.

[[Page 309]]

    (ii) Conversions. If the securities sold were acquired from the 
issuer for consideration consisting solely of other securities of the 
same issuer surrendered for conversion, the securities so acquired shall 
be deemed to have been acquired at the same time as the securities 
surrendered for conversion.
    (iii) Contingent issuance of securities. Securities acquired as a 
contingent payment of the purchase price of an equity interest in a 
business, or the assets of a business, sold to the issuer or an 
affiliate of the issuer shall be deemed to have been acquired at the 
time of such sale if the issuer was then committed to issue the 
securities subject only to conditions other than the payment of further 
consideration for such securities. An agreement entered into in 
connection with any such purchase to remain in the employment of, or not 
to compete with, the issuer or affiliate or the rendering of services 
pursuant to such agreement shall not be deemed to be the payment of 
further consideration for such securities.
    (iv) Pledged securities. Securities which are bona fide pledged by 
any person other than the issuer when sold by the pledgee, or by a 
purchaser, after a default in the obligation secured by the pledge, 
shall be deemed to have been acquired when they were acquired by the 
pledgor, except that if the securities were pledged without recourse 
they shall be deemed to have been acquired by the pledgee at the time of 
the pledge or by the purchaser at the time of purchase.
    (v) Gifts of securities. Securities acquired from any person, other 
than the issuer, by gift shall be deemed to have been acquired by the 
donee when they were acquired by the donor.
    (vi) Trusts. Securities acquired from the settler of a trust by the 
trust or acquired from the trust by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the settler.
    (vii) Estates. Securities held by the estate of a deceased person or 
acquired from such an estate by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the deceased 
person, except that no holding period is required if the estate is not 
an affiliate of the issuer or if the securities are sold by a 
beneficiary of the estate who is not such an affiliate.
    (viii) Exchange transactions. A person receiving securities in a 
transaction involving an exchange of the securities of one issuer for 
securities of another issuer shall be deemed to have acquired the 
securities received when such person acquired the securities exchanged.
    (b) A term not defined in this part but defined in another part of 
this chapter, when used in this part, shall have the meanings given in 
such other part, unless the context otherwise requires.
    (c) When used in the rules, regulations, or forms of the Commission 
referred to in this part, the term Commission shall be deemed to refer 
to the Office, the term registrant shall be deemed to refer to an issuer 
defined in this part, and the term registration statement or prospectus 
shall be deemed to refer to an offering circular filed under this part, 
unless the context otherwise requires.

[54 FR 49641, Nov. 30, 1989, as amended at 62 FR 54765, Oct. 22, 1997; 
68 FR 75110, Dec. 30, 2003]



Sec. 563g.2  Offering circular requirement.

    (a) General. No savings association shall offer or sell, directly or 
indirectly, any security issued by it unless:
    (1) The offer or sale is accompanied or preceded by an offering 
circular which includes the information required by this part and which 
has been filed and declared effective pursuant to this part; or
    (2) An exemption is available under this part.
    (b) Communications not deemed an offer. The following communications 
shall not be deemed an offer under this section:
    (1) Prior to filing an offering circular, any notice of a proposed 
offering which satisfies the requirements of Commission Rule 135 (17 CFR 
230.135) under the Securities Act;
    (2) Subsequent to filing an offering circular, any notice circular, 
advertisement, letter, or other communication published or transmitted 
to any person which satisfies the requirements of Commission Rule 134 
(17 CFR 230.134) under the Securities Act; and

[[Page 310]]

    (3) Oral offers of securities covered by an offering circular made 
after filing the offering circular with the Office.
    (c) Preliminary offering circular. Notwithstanding paragraph (a) of 
this section, a preliminary offering circular may be used for an offer 
of any security prior to the effective date of the offering circular if:
    (1) The preliminary offering circular has been filed pursuant to 
this part;
    (2) The preliminary offering circular includes the information 
required by this part, except for the omission of information relating 
to offering price, discounts or commissions, amount of proceeds, 
conversion rates, call prices, or other matters dependent on the 
offering price; and
    (3) The offering circular declared effective by the Office is 
furnished to the purchaser prior to, or simultaneously with, the sale of 
any such security.



Sec. 563g.3  Exemptions.

    The offering circular requirement of Sec. 563g.2 of this part shall 
not apply to an issuer's offer or sale of securities:
    (a) [Reserved]
    (b) Exempt from registration under either section 3(a) or section 4 
of the Securities Act, but only by reason of an exemption other than 
section 3(a)(5) (for regulated savings associations), and section 
3(a)(11) (for intrastate offerings) of the Securities Act;
    (c) In a conversion from the mutual to the stock form of 
organization pursuant to part 563b of this chapter, except for a 
supervisory conversion undertaken pursuant to subpart C of part 563b of 
this chapter;
    (d) In a non-public offering which satisfies the requirements of 
Sec. 563g.4 of this part;
    (e) That are debt securities issued in denominations of $100,000 or 
more, which are fully collateralized by cash, any security issued, or 
guaranteed as to principal and interest, by the United States, the 
Federal Home Loan Mortgage Corporation, Federal National Mortgage 
Association, Government National Mortgage Association or by interests in 
mortgage notes secured by real property;
    (f) Distributed exclusively abroad to foreign nationals: Provided, 
That (1) the offering is made subject to safeguards reasonably designed 
to preclude distribution or redistribution of the securities within, or 
to nationals of, the United States, and (2) such safeguards include, 
without limitation, measures that would be sufficient to ensure that 
registration of the securities would not be required if the securities 
were not exempt under the Securities Act; or
    (g) To its officers, directors or employees pursuant to an employee 
benefit plan or a dividend or interest reinvestment plan, and provided 
that any such plan has been approved by the majority of shareholders 
present in person or by proxy at an annual or special meeting of the 
shareholders of the savings association.

[54 FR 49641, Nov. 30, 1989, as amended at 65 FR 16305, Mar. 28, 2000]



Sec. 563g.4  Non-public offering.

    Offers and sales of securities by an issuer that satisfy the 
conditions of paragraph (a) or (b) of this section and the requirements 
of paragraphs (c) and (d) of this section shall be deemed to be 
transactions not involving any public offering within the meaning of 
section 4(2) of the Securities Act and Sec. Sec. 563g.3(b) and 
563g.3(d) of this part. However, an issuer shall not be deemed to be not 
in compliance with the provisions of this section solely by reason of 
making an untimely filing of the notice required to be filed by 
paragraph (c) of this section so long as the notice is actually filed 
and all other conditions and requirements of this section are satisfied.
    (a) Regulation D. The offer and sale of all securities in the 
transaction satisfies the Commission's Regulation D (17 CFR 230.501-
230.506), except for the notice requirements of Commission Rule 503 (17 
CFR 230.503) and the limitations on resale in Commission Rule 502(d) (17 
CFR 230.502(d)).
    (b) Sales to 35 persons. The offer and sale of all securities in the 
transaction satisfies each of the following conditions:
    (1) Sales of the security are not made to more than 35 persons 
during the offering period, as determined under the integration 
provisions of Commission Rule 502(a) (17 CFR 230.502(a)). The number of 
purchasers referred to above is exclusive of any accredited investor,

[[Page 311]]

officer, director or affiliate of the issuer. For purposes of paragraph 
(b) of this section, a husband and wife (together with any custodian or 
trustee acting for the account of their minor children) are counted as 
one person and a partnership, corporation or other organization which 
was not specifically formed for the purpose of purchasing the security 
offered in reliance upon this exemption, is counted as one person.
    (2) All purchasers either have a preexisting personal or business 
relationship with the issuer or any of its officers, directors or 
controlling persons, or by reason of their business or financial 
experience or the business or financial experience of their professional 
advisors who are unaffiliated with and who are not compensated by the 
issuer or any affiliate or selling agent of the issuer, directly or 
indirectly, could reasonably be assumed to have the capacity to protect 
their own interests in connection with the transaction.
    (3) Each purchaser represents that the purchaser is purchasing for 
the purchaser's own account (or a trust account if the purchaser is a 
trustee) and not with a view to or for sale in connection with any 
distribution of the security.
    (4) The offer and sale of the security is not accomplished by the 
publication of any advertisement.
    (c) Filing of notice of sales. Within 30 days after the first sale 
of the securities, every six months after the first sale of the 
securities and not later than 30 days after the last sale of securities 
in an offering pursuant to this section, the issuer, shall file with the 
Office a report describing the results of the sale of securities as 
required by Sec. 563g.12(b) of this part.
    (d) Limitation on resale. The issuer shall exercise reasonable care 
to assure that the purchasers of the securities are not underwriters 
within the meaning of Sec. 563g.1(a)(14) of this part, which reasonable 
care shall include, but not be limited to, the following:
    (1) Reasonable inquiry to determine if the purchaser is acquiring 
the securities for the purchaser or for other persons;
    (2) Written disclosure to each purchaser prior to the sale that the 
securities are not offered by an offering circular filed with, and 
declared effective by, the Office pursuant to Sec. 563g.2 of this part, 
but instead are being sold in reliance upon the exemption from the 
offering circular requirement provided for by this section; and
    (3) Placement of a legend on the certificate, or other document 
evidencing the securities, indicating that the securities have not been 
offered by an offering circular filed with, and declared effective by, 
the Office and that due care should be taken to ensure that the seller 
of the securities is not an underwriter within the meaning of Sec. 
563g.1(a)(14) of this part.



Sec. 563g.5  Filing and signature requirements.

    (a) Procedures. An offering circular, amendment, notice, report, or 
other document required by this part shall, unless otherwise indicated, 
be filed in accordance with the requirements of Sec. Sec. 563b.115(a), 
563b.150(a)(6), 563b.155, 563b.180(b), and Form AC, General Instruction 
B, of this chapter.
    (b) Number of copies. (1) Unless otherwise required, any filing 
under this part shall include nine copies of the document to be filed 
with the Business Transactions Division, Chief Counsel's Office, as 
follows:
    (i) Seven copies, which shall include one manually signed copy with 
exhibits, three conformed copies with exhibits, and three conformed 
copies without exhibits, to the Securities Filing Desk, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552; and
    (ii) Two copies, which shall include one manually signed copy with 
exhibits and one conformed copy, without exhibits, to the Regional 
Director.
    (2) Within five days after the effective date of an offering 
circular or the commencement of a public offering after the effective 
date, whichever occurs later, nine copies of the offering circular used 
shall be filed with OTS, as follows: seven copies to the Securities 
Filing Desk, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552, and two copies to the Regional Director.
    (3) After the effective date of an offering circular, an offering 
circular

[[Page 312]]

which varies from the form previously filed shall not be used, unless it 
includes only non-material supplemental or additional information and 
until 10 copies have been filed with the Office in the manner required.
    (c) Signature. (1) Any offering circular, amendment, or consent 
filed with the Office pursuant to this part shall include an attached 
manually signed signature page which authorizes the filing and has been 
signed by:
    (i) The issuer, by its duly authorized representative;
    (ii) The issuer's principal executive officer;
    (iii) The issuer's principal financial officer;
    (iv) The issuer's principal accounting officer; and
    (v) At least a majority of the issuer's directors.
    (2) Any other document filed pursuant to this part shall be signed 
by a person authorized to do so.
    (3) At least one copy of every document filed pursuant to this part 
shall be manually signed, and every copy of a document filed shall:
    (i) Have the name of each person who signs typed or printed beneath 
the signature;
    (ii) State the capacity or capacities in which the signature is 
provided;
    (iii) Provide the name of each director of the issuer, if a majority 
of directors is required to sign the document; and
    (iv) With regard to any copies not manually signed, bear typed or 
printed signatures.

[54 FR 49641, Nov. 30, 1989, as amended at 60 FR 66869, Dec. 27, 1995; 
66 FR 65821, Dec. 21, 2001; 68 FR 75110, Dec. 30, 2003]



Sec. 563g.6  Effective date.

    (a) Except as provided for in paragraph (d) of this section, an 
offering circular filed by a savings association shall be deemed to be 
automatically declared effective by the Office on the twentieth day 
after filing or on such earlier date as the Office may determine for 
good cause shown.
    (b) If any amendment is filed prior to the effective date, the 
offering circular shall be deemed to have been filed when such amendment 
was filed.
    (c) The period until automatic effectiveness under this section 
shall be stated at the bottom of the facing page of the Form OC or any 
amendment.
    (d) The effectiveness will be delayed if a duly authorized 
amendment, telegram confirmed in writing, or letter states that the 
effective date is delayed until a further amendment is filed 
specifically stating that the offering circular will become effective in 
accordance with this section.
    (e) An amendment filed after the effective date of the offering 
circular shall become effective on such date as the Office may 
determine.
    (f) If it appears to the Office at any time that the offering 
circular includes any untrue statement of a material fact or omits to 
state any material fact required to be stated therein or necessary to 
make the statements therein not misleading, then the Office may pursue 
any remedy it is authorized to pursue under section 5(d) of the Home 
Owners' Loan Act of 1933, as amended (12 U.S.C. 1464(d)) or section 8 of 
the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818), 
including, but not limited to, institution of cease-and-desist 
proceedings.



Sec. 563g.7  Form, content, and accounting.

    (a) Form and content. Any offering circular or amendment filed 
pursuant to this part shall:
    (1) Be filed under cover of Form OC, which is under part 563b of 
this chapter;
    (2) Comply with the requirements of Items 3 and 4 of Form OC and the 
requirements of all items of the form for registration (17 CFR part 239) 
that the issuer would be eligible to use were it required to register 
the securities under the Securities Act;
    (3) Comply with all item requirements of the Form S-1 (17 CFR part 
239) for registration under the Securities Act, if the association 
issuing the securities is not in compliance with the Office's regulatory 
capital requirements during the time the offering is made;
    (4) Where a form specifies that the information required by an item 
in the Commission's Regulation S-K (17 CFR part 229) should be 
furnished, include

[[Page 313]]

such information and all of the information required by Item 7 of Form 
PS, which is under part 563b of this chapter;
    (5) Include after the facing page of the Form OC a cross-reference 
sheet listing each item requirement of the form for registration under 
the Securities Act and indicate for each item the applicable heading or 
subheading in the offering circular under which the required information 
is disclosed;
    (6) Include in part II of the Form OC the applicable undertakings 
required by the form for registration under the Securities Act;
    (7) If the issuer has not previously been required to file reports 
pursuant to section 13(a) of the Exchange Act or Sec. 563g.18 of this 
part, include in part II of Form OC the following undertaking: ``The 
issuer hereby undertakes, in connection with any distribution of the 
offering circular, to have a preliminary or effective offering circular 
including the information required by this part distributed to all 
persons expected to be mailed confirmations of sale not less than 48 
hours prior to the time such confirmations are expected to be mailed;''
    (8) In offerings involving the issuance of options, warrants, 
subscription rights or conversion rights within the meaning of Sec. 
563g.1(a)(8) of this part, include in part II of Form OC an undertaking 
to provide a copy of the issuer's most recent audited financial 
statements to persons exercising such options, warrants or rights 
promptly upon receiving written notification of the exercise thereof;
    (9) Include as supplemental information and not as part of the Form 
OC and only with respect to de novo offerings, a copy of the application 
for permission to organize as submitted to the Office for federally-
chartered associations, or a copy of the application for insurance of 
accounts as submitted to the Federal Deposit Insurance Corporation for 
state-chartered associations; and
    (10) In addition to the information expressly required to be 
included by this section, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in light of the circumstances under which they are made, not 
misleading.
    (b) Accounting requirements. To be declared effective an offering 
circular or amendment shall satisfy the accounting requirements in 
subpart A of part 563c of this chapter.



Sec. 563g.8  Use of the offering circular.

    (a) An offering circular or amendment declared effective by the 
Office shall not be used more than nine months after the effective date, 
unless the information contained therein is as of a date not more than 
16 months prior to such use.
    (b) An offering circular filed under Sec. 563g.5(b)(3) of this part 
shall not extend the period for which an effective offering circular or 
amendment may be used under paragraph (c) of this section.
    (c) If any event arises, or change in fact occurs, after the 
effective date and such event or change in fact, individually or in the 
aggregate, results in the offering circular containing any untrue 
statement of material fact, or omitting to state a material fact 
necessary in order to make statements made in the offering circular not 
misleading under the circumstances, then no offering circular, which has 
been declared effective under this part, shall be used until an 
amendment reflecting such event or change in fact has been filed with, 
and declared effective by, the Office.



Sec. 563g.9  Escrow requirement.

    (a) Any funds received in an offering which is offered and sold on a 
best efforts all-or-none condition or with a minimum-maximum amount to 
be sold shall be held in an escrow or similar separate account until 
such time as all of the securities are sold with respect to a best 
efforts all-or-none offering or the stated minimum amount of securities 
are sold in a minimum-maximum offering.
    (b) If the amount of securities required to be sold under escrow 
conditions in paragraph (a) of this section are not sold within the time 
period for the offering as disclosed in the offering circular, all funds 
in the escrow account shall be promptly refunded unless the Office 
otherwise approves an extension of the offering period upon a

[[Page 314]]

showing of good cause and provided that the extension is consistent with 
the public interest and the protection of investors.



Sec. 563g.10  Unsafe or unsound practices.

    (a) No person shall directly or indirectly,
    (1) Employ any device, scheme or artifice to defraud,
    (2) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make statements made, in light of 
the circumstances under which they were made, not misleading, or
    (3) Engage in any act, practice, or course of business which 
operates as a fraud or deceit upon any person, in connection with the 
purchase or sale of any security of a savings association.
    (b) Violations of this section shall constitute an unsafe or unsound 
practice within the meaning of section (3)(a) of the Home Owners' Loan 
Act of 1933, as amended, 12 U.S.C. 1462a(a), and section 8 of the 
Federal Deposit Insurance Act, as amended, 12 U.S.C. 1818.
    (c) Nothing in this section shall be construed as a limitation on 
the applicability of section 10(b) of the Exchange Act (15 U.S.C. 
78j(b)) or Rule 10b-5 promulgated thereunder (17 CFR 240.10b-5).



Sec. 563g.11  Withdrawal or abandonment.

    (a) Any offering circular, amendment, or exhibit may be withdrawn 
prior to the effective date. A withdrawal shall be signed and state the 
grounds upon which it is made. Any document withdrawn will not be 
removed from the files of the Office, but will be marked ``Withdrawn 
upon the request of the issuer on (date).''
    (b) When an offering circular or amendment has been on file with the 
Office for a period of nine months and has not become effective, the 
Office may, in its discretion, determine whether the filing has been 
abandoned, after notifying the issuer that the filing is out of date and 
must either be amended to comply with the applicable requirements of 
this part or be withdrawn within 30 days after the date of such notice. 
When a filing is abandoned, the filing will not be removed from the 
files of the Office, but will be marked ``Declared abandoned by the 
Office on (date).''



Sec. 563g.12  Securities sale report.

    (a) Within 30 days after the first sale of the securities, every six 
months after such 30 day period and not later than 30 days after the 
later of the last sale of securities in an offering pursuant to Sec. 
563g.2 of this part or the application of the proceeds therefrom, the 
issuer shall file with the Office a report describing the results of the 
sale of the securities and the application of the proceeds, which shall 
include all of the information required by Form G-12 set forth at Sec. 
563g.20 of this part and shall also include the following:
    (1) The name, address, and docket number of the issuer;
    (2) The title, number, aggregate and per-unit offering price of the 
securities sold;
    (3) The aggregate and per-unit dollar amounts of actual itemized 
expenses, discounts or commissions, and other fees;
    (4) The aggregate and per-unit dollar amounts of the net proceeds 
raised, and the use of proceeds therefrom; and
    (5) The number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities after the issuance of the securities or termination of the 
offer.
    (b) Within 30 days after the first sale of the securities, every six 
months after the first sale of the securities and not later than 30 days 
after the last sale of securities in an offering pursuant to Sec. 
563g.4 of this part, the issuer shall file with the Office a report 
describing the results of the sale of securities, which shall include 
all of the information required by Form G-12 set forth at Sec. 563g.20 
of this part, and shall also include the following:
    (1) All of the information required by paragraph (a) of this 
section; and
    (2) A detailed statement of the factual and legal grounds for the 
exemption claimed.



Sec. 563g.13  Public disclosure and confidential treatment.

    (a) Any offering circular, amendment, exhibit, notice, or report 
filed pursuant to this part will be publicly

[[Page 315]]

available. Any other related documents will be treated in accordance 
with the provisions of the Freedom of Information Act (5 U.S.C. 552), 
the Privacy Act of 1974 (5 U.S.C. 552a), and parts 503 and 505 of this 
chapter.
    (b) Any requests for confidential treatment of information in a 
document required to be filed under this part shall be made as required 
under Commission Rule 24b-2 (17 CFR 240.24b-2) under the Exchange Act.



Sec. 563g.14  Waiver.

    (a) The Office may waive any requirement of this part, or any 
required information:
    (1) Determined to be unnecessary by the Office;
    (2) In connection with a transaction approved by the Office for 
supervisory reasons, or
    (3) Where a provision of this part conflicts with a requirement of 
applicable state law.
    (b) Any condition, stipulation or provision binding any person 
acquiring a security issued by a savings association which seeks to 
waive compliance with any provision of this part shall be void, unless 
approved by the Office.



Sec. 563g.15  Requests for interpretive advice or waiver.

    Any requests to the Office for interpretive advice or a waiver with 
respect to any provision of this part shall satisfy the following 
requirements:
    (a) A copy of the request, including any attachments, shall be filed 
with the Chief Counsel, Corporate and Securities Division;
    (b) The provisions of this part to which the request relates, the 
participants in the proposed transaction, and the reasons for the 
request, shall be specifically identified or described; and
    (c) The request shall include a legal opinion as to each legal issue 
raised and an accounting opinion as to each accounting issue raised.



Sec. 563g.16  Delayed or continuous offering and sale of securities.

    Any offer or sale of securities under Sec. 563g.2 of this part may 
be made on a continuous or delayed basis in the future, if:
    (a) The securities would satisfy all of the eligibility requirements 
of the Commission's Rule 415, 17 CFR 230.415; and
    (b) The association issuing the securities is in compliance with the 
Office's regulatory capital requirements during the time the offering is 
made.



Sec. 563g.17  Sales of securities at an office of a savings association.

    Sales of securities of a savings association or its affiliates at an 
office of a savings association may only be made in accordance with the 
provisions of 12 CFR 563.76.

[57 FR 46088, Oct. 7, 1992]



Sec. 563g.18  Current and periodic reports.

    (a) Each savings association which files an offering circular which 
becomes effective pursuant to this part, after such effective date, 
shall file with the Office periodic and current reports on Forms 8-K, 
10-Q and 10-K as may be required by section 13 of the Exchange Act (15 
U.S.C. 78m) as if the securities sold by such offering circular were 
securities registered pursuant to section 12 of the Exchange Act (15 
U.S.C. 78l). The duty to file periodic and current reports under this 
section shall be automatically suspended if and so long as any issue of 
securities of the savings association is registered pursuant to section 
12 of the Exchange Act (15 U.S.C. 78l). The duty to file under this 
section shall also be automatically suspended as to any fiscal year, 
other than the fiscal year within which such offering circular became 
effective, if, at the beginning of such fiscal year, the securities of 
each class to which the offering circular relates are held of record by 
less than three hundred persons and upon the filing of a Form 15.
    (b) For purposes of registering securities under section 12(b) or 
12(g) of the Exchange Act, an issuer subject to the reporting 
requirements of paragraph (a) of this section may use the Commission's 
registration statement on Form 10 or Form 8-A or 8-B as applicable.

[54 FR 49641, Nov. 30, 1989, as amended at 66 FR 65821, Dec. 21, 2001]

[[Page 316]]



Sec. 563g.19  Approval of the security.

    Any securities of a savings association which are not exempt under 
this part and are offered or sold pursuant to an offering circular which 
becomes effective under this part, are deemed to be approved as to form 
and terms for purposes of Sec. 563.3 of this chapter.

[54 FR 49641, Nov. 30, 1989, as amended at 67 FR 78153, Dec. 23, 2002]



Sec. 563g.20  Form for securities sale report.

 Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552

                               [Form G-12]

            Securities Sale Report Pursuant to Sec. 563g.12

OTS No._________________________________________________________________
Issuer's Name:__________________________________________________________
Address:________________________________________________________________
    If in organization, state the date of FDIC certification of 
insurance of accounts: ------------
    State the title, number, aggregate and per-unit offering price of 
the securities sold: ------------
    State the aggregate and per-unit dollar amounts of actual itemized 
offering expenses, discounts, commissions, and other fees: ------------
    State the aggregate and per-unit dollar amounts of the net proceeds 
raised: ------------
    Describe the use of proceeds. If unknown, provide reasonable 
estimates of the dollar amount allocated to each purpose for which the 
proceeds will be used: ------------
    State the number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities at the close or termination of the offering: ------------
    For a non-public offering, also state the factual and legal grounds 
for the exemption claimed (attach additional pages if necessary): ------
------
    For a non-public offering, all offering materials used should be 
listed: ------------
Person to Contact:______________________________________________________
Telephone No.:__________________________________________________________
    This issuer has duly caused this securities sale report to be signed 
on its behalf by the undersigned person.
Date of securities sale report__________________________________________
Issuer:_________________________________________________________________
Signature:______________________________________________________________
Name:___________________________________________________________________
Title:__________________________________________________________________
    Instruction: Print the name and title of the signing representative 
under his or her signature. Ten copies of the securities sale report 
should be filed, including one copy manually signed, as required under 
12 CFR 563g.5.

                                Attention

    Intentional misstatements or omissions of fact constitute violations 
of Federal law (See 18 U.S.C. 1001 and 12 CFR 563.180(b)).



Sec. 563g.21  Filing of copies of offering circulars in certain 
exempt offerings.

    A copy of the offering circular, or similar document, if any, used 
in connection with an offering exempt from the offering circular 
requirement of Sec. 563g.2 by reason of Sec. 563g.3(e) or Sec. 563g.4 
of this part shall be mailed to the Office within 30 days after the 
first sale of such securities. Such copy of the offering circular, or 
similar document, is solely for the information of the Office and shall 
not be deemed to be ``filed'' with the Office pursuant to Sec. 563g.2 
of this part. The mailing to the Office of such offering circular, or 
similar document, shall not be a pre-condition of the applicable 
exemption from the offering circular requirements of Sec. 563g.2 of 
this part.



PART 564_APPRAISALS--Table of Contents




Sec.
564.1 Authority, purpose, and scope.
564.2 Definitions.
564.3 Appraisals required; transactions requiring a State certified or 
          licensed appraiser.
564.4 Minimum appraisal standards.
564.5 Appraiser independence.
564.6 Professional association membership; competency.
564.7 Enforcement.
564.8 Appraisal policies and practices of savings associations and 
          subsidiaries.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828(m), 3331 et seq.



Sec. 564.1  Authority, purpose, and scope.

    (a) Authority. This part is issued by the Office of Thrift 
Supervision (``OTS'') under title XI of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (``FIRREA'') (Pub. L. 101-
73, 103 Stat. 183, 511 (1989)), 12 U.S.C. 3301 et seq., and the Home 
Owners' Loan Act (``HOLA''), 12 U.S.C. 1461 et seq., as amended by 
FIRREA.
    (b) Purpose and scope. (1) Title XI provides protection for federal 
financial

[[Page 317]]

and public policy interests in real estate related transactions by 
requiring real estate appraisals used in connection with federally 
related transactions to be performed in writing, in accordance with 
uniform standards, by appraisers whose competency has been demonstrated 
and whose professional conduct will be subject to effective supervision. 
This part implements the requirements of title XI and applies to all 
federally related transactions entered into by the OTS or by 
institutions regulated by the OTS (``regulated institutions'').
    (2) This part: (i) Identifies which real estate-related financial 
transactions require the services of an appraiser;
    (ii) Prescribes which categories of federally related transactions 
shall be appraised by a State certified appraiser and which by a State 
licensed appraiser; and
    (iii) Prescribes minimum standards for the performance of real 
estate appraisals in connection with federally related transactions 
under the jurisdiction of the OTS.

[55 FR 34547, Aug. 23, 1990]



Sec. 564.2  Definitions.

    (a) Appraisal means a written statement independently and 
impartially prepared by a qualified appraiser setting forth an opinion 
as to the market value of an adequately described property as of a 
specific date(s), supported by the presentation and analysis of relevant 
market information.
    (b) Appraisal Foundation means the Appraisal Foundation established 
on November 30, 1987, as a not-for-profit corporation under the laws of 
Illinois.
    (c) Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institution Examination Council.
    (d) Business loan means a loan or extension of credit to any 
corporation, general or limited partnership, business trust, joint 
venture, pool, syndicate, sole proprietorship, or other business entity.
    (e) Complex 1-to-4 family residential property appraisal means one 
in which the property to be appraised, the form of ownership, or market 
conditions are atypical.
    (f) Federally related transaction means any real estate-related 
financial transaction entered into on or after August 9, 1990, that:
    (1) The OTS or any regulated institution engages in or contracts 
for; and
    (2) Requires the services of an appraiser.
    (g) Market value means the most probable price which a property 
should bring in a competitive and open market under all conditions 
requisite to a fair sale, the buyer and seller each acting prudently and 
knowledgeably, and assuming the price is not affected by undue stimulus. 
Implicit in this definition is the consummation of a sale as of a 
specified date and the passing of title from seller to buyer under 
conditions whereby:
    (1) Buyer and seller are typically motivated;
    (2) Both parties are well informed or well advised, and acting in 
what they consider their own best interests;
    (3) A reasonable time is allowed for exposure in the open market;
    (4) Payment is made in terms of cash in U.S. dollars or in terms of 
financial arrangements comparable thereto; and
    (5) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    (h) Real estate or real property means an identified parcel or tract 
of land, with improvements, and includes easements, rights of way, 
undivided or future interests, or similar rights in a tract of land, but 
does not include mineral rights, timber rights, growing crops, water 
rights, or similar interests severable from the land when the 
transaction does not involve the associated parcel or tract of land.
    (i) Real estate-related financial transaction means any transaction 
involving:
    (1) The sale, lease, purchase, investment in or exchange of real 
property, including interests in property, or the financing thereof; or
    (2) The refinancing of real property or interests in real property; 
or
    (3) The use of real property or interests in property as security 
for a loan or investment, including mortgage-backed securities.

[[Page 318]]

    (j) State certified appraiser means any individual who has satisfied 
the requirements for certification in a State or territory whose 
criteria for certification as a real estate appraiser currently meet the 
minimum criteria for certification issued by the Appraiser 
Qualifications Board of the Appraisal Foundation. No individual shall be 
a State certified appraiser unless such individual has achieved a 
passing grade upon a suitable examination administered by a State or 
territory that is consistent with and equivalent to the Uniform State 
Certification Examination issued or endorsed by the Appraiser 
Qualifications Board of the National Foundation. In addition, the 
Appraisal Subcommittee must not have issued a finding that the policies, 
practices, or procedures of the State or territory are inconsistent with 
title XI of FIRREA. The OTS may, from time to time, impose additional 
qualification criteria for certified appraisers performing appraisals in 
connection with federally related transactions within its jurisdiction.
    (k) State licensed appraiser means any individual who has satisfied 
the requirements for licensing in a State or territory where the 
licensing procedures comply with title XI of FIRREA and where the 
Appraisal Subcommittee has not issued a finding that the policies, 
practices, or procedures of the State or territory are inconsistent with 
title XI. The OTS may, from time to time, impose additional 
qualification criteria for licensed appraisers performing appraisals in 
connection with federally related transactions within its jurisdiction.
    (l) Tract development means a project of five units or more that is 
constructed or is to be constructed as a single development.
    (m) Transaction value means:
    (1) For loans or other extensions of credit, the amount of the loan 
or extension of credit;
    (2) For sales, leases, purchases, and investments in or exchanges of 
real property, the market value of the real property interest involved; 
and
    (3) For the pooling of loans or interests in real property for 
resale or purchase, the amount of the loan or market value of the real 
property calculated with respect to each such loan or interest in real 
property.

[55 FR 34547, Aug. 23, 1990, as amended at 57 FR 12705, Apr. 13, 1992; 
59 FR 29502, June 7, 1994]



Sec. 564.3  Appraisals required; transactions requiring a State certified
or licensed appraiser.

    (a) Appraisals required. An appraisal performed by a State certified 
or licensed appraiser is required for all real estate-related financial 
transactions except those in which:
    (1) The transaction value is $250,000 or less;
    (2) A lien on real estate has been taken as collateral in an 
abundance of caution;
    (3) The transaction is not secured by real estate;
    (4) A lien on real estate has been taken for purposes other than the 
real estate's value;
    (5) The transaction is a business loan that:
    (i) Has a transaction value of $1 million or less; and
    (ii) Is not dependent on the sale of, or rental income derived from, 
real estate as the primary source of repayment;
    (6) A lease of real estate is entered into, unless the lease is the 
economic equivalent of a purchase or sale of the leased real estate;
    (7) The transaction involves an existing extension of credit at the 
lending institution, provided that:
    (i) There has been no obvious and material change in market 
conditions or physical aspects of the property that threatens the 
adequacy of the institution's real estate collateral protection after 
the transaction, even with the advancement of new monies; or
    (ii) There is no advancement of new monies, other than funds 
necessary to cover reasonable closing costs;
    (8) The transaction involves the purchase, sale, investment in, 
exchange of, or extension of credit secured by, a loan or interest in a 
loan, pooled loans, or interests in real property, including mortgaged-
backed securities, and each loan or interest in a loan, pooled loan, or 
real property interest met OTS regulatory requirements for appraisals at 
the time of origination;

[[Page 319]]

    (9) The transaction is wholly or partially insured or guaranteed by 
a United States government agency or United States government sponsored 
agency;
    (10) The transaction either:
    (i) Qualifies for sale to a United States government agency or 
United States government sponsored agency; or
    (ii) Involves a residential real estate transaction in which the 
appraisal conforms to the Federal National Mortgage Association or 
Federal Home Loan Mortgage Corporation appraisal standards applicable to 
that category of real estate;
    (11) The regulated institution is acting in a fiduciary capacity and 
is not required to obtain an appraisal under other law; or
    (12) The OTS determines that the services of an appraiser are not 
necessary in order to protect Federal financial and public policy 
interests in real estate-related financial transactions or to protect 
the safety and soundness of the institution.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (a)(5) or (a)(7) of this section, the institution shall obtain 
an appropriate evaluation of real property collateral that is consistent 
with safe and sound banking practices.
    (c) Appraisals to address safety and soundness concerns. The OTS 
reserves the right to require an appraisal under this part whenever the 
agency believes it is necessary to address safety and soundness 
concerns.
    (d) Transactions requiring a State certified appraiser--(1) All 
transactions of $1,000,000 or more. All federally related transactions 
having a transaction value of $1,000,000 or more shall require an 
appraisal prepared by a State certified appraiser.
    (2) Nonresidential and residential (other than 1-to-4 family) 
transactions of $250,000 or more. All federally related transactions 
having a transaction value of $250,000 or more, other than those 
involving appraisals of 1-to-4 family residential properties, shall 
require an appraisal prepared by a State certified appraiser.
    (3) Complex residential transactions of $250,000 or more. All 
complex 1-to-4 family residential property appraisals rendered in 
connection with federally related transactions shall require a State 
certified appraiser if the transaction value is $250,000 or more. A 
regulated institution may presume that appraisals of 1-to-4 family 
residential properties are not complex, unless the institution has 
readily available information that a given appraisal will be complex. 
The regulated institution shall be responsible for making the final 
determination of whether the appraisal is complex. If during the course 
of the appraisal a licensed appraiser identifies factors that would 
result in the property, form of ownership, or market conditions being 
considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or
    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
    (e) Transactions requiring either a State certified or licensed 
appraiser. All appraisals for federally related transactions not 
requiring the services of a State certified appraiser shall be prepared 
by either a State certified appraiser or a State licensed appraiser.
    (f) Effective date. Savings associations are required to use State 
certified or licensed appraisers as set forth in this part no later than 
December 31, 1992.

[55 FR 34548, Aug. 23, 1990, as amended at 57 FR 12705, Apr. 13, 1992; 
59 FR 29502, June 7, 1994]



Sec. 564.4  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    (a) Conform to generally accepted appraisal standards as evidenced 
by the Uniform Standards of Professional Appraisal Practice (USPAP) 
promulgated by the Appraisal Standards Board of the Appraisal 
Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless 
principles of safe and sound banking require compliance with stricter 
standards;
    (b) Be written and contain sufficient information and analysis to 
support

[[Page 320]]

the institution's decision to engage in the transaction;
    (c) Analyze and report appropriate deductions and discounts for 
proposed construction or renovation, partially leased buildings, non-
market lease terms, and tract developments with unsold units;
    (d) Be based upon the definition of market value as set forth in 
this part; and
    (e) Be performed by State licensed or certified appraisers in 
accordance with requirements set forth in this part.

[59 FR 29503, June 7, 1994]



Sec. 564.5  Appraiser independence.

    (a) Staff appraisers. If an appraisal is prepared by a staff 
appraiser, that appraiser must be independent of the lending, 
investment, and collection functions and not involved, except as an 
appraiser, in the federally related transaction, and have no direct or 
indirect interest, financial or otherwise, in the property. If the only 
qualified persons available to perform an appraisal are involved in the 
lending, investment, or collection functions of the regulated 
institution, the regulated institution shall take appropriate steps to 
ensure that the appraisers exercise independent judgment and that the 
appraisal is adequate. Such steps include, but are not limited to, 
prohibiting an individual from performing an appraisal in connection 
with federally related transactions in which the appraiser is otherwise 
involved and prohibiting directors and officers from participating in 
any vote or approval involving assets on which they performed an 
appraisal.
    (b) Fee appraisers. (1) If an appraisal is prepared by a fee 
appraiser, the appraiser shall be engaged directly by the regulated 
institution or its agent, and have no direct or indirect interest, 
financial or otherwise, in the property or the transaction.
    (2) A regulated institution also may accept an appraisal that was 
prepared by an appraiser engaged directly by another financial services 
institution, if:
    (i) The appraiser has no direct or indirect interest, financial or 
otherwise, in the property or the transaction; and
    (ii) The regulated institution determines that the appraisal 
conforms to the requirements of this part and is otherwise acceptable.

[55 FR 34549, Aug. 23, 1990, as amended at 59 FR 29503, June 7, 1994]



Sec. 564.6  Professional association membership; competency.

    (a) Membership in appraisal organizations. A State certified 
appraiser or a State licensed appraiser may not be excluded from 
consideration for an assignment for a federally related transaction 
solely by virtue of membership or lack of membership in any particular 
appraisal organization.
    (b) Competency. All staff and fee appraisers performing appraisals 
in connection with federally related transactions must be State 
certified or licensed, as appropriate. However, a State certified or 
licensed appraiser may not be considered competent solely by virtue of 
being certified or licensed. Any determination of competency shall be 
based upon the individual's experience and educational background as 
they relate to the particular appraisal assignment for which he or she 
is being considered.

[55 FR 34549, Aug. 23, 1990]



Sec. 564.7  Enforcement.

    Institutions and institution-affiliated parties, including staff 
appraisers and fee appraisers, who violate this part may be subject to 
removal and/or prohibition orders, cease and desist orders, and the 
imposition of civil money penalties pursuant to the Federal Deposit 
Insurance Act, 12 U.S.C. 1811 et seq., as amended, or other applicable 
law.

[55 FR 34549, Aug. 23, 1990]



Sec. 564.8  Appraisal policies and practices of savings associations
and subsidiaries.

    (a) Introduction. The soundness of a savings association's mortgage 
loans and real estate investments, and those of its service 
corporation(s), depends to a great extent upon the adequacy of the loan 
underwriting used to support these transactions. An appraisal standard 
is one of several critical components of a sound underwriting policy 
because appraisal reports contain estimates of the value of collateral 
held or assets owned. This section sets forth

[[Page 321]]

the responsibilities of management to develop, implement, and maintain 
appraisal standards in determining compliance with the appraisal 
requirements of Sec. 563.170 of this chapter.
    (b) Definition. For purposes of this section, management means: the 
directors and officers of a savings association, or service corporation 
of such savings association, as those terms are defined in Sec. Sec. 
561.18 and 561.35 of this chapter respectively.
    (c) Responsibilities of management. An appraisal is a critical 
component of the loan underwriting or real estate investment decision. 
Therefore, management shall develop, implement, and maintain appraisal 
policies to ensure that appraisals reflect professional competence and 
to facilitate the reporting of estimates of market value upon which 
savings associations may rely to make lending decisions. To achieve 
these results:
    (1) Management shall develop written appraisal policies, subject to 
formal adoption by the savings association's board of directors, that it 
shall implement in consultation with other appropriate personnel. These 
policies shall ensure that adequate appraisals are obtained and proper 
appraisal procedures are followed consistent with the requirements of 
this part 564.
    (2) Management shall develop and adopt guidelines and institute 
procedures pertaining to the hiring of appraisers to perform appraisal 
services for the savings association consistent with the requirements of 
this part 564. These guidelines shall set forth specific factors to be 
considered by management including, but not limited to, an appraiser's 
State certification or licensing, professional education, and type of 
experience. An appraiser's membership in professional appraisal 
organizations may be considered consistent with the requirements of 
Sec. 564.6
    (3) Management shall review on an annual basis the performance of 
all approved appraisers used within the preceding 12-month period for 
compliance with (i) the savings association's appraisal policies and 
procedures; and (ii) the reasonableness of the value estimates reported.
    (d) Exemptions. The requirements of Sec. 564.4(b) through (d) shall 
not apply with respect to appraisals on nonresidential properties 
prepared on form reports approved by the Office and completed in 
accordance with the applicable instructional booklet.

[54 FR 49552, Nov. 30, 1989. Redesignated and amended at 55 FR 34549, 
Aug. 23, 1990; 55 FR 43440, Oct. 29, 1990; 59 FR 29503, June 7, 1994; 59 
FR 53571, Oct. 25, 1994; 73 FR 18, Jan. 2, 2008]



PART 565_PROMPT CORRECTIVE ACTION--Table of Contents




Sec.
565.1 Authority, purpose, scope, other supervisory authority, and 
          disclosure of capital categories.
565.2 Definitions.
565.3 Notice of capital category.
565.4 Capital measures and capital category definitions.
565.5 Capital restoration plans.
565.6 Mandatory and discretionary supervisory actions under section 38.
565.7 Directives to take prompt corrective action.
565.8 Procedures for reclassifying a savings association based on 
          criteria other than capital.
565.9 Order to dismiss a director or senior executive officer.
565.10 Enforcement of directives.

    Authority: 12 U.S.C. 1831o.

    Source: 57 FR 44903, Sept. 29, 1992, unless otherwise noted.



Sec. 565.1  Authority, purpose, scope, other supervisory authority,
and disclosure of capital categories.

    (a) Authority. This part is issued by the OTS pursuant to section 38 
(section 38) of the Federal Deposit Insurance Act (FDI Act) as added by 
section 131 of the Federal Deposit Insurance Corporation Improvement Act 
of 1991 (Pub. L. 102-242, 105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
    (b) Purpose. Section 38 of the FDI Act establishes a framework of 
supervisory actions for insured depository institutions that are not 
adequately capitalized. The principal purpose of this part is to define, 
for savings associations, the capital measures and capital levels that 
are used for determining the supervisory actions authorized under 
section 38 of the FDI Act. This part also establishes procedures for 
submission and review of capital restoration plans

[[Page 322]]

and for issuance and review of directives and orders pursuant to section 
38.
    (c) Scope. This part implements the provisions of section 38 of the 
FDI Act as they apply to savings associations. Certain of these 
provisions also apply to officers, directors and employees of savings 
associations. Other provisions apply to any company that controls a 
savings association and to the affiliates of a savings association.
    (d) Other supervisory authority. Neither section 38 nor this part in 
any way limits the authority of the OTS under any other provision of law 
to take supervisory actions to address unsafe or unsound practices, 
deficient capital levels, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 38 of the FDI Act 
and this part may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the OTS, including 
issuance of cease and desist orders, capital directives, approval or 
denial of applications or notices, assessment of civil money penalties, 
or any other actions authorized by law.
    (e) Disclosure of capital categories. The assignment of a savings 
association under this part within a particular capital category is for 
purposes of implementing and applying the provisions of section 38. 
Unless permitted by the OTS or otherwise required by law, no savings 
association may state in any advertisement or promotional material its 
capital category under this subpart or that the OTS or any other federal 
banking agency has assigned the savings association to a particular 
category.



Sec. 565.2  Definitions.

    For purposes of this part, except as modified in this section or 
unless the context otherwise requires, the terms used in this part have 
the same meanings as set forth in sections 38 and 3 of the FDI Act.
    (a)(1) Control has the same meaning assigned to it in section 2 of 
the Bank Holding Company Act (12 U.S.C. 1841), and the term 
``controlled'' shall be construed consistently with the term 
``control.''
    (2) Exclusion for fiduciary ownership. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares in a 
fiduciary capacity. Shares shall not be deemed to have been acquired in 
a fiduciary capacity if the acquiring insured depository institution or 
company has sole discretionary authority to exercise voting rights with 
respect thereto.
    (3) Exclusion for debts previously contracted. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares acquired in 
securing or collecting a debt previously contracted in good faith, until 
two years after the date of acquisition. The two-year period may be 
extended at the discretion of the appropriate federal banking agency for 
up to three one-year periods.
    (b) Controlling person means any person having control of an insured 
depository institution and any company controlled by that person.
    (c) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with part 567 of this chapter.
    (d) Management fee means any payment of money or provision of any 
other thing of value to a company or individual for the provision of 
management services or advice to the savings association or related 
overhead expenses, including payments related to supervisory, executive, 
managerial or policymaking functions, other than compensation to an 
individual in the individual's capacity as an officer or employee of the 
savings association.
    (e) Risk-weighted assets means total risk-weighted assets, as 
calculated in accordance with part 567 of this chapter.
    (f) Tangible equity means the amount of a savings association's core 
capital as computed in part 567 of this chapter plus the amount of its 
outstanding cumulative perpetual preferred stock (including related 
surplus), minus intangible assets as defined in Sec. 567.1 of this 
chapter, except mortgage servicing assets to the extent they are 
includable under Sec. 567.12. Non-mortgage servicing assets that have 
not been previously

[[Page 323]]

deducted in calculating core capital are deducted.
    (g) Tier 1 capital means the amount of core capital as defined in 
part 567 of this chapter.
    (h) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk-weighted assets, as calculated in accordance with part 
567 of this chapter.
    (i) Total assets, for purposes of Sec. 565.4(b)(5), means adjusted 
total assets as calculated in accordance with part 567 of this chapter, 
minus intangible assets as provided in the definition of tangible 
equity.
    (j) Total risk-based capital ratio means the ratio of total capital 
to risk-weighted assets, as calculated in accordance with part 567 of 
this chapter.

[57 FR 44903, Sept. 29, 1992, as amended at 60 FR 39232, Aug. 1, 1995; 
62 FR 66263, Dec. 18, 1997; 63 FR 42678, Aug. 10, 1998; 73 FR 79607, 
Dec. 30, 2008]



Sec. 565.3  Notice of capital category.

    (a) Effective date of determination of capital category. A savings 
association shall be deemed to be within a given capital category for 
purposes of section 38 of the FDI Act and this part as of the date the 
savings association is notified of, or is deemed to have notice of, its 
capital category, pursuant to paragraph (b) of this section.
    (b) Notice of capital category. A savings association shall be 
deemed to have been notified of its capital levels and its capital 
category as of the most recent date:
    (1) A Thrift Financial Report (TFR) is required to be filed with the 
OTS;
    (2) A final report of examination is delivered to the savings 
association; or
    (3) Written notice is provided by the OTS to the savings association 
of its capital category for purposes of section 38 of the FDI Act and 
this part or that the savings association's capital category has changed 
as provided in paragraph (c) of this section or Sec. 565.4(c).
    (c) Adjustments to reported capital levels and category--(1) Notice 
of adjustment by savings association. A savings association shall 
provide the OTS with written notice that an adjustment to the savings 
association's capital category may have occurred no later than 15 
calendar days following the date that any material event has occurred 
that would cause the savings association to be placed in a lower capital 
category from the category assigned to the savings association for 
purposes of section 38 and this part on the basis of the savings 
association's most recent TFR or report of examination.
    (2) Determination by the OTS to change capital category. After 
receiving notice pursuant to paragraph (c)(1) of this section, the OTS 
shall determine whether to change the capital category of the savings 
association and shall notify the savings association of the OTS's 
determination.



Sec. 565.4  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this part, the 
relevant capital measures shall be:
    (1) The total risk-based capital ratio;
    (2) The Tier 1 risk-based capital ratio; and
    (3) The leverage ratio.
    (b) Capital categories. For purposes of section 38 and this part, a 
savings association shall be deemed to be:
    (1) Well capitalized if the savings association:
    (i) Has a total risk-based capital ratio of 10.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order, capital 
directive, or prompt corrective action directive issued by OTS under 
section 8 of the FDI Act, the International Lending Supervision Act of 
1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 
1464(t)(6)(A)(ii)), or section 38 of the FDI Act, or any regulation 
thereunder, to meet and maintain a specific capital level for any 
capital measure.
    (2) Adequately capitalized if the savings association:
    (i) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 4.0 percent or 
greater; and
    (iii) Has:
    (A) A leverage ratio of 4.0 percent or greater; or

[[Page 324]]

    (B) A leverage ratio of 3.0 percent or greater if the savings 
association is assigned a composite rating of 1, as composite rating is 
defined in Sec. 516.5(c) of this chapter; and
    (iv) Does not meet the definition of a well capitalized savings 
association.
    (3) Undercapitalized if the savings association:
    (i) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (ii) Has a Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (iii) (A) Except as provided in paragraph (b)(3)(iii) (B) of this 
section, has a leverage ratio that is less than 4.0 percent; or
    (B) Has a leverage ratio that is less than 3.0 percent if the 
savings association is assigned a composite rating of 1, as composite 
rating is defined in Sec. 516.5(c) of this chapter.
    (4) Significantly undercapitalized if the savings association has:
    (i) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (ii) A Tier 1 risk-based capital ratio that is less than 3.0 
percent; or
    (iii) A leverage ratio that is less than 3.0 percent.
    (5) Critically undercapitalized if the savings association has a 
ratio of tangible equity to total assets that is equal to or less than 
2.0 percent.
    (c) Reclassification based on supervisory criteria other than 
capital. The OTS may reclassify a well capitalized savings association 
as adequately capitalized and may require an adequately capitalized or 
undercapitalized savings association to comply with certain mandatory or 
discretionary supervisory actions as if the savings association were in 
the next lower capital category (except that the OTS may not reclassify 
a significantly undercapitalized savings association as critically 
undercapitalized) (each of these actions are hereinafter referred to 
generally as ``reclassifications'') in the following circumstances:
    (1) Unsafe or unsound condition. The OTS has determined, after 
notice and opportunity for hearing pursuant to Sec. 565.8(a) of this 
part, that the savings association is in an unsafe or unsound condition; 
or
    (2) Unsafe or unsound practice. The OTS has determined, after notice 
and an opportunity for hearing pursuant to Sec. 565.8(a) of this part, 
that the savings association received a less-than-satisfactory rating 
for any rating category (other than in a rating category specifically 
addressing capital adequacy) under the Uniform Financial Institutions 
Rating System, \1\ or an equivalent rating under a comparable rating 
system adopted by the OTS; and has not corrected the conditions that 
served as the basis for the less than satisfactory rating. Ratings under 
this paragraph (c)(2) refer to the most recent ratings (as determined 
either on-site or off-site by the most recent examination) of which the 
savings association has been notified in writing.
---------------------------------------------------------------------------

    \1\ Copies are available at the address specified in Sec. 516.40 of 
this chapter.

[57 FR 44903, Sept. 29, 1992, as amended at 62 FR 3781, Jan. 27, 1997; 
66 FR 13009, Mar. 2, 2001; 66 FR 65821, Dec. 21, 2001]



Sec. 565.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A savings association 
shall file a written capital restoration plan with the appropriate 
Regional Office within 45 days of the date that the savings association 
receives notice or is deemed to have notice that the savings association 
is undercapitalized, significantly undercapitalized, or critically 
undercapitalized, unless the OTS notifies the savings association in 
writing that the plan is to be filed within a different period. An 
adequately capitalized savings association that has been required 
pursuant to Sec. 565.4(c) to comply with supervisory actions as if the 
savings association were undercapitalized is not required to submit a 
capital restoration plan solely by virtue of the reclassification.
    (2) Additional capital restoration plans. Notwithstanding paragraph 
(a)(1) of this section, a savings association that has already submitted 
and is operating under a capital restoration plan approved under section 
38 and this part is not required to submit an additional capital 
restoration plan based on a revised calculation of its capital measures 
or a reclassification of the institution under Sec. 565.4(c) unless the 
OTS notifies the savings association that it must submit a new or 
revised capital

[[Page 325]]

plan. A savings association that is notified that it must submit a new 
or revised capital restoration plan shall file the plan in writing with 
the appropriate Regional Office within 45 days of receiving such notice, 
unless the OTS notifies the savings association in writing that the plan 
is to be filed within a different period.
    (b) Contents of plan. All financial data submitted in connection 
with a capital restoration plan shall be prepared in accordance with the 
instructions provided on the TFR, unless the OTS instructs otherwise. 
The capital restoration plan shall include all of the information 
required to be filed under section 38(e)(2) of the FDI Act. A savings 
association that is required to submit a capital restoration plan as the 
result of a reclassification of the savings association pursuant to 
Sec. 565.4(c) of this part shall include a description of the steps the 
savings association will take to correct the unsafe or unsound condition 
or practice. No plan shall be accepted unless it includes any 
performance guarantee described in section 38(e)(2)(C) of the FDI Act by 
each company that controls the savings association.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this part, the OTS shall 
provide written notice to the savings association of whether the plan 
has been approved. The OTS may extend the time within which notice 
regarding approval of a plan shall be provided.
    (d) Disapproval of capital plan. If a capital restoration plan is 
not approved by the OTS, the savings association shall submit a revised 
capital restoration plan, when directed to do so, within the time 
specified by the OTS. Upon receiving notice that its capital restoration 
plan has not been approved, any undercapitalized savings association (as 
defined in Sec. 565.4(b)(3) of this part) shall be subject to all of 
the provisions of section 38 and this part applicable to significantly 
undercapitalized institutions. These provisions shall be applicable 
until such time as a new or revised capital restoration plan submitted 
by the savings association has been approved by the OTS.
    (e) Failure to submit a capital restoration plan. A savings 
association that is undercapitalized (as defined in Sec. 565.4(b)(3) of 
this part) and that fails to submit a written capital restoration plan 
within the period provided in this section shall, upon the expiration of 
that period, be subject to all of the provisions of section 38 and this 
part applicable to significantly undercapitalized institutions.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized savings association that fails in any material respect 
to implement a capital restoration plan shall be subject to all of the 
provisions of section 38 and this part applicable to significantly 
undercapitalized institutions.
    (g) Amendment of capital plan. A savings association that has filed 
an approved capital restoration plan may, after prior written notice to 
and approval by the OTS, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been approved, 
the savings association shall implement the capital restoration plan as 
approved prior to the proposed amendment.
    (h) Notice to FDIC. Within 45 days of the effective date of OTS 
approval of a capital restoration plan, or any amendment to a capital 
restoration plan, the OTS shall provide a copy of the plan or amendment 
to the FDIC.
    (i) Performance guarantee by companies that control a savings 
association--(1) Limitation on liability--(i) Amount limitation. The 
aggregate liability under the guarantee provided under section 38 and 
this part for all companies that control a specific savings association 
that is required to submit a capital restoration plan under this part 
shall be limited to the lesser of:
    (A) An amount equal to 5.0 percent of the savings association's 
total assets at the time the savings association was notified or deemed 
to have notice that the savings association was undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures of 
the savings association to the levels required for the savings 
association to be classified as adequately capitalized, as those capital 
measures and levels are

[[Page 326]]

defined at the time that the savings association initially fails to 
comply with a capital restoration plan under this part.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this part shall expire after the OTS notifies the savings 
association that it has remained adequately capitalized for each of four 
consecutive calendar quarters. The expiration or fulfillment by a 
company of a guarantee of a capital restoration plan shall not limit the 
liability of the company under any guarantee required or provided in 
connection with any capital restoration plan filed by the same savings 
association after expiration of the first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
savings association shall be jointly and severally liable for the 
guarantee for such savings association as required under section 38 and 
this part, and the OTS may require and collect payment of the full 
amount of that guarantee from any or all of the companies issuing the 
guarantee.
    (2) Failure to provide guarantee. In the event that a savings 
association that is controlled by any company submits a capital 
restoration plan that does not contain the guarantee required under 
section 38(e)(2) of the FDI Act, the savings association shall, upon 
submission of the plan, be subject to the provisions of section 38 and 
this part that are applicable to savings associations that have not 
submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a savings association to perform fully its guarantee of any 
capital plan shall constitute a material failure to implement the plan 
for purposes of section 38(f) of the FDI Act. Upon such failure, the 
savings association shall be subject to the provisions of section 38 and 
this part that are applicable to savings associations that have failed 
in a material respect to implement a capital restoration plan.



Sec. 565.6  Mandatory and discretionary supervisory actions under section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
savings associations. All savings associations are subject to the 
restrictions contained in section 38(d) of the FDI Act on payment of 
capital distributions and management fees.
    (2) Provisions applicable to undercapitalized, significantly 
undercapitalized, and critically undercapitalized savings associations. 
Immediately upon receiving notice or being deemed to have notice, as 
provided in Sec. 565.3 or Sec. 565.5 of this part, that the savings 
association is undercapitalized, significantly undercapitalized, or 
critically undercapitalized, the savings association shall become 
subject to the provisions of section 38 of the FDI Act:
    (i) Restricting payment of capital distributions and management fees 
(section 38(d));
    (ii) Requiring that the OTS monitor the condition of the savings 
association (section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this part (section 38(e)(2));
    (iv) Restricting the growth of the savings association's assets 
(section 38(e)(3)); and
    (v) Requiring prior approval of certain expansion proposals (section 
38(e)(4)).
    (3) Additional provisions applicable to significantly 
undercapitalized, and critically undercapitalized savings associations. 
In addition to the provisions of section 38 of the FDI Act described in 
paragraph (a)(2) of this section, immediately upon receiving notice or 
being deemed to have notice, as provided in Sec. 565.3 or Sec. 565.5 
of this part, that the savings association is significantly 
undercapitalized, or critically undercapitalized, or that the savings 
association is subject to the provisions applicable to institutions that 
are significantly undercapitalized because the savings association 
failed to submit or implement in any material respect an acceptable 
capital restoration plan, the savings association shall become subject 
to the provisions of section 38 of the FDI Act that restrict 
compensation

[[Page 327]]

paid to senior executive officers of the institution (section 38(f)(4)).
    (4) Additional provisions applicable to critically undercapitalized 
savings associations. In addition to the provisions of section 38 of the 
FDI Act described in paragraphs (a)(2) and (a)(3) of this section, 
immediately upon receiving notice or being deemed to have notice, as 
provided in Sec. 565.3 of this part, that the savings association is 
critically undercapitalized, the savings association shall become 
subject to the provisions of section 38 of the FDI Act:
    (i) Restricting the activities of the savings association (section 
38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the savings 
association (section 38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OTS's discretion to take in connection 
with: A savings association that is deemed to be undercapitalized, 
significantly undercapitalized or critically undercapitalized, or has 
been reclassified as undercapitalized, or significantly 
undercapitalized; an officer or director of such savings association; or 
a company that controls such savings association, the OTS shall follow 
the procedures for issuing directives under Sec. Sec. 565.7 and 565.9 
of this part unless otherwise provided in section 38 or this part.



Sec. 565.7  Directives to take prompt corrective action.

    (a) Notice of intent to issue a directive--(1) In general. The OTS 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized savings association or, where appropriate, 
any company that controls the savings association, prior written notice 
of the OTS's intention to issue a directive requiring such savings 
association or company to take actions or to follow proscriptions 
described in section 38 that are within the OTS's discretion to require 
or impose under section 38 of the FDI Act, including sections 38(e)(5), 
(f)(2), (f)(3), or (f)(5). The savings association shall have such time 
to respond to a proposed directive as provided by the OTS under 
paragraph (c) of this section.
    (2) Immediate issuance of final directive. If the OTS finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the OTS may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue a directive requiring a savings 
association or any company that controls a savings association 
immediately to take actions or to follow proscriptions described in 
section 38 that are within the OTS's discretion to require or impose 
under section 38 of the FDI Act, including section 38(e)(5), (f)(2), 
(f)(3), or (f)(5). A savings association or company that is subject to 
such an immediately effective directive may submit a written appeal of 
the directive to the OTS. Such an appeal must be received by the OTS 
within 14 calendar days of the issuance of the directive, unless the OTS 
permits a longer period. The OTS shall consider any such appeal, if 
filed in a timely matter, within 60 days of receiving the appeal. During 
such period of review, the directive shall remain in effect unless the 
OTS, in its sole discretion, stays the effectiveness of the directive.
    (b) Contents of notice. A notice of intention to issue a directive 
shall include:
    (1) A statement of the savings association's capital measures and 
capital levels;
    (2) A description of the restrictions, prohibitions or affirmative 
actions that the OTS proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of such affirmative 
actions; and
    (4) The date by which the savings association or company subject to 
the directive may file with the OTS a written response to the notice.
    (c) Response to notice--(1) Time for response. A savings association 
or company may file a written response to a notice of intent to issue a 
directive within the time period set by the OTS. The date shall be at 
least 14 calendar days from the date of the notice unless the OTS 
determines that a shorter period is appropriate in light of the 
financial condition of the savings association or other relevant 
circumstances.

[[Page 328]]

    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the OTS is not an 
appropriate exercise of discretion under section 38;
    (ii) Any recommended modification of the proposed directive; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association or company regarding the proposed directive.
    (d) OTS consideration of response. After considering the response, 
the OTS may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the savings 
association or company; or
    (3) Seek additional information or clarification of the response 
from the savings association or company, or any other relevant source.
    (e) Failure to file response. Failure by a savings association or 
company to file with the OTS, within the specified time period, a 
written response to a proposed directive shall constitute a waiver of 
the opportunity to respond and shall constitute consent to the issuance 
of the directive.
    (f) Request for modification or rescission of directive. Any savings 
association or company that is subject to a directive under this part 
may, upon a change in circumstances, request in writing that the OTS 
reconsider the terms of the directive, and may propose that the 
directive be rescinded or modified. Unless otherwise ordered by the OTS, 
the directive shall continue in place while such request is pending 
before the OTS.



Sec. 565.8  Procedures for reclassifying a savings association based
on criteria other than capital.

    (a) Reclassification based on unsafe or unsound condition or 
practice--(1) Issuance of notice of proposed reclassification--(i) 
Grounds for reclassification. (A) Pursuant to Sec. 565.4(c) of this 
part, the OTS may reclassify a well capitalized savings association as 
adequately capitalized or subject an adequately capitalized or 
undercapitalized institution to the supervisory actions applicable to 
the next lower capital category if:
    (1) The OTS determines that the savings association is in unsafe or 
unsound condition; or
    (2) The OTS deems the savings association to be engaged in an unsafe 
or unsound practice and not to have corrected the deficiency.
    (B) Any action pursuant to this paragraph (a)(1)(i) shall 
hereinafter be referred to as ``reclassification.''
    (ii) Prior notice to institution. Prior to taking action pursuant to 
Sec. 565.4(c)(1), the OTS shall issue and serve on the savings 
association a written notice of the OTS's intention to reclassify the 
savings association.
    (2) Contents of notice. A notice of intention to reclassify a 
savings association based on unsafe or unsound condition shall include:
    (i) A statement of the savings association's capital measures and 
capital levels and the category to which the savings association would 
be reclassified;
    (ii) The reasons for reclassification of the savings association;
    (iii) The date by which the savings association subject to the 
notice of reclassification may file with the OTS a written appeal of the 
proposed reclassification and a request for a hearing, which shall be at 
least 14 calendar days from the date of service of the notice unless the 
OTS determines that a shorter period is appropriate in light of the 
financial condition of the savings association or other relevant 
circumstances.
    (3) Response to notice of proposed reclassification. A savings 
association may file a written response to a notice of proposed 
reclassification within the time period set by the OTS. The response 
should include:
    (i) An explanation of why the savings association is not in unsafe 
or unsound condition or otherwise should not be reclassified; and
    (ii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association or company regarding the reclassification.
    (4) Failure to file response. Failure by a savings association to 
file, within the

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specified time period, a written response with the OTS to a notice of 
proposed reclassification shall constitute a waiver of the opportunity 
to respond and shall constitute consent to the reclassification.
    (5) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the OTS or its designee under this section. If the savings 
association desires to present oral testimony or witnesses at the 
hearing, the savings association shall include a request to do so with 
the request for an informal hearing. A request to present oral testimony 
or witnesses shall specify the names of the witnesses and the general 
nature of their expected testimony. Failure to request a hearing shall 
constitute a waiver of any right to a hearing, and failure to request 
the opportunity to present oral testimony or witnesses shall constitute 
a waiver of any right to present oral testimony or witnesses.
    (6) Order for informal hearing. Upon receipt of a timely written 
request that includes a request for a hearing, the OTS shall issue an 
order directing an informal hearing to commence no later than 30 days 
after receipt of the request, unless the OTS allows further time at the 
request of the savings association. The hearing shall be held in 
Washington, DC or at such other place as may be designated by the OTS, 
before a presiding officer(s) designated by the OTS to conduct the 
hearing.
    (7) Hearing procedures. (i) The savings association shall have the 
right to introduce relevant written materials and to present oral 
argument at the hearing. The savings association may introduce oral 
testimony and present witnesses only if expressly authorized by the OTS 
or the presiding officer(s). Neither the provisions of the 
Administrative Procedure Act (5 U.S.C. 554-557) governing adjudications 
required by statute to be determined on the record nor part 509 of this 
chapter apply to an informal hearing under this section unless the OTS 
orders that such procedures shall apply.
    (ii) The informal hearing shall be recorded and a transcript 
furnished to the savings association upon request and payment of the 
cost thereof. Witnesses need not be sworn, unless specifically requested 
by a party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (iii) The presiding officer(s) may order that the hearing be 
continued for a reasonable period (normally five business days) 
following completion of oral testimony or argument to allow additional 
written submissions to the hearing record.
    (8) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OTS 
on the reclassification.
    (9) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the OTS will decide whether to reclassify the 
savings association and notify the savings association of the OTS's 
decision.
    (b) Request for rescission of reclassification. Any savings 
association that has been reclassified under this section, may, upon a 
change in circumstances, request in writing that the OTS reconsider the 
reclassification, and may propose that the reclassification be rescinded 
and that any directives issued in connection with the reclassification 
be modified, rescinded, or removed. Unless otherwise ordered by the OTS, 
the savings association shall remain subject to the reclassification and 
to any directives issued in connection with that reclassification while 
such request is pending before the OTS.



Sec. 565.9  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the OTS issues and serves a directive on 
a savings association pursuant to section 565.7 requiring the savings 
association to dismiss any director or senior executive officer under 
section 38(f)(2)(F)(ii) of the FDI Act, the OTS shall also serve a copy 
of the directive, or the relevant portions of the directive where 
appropriate, upon the person to be dismissed.
    (b) Response to directive--(1) Request for reinstatement. A director 
or senior executive officer who has been served

[[Page 330]]

with a directive under paragraph (a) of this section (Respondent) may 
file a written request for reinstatement. The request for reinstatement 
shall be filed within 10 calendar days of the receipt of the directive 
by the Respondent, unless further time is allowed by the OTS at the 
request of the Respondent.
    (2) Contents of request; informal hearing. The request for 
reinstatement should include reasons why the Respondent should be 
reinstated, and may include a request for an informal hearing before the 
OTS or its designee under this section. If the Respondent desires to 
present oral testimony or witnesses at the hearing, the Respondent shall 
include a request to do so with the request for an informal hearing. The 
request to present oral testimony or witnesses shall specify the names 
of the witnesses and the general nature of their expected testimony. 
Failure to request a hearing shall constitute a waiver of any right to a 
hearing and failure to request the opportunity to present oral testimony 
or witnesses shall constitute a waiver of any right or opportunity to 
present oral testimony or witnesses.
    (3) Effective date. Unless otherwise ordered by the OTS, the 
dismissal shall remain in effect while a request for reinstatement is 
pending.
    (c) Order for informal hearing. Upon receipt of a timely written 
request from a Respondent for an informal hearing on the portion of a 
directive requiring a savings association to dismiss from office any 
director or senior executive officer, the OTS shall issue an order 
directing an informal hearing to commence no later than 30 days after 
receipt of the request, unless the Respondent requests a later date. The 
hearing shall be held in Washington, DC, or at such other place as may 
be designated by the OTS, before a presiding officer(s) designated by 
the OTS to conduct the hearing.
    (d) Hearing procedures. (1) A Respondent may appear at the hearing 
personally or through counsel. A Respondent shall have the right to 
introduce relevant written materials and to present oral argument. A 
Respondent may introduce oral testimony and present witnesses only if 
expressly authorized by the OTS or the presiding officer(s). Neither the 
provisions of the Administrative Procedure Act governing adjudications 
required by statute to be determined on the record nor part 509 of this 
chapter apply to an informal hearing under this section unless the OTS 
orders that such procedures shall apply.
    (2) The informal hearing shall be recorded and a transcript 
furnished to the Respondent upon request and payment of the cost 
thereof. Witnesses need not be sworn, unless specifically requested by a 
party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (e) Standard for review. A Respondent shall bear the burden of 
demonstrating that his or her continued employment by or service with 
the savings association would materially strengthen the savings 
association's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the savings association's capital 
level or failure to submit or implement a capital restoration plan; and
    (2) To correct the unsafe or unsound condition or unsafe or unsound 
practice, to the extent that the directive was issued as a result of 
classification of the savings association based on supervisory criteria 
other than capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OTS 
concerning the Respondent's request for reinstatement with the savings 
association.
    (g) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing has been requested, the OTS shall grant or deny the request for 
reinstatement and notify the Respondent of the OTS's decision. If the 
OTS denies the request for

[[Page 331]]

reinstatement, the OTS shall set forth in the notification the reasons 
for the OTS's action.

[57 FR 44903, Sept. 29, 1992, as amended at 60 FR 66719, Dec. 26, 1995]



Sec. 565.10  Enforcement of directives.

    (a) Judicial remedies. Whenever a savings association or company 
that controls a savings association fails to comply with a directive 
issued under section 38, the OTS may seek enforcement of the directive 
in the appropriate United States district court pursuant to section 
8(i)(1) of the FDI Act.
    (b) Administrative remedies--(1) Failure to comply with directive. 
Pursuant to section 8(i)(2)(A) of the FDI Act, the OTS may assess a 
civil money penalty against any savings association or company that 
controls a savings association that violates or otherwise fails to 
comply with any final directive issued under section 38 and against any 
institution-affiliated party who participates in such violation or 
noncompliance.
    (2) Failure to implement capital restoration plan. The failure of a 
savings association to implement a capital restoration plan required 
under section 38, or this part, or the failure of a company having 
control of a savings association to fulfill a guarantee of a capital 
restoration plan made pursuant to section 38(e)(2) of the FDI Act shall 
subject the savings association or company to the assessment of civil 
money penalties pursuant to section 8(i)(2)(A) of the FDI Act.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OTS may seek enforcement 
of the provisions of section 38 or this part through any other judicial 
or administrative proceeding authorized by law.



PART 567_CAPITAL--Table of Contents




Sec.

                             Subpart A_Scope

567.0 Scope.

                Subpart B_Regulatory Captial Requirements

567.1 Definitions.
567.2 Minimum regulatory capital requirement.
567.3 lndividual minimum capital requirements.
567.4 Capital directives.
567.5 Components of capital.
567.6 Risk-based capital credit risk-weight categories.
567.8 Leverage ratio.
567.9 Tangible capital requirement.
567.10 Consequences of failure to meet capital requirements.
567.11 Reservation of authority.
567.12 Purchased credit card relationships, servicing assets, intangible 
          assets (other than purchased credit card relationships and 
          servicing assets), credit-enhancing interest-only strips, and 
          deferred tax assets.
567.14-567.19 [Reserved]

Appendices A-B to Part 567 [Reserved]
Appendix C to Part 567--Risk-Based Capital Requirements--Internal-
          Ratings-Based and Advanced Measurement Approaches

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (note).

    Source: 54 FR 49649, Nov. 30, 1989, unless otherwise noted.



                             Subpart A_Scope



Sec. 567.0  Scope.

    (a) This part prescribes the minimum regulatory capital requirements 
for savings associations. Subpart B of this part applies to all savings 
associations, except as described in paragraph (b) of this section.
    (b)(1) A savings association that uses Appendix C of this part must 
comply with the minimum qualifying criteria for internal risk 
measurement and management processes for calculating risk-based capital 
requirements, utilize the methodologies for calculating risk-based 
capital requirements, and make the required disclosures described in 
that appendix.
    (2) Subpart B of this part does not apply to the computation of 
risk-based capital requirements by a savings association that uses 
Appendix C of this part. However, these savings associations:
    (i) Must compute the components of capital under Sec. 567.5, 
subject to the modifications in sections 11 and 12 of Appendix C of this 
part.
    (ii) Must meet the leverage ratio requirement at Sec. Sec. 
567.2(a)(2) and 567.8 with

[[Page 332]]

tier 1 capital, as computed under sections 11 and 12 of Appendix C of 
this part.
    (iii) Must meet the tangible capital requirement described at 
Sec. Sec. 567.2(a)(3) and 567.9.
    (iv) Are subject to Sec. Sec. 567.3 (individual minimum capital 
requirement), 567.4 (capital directives); and 567.10 (consequences of 
failure to meet capital requirements).
    (v) Are subject to the reservations of authority at Sec. 567.11, 
which supplement the reservations of authority at section 1 of Appendix 
C of this part.

[72 FR 69438, Dec. 7, 2007]



                Subpart B_Regulatory Capital Requirements



Sec. 567.1  Definitions.

    For the purposes of this subpart:
    Adjusted total assets. The term adjusted total assets means:
    (1) A savings association's total assets as that term is defined in 
this section;
    (2) Plus
    (i) The prorated assets of any includable subsidiary in which the 
savings association has a minority ownership interest that is not 
consolidated under generally accepted accounting principles; and
    (ii) The remaining goodwill (FSLIC Capital Contributions) resulting 
from prior regulatory accounting practices as provided in the definition 
of qualifying supervisory goodwill in this section;
    (3) Minus
    (i) Assets not included in the applicable capital standard except 
for those subject to paragraphs (3)(ii) and (3)(iii) of this definition;
    (ii) Investments in any includable subsidiary in which a savings 
association has a minority interest;
    (iii) Investments in any subsidiary subject to consolidation under 
paragraph (2)(ii) of this definition; and
    (iv) For purposes of determining core capital, qualifying 
supervisory goodwill.
    Asset-backed commercial paper program. The term asset-backed 
commercial paper program (ABCP program) means a program that primarily 
issues commercial paper that has received a credit rating from an NRSRO 
and that is backed by assets or other exposures held in a bankruptcy-
remote special purpose entity. The term sponsor of an ABCP program means 
a savings association that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the asset pools to be purchased by an ABCP program; or
    (4) Administers the ABCP program by monitoring the assets, arranging 
for debt placement, compiling monthly reports, or ensuring compliance 
with the program documents and with the program's credit and investment 
policy.
    Cash items in the process of collection. The term cash items in the 
process of collection means checks or drafts in the process of 
collection that are drawn on another depository institution, including a 
central bank, and that are payable immediately upon presentation; U.S. 
Government checks that are drawn on the United States Treasury or any 
other U.S. Government or Government-sponsored agency and that are 
payable immediately upon presentation; broker's security drafts and 
commodity or bill-of-lading drafts payable immediately upon 
presentation; and unposted debits.
    Commitment. The term commitment means any arrangement that obligates 
a savings association to:
    (1) Purchase loans or securities;
    (2) Extend credit in the form of loans or leases, participations in 
loans or leases, overdraft facilities, revolving credit facilities, home 
equity lines of credit, eligible ABCP liquidity facilities, or similar 
transactions.
    Common stockholders' equity. The term common stockholders' equity 
means common stock, common stock surplus, retained earnings, and 
adjustments for the cumulative effect of foreign currency translation, 
less net unrealized losses on available-for-sale equity securities with 
readily determinable fair values.
    Conditional guarantee. The term conditional guarantee means a 
contingent obligation of the United States Government or its agencies, 
the validity of which to the beneficiary is dependent upon some 
affirmative action--e.g.,

[[Page 333]]

servicing requirements--on the part of the beneficiary of the guarantee 
or a third party.
    Credit derivative. The term credit derivative means a contract that 
allows one party (the protection purchaser) to transfer the credit risk 
of an asset or off-balance sheet credit exposure to another party (the 
protection provider). The value of a credit derivative is dependent, at 
least in part, on the credit performance of a ``referenced asset.''
    Credit-enhancing interest-only strip. (1) The term credit-enhancing 
interest-only strip means an on-balance sheet asset that, in form or in 
substance:
    (i) Represents the contractual right to receive some or all of the 
interest due on transferred assets; and
    (ii) Exposes the savings association to credit risk directly or 
indirectly associated with the transferred assets that exceeds its pro 
rata share of the savings association's claim on the assets whether 
through subordination provisions or other credit enhancement techniques.
    (2) OTS reserves the right to identify other cash flows or related 
interests as a credit-enhancing interest-only strip. In determining 
whether a particular interest cash flow functions as a credit-enhancing 
interest-only strip, OTS will consider the economic substance of the 
transaction.
    Credit-enhancing representations and warranties. (1) The term 
credit-enhancing representations and warranties means representations 
and warranties that are made or assumed in connection with a transfer of 
assets (including loan servicing assets) and that obligate a savings 
association to protect investors from losses arising from credit risk in 
the assets transferred or loans serviced.
    (2) Credit-enhancing representations and warranties include promises 
to protect a party from losses resulting from the default or 
nonperformance of another party or from an insufficiency in the value of 
the collateral.
    (3) Credit-enhancing representations and warranties do not include:
    (i) Early-default clauses and similar warranties that permit the 
return of, or premium refund clauses covering, qualifying mortgage loans 
for a period not to exceed 120 days from the date of transfer. These 
warranties may cover only those loans that were originated within one 
year of the date of the transfer;
    (ii) Premium refund clauses covering assets guaranteed, in whole or 
in part, by the United States government, a United States government 
agency, or a United States government-sponsored enterprise, provided the 
premium refund clause is for a period not to exceed 120 days from the 
date of transfer; or
    (iii) Warranties that permit the return of assets in instances of 
fraud, misrepresentation or incomplete documentation.
    Depository institution. The term domestic depository institution 
means a financial institution that engages in the business of banking; 
that is recognized as a bank by the bank supervisory or monetary 
authorities of the country of its incorporation and the country of its 
principal banking operations; that receives deposits to a substantial 
extent in the regular course of business; and that has the power to 
accept demand deposits. In the United States, this definition 
encompasses all federally insured offices of commercial banks, mutual 
and stock savings banks, savings or building and loan associations 
(stock and mutual), cooperative banks, credit unions, and international 
banking facilities of domestic depository institutions. Bank holding 
companies and savings and loan holding companies are excluded from this 
definition. For the purposes of assigning risk weights, the 
differentiation between OECD depository institutions and non-OECD 
depository institutions is based on the country of incorporation. Claims 
on branches and agencies of foreign banks located in the United States 
are to be categorized on the basis of the parent bank's country of 
incorporation.
    Direct credit substitute. The term direct credit substitute means an 
arrangement in which a savings association assumes, in form or in 
substance, credit risk associated with an on-or off-balance sheet asset 
or exposure that was not previously owned by the savings association 
(third-party asset) and the risk assumed by the savings association 
exceeds the pro rata share of the savings association's interest in the

[[Page 334]]

third-party asset. If a savings association has no claim on the third-
party asset, then the savings association's assumption of any credit 
risk is a direct credit substitute. Direct credit substitutes include:
    (1) Financial standby letters of credit that support financial 
claims on a third party that exceed a savings association's pro rata 
share in the financial claim;
    (2) Guarantees, surety arrangements, credit derivatives, and similar 
instruments backing financial claims that exceed a savings association's 
pro rata share in the financial claim;
    (3) Purchased subordinated interests that absorb more than their pro 
rata share of losses from the underlying assets;
    (4) Credit derivative contracts under which the savings association 
assumes more than its pro rata share of credit risk on a third-party 
asset or exposure;
    (5) Loans or lines of credit that provide credit enhancement for the 
financial obligations of a third party;
    (6) Purchased loan servicing assets if the servicer is responsible 
for credit losses or if the servicer makes or assumes credit-enhancing 
representations and warranties with respect to the loans serviced. 
Servicer cash advances as defined in this section are not direct credit 
substitutes;
    (7) Clean-up calls on third party assets. However, clean-up calls 
that are 10 percent or less of the original pool balance and that are 
exercisable at the option of the savings association are not direct 
credit substitutes; and
    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Eligible ABCP liquidity facility. The term eligible ABCP liquidity 
facility means a liquidity facility that supports asset-backed 
commercial paper, in form or in substance, and that meets the following 
criteria:
    (1)(i) At the time of the draw, the liquidity facility must be 
subject to an asset quality test that precludes funding against assets 
that are 90 days or more past due or in default; and
    (ii) If the assets that the liquidity facility is required to fund 
against are assets or exposures that have received a credit rating by a 
NRSRO at the time the inception of the facility, the facility can be 
used to fund only those assets or exposures that are rated investment 
grade by an NRSRO at the time of funding; or
    (2) If the assets that are funded under the liquidity facility do 
not meet the criteria described in paragraph (1) of this definition, the 
assets must be guaranteed, conditionally or unconditionally, by the 
United States Government, its agencies, or the central government of an 
OECD country.
    Eligible savings association. (1) The term eligible savings 
association means a savings association with respect to which the 
Director of the Office of Thrift Supervision has determined, on the 
basis of information available at the time, that:
    (i) The savings association's management appears to be competent;
    (ii) The savings association, as certified by its Board of 
Directors, is in substantial compliance with all applicable statutes, 
regulations, orders and written agreements and directives; and
    (iii) The savings association's management, as certified by its 
Board of Directors, has not engaged in insider dealing, speculative 
practices, or any other activities that have or may jeopardize the 
association's safety and soundness or contributed to impairing the 
association's capital.
    (2) Savings associations, for purposes of this paragraph, will be 
deemed to be eligible unless the Director makes a determination 
otherwise or notifies the savings association of its intent to conduct 
either an informal or formal examination to determine eligibility and 
provides written notification thereof to the savings association.
    Equity investments. (1) The term equity investments includes 
investments in equity securities and real property that would be 
considered an equity investment under generally accepted accounting 
principles.
    (2)(i) The term equity securities means any:
    (A) Stock, certificate of interest of participation in any profit-
sharing agreement, collateral trust certificate or subscription, 
preorganization certificate or subscription, transferable

[[Page 335]]

share, investment contract, or voting trust certificate; or
    (B) In general, any interest or instrument commonly known as an 
equity security; or
    (C) Loans having profit sharing features which generally accepted 
accounting principles would reclassify as equity securities; or
    (D) Any security immediately convertible at the option of the holder 
without payment of substantial additional consideration into such a 
security; or
    (E) Any security carrying any warrant or right to subscribe to or 
purchase such a security; or
    (F) Any certificate of interest or participation in, temporary or 
Interim certificate for, or receipt for any of the foregoing or any 
partnership interest; or
    (G) Investments in equity securities and loans or advances to and 
guarantees issued on behalf of partnerships or joint ventures in which a 
savings association holds an interest in real property under generally 
accepted accounting principles.
    (ii) The term equity securities does not include investments in a 
subsidiary as that term is defined in this section, equity investments 
that are permissible for national banks, ownership interests in pools of 
assets that are risk-weighted in accordance with Sec. 567.6(a)(1)(vi) 
of this part, or the stock of Federal Home Loan Banks or Federal Reserve 
Banks.
    (3) For purposes of this part, the term equity investments in real 
property does not include interests in real property that are primarily 
used or intended to be used by the savings association, its 
subsidiaries, or its affiliates as offices or related facilities for the 
conduct of its business.
    (4) In addition, for purposes of this part, the term equity 
investments in real property does not include interests in real property 
that are acquired in satisfaction of a debt previously contracted in 
good faith or acquired in sales under judgments, decrees, or mortgages 
held by the savings association, provided that the property is not 
intended to be held for real estate investment purposes but is expected 
to be disposed of within five years or a longer period approved by the 
Office.
    Exchange rate contracts. The term exchange rate contracts includes 
cross-currency interest rate swaps; forward foreign exchange rate 
contracts; currency options purchased; and any similar instrument that, 
in the opinion of the Office, may give rise to similar risks.
    Face amount. The term face amount means the notational principal, or 
face value, amount of an off-balance sheet item or the amortized cost of 
an on-balance sheet asset.
    Financial asset. The term financial asset means cash or other 
monetary instrument, evidence of debt, evidence of an ownership interest 
in an entity, or a contract that conveys a right to receive or exchange 
cash or another financial instrument from another party.
    Financial standby letter of credit. The term financial standby 
letter of credit means a letter of credit or similar arrangement that 
represents an irrevocable obligation to a third-party beneficiary:
    (1) To repay money borrowed by, or advanced to, or for the account 
of, a second party (the account party); or
    (2) To make payment on behalf of the account party, in the event 
that the account party fails to fulfill its obligation to the 
beneficiary.
    Includable subsidiary. The term includable subsidiary means a 
subsidiary of a savings association that is:
    (1) Engaged solely in activities not impermissible for a national 
bank;
    (2) Engaged in activities not permissible for a national bank, but 
only if acting solely as agent for its customers and such agency 
position is clearly documented in the savings association's files;
    (3) Engaged solely in mortgage-banking activities;
    (4)(i) Itself an insured depository institution or a company the 
sole investment of which is an insured depository institution, and
    (ii) Was acquired by the parent savings association prior to May 1, 
1989; or
    (5) A subsidiary of any Federal savings association existing as a 
Federal savings association on August 9, 1989 that
    (i) Was chartered prior to October 15, 1982, as a savings bank or a 
cooperative bank under State law, or

[[Page 336]]

    (ii) Acquired its principal assets from an association that was 
chartered prior to October 15, 1982, as a savings bank or a cooperative 
bank under State law.
    Intangible assets. The term intangible assets means assets 
considered to be intangible assets under generally accepted accounting 
principles. These assets include, but are not limited to, goodwill, core 
deposit premiums, purchased credit card relationships, favorable 
leaseholds, and servicing assets (mortgage and non-mortgage). Interest-
only strips receivable and other nonsecurity financial instruments are 
not intangible assets under this definition.
    Interest-rate contracts. The term interest-rate contracts includes 
single currency interest-rate swaps; basis swaps; forward rate 
agreements; interest-rate options purchased; forward forward deposits 
accepted; and any other instrument that, in the opinion of the Office, 
may give rise to similar risks, including when-issued securities.
    Liquidity facility. The term liquidity facility means a legally 
binding commitment to provide liquidity support to asset-backed 
commercial paper by lending to, or purchasing assets from any structure, 
program or conduit in the event that funds are required to repay 
maturing asset-backed commercial paper.
    Mortgage-related securities. The term mortgage-related securities 
means any mortgage-related qualifying securities under section 3(a)(41) 
of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(41), Provided, 
That the rating requirements of that section shall not be considered for 
purposes of this definition.
    Nationally recognized statistical rating organization (NRSRO). The 
term nationally recognized statistical rating organization means an 
entity recognized by the Division of Market Regulation of the Securities 
and Exchange Commission (Commission) as a nationally recognized 
statistical rating organization for various purposes, including the 
Commission's uniform net capital requirements for brokers and dealers.
    OECD-based country. The term OECD-based country means a member of 
that grouping of countries that are full members of the Organization for 
Economic Cooperation and Development (OECD) plus countries that have 
concluded special lending arrangements with the International Monetary 
Fund (IMF) associated with the IMF's General Arrangements to Borrow. 
This term excludes any country that has rescheduled its external 
sovereign debt within the previous five years. A rescheduling of 
external sovereign debt generally would include any renegotiation of 
terms arising from a country's inability or unwillingness to meet its 
external debt service obligations, but generally would not include 
renegotiations of debt in the normal course of business, such as a 
renegotiation to allow the borrower to take advantage of a decline in 
interest rates or other change in market conditions.
    Original maturity. The term original maturity means, with respect to 
a commitment, the earliest date after a commitment is made on which the 
commitment is scheduled to expire (i.e., it will reach its stated 
maturity and cease to be binding on either party), Provided, That 
either:
    (i) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (ii) If the commitment is subject to extension or renewal beyond its 
stated expiration date, the stated expiration date will be deemed the 
original maturity only if the extension or renewal must be based upon 
terms and conditions independently negotiated in good faith with the 
customer at the time of the extension or renewal and upon a new, bona 
fide credit analysis utilizing current information on financial 
condition and trends.
    Performance-based standby letter of credit. The term performance-
based standby letter of credit means any letter of credit, or similar 
arrangement, however named or described, which represents an irrevocable 
obligation to the beneficiary on the part of the issuer to make payment 
on account of any default by a third party in the performance of a 
nonfinancial or commercial obligation. Such letters of credit include 
arrangements backing subcontractors' and suppliers' performance, labor 
and materials contracts, and construction bids.

[[Page 337]]

    Perpetual preferred stock. The term perpetual preferred stock means 
preferred stock without a fixed maturity date that cannot be redeemed at 
the option of the holder, and that has no other provisions that will 
require future redemption of the issue. For purposes of these 
instruments, preferred stock that can be redeemed at the option of the 
holder is deemed to have an ``original maturity'' of the earliest 
possible date on which it may be so redeemed. Cumulative perpetual 
preferred stock is preferred stock where the dividends accumulate from 
one period to the next. Noncumulative perpetual preferred stock is 
preferred stock where the unpaid dividends are not carried over to 
subsequent dividend periods.
    Problem institution. The term problem institution means a savings 
association that, at the time of its acquisition, merger, purchase of 
assets or other business combination with or by another savings 
association:
    (1) Was subject to special regulatory controls by its primary 
Federal or state regulatory authority;
    (2) Posed particular supervisory concerns to its primary Federal or 
state regulatory authority; or
    (3) Failed to meet its regulatory capital requirement immediately 
before the transaction.
    Prorated assets. The term prorated assets means the total assets (as 
determined in the most recently available GAAP report but in no event 
more than one year old) of a subsidiary (including those subsidiaries 
where the savings association has a minority interest) multiplied by the 
savings association's percentage of ownership of that subsidiary.
    Qualifying mortgage loan. (1) The term qualifying mortgage loan 
means a loan that:
    (i) Is fully secured by a first lien on a one-to four-family 
residential property;
    (ii) Is underwritten in accordance with prudent underwriting 
standards, including standards relating the ratio of the loan amount to 
the value of the property (LTV ratio). See Appendix to 12 CFR 560.101. A 
nonqualifying mortgage loan that is paid down to an appropriate LTV 
ratio (calculated using value at origination) may become a qualifying 
loan if it meets all other requirements of this definition;
    (iii) Maintains an appropriate LTV ratio based on the amortized 
principal balance of the loan; and
    (iv) Is performing and is not more than 90 days past due.
    (2) If a savings association holds the first and junior lien(s) on a 
residential property and no other party holds an intervening lien, the 
transaction is treated as a single loan secured by a first lien for the 
purposes of determining the LTV ratio and the appropriate risk weight 
under Sec. 567.6(a).
    (3) A loan to an individual borrower for the construction of the 
borrower's home may be included as a qualifying mortgage loan.
    (4) A loan that meets the requirements of this section prior to 
modification on a permanent or trial basis under the U.S. Department of 
Treasury's Home Affordable Mortgage Program may be included as a 
qualifying mortgage loan, so long as the loan is not 90 days or more 
past due.
    Qualifying multifamily mortgage loan. (1) The term qualifying 
multifamily mortgage loan means a loan secured by a first lien on 
multifamily residential properties consisting of 5 or more dwelling 
units, provided that:
    (i) The amortization of principal and interest occurs over a period 
of not more than 30 years;
    (ii) The original minimum maturity for repayment of principal on the 
loan is not less than seven years;
    (iii) When considering the loan for placement in a lower risk-weight 
category, all principal and interest payments have been made on a timely 
basis in accordance with its terms for the preceding year;
    (iv) The loan is performing and not 90 days or more past due;
    (v) The loan is made by the savings association in accordance with 
prudent underwriting standards; and
    (vi) If the interest rate on the loan does not change over the term 
of the loan:
    (A) The current loan balance amount does not exceed 80 percent of 
the value of the property securing the loan; and

[[Page 338]]

    (B) For the property's most recent fiscal year, the ratio of annual 
net operating income generated by the property (before payment of any 
debt service on the loan) to annual debt service on the loan is not less 
than 120 percent, or in the case of cooperative or other not-for-profit 
housing projects, the property generates sufficient cash flows to 
provide comparable protection to the institution; or
    (vii) If the interest rate on the loan changes over the term of the 
loan:
    (A) The current loan balance amount does not exceed 75 percent of 
the value of the property securing the loan; and
    (B) For the property's most recent fiscal year, the ratio of annual 
net operating income generated by the property (before payment of any 
debt service on the loan) to annual debt service on the loan is not less 
than 115 percent, or in the case of cooperative or other not-for-profit 
housing projects, the property generates sufficient cash flows to 
provide comparable protection to the institution.
    (2) The term qualifying multifamily mortgage loan also includes a 
multifamily mortgage loan that on March 18, 1994 was a first mortgage 
loan on an existing property consisting of 5-36 dwelling units with an 
initial loan-to-value ratio of not more than 80% where an average annual 
occupancy rate of 80% or more of total units had existed for at least 
one year, and continues to meet these criteria.
    (3) For purposes of paragraphs (1) (vi) and (vii) of this 
definition, the term value of the property means, at origination of a 
loan to purchase a multifamily property: the lower of the purchase price 
or the amount of the initial appraisal, or if appropriate, the initial 
evaluation. In cases not involving the purchase of a multifamily loan, 
the value of the property is determined by the most current appraisal, 
or if appropriate, the most current evaluation.
    (4) In cases where a borrower refinances a loan on an existing 
property, as an alternative to paragraphs (1) (iii), (vi), and (vii) of 
this definition:
    (i) All principal and interest payments on the loan being refinanced 
have been made on a timely basis in accordance with the terms of that 
loan for the preceding year; and
    (ii) The net income on the property for the preceding year would 
support timely principal and interest payments on the new loan in 
accordance with the applicable debt service requirement.
    Qualifying residential construction loan. (1) The term qualifying 
residential construction loan, also referred to as a residential bridge 
loan, means a loan made in accordance with sound lending principles 
satisfying the following criteria:
    (i) The builder must have substantial project equity in the home 
construction project;
    (ii) The residence being constructed must be a 1-4 family residence 
sold to a home purchaser;
    (iii) The lending savings association must obtain sufficient 
documentation from a permanent lender (which may be the construction 
lender) demonstrating that:
    (A) The home buyer intends to purchase the residence; and
    (B) Has the ability to obtain a permanent qualifying mortgage loan 
sufficient to purchase the residence;
    (iv) The home purchaser must have made a substantial earnest money 
deposit;
    (v) The construction loan must not exceed 80 percent of the sales 
price of the residence;
    (vi) The construction loan must be secured by a first lien on the 
lot, residence under construction, and other improvements;
    (vii) The lending thrift must retain sufficient undisbursed loan 
funds throughout the construction period to ensure project completion;
    (viii) The builder must incur a significant percentage of direct 
costs (i.e., the actual costs of land, labor, and material) before any 
drawdown on the loan;
    (ix) If at any time during the life of the construction loan any of 
the criteria of this rule are no longer satisfied, the association must 
immediately recategorize the loan at a 100 percent risk-weight and must 
accurately report the loan in the association's next quarterly Thrift 
Financial Report;
    (x) The home purchaser must intend that the home will be owner-
occupied;
    (xi) The home purchaser(s) must be an individual(s), not a 
partnership,

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joint venture, trust corporation, or any other entity (including an 
entity acting as a sole proprietorship) that is purchasing the home(s) 
for speculative purposes; and
    (xii) The loan must be performing and not more than 90 days past 
due.
    (2) The documentation for each loan and home sale must be sufficient 
to demonstrate compliance with the criteria in paragraph (1) of this 
definition. The OTS retains the discretion to determine that any loans 
not meeting sound lending principles must be placed in a higher risk-
weight category. The OTS also reserves the discretion to modify these 
criteria on a case-by-case basis provided that any such modifications 
are not inconsistent with the safety and soundness objectives of this 
definition.
    Qualifying securities firm. The term qualifying securities firm 
means:
    (1) A securities firm incorporated in the United States that is a 
broker-dealer that is registered with the Securities and Exchange 
Commission (SEC) and that complies with the SEC's net capital 
regulations (17 CFR 240.15c3(1)); and
    (2) A securities firm incorporated in any other OECD-based country, 
if the savings association is able to demonstrate that the securities 
firm is subject to consolidated supervision and regulation (covering its 
subsidiaries, but not necessarily its parent organizations) comparable 
to that imposed on depository institutions in OECD countries. Such 
regulation must include risk-based capital requirements comparable to 
those imposed on depository institutions under the Accord on 
International Convergence of Capital Measurement and Capital Standards 
(1988, as amended in 1998).
    Qualifying supervisory goodwill. The term qualifying supervisory 
goodwill means, for eligible savings associations:
    (1) Any unamortized goodwill (FSLIC Capital Contributions, as 
reported in the September 30, 1989 Thrift Financial Report) that existed 
on April 12, 1989 resulting from prior regulatory accounting practices 
less any amortization that would have occurred subsequent to April 12, 
1989 through the current reporting period where the amortization is 
calculated on a straight line basis over the shorter of 20 years, or the 
remaining period for amortization in effect on April 12, 1989 for 
regulatory accounting practices; plus
    (2) The lesser of:
    (i) Supervisory goodwill as defined in this section that is included 
in goodwill that is reflected in the current reporting period under 
generally accepted accounting principles (``GAAP''); or
    (ii)(A) Supervisory goodwill as defined in this section that is 
included in goodwill that is reflected in the current reporting period 
under GAAP;
    (B) Plus any amortization of the goodwill in paragraph (2)(ii)(A) of 
this definition that occurred subsequent to April 12, 1989 for GAAP 
reporting purposes;
    (C) Minus the amortization of the goodwill in paragraph (2)(ii)(A) 
of this definition through the current reporting period that results 
when the goodwill is amortized subsequent to April 12, 1989 on a 
straightline basis over the shorter of--
    (1) 20 years; or
    (2) The remaining period for amortization in effect on April 12, 
1989 under regulatory accounting practices.
    Reciprocal holdings of depository institution instruments. The term 
reciprocal holdings of depository institution instruments means cross-
holdings or other formal or informal arrangements in which two or more 
depository institutions swap, exchange, or otherwise agree to hold each 
other's capital instruments. This definition does not include holdings 
of capital instruments issued by other depository institutions that were 
taken in satisfaction of debts previously contracted, provided that the 
reporting savings association has not held such instruments for more 
than five years or a longer period approved by the Office.
    Recourse. The term recourse means a savings association's retention, 
in form or in substance, of any credit risk directly or indirectly 
associated with an asset it has sold (in accordance with generally 
accepted accounting principles) that exceeds a pro rata share of that 
savings association's claim on the asset. If a savings association has 
no claim on an asset it has sold, then the retention of any credit risk 
is recourse.

[[Page 340]]

A recourse obligation typically arises when a savings association 
transfers assets in a sale and retains an explicit obligation to 
repurchase assets or to absorb losses due to a default on the payment of 
principal or interest or any other deficiency in the performance of the 
underlying obligor or some other party. Recourse may also exist 
implicitly if a savings association provides credit enhancement beyond 
any contractual obligation to support assets it has sold. Recourse 
obligations include:
    (1) Credit-enhancing representations and warranties made on 
transferred assets;
    (2) Loan servicing assets retained pursuant to an agreement under 
which the savings association will be responsible for losses associated 
with the loans serviced. Servicer cash advances as defined in this 
section are not recourse obligations;
    (3) Retained subordinated interests that absorb more than their pro 
rata share of losses from the underlying assets;
    (4) Assets sold under an agreement to repurchase, if the assets are 
not already included on the balance sheet;
    (5) Loan strips sold without contractual recourse where the maturity 
of the transferred portion of the loan is shorter than the maturity of 
the commitment under which the loan is drawn;
    (6) Credit derivatives that absorb more than the savings 
association's pro rata share of losses from the transferred assets;
    (7) Clean-up calls on assets the savings association has sold. 
However, clean-up calls that are 10 percent or less of the original pool 
balance and that are exercisable at the option of the savings 
association are not recourse arrangements; and
    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Replacement cost. The term replacement cost means, with respect to 
interest rate and exchange-rate contracts, the loss that would be 
incurred in the event of a counterparty default, as measured by the net 
cost of replacing the contract at the current market value. If default 
would result in a theoretical profit, the replacement value is 
considered to be zero. This mark-to-market process must incorporate 
changes in both interest rates and counterparty credit quality.
    Residential properties. The term residential properties means 
houses, condominiums, cooperative units, and manufactured homes. This 
definition does not include boats or motor homes, even if used as a 
primary residence, or timeshare properties.
    Residual characteristics. The term residual characteristics means 
interests similar to a multi-class pay-through obligation representing 
the excess cash flow generated from mortgage collateral over the amount 
required for the issue's debt service and ongoing administrative 
expenses or interests presenting similar degrees of interest-rate/
prepayment risk and principal loss risks.
    Residual interest. (1) The term residual interest means any on-
balance sheet asset that:
    (i) Represents an interest (including a beneficial interest) created 
by a transfer that qualifies as a sale (in accordance with generally 
accepted accounting principles) of financial assets, whether through a 
securitization or otherwise; and
    (ii) Exposes a savings association to credit risk directly or 
indirectly associated with the transferred asset that exceeds a pro rata 
share of that savings association's claim on the asset, whether through 
subordination provisions or other credit enhancement techniques.
    (2) Residual interests generally include credit-enhancing interest-
only strips, spread accounts, cash collateral accounts, retained 
subordinated interests (and other forms of overcollateralization), and 
similar assets that function as a credit enhancement.
    (3) Residual interests further include those exposures that, in 
substance, cause the savings association to retain the credit risk of an 
asset or exposure that had qualified as a residual interest before it 
was sold.
    (4) Residual interests generally do not include assets purchased 
from a third party. However, a credit-enhancing interest-only strip that 
is acquired

[[Page 341]]

in any asset transfer is a residual interest.
    Risk participation. The term risk participation means a 
participation in which the originating party remains liable to the 
beneficiary for the full amount of an obligation (e.g., a direct credit 
substitute), notwithstanding that another party has acquired a 
participation in that obligation.
    Risk-weighted assets. The term risk-weighted assets means the sum 
total of risk-weighted on-balance sheet assets and the total of risk-
weighted off-balance sheet credit equivalent amounts. These assets are 
calculated in accordance with Sec. 567.6 of this part.
    Securitization. The term securitization means the pooling and 
repackaging by a special purpose entity of assets or other credit 
exposures that can be sold to investors. Securitization includes 
transactions that create stratified credit risk positions whose 
performance is dependent upon an underlying pool of credit exposures, 
including loans and commitments.
    Servicer cash advance. The term servicer cash advance means funds 
that a residential mortgage servicer advances to ensure an uninterrupted 
flow of payments, including advances made to cover foreclosure costs or 
other expenses to facilitate the timely collection of the loan. A 
servicer cash advance is not a recourse obligation or a direct credit 
substitute if:
    (1) The servicer is entitled to full reimbursement and this right is 
not subordinated to other claims on the cash flows from the underlying 
asset pool; or
    (2) For any one loan, the servicer's obligation to make 
nonreimbursable advances is contractually limited to an insignificant 
amount of the outstanding principal amount on that loan.
    State. The term State means any one of the several states of the 
United States of America, the District of Columbia, Puerto Rico, and the 
territories and possessions of the United States.
    Structured financing program. The term structured financing program 
means a program where receivable interests and asset-or mortgage-backed 
securities issued by multiple participants are purchased by a special 
purpose entity that repackages those exposures into securities that can 
be sold to investors. Structured financing programs allocate credit 
risk, generally, between the participants and credit enhancement 
provided to the program.
    Subsidiary. The term subsidiary means any corporation, partnership, 
business trust, joint venture, association or similar organization in 
which a savings association directly or indirectly holds an ownership 
interest and the assets of which are consolidated with those of the 
savings association for purposes of reporting under Generally Accepted 
Accounting Principles (GAAP). Generally, these are majority-owned 
subsidiaries. \1\ This definition does not include ownership interests 
that were taken in satisfaction of debts previously contracted, provided 
that the reporting association has not held the interest for more than 
five years or a longer period approved by the OTS.
---------------------------------------------------------------------------

    \1\ The OTS reserves the right to review a savings association's 
investment in a subsidiary on a case-by-case basis. If the OTS 
determines that such investment is more appropriately treated as an 
equity security or an ownership interest in a subsidiary, it will make 
such determination regardless of the percentage of ownership held by the 
savings association.
---------------------------------------------------------------------------

    Supervisory goodwill. The term supervisory goodwill means goodwill 
\2\ resulting from the acquisition, merger, consolidation, purchase of 
assets, or other business combination (if such transaction occurred on 
or before April 12, 1989) of
---------------------------------------------------------------------------

    \2\ Goodwill that has been written off of an association's balance 
sheet for its GAAP financial statements or Thrift Financial Report 
cannot be counted as supervisory goodwill.
---------------------------------------------------------------------------

    (1) A savings association where the fair market value of assets was 
less than the fair market value of liabilities at the acquisition date; 
or
    (2) A problem institution.
    Tier 1 capital. The term Tier 1 capital means core capital as 
computed in accordance with Sec. 567.5(a) of this part.
    Tier 2 capital. The term Tier 2 capital means supplementary capital 
as computed in accordance with Sec. 567.5 of this part.
    Total assets. The term total assets means total assets as would be 
required

[[Page 342]]

to be reported for consolidated entities on period-end reports filed 
with the Office in accordance with generally accepted accounting 
principles.
    Traded position. The term traded position means a position retained, 
assumed, or issued in connection with a securitization that is rated by 
a NRSRO, where there is a reasonable expectation that, in the near 
future, the rating will be relied upon by:
    (1) Unaffiliated investors to purchase the security; or
    (2) An unaffiliated third party to enter into a transaction 
involving the position, such as a purchase, loan, or repurchase 
agreement.
    Unconditionally cancelable. The term unconditionally cancelable 
means, with respect to a commitment-type lending arrangement, that the 
savings association may, at any time, with or without cause, refuse to 
advance funds or extend credit under the facility. In the case of home 
equity lines of credit, the savings association is deemed able to 
unconditionally cancel the commitment if it can, at its option, prohibit 
additional extensions of credit, reduce the line, and terminate the 
commitment to the full extent permitted by relevant Federal law.
    United States Government or its agencies. The term United States 
Government or its agencies means an instrumentality of the U.S. 
Government whose debt obligations are fully and explicitly guaranteed as 
to the timely payment of principal and interest by the full faith and 
credit of the United States Government.
    United States Government-sponsored agency or corporation. The term 
United States Government-sponsored agency or corporation means an agency 
or corporation originally established or chartered to serve public 
purposes specified by the United States Congress but whose obligations 
are not explicitly guaranteed by the full faith and credit of the United 
States Government.

[54 FR 49649, Nov. 30, 1989]

    Editorial Note: For Federal Register citations affecting Sec. 
567.1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 567.2  Minimum regulatory capital requirement.

    (a) To meet its regulatory capital requirement a savings association 
must satisfy each of the following capital standards:
    (1) Risk-based capital requirement. (i) A savings association's 
minimum risk-based capital requirement shall be an amount equal to 8% of 
its risk-weighted assets as measured under Sec. 567.6 of this part.
    (ii) A savings association may not use supplementary capital to 
satisfy this requirement in an amount greater than 100% of its core 
capital as defined in Sec. 567.5 of this part.
    (2) Leverage ratio requirement. (i) A savings association's minimum 
leverage ratio requirement shall be the amount set forth in Sec. 567.8 
of this part.
    (ii) A savings association must satisfy this requirement with core 
capital as defined in Sec. 567.5(a) of this part.
    (3) Tangible capital requirement. (i) A savings association's 
minimum tangible capital requirement shall be the amount set forth in 
Sec. 567.9 of this part.
    (ii) A savings association must satisfy this requirement with 
tangible capital as defined in Sec. 567.9 of this part in an amount not 
less than 1.5% of its adjusted total assets.
    (b) [Reserved]
    (c) Savings associations are expected to maintain compliance with 
all of these standards at all times.

[54 FR 49649, Nov. 30, 1989, as amended at 57 FR 33440, July 29, 1992; 
58 FR 45813, Aug. 31, 1993; 62 FR 66263, Dec. 18, 1997; 64 FR 10201, Mar 
2, 1999; 66 FR 59663, Nov. 29, 2001]



Sec. 567.3  Individual minimum capital requirements.

