[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2014 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 230 to 299
Revised as of January 1, 2014
Containing a codification of documents of general
applicability and future effect
As of January 1, 2014
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
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Table of Contents
Page
Explanation................................................. v
Title 12:
Chapter II--Federal Reserve System (Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 479
Alphabetical List of Agencies Appearing in the CFR...... 499
List of CFR Sections Affected........................... 509
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 12 CFR 230.1 refers
to title 12, part 230,
section 1.
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[[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
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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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HOW TO USE THE CODE OF FEDERAL REGULATIONS
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Each volume of the Code contains amendments published in the Federal
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OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
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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PAST PROVISIONS OF THE CODE
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``[RESERVED]'' TERMINOLOGY
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(a) The incorporation will substantially reduce the volume of
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(b) The matter incorporated is in fact available to the extent
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(c) The incorporating document is drafted and submitted for
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What if the material incorporated by reference cannot be found? If
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this volume.
[[Page vii]]
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Charles A. Barth,
Director,
Office of the Federal Register.
January 1, 2014.
[[Page ix]]
THIS TITLE
Title 12--Banks and Banking is composed of ten volumes. The parts in
these volumes are arranged in the following order: Parts 1-199, 200-219,
220-229, 230-299, 300-499, 500-599, 600-899, 900-1025, 1026-1099, and
1100-end. The contents of these volumes represent all current
regulations codified under this title of the CFR as of January 1, 2014.
For this volume, Jonn Lilyea was Chief Editor. The Code of Federal
Regulations publication program is under the direction of the Managing
Editor, assisted by Ann Worley.
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 230 to 299)
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Part
chapter ii--Federal Reserve System (Continued).............. 230
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CHAPTER II--FEDERAL RESERVE SYSTEM (CONTINUED)
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SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(CONTINUED)
Part Page
230 Truth in savings (Regulation DD)............ 5
231 Netting eligibility for financial
institution (Regulation EE)............. 43
232 Obtaining and using medical information in
connection with credit (Regulation FF).. 44
233 Prohibition on funding of unlawful internet
gambling (Regulation GG)................ 50
234 Designated financial market utilities
(Regulation HH)......................... 60
235 Debit card interchange fees and routing..... 66
237 Margin and capital requirements for covered
swap entities (Regulation KK)........... 85
238 Savings and loan holding companies
(Regulation LL)......................... 86
239 Mutual holding companies (Regulation MM).... 130
240 Retail foreign exchange transactions
(Regulation NN)......................... 204
241 Securities holding companies (Regulation OO) 219
242 Definitions relating to Title I of the DODD-
Frank Act (Regulation PP)............... 220
243 Resolution plans............................ 228
246 Supervision and regulation assessments of
fees (Regulation TT).................... 239
250 Miscellaneous interpretations............... 244
252 Enhanced prudential standards (Regulation
YY)..................................... 273
261 Rules regarding availability of information. 304
261a Rules regarding access to personal
information under the Privacy Act 1974.. 321
261b Rules regarding public observation of
meetings................................ 325
262 Rules of procedure.......................... 330
263 Rules of practice for hearings.............. 339
264 Employee responsibilities and conduct....... 385
264a Post-employment restrictions for senior
examiners............................... 386
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264b Rules regarding foreign gifts and
decorations............................. 388
265 Rules regarding delegation of authority..... 390
266 Limitations on activities of former members
and employees of the Board.............. 409
267 Rules of organization and procedure of the
Consumer Advisory Council............... 411
268 Rules regarding equal opportunity........... 413
269 Policy on labor relations for the Federal
Reserve banks........................... 447
269a Definitions................................. 452
269b Charges of unfair labor practices........... 453
SUBCHAPTER B--FEDERAL OPEN MARKET COMMITTEE
270 Open market operations of Federal Reserve
banks................................... 463
271 Rules regarding availability of information. 464
272 Rules of procedure.......................... 471
281 Statements of policy........................ 473
SUBCHAPTER C--FEDERAL RESERVE SYSTEM LABOR RELATIONS PANEL
290-299 [Reserved]
Supplementary Publications: The Federal Reserve Act, as amended through
December 31, 1976, with an Appendix containing provisions of certain
other statutes affecting the Federal Reserve System. Rules of
Organization and Procedure--Board of Governors of the Federal Reserve
System. Regulations of the Board of Governors of the Federal Reserve
System. The Federal Reserve System--Purposes and Functions. Annual
Report. Federal Reserve Bulletin. Monthly. Federal Reserve Chart Book
Quarterly; Historical Chart Book issued in September.
[[Page 5]]
SUBCHAPTER A_BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(CONTINUED)
PART 230_TRUTH IN SAVINGS (REGULATION DD)--Table of Contents
Sec.
230.1 Authority, purpose, coverage, and effect on state laws.
230.2 Definitions.
230.3 General disclosure requirements.
230.4 Account disclosures.
230.5 Subsequent disclosures.
230.6 Periodic statement disclosures.
230.7 Payment of interest.
230.8 Advertising.
230.9 Enforcement and record retention.
230.10 [Reserved]
230.11 Additional disclosure requirements for overdraft services.
Appendix A to Part 230--Annual Percentage Yield Calculation
Appendix B to Part 230--Model Clauses and Sample Forms
Appendix C to Part 230--Effect on State Laws
Appendix D to Part 230--Issuance of Staff Interpretations
Supplement I to Part 230--Official Staff Interpretations
Authority: 12 U.S.C. 4301 et seq.
Source: 57 FR 43376, Sept. 21, 1992, unless otherwise noted.
Sec. 230.1 Authority, purpose, coverage, and effect on state laws.
(a) Authority. This part, known as Regulation DD, is issued by the
Board of Governors of the Federal Reserve System to implement the Truth
in Savings Act of 1991 (the act), contained in the Federal Deposit
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 3201 et seq.,
Pub. L. 102-242, 105 Stat. 2236). Information-collection requirements
contained in this part have been approved by the Office of Management
and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been
assigned OMB No. 7100-0271.
(b) Purpose. The purpose of this part is to enable consumers to make
informed decisions about accounts at depository institutions. This part
requires depository institutions to provide disclosures so that
consumers can make meaningful comparisons among depository institutions.
(c) Coverage. This part applies to depository institutions except
for credit unions. In addition, the advertising rules inSec. 230.8 of
this part apply to any person who advertises an account offered by a
depository institution, including deposit brokers.
(d) Effect on state laws. State law requirements that are
inconsistent with the requirements of the act and this part are
preempted to the extent of the inconsistency. Additional information on
inconsistent state laws and the procedures for requesting a preemption
determination from the Board are set forth in appendix C of this part.
[57 FR 43376, Sept. 21, 1992, as amended at 74 FR 5593, Jan. 29, 2009]
Sec. 230.2 Definitions.
For purposes of this part, the following definitions apply:
(a) Account means a deposit account at a depository institution that
is held by or offered to a consumer. It includes time, demand, savings,
and negotiable order of withdrawal accounts. For purposes of the
advertising requirements inSec. 230.8 of this part, the term also
includes an account at a depository institution that is held by or on
behalf of a deposit broker, if any interest in the account is held by or
offered to a consumer.
(b) Advertisement means a commercial message, appearing in any
medium, that promotes directly or indirectly:
(1) The availability or terms of, or a deposit in, a new account;
and
(2) For purposes ofSec. 230.8(a) andSec. 230.11 of this part,
the terms of, or a deposit in, a new or existing account.
(c) Annual percentage yield means a percentage rate reflecting the
total amount of interest paid on an account, based on the interest rate
and the frequency of compounding for a 365-day period and calculated
according to the rules in appendix A of this part.
(d) Average daily balance method means the application of a periodic
rate to the average daily balance in the account for the period. The
average daily balance is determined by adding
[[Page 6]]
the full amount of principal in the account for each day of the period
and dividing that figure by the number of days in the period.
(e) Board means the Board of Governors of the Federal Reserve
System.
(f) Bonus means a premium, gift, award, or other consideration worth
more than $10 (whether in the form of cash, credit, merchandise, or any
equivalent) given or offered to a consumer during a year in exchange for
opening, maintaining, renewing, or increasing an account balance. The
term does not include interest, other consideration worth $10 or less
given during a year, the waiver or reduction of a fee, or the absorption
of expenses.
(g) Business day means a calendar day other than a Saturday, a
Sunday, or any of the legal public holidays specified in 5 U.S.C.
6103(a).
(h) Consumer means a natural person who holds an account primarily
for personal, family, or household purposes, or to whom such an account
is offered. The term does not include a natural person who holds an
account for another in a professional capacity.
(i) Daily balance method means the application of a daily periodic
rate to the full amount of principal in the account each day.
(j) Depository institution and institution mean an institution
defined in section 19(b)(1)(A)(i)-(vi) of the Federal Reserve Act (12
U.S.C. 461), except credit unions defined in section 19(b)(1)(A)(iv).
(k) Deposit broker means any person who is a deposit broker as
defined in section 29(g) of the Federal Deposit Insurance Act (12 U.S.C.
1831f(g)).
(l) Fixed-rate account means an account for which the institution
contracts to give at least 30 calendar days advance written notice of
decreases in the interest rate.
(m) Grace period means a period following the maturity of an
automatically renewing time account during which the consumer may
withdraw funds without being assessed a penalty.
(n) Interest means any payment to a consumer or to an account for
the use of funds in an account, calculated by application of a periodic
rate to the balance. The term does not include the payment of a bonus or
other consideration worth $10 or less given during a year, the waiver or
reduction of a fee, or the absorption of expenses.
(o) Interest rate means the annual rate of interest paid on an
account which does not reflect compounding. For the purposes of the
account disclosures inSec. 230.4(b)(1)(i) of this part, the interest
rate may, but need not, be referred to as the ``annual percentage rate''
in addition to being referred to as the ``interest rate.''
(p) Passbook savings account means a savings account in which the
consumer retains a book or other document in which the institution
records transactions on the account.
(q) Periodic statement means a statement setting forth information
about an account (other than a time account or passbook savings account)
that is provided to a consumer on a regular basis four or more times a
year.
(r) State means a state, the District of Columbia, the commonwealth
of Puerto Rico, and any territory or possession of the United States.
(s) Stepped-rate account means an account that has two or more
interest rates that take effect in succeeding periods and are known when
the account is opened.
(t) Tiered-rate account means an account that has two or more
interest rates that are applicable to specified balance levels.
(u) Time account means an account with a maturity of at least seven
days in which the consumer generally does not have a right to make
withdrawals for six days after the account is opened, unless the deposit
is subject to an early withdrawal penalty of at least seven days'
interest on amounts withdrawn.
(v) Variable-rate account means an account in which the interest
rate may change after the account is opened, unless the institution
contracts to give at least 30 calendar days advance written notice of
rate decreases.
[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993;
59 FR 52658, Oct. 19, 1994; 70 FR 29593, May 24, 2005]
Sec. 230.3 General disclosure requirements.
(a) Form. Depository institutions shall make the disclosures
required by
[[Page 7]]
Sec.Sec. 230.4 through 230.6 of this part, as applicable, clearly and
conspicuously, in writing, and in a form the consumer may keep. The
disclosures required by this part may be provided to the consumer in
electronic form, subject to compliance with the consumer consent and
other applicable provisions of the Electronic Signatures in Global and
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The
disclosures required by Sec.Sec. 230.4(a)(2) and 230.8 may be provided
to the consumer in electronic form without regard to the consumer
consent or other provisions of the E-Sign Act in the circumstances set
forth in those sections. Disclosures for each account offered by an
institution may be presented separately or combined with disclosures for
the institution's other accounts, as long as it is clear which
disclosures are applicable to the consumer's account.
(b) General. The disclosures shall reflect the terms of the legal
obligation of the account agreement between the consumer and the
depository institution. Disclosures may be made in languages other than
English, provided the disclosures are available in English upon request.
(c) Relation to Regulation E (12 CFR part 205). Disclosures required
by and provided in accordance with the Electronic Fund Transfer Act (15
U.S.C. 1601) and its implementing Regulation E (12 CFR part 205) that
are also required by this part may be substituted for the disclosures
required by this part.
(d) Multiple consumers. If an account is held by more than one
consumer, disclosures may be made to any one of the consumers.
(e) Oral response to inquiries. In an oral response to a consumer's
inquiry about interest rates payable on its accounts, the depository
institution shall state the annual percentage yield. The interest rate
may be stated in addition to the annual percentage yield. No other rate
may be stated.
(f) Rounding and accuracy rules for rates and yields--(1) Rounding.
The annual percentage yield, the annual percentage yield earned, and the
interest rate shall be rounded to the nearest one-hundredth of one
percentage point (.01%) and expressed to two decimal places. For account
disclosures, the interest rate may be expressed to more than two decimal
places.
(2) Accuracy. The annual percentage yield (and the annual percentage
yield earned) will be considered accurate if not more that one-twentieth
of one percentage point (.05%) above or below the annual percentage
yield (and the annual percentage yield earned) determined in accordance
with the rules in appendix A of this part.
[57 FR 43376, Sept. 21, 1992, as amended by Reg. DD, 66 FR 17802, Apr.
4, 2001; 72 FR 63483, Nov. 9, 2007]
Sec. 230.4 Account disclosures.
(a) Delivery of account disclosures--(1) Account opening. (i)
General. A depository institution shall provide account disclosures to a
consumer before an account is opened or a service is provided, whichever
is earlier. An institution is deemed to have provided a service when a
fee required to be disclosed is assessed. Except as provided in
paragraph (a)(1)(ii) of this section, if the consumer is not present at
the institution when the account is opened or the service is provided
and has not already received the disclosures, the institution shall mail
or deliver the disclosures no later than 10 business days after the
account is opened or the service is provided, whichever is earlier.
(ii) Timing of electronic disclosures. If a consumer who is not
present at the institution uses electronic means (for example, an
Internet Web site) to open an account or request a service, the
disclosures required under paragraph (a)(1) of this section must be
provided before the account is opened or the service is provided.
(2) Requests. (i) A depository institution shall provide account
disclosures to a consumer upon request. If a consumer who is not present
at the institution makes a request, the institution shall mail or
deliver the disclosures within a reasonable time after it receives the
request and may provide the disclosures in paper form, or electronically
if the consumer agrees.