    (a) Purpose and scope. The rules and procedures specified in this 
section apply to the establishment of an individual minimum capital 
requirement for a savings association that varies from the risk-based 
capital requirement, the leverage ratio requirement or the tangible 
capital requirement that would otherwise apply to the savings 
association under this part.
    (b) Appropriate considerations for establishing individual minimum 
capital requirements. Minimum capital levels

[[Page 343]]

higher than the risk-based capital requirement, the leverage ratio 
requirement or the tangible capital requirement required under this part 
may be appropriate for individual savings associations. Increased 
individual minimum capital requirements may be established upon a 
determination that the savings association's capital is or may become 
inadequate in view of its circumstances. For example, higher capital 
levels may be appropriate for:
    (1) A savings association receiving special supervisory attention;
    (2) A savings association that has or is expected to have losses 
resulting in capital inadequacy;
    (3) A savings association that has a high degree of exposure to 
interest rate risk, prepayment risk, credit risk, concentration of 
credit risk, certain risks arising from nontraditional activities, or 
similar risks; or a high proportion of off-balance sheet risk, 
especially standby letters of credit;
    (4) A savings association that has poor liquidity or cash flow;
    (5) A savings association growing, either internally or through 
acquisitions, at such a rate that supervisory problems are presented 
that are not dealt with adequately by other Office regulations or other 
guidance;
    (6) A savings association that may be adversely affected by the 
activities or condition of its holding company, affiliate(s), 
subsidiaries, or other persons or savings associations with which it has 
significant business relationships, including concentrations of credit;
    (7) A savings association with a portfolio reflecting weak credit 
quality or a significant likelihood of financial loss, or that has loans 
in nonperforming status or on which borrowers fail to comply with 
repayment terms;
    (8) A savings association that has inadequate underwriting policies, 
standards, or procedures for its loans and investments; or
    (9) A savings association that has a record of operational losses 
that exceeds the average of other, similarly situated savings 
associations; has management deficiencies, including failure to 
adequately monitor and control financial and operating risks, 
particularly the risks presented by concentrations of credit and 
nontraditional activities; or has a poor record of supervisory 
compliance.
    (c) Standards for determination of appropriate individual minimum 
capital requirements. The appropriate minimum capital level for an 
individual savings association cannot be determined solely through the 
application of a rigid mathematical formula or wholly objective 
criteria. The decision is necessarily based, in part, on subjective 
judgment grounded in agency expertise. The factors to be considered in 
the determination will vary in each case and may include, for example:
    (1) The conditions or circumstances leading to the determination 
that a higher minimum capital requirement is appropriate or necessary 
for the savings association;
    (2) The exigency of those circumstances or potential problems;
    (3) The overall condition, management strength, and future prospects 
of the savings association and, if applicable, its holding company, 
subsidiaries, and affiliates;
    (4) The savings association's liquidity, capital and other 
indicators of financial stability, particularly as compared with those 
of similarly situated savings associations; and
    (5) The policies and practices of the savings association's 
directors, officers, and senior management as well as the internal 
control and internal audit systems for implementation of such adopted 
policies and practices.
    (d) Procedures--(1) Notification. When the OTS determines that a 
minimum capital requirement is necessary or appropriate for a particular 
savings association, it shall notify the savings association in writing 
of its proposed individual minimum capital requirement; the schedule for 
compliance with the new requirement; and the specific causes for 
determining that the higher individual minimum capital requirement is 
necessary or appropriate for the savings association. The OTS shall 
forward the notifying letter to the appropriate state supervisor if a 
state-chartered savings association would be subject to an individual 
minimum capital requirement.
    (2) Response. (i) The response shall include any information that 
the savings association wants the OTS to consider

[[Page 344]]

in deciding whether to establish or to amend an individual minimum 
capital requirement for the savings association, what the individual 
capital requirement should be, and, if applicable, what compliance 
schedule is appropriate for achieving the required capital level. The 
responses of the savings association and appropriate state supervisor 
must be in writing and must be delivered to the OTS within 30 days after 
the date on which the notification was received. Such response must be 
filed in accordance with Sec. Sec. 516.30 and 516.40 of this chapter. 
The OTS may extend the time period for good cause. The time period for 
response by the insured savings association may be shortened for good 
cause:
    (A) When, in the opinion of the OTS, the condition of the savings 
association so requires, and the OTS informs the savings association of 
the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the OTS that it 
cannot or will not achieve its applicable minimum capital requirement.
    (ii) Failure to respond within 30 days, or such other time period as 
may be specified by the OTS, may constitute a waiver of any objections 
to the proposed individual minimum capital requirement or to the 
schedule for complying with it, unless the OTS has provided an extension 
of the response period for good cause.
    (3) Decision. After expiration of the response period, the OTS shall 
decide whether or not he believes the proposed individual minimum 
capital requirement should be established for the savings association, 
or whether that proposed requirement should be adopted in modified form, 
based on a review of the savings association's response and other 
relevant information. The OTS's decision shall address comments received 
within the response period from the savings association and the 
appropriate state supervisor (if a state-chartered savings association 
is involved) and shall state the level of capital required, the schedule 
for compliance with this requirement, and any specific remedial action 
the savings association could take to eliminate the need for continued 
applicability of the individual minimum capital requirement. The OTS 
shall provide the savings association and the appropriate state 
supervisor (if a state-chartered savings association is involved) with a 
written decision on the individual minimum capital requirement, 
addressing the substantive comments made by the savings association and 
setting forth the decision and the basis for that decision. Upon receipt 
of this decision by the savings association, the individual minimum 
capital requirement becomes effective and binding upon the savings 
association. This decision represents final agency action.
    (4) Failure to comply. Failure to satisfy an individual minimum 
capital requirement, or to meet any required incremental additions to 
capital under a schedule for compliance with such an individual minimum 
capital requirement, shall constitute a legal basis for issuing a 
capital directive pursuant to Sec. 567.4 of this part.
    (5) Change in circumstances. If, after a decision is made under 
paragraph (d)(3) of this section, there is a change in the circumstances 
affecting the savings association's capital adequacy or its ability to 
reach its required minimum capital level by the specified date, OTS may 
amend the individual minimum capital requirement or the savings 
association's schedule for such compliance. The OTS may decline to 
consider a savings association's request for such changes that are not 
based on a significant change in circumstances or that are repetitive or 
frivolous. Pending the OTS's reexamination of the original decision, 
that original decision and any compliance schedule established 
thereunder shall continue in full force and effect.

[54 FR 49649, Nov. 30, 1989, as amended at 55 FR 13516, Apr. 11, 1990; 
57 FR 14335, 14348, Apr. 20, 1992; 59 FR 64564, Dec. 15, 1994; 60 FR 
66719, Dec. 26, 1995; 66 FR 13009, Mar. 2, 2001; 72 FR 69438, Apr. 1, 
2007]



Sec. 567.4  Capital directives.

    (a) Issuance of a Capital Directive--(1) Purpose. In addition to any 
other action authorized by law, the Office, may issue a capital 
directive to a savings association that does not have an

[[Page 345]]

amount of capital satisfying its minimum capital requirement. Issuance 
of such a capital directive may be based on a savings association's 
noncompliance with the risk-based capital requirement, the leverage 
ratio requirement, the tangible capital requirement, or individual 
minimum capital requirement established under this part, by a written 
agreement under 12 U.S.C. 1464(s), or as a condition for approval of an 
application. A capital directive may order a savings association to:
    (i) Achieve its minimum capital requirement by a specified date;
    (ii) Adhere to the compliance schedule for achieving its individual 
minimum capital requirement;
    (iii) Submit and adhere to a capital plan acceptable to the Office 
describing the means and a time schedule by which the savings 
association shall reach its required capital level;
    (iv) Take other action, including but not limited to, reducing the 
savings association's assets or its rate of liability growth, or 
imposing restrictions on the savings association's payment of dividends, 
in order to cause the savings association to reach its required capital 
level;
    (v) Take any action authorized under Sec. 567.10(e); or
    (vi) Take a combination of any of these actions.

A capital directive issued under this section, including a plan 
submitted pursuant to a capital directive, is enforceable under 12 
U.S.C. 1818 in the same manner and to the same extent as an effective 
and outstanding cease and desist order which has become final under 12 
U.S.C. 1818.
    (2) Notice of intent to issue capital directive. The OTS will 
determine whether to initiate the process of issuing a capital 
directive. The OTS will notify a savings association in writing by 
registered mail of its intention to issue a capital directive. If a 
state-chartered savings association is involved, the OTS will also 
notify and solicit comment from the appropriate state supervisor. The 
notice will state:
    (i) The reasons for issuance of the capital directive and
    (ii) The proposed contents of the capital directive.
    (3) Response to notice of intent. (i) A savings association may 
respond to the notice of intent by submitting its own compliance plan, 
or may propose an alternative plan. The response should also include any 
information that the savings association wishes the OTS to consider in 
deciding whether to issue a capital directive. The appropriate state 
supervisor may also submit a response. These responses must be in 
writing and be delivered within 30 days after the receipt of the 
notices. Such responses must be filed in accordance with Sec. Sec. 
516.30 and 516.40 of this chapter. In its discretion, the Office may 
extend the time period for the response for good cause. The Office may, 
for good cause, shorten the 30-day time period for response by the 
insured savings assocation:
    (A) When, in the opinion of the Office, the condition of the savings 
association so requires, and the Office informs the savings association 
of the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the Office that 
it cannot or will not achieve its applicable minimum capital 
requirement.
    (ii) Failure to respond within 30 days of receipt, or such other 
time period as may be specified by the Office, may constitute a waiver 
of any objections to the capital directive unless the Office grants an 
extension of the time period for good cause.
    (4) Decision. After the closing date of the savings association's 
response period, or upon receipt of the savings association's response, 
if earlier, the Office shall consider the savings association's response 
and may seek additional information or clarification of the response. 
Thereafter, the Office will determine whether or not to issue a capital 
directive and, if one is to be issued, whether it should be as 
originally proposed or in modified form.
    (5) Service and effectiveness. (i) Upon issuance, a capital 
directive will be served upon the savings association. It will include 
or be accompanied by a statement of reasons for its issuance and shall 
address the responses received during the response period.

[[Page 346]]

    (ii) A capital directive shall become effective upon the expiration 
of 30 days after service upon the savings association, unless the Office 
determines that a shorter effective period is necessary either on 
account of the public interest or in order to achieve the capital 
directive's purpose. If the savings association has consented to 
issuance of the capital directive, it may become effective immediately. 
A capital directive shall remain in effect and enforceable unless, and 
then only to the extent that, it is stayed, modified, or terminated by 
the Office.
    (6) Change in circumstances. Upon a change in circumstances, a 
savings association may submit a request to the OTS to reconsider the 
terms of the capital directive or consider changes in the savings 
association's capital plan issued under a directive for the savings 
association to achieve its minimum capital requirement. If the OTS 
believes such a change is warranted, the OTS may modify the savings 
association's capital requirement or may refuse to make such 
modification if it determines that there are not significant changes in 
circumstances. Pending a decision on reconsideration, the capital 
directive and capital plan shall continue in full force and effect.
    (b) Relation to other administrative actions. The Office--
    (1) May consider a savings association's progress in adhering to any 
capital plan required under this section whenever such savings 
association or any affiliate of such savings association (including any 
company which controls such savings association) seeks approval for any 
proposal that would have the effect of diverting earnings, diminishing 
capital, or otherwise impeding such savings association's progress in 
meeting its minimum capital requirement; and
    (2) May disapprove any proposal referred to in paragraph (b)(1) of 
this section if the Office determines that the proposal would adversely 
affect the ability of the savings association on a current or pro forma 
basis to satisfy its capital requirement.

[54 FR 49649, Nov. 30, 1989, as amended at 55 FR 13517, Apr. 11, 1990; 
57 FR 14335, Apr. 20, 1992; 57 FR 33440, July 29, 1992; 60 FR 66719, 
Dec. 26, 1995; 66 FR 13009, Mar. 2, 2001; 72 FR 69439, Dec. 7, 2007]



Sec. 567.5  Components of capital.

    (a) Core Capital. (1) The following elements, \3\ less the amount of 
any deductions pursuant to paragraph (a)(2) of this section, comprise a 
savings association' s core capital:
---------------------------------------------------------------------------

    \3\ Stock issues where the dividend is reset periodically based on 
current market conditions and the savings associations's current credit 
rating, including but not limited to, auction rate, money market or 
remarketable preferred stock, are assigned to supplementary capital, 
regardless of cumulative or noncumulative characteristics.
---------------------------------------------------------------------------

    (i) Common stockholders' equity (including retained earnings);
    (ii) Noncumulative perpetual preferred stock and related surplus;\4\
---------------------------------------------------------------------------

    \4\ Stock issued by subsidiaries that may not be counted by the 
parent savings association on the Thrift Financial Report, likewise 
shall not be considered in calculating capital. For example, preferred 
stock issued by a savings association or a subsidiary that is, in 
effect, collateralized by assets of the savings association or one of 
its subsidiaries shall not be included in capital. Similarly, common 
stock with mandatorily redeemable provisions is not includable in core 
capital.
---------------------------------------------------------------------------

    (iii) Minority interests in the equity accounts of subsidiaries that 
are fully consolidated. However, minority interests in consolidated ABCP 
programs sponsored by a savings association are excluded from the 
association's core capital or total capital base if the savings 
association excludes the consolidated assets of such programs from risk-
weighted assets pursuant to Sec. 567.6(a)(3);
    (iv) Nonwithdrawable accounts and pledged deposits of mutual savings 
associations (excluding any treasury shares held by the savings 
association) meeting the criteria of regulations and memoranda of the 
Office to the extent that such accounts or deposits have no fixed 
maturity date, cannot be withdrawn at the option of the accountholder, 
and do not earn interest that carries over to subsequent periods;

[[Page 347]]

    (v) The remaining goodwill (FSLIC Capital Contributions) resulting 
from prior regulatory accounting practices as provided in paragraph (1) 
of the definition for qualifying supervisory goodwill in Sec. 567.1 of 
this part.
    (2) Deductions from core capital. (i) Intangible assets, as defined 
in Sec. 567.1 of this part, are deducted from assets and capital in 
computing core capital, except as otherwise provided by Sec. 567.12 of 
this part.
    (ii) Servicing assets that are not includable in core capital 
pursuant to Sec. 567.12 of this part are deducted from assets and 
capital in computing core capital.
    (iii) Credit-enhancing interest-only strips that are not includable 
in core capital under Sec. 567.12 of this part are deducted from assets 
and capital in computing core capital.
    (iv) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the savings 
association has a minority ownership interest) are deducted from assets 
and, thus core capital except as provided in paragraphs (a)(2)(v) and 
(a)(2)(vi) of this section.
    (v) If a savings association has any investments (both debt and 
equity) in one or more subsidiaries engaged as of April 12, 1989 and 
continuing to be engaged in any activity that would not fall within the 
scope of activities in which includable subsidiaries may engage, it must 
deduct such investments from assets and, thus, core capital in 
accordance with this paragraph (a)(2)(v). The savings association must 
first deduct from assets and, thus, core capital the amount by which any 
investments in such subsidiary(ies) exceed the amount of such 
investments held by the savings association as of April 12, 1989. Next 
the savings association must deduct from assets and, thus, core capital 
the lesser of:
    (A) The savings association's investments in and extensions of 
credit to the subsidiary as of April 12, 1989; or
    (B) The savings association's investments in and extensions of 
credit to the subsidiary on the date as of which the savings 
association's capital is being determined.
    (vi) If a savings association holds a subsidiary (either directly or 
through a subsidiary) that is itself a domestic depository institution, 
the Office may, in its sole discretion upon determining that the amount 
of core capital that would be required would be higher if the assets and 
liabilities of such subsidiary were consolidated with those of the 
parent savings association than the amount that would be required if the 
parent savings association's investment were deducted pursuant to 
paragraphs (a)(2)(iv) and (a)(2)(v) of this section, consolidate the 
assets and liabilities of that subsidiary with those of the parent 
savings association in calculating the capital adequacy of the parent 
savings association, regardless of whether the subsidiary would 
otherwise be an includable subsidiary as defined in Sec. 567.1 of this 
part.
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec. 567.12 of this part are deducted from assets and 
capital in computing core capital.
    (b) Supplementary Capital. Supplementary capital counts towards a 
savings association's total capital up to a maximum of 100% of the 
savings association's core capital. The following elements comprise a 
savings association's supplementary capital:
    (1) Permanent Capital Instruments. (i) Cumulative perpetual 
preferred stock and other perpetual preferred stock \5\ issued pursuant 
to regulations and memoranda of the Office;
---------------------------------------------------------------------------

    \5\ Preferred stock issued by subsidiaries that may not be counted 
by the parent savings association on the Thrift Financial Report 
likewise may not be considered in calculating capital. Preferred stock 
issued by a savings association or a subsidiary that is, in effect, 
collateralized by assets of the savings association or one of its 
subsidiaries may not be included in capital.
---------------------------------------------------------------------------

    (ii) Mutual capital certificates issued pursuant to regulations and 
memoranda of the Office;
    (iii) Nonwithdrawable accounts and pledged deposits (excluding any 
treasury shares held by the savings association) meeting the criteria of 
12 CFR 561.42 to the extent that such instruments are not included in 
core capital under paragraph (a) of this section;

[[Page 348]]

    (iv) Perpetual subordinated debt issued pursuant to regulations and 
memoranda of the Office; and
    (v) Mandatory convertible subordinated debt (capital notes) issued 
pursuant to regulations and memoranda of the Office.
    (2) Maturing Capital Instruments. (i) Subordinated debt issued 
pursuant to regulations and memoranda of the Office;
    (ii) Intermediate-term preferred stock issued pursuant to 
regulations and memoranda of the Office and any related surplus:
    (iii) Mandatory convertible subordinated debt (commitment notes) 
issued pursuant to regulations and memoranda of the Office; and
    (iv) Mandatorily redeemable preferred stock that was issued before 
July 23, 1985 or issued pursuant to regulations and memoranda of the 
Office and approved in writing by the FSLIC for inclusion as regulatory 
capital before or after issuance.
    (3) Transition rules for maturing capital instruments--(i) Maturing 
capital instruments issued on or before November 7, 1989. All maturing 
capital instruments issued on or before November 7, 1989, are includable 
in supplementary capital to the extent such instruments were includable 
in capital pursuant to the regulations of the OTS in effect as of that 
date, including any applicable amortization schedules. With the prior 
approval of the OTS, a savings association may include maturing capital 
instruments issued on or before November 7, 1989, in supplementary 
capital in accordance with the treatment set forth in paragraph 
(b)(3)(ii) of this section.

------------------------------------------------------------------------
                                                              Percent
                                                            included in
    Years to maturity of outstanding subordinated debt     supplementary
                                                              capital
------------------------------------------------------------------------
Greater than or equal to 7...............................          100
Less than 7 but greater than or equal to 6...............           86
Less than 6 but greater than or equal to 5...............           71
Less than 5 but greater than or equal to 4...............           57
Less than 4 but greater than or equal to 3...............           43
Less than 3 but greater than or equal to 2...............           29
Less than 2 but greater than or equal to 1...............           14
Less than 1..............................................            0
------------------------------------------------------------------------

    (ii) Maturing capital instruments issued after November 7, 1989. A 
savings association issuing maturing capital instruments after November 
7, 1989, may choose, subject to paragraph (b)(3)(ii)(C) of this section, 
to include such instruments pursuant to either paragraph (b)(3)(ii)(A) 
or (b)(3)(ii)(B) of this section.
    (A) At the beginning of each of the last five years of the life of 
the maturing capital instrument, the amount that is eligible to be 
included as supplementary capital is reduced by 20% of the original 
amount of that instrument (net of redemptions). \6\
---------------------------------------------------------------------------

    \6\ Capital instruments may be redeemed prior to maturity and 
without the prior approval of the Office, as long as the instruments are 
redeemed with the proceeds of, or replaced by, a like amount of a 
similar or higher quality capital instrument. However, the Office must 
be notified in writing at least 30 days in advance of such redemption.
---------------------------------------------------------------------------

    (B) Only the aggregate amount of maturing capital instruments that 
mature in any one year during the seven years immediately prior to an 
instrument's maturity that does not exceed 20% of an institution's 
capital will qualify as supplementary capital.
    (C) Once a savings association selects either paragraph 
(b)(3)(ii)(A) or (b)(3)(ii)(B) of this section for the issuance of a 
maturing capital instrument, it must continue to elect that option for 
all subsequent issuances of maturing capital instruments for as long as 
there is a balance outstanding of such post-November 7, 1989 issuances. 
Only when such issuances have all been repaid and the savings 
association has no balance of such issuances outstanding may the savings 
association elect the other option.
    (4) Allowance for loan and lease losses. Allowance for loan and 
lease losses established under OTS regulations and memoranda to a 
maximum of 1.25 percent of risk-weighted assets. \7\
---------------------------------------------------------------------------

    \7\ The amount of the allowance for loan and lease losses that may 
be included in capital is based on a percentage of risk-weighted assets. 
The gross sum of risk-weighted assets used in this calculation includes 
all risk-weighted assets, with the exception of assets required to be 
deducted under Sec. 567.6 in establishing risk-weighted assets. 
``Excess reserves for loan and lease losses'' is defined as assets 
required to be deducted from capital under Sec. 567.5(a)(2). A savings 
association may deduct excess reserves for loan and lease losses from 
the gross sum of risk-weighted assets (i.e., risk-weighted assets 
including allowance for loan and lease losses) in computing the 
denominator of the risk-based capital standard. Thus, a savings 
assocation will exclude the same amount of excess allowance for loan and 
lease losses from both the numerator and the denominator of the risk-
based capital ratio.

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[[Page 349]]

    (5) Unrealized gains on equity securities. Up to 45 percent of 
unrealized gains on available-for-sale equity securities with readily 
determinable fair values may be included in supplementary capital. 
Unrealized gains are unrealized holding gains, net of unrealized holding 
losses, before income taxes, calculated as the amount, if any, by which 
fair value exceeds historical cost. The OTS may disallow such inclusion 
in the calculation of supplementary capital if the Office determines 
that the equity securities are not prudently valued.
    (c) Total capital. (1) A savings association's total capital equals 
the sum of its core capital and supplementary capital (to the extent 
that such supplementary capital does not exceed 100% of its core 
capital).
    (2) The following assets, in addition to assets required to be 
deducted elsewhere in calculating core capital, are deducted from assets 
for purposes of determining total capital:
    (i) Reciprocal holdings of depository institution capital 
instruments; and
    (ii) All equity investments.

[54 FR 49649, Nov. 30, 1989]

    Editorial Note: For Federal Register citations affecting Sec. 
567.5, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 567.6  Risk-based capital credit risk-weight categories.

    (a) Risk-weighted assets. Risk-weighted assets equal risk-weighted 
on-balance sheet assets (computed under paragraph (a)(1) of this 
section), plus risk-weighted off-balance sheet activities (computed 
under paragraph (a)(2) of this section), plus risk-weighted recourse 
obligations, direct credit substitutes, and certain other positions 
(computed under paragraph (b) of this section). Assets not included 
(i.e., deducted from capital) for purposes of calculating capital under 
Sec. 567.5 are not included in calculating risk-weighted assets.
    (1) On-balance sheet assets. Except as provided in paragraph (b) of 
this section, risk-weighted on-balance sheet assets are computed by 
multiplying the on-balance sheet asset amounts times the appropriate 
risk-weight categories. The risk-weight categories are:
    (i) Zero percent Risk Weight (Category 1). (A) Cash, including 
domestic and foreign currency owned and held in all offices of a savings 
association or in transit. Any foreign currency held by a savings 
association must be converted into U.S. dollar equivalents;
    (B) Securities issued by and other direct claims on the U.S. 
Government or its agencies (to the extent such securities or claims are 
unconditionally backed by the full faith and credit of the United States 
Government) or the central government of an OECD country;
    (C) Notes and obligations issued by either the Federal Savings and 
Loan Insurance Corporation or the Federal Deposit Insurance Corporation 
and backed by the full faith and credit of the United States Government;
    (D) Deposit reserves at, claims on, and balances due from Federal 
Reserve Banks;
    (E) The book value of paid-in Federal Reserve Bank stock;
    (F) That portion of assets that is fully covered against capital 
loss and/or yield maintenance agreements by the Federal Savings and Loan 
Insurance Corporation or any successor agency.
    (G) That portion of assets directly and unconditionally guaranteed 
by the United States Government or its agencies, or the central 
government of an OECD country.
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm that are collateralized by cash on deposit in the savings 
association or by securities issued or guaranteed by the United States 
Government or its agencies, or the central government of an OECD 
country. To be eligible for this risk weight, the savings association 
must

[[Page 350]]

maintain a positive margin of collateral on the claim on a daily basis, 
taking into account any change in a savings association's exposure to 
the obligor or counterparty under the claim in relation to the market 
value of the collateral held in support of the claim.
    (ii) 20 percent Risk Weight (Category 2). (A) Cash items in the 
process of collection;
    (B) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by the United States government 
or its agencies, or the central government of an OECD country;
    (C) That portion of assets conditionally guaranteed by the United 
States Government or its agencies, or the central government of an OECD 
country;
    (D) Securities (not including equity securities) issued by and other 
claims on the U.S. Government or its agencies which are not backed by 
the full faith and credit of the United States Government;
    (E) Securities (not including equity securities) issued by, or other 
direct claims on, United States Government-sponsored agencies;
    (F) That portion of assets guaranteed by United States Government-
sponsored agencies;
    (G) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by United States Government-
sponsored agencies;
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm, subject to the following conditions:
    (1) A qualifying securities firm must have a long-term issuer credit 
rating, or a rating on at least one issue of long-term unsecured debt, 
from a NRSRO. The rating must be in one of the three highest investment 
grade categories used by the NRSRO. If two or more NRSROs assign ratings 
to the qualifying securities firm, the savings association must use the 
lowest rating to determine whether the rating requirement of this 
paragraph is met. A qualifying securities firm may rely on the rating of 
its parent consolidated company, if the parent consolidated company 
guarantees the claim.
    (2) A collateralized claim on a qualifying securities firm does not 
have to comply with the rating requirements under paragraph 
(a)(1)(ii)(H)(1) of this section if the claim arises under a contract 
that:
    (i) Is a reverse repurchase/repurchase agreement or securities 
lending/borrowing transaction executed using standard industry 
documentation;
    (ii) Is collateralized by debt or equity securities that are liquid 
and readily marketable;
    (iii) Is marked-to-market daily;
    (iv) Is subject to a daily margin maintenance requirement under the 
standard industry documentation; and
    (v) Can be liquidated, terminated or accelerated immediately in 
bankruptcy or similar proceeding, and the security or collateral 
agreement will not be stayed or avoided under applicable law of the 
relevant jurisdiction. For example, a claim is exempt from the automatic 
stay in bankruptcy in the United States if it arises under a securities 
contract or a repurchase agreement subject to section 555 or 559 of the 
Bankruptcy Code (11 U.S.C. 555 or 559), a qualified financial contract 
under section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)), or a netting contract between or among financial 
institutions under sections 401-407 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407), or Regulation 
EE (12 CFR part 231).
    (3) If the securities firm uses the claim to satisfy its applicable 
capital requirements, the claim is not eligible for a risk weight under 
this paragraph (a)(1)(ii)(H);
    (I) Claims representing general obligations of any public-sector 
entity in an OECD country, and that portion of any claims guaranteed by 
any such public-sector entity;
    (J) Bonds issued by the Financing Corporation or the Resolution 
Funding Corporation;
    (K) Balances due from and all claims on domestic depository 
institutions. This includes demand deposits and other transaction 
accounts, savings deposits and time certificates of deposit, federal 
funds sold, loans to other depository institutions, including overdrafts 
and term federal funds, holdings of the

[[Page 351]]

savings association's own discounted acceptances for which the account 
party is a depository institution, holdings of bankers acceptances of 
other institutions and securities issued by depository institutions, 
except those that qualify as capital;
    (L) The book value of paid-in Federal Home Loan Bank stock;
    (M) Deposit reserves at, claims on and balances due from the Federal 
Home Loan Banks;
    (N) Assets collateralized by cash held in a segregated deposit 
account by the reporting savings association;
    (O) Claims on, or guaranteed by, official multilateral lending 
institutions or regional development institutions in which the United 
States Government is a shareholder or contributing member;\8\
---------------------------------------------------------------------------

    \8\ These institutions include, but are not limited to, the 
International Bank for Reconstruction and Development (World Bank), the 
Inter-American Development Bank, the Asian Development Bank, the African 
Development Bank, the European Investments Bank, the International 
Monetary Fund and the Bank for International Settlements.
---------------------------------------------------------------------------

    (P) That portion of assets collateralized by the current market 
value of securities issued by official multilateral lending institutions 
or regional development institutions in which the United States 
Government is a shareholder or contributing member.
    (Q) All claims on depository institutions incorporated in an OECD 
country, and all assets backed by the full faith and credit of 
depository institutions incorporated in an OECD country. This includes 
the credit equivalent amount of participations in commitments and 
standby letters of credit sold to other depository institutions 
incorporated in an OECD country, but only if the originating bank 
remains liable to the customer or beneficiary for the full amount of the 
commitment or standby letter of credit. Also included in this category 
are the credit equivalent amounts of risk participations in bankers' 
acceptances conveyed to other depository institutions incorporated in an 
OECD country. However, bank-issued securities that qualify as capital of 
the issuing bank are not included in this risk category;
    (R) Claims on, or guaranteed by depository institutions other than 
the central bank, incorporated in a non-OECD country, with a remaining 
maturity of one year or less;
    (S) That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the savings 
association has local currency liabilities in that country.
    (iii) 50 percent Risk Weight (Category 3). (A) Revenue bonds issued 
by any public-sector entity in an OECD country for which the underlying 
obligor is a public- sector entity, but which are repayable solely from 
the revenues generated from the project financed through the issuance of 
the obligations;
    (B) Qualifying mortgage loans and qualifying multifamily mortgage 
loans;
    (C) Privately-issued mortgage-backed securities (i.e., those that do 
not carry the guarantee of a government or government sponsored entity) 
representing an interest in qualifying mortgage loans or qualifying 
multifamily mortgage loans. If the security is backed by qualifying 
multifamily mortgage loans, the savings association must receive timely 
payments of principal and interest in accordance with the terms of the 
security. Payments will generally be considered timely if they are not 
30 days past due;
    (D) Qualifying residential construction loans as defined in Sec. 
567.1 of this part.
    (iv) 100 percent Risk Weight (Category 4). All assets not specified 
above or deducted from calculations of capital pursuant to Sec. 567.5 
of this part, including, but not limited to:
    (A) Consumer loans;
    (B) Commercial loans;
    (C) Home equity loans;
    (D) Non-qualifying mortgage loans;
    (E) Non-qualifying multifamily mortgage loans;
    (F) Residential construction loans;
    (G) Land loans;
    (H) Nonresidential construction loans;
    (I) Obligations issued by any state or any politica1 subdivision 
thereof for the benefit of a private party or enterprise where that 
party or enterprise, rather than the issuing state or political 
subdivision, is responsible for the

[[Page 352]]

timely payment of principal and interest on the obligations, e.g., 
industrial development bonds;
    (J) Debt securities not otherwise described in this section;
    (K) Investments in fixed assets and premises;
    (L) Certain nonsecurity financial instruments including servicing 
assets and intangible assets includable in core capital under Sec. 
567.12 of this part;
    (M) Interest-only strips receivable, other than credit-enhancing 
interest-only strips;
    (N)-(O) [Reserved]
    (P) That portion of equity investments not deducted pursuant to 
Sec. 567.5 of this part;
    (Q) The prorated assets of subsidiaries (except for the assets of 
includable, fully consolidated subsidiaries) to the extent such assets 
are included in adjusted total assets;
    (R) All repossessed assets or assets that are more than 90 days past 
due; and
    (S) Equity investments that the Office determines have the same risk 
characteristics as foreclosed real estate by the savings association;
    (T) Equity investments permissible for a national bank.
    (v) [Reserved]
    (vi) Indirect ownership interests in pools of assets. Assets 
representing an indirect holding of a pool of assets, e.g., mutual 
funds, are assigned to risk-weight categories under this section based 
upon the risk weight that would be assigned to the assets in the 
portfolio of the pool. An investment in shares of a mutual fund whose 
portfolio consists primarily of various securities or money market 
instruments that, if held separately, would be assigned to different 
risk-weight categories, generally is assigned to the risk-weight 
category appropriate to the highest risk-weighted asset that the fund is 
permitted to hold in accordance with the investment objectives set forth 
in its prospectus. The savings association may, at its option, assign 
the investment on a pro rata basis to different risk-weight categories 
according to the investment limits in its prospectus. In no case will an 
investment in shares in any such fund be assigned to a total risk weight 
less than 20 percent. If the savings association chooses to assign 
investments on a pro rata basis, and the sum of the investment limits of 
assets in the fund's prospectus exceeds 100 percent, the savings 
association must assign the highest pro rata amounts of its total 
investment to the higher risk categories. If, in order to maintain a 
necessary degree of short-term liquidity, a fund is permitted to hold an 
insignificant amount of its assets in short-term, highly liquid 
securities of superior credit quality that do not qualify for a 
preferential risk weight, such securities will generally be disregarded 
in determining the risk-weight category into which the savings 
association's holding in the overall fund should be assigned. The 
prudent use of hedging instruments by a mutual fund to reduce the risk 
of its assets will not increase the risk weighting of the mutual fund 
investment. For example, the use of hedging instruments by a mutual fund 
to reduce the interest rate risk of its government bond portfolio will 
not increase the risk weight of that fund above the 20 percent category. 
Nonetheless, if the fund engages in any activities that appear 
speculative in nature or has any other characteristics that are 
inconsistent with the preferential risk-weighting assigned to the fund's 
assets, holdings in the fund will be assigned to the 100 percent risk-
weight category.
    (2) Off-balance sheet items. Except as provided in paragraph (b) of 
this section, risk-weighted off-balance sheet items are determined by 
the following two-step process. First, the face amount of the off-
balance sheet item must be multiplied by the appropriate credit 
conversion factor listed in this paragraph (a)(2). This calculation 
translates the face amount of an off-balance sheet exposure into an on-
balance sheet credit-equivalent amount. Second, the credit-equivalent 
amount must be assigned to the appropriate risk-weight category using 
the criteria regarding obligors, guarantors, and collateral listed in 
paragraph (a)(1) of this section, provided that the maximum risk weight 
assigned to the credit-equivalent amount of an interest-rate or 
exchange-rate contract is 50 percent. The following are the credit 
conversion

[[Page 353]]

factors and the off-balance sheet items to which they apply.
    (i) 100 percent credit conversion factor (Group A).
    (A) [Reserved]
    (B) Risk participations purchased in bankers' acceptances;
    (C) [Reserved]
    (D) Forward agreements and other contingent obligations with a 
certain draw down, e.g., legally binding agreements to purchase assets 
at a specified future date. On the date an institution enters into a 
forward agreement or similar obligation, it should convert the principal 
amount of the assets to be purchased at 100 percent as of that date and 
then assign this amount to the risk-weight category appropriate to the 
obligor or guarantor of the item, or the nature of the collateral;
    (E) Indemnification of customers whose securities the savings 
association has lent as agent. If the customer is not indemnified 
against loss by the savings association, the transaction is excluded 
from the risk-based capital calculation. When a savings association 
lends its own securities, the transaction is treated as a loan. When a 
savings association lends its own securities or is acting as agent, 
agrees to indemnify a customer, the transaction is assigned to the risk 
weight appropriate to the obligor or collateral that is delivered to the 
lending or indemnifying institution or to an independent custodian 
acting on their behalf.
    (ii) 50 percent credit conversion factor (Group B). (A) Transaction-
related contingencies, including, among other things, performance bonds 
and performance-based standby letters of credit related to a particular 
transaction;
    (B) Unused portions of commitments (including home equity lines of 
credit and eligible ABCP liquidity facilities) with an original maturity 
exceeding one year except those listed in paragraph (a)(2)(v) of this 
section. For eligible ABCP liquidity facilities, the resulting credit 
equivalent amount is assigned to the risk category appropriate to the 
assets to be funded by the liquidity facility based on the assets or the 
obligor, after considering any collateral or guarantees, or external 
credit ratings under paragraph (b)(3) of this section, if applicable; 
and
    (C) Revolving underwriting facilities, note issuance facilities, and 
similar arrangements pursuant to which the savings association's 
customer can issue short-term debt obligations in its own name, but for 
which the savings association has a legally binding commitment to 
either:
    (1) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (2) Advance funds to its customer, if the obligations cannot be 
sold.
    (iii) 20 percent credit conversion factor (Group C). Trade-related 
contingencies, i.e., short-term, self-liquidating instruments used to 
finance the movement of goods and collateralized by the underlying 
shipment. A commercial letter of credit is an example of such an 
instrument.
    (iv) 10 percent credit conversion factor (Group D). Unused portions 
of eligible ABCP liquidity facilities with an original maturity of one 
year or less. The resulting credit equivalent amount is assigned to the 
risk category appropriate to the assets to be funded by the liquidity 
facility based on the assets or the obligor, after considering any 
collateral or guarantees, or external credit ratings under paragraph 
(b)(3) of this section, if applicable;
    (v) Zero percent credit conversion factor (Group E). (A) Unused 
portions of commitments with an original maturity of one year or less, 
except for eligible ABCP liquidity facilities;
    (B) Unused commitments with an original maturity greater than one 
year, if they are unconditionally cancelable at any time at the option 
of the savings association and the savings association has the 
contractual right to make, and in fact does make, either:
    (1) A separate credit decision based upon the borrower's current 
financial condition before each drawing under the lending facility; or
    (2) An annual (or more frequent) credit review based upon the 
borrower's current financial condition to determine whether or not the 
lending facility should be continued; and
    (C) The unused portion of retail credit card lines or other related 
plans that are unconditionally cancelable by the savings association in 
accordance with applicable law.

[[Page 354]]

    (vi) Off-balance sheet contracts; interest-rate and foreign exchange 
rate contracts (Group F)--(A) Calculation of credit equivalent amounts. 
The credit equivalent amount of an off-balance sheet interest rate or 
foreign exchange rate contract that is not subject to a qualifying 
bilateral netting contract in accordance with paragraph (a)(2)(vi)(B) of 
this section is equal to the sum of the current credit exposure, i.e., 
the replacement cost of the contract, and the potential future credit 
exposure of the off-balance sheet rate contract. The calculation of 
credit equivalent amounts is measured in U.S. dollars, regardless of the 
currency or currencies specified in the off-balance sheet rate contract.
    (1) Current credit exposure. The current credit exposure of an off-
balance sheet rate contract is determined by the mark-to-market value of 
the contract. If the mark-to-market value is positive, then the current 
credit exposure equals that mark-to-market value. If the mark-to-market 
value is zero or negative, then the current exposure is zero. In 
determining its current credit exposure for multiple off-balance sheet 
rate contracts executed with a single counterparty, a savings 
association may net positive and negative mark-to-market values of off-
balance sheet rate contracts if subject to a bilateral netting contract 
as provided in paragraph (a)(2)(vi)(B) of this section.
    (2) Potential future credit exposure. The potential future credit 
exposure of an off-balance sheet rate contract, including a contract 
with a negative mark-to-market value, is estimated by multiplying the 
notional principal \9\ by a credit conversion factor. Savings 
associations, subject to examiner review, should use the effective 
rather than the apparent or stated notional amount in this calculation. 
The conversion factors are: \10\
---------------------------------------------------------------------------

    \9\ For purposes of calculating potential future credit exposure for 
foreign exchange contracts and other similar contracts, in which 
notional principal is equivalent to cash flows, total notional principal 
is defined as the net receipts to each party falling due on each value 
date in each currency.
    \10\ No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon two 
floating rate indices, so-called floating/floating or basis swaps; the 
credit equivalent amount is measured solely on the basis of the current 
credit exposure.

------------------------------------------------------------------------
                                                               Foreign
                                                  Interest     exchange
              Remaining maturity                    rate         rate
                                                 contracts    contracts
                                                 (percents)   (percents)
------------------------------------------------------------------------
One year or less..............................          0.0          1.0
Over one year.................................          0.5          5.0
------------------------------------------------------------------------

    (B) Off-balance sheet rate contracts subject to bilateral netting 
contracts. In determining its current credit exposure for multiple off-
balance sheet rate contracts executed with a single counterparty, a 
savings association may net off-balance sheet rate contracts subject to 
a bilateral netting contract by offsetting positive and negative mark-
to-market values, provided that:
    (1) The bilateral netting contract is in writing;
    (2) The bilateral netting contract creates a single legal obligation 
for all individual off-balance sheet rate contracts covered by the 
bilateral netting contract. In effect, the bilateral netting contract 
provides that the savings association has a single claim or obligation 
either to receive or pay only the net amount of the sum of the positive 
and negative mark-to-market values on the individual off-balance sheet 
rate contracts covered by the bilateral netting contract. The single 
legal obligation for the net amount is operative in the event that a 
counterparty, or a counterparty to whom the bilateral netting contract 
has been validly assigned, fails to perform due to any of the following 
events: default, insolvency, bankruptcy, or other similar circumstances;
    (3) The savings association obtains a written and reasoned legal 
opinion(s) representing, with a high degree of certainty, that in the 
event of a legal challenge, including one resulting from default, 
insolvency, bankruptcy or similar circumstances, the relevant court and 
administrative authorities would find the savings association's exposure 
to be the net amount under:
    (i) The law of the jurisdiction in which the counterparty is 
chartered or the equivalent location in the case of

[[Page 355]]

noncorporate entities, and if a branch of the counterparty is involved, 
then also under the law of the jurisdiction in which the branch is 
located;
    (ii) The law that governs the individual off-balance sheet rate 
contracts covered by the bilateral netting contract; and
    (iii) The law that governs the bilateral netting contract;
    (4) The savings association establishes and maintains procedures to 
monitor possible changes in relevant law and to ensure that the 
bilateral netting contract continues to satisfy the requirements of this 
section; and
    (5) The savings association maintains in its files documentation 
adequate to support the netting of an off-balance sheet rate contract. 
\11\
---------------------------------------------------------------------------

    \11\ By netting individual off-balance sheet rate contracts for the 
purpose of calculating its credit equivalent amount, a savings 
association represents that documentation adequate to support the 
netting of an off-balance sheet rate contract is in the savings 
association's files and available for inspection by the OTS. Upon 
determination by the OTS that a savings association's files are 
inadequate or that a bilateral netting contract may not be legally 
enforceable under any one of the bodies of law described in paragraphs 
(a)(2)(vi)(B)(3) (i) through (iii) of this section, the underlying 
individual off-balance sheet rate contracts may not be netted for the 
purposes of this section.
---------------------------------------------------------------------------

    (C) Walkaway clause. A bilateral netting contract that contains a 
walkaway clause is not eligible for netting for purposes of calculating 
the current credit exposure amount. The term ``walkaway clause'' means a 
provision in a bilateral netting contract that permits a nondefaulting 
counterparty to make a lower payment than it would make otherwise under 
the bilateral netting contract, or no payment at all, to a defaulter or 
the estate of a defaulter, even if the defaulter or the estate of the 
defaulter is a net creditor under the bilateral netting contract.
    (D) Risk weighting. Once the savings association determines the 
credit equivalent amount for an off-balance sheet rate contract, that 
amount is assigned to the risk-weight category appropriate to the 
counterparty, or, if relevant, to the nature of any collateral or 
guarantee. Collateral held against a netting contract is not recognized 
for capital purposes unless it is legally available for all contracts 
included in the netting contract. However, the maximum risk weight for 
the credit equivalent amount of such off-balance sheet rate contracts is 
50 percent.
    (E) Exceptions. The following off-balance sheet rate contracts are 
not subject to the above calculation, and therefore, are not part of the 
denominator of a savings association's risk-based capital ratio:
    (1) A foreign exchange rate contract with an original maturity of 14 
calendar days or less; and
    (2) Any interest rate or foreign exchange rate contract that is 
traded on an exchange requiring the daily payment of any variations in 
the market value of the contract.
    (3) Asset-backed commercial paper programs. (i) A savings 
association that qualifies as a primary beneficiary and must consolidate 
an ABCP program that is a variable interest entity under generally 
accepted accounting principles may exclude the consolidated ABCP program 
assets from risk-weighted assets if the savings association is the 
sponsor of the ABCP program.
    (ii) If a savings association excludes such consolidated ABCP 
program assets from risk-weighted assets, the savings association must 
assess the appropriate risk-based capital requirement against any 
exposures of the savings association arising in connection with such 
ABCP programs, including direct credit substitutes, recourse 
obligations, residual interests, liquidity facilities, and loans, in 
accordance with paragraphs (a)(1) and (2) and (b) of this section.
    (iii) If a savings association bank has multiple overlapping 
exposures (such as a program-wide credit enhancement and a liquidity 
facility) to an ABCP program that is not consolidated for risk-based 
capital purposes, the savings association is not required to hold 
duplicative risk-based capital under this part against the overlapping 
position. Instead, the savings association should apply to the 
overlapping position the applicable risk-based capital treatment

[[Page 356]]

that results in the highest capital charge.
    (b) Recourse obligations, direct credit substitutes, and certain 
other positions--(1) In general. Except as otherwise permitted in this 
paragraph (b), to determine the risk-weighted asset amount for a 
recourse obligation or a direct credit substitute (but not a residual 
interest):
    (i) Multiply the full amount of the credit-enhanced assets for which 
the savings association directly or indirectly retains or assumes credit 
risk by a 100 percent conversion factor. (For a direct credit substitute 
that is an on-balance sheet asset (e.g., a purchased subordinated 
security), a savings association must use the amount of the direct 
credit substitute and the full amount of the asset its supports, i.e., 
all the more senior positions in the structure); and
    (ii) Assign this credit equivalent amount to the risk-weight 
category appropriate to the obligor in the underlying transaction, after 
considering any associated guarantees or collateral. Paragraph (a)(1) of 
this section lists the risk-weight categories.
    (2) Residual interests. Except as otherwise permitted under this 
paragraph (b), a savings association must maintain risk-based capital 
for residual interests as follows:
    (i) Credit-enhancing interest-only strips. After applying the 
concentration limit under Sec. 567.12(e)(2) of this part, a saving 
association must maintain risk-based capital for a credit-enhancing 
interest-only strip equal to the remaining amount of the strip (net of 
any existing associated deferred tax liability), even if the amount of 
risk-based capital that must be maintained exceeds the full risk-based 
capital requirement for the assets transferred. Transactions that, in 
substance, result in the retention of credit risk associated with a 
transferred credit-enhancing interest-only strip are treated as if the 
strip was retained by the savings association and was not transferred.
    (ii) Other residual interests. A saving association must maintain 
risk-based capital for a residual interest (excluding a credit-enhancing 
interest-only strip) equal to the face amount of the residual interest 
(net of any existing associated deferred tax liability), even if the 
amount of risk-based capital that must be maintained exceeds the full 
risk-based capital requirement for the assets transferred. Transactions 
that, in substance, result in the retention of credit risk associated 
with a transferred residual interest are treated as if the residual 
interest was retained by the savings association and was not 
transferred.
    (iii) Residual interests and other recourse obligations. Where a 
savings association holds a residual interest (including a credit-
enhancing interest-only strip) and another recourse obligation in 
connection with the same transfer of assets, the savings association 
must maintain risk-based capital equal to the greater of:
    (A) The risk-based capital requirement for the residual interest as 
calculated under paragraph (b)(2)(i) through (ii) of this section; or
    (B) The full risk-based capital requirement for the assets 
transferred, subject to the low-level recourse rules under paragraph 
(b)(7) of this section.
    (3) Ratings-based approach--(i) Calculation. A savings association 
may calculate the risk-weighted asset amount for an eligible position 
described in paragraph (b)(3)(ii) of this section by multiplying the 
face amount of the position by the appropriate risk weight determined in 
accordance with Table A or B of this section.
    Note: Stripped mortgage-backed securities or other similar 
instruments, such as interest-only and principal-only strips, that are 
not credit enhancing must be assigned to the 100% risk-weight category.

                                 Table A
------------------------------------------------------------------------
                                                                  Risk
                                                                 weight
                  Long term rating category                       (In
                                                                percent)
------------------------------------------------------------------------
Highest or second highest investment grade...................         20
Third highest investment grade...............................         50
Lowest investment grade......................................        100
One category below investment grade..........................        200
------------------------------------------------------------------------


                                 Table B
------------------------------------------------------------------------
                                                                  Risk
                                                                 weight
                  Short term rating category                      (In
                                                                percent)
------------------------------------------------------------------------
Highest investment grade.....................................         20
Second highest investment grade..............................         50

[[Page 357]]

 
Lowest investment grade......................................        100
------------------------------------------------------------------------

    (ii) Eligibility--(A) Traded positions. A position is eligible for 
the treatment described in paragraph (b)(3)(i) of this section, if:
    (1) The position is a recourse obligation, direct credit substitute, 
residual interest, or asset- or mortgage-backed security and is not a 
credit-enhancing interest-only strip;
    (2) The position is a traded position; and
    (3) The NRSRO has rated a long term position as one grade below 
investment grade or better or a short term position as investment grade. 
If two or more NRSROs assign ratings to a traded position, the savings 
association must use the lowest rating to determine the appropriate 
risk-weight category under paragraph (b)(3)(i) of this section.
    (B) Non-traded positions. A position that is not traded is eligible 
for the treatment described in paragraph (b)(3)(i) of this section if:
    (1) The position is a recourse obligation, direct credit substitute, 
residual interest, or asset- or mortgage-backed security extended in 
connection with a securitization and is not a credit-enhancing interest-
only strip;
    (2) More than one NRSRO rate the position;
    (3) All of the NRSROs that provide a rating rate a long term 
position as one grade below investment grade or better or a short term 
position as investment grade. If the NRSROs assign different ratings to 
the position, the savings association must use the lowest rating to 
determine the appropriate risk-weight category under paragraph (b)(3)(i) 
of this section;
    (4) The NRSROs base their ratings on the same criteria that they use 
to rate securities that are traded positions; and
    (5) The ratings are publicly available.
    (C) Unrated senior positions. If a recourse obligation, direct 
credit substitute, residual interest, or asset- or mortgage-backed 
security is not rated by an NRSRO, but is senior or preferred in all 
features to a traded position (including collateralization and 
maturity), the savings association may risk-weight the face amount of 
the senior position under paragraph (b)(3)(i) of this section, based on 
the rating of the traded position, subject to supervisory guidance. The 
savings association must satisfy OTS that this treatment is appropriate. 
This paragraph (b)(3)(i)(C) applies only if the traded position provides 
substantive credit support to the unrated position until the unrated 
position matures.
    (4) Certain positions that are not rated by NRSROs--(i) Calculation. 
A savings association may calculate the risk-weighted asset amount for 
eligible position described in paragraph (b)(4)(ii) of this section 
based on the savings association's determination of the credit rating of 
the position. To risk-weight the asset, the savings association must 
multiply the face amount of the position by the appropriate risk weight 
determined in accordance with Table C of this section.

                                 Table C
------------------------------------------------------------------------
                                                                  Risk
                                                                 weight
                       Rating category                            (In
                                                                percent)
------------------------------------------------------------------------
Investment grade.............................................        100
One category below investment grade..........................        200
------------------------------------------------------------------------

    (ii) Eligibility. A position extended in connection with a 
securitization is eligible for the treatment described in paragraph 
(b)(4)(i) of this section if it is not rated by an NRSRO, is not a 
residual interest, and meets the one of the three alternative standards 
described in paragraph (b)(4)(ii)(A), (B), or (C) below of this section:
    (A) Position rated internally. A direct credit substitute, but not a 
purchased credit-enhancing interest-only strip, is eligible for the 
treatment described under paragraph (b)(4)(i) of this section, if the 
position is assumed in connection with an asset-backed commercial paper 
program sponsored by the savings association. Before it may rely on an 
internal credit risk rating system, the saving association must 
demonstrate to OTS's satisfaction that the system is adequate. Adequate 
internal credit risk rating systems typically:

[[Page 358]]

    (1) Are an integral part of the savings association's risk 
management system that explicitly incorporates the full range of risks 
arising from the savings association's participation in securitization 
activities;
    (2) Link internal credit ratings to measurable outcomes, such as the 
probability that the position will experience any loss, the expected 
loss on the position in the event of default, and the degree of variance 
in losses in the event of default on that position;
    (3) Separately consider the risk associated with the underlying 
loans or borrowers, and the risk associated with the structure of the 
particular securitization transaction;
    (4) Identify gradations of risk among ``pass'' assets and other risk 
positions;
    (5) Use clear, explicit criteria to classify assets into each 
internal rating grade, including subjective factors;
    (6) Employ independent credit risk management or loan review 
personnel to assign or review the credit risk ratings;
    (7) Include an internal audit procedure to periodically verify that 
internal risk ratings are assigned in accordance with the savings 
association's established criteria;
    (8) Monitor the performance of the assigned internal credit risk 
ratings over time to determine the appropriateness of the initial credit 
risk rating assignment, and adjust individual credit risk ratings or the 
overall internal credit risk rating system, as needed; and
    (9) Make credit risk rating assumptions that are consistent with, or 
more conservative than, the credit risk rating assumptions and 
methodologies of NRSROs.
    (B) Program ratings. (1) A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for the treatment 
described in paragraph (b)(4)(i) of this section, if the position is 
retained or assumed in connection with a structured finance program and 
an NRSRO has reviewed the terms of the program and stated a rating for 
positions associated with the program. If the program has options for 
different combinations of assets, standards, internal or external credit 
enhancements and other relevant factors, and the NRSRO specifies ranges 
of rating categories to them, the savings association may apply the 
rating category applicable to the option that corresponds to the savings 
association's position.
    (2) To rely on a program rating, the savings association must 
demonstrate to OTS's satisfaction that the credit risk rating assigned 
to the program meets the same standards generally used by NRSROs for 
rating traded positions. The savings association must also demonstrate 
to OTS's satisfaction that the criteria underlying the assignments for 
the program are satisfied by the particular position.
    (3) If a savings association participates in a securitization 
sponsored by another party, OTS may authorize the savings association to 
use this approach based on a program rating obtained by the sponsor of 
the program.
    (C) Computer program. A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for the treatment 
described in paragraph (b)(4)(i) of this section, if the position is 
extended in connection with a structured financing program and the 
savings association uses an acceptable credit assessment computer 
program to determine the rating of the position. An NRSRO must have 
developed the computer program and the savings association must 
demonstrate to OTS's satisfaction that the ratings under the program 
correspond credibly and reliably with the rating of traded positions.
    (5) Alternative capital computation for small business obligations--
(i) Definitions. For the purposes of this paragraph (b)(5):
    (A) Qualified savings association means a savings association that:
    (1) Is well capitalized as defined in Sec. 565.4 of this chapter 
without applying the capital treatment described in this paragraph 
(b)(5); or
    (2) Is adequately capitalized as defined in Sec. 565.4 of this 
chapter without applying the capital treatment described in this 
paragraph (b)(5) and has received written permission from the OTS to 
apply that capital treatment.
    (B) Small business means a business that meets the criteria for a 
small business concern established by the

[[Page 359]]

Small Business Administration in 13 CFR 121 pursuant to 15 U.S.C. 632.
    (ii) Capital requirement. Notwithstanding any other provision of 
this paragraph (b), with respect to a transfer of a small business loan 
or lease of personal property with recourse that is a sale under 
generally accepted accounting principles, a qualified savings 
association may elect to include only the amount of its recourse in its 
risk-weighted assets. To qualify for this election, the savings 
association must establish and maintain a reserve under generally 
accepted accounting principles sufficient to meet the reasonable 
estimated liability of the savings association under the recourse 
obligation.
    (iii) Aggregate amount of recourse. The total outstanding amount of 
recourse retained by a qualified savings association with respect to 
transfers of small business loans and leases of personal property and 
included in the risk-weighted assets of the savings association as 
described in paragraph (b)(5)(ii) of this section, may not exceed 15 
percent of the association's total capital computed under Sec. 
567.5(c).
    (iv) Savings association that ceases to be a qualified savings 
association or that exceeds aggregate limits. If a savings association 
ceases to be a qualified savings association or exceeds the aggregate 
limit described in paragraph (b)(5)(iii) of this section, the savings 
association may continue to apply the capital treatment described in 
paragraph (b)(5)(ii) of this section to transfers of small business 
loans and leases of personal property that occurred when the association 
was a qualified savings association and did not exceed the limit.
    (v) Prompt corrective action not affected. (A) A savings association 
shall compute its capital without regard to this paragraph (b)(5) of 
this section for purposes of prompt corrective action (12 U.S.C. 1831o), 
unless the savings association is adequately or well capitalized without 
applying the capital treatment described in this paragraph (b)(5) and 
would be well capitalized after applying that capital treatment.
    (B) A savings association shall compute its capital requirement 
without regard to this paragraph (b)(5) for the purposes of applying 12 
U.S.C. 1831o(g), regardless of the association's capital level.
    (6) Risk participations and syndications of direct credit 
substitutes. A savings association must calculate the risk-weighted 
asset amount for a risk participation in, or syndication of, a direct 
credit substitute as follows:
    (i) If a savings association conveys a risk participation in a 
direct credit substitute, the savings association must convert the full 
amount of the assets that are supported by the direct credit substitute 
to a credit equivalent amount using a 100 percent conversion factor. The 
savings association must assign the pro rata share of the credit 
equivalent amount that was conveyed through the risk participation to 
the lower of: The risk-weight category appropriate to the obligor in the 
underlying transaction, after considering any associated guarantees or 
collateral; or the risk-weight category appropriate to the party 
acquiring the participation. The savings association must assign the pro 
rata share of the credit equivalent amount that was not participated out 
to the risk-weight category appropriate to the obligor, after 
considering any associated guarantees or collateral.
    (ii) If a savings association acquires a risk participation in a 
direct credit substitute, the savings association must multiply its pro 
rata share of the direct credit substitute by the full amount of the 
assets that are supported by the direct credit substitute, and convert 
this amount to a credit equivalent amount using a 100 percent conversion 
factor. The savings association must assign the resulting credit 
equivalent amount to the risk-weight category appropriate to the obligor 
in the underlying transaction, after considering any associated 
guarantees or collateral.
    (iii) If the savings association holds a direct credit substitute in 
the form of a syndication where each savings association or other 
participant is obligated only for its pro rata share of the risk and 
there is no recourse to the originating party, the savings association 
must calculate the credit equivalent amount by multiplying only its pro 
rata share of the assets supported by the direct credit substitute by a 
100

[[Page 360]]

percent conversion factor. The savings association must assign the 
resulting credit equivalent amount to the risk-weight category 
appropriate to the obligor in the underlying transaction after 
considering any associated guarantees or collateral.
    (7) Limitations on risk-based capital requirements--(i) Low-level 
exposure rule. If the maximum contractual exposure to loss retained or 
assumed by a savings association is less than the effective risk-based 
capital requirement, as determined in accordance with this paragraph 
(b), for the assets supported by the savings association's position, the 
risk-based capital requirement is limited to the savings association's 
contractual exposure less any recourse liability account established in 
accordance with generally accepted accounting principles. This 
limitation does not apply when a savings association provides credit 
enhancement beyond any contractual obligation to support assets it has 
sold.
    (ii) Mortgage-related securities or participation certificates 
retained in a mortgage loan swap. If a savings association holds a 
mortgage-related security or a participation certificate as a result of 
a mortgage loan swap with recourse, it must hold risk-based capital to 
support the recourse obligation and that percentage of the mortgage-
related security or participation certificate that is not covered by the 
recourse obligation. The total amount of risk-based capital required for 
the security (or certificate) and the recourse obligation is limited to 
the risk-based capital requirement for the underlying loans, calculated 
as if the savings association continued to hold these loans as an on-
balance sheet asset.
    (iii) Related on-balance sheet assets. If an asset is included in 
the calculation of the risk-based capital requirement under this 
paragraph (b) and also appears as an asset on the savings association's 
balance sheet, the savings association must risk-weight the asset only 
under this paragraph (b), except in the case of loan servicing assets 
and similar arrangements with embedded recourse obligations or direct 
credit substitutes. In that case, the savings association must 
separately risk-weight the on-balance sheet servicing asset and the 
related recourse obligations and direct credit substitutes under this 
section, and incorporate these amounts into the risk-based capital 
calculation.
    (8) Obligations of subsidiaries. If a savings association retains a 
recourse obligation or assumes a direct credit substitute on the 
obligation of a subsidiary that is not an includable subsidiary, and the 
recourse obligation or direct credit substitute is an equity or debt 
investment in that subsidiary under generally accepted accounting 
principles, the face amount of the recourse obligation or direct credit 
substitute is deducted for capital under Sec. Sec. 567.5(a)(2) and 
567.9(c). All other recourse obligations and direct credit substitutes 
retained or assumed by a savings association on the obligations of an 
entity in which the savings association has an equity investment are 
risk-weighted in accordance with this paragraph (b).

[54 FR 49649, Nov. 30, 1989]

    Editorial Note: For Federal Register citations affecting Sec. 
567.6, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec. 567.8  Leverage ratio.

    (a) The minimum leverage capital requirement for a savings 
association assigned a composite rating of 1, as defined in Sec. 516.3 
of this chapter, shall consist of a ratio of core capital to adjusted 
total assets of 3 percent. These generally are strong associations that 
are not anticipating or experiencing significant growth and have well-
diversified risks, including no undue interest rate risk exposure, 
excellent asset quality, high liquidity, and good earnings.
    (b) For all savings associations not meeting the conditions set 
forth in paragraph (a) of this section, the minimum leverage capital 
requirement shall consist of a ratio of core capital to adjusted total 
assets of 4 percent. Higher capital ratios may be required if warranted 
by the particular circumstances or risk profiles of an individual 
savings association. In all cases, savings associations should hold 
capital commensurate with the level and

[[Page 361]]

nature of all risks, including the volume and severity of problem loans, 
to which they are exposed.

[64 FR 10201, Mar. 2, 1999]



Sec. 567.9  Tangible capital requirement.

    (a) Savings associations shall have and maintain tangible capital in 
an amount equal to at least 1.5% of adjusted total assets.
    (b) The following elements, less the amount of any deductions 
pursuant to paragraph (c) of this section, comprise a savings 
association's tangible capital:
    (1) Common stockholders' equity (including retained earnings);
    (2) Noncumulative perpetual preferred stock and related earnings;
    (3) Nonwithdrawable accounts and pledged deposits that would qualify 
as core capital under Sec. 567.5 of this part; and
    (4) Minority interests in the equity accounts of fully consolidated 
subsidiaries.
    (c) Deductions from tangible capital. In calculating tangible 
capital, a savings association must deduct from assets, and, thus, from 
capital:
    (1) Intangible assets (as defined in Sec. 567.1) except for 
mortgage servicing assets to the extent they are includable in tangible 
capital under Sec. 567.12, and credit enhancing interest-only strips 
and deferred tax assets not includable in tangible capital under Sec. 
567.12.
    (2) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the savings 
association has a minority ownership interest), except as provided in 
paragraphs (c)(3) and (c)(4) of this section.
    (3) If a savings association has any investments (both debt and 
equity) in one or more subsidiary(ies) engaged as of April 12, 1989 and 
continuing to be engaged in any activity that would not fall within the 
scope of activities in which includable subsidiaries may engage, it must 
deduct such investments from assets and, thus, tangible capital in 
accordance with this paragraph (c)(3). The savings association must 
first deduct from assets and, thus, capital the amount by which any 
investments in such a subsidiary(ies) exceed the amount of such 
investments held by the savings association as of April 12, 1989. Next, 
the savings association must deduct from assets and, thus, tangible 
capital the lesser of:
    (i) The savings association's investments in and extensions of 
credit to the subsidiary as of April 12, 1989; or
    (ii) The savings association's investments in and extensions of 
credit to the subsidiary on the date as of which the savings 
association's capital is being determined.
    (4) If a savings association holds a subsidiary (either directly or 
through a subsidiary) that is itself a domestic depository institution 
the Office may, in its sole discretion upon determining that the amount 
of tangible capital that would be required would be higher if the assets 
and liabilities of such subsidiary were consolidated with those of the 
parent savings association than the amount that would be required if the 
parent savings association's investment were deducted pursuant to 
paragraphs (c)(2) and (c)(3) of this section, consolidate the assets and 
liabilities of that subsidiary with those of the parent savings 
association in calculating the capital adequacy of the parent savings 
association, regardless of whether the subsidiary would otherwise be an 
includable subsidiary as defined in Sec. 567.1 of this part.

[54 FR 49649, Nov. 30, 1989, as amended at 57 FR 33441, July 29, 1992; 
59 FR 4788, Feb. 2, 1994; 60 FR 39232, Aug. 1, 1995; 62 FR 66264, Dec. 
18, 1997; 63 FR 42678, Aug. 10, 1998; 66 FR 59666, Nov. 29, 2001; 73 FR 
79607, Dec. 30, 2008]



Sec. 567.10  Consequences of failure to meet capital requirements.

    (a) Capital plans. (1) [Reserved]
    (2) The Director shall require any savings association not in 
compliance with capital standards to submit a capital plan that:
    (i) Addresses the savings association's need for increased capital;
    (ii) Describes the manner in which the savings association will 
increase capital so as to achieve compliance with capital standards;
    (iii) Specifies types and levels of activities in which the savings 
association will engage;
    (iv) Requires any increase in assets to be accompanied by increase 
in tangible capital not less in percentage

[[Page 362]]

amount than the leverage limit then applicable;
    (v) Requires any increase in assets to be accompanied by an increase 
in capital not less in percentage amount than required under the risk-
based capital standard then applicable; and
    (vi) Is acceptable to the Director.
    (3) To be acceptable to the Director under this section, a plan 
must, in addition to satisfying all of the requirements set forth in 
paragraphs (a)(2)(i) through (a)(2)(v) of this section, contain a 
certification that while the plan is under review by the Office, the 
savings association will not, without the prior written approval of the 
Regional Director:
    (i) Grow beyond net interest credited;
    (ii) Make any capital distributions; or
    (iii) Act inconsistently with any other limitations on activities 
established by statute, regulation or by the Office in supervisory 
guidance for savings associations not meeting capital standards.
    (4) If the plan submitted to the Director under paragraph (a)(2) of 
this section is not approved by the Office, the savings association 
shall immediately and without any further action, be subject to the 
following restrictions:
    (i) It may not increase its assets beyond the amount held on the day 
it receives written notice of the Director's disapproval of the plan; 
and
    (ii) It must comply with any other restrictions or limitations set 
forth in the written notice of the Director's disapproval of the plan.
    (b) On or after January 1, 1991, the Director shall:
    (1) Prohibit any asset growth by any savings association not in 
compliance with capital standards, except as provided in paragraph (d) 
of this section; and
    (2) Require any savings association not in compliance with capital 
standards to comply with a capital directive issued by the Director 
which may include the restrictions contained in paragraph (e) of this 
section and any other restrictions the Director determines appropriate.
    (c) A savings association that wishes to obtain an exemption from 
the sanctions provided in paragraph (b)(2) of this section must file a 
request for exemption with the Regional Director. Such request must 
include a capital plan that satisfies the requirements of paragraph 
(a)(2) of this section.
    (d) The Director may permit any savings association that is subject 
to paragraph (b) of this section to increase its assets in an amount not 
exceeding the amount of net interest credited to the savings 
association's deposit liabilities, if:
    (1) The savings association obtains the Director's prior approval;
    (2) Any increase in assets is accompanied by an increase in tangible 
capital in an amount not less than 3% of the increase in assets;
    (3) Any increase in assets is accompanied by an increase in capital 
not less in percentage amount than required under the risk-based capital 
standards then applicable;
    (4) Any increase in assets is invested in low-risk assets; and
    (5) The savings association's ratio of core capital to total assets 
is not less than the ratio existing on January 1, 1991.
    (e) If a savings association fails to meet the risk-based capital 
requirement, the leverage ratio requirement, or the tangible capital 
requirement established under this part, the Director may, through 
enforcement proceedings or otherwise, require such savings association 
to take one or more of the following corrective actions:
    (1) Increase the amount of its regulatory capital to a specified 
level or levels;
    (2) Convene a meeting or meetings with the Office's supervision 
staff for the purpose of accomplishing the objectives of this section;
    (3) Reduce the rate of earnings that may be paid on savings 
accounts;
    (4) Limit the receipt of deposits to those made to existing 
accounts;
    (5) Cease or limit the issuance of new accounts of any or all 
classes or categories, except in exchange for existing accounts;
    (6) Cease or limit lending or the making of a particular type or 
category of loan;
    (7) Cease or limit the purchase of loans or the making of specified 
other investments;

[[Page 363]]

    (8) Limit operational expenditures to specified levels;
    (9) Increase liquid assets and maintain such increased liquidity at 
specified levels; or
    (10) Take such other action or actions as the Director may deem 
necessary or appropriate for the safety and soundness of the savings 
association, or depositors or investors in the savings association.
    (f) The Director shall treat as an unsafe and unsound practice any 
material failure by a savings association to comply with any plan, 
regulation, written agreement undertaken under this section or order or 
directive issued to comply with the requirements of this part.

[54 FR 49649, Nov. 30, 1989, as amended at 57 FR 33441, July 29, 1992; 
60 FR 66720, Dec. 26, 1995; 72 FR 69439, Dec. 7, 2007]



Sec. 567.11  Reservation of authority.

    (a) Transactions for purposes of evasion. The Director or the 
Regional Director for the region in which a savings association is 
located may disregard any transaction entered into primarily for the 
purpose of reducing the minimum required amount of regulatory capital or 
otherwise evading the requirements of this part.
    (b) Average versus period-end figures. The Office reserves the right 
to require a savings association to compute its capital ratios on the 
basis of average, rather than period-end, assets when the Office 
determines appropriate to carry out the purposes of this part.
    (c)(1) Reservation of authority. Notwithstanding the definitions of 
core and supplementary capital in Sec. 567.5 of this part, OTS may find 
that a particular type of purchased intangible asset or capital 
instrument constitutes or may constitute core or supplementary capital, 
and may permit one or more savings associations to include all or a 
portion of such intangible asset or funds obtained through such capital 
instrument as core or supplementary capital, permanently or on a 
temporary basis, for the purposes of compliance with this part or for 
any other purposes. Similarly, the Office may find that a particular 
asset or core or supplementary capital component has characteristics or 
terms that diminish its contribution to a savings association's ability 
to absorb losses, and the Office may require the discounting or 
deduction of such asset or component from the computation of core, 
supplementary, or total capital.
    (2) Notwithstanding Sec. 567.6 of this part, OTS will look to the 
substance of a transaction and may find that the assigned risk weight 
for any asset, or credit equivalent amount or credit conversion factor 
for any off-balance sheet item does not appropriately reflect the risks 
imposed on the savings association. OTS may require the savings 
association to apply another risk-weight, credit equivalent amount, or 
credit conversion factor that OTS deems appropriate.
    (3) If this part does not specifically assign a risk weight, credit 
equivalent amount, or credit conversion factor, OTS may assign any risk 
weight, credit equivalent amount, or credit conversion factor that it 
deems appropriate. In making this determination, OTS will consider the 
risks associated with the asset or off-balance sheet item as well as 
other relevant factors.

[54 FR 49649, Nov. 30, 1989, as amended at 57 FR 33441, July 29, 1992; 
66 FR 59666, Nov. 29, 2001]



Sec. 567.12  Purchased credit card relationships, servicing assets,
intangible assets (other than purchased credit card relationships

and servicing assets), credit-enhancing interest-only strips, 
and deferred tax   assets.

    (a) Scope. This section prescribes the maximum amount of purchased 
credit card relationships, serving assets, intangible assets (other than 
purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that savings 
associations may include in calculating tangible and core capital.
    (b) Computation of core and tangible capital. (1) Purchased credit 
card relationships may be included (that is, not deducted) in computing 
core capital in accordance with the restrictions in this section, but 
must be deducted in computing tangible capital.
    (2) In accordance with the restrictions in this section, mortgage 
servicing assets may be included in computing core and tangible capital 
and

[[Page 364]]

nonmortgage servicing assets may be included in core capital.
    (3) Intangible assets, as defined in Sec. 567.1 of this part, other 
than purchased credit card relationships described in paragraph (b)(1) 
of this section, servicing assets described in paragraph (b)(2) of this 
section, and core deposit intangibles described in paragraph (g)(3) of 
this section, are deducted in computing tangible and core capital, 
subject to paragraph (e)(3)(ii) of this section.
    (4) Credit-enhancing interest-only strips may be included (that is 
not deducted) in computing core capital subject to the restrictions of 
this section, and may be included in tangible capital in the same 
amount.
    (5) Deferred tax assets may be included (that is not deducted) in 
computing core capital subject to the restrictions of paragraph (h) of 
this section, and may be included in tangible capital in the same 
amount.
    (c) Market valuations. The OTS reserves the authority to require any 
savings association to perform an independent market valuation of assets 
subject to this section on a case-by-case basis or through the issuance 
of policy guidance. An independent market valuation, if required, shall 
be conducted in accordance with any policy guidance issued by the OTS. A 
required valuation shall include adjustments for any significant changes 
in original valuation assumptions, including changes in prepayment 
estimates or attrition rates. The valuation shall determine the current 
fair value of assets subject to this section. This independent market 
valuation may be conducted by an independent valuation expert evaluating 
the reasonableness of the internal calculations and assumptions used by 
the association in conducting its internal analysis. The association 
shall calculate an estimated fair value for assets subject to this 
section at least quarterly regardless of whether an independent 
valuation expert is required to perform an independent market valuation
    (d) Value limitation. For purposes of calculating core capital under 
this part (but not for financial statement purposes), purchased credit 
card relationships and servicing assets must be valued at the lesser of:
    (1) 90 percent of their fair value determined in accordance with 
paragraph (c) of this section; or
    (2) 100 percent of their remaining unamortized book value determined 
in accordance with the instructions for the Thrift Financial Report.
    (e) Core capital limitations--(1) Servicing assets and purchased 
credit card relationships. (i) The maximum aggregate amount of servicing 
assets and purchased credit card relationships that may be included in 
core capital is limited to the lesser of:
    (A) 100 percent of the amount of core capital; or
    (B) The amount of servicing assets and purchased credit card 
relationships determined in accordance with paragraph (d) of this 
section.
    (ii) In addition to the aggregate limitation in paragraph (e)(1)(i) 
of this section, a sublimit applies to purchased credit card 
relationships and non mortgage-related serving assets. The maximum 
allowable amount of these two types of assets combined is limited to the 
lesser of:
    (A) 25 percent the amount of core capital; and
    (B) The amount of purchased credit card relationships and non 
mortgage-related servicing assets determined in accordance with 
paragraph (d) of this section.
    (2) Credit-enhancing interest-only strips. The maximum aggregate 
amount of credit-enhancing interest-only strips that may be included in 
core capital is limited to 25 percent of the amount of core capital. 
Purchased and retained credit-enhancing interest-only strips, on a non-
tax adjusted basis, are included in the total amount that is used for 
purposes of determining whether a savings association exceeds the core 
capital limit.
    (3) Computation. (i) For purposes of computing the limits and 
sublimits in paragraphs (e) and (h) of this section, core capital is 
computed before the deduction of disallowed servicing assets, disallowed 
purchased credit card relationships, disallowed credit-enhancing 
interest-only strips (purchased and retained), and disallowed deferred 
tax assets.

[[Page 365]]

    (ii) A savings association may elect to deduct the following items 
on a basis net of deferred tax liabilities:
    (A) Disallowed servicing assets;
    (B) Goodwill such that only the net amount must be deducted from 
Tier 1 capital;
    (C) Disallowed credit-enhancing interest only strips (both purchased 
and retained); and
    (D) Other intangible assets arising from non-taxable business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than purchased credit card relationships) 
arising from a nontaxable business combination may be netted against 
this intangible asset. The net amount of the intangible asset must be 
deducted from Tier 1 capital.
    (iii) Deferred tax liabilities that are netted in accordance with 
paragraph (e)(3)(ii) of this section cannot also be netted against 
deferred tax assets when determining the amount of deferred tax assets 
that are dependent upon future taxable income.
    (f) Tangible capital limitation. The maximum amount of mortgage 
servicing assets that may be included in tangible capital shall be the 
same amount includable in core capital in accordance with the 
limitations set by paragraph (e) of this section. All nonmortgage 
servicing assets are deducted in computing tangible capital.
    (g) Exemption for certain subsidiaries--(1) Exemption standard. An 
association holding purchased mortgage servicing rights in separately 
capitalized, nonincludable subsidiaries may submit an application for 
approval by the OTS for an exemption from the deductions and limitations 
set forth in this section. The deductions and limitations will apply to 
such purchased mortgage servicing rights, however, if the OTS determines 
that:
    (i) The thrift and subsidiary are not conducting activities on an 
arm's length basis; or
    (ii) The exemption is not consistent with the association's safe and 
sound operation.
    (2) Applicable requirements. If the OTS determines to grant or to 
permit the continuation of an exemption under paragraph (h)(1) of this 
section, the association receiving the exemption must ensure the 
following:
    (i) The association's investments in, and extensions of credit to, 
the subsidiary are deducted from capital when calculating capital under 
this part;
    (ii) Extensions of credit and other transactions with the subsidiary 
are conducted in compliance with the rules for covered transactions with 
affiliates set forth in sections 23A and 23B of the Federal Reserve Act, 
as applied to thrifts; and
    (iii) Any contracts entered into by the subsidiary include a written 
disclosure indicating that the subsidiary is not a bank or savings 
association; the subsidiary is an organization separate and apart from 
any bank or savings association; and the obligations of the subsidiary 
are not backed or guaranteed by any bank or savings association and are 
not insured by the FDIC.
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this part (but not for financial statement 
purposes) deferred tax assets are subject to the conditions, 
limitations, and restrictions described in this section.
    (1) Tier 1 capital limitations. (i) The maximum allowable amount of 
deferred tax assets net of any valuation allowance that are dependent 
upon future taxable income will be limited to the lesser of:
    (A) The amount of deferred tax assets that are dependent upon future 
taxable income that is expected to be realized within one year of the 
calendar quarter-end date, based on a projected future taxable income 
for that year; or
    (B) Ten percent of the amount of Tier 1 capital that exists before 
the deduction of any disallowed servicing assets, any disallowed 
purchased credit card relationships, any disallowed credit-enhancing 
interest-only strips, and any disallowed deferred tax assets.
    (ii) For purposes of this limitation, all existing temporary 
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are dependent 
upon future taxable income, net of any valuation allowance for deferred 
tax assets, in excess of this limitation will be deducted from assets 
and from equity capital for purposes of

[[Page 366]]

determining Tier 1 capital under this part. The amount of deferred tax 
assets that can be realized from taxes paid in prior carryback years and 
from the reversal of existing taxable temporary differences generally 
would not be deducted from assets and from equity capital.
    (iii) Notwithstanding paragraph (h)(1)(B)(ii) of this section, the 
amount of carryback potential that may be considered in calculating the 
amount of deferred tax assets that a savings association that is part of 
a consolidated group (for tax purposes) may include in Tier 1 capital 
may not exceed the amount which the association could reasonably expect 
to have refunded by its parent.
    (2) Projected future taxable income. Projected future taxable income 
should not include net operating loss carryforwards to be used within 
one year of the most recent calendar quarter-end date or the amount of 
existing temporary differences expected to reverse within that year. 
Projected future taxable income should include the estimated effect of 
tax planning strategies that are expected to be implemented to realize 
tax carryforwards that will otherwise expire during that year. Future 
taxable income projections for the current fiscal year (adjusted for any 
significant changes that have occurred or are expected to occur) may be 
used when applying the capital limit at an interim calendar quarter-end 
date rather than preparing a new projection each quarter.
    (3) Unrealized holding gains and losses on available-for-sale debt 
securities. The deferred tax effects of any unrealized holding gains and 
losses on available-for-sale debt securities may be excluded from the 
determination of the amount of deferred tax assets that are dependent 
upon future taxable income and the calculation of the maximum allowable 
amount of such assets. If these deferred tax effects are excluded, this 
treatment must be followed consistently over time.

[59 FR 4788, Feb. 2, 1994, as amended at 60 FR 39232, Aug. 1, 1995; 62 
FR 66264, Dec. 18, 1997; 63 FR 42678, Aug. 10, 1998; 66 FR 59666, Nov. 
29, 2001; 73 FR 19, Jan. 2, 2008; 73 FR 79607, Dec. 30, 2008]



Sec. Sec. 567.14-567.19  [Reserved]



                     Sec. Appendixes A-B [Reserved]



 Sec. Appendix C to Part 567--Risk-Based Capital Requirements--Internal-
            Ratings-Based and Advanced Measurement Approaches

Part I General Provisions
    Section 1 Purpose, Applicability, Reservation of Authority, and 
Principle of Conservatism
    Section 2 Definitions
    Section 3 Minimum Risk-Based Capital Requirements
Part II Qualifying Capital
    Section 11 Additional Deductions
    Section 12 Deductions and Limitations Not Required
    Section 13 Eligible Credit Reserves
Part III Qualification
    Section 21 Qualification Process
    Section 22 Qualification Requirements
    Section 23 Ongoing Qualification
    Section 24 Merger and Acquisition Transitional Arrangements
Part IV Risk-Weighted Assets for General Credit Risk
    Section 31 Mechanics for Calculating Total Wholesale and Retail 
Risk-Weighted Assets
    Section 32 Counterparty Credit Risk of Repo-Style Transactions, 
Eligible Margin Loans, and OTC Derivative Contracts
    Section 33 Guarantees and Credit Derivatives: PD Substitution and 
LGD Adjustment Approaches
    Section 34 Guarantees and Credit Derivatives: Double Default 
Treatment
    Section 35 Risk-Based Capital Requirement for Unsettled Transactions
Part V Risk-Weighted Assets for Securitization Exposures
    Section 41 Operational Criteria for Recognizing the Transfer of Risk
    Section 42 Risk-Based Capital Requirement for Securitization 
Exposures
    Section 43 Ratings-Based Approach (RBA)
    Section 44 Internal Assessment Approach (IAA)
    Section 45 Supervisory Formula Approach (SFA)
    Section 46 Recognition of Credit Risk Mitigants for Securitization 
Exposures
    Section 47 Risk-Based Capital Requirement for Early Amortization 
Provisions
Part VI Risk-Weighted Assets for Equity Exposures
    Section 51 Introduction and Exposure Measurement
    Section 52 Simple Risk Weight Approach (SRWA)
    Section 53 Internal Models Approach (IMA)
    Section 54 Equity Exposures to Investment Funds

[[Page 367]]

    Section 55 Equity Derivative Contracts
Part VII Risk-Weighted Assets for Operational Risk
    Section 61 Qualification Requirements for Incorporation of 
Operational Risk Mitigants
    Section 62 Mechanics of Risk-Weighted Asset Calculation
Part VIII Disclosure
    Section 71 Disclosure Requirements

                       Part I. General Provisions

    Section 1. Purpose, Applicability, Reservation of Authority, and 
                        Principle of Conservatism

    (a) Purpose. This appendix establishes:
    (1) Minimum qualifying criteria for savings associations using 
savings association-specific internal risk measurement and management 
processes for calculating risk-based capital requirements;
    (2) Methodologies for such savings associations to calculate their 
risk-based capital requirements; and
    (3) Public disclosure requirements for such savings associations.
    (b) Applicability. (1) This appendix applies to a savings 
association that:
    (i) Has consolidated assets, as reported on the most recent year-end 
Thrift Financial Report (TFR) equal to $250 billion or more;
    (ii) Has consolidated total on-balance sheet foreign exposure at the 
most recent year-end equal to $10 billion or more (where total on-
balance sheet foreign exposure equals total cross-border claims less 
claims with head office or guarantor located in another country plus 
redistributed guaranteed amounts to the country of head office or 
guarantor plus local country claims on local residents plus revaluation 
gains on foreign exchange and derivative products, calculated in 
accordance with the Federal Financial Institutions Examination Council 
(FFIEC) 009 Country Exposure Report);
    (iii) Is a subsidiary of a depository institution that uses 12 CFR 
part 3, appendix C, 12 CFR part 208, appendix F, 12 CFR part 325, 
appendix D, or 12 CFR part 567, appendix C, to calculate its risk-based 
capital requirements; or
    (iv) Is a subsidiary of a bank holding company that uses 12 CFR part 
225, appendix G, to calculate its risk-based capital requirements.
    (2) Any savings association may elect to use this appendix to 
calculate its risk-based capital requirements.
    (3) A savings association that is subject to this appendix must use 
this appendix unless the OTS determines in writing that application of 
this appendix is not appropriate in light of the savings association's 
asset size, level of complexity, risk profile, or scope of operations. 
In making a determination under this paragraph, the OTS will apply 
notice and response procedures in the same manner and to the same extent 
as the notice and response procedures in Sec. 567.3(d).
    (c) Reservation of authority--(1) Additional capital in the 
aggregate. The OTS may require a savings association to hold an amount 
of capital greater than otherwise required under this appendix if the 
OTS determines that the savings association's risk-based capital 
requirement under this appendix is not commensurate with the savings 
association's credit, market, operational, or other risks. In making a 
determination under this paragraph, the OTS will apply notice and 
response procedures in the same manner and to the same extent as the 
notice and response procedures in Sec. 567.3(d).
    (2) Specific risk-weighted asset amounts. (i) If the OTS determines 
that the risk-weighted asset amount calculated under this appendix by 
the savings association for one or more exposures is not commensurate 
with the risks associated with those exposures, the OTS may require the 
savings association to assign a different risk-weighted asset amount to 
the exposures, to assign different risk parameters to the exposures (if 
the exposures are wholesale or retail exposures), or to use different 
model assumptions for the exposures (if relevant), all as specified by 
the OTS.
    (ii) If the OTS determines that the risk-weighted asset amount for 
operational risk produced by the savings association under this appendix 
is not commensurate with the operational risks of the savings 
association, the OTS may require the savings association to assign a 
different risk-weighted asset amount for operational risk, to change 
elements of its operational risk analytical framework, including 
distributional and dependence assumptions, or to make other changes to 
the savings association's operational risk management processes, data 
and assessment systems, or quantification systems, all as specified by 
the OTS.
    (3) Other supervisory authority. Nothing in this appendix limits the 
authority of the OTS under any other provision of law or regulation to 
take supervisory or enforcement action, including action to address 
unsafe or unsound practices or conditions, deficient capital levels, or 
violations of law.
    (d) Principle of conservatism. Notwithstanding the requirements of 
this appendix, a savings association may choose not to apply a provision 
of this appendix to one or more exposures, provided that:
    (1) The savings association can demonstrate on an ongoing basis to 
the satisfaction of the OTS that not applying the provision would, in 
all circumstances, unambiguously generate a risk-based capital 
requirement for each such exposure greater than that which would 
otherwise be required under this appendix;
    (2) The savings association appropriately manages the risk of each 
such exposure;

[[Page 368]]

    (3) The savings association notifies the OTS in writing prior to 
applying this principle to each such exposure; and
    (4) The exposures to which the savings association applies this 
principle are not, in the aggregate, material to the savings 
association.

                         Section 2. Definitions

    Advanced internal ratings-based (IRB) systems means a savings 
association's internal risk rating and segmentation system; risk 
parameter quantification system; data management and maintenance system; 
and control, oversight, and validation system for credit risk of 
wholesale and retail exposures.
    Advanced systems means a savings association's advanced IRB systems, 
operational risk management processes, operational risk data and 
assessment systems, operational risk quantification systems, and, to the 
extent the savings association uses the following systems, the internal 
models methodology, double default excessive correlation detection 
process, IMA for equity exposures, and IAA for securitization exposures 
to ABCP programs.
    Affiliate with respect to a company means any company that controls, 
is controlled by, or is under common control with, the company.
    Applicable external rating means:
    (1) With respect to an exposure that has multiple external ratings 
assigned by NRSROs, the lowest solicited external rating assigned to the 
exposure by any NRSRO; and
    (2) With respect to an exposure that has a single external rating 
assigned by an NRSRO, the external rating assigned to the exposure by 
the NRSRO.
    Applicable inferred rating means:
    (1) With respect to an exposure that has multiple inferred ratings, 
the lowest inferred rating based on a solicited external rating; and
    (2) With respect to an exposure that has a single inferred rating, 
the inferred rating.
    Asset-backed commercial paper (ABCP) program means a program that 
primarily issues commercial paper that:
    (1) Has an external rating; and
    (2) Is backed by underlying exposures held in a bankruptcy-remote 
SPE.
    Asset-backed commercial paper (ABCP) program sponsor means a savings 
association that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the exposures to be purchased by an ABCP program; or
    (4) Administers the ABCP program by monitoring the underlying 
exposures, underwriting or otherwise arranging for the placement of debt 
or other obligations issued by the program, compiling monthly reports, 
or ensuring compliance with the program documents and with the program's 
credit and investment policy.
    Backtesting means the comparison of a savings association's internal 
estimates with actual outcomes during a sample period not used in model 
development. In this context, backtesting is one form of out-of-sample 
testing.
    Bank holding company is defined in section 2 of the Bank Holding 
Company Act (12 U.S.C. 1841).
    Benchmarking means the comparison of a savings association's 
internal estimates with relevant internal and external data or with 
estimates based on other estimation techniques.
    Business environment and internal control factors means the 
indicators of a savings association's operational risk profile that 
reflect a current and forward-looking assessment of the savings 
association's underlying business risk factors and internal control 
environment.
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of the savings association, determined in 
accordance with GAAP.
    Clean-up call means a contractual provision that permits an 
originating savings association or servicer to call securitization 
exposures before their stated maturity or call date. See also eligible 
clean-up call.
    Commodity derivative contract means a commodity-linked swap, 
purchased commodity-linked option, forward commodity-linked contract, or 
any other instrument linked to commodities that gives rise to similar 
counterparty credit risks.
    Company means a corporation, partnership, limited liability company, 
depository institution, business trust, special purpose entity, 
association, or similar organization.
    Control. A person or company controls a company if it:
    (1) Owns, controls, or holds with power to vote 25 percent or more 
of a class of voting securities of the company; or
    (2) Consolidates the company for financial reporting purposes.
    Controlled early amortization provision means an early amortization 
provision that meets all the following conditions:
    (1) The originating savings association has appropriate policies and 
procedures to ensure that it has sufficient capital and liquidity 
available in the event of an early amortization;
    (2) Throughout the duration of the securitization (including the 
early amortization period), there is the same pro rata sharing of 
interest, principal, expenses, losses, fees, recoveries, and other cash 
flows from the underlying exposures based on the originating savings 
association's and the investors' relative shares of the underlying 
exposures outstanding measured on a consistent monthly basis;

[[Page 369]]

    (3) The amortization period is sufficient for at least 90 percent of 
the total underlying exposures outstanding at the beginning of the early 
amortization period to be repaid or recognized as in default; and
    (4) The schedule for repayment of investor principal is not more 
rapid than would be allowed by straight-line amortization over an 18-
month period.
    Credit derivative means a financial contract executed under standard 
industry credit derivative documentation that allows one party (the 
protection purchaser) to transfer the credit risk of one or more 
exposures (reference exposure) to another party (the protection 
provider). See also eligible credit derivative.
    Credit-enhancing interest-only strip (CEIO) means an on-balance 
sheet asset that, in form or in substance:
    (1) Represents a contractual right to receive some or all of the 
interest and no more than a minimal amount of principal due on the 
underlying exposures of a securitization; and
    (2) Exposes the holder to credit risk directly or indirectly 
associated with the underlying exposures that exceeds a pro rata share 
of the holder's claim on the underlying exposures, whether through 
subordination provisions or other credit-enhancement techniques.
    Credit-enhancing representations and warranties means 
representations and warranties that are made or assumed in connection 
with a transfer of underlying exposures (including loan servicing 
assets) and that obligate a savings association to protect another party 
from losses arising from the credit risk of the underlying exposures. 
Credit-enhancing representations and warranties include provisions to 
protect a party from losses resulting from the default or nonperformance 
of the obligors of the underlying exposures or from an insufficiency in 
the value of the collateral backing the underlying exposures. Credit-
enhancing representations and warranties do not include:
    (1) Early default clauses and similar warranties that permit the 
return of, or premium refund clauses that cover, first-lien residential 
mortgage exposures for a period not to exceed 120 days from the date of 
transfer, provided that the date of transfer is within one year of 
origination of the residential mortgage exposure;
    (2) Premium refund clauses that cover underlying exposures 
guaranteed, in whole or in part, by the U.S. government, a U.S. 
government agency, or a U.S. government sponsored enterprise, provided 
that the clauses are for a period not to exceed 120 days from the date 
of transfer; or
    (3) Warranties that permit the return of underlying exposures in 
instances of misrepresentation, fraud, or incomplete documentation.
    Credit risk mitigant means collateral, a credit derivative, or a 
guarantee.
    Credit-risk-weighted assets means 1.06 multiplied by the sum of:
    (1) Total wholesale and retail risk-weighted assets;
    (2) Risk-weighted assets for securitization exposures; and
    (3) Risk-weighted assets for equity exposures.
    Current exposure means, with respect to a netting set, the larger of 
zero or the market value of a transaction or portfolio of transactions 
within the netting set that would be lost upon default of the 
counterparty, assuming no recovery on the value of the transactions. 
Current exposure is also called replacement cost.
    Default--(1) Retail. (i) A retail exposure of a savings association 
is in default if:
    (A) The exposure is 180 days past due, in the case of a residential 
mortgage exposure or revolving exposure;
    (B) The exposure is 120 days past due, in the case of all other 
retail exposures; or
    (C) The savings association has taken a full or partial charge-off, 
write-down of principal, or material negative fair value adjustment of 
principal on the exposure for credit-related reasons.
    (ii) Notwithstanding paragraph (1)(i) of this definition, for a 
retail exposure held by a non-U.S. subsidiary of the savings association 
that is subject to an internal ratings-based approach to capital 
adequacy consistent with the Basel Committee on Banking Supervision's 
``International Convergence of Capital Measurement and Capital 
Standards: A Revised Framework'' in a non-U.S. jurisdiction, the savings 
association may elect to use the definition of default that is used in 
that jurisdiction, provided that the savings association has obtained 
prior approval from the OTS to use the definition of default in that 
jurisdiction.
    (iii) A retail exposure in default remains in default until the 
savings association has reasonable assurance of repayment and 
performance for all contractual principal and interest payments on the 
exposure.
    (2) Wholesale. (i) A savings association's wholesale obligor is in 
default if:
    (A) The savings association determines that the obligor is unlikely 
to pay its credit obligations to the savings association in full, 
without recourse by the savings association to actions such as realizing 
collateral (if held); or
    (B) The obligor is past due more than 90 days on any material credit 
obligation(s) to the savings association. \1\
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    \1\ Overdrafts are past due once the obligor has breached an advised 
limit or been advised of a limit smaller than the current outstanding 
balance.

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[[Page 370]]

    (ii) An obligor in default remains in default until the savings 
association has reasonable assurance of repayment and performance for 
all contractual principal and interest payments on all exposures of the 
savings association to the obligor (other than exposures that have been 
fully written-down or charged-off).
    Dependence means a measure of the association among operational 
losses across and within units of measure.
    Depository institution is defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    Derivative contract means a financial contract whose value is 
derived from the values of one or more underlying assets, reference 
rates, or indices of asset values or reference rates. Derivative 
contracts include interest rate derivative contracts, exchange rate 
derivative contracts, equity derivative contracts, commodity derivative 
contracts, credit derivatives, and any other instrument that poses 
similar counterparty credit risks. Derivative contracts also include 
unsettled securities, commodities, and foreign exchange transactions 
with a contractual settlement or delivery lag that is longer than the 
lesser of the market standard for the particular instrument or five 
business days.
    Early amortization provision means a provision in the documentation 
governing a securitization that, when triggered, causes investors in the 
securitization exposures to be repaid before the original stated 
maturity of the securitization exposures, unless the provision:
    (1) Is triggered solely by events not directly related to the 
performance of the underlying exposures or the originating savings 
association (such as material changes in tax laws or regulations); or
    (2) Leaves investors fully exposed to future draws by obligors on 
the underlying exposures even after the provision is triggered.
    Economic downturn conditions means, with respect to an exposure held 
by the savings association, those conditions in which the aggregate 
default rates for that exposure's wholesale or retail exposure 
subcategory (or subdivision of such subcategory selected by the savings 
association) in the exposure's national jurisdiction (or subdivision of 
such jurisdiction selected by the savings association) are significantly 
higher than average.
    Effective maturity (M) of a wholesale exposure means:
    (1) For wholesale exposures other than repo-style transactions, 
eligible margin loans, and OTC derivative contracts described in 
paragraph (2) or (3) of this definition:
    (i) The weighted-average remaining maturity (measured in years, 
whole or fractional) of the expected contractual cash flows from the 
exposure, using the undiscounted amounts of the cash flows as weights; 
or
    (ii) The nominal remaining maturity (measured in years, whole or 
fractional) of the exposure.
    (2) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts subject to a qualifying master netting agreement 
for which the savings association does not apply the internal models 
approach in paragraph (d) of section 32 of this appendix, the weighted-
average remaining maturity (measured in years, whole or fractional) of 
the individual transactions subject to the qualifying master netting 
agreement, with the weight of each individual transaction set equal to 
the notional amount of the transaction.
    (3) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts for which the savings association applies the 
internal models approach in paragraph (d) of section 32 of this 
appendix, the value determined in paragraph (d)(4) of section 32 of this 
appendix.
    Effective notional amount means, for an eligible guarantee or 
eligible credit derivative, the lesser of the contractual notional 
amount of the credit risk mitigant and the EAD of the hedged exposure, 
multiplied by the percentage coverage of the credit risk mitigant. For 
example, the effective notional amount of an eligible guarantee that 
covers, on a pro rata basis, 40 percent of any losses on a $100 bond 
would be $40.
    Eligible clean-up call means a clean-up call that:
    (1) Is exercisable solely at the discretion of the originating 
savings association or servicer;
    (2) Is not structured to avoid allocating losses to securitization 
exposures held by investors or otherwise structured to provide credit 
enhancement to the securitization; and
    (3) (i) For a traditional securitization, is only exercisable when 
10 percent or less of the principal amount of the underlying exposures 
or securitization exposures (determined as of the inception of the 
securitization) is outstanding; or
    (ii) For a synthetic securitization, is only exercisable when 10 
percent or less of the principal amount of the reference portfolio of 
underlying exposures (determined as of the inception of the 
securitization) is outstanding.
    Eligible credit derivative means a credit derivative in the form of 
a credit default swap, n\th\-to-default swap, total return swap, or any 
other form of credit derivative approved by the OTS, provided that:
    (1) The contract meets the requirements of an eligible guarantee and 
has been confirmed by the protection purchaser and the protection 
provider;
    (2) Any assignment of the contract has been confirmed by all 
relevant parties;

[[Page 371]]

    (3) If the credit derivative is a credit default swap or n\th\-to-
default swap, the contract includes the following credit events:
    (i) Failure to pay any amount due under the terms of the reference 
exposure, subject to any applicable minimal payment threshold that is 
consistent with standard market practice and with a grace period that is 
closely in line with the grace period of the reference exposure; and
    (ii) Bankruptcy, insolvency, or inability of the obligor on the 
reference exposure to pay its debts, or its failure or admission in 
writing of its inability generally to pay its debts as they become due, 
and similar events;
    (4) The terms and conditions dictating the manner in which the 
contract is to be settled are incorporated into the contract;
    (5) If the contract allows for cash settlement, the contract 
incorporates a robust valuation process to estimate loss reliably and 
specifies a reasonable period for obtaining post-credit event valuations 
of the reference exposure;
    (6) If the contract requires the protection purchaser to transfer an 
exposure to the protection provider at settlement, the terms of at least 
one of the exposures that is permitted to be transferred under the 
contract provides that any required consent to transfer may not be 
unreasonably withheld;
    (7) If the credit derivative is a credit default swap or n\th\-to-
default swap, the contract clearly identifies the parties responsible 
for determining whether a credit event has occurred, specifies that this 
determination is not the sole responsibility of the protection provider, 
and gives the protection purchaser the right to notify the protection 
provider of the occurrence of a credit event; and
    (8) If the credit derivative is a total return swap and the savings 
association records net payments received on the swap as net income, the 
savings association records offsetting deterioration in the value of the 
hedged exposure (either through reductions in fair value or by an 
addition to reserves).
    Eligible credit reserves means all general allowances that have been 
established through a charge against earnings to absorb credit losses 
associated with on- or off-balance sheet wholesale and retail exposures, 
including the allowance for loan and lease losses (ALLL) associated with 
such exposures but excluding specific reserves created against 
recognized losses.
    Eligible double default guarantor, with respect to a guarantee or 
credit derivative obtained by a savings association, means:
    (1) U.S.-based entities. A depository institution, a bank holding 
company, a savings and loan holding company (as defined in 12 U.S.C. 
1467a) provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), a securities broker or dealer registered with the SEC 
under the Securities Exchange Act of 1934 (15 U.S.C. 78o et seq.), or an 
insurance company in the business of providing credit protection (such 
as a monoline bond insurer or re-insurer) that is subject to supervision 
by a State insurance regulator, if:
    (i) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the savings association assigned a 
PD to the guarantor's rating grade that was equal to or lower than the 
PD associated with a long-term external rating in the third-highest 
investment-grade rating category; and
    (ii) The savings association currently assigns a PD to the 
guarantor's rating grade that is equal to or lower than the PD 
associated with a long-term external rating in the lowest investment-
grade rating category; or
    (2) Non-U.S.-based entities. A foreign bank (as defined in Sec. 
211.2 of the Federal Reserve Board's Regulation K (12 CFR 211.2)), a 
non-U.S.-based securities firm, or a non-U.S.-based insurance company in 
the business of providing credit protection, if:
    (i) The savings association demonstrates that the guarantor is 
subject to consolidated supervision and regulation comparable to that 
imposed on U.S. depository institutions, securities broker-dealers, or 
insurance companies (as the case may be), or has issued and outstanding 
an unsecured long-term debt security without credit enhancement that has 
a long-term applicable external rating of at least investment grade;
    (ii) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the savings association assigned a 
PD to the guarantor's rating grade that was equal to or lower than the 
PD associated with a long-term external rating in the third-highest 
investment-grade rating category; and
    (iii) The savings association currently assigns a PD to the 
guarantor's rating grade that is equal to or lower than the PD 
associated with a long-term external rating in the lowest investment-
grade rating category.
    Eligible guarantee means a guarantee that:
    (1) Is written and unconditional;
    (2) Covers all or a pro rata portion of all contractual payments of 
the obligor on the reference exposure;
    (3) Gives the beneficiary a direct claim against the protection 
provider;
    (4) Is not unilaterally cancelable by the protection provider for 
reasons other than the breach of the contract by the beneficiary;
    (5) Is legally enforceable against the protection provider in a 
jurisdiction where the protection provider has sufficient assets against 
which a judgment may be attached and enforced;

[[Page 372]]

    (6) Requires the protection provider to make payment to the 
beneficiary on the occurrence of a default (as defined in the guarantee) 
of the obligor on the reference exposure in a timely manner without the 
beneficiary first having to take legal actions to pursue the obligor for 
payment;
    (7) Does not increase the beneficiary's cost of credit protection on 
the guarantee in response to deterioration in the credit quality of the 
reference exposure; and
    (8) Is not provided by an affiliate of the savings association, 
unless the affiliate is an insured depository institution, bank, 
securities broker or dealer, or insurance company that:
    (i) Does not control the savings association; and
    (ii) Is subject to consolidated supervision and regulation 
comparable to that imposed on U.S. depository institutions, securities 
broker-dealers, or insurance companies (as the case may be).
    Eligible margin loan means an extension of credit where:
    (1) The extension of credit is collateralized exclusively by liquid 
and readily marketable debt or equity securities, gold, or conforming 
residential mortgages;
    (2) The collateral is marked to market daily, and the transaction is 
subject to daily margin maintenance requirements;
    (3) The extension of credit is conducted under an agreement that 
provides the savings association the right to accelerate and terminate 
the extension of credit and to liquidate or set off collateral promptly 
upon an event of default (including upon an event of bankruptcy, 
insolvency, or similar proceeding) of the counterparty, provided that, 
in any such case, any exercise of rights under the agreement will not be 
stayed or avoided under applicable law in the relevant jurisdictions; 
\2\ and
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    \2\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code (11 
U.S.C. 555), qualified financial contracts under section 11(e)(8) of the 
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or netting 
contracts between or among financial institutions under sections 401-407 
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 
U.S.C. 4401-4407) or the Federal Reserve Board's Regulation EE (12 CFR 
part 231).
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    (4) The savings association has conducted sufficient legal review to 
conclude with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that the agreement meets the 
requirements of paragraph (3) of this definition and is legal, valid, 
binding, and enforceable under applicable law in the relevant 
jurisdictions.
    Eligible operational risk offsets means amounts, not to exceed 
expected operational loss, that:
    (1) Are generated by internal business practices to absorb highly 
predictable and reasonably stable operational losses, including reserves 
calculated consistent with GAAP; and
    (2) Are available to cover expected operational losses with a high 
degree of certainty over a one-year horizon.
    Eligible purchased wholesale exposure means a purchased wholesale 
exposure that:
    (1) The savings association or securitization SPE purchased from an 
unaffiliated seller and did not directly or indirectly originate;
    (2) Was generated on an arm's-length basis between the seller and 
the obligor (intercompany accounts receivable and receivables subject to 
contra-accounts between firms that buy and sell to each other do not 
satisfy this criterion);
    (3) Provides the savings association or securitization SPE with a 
claim on all proceeds from the exposure or a pro rata interest in the 
proceeds from the exposure;
    (4) Has an M of less than one year; and
    (5) When consolidated by obligor, does not represent a concentrated 
exposure relative to the portfolio of purchased wholesale exposures.
    Eligible securitization guarantor means:
    (1) A sovereign entity, the Bank for International Settlements, the 
International Monetary Fund, the European Central Bank, the European 
Commission, a Federal Home Loan Bank, Federal Agricultural Mortgage 
Corporation (Farmer Mac), a multilateral development bank, a depository 
institution, a bank holding company, a savings and loan holding company 
(as defined in 12 U.S.C. 1467a) provided all or substantially all of the 
holding company's activities are permissible for a financial holding 
company under 12 U.S.C. 1843(k), a foreign bank (as defined in Sec. 
211.2 of the Federal Reserve Board's Regulation K (12 CFR 211.2)), or a 
securities firm;
    (2) Any other entity (other than a securitization SPE) that has 
issued and outstanding an unsecured long-term debt security without 
credit enhancement that has a long-term applicable external rating in 
one of the three highest investment-grade rating categories; or
    (3) Any other entity (other than a securitization SPE) that has a PD 
assigned by the savings association that is lower than or equal to the 
PD associated with a long-term external rating in the third highest 
investment-grade rating category.
    Eligible servicer cash advance facility means a servicer cash 
advance facility in which:
    (1) The servicer is entitled to full reimbursement of advances, 
except that a

[[Page 373]]

servicer may be obligated to make non-reimbursable advances for a 
particular underlying exposure if any such advance is contractually 
limited to an insignificant amount of the outstanding principal balance 
of that exposure;
    (2) The servicer's right to reimbursement is senior in right of 
payment to all other claims on the cash flows from the underlying 
exposures of the securitization; and
    (3) The servicer has no legal obligation to, and does not, make 
advances to the securitization if the servicer concludes the advances 
are unlikely to be repaid.
    Equity derivative contract means an equity-linked swap, purchased 
equity-linked option, forward equity-linked contract, or any other 
instrument linked to equities that gives rise to similar counterparty 
credit risks.
    Equity exposure means:
    (1) A security or instrument (whether voting or non-voting) that 
represents a direct or indirect ownership interest in, and is a residual 
claim on, the assets and income of a company, unless:
    (i) The issuing company is consolidated with the savings association 
under GAAP;
    (ii) The savings association is required to deduct the ownership 
interest from tier 1 or tier 2 capital under this appendix;
    (iii) The ownership interest incorporates a payment or other similar 
obligation on the part of the issuing company (such as an obligation to 
make periodic payments); or
    (iv) The ownership interest is a securitization exposure;
    (2) A security or instrument that is mandatorily convertible into a 
security or instrument described in paragraph (1) of this definition;
    (3) An option or warrant that is exercisable for a security or 
instrument described in paragraph (1) of this definition; or
    (4) Any other security or instrument (other than a securitization 
exposure) to the extent the return on the security or instrument is 
based on the performance of a security or instrument described in 
paragraph (1) of this definition.
    Excess spread for a period means:
    (1) Gross finance charge collections and other income received by a 
securitization SPE (including market interchange fees) over a period 
minus interest paid to the holders of the securitization exposures, 
servicing fees, charge-offs, and other senior trust or similar expenses 
of the SPE over the period; divided by
    (2) The principal balance of the underlying exposures at the end of 
the period.
    Exchange rate derivative contract means a cross-currency interest 
rate swap, forward foreign-exchange contract, currency option purchased, 
or any other instrument linked to exchange rates that gives rise to 
similar counterparty credit risks.
    Excluded mortgage exposure means any one- to four-family residential 
pre-sold construction loan for a residence for which the purchase 
contract is cancelled that would receive a 100 percent risk weight under 
section 618(a)(2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act and under 12 CFR 567.1 (definition of 
``qualifying residential construction loan'') and 12 CFR 
567.6(a)(1)(iv).
    Expected credit loss (ECL) means:
    (1) For a wholesale exposure to a non-defaulted obligor or segment 
of non-defaulted retail exposures that is carried at fair value with 
gains and losses flowing through earnings or that is classified as held-
for-sale and is carried at the lower of cost or fair value with losses 
flowing through earnings, zero.
    (2) For all other wholesale exposures to non-defaulted obligors or 
segments of non-defaulted retail exposures, the product of PD times LGD 
times EAD for the exposure or segment.
    (3) For a wholesale exposure to a defaulted obligor or segment of 
defaulted retail exposures, the savings association's impairment 
estimate for allowance purposes for the exposure or segment.
    (4) Total ECL is the sum of expected credit losses for all wholesale 
and retail exposures other than exposures for which the savings 
association has applied the double default treatment in section 34 of 
this appendix.
    Expected exposure (EE) means the expected value of the probability 
distribution of non-negative credit risk exposures to a counterparty at 
any specified future date before the maturity date of the longest term 
transaction in the netting set. Any negative market values in the 
probability distribution of market values to a counterparty at a 
specified future date are set to zero to convert the probability 
distribution of market values to the probability distribution of credit 
risk exposures.
    Expected operational loss (EOL) means the expected value of the 
distribution of potential aggregate operational losses, as generated by 
the savings association's operational risk quantification system using a 
one-year horizon.
    Expected positive exposure (EPE) means the weighted average over 
time of expected (non-negative) exposures to a counterparty where the 
weights are the proportion of the time interval that an individual 
expected exposure represents. When calculating risk-based capital 
requirements, the average is taken over a one-year horizon.
    Exposure at default (EAD). (1) For the on-balance sheet component of 
a wholesale exposure or segment of retail exposures (other than an OTC 
derivative contract, or a repo-style transaction, or eligible margin 
loan for which the savings association determines EAD under section 32 
of this appendix), EAD means:

[[Page 374]]

    (i) If the exposure or segment is a security classified as 
available-for-sale, the savings associations carrying value (including 
net accrued but unpaid interest and fees) for the exposure or segment 
less any unrealized gains on the exposure or segment and plus any 
unrealized losses on the exposure or segment; or
    (ii) If the exposure or segment is not a security classified as 
available-for-sale, the savings association's carrying value (including 
net accrued but unpaid interest and fees) for the exposure or segment.
    (2) For the off-balance sheet component of a wholesale exposure or 
segment of retail exposures (other than an OTC derivative contract, or a 
repo-style transaction or eligible margin loan for which the savings 
association determines EAD under section 32 of this appendix) in the 
form of a loan commitment, line of credit, trade-related letter of 
credit, or transaction-related contingency, EAD means the savings 
association's best estimate of net additions to the outstanding amount 
owed the savings association, including estimated future additional 
draws of principal and accrued but unpaid interest and fees, that are 
likely to occur over a one-year horizon assuming the wholesale exposure 
or the retail exposures in the segment were to go into default. This 
estimate of net additions must reflect what would be expected during 
economic downturn conditions. Trade-related letters of credit are short-
term, self-liquidating instruments that are used to finance the movement 
of goods and are collateralized by the underlying goods. Transaction-
related contingencies relate to a particular transaction and include, 
among other things, performance bonds and performance-based letters of 
credit.
    (3) For the off-balance sheet component of a wholesale exposure or 
segment of retail exposures (other than an OTC derivative contract, or a 
repo-style transaction or eligible margin loan for which the savings 
association determines EAD under section 32 of this appendix) in the 
form of anything other than a loan commitment, line of credit, trade-
related letter of credit, or transaction-related contingency, EAD means 
the notional amount of the exposure or segment.
    (4) EAD for OTC derivative contracts is calculated as described in 
section 32 of this appendix. A savings association also may determine 
EAD for repo-style transactions and eligible margin loans as described 
in section 32 of this appendix.
    (5) For wholesale or retail exposures in which only the drawn 
balance has been securitized, the savings association must reflect its 
share of the exposures' undrawn balances in EAD. Undrawn balances of 
revolving exposures for which the drawn balances have been securitized 
must be allocated between the seller's and investors' interests on a pro 
rata basis, based on the proportions of the seller's and investors' 
shares of the securitized drawn balances.
    Exposure category means any of the wholesale, retail, 
securitization, or equity exposure categories.
    External operational loss event data means, with respect to a 
savings association, gross operational loss amounts, dates, recoveries, 
and relevant causal information for operational loss events occurring at 
organizations other than the savings association.
    External rating means a credit rating that is assigned by an NRSRO 
to an exposure, provided:
    (1) The credit rating fully reflects the entire amount of credit 
risk with regard to all payments owed to the holder of the exposure. If 
a holder is owed principal and interest on an exposure, the credit 
rating must fully reflect the credit risk associated with timely 
repayment of principal and interest. If a holder is owed only principal 
on an exposure, the credit rating must fully reflect only the credit 
risk associated with timely repayment of principal; and
    (2) The credit rating is published in an accessible form and is or 
will be included in the transition matrices made publicly available by 
the NRSRO that summarize the historical performance of positions rated 
by the NRSRO.
    Financial collateral means collateral:
    (1) In the form of:
    (i) Cash on deposit with the savings association (including cash 
held for the savings association by a third-party custodian or trustee);
    (ii) Gold bullion;
    (iii) Long-term debt securities that have an applicable external 
rating of one category below investment grade or higher;
    (iv) Short-term debt instruments that have an applicable external 
rating of at least investment grade;
    (v) Equity securities that are publicly traded;
    (vi) Convertible bonds that are publicly traded;
    (vii) Money market mutual fund shares and other mutual fund shares 
if a price for the shares is publicly quoted daily; or
    (viii) Conforming residential mortgages; and
    (2) In which the savings association has a perfected, first priority 
security interest or, outside of the United States, the legal equivalent 
thereof (with the exception of cash on deposit and notwithstanding the 
prior security interest of any custodial agent).
    GAAP means generally accepted accounting principles as used in the 
United States.
    Gain-on-sale means an increase in the equity capital (as reported on 
Schedule SC of the Thrift Financial Report) of a savings association 
that results from a securitization (other than an increase in equity 
capital that results from the savings association's

[[Page 375]]

receipt of cash in connection with the securitization).
    Guarantee means a financial guarantee, letter of credit, insurance, 
or other similar financial instrument (other than a credit derivative) 
that allows one party (beneficiary) to transfer the credit risk of one 
or more specific exposures (reference exposure) to another party 
(protection provider). See also eligible guarantee.
    High volatility commercial real estate (HVCRE) exposure means a 
credit facility that finances or has financed the acquisition, 
development, or construction (ADC) of real property, unless the facility 
finances:
    (1) One- to four-family residential properties; or
    (2) Commercial real estate projects in which:
    (i) The loan-to-value ratio is less than or equal to the applicable 
maximum supervisory loan-to-value ratio in the OTS's real estate lending 
standards at 12 CFR 560.100-560.101;
    (ii) The borrower has contributed capital to the project in the form 
of cash or unencumbered readily marketable assets (or has paid 
development expenses out-of-pocket) of at least 15 percent of the real 
estate's appraised ``as completed'' value; and
    (iii) The borrower contributed the amount of capital required by 
paragraph (2)(ii) of this definition before the savings association 
advances funds under the credit facility, and the capital contributed by 
the borrower, or internally generated by the project, is contractually 
required to remain in the project throughout the life of the project. 
The life of a project concludes only when the credit facility is 
converted to permanent financing or is sold or paid in full. Permanent 
financing may be provided by the savings association that provided the 
ADC facility as long as the permanent financing is subject to the 
savings association's underwriting criteria for long-term mortgage 
loans.
    Inferred rating. A securitization exposure has an inferred rating 
equal to the external rating referenced in paragraph (2)(i) of this 
definition if:
    (1) The securitization exposure does not have an external rating; 
and
    (2) Another securitization exposure issued by the same issuer and 
secured by the same underlying exposures:
    (i) Has an external rating;
    (ii) Is subordinated in all respects to the unrated securitization 
exposure;
    (iii) Does not benefit from any credit enhancement that is not 
available to the unrated securitization exposure; and
    (iv) Has an effective remaining maturity that is equal to or longer 
than that of the unrated securitization exposure.
    Interest rate derivative contract means a single-currency interest 
rate swap, basis swap, forward rate agreement, purchased interest rate 
option, when-issued securities, or any other instrument linked to 
interest rates that gives rise to similar counterparty credit risks.
    Internal operational loss event data means, with respect to a 
savings association, gross operational loss amounts, dates, recoveries, 
and relevant causal information for operational loss events occurring at 
the savings association.
    Investing savings association means, with respect to a 
securitization, a savings association that assumes the credit risk of a 
securitization exposure (other than an originating savings association 
of the securitization). In the typical synthetic securitization, the 
investing savings association sells credit protection on a pool of 
underlying exposures to the originating savings association.
    Investment fund means a company:
    (1) All or substantially all of the assets of which are financial 
assets; and
    (2) That has no material liabilities.
    Investors' interest EAD means, with respect to a securitization, the 
EAD of the underlying exposures multiplied by the ratio of:
    (1) The total amount of securitization exposures issued by the 
securitization SPE to investors; divided by
    (2) The outstanding principal amount of underlying exposures.
    Loss given default (LGD) means:
    (1) For a wholesale exposure, the greatest of:
    (i) Zero;
    (ii) The savings association's empirically based best estimate of 
the long-run default-weighted average economic loss, per dollar of EAD, 
the savings association would expect to incur if the obligor (or a 
typical obligor in the loss severity grade assigned by the savings 
association to the exposure) were to default within a one-year horizon 
over a mix of economic conditions, including economic downturn 
conditions; or
    (iii) The savings association's empirically based best estimate of 
the economic loss, per dollar of EAD, the savings association would 
expect to incur if the obligor (or a typical obligor in the loss 
severity grade assigned by the savings association to the exposure) were 
to default within a one-year horizon during economic downturn 
conditions.
    (2) For a segment of retail exposures, the greatest of:
    (i) Zero;
    (ii) The savings association's empirically based best estimate of 
the long-run default-weighted average economic loss, per dollar of EAD, 
the savings association would expect to incur if the exposures in the 
segment were to default within a one-year horizon over a mix of economic 
conditions, including economic downturn conditions; or
    (iii) The savings association's empirically based best estimate of 
the economic loss, per

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dollar of EAD, the savings association would expect to incur if the 
exposures in the segment were to default within a one-year horizon 
during economic downturn conditions.
    (3) The economic loss on an exposure in the event of default is all 
material credit-related losses on the exposure (including accrued but 
unpaid interest or fees, losses on the sale of collateral, direct 
workout costs, and an appropriate allocation of indirect workout costs). 
Where positive or negative cash flows on a wholesale exposure to a 
defaulted obligor or a defaulted retail exposure (including proceeds 
from the sale of collateral, workout costs, additional extensions of 
credit to facilitate repayment of the exposure, and draw-downs of unused 
credit lines) occur after the date of default, the economic loss must 
reflect the net present value of cash flows as of the default date using 
a discount rate appropriate to the risk of the defaulted exposure.
    Main index means the Standard & Poor's 500 Index, the FTSE All-World 
Index, and any other index for which the savings association can 
demonstrate to the satisfaction of the OTS that the equities represented 
in the index have comparable liquidity, depth of market, and size of 
bid-ask spreads as equities in the Standard & Poor's 500 Index and FTSE 
All-World Index.
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the International Finance Corporation, 
the Inter-American Development Bank, the Asian Development Bank, the 
African Development Bank, the European Bank for Reconstruction and 
Development, the European Investment Bank, the European Investment Fund, 
the Nordic Investment Bank, the Caribbean Development Bank, the Islamic 
Development Bank, the Council of Europe Development Bank, and any other 
multilateral lending institution or regional development bank in which 
the U.S. government is a shareholder or contributing member or which the 
OTS determines poses comparable credit risk.
    Nationally recognized statistical rating organization (NRSRO) means 
an entity registered with the SEC as a nationally recognized statistical 
rating organization under section 15E of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-7).
    Netting set means a group of transactions with a single counterparty 
that are subject to a qualifying master netting agreement or qualifying 
cross-product master netting agreement. For purposes of the internal 
models methodology in paragraph (d) of section 32 of this appendix, each 
transaction that is not subject to such a master netting agreement is 
its own netting set.
    N\th\-to-default credit derivative means a credit derivative that 
provides credit protection only for the n\th\-defaulting reference 
exposure in a group of reference exposures.
    Obligor means the legal entity or natural person contractually 
obligated on a wholesale exposure, except that a savings association may 
treat the following exposures as having separate obligors:
    (1) Exposures to the same legal entity or natural person denominated 
in different currencies;
    (2) (i) An income-producing real estate exposure for which all or 
substantially all of the repayment of the exposure is reliant on the 
cash flows of the real estate serving as collateral for the exposure; 
the savings association, in economic substance, does not have recourse 
to the borrower beyond the real estate collateral; and no cross-default 
or cross-acceleration clauses are in place other than clauses obtained 
solely out of an abundance of caution; and
    (ii) Other credit exposures to the same legal entity or natural 
person; and
    (3) (i) A wholesale exposure authorized under section 364 of the 
U.S. Bankruptcy Code (11 U.S.C. 364) to a legal entity or natural person 
who is a debtor-in-possession for purposes of Chapter 11 of the 
Bankruptcy Code; and
    (ii) Other credit exposures to the same legal entity or natural 
person.
    Operational loss means a loss (excluding insurance or tax effects) 
resulting from an operational loss event. Operational loss includes all 
expenses associated with an operational loss event except for 
opportunity costs, forgone revenue, and costs related to risk management 
and control enhancements implemented to prevent future operational 
losses.
    Operational loss event means an event that results in loss and is 
associated with any of the following seven operational loss event type 
categories:
    (1) Internal fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act 
involving at least one internal party of a type intended to defraud, 
misappropriate property, or circumvent regulations, the law, or company 
policy, excluding diversity- and discrimination-type events.
    (2) External fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act by a 
third party of a type intended to defraud, misappropriate property, or 
circumvent the law. Retail credit card losses arising from non-
contractual, third-party initiated fraud (for example, identity theft) 
are external fraud operational losses. All other third-party initiated 
credit losses are to be treated as credit risk losses.
    (3) Employment practices and workplace safety, which means the 
operational loss event type category that comprises operational losses 
resulting from an act inconsistent with employment, health, or safety

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laws or agreements, payment of personal injury claims, or payment 
arising from diversity- and discrimination-type events.
    (4) Clients, products, and business practices, which means the 
operational loss event type category that comprises operational losses 
resulting from the nature or design of a product or from an 
unintentional or negligent failure to meet a professional obligation to 
specific clients (including fiduciary and suitability requirements).
    (5) Damage to physical assets, which means the operational loss 
event type category that comprises operational losses resulting from the 
loss of or damage to physical assets from natural disaster or other 
events.
    (6) Business disruption and system failures, which means the 
operational loss event type category that comprises operational losses 
resulting from disruption of business or system failures.
    (7) Execution, delivery, and process management, which means the 
operational loss event type category that comprises operational losses 
resulting from failed transaction processing or process management or 
losses arising from relations with trade counterparties and vendors.
    Operational risk means the risk of loss resulting from inadequate or 
failed internal processes, people, and systems or from external events 
(including legal risk but excluding strategic and reputational risk).
    Operational risk exposure means the 99.9\th\ percentile of the 
distribution of potential aggregate operational losses, as generated by 
the savings association's operational risk quantification system over a 
one-year horizon (and not incorporating eligible operational risk 
offsets or qualifying operational risk mitigants).
    Originating savings association, with respect to a securitization, 
means a savings association that:
    (1) Directly or indirectly originated or securitized the underlying 
exposures included in the securitization; or
    (2) Serves as an ABCP program sponsor to the securitization.
    Other retail exposure means an exposure (other than a securitization 
exposure, an equity exposure, a residential mortgage exposure, an 
excluded mortgage exposure, a qualifying revolving exposure, or the 
residual value portion of a lease exposure) that is managed as part of a 
segment of exposures with homogeneous risk characteristics, not on an 
individual-exposure basis, and is either:
    (1) An exposure to an individual for non-business purposes; or
    (2) An exposure to an individual or company for business purposes if 
the savings association's consolidated business credit exposure to the 
individual or company is $1 million or less.
    Over-the-counter (OTC) derivative contract means a derivative 
contract that is not traded on an exchange that requires the daily 
receipt and payment of cash-variation margin.
    Probability of default (PD) means:
    (1) For a wholesale exposure to a non-defaulted obligor, the savings 
association's empirically based best estimate of the long-run average 
one-year default rate for the rating grade assigned by the savings 
association to the obligor, capturing the average default experience for 
obligors in the rating grade over a mix of economic conditions 
(including economic downturn conditions) sufficient to provide a 
reasonable estimate of the average one-year default rate over the 
economic cycle for the rating grade.
    (2) For a segment of non-defaulted retail exposures, the savings 
association's empirically based best estimate of the long-run average 
one-year default rate for the exposures in the segment, capturing the 
average default experience for exposures in the segment over a mix of 
economic conditions (including economic downturn conditions) sufficient 
to provide a reasonable estimate of the average one-year default rate 
over the economic cycle for the segment and adjusted upward as 
appropriate for segments for which seasoning effects are material. For 
purposes of this definition, a segment for which seasoning effects are 
material is a segment where there is a material relationship between the 
time since origination of exposures within the segment and the savings 
association's best estimate of the long-run average one-year default 
rate for the exposures in the segment.
    (3) For a wholesale exposure to a defaulted obligor or segment of 
defaulted retail exposures, 100 percent.
    Protection amount (P) means, with respect to an exposure hedged by 
an eligible guarantee or eligible credit derivative, the effective 
notional amount of the guarantee or credit derivative, reduced to 
reflect any currency mismatch, maturity mismatch, or lack of 
restructuring coverage (as provided in section 33 of this appendix).
    Publicly traded means traded on:
    (1) Any exchange registered with the SEC as a national securities 
exchange under section 6 of the Securities Exchange Act of 1934 (15 
U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a national securities 
regulatory authority; and
    (ii) Provides a liquid, two-way market for the instrument in 
question, meaning that there are enough independent bona fide offers to 
buy and sell so that a sales price reasonably related to the last sales 
price or current bona fide competitive bid and offer quotations can be 
determined promptly and a trade can be settled at such a price within 
five business days.

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    Qualifying central counterparty means a counterparty (for example, a 
clearinghouse) that:
    (1) Facilitates trades between counterparties in one or more 
financial markets by either guaranteeing trades or novating contracts;
    (2) Requires all participants in its arrangements to be fully 
collateralized on a daily basis; and
    (3) The savings association demonstrates to the satisfaction of the 
OTS is in sound financial condition and is subject to effective 
oversight by a national supervisory authority.
    Qualifying cross-product master netting agreement means a qualifying 
master netting agreement that provides for termination and close-out 
netting across multiple types of financial transactions or qualifying 
master netting agreements in the event of a counterparty's default, 
provided that:
    (1) The underlying financial transactions are OTC derivative 
contracts, eligible margin loans, or repo-style transactions; and
    (2) The savings association obtains a written legal opinion 
verifying the validity and enforceability of the agreement under 
applicable law of the relevant jurisdictions if the counterparty fails 
to perform upon an event of default, including upon an event of 
bankruptcy, insolvency, or similar proceeding.
    Qualifying master netting agreement means any written, legally 
enforceable bilateral agreement, provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default, including bankruptcy, insolvency, or similar proceeding, of the 
counterparty;
    (2) The agreement provides the savings association the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set off collateral promptly upon 
an event of default, including upon an event of bankruptcy, insolvency, 
or similar proceeding, of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions;
    (3) The savings association has conducted sufficient legal review to 
conclude with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that:
    (i) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (ii) In the event of a legal challenge (including one resulting from 
default or from bankruptcy, insolvency, or similar proceeding) the 
relevant court and administrative authorities would find the agreement 
to be legal, valid, binding, and enforceable under the law of the 
relevant jurisdictions;
    (4) The savings association establishes and maintains procedures to 
monitor possible changes in relevant law and to ensure that the 
agreement continues to satisfy the requirements of this definition; and
    (5) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it would make otherwise under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement).
    Qualifying revolving exposure (QRE) means an exposure (other than a 
securitization exposure or equity exposure) to an individual that is 
managed as part of a segment of exposures with homogeneous risk 
characteristics, not on an individual-exposure basis, and:
    (1) Is revolving (that is, the amount outstanding fluctuates, 
determined largely by the borrower's decision to borrow and repay, up to 
a pre-established maximum amount);
    (2) Is unsecured and unconditionally cancelable by the savings 
association to the fullest extent permitted by Federal law; and
    (3) Has a maximum exposure amount (drawn plus undrawn) of up to 
$100,000.
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the savings association 
acts as agent for a customer and indemnifies the customer against loss, 
provided that:
    (1) The transaction is based solely on liquid and readily marketable 
securities, cash, gold, or conforming residential mortgages;
    (2) The transaction is marked-to-market daily and subject to daily 
margin maintenance requirements;
    (3)(i) The transaction is a ``securities contract'' or ``repurchase 
agreement'' under section 555 or 559, respectively, of the Bankruptcy 
Code (11 U.S.C. 555 or 559), a qualified financial contract under 
section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)), or a netting contract between or among financial 
institutions under sections 401-407 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407) or the Federal 
Reserve Board's Regulation EE (12 CFR part 231); or
    (ii) If the transaction does not meet the criteria set forth in 
paragraph (3)(i) of this definition, then either:
    (A) The transaction is executed under an agreement that provides the 
savings association the right to accelerate, terminate, and close-out 
the transaction on a net basis and to liquidate or set off collateral 
promptly upon an event of default (including upon an event of 
bankruptcy, insolvency, or similar proceeding) of the counterparty, 
provided that, in any such case, any exercise of rights under the 
agreement will not be stayed or

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avoided under applicable law in the relevant jurisdictions; or
    (B) The transaction is:
    (1) Either overnight or unconditionally cancelable at any time by 
the savings association; and
    (2) Executed under an agreement that provides the savings 
association the right to accelerate, terminate, and close-out the 
transaction on a net basis and to liquidate or set off collateral 
promptly upon an event of counterparty default; and
    (4) The savings association has conducted sufficient legal review to 
conclude with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that the agreement meets the 
requirements of paragraph (3) of this definition and is legal, valid, 
binding, and enforceable under applicable law in the relevant 
jurisdictions.
    Residential mortgage exposure means an exposure (other than a 
securitization exposure, equity exposure, or excluded mortgage exposure) 
that is managed as part of a segment of exposures with homogeneous risk 
characteristics, not on an individual-exposure basis, and is:
    (1) An exposure that is primarily secured by a first or subsequent 
lien on one- to four-family residential property; or
    (2) An exposure with an original and outstanding amount of $1 
million or less that is primarily secured by a first or subsequent lien 
on residential property that is not one to four family.
    Retail exposure means a residential mortgage exposure, a qualifying 
revolving exposure, or an other retail exposure.
    Retail exposure subcategory means the residential mortgage exposure, 
qualifying revolving exposure, or other retail exposure subcategory.
    Risk parameter means a variable used in determining risk-based 
capital requirements for wholesale and retail exposures, specifically 
probability of default (PD), loss given default (LGD), exposure at 
default (EAD), or effective maturity (M).
    Scenario analysis means a systematic process of obtaining expert 
opinions from business managers and risk management experts to derive 
reasoned assessments of the likelihood and loss impact of plausible 
high-severity operational losses. Scenario analysis may include the 
well-reasoned evaluation and use of external operational loss event 
data, adjusted as appropriate to ensure relevance to a savings 
association's operational risk profile and control structure.
    SEC means the U.S. Securities and Exchange Commission.
    Securitization means a traditional securitization or a synthetic 
securitization.
    Securitization exposure means an on-balance sheet or off-balance 
sheet credit exposure that arises from a traditional or synthetic 
securitization (including credit-enhancing representations and 
warranties).
    Securitization special purpose entity (securitization SPE) means a 
corporation, trust, or other entity organized for the specific purpose 
of holding underlying exposures of a securitization, the activities of 
which are limited to those appropriate to accomplish this purpose, and 
the structure of which is intended to isolate the underlying exposures 
held by the entity from the credit risk of the seller of the underlying 
exposures to the entity.
    Senior securitization exposure means a securitization exposure that 
has a first priority claim on the cash flows from the underlying 
exposures. When determining whether a securitization exposure has a 
first priority claim on the cash flows from the underlying exposures, a 
savings association is not required to consider amounts due under 
interest rate or currency derivative contracts, fees due, or other 
similar payments. Both the most senior commercial paper issued by an 
ABCP program and a liquidity facility that supports the ABCP program may 
be senior securitization exposures if the liquidity facility provider's 
right to reimbursement of the drawn amounts is senior to all claims on 
the cash flows from the underlying exposures except amounts due under 
interest rate or currency derivative contracts, fees due, or other 
similar payments.
    Servicer cash advance facility means a facility under which the 
servicer of the underlying exposures of a securitization may advance 
cash to ensure an uninterrupted flow of payments to investors in the 
securitization, including advances made to cover foreclosure costs or 
other expenses to facilitate the timely collection of the underlying 
exposures. See also eligible servicer cash advance facility.
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    Sovereign exposure means:
    (1) A direct exposure to a sovereign entity; or
    (2) An exposure directly and unconditionally backed by the full 
faith and credit of a sovereign entity.
    Subsidiary means, with respect to a company, a company controlled by 
that company.
    Synthetic securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more underlying 
exposures is transferred to one or more third parties through the use of 
one or more credit derivatives or guarantees (other than a guarantee 
that transfers only the credit risk of an individual retail exposure);
    (2) The credit risk associated with the underlying exposures has 
been separated into

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at least two tranches reflecting different levels of seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures; and
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities).
    Tier 1 capital is defined in subpart B of part 567, as modified in 
part II of this appendix.
    Tier 2 capital is defined in subpart B of part 567, as modified in 
part II of this appendix.
    Total qualifying capital means the sum of tier 1 capital and tier 2 
capital, after all deductions required in this appendix.
    Total risk-weighted assets means:
    (1) The sum of:
    (i) Credit risk-weighted assets; and
    (ii) Risk-weighted assets for operational risk; minus
    (2) Excess eligible credit reserves not included in tier 2 capital.
    Total wholesale and retail risk-weighted assets means the sum of 
risk-weighted assets for wholesale exposures to non-defaulted obligors 
and segments of non-defaulted retail exposures; risk-weighted assets for 
wholesale exposures to defaulted obligors and segments of defaulted 
retail exposures; risk-weighted assets for assets not defined by an 
exposure category; and risk-weighted assets for non-material portfolios 
of exposures (all as determined in section 31 of this appendix) and 
risk-weighted assets for unsettled transactions (as determined in 
section 35 of this appendix) minus the amounts deducted from capital 
pursuant to subpart B of part 567 (excluding those deductions reversed 
in section 12 of this appendix).
    Traditional securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more underlying 
exposures is transferred to one or more third parties other than through 
the use of credit derivatives or guarantees;
    (2) The credit risk associated with the underlying exposures has 
been separated into at least two tranches reflecting different levels of 
seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures;
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities);
    (5) The underlying exposures are not owned by an operating company;
    (6) The underlying exposures are not owned by a small business 
investment company described in section 302 of the Small Business 
Investment Act of 1958 (15 U.S.C. 682); and
    (7) The underlying exposures are not owned by a firm an investment 
in which is designed primarily to promote community welfare, including 
the welfare of low- and moderate-income communities or families, such as 
by providing services or jobs.
    (8) The OTS may determine that a transaction in which the underlying 
exposures are owned by an investment firm that exercises substantially 
unfettered control over the size and composition of its assets, 
liabilities, and off-balance sheet exposures is not a traditional 
securitization based on the transaction's leverage, risk profile, or 
economic substance.
    (9) The OTS may deem a transaction that meets the definition of a 
traditional securitization, notwithstanding paragraph (5), (6), or (7) 
of this definition, to be a traditional securitization based on the 
transaction's leverage, risk profile, or economic substance.
    Tranche means all securitization exposures associated with a 
securitization that have the same seniority level.
    Underlying exposures means one or more exposures that have been 
securitized in a securitization transaction.
    Unexpected operational loss (UOL) means the difference between the 
savings association's operational risk exposure and the savings 
association's expected operational loss.
    Unit of measure means the level (for example, organizational unit or 
operational loss event type) at which the savings association's 
operational risk quantification system generates a separate distribution 
of potential operational losses.
    Value-at-Risk (VaR) means the estimate of the maximum amount that 
the value of one or more exposures could decline due to market price or 
rate movements during a fixed holding period within a stated confidence 
interval.
    Wholesale exposure means a credit exposure to a company, natural 
person, sovereign entity, or governmental entity (other than a 
securitization exposure, retail exposure, excluded mortgage exposure, or 
equity exposure). Examples of a wholesale exposure include:
    (1) A non-tranched guarantee issued by a savings association on 
behalf of a company;
    (2) A repo-style transaction entered into by a savings association 
with a company and any other transaction in which a savings association 
posts collateral to a company and faces counterparty credit risk;
    (3) An exposure that a savings association treats as a covered 
position under any applicable market risk rule for which there is a 
counterparty credit risk capital requirement;

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    (4) A sale of corporate loans by a savings association to a third 
party in which the savings association retains full recourse;
    (5) An OTC derivative contract entered into by a savings association 
with a company;
    (6) An exposure to an individual that is not managed by a savings 
association as part of a segment of exposures with homogeneous risk 
characteristics; and
    (7) A commercial lease.
    Wholesale exposure subcategory means the HVCRE or non-HVCRE 
wholesale exposure subcategory.

           Section 3. Minimum Risk-Based Capital Requirements

    (a) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each savings association must meet a 
minimum ratio of:
    (1) Total qualifying capital to total risk-weighted assets of 8.0 
percent; and
    (2) Tier 1 capital to total risk-weighted assets of 4.0 percent.
    (b) Each savings association must hold capital commensurate with the 
level and nature of all risks to which the savings association is 
exposed.
    (c) When a savings association subject to any applicable market risk 
rule calculates its risk-based capital requirements under this appendix, 
the savings association must also refer to any applicable market risk 
rule for supplemental rules to calculate risk-based capital requirements 
adjusted for market risk.

                       Part II. Qualifying Capital

                    Section 11. Additional Deductions

    (a) General. A savings association that uses this appendix must make 
the same deductions from its tier 1 capital and tier 2 capital required 
in subpart B of part 567, except that:
    (1) A savings association is not required to deduct certain equity 
investments and CEIOs (as provided in section 12 of this appendix); and
    (2) A savings association also must make the deductions from capital 
required by paragraphs (b) and (c) of this section.
    (b) Deductions from tier 1 capital. A savings association must 
deduct from tier 1 capital any gain-on-sale associated with a 
securitization exposure as provided in paragraph (a) of section 41 and 
paragraphs (a)(1), (c), (g)(1), and (h)(1) of section 42 of this 
appendix.
    (c) Deductions from tier 1 and tier 2 capital. A savings association 
must deduct the exposures specified in paragraphs (c)(1) through (c)(7) 
in this section 50 percent from tier 1 capital and 50 percent from tier 
2 capital. If the amount deductible from tier 2 capital exceeds the 
savings association's actual tier 2 capital, however, the savings 
association must deduct the excess from tier 1 capital.
    (1) Credit-enhancing interest-only strips (CEIOs). In accordance 
with paragraphs (a)(1) and (c) of section 42 of this appendix, any CEIO 
that does not constitute gain-on-sale.
    (2) Non-qualifying securitization exposures. In accordance with 
paragraphs (a)(4) and (c) of section 42 of this appendix, any 
securitization exposure that does not qualify for the Ratings-Based 
Approach, the Internal Assessment Approach, or the Supervisory Formula 
Approach under sections 43, 44, and 45 of this appendix, respectively.
    (3) Securitizations of non-IRB exposures. In accordance with 
paragraphs (c) and (g)(4) of section 42 of this appendix, certain 
exposures to a securitization any underlying exposure of which is not a 
wholesale exposure, retail exposure, securitization exposure, or equity 
exposure.
    (4) Low-rated securitization exposures. In accordance with section 
43 and paragraph (c) of section 42 of this appendix, any securitization 
exposure that qualifies for and must be deducted under the Ratings-Based 
Approach.
    (5) High-risk securitization exposures subject to the Supervisory 
Formula Approach. In accordance with paragraphs (b) and (c) of section 
45 of this appendix and paragraph (c) of section 42 of this appendix, 
certain high-risk securitization exposures (or portions thereof) that 
qualify for the Supervisory Formula Approach.
    (6) Eligible credit reserves shortfall. In accordance with paragraph 
(a)(1) of section 13 of this appendix, any eligible credit reserves 
shortfall.
    (7) Certain failed capital markets transactions. In accordance with 
paragraph (e)(3) of section 35 of this appendix, the savings 
association's exposure on certain failed capital markets transactions.

           Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A savings association is not required to 
make the deduction from capital for CEIOs in 12 CFR 567.5(a)(2)(iii) and 
567.12(e).
    (b) Deduction for certain equity investments. A savings association 
is not required to deduct equity securities from capital under 12 CFR 
567.5(c)(2)(ii). However, it must continue to deduct equity investments 
in real estate under that section. See 12 CFR 567.1, which defines 
equity investments, including equity securities and equity investments 
in real estate.

                  Section 13. Eligible Credit Reserves

    (a) Comparison of eligible credit reserves to expected credit 
losses--(1) Shortfall of eligible credit reserves. If a savings 
association's eligible credit reserves are less than the savings

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association's total expected credit losses, the savings association must 
deduct the shortfall amount 50 percent from tier 1 capital and 50 
percent from tier 2 capital. If the amount deductible from tier 2 
capital exceeds the savings association's actual tier 2 capital, the 
savings association must deduct the excess amount from tier 1 capital.
    (2) Excess eligible credit reserves. If a savings association's 
eligible credit reserves exceed the savings association's total expected 
credit losses, the savings association may include the excess amount in 
tier 2 capital to the extent that the excess amount does not exceed 0.6 
percent of the savings association's credit-risk-weighted assets.
    (b) Treatment of allowance for loan and lease losses. Regardless of 
any provision in subpart B of part 567, the ALLL is included in tier 2 
capital only to the extent provided in paragraph (a)(2) of this section 
and in section 24 of this appendix.

                         Part III. Qualification

                    Section 21. Qualification Process

    (a) Timing. (1) A savings association that is described in paragraph 
(b)(1) of section 1 of this appendix must adopt a written implementation 
plan no later than six months after the later of April 1, 2008, or the 
date the savings association meets a criterion in that section. The 
implementation plan must incorporate an explicit first floor period 
start date no later than 36 months after the later of April 1, 2008, or 
the date the savings association meets at least one criterion under 
paragraph (b)(1) of section 1 of this appendix. The OTS may extend the 
first floor period start date.
    (2) A savings association that elects to be subject to this appendix 
under paragraph (b)(2) of section 1 of this appendix must adopt a 
written implementation plan.
    (b) Implementation plan. (1) The savings association's 
implementation plan must address in detail how the savings association 
complies, or plans to comply, with the qualification requirements in 
section 22 of this appendix. The savings association also must maintain 
a comprehensive and sound planning and governance process to oversee the 
implementation efforts described in the plan. At a minimum, the plan 
must:
    (i) Comprehensively address the qualification requirements in 
section 22 of this appendix for the savings association and each 
consolidated subsidiary (U.S. and foreign-based) of the savings 
association with respect to all portfolios and exposures of the savings 
association and each of its consolidated subsidiaries;
    (ii) Justify and support any proposed temporary or permanent 
exclusion of business lines, portfolios, or exposures from application 
of the advanced approaches in this appendix (which business lines, 
portfolios, and exposures must be, in the aggregate, immaterial to the 
savings association);
    (iii) Include the savings association's self-assessment of:
    (A) The savings association's current status in meeting the 
qualification requirements in section 22 of this appendix; and
    (B) The consistency of the savings association's current practices 
with the OTS's supervisory guidance on the qualification requirements;
    (iv) Based on the savings association's self-assessment, identify 
and describe the areas in which the savings association proposes to 
undertake additional work to comply with the qualification requirements 
in section 22 of this appendix or to improve the consistency of the 
savings association's current practices with the OTS's supervisory 
guidance on the qualification requirements (gap analysis);
    (v) Describe what specific actions the savings association will take 
to address the areas identified in the gap analysis required by 
paragraph (b)(1)(iv) of this section;
    (vi) Identify objective, measurable milestones, including delivery 
dates and a date when the savings association's implementation of the 
methodologies described in this appendix will be fully operational;
    (vii) Describe resources that have been budgeted and are available 
to implement the plan; and
    (viii) Receive approval of the savings association's board of 
directors.
    (2) The savings association must submit the implementation plan, 
together with a copy of the minutes of the board of directors' approval, 
to the OTS at least 60 days before the savings association proposes to 
begin its parallel run, unless the OTS waives prior notice.
    (c) Parallel run. Before determining its risk-based capital 
requirements under this appendix and following adoption of the 
implementation plan, the savings association must conduct a satisfactory 
parallel run. A satisfactory parallel run is a period of no less than 
four consecutive calendar quarters during which the savings association 
complies with the qualification requirements in section 22 of this 
appendix to the satisfaction of the OTS. During the parallel run, the 
savings association must report to the OTS on a calendar quarterly basis 
its risk-based capital ratios using subpart B of part 567 and the risk-
based capital requirements described in this appendix. During this 
period, the savings association is subject to subpart B of part 567.
    (d) Approval to calculate risk-based capital requirements under this 
appendix. The OTS will notify the savings association of the date that 
the savings association may begin its first floor period if the OTS 
determines that:

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    (1) The savings association fully complies with all the 
qualification requirements in section 22 of this appendix;
    (2) The savings association has conducted a satisfactory parallel 
run under paragraph (c) of this section; and
    (3) The savings association has an adequate process to ensure 
ongoing compliance with the qualification requirements in section 22 of 
this appendix.
    (e) Transitional floor periods. Following a satisfactory parallel 
run, a savings association is subject to three transitional floor 
periods.
    (1) Risk-based capital ratios during the transitional floor 
periods--(i) Tier 1 risk-based capital ratio. During a savings 
association's transitional floor periods, the savings association's tier 
1 risk-based capital ratio is equal to the lower of:
    (A) The savings association's floor-adjusted tier 1 risk-based 
capital ratio; or
    (B) The savings association's advanced approaches tier 1 risk-based 
capital ratio.
    (ii) Total risk-based capital ratio. During a savings association's 
transitional floor periods, the savings association's total risk-based 
capital ratio is equal to the lower of:
    (A) The savings association's floor-adjusted total risk-based 
capital ratio; or
    (B) The savings association's advanced approaches total risk-based 
capital ratio.
    (2) Floor-adjusted risk-based capital ratios. (i) A savings 
association's floor-adjusted tier 1 risk-based capital ratio during a 
transitional floor period is equal to the savings association's tier 1 
capital as calculated under subpart B of part 567, divided by the 
product of:
    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 567; and
    (B) The appropriate transitional floor percentage in Table 1.
    (ii) A savings association's floor-adjusted total risk-based capital 
ratio during a transitional floor period is equal to the sum of the 
savings association's tier 1 and tier 2 capital as calculated under 
subpart B of part 567, divided by the product of:
    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 567; and
    (B) The appropriate transitional floor percentage in Table 1.
    (iii) A savings association that meets the criteria in paragraph 
(b)(1) or (b)(2) of section 1 of this appendix as of April 1, 2008, must 
use subpart B of part 567 during the parallel run and as the basis for 
its transitional floors.

                      Table 1--Transitional Floors
------------------------------------------------------------------------
                                                 Transitional floor
         Transitional floor period                   percentage
------------------------------------------------------------------------
First floor period........................  95 percent.
Second floor period.......................  90 percent.
Third floor period........................  85 percent.
------------------------------------------------------------------------

    (3) Advanced approaches risk-based capital ratios. (i) A savings 
association's advanced approaches tier 1 risk-based capital ratio equals 
the savings association's tier 1 risk-based capital ratio as calculated 
under this appendix (other than this section on transitional floor 
periods).
    (ii) A savings association's advanced approaches total risk-based 
capital ratio equals the savings association's total risk-based capital 
ratio as calculated under this appendix (other than this section on 
transitional floor periods).
    (4) Reporting. During the transitional floor periods, a savings 
association must report to the OTS on a calendar quarterly basis both 
floor-adjusted risk-based capital ratios and both advanced approaches 
risk-based capital ratios.
    (5) Exiting a transitional floor period. A savings association may 
not exit a transitional floor period until the savings association has 
spent a minimum of four consecutive calendar quarters in the period and 
the OTS has determined that the savings association may exit the floor 
period. The OTS's determination will be based on an assessment of the 
savings association's ongoing compliance with the qualification 
requirements in section 22 of this appendix.
    (6) Interagency study. After the end of the second transition year 
(2010), the Federal banking agencies will publish a study that evaluates 
the advanced approaches to determine if there are any material 
deficiencies. For any primary Federal supervisor to authorize any 
institution to exit the third transitional floor period, the study must 
determine that there are no such material deficiencies that cannot be 
addressed by then-existing tools, or, if such deficiencies are found, 
they are first remedied by changes to this appendix. Notwithstanding the 
preceding sentence, a primary Federal supervisor that disagrees with the 
finding of material deficiency may not authorize any institution under 
its jurisdiction to exit the third transitional floor period unless it 
provides a public report explaining its reasoning.

                 Section 22. Qualification Requirements

    (a) Process and systems requirements. (1) A savings association must 
have a rigorous process for assessing its overall capital adequacy in 
relation to its risk profile and a comprehensive strategy for 
maintaining an appropriate level of capital.
    (2) The systems and processes used by a savings association for 
risk-based capital

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purposes under this appendix must be consistent with the savings 
association's internal risk management processes and management 
information reporting systems.
    (3) Each savings association must have an appropriate infrastructure 
with risk measurement and management processes that meet the 
qualification requirements of this section and are appropriate given the 
savings association's size and level of complexity. Regardless of 
whether the systems and models that generate the risk parameters 
necessary for calculating a savings association's risk-based capital 
requirements are located at any affiliate of the savings association, 
the savings association itself must ensure that the risk parameters and 
reference data used to determine its risk-based capital requirements are 
representative of its own credit risk and operational risk exposures.
    (b) Risk rating and segmentation systems for wholesale and retail 
exposures. (1) A savings association must have an internal risk rating 
and segmentation system that accurately and reliably differentiates 
among degrees of credit risk for the savings association's wholesale and 
retail exposures.
    (2) For wholesale exposures:
    (i) A savings association must have an internal risk rating system 
that accurately and reliably assigns each obligor to a single rating 
grade (reflecting the obligor's likelihood of default). A savings 
association may elect, however, not to assign to a rating grade an 
obligor to whom the savings association extends credit based solely on 
the financial strength of a guarantor, provided that all of the savings 
association's exposures to the obligor are fully covered by eligible 
guarantees, the savings association applies the PD substitution approach 
in paragraph (c)(1) of section 33 of this appendix to all exposures to 
that obligor, and the savings association immediately assigns the 
obligor to a rating grade if a guarantee can no longer be recognized 
under this appendix. The savings association's wholesale obligor rating 
system must have at least seven discrete rating grades for non-defaulted 
obligors and at least one rating grade for defaulted obligors.
    (ii) Unless the savings association has chosen to directly assign 
LGD estimates to each wholesale exposure, the savings association must 
have an internal risk rating system that accurately and reliably assigns 
each wholesale exposure to a loss severity rating grade (reflecting the 
savings association's estimate of the LGD of the exposure). A savings 
association employing loss severity rating grades must have a 
sufficiently granular loss severity grading system to avoid grouping 
together exposures with widely ranging LGDs.
    (3) For retail exposures, a savings association must have an 
internal system that groups retail exposures into the appropriate retail 
exposure subcategory, groups the retail exposures in each retail 
exposure subcategory into separate segments with homogeneous risk 
characteristics, and assigns accurate and reliable PD and LGD estimates 
for each segment on a consistent basis. The savings association's system 
must identify and group in separate segments by subcategories exposures 
identified in paragraphs (c)(2)(ii) and (iii) of section 31 of this 
appendix.
    (4) The savings association's internal risk rating policy for 
wholesale exposures must describe the savings association's rating 
philosophy (that is, must describe how wholesale obligor rating 
assignments are affected by the savings association's choice of the 
range of economic, business, and industry conditions that are considered 
in the obligor rating process).
    (5) The savings association's internal risk rating system for 
wholesale exposures must provide for the review and update (as 
appropriate) of each obligor rating and (if applicable) each loss 
severity rating whenever the savings association receives new material 
information, but no less frequently than annually. The savings 
association's retail exposure segmentation system must provide for the 
review and update (as appropriate) of assignments of retail exposures to 
segments whenever the savings association receives new material 
information, but generally no less frequently than quarterly.
    (c) Quantification of risk parameters for wholesale and retail 
exposures. (1) The savings association must have a comprehensive risk 
parameter quantification process that produces accurate, timely, and 
reliable estimates of the risk parameters for the savings association's 
wholesale and retail exposures.
    (2) Data used to estimate the risk parameters must be relevant to 
the savings association's actual wholesale and retail exposures, and of 
sufficient quality to support the determination of risk-based capital 
requirements for the exposures.
    (3) The savings association's risk parameter quantification process 
must produce appropriately conservative risk parameter estimates where 
the savings association has limited relevant data, and any adjustments 
that are part of the quantification process must not result in a pattern 
of bias toward lower risk parameter estimates.
    (4) The savings association's risk parameter estimation process 
should not rely on the possibility of U.S. government financial 
assistance, except for the financial assistance that the U.S. government 
has a legally binding commitment to provide.
    (5) Where the savings association's quantifications of LGD directly 
or indirectly incorporate estimates of the effectiveness of its credit 
risk management practices in reducing its exposure to troubled obligors 
prior

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to default, the savings association must support such estimates with 
empirical analysis showing that the estimates are consistent with its 
historical experience in dealing with such exposures during economic 
downturn conditions.
    (6) PD estimates for wholesale obligors and retail segments must be 
based on at least five years of default data. LGD estimates for 
wholesale exposures must be based on at least seven years of loss 
severity data, and LGD estimates for retail segments must be based on at 
least five years of loss severity data. EAD estimates for wholesale 
exposures must be based on at least seven years of exposure amount data, 
and EAD estimates for retail segments must be based on at least five 
years of exposure amount data.
    (7) Default, loss severity, and exposure amount data must include 
periods of economic downturn conditions, or the savings association must 
adjust its estimates of risk parameters to compensate for the lack of 
data from periods of economic downturn conditions.
    (8) The savings association's PD, LGD, and EAD estimates must be 
based on the definition of default in this appendix.
    (9) The savings association must review and update (as appropriate) 
its risk parameters and its risk parameter quantification process at 
least annually.
    (10) The savings association must at least annually conduct a 
comprehensive review and analysis of reference data to determine 
relevance of reference data to the savings association's exposures, 
quality of reference data to support PD, LGD, and EAD estimates, and 
consistency of reference data to the definition of default contained in 
this appendix.
    (d) Counterparty credit risk model. A savings association must 
obtain the prior written approval of the OTS under section 32 of this 
appendix to use the internal models methodology for counterparty credit 
risk.
    (e) Double default treatment. A savings association must obtain the 
prior written approval of the OTS under section 34 of this appendix to 
use the double default treatment.
    (f) Securitization exposures. A savings association must obtain the 
prior written approval of the OTS under section 44 of this appendix to 
use the Internal Assessment Approach for securitization exposures to 
ABCP programs.
    (g) Equity exposures model. A savings association must obtain the 
prior written approval of the OTS under section 53 of this appendix to 
use the Internal Models Approach for equity exposures.
    (h) Operational risk--(1) Operational risk management processes. A 
savings association must:
    (i) Have an operational risk management function that:
    (A) Is independent of business line management; and
    (B) Is responsible for designing, implementing, and overseeing the 
savings association's operational risk data and assessment systems, 
operational risk quantification systems, and related processes;
    (ii) Have and document a process (which must capture business 
environment and internal control factors affecting the savings 
association's operational risk profile) to identify, measure, monitor, 
and control operational risk in savings association products, 
activities, processes, and systems; and
    (iii) Report operational risk exposures, operational loss events, 
and other relevant operational risk information to business unit 
management, senior management, and the board of directors (or a 
designated committee of the board).
    (2) Operational risk data and assessment systems. A savings 
association must have operational risk data and assessment systems that 
capture operational risks to which the savings association is exposed. 
The savings association's operational risk data and assessment systems 
must:
    (i) Be structured in a manner consistent with the savings 
association's current business activities, risk profile, technological 
processes, and risk management processes; and
    (ii) Include credible, transparent, systematic, and verifiable 
processes that incorporate the following elements on an ongoing basis:
    (A) Internal operational loss event data. The savings association 
must have a systematic process for capturing and using internal 
operational loss event data in its operational risk data and assessment 
systems.
    (1) The savings association's operational risk data and assessment 
systems must include a historical observation period of at least five 
years for internal operational loss event data (or such shorter period 
approved by the OTS to address transitional situations, such as 
integrating a new business line).
    (2) The savings association must be able to map its internal 
operational loss event data into the seven operational loss event type 
categories.
    (3) The savings association may refrain from collecting internal 
operational loss event data for individual operational losses below 
established dollar threshold amounts if the savings association can 
demonstrate to the satisfaction of the OTS that the thresholds are 
reasonable, do not exclude important internal operational loss event 
data, and permit the savings association to capture substantially all 
the dollar value of the savings association's operational losses.
    (B) External operational loss event data. The savings association 
must have a systematic process for determining its methodologies

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for incorporating external operational loss event data into its 
operational risk data and assessment systems.
    (C) Scenario analysis. The savings association must have a 
systematic process for determining its methodologies for incorporating 
scenario analysis into its operational risk data and assessment systems.
    (D) Business environment and internal control factors. The savings 
association must incorporate business environment and internal control 
factors into its operational risk data and assessment systems. The 
savings association must also periodically compare the results of its 
prior business environment and internal control factor assessments 
against its actual operational losses incurred in the intervening 
period.
    (3) Operational risk quantification systems. (i) The savings 
association's operational risk quantification systems:
    (A) Must generate estimates of the savings association's operational 
risk exposure using its operational risk data and assessment systems;
    (B) Must employ a unit of measure that is appropriate for the 
savings association's range of business activities and the variety of 
operational loss events to which it is exposed, and that does not 
combine business activities or operational loss events with demonstrably 
different risk profiles within the same loss distribution;
    (C) Must include a credible, transparent, systematic, and verifiable 
approach for weighting each of the four elements, described in paragraph 
(h)(2)(ii) of this section, that a savings association is required to 
incorporate into its operational risk data and assessment systems;
    (D) May use internal estimates of dependence among operational 
losses across and within units of measure if the savings association can 
demonstrate to the satisfaction of the OTS that its process for 
estimating dependence is sound, robust to a variety of scenarios, and 
implemented with integrity, and allows for the uncertainty surrounding 
the estimates. If the savings association has not made such a 
demonstration, it must sum operational risk exposure estimates across 
units of measure to calculate its total operational risk exposure; and
    (E) Must be reviewed and updated (as appropriate) whenever the 
savings association becomes aware of information that may have a 
material effect on the savings association's estimate of operational 
risk exposure, but the review and update must occur no less frequently 
than annually.
    (ii) With the prior written approval of the OTS, a savings 
association may generate an estimate of its operational risk exposure 
using an alternative approach to that specified in paragraph (h)(3)(i) 
of this section. A savings association proposing to use such an 
alternative operational risk quantification system must submit a 
proposal to the OTS. In determining whether to approve a savings 
association's proposal to use an alternative operational risk 
quantification system, the OTS will consider the following principles:
    (A) Use of the alternative operational risk quantification system 
will be allowed only on an exception basis, considering the size, 
complexity, and risk profile of the savings association;
    (B) The savings association must demonstrate that its estimate of 
its operational risk exposure generated under the alternative 
operational risk quantification system is appropriate and can be 
supported empirically; and
    (C) A savings association must not use an allocation of operational 
risk capital requirements that includes entities other than depository 
institutions or the benefits of diversification across entities.
    (i) Data management and maintenance. (1) A savings association must 
have data management and maintenance systems that adequately support all 
aspects of its advanced systems and the timely and accurate reporting of 
risk-based capital requirements.
    (2) A savings association must retain data using an electronic 
format that allows timely retrieval of data for analysis, validation, 
reporting, and disclosure purposes.
    (3) A savings association must retain sufficient data elements 
related to key risk drivers to permit adequate monitoring, validation, 
and refinement of its advanced systems.
    (j) Control, oversight, and validation mechanisms. (1) The savings 
association's senior management must ensure that all components of the 
savings association's advanced systems function effectively and comply 
with the qualification requirements in this section.
    (2) The savings association's board of directors (or a designated 
committee of the board) must at least annually review the effectiveness 
of, and approve, the savings association's advanced systems.
    (3) A savings association must have an effective system of controls 
and oversight that:
    (i) Ensures ongoing compliance with the qualification requirements 
in this section;
    (ii) Maintains the integrity, reliability, and accuracy of the 
savings association's advanced systems; and
    (iii) Includes adequate governance and project management processes.
    (4) The savings association must validate, on an ongoing basis, its 
advanced systems. The savings association's validation process must be 
independent of the advanced systems' development, implementation, and 
operation, or the validation process must be subjected to an independent 
review of its adequacy and effectiveness. Validation must include:

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    (i) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the advanced systems;
    (ii) An ongoing monitoring process that includes verification of 
processes and benchmarking; and
    (iii) An outcomes analysis process that includes back-testing.
    (5) The savings association must have an internal audit function 
independent of business-line management that at least annually assesses 
the effectiveness of the controls supporting the savings association's 
advanced systems and reports its findings to the savings association's 
board of directors (or a committee thereof).
    (6) The savings association must periodically stress test its 
advanced systems. The stress testing must include a consideration of how 
economic cycles, especially downturns, affect risk-based capital 
requirements (including migration across rating grades and segments and 
the credit risk mitigation benefits of double default treatment).
    (k) Documentation. The savings association must adequately document 
all material aspects of its advanced systems.

                    Section 23. Ongoing Qualification

    (a) Changes to advanced systems. A savings association must meet all 
the qualification requirements in section 22 of this appendix on an 
ongoing basis. A savings association must notify the OTS when the 
savings association makes any change to an advanced system that would 
result in a material change in the savings association's risk-weighted 
asset amount for an exposure type, or when the savings association makes 
any significant change to its modeling assumptions.
    (b) Failure to comply with qualification requirements. (1) If the 
OTS determines that a savings association that uses this appendix and 
has conducted a satisfactory parallel run fails to comply with the 
qualification requirements in section 22 of this appendix, the OTS will 
notify the savings association in writing of the savings association's 
failure to comply.
    (2) The savings association must establish and submit a plan 
satisfactory to the OTS to return to compliance with the qualification 
requirements.
    (3) In addition, if the OTS determines that the savings 
association's risk-based capital requirements are not commensurate with 
the savings association's credit, market, operational, or other risks, 
the OTS may require such a savings association to calculate its risk-
based capital requirements:
    (i) Under subpart B of part 567; or
    (ii) Under this appendix with any modifications provided by the OTS.

      Section 24. Merger and Acquisition Transitional Arrangements

    (a) Mergers and acquisitions of companies without advanced systems. 
If a savings association merges with or acquires a company that does not 
calculate its risk-based capital requirements using advanced systems, 
the savings association may use subpart B of part 567 to determine the 
risk-weighted asset amounts for, and deductions from capital associated 
with, the merged or acquired company's exposures for up to 24 months 
after the calendar quarter during which the merger or acquisition 
consummates. The OTS may extend this transition period for up to an 
additional 12 months. Within 90 days of consummating the merger or 
acquisition, the savings association must submit to the OTS an 
implementation plan for using its advanced systems for the acquired 
company. During the period when subpart A of this part applies to the 
merged or acquired company, any ALLL associated with the merged or 
acquired company's exposures may be included in the savings 
association's tier 2 capital up to 1.25 percent of the acquired 
company's risk-weighted assets. All general allowances of the merged or 
acquired company must be excluded from the savings association's 
eligible credit reserves. In addition, the risk-weighted assets of the 
merged or acquired company are not included in the savings association's 
credit-risk-weighted assets but are included in total risk-weighted 
assets. If a savings association relies on this paragraph, the savings 
association must disclose publicly the amounts of risk-weighted assets 
and qualifying capital calculated under this appendix for the acquiring 
savings association and under subpart B of part 567 for the acquired 
company.
    (b) Mergers and acquisitions of companies with advanced systems--(1) 
If a savings association merges with or acquires a company that 
calculates its risk-based capital requirements using advanced systems, 
the savings association may use the acquired company's advanced systems 
to determine the risk-weighted asset amounts for, and deductions from 
capital associated with, the merged or acquired company's exposures for 
up to 24 months after the calendar quarter during which the acquisition 
or merger consummates. The OTS may extend this transition period for up 
to an additional 12 months. Within 90 days of consummating the merger or 
acquisition, the savings association must submit to the OTS an 
implementation plan for using its advanced systems for the merged or 
acquired company.
    (2) If the acquiring savings association is not subject to the 
advanced approaches in this appendix at the time of acquisition or 
merger, during the period when subpart B of

[[Page 388]]

part 567 apply to the acquiring savings association, the ALLL associated 
with the exposures of the merged or acquired company may not be directly 
included in tier 2 capital. Rather, any excess eligible credit reserves 
associated with the merged or acquired company's exposures may be 
included in the savings association's tier 2 capital up to 0.6 percent 
of the credit-risk-weighted assets associated with those exposures.

          Part IV. Risk-Weighted Assets for General Credit Risk

 Section 31. Mechanics for Calculating Total Wholesale and Retail Risk-
                             Weighted Assets

    (a) Overview. A savings association must calculate its total 
wholesale and retail risk-weighted asset amount in four distinct phases:
    (1) Phase 1--categorization of exposures;
    (2) Phase 2--assignment of wholesale obligors and exposures to 
rating grades and segmentation of retail exposures;
    (3) Phase 3--assignment of risk parameters to wholesale exposures 
and segments of retail exposures; and
    (4) Phase 4--calculation of risk-weighted asset amounts.
    (b) Phase 1--Categorization. The savings association must determine 
which of its exposures are wholesale exposures, retail exposures, 
securitization exposures, or equity exposures. The savings association 
must categorize each retail exposure as a residential mortgage exposure, 
a QRE, or an other retail exposure. The savings association must 
identify which wholesale exposures are HVCRE exposures, sovereign 
exposures, OTC derivative contracts, repo-style transactions, eligible 
margin loans, eligible purchased wholesale exposures, unsettled 
transactions to which section 35 of this appendix applies, and eligible 
guarantees or eligible credit derivatives that are used as credit risk 
mitigants. The savings association must identify any on-balance sheet 
asset that does not meet the definition of a wholesale, retail, equity, 
or securitization exposure, as well as any non-material portfolio of 
exposures described in paragraph (e)(4) of this section.
    (c) Phase 2--Assignment of wholesale obligors and exposures to 
rating grades and retail exposures to segments--(1) Assignment of 
wholesale obligors and exposures to rating grades.
    (i) The savings association must assign each obligor of a wholesale 
exposure to a single obligor rating grade and must assign each wholesale 
exposure to which it does not directly assign an LGD estimate to a loss 
severity rating grade.
    (ii) The savings association must identify which of its wholesale 
obligors are in default.
    (2) Segmentation of retail exposures. (i) The savings association 
must group the retail exposures in each retail subcategory into segments 
that have homogeneous risk characteristics.
    (ii) The savings association must identify which of its retail 
exposures are in default. The savings association must segment defaulted 
retail exposures separately from non-defaulted retail exposures.
    (iii) If the savings association determines the EAD for eligible 
margin loans using the approach in paragraph (b) of section 32 of this 
appendix, the savings association must identify which of its retail 
exposures are eligible margin loans for which the savings association 
uses this EAD approach and must segment such eligible margin loans 
separately from other retail exposures.
    (3) Eligible purchased wholesale exposures. A savings association 
may group its eligible purchased wholesale exposures into segments that 
have homogeneous risk characteristics. A savings association must use 
the wholesale exposure formula in Table 2 in this section to determine 
the risk-based capital requirement for each segment of eligible 
purchased wholesale exposures.
    (d) Phase 3--Assignment of risk parameters to wholesale exposures 
and segments of retail exposures--(1) Quantification process. Subject to 
the limitations in this paragraph (d), the savings association must:
    (i) Associate a PD with each wholesale obligor rating grade;
    (ii) Associate an LGD with each wholesale loss severity rating grade 
or assign an LGD to each wholesale exposure;
    (iii) Assign an EAD and M to each wholesale exposure; and
    (iv) Assign a PD, LGD, and EAD to each segment of retail exposures.
    (2) Floor on PD assignment. The PD for each wholesale obligor or 
retail segment may not be less than 0.03 percent, except for exposures 
to or directly and unconditionally guaranteed by a sovereign entity, the 
Bank for International Settlements, the International Monetary Fund, the 
European Commission, the European Central Bank, or a multilateral 
development bank, to which the savings association assigns a rating 
grade associated with a PD of less than 0.03 percent.
    (3) Floor on LGD estimation. The LGD for each segment of residential 
mortgage exposures (other than segments of residential mortgage 
exposures for which all or substantially all of the principal of each 
exposure is directly and unconditionally guaranteed by the full faith 
and credit of a sovereign entity) may not be less than 10 percent.
    (4) Eligible purchased wholesale exposures. A savings association 
must assign a PD, LGD, EAD, and M to each segment of eligible purchased 
wholesale exposures. If the savings association can estimate ECL (but 
not PD or LGD) for a segment of eligible purchased wholesale exposures, 
the savings association must assume that the LGD of the segment equals 
100 percent and that the PD of the

[[Page 389]]

segment equals ECL divided by EAD. The estimated ECL must be calculated 
for the exposures without regard to any assumption of recourse or 
guarantees from the seller or other parties.
    (5) Credit risk mitigation--credit derivatives, guarantees, and 
collateral. (i) A savings association may take into account the risk 
reducing effects of eligible guarantees and eligible credit derivatives 
in support of a wholesale exposure by applying the PD substitution or 
LGD adjustment treatment to the exposure as provided in section 33 of 
this appendix or, if applicable, applying double default treatment to 
the exposure as provided in section 34 of this appendix. A savings 
association may decide separately for each wholesale exposure that 
qualifies for the double default treatment under section 34 of this 
appendix whether to apply the double default treatment or to use the PD 
substitution or LGD adjustment treatment without recognizing double 
default effects.
    (ii) A savings association may take into account the risk reducing 
effects of guarantees and credit derivatives in support of retail 
exposures in a segment when quantifying the PD and LGD of the segment.
    (iii) Except as provided in paragraph (d)(6) of this section, a 
savings association may take into account the risk reducing effects of 
collateral in support of a wholesale exposure when quantifying the LGD 
of the exposure and may take into account the risk reducing effects of 
collateral in support of retail exposures when quantifying the PD and 
LGD of the segment.
    (6) EAD for OTC derivative contracts, repo-style transactions, and 
eligible margin loans. (i) A savings association must calculate its EAD 
for an OTC derivative contract as provided in paragraphs (c) and (d) of 
section 32 of this appendix. A savings association may take into account 
the risk-reducing effects of financial collateral in support of a repo-
style transaction or eligible margin loan and of any collateral in 
support of a repo-style transaction that is included in the savings 
association's VaR-based measure under any applicable market risk rule 
through an adjustment to EAD as provided in paragraphs (b) and (d) of 
section 32 of this appendix. A savings association that takes collateral 
into account through such an adjustment to EAD under section 32 of this 
appendix may not reflect such collateral in LGD.
    (ii) A savings association may attribute an EAD of zero to:
    (A) Derivative contracts that are publicly traded on an exchange 
that requires the daily receipt and payment of cash-variation margin;
    (B) Derivative contracts and repo-style transactions that are 
outstanding with a qualifying central counterparty (but not for those 
transactions that a qualifying central counterparty has rejected); and
    (C) Credit risk exposures to a qualifying central counterparty in 
the form of clearing deposits and posted collateral that arise from 
transactions described in paragraph (d)(6)(ii)(B) of this section.
    (7) Effective maturity. An exposure's M must be no greater than five 
years and no less than one year, except that an exposure's M must be no 
less than one day if the exposure has an original maturity of less than 
one year and is not part of a savings association's ongoing financing of 
the obligor. An exposure is not part of a savings association's ongoing 
financing of the obligor if the savings association:
    (i) Has a legal and practical ability not to renew or roll over the 
exposure in the event of credit deterioration of the obligor;
    (ii) Makes an independent credit decision at the inception of the 
exposure and at every renewal or roll over; and
    (iii) Has no substantial commercial incentive to continue its credit 
relationship with the obligor in the event of credit deterioration of 
the obligor.
    (e) Phase 4--Calculation of risk-weighted assets--(1) Non-defaulted 
exposures. (i) A savings association must calculate the dollar risk-
based capital requirement for each of its wholesale exposures to a non-
defaulted obligor (except eligible guarantees and eligible credit 
derivatives that hedge another wholesale exposure and exposures to which 
the savings association applies the double default treatment in section 
34 of this appendix) and segments of non-defaulted retail exposures by 
inserting the assigned risk parameters for the wholesale obligor and 
exposure or retail segment into the appropriate risk-based capital 
formula specified in Table 2 and multiplying the output of the formula 
(K) by the EAD of the exposure or segment. Alternatively, a savings 
association may apply a 300 percent risk weight to the EAD of an 
eligible margin loan if the savings association is not able to meet the 
agencies' requirements for estimation of PD and LGD for the margin loan.

[[Page 390]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.005

    (ii) The sum of all the dollar risk-based capital requirements for 
each wholesale exposure to a non-defaulted obligor and segment of non-
defaulted retail exposures calculated in paragraph (e)(1)(i) of this 
section and in paragraph (e) of section 34 of this appendix equals the 
total dollar risk-based capital requirement for those exposures and 
segments.
    (iii) The aggregate risk-weighted asset amount for wholesale 
exposures to non-defaulted obligors and segments of non-defaulted retail 
exposures equals the total dollar risk-based capital requirement 
calculated in paragraph (e)(1)(ii) of this section multiplied by 12.5.
    (2) Wholesale exposures to defaulted obligors and segments of 
defaulted retail exposures. (i) The dollar risk-based capital 
requirement for each wholesale exposure to a defaulted obligor equals 
0.08 multiplied by the EAD of the exposure.
    (ii) The dollar risk-based capital requirement for a segment of 
defaulted retail exposures equals 0.08 multiplied by the EAD of the 
segment.
    (iii) The sum of all the dollar risk-based capital requirements for 
each wholesale exposure to a defaulted obligor calculated in paragraph 
(e)(2)(i) of this section plus the dollar risk-based capital 
requirements for each segment of defaulted retail exposures

[[Page 391]]

calculated in paragraph (e)(2)(ii) of this section equals the total 
dollar risk-based capital requirement for those exposures and segments.
    (iv) The aggregate risk-weighted asset amount for wholesale 
exposures to defaulted obligors and segments of defaulted retail 
exposures equals the total dollar risk-based capital requirement 
calculated in paragraph (e)(2)(iii) of this section multiplied by 12.5.
    (3) Assets not included in a defined exposure category. (i) A 
savings association may assign a risk-weighted asset amount of zero to 
cash owned and held in all offices of the savings association or in 
transit and for gold bullion held in the savings association's own 
vaults, or held in another savings association's vaults on an allocated 
basis, to the extent the gold bullion assets are offset by gold bullion 
liabilities.
    (ii) The risk-weighted asset amount for the residual value of a 
retail lease exposure equals such residual value.
    (iii) The risk-weighted asset amount for any other on-balance-sheet 
asset that does not meet the definition of a wholesale, retail, 
securitization, or equity exposure equals the carrying value of the 
asset.
    (4) Non-material portfolios of exposures. The risk-weighted asset 
amount of a portfolio of exposures for which the savings association has 
demonstrated to the OTS's satisfaction that the portfolio (when combined 
with all other portfolios of exposures that the savings association 
seeks to treat under this paragraph) is not material to the savings 
association is the sum of the carrying values of on-balance sheet 
exposures plus the notional amounts of off-balance sheet exposures in 
the portfolio. For purposes of this paragraph (e)(4), the notional 
amount of an OTC derivative contract that is not a credit derivative is 
the EAD of the derivative as calculated in section 32 of this appendix.

    Section 32. Counterparty Credit Risk of Repo-Style Transactions, 
           Eligible Margin Loans, and OTC Derivative Contracts

    (a) In General. (1) This section describes two methodologies--a 
collateral haircut approach and an internal models methodology--that a 
savings association may use instead of an LGD estimation methodology to 
recognize the benefits of financial collateral in mitigating the 
counterparty credit risk of repo-style transactions, eligible margin 
loans, collateralized OTC derivative contracts, and single product 
netting sets of such transactions and to recognize the benefits of any 
collateral in mitigating the counterparty credit risk of repo-style 
transactions that are included in a savings association's VaR-based 
measure under any applicable market risk rule. A third methodology, the 
simple VaR methodology, is available for single product netting sets of 
repo-style transactions and eligible margin loans.
    (2) This section also describes the methodology for calculating EAD 
for an OTC derivative contract or a set of OTC derivative contracts 
subject to a qualifying master netting agreement. A savings association 
also may use the internal models methodology to estimate EAD for 
qualifying cross-product master netting agreements.
    (3) A savings association may only use the standard supervisory 
haircut approach with a minimum 10-business-day holding period to 
recognize in EAD the benefits of conforming residential mortgage 
collateral that secures repo-style transactions (other than repo-style 
transactions included in the savings association's VaR-based measure 
under any applicable market risk rule), eligible margin loans, and OTC 
derivative contracts.
    (4) A savings association may use any combination of the three 
methodologies for collateral recognition; however, it must use the same 
methodology for similar exposures.
    (b) EAD for eligible margin loans and repo-style transactions--(1) 
General. A savings association may recognize the credit risk mitigation 
benefits of financial collateral that secures an eligible margin loan, 
repo-style transaction, or single-product netting set of such 
transactions by factoring the collateral into its LGD estimates for the 
exposure. Alternatively, a savings association may estimate an unsecured 
LGD for the exposure, as well as for any repo-style transaction that is 
included in the savings association's VaR-based measure under any 
applicable market risk rule, and determine the EAD of the exposure 
using:
    (i) The collateral haircut approach described in paragraph (b)(2) of 
this section;
    (ii) For netting sets only, the simple VaR methodology described in 
paragraph (b)(3) of this section; or
    (iii) The internal models methodology described in paragraph (d) of 
this section.
    (2) Collateral haircut approach--(i) EAD equation. A savings 
association may determine EAD for an eligible margin loan, repo-style 
transaction, or netting set by setting EAD equal to max {0, [([Sigma]E-
[Sigma]C) + [Sigma](Es x Hs) + [Sigma](Efx x Hfx)]{time} , where:
    (A) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the savings 
association has lent, sold subject to repurchase, or posted as 
collateral to the counterparty under the transaction (or netting set));
    (B) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the savings 
association has borrowed, purchased subject to resale, or taken as 
collateral from the counterparty under the transaction (or netting 
set));
    (C) Es equals the absolute value of the net position in a given 
instrument or in gold

[[Page 392]]

(where the net position in a given instrument or in gold equals the sum 
of the current market values of the instrument or gold the savings 
association has lent, sold subject to repurchase, or posted as 
collateral to the counterparty minus the sum of the current market 
values of that same instrument or gold the savings association has 
borrowed, purchased subject to resale, or taken as collateral from the 
counterparty);
    (D) Hs equals the market price volatility haircut appropriate to the 
instrument or gold referenced in Es;
    (E) Efx equals the absolute value of the net position of instruments 
and cash in a currency that is different from the settlement currency 
(where the net position in a given currency equals the sum of the 
current market values of any instruments or cash in the currency the 
savings association has lent, sold subject to repurchase, or posted as 
collateral to the counterparty minus the sum of the current market 
values of any instruments or cash in the currency the savings 
association has borrowed, purchased subject to resale, or taken as 
collateral from the counterparty); and
    (F) Hfx equals the haircut appropriate to the mismatch between the 
currency referenced in Efx and the settlement currency.
    (ii) Standard supervisory haircuts. (A) Under the standard 
supervisory haircuts approach:
    (1) A savings association must use the haircuts for market price 
volatility (Hs) in Table 3, as adjusted in certain circumstances as 
provided in paragraph (b)(2)(ii)(A)(3) and (4) of this section;

                       Table 3--Standard Supervisory Market Price Volatility Haircuts \1\
----------------------------------------------------------------------------------------------------------------
                                                                              Issuers exempt
 Applicable external rating grade    Residual maturity for debt securities   from the 3 basis    Other issuers
   category for debt securities                                                point floor
----------------------------------------------------------------------------------------------------------------
Two highest investment-grade        <= 1 year.............................              0.005               0.01
 rating categories for long-term    1 year, <= 5 years.........               0.02               0.04
 ratings/highest investment-grade    5 years...................               0.04               0.08
 rating category for short-term
 ratings.
----------------------------------------------------------------------------------------------------------------
Two lowest investment-grade rating  <= 1 year.............................               0.01               0.02
 categories for both short- and      1 year, <= 5 years........               0.03               0.06
 long-term ratings.                  5 years...................               0.06               0.12
----------------------------------------------------------------------------------------------------------------
One rating category below           All...................................               0.15               0.25
 investment grade.
----------------------------------------------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold.....0.15.......
----------------------------------------------------------------------------------------------------------------
Other publicly traded equities (including convertible bonds), c0.25rming
 residential mortgages, and nonfinancial collateral.
----------------------------------------------------------------------------------------------------------------
Mutual funds.........................Highest haircut applicable to any security in which the
                                                         fund can invest.
----------------------------------------------------------------------------------------------------------------
Cash on deposit with the savings association (including a certif0cate of
 deposit issued by the savings association).
----------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 3 are based on a ten-business-day holding period.

    (2) For currency mismatches, a savings association must use a 
haircut for foreign exchange rate volatility (Hfx) of 8 percent, as 
adjusted in certain circumstances as provided in paragraph 
(b)(2)(ii)(A)(3) and (4) of this section.
    (3) For repo-style transactions, a savings association may multiply 
the supervisory haircuts provided in paragraphs (b)(2)(ii)(A)(1) and (2) 
of this section by the square root of \1/2\ (which equals 0.707107).
    (4) A savings association must adjust the supervisory haircuts 
upward on the basis of a holding period longer than ten business days 
(for eligible margin loans) or five business days (for repo-style 
transactions) where and as appropriate to take into account the 
illiquidity of an instrument.
    (iii) Own internal estimates for haircuts. With the prior written 
approval of the OTS, a savings association may calculate haircuts (Hs 
and Hfx) using its own internal estimates of the volatilities of market 
prices and foreign exchange rates.
    (A) To receive OTS approval to use its own internal estimates, a 
savings association must satisfy the following minimum quantitative 
standards:
    (1) A savings association must use a 99th percentile one-tailed 
confidence interval.
    (2) The minimum holding period for a repo-style transaction is five 
business days and for an eligible margin loan is ten business days. When 
a savings association calculates an own-estimates haircut on a 
TN-day holding period, which is different from the minimum 
holding period for the transaction type, the applicable haircut 
(HM) is calculated using the following square root of time 
formula:

[[Page 393]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.014

(i) TM equals 5 for repo-style transactions and 10 for 
eligible margin loans;
(ii) TN equals the holding period used by the savings 
association to derive HN; and
(iii) HN equals the haircut based on the holding period 
TN.
    (3) A savings association must adjust holding periods upwards where 
and as appropriate to take into account the illiquidity of an 
instrument.
    (4) The historical observation period must be at least one year.
    (5) A savings association must update its data sets and recompute 
haircuts no less frequently than quarterly and must also reassess data 
sets and haircuts whenever market prices change materially.
    (B) With respect to debt securities that have an applicable external 
rating of investment grade, a savings association may calculate haircuts 
for categories of securities. For a category of securities, the savings 
association must calculate the haircut on the basis of internal 
volatility estimates for securities in that category that are 
representative of the securities in that category that the savings 
association has lent, sold subject to repurchase, posted as collateral, 
borrowed, purchased subject to resale, or taken as collateral. In 
determining relevant categories, the savings association must at a 
minimum take into account:
    (1) The type of issuer of the security;
    (2) The applicable external rating of the security;
    (3) The maturity of the security; and
    (4) The interest rate sensitivity of the security.
    (C) With respect to debt securities that have an applicable external 
rating of below investment grade and equity securities, a savings 
association must calculate a separate haircut for each individual 
security.
    (D) Where an exposure or collateral (whether in the form of cash or 
securities) is denominated in a currency that differs from the 
settlement currency, the savings association must calculate a separate 
currency mismatch haircut for its net position in each mismatched 
currency based on estimated volatilities of foreign exchange rates 
between the mismatched currency and the settlement currency.
    (E) A savings association's own estimates of market price and 
foreign exchange rate volatilities may not take into account the 
correlations among securities and foreign exchange rates on either the 
exposure or collateral side of a transaction (or netting set) or the 
correlations among securities and foreign exchange rates between the 
exposure and collateral sides of the transaction (or netting set).
    (3) Simple VaR methodology. With the prior written approval of the 
OTS, a savings association may estimate EAD for a netting set using a 
VaR model that meets the requirements in paragraph (b)(3)(iii) of this 
section. In such event, the savings association must set EAD equal to 
max {0, [([Sigma]E--[Sigma]C) + PFE]{time} , where:
    (i) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the savings 
association has lent, sold subject to repurchase, or posted as 
collateral to the counterparty under the netting set);
    (ii) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the savings 
association has borrowed, purchased subject to resale, or taken as 
collateral from the counterparty under the netting set); and
    (iii) PFE (potential future exposure) equals the savings 
association's empirically based best estimate of the 99th percentile, 
one-tailed confidence interval for an increase in the value of 
([Sigma]E--[Sigma]C) over a five-business-day holding period for repo-
style transactions or over a ten-business-day holding period for 
eligible margin loans using a minimum one-year historical observation 
period of price data representing the instruments that the savings 
association has lent, sold subject to repurchase, posted as collateral, 
borrowed, purchased subject to resale, or taken as collateral. The 
savings association must validate its VaR model, including by 
establishing and maintaining a rigorous and regular back-testing regime.
    (c) EAD for OTC derivative contracts. (1) A savings association must 
determine the EAD for an OTC derivative contract that is not subject to 
a qualifying master netting agreement using the current exposure 
methodology in paragraph (c)(5) of this section or using the internal 
models methodology described in paragraph (d) of this section.
    (2) A savings association must determine the EAD for multiple OTC 
derivative contracts that are subject to a qualifying master netting 
agreement using the current exposure methodology in paragraph (c)(6) of 
this section or using the internal models methodology described in 
paragraph (d) of this section.
    (3) Counterparty credit risk for credit derivatives. Notwithstanding 
the above, (i) A savings association that purchases a credit derivative 
that is recognized under section 33 or 34 of this appendix as a credit 
risk mitigant for an exposure that is not a covered position under any 
applicable market risk rule need not compute a separate counterparty 
credit risk capital requirement under this section so long as the 
savings association does so consistently for all such credit derivatives 
and either includes all or

[[Page 394]]

excludes all such credit derivatives that are subject to a master 
netting agreement from any measure used to determine counterparty credit 
risk exposure to all relevant counterparties for risk-based capital 
purposes.
    (ii) A savings association that is the protection provider in a 
credit derivative must treat the credit derivative as a wholesale 
exposure to the reference obligor and need not compute a counterparty 
credit risk capital requirement for the credit derivative under this 
section, so long as it does so consistently for all such credit 
derivatives and either includes all or excludes all such credit 
derivatives that are subject to a master netting agreement from any 
measure used to determine counterparty credit risk exposure to all 
relevant counterparties for risk-based capital purposes (unless the 
savings association is treating the credit derivative as a covered 
position under any applicable market risk rule, in which case the 
savings association must compute a supplemental counterparty credit risk 
capital requirement under this section).
    (4) Counterparty credit risk for equity derivatives. A savings 
association must treat an equity derivative contract as an equity 
exposure and compute a risk-weighted asset amount for the equity 
derivative contract under part VI (unless the savings association is 
treating the contract as a covered position under any applicable market 
risk rule). In addition, if the savings association is treating the 
contract as a covered position under any applicable market risk rule and 
in certain other cases described in section 55 of this appendix, the 
savings association must also calculate a risk-based capital requirement 
for the counterparty credit risk of an equity derivative contract under 
this part.
    (5) Single OTC derivative contract. Except as modified by paragraph 
(c)(7) of this section, the EAD for a single OTC derivative contract 
that is not subject to a qualifying master netting agreement is equal to 
the sum of the savings association's current credit exposure and 
potential future credit exposure (PFE) on the derivative contract.
    (i) Current credit exposure. The current credit exposure for a 
single OTC derivative contract is the greater of the mark-to-market 
value of the derivative contract or zero.
    (ii) PFE. The PFE for a single OTC derivative contract, including an 
OTC derivative contract with a negative mark-to-market value, is 
calculated by multiplying the notional principal amount of the 
derivative contract by the appropriate conversion factor in Table 4. For 
purposes of calculating either the PFE under this paragraph or the gross 
PFE under paragraph (c)(6) of this section for exchange rate contracts 
and other similar contracts in which the notional principal amount is 
equivalent to the cash flows, notional principal amount is the net 
receipts to each party falling due on each value date in each currency. 
For any OTC derivative contract that does not fall within one of the 
specified categories in Table 4, the PFE must be calculated using the 
``other'' conversion factors. A savings association must use an OTC 
derivative contract's effective notional principal amount (that is, its 
apparent or stated notional principal amount multiplied by any 
multiplier in the OTC derivative contract) rather than its apparent or 
stated notional principal amount in calculating PFE. PFE of the 
protection provider of a credit derivative is capped at the net present 
value of the amount of unpaid premiums.

                                           Table 4--Conversion Factor Matrix for OTC Derivative Contracts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Foreign         Credit         Credit (non-              Precious
                                                               Interest     exchange      (investment-    investment-grade             metals
                   Remaining maturity \2\                        rate       rate and    grade reference      reference       Equity    (except    Other
                                                                              gold        obligor) \3\        obligor)                  gold)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less...........................................        0.00          0.01              0.05               0.10     0.06        0.07     0.10
Over one to five years.....................................        0.005         0.05              0.05               0.10     0.08        0.07     0.12
Over five years............................................        0.015         0.075             0.05               0.10     0.10        0.08     0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For an OTC derivative contract with multiple exchanges of principal, the conversion factor is multiplied by the number of remaining payments in the
  derivative contract.
\2\ For an OTC derivative contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that
  the market value of the contract is zero, the remaining maturity equals the time until the next reset date. For an interest rate derivative contract
  with a remaining maturity of greater than one year that meets these criteria, the minimum conversion factor is 0.005.
\3\ A savings association must use the column labeled ``Credit (investment-grade reference obligor)'' for a credit derivative whose reference obligor
  has an outstanding unsecured long-term debt security without credit enhancement that has a long-term applicable external rating of at least investment
  grade. A savings association must use the column labeled ``Credit (non-investment-grade reference obligor)'' for all other credit derivatives.

    (6) Multiple OTC derivative contracts subject to a qualifying master 
netting agreement. Except as modified by paragraph (c)(7) of this 
section, the EAD for multiple OTC derivative contracts subject to a 
qualifying master netting agreement is equal to the sum of the net 
current credit exposure and the adjusted sum of the PFE exposure for all 
OTC derivative contracts subject to the qualifying master netting 
agreement.
    (i) Net current credit exposure. The net current credit exposure is 
the greater of:

[[Page 395]]

    (A) The net sum of all positive and negative mark-to-market values 
of the individual OTC derivative contracts subject to the qualifying 
master netting agreement; or
    (B) zero.
    (ii) Adjusted sum of the PFE. The adjusted sum of the PFE, Anet, is 
calculated as Anet = (0.4xAgross)+(0.6xNGRxAgross), where:
    (A) Agross = the gross PFE (that is, the sum of the PFE amounts (as 
determined under paragraph (c)(5)(ii) of this section) for each 
individual OTC derivative contract subject to the qualifying master 
netting agreement); and
    (B) NGR = the net to gross ratio (that is, the ratio of the net 
current credit exposure to the gross current credit exposure). In 
calculating the NGR, the gross current credit exposure equals the sum of 
the positive current credit exposures (as determined under paragraph 
(c)(5)(i) of this section) of all individual OTC derivative contracts 
subject to the qualifying master netting agreement.
    (7) Collateralized OTC derivative contracts. A savings association 
may recognize the credit risk mitigation benefits of financial 
collateral that secures an OTC derivative contract or single-product 
netting set of OTC derivatives by factoring the collateral into its LGD 
estimates for the contract or netting set. Alternatively, a savings 
association may recognize the credit risk mitigation benefits of 
financial collateral that secures such a contract or netting set that is 
marked to market on a daily basis and subject to a daily margin 
maintenance requirement by estimating an unsecured LGD for the contract 
or netting set and adjusting the EAD calculated under paragraph (c)(5) 
or (c)(6) of this section using the collateral haircut approach in 
paragraph (b)(2) of this section. The savings association must 
substitute the EAD calculated under paragraph (c)(5) or (c)(6) of this 
section for [Sigma]E in the equation in paragraph (b)(2)(i) of this 
section and must use a ten-business-day minimum holding period (TM 
= 10).
    (d) Internal models methodology. (1) With prior written approval 
from the OTS, a savings association may use the internal models 
methodology in this paragraph (d) to determine EAD for counterparty 
credit risk for OTC derivative contracts (collateralized or 
uncollateralized) and single-product netting sets thereof, for eligible 
margin loans and single-product netting sets thereof, and for repo-style 
transactions and single-product netting sets thereof. A savings 
association that uses the internal models methodology for a particular 
transaction type (OTC derivative contracts, eligible margin loans, or 
repo-style transactions) must use the internal models methodology for 
all transactions of that transaction type. A savings association may 
choose to use the internal models methodology for one or two of these 
three types of exposures and not the other types. A savings association 
may also use the internal models methodology for OTC derivative 
contracts, eligible margin loans, and repo-style transactions subject to 
a qualifying cross-product netting agreement if:
    (i) The savings association effectively integrates the risk 
mitigating effects of cross-product netting into its risk management and 
other information technology systems; and
    (ii) The savings association obtains the prior written approval of 
the OTS. A savings association that uses the internal models methodology 
for a transaction type must receive approval from the OTS to cease using 
the methodology for that transaction type or to make a material change 
to its internal model.
    (2) Under the internal models methodology, a savings association 
uses an internal model to estimate the expected exposure (EE) for a 
netting set and then calculates EAD based on that EE.
    (i) The savings association must use its internal model's 
probability distribution for changes in the market value of a netting 
set that are attributable to changes in market variables to determine 
EE.
    (ii) Under the internal models methodology, EAD = [alpha] x 
effective EPE, or, subject to OTS approval as provided in paragraph 
(d)(7), a more conservative measure of EAD.
[GRAPHIC] [TIFF OMITTED] TR07DE07.026

(that is, effective EPE is the time-weighted average of effective EE 
where the weights are the proportion that an individual effective EE 
represents in a one-year time interval) where:
    (1) Effective EEtk = max (Effective EEtk-1, 
EEtk) (that is, for a specific datetk, effective 
EE is the greater of EE at that date or the effective EE at the previous 
date); and
    (2) tk represents the kth future time period in the model 
and there are n time periods represented in the model over the first 
year; and
    (B) [alpha] = 1.4 except as provided in paragraph (d)(6), or when 
the OTS has determined that the savings association must set [alpha] 
higher based on the savings association's specific characteristics of 
counterparty credit risk.
    (iii) A savings association may include financial collateral 
currently posted by the counterparty as collateral (but may not include 
other forms of collateral) when calculating EE.
    (iv) If a savings association hedges some or all of the counterparty 
credit risk associated with a netting set using an eligible credit 
derivative, the savings association may take the reduction in exposure 
to the counterparty into account when estimating EE. If the savings 
association recognizes this reduction in exposure to the counterparty in

[[Page 396]]

its estimate of EE, it must also use its internal model to estimate a 
separate EAD for the savings association's exposure to the protection 
provider of the credit derivative.
    (3) To obtain OTS approval to calculate the distributions of 
exposures upon which the EAD calculation is based, the savings 
association must demonstrate to the satisfaction of the OTS that it has 
been using for at least one year an internal model that broadly meets 
the following minimum standards, with which the savings association must 
maintain compliance:
    (i) The model must have the systems capability to estimate the 
expected exposure to the counterparty on a daily basis (but is not 
expected to estimate or report expected exposure on a daily basis).
    (ii) The model must estimate expected exposure at enough future 
dates to reflect accurately all the future cash flows of contracts in 
the netting set.
    (iii) The model must account for the possible non-normality of the 
exposure distribution, where appropriate.
    (iv) The savings association must measure, monitor, and control 
current counterparty exposure and the exposure to the counterparty over 
the whole life of all contracts in the netting set.
    (v) The savings association must be able to measure and manage 
current exposures gross and net of collateral held, where appropriate. 
The savings association must estimate expected exposures for OTC 
derivative contracts both with and without the effect of collateral 
agreements.
    (vi) The savings association must have procedures to identify, 
monitor, and control specific wrong-way risk throughout the life of an 
exposure. Wrong-way risk in this context is the risk that future 
exposure to a counterparty will be high when the counterparty's 
probability of default is also high.
    (vii) The model must use current market data to compute current 
exposures. When estimating model parameters based on historical data, at 
least three years of historical data that cover a wide range of economic 
conditions must be used and must be updated quarterly or more frequently 
if market conditions warrant. The savings association should consider 
using model parameters based on forward-looking measures, where 
appropriate.
    (viii) A savings association must subject its internal model to an 
initial validation and annual model review process. The model review 
should consider whether the inputs and risk factors, as well as the 
model outputs, are appropriate.
    (4) Maturity. (i) If the remaining maturity of the exposure or the 
longest-dated contract in the netting set is greater than one year, the 
savings association must set M for the exposure or netting set equal to 
the lower of five years or M(EPE), \3\ where:
---------------------------------------------------------------------------

    \3\ Alternatively, a savings association that uses an internal model 
to calculate a one-sided credit valuation adjustment may use the 
effective credit duration estimated by the model as M(EPE) in place of 
the formula in paragraph (d)(4).
[GRAPHIC] [TIFF OMITTED] TR07DE07.015

    (B) dfk is the risk-free discount factor for future time 
period tk; and
    (C) [Delta]tk = tk-tk-1.
    (ii) If the remaining maturity of the exposure or the longest-dated 
contract in the netting set is one year or less, the savings association 
must set M for the exposure or netting set equal to one year, except as 
provided in paragraph (d)(7) of section 31 of this appendix.
    (5) Collateral agreements. A savings association may capture the 
effect on EAD of a collateral agreement that requires receipt of 
collateral when exposure to the counterparty increases but may not 
capture the effect on EAD of a collateral agreement that requires

[[Page 397]]

receipt of collateral when counterparty credit quality deteriorates. For 
this purpose, a collateral agreement means a legal contract that 
specifies the time when, and circumstances under which, the counterparty 
is required to pledge collateral to the savings association for a single 
financial contract or for all financial contracts in a netting set and 
confers upon the savings association a perfected, first priority 
security interest (notwithstanding the prior security interest of any 
custodial agent), or the legal equivalent thereof, in the collateral 
posted by the counterparty under the agreement. This security interest 
must provide the savings association with a right to close out the 
financial positions and liquidate the collateral upon an event of 
default of, or failure to perform by, the counterparty under the 
collateral agreement. A contract would not satisfy this requirement if 
the savings association's exercise of rights under the agreement may be 
stayed or avoided under applicable law in the relevant jurisdictions. 
Two methods are available to capture the effect of a collateral 
agreement:
    (i) With prior written approval from the OTS, a savings association 
may include the effect of a collateral agreement within its internal 
model used to calculate EAD. The savings association may set EAD equal 
to the expected exposure at the end of the margin period of risk. The 
margin period of risk means, with respect to a netting set subject to a 
collateral agreement, the time period from the most recent exchange of 
collateral with a counterparty until the next required exchange of 
collateral plus the period of time required to sell and realize the 
proceeds of the least liquid collateral that can be delivered under the 
terms of the collateral agreement and, where applicable, the period of 
time required to re-hedge the resulting market risk, upon the default of 
the counterparty. The minimum margin period of risk is five business 
days for repo-style transactions and ten business days for other 
transactions when liquid financial collateral is posted under a daily 
margin maintenance requirement. This period should be extended to cover 
any additional time between margin calls; any potential closeout 
difficulties; any delays in selling collateral, particularly if the 
collateral is illiquid; and any impediments to prompt re-hedging of any 
market risk.
    (ii) A savings association that can model EPE without collateral 
agreements but cannot achieve the higher level of modeling 
sophistication to model EPE with collateral agreements can set effective 
EPE for a collateralized netting set equal to the lesser of:
    (A) The threshold, defined as the exposure amount at which the 
counterparty is required to post collateral under the collateral 
agreement, if the threshold is positive, plus an add-on that reflects 
the potential increase in exposure of the netting set over the margin 
period of risk. The add-on is computed as the expected increase in the 
netting set's exposure beginning from current exposure of zero over the 
margin period of risk. The margin period of risk must be at least five 
business days for netting sets consisting only of repo-style 
transactions subject to daily re-margining and daily marking-to-market, 
and ten business days for all other netting sets; or
    (B) Effective EPE without a collateral agreement.
    (6) Own estimate of alpha. With prior written approval of the OTS, a 
savings association may calculate alpha as the ratio of economic capital 
from a full simulation of counterparty exposure across counterparties 
that incorporates a joint simulation of market and credit risk factors 
(numerator) and economic capital based on EPE (denominator), subject to 
a floor of 1.2. For purposes of this calculation, economic capital is 
the unexpected losses for all counterparty credit risks measured at a 
99.9 percent confidence level over a one-year horizon. To receive 
approval, the savings association must meet the following minimum 
standards to the satisfaction of the OTS:
    (i) The savings association's own estimate of alpha must capture in 
the numerator the effects of:
    (A) The material sources of stochastic dependency of distributions 
of market values of transactions or portfolios of transactions across 
counterparties;
    (B) Volatilities and correlations of market risk factors used in the 
joint simulation, which must be related to the credit risk factor used 
in the simulation to reflect potential increases in volatility or 
correlation in an economic downturn, where appropriate; and
    (C) The granularity of exposures (that is, the effect of a 
concentration in the proportion of each counterparty's exposure that is 
driven by a particular risk factor).
    (ii) The savings association must assess the potential model 
uncertainty in its estimates of alpha.
    (iii) The savings association must calculate the numerator and 
denominator of alpha in a consistent fashion with respect to modeling 
methodology, parameter specifications, and portfolio composition.
    (iv) The savings association must review and adjust as appropriate 
its estimates of the numerator and denominator of alpha on at least a 
quarterly basis and more frequently when the composition of the 
portfolio varies over time.
    (7) Other measures of counterparty exposure. With prior written 
approval of the OTS, a savings association may set EAD equal to a

[[Page 398]]

measure of counterparty credit risk exposure, such as peak EAD, that is 
more conservative than an alpha of 1.4 (or higher under the terms of 
paragraph (d)(2)(ii)(B) of this section) times EPE for every 
counterparty whose EAD will be measured under the alternative measure of 
counterparty exposure. The savings association must demonstrate the 
conservatism of the measure of counterparty credit risk exposure used 
for EAD. For material portfolios of new OTC derivative products, the 
savings association may assume that the current exposure methodology in 
paragraphs (c)(5) and (c)(6) of this section meets the conservatism 
requirement of this paragraph for a period not to exceed 180 days. For 
immaterial portfolios of OTC derivative contracts, the savings 
association generally may assume that the current exposure methodology 
in paragraphs (c)(5) and (c)(6) of this section meets the conservatism 
requirement of this paragraph.

 Section 33. Guarantees and Credit Derivatives: PD Substitution and LGD 
                          Adjustment Approaches

    (a) Scope. (1) This section applies to wholesale exposures for 
which:
    (i) Credit risk is fully covered by an eligible guarantee or 
eligible credit derivative; or
    (ii) Credit risk is covered on a pro rata basis (that is, on a basis 
in which the savings association and the protection provider share 
losses proportionately) by an eligible guarantee or eligible credit 
derivative.
    (2) Wholesale exposures on which there is a tranching of credit risk 
(reflecting at least two different levels of seniority) are 
securitization exposures subject to the securitization framework in part 
V.
    (3) A savings association may elect to recognize the credit risk 
mitigation benefits of an eligible guarantee or eligible credit 
derivative covering an exposure described in paragraph (a)(1) of this 
section by using the PD substitution approach or the LGD adjustment 
approach in paragraph (c) of this section or, if the transaction 
qualifies, using the double default treatment in section 34 of this 
appendix. A savings association's PD and LGD for the hedged exposure may 
not be lower than the PD and LGD floors described in paragraphs (d)(2) 
and (d)(3) of section 31 of this appendix.
    (4) If multiple eligible guarantees or eligible credit derivatives 
cover a single exposure described in paragraph (a)(1) of this section, a 
savings association may treat the hedged exposure as multiple separate 
exposures each covered by a single eligible guarantee or eligible credit 
derivative and may calculate a separate risk-based capital requirement 
for each separate exposure as described in paragraph (a)(3) of this 
section.
    (5) If a single eligible guarantee or eligible credit derivative 
covers multiple hedged wholesale exposures described in paragraph (a)(1) 
of this section, a savings association must treat each hedged exposure 
as covered by a separate eligible guarantee or eligible credit 
derivative and must calculate a separate risk-based capital requirement 
for each exposure as described in paragraph (a)(3) of this section.
    (6) A savings association must use the same risk parameters for 
calculating ECL as it uses for calculating the risk-based capital 
requirement for the exposure.
    (b) Rules of recognition. (1) A savings association may only 
recognize the credit risk mitigation benefits of eligible guarantees and 
eligible credit derivatives.
    (2) A savings association may only recognize the credit risk 
mitigation benefits of an eligible credit derivative to hedge an 
exposure that is different from the credit derivative's reference 
exposure used for determining the derivative's cash settlement value, 
deliverable obligation, or occurrence of a credit event if:
    (i) The reference exposure ranks pari passu (that is, equally) with 
or is junior to the hedged exposure; and
    (ii) The reference exposure and the hedged exposure are exposures to 
the same legal entity, and legally enforceable cross-default or cross-
acceleration clauses are in place to assure payments under the credit 
derivative are triggered when the obligor fails to pay under the terms 
of the hedged exposure.
    (c) Risk parameters for hedged exposures--(1) PD substitution 
approach--(i) Full coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is greater than or equal to the EAD of the hedged exposure, a 
savings association may recognize the guarantee or credit derivative in 
determining the savings association's risk-based capital requirement for 
the hedged exposure by substituting the PD associated with the rating 
grade of the protection provider for the PD associated with the rating 
grade of the obligor in the risk-based capital formula applicable to the 
guarantee or credit derivative in Table 2 and using the appropriate LGD 
as described in paragraph (c)(1)(iii) of this section. If the savings 
association determines that full substitution of the protection 
provider's PD leads to an inappropriate degree of risk mitigation, the 
savings association may substitute a higher PD than that of the 
protection provider.
    (ii) Partial coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is less than the EAD of the hedged exposure, the savings 
association must treat the hedged exposure as two separate exposures 
(protected and unprotected) in order to recognize the credit risk

[[Page 399]]

mitigation benefit of the guarantee or credit derivative.
    (A) The savings association must calculate its risk-based capital 
requirement for the protected exposure under section 31 of this 
appendix, where PD is the protection provider's PD, LGD is determined 
under paragraph (c)(1)(iii) of this section, and EAD is P. If the 
savings association determines that full substitution leads to an 
inappropriate degree of risk mitigation, the savings association may use 
a higher PD than that of the protection provider.
    (B) The savings association must calculate its risk-based capital 
requirement for the unprotected exposure under section 31 of this 
appendix, where PD is the obligor's PD, LGD is the hedged exposure's LGD 
(not adjusted to reflect the guarantee or credit derivative), and EAD is 
the EAD of the original hedged exposure minus P.
    (C) The treatment in this paragraph (c)(1)(ii) is applicable when 
the credit risk of a wholesale exposure is covered on a partial pro rata 
basis or when an adjustment is made to the effective notional amount of 
the guarantee or credit derivative under paragraph (d), (e), or (f) of 
this section.
    (iii) LGD of hedged exposures. The LGD of a hedged exposure under 
the PD substitution approach is equal to:
    (A) The lower of the LGD of the hedged exposure (not adjusted to 
reflect the guarantee or credit derivative) and the LGD of the guarantee 
or credit derivative, if the guarantee or credit derivative provides the 
savings association with the option to receive immediate payout upon 
triggering the protection; or
    (B) The LGD of the guarantee or credit derivative, if the guarantee 
or credit derivative does not provide the savings association with the 
option to receive immediate payout upon triggering the protection.
    (2) LGD adjustment approach--(i) Full coverage. If an eligible 
guarantee or eligible credit derivative meets the conditions in 
paragraphs (a) and (b) of this section and the protection amount (P) of 
the guarantee or credit derivative is greater than or equal to the EAD 
of the hedged exposure, the savings association's risk-based capital 
requirement for the hedged exposure is the greater of:
    (A) The risk-based capital requirement for the exposure as 
calculated under section 31 of this appendix, with the LGD of the 
exposure adjusted to reflect the guarantee or credit derivative; or
    (B) The risk-based capital requirement for a direct exposure to the 
protection provider as calculated under section 31 of this appendix, 
using the PD for the protection provider, the LGD for the guarantee or 
credit derivative, and an EAD equal to the EAD of the hedged exposure.
    (ii) Partial coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is less than the EAD of the hedged exposure, the savings 
association must treat the hedged exposure as two separate exposures 
(protected and unprotected) in order to recognize the credit risk 
mitigation benefit of the guarantee or credit derivative.
    (A) The savings association's risk-based capital requirement for the 
protected exposure would be the greater of:
    (1) The risk-based capital requirement for the protected exposure as 
calculated under section 31 of this appendix, with the LGD of the 
exposure adjusted to reflect the guarantee or credit derivative and EAD 
set equal to P; or
    (2) The risk-based capital requirement for a direct exposure to the 
guarantor as calculated under section 31 of this appendix, using the PD 
for the protection provider, the LGD for the guarantee or credit 
derivative, and an EAD set equal to P.
    (B) The savings association must calculate its risk-based capital 
requirement for the unprotected exposure under section 31 of this 
appendix, where PD is the obligor's PD, LGD is the hedged exposure's LGD 
(not adjusted to reflect the guarantee or credit derivative), and EAD is 
the EAD of the original hedged exposure minus P.
    (3) M of hedged exposures. The M of the hedged exposure is the same 
as the M of the exposure if it were unhedged.
    (d) Maturity mismatch. (1) A savings association that recognizes an 
eligible guarantee or eligible credit derivative in determining its 
risk-based capital requirement for a hedged exposure must adjust the 
effective notional amount of the credit risk mitigant to reflect any 
maturity mismatch between the hedged exposure and the credit risk 
mitigant.
    (2) A maturity mismatch occurs when the residual maturity of a 
credit risk mitigant is less than that of the hedged exposure(s).
    (3) The residual maturity of a hedged exposure is the longest 
possible remaining time before the obligor is scheduled to fulfill its 
obligation on the exposure. If a credit risk mitigant has embedded 
options that may reduce its term, the savings association (protection 
purchaser) must use the shortest possible residual maturity for the 
credit risk mitigant. If a call is at the discretion of the protection 
provider, the residual maturity of the credit risk mitigant is at the 
first call date. If the call is at the discretion of the savings 
association (protection purchaser), but the terms of the arrangement at 
origination of the credit risk mitigant contain a positive incentive for 
the savings association to call the transaction before contractual 
maturity, the remaining time to the first call date is the residual 
maturity of the credit risk mitigant. For example, where there is

[[Page 400]]

a step-up in cost in conjunction with a call feature or where the 
effective cost of protection increases over time even if credit quality 
remains the same or improves, the residual maturity of the credit risk 
mitigant will be the remaining time to the first call.
    (4) A credit risk mitigant with a maturity mismatch may be 
recognized only if its original maturity is greater than or equal to one 
year and its residual maturity is greater than three months.
    (5) When a maturity mismatch exists, the savings association must 
apply the following adjustment to the effective notional amount of the 
credit risk mitigant: Pm = E x (t - 0.25)/(T - 0.25), where:
    (i) Pm = effective notional amount of the credit risk mitigant, 
adjusted for maturity mismatch;
    (ii) E = effective notional amount of the credit risk mitigant;
    (iii) t = the lesser of T or the residual maturity of the credit 
risk mitigant, expressed in years; and
    (iv) T = the lesser of five or the residual maturity of the hedged 
exposure, expressed in years.
    (e) Credit derivatives without restructuring as a credit event. If a 
savings association recognizes an eligible credit derivative that does 
not include as a credit event a restructuring of the hedged exposure 
involving forgiveness or postponement of principal, interest, or fees 
that results in a credit loss event (that is, a charge-off, specific 
provision, or other similar debit to the profit and loss account), the 
savings association must apply the following adjustment to the effective 
notional amount of the credit derivative: Pr = Pm x 0.60, where:
    (1) Pr = effective notional amount of the credit risk mitigant, 
adjusted for lack of restructuring event (and maturity mismatch, if 
applicable); and
    (2) Pm = effective notional amount of the credit risk mitigant 
adjusted for maturity mismatch (if applicable).
    (f) Currency mismatch. (1) If a savings association recognizes an 
eligible guarantee or eligible credit derivative that is denominated in 
a currency different from that in which the hedged exposure is 
denominated, the savings association must apply the following formula to 
the effective notional amount of the guarantee or credit derivative: Pc 
= Pr x (1 - HFX), where:
    (i) Pc = effective notional amount of the credit risk mitigant, 
adjusted for currency mismatch (and maturity mismatch and lack of 
restructuring event, if applicable);
    (ii) Pr = effective notional amount of the credit risk mitigant 
(adjusted for maturity mismatch and lack of restructuring event, if 
applicable); and
    (iii) HFX = haircut appropriate for the currency mismatch 
between the credit risk mitigant and the hedged exposure.
    (2) A savings association must set HFX equal to 8 percent 
unless it qualifies for the use of and uses its own internal estimates 
of foreign exchange volatility based on a ten-business-day holding 
period and daily marking-to-market and remargining. A savings 
association qualifies for the use of its own internal estimates of 
foreign exchange volatility if it qualifies for:
    (i) The own-estimates haircuts in paragraph (b)(2)(iii) of section 
32 of this appendix;
    (ii) The simple VaR methodology in paragraph (b)(3) of section 32 of 
this appendix; or
    (iii) The internal models methodology in paragraph (d) of section 32 
of this appendix.
    (3) A savings association must adjust HFX calculated in 
paragraph (f)(2) of this section upward if the savings association 
revalues the guarantee or credit derivative less frequently than once 
every ten business days using the square root of time formula provided 
in paragraph (b)(2)(iii)(A)(2) of section 32 of this appendix.

 Section 34. Guarantees and Credit Derivatives: Double Default Treatment

    (a) Eligibility and operational criteria for double default 
treatment. A savings association may recognize the credit risk 
mitigation benefits of a guarantee or credit derivative covering an 
exposure described in paragraph (a)(1) of section 33 of this appendix by 
applying the double default treatment in this section if all the 
following criteria are satisfied.
    (1) The hedged exposure is fully covered or covered on a pro rata 
basis by:
    (i) An eligible guarantee issued by an eligible double default 
guarantor; or
    (ii) An eligible credit derivative that meets the requirements of 
paragraph (b)(2) of section 33 of this appendix and is issued by an 
eligible double default guarantor.
    (2) The guarantee or credit derivative is:
    (i) An uncollateralized guarantee or uncollateralized credit 
derivative (for example, a credit default swap) that provides protection 
with respect to a single reference obligor; or
    (ii) An nth-to-default credit derivative (subject to the 
requirements of paragraph (m) of section 42 of this appendix).
    (3) The hedged exposure is a wholesale exposure (other than a 
sovereign exposure).
    (4) The obligor of the hedged exposure is not:
    (i) An eligible double default guarantor or an affiliate of an 
eligible double default guarantor; or
    (ii) An affiliate of the guarantor.
    (5) The savings association does not recognize any credit risk 
mitigation benefits of the guarantee or credit derivative for the hedged 
exposure other than through application of the double default treatment 
as provided in this section.
    (6) The savings association has implemented a process (which has 
received the

[[Page 401]]

prior, written approval of the OTS) to detect excessive correlation 
between the creditworthiness of the obligor of the hedged exposure and 
the protection provider. If excessive correlation is present, the 
savings association may not use the double default treatment for the 
hedged exposure.
    (b) Full coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is at least equal to the EAD of the 
hedged exposure, the savings association may determine its risk-weighted 
asset amount for the hedged exposure under paragraph (e) of this 
section.
    (c) Partial coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is less than the EAD of the hedged 
exposure, the savings association must treat the hedged exposure as two 
separate exposures (protected and unprotected) in order to recognize 
double default treatment on the protected portion of the exposure.
    (1) For the protected exposure, the savings association must set EAD 
equal to P and calculate its risk-weighted asset amount as provided in 
paragraph (e) of this section.
    (2) For the unprotected exposure, the savings association must set 
EAD equal to the EAD of the original exposure minus P and then calculate 
its risk-weighted asset amount as provided in section 31 of this 
appendix.
    (d) Mismatches. For any hedged exposure to which a savings 
association applies double default treatment, the savings association 
must make applicable adjustments to the protection amount as required in 
paragraphs (d), (e), and (f) of section 33 of this appendix.
    (e) The double default dollar risk-based capital requirement. The 
dollar risk-based capital requirement for a hedged exposure to which a 
savings association has applied double default treatment is 
KDD multiplied by the EAD of the exposure. KDD is 
calculated according to the following formula: KDD = 
Ko x (0.15 + 160 x PDg),

Where:

(1)
[GRAPHIC] [TIFF OMITTED] TR07DE07.016

(2) PDg = PD of the protection provider.
(3) PDo = PD of the obligor of the hedged exposure.
(4) LGDg = (i) The lower of the LGD of the hedged exposure 
(not adjusted to reflect the guarantee or credit derivative) and the LGD 
of the guarantee or credit derivative, if the guarantee or credit 
derivative provides the savings association with the option to receive 
immediate payout on triggering the protection; or
(ii) The LGD of the guarantee or credit derivative, if the guarantee or 
credit derivative does not provide the savings association with the 
option to receive immediate payout on triggering the protection.
(5) [rho]OS (asset value correlation of the obligor) is 
calculated according to the appropriate formula for (R) provided in 
Table 2 in section 31 of this appendix, with PD equal to PDo.
(6) b (maturity adjustment coefficient) is calculated according to the 
formula for b provided in Table 2 in section 31 of this appendix, with 
PD equal to the lesser of PDo and PDg.
(7) M (maturity) is the effective maturity of the guarantee or credit 
derivative, which may not be less than one year or greater than five 
years.