(ii) In providing disclosures upon request, the institution may:
(A) Specify an interest rate and annual percentage yield that were
offered within the most recent seven calendar
[[Page 8]]
days; state that the rate and yield are accurate as of an identified
date; and provide a telephone number consumers may call to obtain
current rate information.
(B) State the maturity of a time account as a term rather than a
date.
(b) Content of account disclosures. Account disclosures shall
include the following, as applicable:
(1) Rate information--(i) Annual percentage yield and interest rate.
The ``annual percentage yield'' and the ``interest rate,'' using those
terms, and for fixed-rate accounts the period of time the interest rate
will be in effect.
(ii) Variable rates. For variable-rate accounts:
(A) The fact that the interest rate and annual percentage yield may
change;
(B) How the interest rate is determined;
(C) The frequency with which the interest rate may change; and
(D) Any limitation on the amount the interest rate may change.
(2) Compounding and crediting--(i) Frequency. The frequency with
which interest is compounded and credited.
(ii) Effect of closing an account. If consumers will forfeit
interest if they close the account before accrued interest is credited,
a statement that interest will not be paid in such cases.
(3) Balance information--(i) Minimum balance requirements. Any
minimum balance required to:
(A) Open the account;
(B) Avoid the imposition of a fee; or
(C) Obtain the annual percentage yield disclosed.
Except for the balance to open the account, the disclosure shall state
how the balance is determined for these purposes.
(ii) Balance computation method. An explanation of the balance
computation method specified inSec. 230.7 of this part used to
calculate interest on the account.
(iii) When interest begins to accrue. A statement of when interest
begins to accrue on noncash deposits.
(4) Fees. The amount of any fee that may be imposed in connection
with the account (or an explanation of how the fee will be determined)
and the conditions under which the fee may be imposed.
(5) Transaction limitations. Any limitations on the number or dollar
amount of withdrawals or deposits.
(6) Features of time accounts. For time accounts:
(i) Time requirements. The maturity date.
(ii) Early withdrawal penalties. A statement that a penalty will or
may be imposed for early withdrawal, how it is calculated, and the
conditions for its assessment.
(iii) Withdrawal of interest prior to maturity. If compounding
occurs during the term and interest may be withdrawn prior to maturity,
a statement that the annual percentage yield assumes interest remains on
deposit until maturity and that a withdrawal will reduce earnings. For
accounts with a stated maturity greater than one year that do not
compound interest on an annual or more frequent basis, that require
interest payouts at least annually, and that disclose an APY determined
in accordance with section E of appendix A of this part, a statement
that interest cannot remain on deposit and that payout of interest is
mandatory.
(iv) Renewal policies. A statement of whether or not the account
will renew automatically at maturity. If it will, a statement of whether
or not a grace period will be provided and, if so, the length of that
period must be stated. If the account will not renew automatically, a
statement of whether interest will be paid after maturity if the
consumer does not renew the account must be stated.
(7) Bonuses. The amount or type of any bonus, when the bonus will be
provided, and any minimum balance and time requirements to obtain the
bonus.
(c) Notice to existing account holders--(1) Notice of availability
of disclosures. Depository institutions shall provide a notice to
consumers who receive periodic statements and who hold existing accounts
of the type offered by the institution on June 21, 1993. The notice
shall be included on or with the first periodic statement sent on or
after June 21, 1993 (or on or with the first periodic statement for a
statement cycle beginning on or after that date).
[[Page 9]]
The notice shall state that consumers may request account disclosures
containing terms, fees, and rate information for their account. In
responding to such a request, institutions shall provide disclosures in
accordance with paragraph (a)(2) of this section.
(2) Alternative to notice. As an alternative to the notice described
in paragraph (c)(1) of this section, institutions may provide account
disclosures to consumers. The disclosures may be provided either with a
periodic statement or separately, but must be sent no later than when
the periodic statement described in paragraph (c)(1) is sent.
[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993;
Reg. DD, 60 FR 5130, Jan. 26, 1995; 63 FR 40637, July 30, 1998; 66 FR
17802, Apr. 4, 2001; 72 FR 63483, Nov. 9, 2007]
Sec. 230.5 Subsequent disclosures.
(a) Change in terms--(1) Advance notice required. A depository
institution shall give advance notice to affected consumers of any
change in a term required to be disclosed underSec. 230.4(b) of this
part if the change may reduce the annual percentage yield or adversely
affect the consumer. The notice shall include the effective date of the
change. The notice shall be mailed or delivered at least 30 calendar
days before the effective date of the change.
(2) No notice required. No notice under this section is required
for:
(i) Variable-rate changes. Changes in the interest rate and
corresponding changes in the annual percentage yield in variable-rate
accounts.
(ii) Check printing fees. Changes in fees assessed for check
printing.
(iii) Short-term time accounts. Changes in any term for time
accounts with maturities of one month or less.
(b) Notice before maturity for time accounts longer than one month
that renew automatically. For time accounts with a maturity longer than
one month that renew automatically at maturity, institutions shall
provide the disclosures described below before maturity. The disclosures
shall be mailed or delivered at least 30 calendar days before maturity
of the existing account. Alternatively, the disclosures may be mailed or
delivered at least 20 calendar days before the end of the grace period
on the existing account, provided a grace period of at least five
calendar days is allowed.
(1) Maturities of longer than one year. If the maturity is longer
than one year, the institution shall provide account disclosures set
forth inSec. 230.4(b) of this part for the new account, along with the
date the existing account matures. If the interest rate and annual
percentage yield that will be paid for the new account are unknown when
disclosures are provided, the institution shall state that those rates
have not yet been determined, the date when they will be determined, and
a telephone number consumers may call to obtain the interest rate and
the annual percentage yield that will be paid for the new account.
(2) Maturities of one year or less but longer than one month. If the
maturity is one year or less but longer than one month, the institution
shall either:
(i) Provide disclosures as set forth in paragraph (b)(1) of this
section; or
(ii) Disclose to the consumer:
(A) The date the existing account matures and the new maturity date
if the account is renewed;
(B) The interest rate and the annual percentage yield for the new
account if they are known (or that those rates have not yet been
determined, the date when they will be determined, and a telephone
number the consumer may call to obtain the interest rate and the annual
percentage yield that will be paid for the new account); and
(C) Any difference in the terms of the new account as compared to
the terms required to be disclosed underSec. 230.4(b) of this part for
the existing account.
(c) Notice before maturity for time accounts longer than one year
that do not renew automatically. For time accounts with a maturity
longer than one year that do not renew automatically at maturity,
institutions shall disclose to consumers the maturity date and whether
interest will be paid after maturity. The disclosures shall be mailed or
delivered at least 10 calendar days before maturity of the existing
account.
[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993;
Reg. DD, 63 FR 52107, Sept. 29, 1998]
[[Page 10]]
Sec. 230.6 Periodic statement disclosures.
(a) General rule. If a depository institution mails or delivers a
periodic statement, the statement shall include the following
disclosures:
(1) Annual percentage yield earned. The ``annual percentage yield
earned'' during the statement period, using that term, calculated
according to the rules in appendix A of this part.
(2) Amount of interest. The dollar amount of interest earned during
the statement period.
(3) Fees imposed. Fees required to be disclosed underSec.
230.4(b)(4) of this part that were debited to the account during the
statement period. The fees shall be itemized by type and dollar amounts.
Except as provided inSec. 230.11(a)(1) of this part, when fees of the
same type are imposed more than once in a statement period, a depository
institution may itemize each fee separately or group the fees together
and disclose a total dollar amount for all fees of that type.
(4) Length of period. The total number of days in the statement
period, or the beginning and ending dates of the period.
(5) Aggregate fee disclosure. If applicable, the total overdraft and
returned item fees required to be disclosed bySec. 230.11(a).
(b) Special rule for average daily balance method. In making the
disclosures described in paragraph (a) of this section, institutions
that use the average daily balance method and that calculate interest
for a period other than the statement period shall calculate and
disclose the annual percentage yield earned and amount of interest
earned based on that period rather than the statement period. The
information in paragraph (a)(4) of this section shall be stated for that
period as well as for the statement period.
[Reg. DD 57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9,
1992; 64 FR 49848, Sept. 14, 1999; 66 FR 17802, Apr. 4, 2001; 70 FR
29593, May 24, 2005; 75 FR 31676, June 4, 2010]
Sec. 230.7 Payment of interest.
(a) Permissible methods--(1) Balance on which interest is
calculated. Institutions shall calculate interest on the full amount of
principal in an account for each day by use of either the daily balance
method or the average daily balance method. \1\
---------------------------------------------------------------------------
\1\ Institutions shall calculate interest by use of a daily rate of
at least \1/365\ of the interest rate. In a leap year a daily rate of
\1/366\ of the interest rate may be used.
---------------------------------------------------------------------------
(2) Determination of minimum balance to earn interest. An
institution shall use the same method to determine any minimum balance
required to earn interest as it uses to determine the balance on which
interest is calculated. An institution may use an additional method that
is unequivocally beneficial to the consumer.
(b) Compounding and crediting policies. This section does not
require institutions to compound or credit interest at any particular
frequency.
(c) Date interest begins to accrue. Interest shall begin to accrue
not later than the business day specified for interest-bearing accounts
in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005
et seq.) and implementing Regulation CC (12 CFR part 229). Interest
shall accrue until the day funds are withdrawn.
Sec. 230.8 Advertising.
(a) Misleading or inaccurate advertisements. An advertisement shall
not:
(1) Be misleading or inaccurate or misrepresent a depository
institution's deposit contract; or
(2) Refer to or describe an account as ``free'' or ``no cost'' (or
contain a similar term) if any maintenance or activity fee may be
imposed on the account. The word ``profit'' shall not be used in
referring to interest paid on an account.
(b) Permissible rates. If an advertisement states a rate of return,
it shall state the rate as an ``annual percentage yield'' using that
term. (The abbreviation ``APY'' may be used provided the term ``annual
percentage yield'' is stated at least once in the advertisement.) The
advertisement shall not state any other rate, except that the ``interest
rate,'' using that term, may be stated in conjunction with, but not more
conspicuously than, the annual percentage yield to which it relates.
(c) When additional disclosures are required. Except as provided in
paragraph
[[Page 11]]
(e) of this section, if the annual percentage yield is stated in an
advertisement, the advertisement shall state the following information,
to the extent applicable, clearly and conspicuously:
(1) Variable rates. For variable-rate accounts, a statement that the
rate may change after the account is opened.
(2) Time annual percentage yield is offered. The period of time the
annual percentage yield will be offered, or a statement that the annual
percentage yield is accurate as of a specified date.
(3) Minimum balance. The minimum balance required to obtain the
advertised annual percentage yield. For tiered-rate accounts, the
minimum balance required for each tier shall be stated in close
proximity and with equal prominence to the applicable annual percentage
yield.
(4) Minimum opening deposit. The minimum deposit required to open
the account, if it is greater than the minimum balance necessary to
obtain the advertised annual percentage yield.
(5) Effect of fees. A statement that fees could reduce the earnings
on the account.
(6) Features of time accounts. For time accounts:
(i) Time requirements. The term of the account.
(ii) Early withdrawal penalties: A statement that a penalty will or
may be imposed for early withdrawal.
(iii) Required interest payouts. For noncompounding time accounts
with a stated maturity greater than one year that do not compound
interest on an annual or more frequent basis, that require interest
payouts at least annually, and that disclose an APY determined in
accordance with section E of appendix A of this part, a statement that
interest cannot remain on deposit and that payout of interest is
mandatory.
(d) Bonuses. Except as provided in paragraph (e) of this section, if
a bonus is stated in an advertisement, the advertisement shall state the
following information, to the extent applicable, clearly and
conspicuously:
(1) The ``annual percentage yield,'' using that term;
(2) The time requirement to obtain the bonus;
(3) The minimum balance required to obtain the bonus;
(4) The minimum balance required to open the account, if it is
greater than the minimum balance necessary to obtain the bonus; and
(5) When the bonus will be provided.
(e) Exemption for certain advertisements--(1) Certain media. If an
advertisement is made through one of the following media, it need not
contain the information in paragraphs (c)(1), (c)(2), (c)(4), (c)(5),
(c)(6)(ii), (d)(4), and (d)(5) of this section:
(i) Broadcast or electronic media, such as television or radio;
(ii) Outdoor media, such as billboards; or
(iii) Telephone response machines.
(2) Indoor signs. (i) Signs inside the premises of a depository
institution (or the premises of a deposit broker) are not subject to
paragraphs (b), (c), (d) or (e)(1) of this section.
(ii) If a sign exempt by paragraph (e)(2) of this section states a
rate of return, it shall:
(A) State the rate as an ``annual percentage yield,'' using that
term or the term ``APY.'' The sign shall not state any other rate,
except that the interest rate may be stated in conjunction with the
annual percentage yield to which it relates.
(B) Contain a statement advising consumers to contact an employee
for further information about applicable fees and terms.
(f) Additional disclosures in connection with the payment of
overdrafts. Institutions that promote the payment of overdrafts in an
advertisement shall include in the advertisement the disclosures
required bySec. 230.11(b) of this part.
[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993;
Reg. DD, 60 FR 5130, Jan. 26, 1995; Reg. DD, 63 FR 40638, July 30, 1998;
Reg. DD, 63 FR 52107, Sept. 29, 1998; 70 FR 29593, May 24, 2005]
Sec. 230.9 Enforcement and record retention.
(a) Administrative enforcement. Section 270 of the act contains the
provisions relating to administrative sanctions
[[Page 12]]
for failure to comply with the requirements of the act and this part.
Compliance is enforced by the agencies listed in that section.
(b) Civil liability. Section 271 of the Act contains the provisions
relating to civil liability for failure to comply with the requirements
of the act and this part; Section 271 is repealed effective September
30, 2001.
(c) Record retention. A depository institution shall retain evidence
of compliance with this part for a minimum of two years after the date
disclosures are required to be made or action is required to be taken.
The administrative agencies responsible for enforcing this part may
require depository institutions under their jurisdiction to retain
records for a longer period if necessary to carry out their enforcement
responsibilities under section 270 of the act.
[57 FR 43376, Sept. 21, 1992, as amended by Reg. DD, 63 FR 52107, Sept.
29, 1998]
Sec. 230.10 [Reserved]
Sec. 230.11 Additional disclosure requirements for overdraft services.
(a) Disclosure of total fees on periodic statements--(1) General. A
depository institution must separately disclose on each periodic
statement, as applicable:
(i) The total dollar amount for all fees or charges imposed on the
account for paying checks or other items when there are insufficient or
unavailable funds and the account becomes overdrawn, using the term
``Total Overdraft Fees''; and
(ii) The total dollar amount for all fees or charges imposed on the
account for returning items unpaid.
(2) Totals required. The disclosures required by paragraph (a)(1) of
this section must be provided for the statement period and for the
calendar year-to-date;
(3) Format requirements. The aggregate fee disclosures required by
paragraph (a) of this section must be disclosed in close proximity to
fees identified underSec. 230.6(a)(3), using a format substantially
similar to Sample Form B-10 in Appendix B to this part.
(b) Advertising disclosures for overdraft services--(1) Disclosures.
Except as provided in paragraphs (b)(2),(b)(3), and (b)(4) of this
section, any advertisement promoting the payment of overdrafts shall
disclose in a clear and conspicuous manner:
(i) The fee or fees for the payment of each overdraft;
(ii) The categories of transactions for which a fee for paying an
overdraft may be imposed;
(iii) The time period by which the consumer must repay or cover any
overdraft; and
(iv) The circumstances under which the institution will not pay an
overdraft.
(2) Communications about the payment of overdrafts not subject to
additional advertising disclosures. Paragraph (b)(1) of this section
does not apply to:
(i) An advertisement promoting a service where the institution's
payment of overdrafts will be agreed upon in writing and subject to the
Board's Regulation Z (12 CFR part 226);
(ii) A communication by an institution about the payment of
overdrafts in response to a consumer-initiated inquiry about deposit
accounts or overdrafts. Providing information about the payment of
overdrafts in response to a balance inquiry made through an automated
system, such as a telephone response machine, ATM, or an institution's
Internet site, is not a response to a consumer-initiated inquiry for
purposes of this paragraph;
(iii) An advertisement made through broadcast or electronic media,
such as television or radio;
(iv) An advertisement made on outdoor media, such as billboards;
(v) An ATM receipt;
(vi) An in-person discussion with a consumer;
(vii) Disclosures required by federal or other applicable law;
(viii) Information included on a periodic statement or a notice
informing a consumer about a specific overdrawn item or the amount the
account is overdrawn;
(ix) A term in a deposit account agreement discussing the
institution's right to pay overdrafts;
(x) A notice provided to a consumer, such as at an ATM, that
completing a requested transaction may trigger a fee for overdrawing an
account, or a general notice that items overdrawing an account may
trigger a fee;
[[Page 13]]
(xi) Informational or educational materials concerning the payment
of overdrafts if the materials do not specifically describe the
institution's overdraft service; or
(xii) An opt-out or opt-in notice regarding the institution's
payment of overdrafts or provision of discretionary overdraft services.
(3) Exception for ATM screens and telephone response machines. The
disclosures described in paragraphs (b)(1)(ii) and (b)(1)(iv) of this
section are not required in connection with any advertisement made on an
ATM screen or using a telephone response machine.
(4) Exception for indoor signs. Paragraph (b)(1) of this section
does not apply to advertisements for the payment of overdrafts on indoor
signs as described bySec. 230.8(e)(2) of this part, provided that the
sign contains a clear and conspicuous statement that fees may apply and
that consumers should contact an employee for further information about
applicable fees and terms. For purposes of this paragraph (b)(4), an
indoor sign does not include an ATM screen.
(c) Disclosure of account balances. If an institution discloses
balance information to a consumer through an automated system, the
balance may not include additional amounts that the institution may
provide to cover an item when there are insufficient or unavailable
funds in the consumer's account, whether under a service provided in its
discretion, a service subject to the Board's Regulation Z (12 CFR part
226), or a service to transfer funds from another account of the
consumer. The institution may, at its option, disclose additional
account balances that include such additional amounts, if the
institution prominently states that any such balance includes such
additional amounts and, if applicable, that additional amounts are not
available for all transactions.
[70 FR 29593, May 24, 2005, as amended at 74 FR 5593, Jan. 29, 2009; 75
FR 31676, June 4, 2010]
Sec. Appendix A to Part 230--Annual Percentage Yield Calculation
The annual percentage yield measures the total amount of interest
paid on an account based on the interest rate and the frequency of
compounding. \1\ The annual percentage yield is expressed as an
annualized rate, based on a 365-day year. \2\ Part I of this appendix
discusses the annual percentage yield calculations for account
disclosures and advertisements, while Part II discusses annual
percentage yield earned calculations for periodic statements.
---------------------------------------------------------------------------
\1\ The annual percentage yield reflects only interest and does not
include the value of any bonus (or other consideration worth $10 or
less) that may be provided to the consumer to open, maintain, increase
or renew an account. Interest or other earnings are not to be included
in the annual percentage yield if such amounts are determined by
circumstances that may or may not occur in the future.
\2\ Institutions may calculate the annual percentage yield based on
a 365-day or a 366-day year in a leap year.
---------------------------------------------------------------------------
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
In general, the annual percentage yield for account disclosures
under Sec.Sec. 230.4 and 230.5 and for advertising underSec. 230.8
is an annualized rate that reflects the relationship between the amount
of interest that would be earned by the consumer for the term of the
account and the amount of principal used to calculate that interest.
Special rules apply to accounts with tiered and stepped interest rates,
and to certain time accounts with a stated maturity greater than one
year.
A. General Rules
Except as provided in Part I.E. of this appendix, the annual
percentage yield shall be calculated by the formula shown below.
Institutions shall calculate the annual percentage yield based on the
actual number of days in the term of the account. For accounts without a
stated maturity date (such as a typical savings or transaction account),
the calculation shall be based on an assumed term of 365 days. In
determining the total interest figure to be used in the formula,
institutions shall assume that all principal and interest remain on
deposit for the entire term and that no other transactions (deposits or
withdrawals) occur during the term. \3\ For time accounts that are
offered in multiples of months, institutions may base the number of days
on either the actual number of days during the applicable period, or the
number of days that would occur for any actual sequence of that many
calendar months.
[[Page 14]]
If institutions choose to use the latter rule, they must use the same
number of days to calculate the dollar amount of interest earned on the
account that is used in the annual percentage yield formula (where
``Interest'' is divided by ``Principal'').
---------------------------------------------------------------------------
\3\ This assumption shall not be used if an institution requires, as
a condition of the account, that consumers withdraw interest during the
term. In such a case, the interest (and annual percentage yield
calculation) shall reflect that requirement.
---------------------------------------------------------------------------
The annual percentage yield is calculated by use of the following
general formula (``APY'' is used for convenience in the formulas):
APY=100 [(1+Interest/Principal)(365/Days in term)-1]
``Principal'' is the amount of funds assumed to have been deposited
at the beginning of the account.
``Interest'' is the total dollar amount of interest earned on the
Principal for the term of the account.
``Days in term'' is the actual number of days in the term of the
account. When the ``days in term'' is 365 (that is, where the stated
maturity is 365 days or where the account does not have a stated
maturity), the annual percentage yield can be calculated by use of the
following simple formula:
APY=100 (Interest/Principal)
Examples
(1) If an institution pays $61.68 in interest for a 365-day year on
$1,000 deposited into a NOW account, using the general formula above,
the annual percentage yield is 6.17%:
APY=100[(1+61.68/1,000) (365/365) -1]
APY=6.17%
Or, using the simple formula above (since, as an account without a
stated term, the term is deemed to be 365 days):
APY=100(61.68/1,000)
APY=6.17%
(2) If an institution pays $30.37 in interest on a $1,000 six-month
certificate of deposit (where the six-month period used by the
institution contains 182 days), using the general formula above, the
annual percentage yield is 6.18%:
APY=100[(1+30.37/1,000) (365/182) -1]
APY=6.18%
B. Stepped-Rate Accounts (Different Rates Apply in Succeeding Periods)
For accounts with two or more interest rates applied in succeeding
periods (where the rates are known at the time the account is opened),
an institution shall assume each interest rate is in effect for the
length of time provided for in the deposit contract.
Examples
(1) If an institution offers a $1,000 6-month certificate of deposit
on which it pays a 5% interest rate, compounded daily, for the first
three months (which contain 91 days), and a 5.5% interest rate,
compounded daily, for the next three months (which contain 92 days), the
total interest for six months is $26.68 and, using the general formula
above, the annual percentage yield is 5.39%:
APY=100[(1+26.68/1,000) (365/183) -1]
APY=5.39%
(2) If an institution offers a $1,000 two-year certificate of
deposit on which it pays a 6% interest rate, compounded daily, for the
first year, and a 6.5% interest rate, compounded daily, for the next
year, the total interest for two years is $133.13, and, using the
general formula above, the annual percentage yield is 6.45%:
APY=100[(1+133.13/1,000) (365/730) -1]
APY=6.45%
C. Variable-Rate Accounts
For variable-rate accounts without an introductory premium or
discounted rate, an institution must base the calculation only on the
initial interest rate in effect when the account is opened (or
advertised), and assume that this rate will not change during the year.
Variable-rate accounts with an introductory premium (or discount)
rate must be calculated like a stepped-rate account. Thus, an
institution shall assume that: (1) The introductory interest rate is in
effect for the length of time provided for in the deposit contract; and
(2) the variable interest rate that would have been in effect when the
account is opened or advertised (but for the introductory rate) is in
effect for the remainder of the year. If the variable rate is tied to an
index, the index-based rate in effect at the time of disclosure must be
used for the remainder of the year. If the rate is not tied to an index,
the rate in effect for existing consumers holding the same account (who
are not receiving the introductory interest rate) must be used for the
remainder of the year.
For example, if an institution offers an account on which it pays a
7% interest rate, compounded daily, for the first three months (which,
for example, contain 91 days), while the variable interest rate that
would have been in effect when the account was opened was 5%, the total
interest for a 365-day year for a $1,000 deposit is $56.52 (based on 91
days at 7% followed by 274 days at 5%). Using the simple formula, the
annual percentage yield is 5.65%:
APY=100(56.52/1,000)
APY=5.65%
D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance
Levels)
For accounts in which two or more interest rates paid on the account
are applicable to specified balance levels, the institution must
calculate the annual percentage yield in accordance with the method
described below that it uses to calculate interest. In all cases, an
annual percentage yield (or a
[[Page 15]]
range of annual percentage yields, if appropriate) must be disclosed for
each balance tier.
For purposes of the examples discussed below, assume the following:
------------------------------------------------------------------------
Interest
rate Deposit balance required to earn rate
(percent)
------------------------------------------------------------------------
5.25 Up to but not exceeding $2,500.
5.50 Above $2,500 but not exceeding $15,000.
5.75 Above $15,000.
------------------------------------------------------------------------
Tiering Method A. Under this method, an institution pays on the full
balance in the account the stated interest rate that corresponds to the
applicable deposit tier. For example, if a consumer deposits $8,000, the
institution pays the 5.50% interest rate on the entire $8,000.
When this method is used to determine interest, only one annual
percentage yield will apply to each tier. Within each tier, the annual
percentage yield will not vary with the amount of principal assumed to
have been deposited.
For the interest rates and deposit balances assumed above, the
institution will state three annual percentage yields--one corresponding
to each balance tier. Calculation of each annual percentage yield is
similar for this type of account as for accounts with a single interest
rate. Thus, the calculation is based on the total amount of interest
that would be received by the consumer for each tier of the account for
a year and the principal assumed to have been deposited to earn that
amount of interest.
First tier. Assuming daily compounding, the institution will pay
$53.90 in interest on a $1,000 deposit. Using the general formula, for
the first tier, the annual percentage yield is 5.39%:
APY=100[(1+53.90/1,000) (365/365) -1]
APY=5.39%
Using the simple formula:
APY=100(53.90/1,000)
APY=5.39%
Second tier. The institution will pay $452.29 in interest on an
$8,000 deposit. Thus, using the simple formula, the annual percentage
yield for the second tier is 5.65%:
APY=100(452.29/8,000)
APY=5.65%
Third tier. The institution will pay $1,183.61 in interest on a
$20,000 deposit. Thus, using the simple formula, the annual percentage
yield for the third tier is 5.92%:
APY=100(1,183.61/20,000)
APY=5.92%
Tiering Method B. Under this method, an institution pays the stated
interest rate only on that portion of the balance within the specified
tier. For example, if a consumer deposits $8,000, the institution pays
5.25% on $2,500 and 5.50% on $5,500 (the difference between $8,000 and
the first tier cut-off of $2,500).
The institution that computes interest in this manner must provide a
range that shows the lowest and the highest annual percentage yields for
each tier (other than for the first tier, which, like the tiers in
Method A, has the same annual percentage yield throughout). The low
figure for an annual percentage yield range is calculated based on the
total amount of interest earned for a year assuming the minimum
principal required to earn the interest rate for that tier. The high
figure for an annual percentage yield range is based on the amount of
interest the institution would pay on the highest principal that could
be deposited to earn that same interest rate. If the account does not
have a limit on the maximum amount that can be deposited, the
institution may assume any amount.
For the tiering structure assumed above, the institution would state
a total of five annual percentage yields--one figure for the first tier
and two figures stated as a range for the other two tiers.
First tier. Assuming daily compounding, the institution would pay
$53.90 in interest on a $1,000 deposit. For this first tier, using the
simple formula, the annual percentage yield is 5.39%:
APY=100(53.90/1,000)
APY=5.39%
Second tier. For the second tier, the institution would pay between
$134.75 and $841.45 in interest, based on assumed balances of $2,500.01
and $15,000, respectively. For $2,500.01, interest would be figured on
$2,500 at 5.25% interest rate plus interest on $.01 at 5.50%. For the
low end of the second tier, therefore, the annual percentage yield is
5.39%, using the simple formula:
APY=100(134.75/2,500)
APY=5.39%
For $15,000, interest is figured on $2,500 at 5.25% interest rate
plus interest on $12,500 at 5.50% interest rate. For the high end of the
second tier, the annual percentage yield, using the simple formula, is
5.61%:
APY=100(841.45/15,000)
APY=5.61%
Thus, the annual percentage yield range for the second tier is 5.39%
to 5.61%.