  Section 35. Risk-Based Capital Requirement for Unsettled Transactions

    (a) Definitions. For purposes of this section:
    (1) Delivery-versus-payment (DvP) transaction means a securities or 
commodities transaction in which the buyer is obligated to make payment 
only if the seller has made delivery of the securities or commodities 
and the seller is obligated to deliver the securities or commodities 
only if the buyer has made payment.
    (2) Payment-versus-payment (PvP) transaction means a foreign 
exchange transaction in which each counterparty is obligated to make a 
final transfer of one or more currencies only if the other counterparty 
has made a final transfer of one or more currencies.
    (3) Normal settlement period. A transaction has a normal settlement 
period if the contractual settlement period for the transaction is equal 
to or less than the market standard for the instrument underlying the 
transaction and equal to or less than five business days.
    (4) Positive current exposure. The positive current exposure of a 
savings association for a transaction is the difference between the 
transaction value at the agreed settlement price and the current market 
price of the transaction, if the difference results in a

[[Page 402]]

credit exposure of the savings association to the counterparty.
    (b) Scope. This section applies to all transactions involving 
securities, foreign exchange instruments, and commodities that have a 
risk of delayed settlement or delivery. This section does not apply to:
    (1) Transactions accepted by a qualifying central counterparty that 
are subject to daily marking-to-market and daily receipt and payment of 
variation margin;
    (2) Repo-style transactions, including unsettled repo-style 
transactions (which are addressed in sections 31 and 32 of this 
appendix);
    (3) One-way cash payments on OTC derivative contracts (which are 
addressed in sections 31 and 32 of this appendix); or
    (4) Transactions with a contractual settlement period that is longer 
than the normal settlement period (which are treated as OTC derivative 
contracts and addressed in sections 31 and 32 of this appendix).
    (c) System-wide failures. In the case of a system-wide failure of a 
settlement or clearing system, the OTS may waive risk-based capital 
requirements for unsettled and failed transactions until the situation 
is rectified.
    (d) Delivery-versus-payment (DvP) and payment-versus-payment (PvP) 
transactions. A savings association must hold risk-based capital against 
any DvP or PvP transaction with a normal settlement period if the 
savings association's counterparty has not made delivery or payment 
within five business days after the settlement date. The savings 
association must determine its risk-weighted asset amount for such a 
transaction by multiplying the positive current exposure of the 
transaction for the savings association by the appropriate risk weight 
in Table 5.

      Table 5--Risk Weights for Unsettled DvP and PvP Transactions
------------------------------------------------------------------------
                                                       Risk weight to be
Number of business days after contractual settlement      applied to
                        date                           positive current
                                                      exposure (percent)
------------------------------------------------------------------------
From 5 to 15........................................               100
From 16 to 30.......................................               625
From 31 to 45.......................................               937.5
46 or more..........................................             1,250
------------------------------------------------------------------------

    (e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-
payment) transactions. (1) A savings association must hold risk-based 
capital against any non-DvP/non-PvP transaction with a normal settlement 
period if the savings association has delivered cash, securities, 
commodities, or currencies to its counterparty but has not received its 
corresponding deliverables by the end of the same business day. The 
savings association must continue to hold risk-based capital against the 
transaction until the savings association has received its corresponding 
deliverables.
    (2) From the business day after the savings association has made its 
delivery until five business days after the counterparty delivery is 
due, the savings association must calculate its risk-based capital 
requirement for the transaction by treating the current market value of 
the deliverables owed to the savings association as a wholesale 
exposure.
    (i) A savings association may assign an obligor rating to a 
counterparty for which it is not otherwise required under this appendix 
to assign an obligor rating on the basis of the applicable external 
rating of any outstanding unsecured long-term debt security without 
credit enhancement issued by the counterparty.
    (ii) A savings association may use a 45 percent LGD for the 
transaction rather than estimating LGD for the transaction provided the 
savings association uses the 45 percent LGD for all transactions 
described in paragraphs (e)(1) and (e)(2) of this section.
    (iii) A savings association may use a 100 percent risk weight for 
the transaction provided the savings association uses this risk weight 
for all transactions described in paragraphs (e)(1) and (e)(2) of this 
section.
    (3) If the savings association has not received its deliverables by 
the fifth business day after the counterparty delivery was due, the 
savings association must deduct the current market value of the 
deliverables owed to the savings association 50 percent from tier 1 
capital and 50 percent from tier 2 capital.
    (f) Total risk-weighted assets for unsettled transactions. Total 
risk-weighted assets for unsettled transactions is the sum of the risk-
weighted asset amounts of all DvP, PvP, and non-DvP/non-PvP 
transactions.

        Part V. Risk-Weighted Assets for Securitization Exposures

  Section 41. Operational Criteria for Recognizing the Transfer of Risk

    (a) Operational criteria for traditional securitizations. A savings 
association that transfers exposures it has originated or purchased to a 
securitization SPE or other third party in connection with a traditional 
securitization may exclude the exposures from the calculation of its 
risk-weighted assets only if each of the conditions in this paragraph 
(a) is satisfied. A savings association that meets these conditions must 
hold risk-based capital against any securitization exposures it retains 
in connection with the securitization. A savings association that fails 
to meet these conditions must hold risk-based capital against the 
transferred exposures as if they had not been securitized and must 
deduct from tier 1 capital any after-tax gain-on-sale resulting from the 
transaction. The conditions are:

[[Page 403]]

    (1) The transfer is considered a sale under GAAP;
    (2) The savings association has transferred to third parties credit 
risk associated with the underlying exposures; and
    (3) Any clean-up calls relating to the securitization are eligible 
clean-up calls.
    (b) Operational criteria for synthetic securitizations. For 
synthetic securitizations, a savings association may recognize for risk-
based capital purposes the use of a credit risk mitigant to hedge 
underlying exposures only if each of the conditions in this paragraph 
(b) is satisfied. A savings association that fails to meet these 
conditions must hold risk-based capital against the underlying exposures 
as if they had not been synthetically securitized. The conditions are:
    (1) The credit risk mitigant is financial collateral, an eligible 
credit derivative from an eligible securitization guarantor or an 
eligible guarantee from an eligible securitization guarantor;
    (2) The savings association transfers credit risk associated with 
the underlying exposures to third parties, and the terms and conditions 
in the credit risk mitigants employed do not include provisions that:
    (i) Allow for the termination of the credit protection due to 
deterioration in the credit quality of the underlying exposures;
    (ii) Require the savings association to alter or replace the 
underlying exposures to improve the credit quality of the pool of 
underlying exposures;
    (iii) Increase the savings association's cost of credit protection 
in response to deterioration in the credit quality of the underlying 
exposures;
    (iv) Increase the yield payable to parties other than the savings 
association in response to a deterioration in the credit quality of the 
underlying exposures; or
    (v) Provide for increases in a retained first loss position or 
credit enhancement provided by the savings association after the 
inception of the securitization;
    (3) The savings association obtains a well-reasoned opinion from 
legal counsel that confirms the enforceability of the credit risk 
mitigant in all relevant jurisdictions; and
    (4) Any clean-up calls relating to the securitization are eligible 
clean-up calls.

 Section 42. Risk-Based Capital Requirement for Securitization Exposures

    (a) Hierarchy of approaches. Except as provided elsewhere in this 
section:
    (1) A savings association must deduct from tier 1 capital any after-
tax gain-on-sale resulting from a securitization and must deduct from 
total capital in accordance with paragraph (c) of this section the 
portion of any CEIO that does not constitute gain-on-sale.
    (2) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and qualifies for the Ratings-Based 
Approach in section 43 of this appendix, a savings association must 
apply the Ratings-Based Approach to the exposure.
    (3) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and does not qualify for the Ratings-
Based Approach, the savings association may either apply the Internal 
Assessment Approach in section 44 of this appendix to the exposure (if 
the savings association, the exposure, and the relevant ABCP program 
qualify for the Internal Assessment Approach) or the Supervisory Formula 
Approach in section 45 of this appendix to the exposure (if the savings 
association and the exposure qualify for the Supervisory Formula 
Approach).
    (4) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and does not qualify for the Ratings-
Based Approach, the Internal Assessment Approach, or the Supervisory 
Formula Approach, the savings association must deduct the exposure from 
total capital in accordance with paragraph (c) of this section.
    (5) If a securitization exposure is an OTC derivative contract 
(other than a credit derivative) that has a first priority claim on the 
cash flows from the underlying exposures (notwithstanding amounts due 
under interest rate or currency derivative contracts, fees due, or other 
similar payments), with approval of the OTS, a savings association may 
choose to set the risk-weighted asset amount of the exposure equal to 
the amount of the exposure as determined in paragraph (e) of this 
section rather than apply the hierarchy of approaches described in 
paragraphs (a) (1) through (4) of this section.
    (b) Total risk-weighted assets for securitization exposures. A 
savings association's total risk-weighted assets for securitization 
exposures is equal to the sum of its risk-weighted assets calculated 
using the Ratings-Based Approach in section 43 of this appendix, the 
Internal Assessment Approach in section 44 of this appendix, and the 
Supervisory Formula Approach in section 45 of this appendix, and its 
risk-weighted assets amount for early amortization provisions calculated 
in section 47 of this appendix.
    (c) Deductions. (1) If a savings association must deduct a 
securitization exposure from total capital, the savings association must 
take the deduction 50 percent from tier 1 capital and 50 percent from 
tier 2 capital. If the amount deductible from tier 2 capital exceeds the 
savings association's tier 2 capital, the savings association must 
deduct the excess from tier 1 capital.
    (2) A savings association may calculate any deduction from tier 1 
capital and tier 2 capital for a securitization exposure net of any 
deferred tax liabilities associated with the securitization exposure.

[[Page 404]]

    (d) Maximum risk-based capital requirement. Regardless of any other 
provisions of this part, unless one or more underlying exposures does 
not meet the definition of a wholesale, retail, securitization, or 
equity exposure, the total risk-based capital requirement for all 
securitization exposures held by a single savings association associated 
with a single securitization (including any risk-based capital 
requirements that relate to an early amortization provision of the 
securitization but excluding any risk-based capital requirements that 
relate to the savings association's gain-on-sale or CEIOs associated 
with the securitization) may not exceed the sum of:
    (1) The savings association's total risk-based capital requirement 
for the underlying exposures as if the savings association directly held 
the underlying exposures; and
    (2) The total ECL of the underlying exposures.
    (e) Amount of a securitization exposure. (1) The amount of an on-
balance sheet securitization exposure that is not a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is:
    (i) The savings association's carrying value minus any unrealized 
gains and plus any unrealized losses on the exposure, if the exposure is 
a security classified as available-for-sale; or
    (ii) The savings association's carrying value, if the exposure is 
not a security classified as available-for-sale.
    (2) The amount of an off-balance sheet securitization exposure that 
is not an OTC derivative contract (other than a credit derivative) is 
the notional amount of the exposure. For an off-balance-sheet 
securitization exposure to an ABCP program, such as a liquidity 
facility, the notional amount may be reduced to the maximum potential 
amount that the savings association could be required to fund given the 
ABCP program's current underlying assets (calculated without regard to 
the current credit quality of those assets).
    (3) The amount of a securitization exposure that is a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is the EAD of the exposure as calculated in 
section 32 of this appendix.
    (f) Overlapping exposures. If a savings association has multiple 
securitization exposures that provide duplicative coverage of the 
underlying exposures of a securitization (such as when a savings 
association provides a program-wide credit enhancement and multiple 
pool-specific liquidity facilities to an ABCP program), the savings 
association is not required to hold duplicative risk-based capital 
against the overlapping position. Instead, the savings association may 
apply to the overlapping position the applicable risk-based capital 
treatment that results in the highest risk-based capital requirement.
    (g) Securitizations of non-IRB exposures. If a savings association 
has a securitization exposure where any underlying exposure is not a 
wholesale exposure, retail exposure, securitization exposure, or equity 
exposure, the savings association must:
    (1) If the savings association is an originating savings 
association, deduct from tier 1 capital any after-tax gain-on-sale 
resulting from the securitization and deduct from total capital in 
accordance with paragraph (c) of this section the portion of any CEIO 
that does not constitute gain-on-sale;
    (2) If the securitization exposure does not require deduction under 
paragraph (g)(1), apply the RBA in section 43 of this appendix to the 
securitization exposure if the exposure qualifies for the RBA;
    (3) If the securitization exposure does not require deduction under 
paragraph (g)(1) and does not qualify for the RBA, apply the IAA in 
section 44 of this appendix to the exposure (if the savings association, 
the exposure, and the relevant ABCP program qualify for the IAA); and
    (4) If the securitization exposure does not require deduction under 
paragraph (g)(1) and does not qualify for the RBA or the IAA, deduct the 
exposure from total capital in accordance with paragraph (c) of this 
section.
    (h) Implicit support. If a savings association provides support to a 
securitization in excess of the savings association's contractual 
obligation to provide credit support to the securitization (implicit 
support):
    (1) The savings association must hold regulatory capital against all 
of the underlying exposures associated with the securitization as if the 
exposures had not been securitized and must deduct from tier 1 capital 
any after-tax gain-on-sale resulting from the securitization; and
    (2) The savings association must disclose publicly:
    (i) That it has provided implicit support to the securitization; and
    (ii) The regulatory capital impact to the savings association of 
providing such implicit support.
    (i) Eligible servicer cash advance facilities. Regardless of any 
other provisions of this part, a savings association is not required to 
hold risk-based capital against the undrawn portion of an eligible 
servicer cash advance facility.
    (j) Interest-only mortgage-backed securities. Regardless of any 
other provisions of this part, the risk weight for a non-credit-
enhancing interest-only mortgage-backed security may not be less than 
100 percent.

[[Page 405]]

    (k) Small-business loans and leases on personal property transferred 
with recourse. (1) Regardless of any other provisions of this appendix, 
a savings association that has transferred small-business loans and 
leases on personal property (small-business obligations) with recourse 
must include in risk-weighted assets only the contractual amount of 
retained recourse if all the following conditions are met:
    (i) The transaction is a sale under GAAP.
    (ii) The savings association establishes and maintains, pursuant to 
GAAP, a non-capital reserve sufficient to meet the savings association's 
reasonably estimated liability under the recourse arrangement.
    (iii) The loans and leases are to businesses that meet the criteria 
for a small-business concern established by the Small Business 
Administration under section 3(a) of the Small Business Act (15 U.S.C. 
632).
    (iv) The savings association is well capitalized, as defined in the 
OTS's prompt corrective action regulation at 12 CFR part 565. For 
purposes of determining whether a savings association is well 
capitalized for purposes of this paragraph, the savings association's 
capital ratios must be calculated without regard to the capital 
treatment for transfers of small-business obligations with recourse 
specified in paragraph (k)(1) of this section.
    (2) The total outstanding amount of recourse retained by a savings 
association on transfers of small-business obligations receiving the 
capital treatment specified in paragraph (k)(1) of this section cannot 
exceed 15 percent of the savings association's total qualifying capital.
    (3) If a savings association ceases to be well capitalized or 
exceeds the 15 percent capital limitation, the preferential capital 
treatment specified in paragraph (k)(1) of this section will continue to 
apply to any transfers of small-business obligations with recourse that 
occurred during the time that the savings association was well 
capitalized and did not exceed the capital limit.
    (4) The risk-based capital ratios of the savings association must be 
calculated without regard to the capital treatment for transfers of 
small-business obligations with recourse specified in paragraph (k)(1) 
of this section as provided in 12 CFR 567.6(b)(5)(v).
    (l) Consolidated ABCP programs. (1) A savings association that 
qualifies as a primary beneficiary and must consolidate an ABCP program 
as a variable interest entity under GAAP may exclude the consolidated 
ABCP program assets from risk-weighted assets if the savings association 
is the sponsor of the ABCP program. If a savings association excludes 
such consolidated ABCP program assets from risk-weighted assets, the 
savings association must hold risk-based capital against any 
securitization exposures of the savings association to the ABCP program 
in accordance with this part.
    (2) If a savings association either is not permitted, or elects not, 
to exclude consolidated ABCP program assets from its risk-weighted 
assets, the savings association must hold risk-based capital against the 
consolidated ABCP program assets in accordance with this appendix but is 
not required to hold risk-based capital against any securitization 
exposures of the savings association to the ABCP program.
    (m) Nth-to-default credit derivatives--(1) First-to-default credit 
derivatives--(i) Protection purchaser. A savings association that 
obtains credit protection on a group of underlying exposures through a 
first-to-default credit derivative must determine its risk-based capital 
requirement for the underlying exposures as if the savings association 
synthetically securitized the underlying exposure with the lowest risk-
based capital requirement and had obtained no credit risk mitigant on 
the other underlying exposures.
    (ii) Protection provider. A savings association that provides credit 
protection on a group of underlying exposures through a first-to-default 
credit derivative must determine its risk-weighted asset amount for the 
derivative by applying the RBA in section 43 of this appendix (if the 
derivative qualifies for the RBA) or, if the derivative does not qualify 
for the RBA, by setting its risk-weighted asset amount for the 
derivative equal to the product of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the individual 
underlying exposures, up to a maximum of 100 percent.
    (2) Second-or-subsequent-to-default credit derivatives--(i) 
Protection purchaser. (A) A savings association that obtains credit 
protection on a group of underlying exposures through a n\th\-to-default 
credit derivative (other than a first-to-default credit derivative) may 
recognize the credit risk mitigation benefits of the derivative only if:
    (1) The savings association also has obtained credit protection on 
the same underlying exposures in the form of first-through-(n-1)-to-
default credit derivatives; or
    (2) If n-1 of the underlying exposures have already defaulted.
    (B) If a savings association satisfies the requirements of paragraph 
(m)(2)(i)(A) of this section, the savings association must determine its 
risk-based capital requirement for the underlying exposures as if the 
savings association had only synthetically securitized the underlying 
exposure with the nth lowest risk-based capital requirement 
and had obtained no credit risk mitigant on the other underlying 
exposures.
    (ii) Protection provider. A savings association that provides credit 
protection on a group of underlying exposures through a nth-
to-default credit derivative (other than a

[[Page 406]]

first-to-default credit derivative) must determine its risk-weighted 
asset amount for the derivative by applying the RBA in section 43 of 
this appendix (if the derivative qualifies for the RBA) or, if the 
derivative does not qualify for the RBA, by setting its risk-weighted 
asset amount for the derivative equal to the product of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the individual 
underlying exposures (excluding the n-1 underlying exposures with the 
lowest risk-based capital requirements), up to a maximum of 100 percent.

                Section 43. Ratings-Based Approach (RBA)

    (a) Eligibility requirements for use of the RBA--(1) Originating 
savings association. An originating savings association must use the RBA 
to calculate its risk-based capital requirement for a securitization 
exposure if the exposure has two or more external ratings or inferred 
ratings (and may not use the RBA if the exposure has fewer than two 
external ratings or inferred ratings).
    (2) Investing savings association. An investing savings association 
must use the RBA to calculate its risk-based capital requirement for a 
securitization exposure if the exposure has one or more external or 
inferred ratings (and may not use the RBA if the exposure has no 
external or inferred rating).
    (b) Ratings-based approach. (1) A savings association must determine 
the risk-weighted asset amount for a securitization exposure by 
multiplying the amount of the exposure (as defined in paragraph (e) of 
section 42 of this appendix) by the appropriate risk weight provided in 
Table 6 and Table 7.
    (2) A savings association must apply the risk weights in Table 6 
when the securitization exposure's applicable external or applicable 
inferred rating represents a long-term credit rating, and must apply the 
risk weights in Table 7 when the securitization exposure's applicable 
external or applicable inferred rating represents a short-term credit 
rating.
    (i) A savings association must apply the risk weights in column 1 of 
Table 6 or Table 7 to the securitization exposure if:
    (A) N (as calculated under paragraph (e)(6) of section 45 of this 
appendix) is six or more (for purposes of this section only, if the 
notional number of underlying exposures is 25 or more or if all of the 
underlying exposures are retail exposures, a savings association may 
assume that N is six or more unless the savings association knows or has 
reason to know that N is less than six); and
    (B) The securitization exposure is a senior securitization exposure.
    (ii) A savings association must apply the risk weights in column 3 
of Table 6 or Table 7 to the securitization exposure if N is less than 
six, regardless of the seniority of the securitization exposure.
    (iii) Otherwise, a savings association must apply the risk weights 
in column 2 of Table 6 or Table 7.

                         Table 6--Long-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                        Column 1        Column 2        Column 3
                                                    -----------------------------------------------    Applicable
                                                      Risk weights    Risk weights    Risk weights    external or
       Applicable external or inferred rating          for senior    for non-senior        for          inferred
           (Illustrative rating example)             securitization  securitization  securitization      rating
                                                        exposures       exposures       exposures    (Illustrative
                                                        backed by       backed by    backed by non-      rating
                                                     granular pools  granular pools  granular pools     example)
--------------------------------------------------------------------------------------------------- ---------------
Highest investment grade (for example, AAA)........              7%             12%             20%
Second highest investment grade (for example, AA)..              8%             15%             25%
Third-highest investment grade--positive                        10%             18%             35%
 designation (for example, A+).....................
Third-highest investment grade (for example, A)....             12%             20%
Third-highest investment grade--negative                        20%             35%
 designation (for example, A-).....................
                                                                    --------------------------------------------
Lowest investment grade--positive designation (for              35%                50%
 example, BBB+)....................................
Lowest investment grade (for example, BBB).........             60%                75%
                                                    ------------------------------------------------------------
Lowest investment grade--negative designation (for
 example, BBB-)....................................                       100%
One category below investment grade--positive
 designation (for example, BB+)....................                       250%
One category below investment grade (for example,
 BB)...............................................                       425%
One category below investment grade--negative
 designation (for example, BB-)....................                       650%
More than one category below investment grade......     Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------


[[Page 407]]


                        Table 7--Short-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                        Column 1        Column 2        Column 3
                                                    -----------------------------------------------    Applicable
                                                      Risk weights    Risk weights    Risk weights    external or
       Applicable external or inferred rating          for senior    for non-senior        for          inferred
           (Illustrative rating example)             securitization  securitization  securitization      rating
                                                        exposures       exposures       exposures    (Illustrative
                                                        backed by       backed by    backed by non-      rating
                                                     granular pools  granular pools  granular pools     example)
--------------------------------------------------------------------------------------------------- ---------------
Highest investment grade (for example, A1).........              7%             12%             20%
Second highest investment grade (for example, A2)..             12%             20%             35%
Third highest investment grade (for example, A3)...             60%             75%             75%
All other ratings..................................     Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------

             Section 44. Internal Assessment Approach (IAA)

    (a) Eligibility requirements. A savings association may apply the 
IAA to calculate the risk-weighted asset amount for a securitization 
exposure that the savings association has to an ABCP program (such as a 
liquidity facility or credit enhancement) if the savings association, 
the ABCP program, and the exposure qualify for use of the IAA.
    (1) Savings association qualification criteria.A savings association 
qualifies for use of the IAA if the savings association has received the 
prior written approval of the OTS. To receive such approval, the savings 
association must demonstrate to the OTS's satisfaction that the savings 
association's internal assessment process meets the following criteria:
    (i) The savings association's internal credit assessments of 
securitization exposures must be based on publicly available rating 
criteria used by an NRSRO.
    (ii) The savings association's internal credit assessments of 
securitization exposures used for risk-based capital purposes must be 
consistent with those used in the savings association's internal risk 
management process, management information reporting systems, and 
capital adequacy assessment process.
    (iii) The savings association's internal credit assessment process 
must have sufficient granularity to identify gradations of risk. Each of 
the savings association's internal credit assessment categories must 
correspond to an external rating of an NRSRO.
    (iv) The savings association's internal credit assessment process, 
particularly the stress test factors for determining credit enhancement 
requirements, must be at least as conservative as the most conservative 
of the publicly available rating criteria of the NRSROs that have 
provided external ratings to the commercial paper issued by the ABCP 
program.
    (A) Where the commercial paper issued by an ABCP program has an 
external rating from two or more NRSROs and the different NRSROs' 
benchmark stress factors require different levels of credit enhancement 
to achieve the same external rating equivalent, the savings association 
must apply the NRSRO stress factor that requires the highest level of 
credit enhancement.
    (B) If any NRSRO that provides an external rating to the ABCP 
program's commercial paper changes its methodology (including stress 
factors), the savings association must evaluate whether to revise its 
internal assessment process.
    (v) The savings association must have an effective system of 
controls and oversight that ensures compliance with these operational 
requirements and maintains the integrity and accuracy of the internal 
credit assessments. The savings association must have an internal audit 
function independent from the ABCP program business line and internal 
credit assessment process that assesses at least annually whether the 
controls over the internal credit assessment process function as 
intended.
    (vi) The savings association must review and update each internal 
credit assessment whenever new material information is available, but no 
less frequently than annually.
    (vii) The savings association must validate its internal credit 
assessment process on an ongoing basis and at least annually.
    (2) ABCP-program qualification criteria. An ABCP program qualifies 
for use of the IAA if all commercial paper issued by the ABCP program 
has an external rating.
    (3) Exposure qualification criteria.A securitization exposure 
qualifies for use of the IAA if the exposure meets the following 
criteria:
    (i) The savings association initially rated the exposure at least 
the equivalent of investment grade.
    (ii) The ABCP program has robust credit and investment guidelines 
(that is, underwriting standards) for the exposures underlying the 
securitization exposure.
    (iii) The ABCP program performs a detailed credit analysis of the 
sellers of the exposures underlying the securitization exposure.
    (iv) The ABCP program's underwriting policy for the exposures 
underlying the securitization exposure establishes minimum

[[Page 408]]

asset eligibility criteria that include the prohibition of the purchase 
of assets that are significantly past due or of assets that are 
defaulted (that is, assets that have been charged off or written down by 
the seller prior to being placed into the ABCP program or assets that 
would be charged off or written down under the program's governing 
contracts), as well as limitations on concentration to individual 
obligors or geographic areas and the tenor of the assets to be 
purchased.
    (v) The aggregate estimate of loss on the exposures underlying the 
securitization exposure considers all sources of potential risk, such as 
credit and dilution risk.
    (vi) Where relevant, the ABCP program incorporates structural 
features into each purchase of exposures underlying the securitization 
exposure to mitigate potential credit deterioration of the underlying 
exposures. Such features may include wind-down triggers specific to a 
pool of underlying exposures.
    (b) Mechanics.A savings association that elects to use the IAA to 
calculate the risk-based capital requirement for any securitization 
exposure must use the IAA to calculate the risk-based capital 
requirements for all securitization exposures that qualify for the IAA 
approach. Under the IAA, a savings association must map its internal 
assessment of such a securitization exposure to an equivalent external 
rating from an NRSRO. Under the IAA, a savings association must 
determine the risk-weighted asset amount for such a securitization 
exposure by multiplying the amount of the exposure (as defined in 
paragraph (e) of section 42 of this appendix) by the appropriate risk 
weight in Table 6 and Table 7 in paragraph (b) of section 43 of this 
appendix.

             Section 45. Supervisory Formula Approach (SFA)

    (a) Eligibility requirements. A savings association may use the SFA 
to determine its risk-based capital requirement for a securitization 
exposure only if the savings association can calculate on an ongoing 
basis each of the SFA parameters in paragraph (e) of this section.
    (b) Mechanics. Under the SFA, a securitization exposure incurs a 
deduction from total capital (as described in paragraph (c) of section 
42 of this appendix) and/or an SFA risk-based capital requirement, as 
determined in paragraph (c) of this section. The risk-weighted asset 
amount for the securitization exposure equals the SFA risk-based capital 
requirement for the exposure multiplied by 12.5.
    (c) The SFA risk-based capital requirement. (1) If KIRB 
is greater than or equal to L + T, the entire exposure must be deducted 
from total capital.
    (2) If KIRB is less than or equal to L, the exposure's 
SFA risk-based capital requirement is UE multiplied by TP multiplied by 
the greater of:
    (i) 0.0056 * T; or
    (ii) S[L + T] - S[L].
    (3) If KIRB is greater than L and less than L + T, the 
savings association must deduct from total capital an amount equal to 
UE*TP*(KIRB - L), and the exposure's SFA risk-based capital 
requirement is UE multiplied by TP multiplied by the greater of:
    (i) 0.0056 * (T - (KIRB - L)); or
    (ii) S[L + T] - S[KIRB].
    (d) The supervisory formula:

[[Page 409]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.017

    (11) In these expressions, [beta][Y; a, b] refers to the cumulative 
beta distribution with parameters a and b evaluated at Y. In the case 
where N = 1 and EWALGD = 100 percent, S[Y] in formula (1) must be 
calculated with K[Y] set equal to the product of KIRB and Y, 
and d set equal to 1 - KIRB.
    (e) SFA parameters--(1) Amount of the underlying exposures (UE). UE 
is the EAD of any underlying exposures that are wholesale and retail 
exposures (including the amount of any funded spread accounts, cash 
collateral accounts, and other similar funded credit enhancements) plus 
the amount of any underlying exposures that are securitization exposures 
(as defined in paragraph (e) of section 42 of this appendix) plus the 
adjusted carrying value of any underlying exposures that are equity 
exposures (as defined in paragraph (b) of section 51 of this appendix).
    (2) Tranche percentage (TP). TP is the ratio of the amount of the 
savings association's

[[Page 410]]

securitization exposure to the amount of the tranche that contains the 
securitization exposure.
    (3) Capital requirement on underlying exposures (KIRB). (i) 
KIRB is the ratio of:
    (A) The sum of the risk-based capital requirements for the 
underlying exposures plus the expected credit losses of the underlying 
exposures (as determined under this appendix as if the underlying 
exposures were directly held by the savings association); to
    (B) UE.
    (ii) The calculation of KIRB must reflect the effects of 
any credit risk mitigant applied to the underlying exposures (either to 
an individual underlying exposure, to a group of underlying exposures, 
or to the entire pool of underlying exposures).
    (iii) All assets related to the securitization are treated as 
underlying exposures, including assets in a reserve account (such as a 
cash collateral account).
    (4) Credit enhancement level (L). (i) L is the ratio of:
    (A) The amount of all securitization exposures subordinated to the 
tranche that contains the savings association's securitization exposure; 
to
    (B) UE.
    (ii) A savings association must determine L before considering the 
effects of any tranche-specific credit enhancements.
    (iii) Any gain-on-sale or CEIO associated with the securitization 
may not be included in L.
    (iv) Any reserve account funded by accumulated cash flows from the 
underlying exposures that is subordinated to the tranche that contains 
the savings association's securitization exposure may be included in the 
numerator and denominator of L to the extent cash has accumulated in the 
account. Unfunded reserve accounts (that is, reserve accounts that are 
to be funded from future cash flows from the underlying exposures) may 
not be included in the calculation of L.
    (v) In some cases, the purchase price of receivables will reflect a 
discount that provides credit enhancement (for example, first loss 
protection) for all or certain tranches of the securitization. When this 
arises, L should be calculated inclusive of this discount if the 
discount provides credit enhancement for the securitization exposure.
    (5) Thickness of tranche (T). T is the ratio of:
    (i) The amount of the tranche that contains the savings 
association's securitization exposure; to
    (ii) UE.
    (6) Effective number of exposures (N). (i) Unless the savings 
association elects to use the formula provided in paragraph (f) of this 
section,
[GRAPHIC] [TIFF OMITTED] TR07DE07.018

where EADi represents the EAD associated with the ith 
instrument in the pool of underlying exposures.
    (ii) Multiple exposures to one obligor must be treated as a single 
underlying exposure.
    (iii) In the case of a re-securitization (that is, a securitization 
in which some or all of the underlying exposures are themselves 
securitization exposures), the savings association must treat each 
underlying exposure as a single underlying exposure and must not look 
through to the originally securitized underlying exposures.
    (7) Exposure-weighted average loss given default (EWALGD). EWALGD is 
calculated as:
[GRAPHIC] [TIFF OMITTED] TR07DE07.019

where LGDi represents the average LGD associated with all 
exposures to the ith obligor. In the case of a re-securitization, an LGD 
of 100 percent must be assumed for the underlying exposures that are 
themselves securitization exposures.
    (f) Simplified method for computing N and EWALGD. (1) If all 
underlying exposures of a securitization are retail exposures, a savings 
association may apply the SFA using the following simplifications:
    (i) h = 0; and
    (ii) v = 0.
    (2) Under the conditions in paragraphs (f)(3) and (f)(4) of this 
section, a savings association may employ a simplified method for 
calculating N and EWALGD.
    (3) If C1 is no more than 0.03, a savings association may 
set EWALGD = 0.50 if none of the underlying exposures is a 
securitization exposure or EWALGD = 1 if one or more of the underlying 
exposures is a securitization exposure, and may set N equal to the 
following amount:

[[Page 411]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.020

where:
    (i) Cm is the ratio of the sum of the amounts of the `m' 
largest underlying exposures to UE; and
    (ii) The level of m is to be selected by the savings association.

    (4) Alternatively, if only C1 is available and 
C1 is no more than 0.03, the savings association may set 
EWALGD = 0.50 if none of the underlying exposures is a securitization 
exposure or EWALGD = 1 if one or more of the underlying exposures is a 
securitization exposure and may set N = 1/C1.

  Section 46. Recognition of Credit Risk Mitigants for Securitization 
                                Exposures

    (a) General. An originating savings association that has obtained a 
credit risk mitigant to hedge its securitization exposure to a synthetic 
or traditional securitization that satisfies the operational criteria in 
section 41 of this appendix may recognize the credit risk mitigant, but 
only as provided in this section. An investing savings association that 
has obtained a credit risk mitigant to hedge a securitization exposure 
may recognize the credit risk mitigant, but only as provided in this 
section. A savings association that has used the RBA in section 43 of 
this appendix or the IAA in section 44 of this appendix to calculate its 
risk-based capital requirement for a securitization exposure whose 
external or inferred rating (or equivalent internal rating under the 
IAA) reflects the benefits of a credit risk mitigant provided to the 
associated securitization or that supports some or all of the underlying 
exposures may not use the credit risk mitigation rules in this section 
to further reduce its risk-based capital requirement for the exposure to 
reflect that credit risk mitigant.
    (b) Collateral--(1) Rules of recognition. A savings association may 
recognize financial collateral in determining the savings association's 
risk-based capital requirement for a securitization exposure (other than 
a repo-style transaction, an eligible margin loan, or an OTC derivative 
contract for which the savings association has reflected collateral in 
its determination of exposure amount under section 32 of this appendix) 
as follows. The savings association's risk-based capital requirement for 
the collateralized securitization exposure is equal to the risk-based 
capital requirement for the securitization exposure as calculated under 
the RBA in section 43 of this appendix or under the SFA in section 45 of 
this appendix multiplied by the ratio of adjusted exposure amount (SE*) 
to original exposure amount (SE), where:
    (i) SE* = max {0, [SE--C x (1-Hs-Hfx)]{time} ;
    (ii) SE = the amount of the securitization exposure calculated under 
paragraph (e) of section 42 of this appendix;
    (iii) C = the current market value of the collateral;
    (iv) Hs = the haircut appropriate to the collateral type; and
    (v) Hfx=the haircut appropriate for any currency mismatch between 
the collateral and the exposure.
    (2) Mixed collateral. Where the collateral is a basket of different 
asset types or a basket of assets denominated in different currencies, 
the haircut on the basket will be
[GRAPHIC] [TIFF OMITTED] TR07DE07.023

where ai is the current market value of the asset in the 
basket divided by the current market value of all assets in the basket 
and Hi is the haircut applicable to that asset.
    (3) Standard supervisory haircuts. Unless a savings association 
qualifies for use of and uses own-estimates haircuts in paragraph (b)(4) 
of this section:
    (i) A savings association must use the collateral type haircuts (Hs) 
in Table 3;
    (ii) A savings association must use a currency mismatch haircut 
(Hfx) of 8 percent if the exposure and the collateral are denominated in 
different currencies;
    (iii) A savings association must multiply the supervisory haircuts 
obtained in paragraphs (b)(3)(i) and (ii) by the square root of 6.5 
(which equals 2.549510); and
    (iv) A savings association must adjust the supervisory haircuts 
upward on the basis of a holding period longer than 65 business days 
where and as appropriate to take into account the illiquidity of the 
collateral.
    (4) Own estimates for haircuts. With the prior written approval of 
the OTS, a savings association may calculate haircuts using its own 
internal estimates of market price volatility and foreign exchange 
volatility, subject to paragraph (b)(2)(iii) of section 32 of this 
appendix. The minimum holding period (TM) for securitization exposures 
is 65 business days.

[[Page 412]]

    (c) Guarantees and credit derivatives--(1) Limitations on 
recognition. A savings association may only recognize an eligible 
guarantee or eligible credit derivative provided by an eligible 
securitization guarantor in determining the savings association's risk-
based capital requirement for a securitization exposure.
    (2) ECL for securitization exposures. When a savings association 
recognizes an eligible guarantee or eligible credit derivative provided 
by an eligible securitization guarantor in determining the savings 
association's risk-based capital requirement for a securitization 
exposure, the savings association must also:
    (i) Calculate ECL for the protected portion of the exposure using 
the same risk parameters that it uses for calculating the risk-weighted 
asset amount of the exposure as described in paragraph (c)(3) of this 
section; and
    (ii) Add the exposure's ECL to the savings association's total ECL.
    (3) Rules of recognition. A savings association may recognize an 
eligible guarantee or eligible credit derivative provided by an eligible 
securitization guarantor in determining the savings association's risk-
based capital requirement for the securitization exposure as follows:
    (i) Full coverage.If the protection amount of the eligible guarantee 
or eligible credit derivative equals or exceeds the amount of the 
securitization exposure, the savings association may set the risk-
weighted asset amount for the securitization exposure equal to the risk-
weighted asset amount for a direct exposure to the eligible 
securitization guarantor (as determined in the wholesale risk weight 
function described in section 31 of this appendix), using the savings 
association's PD for the guarantor, the savings association's LGD for 
the guarantee or credit derivative, and an EAD equal to the amount of 
the securitization exposure (as determined in paragraph (e) of section 
42 of this appendix).
    (ii) Partial coverage.If the protection amount of the eligible 
guarantee or eligible credit derivative is less than the amount of the 
securitization exposure, the savings association may set the risk-
weighted asset amount for the securitization exposure equal to the sum 
of:
    (A) Covered portion. The risk-weighted asset amount for a direct 
exposure to the eligible securitization guarantor (as determined in the 
wholesale risk weight function described in section 31 of this 
appendix), using the savings association's PD for the guarantor, the 
savings association's LGD for the guarantee or credit derivative, and an 
EAD equal to the protection amount of the credit risk mitigant; and
    (B) Uncovered portion. (1) 1.0 minus the ratio of the protection 
amount of the eligible guarantee or eligible credit derivative to the 
amount of the securitization exposure); multiplied by
    (2) The risk-weighted asset amount for the securitization exposure 
without the credit risk mitigant (as determined in sections 42-45 of 
this appendix).
    (4) Mismatches. The savings association must make applicable 
adjustments to the protection amount as required in paragraphs (d), (e), 
and (f) of section 33 of this appendix for any hedged securitization 
exposure and any more senior securitization exposure that benefits from 
the hedge. In the context of a synthetic securitization, when an 
eligible guarantee or eligible credit derivative covers multiple hedged 
exposures that have different residual maturities, the savings 
association must use the longest residual maturity of any of the hedged 
exposures as the residual maturity of all the hedged exposures.

   Section 47. Risk-Based Capital Requirement for Early Amortization 
                               Provisions

    (a) General. (1) An originating savings association must hold risk-
based capital against the sum of the originating savings association's 
interest and the investors' interest in a securitization that:
    (i) Includes one or more underlying exposures in which the borrower 
is permitted to vary the drawn amount within an agreed limit under a 
line of credit; and
    (ii) Contains an early amortization provision.
    (2) For securitizations described in paragraph (a)(1) of this 
section, an originating savings association must calculate the risk-
based capital requirement for the originating savings association's 
interest under sections 42-45 of this appendix, and the risk-based 
capital requirement for the investors'interest under paragraph (b) of 
this section.
    (b) Risk-weighted asset amount for investors'interest. The 
originating savings association's risk-weighted asset amount for the 
investors' interest in the securitization is equal to the product of the 
following 5 quantities:
    (1) The investors'interest EAD;
    (2) The appropriate conversion factor in paragraph (c) of this 
section;
    (3) KIRB(as defined in paragraph (e)(3) of section 45 of 
this appendix);
    (4) 12.5; and
    (5) The proportion of the underlying exposures in which the borrower 
is permitted to vary the drawn amount within an agreed limit under a 
line of credit.
    (c) Conversion factor.(1) (i) Except as provided in paragraph (c)(2) 
of this section, to calculate the appropriate conversion factor, a 
savings association must use Table 8 for a securitization that contains 
a controlled early amortization provision and must use Table 9 for a 
securitization that contains a

[[Page 413]]

non-controlled early amortization provision. In circumstances where a 
securitization contains a mix of retail and nonretail exposures or a mix 
of committed and uncommitted exposures, a savings association may take a 
pro rata approach to determining the conversion factor for the 
securitization's early amortization provision. If a pro rata approach is 
not feasible, a savings association must treat the mixed securitization 
as a securitization of nonretail exposures if a single underlying 
exposure is a nonretail exposure and must treat the mixed securitization 
as a securitization of committed exposures if a single underlying 
exposure is a committed exposure.
    (ii) To find the appropriate conversion factor in the tables, a 
savings association must divide the three-month average annualized 
excess spread of the securitization by the excess spread trapping point 
in the securitization structure. In securitizations that do not require 
excess spread to be trapped, or that specify trapping points based 
primarily on performance measures other than the three-month average 
annualized excess spread, the excess spread trapping point is 4.5 
percent.

            Table 8--Controlled Early Amortization Provisions
------------------------------------------------------------------------
                                       Uncommitted          Committed
------------------------------------------------------------------------
Retail Credit Lines............  Three-month average     90% CF
                                  annualized excess
                                  spread Conversion
                                  Factor (CF).
                                 133.33% of trapping
                                  point or more, 0% CF.
                                 less than 133.33% to
                                  100% of trapping
                                  point, 1% CF.
                                 less than 100% to 75%
                                  of trapping point, 2%
                                  CF.
                                 less than 75% to 50%
                                  of trapping point,
                                  10% CF.
                                 less than 50% to 25%
                                  of trapping point,
                                  20% CF.
                                 less than 25% of
                                  trapping point, 40%
                                  CF.
Non-retail Credit Lines........  90% CF................  90% CF
------------------------------------------------------------------------


          Table 9--Non-Controlled Early Amortization Provisions
------------------------------------------------------------------------
                                       Uncommitted          Committed
------------------------------------------------------------------------
Retail Credit Lines............  Three-month average     100% CF
                                  annualized excess
                                  spread Conversion
                                  Factor (CF).
                                 133.33% of trapping
                                  point or more, 0% CF.
                                 less than 133.33% to
                                  100% of trapping
                                  point, 5% CF.
                                 less than 100% to 75%
                                  of trapping point,
                                  15% CF.
                                 less than 75% to 50%
                                  of trapping point,
                                  50% CF.
                                 less than 50% of
                                  trapping point, 100%
                                  CF.
Non-retail Credit Lines........  100% CF...............  100% CF
------------------------------------------------------------------------

    (2) For a securitization for which all or substantially all of the 
underlying exposures are residential mortgage exposures, a savings 
association may calculate the appropriate conversion factor using 
paragraph (c)(1) of this section or may use a conversion factor of 10 
percent. If the savings association chooses to use a conversion factor 
of 10 percent, it must use that conversion factor for all 
securitizations for which all or substantially all of the underlying 
exposures are residential mortgage exposures.

           Part VI. Risk-Weighted Assets for Equity Exposures

            Section 51. Introduction and Exposure Measurement

    (a) General. To calculate its risk-weighted asset amounts for equity 
exposures that are not equity exposures to investment funds, a savings 
association may apply either the Simple Risk Weight Approach (SRWA) in 
section 52 of this appendix or, if it qualifies to do so, the Internal 
Models Approach (IMA) in section 53 of this appendix. A savings 
association must use the look-through approaches in section 54 of this 
appendix to calculate its risk-weighted asset amounts for equity 
exposures to investment funds.
    (b) Adjusted carrying value. For purposes of this part, the adjusted 
carrying value of an equity exposure is:
    (1) For the on-balance sheet component of an equity exposure, the 
savings association's carrying value of the exposure reduced by any 
unrealized gains on the exposure that are reflected in such carrying 
value but excluded from the savings association's tier 1 and tier 2 
capital; and
    (2) For the off-balance sheet component of an equity exposure, the 
effective notional principal amount of the exposure, the size of which 
is equivalent to a hypothetical on-balance sheet position in the 
underlying equity instrument that would evidence the same change in fair 
value (measured in dollars) for a given small change in the price of the 
underlying equity instrument, minus the adjusted carrying value of the 
on-balance sheet

[[Page 414]]

component of the exposure as calculated in paragraph (b)(1) of this 
section. For unfunded equity commitments that are unconditional, the 
effective notional principal amount is the notional amount of the 
commitment. For unfunded equity commitments that are conditional, the 
effective notional principal amount is the savings association's best 
estimate of the amount that would be funded under economic downturn 
conditions.

             Section 52. Simple Risk Weight Approach (SRWA)

    (a) General. Under the SRWA, a savings association's aggregate risk-
weighted asset amount for its equity exposures is equal to the sum of 
the risk-weighted asset amounts for each of the savings association's 
individual equity exposures (other than equity exposures to an 
investment fund) as determined in this section and the risk-weighted 
asset amounts for each of the savings association's individual equity 
exposures to an investment fund as determined in section 54 of this 
appendix.
    (b) SRWA computation for individual equity exposures. A savings 
association must determine the risk-weighted asset amount for an 
individual equity exposure (other than an equity exposure to an 
investment fund) by multiplying the adjusted carrying value of the 
equity exposure or the effective portion and ineffective portion of a 
hedge pair (as defined in paragraph (c) of this section) by the lowest 
applicable risk weight in this paragraph (b).
    (1) 0 percent risk weight equity exposures. An equity exposure to an 
entity whose credit exposures are exempt from the 0.03 percent PD floor 
in paragraph (d)(2) of section 31 of this appendix is assigned a 0 
percent risk weight.
    (2) 20 percent risk weight equity exposures. An equity exposure to a 
Federal Home Loan Bank or Farmer Mac is assigned a 20 percent risk 
weight.
    (3) 100 percent risk weight equity exposures. The following equity 
exposures are assigned a 100 percent risk weight:
    (i) An equity exposure that is designed primarily to promote 
community welfare, including the welfare of low- and moderate-income 
communities or families, such as by providing services or jobs, 
excluding equity exposures to an unconsolidated small business 
investment company and equity exposures held through a consolidated 
small business investment company described in section 302 of the Small 
Business Investment Act of 1958 (15 U.S.C. 682).
    (ii) Effective portion of hedge pairs. The effective portion of a 
hedge pair.
    (iii) Non-significant equity exposures. Equity exposures, excluding 
exposures to an investment firm that would meet the definition of a 
traditional securitization were it not for the OTS's application of 
paragraph (8) of that definition and has greater than immaterial 
leverage, to the extent that the aggregate adjusted carrying value of 
the exposures does not exceed 10 percent of the savings association's 
tier 1 capital plus tier 2 capital.
    (A) To compute the aggregate adjusted carrying value of a savings 
association's equity exposures for purposes of this paragraph 
(b)(3)(iii), the savings association may exclude equity exposures 
described in paragraphs (b)(1), (b)(2), (b)(3)(i), and (b)(3)(ii) of 
this section, the equity exposure in a hedge pair with the smaller 
adjusted carrying value, and a proportion of each equity exposure to an 
investment fund equal to the proportion of the assets of the investment 
fund that are not equity exposures or that meet the criterion of 
paragraph (b)(3)(i) of this section. If a savings association does not 
know the actual holdings of the investment fund, the savings association 
may calculate the proportion of the assets of the fund that are not 
equity exposures based on the terms of the prospectus, partnership 
agreement, or similar contract that defines the fund's permissible 
investments. If the sum of the investment limits for all exposure 
classes within the fund exceeds 100 percent, the savings association 
must assume for purposes of this paragraph (b)(3)(iii) that the 
investment fund invests to the maximum extent possible in equity 
exposures.
    (B) When determining which of a savings association's equity 
exposures qualify for a 100 percent risk weight under this paragraph, a 
savings association first must include equity exposures to 
unconsolidated small business investment companies or held through 
consolidated small business investment companies described in section 
302 of the Small Business Investment Act of 1958 (15 U.S.C. 682), then 
must include publicly traded equity exposures (including those held 
indirectly through investment funds), and then must include non-publicly 
traded equity exposures (including those held indirectly through 
investment funds).
    (4) 300 percent risk weight equity exposures.A publicly traded 
equity exposure (other than an equity exposure described in paragraph 
(b)(6) of this section and including the ineffective portion of a hedge 
pair) is assigned a 300 percent risk weight.
    (5) 400 percent risk weight equity exposures.An equity exposure 
(other than an equity exposure described in paragraph (b)(6) of this 
section) that is not publicly traded is assigned a 400 percent risk 
weight.
    (6) 600 percent risk weight equity exposures.An equity exposure to 
an investment firm that:
    (i) Would meet the definition of a traditional securitization were 
it not for the OTS's application of paragraph (8) of that definition; 
and
    (ii) Has greater than immaterial leverage is assigned a 600 percent 
risk weight.

[[Page 415]]

    (c) Hedge transactions--(1) Hedge pair.A hedge pair is two equity 
exposures that form an effective hedge so long as each equity exposure 
is publicly traded or has a return that is primarily based on a publicly 
traded equity exposure.
    (2) Effective hedge.Two equity exposures form an effective hedge if 
the exposures either have the same remaining maturity or each has a 
remaining maturity of at least three months; the hedge relationship is 
formally documented in a prospective manner (that is, before the savings 
association acquires at least one of the equity exposures); the 
documentation specifies the measure of effectiveness (E) the savings 
association will use for the hedge relationship throughout the life of 
the transaction; and the hedge relationship has an E greater than or 
equal to 0.8. A savings association must measure E at least quarterly 
and must use one of three alternative measures of E:
    (i) Under the dollar-offset method of measuring effectiveness, the 
savings association must determine the ratio of value change (RVC). The 
RVC is the ratio of the cumulative sum of the periodic changes in value 
of one equity exposure to the cumulative sum of the periodic changes in 
the value of the other equity exposure. If RVC is positive, the hedge is 
not effective and E equals 0. If RVC is negative and greater than or 
equal to -1 (that is, between zero and -1), then E equals the absolute 
value of RVC. If RVC is negative and less than -1, then E equals 2 plus 
RVC.
    (ii) Under the variability-reduction method of measuring 
effectiveness:
[GRAPHIC] [TIFF OMITTED] TR07DE07.021

    (A) Xt = At - Bt;
    (B)At = the value at time t of one exposure in a hedge 
pair; and
    (C)Bt = the value at time t of the other exposure in a 
hedge pair.
    (iii) Under the regression method of measuring effectiveness, E 
equals the coefficient of determination of a regression in which the 
change in value of one exposure in a hedge pair is the dependent 
variable and the change in value of the other exposure in a hedge pair 
is the independent variable. However, if the estimated regression 
coefficient is positive, then the value of E is zero.
    (3) The effective portion of a hedge pair is E multiplied by the 
greater of the adjusted carrying values of the equity exposures forming 
a hedge pair.
    (4) The ineffective portion of a hedge pair is (1-E) multiplied by 
the greater of the adjusted carrying values of the equity exposures 
forming a hedge pair.

               Section 53. Internal Models Approach (IMA)

    (a) General. A savings association may calculate its risk-weighted 
asset amount for equity exposures using the IMA by modeling publicly 
traded and non-publicly traded equity exposures (in accordance with 
paragraph (c) of this section) or by modeling only publicly traded 
equity exposures (in accordance with paragraph (d) of this section).
    (b) Qualifying criteria. To qualify to use the IMA to calculate 
risk-based capital requirements for equity exposures, a savings 
association must receive prior written approval from the OTS. To receive 
such approval, the savings association must demonstrate to the OTS's 
satisfaction that the savings association meets the following criteria:
    (1) The savings association must have one or more models that:
    (i) Assess the potential decline in value of its modeled equity 
exposures;
    (ii) Are commensurate with the size, complexity, and composition of 
the savings association's modeled equity exposures; and
    (iii) Adequately capture both general market risk and idiosyncratic 
risk.
    (2) The savings association's model must produce an estimate of 
potential losses for its modeled equity exposures that is no less than 
the estimate of potential losses produced by a VaR methodology employing 
a 99.0 percent, one-tailed confidence interval of the distribution of 
quarterly returns for a benchmark portfolio of equity exposures 
comparable to the savings association's modeled equity exposures using a 
long-term sample period.
    (3) The number of risk factors and exposures in the sample and the 
data period used for quantification in the savings association's model 
and benchmarking exercise must be sufficient to provide confidence in 
the accuracy and robustness of the savings association's estimates.

[[Page 416]]

    (4) The savings association's model and benchmarking process must 
incorporate data that are relevant in representing the risk profile of 
the savings association's modeled equity exposures, and must include 
data from at least one equity market cycle containing adverse market 
movements relevant to the risk profile of the savings association's 
modeled equity exposures. In addition, the savings association's 
benchmarking exercise must be based on daily market prices for the 
benchmark portfolio. If the savings association's model uses a scenario 
methodology, the savings association must demonstrate that the model 
produces a conservative estimate of potential losses on the savings 
association's modeled equity exposures over a relevant long-term market 
cycle. If the savings association employs risk factor models, the 
savings association must demonstrate through empirical analysis the 
appropriateness of the risk factors used.
    (5) The savings association must be able to demonstrate, using 
theoretical arguments and empirical evidence, that any proxies used in 
the modeling process are comparable to the savings association's modeled 
equity exposures and that the savings association has made appropriate 
adjustments for differences. The savings association must derive any 
proxies for its modeled equity exposures and benchmark portfolio using 
historical market data that are relevant to the savings association's 
modeled equity exposures and benchmark portfolio (or, where not, must 
use appropriately adjusted data), and such proxies must be robust 
estimates of the risk of the savings association's modeled equity 
exposures.
    (c) Risk-weighted assets calculation for a savings association 
modeling publicly traded and non-publicly traded equity exposures. If a 
savings association models publicly traded and non-publicly traded 
equity exposures, the savings association's aggregate risk-weighted 
asset amount for its equity exposures is equal to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight under 
paragraphs (b)(1) through (b)(3)(i) of section 52 (as determined under 
section 52 of this appendix) and each equity exposure to an investment 
fund (as determined under section 54 of this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the savings association's 
equity exposures (other than equity exposures referenced in paragraph 
(c)(1) of this section) generated by the savings association's internal 
equity exposure model multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying value 
of the savings association's publicly traded equity exposures that do 
not belong to a hedge pair, do not qualify for a 0 percent, 20 percent, 
or 100 percent risk weight under paragraphs (b)(1) through (b)(3)(i) of 
section 52 of this appendix, and are not equity exposures to an 
investment fund;
    (B) 200 percent multiplied by the aggregate ineffective portion of 
all hedge pairs; and
    (C) 300 percent multiplied by the aggregate adjusted carrying value 
of the savings association's equity exposures that are not publicly 
traded, do not qualify for a 0 percent, 20 percent, or 100 percent risk 
weight under paragraphs (b)(1) through (b)(3)(i) of section 52 of this 
appendix, and are not equity exposures to an investment fund.
    (d) Risk-weighted assets calculation for a savings association using 
the IMA only for publicly traded equity exposures. If a savings 
association models only publicly traded equity exposures, the savings 
association's aggregate risk-weighted asset amount for its equity 
exposures is equal to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight under 
paragraphs (b)(1) through (b)(3)(i) of section 52 (as determined under 
section 52 of this appendix), each equity exposure that qualifies for a 
400 percent risk weight under paragraph (b)(5) of section 52 or a 600 
percent risk weight under paragraph (b)(6) of section 52 (as determined 
under section 52 of this appendix), and each equity exposure to an 
investment fund (as determined under section 54 of this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the savings association's 
equity exposures (other than equity exposures referenced in paragraph 
(d)(1) of this section) generated by the savings association's internal 
equity exposure model multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying value 
of the savings association's publicly traded equity exposures that do 
not belong to a hedge pair, do not qualify for a 0 percent, 20 percent, 
or 100 percent risk weight under paragraphs (b)(1) through (b)(3)(i) of 
section 52 of this appendix, and are not equity exposures to an 
investment fund; and
    (B) 200 percent multiplied by the aggregate ineffective portion of 
all hedge pairs.

            Section 54. Equity Exposures to Investment Funds

    (a) Available approaches. (1) Unless the exposure meets the 
requirements for a community development equity exposure in paragraph 
(b)(3)(i) of section 52 of this appendix, a savings association must 
determine the risk-weighted asset amount of an equity exposure to an 
investment fund under the Full Look-Through Approach in paragraph (b) of 
this section, the Simple Modified Look-Through Approach in paragraph (c) 
of this

[[Page 417]]

section, the Alternative Modified Look-Through Approach in paragraph (d) 
of this section, or, if the investment fund qualifies for the Money 
Market Fund Approach, the Money Market Fund Approach in paragraph (e) of 
this section.
    (2) The risk-weighted asset amount of an equity exposure to an 
investment fund that meets the requirements for a community development 
equity exposure in paragraph (b)(3)(i) of section 52 of this appendix is 
its adjusted carrying value.
    (3) If an equity exposure to an investment fund is part of a hedge 
pair and the savings association does not use the Full Look-Through 
Approach, the savings association may use the ineffective portion of the 
hedge pair as determined under paragraph (c) of section 52 of this 
appendix as the adjusted carrying value for the equity exposure to the 
investment fund. The risk-weighted asset amount of the effective portion 
of the hedge pair is equal to its adjusted carrying value.
    (b) Full Look-Through Approach. A savings association that is able 
to calculate a risk-weighted asset amount for its proportional ownership 
share of each exposure held by the investment fund (as calculated under 
this appendix as if the proportional ownership share of each exposure 
were held directly by the savings association) may either:
    (1) Set the risk-weighted asset amount of the savings association's 
exposure to the fund equal to the product of:
    (i) The aggregate risk-weighted asset amounts of the exposures held 
by the fund as if they were held directly by the savings association; 
and
    (ii) The savings association's proportional ownership share of the 
fund; or
    (2) Include the savings association's proportional ownership share 
of each exposure held by the fund in the savings association's IMA.
    (c) Simple Modified Look-Through Approach. Under this approach, the 
risk-weighted asset amount for a savings association's equity exposure 
to an investment fund equals the adjusted carrying value of the equity 
exposure multiplied by the highest risk weight in Table 10 that applies 
to any exposure the fund is permitted to hold under its prospectus, 
partnership agreement, or similar contract that defines the fund's 
permissible investments (excluding derivative contracts that are used 
for hedging rather than speculative purposes and that do not constitute 
a material portion of the fund's exposures).

   Table 10--Modified Look-Through Approaches for Equity Exposures to
                            Investment Funds
------------------------------------------------------------------------
               Risk weight                         Exposure class
------------------------------------------------------------------------
0 percent................................  Sovereign exposures with a
                                            long-term applicable
                                            external rating in the
                                            highest investment-grade
                                            rating category and
                                            sovereign exposures of the
                                            United States.
20 percent...............................  Non-sovereign exposures with
                                            a long-term applicable
                                            external rating in the
                                            highest or second-highest
                                            investment-grade rating
                                            category; exposures with a
                                            short-term applicable
                                            external rating in the
                                            highest investment-grade
                                            rating category; and
                                            exposures to, or guaranteed
                                            by, depository institutions,
                                            foreign banks (as defined in
                                            12 CFR 211.2), or securities
                                            firms subject to
                                            consolidated supervision and
                                            regulation comparable to
                                            that imposed on U.S.
                                            securities broker-dealers
                                            that are repo-style
                                            transactions or bankers'
                                            acceptances.
50 percent...............................  Exposures with a long-term
                                            applicable external rating
                                            in the third-highest
                                            investment-grade rating
                                            category or a short-term
                                            applicable external rating
                                            in the second-highest
                                            investment-grade rating
                                            category.
100 percent..............................  Exposures with a long-term or
                                            short-term applicable
                                            external rating in the
                                            lowest investment-grade
                                            rating category.
200 percent..............................  Exposures with a long-term
                                            applicable external rating
                                            one rating category below
                                            investment grade.
300 percent..............................  Publicly traded equity
                                            exposures.
400 percent..............................  Non-publicly traded equity
                                            exposures; exposures with a
                                            long-term applicable
                                            external rating two rating
                                            categories or more below
                                            investment grade; and
                                            exposures without an
                                            external rating (excluding
                                            publicly traded equity
                                            exposures).
1,250 percent............................  OTC derivative contracts and
                                            exposures that must be
                                            deducted from regulatory
                                            capital or receive a risk
                                            weight greater than 400
                                            percent under this appendix.
------------------------------------------------------------------------

    (d) Alternative Modified Look-Through Approach. Under this approach, 
a savings association may assign the adjusted carrying value of an 
equity exposure to an investment fund on a pro rata basis to different 
risk weight categories in Table 10 based on the investment limits in the 
fund's prospectus, partnership agreement, or similar contract that 
defines the fund's permissible investments. The risk-weighted asset 
amount for the savings association's equity exposure to the investment 
fund equals the sum of each portion of the adjusted carrying value 
assigned to an exposure class multiplied by the applicable risk weight. 
If the sum of the investment limits for exposure classes within the fund 
exceeds 100 percent, the savings association must assume that the fund 
invests to the maximum extent permitted under its investment limits in 
the exposure class with the highest risk weight under Table 10, and 
continues to make investments in order of

[[Page 418]]

the exposure class with the next highest risk weight under Table 10 
until the maximum total investment level is reached. If more than one 
exposure class applies to an exposure, the savings association must use 
the highest applicable risk weight. A savings association may exclude 
derivative contracts held by the fund that are used for hedging rather 
than for speculative purposes and do not constitute a material portion 
of the fund's exposures.
    (e) Money Market Fund Approach. The risk-weighted asset amount for a 
savings association's equity exposure to an investment fund that is a 
money market fund subject to 17 CFR 270.2a-7 and that has an applicable 
external rating in the highest investment-grade rating category equals 
the adjusted carrying value of the equity exposure multiplied by 7 
percent.

                 Section 55. Equity Derivative Contracts

    Under the IMA, in addition to holding risk-based capital against an 
equity derivative contract under this part, a savings association must 
hold risk-based capital against the counterparty credit risk in the 
equity derivative contract by also treating the equity derivative 
contract as a wholesale exposure and computing a supplemental risk-
weighted asset amount for the contract under part IV. Under the SRWA, a 
savings association may choose not to hold risk-based capital against 
the counterparty credit risk of equity derivative contracts, as long as 
it does so for all such contracts. Where the equity derivative contracts 
are subject to a qualified master netting agreement, a savings 
association using the SRWA must either include all or exclude all of the 
contracts from any measure used to determine counterparty credit risk 
exposure.

           Part VII. Risk-Weighted Assets for Operational Risk

Section 61. Qualification Requirements for Incorporation of Operational 
                             Risk Mitigants

    (a) Qualification to use operational risk mitigants. A savings 
association may adjust its estimate of operational risk exposure to 
reflect qualifying operational risk mitigants if:
    (1) The savings association's operational risk quantification system 
is able to generate an estimate of the savings association's operational 
risk exposure (which does not incorporate qualifying operational risk 
mitigants) and an estimate of the savings association's operational risk 
exposure adjusted to incorporate qualifying operational risk mitigants; 
and
    (2) The savings association's methodology for incorporating the 
effects of insurance, if the savings association uses insurance as an 
operational risk mitigant, captures through appropriate discounts to the 
amount of risk mitigation:
    (i) The residual term of the policy, where less than one year;
    (ii) The cancellation terms of the policy, where less than one year;
    (iii) The policy's timeliness of payment;
    (iv) The uncertainty of payment by the provider of the policy; and
    (v) Mismatches in coverage between the policy and the hedged 
operational loss event.
    (b) Qualifying operational risk mitigants. Qualifying operational 
risk mitigants are:
    (1) Insurance that:
    (i) Is provided by an unaffiliated company that has a claims payment 
ability that is rated in one of the three highest rating categories by a 
NRSRO;
    (ii) Has an initial term of at least one year and a residual term of 
more than 90 days;
    (iii) Has a minimum notice period for cancellation by the provider 
of 90 days;
    (iv) Has no exclusions or limitations based upon regulatory action 
or for the receiver or liquidator of a failed depository institution; 
and
    (v) Is explicitly mapped to a potential operational loss event; and
    (2) Operational risk mitigants other than insurance for which the 
OTS has given prior written approval. In evaluating an operational risk 
mitigant other than insurance, the OTS will consider whether the 
operational risk mitigant covers potential operational losses in a 
manner equivalent to holding regulatory capital.

        Section 62. Mechanics of Risk-Weighted Asset Calculation

    (a) If a savings association does not qualify to use or does not 
have qualifying operational risk mitigants, the savings association's 
dollar risk-based capital requirement for operational risk is its 
operational risk exposure minus eligible operational risk offsets (if 
any).
    (b) If a savings association qualifies to use operational risk 
mitigants and has qualifying operational risk mitigants, the savings 
association's dollar risk-based capital requirement for operational risk 
is the greater of:
    (1) The savings association's operational risk exposure adjusted for 
qualifying operational risk mitigants minus eligible operational risk 
offsets (if any); or
    (2) 0.8 multiplied by the difference between:
    (i) The savings association's operational risk exposure; and
    (ii) Eligible operational risk offsets (if any).
    (c) The savings association's risk-weighted asset amount for 
operational risk equals the

[[Page 419]]

savings association's dollar risk-based capital requirement for 
operational risk determined under paragraph (a) or (b) of this section 
multiplied by 12.5.

                          Part VIII. Disclosure

                   Section 71. Disclosure Requirements

    (a) Each savings association must publicly disclose each quarter its 
total and tier 1 risk-based capital ratios and their components (that 
is, tier 1 capital, tier 2 capital, total qualifying capital, and total 
risk-weighted assets). \4\
---------------------------------------------------------------------------

    \4\ Other public disclosure requirements continue to apply--for 
example, Federal securities law and regulatory reporting requirements.
---------------------------------------------------------------------------

    (b) A savings association must comply with paragraph (c) of section 
71 of this appendix unless it is a consolidated subsidiary of a 
depository institution or bank holding company that is subject to these 
requirements.
    (c)(1) Each consolidated savings association described in paragraph 
(b) of this section that is not a subsidiary of a non-U.S. banking 
organization that is subject to comparable public disclosure 
requirements in its home jurisdiction and has successfully completed its 
parallel run must provide timely public disclosures each calendar 
quarter of the information in tables 11.1-11.11 below. If a significant 
change occurs, such that the most recent reported amounts are no longer 
reflective of the savings association's capital adequacy and risk 
profile, then a brief discussion of this change and its likely impact 
must be provided as soon as practicable thereafter. Qualitative 
disclosures that typically do not change each quarter (for example, a 
general summary of the savings association's risk management objectives 
and policies, reporting system, and definitions) may be disclosed 
annually, provided any significant changes to these are disclosed in the 
interim. Management is encouraged to provide all of the disclosures 
required by this appendix in one place on the savings association's 
public Web site. \5\ The savings association must make these disclosures 
publicly available for each of the last three years (twelve quarters) or 
such shorter period since it began its first floor period.
---------------------------------------------------------------------------

    \5\ Alternatively, a savings association may provide the disclosures 
in more than one place, as some of them may be included in public 
financial reports (for example, in Management's Discussion and Analysis 
included in SEC filings) or other regulatory reports. The savings 
association must provide a summary table on its public Web site that 
specifically indicates where all the disclosures may be found (for 
example, regulatory report schedules, page numbers in annual reports).
---------------------------------------------------------------------------

    (2) Each savings association is required to have a formal disclosure 
policy approved by the board of directors that addresses its approach 
for determining the disclosures it makes. The policy must address the 
associated internal controls and disclosure controls and procedures. The 
board of directors and senior management are responsible for 
establishing and maintaining an effective internal control structure 
over financial reporting, including the disclosures required by this 
appendix, and must ensure that appropriate review of the disclosures 
takes place. One or more senior officers of the savings association must 
attest that the disclosures required by this appendix meet the 
requirements of this appendix.
    (3) If a savings association believes that disclosure of specific 
commercial or financial information would prejudice seriously its 
position by making public information that is either proprietary or 
confidential in nature, the savings association need not disclose those 
specific items, but must disclose more general information about the 
subject matter of the requirement, together with the fact that, and the 
reason why, the specific items of information have not been disclosed.

                    Table 11.1--Scope of Application
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The name of the top corporate
                                     entity in the group to which the
                                     appendix applies.
                                    (b) An outline of differences in the
                                     basis of consolidation for
                                     accounting and regulatory purposes,
                                     with a brief description of the
                                     entities \6\ within the group that
                                     are fully consolidated; that are
                                     deconsolidated and deducted; for
                                     which the regulatory capital
                                     requirement is deducted; and that
                                     are neither consolidated nor
                                     deducted (for example, where the
                                     investment is risk-weighted).
                                    (c) Any restrictions, or other major
                                     impediments, on transfer of funds
                                     or regulatory capital within the
                                     group.
Quantitative Disclosures..........  (d) The aggregate amount of surplus
                                     capital of insurance subsidiaries
                                     (whether deducted or subjected to
                                     an alternative method) included in
                                     the regulatory capital of the
                                     consolidated group.

[[Page 420]]

 
                                    (e) The aggregate amount by which
                                     actual regulatory capital is less
                                     than the minimum regulatory capital
                                     requirement in all subsidiaries
                                     with regulatory capital
                                     requirements and the name(s) of the
                                     subsidiaries with such
                                     deficiencies.
------------------------------------------------------------------------
\6\ Entities include securities, insurance and other financial
  subsidiaries, commercial subsidiaries (where permitted), and
  significant minority equity investments in insurance, financial and
  commercial entities.


                      Table 11.2--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) Summary information on the terms
                                     and conditions of the main features
                                     of all capital instruments,
                                     especially in the case of
                                     innovative, complex or hybrid
                                     capital instruments.
Quantitative Disclosures..........  (b) The amount of tier 1 capital,
                                     with separate disclosure of:
                                       Common stock/
                                       surplus;
                                       Retained
                                       earnings;
                                       Minority
                                       interests in the equity of
                                       subsidiaries;
                                       Regulatory
                                       calculation differences deducted
                                       from tier 1 capital;thnsp;\7\ and
                                       Other amounts
                                       deducted from tier 1 capital,
                                       including goodwill and certain
                                       intangibles.
                                    (c) The total amount of tier 2
                                     capital.
                                    (d) Other deductions from capital.
                                     \8\
                                    (e) Total eligible capital.
------------------------------------------------------------------------
\7\ Representing 50 percent of the amount, if any, by which total
  expected credit losses as calculated within the IRB approach exceed
  eligible credit reserves, which must be deducted from tier 1 capital.
\8\ Including 50 percent of the amount, if any, by which total expected
  credit losses as calculated within the IRB approach exceed eligible
  credit reserves, which must be deducted from tier 2 capital.


                      Table 11.3--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures...........  (a) A summary discussion of the
                                     savings association's approach to
                                     assessing the adequacy of its
                                     capital to support current and
                                     future activities.
Quantitative disclosures..........  (b) Risk-weighted assets for credit
                                     risk from:
                                       Wholesale
                                       exposures;
                                       Residential
                                       mortgage exposures;
                                       Qualifying
                                       revolving exposures;
                                       Other retail
                                       exposures;
                                       Securitization
                                       exposures;
                                       Equity
                                       exposures
                                         Equity
                                         exposures subject to the simple
                                         risk weight approach; and
                                         Equity
                                         exposures subject to the
                                         internal models approach.
                                    (c) Risk-weighted assets for market
                                     risk as calculated under any
                                     applicable market risk rule: \9\
                                       Standardized
                                       approach for specific risk; and
                                       Internal models
                                       approach for specific risk.
                                    (d) Risk-weighted assets for
                                     operational risk.
                                    (e) Total and tier 1 risk-based
                                     capital ratios: \10\
                                       For the top
                                       consolidated group; and
                                       For each DI
                                       subsidiary.
------------------------------------------------------------------------
\9\ Risk-weighted assets determined under any applicable market risk
  rule are to be disclosed only for the approaches used.
\10\ Total risk-weighted assets should also be disclosed.

               General qualitative disclosure requirement

    For each separate risk area described in tables 11.4 through 11.11, 
the savings association must describe its risk management objectives and 
policies, including:
     strategies and processes;
     the structure and organization of the relevant 
risk management function;
     the scope and nature of risk reporting and/or 
measurement systems;
     policies for hedging and/or mitigating risk and 
strategies and processes for monitoring the continuing effectiveness of 
hedges/mitigants.

[[Page 421]]



            Table 11.4 \11\--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to credit risk (excluding
                                     counterparty credit risk disclosed
                                     in accordance with Table 11.6),
                                     including:
                                       Definitions of
                                       past due and impaired (for
                                       accounting purposes);
                                       Description of
                                       approaches followed for
                                       allowances, including statistical
                                       methods used where applicable;
                                       and
                                       Discussion of
                                       the savings association's credit
                                       risk management policy.
Quantitative Disclosures..........  (b) Total credit risk exposures and
                                     average credit risk exposures,
                                     after accounting offsets in
                                     accordance with GAAP, \12\ and
                                     without taking into account the
                                     effects of credit risk mitigation
                                     techniques (for example, collateral
                                     and netting), over the period
                                     broken down by major types of
                                     credit exposure. \13\
                                    (c) Geographic \14\ distribution of
                                     exposures, broken down in
                                     significant areas by major types of
                                     credit exposure.
                                    (d) Industry or counterparty type
                                     distribution of exposures, broken
                                     down by major types of credit
                                     exposure.
                                    (e) Remaining contractual maturity
                                     breakdown (for example, one year or
                                     less) of the whole portfolio,
                                     broken down by major types of
                                     credit exposure.
                                    (f) By major industry or
                                     counterparty type:
                                       Amount of
                                       impaired loans;
                                       Amount of past
                                       due loans; \15\
                                       Allowances; and
                                       Charge-offs
                                       during the period.
                                    (g) Amount of impaired loans and, if
                                     available, the amount of past due
                                     loans broken down by significant
                                     geographic areas including, if
                                     practical, the amounts of
                                     allowances related to each
                                     geographical area. \16\
                                    (h) Reconciliation of changes in the
                                     allowance for loan and lease
                                     losses. \17\
------------------------------------------------------------------------
\11\ Table 4 does not include equity exposures.
\12\ For example, FASB Interpretations 39 and 41.
\13\ For example, savings associations could apply a breakdown similar
  to that used for accounting purposes.
Such a breakdown might, for instance, be (a) loans, off-balance sheet
  commitments, and other non-derivative off-balance sheet exposures, (b)
  debt securities, and (c) OTC derivatives.
\14\ Geographical areas may comprise individual countries, groups of
  countries, or regions within countries.
A savings association might choose to define the geographical areas
  based on the way the company's portfolio is geographically managed.
  The criteria used to allocate the loans to geographical areas must be
  specified.
\15\ A savings association is encouraged also to provide an analysis of
  the aging of past-due loans.
\16\ The portion of general allowance that is not allocated to a
  geographical area should be disclosed separately.
\17\ The reconciliation should include the following: a description of
  the allowance; the opening balance of the allowance; charge-offs taken
  against the allowance during the period; amounts provided (or
  reversed) for estimated probable loan losses during the period; any
  other adjustments (for example, exchange rate differences, business
  combinations, acquisitions and disposals of subsidiaries), including
  transfers between allowances; and the closing balance of the
  allowance. Charge-offs and recoveries that have been recorded directly
  to the income statement should be disclosed separately.


Table 11.5--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-
                         Based Capital Formulas
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures...........  (a) Explanation and review of the:
                                       Structure of
                                       internal rating systems and
                                       relation between internal and
                                       external ratings;
                                       Use of risk
                                       parameter estimates other than
                                       for regulatory capital purposes;
                                       Process for
                                       managing and recognizing credit
                                       risk mitigation (see table 11.7);
                                       and
                                       Control
                                       mechanisms for the rating system,
                                       including discussion of
                                       independence, accountability, and
                                       rating systems review.
                                    (b) Description of the internal
                                     ratings process, provided
                                     separately for the following:
                                       Wholesale
                                       category;
                                       Retail
                                       subcategories;
                                         Residential
                                         mortgage exposures;
                                         Qualifying
                                         revolving exposures; and
                                         Other retail
                                         exposures.
                                    For each category and subcategory
                                     the description should include:
                                       The types of
                                       exposure included in the category/
                                       subcategories; and
                                       The
                                       definitions, methods and data for
                                       estimation and validation of PD,
                                       LGD, and EAD, including
                                       assumptions employed in the
                                       derivation of these variables.
                                       \18\

[[Page 422]]

 
Quantitative disclosures: risk      (c) For wholesale exposures, present
 assessment.                         the following information across a
                                     sufficient number of PD grades
                                     (including default) to allow for a
                                     meaningful differentiation of
                                     credit risk: \19\
                                       Total EAD; \20\
                                       Exposure-
                                       weighted average LGD
                                       (percentage);
                                       Exposure-
                                       weighted average risk weight; and
                                       Amount of
                                       undrawn commitments and exposure-
                                       weighted average EAD for
                                       wholesale exposures.
                                    For each retail subcategory, present
                                     the disclosures outlined above
                                     across a sufficient number of
                                     segments to allow for a meaningful
                                     differentiation of credit risk.
Quantitative disclosures:           (d) Actual losses in the preceding
 historical results.                 period for each category and
                                     subcategory and how this differs
                                     from past experience. A discussion
                                     of the factors that impacted the
                                     loss experience in the preceding
                                     period--for example, has the
                                     savings association experienced
                                     higher than average default rates,
                                     loss rates or EADs.
                                    (e) Savings association's estimates
                                     compared against actual outcomes
                                     over a longer period. \21\ At a
                                     minimum, this should include
                                     information on estimates of losses
                                     against actual losses in the
                                     wholesale category and each retail
                                     subcategory over a period
                                     sufficient to allow for a
                                     meaningful assessment of the
                                     performance of the internal rating
                                     processes for each category/
                                     subcategory. \22\ Where
                                     appropriate, the savings
                                     association should further
                                     decompose this to provide analysis
                                     of PD, LGD, and EAD outcomes
                                     against estimates provided in the
                                     quantitative risk assessment
                                     disclosures above. \23\
------------------------------------------------------------------------
\18\ This disclosure does not require a detailed description of the
  model in full--it should provide the reader with a broad overview of
  the model approach, describing definitions of the variables and
  methods for estimating and validating those variables set out in the
  quantitative risk disclosures below. This should be done for each of
  the four category/subcategories. The savings association should
  disclose any significant differences in approach to estimating these
  variables within each category/subcategories.
\19\ The PD, LGD and EAD disclosures in Table 11.5(c) should reflect the
  effects of collateral, qualifying master netting agreements, eligible
  guarantees and eligible credit derivatives as defined in part I.
  Disclosure of each PD grade should include the exposure-weighted
  average PD for each grade. Where a savings association aggregates PD
  grades for the purposes of disclosure, this should be a representative
  breakdown of the distribution of PD grades used for regulatory capital
  purposes.
\20\ Outstanding loans and EAD on undrawn commitments can be presented
  on a combined basis for these disclosures.
\21\ These disclosures are a way of further informing the reader about
  the reliability of the information provided in the ``quantitative
  disclosures: risk assessment'' over the long run. The disclosures are
  requirements from year-end 2010; in the meantime, early adoption is
  encouraged. The phased implementation is to allow a savings
  association sufficient time to build up a longer run of data that will
  make these disclosures meaningful.
\22\ This regulation is not prescriptive about the period used for this
  assessment. Upon implementation, it might be expected that a savings
  association would provide these disclosures for as long a run of data
  as possible--for example, if a savings association has 10 years of
  data, it might choose to disclose the average default rates for each
  PD grade over that 10-year period. Annual amounts need not be
  disclosed.
\23\ A savings association should provide this further decomposition
  where it will allow users greater insight into the reliability of the
  estimates provided in the ``quantitative disclosures: risk
  assessment.'' In particular, it should provide this information where
  there are material differences between its estimates of PD, LGD or EAD
  compared to actual outcomes over the long run. The savings association
  should also provide explanations for such differences.


   Table 11.6--General Disclosure for Counterparty Credit Risk of OTC
Derivative Contracts, Repo-Style Transactions, and Eligible Margin Loans
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to OTC derivatives, eligible margin
                                     loans, and repo-style transactions,
                                     including:
                                       Discussion of
                                       methodology used to assign
                                       economic capital and credit
                                       limits for counterparty credit
                                       exposures;
                                       Discussion of
                                       policies for securing collateral,
                                       valuing and managing collateral,
                                       and establishing credit reserves;
                                       Discussion of
                                       the primary types of collateral
                                       taken;
                                       Discussion of
                                       policies with respect to wrong-
                                       way risk exposures; and
                                       Discussion of
                                       the impact of the amount of
                                       collateral the savings
                                       association would have to provide
                                       if the savings association were
                                       to receive a credit rating
                                       downgrade.

[[Page 423]]

 
Quantitative Disclosures..........  (b) Gross positive fair value of
                                     contracts, netting benefits, netted
                                     current credit exposure, collateral
                                     held (including type, for example,
                                     cash, government securities), and
                                     net unsecured credit exposure. \24\
                                     Also report measures for EAD used
                                     for regulatory capital for these
                                     transactions, the notional value of
                                     credit derivative hedges purchased
                                     for counterparty credit risk
                                     protection, and, for savings
                                     associations not using the internal
                                     models methodology in section 32(d)
                                     of this appendix, the distribution
                                     of current credit exposure by types
                                     of credit exposure. \25\
                                    (c) Notional amount of purchased and
                                     sold credit derivatives, segregated
                                     between use for the savings
                                     association's own credit portfolio
                                     and for its intermediation
                                     activities, including the
                                     distribution of the credit
                                     derivative products used, broken
                                     down further by protection bought
                                     and sold within each product group.
                                    (d) The estimate of alpha if the
                                     savings association has received
                                     supervisory approval to estimate
                                     alpha.
------------------------------------------------------------------------
\24\ Net unsecured credit exposure is the credit exposure after
  considering the benefits from legally enforceable netting agreements
  and collateral arrangements, without taking into account haircuts for
  price volatility, liquidity, etc.
\25\ This may include interest rate derivative contracts, foreign
  exchange derivative contracts, equity derivative contracts, credit
  derivatives, commodity or other derivative contracts, repo-style
  transactions, and eligible margin loans.


              Table 11.7--Credit Risk Mitigation \26,27,28\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to credit risk mitigation
                                     including:
                                       Policies and
                                       processes for, and an indication
                                       of the extent to which the
                                       savings association uses, on- and
                                       off-balance sheet netting;
                                       Policies and
                                       processes for collateral
                                       valuation and management;
                                       A description
                                       of the main types of collateral
                                       taken by the savings association;
                                       The main types
                                       of guarantors/credit derivative
                                       counterparties and their
                                       creditworthiness; and
                                       Information
                                       about (market or credit) risk
                                       concentrations within the
                                       mitigation taken.
Quantitative Disclosures..........  (b) For each separately disclosed
                                     portfolio, the total exposure
                                     (after, where applicable, on-or off-
                                     balance sheet netting) that is
                                     covered by guarantees/credit
                                     derivatives.
------------------------------------------------------------------------
\26\ At a minimum, a savings associagtion must provide the disclosures
  in Table 11.7 in relation to credit risk mitigation that has been
  recognized for the purposes of reducing capital requirements under
  this appendix. Where relevant, savings associations are encouraged to
  give further information about mitigants that have not been recognized
  for that purpose.
\27\ Credit derivatives that are treated, for the purposes of this
  appendix, as synthetic securitization exposures should be excluded
  from the credit risk mitigation disclosures and included within those
  relating to securitization.
\28\ Counterparty credit risk-related exposures disclosed pursuant to
  Table 11.6 should be excluded from the credit risk mitigation
  disclosures in Table 11.7.


                       Table 11.8--Securitization
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to securitization (including
                                     synthetics), including a discussion
                                     of:
                                       The savings
                                       association's objectives relating
                                       to securitization activity,
                                       including the extent to which
                                       these activities transfer credit
                                       risk of the underlying exposures
                                       away from the savings association
                                       to other entities;
                                       The roles
                                       played by the savings association
                                       in the securitization process
                                       \29\ and an indication of the
                                       extent of the savings
                                       association's involvement in each
                                       of them; and
                                       The regulatory
                                       capital approaches (for example,
                                       RBA, IAA and SFA) that the
                                       savings association follows for
                                       its securitization activities.
                                    (b) Summary of the savings
                                     association's accounting policies
                                     for securitization activities,
                                     including:
                                       Whether the
                                       transactions are treated as sales
                                       or financings;
                                       Recognition of
                                       gain-on-sale;
                                       Key assumptions
                                       for valuing retained interests,
                                       including any significant changes
                                       since the last reporting period
                                       and the impact of such changes;
                                       and
                                       Treatment of
                                       synthetic securitizations.

[[Page 424]]

 
                                    (c) Names of NRSROs used for
                                     securitizations and the types of
                                     securitization exposure for which
                                     each agency is used.
Quantitative Disclosures..........  (d) The total outstanding exposures
                                     securitized by the savings
                                     association in securitizations that
                                     meet the operational criteria in
                                     section 41 of this appendix (broken
                                     down into traditional/synthetic),
                                     by underlying exposure type. \30 31
                                     32\
                                    (e) For exposures securitized by the
                                     savings association in
                                     securitizations that meet the
                                     operational criteria in Section 41
                                     of this appendix:
                                       Amount of
                                       securitized assets that are
                                       impaired/past due; and
                                       Losses
                                       recognized by the savings
                                       association during the current
                                       period \33\ broken down by
                                       exposure type.
                                    (f) Aggregate amount of
                                     securitization exposures broken
                                     down by underlying exposure type.
                                    (g) Aggregate amount of
                                     securitization exposures and the
                                     associated IRB capital requirements
                                     for these exposures broken down
                                     into a meaningful number of risk
                                     weight bands. Exposures that have
                                     been deducted from capital should
                                     be disclosed separately by type of
                                     underlying asset.
                                    (h) For securitizations subject to
                                     the early amortization treatment,
                                     the following items by underlying
                                     asset type for securitized
                                     facilities:
                                       The aggregate
                                       drawn exposures attributed to the
                                       seller's and investors'
                                       interests; and
                                       The aggregate
                                       IRB capital charges incurred by
                                       the savings association against
                                       the investors' shares of drawn
                                       balances and undrawn lines.
                                    (i) Summary of current year's
                                     securitization activity, including
                                     the amount of exposures securitized
                                     (by exposure type), and recognized
                                     gain or loss on sale by asset type.
------------------------------------------------------------------------
\29\ For example: originator, investor, servicer, provider of credit
  enhancement, sponsor of asset backed commercial paper facility,
  liquidity provider, or swap provider.
\30\ Underlying exposure types may include, for example, one- to four-
  family residential loans, home equity lines, credit card receivables,
  and auto loans.
\31\ Securitization transactions in which the originating savings
  association does not retain any securitization exposure should be
  shown separately but need only be reported for the year of inception.
\32\ Where relevant, a savings association is encouraged to
  differentiate between exposures resulting from activities in which
  they act only as sponsors, and exposures that result from all other
  savings association securitization activities.
\33\ For example, charge-offs/allowances (if the assets remain on the
  savings association's balance sheet) or write-downs of I/O strips and
  other residual interests.


                      Table 11.9--Operational Risk
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement for
                                     operational risk.
                                    (b) Description of the AMA,
                                     including a discussion of relevant
                                     internal and external factors
                                     considered in the savings
                                     association's measurement approach.
                                    (c) A description of the use of
                                     insurance for the purpose of
                                     mitigating operational risk.
------------------------------------------------------------------------


          Table 11.10--Equities Not Subject to Market Risk Rule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to equity risk, including:
                                       Differentiation
                                       between holdings on which capital
                                       gains are expected and those held
                                       for other objectives, including
                                       for relationship and strategic
                                       reasons; and
                                       Discussion of
                                       important policies covering the
                                       valuation of and accounting for
                                       equity holdings in the banking
                                       book. This includes the
                                       accounting techniques and
                                       valuation methodologies used,
                                       including key assumptions and
                                       practices affecting valuation as
                                       well as significant changes in
                                       these practices.
Quantitative Disclosures..........  (b) Value disclosed in the balance
                                     sheet of investments, as well as
                                     the fair value of those
                                     investments; for quoted securities,
                                     a comparison to publicly-quoted
                                     share values where the share price
                                     is materially different from fair
                                     value.
                                    (c) The types and nature of
                                     investments, including the amount
                                     that is:
                                       Publicly
                                       traded; and
                                       Non-publicly
                                       traded.
                                    (d) The cumulative realized gains
                                     (losses) arising from sales and
                                     liquidations in the reporting
                                     period.

[[Page 425]]

 
                                      (e)  Total
                                       unrealized gains (losses) \34\
                                       Total latent
                                       revaluation gains (losses) \35\
                                       Any amounts of
                                       the above included in tier 1 and/
                                       or tier 2 capital.
                                    (f) Capital requirements broken down
                                     by appropriate equity groupings,
                                     consistent with the savings
                                     association's methodology, as well
                                     as the aggregate amounts and the
                                     type of equity investments subject
                                     to any supervisory transition
                                     regarding regulatory capital
                                     requirements. \36\
------------------------------------------------------------------------
\34\ Unrealized gains (losses) recognized in the balance sheet but not
  through earnings.
\35\ Unrealized gains (losses) not recognized either in the balance
  sheet or through earnings.
\36\ This disclosure should include a breakdown of equities that are
  subject to the 0 percent, 20 percent, 100 percent, 300 percent, 400
  percent, and 600 percent risk weights, as applicable.


       Table 11.11--Interest Rate Risk for Non-trading Activities
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement, including
                                     the nature of interest rate risk
                                     for non-trading activities and key
                                     assumptions, including assumptions
                                     regarding loan prepayments and
                                     behavior of non-maturity deposits,
                                     and frequency of measurement of
                                     interest rate risk for non-trading
                                     activities.
Quantitative Disclosures..........  (b) The increase (decline) in
                                     earnings or economic value (or
                                     relevant measure used by
                                     management) for upward and downward
                                     rate shocks according to
                                     management's method for measuring
                                     interest rate risk for non-trading
                                     activities, broken down by currency
                                     (as appropriate).
------------------------------------------------------------------------


[72 FR 69396, 69439, Dec. 7, 2007; 73 FR 21690, Apr. 22, 2008]



PART 568_SECURITY PROCEDURES--Table of Contents




Sec.
568.1 Authority, purpose, and scope.
568.2 Designation of security officer.
568.3 Security program.
568.4 Report.
568.5 Protection of customer information.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 1881-
1884; 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 and 6805(b)(1).

    Source: 56 FR 29566, June 28, 1991, unless otherwise noted.



Sec. 568.1  Authority, purpose, and scope.

    (a) This part is issued by the Office of Thrift Supervision (OTS) 
under section 3 of the Bank Protection Act of 1968 (12 U.S.C 1882), 
sections 501 and 505(b)(1) of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 
and 6805(b)(1)), and sections 621 and 628 of the Fair Credit Reporting 
Act (15 U.S.C. 1681s and 1681w). This part is applicable to savings 
associations. It requires each savings association to adopt appropriate 
security procedures to discourage robberies, burglaries, and larcenies 
and to assist in the identification and prosecution of persons who 
commit such acts. Section 568.5 of this part is applicable to savings 
associations and their subsidiaries (except brokers, dealers, persons 
providing insurance, investment companies, and investment advisers). 
Section 568.5 of this part requires covered institutions to establish 
and implement appropriate administrative, technical, and physical 
safeguards to protect the security, confidentiality, and integrity of 
customer information.
    (b) It is the responsibility of an association's board of directors 
to comply with this regulation and ensure that a written security 
program for the association's main office and branches is developed and 
implemented.

[56 FR 29566, June 28, 1991, as amended at 66 FR 8639, Feb. 1, 2001; 69 
FR 77620, Dec. 28, 2004]



Sec. 568.2  Designation of security officer.

    Within 30 days after the effective date of insurance of accounts, 
the board of directors of each savings association shall designate a 
security officer who shall have the authority, subject to the approval 
of the board of directors, to develop, within a reasonable time but no 
later than 180 days, and to administer a written security program for 
each of the association's offices.



Sec. 568.3  Security program.

    (a) Contents of security program. The security program shall:

[[Page 426]]

    (1) Establish procedures for opening and closing for business and 
for the safekeeping of all currency, negotiable securities, and similar 
valuables at all times;
    (2) Establish procedures that will assist in identifying persons 
committing crimes against the association and that will preserve 
evidence that may aid in their identification and prosecution. Such 
procedures may include, but are not limited to:
    (i) Maintaining a camera that records activity in the office;
    (ii) Using identification devices, such as prerecorded serial-
numbered bills, or chemical and electronic devices; and
    (iii) Retaining a record of any robbery, burglary, or larceny 
committed against the association;
    (3) Provide for initial and periodic training of officers and 
employees in their responsibilities under the security program and in 
proper employee conduct during and after a burglary, robbery, or 
larceny; and
    (4) Provide for selecting, testing, operating and maintaining 
appropriate security devices, as specified in paragraph (b) of this 
section.
    (b) Security devices. Each savings association shall have, at a 
minimum, the following security devices:
    (1) A means of protecting cash and other liquid assets, such as a 
vault, safe, or other secure space;
    (2) A lighting system for illuminating, during the hours of 
darkness, the area around the vault, if the vault is visible from 
outside the office;
    (3) Tamper-resistent locks on exterior doors and exterior windows 
that may be opened;
    (4) An alarm system or other appropriate device for promptly 
notifying the nearest responsible law enforcement officers of an 
attempted or perpetrated robbery or burglary; and
    (5) Such other devices as the security officer determines to be 
appropriate, taking into consideration:
    (i) The incidence of crimes against financial institutions in the 
area;
    (ii) The amount of currency and other valuables exposed to robbery, 
burglary, or larceny;
    (iii) The distance of the office from the nearest responsible law 
enforcement officers;
    (iv) The cost of the security devices;
    (v) Other security measures in effect at the office; and
    (vi) The physical characteristics of the structure of the office and 
its surroundings.



Sec. 568.4  Report.

    The security officer for each savings association shall report at 
least annually to the association's board of directors on the 
implementation, administration, and effectiveness of the security 
program.



Sec. 568.5  Protection of customer information.

    Savings associations and their subsidiaries (except brokers, 
dealers, persons providing insurance, investment companies, and 
investment advisers) must comply with the Interagency Guidelines 
Establishing Information Security Standards set forth in appendix B to 
part 570 of this chapter. Supplement A to appendix B to part 570 of this 
chapter provides interpretive guidance.

[70 FR 32229, June 2, 2005]



PART 569_PROXIES--Table of Contents




Sec.
569.1 Definitions.
569.2 Form of proxies.
569.3 Holders of proxies.
569.4 Proxy soliciting material.

    Authority: Sec. 2, 48 Stat. 128, as amended (12 U.S.C. 1462); sec. 
3, as added by sec. 301, 103 Stat. 278 (12 U.S.C. 1462a); sec. 4, as 
added by sec. 301, 103 Stat. 280 (12 U.S.C. 1463).

    Source: 54 FR 49665, Nov. 30, 1989, unless otherwise noted.



Sec. 569.1  Definitions.

    As used in this part:
    (a) Security holder. The term security holder means any person 
having the right to vote in the affairs of a savings association by 
virtue of:
    (1) Ownership of any security of the association or
    (2) Any indebtedness to the association.

For purposes of this part, the term security holder shall include any 
account holder having the right to vote in the affairs of a mutual 
savings association.

[[Page 427]]

    (b) Person. The term person includes, in addition to natural 
persons, corporations, partnerships, pension funds, profit-sharing 
funds, trusts, and any other group of associated persons of whatever 
nature.
    (c) Proxy. The term proxy includes every form of authorization by 
which a person is, or may be deemed to be, designated to act for the 
security holder in the exercise of his or her voting rights in the 
affairs of a savings association. Such an authorization may take the 
form of failure to dissent or object.
    (d) Solicit; solicitation. The terms solicit and solicitation refer 
to:
    (1) Any request for a proxy whether or not accompanied by or 
included in a form of proxy;
    (2) Any request to execute, not execute, or revoke a proxy; or
    (3) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding, or revocation of a proxy.

The terms do not apply, however, to the furnishing of a form of proxy to 
a security holder upon the request of such security holder or to the 
performance by any person of ministerial acts on behalf of a person 
soliciting a proxy.



Sec. 569.2  Form of proxies.

    Every form of proxy shall conform to the following requirements:
    (a) The proxy shall be revocable at will by the person giving it. 
The power to revoke may not be conditioned on any event or occurrence or 
be otherwise limited; except that, in the case of a proxy relating to 
capital stock if such proxy is coupled with an interest, states such 
fact on its face, and is valid under the laws of the State in which it 
is to be exercised, such proxy may be made irrevocable to the extent 
permitted by such State law.
    (b) The proxy may not be part of any other document or instrument 
(such as an account card).
    (c) The proxy shall be clearly labeled ``Revocable Proxy'' in 
boldface type (at least as large as 18 point).



Sec. 569.3  Holders of proxies.

    No proxy of a mutual savings association with a term greater than 
eleven months or solicited at the expense of the association may 
designate as holder anyone other than the board of directors [trustees] 
as a whole, or a committee appointed by a majority of such board.



Sec. 569.4  Proxy soliciting material.

    No solicitation of a proxy shall be made by means of any statement, 
form of proxy, notice of meeting, or other communication, written or 
oral, which:
    (a) Solicits any undated or postdated proxy;
    (b) Solicits any proxy that provides that it shall be deemed to be 
dated as of any date subsequent to the date on which it is signed by the 
security holder; or
    (c)(1) Contains any statement that is false or misleading with 
respect to any material fact, or
    (2) Omits to state any material fact:
    (i) Necessary in order to make the statements therein not false or 
misleading or
    (ii) Necessary to correct any statement in any earlier communication 
with respect to the solicitation of a proxy for the same meeting or 
subject matter that has subsequently become false or misleading.



PART 570_SAFETY AND SOUNDNESS GUIDELINES AND COMPLIANCE PROCEDURES--
Table of Contents




Sec.
570.1 Authority, purpose, scope and preservation of existing authority.
570.2 Determination and notification of failure to meet safety and 
          soundness standards and request for compliance plan.
570.3 Filing of safety and soundness compliance plan.
570.4 Issuance of orders to correct deficiencies and to take or refrain 
          from taking other actions.
570.5 Enforcement of orders.

Appendix A to Part 570--Interagency Guidelines Establishing Standards 
          for Safety and Soundness
Appendix B to Part 570--Interagency Guidelines Establishing Information 
          Security Standards


[[Page 428]]


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 1881-
1884; 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 and 6805(b)(1).

    Source: 60 FR 35686, July 10, 1995, unless otherwise noted.



Sec. 570.1  Authority, purpose, scope and preservation of existing authority.

    (a) Authority. This part and the Guidelines in Appendices A and B to 
this part are issued by the OTS under section 39 (section 39) of the 
Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1) as added by 
section 132 of the Federal Deposit Insurance Corporation Improvement Act 
of 1991 (FDICIA) (Pub. L. 102-242, 105 Stat. 2236 (1991)), and as 
amended by section 956 of the Housing and Community Development Act of 
1992 (Pub. L. 102-550, 106 Stat. 3895 (1992)), and as amended by section 
318 of the Community Development Banking Act of 1994 (Pub. L. 103-325, 
108 Stat. 2160 (1994)). Appendix B to this part is further issued under 
sections 501(b) and 505 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 
113 Stat. 1338 (1999)).
    (b) Purpose. Section 39 of the FDI Act requires the OTS to establish 
safety and soundness standards. Pursuant to section 39, a savings 
association may be required to submit a compliance plan if it is not in 
compliance with a safety and soundness standard established by guideline 
under section 39 (a) or (b). An enforceable order under section 8 of the 
FDI Act may be issued if, after being notified that it is in violation 
of a safety and soundness standard prescribed under section 39, the 
savings association fails to submit an acceptable compliance plan or 
fails in any material respect to implement an accepted plan. This part 
establishes procedures for submission and review of safety and soundness 
compliance plans and for issuance and review of orders pursuant to 
section 39. Interagency Guidelines Establishing Standards for Safety and 
Soundness pursuant to section 39 of the FDI Act are set forth in 
Appendix A to this part. Interagency Guidelines Establishing Information 
Security Standards are set forth in appendix B to this part.
    (c) Scope. This part and the Interagency Guidelines Establishing 
Standards for Safety and Soundness as set forth at appendix A to this 
part and the Interagency Guidelines Establishing Information Security 
Standards at appendix B to this part implement the provisions of section 
39 of the FDI Act as they apply to savings associations.
    (d) Preservation of existing authority. Neither section 39 of the 
FDI Act nor this part in any way limits the authority of the OTS under 
any other provision of law to take supervisory actions to address unsafe 
or unsound practices, violations of law, unsafe or unsound conditions, 
or other practices. Action under section 39 and this part may be taken 
independently of, in conjunction with, or in addition to any other 
enforcement action available to the OTS.

[60 FR 35686, July 10, 1995, as amended at 63 FR 55488, Oct. 15, 1998; 
64 FR 66708, Nov. 29, 1999; 66 FR 8639, Feb. 1, 2001; 69 FR 76603, Dec. 
22, 2004; 69 FR 77620, Dec. 28, 2004]



Sec. 570.2  Determination and notification of failure to meet safety 
and soundness standards and request for compliance plan.

    (a) Determination. OTS may, based upon an examination, inspection, 
or any other information that becomes available to OTS, determine that a 
savings association has failed to satisfy the safety and soundness 
standards contained in the Interagency Guidelines Establishing Standards 
for Safety and Soundness as set forth in appendix A to this part or the 
Interagency Guidelines Establishing Information Security Standards as 
set forth in appendix B to this part.
    (b) Request for compliance plan. If the OTS determines that a 
savings association has failed to meet a safety and soundness standard 
pursuant to paragraph (a) of this section, the OTS may request by letter 
or through a report of examination, the submission of a compliance plan. 
The savings association shall be deemed to have notice of the request 
three days after mailing or delivery of the letter or report of 
examination by the OTS.

[60 FR 35686, July 10, 1995, as amended at 63 FR 55489, Oct. 15, 1998; 
66 FR 8639, Feb. 1, 2001; 69 FR 77620, Dec. 28, 2004]

[[Page 429]]



Sec. 570.3  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A savings 
association shall file a written safety and soundness compliance plan 
with the OTS within 30 days of receiving a request for a compliance plan 
pursuant to Sec. 570.2(b), unless the OTS notifies the savings 
association in writing that the plan is to be filed within a different 
period.
    (2) Other plans. If a savings association is obligated to file, or 
is currently operating under, a capital restoration plan submitted 
pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act, a formal 
or informal agreement, or a response to a report of examination, it may, 
with the permission of the OTS, submit a compliance plan under this 
section as part of that plan, order, agreement, or response, subject to 
the deadline provided in paragraph (a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the savings association will take to correct 
the deficiency and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the OTS shall provide written notice to the savings association 
of whether the plan has been approved or seek additional information 
from the savings association regarding the plan. The OTS may extend the 
time within which notice regarding approval of a plan will be provided.
    (d) Failure to submit or implement a compliance plan. If a savings 
association fails to submit an acceptable plan within the time specified 
by the OTS or fails in any material respect to implement a compliance 
plan, then the OTS shall, by order, require the savings association to 
correct the deficiency and may take further actions provided in section 
39(e)(2)(B) of the FDI Act. Pursuant to section 39(e)(3), the OTS may be 
required to take certain actions if the savings association commenced 
operations or experienced a change in control within the previous 24-
month period, or the savings association experienced extraordinary 
growth during the previous 18-month period.
    (e) Amendment of compliance plan. A savings association that has 
filed an approved compliance plan may, after prior written notice to and 
approval by the OTS, amend the plan to reflect a change in circumstance. 
Until such time as a proposed amendment has been approved, the savings 
association shall implement the compliance plan as previously approved.



Sec. 570.4  Issuance of orders to correct deficiencies and to take 
or refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The OTS shall 
provide a savings association prior written notice of the OTS's 
intention to issue an order requiring the savings association to correct 
a safety and soundness deficiency or to take or refrain from taking 
other actions pursuant to section 39 of the FDI Act. The savings 
association shall have such time to respond to a proposed order as 
provided by the OTS under paragraph (c) of this section.
    (2) Immediate issuance of final order. If the OTS finds it necessary 
in order to carry out the purposes of section 39 of the FDI Act, the OTS 
may, without providing the notice prescribed in paragraph (a)(1) of this 
section, issue an order requiring a savings association immediately to 
take actions to correct a safety and soundness deficiency or to take or 
refrain from taking other actions pursuant to section 39. A savings 
association that is subject to such an immediately effective order may 
submit a written appeal of the order to the OTS. Such an appeal must be 
received by the OTS within 14 calendar days of the issuance of the 
order, unless the OTS permits a longer period. The OTS shall consider 
any such appeal, if filed in a timely manner, within 60 days of 
receiving the appeal. During such period of review, the order shall 
remain in effect unless the OTS, in its sole discretion, stays the 
effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies

[[Page 430]]

that have been identified at the savings association;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the OTS proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required action; 
and
    (4) The date by which the savings association subject to the order 
may file with the OTS a written response to the notice.
    (c) Response to notice--(1) Time for response. A savings association 
may file a written response to a notice of intent to issue an order 
within the time period set by the OTS. Such a response must be received 
by the OTS within 14 calendar days from the date of the notice unless 
the OTS determines that a different period is appropriate in light of 
the safety and soundness of the savings association or other relevant 
circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the OTS is not an 
appropriate exercise of discretion under section 39 of the FDI Act;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association regarding the proposed order.
    (d) OTS consideration of response. After considering the response, 
the OTS may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the savings 
association; or
    (3) Seek additional information or clarification of the response 
from the savings association, or any other relevant source.
    (e) Failure to file response. Failure by a savings association to 
file with the OTS, within the specified time period, a written response 
to a proposed order shall constitute a waiver of the opportunity to 
respond and shall constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any savings 
association that is subject to an order under this subpart may, upon a 
change in circumstances, request in writing that the OTS reconsider the 
terms of the order, and may propose that the order be rescinded or 
modified. Unless otherwise ordered by the OTS, the order shall continue 
in place while such request is pending before the OTS.



Sec. 570.5  Enforcement of orders.

    (a) Judicial remedies. Whenever a savings association fails to 
comply with an order issued under section 39 of the FDI Act, the OTS may 
seek enforcement of the order in the appropriate United States district 
court pursuant to section 8(i)(1) of the FDI Act.
    (b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the OTS may assess a civil money penalty against any savings 
association that violates or otherwise fails to comply with any final 
order issued under section 39 and against any savings association-
affiliated party who participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OTS may seek enforcement 
of the provisions of section 39 of the FDI Act or this part through any 
other judicial or administrative proceeding authorized by law.



    Sec. Appendix A to Part 570--Interagency Guidelines Establishing 
                   Standards for Safety and Soundness

                             I. Introduction

    A. Preservation of existing authority.
    B. Definitions.

                II. Operational and Managerial Standards

    A. Internal controls and information systems.
    B. Internal audit system.
    C. Loan documentation.
    D. Credit underwriting.
    E. Interest rate exposure.
    F. Asset growth.
    G. Asset quality.
    H. Earnings.
    I. Compensation, fees and benefits.