Third tier. For the third tier, the institution would pay $841.45 in
interest on the low end of the third tier (a balance of $15,000.01). For
$15,000.01, interest would be figured on $2,500 at 5.25% interest rate,
plus interest on $12,500 at 5.50% interest rate, plus interest on $.01
at 5.75% interest rate. For the low end of the third tier, therefore,
the annual percentage yield (using the simple formula) is 5.61%:
APY=100 (841.45/15,000)
APY=5.61%
Since the institution does not limit the account balance, it may
assume any maximum
[[Page 16]]
amount for the purposes of computing the annual percentage yield for the
high end of the third tier. For an assumed maximum balance amount of
$100,000, interest would be figured on $2,500 at 5.25% interest rate,
plus interest on $12,500 at 5.50% interest rate, plus interest on
$85,000 at 5.75% interest rate. For the high end of the third tier,
therefore, the annual percentage yield, using the simple formula, is
5.87%.
APY=100 (5,871.79/100,000)
APY=5.87%
Thus, the annual percentage yield range that would be stated for the
third tier is 5.61% to 5.87%.
If the assumed maximum balance amount is $1,000,000 instead of
$100,000, the institution would use $985,000 rather than $85,000 in the
last calculation. In that case, for the high end of the third tier the
annual percentage yield, using the simple formula, is 5.91%:
APY=100 (59134.22/1,000,000)
APY=5.91%
Thus, the annual percentage yield range that would be stated for the
third tier is 5.61% to 5.91%.
E. Time Accounts with a Stated Maturity Greater than One Year that
Pay Interest At Least Annually
1. For time accounts with a stated maturity greater than one year
that do not compound interest on an annual or more frequent basis, and
that require the consumer to withdraw interest at least annually, the
annual percentage yield may be disclosed as equal to the interest rate.
Example
(1) If an institution offers a $1,000 two-year certificate of
deposit that does not compound and that pays out interest semi-annually
by check or transfer at a 6.00% interest rate, the annual percentage
yield may be disclosed as 6.00%.
(2) For time accounts covered by this paragraph that are also
stepped-rate accounts, the annual percentage yield may be disclosed as
equal to the composite interest rate.
Example
(1) If an institution offers a $1,000 three-year certificate of
deposit that does not compound and that pays out interest annually by
check or transfer at a 5.00% interest rate for the first year, 6.00%
interest rate for the second year, and 7.00% interest rate for the third
year, the institution may compute the composite interest rate and APY as
follows:
(a) Multiply each interest rate by the number of days it will be in
effect;
(b) Add these figures together; and
(c) Divide by the total number of days in the term.
(2) Applied to the example, the products of the interest rates and
days the rates are in effect are (5.00%x365 days) 1825, (6.00%x365 days)
2190, and (7.00%x365 days) 2555, respectively. The sum of these
products, 6570, is divided by 1095, the total number of days in the
term. The composite interest rate and APY are both 6.00%.
Part II. Annual Percentage Yield Earned for Periodic Statements
The annual percentage yield earned for periodic statements under
Sec. 230.6(a) is an annualized rate that reflects the relationship
between the amount of interest actually earned on the consumer's account
during the statement period and the average daily balance in the account
for the statement period. Pursuant toSec. 230.6(b), however, if an
institution uses the average daily balance method and calculates
interest for a period other than the statement period, the annual
percentage yield earned shall reflect the relationship between the
amount of interest earned and the average daily balance in the account
for that other period.
The annual percentage yield earned shall be calculated by using the
following formulas (``APY Earned'' is used for convenience in the
formulas):
A. General formula.
APY Earned=100 [(1+Interest earned/
Balance)(365/Days in period)-1]
``Balance'' is the average daily balance in the account for the
period.
``Interest earned'' is the actual amount of interest earned on the
account for the period.
``Days in period'' is the actual number of days for the period.
Examples
(1) Assume an institution calculates interest for the statement
period (and uses either the daily balance or the average daily balance
method), and the account has a balance of $1,500 for 15 days and a
balance of $500 for the remaining 15 days of a 30-day statement period.
The average daily balance for the period is $1,000. The interest earned
(under either balance computation method) is $5.25 during the period.
The annual percentage yield earned (using the formula above) is 6.58%:
APY Earned=100 [(1+5.25/1,000)(365/30)-1]
APY Earned=6.58%
(2) Assume an institution calculates interest on the average daily
balance for the calendar month and provides periodic statements that
cover the period from the 16th of one month to the 15th of the next
month. The account has a balance of $2,000 September 1 through September
15 and a balance of $1,000 for the remaining 15 days of September. The
average daily balance for the month of September is $1,500, which
results in $6.50 in interest earned for the month. The annual percentage
yield earned for the month of September would be shown on the
[[Page 17]]
periodic statement covering September 16 through October 15. The annual
percentage yield earned (using the formula above) is 5.40%:
APY Earned=100 [(6.50/1,500)(365/30)-1]
APY Earned=5.40%
(3) Assume an institution calculates interest on the average daily
balance for a quarter (for example, the calendar months of September
through November), and provides monthly periodic statements covering
calendar months. The account has a balance of $1,000 throughout the 30
days of September, a balance of $2,000 throughout the 31 days of
October, and a balance of $3,000 throughout the 30 days of November. The
average daily balance for the quarter is $2,000, which results in $21 in
interest earned for the quarter. The annual percentage yield earned
would be shown on the periodic statement for November. The annual
percentage yield earned (using the formula above) is 4.28%:
APY Earned=100 [(1+21/2,000)(365/91)-1]
APY Earned=4.28%
B. Special formula for use where periodic statement is sent more
often than the period for which interest is compounded.
Institutions that use the daily balance method to accrue interest
and that issue periodic statements more often than the period for which
interest is compounded shall use the following special formula:
[GRAPHIC] [TIFF OMITTED] TC27SE91.048
The following definition applies for use in this formula (all other
terms are defined under Part II):
``Compounding'' is the number of days in each compounding period.
Assume an institution calculates interest for the statement period
using the daily balance method, pays a 5.00% interest rate, compounded
annually, and provides periodic statements for each monthly cycle. The
account has a daily balance of $1,000 for a 30-day statement period. The
interest earned is $4.11 for the period, and the annual percentage yield
earned (using the special formula above) is 5.00%:
[GRAPHIC] [TIFF OMITTED] TC27SE91.049
APY Earned=5.00%
[57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9, 1992;
58 FR 15082, Mar. 19, 1993; 60 FR 5130, Jan. 26, 1995; Reg. DD, 63 FR
40638, July 30, 1998]
Sec. Appendix B to Part 230--Model Clauses and Sample Forms
Table of contents
B-1--Model Clauses for Account Disclosures (Section 230.4(b))
B-2--Model Clauses for Change in Terms (Section 230.5(a))
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts (Section
230.5(b)(2) and 230.5(d))
B-4--Sample Form (Multiple Accounts)
B-5--Sample Form (Now Account)
B-6--Sample Form (Tiered Rate Money Market Account)
B-7--Sample Form (Certificate of Deposit)
B-8--Sample Form (Certificate of Deposit Advertisement)
B-9--Sample Form (Money Market Account Advertisement)
B-10--Sample Form (Aggregate Overdraft and Returned Item Fees)
B-1--Model Clauses for Account Disclosures
(a) Rate information
(i) Fixed-rate accounts
The interest rate on your account is ----% with an annual percentage
yield of ----%. You will be paid this rate [for (time period)/until
(date)/ for at least 30 calendar days].
(ii) Variable-rate accounts
The interest rate on your account is ----% with an annual percentage
yield of ----%.
Your interest rate and annual percentage yield may change.
[[Page 18]]
Determination of Rate
The interest rate on your account is based on (name of index) [plus/
minus a margin of --------].
or
At our discretion, we may change the interest rate on your account.
Frequency of Rate Changes
We may change the interest rate on your account [every (time
period)/at any time].
Limitations on Rate Changes
The interest rate for your account will never change by more than --
--% each (time period).
The interest rate will never be [less/more] than ----%.
or
The interest rate will never [exceed----% above/drop more than ----%
below] the interest rate initially disclosed to you.
(iii) Stepped-rate accounts
The initial interest rate for your account is ----%. You will be
paid this rate [for (time period)/until (date)]. After that time, the
interest rate for your account will be ----%, and you will be paid this
rate [for (time period)/until (date)]. The annual percentage yield for
your account is ----%.
(iv) Tiered-rate accounts
Tiering Method A
If your [daily balance/average daily balance] is
$---- or more, the interest rate paid on the entire balance in your
account will be ----% with an annual percentage yield of ----%.
If your [daily balance/average daily balance] is
more than $----, but less than $----, the interest rate paid on the
entire balance in your account will be ----% with an annual percentage
yield of ----%.
If your [daily balance/average daily balance] is
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.
Tiering Method B
An interest rate of ----% will be paid only for
that portion of your [daily balance/average daily balance] that is
greater than $----. The annual percentage yield for this tier will range
from ----% to ----%, depending on the balance in the account.
An interest rate of ----% will be paid only for
that portion of your [daily balance/average daily balance] that is
greater than $----, but less than $----. The annual percentage yield for
this tier will range from ----% to ----%, depending on the balance in
the account.
If your [daily balance/average daily balance] is
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.
(b) Compounding and crediting
(i) Frequency
Interest will be compounded [on a ---- basis/every (time period)].
Interest will be credited to your account [on a ---- basis/every (time
period)].
(ii) Effect of closing an account
If you close your account before interest is credited, you will not
receive the accrued interest.
(c) Minimum balance requirements
(i) To open the account
You must deposit $------ to open this account.
(ii) To avoid imposition of fees
A minimum balance fee of $------ will be imposed every (time period)
if the balance in the account falls below $------ any day of the (time
period).
A minimum balance fee of $------ will be imposed every (time period)
if the average daily balance for the (time period) falls below $------.
The average daily balance is calculated by adding the principal in the
account for each day of the period and dividing that figure by the
number of days in the period.
(iii) To obtain the annual percentage yield disclosed
You must maintain a minimum balance of $------ in the account each
day to obtain the disclosed annual percentage yield.
You must maintain a minimum average daily balance of $------ to
obtain the disclosed annual percentage yield. The average daily balance
is calculated by adding the principal in the account for each day of the
period and dividing that figure by the number of days in the period.
(d) Balance computation method
(i) Daily balance method
We use the daily balance method to calculate the interest on your
account. This method applies a daily periodic rate to the principal in
the account each day.
(ii) Average daily balance method
We use the average daily balance method to calculate interest on
your account. This method applies a periodic rate to the average daily
balance in the account for the period. The average daily balance is
calculated by adding the principal in the account for each day of the
period and dividing that figure by the number of days in the period.
(e) Accrual of interest on noncash deposits
Interest begins to accrue no later than the business day we receive
credit for the deposit of noncash items (for example, checks).
or
Interest begins to accrue on the business day you deposit noncash
items (for example, checks).
(f) Fees
[[Page 19]]
The following fees may be assessed against your account:
------------------------------$--------
------------------------------$--------
------------------------------$--------
--------(conditions for imposing fee) $--------
----------------------------------% of --------.
(g) Transaction limitations
The minimum amount you may [withdraw/write a check for] is $------.
You may make -------- [deposits into/withdrawals from] your account
each (time period).
You may not make [deposits into/withdrawals from] your account until
the maturity date.
(h) Disclosures relating to time accounts
(i) Time requirements
Your account will mature on (date).
Your account will mature in (time period).
(ii) Early withdrawal penalties
We [will/may] impose a penalty if you withdraw [any/all] of the
[deposited funds/principal] before the maturity date. The fee imposed
will equal ------ days/week[s]/month[s] of interest.
or
We [will/may] impose a penalty of $------ if you withdraw [any/all]
of the [deposited funds/principal] before the maturity date.
If you withdraw some of your funds before maturity, the interest
rate for the remaining funds in your account will be ------% with an
annual percentage yield of ------%.
(iii) Withdrawal of interest prior to maturity
The annual percentage yield assumes interest will remain on deposit
until maturity. A withdrawal will reduce earnings.
(iv) Renewal policies
(1) Automatically renewable time accounts
This account will automatically renew at maturity.
You will have [------ calendar/business] days after the maturity
date to withdraw funds without penalty.
or
There is no grace period following the maturity of this account to
withdraw funds without penalty.
(2) Non-automatically renewable time accounts
This account will not renew automatically at maturity. If you do not
renew the account, your deposit will be placed in [an interest-bearing/a
noninterest-bearing] account.
(v) Required interest distribution.
This account requires the distribution of interest and does not
allow interest to remain in the account.
(i) Bonuses
You will [be paid/receive] [$------ /(description of item)] as a
bonus [when you open the account/on (date) ------].
You must maintain a minimum [daily balance/average daily balance] of
$------ to obtain the bonus.
To earn the bonus, [$------ /your entire principal] must remain on
deposit [for (time period)/until (date)------].
B-2--Model Clauses for Change in Terms
On (date), the cost of (type of fee) will increase to $------.
On (date), the interest rate on your account will decrease to ------
% with an annual percentage yield of ------%.
On (date), the minimum [daily balance/average daily balance]
required to avoid imposition of a fee will increase to $------.
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts
(a) Automatically renewable time accounts with maturities of one
year or less but longer than one month
Your account will mature on (date).
If the account renews, the new maturity date will be (date).
The interest rate for the renewed account will be ------% with an
annual percentage yield of ------%.
or
The interest rate and annual percentage yield have not yet been
determined. They will be available on (date). Please call (phone number)
to learn the interest rate and annual percentage yield for your new
account.
(b) Non-automatically renewable time accounts with maturities longer
than one year
Your account will mature on (date).
If you do not renew the account, interest [will/will not] be paid
after maturity.