[[Page 431]]

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
                                Practice

    A. Excessive compensation.
    B. Compensation leading to material financial loss.

                             I. Introduction

    i. Section 39 of the Federal Deposit Insurance Act \1\ (FDI Act) 
requires each Federal banking agency (collectively, the agencies) to 
establish certain safety and soundness standards by regulation or by 
guideline for all insured depository institutions. Under section 39, the 
agencies must establish three types of standards: (1) Operational and 
managerial standards; (2) compensation standards; and (3) such standards 
relating to asset quality, earnings, and stock valuation as they 
determine to be appropriate.
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    \1\ Section 39 of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1) was added by section 132 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA), Pub. L. 102-242, 105 Stat. 
2236 (1991), and amended by section 956 of the Housing and Community 
Development Act of 1992, Pub. L. 102-550, 106 Stat. 3895 (1992) and 
section 318 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (1994).
---------------------------------------------------------------------------

    ii. Section 39(a) requires the agencies to establish operational and 
managerial standards relating to: (1) Internal controls, information 
systems and internal audit systems, in accordance with section 36 of the 
FDI Act (12 U.S.C. 1831m); (2) loan documentation; (3) credit 
underwriting; (4) interest rate exposure; (5) asset growth; and (6) 
compensation, fees, and benefits, in accordance with subsection (c) of 
section 39. Section 39(b) requires the agencies to establish standards 
relating to asset quality, earnings, and stock valuation that the 
agencies determine to be appropriate.
    iii. Section 39(c) requires the agencies to establish standards 
prohibiting as an unsafe and unsound practice any compensatory 
arrangement that would provide any executive officer, employee, 
director, or principal shareholder of the institution with excessive 
compensation, fees or benefits and any compensatory arrangement that 
could lead to material financial loss to an institution. Section 39(c) 
also requires that the agencies establish standards that specify when 
compensation is excessive.
    iv. If an agency determines that an institution fails to meet any 
standard established by guideline under subsection (a) or (b) of section 
39, the agency may require the institution to submit to the agency an 
acceptable plan to achieve compliance with the standard. In the event 
that an institution fails to submit an acceptable plan within the time 
allowed by the agency or fails in any material respect to implement an 
accepted plan, the agency must, by order, require the institution to 
correct the deficiency. The agency may, and in some cases must, take 
other supervisory actions until the deficiency has been corrected.
    v. The agencies have adopted amendments to their rules and 
regulations to establish deadlines for submission and review of 
compliance plans. \2\
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    \2\ For the Office of the Comptroller of the Currency, these 
regulations appear at 12 CFR Part 30; for the Board of Governors of the 
Federal Reserve System, these regulations appear at 12 CFR Part 263; for 
the Federal Deposit Insurance Corporation, these regulations appear at 
12 CFR Part 308, subpart R, and for the Office of Thrift Supervision, 
these regulations appear at 12 CFR Part 570.
---------------------------------------------------------------------------

    vi. The following Guidelines set out the safety and soundness 
standards that the agencies use to identify and address problems at 
insured depository institutions before capital becomes impaired. The 
agencies believe that the standards adopted in these Guidelines serve 
this end without dictating how institutions must be managed and 
operated. These standards are designed to identify potential safety and 
soundness concerns and ensure that action is taken to address those 
concerns before they pose a risk to the Deposit Insurance Fund.

                  A. Preservation of Existing Authority

    Neither section 39 nor these Guidelines in any way limits the 
authority of the agencies to address unsafe or unsound practices, 
violations of law, unsafe or unsound conditions, or other practices. 
Action under section 39 and these Guidelines may be taken independently 
of, in conjunction with, or in addition to any other enforcement action 
available to the agencies. Nothing in these Guidelines limits the 
authority of the FDIC pursuant to section 38(i)(2)(F) of the FDI Act (12 
U.S.C. 1831(o)) and Part 325 of Title 12 of the Code of Federal 
Regulations.

                             B. Definitions

    1. In general. For purposes of these Guidelines, except as modified 
in the Guidelines or unless the context otherwise requires, the terms 
used have the same meanings as set forth in sections 3 and 39 of the FDI 
Act (12 U.S.C. 1813 and 1831p-1).
    2. Board of directors, in the case of a state-licensed insured 
branch of a foreign bank and in the case of a federal branch of a 
foreign bank, means the managing official in charge of the insured 
foreign branch.
    3. Compensation means all direct and indirect payments or benefits, 
both cash and non-cash, granted to or for the benefit of any executive 
officer, employee, director, or

[[Page 432]]

principal shareholder, including but not limited to payments or benefits 
derived from an employment contract, compensation or benefit agreement, 
fee arrangement, perquisite, stock option plan, postemployment benefit, 
or other compensatory arrangement.
    4. Director shall have the meaning described in 12 CFR 215.2(c). \3\
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    \3\ In applying these definitions for savings associations, pursuant 
to 12 U.S.C. 1464, savings associations shall use the terms ``savings 
association'' and ``insured savings association'' in place of the terms 
``member bank'' and ``insured bank''.
---------------------------------------------------------------------------

    5. Executive officer shall have the meaning described in 12 CFR 
215.2(d). \4\
---------------------------------------------------------------------------

    \4\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

    6. Principal shareholder shall have the meaning described in 12 CFR 
215.2(l). \5\
---------------------------------------------------------------------------

    \5\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

                II. Operational and Managerial Standards

    A. Internal controls and information systems. An institution should 
have internal controls and information systems that are appropriate to 
the size of the institution and the nature, scope and risk of its 
activities and that provide for:
    1. An organizational structure that establishes clear lines of 
authority and responsibility for monitoring adherence to established 
policies;
    2. Effective risk assessment;
    3. Timely and accurate financial, operational and regulatory 
reports;
    4. Adequate procedures to safeguard and manage assets; and
    5. Compliance with applicable laws and regulations.
    B. Internal audit system. An institution should have an internal 
audit system that is appropriate to the size of the institution and the 
nature and scope of its activities and that provides for:
    1. Adequate monitoring of the system of internal controls through an 
internal audit function. For an institution whose size, complexity or 
scope of operations does not warrant a full scale internal audit 
function, a system of independent reviews of key internal controls may 
be used;
    2. Independence and objectivity;
    3. Qualified persons;
    4. Adequate testing and review of information systems;
    5. Adequate documentation of tests and findings and any corrective 
actions;
    6. Verification and review of management actions to address material 
weaknesses; and
    7. Review by the institution's audit committee or board of directors 
of the effectiveness of the internal audit systems.
    C. Loan documentation. An institution should establish and maintain 
loan documentation practices that:
    1. Enable the institution to make an informed lending decision and 
to assess risk, as necessary, on an ongoing basis;
    2. Identify the purpose of a loan and the source of repayment, and 
assess the ability of the borrower to repay the indebtedness in a timely 
manner;
    3. Ensure that any claim against a borrower is legally enforceable;
    4. Demonstrate appropriate administration and monitoring of a loan; 
and
    5. Take account of the size and complexity of a loan.
    D. Credit underwriting. An institution should establish and maintain 
prudent credit underwriting practices that:
    1. Are commensurate with the types of loans the institution will 
make and consider the terms and conditions under which they will be 
made;
    2. Consider the nature of the markets in which loans will be made;
    3. Provide for consideration, prior to credit commitment, of the 
borrower's overall financial condition and resources, the financial 
responsibility of any guarantor, the nature and value of any underlying 
collateral, and the borrower's character and willingness to repay as 
agreed;
    4. Establish a system of independent, ongoing credit review and 
appropriate communication to management and to the board of directors;
    5. Take adequate account of concentration of credit risk; and
    6. Are appropriate to the size of the institution and the nature and 
scope of its activities.
    E. Interest rate exposure. An institution should:
    1. Manage interest rate risk in a manner that is appropriate to the 
size of the institution and the complexity of its assets and 
liabilities; and
    2. Provide for periodic reporting to management and the board of 
directors regarding interest rate risk with adequate information for 
management and the board of directors to assess the level of risk.
    F. Asset growth. An institution's asset growth should be prudent and 
consider:
    1. The source, volatility and use of the funds that support asset 
growth;
    2. Any increase in credit risk or interest rate risk as a result of 
growth; and
    3. The effect of growth on the institution's capital.
    G. Asset quality. An insured depository institution should establish 
and maintain a system that is commensurate with the institution's size 
and the nature and scope of its operations to identify problem assets 
and prevent deterioration in those assets. The institution should:

[[Page 433]]

    1. Conduct periodic asset quality reviews to identify problem 
assets;
    2. Estimate the inherent losses in those assets and establish 
reserves that are sufficient to absorb estimated losses;
    3. Compare problem asset totals to capital;
    4. Take appropriate corrective action to resolve problem assets;
    5. Consider the size and potential risks of material asset 
concentrations; and
    6. Provide periodic asset reports with adequate information for 
management and the board of directors to assess the level of asset risk.
    H. Earnings. An insured depository institution should establish and 
maintain a system that is commensurate with the institution's size and 
the nature and scope of its operations to evaluate and monitor earnings 
and ensure that earnings are sufficient to maintain adequate capital and 
reserves. The institution should:
    1. Compare recent earnings trends relative to equity, assets, or 
other commonly used benchmarks to the institution's historical results 
and those of its peers;
    2. Evaluate the adequacy of earnings given the size, complexity, and 
risk profile of the institution's assets and operations;
    3. Assess the source, volatility, and sustainability of earnings, 
including the effect of nonrecurring or extraordinary income or expense;
    4. Take steps to ensure that earnings are sufficient to maintain 
adequate capital and reserves after considering the institution's asset 
quality and growth rate; and
    5. Provide periodic earnings reports with adequate information for 
management and the board of directors to assess earnings performance.
    I. Compensation, fees and benefits. An institution should maintain 
safeguards to prevent the payment of compensation, fees, and benefits 
that are excessive or that could lead to material financial loss to the 
institution.

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
                                Practice

                        A. Excessive Compensation

    Excessive compensation is prohibited as an unsafe and unsound 
practice. Compensation shall be considered excessive when amounts paid 
are unreasonable or disproportionate to the services performed by an 
executive officer, employee, director, or principal shareholder, 
considering the following:
    1. The combined value of all cash and non-cash benefits provided to 
the individual;
    2. The compensation history of the individual and other individuals 
with comparable expertise at the institution;
    3. The financial condition of the institution;
    4. Comparable compensation practices at comparable institutions, 
based upon such factors as asset size, geographic location, and the 
complexity of the loan portfolio or other assets;
    5. For postemployment benefits, the projected total cost and benefit 
to the institution;
    6. Any connection between the individual and any fraudulent act or 
omission, breach of trust or fiduciary duty, or insider abuse with 
regard to the institution; and
    7. Any other factors the agencies determines to be relevant.

           B. Compensation Leading to Material Financial Loss

    Compensation that could lead to material financial loss to an 
institution is prohibited as an unsafe and unsound practice.

[60 FR 35678, 35687, July 10, 1995, as amended at 61 FR 43952, Aug. 27, 
1996; 71 FR 19812, Apr. 18, 2006]



    Sec. Appendix B to Part 570--Interagency Guidelines Establishing 
                     Information Security Standards

                            Table of Contents

I. Introduction
    A. Scope
    B. Preservation of Existing Authority
    C. Definitions
II. Standards for Safeguarding Customer Information
    A. Information Security Program
    B. Objectives
III. Development and Implementation of Customer Information Security 
Program
    A. Involve the Board of Directors
    B. Assess Risk
    C. Manage and Control Risk
    D. Oversee Service Provider Arrangements
    E. Adjust the Program
    F. Report to the Board
    G. Implement the Standards

                             I. Introduction

    The Interagency Guidelines Establishing Information Security 
Standards (Guidelines) set forth standards pursuant to section 39(a) of 
the Federal Deposit Insurance Act (12 U.S.C. 1831p-1), and sections 501 
and 505(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805(b)). 
These Guidelines address standards for developing and implementing 
administrative, technical, and physical safeguards to protect the 
security, confidentiality, and integrity of customer information. These 
Guidelines also address standards with respect to the proper disposal of 
consumer information, pursuant to sections 621 and 628 of the Fair 
Credit Reporting Act (15 U.S.C. 1681s and 1681w).
    A. Scope. The Guidelines apply to customer information maintained by 
or on behalf of entities over which OTS has authority. For

[[Page 434]]

purposes of this appendix, these entities are savings associations whose 
deposits are FDIC-insured and any subsidiaries of such savings 
associations, except brokers, dealers, persons providing insurance, 
investment companies, and investment advisers. This appendix refers to 
such entities as ``you'. These Guidelines also apply to the proper 
disposal of consumer information by or on behalf of such entities.
    B. Preservation of Existing Authority. Neither section 39 nor these 
Guidelines in any way limit OTS's authority to address unsafe or unsound 
practices, violations of law, unsafe or unsound conditions, or other 
practices. OTS may take action under section 39 and these Guidelines 
independently of, in conjunction with, or in addition to, any other 
enforcement action available to OTS.
    C. Definitions. 1. Except as modified in the Guidelines, or unless 
the context otherwise requires, the terms used in these Guidelines have 
the same meanings as set forth in sections 3 and 39 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
    2. For purposes of the Guidelines, the following definitions apply:
    a. Consumer information means any record about an individual, 
whether in paper, electronic, or other form, that is a consumer report 
or is derived from a consumer report and that is maintained or otherwise 
possessed by you or on your behalf for a business purpose. Consumer 
information also means a compilation of such records. The term does not 
include any record that does not identify an individual.
    i. Examples. (1) Consumer information includes:
    (A) A consumer report that a savings association obtains;
    (B) Information from a consumer report that you obtain from your 
affiliate after the consumer has been given a notice and has elected not 
to opt out of that sharing;
    (C) Information from a consumer report that you obtain about an 
individual who applies for but does not receive a loan, including any 
loan sought by an individual for a business purpose;
    (D) Information from a consumer report that you obtain about an 
individual who guarantees a loan (including a loan to a business 
entity); or
    (E) Information from a consumer report that you obtain about an 
employee or prospective employee.
    (2) Consumer information does not include:
    (A) Aggregate information, such as the mean credit score, derived 
from a group of consumer reports; or
    (B) Blind data, such as payment history on accounts that are not 
personally identifiable, that may be used for developing credit scoring 
models or for other purposes.
    b. Consumer report has the same meaning as set forth in the Fair 
Credit Reporting Act, 15 U.S.C. 1681a(d).
    c. Customer means any of your customers as defined in Sec. 573.3(h) 
of this chapter.
    d. Customer information means any record containing nonpublic 
personal information, as defined in Sec. 573.3(n) of this chapter, 
about a customer, whether in paper, electronic, or other form, that you 
maintain or that is maintained on your behalf.
    e. Customer information systems means any methods used to access, 
collect, store, use, transmit, protect, or dispose of customer 
information.
    f. Service provider means any person or entity that maintains, 
processes, or otherwise is permitted access to customer information or 
consumer information, through its provision of services directly to you.

                 II. Standards for Information Security

    A. Information Security Program. You shall implement a comprehensive 
written information security program that includes administrative, 
technical, and physical safeguards appropriate to your size and 
complexity and the nature and scope of your activities. While all parts 
of your organization are not required to implement a uniform set of 
policies, all elements of your information security program must be 
coordinated.
    B. Objectives. Your information security program shall be designed 
to:
    1. Ensure the security and confidentiality of customer information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information;
    3. Protect against unauthorized access to or use of such information 
that could result in substantial harm or inconvenience to any customer; 
and
    4. Ensure the proper disposal of customer information and consumer 
information.

   III. Development and Implementation of Information Security Program

    A. Involve the Board of Directors. Your board of directors or an 
appropriate committee of the board shall:
    1. Approve your written information security program; and
    2. Oversee the development, implementation, and maintenance of your 
information security program, including assigning specific 
responsibility for its implementation and reviewing reports from 
management.
    B. Assess Risk. You shall:
    1. Identify reasonably foreseeable internal and external threats 
that could result in unauthorized disclosure, misuse, alteration, or 
destruction of customer information or customer information systems.

[[Page 435]]

    2. Assess the likelihood and potential damage of these threats, 
taking into consideration the sensitivity of customer information.
    3. Assess the sufficiency of policies, procedures, customer 
information systems, and other arrangements in place to control risks.
    C. Manage and Control Risk. You shall:
    1. Design your information security program to control the 
identified risks, commensurate with the sensitivity of the information 
as well as the complexity and scope of your activities. You must 
consider whether the following security measures are appropriate for you 
and, if so, adopt those measures you conclude are appropriate:
    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing customer 
information to unauthorized individuals who may seek to obtain this 
information through fraudulent means.
    b. Access restrictions at physical locations containing customer 
information, such as buildings, computer facilities, and records storage 
facilities to permit access only to authorized individuals;
    c. Encryption of electronic customer information, including while in 
transit or in storage on networks or systems to which unauthorized 
individuals may have access;
    d. Procedures designed to ensure that customer information system 
modifications are consistent with your information security program;
    e. Dual control procedures, segregation of duties, and employee 
background checks for employees with responsibilities for or access to 
customer information;
    f. Monitoring systems and procedures to detect actual and attempted 
attacks on or intrusions into customer information systems;
    g. Response programs that specify actions for you to take when you 
suspect or detect that unauthorized individuals have gained access to 
customer information systems, including appropriate reports to 
regulatory and law enforcement agencies; and
    h. Measures to protect against destruction, loss, or damage of 
customer information due to potential environmental hazards, such as 
fire and water damage or technological failures.
    2. Train staff to implement your information security program.
    3. Regularly test the key controls, systems and procedures of the 
information security program. The frequency and nature of such tests 
should be determined by your risk assessment. Tests should be conducted 
or reviewed by independent third parties or staff independent of those 
that develop or maintain the security programs.
    4. Develop, implement, and maintain, as part of your information 
security program, appropriate measures to properly dispose of customer 
information and consumer information in accordance with each of the 
requirements in this paragraph III.
    D. Oversee Service Provider Arrangements. You shall:
    1. Exercise appropriate due diligence in selecting your service 
providers;
    2. Require your service providers by contract to implement 
appropriate measures designed to meet the objectives of these 
Guidelines; and
    3. Where indicated by your risk assessment, monitor your service 
providers to confirm that they have satisfied their obligations as 
required by paragraph D.2. As part of this monitoring, you should review 
audits, summaries of test results, or other equivalent evaluations of 
your service providers.
    E. Adjust the Program. You shall monitor, evaluate, and adjust, as 
appropriate, the information security program in light of any relevant 
changes in technology, the sensitivity of your customer information, 
internal or external threats to information, and your own changing 
business arrangements, such as mergers and acquisitions, alliances and 
joint ventures, outsourcing arrangements, and changes to customer 
information systems.
    F. Report to the Board. You shall report to your board or an 
appropriate committee of the board at least annually. This report should 
describe the overall status of the information security program and your 
compliance with these Guidelines. The reports should discuss material 
matters related to your program, addressing issues such as: risk 
assessment; risk management and control decisions; service provider 
arrangements; results of testing; security breaches or violations and 
management's responses; and recommendations for changes in the 
information security program.
    G. Implement the Standards. 1. Effective date. You must implement an 
information security program pursuant to these Guidelines by July 1, 
2001.
    2. Two-year grandfathering of agreements with service providers. 
Until July 1, 2003, a contract that you have entered into with a service 
provider to perform services for you or functions on your behalf 
satisfies the provisions of paragraph III.D., even if the contract does 
not include a requirement that the servicer maintain the security and 
confidentiality of customer information, as long as you entered into the 
contract on or before March 5, 2001.
    3. Effective date for measures relating to the disposal of consumer 
information. You must satisfy these Guidelines with respect to the 
proper disposal of consumer information by July 1, 2005.

[[Page 436]]

    4. Exception for existing agreements with service providers relating 
to the disposal of consumer information. Notwithstanding the requirement 
in paragraph III.G.3., your contracts with service providers that have 
access to consumer information and that may dispose of consumer 
information, entered into before July 1, 2005, must comply with the 
provisions of the Guidelines relating to the proper disposal of consumer 
information by July 1, 2006.

[60 FR 35686, July 10, 1995, as amended at 69 FR 77620, Dec. 28, 2004]

Supplement A to Appendix B to Part 570--Interagency Guidance on Response 
 Programs for Unauthorized Access to Customer Information and Customer 
                                 Notice

                              I. Background

    This Guidance \1\ interprets section 501(b) of the Gramm-Leach-
Bliley Act (``GLBA'') and the Interagency Guidelines Establishing 
Information Security Standards (the ``Security Guidelines'') \2\ and 
describes response programs, including customer notification procedures, 
that a financial institution should develop and implement to address 
unauthorized access to or use of customer information that could result 
in substantial harm or inconvenience to a customer. The scope of, and 
definitions of terms used in, this Guidance are identical to those of 
the Security Guidelines. For example, the term ``customer information'' 
is the same term used in the Security Guidelines, and means any record 
containing nonpublic personal information about a customer, whether in 
paper, electronic, or other form, maintained by or on behalf of the 
institution.
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    \1\ This Guidance is being jointly issued by the Board of Governors 
of the Federal Reserve System (Board), the Federal Deposit Insurance 
Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), 
and the Office of Thrift Supervision (OTS).
    \2\ 12 CFR part 30, app. B (OCC); 12 CFR part 208, app. D-2 and part 
225, app. F (Board); 12 CFR part 364, app. B (FDIC); and 12 CFR part 
570, app. B (OTS). The ``Interagency Guidelines Establishing Information 
Security Standards'' were formerly known as ``The Interagency Guidelines 
Establishing Standards for Safeguarding Customer Information.''
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                   A. Interagency Security Guidelines

    Section 501(b) of the GLBA required the Agencies to establish 
appropriate standards for financial institutions subject to their 
jurisdiction that include administrative, technical, and physical 
safeguards, to protect the security and confidentiality of customer 
information. Accordingly, the Agencies issued Security Guidelines 
requiring every financial institution to have an information security 
program designed to:
    1. Ensure the security and confidentiality of customer information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information; and
    3. Protect against unauthorized access to or use of such information 
that could result in substantial harm or inconvenience to any customer.

                     B. Risk Assessment and Controls

    1. The Security Guidelines direct every financial institution to 
assess the following risks, among others, when developing its 
information security program:
    a. Reasonably foreseeable internal and external threats that could 
result in unauthorized disclosure, misuse, alteration, or destruction of 
customer information or customer information systems;
    b. The likelihood and potential damage of threats, taking into 
consideration the sensitivity of customer information; and
    c. The sufficiency of policies, procedures, customer information 
systems, and other arrangements in place to control risks. \3\
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    \3\ See Security Guidelines, III.B.
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    2. Following the assessment of these risks, the Security Guidelines 
require a financial institution to design a program to address the 
identified risks. The particular security measures an institution should 
adopt will depend upon the risks presented by the complexity and scope 
of its business. At a minimum, the financial institution is required to 
consider the specific security measures enumerated in the Security 
Guidelines, \4\ and adopt those that are appropriate for the 
institution, including:
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    \4\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing customer 
information to unauthorized individuals who may seek to obtain this 
information through fraudulent means;
    b. Background checks for employees with responsibilities for access 
to customer information; and
    c. Response programs that specify actions to be taken when the 
financial institution suspects or detects that unauthorized individuals 
have gained access to customer information systems, including 
appropriate reports to regulatory and law enforcement agencies. \5\
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    \5\ See Security Guidelines, III.C.

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[[Page 437]]

                          C. Service Providers

    The Security Guidelines direct every financial institution to 
require its service providers by contract to implement appropriate 
measures designed to protect against unauthorized access to or use of 
customer information that could result in substantial harm or 
inconvenience to any customer. \6\
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    \6\ See Security Guidelines, II.B. and III.D. Further, the Agencies 
note that, in addition to contractual obligations to a financial 
institution, a service provider may be required to implement its own 
comprehensive information security program in accordance with the 
Safeguards Rule promulgated by the Federal Trade Commission (``FTC''), 
16 CFR part 314.
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                          II. Response Program

    Millions of Americans, throughout the country, have been victims of 
identity theft. \7\ Identity thieves misuse personal information they 
obtain from a number of sources, including financial institutions, to 
perpetrate identity theft. Therefore, financial institutions should take 
preventative measures to safeguard customer information against attempts 
to gain unauthorized access to the information. For example, financial 
institutions should place access controls on customer information 
systems and conduct background checks for employees who are authorized 
to access customer information. \8\ However, every financial institution 
should also develop and implement a risk-based response program to 
address incidents of unauthorized access to customer information in 
customer information systems \9\ that occur nonetheless. A response 
program should be a key part of an institution's information security 
program. \10\ The program should be appropriate to the size and 
complexity of the institution and the nature and scope of its 
activities.
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    \7\ The FTC estimates that nearly 10 million Americans discovered 
they were victims of some form of identity theft in 2002. See The 
Federal Trade Commission, Identity Theft Survey Report, (September 
2003), available at http://www.ftc.gov/os/2003/09/synovatereport.pdf.
    \8\ Institutions should also conduct background checks of employees 
to ensure that the institution does not violate 12 U.S.C. 1829, which 
prohibits an institution from hiring an individual convicted of certain 
criminal offenses or who is subject to a prohibition order under 12 
U.S.C. 1818(e)(6).
    \9\ Under the Guidelines, an institution's customer information 
systems consist of all of the methods used to access, collect, store, 
use, transmit, protect, or dispose of customer information, including 
the systems maintained by its service providers. See Security 
Guidelines, I.C.2.d (I.C.2.c for OTS).
    \10\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002 available at http://
www.ffiec.gov/ffiecinfobase/html--pages/infosec--book--frame.htm. 
Federal Reserve SR 97-32, Sound Practice Guidance for Information 
Security for Networks, Dec. 4, 1997; OCC Bulletin 2000-14, 
``Infrastructure Threats--Intrusion Risks'' (May 15, 2000), for 
additional guidance on preventing, detecting, and responding to 
intrusions into financial institution computer systems.
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    In addition, each institution should be able to address incidents of 
unauthorized access to customer information in customer information 
systems maintained by its domestic and foreign service providers. 
Therefore, consistent with the obligations in the Guidelines that relate 
to these arrangements, and with existing guidance on this topic issued 
by the Agencies, \11\ an institution's contract with its service 
provider should require the service provider to take appropriate actions 
to address incidents of unauthorized access to the financial 
institution's customer information, including notification to the 
institution as soon as possible of any such incident, to enable the 
institution to expeditiously implement its response program.
---------------------------------------------------------------------------

    \11\ See Federal Reserve SR Ltr. 00-04, Outsourcing of Information 
and Transaction Processing, Feb. 9, 2000; OCC Bulletin 2001-47, ``Third-
Party Relationships Risk Management Principles,'' Nov. 1, 2001; FDIC FIL 
68-99, Risk Assessment Tools and Practices for Information System 
Security, July 7, 1999; OTS Thrift Bulletin 82a, Third Party 
Arrangements, Sept. 1, 2004.
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                   A. Components of a Response Program

    1. At a minimum, an institution's response program should contain 
procedures for the following:
    a. Assessing the nature and scope of an incident, and identifying 
what customer information systems and types of customer information have 
been accessed or misused;
    b. Notifying its primary Federal regulator as soon as possible when 
the institution becomes aware of an incident involving unauthorized 
access to or use of sensitive customer information, as defined below;
    c. Consistent with the Agencies' Suspicious Activity Report 
(``SAR'') regulations, \12\ notifying appropriate law enforcement 
authorities, in addition to filing a timely SAR in

[[Page 438]]

situations involving Federal criminal violations requiring immediate 
attention, such as when a reportable violation is ongoing;
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    \12\ An institution's obligation to file a SAR is set out in the 
Agencies' SAR regulations and Agency guidance. See 12 CFR 21.11 
(national banks, Federal branches and agencies); 12 CFR 208.62 (State 
member banks); 12 CFR 211.5(k) (Edge and agreement corporations); 12 CFR 
211.24(f) (uninsured State branches and agencies of foreign banks); 12 
CFR 225.4(f) (bank holding companies and their nonbank subsidiaries); 12 
CFR part 353 (State non-member banks); and 12 CFR 563.180 (savings 
associations). National banks must file SARs in connection with computer 
intrusions and other computer crimes. See OCC Bulletin 2000-14, 
``Infrastructure Threats--Intrusion Risks'' (May 15, 2000); Advisory 
Letter 97-9, ``Reporting Computer Related Crimes'' (November 19, 1997) 
(general guidance still applicable though instructions for new SAR form 
published in 65 FR 1229, 1230 (January 7, 2000)). See also Federal 
Reserve SR 01-11, Identity Theft and Pretext Calling, Apr. 26, 2001; SR 
97-28, Guidance Concerning Reporting of Computer Related Crimes by 
Financial Institutions, Nov. 6, 1997; FDIC FIL 48-2000, Suspicious 
Activity Reports, July 14, 2000; FIL 47-97, Preparation of Suspicious 
Activity Reports, May 6, 1997; OTS CEO Memorandum 139, Identity Theft 
and Pretext Calling, May 4, 2001; CEO Memorandum 126, New Suspicious 
Activity Report Form, July 5, 2000; http://www.ots.treas.gov/BSA (for 
the latest SAR form and filing instructions required by OTS as of July 
1, 2003).
---------------------------------------------------------------------------

    d. Taking appropriate steps to contain and control the incident to 
prevent further unauthorized access to or use of customer information, 
for example, by monitoring, freezing, or closing affected accounts, 
while preserving records and other evidence;\13\ and
---------------------------------------------------------------------------

    \13\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002, pp. 68-74.
---------------------------------------------------------------------------

    e. Notifying customers when warranted.
    2. Where an incident of unauthorized access to customer information 
involves customer information systems maintained by an institution's 
service providers, it is the responsibility of the financial institution 
to notify the institution's customers and regulator. However, an 
institution may authorize or contract with its service provider to 
notify the institution's customers or regulator on its behalf.

                          III. Customer Notice

    Financial institutions have an affirmative duty to protect their 
customers' information against unauthorized access or use. Notifying 
customers of a security incident involving the unauthorized access or 
use of the customer's information in accordance with the standard set 
forth below is a key part of that duty. Timely notification of customers 
is important to manage an institution's reputation risk. Effective 
notice also may reduce an institution's legal risk, assist in 
maintaining good customer relations, and enable the institution's 
customers to take steps to protect themselves against the consequences 
of identity theft. When customer notification is warranted, an 
institution may not forgo notifying its customers of an incident because 
the institution believes that it may be potentially embarrassed or 
inconvenienced by doing so.

                    A. Standard for Providing Notice

    When a financial institution becomes aware of an incident of 
unauthorized access to sensitive customer information, the institution 
should conduct a reasonable investigation to promptly determine the 
likelihood that the information has been or will be misused. If the 
institution determines that misuse of its information about a customer 
has occurred or is reasonably possible, it should notify the affected 
customer as soon as possible. Customer notice may be delayed if an 
appropriate law enforcement agency determines that notification will 
interfere with a criminal investigation and provides the institution 
with a written request for the delay. However, the institution should 
notify its customers as soon as notification will no longer interfere 
with the investigation.

                    1. Sensitive Customer Information

    Under the Guidelines, an institution must protect against 
unauthorized access to or use of customer information that could result 
in substantial harm or inconvenience to any customer. Substantial harm 
or inconvenience is most likely to result from improper access to 
sensitive customer information because this type of information is most 
likely to be misused, as in the commission of identity theft. For 
purposes of this Guidance, sensitive customer information means a 
customer's name, address, or telephone number, in conjunction with the 
customer's social security number, driver's license number, account 
number, credit or debit card number, or a personal identification number 
or password that would permit access to the customer's account. 
Sensitive customer information also includes any combination of 
components of customer information that would allow someone to log onto 
or access the customer's account, such as user name and password or 
password and account number.

                          2. Affected Customers

    If a financial institution, based upon its investigation, can 
determine from its logs or other data precisely which customers' 
information has been improperly accessed, it may limit notification to 
those customers with regard to whom the institution determines that 
misuse of their information has occurred or is reasonably possible. 
However, there may be situations where the institution determines that a 
group of files has been accessed improperly, but is unable to

[[Page 439]]

identify which specific customers' information has been accessed. If the 
circumstances of the unauthorized access lead the institution to 
determine that misuse of the information is reasonably possible, it 
should notify all customers in the group.

                      B. Content of Customer Notice

    1. Customer notice should be given in a clear and conspicuous 
manner. The notice should describe the incident in general terms and the 
type of customer information that was the subject of unauthorized access 
or use. It also should generally describe what the institution has done 
to protect the customers' information from further unauthorized access. 
In addition, it should include a telephone number that customers can 
call for further information and assistance. \14\ The notice also should 
remind customers of the need to remain vigilant over the next twelve to 
twenty-four months, and to promptly report incidents of suspected 
identity theft to the institution. The notice should include the 
following additional items, when appropriate:
---------------------------------------------------------------------------

    \14\ The institution should, therefore, ensure that it has 
reasonable policies and procedures in place, including trained 
personnel, to respond appropriately to customer inquiries and requests 
for assistance.
---------------------------------------------------------------------------

    a. A recommendation that the customer review account statements and 
immediately report any suspicious activity to the institution;
    b. A description of fraud alerts and an explanation of how the 
customer may place a fraud alert in the customer's consumer reports to 
put the customer's creditors on notice that the customer may be a victim 
of fraud;
    c. A recommendation that the customer periodically obtain credit 
reports from each nationwide credit reporting agency and have 
information relating to fraudulent transactions deleted;
    d. An explanation of how the customer may obtain a credit report 
free of charge; and
    e. Information about the availability of the FTC's online guidance 
regarding steps a consumer can take to protect against identity theft. 
The notice should encourage the customer to report any incidents of 
identity theft to the FTC, and should provide the FTC's Web site address 
and toll-free telephone number that customers may use to obtain the 
identity theft guidance and report suspected incidents of identity 
theft. \15\
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    \15\ Currently, the FTC Web site for the ID Theft brochure and the 
FTC Hotline phone number are http://www.consumer.gov/idtheft and 1-877-
IDTHEFT. The institution may also refer customers to any materials 
developed pursuant to section 151(b) of the FACT Act (educational 
materials developed by the FTC to teach the public how to prevent 
identity theft).
---------------------------------------------------------------------------

    2. The Agencies encourage financial institutions to notify the 
nationwide consumer reporting agencies prior to sending notices to a 
large number of customers that include contact information for the 
reporting agencies.

                     C. Delivery of Customer Notice

    Customer notice should be delivered in any manner designed to ensure 
that a customer can reasonably be expected to receive it. For example, 
the institution may choose to contact all customers affected by 
telephone or by mail, or by electronic mail for those customers for whom 
it has a valid e-mail address and who have agreed to receive 
communications electronically.

[66 FR 8640, Feb. 1, 2001, as amended at 70 FR 15754, Mar. 29, 2005; 71 
FR 5780, Feb. 3, 2006]



PART 571_FAIR CREDIT REPORTING--Table of Contents




                      Subpart A_General Provisions

Sec.
571.1 Purpose and scope.
571.2 Examples.
571.3 Definitions.

Subpart B [Reserved]

                      Subpart C_Affiliate Marketing

571.20 Coverage and definitions.
571.21 Affiliate marketing opt-out and exceptions.
571.22 Scope and duration of opt-out.
571.23 Contents of opt-out notice; consolidated and equivalent notices.
571.24 Reasonable opportunity to opt out.
571.25 Reasonable and simple methods of opting out.
571.26 Delivery of opt-out notices.
571.27 Renewal of opt-out.
571.28 Effective date, compliance date, and prospective application.

                      Subpart D_Medical information

571.30 Obtaining or using medical information in connection with a 
          determination of eligibility for credit.
571.31 Limits on redisclosure of information.
571.32 Sharing medical information with affiliates.

              Subpart E_Duties of Furnishers of Information

571.40 Scope.
571.41 Definitions.

[[Page 440]]

571.42 Reasonable policies and procedures concerning the accuracy and 
          integrity of furnished information.
571.43 Direct disputes.

Subparts F-H [Reserved]

    Subpart I_Duties of Users of Consumer Reports Regarding Address 
                   Discrepancies and Records Disposal

571.80-81 [Reserved]
571.82 Duties of users regarding address discrepancies.
571.83 Disposal of consumer information.

             Subpart J to Part 571_Identity Theft Red Flags

571.90 Duties regarding the detection, prevention, and mitigation of 
          identity theft.
571.91 Duties of card issuers regarding changes of address.

Appendices A-B to Part 571 [Reserved]
Appendix C to Part 571--Model Forms for Opt-Out Notices
Appendix D to Part 571 [Reserved]
Appendix E to Part 571--Interagency Guidelines Concerning the Accuracy 
          and Integrity of Information Furnished to Consumer Reporting 
          Agencies
Appendices F-I to Part 571 [Reserved]
Appendix J to Part 571--Interagency Guidelines on Identity Theft 
          Detection, Prevention, and Mitigation

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, and 
1881-1884; 15 U.S.C. 1681b, 1681c, 1681m, 1681s, 1681s-1, 1681t and 
1681w; 15 U.S.C. 6801 and 6805; Sec. 214 Pub. L. 108-159, 117 Stat. 
1952.

    Effective Date Note: At 74 FR 31520, July 1, 2009, the authority 
citation of part 571 was revised, effective July 1, 2010. For the 
convenience of the user, the revised text is set forth as follows:
    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, and 
1881-1884; 15 U.S.C. 1681b, 1681c, 1681m, 1681s, 1681s-2, 1681s-3, 
1681t, and 1681w; 15 U.S.C. 6801 and 6805; Sec. 214 Pub. L. 108-159, 117 
Stat. 1952.

    Source: 69 FR 77621, Dec. 28, 2004, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 571.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to establish standards 
regarding consumer report information. In addition, the purpose of this 
part is to specify the extent to which you may obtain, use, or share 
certain information. This part also contains a number of measures you 
must take to combat consumer fraud and related crimes, including 
identity theft.
    (b) Scope. (1)-(2) [Reserved]
    (3) The scope of Subpart C of this part is stated in Sec. 571.20(a) 
of this part.
    (4) The scope of Subpart D of this part is stated in Sec. Sec. 
571.30(a), 571.31(a), and 571.32(a) of this part.
    (5)-(8) [Reserved]
    (9)(i) The scope of Sec. 571.82 of Subpart I of this part is stated 
in Sec. 571.82(a) of this part.
    (ii) The scope of Sec. 571.83 of Subpart I of this part is stated 
in Sec. 571.83(a) of this part.
    (10)(i) The scope of Sec. 571.90 of Subpart J of this part is 
stated in Sec. 571.90(a) of this part.
    (ii) The scope of Sec. 571.91 of Subpart J of this part is stated 
in Sec. 571.91(a) of this part.

[69 FR 77621, Dec. 28, 2004, as amended at 70 FR 70689, Nov. 22, 2005; 
72 FR 62972, Nov. 7, 2007; 72 FR 63764, Nov. 9, 2007]

    Effective Date Note: At 74 FR 31520, July 1, 2009, Sec. 571.1 was 
amended by adding a new paragraph (b)(5), effective July 1, 2010. For 
the convenience of the user, the added text is set forth as follows:



Sec. 571.1  Purpose and scope.

                                * * * * *

    (b) * * *
    (5) The scope of subpart E of this part is stated in Sec. 571.40 of 
this part.

                                * * * * *



Sec. 571.2  Examples.

    The examples in this part are not exclusive. Compliance with an 
example, to the extent applicable, constitutes compliance with this 
part. Examples in a paragraph illustrate only the issue described in the 
paragraph and do not illustrate any other issue that may arise in this 
part.

[70 FR 70689, Nov. 22, 2005]



Sec. 571.3  Definitions.

    For purposes of this part, unless explicitly stated otherwise:
    (a) Act means the Fair Credit Reporting Act (15 U.S.C. 1681 et 
seq.).

[[Page 441]]

    (b) Affiliate means any company that is related by common ownership 
or common corporate control with another company.
    (c) [Reserved]
    (d) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (e) Consumer means an individual.
    (f)-(h) [Reserved]
    (i) Common ownership or common corporate control means a 
relationship between two companies under which:
    (1) One company has, with respect to the other company:
    (i) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of a company, 
directly or indirectly, or acting through one or more other persons;
    (ii) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of a company; or
    (iii) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of a company, as the OTS 
determines; or
    (2) Any other person has, with respect to both companies, a 
relationship described in paragraphs (i)(1)(i) through (i)(1)(iii) of 
this section.
    (j) [Reserved]
    (k) Medical information means:
    (1) Information or data, whether oral or recorded, in any form or 
medium, created by or derived from a health care provider or the 
consumer, that relates to--
    (i) The past, present, or future physical, mental, or behavioral 
health or condition of an individual;
    (ii) The provision of health care to an individual; or
    (iii) The payment for the provision of health care to an individual.
    (2) The term does not include:
    (i) The age or gender of a consumer;
    (ii) Demographic information about the consumer, including a 
consumer's residence address or e-mail address;
    (iii) Any other information about a consumer that does not relate to 
the physical, mental, or behavioral health or condition of a consumer, 
including the existence or value of any insurance policy; or
    (iv) Information that does not identify a specific consumer.
    (l) Person means any individual, partnership, corporation, trust, 
estate cooperative, association, government or governmental subdivision 
or agency, or other entity.

[69 FR 77621, Dec. 28, 2004, as amended at 70 FR 70689, Nov. 22, 2005; 
72 FR 63764, Nov. 9, 2007]

Subpart B [Reserved]



                      Subpart C_Affiliate Marketing

    Source: 72 FR 62972, Nov. 7, 2007, unless otherwise noted.



Sec. 571.20  Coverage and definitions.

    (a) Coverage. Subpart C of this part applies to savings associations 
whose deposits are insured by the Federal Deposit Insurance Corporation 
or, in accordance with Sec. 559.3(h)(1) of this chapter, federal 
savings association operating subsidiaries that are not functionally 
regulated within the meaning of section 5(c)(5) of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (b) Definitions. For purposes of this subpart:
    (1) Clear and conspicuous. The term ``clear and conspicuous'' means 
reasonably understandable and designed to call attention to the nature 
and significance of the information presented.
    (2) Concise. (i) In general. The term ``concise'' means a reasonably 
brief expression or statement.
    (ii) Combination with other required disclosures. A notice required 
by this subpart may be concise even if it is combined with other 
disclosures required or authorized by federal or state law.
    (3) Eligibility information. The term ``eligibility information'' 
means any information the communication of which would be a consumer 
report if the exclusions from the definition of ``consumer report'' in 
section 603(d)(2)(A) of the Act did not apply. Eligibility information 
does not include aggregate or blind data that does

[[Page 442]]

not contain personal identifiers such as account numbers, names, or 
addresses.
    (4) Pre-existing business relationship. (i) In general. The term 
``pre-existing business relationship'' means a relationship between a 
person, or a person's licensed agent, and a consumer based on--
    (A) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a solicitation 
covered by this subpart;
    (B) The purchase, rental, or lease by the consumer of the person's 
goods or services, or a financial transaction (including holding an 
active account or a policy in force or having another continuing 
relationship) between the consumer and the person, during the 18-month 
period immediately preceding the date on which the consumer is sent a 
solicitation covered by this subpart; or
    (C) An inquiry or application by the consumer regarding a product or 
service offered by that person during the three-month period immediately 
preceding the date on which the consumer is sent a solicitation covered 
by this subpart.
    (ii) Examples of pre-existing business relationships. (A) If a 
consumer has a time deposit account, such as a certificate of deposit, 
at a depository institution that is currently in force, the depository 
institution has a pre-existing business relationship with the consumer 
and can use eligibility information it receives from its affiliates to 
make solicitations to the consumer about its products or services.
    (B) If a consumer obtained a certificate of deposit from a 
depository institution, but did not renew the certificate at maturity, 
the depository institution has a pre-existing business relationship with 
the consumer and can use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for 18 months after the date of maturity of the certificate of 
deposit.
    (C) If a consumer obtains a mortgage, the mortgage lender has a pre-
existing business relationship with the consumer. If the mortgage lender 
sells the consumer's entire loan to an investor, the mortgage lender has 
a pre-existing business relationship with the consumer and can use 
eligibility information it receives from its affiliates to make 
solicitations to the consumer about its products or services for 18 
months after the date it sells the loan, and the investor has a pre-
existing business relationship with the consumer upon purchasing the 
loan. If, however, the mortgage lender sells a fractional interest in 
the consumer's loan to an investor but also retains an ownership 
interest in the loan, the mortgage lender continues to have a pre-
existing business relationship with the consumer, but the investor does 
not have a pre-existing business relationship with the consumer. If the 
mortgage lender retains ownership of the loan, but sells ownership of 
the servicing rights to the consumer's loan, the mortgage lender 
continues to have a pre-existing business relationship with the 
consumer. The purchaser of the servicing rights also has a pre-existing 
business relationship with the consumer as of the date it purchases 
ownership of the servicing rights, but only if it collects payments from 
or otherwise deals directly with the consumer on a continuing basis.
    (D) If a consumer applies to a depository institution for a product 
or service that it offers, but does not obtain a product or service from 
or enter into a financial contract or transaction with the institution, 
the depository institution has a pre-existing business relationship with 
the consumer and can therefore use eligibility information it receives 
from an affiliate to make solicitations to the consumer about its 
products or services for three months after the date of the application.
    (E) If a consumer makes a telephone inquiry to a depository 
institution about its products or services and provides contact 
information to the institution, but does not obtain a product or service 
from or enter into a financial contract or transaction with the 
institution, the depository institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or

[[Page 443]]

services for three months after the date of the inquiry.
    (F) If a consumer makes an inquiry to a depository institution by e-
mail about its products or services, but does not obtain a product or 
service from or enter into a financial contract or transaction with the 
institution, the depository institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or services for three months after the date 
of the inquiry.
    (G) If a consumer has an existing relationship with a depository 
institution that is part of a group of affiliated companies, makes a 
telephone call to the centralized call center for the group of 
affiliated companies to inquire about products or services offered by 
the insurance affiliate, and provides contact information to the call 
center, the call constitutes an inquiry to the insurance affiliate that 
offers those products or services. The insurance affiliate has a pre-
existing business relationship with the consumer and can therefore use 
eligibility information it receives from its affiliated depository 
institution to make solicitations to the consumer about its products or 
services for three months after the date of the inquiry.
    (iii) Examples where no pre-existing business relationship is 
created. (A) If a consumer makes a telephone call to a centralized call 
center for a group of affiliated companies to inquire about the 
consumer's existing account at a depository institution, the call does 
not constitute an inquiry to any affiliate other than the depository 
institution that holds the consumer's account and does not establish a 
pre-existing business relationship between the consumer and any 
affiliate of the account-holding depository institution.
    (B) If a consumer who has a deposit account with a depository 
institution makes a telephone call to an affiliate of the institution to 
ask about the affiliate's retail locations and hours, but does not make 
an inquiry about the affiliate's products or services, the call does not 
constitute an inquiry and does not establish a pre-existing business 
relationship between the consumer and the affiliate. Also, the 
affiliate's capture of the consumer's telephone number does not 
constitute an inquiry and does not establish a pre-existing business 
relationship between the consumer and the affiliate.
    (C) If a consumer makes a telephone call to a depository institution 
in response to an advertisement that offers a free promotional item to 
consumers who call a toll-free number, but the advertisement does not 
indicate that the depository institution's products or services will be 
marketed to consumers who call in response, the call does not create a 
pre-existing business relationship between the consumer and the 
depository institution because the consumer has not made an inquiry 
about a product or service offered by the institution, but has merely 
responded to an offer for a free promotional item.
    (5) Solicitation. (i) In general. The term ``solicitation'' means 
the marketing of a product or service initiated by a person to a 
particular consumer that is--
    (A) Based on eligibility information communicated to that person by 
its affiliate as described in this subpart; and
    (B) Intended to encourage the consumer to purchase or obtain such 
product or service.
    (ii) Exclusion of marketing directed at the general public. A 
solicitation does not include marketing communications that are directed 
at the general public. For example, television, general circulation 
magazine, and billboard advertisements do not constitute solicitations, 
even if those communications are intended to encourage consumers to 
purchase products and services from the person initiating the 
communications.
    (iii) Examples of solicitations. A solicitation would include, for 
example, a telemarketing call, direct mail, e-mail, or other form of 
marketing communication directed to a particular consumer that is based 
on eligibility information received from an affiliate.
    (6) You means a person described in paragraph (a) of this section.

[[Page 444]]



Sec. 571.21  Affiliate marketing opt-out and exceptions.

    (a) Initial notice and opt-out requirement. (1) In general. You may 
not use eligibility information about a consumer that you receive from 
an affiliate to make a solicitation for marketing purposes to the 
consumer, unless--
    (i) It is clearly and conspicuously disclosed to the consumer in 
writing or, if the consumer agrees, electronically, in a concise notice 
that you may use eligibility information about that consumer received 
from an affiliate to make solicitations for marketing purposes to the 
consumer;
    (ii) The consumer is provided a reasonable opportunity and a 
reasonable and simple method to ``opt out,'' or prohibit you from using 
eligibility information to make solicitations for marketing purposes to 
the consumer; and
    (iii) The consumer has not opted out.
    (2) Example. A consumer has a homeowner's insurance policy with an 
insurance company. The insurance company furnishes eligibility 
information about the consumer to its affiliated depository institution. 
Based on that eligibility information, the depository institution wants 
to make a solicitation to the consumer about its home equity loan 
products. The depository institution does not have a pre-existing 
business relationship with the consumer and none of the other exceptions 
apply. The depository institution is prohibited from using eligibility 
information received from its insurance affiliate to make solicitations 
to the consumer about its home equity loan products unless the consumer 
is given a notice and opportunity to opt out and the consumer does not 
opt out.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By an affiliate that has or has previously had a pre-existing 
business relationship with the consumer; or
    (ii) As part of a joint notice from two or more members of an 
affiliated group of companies, provided that at least one of the 
affiliates on the joint notice has or has previously had a pre-existing 
business relationship with the consumer.
    (b) Making solicitations--(1) In general. For purposes of this 
subpart, you make a solicitation for marketing purposes if--
    (i) You receive eligibility information from an affiliate;
    (ii) You use that eligibility information to do one or more of the 
following:
    (A) Identify the consumer or type of consumer to receive a 
solicitation;
    (B) Establish criteria used to select the consumer to receive a 
solicitation; or
    (C) Decide which of your products or services to market to the 
consumer or tailor your solicitation to that consumer; and
    (iii) As a result of your use of the eligibility information, the 
consumer is provided a solicitation.
    (2) Receiving eligibility information from an affiliate, including 
through a common database. You may receive eligibility information from 
an affiliate in various ways, including when the affiliate places that 
information into a common database that you may access.
    (3) Receipt or use of eligibility information by your service 
provider. Except as provided in paragraph (b)(5) of this section, you 
receive or use an affiliate's eligibility information if a service 
provider acting on your behalf (whether an affiliate or a nonaffiliated 
third party) receives or uses that information in the manner described 
in paragraphs (b)(1)(i) or (b)(1)(ii) of this section. All relevant 
facts and circumstances will determine whether a person is acting as 
your service provider when it receives or uses an affiliate's 
eligibility information in connection with marketing your products and 
services.
    (4) Use by an affiliate of its own eligibility information. Unless 
you have used eligibility information that you receive from an affiliate 
in the manner described in paragraph (b)(1)(ii) of this section, you do 
not make a solicitation subject to this subpart if your affiliate:
    (i) Uses its own eligibility information that it obtained in 
connection with a pre-existing business relationship it has or had with 
the consumer to market your products or services to the consumer; or
    (ii) Directs its service provider to use the affiliate's own 
eligibility information that it obtained in connection

[[Page 445]]

with a pre-existing business relationship it has or had with the 
consumer to market your products or services to the consumer, and you do 
not communicate directly with the service provider regarding that use.
    (5) Use of eligibility information by a service provider. (i) In 
general. You do not make a solicitation subject to Subpart C of this 
part if a service provider (including an affiliated or third-party 
service provider that maintains or accesses a common database that you 
may access) receives eligibility information from your affiliate that 
your affiliate obtained in connection with a pre-existing business 
relationship it has or had with the consumer and uses that eligibility 
information to market your products or services to the consumer, so long 
as--
    (A) Your affiliate controls access to and use of its eligibility 
information by the service provider (including the right to establish 
the specific terms and conditions under which the service provider may 
use such information to market your products or services);
    (B) Your affiliate establishes specific terms and conditions under 
which the service provider may access and use the affiliate's 
eligibility information to market your products and services (or those 
of affiliates generally) to the consumer, such as the identity of the 
affiliated companies whose products or services may be marketed to the 
consumer by the service provider, the types of products or services of 
affiliated companies that may be marketed, and the number of times the 
consumer may receive marketing materials, and periodically evaluates the 
service provider's compliance with those terms and conditions;
    (C) Your affiliate requires the service provider to implement 
reasonable policies and procedures designed to ensure that the service 
provider uses the affiliate's eligibility information in accordance with 
the terms and conditions established by the affiliate relating to the 
marketing of your products or services;
    (D) Your affiliate is identified on or with the marketing materials 
provided to the consumer; and
    (E) You do not directly use your affiliate's eligibility information 
in the manner described in paragraph (b)(1)(ii) of this section.
    (ii) Writing requirements. (A) The requirements of paragraphs 
(b)(5)(i)(A) and (C) of this section must be set forth in a written 
agreement between your affiliate and the service provider; and
    (B) The specific terms and conditions established by your affiliate 
as provided in paragraph (b)(5)(i)(B) of this section must be set forth 
in writing.
    (6) Examples of making solicitations. (i) A consumer has a deposit 
account with a depository institution, which is affiliated with an 
insurance company. The insurance company receives eligibility 
information about the consumer from the depository institution. The 
insurance company uses that eligibility information to identify the 
consumer to receive a solicitation about insurance products, and, as a 
result, the insurance company provides a solicitation to the consumer 
about its insurance products. Pursuant to paragraph (b)(1) of this 
section, the insurance company has made a solicitation to the consumer.
    (ii) The same facts as in the example in paragraph (b)(6)(i) of this 
section, except that after using the eligibility information to identify 
the consumer to receive a solicitation about insurance products, the 
insurance company asks the depository institution to send the 
solicitation to the consumer and the depository institution does so. 
Pursuant to paragraph (b)(1) of this section, the insurance company has 
made a solicitation to the consumer because it used eligibility 
information about the consumer that it received from an affiliate to 
identify the consumer to receive a solicitation about its products or 
services, and, as a result, a solicitation was provided to the consumer 
about the insurance company's products.
    (iii) The same facts as in the example in paragraph (b)(6)(i) of 
this section, except that eligibility information about consumers that 
have deposit accounts with the depository institution is placed into a 
common database that all members of the affiliated group of companies 
may independently access and use. Without using the depository 
institution's eligibility information,

[[Page 446]]

the insurance company develops selection criteria and provides those 
criteria, marketing materials, and related instructions to the 
depository institution. The depository institution reviews eligibility 
information about its own consumers using the selection criteria 
provided by the insurance company to determine which consumers should 
receive the insurance company's marketing materials and sends marketing 
materials about the insurance company's products to those consumers. 
Even though the insurance company has received eligibility information 
through the common database as provided in paragraph (b)(2) of this 
section, it did not use that information to identify consumers or 
establish selection criteria; instead, the depository institution used 
its own eligibility information. Therefore, pursuant to paragraph 
(b)(4)(i) of this section, the insurance company has not made a 
solicitation to the consumer.
    (iv) The same facts as in the example in paragraph (b)(6)(iii) of 
this section, except that the depository institution provides the 
insurance company's criteria to the depository institution's service 
provider and directs the service provider to use the depository 
institution's eligibility information to identify depository institution 
consumers who meet the criteria and to send the insurance company's 
marketing materials to those consumers. The insurance company does not 
communicate directly with the service provider regarding the use of the 
depository institution's information to market its products to the 
depository institution's consumers. Pursuant to paragraph (b)(4)(ii) of 
this section, the insurance company has not made a solicitation to the 
consumer.
    (v) An affiliated group of companies includes a depository 
institution, an insurance company, and a service provider. Each 
affiliate in the group places information about its consumers into a 
common database. The service provider has access to all information in 
the common database. The depository institution controls access to and 
use of its eligibility information by the service provider. This control 
is set forth in a written agreement between the depository institution 
and the service provider. The written agreement also requires the 
service provider to establish reasonable policies and procedures 
designed to ensure that the service provider uses the depository 
institution's eligibility information in accordance with specific terms 
and conditions established by the depository institution relating to the 
marketing of the products and services of all affiliates, including the 
insurance company. In a separate written communication, the depository 
institution specifies the terms and conditions under which the service 
provider may use the depository institution's eligibility information to 
market the insurance company's products and services to the depository 
institution's consumers. The specific terms and conditions are: A list 
of affiliated companies (including the insurance company) whose products 
or services may be marketed to the depository institution's consumers by 
the service provider; the specific products or types of products that 
may be marketed to the depository institution's consumers by the service 
provider; the categories of eligibility information that may be used by 
the service provider in marketing products or services to the depository 
institution's consumers; the types or categories of the depository 
institution's consumers to whom the service provider may market products 
or services of depository institution affiliates; the number and/or 
types of marketing communications that the service provider may send to 
the depository institution's consumers; and the length of time during 
which the service provider may market the products or services of the 
depository institution's affiliates to its consumers. The depository 
institution periodically evaluates the service provider's compliance 
with these terms and conditions. The insurance company asks the service 
provider to market insurance products to certain consumers who have 
deposit accounts with the depository institution. Without using the 
depository institution's eligibility information, the insurance company 
develops selection criteria and provides those criteria, marketing 
materials, and related instructions to the service provider. The service 
provider uses the depository institution's

[[Page 447]]

eligibility information from the common database to identify the 
depository institution's consumers to whom insurance products will be 
marketed. When the insurance company's marketing materials are provided 
to the identified consumers, the name of the depository institution is 
displayed on the insurance marketing materials, an introductory letter 
that accompanies the marketing materials, an account statement that 
accompanies the marketing materials, or the envelope containing the 
marketing materials. The requirements of paragraph (b)(5) of this 
section have been satisfied, and the insurance company has not made a 
solicitation to the consumer.
    (vi) The same facts as in the example in paragraph (b)(6)(v) of this 
section, except that the terms and conditions permit the service 
provider to use the depository institution's eligibility information to 
market the products and services of other affiliates to the depository 
institution's consumers whenever the service provider deems it 
appropriate to do so. The service provider uses the depository 
institution's eligibility information in accordance with the discretion 
afforded to it by the terms and conditions. Because the terms and 
conditions are not specific, the requirements of paragraph (b)(5) of 
this section have not been satisfied.
    (c) Exceptions. The provisions of this subpart do not apply to you 
if you use eligibility information that you receive from an affiliate:
    (1) To make a solicitation for marketing purposes to a consumer with 
whom you have a pre-existing business relationship;
    (2) To facilitate communications to an individual for whose benefit 
you provide employee benefit or other services pursuant to a contract 
with an employer related to and arising out of the current employment 
relationship or status of the individual as a participant or beneficiary 
of an employee benefit plan;
    (3) To perform services on behalf of an affiliate, except that this 
subparagraph shall not be construed as permitting you to send 
solicitations on behalf of an affiliate if the affiliate would not be 
permitted to send the solicitation as a result of the election of the 
consumer to opt out under this subpart;
    (4) In response to a communication about your products or services 
initiated by the consumer;
    (5) In response to an authorization or request by the consumer to 
receive solicitations; or
    (6) If your compliance with this subpart would prevent you from 
complying with any provision of State insurance laws pertaining to 
unfair discrimination in any State in which you are lawfully doing 
business.
    (d) Examples of exceptions--(1) Example of the pre-existing business 
relationship exception. A consumer has a deposit account with a 
depository institution. The consumer also has a relationship with the 
depository institution's securities affiliate for management of the 
consumer's securities portfolio. The depository institution receives 
eligibility information about the consumer from its securities affiliate 
and uses that information to make a solicitation to the consumer about 
the depository institution's wealth management services. The depository 
institution may make this solicitation even if the consumer has not been 
given a notice and opportunity to opt out because the depository 
institution has a pre-existing business relationship with the consumer.
    (2) Examples of service provider exception. (i) A consumer has an 
insurance policy issued by an insurance company. The insurance company 
furnishes eligibility information about the consumer to its affiliated 
depository institution. Based on that eligibility information, the 
depository institution wants to make a solicitation to the consumer 
about its deposit products. The depository institution does not have a 
pre-existing business relationship with the consumer and none of the 
other exceptions in paragraph (c) of this section apply. The consumer 
has been given an opt-out notice and has elected to opt out of receiving 
such solicitations. The depository institution asks a service provider 
to send the solicitation to the consumer on its behalf. The service 
provider may not send the solicitation on behalf of the depository 
institution because, as a result of the consumer's

[[Page 448]]

opt-out election, the depository institution is not permitted to make 
the solicitation.
    (ii) The same facts as in paragraph (d)(2)(i) of this section, 
except the consumer has been given an opt-out notice, but has not 
elected to opt out. The depository institution asks a service provider 
to send the solicitation to the consumer on its behalf. The service 
provider may send the solicitation on behalf of the depository 
institution because, as a result of the consumer's not opting out, the 
depository institution is permitted to make the solicitation.
    (3) Examples of consumer-initiated communications. (i) A consumer 
who has a deposit account with a depository institution initiates a 
communication with the depository institution's credit card affiliate to 
request information about a credit card. The credit card affiliate may 
use eligibility information about the consumer it obtains from the 
depository institution or any other affiliate to make solicitations 
regarding credit card products in response to the consumer-initiated 
communication.
    (ii) A consumer who has a deposit account with a depository 
institution contacts the institution to request information about how to 
save and invest for a child's college education without specifying the 
type of product in which the consumer may be interested. Information 
about a range of different products or services offered by the 
depository institution and one or more affiliates of the institution may 
be responsive to that communication. Such products or services may 
include the following: Mutual funds offered by the institution's mutual 
fund affiliate; section 529 plans offered by the institution, its mutual 
fund affiliate, or another securities affiliate; or trust services 
offered by a different financial institution in the affiliated group. 
Any affiliate offering investment products or services that would be 
responsive to the consumer's request for information about saving and 
investing for a child's college education may use eligibility 
information to make solicitations to the consumer in response to this 
communication.
    (iii) A credit card issuer makes a marketing call to the consumer 
without using eligibility information received from an affiliate. The 
issuer leaves a voice-mail message that invites the consumer to call a 
toll-free number to apply for the issuer's credit card. If the consumer 
calls the toll-free number to inquire about the credit card, the call is 
a consumer-initiated communication about a product or service and the 
credit card issuer may now use eligibility information it receives from 
its affiliates to make solicitations to the consumer.
    (iv) A consumer calls a depository institution to ask about retail 
locations and hours, but does not request information about products or 
services. The institution may not use eligibility information it 
receives from an affiliate to make solicitations to the consumer about 
its products or services because the consumer-initiated communication 
does not relate to the depository institution's products or services. 
Thus, the use of eligibility information received from an affiliate 
would not be responsive to the communication and the exception does not 
apply.
    (v) A consumer calls a depository institution to ask about retail 
locations and hours. The customer service representative asks the 
consumer if there is a particular product or service about which the 
consumer is seeking information. The consumer responds that the consumer 
wants to stop in and find out about certificates of deposit. The 
customer service representative offers to provide that information by 
telephone and mail additional information and application materials to 
the consumer. The consumer agrees and provides or confirms contact 
information for receipt of the materials to be mailed. The depository 
institution may use eligibility information it receives from an 
affiliate to make solicitations to the consumer about certificates of 
deposit because such solicitations would respond to the consumer-
initiated communication about products or services.
    (4) Examples of consumer authorization or request for solicitations. 
(i) A consumer who obtains a mortgage from a mortgage lender authorizes 
or requests information about homeowner's insurance offered by the 
mortgage lender's insurance affiliate. Such authorization

[[Page 449]]

or request, whether given to the mortgage lender or to the insurance 
affiliate, would permit the insurance affiliate to use eligibility 
information about the consumer it obtains from the mortgage lender or 
any other affiliate to make solicitations to the consumer about 
homeowner's insurance.
    (ii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a blank check box that the consumer may check to authorize or 
request information from the credit card issuer's affiliates. The 
consumer checks the box. The consumer has authorized or requested 
solicitations from the card issuer's affiliates.
    (iii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a pre-selected check box indicating that the consumer 
authorizes or requests information from the issuer's affiliates. The 
consumer does not deselect the check box. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (iv) The terms and conditions of a credit card account agreement 
contain preprinted boilerplate language stating that by applying to open 
an account the consumer authorizes or requests to receive solicitations 
from the credit card issuer's affiliates. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (e) Relation to affiliate-sharing notice and opt-out. Nothing in 
this subpart limits the responsibility of a person to comply with the 
notice and opt-out provisions of section 603(d)(2)(A)(iii) of the Act 
where applicable.



Sec. 571.22  Scope and duration of opt-out.

    (a) Scope of opt-out--(1) In general. Except as otherwise provided 
in this section, the consumer's election to opt out prohibits any 
affiliate covered by the opt-out notice from using eligibility 
information received from another affiliate as described in the notice 
to make solicitations to the consumer.
    (2) Continuing relationship--(i) In general. If the consumer 
establishes a continuing relationship with you or your affiliate, an 
opt-out notice may apply to eligibility information obtained in 
connection with--
    (A) A single continuing relationship or multiple continuing 
relationships that the consumer establishes with you or your affiliates, 
including continuing relationships established subsequent to delivery of 
the opt-out notice, so long as the notice adequately describes the 
continuing relationships covered by the opt-out; or
    (B) Any other transaction between the consumer and you or your 
affiliates as described in the notice.
    (ii) Examples of continuing relationships. A consumer has a 
continuing relationship with you or your affiliate if the consumer--
    (A) Opens a deposit or investment account with you or your 
affiliate;
    (B) Obtains a loan for which you or your affiliate owns the 
servicing rights;
    (C) Purchases an insurance product from you or your affiliate;
    (D) Holds an investment product through you or your affiliate, such 
as when you act or your affiliate acts as a custodian for securities or 
for assets in an individual retirement arrangement;
    (E) Enters into an agreement or understanding with you or your 
affiliate whereby you or your affiliate undertakes to arrange or broker 
a home mortgage loan for the consumer;
    (F) Enters into a lease of personal property with you or your 
affiliate; or
    (G) Obtains financial, investment, or economic advisory services 
from you or your affiliate for a fee.
    (3) No continuing relationship--(i) In general. If there is no 
continuing relationship between a consumer and you or your affiliate, 
and you or your affiliate obtain eligibility information about a 
consumer in connection with a transaction with the consumer, such as an 
isolated transaction or a credit application that is denied, an opt-out 
notice provided to the consumer only applies to eligibility information 
obtained in connection with that transaction.
    (ii) Examples of isolated transactions. An isolated transaction 
occurs if--
    (A) The consumer uses your or your affiliate's ATM to withdraw cash 
from

[[Page 450]]

an account at another financial institution; or
    (B) You or your affiliate sells the consumer a cashier's check or 
money order, airline tickets, travel insurance, or traveler's checks in 
isolated transactions.
    (4) Menu of alternatives. A consumer may be given the opportunity to 
choose from a menu of alternatives when electing to prohibit 
solicitations, such as by electing to prohibit solicitations from 
certain types of affiliates covered by the opt-out notice but not other 
types of affiliates covered by the notice, electing to prohibit 
solicitations based on certain types of eligibility information but not 
other types of eligibility information, or electing to prohibit 
solicitations by certain methods of delivery but not other methods of 
delivery. However, one of the alternatives must allow the consumer to 
prohibit all solicitations from all of the affiliates that are covered 
by the notice.
    (5) Special rule for a notice following termination of all 
continuing relationships--(i) In general. A consumer must be given a new 
opt-out notice if, after all continuing relationships with you or your 
affiliate(s) are terminated, the consumer subsequently establishes 
another continuing relationship with you or your affiliate(s) and the 
consumer's eligibility information is to be used to make a solicitation. 
The new opt-out notice must apply, at a minimum, to eligibility 
information obtained in connection with the new continuing relationship. 
Consistent with paragraph (b) of this section, the consumer's decision 
not to opt out after receiving the new opt-out notice would not override 
a prior opt-out election by the consumer that applies to eligibility 
information obtained in connection with a terminated relationship, 
regardless of whether the new opt-out notice applies to eligibility 
information obtained in connection with the terminated relationship.
    (ii) Example. A consumer has a checking account with a depository 
institution that is part of an affiliated group. The consumer closes the 
checking account. One year after closing the checking account, the 
consumer opens a savings account with the same depository institution. 
The consumer must be given a new notice and opportunity to opt out 
before the depository institution's affiliates may make solicitations to 
the consumer using eligibility information obtained by the depository 
institution in connection with the new savings account relationship, 
regardless of whether the consumer opted out in connection with the 
checking account.
    (b) Duration of opt-out. The election of a consumer to opt out must 
be effective for a period of at least five years (the ``opt-out 
period'') beginning when the consumer's opt-out election is received and 
implemented, unless the consumer subsequently revokes the opt-out in 
writing or, if the consumer agrees, electronically. An opt-out period of 
more than five years may be established, including an opt-out period 
that does not expire unless revoked by the consumer.
    (c) Time of opt-out. A consumer may opt out at any time.



Sec. 571.23  Contents of opt-out notice; consolidated and equivalent notices.

    (a) Contents of opt-out notice--(1) In general. A notice must be 
clear, conspicuous, and concise, and must accurately disclose:
    (i) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the

[[Page 451]]

ABC banking and credit card companies and the XYZ insurance companies'';
    (ii) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies'';
    (iii) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (iv) That the consumer may elect to limit the use of eligibility 
information to make solicitations to the consumer;
    (v) That the consumer's election will apply for the specified period 
of time stated in the notice and, if applicable, that the consumer will 
be allowed to renew the election once that period expires;
    (vi) If the notice is provided to consumers who may have previously 
opted out, such as if a notice is provided to consumers annually, that 
the consumer who has chosen to limit solicitations does not need to act 
again until the consumer receives a renewal notice; and
    (vii) A reasonable and simple method for the consumer to opt out.
    (2) Joint relationships. (i) If two or more consumers jointly obtain 
a product or service, a single opt-out notice may be provided to the 
joint consumers. Any of the joint consumers may exercise the right to 
opt out.
    (ii) The opt-out notice must explain how an opt-out direction by a 
joint consumer will be treated. An opt-out direction by a joint consumer 
may be treated as applying to all of the associated joint consumers, or 
each joint consumer may be permitted to opt-out separately. If each 
joint consumer is permitted to opt out separately, one of the joint 
consumers must be permitted to opt out on behalf of all of the joint 
consumers and the joint consumers must be permitted to exercise their 
separate rights to opt out in a single response.
    (iii) It is impermissible to require all joint consumers to opt out 
before implementing any opt-out direction.
    (3) Alternative contents. If the consumer is afforded a broader 
right to opt out of receiving marketing than is required by this 
subpart, the requirements of this section may be satisfied by providing 
the consumer with a clear, conspicuous, and concise notice that 
accurately discloses the consumer's opt-out rights.
    (4) Model notices. Model notices are provided in appendix C of this 
part.
    (b) Coordinated and consolidated notices. A notice required by this 
subpart may be coordinated and consolidated with any other notice or 
disclosure required to be issued under any other provision of law by the 
entity providing the notice, including but not limited to the notice 
described in section 603(d)(2)(A)(iii) of the Act and the Gramm-Leach-
Bliley Act privacy notice.
    (c) Equivalent notices. A notice or other disclosure that is 
equivalent to the notice required by this subpart, and that is provided 
to a consumer together with disclosures required by any other provision 
of law, satisfies the requirements of this section.



Sec. 571.24  Reasonable opportunity to opt out.

    (a) In general. You must not use eligibility information about a 
consumer that you receive from an affiliate to make a solicitation to 
the consumer about your products or services, unless the consumer is 
provided a reasonable

[[Page 452]]

opportunity to opt out, as required by Sec. 571.21(a)(1)(ii) of this 
part.
    (b) Examples of a reasonable opportunity to opt out. The consumer is 
given a reasonable opportunity to opt out if:
    (1) By mail. The opt-out notice is mailed to the consumer. The 
consumer is given 30 days from the date the notice is mailed to elect to 
opt out by any reasonable means.
    (2) By electronic means. (i) The opt-out notice is provided 
electronically to the consumer, such as by posting the notice at an 
Internet Web site at which the consumer has obtained a product or 
service. The consumer acknowledges receipt of the electronic notice. The 
consumer is given 30 days after the date the consumer acknowledges 
receipt to elect to opt out by any reasonable means.
    (ii) The opt-out notice is provided to the consumer by e-mail where 
the consumer has agreed to receive disclosures by e-mail from the person 
sending the notice. The consumer is given 30 days after the e-mail is 
sent to elect to opt out by any reasonable means.
    (3) At the time of an electronic transaction. The opt-out notice is 
provided to the consumer at the time of an electronic transaction, such 
as a transaction conducted on an Internet Web site. The consumer is 
required to decide, as a necessary part of proceeding with the 
transaction, whether to opt out before completing the transaction. There 
is a simple process that the consumer may use to opt out at that time 
using the same mechanism through which the transaction is conducted.
    (4) At the time of an in-person transaction. The opt-out notice is 
provided to the consumer in writing at the time of an in-person 
transaction. The consumer is required to decide, as a necessary part of 
proceeding with the transaction, whether to opt out before completing 
the transaction, and is not permitted to complete the transaction 
without making a choice. There is a simple process that the consumer may 
use during the course of the in-person transaction to opt out, such as 
completing a form that requires consumers to write a ``yes'' or ``no'' 
to indicate their opt-out preference or that requires the consumer to 
check one of two blank check boxes--one that allows consumers to 
indicate that they want to opt out and one that allows consumers to 
indicate that they do not want to opt out.
    (5) By including in a privacy notice. The opt-out notice is included 
in a Gramm-Leach-Bliley Act privacy notice. The consumer is allowed to 
exercise the opt-out within a reasonable period of time and in the same 
manner as the opt-out under that privacy notice.



Sec. 571.25  Reasonable and simple methods of opting out.

    (a) In general. You must not use eligibility information about a 
consumer that you receive from an affiliate to make a solicitation to 
the consumer about your products or services, unless the consumer is 
provided a reasonable and simple method to opt out, as required by Sec. 
571.21(a)(1)(ii) of this part.
    (b) Examples. (1) Reasonable and simple opt-out methods. Reasonable 
and simple methods for exercising the opt-out right include--
    (i) Designating a check-off box in a prominent position on the opt-
out form;
    (ii) Including a reply form and a self-addressed envelope together 
with the opt-out notice;
    (iii) Providing an electronic means to opt out, such as a form that 
can be electronically mailed or processed at an Internet Web site, if 
the consumer agrees to the electronic delivery of information;
    (iv) Providing a toll-free telephone number that consumers may call 
to opt out; or
    (v) Allowing consumers to exercise all of their opt-out rights 
described in a consolidated opt-out notice that includes the privacy 
opt-out under the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.), the 
affiliate sharing opt-out under the Act, and the affiliate marketing 
opt-out under the Act, by a single method, such as by calling a single 
toll-free telephone number.
    (2) Opt-out methods that are not reasonable and simple. Reasonable 
and simple methods for exercising an opt-out right do not include--
    (i) Requiring the consumer to write his or her own letter;
    (ii) Requiring the consumer to call or write to obtain a form for 
opting out,

[[Page 453]]

rather than including the form with the opt-out notice;
    (iii) Requiring the consumer who receives the opt-out notice in 
electronic form only, such as through posting at an Internet Web site, 
to opt out solely by paper mail or by visiting a different Web site 
without providing a link to that site.
    (c) Specific opt-out means. Each consumer may be required to opt out 
through a specific means, as long as that means is reasonable and simple 
for that consumer.



Sec. 571.26  Delivery of opt-out notices.

    (a) In general. The opt-out notice must be provided so that each 
consumer can reasonably be expected to receive actual notice. For opt-
out notices provided electronically, the notice may be provided in 
compliance with either the electronic disclosure provisions in this 
subpart or the provisions in section 101 of the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001 et seq.
    (b) Examples of reasonable expectation of actual notice. A consumer 
may reasonably be expected to receive actual notice if the affiliate 
providing the notice:
    (1) Hand-delivers a printed copy of the notice to the consumer;
    (2) Mails a printed copy of the notice to the last known mailing 
address of the consumer;
    (3) Provides a notice by e-mail to a consumer who has agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or
    (4) Posts the notice on the Internet Web site at which the consumer 
obtained a product or service electronically and requires the consumer 
to acknowledge receipt of the notice.
    (c) Examples of no reasonable expectation of actual notice. A 
consumer may not reasonably be expected to receive actual notice if the 
affiliate providing the notice:
    (1) Only posts the notice on a sign in a branch or office or 
generally publishes the notice in a newspaper;
    (2) Sends the notice via e-mail to a consumer who has not agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or
    (3) Posts the notice on an Internet Web site without requiring the 
consumer to acknowledge receipt of the notice.



Sec. 571.27  Renewal of opt-out.

    (a) Renewal notice and opt-out requirement. (1) In general. After 
the opt-out period expires, you may not make solicitations based on 
eligibility information you receive from an affiliate to a consumer who 
previously opted out, unless:
    (i) The consumer has been given a renewal notice that complies with 
the requirements of this section and Sec. Sec. 571.24 through 571.26 of 
this part, and a reasonable opportunity and a reasonable and simple 
method to renew the opt-out, and the consumer does not renew the opt-
out; or
    (ii) An exception in Sec. 571.21(c) of this part applies.
    (2) Renewal period. Each opt-out renewal must be effective for a 
period of at least five years as provided in Sec. 571.22(b) of this 
part.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By the affiliate that provided the previous opt-out notice, or 
its successor; or
    (ii) As part of a joint renewal notice from two or more members of 
an affiliated group of companies, or their successors, that jointly 
provided the previous opt-out notice.
    (b) Contents of renewal notice. The renewal notice must be clear, 
conspicuous, and concise, and must accurately disclose:
    (1) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not

[[Page 454]]

all share a common name, then the notice must either separately identify 
each affiliate by name or identify each of the common names used by 
those affiliates, for example, by stating that the notice is provided by 
``all of the ABC and XYZ companies'' or by ``the ABC banking and credit 
card companies and the XYZ insurance companies'';
    (2) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies'';
    (3) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (4) That the consumer previously elected to limit the use of certain 
information to make solicitations to the consumer;
    (5) That the consumer's election has expired or is about to expire;
    (6) That the consumer may elect to renew the consumer's previous 
election;
    (7) If applicable, that the consumer's election to renew will apply 
for the specified period of time stated in the notice and that the 
consumer will be allowed to renew the election once that period expires; 
and
    (8) A reasonable and simple method for the consumer to opt out.
    (c) Timing of the renewal notice. (1) In general. A renewal notice 
may be provided to the consumer either--
    (i) A reasonable period of time before the expiration of the opt-out 
period; or
    (ii) Any time after the expiration of the opt-out period but before 
solicitations that would have been prohibited by the expired opt-out are 
made to the consumer.
    (2) Combination with annual privacy notice. If you provide an annual 
privacy notice under the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq., 
providing a renewal notice with the last annual privacy notice provided 
to the consumer before expiration of the opt-out period is a reasonable 
period of time before expiration of the opt-out in all cases.
    (d) No effect on opt-out period. An opt-out period may not be 
shortened by sending a renewal notice to the consumer before expiration 
of the opt-out period, even if the consumer does not renew the opt-out.



Sec. 571.28  Effective date, compliance date, and prospective application.

    (a) Effective date. This subpart is effective January 1, 2008.
    (b) Mandatory compliance date. Compliance with this subpart is 
required not later than October 1, 2008.
    (c) Prospective application. The provisions of this subpart shall 
not prohibit you from using eligibility information that you receive 
from an affiliate to make solicitations to a consumer if you receive 
such information prior to October 1, 2008. For purposes of this section, 
you are deemed to receive eligibility information when such information 
is placed into a common database and is accessible by you.



                      Subpart D_Medical Information

    Source: 70 FR 70689, Nov. 22, 2005, unless otherwise noted.



Sec. 571.30  Obtaining or using medical information in connection
with a determination of eligibility for credit.

    (a) Scope. This section applies to:
    (1) Any of the following that participates as a creditor in a 
transaction--
    (i) A savings association;

[[Page 455]]

    (ii) A subsidiary owned in whole or in part by a savings 
association;
    (iii) A savings and loan holding company;
    (iv) A subsidiary of a savings and loan holding company other than a 
bank or subsidiary of a bank; or
    (v) A service corporation owned in whole or in part by a savings 
association; or
    (2) Any other person that participates as a creditor in a 
transaction involving a person described in paragraph (a)(1) of this 
section.
    (b) General prohibition on obtaining or using medical information--
(1) In general. A creditor may not obtain or use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit, except as 
provided in this section.
    (2) Definitions. (i) Credit has the same meaning as in section 702 
of the Equal Credit Opportunity Act, 15 U.S.C. 1691a.
    (ii) Creditor has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (iii) Eligibility, or continued eligibility, for credit means the 
consumer's qualification or fitness to receive, or continue to receive, 
credit, including the terms on which credit is offered. The term does 
not include:
    (A) Any determination of the consumer's qualification or fitness for 
employment, insurance (other than a credit insurance product), or other 
non-credit products or services;
    (B) Authorizing, processing, or documenting a payment or transaction 
on behalf of the consumer in a manner that does not involve a 
determination of the consumer's eligibility, or continued eligibility, 
for credit; or
    (C) Maintaining or servicing the consumer's account in a manner that 
does not involve a determination of the consumer's eligibility, or 
continued eligibility, for credit.
    (c) Rule of construction for obtaining and using unsolicited medical 
information--(1) In general. A creditor does not obtain medical 
information in violation of the prohibition if it receives medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit without specifically requesting medical information.
    (2) Use of unsolicited medical information. A creditor that receives 
unsolicited medical information in the manner described in paragraph 
(c)(1) of this section may use that information in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit to the extent the creditor can rely on at least one of the 
exceptions in Sec. 571.30(d) or (e).
    (3) Examples. A creditor does not obtain medical information in 
violation of the prohibition if, for example:
    (i) In response to a general question regarding a consumer's debts 
or expenses, the creditor receives information that the consumer owes a 
debt to a hospital;
    (ii) In a conversation with the creditor's loan officer, the 
consumer informs the creditor that the consumer has a particular medical 
condition; or
    (iii) In connection with a consumer's application for an extension 
of credit, the creditor requests a consumer report from a consumer 
reporting agency and receives medical information in the consumer report 
furnished by the agency even though the creditor did not specifically 
request medical information from the consumer reporting agency.
    (d) Financial information exception for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit so long as:
    (i) The information is the type of information routinely used in 
making credit eligibility determinations, such as information relating 
to debts, expenses, income, benefits, assets, collateral, or the purpose 
of the loan, including the use of proceeds;
    (ii) The creditor uses the medical information in a manner and to an 
extent that is no less favorable than it would use comparable 
information that is not medical information in a credit transaction; and
    (iii) The creditor does not take the consumer's physical, mental, or 
behavioral health, condition or history, type

[[Page 456]]

of treatment, or prognosis into account as part of any such 
determination.
    (2) Examples. (i) Examples of the types of information routinely 
used in making credit eligibility determinations. Paragraph (d)(1)(i) of 
this section permits a creditor, for example, to obtain and use 
information about:
    (A) The dollar amount, repayment terms, repayment history, and 
similar information regarding medical debts to calculate, measure, or 
verify the repayment ability of the consumer, the use of proceeds, or 
the terms for granting credit;
    (B) The value, condition, and lien status of a medical device that 
may serve as collateral to secure a loan;
    (C) The dollar amount and continued eligibility for disability 
income, workers' compensation income, or other benefits related to 
health or a medical condition that is relied on as a source of 
repayment; or
    (D) The identity of creditors to whom outstanding medical debts are 
owed in connection with an application for credit, including but not 
limited to, a transaction involving the consolidation of medical debts.
    (ii) Examples of uses of medical information consistent with the 
exception. (A) A consumer includes on an application for credit 
information about two $20,000 debts. One debt is to a hospital; the 
other debt is to a retailer. The creditor contacts the hospital and the 
retailer to verify the amount and payment status of the debts. The 
creditor learns that both debts are more than 90 days past due. Any two 
debts of this size that are more than 90 days past due would disqualify 
the consumer under the creditor's established underwriting criteria. The 
creditor denies the application on the basis that the consumer has a 
poor repayment history on outstanding debts. The creditor has used 
medical information in a manner and to an extent no less favorable than 
it would use comparable non-medical information.
    (B) A consumer indicates on an application for a $200,000 mortgage 
loan that she receives $15,000 in long-term disability income each year 
from her former employer and has no other income. Annual income of 
$15,000, regardless of source, would not be sufficient to support the 
requested amount of credit. The creditor denies the application on the 
basis that the projected debt-to-income ratio of the consumer does not 
meet the creditor's underwriting criteria. The creditor has used medical 
information in a manner and to an extent that is no less favorable than 
it would use comparable non-medical information.
    (C) A consumer includes on an application for a $10,000 home equity 
loan that he has a $50,000 debt to a medical facility that specializes 
in treating a potentially terminal disease. The creditor contacts the 
medical facility to verify the debt and obtain the repayment history and 
current status of the loan. The creditor learns that the debt is 
current. The applicant meets the income and other requirements of the 
creditor's underwriting guidelines. The creditor grants the application. 
The creditor has used medical information in accordance with the 
exception.
    (iii) Examples of uses of medical information inconsistent with the 
exception. (A) A consumer applies for $25,000 of credit and includes on 
the application information about a $50,000 debt to a hospital. The 
creditor contacts the hospital to verify the amount and payment status 
of the debt, and learns that the debt is current and that the consumer 
has no delinquencies in her repayment history. If the existing debt were 
instead owed to a retail department store, the creditor would approve 
the application and extend credit based on the amount and repayment 
history of the outstanding debt. The creditor, however, denies the 
application because the consumer is indebted to a hospital. The creditor 
has used medical information, here the identity of the medical creditor, 
in a manner and to an extent that is less favorable than it would use 
comparable non-medical information.
    (B) A consumer meets with a loan officer of a creditor to apply for 
a mortgage loan. While filling out the loan application, the consumer 
informs the loan officer orally that she has a potentially terminal 
disease. The consumer meets the creditor's established requirements for 
the requested mortgage loan. The loan officer recommends to

[[Page 457]]

the credit committee that the consumer be denied credit because the 
consumer has that disease. The credit committee follows the loan 
officer's recommendation and denies the application because the consumer 
has a potentially terminal disease. The creditor has used medical 
information in a manner inconsistent with the exception by taking into 
account the consumer's physical, mental, or behavioral health, 
condition, or history, type of treatment, or prognosis as part of a 
determination of eligibility or continued eligibility for credit.
    (C) A consumer who has an apparent medical condition, such as a 
consumer who uses a wheelchair or an oxygen tank, meets with a loan 
officer to apply for a home equity loan. The consumer meets the 
creditor's established requirements for the requested home equity loan 
and the creditor typically does not require consumers to obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product in connection with such loans. However, based on the consumer's 
apparent medical condition, the loan officer recommends to the credit 
committee that credit be extended to the consumer only if the consumer 
obtains a debt cancellation contract, debt suspension agreement, or 
credit insurance product from a nonaffiliated third party. The credit 
committee agrees with the loan officer's recommendation. The loan 
officer informs the consumer that the consumer must obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product from a nonaffiliated third party to qualify for the loan. The 
consumer obtains one of these products and the creditor approves the 
loan. The creditor has used medical information in a manner inconsistent 
with the exception by taking into account the consumer's physical, 
mental, or behavioral health, condition, or history, type of treatment, 
or prognosis in setting conditions on the consumer's eligibility for 
credit.
    (e) Specific exceptions for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit--
    (i) To determine whether the use of a power of attorney or legal 
representative that is triggered by a medical condition or event is 
necessary and appropriate or whether the consumer has the legal capacity 
to contract when a person seeks to exercise a power of attorney or act 
as legal representative for a consumer based on an asserted medical 
condition or event;
    (ii) To comply with applicable requirements of local, state, or 
federal laws;
    (iii) To determine, at the consumer's request, whether the consumer 
qualifies for a legally permissible special credit program or credit-
related assistance program that is--
    (A) Designed to meet the special needs of consumers with medical 
conditions; and
    (B) Established and administered pursuant to a written plan that--
    (1) Identifies the class of persons that the program is designed to 
benefit; and
    (2) Sets forth the procedures and standards for extending credit or 
providing other credit-related assistance under the program;
    (iv) To the extent necessary for purposes of fraud prevention or 
detection;
    (v) In the case of credit for the purpose of financing medical 
products or services, to determine and verify the medical purpose of a 
loan and the use of proceeds;
    (vi) Consistent with safe and sound practices, if the consumer or 
the consumer's legal representative specifically requests that the 
creditor use medical information in determining the consumer's 
eligibility, or continued eligibility, for credit, to accommodate the 
consumer's particular circumstances, and such request is documented by 
the creditor;
    (vii) Consistent with safe and sound practices, to determine whether 
the provisions of a forbearance practice or program that is triggered by 
a medical condition or event apply to a consumer;
    (viii) To determine the consumer's eligibility for, the triggering 
of, or the reactivation of a debt cancellation contract or debt 
suspension agreement if a

[[Page 458]]

medical condition or event is a triggering event for the provision of 
benefits under the contract or agreement; or
    (ix) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a credit insurance product if a medical condition 
or event is a triggering event for the provision of benefits under the 
product.
    (2) Example of determining eligibility for a special credit program 
or credit assistance program. A not-for-profit organization establishes 
a credit assistance program pursuant to a written plan that is designed 
to assist disabled veterans in purchasing homes by subsidizing the down 
payment for the home purchase mortgage loans of qualifying veterans. The 
organization works through mortgage lenders and requires mortgage 
lenders to obtain medical information about the disability of any 
consumer that seeks to qualify for the program, use that information to 
verify the consumer's eligibility for the program, and forward that 
information to the organization. A consumer who is a veteran applies to 
a creditor for a home purchase mortgage loan. The creditor informs the 
consumer about the credit assistance program for disabled veterans and 
the consumer seeks to qualify for the program. Assuming that the program 
complies with all applicable law, including applicable fair lending 
laws, the creditor may obtain and use medical information about the 
medical condition and disability, if any, of the consumer to determine 
whether the consumer qualifies for the credit assistance program.
    (3) Examples of verifying the medical purpose of the loan or the use 
of proceeds. (i) If a consumer applies for $10,000 of credit for the 
purpose of financing vision correction surgery, the creditor may verify 
with the surgeon that the procedure will be performed. If the surgeon 
reports that surgery will not be performed on the consumer, the creditor 
may use that medical information to deny the consumer's application for 
credit, because the loan would not be used for the stated purpose.
    (ii) If a consumer applies for $10,000 of credit for the purpose of 
financing cosmetic surgery, the creditor may confirm the cost of the 
procedure with the surgeon. If the surgeon reports that the cost of the 
procedure is $5,000, the creditor may use that medical information to 
offer the consumer only $5,000 of credit.
    (iii) A creditor has an established medical loan program for 
financing particular elective surgical procedures. The creditor receives 
a loan application from a consumer requesting $10,000 of credit under 
the established loan program for an elective surgical procedure. The 
consumer indicates on the application that the purpose of the loan is to 
finance an elective surgical procedure not eligible for funding under 
the guidelines of the established loan program. The creditor may deny 
the consumer's application because the purpose of the loan is not for a 
particular procedure funded by the established loan program.
    (4) Examples of obtaining and using medical information at the 
request of the consumer. (i) If a consumer applies for a loan and 
specifically requests that the creditor consider the consumer's medical 
disability at the relevant time as an explanation for adverse payment 
history information in his credit report, the creditor may consider such 
medical information in evaluating the consumer's willingness and ability 
to repay the requested loan to accommodate the consumer's particular 
circumstances, consistent with safe and sound practices. The creditor 
may also decline to consider such medical information to accommodate the 
consumer, but may evaluate the consumer's application in accordance with 
its otherwise applicable underwriting criteria. The creditor may not 
deny the consumer's application or otherwise treat the consumer less 
favorably because the consumer specifically requested a medical 
accommodation, if the creditor would have extended the credit or treated 
the consumer more favorably under the creditor's otherwise applicable 
underwriting criteria.
    (ii) If a consumer applies for a loan by telephone and explains that 
his income has been and will continue to be interrupted on account of a 
medical condition and that he expects to repay the loan by liquidating 
assets, the creditor may, but is not required to, evaluate the 
application using the sale

[[Page 459]]

of assets as the primary source of repayment, consistent with safe and 
sound practices, provided that the creditor documents the consumer's 
request by recording the oral conversation or making a notation of the 
request in the consumer's file.
    (iii) If a consumer applies for a loan and the application form 
provides a space where the consumer may provide any other information or 
special circumstances, whether medical or non-medical, that the consumer 
would like the creditor to consider in evaluating the consumer's 
application, the creditor may use medical information provided by the 
consumer in that space on that application to accommodate the consumer's 
application for credit, consistent with safe and sound practices, or may 
disregard that information.
    (iv) If a consumer specifically requests that the creditor use 
medical information in determining the consumer's eligibility, or 
continued eligibility, for credit and provides the creditor with medical 
information for that purpose, and the creditor determines that it needs 
additional information regarding the consumer's circumstances, the 
creditor may request, obtain, and use additional medical information 
about the consumer as necessary to verify the information provided by 
the consumer or to determine whether to make an accommodation for the 
consumer. The consumer may decline to provide additional information, 
withdraw the request for an accommodation, and have the application 
considered under the creditor's otherwise applicable underwriting 
criteria.
    (v) If a consumer completes and signs a credit application that is 
not for medical purpose credit and the application contains boilerplate 
language that routinely requests medical information from the consumer 
or that indicates that by applying for credit the consumer authorizes or 
consents to the creditor obtaining and using medical information in 
connection with a determination of the consumer's eligibility, or 
continued eligibility, for credit, the consumer has not specifically 
requested that the creditor obtain and use medical information to 
accommodate the consumer's particular circumstances.
    (5) Example of a forbearance practice or program. After an 
appropriate safety and soundness review, a creditor institutes a program 
that allows consumers who are or will be hospitalized to defer payments 
as needed for up to three months, without penalty, if the credit account 
has been open for more than one year and has not previously been in 
default, and the consumer provides confirming documentation at an 
appropriate time. A consumer is hospitalized and does not pay her bill 
for a particular month. This consumer has had a credit account with the 
creditor for more than one year and has not previously been in default. 
The creditor attempts to contact the consumer and speaks with the 
consumer's spouse, who is not the consumer's legal representative. The 
spouse informs the creditor that the consumer is hospitalized and is 
unable to pay the bill at that time. The creditor defers payments for up 
to three months, without penalty, for the hospitalized consumer and 
sends the consumer a letter confirming this practice and the date on 
which the next payment will be due. The creditor has obtained and used 
medical information to determine whether the provisions of a medically-
triggered forbearance practice or program apply to a consumer.



Sec. 571.31  Limits on redisclosure of information.

    (a) Scope. This section applies to savings associations and federal 
savings association operating subsidiaries.
    (b) Limits on redisclosure. If a person described in paragraph (a) 
of this section receives medical information about a consumer from a 
consumer reporting agency or its affiliate, the person must not disclose 
that information to any other person, except as necessary to carry out 
the purpose for which the information was initially disclosed, or as 
otherwise permitted by statute, regulation, or order.



Sec. 571.32  Sharing medical information with affiliates.

    (a) Scope. This section applies to savings associations and federal 
savings association operating subsidiaries.
    (b) In general. The exclusions from the term ``consumer report'' in 
section

[[Page 460]]

603(d)(2) of the Act that allow the sharing of information with 
affiliates do not apply if a person described in paragraph (a) of this 
section communicates to an affiliate:
    (1) Medical information;
    (2) An individualized list or description based on the payment 
transactions of the consumer for medical products or services; or
    (3) An aggregate list of identified consumers based on payment 
transactions for medical products or services.
    (c) Exceptions. A person described in paragraph (a) of this section 
may rely on the exclusions from the term ``consumer report'' in section 
603(d)(2) of the Act to communicate the information in paragraph (b) of 
this section to an affiliate:
    (1) In connection with the business of insurance or annuities 
(including the activities described in section 18B of the model Privacy 
of Consumer Financial and Health Information Regulation issued by the 
National Association of Insurance Commissioners, as in effect on January 
1, 2003);
    (2) For any purpose permitted without authorization under the 
regulations promulgated by the Department of Health and Human Services 
pursuant to the Health Insurance Portability and Accountability Act of 
1996 (HIPAA);
    (3) For any purpose referred to in section 1179 of HIPAA;
    (4) For any purpose described in section 502(e) of the Gramm-Leach-
Bliley Act;
    (5) In connection with a determination of the consumer's 
eligibility, or continued eligibility, for credit consistent with Sec. 
571.30; or
    (6) As otherwise permitted by order of the OTS.



              Subpart E_Duties of Furnishers of Information

    Source: 74 FR 31520, July 1, 2009, unless otherwise noted.

    Effective Date Note: At 74 FR 31520, July 1, 2009, subpart E was 
added, effective July 1, 2010.



Sec. 571.40  Scope.

    Subpart E of this part applies to savings associations whose 
deposits are insured by the Federal Deposit Insurance Corporation or, in 
accordance with Sec. 559.3(h)(1) of this chapter, Federal savings 
association operating subsidiaries that are not functionally regulated 
within the meaning of section 5(c)(5) of the Bank Holding Company Act of 
1956, as amended (12 U.S.C. 1844(c)(5)).



Sec. 571.41  Definitions.

    For purposes of this subpart and Appendix E of this part, the 
following definitions apply:
    (a) Accuracy means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer correctly:
    (1) Reflects the terms of and liability for the account or other 
relationship;
    (2) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship; and
    (3) Identifies the appropriate consumer.
    (b) Direct dispute means a dispute submitted directly to a furnisher 
(including a furnisher that is a debt collector) by a consumer 
concerning the accuracy of any information contained in a consumer 
report and pertaining to an account or other relationship that the 
furnisher has or had with the consumer.
    (c) Furnisher means an entity that furnishes information relating to 
consumers to one or more consumer reporting agencies for inclusion in a 
consumer report. An entity is not a furnisher when it:
    (1) Provides information to a consumer reporting agency solely to 
obtain a consumer report in accordance with sections 604(a) and (f) of 
the Fair Credit Reporting Act;
    (2) Is acting as a ``consumer reporting agency'' as defined in 
section 603(f) of the Fair Credit Reporting Act;
    (3) Is a consumer to whom the furnished information pertains; or
    (4) Is a neighbor, friend, or associate of the consumer, or another 
individual with whom the consumer is acquainted or who may have 
knowledge about the consumer, and who provides information about the 
consumer's character,

[[Page 461]]

general reputation, personal characteristics, or mode of living in 
response to a specific request from a consumer reporting agency.
    (d) Identity theft has the same meaning as in 16 CFR 603.2(a).
    (e) Integrity means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer:
    (1) Is substantiated by the furnisher's records at the time it is 
furnished;
    (2) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected in a 
consumer report; and
    (3) Includes the information in the furnisher's possession about the 
account or other relationship that OTS has:
    (i) Determined that the absence of which would likely be materially 
misleading in evaluating a consumer's creditworthiness, credit standing, 
credit capacity, character, general reputation, personal 
characteristics, or mode of living; and
    (ii) Listed in section I.(b)(2)(iii) of Appendix E of this part.



Sec. 571.42  Reasonable policies and procedures concerning the accuracy
and integrity of furnished information.

    (a) Policies and procedures. Each furnisher must establish and 
implement reasonable written policies and procedures regarding the 
accuracy and integrity of the information relating to consumers that it 
furnishes to a consumer reporting agency. The policies and procedures 
must be appropriate to the nature, size, complexity, and scope of each 
furnisher's activities.
    (b) Guidelines. Each furnisher must consider the guidelines in 
Appendix E of this part in developing its policies and procedures 
required by this section, and incorporate those guidelines that are 
appropriate.
    (c) Reviewing and updating policies and procedures. Each furnisher 
must review its policies and procedures required by this section 
periodically and update them as necessary to ensure their continued 
effectiveness.



Sec. 571.43  Direct disputes.

    (a) General rule. Except as otherwise provided in this section, a 
furnisher must conduct a reasonable investigation of a direct dispute if 
it relates to:
    (1) The consumer's liability for a credit account or other debt with 
the furnisher, such as direct disputes relating to whether there is or 
has been identity theft or fraud against the consumer, whether there is 
individual or joint liability on an account, or whether the consumer is 
an authorized user of a credit account;
    (2) The terms of a credit account or other debt with the furnisher, 
such as direct disputes relating to the type of account, principal 
balance, scheduled payment amount on an account, or the amount of the 
credit limit on an open-end account;
    (3) The consumer's performance or other conduct concerning an 
account or other relationship with the furnisher, such as direct 
disputes relating to the current payment status, high balance, date a 
payment was made, the amount of a payment made, or the date an account 
was opened or closed; or
    (4) Any other information contained in a consumer report regarding 
an account or other relationship with the furnisher that bears on the 
consumer's creditworthiness, credit standing, credit capacity, 
character, general reputation, personal characteristics, or mode of 
living.
    (b) Exceptions. The requirements of paragraph (a) of this section do 
not apply to a furnisher if:
    (1) The direct dispute relates to:
    (i) The consumer's identifying information (other than a direct 
dispute relating to a consumer's liability for a credit account or other 
debt with the furnisher, as provided in paragraph (a)(1) of this 
section) such as name(s), date of birth, Social Security number, 
telephone number(s), or address(es);
    (ii) The identity of past or present employers;
    (iii) Inquiries or requests for a consumer report;
    (iv) Information derived from public records, such as judgments, 
bankruptcies, liens, and other legal matters (unless provided by a 
furnisher with an account or other relationship with the consumer);

[[Page 462]]

    (v) Information related to fraud alerts or active duty alerts; or
    (vi) Information provided to a consumer reporting agency by another 
furnisher; or
    (2) The furnisher has a reasonable belief that the direct dispute is 
submitted by, is prepared on behalf of the consumer by, or is submitted 
on a form supplied to the consumer by, a credit repair organization, as 
defined in 15 U.S.C. 1679a(3), or an entity that would be a credit 
repair organization, but for 15 U.S.C. 1679a(3)(B)(i).
    (c) Direct dispute address. A furnisher is required to investigate a 
direct dispute only if a consumer submits a dispute notice to the 
furnisher at:
    (1) The address of a furnisher provided by a furnisher and set forth 
on a consumer report relating to the consumer;
    (2) An address clearly and conspicuously specified by the furnisher 
for submitting direct disputes that is provided to the consumer in 
writing or electronically (if the consumer has agreed to the electronic 
delivery of information from the furnisher); or
    (3) Any business address of the furnisher if the furnisher has not 
so specified and provided an address for submitting direct disputes 
under paragraphs (c)(1) or (2) of this section.
    (d) Direct dispute notice contents. A dispute notice must include:
    (1) Sufficient information to identify the account or other 
relationship that is in dispute, such as an account number and the name, 
address, and telephone number of the consumer, if applicable;
    (2) The specific information that the consumer is disputing and an 
explanation of the basis for the dispute; and
    (3) All supporting documentation or other information reasonably 
required by the furnisher to substantiate the basis of the dispute. This 
documentation may include, for example: A copy of the relevant portion 
of the consumer report that contains the allegedly inaccurate 
information; a police report; a fraud or identity theft affidavit; a 
court order; or account statements.
    (e) Duty of furnisher after receiving a direct dispute notice. After 
receiving a dispute notice from a consumer pursuant to paragraphs (c) 
and (d) of this section, the furnisher must:
    (1) Conduct a reasonable investigation with respect to the disputed 
information;
    (2) Review all relevant information provided by the consumer with 
the dispute notice;
    (3) Complete its investigation of the dispute and report the results 
of the investigation to the consumer before the expiration of the period 
under section 611(a)(1) of the Fair Credit Reporting Act (15 U.S.C. 
1681i(a)(1)) within which a consumer reporting agency would be required 
to complete its action if the consumer had elected to dispute the 
information under that section; and
    (4) If the investigation finds that the information reported was 
inaccurate, promptly notify each consumer reporting agency to which the 
furnisher provided inaccurate information of that determination and 
provide to the consumer reporting agency any correction to that 
information that is necessary to make the information provided by the 
furnisher accurate.
    (f) Frivolous or irrelevant disputes. (1) A furnisher is not 
required to investigate a direct dispute if the furnisher has reasonably 
determined that the dispute is frivolous or irrelevant. A dispute 
qualifies as frivolous or irrelevant if:
    (i) The consumer did not provide sufficient information to 
investigate the disputed information as required by paragraph (d) of 
this section;
    (ii) The direct dispute is substantially the same as a dispute 
previously submitted by or on behalf of the consumer, either directly to 
the furnisher or through a consumer reporting agency, with respect to 
which the furnisher has already satisfied the applicable requirements of 
the Act or this section; provided, however, that a direct dispute is not 
substantially the same as a dispute previously submitted if the dispute 
includes information listed in paragraph (d) of this section that had 
not previously been provided to the furnisher; or
    (iii) The furnisher is not required to investigate the direct 
dispute because one or more of the exceptions listed in paragraph (b) of 
this section applies.

[[Page 463]]

    (2) Notice of determination. Upon making a determination that a 
dispute is frivolous or irrelevant, the furnisher must notify the 
consumer of the determination not later than five business days after 
making the determination, by mail or, if authorized by the consumer for 
that purpose, by any other means available to the furnisher.
    (3) Contents of notice of determination that a dispute is frivolous 
or irrelevant. A notice of determination that a dispute is frivolous or 
irrelevant must include the reasons for such determination and identify 
any information required to investigate the disputed information, which 
notice may consist of a standardized form describing the general nature 
of such information.

Subparts F-H [Reserved]



    Subpart I_Duties of Users of Consumer Reports Regarding Address 
                   Discrepancies and Records Disposal



Sec. Sec. 571.80-570.81  [Reserved]



Sec. 571.82  Duties of users regarding address discrepancies.

    (a) Scope. This section applies to a user of consumer reports (user) 
that receives a notice of address discrepancy from a consumer reporting 
agency described in 15 U.S.C. 1681a(p), and that is a savings 
association whose deposits are insured by the Federal Deposit Insurance 
Corporation or, in accordance with Sec. 559.3(h)(1) of this chapter, a 
federal savings association operating subsidiary that is not 
functionally regulated within the meaning of section 5(c)(5) of the Bank 
Holding Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (b) Definition. For purposes of this section, a notice of address 
discrepancy means a notice sent to a user by a consumer reporting agency 
described in 15 U.S.C. 1681a(p) pursuant to 15 U.S.C. 1681c(h)(1), that 
informs the user of a substantial difference between the address for the 
consumer that the user provided to request the consumer report and the 
address(es) in the agency's file for the consumer.
    (c) Reasonable belief--(1) Requirement to form a reasonable belief. 
A user must develop and implement reasonable policies and procedures 
designed to enable the user to form a reasonable belief that a consumer 
report relates to the consumer about whom it has requested the report, 
when the user receives a notice of address discrepancy.
    (2) Examples of reasonable policies and procedures. (i) Comparing 
the information in the consumer report provided by the consumer 
reporting agency with information the user:
    (A) Obtains and uses to verify the consumer's identity in accordance 
with the requirements of the Customer Identification Program (CIP) rules 
implementing 31 U.S.C. 5318(l) (31 CFR 103.121);
    (B) Maintains in its own records, such as applications, change of 
address notifications, other customer account records, or retained CIP 
documentation; or
    (C) Obtains from third-party sources; or
    (ii) Verifying the information in the consumer report provided by 
the consumer reporting agency with the consumer.
    (d) Consumer's address--(1) Requirement to furnish consumer's 
address to a consumer reporting agency. A user must develop and 
implement reasonable policies and procedures for furnishing an address 
for the consumer that the user has reasonably confirmed is accurate to 
the consumer reporting agency described in 15 U.S.C. 1681a(p) from whom 
it received the notice of address discrepancy when the user:
    (i) Can form a reasonable belief that the consumer report relates to 
the consumer about whom the user requested the report;
    (ii) Establishes a continuing relationship with the consumer; and
    (iii) Regularly and in the ordinary course of business furnishes 
information to the consumer reporting agency from which the notice of 
address discrepancy relating to the consumer was obtained.
    (2) Examples of confirmation methods. The user may reasonably 
confirm an address is accurate by:
    (i) Verifying the address with the consumer about whom it has 
requested the report;

[[Page 464]]

    (ii) Reviewing its own records to verify the address of the 
consumer;
    (iii) Verifying the address through third-party sources; or
    (iv) Using other reasonable means.
    (3) Timing. The policies and procedures developed in accordance with 
paragraph (d)(1) of this section must provide that the user will furnish 
the consumer's address that the user has reasonably confirmed is 
accurate to the consumer reporting agency described in 15 U.S.C. 
1681a(p) as part of the information it regularly furnishes for the 
reporting period in which it establishes a relationship with the 
consumer.

[72 FR 63764, Nov. 9, 2007, as amended at 74 FR 22643, May 14, 2009]



Sec. 571.83  Disposal of consumer information.

    (a) Scope. This section applies to savings associations whose 
deposits are insured by the Federal Deposit Insurance Corporation and 
federal savings association operating subsidiaries in accordance with 
Sec. 559.3(h)(1) of this chapter (defined as ``you'').
    (b) In general. You must properly dispose of any consumer 
information that you maintain or otherwise possess in accordance with 
the Interagency Guidelines Establishing Information Security Standards, 
as set forth in appendix B to part 570, to the extent that you are 
covered by the scope of the Guidelines.
    (c) Rule of construction. Nothing in this section shall be construed 
to:
    (1) Require you to maintain or destroy any record pertaining to a 
consumer that is not imposed under any other law; or
    (2) Alter or affect any requirement imposed under any other 
provision of law to maintain or destroy such a record.

[69 FR 77621, Dec. 28, 2004, as amended at 72 FR 63764, Nov. 9, 2007]



                   Subpart J_Identity Theft Red Flags

    Source: 72 FR 63765, Nov. 9, 2007, unless otherwise noted.