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[GRAPHIC] [TIFF OMITTED] TR17AP09.009
[57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9, 1992;
Reg. DD, 60 FR 5131, Jan. 26, 1995; 74 FR 5593, Jan. 29, 2009; 74 FR
17768, Apr. 17, 2009]
[[Page 29]]
Sec. Appendix C to Part 230--Effect on State Laws
(a) Inconsistent Requirements
State law requirements that are inconsistent with the requirements
of the act and this part are preempted to the extent of the
inconsistency. A state law is inconsistent if it requires a depository
institution to make disclosures or take actions that contradict the
requirements of the federal law. A state law is also contradictory if it
requires the use of the same term to represent a different amount or a
different meaning than the federal law, requires the use of a term
different from that required in the federal law to describe the same
item, or permits a method of calculating interest on an account
different from that required in the federal law.
(b) Preemption Determinations
A depository institution, state, or other interested party may
request the Board to determine whether a state law requirement is
inconsistent with the federal requirements. A request for a
determination shall be in writing and addressed to the Secretary, Board
of Governors of the Federal Reserve System, Washington, DC 20551. Notice
that the Board intends to make a determination (either on request or on
its own motion) will be published in the Federal Register, with an
opportunity for public comment unless the Board finds that notice and
opportunity for comment would be impracticable, unnecessary, or contrary
to the public interest and publishes its reasons for such decision.
Notice of a final determination will be published in the Federal
Register and furnished to the party who made the request and to the
appropriate state official.
(c) Effect of Preemption Determinations
After the Board determines that a state law is inconsistent, a
depository institution may not make disclosures using the inconsistent
term or take actions relying on the inconsistent law.
(d) Reversal of Determination
The Board reserves the right to reverse a determination for any
reason bearing on the coverage or effect of state or federal law. Notice
of reversal of a determination will be published in the Federal Register
and a copy furnished to the appropriate state official.
Sec. Appendix D to Part 230--Issuance of Staff Interpretations
Officials in the Board's Division of Consumer and Community Affairs
are authorized to issue official staff interpretations of this part.
These interpretations provide the protections afforded under section
271(f) of the act. Except in unusual circumstances, interpretations will
not be issued separately but will be incorporated in an official
commentary to this part, which will be amended periodically. No staff
interpretations will be issued approving depository institutions' forms,
statements, or calculation tools or methods.
Sec. Supplement I to Part 230--Official Staff Interpretations
Introduction
1. Official status. This commentary is the means by which the
Division of Consumer and Community Affairs of the Federal Reserve Board
issues official staff interpretations of Regulation DD. Good faith
compliance with this commentary affords protection from liability under
section 271(f) of the Truth in Savings Act.
Section 230.1 Authority, purpose, coverage, and effect on state laws
(c) Coverage
1. Foreign applicability. Regulation DD applies to all depository
institutions, except credit unions, that offer deposit accounts to
residents (including resident aliens) of any state as defined inSec.
230.2(r). Accounts held in an institution located in a state are
covered, even if funds are transferred periodically to a location
outside the United States. Accounts held in an institution located
outside the United States are not covered, even if held by a U.S.
resident.
2. Persons who advertise accounts. Persons who advertise accounts
are subject to the advertising rules. For example, if a deposit broker
places an advertisement offering consumers an interest in an account at
a depository institution, the advertising rules apply to the
advertisement, whether the account is to be held by the broker or
directly by the consumer.
Section 230.2 Definitions
(a) Account
1. Covered accounts. Examples of accounts subject to the regulation
are:
i. Interest-bearing and noninterest-bearing accounts
ii. Deposit accounts opened as a condition of obtaining a credit
card
iii. Accounts denominated in a foreign currency
iv. Individual retirement accounts (IRAs) and simplified employee
pension (SEP) accounts
v. Payable on death (POD) or ``Totten trust'' accounts
2. Other accounts. Examples of accounts not subject to the
regulation are:
i. Mortgage escrow accounts for collecting taxes and property
insurance premiums
ii. Accounts established to make periodic disbursements on
construction loans
[[Page 30]]
iii. Trust accounts opened by a trustee pursuant to a formal written
trust agreement (not merely declarations of trust on a signature card
such as a ``Totten trust,'' or an IRA and SEP account)
iv. Accounts opened by an executor in the name of a decedent's
estate
3. Other investments. The term ``account'' does not apply to all
products of a depository institution. Examples of products not covered
are:
i. Government securities
ii. Mutual funds
iii. Annuities
iv. Securities or obligations of a depository institution
v. Contractual arrangements such as repurchase agreements, interest
rate swaps, and bankers acceptances
(b) Advertisement
1. Covered messages. Advertisements include commercial messages in
visual, oral, or print media that invite, offer, or otherwise announce
generally to prospective customers the availability of consumer
accounts--such as:
i. Telephone solicitations
ii. Messages on automated teller machine (ATM) screens
iii. Messages on a computer screen in an institution's lobby
(including any printout) other than a screen viewed solely by the
institution's employee
iv. Messages in a newspaper, magazine, or promotional flyer or on
radio
v. Messages that are provided along with information about the
consumer's existing account and that promote another account at the
institution
2. Other messages. Examples of messages that are not advertisements
are:
i. Rate sheets in a newspaper, periodical, or trade journal (unless
the depository institution, or a deposit broker offering accounts at the
institution, pays a fee for or otherwise controls publication)
ii. In-person discussions with consumers about the terms for a
specific account
iii. For purposes ofSec. 230.8(b) of this part throughSec.
230.8(e) of this part, information given to consumers about existing
accounts, such as current rates recorded on a voice-response machine or
notices for automatically renewable time account sent before renewal
iv. Information about a particular transaction in an existing
account
v. Disclosures required by federal or other applicable law
vi. A deposit account agreement
(f) Bonus
1. Examples. Bonuses include items of value, other than interest,
offered as incentives to consumers, such as an offer to pay the final
installment deposit for a holiday club account. Items that are not a
bonus include discount coupons for goods or services at restaurants or
stores.
2. De minimis rule. Items with a de minimis value of $10 or less are
not bonuses. Institutions may rely on the valuation standard used by the
Internal Revenue Service to determine if the value of the item is de
minimis. Examples of items of de minimis value are:
i. Disability insurance premiums valued at an amount of $10 or less
per year
ii. Coffee mugs, T-shirts or other merchandise with a market value
of $10 or less
3. Aggregation. In determining if an item valued at $10 or less is a
bonus, institutions must aggregate per account per calendar year items
that may be given to consumers. In making this determination,
institutions aggregate per account only the market value of items that
may be given for a specific promotion. To illustrate, assume an
institution offers in January to give consumers an item valued at $7 for
each calendar quarter during the year that the average account balance
in a negotiable order of withdrawal (NOW) account exceeds $10,000. The
bonus rules are triggered, since consumers are eligible under the
promotion to receive up to $28 during the year. However, the bonus rules
are not triggered if an item valued at $7 is offered to consumers
opening a NOW account during the month of January, even though in
November the institution introduces a new promotion that includes, for
example, an offer to existing NOW account holders for an item valued at
$8 for maintaining an average balance of $5,000 for the month.
4. Waiver or reduction of a fee or absorption of expenses. Bonuses
do not include value that consumers receive through the waiver or
reduction of fees (even if the fees waived exceed $10) for banking-
related services such as the following:
i. A safe deposit box rental fee for consumers who open a new
account
ii. Fees for travelers checks for account holders
iii. Discounts on interest rates charged for loans at the
institution
(h) Consumer
1. Professional capacity. Examples of accounts held by a natural
person in a professional capacity for another are attorney-client trust
accounts and landlord-tenant security accounts.
2. Other accounts. Accounts not held in a professional capacity
include accounts held by an individual for a child under the Uniform
Gifts to Minors Act.
3. Sole proprietors. Accounts held by individuals as sole
proprietors are not covered.
4. Retirement plans. IRAs and SEP accounts are consumer accounts to
the extent that funds are invested in covered accounts. But Keogh
accounts are not subject to the regulation.
(j) Depository institution and institution
[[Page 31]]
1. Foreign institutions. Branches of foreign institutions located in
the United States are subject to the regulation if they offer deposit
accounts to consumers. Edge Act and Agreement corporations, and agencies
of foreign institutions, are not depository institutions for purposes of
this regulation.
(k) Deposit broker
1. General. A deposit broker is a person who is in the business of
placing or facilitating the placement of deposits in an institution, as
defined by the Federal Deposit Insurance Act (12 U.S.C. 29(g)).
(n) Interest
1. Relation to bonuses. Bonuses are not interest for purposes of
this regulation.
(p) Passbook savings account
1. Relation to Regulation E. Passbook savings accounts include
accounts accessed by preauthorized electronic fund transfers to the
account (as defined in 12 CFRSec. 205.2(j)), such as an account that
receives direct deposit of social security payments. Accounts permitting
access by other electronic means are not ``passbook saving accounts''
and must comply with the requirements ofSec. 230.6 if statements are
sent four or more times a year.
(q) Periodic statement
1. Examples. Periodic statements do not include:
i. Additional statements provided solely upon request
ii. General service information such as a quarterly newsletter or
other correspondence describing available services and products
(t) Tiered-rate account
1. Time accounts. Time accounts paying different rates based solely
on the amount of the initial deposit are not tiered-rate accounts.
2. Minimum balance requirements. A requirement to maintain a minimum
balance to earn interest does not make an account a tiered-rate account.
(u) Time account
1. Club accounts. Although club accounts typically have a maturity
date, they are not time accounts unless they also require a penalty of
at least seven days' interest for withdrawals during the first six days
after the account is opened.
2. Relation to Regulation D. Regulation D permits in limited
circumstances the withdrawal of funds without penalty during the first
six days after a ``time deposit'' is opened. (See 12 CFRSec.
204.2(c)(1)(i).) But the fact that a consumer makes a withdrawal as
permitted by Regulation D does not disqualify the account from being a
time account for purposes of this regulation.
(v) Variable-rate account
1. General. A certificate of deposit permitting one or more rate
adjustments prior to maturity at the consumer's option is a variable-
rate account.
Section 230.3 General disclosure requirements
(a) Form
1. Design requirements. Disclosures must be presented in a format
that allows consumers to readily understand the terms of their account.
Institutions are not required to use a particular type size or typeface,
nor are institutions required to state any term more conspicuously than
any other term. Disclosures may be made:
i. In any order
ii. In combination with other disclosures or account terms
iii. In combination with disclosures for other types of accounts, as
long as it is clear to consumers which disclosures apply to their
account
iv. On more than one page and on the front and reverse sides
v. By using inserts to a document or filling in blanks
vi. On more than one document, as long as the documents are provided
at the same time
2. Consistent terminology. Institutions must use consistent
terminology to describe terms or features required to be disclosed. For
example, if an institution describes a monthly fee (regardless of
account activity) as a ``monthly service fee'' in account-opening
disclosures, the periodic statement and change-in-term notices must use
the same terminology so that consumers can readily identify the fee.
(b) General
1. Specificity of legal obligation. Institutions may refer to the
calendar month or to roughly equivalent intervals during a calendar year
as a ``month.''
(c) Relation to Regulation E
1. General rule. Compliance with Regulation E (12 CFR part 205) is
deemed to satisfy the disclosure requirements of this regulation, such
as when:
i. An institution changes a term that triggers a notice under
Regulation E, and uses the timing and disclosure rules of Regulation E
for sending change-in-term notices
ii. Consumers add an ATM access feature to an account, and the
institution provides disclosures pursuant to Regulation E, including
disclosure of fees (See 12 CFRSec. 205.7.)
iii. An institution complying with the timing rules of Regulation E
discloses at the same time fees for electronic services (such as for
balance inquiry fees at ATMs) required to be disclosed by this
regulation but not by Regulation E
iv. An institution relies on Regulation E's rules regarding
disclosure of limitations on the frequency and amount of electronic fund
transfers, including security-related exceptions. But any limitations on
``intra-institutional transfers'' to or from the consumer's other
accounts during a given time period
[[Page 32]]
must be disclosed, even though intra-institutional transfers are exempt
from Regulation E.
(e) Oral response to inquiries
1. Application of rule. Institutions are not required to provide
rate information orally.
2. Relation to advertising. The advertising rules do not cover an
oral response to a question about rates.
3. Existing accounts. This paragraph does not apply to oral
responses about rate information for existing accounts. For example, if
a consumer holding a one-year certificate of deposit (CD) requests
interest rate information about the CD during the term, the institution
need not disclose the annual percentage yield.
(f) Rounding and accuracy rules for rates and yields
(f)(1) Rounding
1. Permissible rounding. Examples of permissible rounding are an
annual percentage yield calculated to be 5.644%, rounded down and
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
(f)(2) Accuracy
1. Annual percentage yield and annual percentage yield earned. The
tolerance for annual percentage yield and annual percentage yield earned
calculations is designed to accommodate inadvertent errors. Institutions
may not purposely incorporate the tolerance into their calculation of
yields.
Section 230.4 Account disclosures
(a) Delivery of account disclosures
(a)(1) Account opening
1. New accounts. New account disclosures must be provided when:
i. A time account that does not automatically rollover is renewed by
a consumer
ii. A consumer changes a term for a renewable time account (see
Sec. 230.5(b)-5 regarding disclosure alternatives)
iii. An institution transfers funds from an account to open a new
account not at the consumer's request, unless the institution previously
gave account disclosures and any change-in-term notices for the new
account
iv. An institution accepts a deposit from a consumer to an account
that the institution had deemed closed for the purpose of treating
accrued but uncredited interest as forfeited interest (seeSec.
230.7(b)-3)
2. Acquired accounts. New account disclosures need not be given when
an institution acquires an account through an acquisition of or merger
with another institution (but seeSec. 230.5(a) regarding advance
notice requirements if terms are changed).
(a)(2) Requests
(a)(2)(i)
1. Inquiries versus requests. A response to an oral inquiry (by
telephone or in person) about rates and yields or fees does not trigger
the duty to provide account disclosures. But when consumers ask for
written information about an account (whether by telephone, in person,
or by other means), the institution must provide disclosures unless the
account is no longer offered to the public.
2. General requests. When responding to a consumer's general request
for disclosures about a type of account (a NOW account, for example), an
institution that offers several variations may provide disclosures for
any one of them.
3. Timing for response. Ten business days is a reasonable time for
responding to requests for account information that consumers do not
make in person, including requests made by electronic means (such as by
electronic mail).