Sec. 571.90  Duties regarding the detection, prevention, and mitigation
of identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor that is a savings association whose deposits are insured by the 
Federal Deposit Insurance Corporation or, in accordance with Sec. 
559.3(h)(1) of this chapter, a federal savings association operating 
subsidiary that is not functionally regulated within the meaning of 
section 5(c)(5) of the Bank Holding Company Act of 1956, as amended (12 
U.S.C. 1844(c)(5)).
    (b) Definitions. For purposes of this section and appendix J, the 
following definitions apply:
    (1) Account means a continuing relationship established by a person 
with a financial institution or creditor to obtain a product or service 
for personal, family, household or business purposes. Account includes:
    (i) An extension of credit, such as the purchase of property or 
services involving a deferred payment; and
    (ii) A deposit account.
    (2) The term board of directors includes:
    (i) In the case of a branch or agency of a foreign bank, the 
managing official in charge of the branch or agency; and
    (ii) In the case of any other creditor that does not have a board of 
directors, a designated employee at the level of senior management.
    (3) Covered account means:
    (i) An account that a financial institution or creditor offers or 
maintains, primarily for personal, family, or household purposes, that 
involves or is designed to permit multiple payments or transactions, 
such as a credit card account, mortgage loan, automobile loan, margin 
account, cell phone account, utility account, checking account, or 
savings account; and
    (ii) Any other account that the financial institution or creditor 
offers or maintains for which there is a reasonably foreseeable risk to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft, including financial, operational, 
compliance, reputation, or litigation risks.

[[Page 465]]

    (4) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (5) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5), and 
includes lenders such as banks, finance companies, automobile dealers, 
mortgage brokers, utility companies, and telecommunications companies.
    (6) Customer means a person that has a covered account with a 
financial institution or creditor.
    (7) Financial institution has the same meaning as in 15 U.S.C. 
1681a(t).
    (8) Identity theft has the same meaning as in 16 CFR 603.2(a).
    (9) Red Flag means a pattern, practice, or specific activity that 
indicates the possible existence of identity theft.
    (10) Service provider means a person that provides a service 
directly to the financial institution or creditor.
    (c) Periodic Identification of Covered Accounts. Each financial 
institution or creditor must periodically determine whether it offers or 
maintains covered accounts. As a part of this determination, a financial 
institution or creditor must conduct a risk assessment to determine 
whether it offers or maintains covered accounts described in paragraph 
(b)(3)(ii) of this section, taking into consideration:
    (1) The methods it provides to open its accounts;
    (2) The methods it provides to access its accounts; and
    (3) Its previous experiences with identity theft.
    (d) Establishment of an Identity Theft Prevention Program--(1) 
Program requirement. Each financial institution or creditor that offers 
or maintains one or more covered accounts must develop and implement a 
written Identity Theft Prevention Program (Program) that is designed to 
detect, prevent, and mitigate identity theft in connection with the 
opening of a covered account or any existing covered account. The 
Program must be appropriate to the size and complexity of the financial 
institution or creditor and the nature and scope of its activities.
    (2) Elements of the Program. The Program must include reasonable 
policies and procedures to:
    (i) Identify relevant Red Flags for the covered accounts that the 
financial institution or creditor offers or maintains, and incorporate 
those Red Flags into its Program;
    (ii) Detect Red Flags that have been incorporated into the Program 
of the financial institution or creditor;
    (iii) Respond appropriately to any Red Flags that are detected 
pursuant to paragraph (d)(2)(ii) of this section to prevent and mitigate 
identity theft; and
    (iv) Ensure the Program (including the Red Flags determined to be 
relevant) is updated periodically, to reflect changes in risks to 
customers and to the safety and soundness of the financial institution 
or creditor from identity theft.
    (e) Administration of the Program. Each financial institution or 
creditor that is required to implement a Program must provide for the 
continued administration of the Program and must:
    (1) Obtain approval of the initial written Program from either its 
board of directors or an appropriate committee of the board of 
directors;
    (2) Involve the board of directors, an appropriate committee 
thereof, or a designated employee at the level of senior management in 
the oversight, development, implementation and administration of the 
Program;
    (3) Train staff, as necessary, to effectively implement the Program; 
and
    (4) Exercise appropriate and effective oversight of service provider 
arrangements.
    (f) Guidelines. Each financial institution or creditor that is 
required to implement a Program must consider the guidelines in appendix 
J of this part and include in its Program those guidelines that are 
appropriate.



Sec. 571.91  Duties of card issuers regarding changes of address.

    (a) Scope. This section applies to an issuer of a debit or credit 
card (card issuer) that is a savings association whose deposits are 
insured by the Federal Deposit Insurance Corporation or, in accordance 
with Sec. 559.3(h)(1) of this chapter, a federal savings association 
operating subsidiary that is not functionally regulated within the 
meaning of section 5(c)(5) of the Bank Holding Company Act of 1956, as 
amended (12 U.S.C. 1844(c)(5)).

[[Page 466]]

    (b) Definitions. For purposes of this section:
    (1) Cardholder means a consumer who has been issued a credit or 
debit card.
    (2) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.
    (c) Address validation requirements. A card issuer must establish 
and implement reasonable policies and procedures to assess the validity 
of a change of address if it receives notification of a change of 
address for a consumer's debit or credit card account and, within a 
short period of time afterwards (during at least the first 30 days after 
it receives such notification), the card issuer receives a request for 
an additional or replacement card for the same account. Under these 
circumstances, the card issuer may not issue an additional or 
replacement card, until, in accordance with its reasonable policies and 
procedures and for the purpose of assessing the validity of the change 
of address, the card issuer:
    (1)(i) Notifies the cardholder of the request:
    (A) At the cardholder's former address; or
    (B) By any other means of communication that the card issuer and the 
cardholder have previously agreed to use; and
    (ii) Provides to the cardholder a reasonable means of promptly 
reporting incorrect address changes; or
    (2) Otherwise assesses the validity of the change of address in 
accordance with the policies and procedures the card issuer has 
established pursuant to Sec. 571.90 of this part.
    (d) Alternative timing of address validation. A card issuer may 
satisfy the requirements of paragraph (c) of this section if it 
validates an address pursuant to the methods in paragraph (c)(1) or 
(c)(2) of this section when it receives an address change notification, 
before it receives a request for an additional or replacement card.
    (e) Form of notice. Any written or electronic notice that the card 
issuer provides under this paragraph must be clear and conspicuous and 
provided separately from its regular correspondence with the cardholder.



               Sec. Appendixes A-B to Part 571 [Reserved]



      Sec. Appendix C to Part 571--Model Forms for Opt-Out Notices

    a. Although use of the model forms is not required, use of the model 
forms in this Appendix (as applicable) complies with the requirement in 
section 624 of the Act for clear, conspicuous, and concise notices.
    b. Certain changes may be made to the language or format of the 
model forms without losing the protection from liability afforded by use 
of the model forms. These changes may not be so extensive as to affect 
the substance, clarity, or meaningful sequence of the language in the 
model forms. Persons making such extensive revisions will lose the safe 
harbor that this Appendix provides. Acceptable changes include, for 
example:
    1. Rearranging the order of the references to ``your income,'' 
``your account history,'' and ``your credit score.''
    2. Substituting other types of information for ``income,'' ``account 
history,'' or ``credit score'' for accuracy, such as ``payment 
history,'' ``credit history,'' ``payoff status,'' or ``claims history.''
    3. Substituting a clearer and more accurate description of the 
affiliates providing or covered by the notice for phrases such as ``the 
[ABC] group of companies,'' including without limitation a statement 
that the entity providing the notice recently purchased the consumer's 
account.
    4. Substituting other types of affiliates covered by the notice for 
``credit card,'' ``insurance,'' or ``securities'' affiliates.
    5. Omitting items that are not accurate or applicable. For example, 
if a person does not limit the duration of the opt-out period, the 
notice may omit information about the renewal notice.
    6. Adding a statement informing consumers how much time they have to 
opt out before shared eligibility information may be used to make 
solicitations to them.
    7. Adding a statement that the consumer may exercise the right to 
opt out at any time.
    8. Adding the following statement, if accurate: ``If you previously 
opted out, you do not need to do so again.''
    9. Providing a place on the form for the consumer to fill in 
identifying information, such as his or her name and address:
    10. Adding disclosures regarding the treatment of opt-outs by joint 
consumers to comply with Sec. 571.23(a)(2) of this part.

C-1 Model Form for Initial Opt-out Notice (Single-Affiliate Notice)
C-2 Model Form for Initial Opt-out Notice (Joint Notice)
C-3 Model Form for Renewal Notice (Single-Affiliate Notice)

[[Page 467]]

C-4 Model Form for Renewal Notice (Joint Notice)
C-5 Model Form for Voluntary ``No Marketing'' Notice
C-6 Model Form for Voluntary ``No Marketing'' Notice

 C-1--Model Form for Initial Opt-out Notice (Single-Affiliate Notice)--
          [Your Choice To Limit Marketing]/[Marketing Opt-out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You may limit our affiliates in the [ABC] group 
of companies, such as our [credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that we collect and share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice to limit marketing offers from our 
affiliates will apply [until you tell us to change your choice]/[for x 
years from when you tell us your choice]/[for at least 5 years from when 
you tell us your choice]. [Include if the opt-out period expires.] Once 
that period expires, you will receive a renewal notice that will allow 
you to continue to limit marketing offers from our affiliates for 
[another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
our affiliates, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Do not allow your affiliates to use my personal information to 
market to me.

C-2--Model Form for Initial Opt-out Notice (Joint Notice)--[Your Choice 
                 To Limit Marketing]/[Marketing Opt-out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You may limit the [ABC] companies, such as the 
[ABC credit card, insurance, and securities] affiliates, from marketing 
their products or services to you based on your personal information 
that they receive from other [ABC] companies. This information includes 
your [income], your [account history], and your [credit score].
     Your choice to limit marketing offers from the 
[ABC] companies will apply [until you tell us to change your choice]/
[for x years from when you tell us your choice]/[for at least 5 years 
from when you tell us your choice]. [Include if the opt-out period 
expires.] Once that period expires, you will receive a renewal notice 
that will allow you to continue to limit marketing offers from the [ABC] 
companies for [another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
the [ABC] companies, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Do not allow any company [in the ABC group of companies] to use my 
personal information to market to me.

C-3--Model Form for Renewal Notice (Single-Affiliate Notice)--[Renewing 
    Your Choice To Limit Marketing]/[Renewing Your Marketing Opt-out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You previously chose to limit our affiliates in 
the [ABC] group of companies, such as our [credit card, insurance, and 
securities] affiliates, from marketing their products or services to you 
based on your personal information that we share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com

[[Page 468]]

     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Renew my choice to limit marketing for [x] more years.

C-4--Model Form for Renewal Notice (Joint Notice)--[Renewing Your Choice 
          To Limit Marketing]/[Renewing Your Marketing Opt-out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You previously chose to limit the [ABC] 
companies, such as the [ABC credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that they receive from other ABC companies. 
This information includes your [income], your [account history], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Renew my choice to limit marketing for [x] more years.

  C-5--Model Form for Voluntary ``No Marketing'' Notice Your Choice To 
                             Stop Marketing

 [Name of Affiliate] is providing this notice.
 You may choose to stop all marketing from us and our 
affiliates.
 [Your choice to stop marketing from us and our 
affiliates will apply until you tell us to change your choice.]
To stop all marketing, contact us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.-.com
     By mail: Check the box and complete the form 
below, and send the form to:
    [Company name]
    [Company address]
--Do not market to me.

[72 FR 62980, Nov. 7, 2007, as amended at 74 FR 22643, May 14, 2009]



                 Sec. Appendix D to Part 571 [Reserved]



   Sec. Appendix E to Part 571--Interagency Guidelines Concerning the 
 Accuracy and Integrity of Information Furnished to Consumer Reporting 
                                Agencies

    OTS encourages voluntary furnishing of information to consumer 
reporting agencies. Section 571.42 of this part requires each furnisher 
to establish and implement reasonable written policies and procedures 
concerning the accuracy and integrity of the information it furnishes to 
consumer reporting agencies. Under Sec. 571.42(b), a furnisher must 
consider the guidelines set forth below in developing its policies and 
procedures. In establishing these policies and procedures, a furnisher 
may include any of its existing policies and procedures that are 
relevant and appropriate. Section 571.42(c) requires each furnisher to 
review its policies and procedures periodically and update them as 
necessary to ensure their continued effectiveness.

       I. Nature, Scope, and Objectives of Policies and Procedures

    (a) Nature and Scope. Section 571.42(a) of this part requires that a 
furnisher's policies and procedures be appropriate to the nature, size, 
complexity, and scope of the furnisher's activities. In developing its 
policies and procedures, a furnisher should consider, for example:
    (1) The types of business activities in which the furnisher engages;
    (2) The nature and frequency of the information the furnisher 
provides to consumer reporting agencies; and
    (3) The technology used by the furnisher to furnish information to 
consumer reporting agencies.
    (b) Objectives. A furnisher's policies and procedures should be 
reasonably designed to promote the following objectives:
    (1) To furnish information about accounts or other relationships 
with a consumer that is accurate, such that the furnished information:
    (i) Identifies the appropriate consumer;
    (ii) Reflects the terms of and liability for those accounts or other 
relationships; and
    (iii) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship;
    (2) To furnish information about accounts or other relationships 
with a consumer that has integrity, such that the furnished information:
    (i) Is substantiated by the furnisher's records at the time it is 
furnished;
    (ii) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected

[[Page 469]]

in a consumer report; thus, the furnished information should:
    (A) Include appropriate identifying information about the consumer 
to whom it pertains; and
    (B) Be furnished in a standardized and clearly understandable form 
and manner and with a date specifying the time period to which the 
information pertains; and
    (iii) Includes the credit limit, if applicable and in the 
furnisher's possession;
    (3) To conduct reasonable investigations of consumer disputes and 
take appropriate actions based on the outcome of such investigations; 
and
    (4) To update the information it furnishes as necessary to reflect 
the current status of the consumer's account or other relationship, 
including, for example:
    (i) Any transfer of an account (e.g., by sale or assignment for 
collection) to a third party; and
    (ii) Any cure of the consumer's failure to abide by the terms of the 
account or other relationship.

        II. Establishing and Implementing Policies and Procedures

    In establishing and implementing its policies and procedures, a 
furnisher should:
    (a) Identify practices or activities of the furnisher that can 
compromise the accuracy or integrity of information furnished to 
consumer reporting agencies, such as by:
    (1) Reviewing its existing practices and activities, including the 
technological means and other methods it uses to furnish information to 
consumer reporting agencies and the frequency and timing of its 
furnishing of information;
    (2) Reviewing its historical records relating to accuracy or 
integrity or to disputes; reviewing other information relating to the 
accuracy or integrity of information provided by the furnisher to 
consumer reporting agencies; and considering the types of errors, 
omissions, or other problems that may have affected the accuracy or 
integrity of information it has furnished about consumers to consumer 
reporting agencies;
    (3) Considering any feedback received from consumer reporting 
agencies, consumers, or other appropriate parties;
    (4) Obtaining feedback from the furnisher's staff; and
    (5) Considering the potential impact of the furnisher's policies and 
procedures on consumers.
    (b) Evaluate the effectiveness of existing policies and procedures 
of the furnisher regarding the accuracy and integrity of information 
furnished to consumer reporting agencies; consider whether new, 
additional, or different policies and procedures are necessary; and 
consider whether implementation of existing policies and procedures 
should be modified to enhance the accuracy and integrity of information 
about consumers furnished to consumer reporting agencies.
    (c) Evaluate the effectiveness of specific methods (including 
technological means) the furnisher uses to provide information to 
consumer reporting agencies; how those methods may affect the accuracy 
and integrity of the information it provides to consumer reporting 
agencies; and whether new, additional, or different methods (including 
technological means) should be used to provide information to consumer 
reporting agencies to enhance the accuracy and integrity of that 
information.

           III. Specific Components of Policies and Procedures

    In developing its policies and procedures, a furnisher should 
address the following, as appropriate:
    (a) Establishing and implementing a system for furnishing 
information about consumers to consumer reporting agencies that is 
appropriate to the nature, size, complexity, and scope of the 
furnisher's business operations.
    (b) Using standard data reporting formats and standard procedures 
for compiling and furnishing data, where feasible, such as the 
electronic transmission of information about consumers to consumer 
reporting agencies.
    (c) Maintaining records for a reasonable period of time, not less 
than any applicable recordkeeping requirement, in order to substantiate 
the accuracy of any information about consumers it furnishes that is 
subject to a direct dispute.
    (d) Establishing and implementing appropriate internal controls 
regarding the accuracy and integrity of information about consumers 
furnished to consumer reporting agencies, such as by implementing 
standard procedures and verifying random samples of information provided 
to consumer reporting agencies.
    (e) Training staff that participates in activities related to the 
furnishing of information about consumers to consumer reporting agencies 
to implement the policies and procedures.
    (f) Providing for appropriate and effective oversight of relevant 
service providers whose activities may affect the accuracy or integrity 
of information about consumers furnished to consumer reporting agencies 
to ensure compliance with the policies and procedures.
    (g) Furnishing information about consumers to consumer reporting 
agencies following mergers, portfolio acquisitions or sales, or other 
acquisitions or transfers of accounts or other obligations in a manner 
that prevents re-aging of information, duplicative reporting, or other 
problems that may similarly affect the accuracy or integrity of the 
information furnished.

[[Page 470]]

    (h) Deleting, updating, and correcting information in the 
furnisher's records, as appropriate, to avoid furnishing inaccurate 
information.
    (i) Conducting reasonable investigations of disputes.
    (j) Designing technological and other means of communication with 
consumer reporting agencies to prevent duplicative reporting of 
accounts, erroneous association of information with the wrong 
consumer(s), and other occurrences that may compromise the accuracy or 
integrity of information provided to consumer reporting agencies.
    (k) Providing consumer reporting agencies with sufficient 
identifying information in the furnisher's possession about each 
consumer about whom information is furnished to enable the consumer 
reporting agency properly to identify the consumer.
    (l) Conducting a periodic evaluation of its own practices, consumer 
reporting agency practices of which the furnisher is aware, 
investigations of disputed information, corrections of inaccurate 
information, means of communication, and other factors that may affect 
the accuracy or integrity of information furnished to consumer reporting 
agencies.
    (m) Complying with applicable requirements under the Fair Credit 
Reporting Act and its implementing regulations.

[74 FR 31521, July 1, 2009]

    Effective Date Note: At 74 FR 31521, July 1, 2009, appendix E to 
part 571 was added, effective July 1, 2010.



               Sec. Appendices F-I to Part 571 [Reserved]



 Sec. Appendix J to Part 571--Interagency Guidelines on Identity Theft 
                  Detection, Prevention, and Mitigation

    Section 571.90 of this part requires each financial institution and 
creditor that offers or maintains one or more covered accounts, as 
defined in Sec. 571.90(b)(3) of this part, to develop and provide for 
the continued administration of a written Program to detect, prevent, 
and mitigate identity theft in connection with the opening of a covered 
account or any existing covered account. These guidelines are intended 
to assist financial institutions and creditors in the formulation and 
maintenance of a Program that satisfies the requirements of Sec. 571.90 
of this part.

                             I. The Program

    In designing its Program, a financial institution or creditor may 
incorporate, as appropriate, its existing policies, procedures, and 
other arrangements that control reasonably foreseeable risks to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft.

                   II. Identifying Relevant Red Flags

    (a) Risk Factors. A financial institution or creditor should 
consider the following factors in identifying relevant Red Flags for 
covered accounts, as appropriate:
    (1) The types of covered accounts it offers or maintains;
    (2) The methods it provides to open its covered accounts;
    (3) The methods it provides to access its covered accounts; and
    (4) Its previous experiences with identity theft.
    (b) Sources of Red Flags. Financial institutions and creditors 
should incorporate relevant Red Flags from sources such as:
    (1) Incidents of identity theft that the financial institution or 
creditor has experienced;
    (2) Methods of identity theft that the financial institution or 
creditor has identified that reflect changes in identity theft risks; 
and
    (3) Applicable supervisory guidance.
    (c) Categories of Red Flags. The Program should include relevant Red 
Flags from the following categories, as appropriate. Examples of Red 
Flags from each of these categories are appended as Supplement A to this 
Appendix J.
    (1) Alerts, notifications, or other warnings received from consumer 
reporting agencies or service providers, such as fraud detection 
services;
    (2) The presentation of suspicious documents;
    (3) The presentation of suspicious personal identifying information, 
such as a suspicious address change;
    (4) The unusual use of, or other suspicious activity related to, a 
covered account; and
    (5) Notice from customers, victims of identity theft, law 
enforcement authorities, or other persons regarding possible identity 
theft in connection with covered accounts held by the financial 
institution or creditor.

                        III. Detecting Red Flags

    The Program's policies and procedures should address the detection 
of Red Flags in connection with the opening of covered accounts and 
existing covered accounts, such as by:
    (a) Obtaining identifying information about, and verifying the 
identity of, a person opening a covered account, for example, using the 
policies and procedures regarding identification and verification set 
forth in the Customer Identification Program rules implementing 31 
U.S.C. 5318(l) (31 CFR 103.121); and
    (b) Authenticating customers, monitoring transactions, and verifying 
the validity of

[[Page 471]]

change of address requests, in the case of existing covered accounts.

              IV. Preventing and Mitigating Identity Theft

    The Program's policies and procedures should provide for appropriate 
responses to the Red Flags the financial institution or creditor has 
detected that are commensurate with the degree of risk posed. In 
determining an appropriate response, a financial institution or creditor 
should consider aggravating factors that may heighten the risk of 
identity theft, such as a data security incident that results in 
unauthorized access to a customer's account records held by the 
financial institution, creditor, or third party, or notice that a 
customer has provided information related to a covered account held by 
the financial institution or creditor to someone fraudulently claiming 
to represent the financial institution or creditor or to a fraudulent 
website. Appropriate responses may include the following:
    (a) Monitoring a covered account for evidence of identity theft;
    (b) Contacting the customer;
    (c) Changing any passwords, security codes, or other security 
devices that permit access to a covered account;
    (d) Reopening a covered account with a new account number;
    (e) Not opening a new covered account;
    (f) Closing an existing covered account;
    (g) Not attempting to collect on a covered account or not selling a 
covered account to a debt collector;
    (h) Notifying law enforcement; or
    (i) Determining that no response is warranted under the particular 
circumstances.

                         V. Updating the Program

    Financial institutions and creditors should update the Program 
(including the Red Flags determined to be relevant) periodically, to 
reflect changes in risks to customers or to the safety and soundness of 
the financial institution or creditor from identity theft, based on 
factors such as:
    (a) The experiences of the financial institution or creditor with 
identity theft;
    (b) Changes in methods of identity theft;
    (c) Changes in methods to detect, prevent, and mitigate identity 
theft;
    (d) Changes in the types of accounts that the financial institution 
or creditor offers or maintains; and
    (e) Changes in the business arrangements of the financial 
institution or creditor, including mergers, acquisitions, alliances, 
joint ventures, and service provider arrangements.

                VI. Methods for Administering the Program

    (a) Oversight of Program. Oversight by the board of directors, an 
appropriate committee of the board, or a designated employee at the 
level of senior management should include:
    (1) Assigning specific responsibility for the Program's 
implementation;
    (2) Reviewing reports prepared by staff regarding compliance by the 
financial institution or creditor with Sec. 571.90 of this part; and
    (3) Approving material changes to the Program as necessary to 
address changing identity theft risks.
    (b) Reports. (1) In general. Staff of the financial institution or 
creditor responsible for development, implementation, and administration 
of its Program should report to the board of directors, an appropriate 
committee of the board, or a designated employee at the level of senior 
management, at least annually, on compliance by the financial 
institution or creditor with Sec. 571.90 of this part.
    (2) Contents of report. The report should address material matters 
related to the Program and evaluate issues such as: the effectiveness of 
the policies and procedures of the financial institution or creditor in 
addressing the risk of identity theft in connection with the opening of 
covered accounts and with respect to existing covered accounts; service 
provider arrangements; significant incidents involving identity theft 
and management's response; and recommendations for material changes to 
the Program.
    (c) Oversight of service provider arrangements. Whenever a financial 
institution or creditor engages a service provider to perform an 
activity in connection with one or more covered accounts the financial 
institution or creditor should take steps to ensure that the activity of 
the service provider is conducted in accordance with reasonable policies 
and procedures designed to detect, prevent, and mitigate the risk of 
identity theft. For example, a financial institution or creditor could 
require the service provider by contract to have policies and procedures 
to detect relevant Red Flags that may arise in the performance of the 
service provider's activities, and either report the Red Flags to the 
financial institution or creditor, or to take appropriate steps to 
prevent or mitigate identity theft.

                VII. Other Applicable Legal Requirements

    Financial institutions and creditors should be mindful of other 
related legal requirements that may be applicable, such as:
    (a) For financial institutions and creditors that are subject to 31 
U.S.C. 5318(g), filing a Suspicious Activity Report in accordance with 
applicable law and regulation;
    (b) Implementing any requirements under 15 U.S.C. 1681c-1(h) 
regarding the circumstances under which credit may be extended when the 
financial institution or creditor detects a fraud or active duty alert;
    (c) Implementing any requirements for furnishers of information to 
consumer reporting agencies under 15 U.S.C. 1681s-2, for example,

[[Page 472]]

to correct or update inaccurate or incomplete information, and to not 
report information that the furnisher has reasonable cause to believe is 
inaccurate; and
    (d) Complying with the prohibitions in 15 U.S.C. 1681m on the sale, 
transfer, and placement for collection of certain debts resulting from 
identity theft.

                       Supplement A to Appendix J

    In addition to incorporating Red Flags from the sources recommended 
in section II.b. of the Guidelines in Appendix J of this part, each 
financial institution or creditor may consider incorporating into its 
Program, whether singly or in combination, Red Flags from the following 
illustrative examples in connection with covered accounts:

   Alerts, Notifications or Warnings from a Consumer Reporting Agency

    1. A fraud or active duty alert is included with a consumer report.
    2. A consumer reporting agency provides a notice of credit freeze in 
response to a request for a consumer report.
    3. A consumer reporting agency provides a notice of address 
discrepancy, as defined in Sec. 571.82(b) of this part.
    4. A consumer report indicates a pattern of activity that is 
inconsistent with the history and usual pattern of activity of an 
applicant or customer, such as:
    a. A recent and significant increase in the volume of inquiries;
    b. An unusual number of recently established credit relationships;
    c. A material change in the use of credit, especially with respect 
to recently established credit relationships; or
    d. An account that was closed for cause or identified for abuse of 
account privileges by a financial institution or creditor.

                          Suspicious Documents

    5. Documents provided for identification appear to have been altered 
or forged.
    6. The photograph or physical description on the identification is 
not consistent with the appearance of the applicant or customer 
presenting the identification.
    7. Other information on the identification is not consistent with 
information provided by the person opening a new covered account or 
customer presenting the identification.
    8. Other information on the identification is not consistent with 
readily accessible information that is on file with the financial 
institution or creditor, such as a signature card or a recent check.
    9. An application appears to have been altered or forged, or gives 
the appearance of having been destroyed and reassembled.

               Suspicious Personal Identifying Information

    10. Personal identifying information provided is inconsistent when 
compared against external information sources used by the financial 
institution or creditor. For example:
    a. The address does not match any address in the consumer report; or
    b. The Social Security Number (SSN) has not been issued, or is 
listed on the Social Security Administration's Death Master File.
    11. Personal identifying information provided by the customer is not 
consistent with other personal identifying information provided by the 
customer. For example, there is a lack of correlation between the SSN 
range and date of birth.
    12. Personal identifying information provided is associated with 
known fraudulent activity as indicated by internal or third-party 
sources used by the financial institution or creditor. For example:
    a. The address on an application is the same as the address provided 
on a fraudulent application; or
    b. The phone number on an application is the same as the number 
provided on a fraudulent application.
    13. Personal identifying information provided is of a type commonly 
associated with fraudulent activity as indicated by internal or third-
party sources used by the financial institution or creditor. For 
example:
    a. The address on an application is fictitious, a mail drop, or a 
prison; or
    b. The phone number is invalid, or is associated with a pager or 
answering service.
    14. The SSN provided is the same as that submitted by other persons 
opening an account or other customers.
    15. The address or telephone number provided is the same as or 
similar to the address or telephone number submitted by an unusually 
large number of other persons opening accounts or by other customers.
    16. The person opening the covered account or the customer fails to 
provide all required personal identifying information on an application 
or in response to notification that the application is incomplete.
    17. Personal identifying information provided is not consistent with 
personal identifying information that is on file with the financial 
institution or creditor.
    18. For financial institutions and creditors that use challenge 
questions, the person opening the covered account or the customer cannot 
provide authenticating information beyond that which generally would be 
available from a wallet or consumer report.

 Unusual Use of, or Suspicious Activity Related to, the Covered Account

    19. Shortly following the notice of a change of address for a 
covered account, the institution or creditor receives a request for a 
new, additional, or replacement card or a cell

[[Page 473]]

phone, or for the addition of authorized users on the account.
    20. A new revolving credit account is used in a manner commonly 
associated with known patterns of fraud. For example:
    a. The majority of available credit is used for cash advances or 
merchandise that is easily convertible to cash (e.g., electronics 
equipment or jewelry); or
    b. The customer fails to make the first payment or makes an initial 
payment but no subsequent payments.
    21. A covered account is used in a manner that is not consistent 
with established patterns of activity on the account. There is, for 
example:
    a. Nonpayment when there is no history of late or missed payments;
    b. A material increase in the use of available credit;
    c. A material change in purchasing or spending patterns;
    d. A material change in electronic fund transfer patterns in 
connection with a deposit account; or
    e. A material change in telephone call patterns in connection with a 
cellular phone account.
    22. A covered account that has been inactive for a reasonably 
lengthy period of time is used (taking into consideration the type of 
account, the expected pattern of usage and other relevant factors).
    23. Mail sent to the customer is returned repeatedly as 
undeliverable although transactions continue to be conducted in 
connection with the customer's covered account.
    24. The financial institution or creditor is notified that the 
customer is not receiving paper account statements.
    25. The financial institution or creditor is notified of 
unauthorized charges or transactions in connection with a customer's 
covered account.

   Notice from Customers, Victims of Identity Theft, Law Enforcement 
   Authorities, or Other Persons Regarding Possible Identity Theft in 
 Connection With Covered Accounts Held by the Financial Institution or 
                                Creditor

    26. The financial institution or creditor is notified by a customer, 
a victim of identity theft, a law enforcement authority, or any other 
person that it has opened a fraudulent account for a person engaged in 
identity theft.

[72 FR 63766, Nov. 9, 2007, as amended at 74 FR 22643, May 14, 2009]



PART 572_LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS--
Table of Contents




Sec.
572.1 Authority, purpose, and scope.
572.2 Definitions.
572.3 Requirement to purchase flood insurance where available.
572.4 Exemptions.
572.5 Escrow requirement.
572.6 Required use of standard flood hazard determination form.
572.7 Forced placement of flood insurance.
572.8 Determination fees.
572.9 Notice of special flood hazards and availability of Federal 
          disaster relief assistance.
572.10 Notice of servicer's identity.

Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards 
          and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464; 42 U.S.C. 4012a, 
4104a, 4104b, 4106, and 4128.

    Source: 61 FR 45709, Aug. 29, 1996, unless otherwise noted.



Sec. 572.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462, 
1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec. 572.6 and 572.8, applies 
to loans secured by buildings or mobile homes located or to be located 
in areas determined by the Director of the Federal Emergency Management 
Agency to have special flood hazards. Sections 572.6 and 572.8 of this 
part apply to loans secured by buildings or mobile homes, regardless of 
location.



Sec. 572.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Savings association means, for purposes of this part, a savings 
association as that term is defined in 12 U.S.C. 1813(b)(1) and any 
subsidiaries or service corporations thereof.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.

[[Page 474]]

    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use with 
or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational vehicle. 
For purposes of this part, the term mobile home means a mobile home on a 
permanent foundation. The term mobile home includes a manufactured home 
as that term is used in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized under 
the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower under 
the terms of a loan, including amounts for taxes, insurance premiums, 
and other charges with respect to the property securing the loan; and
    (2) Making payments of principal and interest and any other payments 
from the amounts received from the borrower as may be required under the 
terms of the loan.
    (k) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director of FEMA.
    (l) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.



Sec. 572.3  Requirement to purchase flood insurance where available.

    (a) In general. A savings association shall not make, increase, 
extend, or renew any designated loan unless the building or mobile home 
and any personal property securing the loan is covered by flood 
insurance for the term of the loan. The amount of insurance must be at 
least equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the overall value of the property securing 
the designated loan minus the value of the land on which the property is 
located.
    (b) Table funded loans. A savings association that acquires a loan 
from a mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purposes of this part.



Sec. 572.4  Exemptions.

    The flood insurance requirement prescribed by Sec. 572.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance of 
$5,000 or less and a repayment term of one year or less.



Sec. 572.5  Escrow requirement.

    If a savings association requires the escrow of taxes, insurance 
premiums, fees, or any other charges for a loan secured by residential 
improved real estate or a mobile home that is made, increased, extended, 
or renewed on or after October 1, 1996, the savings association shall 
also require the escrow of all premiums and fees for any flood insurance 
required under Sec. 572.3. The savings association, or a servicer 
acting on behalf of the savings association, shall deposit the flood 
insurance premiums on behalf of the borrower in an escrow account. This 
escrow account will be subject to escrow requirements adopted pursuant 
to section 10 of the

[[Page 475]]

Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Director of FEMA or other 
provider of flood insurance that premiums are due, the savings 
association, or a servicer acting on behalf of the savings association, 
shall pay the amount owed to the insurance provider from the escrow 
account by the date when such premiums are due.



Sec. 572.6  Required use of standard flood hazard determination form.

    (a) Use of form. A savings association shall use the standard flood 
hazard determination form developed by the Director of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard area 
in which flood insurance is available under the Act. The standard flood 
hazard determination form may be used in a printed, computerized, or 
electronic manner. A savings association may obtain the standard flood 
hazard determination form from FEMA, P.O. Box 2012, Jessup, MD 20794-
2012.
    (b) Retention of form. A savings association shall retain a copy of 
the completed standard flood hazard determination form, in either hard 
copy or electronic form, for the period of time the savings association 
owns the loan.

[61 FR 45709, Aug. 29, 1996, as amended at 64 FR 69185, Dec. 10, 1999]



Sec. 572.7  Forced placement of flood insurance.

    If a savings association, or a servicer acting on behalf of the 
savings association, determines at any time during the term of a 
designated loan that the building or mobile home and any personal 
property securing the designated loan is not covered by flood insurance 
or is covered by flood insurance in an amount less than the amount 
required under Sec. 572.3, then the savings association or its servicer 
shall notify the borrower that the borrower should obtain flood 
insurance, at the borrower's expense, in an amount at least equal to the 
amount required under Sec. 572.3, for the remaining term of the loan. 
If the borrower fails to obtain flood insurance within 45 days after 
notification, then the savings association or its servicer shall 
purchase insurance on the borrower's behalf. The savings association or 
its servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance.



Sec. 572.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than the 
Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129), 
any savings association, or a servicer acting on behalf of the savings 
association, may charge a reasonable fee for determining whether the 
building or mobile home securing the loan is located or will be located 
in a special flood hazard area. A determination fee may also include, 
but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Director of FEMA, may reasonably 
require a determination whether the building or mobile home securing the 
loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under Sec. 572.7.
    (c) Purchaser or transferee fee. The determination fee authorized by 
paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.

[[Page 476]]



Sec. 572.9  Notice of special flood hazards and availability of Federal
disaster relief assistance.

    (a) Notice requirement. When a savings association makes, increases, 
extends, or renews a loan secured by a building or a mobile home located 
or to be located in a special flood hazard area, the savings association 
shall mail or deliver a written notice to the borrower and to the 
servicer in all cases whether or not flood insurance is available under 
the Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, as 
amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The savings association shall provide the 
notice required by paragraph (a) of this section to the borrower within 
a reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the savings association 
provides notice to the borrower and in any event no later than the 
savings association provides other similar notices to the servicer 
concerning hazard insurance and taxes. Notice to the servicer may be 
made electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The savings association shall retain a record 
of the receipt of the notices by the borrower and the servicer for the 
period of time the savings association owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a savings 
association may obtain satisfactory written assurance from a seller or 
lessor that, within a reasonable time before the completion of the sale 
or lease transaction, the seller or lessor has provided such notice to 
the purchaser or lessee. The savings association shall retain a record 
of the written assurance from the seller or lessor for the period of 
time the savings association owns the loan.
    (f) Use of prescribed form of notice. A savings association will be 
considered to be in compliance with the requirement for notice to the 
borrower of this section by providing written notice to the borrower 
containing the language presented in appendix A to this part within a 
reasonable time before the completion of the transaction. The notice 
presented in appendix A to this part satisfies the borrower notice 
requirements of the Act.



Sec. 572.10  Notice of servicer's identity.

    (a) Notice requirement. When a savings association makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, the 
savings association shall notify the Director of FEMA (or the Director's 
designee) in writing of the identity of the servicer of the loan. The 
Director of FEMA has designated the insurance provider to receive the 
savings association's notice of the servicer's identity. This notice may 
be provided electronically if electronic transmission is satisfactory to 
the Director of FEMA's designee.
    (b) Transfer of servicing rights. The savings association shall 
notify the Director of FEMA (or the Director's designee) of any change 
in the servicer of a loan described in paragraph (a) of this section 
within 60 days after the effective date of the change. This notice may 
be provided electronically if electronic transmission is satisfactory to 
the Director of FEMA's designee. Upon any change in the servicing of a 
loan described in paragraph (a) of this section, the duty to provide 
notice under this paragraph (b) shall transfer to the transferee 
servicer.

[[Page 477]]



  Sec. Appendix A to Part 572--Sample Form of Notice of Special Flood 
     Hazards and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area using 
FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the 
following community: ----------------. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 30-
year mortgage loan the risk of a 100-year flood in a special flood 
hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ------ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have applied 
for if you do not purchase flood insurance. The flood insurance must be 
maintained for the life of the loan. If you fail to purchase or renew 
flood insurance on the property, Federal law authorizes and requires us 
to purchase the flood insurance for you at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy either 
directly through the NFIP or through an insurance company that 
participates in the NFIP. Flood insurance also may be available from 
private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must 
cover the lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of property 
under the NFIP.
    Flood insurance coverage under the NFIP is limited to the overall 
value of the property securing the loan minus the value of the land on 
which the property is located.
     Federal disaster relief assistance (usually in 
the form of a low-interest loan) may be available for damages incurred 
in excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ------ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, if 
the non-participating community has been identified for at least one 
year as containing a special flood hazard area, properties located in 
the community will not be eligible for Federal disaster relief 
assistance in the event of a Federally-declared flood disaster.



PART 573_PRIVACY OF CONSUMER FINANCIAL INFORMATION--Table of Contents




Sec.
573.1 Purpose and scope.
573.2 Model privacy form and examples .
573.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

573.4 Initial privacy notice to consumers required.
573.5 Annual privacy notice to customers required.
573.6 Information to be included in privacy notices.
573.7 Form of opt out notice to consumers; opt out methods.
573.8 Revised privacy notices.
573.9 Delivering privacy and opt out notices.

                     Subpart B_Limits on Disclosures

573.10 Limitation on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
573.11 Limits on redisclosure and reuse of information.
573.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

573.13 Exception to opt out requirements for service providers and joint 
          marketing.
573.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
573.15 Other exceptions to notice and opt out requirements.

            Subpart D_Relation to Other Laws; Effective Date

573.16 Protection of Fair Credit Reporting Act.
573.17 Relation to State laws.
573.18 Effective date; transition rule.

Appendix A to Part 573--Model Privacy Form
Appendix B to Part 573--Sample Clauses


[[Page 478]]


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1828; 15 U.S.C. 6801 et seq.

    Source: 65 FR 35226, June 1, 2000, unless otherwise noted.



Sec. 573.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing that information to most nonaffiliated third 
parties by ``opting out'' of that disclosure, subject to the exceptions 
in Sec. Sec. 573.13, 573.14, and 573.15.
    (b) Scope. (1) This part applies only to nonpublic personal 
information about individuals who obtain financial products or services 
primarily for personal, family, or household purposes from the 
institutions listed below. This part does not apply to information about 
companies or about individuals who obtain financial products or services 
for business, commercial, or agricultural purposes. This part applies to 
savings associations whose deposits are insured by the Federal Deposit 
Insurance Corporation, and any subsidiaries of such savings 
associations, but not subsidiaries that are brokers, dealers, persons 
providing insurance, investment companies, or investment advisers. This 
part refers to these entities as ``you.''
    (2) Nothing in this part modifies, limits, or supersedes the 
standards governing individually identifiable health information 
promulgated by the Secretary of Health and Human Services under the 
authority of sections 262 and 264 of the Health Insurance Portability 
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).



Sec. 573.2  Model privacy form and examples.

    (a) Model privacy form. Use of the model privacy form in Appendix A 
of this part, consistent with the instructions in Appendix A, 
constitutes compliance with the notice content requirements of 
Sec. Sec. 573.6 and 573.7 of this part, although use of the model 
privacy form is not required.
    (b) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.

[74 FR 62945, Dec. 1, 2009]



Sec. 573.3  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company.
    (b)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. You make your notice 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs, and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. You design your notice to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) In a form that combines your notice with other information, use 
distinctive type size, style, and graphic devices, such as shading or 
sidebars,

[[Page 479]]

when you combine your notice with other information.
    (iii) Notices on web sites. If you provide a notice on a web page, 
you design your notice to call attention to the nature and significance 
of the information in it if you use text or visual cues to encourage 
scrolling down the page if necessary to view the entire notice and 
ensure that other elements on the web site (such as text, graphics, 
hyperlinks, or sound) do not distract attention from the notice, and you 
either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, 
nature, and relevance of the notice.
    (c) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by identifying number, symbol, 
or other identifying particular assigned to the individual, irrespective 
of the source of the underlying information.
    (d) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (e)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, or that individual's legal 
representative.
    (2) Examples. (i) An individual who applies to you for credit for 
personal, family, or household purposes is a consumer of a financial 
service, regardless of whether the credit is extended.
    (ii) An individual who provides nonpublic personal information to 
you in order to obtain a determination about whether he or she may 
qualify for a loan to be used primarily for personal, family, or 
household purposes is a consumer of a financial service, regardless of 
whether the loan is extended.
    (iii) An individual who provides nonpublic personal information to 
you in connection with obtaining or seeking to obtain financial, 
investment, or economic advisory services is a consumer regardless of 
whether you establish a continuing advisory relationship.
    (iv) If you hold ownership or servicing rights to an individual's 
loan that is used primarily for personal, family, or household purposes, 
the individual is your consumer, even if you hold those rights in 
conjunction with one or more other institutions. (The individual is also 
a consumer with respect to the other financial institutions involved.) 
An individual who has a loan in which you have ownership or servicing 
rights is your consumer, even if you, or another institution with those 
rights, hire an agent to collect on the loan.
    (v) An individual who is a consumer of another financial institution 
is not your consumer solely because you act as agent for, or provide 
processing or other services to, that financial institution.
    (vi) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vii) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (viii) An individual is not your consumer solely because he or she 
is a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (f) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (g) Control of a company means:
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of the company, 
directly or indirectly, or acting through one or more other persons;
    (2) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of the company, as the OTS 
determines.
    (h) Customer means a consumer who has a customer relationship with 
you.

[[Page 480]]

    (i)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family, or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a 
continuing relationship with you if the consumer:
    (A) Has a deposit or investment account with you;
    (B) Obtains a loan from you;
    (C) Has a loan for which you own the servicing rights;
    (D) Purchases an insurance product from you;
    (E) Holds an investment product through you, such as when you act as 
a custodian for securities or for assets in an Individual Retirement 
Arrangement;
    (F) Enters into an agreement or understanding with you whereby you 
undertake to arrange or broker a home mortgage loan for the consumer;
    (G) Enters into a lease of personal property with you; or
    (H) Obtains financial, investment, or economic advisory services 
from you for a fee.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with you if:
    (A) The consumer obtains a financial product or service only in 
isolated transactions, such as using your ATM to withdraw cash from an 
account at another financial institution or purchasing a cashier's check 
or money order;
    (B) You sell the consumer's loan and do not retain the rights to 
service that loan; or
    (C) You sell the consumer airline tickets, travel insurance, or 
traveler's checks in isolated transactions.
    (j) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board; and
    (6) The Securities and Exchange Commission.
    (k)(1) Financial institution means any institution the business of 
which is engaging in activities that are financial in nature or 
incidental to such financial activities as described in section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Financial institution does not include:
    (i) Any person or entity with respect to any financial activity that 
is subject to the jurisdiction of the Commodity Futures Trading 
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
    (ii) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights), or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (l)(1) Financial product or service means any product or service 
that a financial holding company could offer by engaging in an activity 
that is financial in nature or incidental to such a financial activity 
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)).
    (2) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (m)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate (but nonaffiliated third party includes the other company 
that jointly employs the person).
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of your or your affiliate's direct or 
indirect ownership or control of the company in conducting merchant

[[Page 481]]

banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in section 4(k)(4)(I) of the Bank Holding Company Act of 
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
    (n)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived using 
any personally identifiable financial information that is not publicly 
available.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (n)(1)(ii) of this section; or
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived 
without using any personally identifiable financial information that is 
not publicly available.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available, and 
is not disclosed in a manner that indicates that any of the individuals 
on the list is a consumer of a financial institution.
    (o)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples--(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to 
obtain a loan, credit card, or other financial product or service;
    (B) Account balance information, payment history, overdraft history, 
and credit or debit card purchase information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information that a consumer provides to you or that you or 
your agent otherwise obtain in connection with collecting on a loan or 
servicing a loan;
    (F) Any information you collect through an Internet ``cookie'' (an 
information collecting device from a web server); and
    (G) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; and
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names, or addresses.
    (p)(1) Publicly available information means any information that you 
have a reasonable basis to believe is lawfully made available to the 
general public from:
    (i) Federal, State, or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by Federal, State, or local law.
    (2) Reasonable basis. You have a reasonable basis to believe that 
information is lawfully made available to the general public if you have 
taken steps to determine:

[[Page 482]]

    (i) That the information is of the type that is available to the 
general public; and
    (ii) Whether an individual can direct that the information not be 
made available to the general public and, if so, that your consumer has 
not done so.
    (3) Examples--(i) Government records. Publicly available information 
in government records includes information in government real estate 
records and security interest filings.
    (ii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or a password, so long as access is available to 
the general public.
    (iii) Reasonable basis. (A) You have a reasonable basis to believe 
that mortgage information is lawfully made available to the general 
public if you have determined that the information is of the type 
included on the public record in the jurisdiction where the mortgage 
would be recorded.
    (B) You have a reasonable basis to believe that an individual's 
telephone number is lawfully made available to the general public if you 
have located the telephone number in the telephone book or the consumer 
has informed you that the telephone number is not unlisted.



                  Subpart A_Privacy and Opt Out Notices



Sec. 573.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec. Sec. 573.14 and 
573.15.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party, other than as authorized by 
Sec. Sec. 573.14 and 573.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish a customer relationship when you and the consumer enter 
into a continuing relationship.
    (2) Special rule for loans. You establish a customer relationship 
with a consumer when you originate a loan to the consumer for personal, 
family, or household purposes. If you subsequently transfer the 
servicing rights to that loan to another financial institution, the 
customer relationship transfers with the servicing rights.
    (3)(i) Examples of establishing customer relationship. You establish 
a customer relationship when the consumer:
    (A) Opens a credit card account with you;
    (B) Executes the contract to open a deposit account with you, 
obtains credit from you, or purchases insurance from you;
    (C) Agrees to obtain financial, economic, or investment advisory 
services from you for a fee; or
    (D) Becomes your client for the purpose of your providing credit 
counseling or tax preparation services.
    (ii) Examples of loan rule. You establish a customer relationship 
with a consumer who obtains a loan for personal, family, or household 
purposes when you:
    (A) Originate the loan to the consumer; or
    (B) Purchase the servicing rights to the consumer's loan.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:

[[Page 483]]

    (1) You may provide a revised privacy notice, under Sec. 573.8, 
that covers the customer's new financial product or service; or
    (2) If the initial, revised, or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election; or
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the customer's transaction and 
the customer agrees to receive the notice at a later time.
    (2) Examples of exceptions--(i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if you acquire a customer's deposit liability or the servicing rights to 
a customer's loan from another financial institution and the customer 
does not have a choice about your acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when:
    (A) You and the individual agree over the telephone to enter into a 
customer relationship involving prompt delivery of the financial product 
or service; or
    (B) You establish a customer relationship with an individual under a 
program authorized by Title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.) or similar student loan programs where loan 
proceeds are disbursed promptly without prior communication between you 
and the customer.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a web site.
    (f) Delivery. When you are required to deliver an initial privacy 
notice by this section, you must deliver it according to Sec. 573.9. If 
you use a short-form initial notice for non-customers according to Sec. 
573.6(d), you may deliver your privacy notice according to Sec. 
573.6(d)(3).



Sec. 573.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the continuation of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. You may define 
the 12-consecutive-month period, but you must apply it to the customer 
on a consistent basis.
    (2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) In the case of a deposit account, the account is inactive under 
your policies;
    (ii) In the case of a closed-end loan, the customer pays the loan in 
full, you charge off the loan, or you sell the loan without retaining 
servicing rights;
    (iii) In the case of a credit card relationship or other open-end 
credit relationship, you no longer provide any statements or notices to 
the customer concerning that relationship or you sell the credit card 
receivables without retaining servicing rights; or
    (iv) You have not communicated with the customer about the 
relationship for a period of 12 consecutive months,

[[Page 484]]

other than to provide annual privacy notices or promotional material.
    (c) Special rule for loans. If you do not have a customer 
relationship with a consumer under the special rule for loans in Sec. 
573.4(c)(2), then you need not provide an annual notice to that consumer 
under this section.
    (d) Delivery. When you are required to deliver an annual privacy 
notice by this section, you must deliver it according to Sec. 573.9.



Sec. 573.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec. Sec. 573.4, 573.5, 573.8 must include each 
of the following items of information, in addition to any other 
information you wish to provide, that applies to you and to the 
consumers to whom you send your privacy notice:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to whom you disclose information under Sec. Sec. 573.14 and 
573.15;
    (4) The categories of nonpublic personal information about your 
former customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec. Sec. 573.14 and 573.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party under Sec. 573.13 (and no other exception in 
Sec. 573.14 or 573.15 applies to that disclosure), a separate statement 
of the categories of information you disclose and the categories of 
third parties with whom you have contracted;
    (6) An explanation of the consumer's right under Sec. 573.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make under section 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec. Sec. 573.14 and 573.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec. Sec. 573.4 and 573.5. When describing the 
categories with respect to those parties, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes, such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and legal investigations, or report to credit bureaus; or
    (2) As permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information that you disclose if you list the categories described in 
paragraph (c)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact

[[Page 485]]

without describing the categories or examples of the nonpublic personal 
information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category.
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception in Sec. 573.13 to a nonaffiliated third party to market 
products or services that you offer alone or jointly with another 
financial institution, you satisfy the disclosure requirement of 
paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with whom you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information about 
customers or former customers to affiliates or nonaffiliated third 
parties except as authorized under Sec. Sec. 573.14 and 573.15, you may 
simply state that fact, in addition to the information you must provide 
under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec. Sec. 
573.4(a)(2), 573.7(b), and 573.7(c) for a consumer who is not a customer 
by providing a short-form initial notice at the same time as you deliver 
an opt out notice as required in Sec. 573.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
that notice.
    (3) You must deliver your short-form initial notice according to 
Sec. 573.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply provide the 
consumer a reasonable means to obtain your privacy notice. If a consumer 
who receives your short-form notice requests your privacy notice, you 
must deliver your privacy notice according to Sec. 573.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by which a consumer may obtain a copy of your privacy notice if 
you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and

[[Page 486]]

    (2) Categories of affiliates or nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Model privacy form. Pursuant to Sec. 573.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in Appendix A of this part.
    (g) Sample clauses. Sample clauses illustrating some of the notice 
content required by this section are included in Appendix B of this 
part. Use of a sample clause in a privacy notice provided on or before 
December 31, 2010, to the extent applicable, constitutes compliance with 
this part.

[65 FR 35226, June 1, 2000, as amended at 74 FR 62945, Dec. 1, 2009]

    Effective Date Note: At 74 FR 62945, Dec. 1, 2009, Sec. 573.6 was 
amended by removing paragraph (g), effective Jan. 1, 2012.



Sec. 573.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice under Sec. 573.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that you disclose or reserve the right to disclose, and all of the 
categories of nonaffiliated third parties to which you disclose the 
information, as described in Sec. 573.6(a)(2) and (3), and state that 
the consumer can opt out of the disclosure of that information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable opt out means. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
that consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form as 
the initial notice you provide in accordance with Sec. 573.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice later than required 
for the initial notice in accordance with Sec. 573.4, you must also 
include a copy of the initial notice with the opt out notice in writing 
or, if the consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from you, you may provide a single opt 
out notice. Your opt out notice must explain how you will treat an opt 
out direction by a

[[Page 487]]

joint consumer (as explained in paragraph (d)(5) of this section).
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint checking account with you 
and arrange for you to send statements to John's address, you may do any 
of the following, but you must explain in your opt out notice which opt 
out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary.
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction.
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other;
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call); and
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.
    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (h) Delivery. When you are required to deliver an opt out notice by 
this section, you must deliver it according to Sec. 573.9.
    (i) Model privacy form. Pursuant to Sec. 573.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in Appendix A of this part.

[65 FR 35226, June 1, 2000, as amended at 74 FR 62946, Dec. 1, 2009]



Sec. 573.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you 
must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer under Sec. 573.4, unless:
    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec. Sec. 
573.13, 573.14, and 573.15, you must provide a revised notice before 
you:
    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that

[[Page 488]]

former customer has not had the opportunity to exercise an opt out right 
regarding that disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according to Sec. 573.9.



Sec. 573.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices, that this part 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing or, if the consumer agrees, electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer;
    (iii) For the consumer who conducts transactions electronically, 
post the notice on the electronic site and require the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial product or service;
    (iv) For an isolated transaction with the consumer, such as an ATM 
transaction, post the notice on the ATM screen and require the consumer 
to acknowledge receipt of the notice as a necessary step to obtaining 
the particular financial product or service.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices;
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. You may reasonably expect that a customer 
will receive actual notice of your annual privacy notice if:
    (1) The customer uses your web site to access financial products and 
services electronically and agrees to receive notices at the web site, 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the web site; or
    (2) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required by Sec. 
573.4(a)(1), the annual notice required by Sec. 573.5(a), and the 
revised notice required by Sec. 573.8 so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer; or
    (iii) Make your current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more consumers jointly obtain a 
financial product or service from you, you may satisfy the initial, 
annual, and revised

[[Page 489]]

notice requirements of Sec. Sec. 573.4(a), 573.5(a), and 573.8(a), 
respectively, by providing one notice to those consumers jointly.



                     Subpart B_Limits on Disclosures



Sec. 573.10  Limits on disclosure of non-public personal information
to nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, you may not, directly or through any affiliate, disclose any 
nonpublic personal information about a consumer to a nonaffiliated third 
party unless:
    (i) You have provided to the consumer an initial notice as required 
under Sec. 573.4;
    (ii) You have provided to the consumer an opt out notice as required 
in Sec. 573.7;
    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt 
out of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec. Sec. 
573.13, 573.14, and 573.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days from the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction, such as the purchase of a cashier's check by a consumer, 
you provide the consumer with a reasonable opportunity to opt out if you 
provide the notices required in paragraph (a)(1) of this section at the 
time of the transaction and request that the consumer decide, as a 
necessary part of the transaction, whether to opt out before completing 
the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you collected 
it before or after receiving the direction to opt out from the consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec. 573.11  Limits on redisclosure and reuse of information.

    (a)(1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec. 573.14 or 573.15 of this part, 
your disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliates of the 
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception in Sec. 573.14 or 573.15 in the ordinary course of business 
to carry out the activity covered by the exception under which you 
received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account processing services 
under the exception in Sec. 573.14(a), you may disclose that 
information under any exception in

[[Page 490]]

Sec. 573.14 or 573.15 in the ordinary course of business in order to 
provide those services. For example, you could disclose the information 
in response to a properly authorized subpoena or to your attorneys, 
accountants, and auditors. You could not disclose that information to a 
third party for marketing purposes or use that information for your own 
marketing purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec. 573.14 or 573.15 of 
this part, you may disclose the information only:
    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec. 573.14 and 
573.15:
    (i) You may use that list for your own purposes; and
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which you purchased the list 
could have lawfully disclosed the list to that third party. That is, you 
may disclose the list in accordance with the privacy policy of the 
financial institution from which you received the list, as limited by 
the opt out direction of each consumer whose nonpublic personal 
information you intend to disclose, and you may disclose the list in 
accordance with an exception in Sec. 573.14 or 573.15, such as to your 
attorneys or accountants.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec. 573.14 or 573.15 of this part, the third party may 
disclose and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec. 573.14 or 573.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec. 573.14 or 573.15 of this part, 
the third party may disclose the information only:
    (1) To your affiliates;
    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec. 573.12  Limits on sharing account number information for marketing
purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account, or transaction account to any nonaffiliated third party for use 
in telemarketing, direct mail marketing, or other marketing through 
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own products or services, as long as the agent or 
service provider is not authorized to directly initiate charges to the 
account; or
    (2) To a participant in a private label credit card program or an 
affinity or

[[Page 491]]

similar program where the participants in the program are identified to 
the customer when the customer enters into the program.
    (c) Examples--(1) Account number. An account number, or similar form 
of access number or access code, does not include a number or code in an 
encrypted form, as long as you do not provide the recipient with a means 
to decode the number or code.
    (2) Transaction account. A transaction account is an account other 
than a deposit account or a credit card account. A transaction account 
does not include an account to which third parties cannot initiate 
charges.



                          Subpart C_Exceptions



Sec. 573.13  Exception to opt out requirements for service providers
and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec. Sec. 573.7 
and 573.10 do not apply when you provide nonpublic personal information 
to a nonaffiliated third party to perform services for you or functions 
on your behalf, if you:
    (i) Provide the initial notice in accordance with Sec. 573.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec. 573.14 or 573.15 in the 
ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that institution meets the 
requirements of paragraph (a)(1)(ii) of this section if it prohibits the 
institution from disclosing or using the nonpublic personal information 
except as necessary to carry out the joint marketing or under an 
exception in Sec. 573.14 or 573.15 in the ordinary course of business 
to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse, or sponsor a 
financial product or service.



Sec. 573.14  Exceptions to notice and opt out requirements for
processing and servicing transactions.

    (a) Exceptions for processing transactions at consumer's request. 
The requirements for initial notice in Sec. 573.4(a)(2), for the opt 
out in Sec. Sec. 573.7 and 573.10, and for service providers and joint 
marketing in Sec. 573.13 do not apply if you disclose nonpublic 
personal information as necessary to effect, administer, or enforce a 
transaction that a consumer requests or authorizes, or in connection 
with:
    (1) Servicing or processing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of a private label credit card program or 
other extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale 
(including sales of servicing rights), or similar transaction related to 
a transaction of the consumer.
    (b) Necessary to effect, administer, or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce your rights or the rights of other persons engaged in carrying 
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service, or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or

[[Page 492]]

the product or service business of which it is a part;
    (iii) To provide a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) To underwrite insurance at the consumer's request or for 
reinsurance purposes, or for any of the following purposes as they 
relate to a consumer's insurance: account administration, reporting, 
investigating, or preventing fraud or material misrepresentation, 
processing premium payments, processing insurance claims, administering 
insurance benefits (including utilization review activities), 
participating in research projects, or as otherwise required or 
specifically permitted by Federal or State law;
    (vi) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited, or 
otherwise paid using a debit, credit, or other payment card, check, or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts, or interests therein; or
    (C) The audit of debit, credit, or other payment information.



Sec. 573.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to opt out requirements. The requirements for initial 
notice in Sec. 573.4(a)(2), for the opt out in Sec. Sec. 573.7 and 
573.10, and for service providers and joint marketing in Sec. 573.13 do 
not apply when you disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security of your records 
pertaining to the consumer, service, product, or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims, or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating you, persons that 
are assessing your compliance with industry standards, and your 
attorneys, accountants, and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies 
(including a federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's State that 
is engaged in providing insurance, and the Federal Trade Commission), 
self-regulatory organizations, or for an investigation on a matter 
related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer, 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with Federal, State, or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal, or 
regulatory investigation, or subpoena or summons by Federal, State, or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities

[[Page 493]]

having jurisdiction over you for examination, compliance, or other 
purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated insurance 
company of the fact that the consumer has applied to you for a mortgage 
so that the insurance company can offer homeowner's insurance to the 
consumer.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec. 573.7(f).

[65 FR 35226, June 1, 2000, as amended at 66 FR 65822, Dec. 21, 2001]



            Subpart D_Relation to Other Laws; Effective Date



Sec. 573.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit, or 
supersede the operation of the Fair Credit Reporting Act (15 U.S.C. 1681 
et seq.), and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec. 573.17  Relation to State laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any statute, regulation, order, or interpretation 
in effect in any State, except to the extent that such State statute, 
regulation, order, or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order, or interpretation affords any consumer is 
greater than the protection provided under this part, as determined by 
the Federal Trade Commission, after consultation with the OTS, on the 
Federal Trade Commission's own motion, or upon the petition of any 
interested party.



Sec. 573.18  Effective date; transition rule.

    (a) Effective date. This part is effective November 13, 2000. In 
order to provide sufficient time for you to establish policies and 
systems to comply with the requirements of this part, the OTS has 
extended the time for compliance with this part until July 1, 2001.
    (b)(1) Notice requirement for consumers who are your customers on 
the compliance date. By July 1, 2001, you must have provided an initial 
notice, as required by Sec. 573.4, to consumers who are your customers 
on July 1, 2001.
    (2) Example. You provide an initial notice to consumers who are your 
customers on July 1, 2001, if, by that date, you have established a 
system for providing an initial notice to all new customers and have 
mailed the initial notice to all your existing customers.
    (c) Two-year grandfathering of service agreements. Until July 1, 
2002, a contract that you have entered into with a nonaffiliated third 
party to perform services for you or functions on your behalf satisfies 
the provisions of Sec. 573.13(a)(1)(ii) of this part, even if the 
contract does not include a requirement that the third party maintain 
the confidentiality of nonpublic personal information, as long as you 
entered into the contract on or before July 1, 2000.

[[Page 494]]



             Sec. Appendix A to Part 573--Model Privacy Form

                        A. The Model Privacy Form
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                         B. General Instructions

                  1. How the Model Privacy Form Is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec. Sec. 573.6 and 573.7 of 
this part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these Instructions.
    (c) Note that disclosure of certain information, such as assets, 
income, and information from a consumer reporting agency, may give rise 
to obligations under the Fair Credit Reporting Act [15 U.S.C. 1681-
1681x] (FCRA), such as a requirement to permit a consumer to opt out of 
disclosures to affiliates or designation as a consumer reporting agency 
if disclosures are made to nonaffiliated third parties.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the

[[Page 501]]

readability of the model form or the space constraints of each page.
    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.
    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box.
    (1) The bulleted list identifies the types of personal information 
that the institution collects and shares. All institutions must use the 
term ``Social Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: Income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions.
    (1) For our everyday business purposes. This reason incorporates 
sharing information under Sec. Sec. 573.14 and 573.15 and with service 
providers pursuant to Sec. 573.13 of this part other than the purposes 
specified in paragraphs C.2(d)(2) or C.2(d)(3) of these Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant to Sec. 573.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant to Sec. 573.13 of this 
part. An institution that shares for this reason may choose to provide 
an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: The institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include

[[Page 502]]

this reason must provide an opt-out of indefinite duration. An 
institution that is required to provide an affiliate marketing opt-out, 
but does not include that opt-out in the model form under this part, 
must comply with section 624 of the FCRA and 12 CFR part 571, subpart C, 
with respect to the initial notice and opt-out and any subsequent 
renewal notice and opt-out. An institution not required to provide an 
opt-out under this subparagraph may elect to include this reason in the 
model form.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec. Sec. 573.7 and 573.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions must select one or more of the applicable opt-
out methods described: Telephone, such as by a toll-free number; a Web 
site; or use of a mail-in opt-out form. Institutions may include the 
words ``toll-free'' before telephone, as appropriate. An institution 
that allows consumers to opt out online must provide either a specific 
Web address that takes consumers directly to the opt-out page or a 
general Web address that provides a clear and conspicuous direct link to 
the opt-out page. The opt-out choices made available to the consumer who 
contacts the institution through these methods must correspond 
accurately to the ``Yes'' responses in the third column of the 
disclosure table. In the part titled ``Please note,'' institutions may 
insert a number that is 30 or greater in the space marked ``[30].'' 
Instructions on voluntary or state privacy law opt-out information are 
in paragraph C.2(g)(5) of these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [Web site] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a Web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or 
different information, such as a random opt-out number or a truncated 
account number, to implement an opt-out election should modify the 
``[account ]'' reference accordingly. This includes 
institutions that require customers with multiple accounts to identify 
each account to which the opt-out should apply. An institution must 
enter its opt-out mailing address: in the far right of this form (see 
version 3); or below the form (see version 4). The reverse side of the 
mail-in opt-out form must not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. [square] Apply my choice(s) only to me.'' 
The word ``choice'' may be written in either the singular or plural, as 
appropriate. Financial institutions that provide insurance products or 
services, provide this option, and elect to use the model form may 
substitute the word ``policy'' for ``account'' in this statement. 
Institutions that do not provide this option may eliminate this left 
column from the mail-in form.
    (2) FCRA Section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: ``[square] Do not share information about my creditworthiness 
with your affiliates for their everyday business purposes.''
    (3) FCRA Section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: ``[square] Do not allow your affiliates to use my personal 
information to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant to Sec. 573.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: ``[square] 
Do not share my personal information with nonaffiliates to market their 
products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: ``[square] Do not share my personal information to 
market to me.'' or ``[square] Do not use my personal information to 
market to me.'' A financial institution that chooses to offer an opt-out 
for joint marketing must include the following statement: ``[square] Do 
not share my personal information with other financial institutions to 
jointly market to me.''

[[Page 503]]

    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as these do not interfere with the clarity or text 
of the form.

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required by Sec. 573.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the notice and must separately 
identify those institutions, in minimum 8-point font, directly following 
the ``Other important information'' box, or, if that box is not included 
in the institution's form, directly following the ``Definitions.'' The 
list may appear in a multi-column format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: Open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions.
    The financial institution must customize the space below the 
responses to the three definitions in this section. This specific 
information must be in italicized lettering to set off the information 
from the standardized definitions.
    (1) Affiliates. As required by Sec. 573.6(a)(3) of this part, where 
[affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates;''
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates''; or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies]; nonfinancial companies, such as [insert 
illustrative list of companies]; and others, such as [insert 
illustrative list].''
    (2) Nonaffiliates. As required by Sec. 573.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:

[[Page 504]]

    (i) If it does not share with nonaffiliated third parties, state: 
``[name of financial institution] does not share with nonaffiliates so 
they can market to you''; or
    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance companies, direct 
marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required by Sec. 573.13 of this part, where 
[joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market''; or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this 
box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.

[74 FR 62946, Dec. 1, 2009]



               Sec. Appendix B to Part 573--Sample Clauses

    This Appendix only applies to privacy notices provided before 
January 1, 2011. Financial institutions, including a group of financial 
holding company affiliates that use a common privacy notice, may use the 
following sample clauses, if the clause is accurate for each institution 
that uses the notice. (Note that disclosure of certain information, such 
as assets, income, and information from a consumer reporting agency, may 
give rise to obligations under the Fair Credit Reporting Act, such as a 
requirement to permit a consumer to opt out of disclosures to affiliates 
or designation as a consumer reporting agency if disclosures are made to 
nonaffiliated third parties.)

      A-1--Categories of information you collect (all institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 573.6(a)(1) to describe the categories of nonpublic personal 
information you collect.
    Sample Clause A-1: We collect nonpublic personal information about 
you from the following sources:
     Information we receive from you on applications 
or other forms;
     Information about your transactions with us, our 
affiliates, or others; and
     Information we receive from a consumer reporting 
agency.

A-2--Categories of information you disclose (institutions that disclose 
                       outside of the exceptions)

    You may use one of these clauses, as applicable, to meet the 
requirement of Sec. 573.6(a)(2) to describe the categories of nonpublic 
personal information you disclose. You may use these clauses if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 573.13, 573.14, and 573.15.
    Sample Clause A-2, Alternative 1: We may disclose the following 
kinds of nonpublic personal information about you:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].
    Sample Clause A-2, Alternative 2: We may disclose all of the 
information that we collect, as described [describe location in the 
notice, such as ``above'' or ``below''].

  A-3--Categories of information you disclose and parties to whom you 
 disclose (institutions that do not disclose outside of the exceptions)

    You may use this clause, as applicable, to meet the requirements of 
Sec. Sec. 573.6(a)(2), (3), and (4) to describe the categories of 
nonpublic personal information about customers and former customers that 
you disclose and the categories of affiliates and nonaffiliated third 
parties to whom you disclose. You may use this clause if you do not 
disclose nonpublic personal information to any party, other than as 
permitted by the exceptions in Sec. Sec. 573.14, and 573.15.
    Sample Clause A-3: We do not disclose any nonpublic personal 
information about our customers or former customers to anyone, except as 
permitted by law.

   A-4--Categories of parties to whom you disclose (institutions that 
                   disclose outside of the exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 573.6(a)(3) to describe the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information. You may use this clause if you disclose nonpublic personal 
information other than as permitted by the exceptions in Sec. Sec. 
573.13, 573.14, and 573.15, as well as when permitted by the exceptions 
in Sec. Sec. 573.14, and 573.15.

[[Page 505]]

    Sample Clause A-4: We may disclose nonpublic personal information 
about you to the following types of third parties:
     Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers, securities broker-
dealers, and insurance agents''];
     Non-financial companies, such as [provide 
illustrative examples, such as ``retailers, direct marketers, airlines, 
and publishers'']; and
     Others, such as [provide illustrative examples, 
such as ``non-profit organizations;''].
    We may also disclose nonpublic personal information about you to 
nonaffiliated third parties as permitted by law.

             A-5--Service provider/joint marketing exception

    You may use one of these clauses, as applicable, to meet the 
requirements of Sec. 573.6(a)(5) related to the exception for service 
providers and joint marketers in Sec. 573.13. If you disclose nonpublic 
personal information under this exception, you must describe the 
categories of nonpublic personal information you disclose and the 
categories of third parties with whom you have contracted.
    Sample Clause A-5, Alternative 1: We may disclose the following 
information to companies that perform marketing services on our behalf 
or to other financial institutions with whom we have joint marketing 
agreements:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].
    Sample Clause A-5, Alternative 2: We may disclose all of the 
information we collect, as described [describe location in the notice, 
such as ``above'' or ``below''] to companies that perform marketing 
services on our behalf or to other financial institutions with whom we 
have joint marketing agreements.

A-6--Explanation of opt out right (institutions that disclose outside of 
                             the exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 573.6(a)(6) to provide an explanation of the consumer's right to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right. You may use this clause if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 573.13, 573.14, and 573.15.
    Sample Clause A-6: If you prefer that we not disclose nonpublic 
personal information about you to nonaffiliated third parties, you may 
opt out of those disclosures, that is, you may direct us not to make 
those disclosures (other than disclosures permitted by law). If you wish 
to opt out of disclosures to nonaffiliated third parties, you may 
[describe a reasonable means of opting out, such as ``call the following 
toll-free number: (insert number)''].

          A-7--Confidentiality and security (all institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 573.6(a)(8) to describe your policies and practices with respect 
to protecting the confidentiality and security of nonpublic personal 
information.
    Sample Clause A-7: We restrict access to nonpublic personal 
information about you to [provide an appropriate description, such as 
``those employees who need to know that information to provide products 
or services to you'']. We maintain physical, electronic, and procedural 
safeguards that comply with federal standards to guard your nonpublic 
personal information.

[65 FR 35226, June 1, 2000. Redesignated and amended at 74 FR 62945, 
62955, Dec. 1, 2009]

    Effective Date Note: At 74 FR 62955, Dec. 1, 2009, newly 
redesignated appendix B was removed, effective Jan. 1, 2012.



PART 574_ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS--
Table of Contents




Sec.
574.1 Scope of part.
574.2 Definitions.
574.3 Acquisition of control of savings associations.
574.4 Control.
574.5 Certifications of ownership.
574.6 Procedural requirements.
574.7 Determination by the OTS.
574.8 Qualified stock issuances by undercapitalized savings associations 
          or holding companies.
574.100 Rebuttal of control agreement.

    Authority: 12 U.S.C. 1467a, 1817, 1831i.

    Source: 54 FR 49690, Nov. 30, 1989, unless otherwise noted.



Sec. 574.1  Scope of part.

    The purpose of this part is to implement the provisions of the 
Change in Bank Control Act, 12 U.S.C.1817(j)

[[Page 506]]

(``Control Act''), and the Savings and Loan Holding Company Act, 12 
U.S.C. 1467a (``Holding Company Act''), relating to acquisitions and 
changes in control of savings associations that are organized in stock 
form and savings and loan holding companies thereof.

[61 FR 60184, Nov. 27, 1996]



Sec. 574.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Acquire when used in connection with the acquisition of stock of 
a savings association means obtaining ownership, control, power to vote, 
or sole power of disposition of stock, directly or indirectly or through 
one or more transactions or subsidiaries, through purchase, assignment, 
transfer, exchange, succession, or other means, including:
    (1) An increase in percentage ownership resulting from a redemption, 
repurchase, reverse stock split or a similar transaction involving other 
securities of the same class, and
    (2) The acquisition of stock by a group of persons and/or companies 
acting in concert which shall be deemed to occur upon formation of such 
group: Provided, That an investment advisor shall not be deemed to 
acquire the voting stock of its advisee if the advisor:
    (i) Votes the stock only upon instruction from the beneficial owner, 
and
    (ii) Does not provide the beneficial owner with advice concerning 
the voting of such stock.
    (b) Acquiror means a person or company.
    (c) Acting in concert means: (1) Knowing participation in a joint 
activity or interdependent conscious parallel action towards a common 
goal whether or not pursuant to an express agreement, or
    (2) A combination or pooling of voting or other interests in the 
securities of an issuer for a common purpose pursuant to any contract, 
understanding, relationship, agreement or other arrangement, whether 
written or otherwise.
    (3) A person or company which acts in concert with another person or 
company (``other party'') shall also be deemed to be acting in concert 
with any person or company who is also acting in concert with that other 
party, except that any tax-qualified employee stock benefit plan as 
defined in Sec. 563b.25 of this chapter will not be deemed to be acting 
in concert with its trustee or a person who serves in a similar capacity 
solely for the purpose of determining whether stock held by the trustee 
and stock held by the plan will be aggregated.
    (d) Affiliate means any person or company which controls, is 
controlled by or is under common control with a person, savings 
association or company.
    (e) [Reserved]
    (f) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (r) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, the Office of Thrift Supervision, or any Federal Home Loan 
Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State,
    (ii) An officer of the United States or any State in his or her 
official capacity, or
    (iii) An instrumentality of the United States or any State.
    (g) Controlling shareholder means any person who directly or 
indirectly or acting in concert with one or more persons or companies, 
or together with members of his or her immediate family, owns, controls, 
or holds with power to vote 10 percent or more of the voting stock of a 
company or controls in any manner the election or appointment of a 
majority of the company's board of directors.
    (h) Director means the Director of the Office of Thrift Supervision.
    (i) [Reserved]
    (j) Immediate family means a person's spouse, father, mother, 
children, brothers, sisters and grandchildren; the father, mother, 
brothers, and sisters of the person's spouse; and the spouse of the 
person's child, brother or sister.
    (k) Management official means any president, chief executive 
officer, chief

[[Page 507]]

operating officer, vice president, director, partner, or trustee, or any 
other person who performs or has a representative or nominee performing 
similar policymaking functions, including executive officers of 
principal business units or divisions or subsidiaries who perform 
policymaking functions, for a savings association or a company, whether 
or not incorporated.
    (l) Office means the Office of Thrift Supervision.
    (m) Person means an individual or a group of individuals acting in 
concert who do not constitute a ``company'' as defined in paragraph (f) 
of this section.
    (n) Repealed Control Act means the Change in Savings and Loan 
Control Act, 12 U.S.C. 1730(q), as in effect immediately prior to its 
repeal by the Financial Institutions Reform, Recovery, and Enforcement 
Act of 1989.
    (o) [Reserved]
    (p) Savings Association means a Federal savings and loan association 
or a Federal savings bank chartered under section 5 of the Home Owners' 
Loan Act, a building and loan, savings and loan or homestead association 
or a cooperative bank (other than a cooperative bank described in 12 
U.S.C. 1813(a)(2)) the deposits of which are insured by the Federal 
Deposit Insurance Corporation, and any corporation (other than a bank) 
the deposits of which are insured by the Federal Deposit Insurance 
Corporation that the Office and the Federal Deposit Insurance 
Corporation jointly determine to be operating in substantially the same 
manner as a savings association, and shall include any savings bank or 
any cooperative bank which is deemed by the Office to be a savings 
association under 12 U.S.C. 1467a(1), and any savings and loan holding 
company as defined in paragraph (q) of this section.
    (q) Savings and loan holding company means any company that directly 
or indirectly controls a savings association, but does not include:
    (1) Any company by virtue of its ownership or control of voting 
stock of a savings association acquired in connection with the 
underwriting of securities if such stock is held only for such period of 
time (not exceeding 120 days unless extended by the Office) as will 
permit the sale thereof on a reasonable basis; and
    (2) Any trust (other than a pension, profit-sharing, stockholders', 
voting, or business trust) which controls a savings association if such 
trust by its terms must terminate within 25 years or not later than 21 
years and 10 months after the death of individuals living on the 
effective date of the trust, and:
    (i) Was in existence and in control of a savings association on June 
26, 1967, or
    (ii) Is a testamentary trust; and
    (3) A bank holding company that is registered under, and subject to, 
the Bank Holding Company Act of 1956, or any company directly or 
indirectly controlled by such company (other than a savings 
association).
    (r) Similar organization for purposes of paragraph (f) of this 
section means a combination of parties with the potential for or 
practical likelihood of continuing rather than temporary existence, 
where the parties thereto have knowingly and voluntarily associated for 
a common purpose pursuant to identifiable and binding relationships 
which govern the parties with respect to either:
    (1) The transferability and voting of any stock or other indicia of 
participation in another entity, or
    (2) Achievement of a common or shared objective, such as to 
collectively manage or control another entity.
    (s) Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    (t) Uninsured institution means any financial institution the 
deposits of which are not insured by the Federal Deposit Insurance 
Corporation.
    (u)(1) Voting stock means common or preferred stock, general or 
limited partnership shares or interests, or similar interests if the 
shares or interests, by statute, charter or in any manner, entitle the 
holder:
    (i) To vote for or to select directors, trustees, or partners (or 
persons exercising similar functions of the issuing savings association 
or company); or

[[Page 508]]

    (ii) To vote or to direct the conduct of the operations or other 
significant policies of the issuer:
    (2) Notwithstanding anything in paragraph (u)(1) of this section, 
preferred stock, limited partnership shares or interests, or similar 
interests are not ``voting stock'' if:
    (i) Voting rights associated with the stock, shares or interests are 
limited solely to the type customarily provided by statute with regard 
to matters that would significantly and adversely affect the rights or 
preference of the stock, security or other interest, such as the 
issuance of additional amounts or classes of senior securities, the 
modification of the terms of the stock, security or interest, the 
dissolution of the issuer, or the payment of dividends by the issuer 
when preferred dividends are in arrears;
    (ii) The stock, shares or interests represent an essentially passive 
investment or financing device and do not otherwise provide the holder 
with control over the issuer; and
    (iii) The stock, shares or interests do not at the time entitle the 
holder, by statute, charter, or otherwise, to select or to vote for the 
selection of directors, trustees, or partners (or persons exercising 
similar functions) of the issuer;
    (3) Notwithstanding anything in paragraphs (u)(1) and (u)(2) of this 
section, ``voting stock'' shall be deemed to include stock and other 
securities that, upon transfer or otherwise, are convertible into voting 
stock or exercisable to acquire voting stock where the holder of the 
stock, convertible security or right to acquire voting stock has the 
preponderant economic risk in the underlying voting stock. Securities 
immediately convertible into voting stock at the option of the holder 
without payment of additional consideration shall be deemed to 
constitute the voting stock into which they are convertible; other 
convertible securities and rights to acquire voting stock shall not be 
deemed to vest the holder with the preponderant economic risk in the 
underlying voting stock if the holder has paid less than 50 percent of 
the consideration required to directly acquire the voting stock and has 
no other economic interest in the underlying voting stock. For purposes 
of calculating the percentage of voting stock held by a particular 
acquiror, stock or other securities convertible into voting stock or 
exercisable to acquire voting stock which are deemed voting stock under 
this paragraph (u)(3) shall be included in calculating the amount of 
voting stock held by the acquiror and the total amount of stock 
outstanding only to the extent of the voting stock obtainable by such 
acquiror by such conversion or exercise of rights.

[54 FR 49690, Nov. 30, 1989, as amended at 60 FR 66720, Dec. 26, 1995; 
61 FR 60184, Nov. 27, 1996; 71 FR 19812, Apr. 18, 2006; 73 FR 19, Jan. 
2, 2008]



Sec. 574.3  Acquisition of control of savings associations.

    (a) Acquisition by a company or certain persons. Unless a 
transaction is exempt under paragraph (c) of this section, or exempt 
from prior approval under paragraph (d) of this section, no company or 
any director or officer of a savings and loan holding company, or any 
individual who owns, controls, or holds with power to vote (or holds 
proxies representing) more than 25 percent of the voting stock of a 
savings and loan holding company, shall acquire control, as defined in 
Sec. 574.4 (a) and (b) of this part, of a savings association except 
upon receipt of the written approval of the Office.
    (b) Acquisition by a person. Unless a transaction is exempt under 
paragraph (c) of this section, or exempt from prior notice under 
paragraph (d) of this section, no person (other than certain persons 
affiliated with a savings and loan holding company who are subject to 
paragraph (a) of this section), shall acquire control, as defined in 
Sec. 574.4 (a) and (b) of this part, of a savings association until 
written notice has been provided to the Office and (1) the Office 
indicates in writing its intent not to disapprove the proposed 
acquisition or (2) 60 days (or such period of time as the Office may 
specify if the review period has been extended under Sec. 574.6(c)(3) 
of this part) have passed since receipt of a notice deemed sufficient 
under Sec. 574.6(c)(2). Notwithstanding the forgoing, acquisitions by 
persons by means of a merger with an interim association are not subject 
to

[[Page 509]]

this part, but shall be subject to approval under Sec. 563.22, and 
either Sec. 552.13 or applicable state law.
    (c) Exempt transactions. (1) The following transactions are exempt 
from the application requirements of paragraph (a) of this section:
    (i) Control of a savings association acquired by devise under the 
terms of a will creating a trust which is excluded from the definition 
of savings and loan holding company under Sec. 574.2(q) of this part;
    (ii) Control of a savings association acquired in connection with a 
reorganization that involves solely the acquisition of control of that 
association by a newly formed company that is controlled by the same 
acquirors that controlled the savings association for the immediately 
preceding three years, and entails no other transactions, such as an 
assumption of the acquirors' debt by the newly formed company: Provided, 
that the acquirors have filed with the Office an H-(e)4 notification as 
provided in section 574.6 of this part and the OTS does not object to 
the acquisition within 30 days of the filing date;
    (iii) Control of a savings association acquired by a bank holding 
company that is registered under and subject to, the Bank Holding 
Company Act of 1956, or any company controlled by such bank holding 
company;
    (iv) Control of a savings association acquired solely as a result of 
(A) a pledge or hypothecation of stock to secure a loan contracted for 
in good faith or (B) the liquidation of a loan contracted for in good 
faith, in either case where such loan was made in the ordinary course of 
the business of the lender: Provided, further, That acquisition of 
control pursuant to such pledge, hypothecation or liquidation is 
reported to the Office within 30 days, and Provided, further, That the 
acquiror shall not retain such control for more than one year from the 
date on which such control was acquired; however, the Office may, upon 
application by an acquiror, extend such one-year period from year to 
year, for an additional period of time not exceeding three years, if the 
Office finds such extension is warranted and would not be detrimental to 
the public interest;
    (v) Control of a savings association acquired through a percentage 
increase in stock ownership following a pro rata stock dividend or stock 
split, if the proportional interests of the recipients remain 
substantially the same;
    (vi) Acquisition of additional stock after approval under Sec. 
574.7 of this part, or any predecessor provision, has been received: 
Provided, That such acquisition is consistent with any conditions 
imposed in connection with such approval and with the representations 
made by the acquiror in its application;
    (vii) Acquisitions of up to twenty-five percent (25%) of a class of 
stock by a tax-qualified employee stock benefit plan as defined in Sec. 
563b.25; and
    (viii) Acquisitions of up to 15 percent of the voting stock of any 
savings association by a savings and loan holding company (other than a 
bank holding company) in connection with a qualified stock issuance if 
such acquisition is approved by the Office pursuant to Sec. 574.8(a).
    (2) The following transactions are exempt from the notice 
requirements of paragraph (b) of this section:
    (i) Transactions which are exempt pursuant to paragraphs 
(c)(1)(iii), (c)(1)(iv), (c)(1)(v), and (c)(1)(vi) of this section;
    (ii) Transactions for which approval is required under paragraph (a) 
of this section;
    (iii) Transactions for which approval is required under part 546 or 
Sec. 552.13 and Sec. 563.22 of this chapter;
    (iv) Transactions for which a change of control notice must be 
submitted to the Board of Governors of the Federal Reserve System 
pursuant to the Change in Bank Control Act, 12 U.S.C. 1817(j);
    (v) Acquisition of additional stock of a savings association by any 
person who:
    (A) Has held power to vote 25 percent or more of any class of voting 
stock in such association continuously since March 9, 1979; or
    (B) Has maintained control of the savings association continuously 
since acquiring control in compliance with the Control Act (or the 
Repealed Control Act) and the Office's regulations thereunder then in 
effect: Provided,

[[Page 510]]

That such acquisition is consistent with any conditions imposed in 
connection with such acquisition of control and with the representations 
made by the acquiror in its notice; and
    (vi) Acquisitions of stock of a de novo federal savings association 
in connection with the organization of such association: Provided, That 
the Office has considered the financial and managerial resources of the 
acquiror in granting the association its federal savings association 
charter; and additional acquisitions of stock of such association, and 
further provided, that the acquisitions are consistent with any 
conditions imposed in connection with the approval of the association's 
charter and with representations made by the acquiror in its application 
for a federal savings association charter, and that the Regional 
Director has no supervisory objection to the acquiror's additional 
acquisitions.
    (3) An acquiror that would be considered to be in control of a 
savings association pursuant to Sec. 574.4 of this part on December 26, 
1985, shall not be subject to this Sec. 574.3 unless the acquiror 
acquires additional stock of the savings association or obtains a 
control factor with respect to such association after December 26, 1985: 
Provided, That an acquiror shall not be deemed to have acquired control 
of a savings association on the basis of actions taken prior to December 
26, 1985, or on the basis of actions taken after December 26, 1985, if 
such actions are pursuant to and consistent with a materially complete 
application under the Holding Company Act or notice under the Repealed 
Control Act filed prior to December 26, 1985, if such acquisition is 
made pursuant to an application approved under the Holding Company Act 
or a notice under the Repealed Control Act that was not disapproved.
    (d) Transactions exempt from prior approval or notice. (1) Subject 
to the conditions set forth in paragraph (d)(2) of this section, the 
following transactions are exempt from prior approval and prior notice 
under Sec. 574.3: Provided, That the timing of the transaction was not 
within the control of the acquiror.
    (i) Control of a savings association acquired through bona fide 
gift;
    (ii) Control of a savings association acquired through liquidation 
of a loan contracted in good faith where the loan was not made in the 
ordinary course of business of the lender;
    (iii) Control of a savings association acquired through a percentage 
increase in ownership following a stock split or redemption that was not 
pro rata;
    (iv) Control determined pursuant to Sec. 574.4 (a) or (b) as a 
result of actions by third parties that are not within the control of 
the acquiror;
    (v) Control of a savings association acquired through testate or 
intestate succession: Provided, That the acquiror transmits written 
notification of the acquisition to the Office within 60 days of the 
acquisition and provides such additional information as the Office may 
specifically request.
    (2) The exemptions provided by paragraphs (d)(1)(i) through 
(d)(1)(iv) of this section are subject to the following conditions:
    (i) The acquiror shall file an application, notice or rebuttal, as 
appropriate, with the Office within 90 days of acquisition of control;
    (ii) The acquiror shall not take any action to direct the management 
or policies of the savings association or which are designed to effect a 
change in the business plan of the savings association other than voting 
on matters that may be presented to stockholders by management of the 
savings association until the Office has acted favorably upon the 
acquiror's application or notice, and the Office may require that the 
acquiror take such steps as the Office deems necessary to insure that 
control is not exercised; and
    (iii) If the Office disapproves the acquiror's application or 
notice, the acquiror shall divest such portion of the stock held by the 
acquiror so as to cause the acquiror not to be determined to be in 
control of the savings association under Sec. 574.4 of this part, 
within one year or such shorter period of time and in the manner that 
the Office may order.
    (e) Prohibited acquisitions. No acquisition shall be approved by the 
Office pursuant to Sec. 574.3(a) which would result in the formation by 
any company, through one or more subsidiaries or through one or more 
transactions, of a

[[Page 511]]

multiple savings and loan holding company controlling savings 
associations in more than one state where the acquisition causes a 
savings association to become an affiliate of another savings 
association with which it was not previously affiliated unless:
    (1) Such company, or a savings association subsidiary of such 
company, is authorized to acquire control of a savings association 
subsidiary, or to operate a home or branch office, in the additional 
state or states pursuant to section 13(k) of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823(k) (or section 408(m) of the National 
Housing Act as in effect immediately prior to enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989);
    (2) Such company controls a savings association subsidiary which 
operated a home or branch office in the additional state or states as of 
March 5, 1987; or
    (3) The statute laws of the state in which the savings association, 
control of which is to be acquired, is located are such that a savings 
association chartered by such state could be acquired by a savings 
association chartered by the state where the acquiring savings 
association or savings and loan holding company is located (or by a 
holding company that controls such a state chartered savings 
association), and such statute laws specifically authorize such an 
acquisition by language to that effect and not merely by implication.

[54 FR 49690, Nov. 30, 1989, as amended at 57 FR 14348, Apr. 20, 1992; 
60 FR 66720, Dec. 26, 1995; 61 FR 60184, Nov. 27, 1996; 67 FR 52035, 
Aug. 9, 2002]



Sec. 574.4  Control.

    (a) Conclusive control. (1) An acquiror shall be deemed to have 
acquired control of a savings association, other than a savings and loan 
holding company, if the acquiror directly or indirectly, through one or 
more subsidiaries or transactions or acting in concert with one or more 
persons or companies:
    (i) Acquires more than 25 percent of any class of voting stock of 
the savings association;
    (ii) Acquires irrevocable proxies representing more than 25 percent 
of any class of voting stock of the savings association;
    (iii) Acquires any combination of voting stock and irrevocable 
proxies representing more than 25 percent of any class of voting stock 
of a savings association; or
    (iv) Controls in any manner the election of a majority of the 
directors of the savings association.
    (2) An acquiror shall be deemed to have acquired control of a 
company, including a savings and loan holding company, if the acquiror 
directly or indirectly, or through one or more subsidiaries or 
transactions or acting in concert with one or more persons or companies:
    (i) Acquires more than 25 percent of any class of voting stock of 
the company;
    (ii) Acquires irrevocable proxies representing more than 25 percent 
of any class of voting stock of the company;
    (iii) Acquires any combination of voting stock and irrevocable 
proxies representing more than 25 percent of any class of voting stock 
of a savings association;
    (iv) Controls in any manner the election of a majority of the 
directors or trustees of a company;
    (v) Is a general partner of a company;
    (vi) Has contributed more than 25 percent of the capital of the 
company; or
    (vii) Is a trustee of a trust.
    (3) A company shall be deemed to control a savings association if 
the Office finds, after notice and opportunity for hearing, that the 
company has the power directly or indirectly, to exercise a controlling 
influence over the management or policies of the savings association.
    (4) A person shall be deemed to control a savings association if the 
Office determines that such person has the power to direct the 
management or policies of the savings association.
    (b) Rebuttable control determinations. (1) Except as provided in 
Sec. 574.8, an acquiror shall be determined, subject to rebuttal, to 
have acquired control of a savings association, if the acquiror directly 
or indirectly, or through one or more subsidiaries or transactions or

[[Page 512]]

acting in concert with one or more persons or companies:
    (i) Acquires more than 10 percent of any class of voting stock of 
the savings association and is subject to any control factor, as defined 
in paragraph (c) of this section;
    (ii) Acquires more than 25 percent of any class of stock of the 
savings association and is subject to any control factor, as defined in 
paragraph (c) of this section.
    (2) An acquiror shall be determined, subject to rebuttal, to have 
acquired control of a savings association, if the acquiror directly or 
indirectly, or through one or more subsidiaries or transactions or 
acting in concert with one or more persons or companies, holds any 
combination of voting stock and revocable and/or irrevocable proxies, 
representing more than 25 percent of any class of voting stock of a 
savings association, excluding such proxies held in connection with a 
solicitation by, or in opposition to, a solicitation on behalf of 
management of the savings association, but including a solicitation in 
connection with an election of directors, and such proxies would enable 
the acquiror to:
    (i) Elect one-third or more of the savings association's board of 
directors, including nominees or representatives of the acquiror 
currently serving on such board;
    (ii) Cause the savings association's stockholders to approve the 
acquisition or corporate reorganization of the savings association; or
    (iii) Exert a continuing influence on a material aspect of the 
business operations of the savings association.
    (c) Control factors. For purposes of paragraph (b)(1) of this 
section, the following constitute control factors. References to the 
acquiror include actions taken directly or indirectly, or through one or 
more subsidiaries or transactions or acting in concert with one or more 
persons or companies:
    (1) The acquiror would be one of the two largest holders of any 
class of voting stock of the savings association.
    (2) The acquiror would hold more than 25 percent of the total 
stockholders' equity of the savings association.
    (3) The acquiror would hold more than 35 percent of the combined 
debt securities and stockholders' equity of the savings association.
    (4) The acquiror is party to any agreement:
    (i) Pursuant to which the acquiror possesses a material economic 
stake in the savings association resulting from a profit-sharing 
arrangement, use of common names, facilities or personnel, or the 
provision of essential services to the savings association; or
    (ii) That enables the acquiror to influence a material aspect of the 
management or policies of the savings association, other than agreements 
to which the savings association is a party where the restrictions are 
customary under the circumstances and in the case of an acquisition 
agreement, which apply only during the period when the acquiror is 
seeking the Office's approval to acquire the savings association, the 
agreement prohibits transactions between the acquiror and the savings 
association and their respective affiliates without approval by the 
Regional Director during the pendency of the application process, and 
the agreement contains no material forfeiture provisions applicable to 
the savings association in the event the acquisition is not approved or 
not approved by a specified date.
    (5) The acquiror would have the ability, other than through the 
holding of revocable proxies, to direct the votes of more than 25 
percent of a class of the savings association's voting stock or to vote 
more than 25 percent of a class of the savings association's voting 
stock in the future upon the occurrence of a future event.
    (6) The acquiror would have the power to direct the disposition of 
more than 25 percent of a class of the savings association's voting 
stock in a manner other than a widely dispersed or public offering.
    (7) The acquiror and/or the acquiror's representatives or nominees 
would constitute more than one member of the savings association's board 
of directors.
    (8) The acquiror or a nominee or management official of the acquiror 
would serve as the chairman of the

[[Page 513]]

board of directors, chairman of the executive committee, chief executive 
officer, chief operating officer, chief financial officer or in any 
position with similar policymaking authority in the savings association.
    (d) Rebuttable presumptions of concerted action. An acquiror will be 
presumed to be acting in concert with the following persons and 
companies:
    (1) A company will be presumed to be acting in concert with a 
controlling shareholder, partner, trustee or management official of such 
company with respect to the acquisition of stock of a savings 
association, if
    (i) Both the company and the person own stock in the savings 
association,
    (ii) The company provides credit to the person to purchase the 
savings association's stock, or
    (iii) The company pledges its assets or otherwise is instrumental in 
obtaining financing for the person to acquire stock of the savings 
association;
    (2) A person will be presumed to be acting in concert with members 
of the person's immediate family;
    (3) Persons will be presumed to be acting in concert with each other 
where
    (i) Both own stock in a savings association and both are also 
management officials, controlling shareholders, partners, or trustees of 
another company, or
    (ii) One person provides credit to another person or is instrumental 
in obtaining financing for another person to purchase stock of the 
savings association;
    (4) A company controlling or controlled by another company and 
companies under common control will be presumed to be acting in concert;
    (5) Persons or companies will be presumed to be acting in concert 
where they constitute a group under the beneficial ownership reporting 
rules under section 13 or the proxy rules under section 14 of the 
Securities Exchange Act of 1934, promulgated by the Securities and 
Exchange Commission.
    (6) A person or company will be presumed to be acting in concert 
with any trust for which such person or company serves as trustee, 
except that a tax-qualified employee stock benefit plan as defined in 
Sec. 563b.2(a)(39) shall not be presumed to be acting in concert with 
its trustee or person acting in a similar fiduciary capacity solely for 
the purposes of determining whether to combine the holdings of a plan 
and its trustee or fiduciary.
    (7) Persons or companies will be presumed to be acting in concert 
with each other and with any other person or company with which they 
also are presumed to act in concert.
    (e) Procedures for rebuttal--(1) Rebuttal of control determination. 
An acquiror attempting to rebut a determination of control that would 
arise under paragraph (b) of this section shall file a submission with 
the Office setting forth the facts and circumstances which support the 
acquiror's contention that no control relationship would exist if the 
acquiror acquires stock or obtains a control factor with respect to a 
savings association. The rebuttal must be filed and accepted in 
accordance with this section before the acquiror acquires such stock or 
control factor.
    (i) An acquiror seeking to rebut the determination of control 
arising under paragraph (b)(1) of this section shall submit to the 
Office an executed agreement materially conforming to the agreement set 
forth at Sec. 574.100 of this part. Unless agreed to by the Office in 
writing, no other agreement or filing shall be deemed to rebut the 
determination of control arising under paragraph (b)(1) of this section. 
If accepted by the Office, the acquiror shall furnish a copy of the 
executed agreement to the association to which the rebuttal pertains.
    (ii) An acquiror seeking to rebut the determination of control with 
respect to holding of proxies arising under paragraph (b)(2) of this 
section shall be subject to the requirements of paragraph (e)(1) of this 
section, except that in the case of a rebuttal of the presumption of 
control arising under paragraph (b)(2) of this section, the Office may 
require the acquiror to furnish information in response to a specific 
request for information and depending upon the particular facts and 
circumstances, to provide an executed rebuttal agreement materially 
conforming to the agreement set forth at

[[Page 514]]

Sec. 574.100 of this part, with any modifications deemed necessary by 
the Office.
    (2) Presumptions of concerted action. An acquiror attempting to 
rebut the presumption of concerted action arising under paragraph (d) of 
this section shall file a submission with the Office setting forth facts 
and circumstances which clearly and convincingly demonstrate the 
acquiror's contention that no action in concert exists. Such a statement 
must be accompanied by an affidavit, in form and content satisfactory to 
the Office, executed by each person or company presumed to be acting in 
concert, stating that such person or company does not and shall not, 
without having made necessary filings and obtained approval or clearance 
thereof under the Holding Company Act or the Control Act, as applicable, 
have any agreements or understandings, written or tacit, with respect to 
the exercise of control, directly or indirectly, over the management or 
policies of the savings association, including agreements relating to 
voting, acquisition or disposition of the savings association's stock. 
The affidavit shall also recite that the signatory is aware that the 
filing of a false affidavit may subject the person or company to 
criminal sanctions, would constitute a violation of the Office's 
regulations at 12 CFR 563.180(b), and would be considered a 
``presumptive disqualifier'' under 12 CFR 574.7(g)(1)(v).
    (3) Determination. A rebuttal filed pursuant to paragraph (e) of 
this section shall not be deemed sufficient unless it includes all the 
information, agreements, and affidavits required by the Office and this 
part, as well as any additional relevant information as the Office may 
require by written request to the acquiror. Within 20 calendar days 
after proper filing of a rebuttal submission, the Office will provide 
written notification of its determination to accept or reject the 
submission; request additional information in connection with the 
submission; or return the submission to the acquiror as materially 
deficient. Within 15 calendar days after proper filing of any additional 
information furnished in response to a specific request by the Office, 
the Office shall notify the acquiror in writing as to whether the 
rebuttal is thereby deemed to be sufficient. If the Office fails to 
notify an acquiror within such time, the rebuttal shall be deemed to be 
accepted. The Office may reject any rebuttal which is inconsistent with 
facts and circumstances known to it or where the rebuttal does not 
clearly and convincingly refute the rebuttable determination of control 
or presumption of action in concert, and may determine to reject a 
submission solely on such bases.
    (f) Safe harbor. Notwithstanding any other provision of this 
section, where an acquiror has no intention to participate in or to seek 
to exercise control over a savings association's management or policies, 
the acquiror may seek to qualify for a safe harbor with respect to its 
ownership of stock of a savings association.
    (1) In order to qualify for the safe harbor, an acquiror must submit 
a certification to the OTS that shall be signed by the acquiror or an 
authorized representative thereof and shall read as follows:

    The undersigned makes this submission pursuant to Sec. 574.4(f) of 
the regulations of the Office of Thrift Supervision (``Office'') with 
respect to [name of savings association] and hereby certifies to the 
Office the following:
    The undersigned is not in control of [name of savings association] 
under Sec. 574.4(a);
    The undersigned is not subject to any control factor as enumerated 
in Sec. 574.4(c) with respect to the [name of savings association];
    The undersigned will not solicit proxies relating to the voting 
stock of [name of savings association];
    Before any change in status occurs that would bring the undersigned 
within the scope of Sec. 574.4 (a) or (b), the undersigned will file 
and obtain approval of a rebuttal, notice or application, as 
appropriate.
    The undersigned has not acquired stock of [name of savings 
association] for the purpose or effect of changing or influencing the 
control of [name of savings association] or in connection with or as a 
participant in any transaction having such purpose or effect.

    (2) An acquiror claiming safe-harbor status may vote freely and 
dissent with respect to its own stock. Certifications provided for in 
this paragraph must be

[[Page 515]]

filed with OTS in accordance with Sec. Sec. 516.30 and 516.40 of this 
chapter.

[54 FR 49690, Nov. 30, 1989, as amended at 57 FR 14349, Apr. 20, 1992; 
60 FR 66720, Dec. 26, 1995; 66 FR 13009, Mar. 2, 2001]



Sec. 574.5  Certifications of ownership.

    (a) Acquisition of stock. (1) Upon the acquisition of beneficial 
ownership that exceeds, in the aggregate, 10 percent of any class of 
stock of a savings association or additional stock above 10 percent of 
the stock of a savings association occurring after December 26, 1985, an 
acquiror shall file with the OTS a certification as described in this 
section.
    (2) The certification filed pursuant to this section shall be signed 
by the acquiror or an authorized representative thereof and shall read 
as follows:
    The undersigned is the beneficial owner of 10 percent or more of a 
class of stock of [name of savings association or holding company]. The 
undersigned is not in control of such association or company, as defined 
in 12 CFR 574.4(a), and is not subject to a rebuttable determination of 
control under Sec. 574.4(b), and will take no action that would result 
in a determination of control or a rebuttable determination of control 
without first filing and obtaining approval of an application under the 
Savings and Loan Holding Company Act, 12 U.S.C. 1467a, or notice under 
the Change in Bank Control Act, 12 U.S.C. 1817(j), or filing and 
obtaining acceptance by the Office of Thrift Supervision of a rebuttal 
of the rebuttable determination of control.
    (3) Notwithstanding anything contained in this paragraph (a), an 
acquiror is not required to file a certification if (i) the Office has 
approved the acquisition of the savings association or (ii) the acquiror 
has filed a materially complete application or notice pursuant to Sec. 
574.3 of this part.
    (b) Privacy. All certifications filed under this Sec. 574.5 shall 
be for the information of the Office in connection with its examination 
functions and shall be provided confidential treatment by the Office.

[54 FR 49690, Nov. 30, 1989, as amended at 57 FR 14349, Apr. 20, 1992; 
59 FR 53571, Oct. 25, 1994]



Sec. 574.6  Procedural requirements.

    (a) Form of application or notice. An application, notice, or 
informational filing required by Sec. 574.3 of this part shall be filed 
on the Application/Information Filing H-(e) -------- form. (As specified 
in the form's instructions, the blank line following the H-(e) should be 
filled in by applicants with the appropriate ``1'', ``1-S'', ``2'', 
``3'', or ``4'' depending on the type of application.) The specific 
application requirements for each type of filing are indicated on the 
form. An acquiror may request confidential treatment of portions of an 
application or notice only by complying with the requirements of 
paragraph (f) of this section. In the case of an application involving a 
merger (including a merger with an interim association) the Application/
Information Filing H-(e) -------- form shall be used in lieu of an 
application that otherwise would be required for such merger under 
Sec. Sec. 546.2, 552.13, and 563.22 of this chapter.
    (1) H-(e)1. This application type shall be filed under Sec. 
574.3(a) of this part by a company, other than a savings and loan 
holding company, for approval to acquire direct or indirect control of 
one savings association.
    (2) H-(e)1-S. This application type shall be filed under Sec. 
574.3(a) of this part by a savings association for approval to 
reorganize into a holding company structure, provided that the proposed 
transaction satisfies each of the conditions for automatic approval 
specified in Sec. 574.7 (a)(2) and (a)(3) of this part.
    (3) H-(e)2. (i) This application type shall be filed under Sec. 
574.3(a) of this part:
    (A) By a savings and loan holding company for approval to acquire 
and hold separately one or more savings associations;
    (B) By any other company for approval to acquire and hold separately 
more than one savings association;
    (C) By a savings and loan holding company for approval of an 
acquisition of shares issued by a savings association in a qualified 
stock issuance pursuant to Sec. 574.8 of this part; or
    (D) By any director, officer, or any individual who owns, controls, 
or holds with power to vote (or holds proxies representing) more than 25 
percent of the voting shares of a savings and loan

[[Page 516]]

holding company for approval of an acquisition of one or more savings 
associations.
    (ii) The OTS may determine as a general matter or on a case-by-case 
basis not to require application information not relevant to 
transactions described in paragraphs (a)(3)(i) (C) and (D) of this 
section.
    (4) H-(e)3. This application shall be used for all applications 
filed under Sec. 574.3(a) of this part:
    (i) By a savings and loan holding company for approval of 
acquisitions by a merger, consolidation, or purchase of assets of a 
savings association or uninsured institution or a savings and loan 
holding company; or
    (ii) By any company for approval of acquisitions by a merger, 
consolidation, or purchase of assets of two or more savings 
associations.
    (5) H-(e)4. This information filing shall be used to claim that a 
reorganization is exempt from prior written approval of the OTS under 
Sec. 574.3(c)(1)(ii) of this part.
    (6) Notice Form 1393, parts A and B. This form shall be used for all 
notices filed under Sec. 574.3(b) of this part regarding the 
acquisition of control of a savings association by any person or persons 
not constituting a company except as provided in paragraph (a)(3) of 
this section.
    (b) Filing requirements--(1) Applications, notices, and rebuttals. 
(i) Complete copies including exhibits and all other pertinent documents 
of applications, notices, and rebuttal submissions shall be filed with 
the Region in which the savings association or associations involved in 
the transaction have their home office or offices. Unsigned copies shall 
be conformed. Each copy shall include a summary of the proposed 
transaction.
    (ii) Any person or company may amend an application, notice or 
rebuttal submission, or file additional information, upon request of the 
OTS or, in the case of the party filing an application, notice, or 
rebuttal, upon such party's own initiative.
    (2) H-(e)4 Information filing. Any information filing required to be 
made to claim that a reorganization is exempt from prior written 
approval of the OTS under Sec. 574.3(c)(1)(ii) of this part shall be 
clearly labeled ``H-(e)4 Information Filing''.
    (c) Sufficiency and waiver. (1) Except as provided in Sec. 
574.6(c)(5), an application or notice filed pursuant to Sec. 574.3 (a) 
or (b) shall not be deemed sufficient unless it includes all of the 
information required by the form prescribed by the Office and this part, 
including a complete description of the acquiror's proposed plan for 
acquisition of control whether pursuant to one or more transactions, and 
any additional relevant information as the Office may require by written 
request to the applicant. Unless an application or notice specifically 
indicates otherwise, the application or notice shall be considered to 
pertain to acquisition of 100 percent of a savings association's voting 
stock. Where an application or notice pertains to a lesser amount of 
stock, the Office may condition its approval or non-disapproval to apply 
only to such amount, in which case additional acquisitions may be made 
only by amendment to the acquiror's application or notice and the 
Office's approval or non-disapproval thereof. Failure by an applicant to 
respond completely to a written request by the Office for additional 
information within 30 calendar days of the date of such request may be 
deemed to constitute withdrawal of the application, notice, or rebuttal 
filing or may be treated as grounds for denial of an application, 
issuance of a notice of disapproval of a notice, or rejection of a 
rebuttal.
    (2) The period for the Office's review of any proposed acquisition 
will commence upon receipt by the Office of a notice or application 
deemed sufficient under paragraph (c)(1) of this section. The Office 
shall notify an acquiror in writing within 30 calendar days after proper 
filing of an application or notice as to whether an application or 
notice--
    (i) Is sufficient;
    (ii) Is insufficient, and what additional information is requested 
in order to render the application or notice sufficient; or
    (iii) Is materially deficient and will not be processed. The Office 
shall also notify an acquiror in writing within 15 calendar days after 
proper filing of any

[[Page 517]]

additional information furnished in response to a specific request by 
the Office as to whether the application or notice is thereby deemed to 
be sufficient. If the Office fails to so notify an acquiror within such 
time, the application or notice shall be deemed to be sufficient as of 
the expiration of the applicable period.
    (3) After additional information has been requested and supplied, 
the Office may request additional information only with respect to 
matters derived from or prompted by information already furnished, or 
information of a material nature that was not reasonably available from 
the acquiror, was concealed, or pertains to developments subsequent to 
the time of the Office's initial request for additional information. 
With regard to information of a material nature that was not reasonably 
available from the acquiror or was concealed at the time an application 
or notice was deemed to be sufficient or which pertains to developments 
subsequent to the time an application or notice was deemed to be 
sufficient, the Office, at its option, may request such additional 
information as it considers necessary, or may deem the application or 
notice not to be sufficient until such additional information is 
furnished and cause the review period to commence again in its entirety 
upon receipt of such additional information.
    (i) The 60-day period for the Office's review of an application or 
notice deemed to be sufficient also may be extended by the Office for up 
to an additional 30 days.
    (ii) The period for the Office's review of a notice may be further 
extended not to exceed two additional times for not more than 45 days 
each time if--
    (A) The Office determines that any acquiring party has not furnished 
all the information required under this part;
    (B) In the Office's judgment, any material information submitted is 
substantially inaccurate;
    (C) The Office has been unable to complete an investigation of each 
acquiror because of any delay caused by, or the inadequate cooperation 
of, such acquiror; or
    (D) The Office determines that additional time is needed to 
investigate and determine that no acquiring party has a record of 
failing to comply with the requirements of subchapter II of chapter 53 
of title 31 of the United States Code.
    (4) With respect to an H-(e)4 information filing, the Chief Counsel 
or his or her designee shall have 30 days after receipt of a filing 
deemed sufficient to disapprove the assertion that the company qualifies 
for the exemption provided in Sec. 574.3(c)(1)(ii). After the 
expiration of such 30-day period without response from the Chief 
Counsel, the filing shall be deemed to be approved.
    (5) The Office may waive any requirements of this paragraph (c) 
determined to be unnecessary by the Office, upon its own initiative, 
upon the written request of an acquiring person, or in a supervisory 
case.
    (d) Public notice. (1) The acquiror must publish a public notice of 
an application under Sec. 574.3(a) or Sec. 574.8 of this chapter or a 
notice under Sec. 574.3(b) of this chapter, in accordance with the 
procedures in subpart B of part 516 of this chapter. Promptly after 
publication, the acquiror must transmit copies of the public notice and 
the publisher's affidavit to OTS.
    (2) The acquiror must provide a copy of the public notice to the 
savings association whose stock is sought to be acquired, and may 
provide a copy of the public notice to any other person who may have an 
interest in the application.
    (3) OTS will notify the appropriate state supervisor and will notify 
persons whose requests for announcements, as described in 12 CFR part 
563e, appendix B, have been received in time for the notification. OTS 
may also notify any other persons who may have an interest in the 
application or notice.
    (e) Submission of comments. Commenters may submit comments on the 
application or notice in accordance with the procedures in subpart C of 
part 516 of this chapter.
    (f) Disclosure. (1) Any application, notice, other filings, public 
comment, or portion thereof, made pursuant to this part for which 
confidential treatment is not requested in accordance with this 
paragraph (f), shall be immediately available to the public and not 
subject to the procedures set forth

[[Page 518]]

herein. Public disclosure shall be made of other portions of an 
application, notice, other filing or public comment in accordance with 
paragraph (f)(2) of this section, the provisions of the Freedom of 
Information Act (5 U.S.C. 552a) and parts 503 and 505 of this chapter. 
Applicants and other submitters should provide confidential and non-
confidential versions of their filings, as described in Sec. 574.6(f) 
(2) and (3) in order to facilitate this process.
    (2) Any person who submits any information or causes or permits any 
information to be submitted to the Office pursuant to this part may 
request that the Office afford confidential treatment under the Freedom 
of Information Act to such information for reasons of personal privacy 
or business confidentiality, which shall include such information that 
would be deemed to result in the commencement of a tender offer under 
Sec. 240.14d-2 of title 17 of the Code of Federal Regulations, or for 
any other reason permitted by Federal law. Such request for 
confidentiality must be made and justified in accordance with paragraph 
(f)(5) of this section at the time of filing, and must, to the extent 
practicable, identify with specificity the information for which 
confidential treatment may be available and not merely indicate portions 
of documents or entire documents in which such information is contained. 
Failure to specifically identify information for which confidential 
treatment is requested, failure to specifically justify the bases upon 
which confidentiality is claimed in accordance with paragraph (f)(5) of 
this section, or overbroad and indiscriminate claims for confidential 
treatment, may be bases for denial of the request. In addition, the 
filing party should take all steps reasonably necessary to ensure, as 
nearly as practicable, that at the time the information is first 
received by the Office (i) it is supplied segregated from information 
for which confidential treatment is not being requested, (ii) it is 
appropriately marked as confidential, and (iii) it is accompanied by a 
written request for confidential treatment which identifies with 
specificity the information as to which confidential treatment is 
requested. Any such request must be substantiated in accordance with 
paragraph (f)(5) of this section.
    (3) All documents which contain information for which a request for 
confidential treatment is made or the appropriate segregable portions 
thereof shall be marked by the person submitting the records with a 
prominent stamp, typed legend, or other suitable form of notice on each 
page or segregable portion of each page, stating ``Confidential 
Treatment Requested by [name].'' If such marking is impracticable under 
the circumstances, a cover sheet prominently marked ``Confidential 
Treatment Requested by [name]'' should be securely attached to each 
group of records submitted for which confidential treatment is 
requested. Each of the records transmitted in this manner should be 
individually marked with an identifying number and code so that they are 
separately identifiable.
    (4) A determination as to the validity of any request for 
confidential treatment may be made when a request for disclosure of the 
information under the Freedom of Information Act is received, or at any 
time prior thereto. If the Office receives a request for the information 
under the Freedom of Information Act, OTS will advise the filing party 
before it discloses material for which confidential treatment has been 
requested.
    (5) Substantiation of a request for confidential treatment shall 
consist of a statement setting forth, to the extent appropriate or 
necessary for the determination of the request for confidential 
treatment, the following information regarding the request:
    (i) The reasons, concisely stated and referring to specific 
exemptive provisions of the Freedom of Information Act, why the 
information should be withheld from access under the Freedom of 
Information Act;
    (ii) The applicability of any specific statutory or regulatory 
provisions which govern or may govern the treatment of the information;
    (iii) The existence and applicability of any prior determination by 
the Office, other Federal agencies, or a court, concerning confidential 
treatment of the information;

[[Page 519]]

    (iv) The adverse consequences to a business enterprise, financial or 
otherwise, that would result from disclosure of confidential commercial 
or financial information, including any adverse effect on the business' 
competitive position;
    (v) The measures taken by the business to protect the 
confidentiality of the commercial or financial information in question 
and of similar information, prior to, and after, its submission to the 
Office;
    (vi) The ease or difficulty of a competitor's obtaining or compiling 
the commercial or financial information;
    (vii) Whether commercial or financial information was voluntarily 
submitted to the Office, and, if so, whether and how disclosure of the 
information would tend to impede the availability of similar information 
to the Office;
    (viii) The extent, if any, to which portions of the substantiation 
of the request for confidential treatment should be afforded 
confidential treatment;
    (ix) The amount of time after the consummation of the proposed 
acquisition for which the information should remain confidential and a 
justification thereof;
    (x) Such additional facts and such legal and other authorities as 
the requesting person may consider appropriate.
    (6) Any person requesting access to an application, notice, other 
filing, or public comment made pursuant to this part for purposes of 
commenting on a pending submission may prominently label such request: 
``Request for Disclosure of Filing(s) Made Under part 574/Priority 
Treatment Requested.''
    (g) Supervisory cases. The provisions of paragraphs (d), (e) and (f) 
of this section may be waived by the Office in connection with a 
transaction approved by the Office for supervisory reasons.
    (h) Notification of State supervisor. Upon receiving a notice 
relating to an acquisition of control of a state-chartered savings 
association, the Office shall forward a copy of the notice to the 
appropriate state savings and loan association supervisory agency, and 
shall allow 30 days within which the views and recommendations of such 
state supervisory agency may be submitted. The Office shall give due 
consideration to the views and recommendations of such state agency in 
determining whether to disapprove any proposed acquisition. 
Notwithstanding the provisions of this paragraph (h), if the Office 
determines that it must act immediately upon any notice of a proposed 
acquisition in order to prevent the default of the association involved 
in the proposed acquisition, the Office may dispense with the 
requirement of this paragraph (h) or, if a copy of the notice is 
forwarded to the state supervisory agency, the Office may request that 
the views and recommendations of such state supervisory agency be 
submitted immediately in any form or by any means acceptable to the 
Office.
    (i) Additional procedures for acquisitions involving mergers. 
Acquisitions of control involving mergers (including mergers with an 
interim association) shall also be subject to the procedures set forth 
in Sec. 563.22 of this chapter to the extent applicable, except as 
provided in paragraph (a) of this section.
    (j) Additional procedures for acquisitions of recently converted 
savings associations. Applications, notices and rebuttals involving 
acquisitions of the stock of a recently converted savings association 
under Sec. 563b.3(i)(3) of this chapter shall also address the criteria 
for approval set forth at Sec. 563b.3(i)(5) of this chapter.

[54 FR 49690, Nov. 30, 1989, as amended at 55 FR 13517, Apr. 11, 1990; 
57 FR 14349, Apr. 20, 1992; 59 FR 28470, June 2, 1994; 60 FR 66720, Dec. 
26, 1995; 61 FR 65179, Dec. 11, 1996; 66 FR 13009, Mar. 2, 2001; 69 FR 
68250, Nov. 24, 2004]



Sec. 574.7  Determination by the OTS.

    (a) Acquisition by a company. (1) The Office shall approve an 
application by any company other than a savings and loan holding company 
to acquire control of one savings association unless it determines that 
the criteria set forth in paragraph (c) of this section are not met. 
Acquisitions involving mergers with an interim association shall also be 
subject to Sec. Sec. 546.2, 552.13, and 563.22 of this chapter.
    (2) Subject to compliance with the requirements of Sec. Sec. 546.2, 
552.13 and 563.22, as applicable, an application

[[Page 520]]

filed pursuant to Sec. 574.6(a)(2) by a savings association solely for 
the purpose of obtaining approval for the creation of a savings and loan 
holding company by such savings association, and related applications 
for permission to organize an interim federal association, and for 
merger with such interim association, shall be deemed to be approved 45 
calendar days after such applications are properly filed in accordance 
with the procedures set forth herein, unless, prior to such date:
    (i) The Office has requested additional information of the applicant 
in writing;
    (ii) Notified the applicant that the application is materially 
deficient and will not be processed; or
    (iii) Denied the application prior to that time; provided that to be 
eligible for approval under this paragraph (a)(2):
    (A) The holding company shall not be capitalized initially in an 
amount exceeding the amount the savings association is permitted to pay 
in dividends to its holding company as of the date of the reorganization 
pursuant to applicable regulations or, in the absence thereof, pursuant 
to the then current policy guidelines issued by the OTS;
    (B) The creation of the savings and loan holding company by the 
association is the sole transaction contained in the application, and 
there are no other transactions requiring Office approval incident to 
the creation of the holding company (other than the creation of an 
interim association that will disappear upon consummation of the 
reorganization and the merger of the savings association with such 
interim association to effect the reorganization), and the holding 
company is not also seeking any regulatory waivers, regulatory 
forbearances, or resolution of legal or supervisory issues;
    (C) The board of directors and executive officers of the holding 
company are composed of persons who, at the time of acquisition, are 
executive officers and directors of the association;
    (D) The acquisition raises no significant issues of law or policy 
under then current Office policy;
    (E) Prior to consummation of the reorganization transaction, the 
holding company shall enter into any dividend limitation, regulatory 
capital maintenance, or prenuptial agreement required by Office 
regulations, or in the absence thereof, required pursuant to policy 
guidelines issued by the OTS;
    (F) The holding company shall furnish the following information in 
accordance with the specified time frames:
    (1) On the business day prior to the date of consummation of the 
acquisition, the chief financial officers of the holding company and the 
savings association shall certify to the OTS in writing that no material 
adverse events or material adverse changes have occurred with respect to 
the financial condition or operations of the holding company or the 
savings association since the date of the financial statements submitted 
with the application;
    (2) No later than thirty days from the date of consummation of the 
acquisition, the holding company shall file with the OTS a certification 
by legal counsel stating the effective date of the acquisition, the 
exact number of shares of stock of the savings association acquired by 
the holding company, and that the acquisition has been consummated in 
accordance with the provisions of all applicable laws and regulations 
and the application;
    (3) No later than thirty days from the date of consummation of the 
acquisition, the holding company shall file with the OTS an opinion from 
its independent auditors certifying that the transaction was consummated 
in accordance with generally accepted accounting principles; and
    (4) No later than thirty days from the date of consummation of the 
acquisition, the holding company shall file with the OTS a certification 
stating that the holding company will not cause the savings association 
to deviate materially from the business plan submitted in connection 
with the application, unless prior written approval from the OTS is 
obtained;
    (G) In the event an interim association is utilized to facilitate 
the reorganization transaction, the resulting association shall, no 
later than 30 days from the date of consummation of the reorganization 
transaction, furnish a certification by legal counsel stating:

[[Page 521]]

    (1) The effective date of the merger involving the interim 
association and that the merger has been consummated in accordance with 
the Agreement and Plan of Reorganization or similar document pursuant to 
which the transaction was accomplished;
    (2) The interim association has not opened for business;
    (3) The merger was consummated within 120 calendar days of the date 
of approval: and
    (4) After completion of the organization of the interim association, 
the board of directors of the interim association ratified the Agreement 
and Plan of Reorganization or similar document; and
    (H) The proposed acquisition shall be consummated within 120 days 
after the application is automatically approved under this Sec. 
574.7(a)(2).
    (3) To the extent that an association reorganizing into holding 
company form is subject to provisions relating to its mutual to stock 
conversion imposed by l2 CFR 563b.3(c)(9), (c)(17), (c)(18), (c)(19), 
(g)(1) or (i), such provisions shall be applicable to any holding 
company approved automatically pursuant to paragraph (a)(2) of this 
section.
    (b) Acquisition by a savings and loan holding company. The Office 
shall not approve an acquisition by a savings and loan holding company 
to acquire control of a savings association, by any other company to 
acquire control of more than one savings association, by any director or 
officer of a savings and loan holding company, or any individual who 
owns, controls, or holds with power to vote (or holds proxies 
representing) more than 25 percent of the voting stock of a savings and 
loan holding company to acquire control of a savings association, or by 
a savings and loan holding company to acquire a qualified stock issuance 
by a savings association pursuant to Sec. 574.8 of this part, except in 
accordance with paragraph (c) of this section. Before approving any such 
acquisition, except a transaction under section 13(k) of the Federal 
Deposit Insurance Act, the Office shall request from the Attorney 
General and consider any report rendered within 30 days of such request 
on the competitive factors involved. Acquisitions involving mergers 
(including mergers with an interim association) shall also be subject to 
Sec. Sec. 546.2, 552.13, and 563.22 of this chapter.
    (c) Application criteria. (1) The OTS may deny an application by a 
company or certain persons, described in paragraph (b) of this section, 
affiliated with a savings and loan holding company, to acquire control 
of a savings association, or by a savings and loan holding company to 
acquire a qualified stock issuance pursuant to Sec. 574.8 of this part:
    (i) If the OTS finds that the financial and managerial resources and 
future prospects of the acquiror and association involved would be 
detrimental to the association or the insurance risk of the Deposit 
Insurance Fund; or
    (ii) If the acquiror fails or refuses to furnish information 
requested by the OTS.
    (2) Consideration of the managerial resources of a company or 
savings association shall include consideration of the competence, 
experience, and integrity of the officers, directors, and controlling 
shareholders of the company or association. In connection with the 
applications filed pursuant to Sec. Sec. 574.6 (a)(3) and 574.8 of this 
part, the OTS will also consider the convenience and needs of the 
community to be served. Moreover, the OTS shall not approve any proposed 
acquisition:
    (i) Which would result in a monopoly, or which would be in 
furtherance of any combination or conspiracy to monopolize or to attempt 
to monopolize the savings and loan business in any part of the United 
States;
    (ii) The effect of which on any section of the country may be 
substantially to lessen competition, or tend to create a monopoly, or 
which in any other manner would be in restraint of trade, unless the OTS 
finds that the anticompetitive effects of the proposed acquisition are 
clearly outweighed in the public interest by the probable effect of the 
acquisition in meeting the convenience and needs of the community to be 
served;
    (iii) If the company fails to provide adequate assurances to the OTS 
that the company will make available to the OTS such information on the 
operations or activities of the company, and any affiliate of the 
company, as

[[Page 522]]

the OTS determines to be appropriate to determine and enforce compliance 
with the Home Owners' Loan Act; or
    (iv) In the case of an application by a foreign bank, if the foreign 
bank is not subject to comprehensive supervision or regulation on a 
consolidated basis by the appropriate authorities in the home country of 
the foreign bank. For purposes of this paragraph (c)(2)(iv), 
``comprehensive supervision or regulation on a consolidated basis by the 
appropriate authorities'' shall be determined using the standards set 
forth at 12 CFR 211.24(c)(1)(ii).
    (d) Notice criteria. In making its determination whether to 
disapprove a notice, the Office may disapprove any proposed acquisition, 
if the Office determines that:
    (1) The proposed acquisition of control would result in a monopoly 
or would be in furtherance of any combination or conspiracy to 
monopolize or to attempt to monopolize the banking business in any part 
of the United States;
    (2) The effect of the proposed acquisition of control in any section 
of the country may be substantially to lessen competition or to tend to 
create a monopoly or the proposed acquisition of control would in any 
other manner be in restraint of trade, and the anticompetitive effects 
of the proposed acquisition of control are not clearly outweighed in the 
public interest by the probable effect of the transaction in meeting the 
convenience and needs of the community to be served;
    (3) The financial condition of the acquiring person is such as might 
jeopardize the financial stability of the association or prejudice the 
interests of the depositors of the association;
    (4) The competence, experience, or integrity of the acquiring person 
or any of the proposed management personnel indicates that it would not 
be in the interests of the depositors of the association, the Office, or 
the public to permit such person to control the association;
    (5) The acquiring person fails or refuses to furnish information 
requested by the Office; or
    (6) The Office determines that the proposed acquisition would have 
an adverse effect on the Deposit Insurance Fund.
    (e) Failure to disapprove a notice. If, upon expiration of the 60-
day review period of any notice deemed to be sufficient filed pursuant 
to Sec. 574.6(c), or extension thereof, the Office has failed to 
disapprove such notice, the proposed acquisition may take place: 
Provided, That it is consummated within one year and in accordance with 
the terms and representations in the notice and that there is no 
material change in circumstances prior to the acquisition.
    (f) [Reserved]
    (g) Presumptive disqualifiers--(1) Integrity factors. The following 
factors shall give rise to a rebuttable presumption that an acquiror may 
fail to satisfy the managerial resources and future prospects tests of 
paragraph (c) of this section or the integrity test of paragraph (d)(4) 
of this section:
    (i) During the 10-year period immediately preceding filing of the 
application or notice, criminal, civil or administrative judgments, 
consents or orders, and any indictments, formal investigations, 
examinations, or civil or administrative proceedings (excluding routine 
or customary audits, inspections and investigations) that terminated in 
any agreements, undertakings, consents or orders, issued against, 
entered into by, or involving the acquiror or affiliates of the acquiror 
by any federal or state court, any department, agency, or commission of 
the U.S. Government, any state or municipality, any Federal Home Loan 
Bank, any self-regulatory trade or professional organization, or any 
foreign government or governmental entity, which involve:
    (A) Fraud, moral turpitude, dishonesty, breach of trust or fiduciary 
duties, organized crime or racketeering;
    (B) Violation of securities or commodities laws or regulations;
    (C) Violation of depository institution laws or regulations;
    (D) Violation of housing authority laws or regulations; or
    (E) Violation of the rules, regulations, codes of conduct or ethics 
of a self-regulatory trade or professional organization;
    (ii) Denial, or withdrawal after receipt of formal or informal 
notice of an

[[Page 523]]

intent to deny, by the acquiror or affiliates of the acquiror, of
    (A) Any application relating to the organization of a financial 
institution,
    (B) An application to acquire any financial institution or holding 
company thereof under the Holding Company Act or the Bank Holding 
Company Act or otherwise,
    (C) A notice relating to a change in control of any of the foregoing 
under the Control Act or the Repealed Control Act; or
    (D) An application or notice under a state holding company or change 
in control statute;
    (iii) The acquiror or affiliates of the acquiror were placed in 
receivership or conservatorship during the preceding 10 years, or any 
management official of the acquiror was a management official or 
director (other than an official or director serving at the request of 
the Office, the Federal Deposit Insurance Corporation, the Resolution 
Trust Corporation, or the former Federal Savings and Loan Insurance 
Corporation) or controlling shareholder of a company or savings 
association that was placed into receivership, conservatorship, or a 
management consignment program, or was liquidated during his or her 
tenure or control or within two years thereafter;
    (iv) Felony conviction of the acquiror, an affiliate of the acquiror 
or a management official of the acquiror or an affiliate of the 
acquiror;
    (v) Knowingly making any written or oral statement to the Office or 
any predecessor agency (or its delegate) in connection with an 
application, notice or other filing under this part that is false or 
misleading with respect to a material fact or omits to state a material 
fact with respect to information furnished or requested in connection 
with such an application, notice or other filing;
    (vi) Acquisition and retention at the time of submission of an 
application or notice, of stock in the savings association by the 
acquiror in violation of Sec. 574.3 or its predecessor sections.
    (2) Financial factors. The following shall give rise to a rebuttable 
presumption that an acquiror may fail to satisfy the financial-resources 
and future-prospects tests of paragraph (c) of this section, or the 
financial condition test of paragraph (d)(3) of this section:
    (i) Liability for amounts of debt which, in the opinion of the 
Office, create excessive risks of default and pressure on the savings 
association to be acquired; or
    (ii) Failure to furnish a business plan or furnishing a business 
plan projecting activities which are inconsistent with economical home 
financing.

[54 FR 49690, Nov. 30, 1989, as amended at 57 FR 14349, Apr. 20, 1992; 
59 FR 28471, June 2, 1994; 59 FR 44627, Aug. 30, 1994; 60 FR 66720, Dec. 
26, 1995; 71 FR 19812, Apr. 18, 2006]



Sec. 574.8  Qualified stock issuances by undercapitalized savings 
associations or holding companies.

    (a) Acquisitions by savings and loan holding companies. No savings 
and loan holding company shall be deemed to control a savings 
association solely by reason of the purchase by such savings and loan 
holding company of shares issued by such savings association, or issued 
by any savings and loan holding company (other than a bank holding 
company) which controls such savings association, in connection with a 
qualified stock issuance if prior approval of such acquisition is 
granted by the Office under this Sec. 574.8, unless the acquiring 
savings and loan holding company, directly or indirectly, or acting in 
concert with 1 or more other persons, or through 1 or more subsidiaries, 
owns, controls, or holds with power to vote, or holds proxies 
representing, more than 15 percent of the voting shares of such savings 
association or holding company.
    (b) Qualification. For purposes of this section, any issuance of 
shares of stock shall be treated as a qualified stock issuance if the 
following conditions are met:
    (1) The shares of stock are issued by--
    (i) An undercapitalized savings association, which for purposes of 
this paragraph (b)(1)(i) shall mean any savings association--
    (A) The assets of which exceed the liabilities of such association; 
and
    (B) Which does not comply with one or more of the capital standards 
in effect under section 5(t) of the Home Owners' Loan Act; or

[[Page 524]]

    (ii) A savings and loan holding company which is not a bank holding 
company but which controls an undercapitalized savings association if, 
at the time of issuance, the savings and loan holding company is legally 
obligated to contribute the net proceeds from the issuance of such stock 
to the capital of an undercapitalized savings association subsidiary of 
such holding company.
    (2) All shares of stock issued consist of previously unissued stock 
or treasury shares.
    (3) All shares of stock issued are purchased by a savings and loan 
holding company that is registered, as of the date of purchase, with the 
Office in accordance with the provisions of section 10(b) of the Home 
Owners' Loan Act and the Office's regulations promulgated thereunder.
    (4) Subject to paragraph (c) of this section, the Office approves 
the purchase of the shares of stock by the acquiring savings and loan 
holding company.
    (5) The entire consideration for the stock issued is paid in cash by 
the acquiring savings and loan holding company.
    (6) At the time of the stock issuance, each savings association 
subsidiary of the acquiring savings and loan holding company (other than 
an association acquired in a transaction pursuant to section 13(c) or 
13(k) of the Federal Deposit Insurance Act, or section 408(m) of the 
National Housing Act, as in effect immediately prior to enactment of the 
Financial Institutions Reform, Recovery and Enforcement Act of 1989) has 
capital (after deducting any subordinated debt, intangible assets, and 
deferred, unamortized gains or losses) of not less than 6\1/2\ percent 
of the total assets of such savings association.
    (7) Immediately after the stock issuance, the acquiring savings and 
loan holding company holds not more than 15 percent of the outstanding 
voting stock of the issuing undercapitalized savings association or 
savings and loan holding company.
    (8) Not more than one of the directors of the issuing association or 
company is an officer, director, employee, or other representative of 
the acquiring company or any of its affiliates.
    (9) Transactions between the savings association or savings and loan 
holding company that issues the shares pursuant to this section and the 
acquiring company and any of its affiliates shall be subject to the 
provisions of section 11 of the Home Owners' Loan Act and the Office's 
regulations promulgated thereunder.
    (c) Approval of acquisitions--(1) Criteria. The Office, in deciding 
whether to approve or deny an application filed on the basis that it is 
a qualified stock issuance, shall apply the application criteria set 
forth in Sec. 574.7(c) of this part, including the presumptive 
disqualifiers set forth in Sec. 574.7(g) of this part.
    (2) Additional capital commitments not required. The Office shall 
not disapprove any application for the purchase of stock in connection 
with a qualified stock issuance on the grounds that the acquiring 
savings and loan holding company has failed to undertake to make 
subsequent additional capital contributions to maintain the capital of 
the undercapitalized savings association at or above the minimum level 
required by the Office or any other Federal agency having jurisdiction.
    (3) Other conditions. The Office shall impose such conditions on any 
approval of an application for the purchase of stock in connection with 
a qualified stock issuance as the Office determines to be appropriate, 
including--
    (i) A requirement that any savings association subsidiary of the 
acquiring savings and loan holding company limit dividends paid to such 
holding company for such period of time as the Office may require; and
    (ii) Such other conditions as the Office deems necessary or 
appropriate to prevent evasions of this section, including, but not 
limited to, requiring a rebuttal of control agreement in a form 
substantially similar to that appearing at Sec. 574.100.
    (4) Application deemed approved if not disapproved within 90 days. 
An application for approval of a purchase of stock in connection with a 
qualified stock issuance shall be deemed to have been approved by the 
Office if such application has not been disapproved by the

[[Page 525]]

Office before the end of the 90-day period beginning on the date such 
application has been deemed sufficient under this part.
    (d) No limitation on class of stock issued. The shares of stock 
issued in connection with a qualified stock issuance may be shares of 
any class.
    (e) Application form. A savings and loan holding company making 
application to acquire a qualified stock issuance pursuant to this Sec. 
574.8, shall use Form H-(e)2, as provided in Sec. 574.6(a)(3).



Sec. 574.100  Rebuttal of control agreement.

                                Agreement

     Rebuttal of Rebuttable Determination Of Control Under Part 574

    I. WHEREAS
    A. [ ] is the owner of [ ] shares (the ``Shares'') of the [ ] stock 
(the ``Stock'') of [name and address of association], which Shares 
represent [ ] percent of a class of ``voting stock'' of [ ] as defined 
under the Acquisition of Control Regulations (``Regulations'') of the 
Office of Thrift Supervision (``Office''), 12 CFR part 574 (``Voting 
Stock'');
    B. [ ] is a ``savings association'' within the meaning of the 
Regulations;
    C. [ ] seeks to acquire additional shares of stock of [ ] 
(``Additional Shares''), such that [ ]'s ownership thereof will exceed 
10 percent of a class of Voting Stock but will not exceed 25 percent of 
a class of Voting Stock of [ ]; [and/or] [ ] seeks to [ ], which would 
constitute the acquisition of a ``control factor'' as defined in the 
Regulations (``Control Factor'');
    D. [ ] does not seek to acquire the [Additional Shares or Control 
Factor] for the purpose or effect of changing the control of [ ] or in 
connection with or as a participant in any transaction having such 
purpose or effect;
    E. The Regulations require a company or a person who intends to hold 
10 percent or more but not in excess of 25 percent of any class of 
Voting Stock of a savings association or holding company thereof and 
that also would possess any of the Control Factors specified in the 
Regulations, to file and obtain approval of an application 
(``Application'') under the Savings and Loan Holding Company Act 
(``Holding Company Act''), 12 U.S.C. 1467a, or file and obtain clearance 
of a notice (``Notice'') under the Change in Control Act (``Control 
Act''), 12 U.S.C. 1817(j), prior to acquiring such amount of stock and a 
Control Factor unless the rebuttable determination of control has been 
rebutted.
    F. Under the Regulations, [ ] would be determined to be in control, 
subject to rebuttal, of [ ] upon acquisition of the [Additional Shares 
or Control Factor];
    G. [ ] has no intention to manage or control, directly or 
indirectly, [ ];
    H. [ ] has filed on [ ], a written statement seeking to rebut the 
determination of control, attached hereto and incorporated by reference 
herein, (this submission referred to as the ``Rebuttal'');
    I. In order to rebut the rebuttable determination of contro1, [ ] 
agrees to offer this Agreement as evidence that the acquisition of the 
[Additional Shares or Control Factor] as proposed would not constitute 
an acquisition of control under the Regulations.
    II. The Office has determined, and hereby agrees, to act favorably 
on the Rebuttal, and in consideration of such a determination and 
agreement by the Office to act favorably on the Rebuttal, [ ] and any 
other existing, resulting or successor entities of [ ] agree with the 
Office that:
    A. Unless [ ] shall have filed a Notice under the Control Act, or an 
Application under the Holding Company Act, as appropriate, and either 
shall have obtained approval of the Application or clearance of the 
Notice in accordance with the Regulations, [ ] will not, except as 
expressly permitted otherwise herein or pursuant to an amendment to this 
Rebuttal Agreement:
    1. Seek or accept representation of more than one member of the 
board of directors of [insert name of association and any holding 
company thereof];
    2. Have or seek to have any representative serve as the chairman of 
the board of directors, or chairman of an executive or similar committee 
of [insert name of association and any holding company thereof]'s board 
of directors or as president or chief executive officer of [insert name 
of association and any holding company thereof];
    3. Engage in any intercompany transaction with [ ] or [ ]'s 
affiliates;
    4. Propose a director in opposition to nominees proposed by the 
management of [insert name of association and any holding company 
thereof] for the board of directors of [insert name of association and 
any holding company thereof] other than as permitted in paragraph A-1;
    5. Solicit proxies or participate in any solicitation of proxies 
with respect to any matter presented to the stockholders [ ] other than 
in support of, or in opposition to, a solicitation conducted on behalf 
of management of [ ];
    6. Do any of the following, except as necessary solely in connection 
with [ ]'s performance of duties as a member of [ ]'s board of 
directors:
    (a) Influence or attempt to influence in any respect the loan and 
credit decisions or policies of [ ], the pricing of services, any

[[Page 526]]

personnel decisions, the location of any offices, branching, the hours 
of operation or similar activities of [ ];
    (b) Influence or attempt to influence the dividend policies and 
practices of [ ] or any decisions or policies of [ ] as to the offering 
or exchange of any securities;
    (c) Seek to amend, or otherwise take action to change, the bylaws, 
articles of incorporation, or charter of [ ];
    (d) Exercise, or attempt to exercise, directly or indirectly, 
control or a controlling influence over the management, policies or 
business operations of [ ]; or
    (e) Seek or accept access to any non-public information concerning [ 
].
    B. [ ] is not a party to any agreement with [ ].
    C. [ ] shall not assist, aid or abet any of [ ]'s affiliates or 
associates that are not parties to this Agreement to act, or act in 
concert with any person or company, in a manner which is inconsistent 
with the terms hereof or which constitutes an attempt to evade the 
requirements of this Agreement.
    D. Any amendment to this Agreement shall only be proposed in 
connection with an amended rebuttal filed by [ ] with the Office for its 
determination;
    E. Prior to acquisition of any shares of ``Voting Stock'' of [ ] as 
defined in the Regulations in excess of the Additional Shares, any 
required filing will be made by [ ] under the Control Act or the Holding 
Company Act and either approval of the acquisition under the Holding 
Company Act shall be obtained from the Office or any Notice filed under 
the Control Act shall be cleared in accordance with the Regulations;
    F. At any time during which 10 percent or more of any class of 
Voting Stock of [ ] is owned or controlled by [ ], no action which is 
inconsistent with the provisions of this Agreement shall be taken by [ ] 
until [ ] files and either obtains from the Office a favorable 
determination with respect to either an amended rebuttal, approval of an 
Application under the Holding Company Act, or clearance of a Notice 
under the Control Act, in accordance with the Regulations;
    G. Where any amended rebuttal filed by [ ] is denied or disapproved, 
[ ] shall take no action which is inconsistent with the terms of this 
Agreement, except after either (1) reducing the amount of shares of 
Voting Stock of [ ] owned or controlled by [ ] to an amount under 10 
percent of a class of Voting Stock, or immediately ceasing any other 
actions that give rise to a conclusive or rebuttable determination of 
control under the Regulations; or (2) filing a Notice under the Control 
Act, or an Application under the Holding Company Act, as appropriate, 
and either obtaining approval of the Application or clearance of the 
Notice, in accordance with the Regulations;
    H. Where any Application or Notice filed by [ ] is disapproved, [ ] 
shall take no action which is inconsistent with the terms of this 
Agreement, except after reducing the amount of shares of Voting Stock of 
[ ] owned or controlled by [ ] to an amount under 10 percent of any 
class of Voting Stock, or immediately ceasing any other actions that 
give rise to a conclusive or rebuttable determination of control under 
the Regulations;
    I. Should circumstances beyond [ ]'s control result in [ ] being 
placed in a position to direct the management or policies of [ ], then [ 
] shall either (1) promptly file an Application under the Holding 
Company Act or a Notice under the Control Act, as appropriate, and take 
no affirmative steps to enlarge that control pending either a final 
determination with respect to the Application or Notice, or (2) promptly 
reduce the amount of shares of [ ] Voting Stock owned or controlled by [ 
] to an amount under 10 percent of any class of Voting Stock or 
immediately cease any actions that give rise to a conclusive or 
rebuttable determination of control under the Regulations;
    J. By entering into this Agreement and by offering it for reliance 
in reaching a decision on the request to rebut the presumption of 
control under the Regulations, as long as 10 percent or more of any 
class of Voting Stock of [ ] is owned or controlled, directly or 
indirectly, by [ ], and [ ] possesses any Control Factor as defined in 
the Regulations, [ ] will submit to the jurisdiction of the Regulations, 
including (1) the filing of an amended rebuttal or Application or Notice 
for any proposed action which is prohibited by this Agreement, and (2) 
the provisions relating to a penalty for any person who willfully 
violates or with reckless disregard for the safety or soundness of a 
savings association participates in a violation of the [Holding Company 
Act or Control Act] and the Regulations thereunder, and any regulation 
or order issued by the Office.
    K. Any violation of this Agreement shall be deemed to be a violation 
of the [Holding Company Act or Control Act] and the Regulations, and 
shall be subject to such remedies and procedures as are provided in the 
[Holding Company Act or Control Act] and the Regulations for a violation 
thereunder and in addition shall be subject to any such additional 
remedies and procedures as are provided under any other applicable 
statutes or regulations for a violation, willful or otherwise, of any 
agreement entered into with the Office.
    III. This Agreement may be executed in one or more counterparts, 
each of which shall be deemed an original but all of which counterparts 
collectively shall constitute one instrument representing the Agreement 
among the parties thereto. It shall not be necessary that any one 
counterpart be

[[Page 527]]

signed by all of the parties hereto as long as each of the parties has 
signed at least one counterpart.
    IV. This Agreement shall be interpreted in a manner consistent with 
the provisions of the Rules and Regulations of the Office.
    V. This Agreement shall terminate upon (i) the approval by the 
Office of [ ]'s Application under the Holding Company Act or clearance 
by the Office of [ ]'s Notice under the Control Act to acquire [ ], and 
consummation of the transaction as described in such Application or 
Notice, (ii) in the disposition by [ ] of a sufficient number of shares 
of [ ], or (iii) the taking of such other action that thereafter [ ] is 
not in control and would not be determined to be in control of [ ] under 
the Control Act, the Holding Company Act or the Regulations of the 
Office as in effect at that time.
    VI. IN WITNESS THEREOF, the parties thereto have executed this 
Agreement by their duly authorized officer.
________________________________________________________________________
[Acquiror]
Office of Thrift Supervision.

Date:___________________________________________________________________

By:_____________________________________________________________________

[54 FR 49690, Nov. 30, 1989, as amended at 63 FR 71213, Dec. 24, 1998]



PART 575_MUTUAL HOLDING COMPANIES--Table of Contents




Sec.
575.1 Scope.
575.2 Definitions.
575.3 Mutual holding company reorganizations.
575.4 Grounds for disapproval of reorganizations.
575.5 Membership rights.
575.6 Contents of Reorganization Plans.
575.7 Issuances of stock by savings association subsidiaries of mutual 
          holding companies.
575.8 Contents of Stock Issuance Plans.
575.9 Charters and bylaws for mutual holding companies and their savings 
          association subsidiaries.
575.10 Acquisition and disposition of savings associations, savings and 
          loan holding companies, and other corporations by mutual 
          holding companies.
575.11 Operating restrictions.
575.12 Conversion or liquidation of mutual holding companies.
575.13 Procedural requirements.
575.14 Subsidiary holding companies.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.

    Source: 58 FR 44114, Aug. 19, 1993, unless otherwise noted.



Sec. 575.1  Scope.

    (a) Purpose. The purpose of this part is to implement the mutual 
holding company provisions of the Savings and Loan Holding Company Act, 
12 U.S.C. 1467a(o).
    (b) General. Except as the OTS may otherwise determine, the 
provisions of this part shall exclusively govern the reorganization of 
mutual savings associations and any related stock issuances, and no 
mutual savings association shall reorganize to a mutual holding company 
or issue minority stock without the prior written approval of the OTS. 
The OTS may grant a waiver in writing from any requirement of this part 
for good cause shown.

[58 FR 44114, Aug. 19, 1993, as amended at 59 FR 61262, Nov. 30, 1994]



Sec. 575.2  Definitions.

    As used in this part, the following definitions apply, unless 
specified elsewhere in this part:
    (a) The terms associate and tax-qualified employee stock benefit 
plan have the meanings set forth in Sec. 563b.25 of this chapter.
    (b) The terms acting in concert, affiliate, company, person, and 
savings association have the meanings set forth in Sec. 574.2 of this 
chapter.
    (c) The term acquiree association means any savings association, 
other than a resulting association, that:
    (1) Is acquired by a mutual holding company as part of, and 
concurrently with, a mutual holding company reorganization; and
    (2) Is in the mutual form immediately prior to such acquisition.
    (d) The term control has the same meaning as specified in Sec. 
574.4 of this chapter.
    (e) The term default means any adjudication or other official 
determination of a court of competent jurisdiction or other public 
authority pursuant to which a conservator, receiver, or other legal 
custodian is appointed for a mutual holding company or savings 
association subsidiary of a mutual holding company.

[[Page 528]]

    (f) The term insider means any officer or director of a company or 
of any affiliate of such company, and any person acting in concert with 
any such officer or director.
    (g) The term member means any depositor or borrower of a mutual 
savings association that is entitled, under the charter of the savings 
association, to vote on matters affecting the association, and any 
depositor or borrower of a savings association subsidiary of a mutual 
holding company that is entitled, under the charter of the mutual 
holding company, to vote on matters affecting the mutual holding 
company.
    (h) The term mutual holding company means a mutual holding company 
organized under this part, and unless otherwise indicated, a subsidiary 
holding company controlled by a mutual holding company, organized under 
this part.
    (i) The term parent has the same meaning as the term parent company 
specified at Sec. 583.15 of this chapter.
    (j) The term Reorganization Notice means a notice of a proposed 
mutual holding company reorganization that is in the form and contains 
the information required by the OTS.
    (k) The term Reorganization Plan means a plan to reorganize into the 
mutual holding company format containing the information required by 
Sec. 575.6 of this part.
    (l) The term reorganizing association means a mutual savings 
association that proposes to reorganize to become a mutual holding 
company pursuant to this part.
    (m) The term resulting association means a savings association in 
the stock form that is organized as a subsidiary of a reorganizing 
association to receive the substantial part of the assets and 
liabilities (including all deposit accounts) of the reorganizing 
association upon consummation of the reorganization.
    (n) The term stock means common or preferred stock, or any other 
type of equity security, including (without limitation) warrants or 
options to acquire common or preferred stock, or other securities that 
are convertible into common or preferred stock.
    (o) The term Stock Issuance Plan means a plan, submitted pursuant to 
Sec. 575.7 and containing the information required by Sec. 575.8, 
providing for the issuance of stock by:
    (1) A savings association subsidiary of a mutual holding company; or
    (2) A subsidiary holding company.
    (p) The term subsidiary has the meaning specified at Sec. 583.23 of 
this chapter.
    (q) The term subsidiary holding company means a federally chartered 
stock holding company, controlled by a mutual holding company, that owns 
the stock of a savings association whose depositors have membership 
rights in the parent mutual holding company.

[58 FR 44114, Aug. 19, 1993, as amended at 60 FR 66720, Dec. 26, 1995; 
61 FR 60184, Nov. 27, 1996; 63 FR 11365, Mar. 9, 1998; 67 FR 52035, Aug. 
9, 2002]



Sec. 575.3  Mutual holding company reorganizations.

    A mutual savings association may reorganize to become a mutual 
holding company, or join in a mutual holding company reorganization as 
an acquiree association, only upon satisfaction of the following 
conditions:
    (a) A Reorganization Plan is approved by a majority of the board of 
directors of the reorganizing association and any acquiree association;
    (b) A Reorganization Notice is filed with the OTS and either:
    (1) The OTS has given written notice of its intent not to disapprove 
the proposed reorganization; or
    (2) Sixty days have passed since OTS received the Reorganization 
Notice and deemed it complete under Sec. 516.210 or Sec. 516.220 of 
this chapter, and OTS has not:
    (i) Given written notice that the proposed reorganization is 
disapproved; or
    (ii) Extended for an additional 30 days the period during which 
disapproval may be issued;
    (c) The Reorganization Plan is submitted to the members of the 
reorganizing association and any acquiree association pursuant to a 
proxy statement cleared in advance by the OTS and such Reorganization 
Plan is approved by a majority of the total votes of the members of each 
association eligible to be cast at a meeting held at the call of each 
association's directors

[[Page 529]]

in accordance with the procedures prescribed by each association's 
charter and bylaws; and
    (d) All necessary regulatory approvals have been obtained and all 
conditions specified in Sec. 575.9(c)(5) of this part or otherwise 
imposed by the OTS in connection with the issuance of a notice of intent 
not to disapprove under Sec. 575.3(b)(1) of this part or by the OTS in 
connection with the granting of the approvals specified in this 
paragraph have been satisfied.

[58 FR 44114, Aug. 19, 1993, as amended at 66 FR 13009, Mar. 2, 2001]



Sec. 575.4  Grounds for disapproval of reorganizations.

    (a) Basic standards. The OTS may disapprove a proposed mutual 
holding company reorganization pursuant to Sec. 575.3(b) of this part 
if:
    (1) Disapproval is necessary to prevent unsafe or unsound practices;
    (2) The financial or managerial resources of the reorganizing 
association or any acquiree association warrant disapproval;
    (3) The proposed capitalization of the mutual holding company fails 
to meet the requirements of paragraph (b) of this section;
    (4) A stock issuance is proposed in connection with the 
reorganization pursuant to Sec. 575.7 of this part that fails to meet 
the standards established by that section;
    (5) The reorganizing association or any acquiree association fails 
to furnish the information required to be included in the Reorganization 
Notice or any other information requested by the OTS in connection with 
the proposed reorganization; or
    (6) The proposed reorganization would violate any provision of law, 
including (without limitation) Sec. 575.3 (a) and (c) of this part 
(regarding board of directors and membership approval) or Sec. 575.5(a) 
of this part (regarding continuity of membership rights).
    (b) Capitalization. (1) The OTS shall disapprove a proposal by a 
reorganizing association or any acquiree association to capitalize a 
mutual holding company in an amount in excess of a nominal amount if 
immediately following the reorganization, the resulting association or 
the acquiree association would fail to be ``adequately capitalized'' as 
defined under 12 CFR part 565.
    (2) Proposals by reorganizing associations and acquiree associations 
to capitalize mutual holding companies shall also comply with any 
applicable statutes, and with regulations or written policies of the OTS 
governing capital distributions by savings associations in effect at the 
time of the reorganization. (Issuance by the OTS of a notice of intent 
not to disapprove a mutual holding company reorganization pursuant to 
Sec. 575.3(b) of this part, or failure by the OTS to disapprove such a 
reorganization within the time prescribed in Sec. 575.3(b) of this 
part, shall also be deemed to constitute OTS approval under any 
regulation or written policy of the OTS governing capital distributions 
by savings associations, if such approval is required, of the 
capitalization proposal set forth in the Reorganization Notice, subject 
to any conditions imposed by Sec. 575.4(d)(2) of this part.)
    (c) Presumptive disqualifiers--(1) Managerial resources. The factors 
specified in Sec. 574.7 (g)(1)(i)-(g)(1)(vi) of this chapter shall give 
rise to a rebuttable presumption that the managerial resources test of 
paragraph (a)(2) of this section is not met. For this purpose, each 
place the term acquiror appears in Sec. 574.7 (g)(1)(i)-(g)(1)(vi) of 
this chapter, it shall be read to mean the reorganizing association or 
any acquiree association, and the reference in Sec. 574.7(g)(1)(v) of 
this chapter to filings under this part shall be deemed to include 
filings under either part 574 of this chapter or this part.
    (2) Safety and soundness and financial resources. Failure by a 
reorganizing association and any acquiree association to submit a 
business plan in connection with a Reorganization Notice, or submission 
of a business plan that projects activities that are inconsistent with 
the credit and lending needs of your proposed market area or that fails 
to demonstrate that the capital of the mutual holding company will be 
deployed in a safe and sound manner, shall give rise to a rebuttable 
presumption that the safety and soundness and financial resources tests 
of paragraphs (a)(1) and (a)(2) of this section are not met.

[[Page 530]]

    (d) Failure of the OTS to act on a Reorganization Notice within the 
prescribed time period. A proposed reorganization that obtains 
regulatory clearance from the OTS due to the operation of Sec. 
575.3(b)(2) of this part may take place in the manner proposed, subject 
to the following conditions:
    (1) The reorganization shall be consummated within one year of the 
date of the expiration of the OTS's review period under Sec. 
575.3(b)(2) of this part;
    (2) The mutual holding company shall not be capitalized in an amount 
in excess of what is permissible under Sec. 575.4(b) of this part;
    (3) No request for regulatory waivers or forbearances shall be 
deemed granted;
    (4) The following information shall be submitted within the 
specified time frames:
    (i) On the business day prior to the date of the reorganization, the 
chief financial officers of the reorganizing association and any 
acquiree association shall certify to the OTS in writing that no 
material adverse events or material adverse changes have occurred with 
respect to the financial condition or operations of their respective 
associations since the date of the financial statements submitted with 
the Reorganization Notice;
    (ii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the OTS a certification by legal counsel 
stating the effective date of the reorganization, the exact number of 
shares of stock of the resulting association and any acquiree 
association acquired by the mutual holding company and by any other 
persons, and that the reorganization has been consummated in accordance 
with Sec. 575.3 of this part and all other applicable laws and 
regulations and the Reorganization Notice;
    (iii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the OTS an opinion from its independent 
auditors certifying that the reorganization was consummated in 
accordance with generally accepted accounting principles; and
    (iv) No later than thirty days after the reorganization, the mutual 
holding company shall file with the OTS a certification stating that the 
mutual holding company will not deviate materially, or cause its savings 
association subsidiaries to deviate materially, from the business plan 
submitted in connection with the Reorganization Notice, unless prior 
written approval from the Regional Director is obtained.

[58 FR 44114, Aug. 19, 1993, as amended at 67 FR 52035, Aug. 9, 2002]



Sec. 575.5  Membership rights.

    (a) Depositors and borrowers of resulting associations, acquiree 
associations, and associations in mutual form when acquired. The charter 
of a mutual holding company must:
    (1) Confer upon existing and future depositors of the resulting 
association the same membership rights in the mutual holding company as 
were conferred upon depositors by the charter of the reorganizing 
association as in effect immediately prior to the reorganization;
    (2) Confer upon existing and future depositors of any acquiree 
association or any association that is in the mutual form when acquired 
by the mutual holding company the same membership rights in the mutual 
holding company as were conferred upon depositors by the charter of the 
acquired association immediately prior to acquisition, provided that if 
the acquired association is merged into another association from which 
the mutual holding company draws members, the depositors of the acquired 
association shall receive the same membership rights as the depositors 
of the association into which the acquired association is merged;
    (3) Confer upon the borrowers of the resulting association who are 
borrowers at the time of reorganization the same membership rights in 
the mutual holding company as were conferred upon them by the charter of 
the reorganizing association immediately prior to reorganization, but 
shall not confer any membership rights in connection with any borrowings 
made after the reorganization; and
    (4) Confer upon the borrowers of any acquiree association or any 
association that is in the mutual form when acquired by the mutual 
holding company who are borrowers at the time of the acquisition the 
same membership

[[Page 531]]

rights in the mutual holding company as were conferred upon them by the 
charter of the acquired association immediately prior to acquisition, 
but shall not confer any membership rights in connection with any 
borrowings made after the acquisition, provided that if the acquired 
association is merged into another association from which the mutual 
holding company draws members, the borrowers of the acquired association 
shall instead receive the same grandfathered membership rights as the 
borrowers of the association into which the acquired association is 
merged received at the time that association became a subsidiary of the 
mutual holding company.
    (b) Depositors and borrowers of associations in the stock form when 
acquired. A mutual holding company that acquires a savings association 
in the stock form, other than a resulting association or an acquiree 
association, shall not confer any membership rights upon the depositors 
and borrowers of such association, unless such association is merged 
into an association from which the mutual holding company draws members, 
in which case the depositors of the stock association shall receive the 
same membership rights as other depositors of the association into which 
the stock association is merged.



Sec. 575.6  Contents of Reorganization Plans.

    Each Reorganization Plan shall contain a complete description of all 
significant terms of the proposed reorganization, shall attach and 
incorporate any Stock Issuance Plan proposed in connection with the 
Reorganization Plan, and shall:
    (a) Provide for amendment of the charter and bylaws of the 
reorganizing association to read in the form of the charter and bylaws 
of a mutual holding company, and attach and incorporate such charter and 
bylaws;
    (b) Provide for the organization of the resulting association, which 
shall be an interim federal or state savings association subsidiary of 
the reorganizing association, and attach and incorporate the proposed 
charter and bylaws of such association;
    (c) If the reorganizing association proposes to form a subsidiary 
holding company, provide for the organization of a subsidiary holding 
company and attach and incorporate the proposed charter and bylaws of 
such subsidiary holding company.
    (d) Provide for amendment of the charter and bylaws of any acquiree 
association to read in the form of the charter and bylaws of a state or 
federal savings association in the stock form (as modified by Sec. 
575.9(b) of this part), and attach and incorporate such charter and 
bylaws;
    (e) Provide that, upon consummation of the reorganization, 
substantially all of the assets and liabilities (including all savings 
accounts, demand accounts, tax and loan accounts, United States Treasury 
General Accounts, or United States Treasury Time Deposit Open Accounts, 
as defined in part 561 of this chapter) of the reorganizing association 
shall be transferred to the resulting association, which shall thereupon 
become an operating savings association subsidiary of the mutual holding 
company;
    (f) Provide that all assets, rights, obligations, and liabilities of 
whatever nature of the reorganizing association that are not expressly 
retained by the mutual holding company shall be deemed transferred to 
the resulting association;
    (g) Provide that each depositor in the reorganizing association or 
any acquiree association immediately prior to the reorganization shall 
upon consummation of the reorganization receive, without payment, an 
identical account in the resulting association or the acquiree 
association, as the case may be (Appropriate modifications should be 
made to this provision if savings associations are being merged as a 
part of the reorganization);
    (h) Provide that the Reorganization Plan as adopted by the boards of 
directors of the reorganizing association and any acquiree association 
may be substantively amended by those boards of directors as a result of 
comments from regulatory authorities or otherwise prior to the 
solicitation of proxies from the members of the reorganizing association 
and any acquiree association to vote on the Reorganization Plan and at 
any time thereafter with the concurrence of the OTS; and that

[[Page 532]]

the reorganization may be terminated by the board of directors of the 
reorganizing association or any acquiree association at any time prior 
to the meeting of the members of the association called to consider the 
Reorganization Plan and at any time thereafter with the concurrence of 
the OTS;
    (i) Provide that the Reorganization Plan shall be terminated if not 
completed within a specified period of time (The time period shall not 
be more than 24 months from the date upon which the members of the 
reorganizing association or the date upon which the members of any 
acquiree association, whichever is earlier, approve the Reorganization 
Plan and may not be extended by the reorganizing or acquiree 
association); and
    (j) Provide that the expenses incurred in connection with the 
reorganization shall be reasonable.

[58 FR 44114, Aug. 19, 1993, as amended at 63 FR 11365, Mar. 9, 1998]



Sec. 575.7  Issuances of stock by savings association subsidiaries 
of mutual holding companies.

    (a) Requirements. No savings association subsidiary of a mutual 
holding company (including any resulting association or acquiree 
association) may issue stock to persons other than its mutual holding 
company parent in connection with a mutual holding company 
reorganization, or at any time subsequent to the association's 
acquisition by the mutual holding company, unless the association 
obtains advance approval of each such issuance from the OTS. Issuance by 
the OTS of a notice of intent not to disapprove a mutual holding company 
reorganization pursuant to Sec. 575.3(b) of this part, or failure by 
the OTS to disapprove such a reorganization within the time prescribed 
in Sec. 575.3(b) of this part, shall be deemed to constitute approval 
of any stock issuance specifically applied for pursuant to this section 
in connection with the reorganization, unless otherwise specified by the 
OTS. The OTS shall approve any proposed issuance that meets each of the 
criteria set forth below in paragraphs (a)(1)-(a)(7) of this section.
    (1) The proposed issuance is to be made pursuant to a Stock Issuance 
Plan that contains all the provisions required by Sec. 575.8 of this 
part.
    (2) The Stock Issuance Plan is consistent with the terms of the 
association's charter (or any proposed amendments thereto), including 
terms governing the type and amount of stock that may be issued.
    (3) The Stock Issuance Plan would provide the association, its 
mutual holding company parent, and any other savings association 
subsidiaries of the mutual holding company with fully sufficient capital 
and would not be inequitable or detrimental to the association or its 
mutual holding company parent or to members of the mutual holding 
company parent.
    (4) The proposed price or price range of the stock to be issued is 
reasonable. (The OTS shall review the reasonableness of the proposed 
price or price range in accordance with paragraph (b) of this section.)
    (5) The aggregate amount of outstanding common stock of the 
association owned or controlled by persons other than the association's 
mutual holding company parent at the close of the proposed issuance 
shall be less than 50% of the association's total outstanding common 
stock, unless the association was a stock association when acquired by 
the mutual holding company and is not a resulting association or an 
acquiree association, in which case the foregoing restriction shall not 
apply. Any amount of preferred stock may be issued by any savings 
association subsidiary of a mutual holding company to persons other than 
the association's mutual holding company, consistent with any other 
applicable laws and regulations.
    (6) The association furnishes the information required by the OTS in 
connection with the proposed issuance.
    (7) The proposed stock issuance would fail to meet the convenience 
and needs standard of Sec. 563b.200(c) of this chapter.
    (8) The proposed issuance complies with all other applicable laws 
and regulations.
    (9) Unless otherwise determined by the OTS, the limitations on the 
minimum and maximum amounts of the estimated price range required by 
Sec. 563b.330 of this chapter shall apply.

[[Page 533]]

    (b) Related approvals. Approval by the OTS of any stock issuance 
pursuant to this section shall also be deemed to constitute:
    (1) Approval under Sec. 563.3 of this chapter of the form of stock 
certificate proposed to be utilized in connection with the stock 
issuance, provided such form was included in the application materials 
filed pursuant to this section; and
    (2) Preliminary approval under Sec. 552.4 of this chapter and 
approval under Sec. 563.3 of this chapter of any charter or bylaw 
amendment required to authorize issuance of the stock, provided such 
amendment was proposed in the application materials filed pursuant to 
this section.
    (c) Offering restrictions. (1) No representations may be made in any 
manner in connection with the offer or sale of any stock issued pursuant 
to this section that the price, price range or any other pricing 
information related to such stock issuance has been approved by the OTS 
or that the stock has been approved or disapproved by the OTS or that 
the OTS has endorsed the accuracy or adequacy of any securities offering 
documents disseminated in connection with such stock.
    (2) The sale of minority stock of the reorganized stock savings 
association to be made under the minority stock issuance plan, including 
any sale in a public offering or direct community marketing, shall be 
completed as promptly as possible and within 45 calendar days after the 
last day of the subscription period, unless extended by the OTS.
    (3) In the offer, sale, or purchase of stock issued pursuant to this 
section, no person shall:
    (i) Employ any device, scheme, or artifice to defraud;
    (ii) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in the 
light of the circumstances under which they were made, not misleading; 
or
    (iii) Engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (4) Prior to the completion of a stock issuance pursuant to this 
section, no person shall transfer, or enter into any agreement or 
understanding to transfer, the legal or beneficial ownership of the 
stock to be issued to any other person.
    (5) Prior to the completion of a stock issuance pursuant to this 
section, no person shall make any offer, or any announcement of any 
offer, to purchase any stock to be issued, or knowingly acquire any 
stock in the issuance, in excess of the maximum purchase limitations 
established in the Stock Issuance Plan.
    (6) All stock issuances pursuant to this section must:
    (i) Comply with 12 CFR part 563g and, to the extent applicable, Form 
OC; and
    (ii) Provide that the offering be structured in a manner similar to 
a standard conversion under 12 CFR part 563b, including the stock 
purchase priorities accorded members of the issuing association's mutual 
holding company, unless the association would qualify for a supervisory 
conversion if it were to undertake a conversion under 12 CFR part 563b; 
or demonstrates to the satisfaction of the OTS that a non-conforming 
issuance would be more beneficial to the association compared to a 
conforming offering, considering, in the aggregate, the effect of each 
on the association's financial and managerial resources and future 
prospects, the effect of the issuance upon the association, the 
insurance risk to the Deposit Insurance Fund, and the convenience and 
needs of the community to be served.
    (7) Notwithstanding the restrictions in paragraph (d)(6)(ii) of this 
section, a savings association subsidiary of a mutual holding company 
may issue stock as part of a stock benefit plan to any insider, 
associate of an insider, or tax qualified or non-tax qualified employee 
stock benefit plan of the mutual holding company or subsidiary of the 
mutual holding company without including the purchase priorities of part 
563b of this chapter.
    (8) As part of a reorganization, a reasonable amount of shares or 
proceeds may be contributed to a charitable organization that complies 
with Sec. Sec. 563b.550 to 563b.575 of this chapter, provided such 
contribution does not result in any taxes on excess business

[[Page 534]]

holdings under section 4943 of the Internal Revenue Code (26 U.S.C. 
4943).
    (d) Procedural and substantive requirements. The procedural and 
substantive requirements of 12 CFR part 563b shall apply to all mutual 
holding company stock issuances under this section, unless clearly 
inapplicable, as determined by OTS. For purposes of this paragraph (d), 
the term conversion as it appears in the provisions of Part 563b of this 
chapter shall refer to the stock issuance, and the term converted or 
converting savings association shall refer to the savings association 
undertaking the stock issuance.

[58 FR 44114, Aug. 19, 1993, as amended at 59 FR 22735, May 3, 1994; 67 
FR 52035, Aug. 9, 2002; 67 FR 78153, Dec. 23, 2002; 68 FR 75110, Dec. 
30, 2003; 71 FR 19812, Apr. 18, 2006; 72 FR 35150, June 27, 2007]



Sec. 575.8  Contents of Stock Issuance Plans.

    (a) Mandatory provisions. Each of the provisions mandatory for all 
stock issuance plans under this paragraph shall be deemed regulatory 
requirements. Each Stock Issuance Plan shall contain a complete 
description of all significant terms of the proposed stock issuance 
(including the information specified in Sec. 563b.650 of this chapter 
to the extent known), shall attach and incorporate the proposed form of 
stock certificate, the proposed stock order form, and any agreements or 
other documents defining the rights of the stockholders, and shall:
    (1) Provide that the stock shall be sold at a total price equal to 
the estimated pro forma market value of such stock, based upon an 
independent valuation, as provided in Sec. 575.7(b) of this part;
    (2) Provide that the aggregate amount of outstanding common stock of 
the association owned or controlled by persons other than the 
association's mutual holding company parent at the close of the proposed 
issuance shall be less than fifty percent of the association's total 
outstanding common stock (This provision may be omitted if the proposed 
issuance will be conducted by an association that was in the stock form 
when acquired by its mutual holding company parent, provided the 
association is not a resulting association or an acquiree association);
    (3) Provide that all employee stock ownership plans or other tax-
qualified employee stock benefit plans (collectively, ESOPs) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
outstanding shares of the savings association's common stock or 4.9 
percent of the savings association's stockholders' equity at the close 
of the proposed issuance.
    (4) Provide that all ESOPs and management recognition plans (MRPs) 
must not encompass, in the aggregate, more than either 4.9 percent of 
the outstanding shares of the savings association's common stock or 4.9 
percent of the savings association's stockholders' equity at the close 
of the proposed issuance. However, if the savings association's tangible 
capital equals at least ten percent at the time of implementation of the 
plan, OTS may permit such ESOPs and MRPs to encompass, in the aggregate, 
up to 5.88 percent of the outstanding common stock or stockholders' 
equity at the close of the proposed issuance.
    (5) Provide that all MRPs must not encompass, in the aggregate, more 
than either 1.47 percent of the common stock of the savings association 
or 1.47 percent of the savings association's stockholders' equity at the 
close of the proposed issuance. However, if the savings association's 
tangible capital is at least ten percent at the time of implementation 
of the plan, OTS may permit MRPs to encompass, in the aggregate, up to 
1.96 percent of the outstanding shares of the savings association's 
common stock or 1.96 percent of the savings association's stockholders' 
equity at the close of the proposed issuance.
    (6) Provide that all stock option plans (Option Plans) must not 
encompass, in the aggregate, more than either 4.9 percent of the savings 
association's outstanding common stock at the close of the proposed 
issuance or 4.9 percent of the savings association's stockholders' 
equity at the close of the proposed issuance.
    (7) Provide that an ESOP, a MRP or an Option Plan modified or 
adopted no earlier than one year after the close of:

[[Page 535]]

the proposed issuance, or any subsequent issuance that is made in 
substantial conformity with the purchase priorities set forth in part 
563b, may exceed the percentage limitations contained in paragraphs 
(a)(3) through (6) of this section (plan expansion), subject to the 
following two requirements. First, all common stock awarded in 
connection with any plan expansion must be acquired for such awards in 
the secondary market. Second, such acquisitions must begin no earlier 
than when such plan expansion is permitted to be made.
    (8)(i) Provide that the aggregate amount of common stock that may be 
encompassed under all Option Plans and MRPs, or acquired by all insiders 
of the association and associates of insiders of the association, must 
not exceed the following percentages of common stock or stockholders' 
equity of the savings association, held by persons other than the 
savings association's mutual holding company parent at the close of the 
proposed issuance:

------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$ 50,000,000 or less....................................              35
$ 50,000,001-100,000,000................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (ii) The percentage limitations contained in paragraph 8(i) may be 
exceeded provided that all stock acquired by insiders and associates of 
insiders or awarded under all MRPs and Option Plans in excess of those 
limitations is acquired in the secondary market. If acquired for such 
awards on the secondary market, such acquisitions must begin no earlier 
than one year after the close of the proposed issuance or any subsequent 
issuance that is made in substantial conformity with the purchase 
priorities set forth in Part 563b.
    (iii) In calculating the number of shares held by insiders and their 
associates under this provision, shares awarded but not delivered under 
an ESOP, MRP, or Option Plan that are attributable to such persons shall 
not be counted as being acquired by such persons.
    (9) Provide that the amount of common stock that may be encompassed 
under all Option Plans and MRPs must not exceed, in the aggregate, 25 
percent of the outstanding common stock held by persons other than the 
savings association's mutual holding company parent at the close of the 
proposed issuance.
    (10) Provide that the issuance shall be conducted in compliance with 
12 CFR part 563g and, to the extent applicable, Form OC;
    (11) Provide that the sales price of the shares of stock to be sold 
in the issuance shall be a uniform price determined in accordance with 
Sec. 575.7 of this part;
    (12) Provide that, if at the close of the stock issuance the 
association has more than thirty-five shareholders of any class of 
stock, the association shall promptly register that class of stock 
pursuant to the Securities Exchange Act of 1934, as amended (15 U.S.C. 
78a-78jj), and undertake not to deregister such stock for a period of 
three years thereafter;
    (13) Provide that, if at the close of the stock issuance the 
association has more than one hundred shareholders of any class of 
stock, the association shall use its best efforts to:
    (i) Encourage and assist a market maker to establish and maintain a 
market for that class of stock; and
    (ii) List that class of stock on a national or regional securities 
exchange or on the NASDAQ quotation system;
    (14) Provide that, for a period of three years following the 
proposed issuance, no insider of the association or his or her 
associates shall purchase, without the prior written approval of the 
OTS, any stock of the association except from a broker dealer registered 
with the Securities and Exchange Commission, except that the foregoing 
restriction shall not apply to:
    (i) Negotiated transactions involving more than one percent of the 
outstanding stock in the class of stock; or
    (ii) Purchases of stock made by and held by any tax-qualified or 
non-tax-qualified employee stock benefit plan of the association even if 
such stock is

[[Page 536]]

attributable to insiders of the association or their associates;
    (15) Provide that stock purchased by insiders of the association and 
their associates in the proposed issuance shall not be sold for a period 
of at least one year following the date of purchase, except in the case 
of death of the insider or associate;
    (16) Provide that, in connection with stock subject to restriction 
on sale for a period of time:
    (i) Each certificate for such stock shall bear a legend giving 
appropriate notice of such restriction;
    (ii) Appropriate instructions shall be issued to the association's 
transfer agent with respect to applicable restrictions on transfer of 
such stock; and
    (iii) Any shares issued as a stock dividend, stock split, or 
otherwise with respect to any such restricted stock shall be subject to 
the same restrictions as apply to the restricted stock;
    (17) Provide that the association will not offer or sell any of the 
stock proposed to be issued to any person whose purchase would be 
financed by funds loaned, directly or indirectly, to the person by the 
association;
    (18) Provide that, if necessary, the association's charter will be 
amended to authorize issuance of the stock and attach and incorporate by 
reference the text of any such amendment;
    (19) Provide that the expenses incurred in connection with the 
issuance shall be reasonable;
    (20) Provide that the Stock Issuance Plan, if proposed as part of a 
Reorganization Plan, may be amended or terminated in the same manner as 
the Reorganization Plan. Otherwise, the Stock Issuance Plan shall 
provide that it may be substantively amended by the board of directors 
of the issuing association as a result of comments from regulatory 
authorities or otherwise prior to approval of the Plan by the OTS, and 
at any time thereafter with the concurrence of the OTS; and that the 
Stock Issuance Plan may be terminated by the board of directors at any 
time prior to approval of the Plan by the OTS, and at any time 
thereafter with the concurrence of the OTS;
    (21) Provide that, unless an extension is granted by the OTS, the 
Stock Issuance Plan shall be terminated if not completed within 90 days 
of:
    (i) The date of such approval; or
    (ii) For stock issuances subject to the offering circular 
requirements of part 563g of this chapter, the date on which the 
offering circular was declared effective by the OTS; and
    (22) Provide that the association may make scheduled discretionary 
contributions to a tax-qualified employee stock benefit plan provided 
such contributions do not cause the association to fail to meet any of 
its regulatory capital requirements.
    (b) Optional provisions. A Stock Issuance Plan may:
    (1) Provide that, in the event the proposed stock issuance is part 
of a Reorganization Plan, the stock offering may be commenced 
concurrently with or at any time after the mailing to the members of the 
reorganizing association and any acquiree association of any proxy 
statement(s) authorized for use by the OTS. The offering may be closed 
before the required membership vote(s), provided the offer and sale of 
the stock shall be conditioned upon the approval of the Reorganization 
Plan and Stock Issuance Plan by the members of the reorganizing 
association and any acquiree association;
    (2) Provide that any insignificant residue of stock of the 
association not sold in the offering may be sold in such other manner as 
provided in the Stock Issuance Plan, with the OTS's approval;
    (3) Provide that the association may issue and sell, in lieu of 
shares of its stock, units of securities consisting of stock and long-
term warrants or other equity securities, in which event any reference 
in the provisions of this section and in Sec. 575.7 of this part to 
stock shall apply to such units of equity securities unless the context 
otherwise requires; or
    (4) Provide that the association may reserve shares representing up 
to ten percent of the proposed offering for issuance in connection with 
an employee stock benefit plan.
    (c) Applicability of provisions of Sec. 563b.500(a) to minority 
stock issuances. Notwithstanding Sec. 575.7(d) of this section, Sec. 
563b.500(a)(2) and (3) do not apply to minority stock issuances, because

[[Page 537]]

the permissible sizes of ESOPs, MRPs, and Option Plans in minority stock 
issuances are subject to each of the requirements set forth at 
paragraphs (a)(3) through (a)(9) of this section. Section 563b.500, 
paragraphs (a)(4) through (14), apply for one year after the savings 
association engages in a minority stock issuance that is conducted in 
accordance with the purchase priorities set forth in part 563b. In 
addition to the shareholder vote requirement for Option Plans and MRPs 
set forth at Sec. 563b.500(a)(6), any Option Plans and MRPs put to a 
shareholder vote after a minority stock issuance that is conducted in 
accordance with the purchase priorities set forth in part 563b must be 
approved by a majority of the votes cast by stockholders other than the 
mutual holding company.

[58 FR 44114, Aug. 19, 1993, as amended at 67 FR 52035, Aug. 9, 2002; 72 
FR 35150, June 27, 2007]



Sec. 575.9  Charters and bylaws for mutual holding companies and their
savings association subsidiaries.

    (a) Charters and bylaws for mutual holding companies--(1) Charters. 
The charter of a mutual holding company shall be in the form set forth 
in this paragraph (a)(1) and may include any of the additional 
provisions permitted pursuant to paragraph (a)(2) of this section.

                                 Charter

    Section 1: Corporate title. The name of the mutual holding company 
is ------(the ``Mutual Company'').
    Section 2: Duration. The duration of the Mutual Company is 
perpetual.
    Section 3: Purpose and powers. The purpose of the Mutual Company is 
to pursue any or all of the lawful objectives of a federal mutual 
savings and loan holding company chartered under section 10(o) of the 
Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of the 
express, implied, and incidental powers conferred thereby and all acts 
amendatory thereof and supplemental thereto, subject to the Constitution 
and the laws of the United States as they are now in effect, or as they 
may hereafter be amended, and subject to all lawful and applicable 
rules, regulations, and orders of the Office of Thrift Supervision 
(``OTS'').
    Section 4: Capital. The Mutual Company shall have no capital stock.
    Section 5: Members. [The content of this section 5 shall be 
identical to the content of the parallel section in the charter of the 
reorganizing association, with the following exceptions: (A) Any 
provisions conferring membership rights upon borrowers of the 
reorganizing association shall be eliminated and replaced with 
provisions grandfathering those rights in accordance with 12 CFR 575.5; 
and (B) appropriate changes shall be made to indicate that membership 
rights in the mutual holding company derive from deposit accounts in 
and, to the extent of any grandfather provisions, borrowings from the 
resulting association. Set forth below is an example of how section 5 
should appear in the charter of a mutual holding company formed by a 
reorganizing association whose charter conforms to the model charter 
prescribed for federal mutual savings associations for calendar year 
1989. Additional changes to this section 5 may be required whenever a 
mutual holding company reorganization involves an acquiree association, 
or a mutual holding company makes a post-reorganization acquisition of a 
mutual savings association, so as to preserve the membership rights of 
the members of the acquired association consistent with 12 CFR 575.5.]
    All holders of the savings, demand, or other authorized accounts of
------------ [insert the name of the resulting association] (the 
``Association'') are members of the Mutual Company. With respect to all 
questions requiring action by the members of the Mutual Company, each 
holder of an account in the Association shall be permitted to cast one 
vote for each $100, or fraction thereof, of the withdrawal value of the 
member's account. In addition, borrowers from the Association as of ----
-------- [insert the date of the reorganization or any earlier date as 
of which new borrowings ceased to result in membership rights] shall be 
entitled to one vote for the period of time during which such borrowings 
are in existence. [The foregoing sentence should be included only if the 
charter of the reorganizing association confers voting rights on any 
borrowers.] No member, however, shall cast more than one thousand votes. 
All accounts shall be nonassessable.
    Section 6. Directors. The Mutual Company shall be under the 
direction of a board of directors. The authorized number of directors 
shall not be fewer than five nor more than fifteen, as fixed in the 
Mutual Company's bylaws, except that the number of directors may be 
decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the Director of the Office or 
his or her delegate.
    Section 7: Capital, surplus, and distribution of earnings. [The 
content of this section 7 shall be identical to the content of the 
parallel section in the charter of the reorganizing association, except 
for changes made to indicate that distribution rights in the mutual

[[Page 538]]

holding company derive from deposit accounts in the resulting 
association, any changes required to provide that the Director of the 
OTS shall be the approving authority in instances where the charter 
requires regulatory approval of distributions, and any other changes 
necessary to accommodate the mutual holding company format. Set forth 
below is an example of how section 7 should appear in the charter of a 
mutual holding company formed by a reorganizing association whose 
charter conforms to the model charter prescribed for federal mutual 
savings associations for calendar year 1989. Additional changes to this 
section 7 may be required whenever a mutual holding company 
reorganization involves an acquiree association, or a mutual holding 
company makes a post-reorganization acquisition of a mutual savings 
association, so as to preserve the membership rights of the members of 
the acquired association consistent with 12 CFR 575.5.]
    The Mutual Company shall distribute net earnings to account holders 
of the Association on such basis and in accordance with such terms and 
conditions as may from time to time be authorized by the Director of the 
OTS, provided that the Mutual Company may establish minimum account 
balance requirements for account holders to be eligible for 
distributions of earnings.
    All holders of accounts of the Association shall be entitled to 
equal distribution of the assets of the Mutual Company, pro rata to the 
value of their accounts in the Association, in the event of voluntary or 
involuntary liquidation, dissolution, or winding up of the Mutual 
Company.
    Section 8. Amendment. Adoption of any preapproved charter amendment 
shall be effective after such preapproved amendment has been approved by 
the members at a legal meeting. Any other amendment, addition, change, 
or repeal of this charter must be approved by the Office prior to 
approval by the members at a legal meeting and shall be effective upon 
filing with the Office in accordance with regulatory procedures.

Attest:_________________________________________________________________
 Secretary of the Association

By:_____________________________________________________________________
 President or Chief Executive Officer of the Association

Attest:_________________________________________________________________
 Secretary of the Office of Thrift Supervision

By:_____________________________________________________________________
 Director of the Office of Thrift Supervision

Effective Date:_________________________________________________________

    (2) Charter amendments. The rules and regulations set forth in Sec. 
544.2 of this chapter regarding charter amendments and reissuances of 
charters (including delegations and filing instructions) shall be 
applicable to mutual holding companies to the same extent as if mutual 
holding companies were Federal mutual savings associations, except that, 
with respect to the pre-approved charter amendments set forth in Sec. 
544.2 of this chapter, Sec. Sec. 544.2(b)(1) and (b)(3) of this chapter 
shall not apply to mutual holding companies, and mutual holding 
companies changing their corporate title pursuant to Sec. 544.2(b)(2) 
of this chapter shall be required to comply with Sec. 575.9(a)(3) of 
this part as well as Sec. 543.1(b) of this chapter.
    (3) Corporate title. The corporate title of each mutual holding 
company shall include the term ``mutual'' or the abbreviation ``M.H.C.''
    (4) Bylaws. The rules and regulations set forth in Sec. 544.5 of 
this chapter regarding bylaws (including their content, any amendments 
thereto, delegations, and filing instructions) shall be applicable to 
mutual holding companies to the same extent as if mutual holding 
companies were federal mutual savings associations. The model bylaws for 
Federal mutual savings associations set forth in the OTS Applications 
Processing Handbook shall also serve as the model bylaws for mutual 
holding companies, except that the term ``association'' each time it 
appears therein shall be replaced with the term ``Mutual Company''; 
section 11(e) (extending leniency to borrowing members) and section 
11(f) (rejection of applications for accounts or membership) shall be 
removed and the remaining paragraphs of section 12 redesignated 
accordingly.
    (5) Availability of charter and bylaws. A mutual holding company 
shall make available to its members at all times in the offices of each 
subsidiary savings association from which the mutual holding company 
draws members a true copy of its charter and bylaws, including any 
amendments, and shall deliver such a copy to any member upon request. 
Mutual holding companies shall also be subject to the provisions of 
Sec. 544.8 of this chapter.
    (b) Charters and bylaws of subsidiary savings associations of mutual 
holding companies. Except as specified otherwise by the OTS in any 
notice of intent

[[Page 539]]

not to disapprove a mutual holding company reorganization or in any 
regulation or order, each subsidiary savings association of a mutual 
holding company shall be subject to the same rules and regulations 
regarding charters and bylaws as are applicable to stock savings 
associations that are chartered by the OTS, 12 CFR part 552, or by the 
appropriate state chartering authority, as the case may be, provided 
that the charter of each resulting association, each acquiree 
association, and each mutual savings association that is acquired by a 
mutual holding company shall contain the provision set forth below:

In any situation in which the priority of the accounts of the 
association is in controversy, all such accounts shall, to the extent of 
their withdrawable value, be debts of the association having at least as 
high a priority as the claims of general creditors of the association 
not having priority (other than any priority arising or resulting from 
consensual subordination) over other general creditors of the 
association.

    (c) Optional charter provision limiting minority stock ownership. A 
federal resulting association or federal acquiree association that 
engages in its initial minority stock issuance after October 1, 2008 
may, before it conducts its initial minority stock issuance, at the time 
of such minority stock issuance, or at any time during the five years 
following a minority stock issuance that such association conducts in 
accordance with the purchase priorities set forth in 12 CFR part 563b, 
include in its charter the following provision. For purposes of this 
charter provision, the definitions set forth at Sec. 552.4(b)(8) of 
this chapter apply. This charter provision expires a maximum of five 
years from the date of the minority stock issuance. The federal 
resulting association or federal acquiree association may adopt the 
charter provision after a minority stock issuance only if it provided, 
in the offering materials related to its previous minority stock 
issuance or issuances, full disclosure of the possibility that the 
association might adopt such a charter provision.

    Beneficial Ownership Limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of the outstanding stock of any class of voting stock of 
the association held by persons other than the association's mutual 
holding company. This limitation expires on [insert date within five 
years of minority stock issuance] and does not apply to a transaction in 
which an underwriter purchases stock in connection with a public 
offering, or the purchase of stock by an employee stock ownership plan 
or other tax-qualified employee stock benefit plan that is exempt from 
the approval requirements under Sec. 574.3(c)(1)(vii) of the Office's 
regulations.
    In the event a person acquires stock in violation of this section, 
all stock beneficially owned by such person in excess of 10 percent of 
the stock held by stockholders other than the mutual holding company 
shall be considered ``excess shares'' and shall not be counted as stock 
entitled to vote and shall not be voted by any person or counted as 
voting stock in connection with any matters submitted to the 
stockholders for a vote.

    (d) Approval of charters and bylaws of mutual holding companies and 
their savings association subsidiaries in connection with Reorganization 
Plans. (1) Issuance by the OTS of a notice of intent not to disapprove a 
reorganization pursuant to Sec. 575.3(b) of this part, or failure by 
the OTS to disapprove such a reorganization within the time prescribed 
in Sec. 575.3(b) of this part, shall be deemed to constitute:
    (i) Approval pursuant to Sec. 575.3(d) of this part and this 
section for the reorganizing association to amend its charter and bylaws 
in their entirety to read in the form of the mutual holding company 
charter and bylaws proposed in the Reorganization Notice (as modified by 
any conditions imposed by the OTS in its notice of intent not to 
disapprove or paragraph (c)(2) of this section and subject to paragraph 
(c)(5) of this section);
    (ii) If the Reorganization Plan provides that the resulting 
association is to be federally chartered, approval pursuant to 12 U.S.C. 
1464 (a) and (e) and Sec. Sec. 552.2-1 and 552.2-2 of this chapter of 
the organization of the resulting association and the proposed charter 
and bylaws of such association (as modified by any conditions imposed by 
the OTS in its notice of intent not to disapprove or by paragraph (c)(2) 
of this section and subject to paragraph (c)(5) of this section); and
    (iii) If the Reorganization Plan provides that the acquiree 
association is

[[Page 540]]

to be federally chartered, approval pursuant to Sec. 552.4 of this 
chapter of the amendment of the existing charter of the acquiree 
association in its entirety to read in the form of the proposed charter 
and bylaws of such association (as modified by any conditions imposed by 
the OTS in its notice of intent not to disapprove or paragraph (c)(2) of 
this section and subject to paragraph (c)(5) of this section).
    (2) In the event the charter and bylaws of a mutual holding company 
and of any federally-chartered resulting association or acquiree 
association are approved pursuant to paragraph (c)(1) of this section 
due to failure of the OTS to disapprove a Reorganization Notice within 
the time prescribed in Sec. 575.3(b) of this part, such approval shall 
be subject to the condition that such charter(s) and bylaws shall 
conform in every particular to the model charter(s) and bylaws for 
mutual holding companies and/or federal stock savings associations, as 
the case may be, as set forth in the OTS's regulations.
    (3) Promptly after approval of the amendment of the charter of a 
reorganizing association to read in the form of a mutual holding company 
charter pursuant to paragraph (c)(1) of this section, the OTS shall 
issue an executed copy of such charter to the reorganizing association. 
Such charter shall not become effective until consummation of the 
Reorganization Plan, at which point in time it shall replace and nullify 
the charter of the reorganizing association. The charter of the 
reorganizing association shall be surrendered to the OTS within five 
days after consummation of the Reorganization Plan. If the 
Reorganization Plan is terminated for any reason, the charter of the 
mutual holding company shall become immediately null and void and shall 
be returned to the OTS within five days.
    (4) Promptly after approval of any federal charter for a resulting 
association pursuant to paragraph (c)(1) of this section or approval of 
the amendment of any federal charter of an acquiree association pursuant 
to paragraph (c)(1) of this section, the OTS shall issue an executed 
copy of such charter(s) to the reorganizing association and/or the 
acquiree association, as the case may be.
    (i) Prior to consummation of the Reorganization Plan, the resulting 
association (whether chartered under federal or state law) shall 
constitute an interim savings association subsidiary of the reorganizing 
association and shall not accept any deposits or engage in any other 
business activities except for those activities necessary to consummate 
the Reorganization Plan. If the Reorganization Plan is terminated for 
any reason, the charter of the resulting association shall immediately 
become null and void and, if the resulting association is federally 
chartered, the charter shall be returned to the OTS within five days.
    (ii) Any amended charter issued to an acquiree association (whether 
by the OTS or the appropriate state authority) shall not become 
effective until consummation of the Reorganization Plan, at which point 
in time it shall replace and nullify the prior charter of the acquiree 
association. The prior charter of any federally-chartered acquiree 
association shall be surrendered to the OTS within five days after 
consummation of the Reorganization Plan. If the Reorganization Plan is 
terminated for any reason, the amended charter of the acquiree 
association shall become immediately null and void and, if the acquiree 
association is federally chartered, the amended charter shall be 
returned to the OTS within five days.
    (5) Approval of the amendment of the charter and bylaws of the 
reorganizing association to read in the form of the charter and bylaws 
of a mutual holding company and of any acquiree association to read in 
the form of a stock association and approval of the organization of any 
resulting association and of its charter and bylaws pursuant to 
paragraph (c)(1) of this section shall be subject to any conditions 
subsequent that the OTS may impose in connection therewith or with its 
notice of intent not to disapprove the reorganization.

[58 FR 44114, Aug. 19, 1993, as amended at 61 FR 64021, Dec. 3, 1996; 62 
FR 66264, Dec. 18, 1997; 73 FR 39219, July 9, 2008; 73 FR 76939, Dec. 
18, 2008]

[[Page 541]]



Sec. 575.10  Acquisition and disposition of savings associations, 
savings and loan holding companies, and other corporations by mutual

holding companies.

    (a) Acquisitions--(1) Stock savings associations. A mutual holding 
company may acquire control of a savings association that is in the 
stock form, provided the necessary approvals are obtained from the OTS, 
including (without limitation) approval pursuant to part 574 of this 
chapter and, if the acquisition involves a merger or transfer of assets 
or liabilities, approval pursuant to Sec. Sec. 552.13, 563.22, and part 
546 of this chapter, as appropriate.
    (2) Mutual savings associations. A mutual holding company may 
acquire a savings association in the mutual form by merger of such 
association into any subsidiary savings association of such holding 
company from which the parent mutual holding company draws members or 
into an interim savings association subsidiary of the mutual holding 
company, provided:
    (i) The proposed acquisition is approved by a majority of the board 
of directors of the mutual association;
    (ii) The proposed acquisition is submitted to the mutual 
association's members pursuant to a proxy statement authorized for use 
by the OTS and such acquisition is approved by a majority of the total 
votes of the association's members eligible to be cast at a meeting held 
at the call of the association's directors in accordance with the 
procedures prescribed by the association's charter and bylaws;
    (iii) The necessary approvals are obtained from the OTS, including 
(without limitation) approval pursuant to part 574 of this chapter and 
Sec. Sec. 552.13, 563.22, and part 546 of this chapter, as appropriate, 
and any approvals required to form an interim association, to amend the 
charter and bylaws of the association being acquired, and/or to amend 
the charter and bylaws of the mutual holding company consistent with 
575.6(a) of this part; and
    (iv) The approval of the members of the mutual holding company is 
obtained, if the OTS advises the mutual holding company in writing that 
such approval will be required.
    (3) Mutual holding companies. A mutual holding company that is not a 
subsidiary holding company may acquire control of another mutual holding 
company, including a subsidiary holding company, by merging with or into 
such company, provided the necessary approvals are obtained from the 
OTS, including (without limitation) approval pursuant to part 574 of 
this chapter. The approval of the members of the mutual holding 
companies shall also be obtained if the OTS advises the mutual holding 
companies in writing that such approval will be required.
    (4) Stock holding companies. A mutual holding company may acquire 
control of a savings and loan holding company in the stock form that is 
not a subsidiary holding company, provided the necessary approvals are 
obtained from the OTS, including (without limitation) approval pursuant 
to part 574 of this chapter. The acquired holding company may be held as 
a subsidiary of the mutual holding company or merged into the mutual 
holding company.
    (5) Non-controlling acquisitions of savings association stock. A 
mutual holding company may acquire non-controlling amounts of the stock 
of savings associations and savings and loan holding companies subject 
to the restrictions imposed by 12 U.S.C. 1467a(e) and (q) and Sec. Sec. 
574.8 and 584.4 of this chapter.
    (6) Other corporations. A mutual holding company may acquire control 
of, and make non-controlling investments in the stock of, any 
corporation other than a savings association or savings and loan holding 
company only if:
    (i) (A) Such corporation is engaged exclusively in activities that 
are permissible for mutual holding companies pursuant to Sec. 575.11(a) 
of this part; or
    (B) It is lawful for the stock of such corporation to be purchased 
by a federal savings association under part 559 of this chapter or by a 
state savings association under the law of any state where any 
subsidiary savings association of the mutual holding company has its 
home office; and
    (ii) Such corporation is not controlled, directly or indirectly, by 
a savings association subsidiary of the mutual holding company.
    (b) Dispositions. (1) A mutual holding company shall provide written 
notice

[[Page 542]]

to the OTS at least 30 days prior to the effective date of any direct or 
indirect transfer of any of the stock that it holds in a subsidiary 
holding company, a resulting association, an acquiree association, or 
any subsidiary savings association that was in the mutual form when 
acquired by the mutual holding company, including stock transferred in 
connection with a pledge pursuant to Sec. 575.11(b) or any transfer of 
all or a substantial portion of the assets or liabilities of any such 
subsidiary holding company or association. Any such disposition shall 
comply with the requirements of this part or with part 563b of this 
chapter, as appropriate, and with any other applicable statute or 
regulation including, without limitation, parts 546, 563 and 574 of this 
chapter.
    (2) A mutual holding company may, subject to applicable laws and 
regulations, transfer any or all of the stock or cause or permit the 
transfer of any or all of the assets and liabilities of:
    (i) Any subsidiary savings association that was in the stock form 
when acquired, provided such association is not a resulting association 
or an acquiree association;
    (ii) Any subsidiary savings and loan holding company acquired 
pursuant to paragraph (a)(4) of this section; or
    (iii) Any corporation other than a savings association or savings 
and loan holding company.
    (3) A mutual holding company may, subject to applicable laws and 
regulations, transfer any stock acquired pursuant to paragraph (a)(5) of 
this section.
    (4) No transfer authorized by this section may be made to any 
insider of the mutual holding company, any associate of an insider of 
the mutual holding company, or any tax-qualified or non-tax-qualified 
employee stock benefit plan of the mutual holding company unless the 
mutual holding company provides notice to the OTS at least 30 days prior 
to the effective date of the proposed transfer. This notice shall be in 
addition to any other application or notice required under applicable 
laws or regulations, including, without limitation, this part and parts 
563, 563b, 574 of this chapter.

[58 FR 44114, Aug. 19, 1993, as amended at 60 FR 66720, Dec. 26, 1995; 
63 FR 11365, Mar. 9, 1998]



Sec. 575.11  Operating restrictions.

    (a) Activities restrictions. A mutual holding company may engage in 
any business activity specified in 12 U.S.C. 1467a(c)(2) or 
(c)(9)(A)(ii). In addition, the business activities of subsidiaries of 
mutual holding companies may include the activities specified in Sec. 
575.10(a)(6) of this part. A mutual holding company or its subsidiaries 
may engage in the foregoing activities only upon compliance with the 
procedures specified in Sec. Sec. 584.2-1(c) or 584.2-2(b) of this 
chapter.
    (b) Pledging stock. (1) No mutual holding company may pledge the 
stock of its resulting association, an acquiree association, or any 
subsidiary savings association that was in the mutual form when acquired 
by the mutual holding company (or its parent mutual holding company), 
unless the proceeds of the loan secured by the pledge are infused into 
the association whose stock is pledged. No mutual holding company may 
pledge the stock of its subsidiary holding company unless the proceeds 
of the loan secured by the pledge are infused into any savings 
association subsidiary of the subsidiary holding company that is a 
resulting association, an acquiree association, or a subsidiary savings 
association that was in the mutual form when acquired by the subsidiary 
holding company (or its parent mutual holding company). In the event the 
subsidiary holding company has more than one savings association 
subsidiary, the loan proceeds shall, unless otherwise approved by the 
OTS, be infused in equal amounts to each savings association subsidiary. 
Any amount of the stock of such association or subsidiary holding 
company may be pledged for these purposes. Nothing in this paragraph 
(b)(1) shall be deemed to prohibit:
    (i) The payment of dividends from a subsidiary savings association 
to its mutual holding company parent to the extent otherwise 
permissible; or

[[Page 543]]

    (ii) The payment of dividends from a subsidiary holding company to 
its mutual holding company parent to the extent otherwise permissible; 
or
    (iii) A mutual holding company from pledging the stock of more than 
one savings association subsidiary provided that the stock pledged of 
each such subsidiary association is proportionate to the proceeds of the 
loan infused into each subsidiary association.
    (2) Within 10 days after its pledge of stock pursuant to paragraph 
(b)(1) of this section, a mutual holding company shall provide written 
notice to the OTS regarding the terms of the transaction (including the 
amount of principal and interest, repayment terms, maturity date, the 
nature and amount of collateral, and the terms governing seizure of the 
collateral) and shall include in such notice a certification that the 
proceeds of the loan have been transferred to the subsidiary savings 
association whose stock (or the stock of its parent subsidiary holding 
company) has been pledged.
    (3) Any mutual holding company that fails to make any payment on a 
loan secured by the pledge of stock pursuant to paragraph (b)(1) of this 
section on or before the date on which such payment is due shall, on the 
first day after such payment is due, provide written notice of 
nonpayment to the Regional Director.
    (c) Restrictions on stock repurchases. (1) No subsidiary savings 
association of a mutual holding company that has any stockholders other 
than the association's mutual holding company and no subsidiary holding 
company that has any stockholders other than its parent mutual holding 
company may repurchase any share of stock within one year of its date of 
issuance (which may include the time period the shares issued by the 
savings association were outstanding if the subsidiary holding company 
was formed after the initial issuance by the savings association), 
unless the repurchase:
    (i) Is in compliance with Sec. 563b.510 of this chapter;
    (ii) Is part of a general repurchase made on a pro rata basis 
pursuant to an offer approved by the OTS and made to all stockholders of 
the association or subsidiary holding company (except that the parent 
mutual holding company may be excluded from the repurchase with the OTS' 
approval);
    (iii) Is limited to the repurchase of qualifying shares of a 
director; or
    (iv) Is purchased in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the savings association (or of 
a subsidiary holding company) in an amount reasonable and appropriate to 
fund such plan.
    (2) No mutual holding company may purchase shares of its subsidiary 
savings association or subsidiary holding company within one year after 
a stock issuance, except if the purchase complies with Sec. 563b.510 of 
this chapter. For purposes of this subsection, the reference in Sec. 
563b.510 of this chapter to five percent refers to minority 
shareholders.
    (d) Restrictions on waiver of dividends. No mutual holding company 
may waive its right to receive any dividend declared by a subsidiary 
unless either:
    (1) No insider of the mutual holding company, associate of an 
insider, or tax-qualified or non-tax-qualified employee stock benefit 
plan of the mutual holding company holds any share of stock in the class 
of stock to which the waiver would apply; or
    (2) The mutual holding company provides the OTS with written notice 
of its intent to waive its right to receive dividends 30 days prior to 
the proposed date of payment of the dividend, and the OTS does not 
object. The OTS shall not object to a notice of intent to waive 
dividends if:
    (i) The waiver would not be detrimental to the safe and sound 
operation of the savings association; and
    (ii) The board of directors of the mutual holding company expressly 
determines that waiver of the dividend by the mutual holding company is 
consistent with the directors' fiduciary duties to the mutual members of 
such company. A dividend waiver notice shall include a copy of the 
resolution of the board of directors of the mutual holding company, in 
form and substance satisfactory to the OTS, together with any supporting 
materials relied upon by the board, concluding that the proposed 
dividend waiver is consistent with the board's fiduciary

[[Page 544]]

duties to the mutual members of the mutual holding company.
    (3) The OTS will not consider waived dividends in determining an 
appropriate exchange ratio in the event of a full conversion to stock 
form.
    (e) Restrictions on issuance of stock to insiders. A subsidiary of a 
mutual holding company that is not a savings association or subsidiary 
holding company may issue stock to any insider, associate of an insider 
or tax-qualified or non-tax-qualified employee stock benefit plan of the 
mutual holding company or any subsidiary of the mutual holding company, 
provided that such persons or plans provide written notice to the OTS at 
least 30 days prior to the stock issuance, and OTS does not object to 
the subsequent stock issuance. Subsidiary savings associations and 
subsidiary holding companies may issue stock to such persons only in 
accordance with Sec. 575.7.
    (f) Restrictions on indemnification. The provisions of Sec. 545.121 
of this chapter shall apply to mutual holding companies in the same 
manner as if they were federal savings associations.
    (g) Restrictions on employment contracts. The provisions of Sec. 
563.39 of this chapter and any policies of the OTS thereunder shall 
apply to mutual holding companies in the same manner as if they were 
savings associations.
    (h) Applicability of rules governing savings and loan holding 
companies. Except as expressly provided in this part, mutual holding 
companies shall be subject to the provisions of 12 U.S.C. 1467a and 3201 
et seq. and parts 563e, 574, 583, and 584 of this chapter.
    (i) Separate vote for charitable organization contribution. In a 
mutual holding company stock issuance, a separate vote of a majority of 
the outstanding shares of common stock held by stockholders other than 
the mutual holding company or subsidiary holding company must approve 
any charitable organization contribution.

[58 FR 44114, Aug. 19, 1993, as amended at 60 FR 66720, Dec. 26, 1995; 
63 FR 11365, Mar. 9, 1998; 65 FR 43091, July 12, 2000; 67 FR 52036, Aug. 
9, 2002]



Sec. 575.12  Conversion or liquidation of mutual holding companies.

    (a) Conversion--(1) Generally. A mutual holding company may convert 
to the stock form in accordance with the rules and regulations set forth 
in part 563b of this chapter.
    (2) Exchange of savings association stock. Any stock issued pursuant 
to Sec. 575.7 by a subsidiary savings association or subsidiary holding 
company of a mutual holding company to persons other than the parent 
mutual holding company may be exchanged for the stock issued by the 
parent mutual holding company in connection with the conversion of the 
parent mutual holding company to stock form. The parent mutual holding 
company and the subsidiary holding company or savings association must 
demonstrate to the satisfaction of the OTS that the basis for the 
exchange is fair and reasonable.
    (3) If a subsidiary holding company or subsidiary savings 
association has issued shares to an entity other than the mutual holding 
company, the conversion of the mutual holding company to stock form may 
not be consummated unless a majority of the shares issued to entities 
other than the mutual holding company vote in favor of the conversion. 
This requirement applies in addition to any otherwise required account 
holder or shareholder votes.
    (b) Involuntary liquidation. (1) The OTS may file a petition with 
the federal bankruptcy courts requesting the liquidation of a mutual 
holding company pursuant to 12 U.S.C. 1467a(o)(9) and title 11, United 
States Code, upon the occurrence of any of the following events:
    (i) The default of the resulting association, any acquiree 
association, or any subsidiary savings association of the mutual holding 
company that was in the mutual form when acquired by the mutual holding 
company;
    (ii) The default of the parent mutual holding company or its 
subsidiary holding company; or
    (iii) Foreclosure on any pledge by the mutual holding company of 
subsidiary savings association stock or subsidiary holding company stock 
pursuant to Sec. 575.11(b).

[[Page 545]]

    (2) Except as provided in paragraph (b)(3) of this section, the net 
proceeds of any liquidation of any mutual holding company shall be 
transferred to the members of the mutual holding company or the stock 
holders of the subsidiary holding company in accordance with the charter 
of the mutual holding company or subsidiary holding company.
    (3) If the FDIC incurs a loss as a result of the default of any 
savings association subsidiary of a mutual holding company and that 
mutual holding company is liquidated pursuant to paragraph (b)(1) of 
this section, the FDIC shall succeed to the membership interests of the 
depositors of such savings association in the mutual holding company, to 
the extent of the FDIC's loss.
    (c) Voluntary liquidation. The provisions of Sec. 546.4 of this 
chapter shall apply to mutual holding companies in the same manner as if 
they were federal savings associations.

[58 FR 44114, Aug. 19, 1993, as amended at 63 FR 11366, Mar. 9, 1998; 67 
FR 52036, Aug. 9, 2002]



Sec. 575.13  Procedural requirements.

    (a) Proxies and proxy statements--(1) Solicitation of proxies. The 
provisions of Sec. Sec. 563b.225 to 563b.295 of this chapter shall 
apply to all solicitations of proxies by any person in connection with 
any membership vote required by this part. OTS must authorize all proxy 
materials used in connection with such solicitations. Proxy materials 
must be in the form and contain the information specified in Sec. Sec. 
563b.255 and 563b.270 of this chapter and Form PS, to the extent such 
information is relevant to the action that members are being asked to 
approve, with such additions, deletions, and other modifications as are 
necessary or appropriate under the disclosure standard set forth in 
Sec. 563b.280 of this chapter. File proxies and proxy statements in 
accordance with Sec. 563b.155 of this chapter and address them to the 
Business Transactions Division, Chief Counsel's Office, Office of Thrift 
Supervision, at the address set forth in Sec. 516.40 of this chapter. 
For purposes of this paragraph (a)(1), the term conversion, as it 
appears in the provisions of part 563b of this chapter cited above in 
this paragraph (a)(1), refers to the reorganization or the stock 
issuance, as appropriate.
    (2) Additional proxy disclosure requirements. In addition to all 
disclosure required by Form PS, all proxies requesting accountholder 
approval of a mutual holding company reorganization shall address in 
detail:
    (i) The reasons for the reorganization, including the relative 
advantages and disadvantages of undertaking the transaction proposed 
instead of a standard conversion;
    (ii) Whether management believes the reorganization is in the best 
interests of the association and its accountholders and the basis of 
that belief;
    (iii) The fiduciary duties owed to accountholders by the 
association's officers and directors and why the reorganization is in 
accord with those duties and is otherwise equitable to the 
accountholders and the association;
    (iv) Any compensation agreements that will be entered into by 
management in connection with the reorganization; and
    (v) Whether the mutual holding company intends to waive dividends, 
the implications to accountholders, and the reasons such waivers are 
consistent with the fiduciary duties of the directors of the mutual 
holding company.
    (3) Nonconforming minority stock issuances. Savings associations 
proposing non-conforming minority stock issuances pursuant to Sec. 
575.7(d)(6)(ii)(2) of this part must include in the proxy materials to 
accountholders seeking approval of a proposed reorganization an 
additional disclosure statement that serves as a cover sheet that 
clearly addresses:
    (i) The consequences to accountholders of voting to approve a 
reorganization in which their subscription rights are prioritized 
differently and potentially eliminated; and
    (ii) Any intent by the mutual holding company to waive dividends, 
and the implications to accountholders.
    (4) Use of ``running'' proxies. A mutual savings association or 
mutual holding company may make use of any proxy conferring general 
authority to vote on any and all matters at any meeting of members, 
provided that the member granting such proxy has been furnished

[[Page 546]]

a proxy statement regarding the matters and the member does not grant a 
later-dated proxy to vote at the meeting at which the matter will be 
considered or attend such meeting and vote in person, and further 
provided that ``running'' proxies or similar proxies may not be used to 
vote for a mutual holding company reorganization, mutual-to-stock 
conversion undertaken either by a mutual savings association or a mutual 
holding company or any other material transaction. Subject to the 
limitations set forth in this paragraph, any proxy conferring on the 
board of directors or officers of a mutual savings association general 
authority to cast a member's votes on any and all matters presented to 
the members shall be deemed to cover the member's votes as a member of 
the mutual holding company and such authority shall be conferred on the 
board of directors or officers of a mutual holding company.
    (b) Applications under this part. Except as provided in paragraph 
(c) of this section, any application, notice or certification required 
to be filed with OTS under this part must be filed in accordance with 
part 516, subpart A of this chapter.
    (c) Reorganization Notices and stock issuance applications--(1) 
Contents. Each Reorganization Notice submitted to the OTS pursuant to 
Sec. 575.3(b) of this part and each application for approval of the 
issuance of stock submitted to the OTS pursuant to Sec. 575.7(a) of 
this part shall be in the form and contain the information specified by 
the OTS.
    (2) Filing instructions. Any Reorganization Notice submitted under 
Sec. 575.3(b) of this part must be filed in accordance with part 516, 
subpart A of this chapter. Any stock issuance application submitted 
pursuant to Sec. 575.7(a) of this part shall be filed in accordance 
with Sec. 563b.150 of this chapter.
    (3) Public notice, public comment, and meetings. This part imposes 
no requirements regarding public notice, public comment, or meetings for 
mutual holding company reorganizations. However, mutual holding company 
reorganizations under this part are subject to applicable public notice, 
public comment, and meeting requirements under the Bank Merger Act 
regulations at Sec. 563.22(e)(1) of this chapter and the Savings and 
Loan Holding Company Act regulations at Sec. 574.6(d) and (e) of this 
chapter.
    (d) Amendments. Any association or mutual holding company may amend 
any notice or application submitted pursuant to this part or file 
additional information with respect thereto upon request of the OTS or 
upon the association's or mutual holding company's own initiative.
    (e) Time-frames. All Reorganization Notices and applications filed 
pursuant to this part must be processed in accordance with standard 
treatment processing procedures at part 516, subparts A and E. Any 
related approvals requested in connection with Reorganization Notices or 
applications for approval of stock issuances (including, without 
limitation, requests for approval to transfer assets to resulting 
associations, to acquire acquiree associations, and to organize 
resulting associations or interim associations, and requests for 
approval of charters, bylaws, and stock forms) shall be processed 
pursuant to the procedures specified in this section in conjunction with 
the Reorganization Notice or stock issuance application to which they 
pertain, rather than pursuant to any inconsistent procedures specified 
elsewhere in this chapter. The approval standards for all such related 
applications, however, shall remain unchanged. The review by OTS of 
proxy solicitation materials, including forms of proxy and proxy 
statements, and of any other materials used in connection with the 
issuance of stock under Sec. 575.7 of this part must not be subject to 
the applications processing time-frames set forth in Sec. Sec. 516.210 
through 516.290 of this chapter.
    (f) Disclosure. The rules governing disclosure of any notice or 
application submitted pursuant to this part, or any public comment 
submitted pursuant to paragraph (c) of this section, shall be the same 
as set forth in Sec. 574.6(f) of this chapter for notices, 
applications, and public comments filed under part 574 of this chapter.
    (g) [Reserved]
    (h) Appeals. Any party aggrieved by a final action by the OTS which 
approves

[[Page 547]]

or disapproves any application or notice pursuant to this part 575 may 
obtain review of such action only by complying with 12 U.S.C. 1467a(j).
    (i) Federal preemption. This part 575 preempts state law with regard 
to the creation and regulation of mutual holding companies.

[58 FR 44114, Aug. 19, 1993, as amended at 59 FR 22735, May 3, 1994; 59 
FR 44627, Aug. 30, 1994; 59 FR 61262, Nov. 30, 1994; 66 FR 13010, Mar. 
2, 2001; 67 FR 52036, Aug. 9, 2002; 69 FR 68251, Nov. 24, 2004]



Sec. 575.14  Subsidiary holding companies.