4. Use of electronic means. If a consumer who is not present at the
institution makes a request for account disclosures, including a request
made by telephone, e-mail, or via the institution's Web site, the
institution may send the disclosures in paper form or, if the consumer
agrees, may provide the disclosures electronically, such as to an e-mail
address that the consumer provides for that purpose, or on the
institution's Web site, without regard to the consumer consent or other
provisions of the E-Sign Act. The regulation does not require an
institution to provide, nor a consumer to agree to receive, the
disclosures required bySec. 230.4(a)(2) in electronic form.
(a)(2)(ii)(A)
1. Recent rates. Institutions comply with this paragraph if they
disclose an interest rate and annual percentage yield accurate within
the seven calendar days preceding the date they send the disclosures.
(a)(2)(ii)(B)
1. Term. Describing the maturity of a time account as ``1 year'' or
``6 months,'' for example, illustrates a statement of the maturity of a
time account as a term rather than a date (``January 10, 1995'').
(b) Content of account disclosures
(b)(1) Rate information
(b)(1)(i) Annual percentage yield and interest rate
1. Rate disclosures. In addition to the interest rate and annual
percentage yield, institutions may disclose a periodic rate
corresponding to the interest rate. No other rate or yield (such as
``tax effective yield'') is permitted. If the annual percentage yield is
the same as the interest rate, institutions may disclose a single figure
but must use both terms.
2. Fixed-rate accounts. For fixed-rate time accounts paying the
opening rate until maturity, institutions may disclose the period of
time the interest rate will be in effect by stating the maturity date.
(See appendix B, B-7--Sample Form.) For other fixed-rate accounts,
institutions may use a date (``This rate will be in effect through May
4, 1995'') or a period (``This rate will be in effect for at least 30
days'').
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3. Tiered-rate accounts. Each interest rate, along with the
corresponding annual percentage yield for each specified balance level
(or range of annual percentage yields, if appropriate), must be
disclosed for tiered-rate accounts. (See appendix A, Part I, Paragraph
D.)
4. Stepped-rate accounts. A single composite annual percentage yield
must be disclosed for stepped-rate accounts. (See appendix A, Part I,
Paragraph B.) The interest rates and the period of time each will be in
effect also must be provided. When the initial rate offered for a
specified time on a variable-rate account is higher or lower than the
rate that would otherwise be paid on the account, the calculation of the
annual percentage yield must be made as if for a stepped-rate account.
(See appendix A, Part I, Paragraph C.)
(b)(1)(ii) Variable rates
(b)(1)(ii)(B)
1. Determining interest rates. To disclose how the interest rate is
determined, institutions must:
i. Identify the index and specific margin, if the interest rate is
tied to an index
ii. State that rate changes are within the institution's discretion,
if the institution does not tie changes to an index
(b)(1)(ii)(C)
1. Frequency of rate changes. An institution reserving the right to
change rates at its discretion must state the fact that rates may change
at any time.
(b)(1)(ii)(D)
1. Limitations. A floor or ceiling on rates or on the amount the
rate may decrease or increase during any time period must be disclosed.
Institutions need not disclose the absence of limitations on rate
changes.
(b)(2) Compounding and crediting
(b)(2)(ii) Effect of closing an account
1. Deeming an account closed. An institution may, subject to state
or other law, provide in its deposit contracts the actions by consumers
that will be treated as closing the account and that will result in the
forfeiture of accrued but uncredited interest. An example is the
withdrawal of all funds from the account prior to the date that interest
is credited.
(b)(3) Balance information
(b)(3)(ii) Balance computation method
1. Methods and periods. Institutions may use different methods or
periods to calculate minimum balances for purposes of imposing a fee
(the daily balance for a calendar month, for example) and accruing
interest (the average daily balance for a statement period, for
example). Each method and corresponding period must be disclosed.
(b)(3)(iii) When interest begins to accrue
1. Additional information. Institutions may disclose additional
information such as the time of day after which deposits are treated as
having been received the following business day, and may use additional
descriptive terms such as ``ledger'' or ``collected'' balances to
disclose when interest begins to accrue.
(b)(4) Fees
1. Covered fees. The following are types of fees that must be
disclosed:
i. Maintenance fees, such as monthly service fees
ii. Fees to open or to close an account
iii. Fees related to deposits or withdrawals, such as fees for use
of the institution's ATMs
iv. Fees for special services, such as stop-payment fees, fees for
balance inquiries or verification of deposits, fees associated with
checks returned unpaid, and fees for regularly sending to consumers
checks that otherwise would be held by the institution
2. Other fees. Institutions need not disclose fees such as the
following:
i. Fees for services offered to account and nonaccount holders
alike, such as travelers checks and wire transfers (even if different
amounts are charged to account and nonaccount holders)
ii. Incidental fees, such as fees associated with state escheat
laws, garnishment or attorneys fees, and fees for photocopying
3. Amount of fees. Institutions must state the amount and conditions
under which a fee may be imposed. Naming and describing the fee (such as
``$4.00 monthly service fee'') will typically satisfy these
requirements.
4. Tied-accounts. Institutions must state if fees that may be
assessed against an account are tied to other accounts at the
institution. For example, if an institution ties the fees payable on a
NOW account to balances held in the NOW account and a savings account,
the NOW account disclosures must state that fact and explain how the fee
is determined.
5. Fees for overdrawing an account. UnderSec. 230.4(b)(4) of this
part, institutions must disclose the conditions under which a fee may be
imposed. In satisfying this requirement institutions must specify the
categories of transactions for which an overdraft fee may be imposed. An
exhaustive list of transactions is not required. It is sufficient for an
institution to state that the fee applies to overdrafts ``created by
check, in-person withdrawal, ATM withdrawal, or other electronic
means,'' as applicable. Disclosing a fee ``for overdraft items'' would
not be sufficient.
(b)(5) Transaction limitations
1. General rule. Examples of limitations on the number or dollar
amount of deposits or withdrawals that institutions must disclose are:
i. Limits on the number of checks that may be written on an account
within a given time period
ii. Limits on withdrawals or deposits during the term of a time
account
iii. Limitations required by Regulation D on the number of
withdrawals permitted
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from money market deposit accounts by check to third parties each month.
Institutions need not disclose reservations of right to require notices
for withdrawals from accounts required by federal or state law.
(b)(6) Features of time accounts
(b)(6)(i) Time requirements
1. ``Callable'' time accounts. In addition to the maturity date, an
institution must state the date or the circumstances under which it may
redeem a time account at the institution's option (a ``callable'' time
account).
(b)(6)(ii) Early withdrawal penalties
1. General. The term ``penalty'' may but need not be used to
describe the loss of interest that consumers may incur for early
withdrawal of funds from time accounts.
2. Examples. Examples of early withdrawal penalties are:
i. Monetary penalties, such as ``$10.00'' or ``seven days' interest
plus accrued but uncredited interest''
ii. Adverse changes to terms such as a lowering of the interest
rate, annual percentage yield, or compounding frequency for funds
remaining on deposit
iii. Reclamation of bonuses
3. Relation to rules for IRAs or similar plans. Penalties imposed by
the Internal Revenue Code for certain withdrawals from IRAs or similar
pension or savings plans are not early withdrawal penalties for purposes
of this regulation.
4. Disclosing penalties. Penalties may be stated in months, whether
institutions assess the penalty using the actual number of days during
the period or using another method such as a number of days that occurs
in any actual sequence of the total calendar months involved. For
example, stating ``one month's interest'' is permissible, whether the
institution assesses 30 days' interest during the month of April, or
selects a time period between 28 and 31 days for calculating the
interest for all early withdrawals regardless of when the penalty is
assessed.
(b)(6)(iv) Renewal policies
1. Rollover time accounts. Institutions offering a grace period on
time accounts that automatically renew need not state whether interest
will be paid if the funds are withdrawn during the grace period.
2. Nonrollover time accounts. Institutions paying interest on funds
following the maturity of time accounts that do not renew automatically
need not state the rate (or annual percentage yield) that may be paid.
(See appendix B, Model Clause B-1(h)(iv)(2).)
Section 230.5 Subsequent disclosures
(a) Change in terms
(a)(1) Advance notice required
1. Form of notice. Institutions may provide a change-in-term notice
on or with a periodic statement or in another mailing. If an institution
provides notice through revised account disclosures, the changed term
must be highlighted in some manner. For example, institutions may note
that a particular fee has been changed (also specifying the new amount)
or use an accompanying letter that refers to the changed term.
2. Effective date. An example of language for disclosing the
effective date of a change is ``As of November 21, 1994.''
3. Terms that change upon the occurrence of an event. An institution
offering terms that will automatically change upon the occurrence of a
stated event need not send an advance notice of the change provided the
institution fully describes the conditions of the change in the account
opening disclosures (and sends any change-in-term notices regardless of
whether the changed term affects that consumer's account at that time).
4. Examples. Examples of changes not requiring an advance change-in-
terms notice are:
i. The termination of employment for consumers for whom account
maintenance or activity fees were waived during their employment by the
depository institution
ii. The expiration of one year in a promotion described in the
account opening disclosures to ``waive $4.00 monthly service charges for
one year''
(a)(2) No notice required
(a)(2)(ii) Check printing fees
1. Increase in fees. A notice is not required for an increase in
fees for printing checks (or deposit and withdrawal slips) even if the
institution adds some amount to the price charged by the vendor.
(b) Notice before maturity for time accounts longer than one month
that renew automatically
1. Maturity dates on nonbusiness days. In determining the term of a
time account, institutions may disregard the fact that the term will be
extended beyond the disclosed number of days because the disclosed
maturity falls on a nonbusiness day. For example, a holiday or weekend
may cause a ``one-year'' time account to extend beyond 365 days (or 366,
in a leap year) or a ``one-month'' time account to extend beyond 31
days.
2. Disclosing when rates will be determined. Ways to disclose when
the annual percentage yield will be available include the use of:
i. A specific date, such as ``October 28''
ii. A date that is easily determinable, such as ``the Tuesday before
the maturity date stated on this notice'' or ``as of the maturity date
stated on this notice''
3. Alternative timing rule. Under the alternative timing rule, an
institution offering a 10-day grace period would have to provide the
disclosures at least 10 days prior to the scheduled maturity date.
4. Club accounts. If consumers have agreed to the transfer of
payments from another account to a club time account for the next club
period, the institution must comply
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with the requirements for automatically renewable time accounts--even
though consumers may withdraw funds from the club account at the end of
the current club period.
5. Renewal of a time account. In the case of a change in terms that
becomes effective if a rollover time account is subsequently renewed:
i. If the change is initiated by the institution, the disclosure
requirements of this paragraph apply. (Paragraph 230.5(a) applies if the
change becomes effective prior to the maturity of the existing time
account.)
ii. If the change is initiated by the consumer, the account opening
disclosure requirements ofSec. 230.4(b) apply. (If the notice required
by this paragraph has been provided, institutions may give new account
disclosures or disclosures highlighting only the new term.)
6. Example. If a consumer receives a prematurity notice on a one-
year time account and requests a rollover to a six-month account, the
institution must provide either account opening disclosures including
the new maturity date or, if all other terms previously disclosed in the
prematurity notice remain the same, only the new maturity date.
(b)(1) Maturities of longer than one year
1. Highlighting changed terms. Institutions need not highlight terms
that changed since the last account disclosures were provided.
(c) Notice for time accounts one month or less that renew
automatically
(d) Notice before maturity for time accounts longer than one year
that do not renew automatically
1. Subsequent account. When funds are transferred following maturity
of a nonrollover time account, institutions need not provide account
disclosures unless a new account is established.
Section 230.6 Periodic statement disclosures
(a) General rule
1. General. Institutions are not required to provide periodic
statements. If they do provide statements, disclosures need only be
furnished to the extent applicable. For example, if no interest is
earned for a statement period, institutions need not state that fact.
Or, institutions may disclose ``$0'' interest earned and ``0%'' annual
percentage yield earned.
2. Regulation E interim statements. When an institution provides
regular quarterly statements, and in addition provides a monthly interim
statement to comply with Regulation E, the interim statement need not
comply with this section unless it states interest or rate information.
(See 12 CFRSec. 205.9(b).)
3. Combined statements. Institutions may provide information about
an account (such as an MMDA) on the periodic statement for another
account (such as a NOW account) without triggering the disclosures
required by this section, as long as:
i. The information is limited to the account number, the type of
account, or balance information, and
ii. The institution also provides a periodic statement complying
with this section for each account.
4. Other information. Additional information that may be given on or
with a periodic statement includes:
i. Interest rates and corresponding periodic rates applied to
balances during the statement period
ii. The dollar amount of interest earned year-to-date
iii. Bonuses paid (or any de minimis consideration of $10 or less)
iv. Fees for products such as safe deposit boxes
(a)(1) Annual percentage yield earned
1. Ledger and collected balances. Institutions that accrue interest
using the collected balance method may use either the ledger or the
collected balance in determining the annual percentage yield earned.
(a)(2) Amount of interest
1. Accrued interest. Institutions must state the amount of interest
that accrued during the statement period, even if it was not credited.
2. Terminology. In disclosing interest earned for the period,
institutions must use the term ``interest'' or terminology such as:
i. ``Interest paid,'' to describe interest that has been credited
ii. ``Interest accrued'' or ``interest earned,'' to indicate that
interest is not yet credited
3. Closed accounts. If consumers close an account between crediting
periods and forfeits accrued interest, the institution may not show any
figures for interest earned or annual percentage yield earned for the
period (other than zero, at the institution's option).
(a)(3) Fees imposed
1. General. Periodic statements must state fees disclosed under
Sec. 230.4(b) that were debited to the account during the statement
period, even if assessed for an earlier period.
2. Itemizing fees by type. In itemizing fees imposed more than once
in the period, institutions may group fees if they are the same type.
(SeeSec. 230.11(a)(1) of this part regarding certain fees that are
required to be grouped.) When fees of the same type are grouped
together, the description must make clear that the dollar figure
represents more than a single fee, for example, ``total fees for checks
written this period.'' Examples of fees that may not be grouped together
are--
i. Monthly maintenance and excess-activity fees
ii. ``transfer'' fees, if different dollar amounts are imposed''
such as $.50 for deposits and $1.00 for withdrawals
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iii. fees for electronic fund transfers and fees for other services,
such as balance-inquiry or maintenance fees
iv. fees for paying overdrafts and fees for returning checks or
other items unpaid
3. Identifying fees. Statement details must enable consumers to
identify the specific fee. For example:
i. Institutions may use a code to identify a particular fee if the
code is explained on the periodic statement or in documents accompanying
the statement.
ii. Institutions using debit slips may disclose the date the fee was
debited on the periodic statement and show the amount and type of fee on
the dated debit slip.