    (a) Subsidiary holding companies. A mutual holding company may 
establish a subsidiary holding company as a direct subsidiary to hold 
100% of the stock of its savings association subsidiary. The formation 
and operation of the subsidiary holding company may not be utilized as a 
means to evade or frustrate the purposes of this part 575 or part 563b 
of this chapter. The subsidiary holding company may be established 
either at the time of the initial mutual holding company reorganization 
or at a subsequent date, subject to the approval of the OTS.
    (b) Stock issuances. For purposes of Sec. Sec. 575.7 and 575.8, the 
subsidiary holding company shall be treated as a savings association 
issuing stock and shall be subject to the requirements of those 
sections. In the case of a stock issuance by a subsidiary holding 
company, the aggregate amount of outstanding common stock of the 
association owned or controlled by persons other than the subsidiary 
holding company's mutual holding company parent at the close of the 
proposed issuance shall be less than 50% of the subsidiary holding 
company's total outstanding common stock.
    (c) Charters and bylaws for subsidiary holding companies--(1) 
Charters. The charter of a subsidiary holding company shall be in the 
form set forth in this paragraph (c)(1) and may include any of the 
additional provisions permitted pursuant to paragraph (c)(2) of this 
section. The form of the charter is as follows:

             Federal MHC Subsidiary Holding Company Charter

    Section 1. Corporate title. The full corporate title of the MHC 
subsidiary holding company is XXX.
    Section 2. Domicile. The domicile of the MHC subsidiary holding 
company shall be in the city of ------------------, in the State of ----
--------.
    Section 3. Duration. The duration of the MHC subsidiary holding 
company is perpetual.
    Section 4. Purpose and powers. The purpose of the MHC subsidiary 
holding company is to pursue any or all of the lawful objectives of a 
federal mutual holding company chartered under section 10(o) of the Home 
Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of the 
express, implied, and incidental powers conferred thereby and by all 
acts amendatory thereof and supplemental thereto, subject to the 
Constitution and laws of the United States as they are now in effect, or 
as they may hereafter be amended, and subject to all lawful and 
applicable rules, regulations, and orders of the Office of Thrift 
Supervision (``Office'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the MHC subsidiary holding company has the 
authority to issue is ------------, all of which shall be common stock 
of par [or if no par is specified then shares shall have a stated] value 
of ------------ per share. The shares may be issued from time to time as 
authorized by the board of directors without the approval of its 
shareholders, except as otherwise provided in this section 5 or to the 
extent that such approval is required by governing law, rule, or 
regulation. The consideration for the issuance of the shares shall be 
paid in full before their issuance and shall not be less than the par 
[or stated] value. Neither promissory notes nor future services shall 
constitute payment or part payment for the issuance of shares of the MHC 
subsidiary holding company. The consideration for the shares shall be 
cash, tangible or intangible property (to the extent direct investment 
in such property would be permitted to the MHC subsidiary holding 
company), labor, or services actually performed for the MHC subsidiary 
holding company, or any combination of the foregoing. In the absence of 
actual fraud in the transaction, the value of such property, labor, or 
services, as determined by the board of directors of the MHC subsidiary 
holding company, shall be conclusive. Upon payment of such 
consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the MHC subsidiary holding company that is 
transferred to common stock or paid-in capital accounts upon the 
issuance of

[[Page 548]]

shares as a stock dividend shall be deemed to be the consideration for 
their issuance.
    Except for shares issued in the initial organization of the MHC 
subsidiary holding company, no shares of capital stock (including shares 
issuable upon conversion, exchange, or exercise of other securities) 
shall be issued, directly or indirectly, to officers, directors, or 
controlling persons (except for shares issued to the parent mutual 
holding company) of the MHC subsidiary holding company other than as 
part of a general public offering or as qualifying shares to a director, 
unless the issuance or the plan under which they would be issued has 
been approved by a majority of the total votes eligible to be cast at a 
legal meeting.
    The holders of the common stock shall exclusively possess all voting 
power. Each holder of shares of common stock shall be entitled to one 
vote for each share held by such holder, except as to the cumulation of 
votes for the election of directors, unless the charter provides that 
there shall be no such cumulative voting. Subject to any provision for a 
liquidation account, in the event of any liquidation, dissolution, or 
winding up of the MHC subsidiary holding company, the holders of the 
common stock shall be entitled, after payment or provision for payment 
of all debts and liabilities of the MHC subsidiary holding company, to 
receive the remaining assets of the MHC subsidiary holding company 
available for distribution, in cash or in kind. Each share of common 
stock shall have the same relative rights as and be identical in all 
respects with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
MHC subsidiary holding company shall not be entitled to preemptive 
rights with respect to any shares of the MHC subsidiary holding company 
which may be issued.
    Section 7. Directors. The MHC subsidiary holding company shall be 
under the direction of a board of directors. The authorized number of 
directors, as stated in the MHC subsidiary holding company's bylaws, 
shall not be fewer than five nor more than fifteen except when a greater 
or lesser number is approved by the Director of the Office, or his or 
her delegate.
    Section 8. Amendment of charter. Except as provided in Section 5, no 
amendment, addition, alteration, change or repeal of this charter shall 
be made, unless such is proposed by the board of directors of the MHC 
subsidiary holding company, approved by the shareholders by a majority 
of the votes eligible to be cast at a legal meeting, unless a higher 
vote is otherwise required, and approved or preapproved by the Office.

Attest:_________________________________________________________________
Secretary of the Subsidiary Holding Company

By:_____________________________________________________________________
President or Chief Executive Officer of the Subsidiary Holding Company

Attest:_________________________________________________________________
Secretary of the Office of Thrift Supervision

By:_____________________________________________________________________
Director of the Office of Thrift Supervision

Effective Date:_________________________________________________________

    (2) Charter amendments. The rules and regulations set forth in Sec. 
552.4 of this chapter regarding charter amendments and reissuances of 
charters (including delegations and filing instructions) shall be 
applicable to subsidiary holding companies to the same extent as if the 
subsidiary holding companies were Federal stock savings associations, 
except that, with respect to the pre-approved charter amendments set 
forth in Sec. 552.4 of this chapter, the reference to home office in 
Sec. 552.4(b)(2) of this chapter shall be deemed to refer to the 
domicile of the subsidiary holding company and the requirements of Sec. 
545.95 of this chapter shall not apply to subsidiary holding companies.
    (3) Optional charter provision limiting minority stock ownership. A 
subsidiary holding company that engages in its initial minority stock 
issuance after October 1, 2008 may, before it conducts its initial 
minority stock issuance, at the time it conducts its initial minority 
stock issuance, or at any time during the five years following a 
minority stock issuance that such subsidiary holding company conducts in 
accordance with the purchase priorities set forth in 12 CFR part 563b, 
include in its charter the provision set forth below. For purposes of 
this charter provision, the definitions set forth at Sec. 552.4(b)(8) 
of this chapter apply. This charter provision expires a maximum of five 
years from the date of the minority stock issuance. The subsidiary 
holding company may adopt the charter provision after a minority stock 
issuance only if it provided, in the offering materials related to its 
previous minority stock issuance or issuances, full disclosure of the 
possibility that the association might adopt such a charter provision.

    Beneficial Ownership Limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of the outstanding stock of any class of voting stock of 
the association held by persons other than the subsidiary

[[Page 549]]

holding company's mutual holding company parent. This limitation expires 
on [insert date within five years of minority stock issuance] and does 
not apply to a transaction in which an underwriter purchases stock in 
connection with a public offering, or the purchase of stock by an 
employee stock ownership plan or other tax-qualified employee stock 
benefit plan which is exempt from the approval requirements under Sec. 
574.3(c)(1)(vii) of the Office's regulations.
    In the event a person acquires stock in violation of this section, 
all stock beneficially owned in excess of 10 percent shall be considered 
``excess stock'' and shall not be counted as stock entitled to vote and 
shall not be voted by any person or counted as voting stock in 
connection with any matters submitted to the stockholders for a vote.

    (4) Bylaws. The rules and regulations set forth in Sec. 552.5 of 
this chapter regarding bylaws (including their content, any amendments 
thereto, delegations, and filing instructions) shall be applicable to 
subsidiary holding companies to the same extent as if subsidiary holding 
companies were federal stock savings associations. The model bylaws for 
Federal stock savings associations set forth in the OTS Applications 
Processing Handbook shall also serve as the model bylaws for subsidiary 
holding companies, except that the term ``association'' each time it 
appears therein shall be replaced with the term ``Subsidiary Holding 
Company.''
    (5) Annual reports and books and records. The rules and regulations 
set forth in Sec. Sec. 552.10 and 552.11 of this chapter regarding 
annual reports to stockholders and maintaining books and records shall 
be applicable to subsidiary holding companies to the same extent as if 
subsidiary holding companies were Federal stock savings associations.

[63 FR 11366, Mar. 9, 1998, as amended at 73 FR 39219, July 9, 2008; 73 
FR 76939, Dec. 18, 2008]



PART 583_DEFINITIONS FOR REGULATIONS AFFECTING SAVINGS AND LOAN
HOLDING COMPANIES--Table of Contents




Sec.
583.1 Acquire.
583.2 Affiliate.
583.3 Bank.
583.4 Bank holding company.
583.5 [Reserved]
583.6 Company.
583.7 Control.
583.8 Corporation.
583.9 Director.
583.11 Diversified savings and loan holding company.
583.12 Multiple savings and loan holding company.
583.13 Office.
583.14 Officer.
583.15 Parent company.
583.16 Person.
583.17 Qualified thrift lender.
583.18 Registrant.
583.19 [Reserved]
583.20 Savings and loan holding company.
583.21 Savings association.
583.22 State.
583.23 Subsidiary.
583.24 Uninsured institution.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468.

    Source: 54 FR 49707, Nov. 30, 1989, unless otherwise noted.



Sec. 583.1  Acquire.

    The term acquire means to acquire, directly or indirectly, ownership 
or control through an acquisition of shares, an acquisition of assets or 
assumption of liabilities, a merger or consolidation, or any similar 
transaction.



Sec. 583.2  Affiliate.

    The term affiliate of a specified savings association means any 
person or company which controls, is controlled by, or is under common 
control with, such savings association.



Sec. 583.3  Bank.

    The term bank means any national bank, state bank, state-chartered 
savings bank, cooperative bank, or industrial bank, the deposits of 
which are insured by the Deposit Insurance Fund.

[71 FR 19812, Apr. 18, 2006]



Sec. 583.4  Bank holding company.

    The term bank holding company means any company which has control 
over any bank or over any company that is or becomes a bank holding 
company.

[[Page 550]]



Sec. 583.5  [Reserved]



Sec. 583.6  Company.

    The term company means any corporation, partnership, trust, joint-
stock company, or similar organization, but does not include:
    (a) The Federal Deposit Insurance Corporation,
    (b) The Resolution Trust Corporation,
    (c) Any Federal Home Loan Bank,
    (d) The Office of Thrift Supervision, or
    (e) Any company the majority of the shares of which is owned by
    (1) The United States or any State,
    (2) An officer of the United States or any State in his or her 
official capacity, or
    (3) An instrumentality of the United States or any State.



Sec. 583.7  Control.

    For purposes of this chapter, a person shall be deemed to have 
control of:
    (a) A savings association if the person directly or indirectly or 
acting in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares of such 
savings association, or controls in any manner the election of a 
majority of the directors of such association;
    (b) Any other company if the person directly or indirectly or acting 
in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares or 
rights of such other company, or controls in any manner the election or 
appointment of a majority of the directors or trustees of such other 
company, or is a general partner in or has contributed more than 25 
percent of the capital of such other company;
    (c) A trust if the person is a trustee thereof; or
    (d) A savings association or any other company if the Office 
determines, after reasonable notice and opportunity for hearing, that 
such person directly or indirectly exercises a controlling influence 
over the management or policies of such association or other company.



Sec. 583.8  Corporation.

    The term Corporation means the Federal Deposit Insurance 
Corporation.



Sec. 583.9  Director.

    The term director as used in any document specified in part 584 of 
this chapter means any director of a corporation or any individual who 
performs similar functions in respect of any company, including a 
trustee under a trust.



Sec. 583.11  Diversified savings and loan holding company.

    The term diversified savings and loan holding company means any 
savings and loan holding company whose subsidiary savings association 
and related activities, as specified in 12 U.S.C. 1467a(c)(2), 
represented on either an actual or pro forma basis, less than 50 percent 
of its consolidated net worth at the close of its preceding fiscal year 
and of its consolidated net earnings for such fiscal year. For purposes 
of the foregoing, consolidated net worth and consolidated net earnings 
shall be determined in accordance with generally accepted accounting 
principles.



Sec. 583.12  Multiple savings and loan holding company.

    The term multiple savings and loan holding company means any savings 
and loan holding company which directly or indirectly controls two or 
more savings associations.



Sec. 583.13  Office.

    The term Office means the Office of Thrift Supervision.



Sec. 583.14  Officer.

    The term officer as used in any document specified in part 584 of 
this chapter means the chairman of the board, president, vice president, 
treasurer, secretary, or comptroller of any company, or any other person 
who participates in its major policy decisions.



Sec. 583.15  Parent company.

    The term parent company means any company which directly or 
indirectly

[[Page 551]]

controls any other company or companies.



Sec. 583.16  Person.

    The term person means an individual or company.



Sec. 583.17  Qualified thrift lender.

    The term qualified thrift lender means a financial institution that 
meets the appropriate qualified thrift lender test set forth in 12 
U.S.C. 1467a(m).

[54 FR 49707, Nov. 30, 1989, as amended at 60 FR 66870, Dec. 27, 1995]



Sec. 583.18  Registrant.

    The term registrant means a savings and loan holding company filing 
a registration statement with the Office pursuant to Sec. 584.1 of this 
chapter.



Sec. 583.19  [Reserved]



Sec. 583.20  Savings and loan holding company.

    The term savings and loan holding company means any company that 
directly or indirectly controls a savings association, but does not 
include:
    (a) Any company by virtue of its ownership or control of voting 
stock of a savings association or a savings and loan holding company 
acquired in connection with the underwriting of securities if such stock 
is held only for such period of time (not exceeding 120 days unless 
extended by the Office) as will permit the sale thereof on a reasonable 
basis; and
    (b) Any trust (other than a pension, profit-sharing, stockholders', 
voting or business trust) which directly or indirectly controls a 
savings association if such trust by its terms must terminate within 25 
years or not later than 21 years and 10 months after the death of 
individuals living on the effective date of the trust, and:
    (1) Was in existence and was directly or indirectly in control of a 
savings association on June 26, 1967, or
    (2) Is a testamentary trust; and
    (c) A bank holding company that is registered under, and subject to, 
the Bank Holding Company Act of 1956, or any company directly or 
indirectly controlled by such company (other than a savings 
association).

[54 FR 49707, Nov. 30, 1989, as amended at 61 FR 60185, Nov. 27, 1996]



Sec. 583.21  Savings association.

    The term savings association means a Federal savings and loan 
association or a Federal savings bank chartered under section 5 of the 
Home Owners' Loan Act, a building and loan, savings and loan or 
homestead association or a cooperative bank (other than a cooperative 
bank described in 12 U.S.C. 1813(a)(2)) the deposits of which are 
insured by the Corporation, and any corporation (other than a bank) the 
deposits of which are insured by the Corporation that the Office and the 
Corporation jointly determine to be operating in substantially the same 
manner as a savings association, and shall include any savings bank or 
any cooperative bank which is deemed by the Office to be a savings 
association under 12 U.S.C. 1467a(1).



Sec. 583.22  State.

    The term State includes the District of Columbia and the 
Commonwealth of Puerto Rico.



Sec. 583.23  Subsidiary.

    The term subsidiary means any company which is owned or controlled 
directly or indirectly by a person, and includes any service corporation 
owned in whole or in part by a savings association, or a subsidiary of 
such service corporation.



Sec. 583.24  Uninsured institution.

    The term uninsured institution means any depository institution the 
deposits of which are not insured by the Corporation.



PART 584_SAVINGS AND LOAN HOLDING COMPANIES--Table of Contents




Sec.
584.1 Registration, examination and reports.
584.2 Prohibited activities.
584.2a Exempt savings and loan holding companies and grandfathered 
          activities.
584.2-1 Prescribed services and activities of savings and loan holding 
          companies.

[[Page 552]]

584.2-2 Permissible bank holding company activities of savings and loan 
          holding companies.
584.4 Certain acquisitions by savings and loan holding companies.
584.9 Prohibited acts.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468.

    Source: 54 FR 49708, Nov. 30, 1989, unless otherwise noted.



Sec. 584.1  Registration, examination and reports.

    (a) Filing of registration statement and other reports--(1) Filing 
of registration statement. Not later than 90 days after becoming a 
savings and loan holding company, each savings and loan holding company 
shall register with the OTS by filing a registration statement H-(b)10.
    (2) Filing of annual/current reports. Each registered savings and 
loan holding company, including subsidiary savings and loan holding 
companies, shall file an annual/current report H-(b)11, except that such 
report need not be filed by a savings and loan holding company that is a 
trust (other than a business trust), secured creditor, or corporate 
trustee. The H-(b)11 report must be filed no later than 90 days after 
the close of the fiscal year. Quarterly filings must also be submitted 
on the H-(b)11 report within 45 days of the end of each quarter (except 
for the fourth quarter of the holding company's fiscal year) and should 
describe any material changes from the most recently filed H-(b)11 
report or should indicate that no such changes have occurred. However, 
if material changes have occurred during the fourth quarter with respect 
to certain items described in the form instructions, an H-(b)11 report 
for such quarter must be filed within 45 days of the end of such 
quarter.
    (3) General. Registration statements and annual/current reports are 
to be filed with the OTS in accordance with the instructions contained 
in each form. In addition, multiple savings and loan holding companies 
must file conformed copies with any area office that has supervisory 
authority over a subsidiary savings association. Copies of the forms to 
be used in submitting registration statements or annual/current reports 
may be obtained from any Regional Director, or designee.
    (b) Date of registration. The date of registration of a savings and 
loan holding company shall be the date on which its registration 
statement is received by the Regional Director.
    (c) Extension of time for registration. For timely and good cause 
shown, the Office may extend the time within which a savings and loan 
holding company shall register.
    (d) Release from registration. The Office may at any time, upon its 
own motion or upon application, release a registered savings and loan 
holding company from any registration theretofore made by such company, 
if the Office shall determine that such company no longer has control of 
any savings association.
    (e) Reports. Each savings and loan holding company and each 
subsidiary thereof, other than a savings association, shall file with 
the OTS such reports as may be required by the OTS. Such reports shall 
be made under oath or otherwise, and shall be in such form and for such 
periods, as the OTS may prescribe. Each report shall contain information 
concerning the operations of such savings and loan holding company and 
its subsidiaries as the OTS may require.
    (f) Books and records. Each savings and loan holding company shall 
maintain such books and records as may be prescribed by the Office.
    (g) Examinations. Each savings and loan holding company and each 
subsidiary thereof shall be subject to such examinations as the Office 
may prescribe. The cost of such examinations (other than examinations of 
savings associations) shall be assessed against and paid by such holding 
company. Examination and other reports may be furnished by the Office to 
the appropriate State supervisory authority. The Office shall, to the 
extent deemed feasible, use for the purposes of this section reports 
filed with or examinations made by other Federal agencies or the 
appropriate State supervisory authority.
    (h) Appointment of agent. The Office may require any savings and 
loan holding company, or persons connected therewith if it is not a 
corporation, to

[[Page 553]]

execute and file a prescribed form of irrevocable appointment of agent 
for service of process.

[54 FR 49708, Nov. 30, 1989, as amended at 55 FR 13517, Apr. 11, 1990; 
57 FR 35458, Aug. 10, 1992; 60 FR 66720, Dec. 26, 1995]



Sec. 584.2  Prohibited activities.

    (a) Evasion of law or regulation. No savings and loan holding 
company or subsidiary thereof which is not a savings association shall, 
for or on behalf of a subsidiary savings association, engage in any 
activity or render any services for the purpose or with the effect of 
evading any law or regulation applicable to such savings association.
    (b) Unrelated business activity. No savings and loan holding company 
or subsidiary thereof that is not a savings association shall commence 
any business activity at any time, or continue any business activity 
after the end of the two-year period beginning on the date on which such 
company received approval to become a savings and loan holding company 
that is subject to the limitations of this paragraph (b), except (in 
either case) the following:
    (1) Furnishing or performing management services for a savings 
association subsidiary of such company;
    (2) Conducting an insurance agency or an escrow business;
    (3) Holding, managing, or liquidating assets owned by or acquired 
from a subsidiary savings association of such company;
    (4) Holding or managing properties used or occupied by a subsidiary 
savings association of such company;
    (5) Acting as trustee under deed of trust;
    (6) Any other activity: (i) That the Board of Governors of the 
Federal Reserve System has permitted for bank holding companies pursuant 
to regulations promulgated under section 4(c) of the Bank Holding 
Company Act; or
    (ii) Is set forth in Sec. 584.2-1 of this part, subject to the 
limitations therein; or
    (7) In the case of a savings and loan holding company, purchasing, 
holding, or disposing of stock acquired in connection with a qualified 
stock issuance if prior approval for the acquisition of such stock by 
such savings and loan holding company is granted by the Office pursuant 
to Sec. 574.8 of this chapter.

Notwithstanding the provisions of this paragraph (b), any savings and 
loan holding company that, between March 5, 1987 and August 10, 1987, 
received approval pursuant to 12 U.S.C. 1730a(e), as then in effect, to 
acquire control of a savings association shall not continue any business 
activity other than those activities set forth in this paragraph (b) 
after August 10, 1987.
    (c) Treatment of certain holding companies. If a director or officer 
of a savings and loan holding company, or an individual who owns, 
controls, or holds with the power to vote (or proxies representing) more 
than 25 percent of the voting shares of a savings and loan holding 
company, directly or indirectly controls more than one savings 
association, any savings and loan holding company controlled by such 
individual shall be subject to the activities limitations contained in 
paragraph (b) of this section, to the same extent such limitations apply 
to multiple savings and loan holding companies pursuant to Sec. Sec. 
584.2, 584.2a, 584.2-1 and 584.2-2 of this part.

[54 FR 49708, Nov. 30, 1989, as amended at 63 FR 71213, Dec. 24, 1998; 
72 72238, Dec. 20, 2007]



Sec. 584.2a  Exempt savings and loan holding companies and grandfathered
activities.

    (a) Exempt savings and loan holding companies. (1) The following 
savings and loan holding companies are exempt from the limitations of 
Sec. 584.2(b) of this part:
    (i) Any savings and loan holding company (or subsidiary of such 
company) that controls only one savings association, if the savings 
association subsidiary of such company is a qualified thrift lender as 
defined in Sec. 583.17 of this chapter.
    (ii) Any savings and loan holding company (or subsidiary thereof) 
that controls more than one savings association if all, or all but one 
of the savings association subsidiaries of such company were acquired 
pursuant to an acquisition under section 13(c) or 13(k) of the Federal 
Deposit Insurance Act, or section 408(m) of the National Housing Act, as 
in effect immediately prior

[[Page 554]]

to the date of enactment of the Financial Institutions Reform, Recovery 
and Enforcement Act of 1989, and all of the savings association 
subsidiaries of such company are qualified thrift lenders as defined in 
Sec. 583.17 of this chapter.
    (2) Any savings and loan holding company whose subsidiary savings 
association(s) fails to qualify as a qualified thrift lender pursuant to 
12 U.S.C. 1467a(m) may not commence, or continue, any service or 
activity other than those permitted under Sec. 584.2(b) of this part, 
except that, the Office may allow, for good cause shown, such company 
(or subsidiary of such company which is not a savings association) up to 
3 years to comply with the limitations set forth in Sec. 584.2(b) of 
this part: Provided, That effective August 9, 1990, any company that 
controls a savings association that should have become or ceases to be a 
qualified thrift lender, except a savings association that requalified 
as a qualified thrift lender pursuant to section 10(m)(3)(D) of the Home 
Owners' Loan Act, shall within one year after the date on which the 
savings association fails to qualify as a qualified thrift lender, 
register as and be deemed to be a bank holding company, subject to all 
of the provisions of the Bank Holding Company Act, section 8 of the 
Federal Deposit Insurance Act, and other statutes applicable to bank 
holding companies in the same manner and to the same extent as if the 
company were a bank holding company and the savings association were a 
bank, as those terms are defined in the Bank Holding Company Act.
    (b) Grandfathered activities for certain savings and loan holding 
companies. Notwithstanding Sec. 584.2(b) of this part and subject to 
paragraph (c) of this section, any savings and loan holding company that 
received approval prior to March 5, 1987 to acquire control of a savings 
association may engage, directly or indirectly or through any subsidiary 
(other than a subsidiary savings association of such company) in any 
activity in which it was lawfully engaged on March 5, 1987, Provided, 
That:
    (1) The holding company does not, after August 10, 1987, acquire 
control of a bank or an additional savings association, other than a 
savings association acquired pursuant to section 13(c) or 13(k) of the 
Federal Deposit Insurance Act, or section 406(f) or 408(m) of the 
National Housing Act, as in effect immediately prior to the date of 
enactment of the Financial Institutions Reform, Recovery and Enforcement 
Act of 1989;
    (2) Any savings association subsidiary of the holding company 
continues to qualify as a domestic building and loan association under 
section 7701(a)(19) of the Internal Revenue Code of 1986 after August 
10, 1987;
    (3) The holding company does not engage in any business activity 
other than those permitted under Sec. 584.2(b) of this part or in which 
it was engaged on March 5, 1987;
    (4) Any savings association subsidiary of the holding company does 
not increase the number of locations from which such savings association 
conducts business after March 5, 1987, other than an increase due to a 
transaction under section 13(c) or 13(k) of the Federal Deposit 
Insurance Act, or under section 408(m) of the National Housing Act, as 
in effect immediately prior to the date of enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989; and
    (5) Any savings association subsidiary of the holding company does 
not permit any overdraft (including an intra-day overdraft) or incur any 
such overdraft in its account at a Federal Reserve bank, on behalf of an 
affiliate, unless such overdraft results from an inadvertent computer or 
accounting error that is beyond the control of both the savings 
association subsidiary and the affiliate.
    (c) Termination by the Office of grandfathered activities. 
Notwithstanding the provisions of paragraph (b) of this section, the 
Office may, after opportunity for hearing, terminate any activity 
engaged in under paragraph (b) of this section upon determination that 
such action is necessary:
    (1) To prevent conflicts of interest;
    (2) To prevent unsafe or unsound practices; or
    (3) To protect the public interest.
    (d) Foreign holding company. Any savings and loan holding company 
organized under the laws of a foreign country as of June l, 1984 
(including any subsidiary thereof that is not a savings

[[Page 555]]

association) that controlled a single savings association on August 10, 
1987, shall not be subject to the restrictions set forth in Sec. 
584.2(b) of this part with respect to any activities of such holding 
company that are conducted exclusively in a foreign country.

[54 FR 49708, Nov. 30, 1989, as amended at 60 FR 66870, Dec. 27, 1995; 
61 FR 60185, Nov. 27, 1996]



Sec. 584.2-1  Prescribed services and activities of savings and
loan holding companies.

    (a) General. For the purpose of Sec. 584.2(b)(6)(ii) of this part, 
the activities set forth in paragraph (b) of this section are, and were 
as of March 5, 1987, permissible services and activities for savings and 
loan holding companies or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations. Services and activities of service corporation 
subsidiaries of savings and loan holding company subsidiary savings 
associations are prescribed by paragraph (d) of this section.
    (b) Prescribed services and activities. Subject to the provisions of 
paragraph (c) of this section, a savings and loan holding company 
subject to restrictions on its activities pursuant to Sec. 584.2(b) of 
this part, or a subsidiary thereof which is neither a savings 
association nor a service corporation of a subsidiary savings 
association, may furnish or perform the following services and engage in 
the following activities to the extent that it has legal power to do so:
    (1) Originating, purchasing, selling and servicing any of the 
following:
    (i) Loans, and participation interests in loans, on a prudent basis 
and secured by real estate, including brokerage and warehousing of such 
real estate loans, except that such a company or subsidiary shall not 
invest in a loan secured by real estate as to which a subsidiary savings 
association of such company has a security interest;
    (ii) Manufactured home chattel paper (written evidence of both a 
monetary obligation and a security interest of first priority in one or 
more manufactured homes, and any equipment installed or to be installed 
therein), including brokerage and warehousing of such chattel paper;
    (iii) Loans, with or without security, for the altering, repairing, 
improving, equipping or furnishing of any residential real estate;
    (iv) Educational loans; and
    (v) Consumer loans, as defined in Sec. 560.3 of this chapter, 
Provided, That, no subsidiary savings association of such holding 
company or service corporation of such savings association shall engage 
directly or indirectly, in any transaction with any affiliate involving 
the purchase or sale, in whole or in part, of any consumer loan.
    (2) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing clerical accounting and internal audit services primarily for 
its affiliates;
    (3) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing the following services primarily for its affiliates, and for 
any savings association and service corporation subsidiary thereof, and 
for other multiple holding companies and affiliates thereof:
    (i) Data processing;
    (ii) Credit information, appraisals, construction loan inspections, 
and abstracting;
    (iii) Development and administration of personnel benefit programs, 
including life insurance, health insurance, and pension or retirement 
plans;
    (iv) Research, studies, and surveys;
    (v) Purchase of office supplies, furniture and equipment;
    (vi) Development and operation of storage facilities for microfilm 
or other duplicate records; and
    (vii) Advertising and other services to procure and retain both 
savings accounts and loans;
    (4) Acquisition of unimproved real estate lots, and acquisition of 
other unimproved real estate for the purpose of prompt development and 
subdivision, for:
    (i) Construction of improvements,
    (ii) Resale to others for such construction, or
    (iii) Use as mobile home sites;
    (5) Development, subdivision and construction of improvements on 
real estate acquired pursuant to paragraph (b)(4) of this section, for 
sale or rental;

[[Page 556]]

    (6) Acquisition of improved real estate and mobile homes to be held 
for rental;
    (7) Acquisition of improved real estate for remodeling, 
rehabilitation, modernization, renovation, or demolition and rebuilding 
for sale or for rental;
    (8) Maintenance and management of improved real estate;
    (9) Underwriting or reinsuring contract of credit life or credit 
health and accident insurance in connection with extensions of credit by 
the savings and loan holding company or any of its subsidiaries, or 
extensions of credit by any savings association or service corporation 
subsidiary thereof, or any other savings and loan holding company or 
subsidiary thereof;
    (10) Preparation of State and Federal tax returns for accountholders 
of or borrowers from (including immediate family members of such 
accountholders or borrowers but not including an accountholder or 
borrower which is a corporation operated for profit) an affiliated 
savings association;
    (11) Purchase and sale of gold coins minted and issued by the United 
States Treasury pursuant to Pub. L. 99-185, 99 Stat. 1177 (1985), and 
activities reasonably incident thereto; and
    (12) Any services or activities approved by order of the former 
Federal Savings and Loan Insurance Corporation prior to March 5, 1987, 
pursuant to its authority under section 408(c)(2)(F) of the National 
Housing Act, as in effect at the time.
    (c) Procedures for commencing services or activities. (1) Before a 
savings and loan holding company subject to restrictions on its 
activities pursuant to Sec. 584.2(b) of this part or a subsidiary 
thereof may commence performing or engaging in a service or activity 
prescribed by paragraph (b) of this section (other than purchase or sale 
of a government debt security), either de novo or by an acquisition of a 
going concern, it shall file a notice of intent to do so in a form 
prescribed by the OTS. The activity or service may be commenced unless, 
before the close of the period specified immediately below, the OTS 
finds that the activity or service proposed would not be, under the 
circumstances, a proper incident to the operations of savings 
associations or would be detrimental to the interests of savings account 
holders. The period for review shall be 30 calendar days after the date 
of receipt of such notice, in the case of a de novo entry, or 60 
calendar days, in the case of an acquisition of a going concern.
    (2) The Office may require a savings and loan holding company or 
subsidiary thereof which has commenced a service or activity pursuant to 
this section to modify or terminate, in whole or in part, such service 
or activity as the Office finds necessary in order to ensure compliance 
with the provisions and purposes of this part and of section 10 of the 
Home Owners' Loan Act, as amended, or to prevent evasions thereof.
    (3) Except as may be otherwise provided in a resolution by or on 
behalf of the Office in a particular case, a service or activity 
commenced pursuant to this section shall not be altered in any material 
respect from that described in the notice filed under paragraph (c)(1) 
of this section, unless before making such alteration notice of intent 
to do so is filed in compliance with the appropriate procedures of said 
paragraph (c)(1) of this section.
    (d) Service corporation subsidiaries of savings associations. The 
Office hereby approves without application the furnishing or performing 
of such services or engaging in such activities as permitted by the 
Office pursuant to 12 CFR 545.74, as in effect on March 5, 1987, if such 
service or activity is conducted by a service corporation subsidiary of 
a subsidiary savings association of a savings and loan holding company 
and if such service corporation has legal power to do so.

[54 FR 49708, Nov. 30, 1989, as amended at 55 FR 13518, Apr. 11, 1990; 
57 FR 14349, Apr. 20, 1992; 60 FR 66870, Dec. 27, 1995; 63 FR 71213, 
Dec. 24, 1998; 66 FR 15017, Mar. 15, 2001]



Sec. 584.2-2  Permissible bank holding company activities of
savings and loan holding companies.

    (a) General. For purposes of Sec. 584.2(b)(6)(i) of this part, the 
services and activities permissible for bank holding companies pursuant 
to regulations that the Board of Governors of

[[Page 557]]

the Federal Reserve System has promulgated pursuant to section 4(c) of 
the Bank Holding Company Act are permissible for savings and loan 
holding companies, or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations: Provided, That no savings and loan holding company shall 
commence any activity described in this paragraph (a) without the prior 
approval of this Office pursuant to paragraph (b) of this section, 
unless--
    (1) The holding company received a rating of satisfactory or above 
prior to January 1, 2008, or a composite rating of ``1'' or ``2'' 
thereafter, in its most recent examination, and is not in a troubled 
condition as defined in Sec. 563.555, and the holding company does not 
propose to commence the activity by an acquisition (in whole or in part) 
of a going concern; or
    (2) The activity is permissible under authority other than section 
10(c)(2)(F)(i) of the HOLA without prior notice or approval. Where an 
activity is within the scope of both Sec. 584.2-1 of this part and this 
section, the procedures of Sec. 584.2-1 of this part shall govern.
    (b) Procedures for applications. Applications to commence any 
activity prescribed under paragraph (a) of this section shall be filed 
with the OTS. OTS must act upon such application under the guidelines in 
part 516, subpart E of this chapter.
    (c) Factors considered in acting on applications. In evaluating an 
application filed under paragraph (b) of this section, the OTS shall 
consider whether the performance by the applicant of the activity can 
reasonably be expected to produce benefits to the public (such as 
greater convenience, increased competition, or gains in efficiency) that 
outweigh possible adverse effects (such as undue concentration of 
resources, decreased or unfair competition, conflicts of interest, or 
unsound financial practices). This consideration includes an evaluation 
of the financial and managerial resources of the applicant, including 
its subsidiaries, and of any company to be acquired, and the effect of 
the proposed transaction on those resources.

[54 FR 49708, Nov. 30, 1989, as amended at 55 FR 13518, Apr. 11, 1990; 
57 FR 14349, Apr. 20, 1992; 60 FR 66720, Dec. 26, 1995; 63 FR 71213, 
Dec. 24, 1998; 66 FR 13010, Mar. 2, 2001; 72 FR 72238, Dec. 20, 2007]



Sec. 584.4  Certain acquisitions by savings and loan holding companies.

    (a) Acquisitions by a savings and loan holding company of more than 
five percent of a non-subsidiary savings association or savings and loan 
holding company. No savings and loan holding company, directly or 
indirectly, or through one or more subsidiaries or through one or more 
transactions, shall, without prior written OTS approval, acquire by 
purchase or otherwise, or retain, more than five percent of the voting 
stock or shares of a savings association not a subsidiary, or of a 
savings and loan holding company not a subsidiary. A savings and loan 
holding company seeking approval of an acquisition under this section 
must file an application under 12 CFR part 516, subpart A. Applications 
filed under this section are subject to the publication, public comment, 
and meeting provisions of 12 CFR part 516, subparts B, C, and D. OTS 
will review applications filed under this section under the review 
standards set forth for savings and loan holding company applications in 
section 10(e)(2) of the HOLA, Sec. 574.7(c) of this chapter, and Sec. 
563e.29(a) of this chapter.
    (b) Certain acquisitions by multiple savings and loan holding 
companies. No multiple savings and loan holding company (other than a 
savings and loan holding company described in Sec. 584.2a(a)(1)(ii) of 
this part) may, directly or indirectly, or through one or more 
subsidiaries or through one or more transactions, acquire or retain more 
than five percent of the voting shares of any company that is not a 
subsidiary that is engaged in any business activity other than those 
specified in Sec. 584.2(b) of this part.
    (c)(1) Exception for certain acquisitions of voting shares of 
savings associations and savings and loan holding companies. Paragraphs 
(a) and (b) of this section

[[Page 558]]

do not apply to voting shares of a savings association or of a savings 
and loan holding company--
    (i) Held as a bona fide fiduciary (whether with or without the sole 
discretion to vote such shares);
    (ii) Held temporarily pursuant to an underwriting commitment in the 
normal course of an underwriting business;
    (iii) Held in an account solely for trading purposes or over which 
no control is held other than control of voting rights acquired in the 
normal course of a proxy solicitation;
    (iv) Acquired in securing or collecting a debt previously contracted 
in good faith, for two years after the date of acquisition or for such 
additional time (not exceeding three years) as the Office may permit if, 
in the Office's judgment, such an extension would not be detrimental to 
the public interest;
    (v) Acquired under section 13(k)(1)(A)(i) of the Federal Deposit 
Insurance Act (or section 408(m) of the National Housing Act as in 
effect immediately prior to the enactment of the Financial Institutions 
Reform, Recovery and Enforcement Act of 1989);
    (vi) Held by any insurance companies as defined in section 2(a)(17) 
of the Investment Company Act of 1940: Provided, That all shares held by 
all insurance company affiliates of such savings association or savings 
and loan holding company may not, in the aggregate, exceed five percent 
of all outstanding shares or of the voting power of the savings 
association or savings and loan holding company, and such shares are not 
acquired or retained with a view to acquiring, exercising, or 
transferring control of the savings association or savings and loan 
holding company; and
    (vii) Acquired pursuant to a qualified stock issuance if such a 
purchase is approved pursuant to Sec. 574.8 of this chapter.
    (2) The aggregate amount of shares held under this paragraph (c) 
(other than pursuant to paragraphs (c)(1)(i) through (iv) and (c)(1)(vi) 
may not exceed 15 percent of all outstanding shares or the voting power 
of a savings association or savings and loan holding company.
    (d) Acquisitions of uninsured institutions. No savings and loan 
holding company may, directly or indirectly, or through one or more 
subsidiaries or through one or more transactions, acquire control of an 
uninsured institution or retain, for more than one year after the date 
any savings association subsidiary becomes uninsured, control of such 
association.

[72 FR 72238, Dec. 20, 2007]



Sec. 584.9  Prohibited acts.

    (a) Control of mutual savings association. No savings and loan 
holding company or any subsidiary thereof, or any director, officer, or 
employee of a savings and loan holding company or subsidiary thereof, or 
person owning, controlling, or holding with power to vote, or holding 
proxies representing, more than 25 percent of the voting shares of such 
holding company or subsidiary, may hold, solicit, or exercise any 
proxies in respect of any voting rights in a mutual savings association.
    (b) Management interlocks. No director or officer of a savings and 
loan holding company, or any person owning, controlling, or holding with 
power to vote, or holding proxies representing more than 25 percent of 
the voting shares of such holding company may acquire control of any 
savings association not a subsidiary of such savings and loan holding 
company, unless such acquisition is approved by the Office pursuant to 
Sec. 574.3(a) of this chapter.
    (c) Convicted persons. No individual who has been convicted of any 
criminal offense involving dishonesty or breach of trust may serve or 
act as a director, officer, or trustee of, or become a partner in, any 
savings and loan holding company, except with the prior written approval 
of the Office.
    (d) Applications for approval. Applications for an approval under 
paragraph (c) of this section shall contain a full statement of the 
reasons in support thereof. Such applications shall be filed with the 
OTS.

[54 FR 49708, Nov. 30, 1989, as amended at 57 FR 14349, Apr. 20, 1992]

[[Page 559]]



PART 585_PROHIBITED SERVICE AT SAVINGS AND LOAN HOLDING 
COMPANIES--Table of Contents




Sec.
585.10 What does this part do?
585.20 What definitions apply to this part?

                          Subpart A_Prohibition

585.30 What actions are prohibited?
585.40 What convictions or agreements to enter into pre-trial diversions 
          or similar programs are covered by this part?
585.50 What adjudications and offenses are not covered by this part?

                          Subpart B_Exemptions

585.100 Who is exempt from the prohibition under this part?
585.110 How do I apply for a case-by-case exemption?
585.120 What factors will OTS consider in reviewing my exemption 
          application?
585.130 How will I know if my application is approved?
585.140 What procedures govern a hearing on my application?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, and 1829(e)

    Source: 72 FR 25955, May 8, 2007, unless otherwise noted.



Sec. 585.10  What does this part do?

    This part implements section 19(e)(1) of the Federal Deposit 
Insurance Act (FDIA), which prohibits persons who have been convicted of 
certain criminal offenses or who have agreed to enter into a pre-trial 
diversion or similar program in connection with a prosecution for such 
criminal offenses from occupying various positions with a savings and 
loan holding company. This part also implements section 19(e)(2) of the 
FDIA, which permits the Director to provide exemptions, by regulation or 
order, from the application of the prohibition. This part provides an 
exemption for savings and loan holding company employees whose 
activities and responsibilities are limited solely to agriculture, 
forestry, retail merchandising, manufacturing, or public utilities 
operations, and a temporary exemption for certain persons who held 
positions with respect to a savings and loan holding company as of 
October 13, 2006. The part also describes procedures for applying for an 
OTS order granting a case-by-case exemption.



Sec. 585.20  What definitions apply to this part?

    The following definitions apply to this part:
    Institution-affiliated party is defined at 12 U.S.C. 1813(u), except 
that the phrase ``savings and loan holding company'' is substituted for 
``insured depository institution'' each place that it appears in that 
definition.
    Person means an individual and does not include a corporation, firm 
or other business entity.
    Savings and loan holding company is defined at 12 CFR 583.20, but 
excludes a subsidiary of a savings and loan holding company that is not 
itself a savings and loan holding company.



                          Subpart A_Prohibition



Sec. 585.30  What actions are prohibited?

    (a) Person. If a person was convicted of a criminal offense 
described in Sec. 585.40, or agreed to enter into a pre-trial diversion 
or similar program in connection with a prosecution for such a criminal 
offense, he or she may not:
    (1) Become, or continue as, an institution-affiliated party with 
respect to any savings and loan holding company.
    (2) Own or control, directly or indirectly, any savings and loan 
holding company. A person will own or control a savings and loan holding 
company if he or she owns or controls that company under 12 CFR part 
574.
    (3) Otherwise participate, directly or indirectly, in the conduct of 
the affairs of any savings and loan holding company.
    (b) Savings and loan holding company. A savings and loan holding 
company may not permit any person described in paragraph (a) of this 
section to engage in any conduct or to continue any relationship 
prohibited under that paragraph.



Sec. 585.40  What convictions or agreements to enter into pre-trial
diversions or similar programs are covered by this part?

    (a) Covered convictions and agreements. Except as described in Sec. 
585.50, this part covers:

[[Page 560]]

    (1) Any conviction of a criminal offense involving dishonesty, 
breach of trust, or money laundering. Convictions do not cover arrests, 
pending cases not brought to trial, acquittals, convictions reversed on 
appeal, pardoned convictions, or expunged convictions.
    (2) Any agreement to enter into a pretrial diversion or similar 
program in connection with a prosecution for a criminal offense 
involving dishonesty, breach of trust or money laundering. A pretrial 
diversion or similar program is a program involving a suspension or 
eventual dismissal of charges or of a criminal prosecution based upon an 
agreement for treatment, rehabilitation, restitution, or other non-
criminal or non-punitive alternative.
    (b) Dishonesty or breach of trust. A determination whether a 
criminal offense involves dishonesty or breach of trust is based on the 
statutory elements of the crime.
    (1) ``Dishonesty'' means directly or indirectly to cheat or defraud, 
to cheat or defraud for monetary gain or its equivalent, or to 
wrongfully take property belonging to another in violation of any 
criminal statute. Dishonesty includes acts involving a want of 
integrity, lack of probity, or a disposition to distort, cheat, or act 
deceitfully or fraudulently, and may include crimes which federal, state 
or local laws define as dishonest.
    (2) ``Breach of trust'' means a wrongful act, use, misappropriation, 
or omission with respect to any property or fund which has been 
committed to a person in a fiduciary or official capacity, or the misuse 
of one's official or fiduciary position to engage in a wrongful act, 
use, misappropriation, or omission.



Sec. 585.50  What adjudications and offenses are not covered by this part?

    (a) Youthful offender or juvenile delinquent. This part does not 
cover any adjudication by a court against a person as:
    (1) A youthful offender under any youthful offender law; or
    (2) A juvenile delinquent by a court with jurisdiction over minors 
as defined by state law.
    (b) De minimis criminal offense. This part does not cover de minimis 
criminal offenses. A criminal offense is de minimis if:
    (1) The person has only one conviction or pretrial diversion or 
similar program of record;
    (2) The offense was punishable by imprisonment for a term of less 
than one year, a fine of less than $1,000, or both, and the person did 
not serve time in jail.
    (3) The conviction or program was entered at least five years before 
the date the person first held a position described in Sec. 585.30(a); 
and
    (4) The offense did not involve an insured depository institution, 
insured credit union, or other banking organization (including a savings 
and loan holding company, bank holding company, or financial holding 
company).
    (5) The person must disclose the conviction or pretrial diversion or 
similar program to all insured depository institutions and other banking 
organizations the affairs of which he or she participates.
    (6) The person must be covered by a fidelity bond to the same extent 
as others in similar positions with the savings and loan holding 
company.



                          Subpart B_Exemptions



Sec. 585.100  Who is exempt from the prohibition under this part?

    (a) Employees. An employee of a savings and loan holding company is 
exempt from the prohibition in Sec. 585.30, if all of the following 
conditions are met:
    (1) The employee's responsibilities and activities are limited 
solely to agriculture, forestry, retail merchandising, manufacturing, or 
public utilities operations.
    (2) The savings and loan holding company maintains a list of all 
policymaking positions and reviews this list annually.
    (3) The employee's position does not appear on the savings and loan 
holding company's list of policymaking positions, and the employee does 
not, in fact, exercise any policymaking function with the savings and 
loan holding company.
    (4) The employee:

[[Page 561]]

    (i) Is not an institution-affiliated party of the savings and loan 
holding company other than by virtue of the employment described in 
paragraph (a) of this section.
    (ii) Does not own or control, directly or indirectly, the savings 
and loan holding company; and
    (iii) Does not participate, directly or indirectly, in the conduct 
of the affairs of the savings and loan holding company.
    (b) Temporary exemption. (1) Any prohibited person who was an 
institution-affiliated party with respect to a savings and loan holding 
company, who owned or controlled, directly or indirectly a savings and 
loan holding company, or who otherwise participated directly or 
indirectly in the conduct of the affairs of a savings and loan holding 
company on October 13, 2006, may continue to hold the position with the 
savings and loan holding company.
    (2) This exemption expires on September 30, 2010, unless the savings 
and loan holding company or the person files an application seeking a 
case-by-case exemption for the person under Sec. 585.110 by that date. 
If the savings and loan holding company or the person files such an 
application, the temporary exemption expires on:
    (i) The date of issuance of an OTS order approving the application 
under Sec. 585.130(a);
    (ii) The expiration of the 20-day period for filing a request for 
hearing under Sec. 585.130(b) provided there is no timely request for 
hearing following the issuance of an OTS order denying the application 
under that section;
    (iii) The date that OTS denies a timely request for hearing under 
Sec. 585.140(a) following the issuance of an OTS order denying the 
application under Sec. 585.130(b);
    (iv) The date that the Director issues a decision under Sec. 
585.140(d); or
    (v) The date an applicant withdraws the application.

[72 FR 25955, May 8, 2007, as amended at 72 FR 50645, Sept. 4, 2007; 73 
FR 10986, Feb. 29, 2008; 73 FR 30737, May 29, 2008; 73 FR 65258, Nov. 3, 
2008; 74 FR 14458, Mar. 31, 2009; 74 FR 49792, Sept. 29, 2009]



Sec. 585.110  How do I apply for a case-by-case exemption?

    (a) Who may file. (1) A savings and loan holding company or a person 
who was convicted of a criminal offense described in Sec. 585.40 or who 
has agreed to enter into a pre-trial diversion or similar program in 
connection with a prosecution for such a criminal offense (``you'') may 
file an application seeking an OTS order granting an exemption from the 
prohibitions in this part.
    (2) You may seek an exemption only for a designated position (or 
positions) with respect to a named savings and loan holding company.
    (3) You may not file an application less than one year after the 
latter of the date of OTS's denial of the same exemption under Sec. 
585.130(b), Sec. 585.140(a)(2) or Sec. 585.140(d).
    (b) Application and review procedures. You may seek OTS approval by 
filing your application with OTS under the standard treatment described 
in 12 CFR part 516, subpart A of this chapter. OTS will review your 
application under 12 CFR part 516, subpart E of this chapter (excluding 
12 CFR 516.270 and 516.280).
    (c) Prohibition pending OTS action. Unless you are exempt under 
Sec. 585.100(b), the prohibitions in Sec. 585.30 continue to apply 
pending OTS action on your application.



Sec. 585.120  What factors will OTS consider in reviewing my application?

    (a) OTS review. (1) In determining whether to approve an exemption 
application filed under Sec. 585.110, OTS will consider the extent to 
which the position that is the subject of your application enables a 
person to:
    (i) Participate in the major policymaking functions of the savings 
and loan holding company; or
    (ii) Threaten the safety and soundness of any insured depository 
institution that is controlled by the savings and loan holding company, 
the interests of its depositors, or the public confidence in the insured 
depository institution.
    (2) OTS will also consider whether you have demonstrated the 
person's fitness to hold the described position. Some positions may be 
approved without an extensive review of a person's

[[Page 562]]

fitness because the position does not enable a person to take the 
actions described in paragraph (a)(1) of this section.
    (b) Factors. In making the determinations under paragraph (a) of 
this section, OTS will consider the following factors:
    (1) The position;
    (2) The amount of influence and control a person holding the 
position will be able to exercise over the affairs and operations of the 
savings and loan holding company and the insured depository institution;
    (3) The ability of the management of the savings and loan holding 
company to supervise and control the activities of a person holding the 
position;
    (4) The level of ownership that the person will have at the savings 
and loan holding company;
    (5) The specific nature and circumstances of the criminal offense. 
The question whether a person who was convicted of a crime or who agreed 
to enter into a pretrial diversion or similar program for a crime was 
guilty of that crime is not relevant;
    (6) Evidence of rehabilitation; and
    (7) Any other relevant factor.



Sec. 585.130  How will I know if my application is approved?

    (a) Approval. If OTS approves your application, OTS will issue an 
approval order. An approval order will include a summary of the relevant 
factors that OTS considered under Sec. 585.120, will require fidelity 
bond coverage for the position to the same extent as similar positions 
with the SLHC. The approval order may include such other conditions as 
may be appropriate.
    (b) Denial. If OTS denies your application, OTS will issue a denial 
order. The denial order will include the following written information:
    (1) A summary of the relevant factors that OTS considered under 
Sec. 585.120; and
    (2) A statement indicating that you may file a written request 
demonstrating good cause for a hearing on the denial of your 
application, and that you must file this request with OTS within 20 days 
of the date of issuance of the order.



Sec. 585.140  What procedures govern a hearing on my application?

    (a) OTS review of hearing request. OTS will review your hearing 
request to determine if you have demonstrated good cause for a hearing 
on your application. Within 30 days after the filing of a timely request 
for a hearing, OTS will notify you in writing of its decision to grant 
or deny the hearing request. If OTS grants your request for a hearing, 
it will order a hearing to be commenced within 60 days of the issuance 
of the notification. Upon the request of a party, the OTS may order a 
later hearing date.
    (b) Hearing procedures. Hearing procedures are set out at 12 CFR 
part 509, subpart D of this chapter.



PART 590_PREEMPTION OF STATE USURY LAWS--Table of Contents




Sec.
590.1 Authority, purpose, and scope.
590.2 Definitions.
590.3 Operation.
590.4 Federally-related residential manufactured housing loans--consumer 
          protection provisions.
590.100 Status of Interpretations issued under Public Law 96-161.
590.101 State criminal usury statutes.

    Authority: 12 U.S.C. 1735f-7a.

    Source: 54 FR 49715, Nov. 30, 1989, unless otherwise noted.



Sec. 590.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 
501 of the Depository Institutions Deregulation and Monetary Control Act 
of 1980, Pub. L. 96-221, 94 Stat. 161.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state interest-rate ceilings applicable to Federally-related residential 
mortgage loans is to ensure that the availability of such loans is not 
impeded in states having restrictive interest limitations. This part 
applies to loans, mortages, credit sales, and advances, secured by first 
liens on residential real property, stock in residential cooperative 
housing corporations, or residential manufactured homes as defined in 
Sec. 590.2 of this part.

[[Page 563]]



Sec. 590.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Loans mean any loans, mortgages, credit sales, or advances.
    (b) Federally-related loans include any loan:
    (1) Made by any lender whose deposits or accounts are insured by any 
agency of the Federal government;
    (2) Made by any lender regulated by any agency of the Federal 
government;
    (3) Made by any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act;
    (4) Made in whole or in part by the Secretary of Housing and Urban 
Development; insured, guaranteed, supplemented, or assisted in any way 
by the Secretary or any officer or agency of the Federal government, or 
made under or in connection with a housing or urban development program 
administered by the Secretary, or a housing or related program 
administered by any other such officer or agency;
    (5) Eligible for purchase by the Federal National Mortgage 
Association, the Government National Mortgage Association, or the 
Federal Home Loan Mortgage Corporation, or made by any financial 
institution from which the loan could be purchased by the Federal Home 
Loan Mortgage Corporation; or
    (6) Made in whole or in part by any entity which:
    (i) Regularly extends, or arranges for the extension of, credit 
payable by agreement in more than four installments or for which the 
payment of a finance charge is or may be required; and
    (ii) Makes or invests in residential real property loans, including 
loans secured by first liens on residential manufactured homes that 
aggregate more than $1,000,000 per year; except that the latter 
requirement shall not apply to such an entity selling residential 
manufactured homes and providing financing for such sales through loans 
or credit sales secured by first liens on residential manufactured 
homes, if the entity has an arrangement to sell such loans or credit 
sales in whole or in part, or where such loans or credit sales are sold 
in whole or in part, to a lender or other institution otherwise included 
in this section.
    (c) Loans which are secured by first liens on real estate means 
loans on the security of any instrument (whether a mortgage, deed of 
trust, or land contract) which makes the interest in real estate 
(whether in fee, or in a leasehold or subleasehold extending, or 
renewable, automatically or at the option of the holder or the lender, 
for a period of at least 5 years beyond the maturity of the loan) 
specific security for the payment of the obligation secured by the 
instrument: Provided, That the instrument is of such a nature that, in 
the event of default, the real estate described in the instrument could 
be subjected to the satisfaction of the obligation with the same 
priority as a first mortgage of a first deed of trust in the 
jurisdiction where the real estate is located.
    (d) Loans secured by first liens on stock in a residential 
cooperative housing corporation means loans on the security of:
    (1) A first security interest in stock or a membership certificate 
issued to a tenant stockholder or resident member by a cooperative 
housing organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (e) Loans secured by first liens on residential manufactured homes 
means a loan made pursuant to an agreement by which the party extending 
the credit acquires a security interest in the residential manufactured 
home which will have priority over any conflicting security interest.
    (f) Residential real property means real estate improved or to be 
improved by a structure or structures designed primarily for dwelling, 
as opposed to commercial use.
    (g) Residential manufactured home shall mean a manufactured home as 
defined in the National Manufactured Home Construction and Safety 
Standards Act, 42 U.S.C. 5402(6), which is or will be used as a 
residence.
    (h) State means the several states, Puerto Rico, the District of 
Columbia,

[[Page 564]]

Guam, the Trust Territories of the Pacific Islands, the Northern Mariana 
Islands, and the Virgin Islands, except as provided in section 
501(a)(2)(B) of the Depository Institutions Deregulation and Monetary 
Control Act of 1980, Pub. L. 96-221, 94 Stat. 161.



Sec. 590.3  Operation.

    (a) The provisions of the constitution or law of any state expressly 
limiting the rate or amount of interest, discount points, finance 
charges, or other charges which may be charged, taken, received, or 
reserved shall not apply to any Federally-related loan:
    (1) Made after March 31, 1980; and
    (2) Secured by a first lien on:
    (i) Residential real property;
    (ii) Stock in a residential cooperative housing corporation when the 
loan is used to finance the acquisition of such stock; or
    (iii) A residential manufactured home: Provided, That the loan so 
secured contains the consumer safeguards required by Sec. 590.4 of this 
part;
    (b) The provisions of paragraph (a) of this section shall apply to 
loans made in any state on or before the date (after April 1, 1980 and 
prior to April l, 1983) on which the state adopts a law or certifies 
that the voters of such state have voted in favor of any law, 
constitutional or otherwise, which states explicitly and by its terms 
that such state does not want the provisions of paragraph (a) of this 
section to apply with respect to loans made in such state, except that--
    (1) The provisions of paragraph (a) of this section shall apply to 
any loan which is made after such date pursuant to a commitment 
therefore which was entered into during the period beginning on April 1, 
1980, and ending on the date the state takes such action;
    (2) The provisions of paragraph (a) of this section shall apply to 
any rollover of a loan which loan was made, or committed to be made, 
during the period beginning on April 1, 1980, and ending on the date the 
state takes such action, if the mortgage document or loan note provided 
that the interest rate to the original borrower could be changed through 
the use of such a rollover; and
    (3) At any time after the date of adoption of these regulations, any 
state may adopt a provision of law placing limitations on discount 
points or such other charges on any loan described in this part.
    (c) Nothing in this section preempts limitations in state laws on 
prepayment charges, attorneys' fees, late charges or other provisions 
designed to protect borrowers.

[54 FR 49715, Nov. 30, 1989, as amended at 66 FR 65822, Dec. 21, 2001]



Sec. 590.4  Federally-related residential manufactured housing
loans--consumer protection provisions.

    (a) Definitions. As used in this section:
    (1) Prepayment. A ``prepayment'' occurs upon--
    (i) Refinancing or consolidation of the indebtedness;
    (ii) Actual prepayment of the indebtedness by the debtor, whether 
voluntarily or following acceleration of the payment obligation by the 
creditor; or
    (iii) The entry of a judgment for the indebtedness in favor of the 
creditor.
    (2) Actuarial method. The term actuarial method means the method of 
allocating payments made on a debt between the outstanding balance of 
the obligation and the finance charge pursuant to which a payment is 
applied first to the accumulated finance charge and any remainder is 
subtracted from, or any deficiency is added to, the outstanding balance 
of the obligation.
    (3) Precomputed Finance Charge. The term precomputed finance charge 
means interest or a time/price differential as computed by the add-on or 
discount method. Precomputed finance charges do not include loan fees, 
points, finder's fees, or similar charges.
    (4) Creditor. The term creditor means any entity covered by this 
part, including those which regularly extend or arrange for the 
extension of credit and assignees that are creditors under section 
501(a)(1)(C)(v) of the Depository Institutions Deregulation and Monetary 
Control Act of 1980.
    (b) General. (1) The provisions of the constitution or the laws of 
any state expressly limiting the rate or amount of interest, discount 
points, finance charges, or other charges which may be charged, taken, 
received, or reserved shall not apply to any loan, mortgage,

[[Page 565]]

credit sale, or advance which is secured by a first lien on a 
residential mobile home if a creditor covered by this part complies with 
the consumer protection regulations of this section.
    (2) Relation to state law. (i) In making loans or credit sales 
subject to this section, creditors shall comply with state and Federal 
law in accordance with the following:
    (A) State law regulating matters not covered by this section. When 
state law regulating matters not covered by this section is otherwise 
applicable to a loan or credit sale subject to this section, creditors 
shall comply with such state law provisions.
    (B) State law regulating matters covered by this section. Creditors 
need comply only with the provisions of this section, unless the Office 
determines that an otherwise applicable state law regulating matters 
covered by this section provides greater protection to consumers. Such 
determinations shall be published in the Federal Register and shall 
operate prospectively.
    (ii) Any interested party may petition the Office for a 
determination that state law requirements are more protective of 
consumers than the provisions of this section. Petitions shall be sent 
to: Secretary to the Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552, and shall include:
    (A) A copy of the state law to be considered;
    (B) Copies of any relevant judicial, regulatory, or administrative 
interpretations of the state law; and
    (C) An opinion or memorandum from the state Attorney General or 
other appropriate state official having primary enforcement 
responsibilities for the subject state law provision, indicating how the 
state law to be considered offers greater protection to consumers than 
the Office's regulation.
    (c) Refund of precomputed finance charge. In the event the entire 
indebtedness is prepaid, the unearned portion of the precomputed finance 
charge shall be refunded to the debtor. This refund shall be in an 
amount not less than the amount which would be refunded if the unearned 
precomputed finance charge were calculated in accordance with the 
actuarial method, except that the debtor shall not be entitled to a 
refund which, is less than one dollar. The unearned portion of the 
precomputed finance charge is, at the option of the creditor, either:
    (1) That portion of the precomputed finance charge which is 
allocable to all unexpired payment periods as originally scheduled, or 
if deferred, as deferred. A payment period shall be deemed unexpired if 
prepayment is made within 15 days after the payment period's scheduled 
due date. The unearned precomputed finance charge is the total of that 
which would have been earned for each such period had the loan not been 
precomputed, by applying to unpaid balances of principal, according to 
the actuarial method, an annual percentage rate based on those charges 
which are considered precomputed finance charges in this section, 
assuming that all payments were made as originally scheduled, or as 
deferred, if deferred. The creditor, at its option, may round this 
annual percentage rate to the nearest one-quarter of one percent; or
    (2) The total precomputed finance charge less the earned precomputed 
finance charge. The earned precomputed finance charge shall be 
determined by applying an annual percentage rate based on the total 
precomputed finance charge (as that term is defined in this section), 
under the actuarial method, to the unpaid balances for the actual time 
those balances were unpaid up to the date of prepayment. If a late 
charge or deferral fee has been collected, it shall be treated as a 
payment.
    (d) Prepayment penalties. A debtor may prepay in full or in part the 
unpaid balance of the loan at any time without penalty. The right to 
prepay shall be disclosed in the loan contract in type larger than that 
used for the body of the document.
    (e) Balloon payments--(1) Federal savings associations. Federal 
savings association creditors may enter into agreements with debtors 
which provide for non-amortized and partially-amortized loans on 
residential manufactured homes, and such loans shall be governed by the 
provisions of this section and Sec. 560.220 of this chapter.

[[Page 566]]

    (2) Other creditors. All other creditors may enter into agreements 
with debtors which provide for non-amortized and partially-amortized 
loans on residential manufactured homes to the extent authorized by 
applicable Federal or state law or regulation.
    (f) Late charges. (1) No late charge may be assessed, imposed, or 
collected unless provided for by written contract between the creditor 
and debtor.
    (2) To the extent that applicable state law does not provide for a 
longer period of time, no late charge may be collected on an installment 
which is paid in full on or before the 15th day after its scheduled or 
deferred due date even though an earlier maturing installment or a late 
charge on an earlier installment may not have been paid in full. For 
purposes of assessing late charges, payments received are deemed to be 
applied first to current installments.
    (3) A late charge may be imposed only once on an installment; 
however, no such charge may be collected for a late installment which 
has been deferred.
    (4) To the extent that applicable state law does not provide for a 
lower charge or a longer grace period, a late charge on any installment 
not paid in full on or before the 15th day after its scheduled or 
deferred due date may not exceed five percent of the unpaid amount of 
the installment.
    (5) If, at any time after imposition of a late charge, the lender 
provides the borrower with written notice regarding amounts claimed to 
be due but unpaid, the notice shall separately state the total of all 
late charges claimed.
    (6) Interest after the final scheduled maturity date may not exceed 
the maximum rate otherwise allowable under State law for such contracts, 
and if such interest is charged, no separate late charge may be made on 
the final scheduled installment.
    (g) Deferral fees. (1) With respect to mobile home credit 
transactions containing precomputed finance charges, agreements 
providing for deferral of all or part of one or more installments shall 
be in writing, signed by the parties, and
    (i) Provide, to the extent that applicable state law does not 
provide for a lower charge, for a charge not exceeding one percent of 
each installment or part thereof for each month from the date when such 
installment was due to the date when it is agreed to become payable and 
proportionately for a part of each month, counting each day as 1/30th of 
a month;
    (ii) Incorporate by reference the transaction to which the deferral 
applied;
    (iii) Disclose each installment or part thereof in the amount to be 
deferred, the date or dates originally payable, and the date or dates 
agreed to become payable: and
    (iv) Set forth the fact of the deferral charge, the dollar amount of 
the charge for each installment to be deferred, and the total dollar 
amount to be paid by the debtor for the privilege of deferring payment.
    (2) No term of a writing executed by the debtor shall constitute 
authority for a creditor unilaterally to grant a deferral with respect 
to which a charge is to be imposed or collected.
    (3) The deferral period is that period of time in which no payment 
is required or made by reason of the deferral.
    (4) Payments received with respect to deferred installments shall be 
deemed to be applied first to deferred installments.
    (5) A charge may not be collected for the deferral of an installment 
or any part thereof if, with respect to that installment, a refinancing 
or consolidation agreement is concluded by the parties, or a late charge 
has been imposed or collected, unless such late charge is refunded to 
the borrower or credited to the deferral charge.
    (h) Notice before repossession, foreclosure, or acceleration. (1) 
Except in the case of abandonment or other extreme circumstances, no 
action to repossess or foreclose, or to accelerate payment of the entire 
outstanding balance of the obligation, may be taken against the debtor 
until 30 days after the creditor sends the debtor a notice of default in 
the form set forth in paragraph (h)(2) of this section. Such notice 
shall be sent by registered or certified mail with return receipt 
requested. In the case of default on payments, the sum stated in the 
notice may only include

[[Page 567]]

payments in default and applicable late or deferral charges. If the 
debtor cures the default within 30 days of the postmark of the notice 
and subsequently defaults a second time, the creditor shall again give 
notice as described in this paragraph (h)(1). The debtor is not entitled 
to notice of default more than twice in any one-year period.
    (2) The notice in the following form shall state the nature of the 
default, the action the debtor must take to cure the default, the 
creditor's intended actions upon failure of the debtor to cure the 
default, and the debtor's right to redeem under state law.
    To:
    Date: , 19

               Notice of Default and Right To Cure Default

    Name, address, and telephone number of creditor
    Account number, if any
    Brief identification of credit transaction
    You are now in default on this credit transaction. You have a right 
to correct this default within 30 days from the postmarked date of this 
notice.
    If you correct the default, you may continue with the contract as 
though you did not default. Your default consists of:

                         Describe default alleged

    Cure of default: Within 30 days from the postmarked date of this 
notice, you may cure your default by (describe the acts necessary for 
cure, including, if applicable, the amount of payment required, 
including itemized delinquency or deferral charges).
    Creditor's rights: If you do not correct your default in the time 
allowed, we may exercise our rights against you under the law by 
(describe action creditor intends to take).
    If you have any questions, write (the creditor) at the above address 
or call (creditor's designated employee) at (telephone number) between 
the hours of and on (state days of week).
    If this default was caused by your failure to make a payment or 
payments, and you want to pay by mail, please send a check or money 
order; do not send cash.

[54 FR 49715, Nov. 30, 1989, as amended at 61 FR 50984, Sept. 30, 1996; 
67 FR 60554, Sept. 26, 2002]



Sec. 590.100  Status of Interpretations issued under Public Law 96-161.

    The Office continues to adhere to the views expressed in the formal 
Interpretations issued under the authority of section 105(c) of Pub. L. 
96-161, 93 Stat. 1233 (l979). These interpretations, which relate to the 
temporary preemption of state interest ceilings contained in Pub. L. 96-
161, may be found at 45 FR 2840 (Jan. 15, 1980); 45 FR 6165 (Jan. 25, 
1980); 45 FR 8000 (Feb. 6, 1980); 45 FR 15921 (Mar. 12, 1980).



Sec. 590.101  State criminal usury statutes.

    (a) Section 501 provides that ``the provisions of the constitution 
or laws of any state expressly limiting the rate or amount of interest, 
discount points, finance charges, or other charges shall not apply to 
any'' federally-related loan secured by a first lien on residential real 
property, a residential manufactured home, or all the stock allocated to 
a dwelling unit in a residential housing cooperative. 12 U.S.C. 1735f-7 
note (Supp. IV 1980). The question has arisen as to whether the federal 
statute preempts a state law which deems it a criminal offense to charge 
interest at a rate in excess of that specified in the state law.
    (b) In the Office's view, section 501 preempts all state laws which 
expressly limit the rate or amount of interest chargeable on a 
federally-related residential first mortgage. It does not matter whether 
the statute in question imposes criminal or civil sanctions; section 
501, by its terms, preempts ``any'' state law which imposes a ceiling on 
interest rates. The wording of the federal statute clearly expresses an 
intent to displace all direct state law restraints on interest. Any 
state law that conflicts with this Congressional purpose must yield.



PART 591_PREEMPTION OF STATE DUE-ON-SALE LAWS--Table of Contents




Sec.
591.1 Authority, purpose, and scope.
591.2 Definitions.
591.3 Loans originated by Federal savings associations.
591.4 Loans originated by lenders other than Federal savings 
          associations.
591.5 Limitations on exercise of due-on-sale clauses.
591.6 Interpretations.

    Authority: 12 U.S.C. 1464 and 1701j-3.

[[Page 568]]


    Source: 54 FR 49718, Nov. 30, 1989, unless otherwise noted.



Sec. 591.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 5 
of the Home Owners' Loan Act of 1933, as amended, and under section 341 
of the Garn-St Germain Depository Institutions Act of 1982, Pub. L. 97-
320, 96 Stat. 1469, 1505-1507.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state prohibitions on the exercise of due-on-sale clauses by all 
lenders, whether federally- or state-chartered, is to reaffirm the 
authority of Federal savings associations to enforce due-on-sale 
clauses, and to confer on other lenders generally comparable authority 
with respect to the exercise of such clauses. This part applies to all 
real property loans, and all lenders making such loans, as those terms 
are defined in Sec. 591.2 of this part.



Sec. 591.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Assumed includes transfers of real property subject to a real 
property loan by assumptions, installment land sales contracts, 
wraparound loans, contracts for deed, transfers subject to the mortgage 
or similar lien, and other like transfers.``Completed credit 
application'' has the same meaning as completed application for credit 
as provided in Sec. 202.2(f) of this title.
    (b) Due-on-sale clause means a contract provision which authorizes 
the lender, at its option, to declare immediately due and payable sums 
secured by the lender's security instrument upon a sale of transfer of 
all or any part of the real property securing the loan without the 
lender's prior written consent. For purposes of this definition, a sale 
or transfer means the conveyance of real property of any right, title or 
interest therein, whether legal or equitable, whether voluntary or 
involuntary, by outright sale, deed, installment sale contract, land 
contract, contract for deed, leasehold interest with a term greater than 
three years, lease-option contract or any other method of conveyance of 
real property interests.
    (c) Federal savings association has the same meaning as provided in 
Sec. 541.11 of this chapter.
    (d) Federal credit union means a credit union chartered under the 
Federal Credit Union Act.
    (e) Home has the same meaning as provided in Sec. 541.14 of this 
chapter.
    (f) Savings association has the same meaning as provided in Sec. 
561.43 of this chapter.
    (g) Lender means a person or government agency making a real 
property loan, including without limitation, individuals, Federal 
savings associations, state-chartered savings associations, national 
banks, state-chartered banks and state-chartered mutual savings banks, 
Federal credit unions, state-chartered credit unions, mortgage banks, 
insurance companies and finance companies which make real property 
loans, manufactured-home retailers who extend credit, agencies of the 
Federal government, any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act, and any assignee or transferee, in whole 
or part, of any such persons or agencies.
    (h) Loan secured by a lien on real property means a loan on the 
security of any instrument (whether a mortgage, deed or trust, or land 
contract) which makes the interest in real property (whether in fee, or 
in a leasehold or subleasehold) specific security for the payment of the 
obligation secured by the instrument.
    (i) Loan secured by a lien on stock in a residential cooperative 
housing corporation means a loan on the security of:
    (1) A security interest in stock or a membership certificate issued 
to a tenant stockholder or resident member by a cooperative housing 
organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (j) Loan secured by a lien on a residential manufactured home, 
whether real or personal property, means a loan made pursuant to an 
agreement by which the party extending the credit acquires a security 
interest in the residential manufactured home.

[[Page 569]]

    (k) Loan originated by a Federal savings association or other lender 
means any loan for which the lender makes the first advance of credit 
thereunder, Provided, That such lender then held a beneficial interest 
in the loan, whether as to the whole loan or a portion thereof, and 
whether or not the loan is later held by or transferred to another 
lender.
    (l) Real property loan means any loan, mortgage, advance or credit 
sale secured by a lien on real property, the stock or membership 
certificate allocated to a dwelling unit in a cooperative housing 
corporation, or a residential manufactured home, whether real or 
personal property.
    (m) Residential manufactured home has the same meaning as provided 
in Sec. 590.2(g) of this chapter.
    (n) Reverse mortgage means an instrument that provides for one or 
more payments to a homeowner based on accumulated equity. The lender may 
make payment directly, through the purchase of an annuity through an 
insurance company, or in any other manner. The loan may be due either on 
a specific date or when a specified event occurs, such as the sale of 
the property or the death of the borrower.
    (o) State means the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, the Northern 
Mariana Islands, the Virgin Islands, and American Samoa.
    (p)(1) A window-period loan means a real property loan, not 
originated by a Federal savings association, which was made or assumed 
during a window-period created by state law and subject to that law, 
which loan was recorded, at the time of origination or assumption, 
before October 15, 1982, or within 60 days thereafter (December 14, 
1982).
    (2) The window-period begins on: (i) The date a state adopted a law 
(by means of a constitutional provision or statute) prohibiting the 
unrestricted exercise of due-on-sale clauses upon outright transfers of 
property securing loans subject to the state law creating the window-
period, or the effective date of a constitutional or statutory provision 
so adopted, whichever is later; or
    (ii) The date on which the highest court of the state rendered a 
decision prohibiting such unrestricted exercise (or if the highest court 
has not so decided, the date on which the next highest appellate court 
rendered a decision resulting in a final judgment which applies 
statewide), and ends on the earlier of the date such state law 
prohibition terminated under state law or October 15, 1982.
    (3) Categories of state law which create window-periods by 
prohibiting the unrestricted exercise of due-on-sale clauses upon 
outright transfers of property securing loans subject to such state law 
restrictions include laws or judicial decisions which permit the lender 
to exercise its option under a due-on-sale clause only where:
    (i) The lender's security interest or the likelihood of repayment is 
impaired; or
    (ii) The lender is required to accept an assumption of the existing 
loan without an interest-rate change or with an interest-rate change 
below the market interest rate currently being offered by the lender on 
similar loans secured by similar property at the time of the transfer.

[54 FR 49718, Nov. 30, 1989, as amended at 67 FR 60554, Sept. 26, 2002]



Sec. 591.3  Loans originated by Federal savings associations.

    (a) With regard to any real property loan originated or to be 
originated by a Federal savings association, as a matter of contract 
between it and the borrower, a Federal savings association continues to 
have the power to include a due-on-sale clause in its loan instrument.
    (b) Except as otherwise provided in Sec. 591.5 of this part with 
respect to any such loan made on the security of a home occupied or to 
be occupied by the borrower, exercise by any lender of a due-on-sale 
clause in a loan originated by a Federal savings association shall be 
exclusively governed by the terms of the loan contract, and all rights 
and remedies of the lender and borrower shall at all times be fixed and 
governed by that contract.

[[Page 570]]



Sec. 591.4  Loans originated by lenders other than Federal savings associations.

    (a) With regard to any real property loan originated by a lender 
other than a Federal savings association, as a matter of contract 
between it and the borrower, the lender has the power to include a due 
on sale clause in its loan instrument.
    (b) Except as otherwise provided in paragraph (c) of this section 
and Sec. 591.5 of this part, the exercise of due-on-sale clauses in 
loans originated by lenders other than Federal savings associations 
shall be governed exclusively by the terms of the loan contract, and all 
rights and remedies of the lender and the borrower shall be fixed and 
governed by that contract.
    (c)(1) In the case of a window-period loan, the provisions of 
paragraph (b) of this section shall apply only in the case of a sale or 
transfer of the property subject to the real property loan and only if 
such sale or transfer occurs on or after October 15, 1985: Provided, 
That:
    (i) With respect to real property loans originated in a state by 
lenders other than national banks, Federal savings associations, and 
Federal credit unions, a state may otherwise regulate such contracts by 
state law enacted prior to October 16, 1985, in which case paragraph (b) 
of this section shall apply only if such state law so provides; and
    (ii) With respect to real property loans originated by national 
banks and Federal credit unions, the Comptroller of the Currency or the 
National Credit Union Administration Board, respectively, may otherwise 
regulate such contracts by regulations promulgated prior to October 16, 
1985, in which case paragraph (b) of this section shall apply only if 
such regulation so provides.
    (2) A lender may not exercise its options pursuant to a due-on-sale 
clause contained in a window-period loan in the case of a sale or 
transfer of property securing such loan where the sale or transfer 
occurred prior to October 15, 1982.
    (d)(1) Prior to the sale or transfer of property securing a window-
period loan subject to the provisions of paragraph (c) of this section.
    (i) Any lender in the business of making real property loans may 
require any successor or transferee of the borrower to supply credit 
information customarily required by the lender in connection with credit 
applications, to complete its customary credit application, and to meet 
customary credit standards applied by such lender, at the date of sale 
or transfer, to the lender's similar loans secured by similar property.
    (ii) Any lender not in the business of making loans may require any 
successor or transferee of the borrower to meet credit standards 
customarily applied by other similarly situated lenders or sellers in 
the geographic market within which the transaction occurs, for similar 
loans secured by similar property, prior to the lender's consent to the 
transfer.
    (2) The lender may exercise a due-on-sale clause in a window-period 
loan if:
    (i) The successor or transferee of the borrower fails to meet the 
lender's credit standards as set forth in paragraphs (b)(1)(i) and 
(b)(1)(ii) of this section; or
    (ii) Upon transfer of the security property and not later than 
fifteen days after written request by the lender, the successor or 
transferee of the borrower fails to provide information requested by the 
lender pursuant to paragraph (d)(1)(i) or (d)(1)(ii) of this section, to 
determine whether such successor or transferee of the borrower meets the 
lender's customary credit standards.
    (3) The lender shall, within thirty days of receipt of a completed 
credit application and any other related information provided by the 
successor or transferee of the borrower, determine whether such 
successor or transferee meets the customary credit standards of the 
lender and provide written notice to the successor or transferee of its 
decision, and the reasons in the event of a disapproval. Failure of the 
lender to provide such notice shall preclude the lender from exercise of 
its due-on-sale clause upon the sale or transfer of the property 
securing the loan.

[[Page 571]]

    (4) The lender's right to exercise a due-on-sale clause pursuant to 
this paragraph (d)(4) is in addition to any other rights afforded the 
lender by state law regulating window-period loans with regard to the 
exercise of due-on-sale clauses and loan assumptions.



Sec. 591.5  Limitation on exercise of due-on-sale clauses.

    (a) General. Except as provided in Sec. 591.4 (c) and (d)(4) of 
this part, due-on-sale practices of Federal savings associations and 
other lenders shall be governed exclusively by the Office's regulations, 
in preemption of and without regard to any limitations imposed by state 
law on either their inclusion or exercise including, without limitation, 
state law prohibitions against restraints on alienation, prohibitions 
against penalties and forfeitures, equitable restrictions and state law 
dealing with equitable transfers.
    (b) Specific limitations. With respect to any loan on the security 
of a home occupied or to be occupied by the borrower,
    (1) A lender shall not (except with regard to a reverse mortgage) 
exercise its option pursuant to a due-on-sale clause upon:
    (i) The creation of a lien or other encumbrance subordinate to the 
lender's security instrument which does not relate to a transfer of 
rights of occupancy in the property: Provided, That such lien or 
encumbrance is not created pursuant to a contract for deed;
    (ii) The creation of a purchase-money security interest for 
household appliances;
    (iii) A transfer by devise, descent, or operation of law on the 
death of a joint tenant or tenant by the entirety;
    (iv) The granting of a leasehold interest which has a term of three 
years or less and which does not contain an option to purchase (that is, 
either a lease of more than three years or a lease with an option to 
purchase will allow the exercise of a due-on-sale clause);
    (v) A transfer, in which the transferee is a person who occupies or 
will occupy the property, which is:
    (A) A transfer to a relative resulting from the death of the 
borrower;
    (B) A transfer where the spouse or child(ren) becomes an owner of 
the property; or
    (C) A transfer resulting from a decree of dissolution of marriage, 
legal separation agreement, or from an incidental property settlement 
agreement by which the spouse becomes an owner of the property; or
    (vi) A transfer into an inter vivos trust in which the borrower is 
and remains the beneficiary and occupant of the property, unless, as a 
condition precedent to such transfer, the borrower refuses to provide 
the lender with reasonable means acceptable to the lender by which the 
lender will be assured of timely notice of any subsequent transfer of 
the beneficial interest or change in occupancy.
    (2) A lender shall not impose a prepayment penalty or equivalent fee 
when the lender or party acting on behalf of the lender
    (i) Declares by written notice that the loan is due pursuant to a 
due-on-sale clause or
    (ii) Commences a judicial or nonjudicial foreclosure proceeding to 
enforce a due-on-sale clause or to seek payment in full as a result of 
invoking such clause.
    (3) A lender shall not impose a prepayment penalty or equivalent fee 
when the lender or party acting on behalf of the lender fails to approve 
within 30 days the completed credit application of a qualified 
transferee of the security property to assume the loan in accordance 
with the terms of the loan, and thereafter the borrower transfers the 
security property to such transferee and prepays the loan in full within 
120 days after receipt by the lender of the completed credit 
application. For purposes of this paragraph (b)(3), a qualified 
transferee is a person who qualifies for the loan under the lender's 
applicable underwriting standards and who occupies or will occupy the 
security property.
    (4) A lender waives its option to exercise a due-on-sale clause as 
to a specific transfer if, before the transfer, the lender and the 
existing borrower's prospective successor in interest agree in writing 
that the successor in interest will be obligated under the terms of the 
loan and that interest on sums secured

[[Page 572]]

by the lender's security interest will be payable at a rate the lender 
shall request. Upon such agreement and resultant waiver, a lender shall 
release the existing borrower from all obligations under the loan 
instruments, and the lender is deemed to have made a new loan to the 
existing borrower's successor in interest. The waiver and release apply 
to all loans secured by homes occupied by borrowers made by a Federal 
savings association after July 31, 1976, and to all loans secured by 
homes occupied by borrowers made by other lenders after the effective 
date of this regulation.
    (5) Nothing in paragraph (b)(1) of this section shall be construed 
to restrict a lender's right to enforce a due-on-sale clause upon the 
subsequent occurrence of any event which disqualifies a transfer for a 
previously-applicable exception under that paragraph (b)(1).
    (c) Policy considerations. Paragraph (b) of this section does not 
prohibit a lender from requiring, as a condition to an assumption, 
continued maintenance of mortgage insurance by the existing borrower's 
successor in interest, whether by endorsement of the existing policy or 
by entrance into a new contract of insurance.



Sec. 591.6  Interpretations.

    The Office periodically will publish Interpretations under section 
341 of the Garn-St Germain Depository Institutions Act of 1982, Pub. L. 
97-320, 96 Stat. 1469, 1505-1507, in the Federal Register in response to 
written requests sent to the Secretary, Office of Thrift Supervision, 
1700 G Street, NW., Washington, DC 20552.

                        PARTS 592	599 [RESERVED]

[[Page 573]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 575]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2010)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)

[[Page 576]]

      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)
        II  Recovery Accountability and Transparency Board (Parts 
                200--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)

[[Page 577]]

       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

[[Page 578]]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)

[[Page 579]]

      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)
         L  Rural Business-Cooperative Service, Rurual Housing 
                Service, and Rural Utilities Service, Department 
                of Agriculture (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

[[Page 580]]

     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)

[[Page 581]]

         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

[[Page 582]]

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)

[[Page 583]]

        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millenium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                HousingCommissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)

[[Page 584]]

        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

[[Page 585]]

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

[[Page 586]]

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)

[[Page 587]]

    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvmeent, 
                Department of Education [Reserved]
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)

[[Page 588]]

        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)
        II  Armed Forces Retirement Home

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)

[[Page 589]]

        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Chapters 62--100 [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
            Chapters 103--104 [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Chapters 129--200 [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

[[Page 590]]

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899) 
                [Reserved]
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)

[[Page 591]]

       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Health and Human Services (Parts 300--399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)

[[Page 592]]

        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

[[Page 593]]

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 595]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2010)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 596]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 597]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Human Resources Management and Labor Relations  5, XCIX
       Systems
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99

[[Page 598]]

  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II

[[Page 599]]

General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII

[[Page 600]]

Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V

[[Page 601]]

  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII

[[Page 602]]

National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCIX
       Systems, Department of Defense
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Recovery Accountability and Transparency Board    4, II
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
   National Security Council
[[Page 603]]

Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8

[[Page 604]]

Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 605]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000,'' published in 
11 separate volumes.

                                  2001

12 CFR
                                                                   66 FR
                                                                    Page
Chapter V
500 Heading revised................................................65819
502.20 Revised.....................................................33159
505.1 (b) amended..................................................65819
505.2 Revised......................................................65819
505.3 Amended......................................................65819
505.4 Amended......................................................65819
506.1 (b) table amended............................................65819
506.1 (b) amended; interim.........................................15017
    Regulation at 66 FR 15017 confirmed............................37407
516 Heading revised................................................65820
516.1--516.3 (Subpart A) Removed...................................13000
516.1 Added........................................................13000
516.5 Added........................................................13000
516.10 Added.......................................................13000
516.15--516.47 (Subpart A) Added...................................13000
516.40 (a)(2) revised..............................................65820
516.55 Added.......................................................13002
516.110 Amended....................................................13003
516.120 Revised....................................................13003
516.130 Revised....................................................13003
516.140 Revised....................................................13003
516.150 Revised....................................................13003
516.185 Added......................................................13003
516.190 Revised....................................................13003
516.200--516.290 (Subpart E) Added.................................13003
517 Heading revised................................................65820
517.6 (b) revised..................................................13005
533 Added...........................................................2106
536 Regulation at 65 FR 75845 eff. date delayed....................15345
541 Heading revised................................................65820
543 Heading revised................................................65820
543.9 (a) revised..................................................13005
544 Heading revised................................................65820
544.2 (c) amended..................................................13005
544.5 (c)(1)(ii) revised...........................................13006
    (c)(1)(iii) revised............................................15020
545 Heading revised................................................65820
545.92 (b) and (d)(2) revised; (f) amended.........................13006
545.92 (d)(2) revised..............................................65820
545.93 Redesignated from 556.5.....................................65820
546 Heading revised................................................65820
550.80 Revised.....................................................13006
550.260 (b)(2) amended.............................................13006
550.530 Amended....................................................13006
552 Heading revised................................................65820
552.2-6 Amended....................................................13006
    Existing text designated as (a); (b) added.....................23154
    Regulation at 66 FR 37407 confirmed............................37408
552.4 (d) amended..................................................13006
552.5 (b)(1)(ii) revised...........................................13006
    (b)(1)(iii) revised............................................15020
555.310 (a) introductory text amended..............................13006
556 Removed........................................................65820
556.5 Redesignated as 545.93.......................................65820
556.347 Revised....................................................19854
559.3 (e)(2)(i) and (ii) amended...................................13006
559.4 Introductory text amended....................................13007
    Introductory text, (g)(3), (h)(2), (3) and (i) revised; (j) 
added..............................................................65824
559.11 Amended.....................................................13007
559.13 (b) revised.................................................13007
560.3 Amended......................................................65825

[[Page 606]]

560.30 Table amended; interim......................................15017
    Regulation at 66 FR 15017 confirmed............................15017
    Revised........................................................65825
560.32 (c) amended.................................................13007
560.35 (d)(3) revised..............................................13007
560.36 Revised.....................................................65826
560.40 (a)(2)(ii) amended; (c) added...............................65826
560.42 Revised.....................................................65826
560.93 (d)(3)(iii) amended.........................................13007
560.101 Appendix amended...........................................65821
560.160 (a)(1) revised.............................................13007
561 Heading revised................................................65821
562.4 (b)(1) revised...............................................13007
    (c)(3) correctly added; CFR correction.........................33632
563 Heading revised................................................65821
563.22 (b)(1)(ii), (2), (d)(4), (f)(1) and (h)(2) revised..........13007
563.41 (e)(2)(ii)(A) revised.......................................13008
563.81 (a)(1), (2) and (c) amended.................................13008
563.143 Heading revised; (a)(1) amended............................13008
563.161 (a) revised; interim.......................................15017
    Regulation at 66 FR 15017 confirmed............................15017
563.171 (b)(4) revised.............................................13008
563.180 (d)(11) revised............................................13008
563.183 (c)(1) revised.............................................13008
563.555 Amended....................................................13008
563.565 Revised....................................................13009
563b.27 (e) footnote 1 amended.....................................13009
563d.1 Amended.....................................................65821
563d.2 Amended.....................................................65821
563f.6 (a) amended.................................................13009
563g.5 (b)(1) introductory text, (1)(i) and (2) revised............65821
563g.18 (a) amended................................................65821
565.4 (b)(2)(iii)(B), (3)(iii)(B) and (c)(2) note 1 amended........13009
    (b)(1)(iv) revised.............................................65821
566 Removed; interim...............................................15017
    Regulation at 66 FR 15017 confirmed............................15017
567.1 Amended......................................................59661
567.2 (a)(1)(i) revised............................................59663
567.3 (d)(2)(i) introductory text amended..........................13009
    (a)(2) correctly removed; CFR correction.......................33632
567.4 (a)(3)(i) amended............................................13009
567.5 (a)(2)(iii) added............................................59663
567.6 (a) introductory text, (1), (ii)(R), (iii)(C), (iv)(J), (M), 
        (2) introductory text, (i)(B) and (ii)(A) revised; 
        (a)(1)(ii)(H), (iv)(N), (2)(i)(A), (C) and (3) removed; 
        (b) added..................................................59663
567.7 (f) revised..................................................13009
567.9 (c)(1) revised...............................................59666
567.11 (c) redesignated as (c)(1); (c)(2) and (3) added............59666
567.12 Heading, (a) and (e) revised; (b)(4) added..................59667
568 Authority citation revised......................................8639
    Heading and authority citation revised.........................65821
568.1 (a) revised...................................................8639
568.5 Added.........................................................8639
570 Heading revised................................................65821
570.1 (a) and (b) amended...........................................8639
570.2 (a) revised...................................................8639
570 Appendix B revised..............................................8640
573.15 (a)(7)(ii) revised..........................................65822
574.4 (f)(2) amended...............................................13009
574.6 (f)(4) amended...............................................13009
575.3 (b)(2) introductory text revised.............................13009
575.13 (a)(1), (b), (c)(2) and (e) amended.........................13010
583 Heading revised................................................65822
584.2-1 (a) and (c)(1) amended; interim............................15017
    Regulation at 66 FR 15017 confirmed............................15017
584.2-2 (b) amended................................................13010
590.3 (c) revised..................................................65822

                                  2002

12 CFR
                                                                   67 FR
                                                                    Page
Chapter V
502.5 (a) revised..................................................78151
505.2 Amended......................................................78151
505.3 Revised......................................................78151
505.4 Revised......................................................78151
506.1 (b) table amended (OMB numbers).......................76298, 78151
    (b) table amended (OMB numbers); interim; eff. 4-1-03..........77916
516.40 (a)(2) revised.......................................31726, 78151
516.220 (a) table corrected.........................................3264
541.1 Revised......................................................78152
545.74 (b)(2) revised..............................................78152
550.20 Revised.....................................................76298
550.60 Amended.....................................................76298
550.70 Revised.....................................................76298
550.125 Added......................................................76299

[[Page 607]]

550.130 Revised....................................................76299
550.135 Added......................................................76299
550.136 Added......................................................76299
550.310 Amended....................................................76299
550.580 Heading and introductory text revised; (c) removed.........76299
550.600 Heading and introductory text revised......................76299
551 Added..........................................................76299
557.11 (b) amended.................................................78152
559.3 (l) revised; interim; eff. 4-1-03............................77916
    (e)(2)(ii) amended.............................................78152
560.220 Revised....................................................60554
    Regulation at 67 FR 60554 eff. date delayed in part to 7-1-03 
                                                                   76304
561.1 Revised......................................................78152
562 Technical correction...........................................75809
562.4 (d)(3) and (e) revised; interim..............................70531
    (a) and (e) amended; interim; eff. 4-1-03......................77917
563.41 Revised; interim; eff. 4-1-03...............................77917
563.42 Removed; interim; eff. 4-1-03...............................77918
563.43 (d) revised; interim; eff. 4-1-03...........................77918
563.146 Amended....................................................78152
563b Revised.......................................................52020
563e Appendix A amended............................................78152
563g.19 Amended....................................................78153
567 Technical correction...........................................34991
567.1 Amended...............................................16979, 31726
567.5 (b)(4) revised; (c)(2)(i) and (ii) amended; (c)(2)(iii) and 
        (3) removed................................................31726
567.6 (a)(1)(i)(H) and (ii)(H) added...............................16980
    (a)(1)(iv)(G) and (H) revised..................................31726
567.7 Removed......................................................31727
574 Authority citation revised.....................................52035
574.3 (c)(1)(vii) amended..........................................52035
575.2 (a) amended..................................................52035
575.4 (c)(2) amended...............................................52035
575.7 (a) heading and introductory text, (7), (b)(1), (2), 
        (d)(6)(i) and (e) amended; (d)(7) and (8) added............52035
    (c)(1) and (2) amended.........................................78153
575.8 (a)(7) and (8) revised; (a)(9) through (21) redesignated as 
        (a)(10) through (22); new (a)(9) added; (a) introductory 
        text, (3) through (6) and new (10) amended.................52035
575.11 (c)(1)(i), (2) and (e) amended; (i) added...................52036
575.12 (a)(3) added................................................52036
575.13 (a)(1) revised; (c)(2) amended..............................52036
590.4 Heading and (f)(4) revised...................................60554
591 Authority citation revised.....................................60554
591.2 (n) revised..................................................60554

                                  2003

12 CFR
                                                                   68 FR
                                                                    Page
Chapter V
506 Technical correction...........................................59997
506.1 (b) table amended............................................75109
513 Authority citation revised.....................................48272
513.8 Added........................................................48272
545.96 Amended; (a) revised........................................53025
550.70 Corrected....................................................2108
    Table amended..................................................75109
550.136 (a) amended................................................53026
559.3 Regulation at 67 FR 77916 confirmed; (l) revised.............57796
560.30 Table amended...............................................75109
562.4 Regulation at 67 FR 70531 confirmed..........................52832
    Regulation at 67 FR 77917 confirmed............................57796
563 Authority citation revised.....................................25112
563.41 Corrected....................................................1218
    Regulation at 67 FR 77917 confirmed; revised...................57797
    (b) introductory text amended..................................75110
563.42 Regulation at 67 FR 77918 confirmed.........................57796
563.43 Regulation at 67 FR 77918 confirmed; (d) and (e) revised....57798
563.177 Heading and (b) revised....................................25112
563.180 (c) amended................................................75110
563g.1 (a)(6), (9) and (10) amended................................75110
563g.5 (a) amended.................................................75110
567.1 Amended; interim.............................................56536
567.5 (a)(1)(iii) revised; interim.................................56536
567.6 (a)(3) and (4) added; interim................................56536
575.7 (d)(6)(i) amended............................................75110

[[Page 608]]

                                  2004

12 CFR
                                                                   69 FR
                                                                    Page
Chapter V
502.5 (b) and (c) revised..........................................30568
502.10--502.45 (Subpart A) Revised.................................30568
502.50 Revised.....................................................30571
502.75 (b) revised.................................................30571
506.1 (b) table amended (OMB numbers); interim.....................68246
    (b) table amended (OMB numbers)................................76602
509.103 (c) revised................................................64251
516.40 (a)(2) table amended........................................76602
516.70 Revised; interim............................................68246
516.120 (b) revised; interim.......................................68247
516.140 Revised; interim...........................................68247
516.150 Removed; interim...........................................68247
516.160--516.190 (Subpart D) Revised; interim......................68247
528.4 Introductory text revised; interim...........................68247
541.25 Revised.....................................................76602
543.2 (f) revised; interim.........................................68247
544.2 (b)(3) revised; interim......................................68248
545.74 Removed; interim............................................68248
545.91 Revised; interim............................................68248
545.92 Revised; interim............................................68248
545.93 Revised; interim............................................68248
545.95 Revised; interim............................................68249
545.96 Revised; interim............................................68249
552.2-1 (a)(4) revised; interim....................................68249
552.4 (b)(2) revised; interim......................................68249
559.4 (f) revised; interim.........................................68249
559.12 (d) removed; interim........................................68249
560.93 (b)(9) amended..............................................76602
563.22 (e) revised; interim........................................68250
563.43 (f) amended.................................................76602
563.181 Removed; interim...........................................68250
563.183 Removed; interim...........................................68250
563b.180 Revised; interim..........................................68250
563b.185 Revised; interim..........................................68250
563e.12 (f) removed; (g) through (p) and (r) through (v) 
        redesignated as (f) through (o) and (s) through (w); new 
        (q) and (r) added; (b)(1), new (j), (k) and (q) revised; 
        interim....................................................41188
    (t) revised....................................................51161
563e.27 (g)(1) amended; interim....................................41188
563e.41 (b), (c)(1) and (e)(4) revised; interim....................41188
563e.42 (i) revised; interim.......................................41189
564 Note removed...................................................76602
567.1 Amended......................................................44924
567.5 (a)(1)(iii) amended; interim.................................22385
    (a)(1)(iii) revised............................................44925
567.6 (a)(3)(iv) and (4)(ii) amended; interim......................22385
    (a)(2)(iv) and (v) redesignated as (a)(2)(v) and (vi); 
(a)(2)(ii)(B), new (v)(A) and (3) revised; new (a)(2)(iv) added; 
new (a)(2)(vi) amended; (a)(4) removed.............................44925
    (a)(2)(v) revised..............................................76602
567.13 Removed; interim............................................68250
568 Authority citation revised.....................................77620
568 Heading revised; eff. 7-1-05...................................77620
568.1 (a) amended; eff. 7-1-05.....................................77620
568.5 Revised; eff. 7-1-05.........................................77620
570 Table of contents amended......................................76603
    Authority citation revised.....................................77620
570.1 (c) revised..................................................76603
    (b) and (c) amended; eff. 7-1-05...............................77620
570.2 (a) amended; eff. 7-1-05.....................................77620
570 Appendix B amended; eff. 7-1-05................................77620
571 Added; eff. 7-1-05.............................................77621
574.6 (c)(2)(iii), (d) and (e) revised; interim....................68250
575.13 (c)(3) and (f) revised; (c)(4) and (g) removed; interim.....68251

                                  2005

12 CFR
                                                                   70 FR
                                                                    Page
Chapter V
506.1 Regulation at 69 FR 68246 confirmed..........................51586
507 Added..........................................................69640
509 Authority citation revised.....................................69641
509.1 (f) amended; (g) redesignated as (h); new (g) added..........69641
509.100 (a) revised; interim.......................................10023
509.200--509.204 (Subpart C) Added; interim........................10023
510.2 (b) amended..................................................76675
516.70 Regulation at 69 FR 68246 confirmed.........................51586
516.120 Regulation at 69 FR 68247 confirmed........................51586
516.140 Regulation at 69 FR 68247 confirmed........................51586
516.150 Regulation at 69 FR 68247 confirmed........................51586
516.160--516.190 (Subpart D) Regulation at 69 FR 68247 confirmed 
                                                                   51586
528.4 Regulation at 69 FR 68247 confirmed..........................51586
543.2 Regulation at 69 FR 68247 confirmed..........................51586

[[Page 609]]

544.2 Regulation at 69 FR 68248 confirmed..........................51586
545.74 Regulation at 69 FR 68248 confirmed.........................51586
545.91 Regulation at 69 FR 68248 confirmed.........................51586
545.92 Regulation at 69 FR 68248 confirmed.........................51586
545.93 Regulation at 69 FR 68248 confirmed; (b)(3)(iii) 
        redesignated as (b)(3)(iv); new (b)(3)(iii) added..........51586
545.95 Regulation at 69 FR 68249 confirmed; heading revised; 
        (b)(1)(iii) added..........................................51586
545.96 Regulation at 69 FR 68249 confirmed.........................51586
546.4 (a) and (b) amended..........................................76675
552.2-1 Regulation at 69 FR 68249 confirmed........................51586
552.4 Regulation at 69 FR 68249 confirmed..........................51586
559.4 Regulation at 69 FR 68249 confirmed..........................51586
    (g) revised....................................................76675
559.12 Regulation at 69 FR 68249 confirmed.........................51586
560.30 Table amended...............................................76675
561.16 (a) designation and (b) removed; existing text amended......76676
563.22 Regulation at 69 FR 68250 confirmed.........................51586
563.181 Regulation at 69 FR 68250 confirmed........................51586
563.183 Regulation at 69 FR 68250 confirmed........................51586
563b.180 Regulation at 69 FR 68250 confirmed.......................51586
563b.185 Regulation at 69 FR 68250 confirmed.......................51586
563e.12 Regulation at 69 FR 41188 confirmed........................15574
563e.21 (a)(1) revised.............................................10030
563e.27 Regulation at 69 FR 41188 confirmed........................15574
563e.28 (a) amended; (d) added.....................................10030
563e.41 Regulation at 69 FR 41188 confirmed........................15574
563e.42 Regulation at 69 FR 41189 confirmed........................15574
564 Policy statement...............................................59987
567.6 (b)(5)(v)(B) amended.........................................76676
567.13 Regulation at 69 FR 68250 confirmed.........................51586
568 Heading and authority citation revised.........................15754
568.5 Amended......................................................15754
    Revised........................................................32229
570 Authority citation revised.....................................15754
    Appendix B amended.............................................15754
571 Authority citation revised..............................33989, 70689
571.1 (b)(2) revised; interim; eff. 3-7-06.........................33989
    Regulation at 70 FR 33989 eff. date delayed to 4-1-06..........70664
    (b) revised; eff. 4-1-06.......................................70689
571.2 Added; interim; eff. 3-7-06..................................33989
    Regulation at 70 FR 33989 eff. date delayed to 4-1-06..........70664
    Added; eff. 4-1-06.............................................70689
    Correctly revised..............................................75931
571.3 Introductory text, (a) through (n) revised; interim; eff. 3-
        7-06.......................................................33989
    Regulation at 70 FR 33989 eff. date delayed to 4-1-06..........70664
    Introductory text and (a) through (n) revised; eff. 4-1-06.....70689
571.30--571.32 (Subpart D) Added; interim; eff. 3-7-06.............33990
    Regulation at 70 FR 33990 eff. date delayed to 4-1-06..........70664
    Added; eff. 4-1-06.............................................70689
    Correctly revised..............................................75931
574.6 Regulation at 69 FR 68250 confirmed..........................51586
575.13 Regulation at 69 FR 68251 confirmed.........................51586

                                  2006

12 CFR
                                                                   71 FR
                                                                    Page
Chapter V
528.1 (b) revised..................................................19811
546.2 (a)(3) revised...............................................19811
552.13 (a) and (c)(3) revised......................................19811
561.3 Amended......................................................19811
561.7 Removed......................................................19811
561.41 Removed.....................................................19811
563.22 (d)(4) revised; (e)(2)(i) and (h)(2)(ii) amended; 
        (h)(2)(iii) removed........................................19811
563.81 (b)(3), (f), (k)(3)(ii) and (5)(i) amended..................19811
563b.625 (b)(3) and (4) amended....................................19811
563b.630 Heading revised; introductory text amended................19811
563b.670 (b) amended...............................................19812

[[Page 610]]

563b.675 (b)(1) amended............................................19812
563e.12 (e) through (w) redesignated as (f) through (x); new (e) 
        added; new (g)(4) revised..................................18618
570 Appendix B correctly amended....................................5780
    Appendix A amended.............................................19812
574.2 (e) and (o) removed..........................................19812
574.7 (c)(1)(i) and (d)(6) amended.................................19812
575.7 (d)(6)(ii) amended...........................................19812
583.3 Revised......................................................19812
583.5 Removed......................................................19812
583.19 Removed.....................................................19812

                                  2007

12 CFR
                                                                   72 FR
                                                                    Page
Chapter V
509 Authority citation revised.....................................25955
509.1 (i) added; interim...........................................25955
509.300--509.301 (Subpart D) Added; interim........................25955
551.150 (a) amended; interim.......................................30474
    Regulation at 72 FR 30474 confirmed............................62768
559.5 (b)(1) revised; eff. 4-1-08..................................69438
560.101 Appendix amended; eff. 4-1-08..............................69438
563.74 (i)(2)(iv) and (v) amended; eff. 4-1-08.....................69438
563.81 Revised......................................................1927
    (a) and (d)(2)(ii) amended; eff. 4-1-08........................69438
563.141 (b) amended; eff. 4-1-08...................................69438
563.142 Amended; eff. 4-1-08.......................................69438
563.171 (b) revised; interim.......................................17803
    Regulation at 72 FR 17803 confirmed............................54349
563b.385 (a) amended...............................................35149
563b.500 Revised...................................................35149
563e.12 (u) revised................................................13435
    (u)(1) correctly revised.......................................72573
563e.21 (a)(1) amended.............................................13435
563e.26 Revised....................................................13435
    (a)(1) heading correctly revised...............................72573
563e.28 (a) amended; (c) revised; (d) removed......................13435
    (c)(1) correctly amended.......................................19110
563e Appendix A amended............................................13435
    Appendix A correctly amended...................................19110
563f.2 (j)(1)(vi) amended; interim..................................1276
    Regulation at 72 FR 1276 confirmed.............................38755
563f.3 (b) amended; interim.........................................1276
    Regulation at 72 FR 1276 confirmed.............................38755
567.0 (Subpart A) Added; eff. 4-1-08...............................69438
567.1--567.12 Designated as Subpart B; heading added; eff. 4-1-08 
                                                                   69438
567.1 Introductory text revised; eff. 4-1-08.......................69438
567.3 (a), (b) introductory text and (d)(1) revised; eff. 4-1-08 
                                                                   69438
567.4 (a)(1) introductory text revised; eff. 4-1-08................69439
567.10 (e) introductory text revised; eff. 4-1-08..................69439
567 Appendix C added and amended; eff. 4-1-08......................69439
571 Authority citation revised..............................62972, 63764
571.1 (b)(3) added.................................................62972
    (b)(9) revised; (b)(10) added..................................63764
571.3 Introductory text revised; (o) removed.......................63764
571.20--571.28 (Subpart C) Added...................................62972
571.80--571.83 (Subpart I) Heading revised.........................63764
571.82 Added.......................................................63764
571.83 (a) and (b) redesignated as new (b) and (c); new (a) added 
                                                                   63764
571.90--571.91 (Subpart J) Added...................................63765
571 Appendix C added...............................................62980
    Appendix J added...............................................63766
575.7 (a) and (b)(2) amended; (b)(1) and (3) removed; (b)(2), (c), 
        (d) and (e) redesignated as (a)(9), (b), (c) and (d); new 
        (d) revised................................................35150
575.8 (a)(3) through (9) revised; (c) added........................35150
584 Heading revised; eff. 04/08....................................72238
    Technical correction...........................................73424
584.2 (b)(6)((i) revised; eff. 04/08...............................72238
584.2-2 (a) revised; eff. 04/08....................................72238
584.4 Revised; eff. 04/08..........................................72238
585 Added; interim.................................................25955
585.100 (b)(2) introductory text revised...........................50645

[[Page 611]]

                                  2008

12 CFR
                                                                   73 FR
                                                                    Page
Chapter V
509.103 (c) revised................................................63626
516.40 (a)(2) table revised........................................76939
558.1 (b)(1) and (2) removed; (b)(3) through (7) redesignated as 
        new (b)(1) through (5)........................................18
558.2 Revised.........................................................18
559 Technical correction...........................................21690
560 Technical correction...........................................21690
563 Technical correction...........................................21690
563.43 Introductory text amended......................................18
563e.12 (u)(1) revised.............................................78155
564.8 (a) amended.....................................................18
565.2 (f) revised; eff. 1-29-09....................................79607
567 Technical correction...........................................21690
    Policy statement...............................................44620
567.1 Amended; eff. 1-29-09........................................79607
567.5 (b)(1)(iv) and (v) removed; (b)(1)(vi) and (vii) 
        redesignated as new (b)(1)(iv) and (v)........................19
    (a)(2)(vii) added; eff. 1-29-09................................79607
567.9 (c)(1) revised; eff. 1-29-09.................................79607
567.12 (g) removed; (h) redesignated as new (g).......................19
    Heading, (a), (b)(3) and (e)(3) revised; (b)(5) and (h) added; 
eff. 1-29-09.......................................................79607
Appendix C corrected...............................................21690
574.2 (c)(3) amended..................................................19
575.9 (c) redesignated as (d); new (c) added.......................39219
    (c) amended....................................................76939
575.14 (c)(3) and (4) redesignated as (c)(4) and (5); new (c)(3) 
        added......................................................39219
    (c)(3) amended.................................................76939
585.100 (b)(2) introductory text amended...........................10986
    (b)(2) introductory text revised........................30737, 65258

                                  2009

12 CFR
                                                                   74 FR
                                                                    Page
Chapter V
502.26 (a)(1) revised..............................................68665
502.29 (a) revised.................................................68665
535 Revised; eff. 7-1-10............................................5567
563e.11 (u)(1) revised.............................................68664
567.1 Amended; interim.............................................31167
    Amended........................................................60143
567.3 Second (d)(1) removed; CFR correction........................67811
571 Authority citation revised.....................................31520
571.1 (b)(5) added.................................................31520
571.40--571.43 (Subpart E) Added...................................31520
571.82 (a), (b), (c)(2)(i)(A), (d)(1) and (3) amended..............22643
571 Appendices C and J amended.....................................22643
    Appendix E added...............................................31521
573.2 Revised......................................................62945
573.6 (b) and (f) revised; (g) added; (g) removed eff. 1-1-12......62945
573.7 (i) added....................................................62946
573 Appendix A redesignated as Appendix B; new Appendix A added....62946
    Appendix B amended; Appendix B removed eff. 1-1-12.............62955
585.100 (b)(2) introductory text revised....................14458, 49792


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