4. Relation to Regulation E. Disclosure of fees in compliance with
Regulation E complies with this section for fees related to electronic
fund transfers (for example, totaling all electronic funds transfer fees
in a single figure).
(a)(4) Length of period
1. General. Institutions providing the beginning and ending dates of
the period must make clear whether both dates are included in the
period.
2. Opening or closing an account mid-cycle. If an account is opened
or closed during the period for which a statement is sent, institutions
must calculate the annual percentage yield earned based on account
balances for each day the account was open.
(b) Special rule for average daily balance method
1. Monthly statements and quarterly compounding. This rule applies,
for example, when an institution calculates interest on a quarterly
average daily balance and sends monthly statements. In this case, the
first two monthly statements would omit annual percentage yield earned
and interest earned figures; the third monthly statement would reflect
the interest earned and the annual percentage yield earned for the
entire quarter.
2. Length of the period. Institutions must disclose the length of
both the interest calculation period and the statement period. For
example, a statement could disclose a statement period of April 16
through May 15 and further state that ``the interest earned and the
annual percentage yield earned are based on your average daily balance
for the period April 1 through April 30.''
3. Quarterly statements and monthly compounding. Institutions that
use the average daily balance method to calculate interest on a monthly
basis and that send statements on a quarterly basis may disclose a
single interest (and annual percentage yield earned) figure.
Alternatively, an institution may disclose three interest and three
annual percentage yield earned figures, one for each month in the
quarter, as long as the institution states the number of days (or
beginning and ending dates) in the interest period if different from the
statement period.
Section 230.7 Payment of interest
(a)(1) Permissible methods
1. Prohibited calculation methods. Calculation methods that do not
comply with the requirement to pay interest on the full amount of
principal in the account each day include:
i. Paying interest on the balance in the account at the end of the
period (the ``ending balance'' method)
ii. Paying interest for the period based on the lowest balance in
the account for any day in that period (the ``low balance'' method)
iii. Paying interest on a percentage of the balance, excluding the
amount set aside for reserve requirements (the ``investable balance''
method)
2. Use of 365-day basis. Institutions may apply a daily periodic
rate greater than \1/365\ of the interest rate--such as \1/360\ of the
interest rate--as long as it is applied 365 days a year.
3. Periodic interest payments. An institution can pay interest each
day on the account and still make uniform interest payments. For
example, for a one-year certificate of deposit an institution could make
monthly interest payments equal to \1/12\ of the amount of interest that
will be earned for a 365-day period (or 11 uniform monthly payments--
each equal to roughly \1/12\ of the total amount of interest--and one
payment that accounts for the remainder of the total amount of interest
earned for the period).
4. Leap year. Institutions may apply a daily rate of \1/366\ or \1/
365\ of the interest rate for 366 days in a leap year, if the account
will earn interest for February 29.
5. Maturity of time accounts. Institutions are not required to pay
interest after time accounts mature. Examples include:
i. During a grace period offered for an automatically renewable time
account, if consumers decide during that period not to renew the account
ii. Following the maturity of nonrollover time accounts
iii. When the maturity date falls on a holiday, and consumers must
wait until the next business day to obtain the funds
6. Dormant accounts. Institutions must pay interest on funds in an
account, even if inactivity or the infrequency of transactions would
permit the institution to consider the account to be ``inactive'' or
``dormant'' (or similar status) as defined by state or other law or the
account contract.
(a)(2) Determination of minimum balance to earn interest
1. Daily balance accounts. Institutions that require a minimum
balance may choose not to pay interest for days when the balance drops
below the required minimum, if they
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use the daily balance method to calculate interest.
2. Average daily balance accounts. Institutions that require a
minimum balance may choose not to pay interest for the period in which
the balance drops below the required minimum, if they use the average
daily balance method to calculate interest.
3. Beneficial method. Institutions may not require that consumers
maintain both a minimum daily balance and a minimum average daily
balance to earn interest, such as by requiring consumers to maintain a
$500 daily balance and a prescribed average daily balance (whether
higher or lower). But an institution could offer a minimum balance to
earn interest that includes an additional method that is ``unequivocally
beneficial'' to consumers such as the following: An institution using
the daily balance method to calculate interest and requiring a $500
minimum daily balance could offer to pay interest on the account for
those days the minimum balance is not met as long as consumers maintain
an average daily balance throughout the month of $400.
4. Paying on full balance. Institutions must pay interest on the
full balance in the account that meets the required minimum balance. For
example, if $300 is the minimum daily balance required to earn interest,
and a consumer deposits $500, the institution must pay the stated
interest rate on the full $500 and not just on $200.
5. Negative balances prohibited. Institutions must treat a negative
account balance as zero to determine:
i. The daily or average daily balance on which interest will be paid
ii. Whether any minimum balance to earn interest is met
6. Club accounts. Institutions offering club accounts (such as a
``holiday'' or ``vacation'' club) cannot impose a minimum balance
requirement for interest based on the total number or dollar amount of
payments required under the club plan. For example, if a plan calls for
$10 weekly payments for 50 weeks, the institution cannot set a $500
``minimum balance'' and then pay interest only if the consumer has made
all 50 payments.
7. Minimum balances not affecting interest. Institutions may use the
daily balance, average daily balance, or any other computation method to
calculate minimum balance requirements not involving the payment of
interest--such as to compute minimum balances for assessing fees.
(b) Compounding and crediting policies
1. General. Institutions choosing to compound interest may compound
or credit interest annually, semi-annually, quarterly, monthly, daily,
continuously, or on any other basis.
2. Withdrawals prior to crediting date. If consumers withdraw funds
(without closing the account) prior to a scheduled crediting date,
institutions may delay paying the accrued interest on the withdrawn
amount until the scheduled crediting date, but may not avoid paying
interest.
3. Closed accounts. Subject to state or other law, an institution
may choose not to pay accrued interest if consumers close an account
prior to the date accrued interest is credited, as long as the
institution has disclosed that fact.
(c) Date interest begins to accrue
1. Relation to Regulation CC. Institutions may rely on the Expedited
Funds Availability Act (EFAA) and Regulation CC (12 CFR part 229) to
determine, for example, when a deposit is considered made for purposes
of interest accrual, or when interest need not be paid on funds because
a deposited check is later returned unpaid.
2. Ledger and collected balances. Institutions may calculate
interest by using a ``ledger'' or ``collected'' balance method, as long
as the crediting requirements of the EFAA are met (12 CFR 229.14).
3. Withdrawal of principal. Institutions must accrue interest on
funds until the funds are withdrawn from the account. For example, if a
check is debited to an account on a Tuesday, the institution must accrue
interest on those funds through Monday.
Section 230.8 Advertising
(a) Misleading or inaccurate advertisements
1. General. All advertisements are subject to the rule against
misleading or inaccurate advertisements, even though the disclosures
applicable to various media differ.
2. Indoor signs. An indoor sign advertising an annual percentage
yield is not misleading or inaccurate when:
i. For a tiered-rate account, it also provides the lower dollar
amount of the tier corresponding to the advertised annual percentage
yield
ii. For a time account, it also provides the term required to obtain
the advertised annual percentage yield
3. Fees affecting ``free'' accounts. For purposes of determining
whether an account can be advertised as ``free'' or ``no cost,''
maintenance and activity fees include:
i. Any fee imposed when a minimum balance requirement is not met, or
when consumers exceed a specified number of transactions
ii. Transaction and service fees that consumers reasonably expect to
be imposed on a regular basis
iii. A flat fee, such as a monthly service fee
iv. Fees imposed to deposit, withdraw, or transfer funds, including
per-check or per-transaction charges (for example, $.25 for each
withdrawal, whether by check or in person)
4. Other fees. Examples of fees that are not maintenance or activity
fees include:
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i. Fees not required to be disclosed underSec. 230.4(b)(4)
ii. Check printing fees
iii. Balance inquiry fees
iv. Stop-payment fees and fees associated with checks returned
unpaid
v. Fees assessed against a dormant account
vi. Fees for ATM or electronic transfer services (such as
preauthorized transfers or home banking services) not required to obtain
an account
5. Similar terms. An advertisement may not use the term ``fees
waived'' if a maintenance or activity fee may be imposed because it is
similar to the terms ``free'' or ``no cost.''
6. Specific account services. Institutions may advertise a specific
account service or feature as free if no fee is imposed for that service
or feature. For example, institutions offering an account that is free
of deposit or withdrawal fees could advertise that fact, as long as the
advertisement does not mislead consumers by implying that the account is
free and that no other fee (a monthly service fee, for example) may be
charged.
7. Free for limited time. If an account (or a specific account
service) is free only for a limited period of time--for example, for one
year following the account opening--the account (or service) may be
advertised as free if the time period is also stated.
8. Conditions not related to deposit accounts. Institutions may
advertise accounts as ``free'' for consumers meeting conditions not
related to deposit accounts, such as the consumer's age. For example,
institutions may advertise a NOW account as ``free for persons over 65
years old,'' even though a maintenance or activity fee is assessed on
accounts held by consumers 65 or younger.
9. Electronic advertising. If an electronic advertisement (such as
an advertisement appearing on an Internet Web site) displays a
triggering term (such as a bonus or annual percentage yield) the
advertisement must clearly refer the consumer to the location where the
additional required information begins. For example, an advertisement
that includes a bonus or annual percentage yield may be accompanied by a
link that directly takes the consumer to the additional information.
10. Examples. Examples of advertisements that would ordinarily be
misleading, inaccurate, or misrepresent the deposit contract are:
i. Representing an overdraft service as a ``line of credit,'' unless
the service is subject to the Board's Regulation Z, 12 CFR part 226.
ii. Representing that the institution will honor all checks or
authorize payment of all transactions that overdraw an account, with or
without a specified dollar limit, when the institution retains
discretion at any time not to honor checks or authorize transactions.
iii. Representing that consumers with an overdrawn account are
allowed to maintain a negative balance when the terms of the account's
overdraft service require consumers promptly to return the deposit
account to a positive balance.
iv. Describing an institution's overdraft service solely as
protection against bounced checks when the institution also permits
overdrafts for a fee for overdrawing their accounts by other means, such
as ATM withdrawals, debit card transactions, or other electronic fund
transfers.
v. Advertising an account-related service for which the institution
charges a fee in an advertisement that also uses the word ``free'' or
``no cost'' (or a similar term) to describe the account, unless the
advertisement clearly and conspicuously indicates that there is a cost
associated with the service. If the fee is a maintenance or activity fee
underSec. 230.8(a)(2) of this part, however, an advertisement may not
describe the account as ``free'' or ``no cost'' (or contain a similar
term) even if the fee is disclosed in the advertisement.
11. Additional disclosures in connection with the payment of
overdrafts. The rule inSec. 230.3(a), providing that disclosures
required bySec. 230.8 may be provided to the consumer in electronic
form without regard to E-Sign Act requirements, applies to the
disclosures described inSec. 230.11(b), which are incorporated by
reference inSec. 230.8(f).
(b) Permissible rates
1. Tiered-rate accounts. An advertisement for a tiered-rate account
that states an annual percentage yield must also state the annual
percentage yield for each tier, along with corresponding minimum balance
requirements. Any interest rates stated must appear in conjunction with
the applicable annual percentage yields for each tier.
2. Stepped-rate accounts. An advertisement that states an interest
rate for a stepped-rate account must state all the interest rates and
the time period that each rate is in effect.
3. Representative examples. An advertisement that states an annual
percentage yield for a given type of account (such as a time account for
a specified term) need not state the annual percentage yield applicable
to other time accounts offered by the institution or indicate that other
maturity terms are available. In an advertisement stating that rates for
an account may vary depending on the amount of the initial deposit or
the term of a time account, institutions need not list each balance
level and term offered. Instead, the advertisement may:
i. Provide a representative example of the annual percentage yields
offered, clearly described as such. For example, if an institution
offers a $25 bonus on all time accounts and the annual percentage yield
will vary depending on the term selected, the institution
[[Page 39]]
may provide a disclosure of the annual percentage yield as follows:
``For example, our 6-month certificate of deposit currently pays a 3.15%
annual percentage yield.''
ii. Indicate that various rates are available, such as by stating
short-term and longer-term maturities along with the applicable annual
percentage yields: ``We offer certificates of deposit with annual
percentage yields that depend on the maturity you choose. For example,
our one-month CD earns a 2.75% APY. Or, earn a 5.25% APY for a three-
year CD.''
(c) When additional disclosures are required
1. Trigger terms. The following are examples of information stated
in advertisements that are not ``trigger'' terms:
i. ``One, three, and five year CDs available''
ii. ``Bonus rates available''
iii. ``1% over our current rates,'' so long as the rates are not
determinable from the advertisement
(2) Time annual percentage yield is offered
1. Specified date. If an advertisement discloses an annual
percentage yield as of a specified date, that date must be recent in
relation to the publication or broadcast frequency of the media used,
taking into account the particular circumstances or production deadlines
involved. For example, the printing date of a brochure printed once for
a deposit account promotion that will be in effect for six months would
be considered ``recent,'' even though rates change during the six-month
period. Rates published in a daily newspaper or on television must
reflect rates offered shortly before (or on) the date the rates are
published or broadcast.
2. Reference to date of publication. An advertisement may refer to
the annual percentage yield as being accurate as of the date of
publication, if the date is on the publication itself. For instance, an
advertisement in a periodical may state that a rate is ``current through
the date of this issue,'' if the periodical shows the date.
(c)(5) Effect of fees
1. Scope. This requirement applies only to maintenance or activity
fees described in paragraph 8(a).
(c)(6) Features of time accounts
(c)(6)(i) Time requirements
1. Club accounts. If a club account has a maturity date but the term
may vary depending on when the account is opened, institutions may use a
phrase such as: ``The maturity date of this club account is November 15;
its term varies depending on when the account is opened.''
(c)(6)(ii) Early withdrawal penalties
1. Discretionary penalties. Institutions imposing early withdrawal
penalties on a case-by-case basis may disclose that they ``may'' (rather
than ``will'') impose a penalty if such a disclosure accurately
describes the account terms.
(d) Bonuses
1. General reference to ``bonus.'' General statements such as
``bonus checking'' or ``get a bonus when you open a checking account''
do not trigger the bonus disclosures.
(e) Exemption for certain advertisements
(e)(1) Certain media
(e)(1)(i)
1. Internet advertisements. The exemption for advertisements made
through broadcast or electronic media does not extend to advertisements
posted on the Internet or sent by e-mail.
(e)(1)(iii)
1. Tiered-rate accounts. Solicitations for a tiered-rate account
made through telephone response machines must provide the annual
percentage yields and the balance requirements applicable to each tier.
(e)(2) Indoor signs
(e)(2)(i)
1. General. Indoor signs include advertisements displayed on
computer screens, banners, preprinted posters, and chalk or peg boards.
Any advertisement inside the premises that can be retained by a consumer
(such as a brochure or a printout from a computer) is not an indoor
sign.
Section 230.9 Enforcement and record retention
(c) Record retention
1. Evidence of required actions. Institutions comply with the
regulation by demonstrating that they have done the following:
i. Established and maintained procedures for paying interest and
providing timely disclosures as required by the regulation, and
ii. Retained sample disclosures for each type of account offered to
consumers, such as account-opening disclosures, copies of
advertisements, and change-in-term notices; and information regarding
the interest rates and annual percentage yields offered.
2. Methods of retaining evidence. Institutions must be able to
reconstruct the required disclosures or other actions. They need not
keep disclosures or other business records in hard copy. Records
evidencing compliance may be retained on microfilm, microfiche, or by
other methods that reproduce records accurately (including computer
files).
3. Payment of interest. Institutions must retain sufficient rate and
balance information to permit the verification of interest paid on an
account, including the payment of interest on the full principal
balance.
Section 230.10 Electronic Communication [Reserved]
Section 230.11 Additional disclosures regarding the payment of
overdrafts
(a) Disclosure of total fees on periodic statements.
(a)(1) General.
[[Page 40]]
1. Transfer services. The overdraft services covered bySec.
230.11(a)(1) of this part do not include a service providing for the
transfer of funds from another deposit account of the consumer to permit
the payment of items without creating an overdraft, even if a fee is
charged for the transfer.
2. Fees for paying overdrafts. Institutions must disclose on
periodic statements a total dollar amount for all fees or charges
imposed on the account for paying overdrafts. The institution must
disclose separate totals for the statement period and for the calendar
year-to-date. The total dollar amount for each of these periods includes
per-item fees as well as interest charges, daily or other periodic fees,
or fees charged for maintaining an account in overdraft status, whether
the overdraft is by check, debit card transaction, or by any other
transaction type. It also includes fees charged when there are
insufficient funds because previously deposited funds are subject to a
hold or are uncollected. It does not include fees for transferring funds
from another account of the consumer to avoid an overdraft, or fees
charged under a service subject to the Board's Regulation Z (12 CFR part
226). See also comment 11(c)-2. UnderSec. 230.11(a)(1)(i), the
disclosure must describe the total dollar amount for all fees or charges
imposed on the account for the statement period and calendar year-to-
date for paying overdrafts using the term ``Total Overdraft Fees.'' This
requirement applies notwithstanding comment 3(a)-2.
3. Fees for returning items unpaid. The total dollar amount for all
fees for returning items unpaid must include all fees charged to the
account for dishonoring or returning checks or other items drawn on the
account. The institution must disclose separate totals for the statement
period and for the calendar year-to-date. Fees imposed when deposited
items are returned are not included. Institutions may use terminology
such as ``returned item fee'' or ``NSF fee'' to describe fees for
returning items unpaid.
4. Waived fees. In some cases, an institution may provide a
statement for the current period reflecting that fees imposed during a
previous period were waived and credited to the account. Institutions
may, but are not required to, reflect the adjustment in the total for
the calendar year-to-date and in the applicable statement period. For
example, if an institution assesses a fee in January and refunds the fee
in February, the institution could disclose a year-to-date total
reflecting the amount credited, but it should not affect the total
disclosed for the February statement period, because the fee was not
assessed in the February statement period. If an institution assesses
and then waives and credits a fee within the same cycle, the institution
may, at its option, reflect the adjustment in the total disclosed for
fees imposed during the current statement period and for the total for
the calendar year-to-date. Thus, if the institution assesses and waives
the fee in the February statement period, the February fee total could
reflect a total net of the waived fee.
5. Totals for the calendar year to date. Some institutions'
statement periods do not coincide with the calendar month. In such
cases, the institution may disclose a calendar year-to-date total by
aggregating fees for 12 monthly cycles, starting with the period that
begins during January and finishing with the period that begins during
December. For example, if statement periods begin on the 10th day of
each month, the statement covering December 10, 2006 through January 9,
2007 may disclose the year-to-date total for fees imposed from January
10, 2006 through January 9, 2007. Alternatively, the institution could
provide a statement for the cycle ending January 9, 2007 showing the
year-to-date total for fees imposed January 1, 2006 through December 31,
2006.
6. Itemization of fees. An institution may itemize each fee in
addition to providing the disclosures required bySec. 230.11(a)(1) of
this part.
(a)(3) Time period covered by disclosures
1. Periodic statement disclosures. The disclosures under section
230.11(a) must be included on periodic statements provided by an
institution starting the first statement period that begins after
January 1, 2010. For example, if a consumer's statement period typically
closes on the 15th of each month, an institution must provide the
disclosures required bySec. 230.11(a)(1) on subsequent periodic
statements for that consumer beginning with the statement reflecting the
period from January 16, 2010 to February 15, 2010.
(b) Advertising Disclosures in Connection With Overdraft Services
1. Examples of institutions promoting the payment of overdrafts. A
depository institution would be required to include the advertising
disclosures inSec. 230.11(b)(1) of this part if the institution:
i. Promotes the institution's policy or practice of paying
overdrafts (unless the service would be subject to the Board's
Regulation Z (12 CFR part 226)). This includes advertisements using
print media such as newspapers or brochures, telephone solicitations,
electronic mail, or messages posted on an Internet site. (But seeSec.
230.11(b)(2) of this part for communications that are not subject to the
additional advertising disclosures);
ii. Includes a message on a periodic statement informing the
consumer of an overdraft limit or the amount of funds available for
overdrafts. For example, an institution that includes a message on a
periodic statement informing the consumer of a $500 overdraft
[[Page 41]]
limit or that the consumer has $300 remaining on the overdraft limit, is
promoting an overdraft service.
iii. Discloses an overdraft limit or includes the dollar amount of
an overdraft limit in a balance disclosed on an automated system, such
as a telephone response machine, ATM screen or the institution's
Internet site. (See, however,Sec. 230.11(b)(3) of this part.).
2. Transfer services. The overdraft services covered bySec.
230.11(b)(1) of this part do not include a service providing for the
transfer of funds from another deposit account of the consumer to permit
the payment of items without creating an overdraft, even if a fee is
charged for the transfer.
3. Electronic media. The exception for advertisements made through
broadcast or electronic media, such as television or radio, does not
apply to advertisements posted on an institution's Internet site, on an
ATM screen, provided on telephone response machines, or sent by
electronic mail.
4. Fees. The fees that must be disclosed underSec. 230.11(b)(1) of
this part include per-item fees as well as interest charges, daily or
other periodic fees, and fees charged for maintaining an account in
overdraft status, whether the overdraft is by check or by other means.
The fees also include fees charged when there are insufficient funds
because previously deposited funds are subject to a hold or are
uncollected. The fees do not include fees for transferring funds from
another account to avoid an overdraft, or fees charged when the
institution has previously agreed in writing to pay items that overdraw
the account and the service is subject to the Board's Regulation Z, 12
CFR part 226.
5. Categories of transactions. An exhaustive list of transactions is
not required. Disclosing that a fee may be imposed for covering
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or
other electronic means' would satisfy the requirements ofSec.
230.11(b)(1)(ii) of this part where the fee may be imposed in these
circumstances. See comment 4(b)(4)-5 of this part.
6. Time period to repay. If a depository institution reserves the
right to require a consumer to pay an overdraft immediately or on demand
instead of affording consumers a specific time period to establish a
positive balance in the account, an institution may comply withSec.
230.11(b)(1)(iii) of this part by disclosing this fact.
7. Circumstances for nonpayment. An institution must describe the
circumstances under which it will not pay an overdraft. It is sufficient
to state, as applicable: ``Whether your overdrafts will be paid is
discretionary and we reserve the right not to pay. For example, we
typically do not pay overdrafts if your account is not in good standing,
or you are not making regular deposits, or you have too many
overdrafts.''
8. Advertising an account as ``free.'' If the advertised account-
related service is an overdraft service subject to the requirements of
Sec. 230.11(b)(1) of this part, institutions must disclose the fee or
fees for the payment of each overdraft, not merely that a cost is
associated with the overdraft service, as well as other required
information. Compliance with comment 8(a)-10.v. is not sufficient.
(c) Disclosure of account balances
1. Balance that does not include additional amounts. For purposes of
the balance disclosure requirement inSec. 230.11(c), if an institution
discloses balance information to a consumer through an automated system,
it must disclose a balance that excludes any funds that the institution
may provide to cover an overdraft pursuant to a discretionary overdraft
service, that will be paid by the institution under a service subject to
the Board's Regulation Z (12 CFR part 226), or that will be transferred
from another account held individually or jointly by a consumer. The
balance may, but need not, include funds that are deposited in the
consumer's account, such as from a check, that are not yet made
available for withdrawal in accordance with the funds availability rules
under the Board's Regulation CC (12 CFR part 229). In addition, the
balance may, but need not, include funds that are held by the
institution to satisfy a prior obligation of the consumer (for example,
to cover a hold for an ATM or debit card transaction that has been
authorized but for which the bank has not settled).
2. Retail sweep programs. In a retail sweep program, an institution
establishes two legally distinct subaccounts, a transaction subaccount
and a savings subaccount, which together make up the consumer's account.
The institution allocates and transfers funds between the two
subaccounts in order to maximize the balance in the savings account
while complying with the monthly limitations on transfers out of savings
accounts under the Board's Regulation D, 12 CFR 204.2(d)(2). Retail
sweep programs are generally not established for the purpose of covering
overdrafts. Rather, institutions typically establish retail sweep
programs by agreement with the consumer, in order for the institution to
minimize its transaction account reserve requirements and, in some
cases, to provide a higher interest rate than the consumer would earn on
a transaction account alone. Section 230.11(c) does not require an
institution to exclude from the consumer's balance funds that may be
transferred from another account pursuant to a retail sweep program that
is established for such purposes and that has the following
characteristics:
i. The account involved complies with the Board's Regulation D, 12
CFR 204.2(d)(2),
[[Page 42]]
ii. The consumer does not have direct access to the non-transaction
subaccount that is part of the retail sweep program, and
iii. The consumer's periodic statements show the account balance as
the combined balance in the subaccounts.
3. Additional balance. The institution may disclose additional
balances supplemented by funds that may be provided by the institution
to cover an overdraft, whether pursuant to a discretionary overdraft
service, a service subject to the Board's Regulation Z (12 CFR part
226), or a service that transfers funds from another account held
individually or jointly by the consumer, so long as the institution
prominently states that any additional balance includes these additional
overdraft amounts. The institution may not simply state, for instance,
that the second balance is the consumer's ``available balance,'' or
contains ``available funds.'' Rather, the institution should provide
enough information to convey that the second balance includes these
amounts. For example, the institution may state that the balance
includes ``overdraft funds.'' Where a consumer has not opted into, or as
applicable, has opted out of the institution's discretionary overdraft
service, any additional balance disclosed should not include funds that
otherwise might be available under that service. Where a consumer has
not opted into, or as applicable, has opted out of, the institution's
discretionary overdraft service for some, but not all transactions
(e.g., the consumer has not opted into overdraft services for ATM and
one-time debit card transactions), an institution that includes these
additional overdraft funds in the second balance should convey that the
overdraft funds are not available for all transactions. For example, the
institution could state that overdraft funds are not available for ATM
and one-time (or everyday) debit card transactions. Similarly, if funds
are not available for all transactions pursuant to a service subject to
the Board's Regulation Z (12 CFR part 226) or a service that transfers
funds from another account, a second balance that includes such funds
should also indicate this fact.
4. Automated systems. The balance disclosure requirement inSec.
230.11(c) applies to any automated system through which the consumer
requests a balance, including, but not limited to, a telephone response
system, the institution's Internet site, or an ATM. The requirement
applies whether the institution discloses a balance through an ATM owned
or operated by the institution or through an ATM not owned or operated
by the institution (including an ATM operated by a non-depository
institution). If the balance is obtained at an ATM, the requirement also
applies whether the balance is disclosed on the ATM screen or on a paper
receipt.
Appendix A to Part 230--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
1. Rounding for calculations. The following are examples of
permissible rounding for calculating interest and the annual percentage
yield:
i. The daily rate applied to a balance carried to five or more
decimal places
ii. The daily interest earned carried to five or more decimal places
Part II. Annual Percentage Yield Earned for Periodic Statements
1. Balance method. The interest figure used in the calculation of
the annual percentage yield earned may be derived from the daily balance
method or the average daily balance method. The balance used in the
formula for the annual percentage yield earned is the sum of the
balances for each day in the period divided by the number of days in the
period.
2. Negative balances prohibited. Institutions must treat a negative
account balance as zero to determine the balance on which the annual
percentage yield earned is calculated. (See commentary toSec.
230.7(a)(2).)
A. General Formula
1. Accrued but uncredited interest. To calculate the annual
percentage yield earned, accrued but uncredited interest:
i. May not be included in the balance for statements issued at the
same time or less frequently than the account's compounding and
crediting frequency. For example, if monthly statements are sent for an
account that compounds interest daily and credits interest monthly, the
balance may not be increased each day to reflect the effect of daily
compounding.
ii. Must be included in the balance for succeeding statements if a
statement is issued more frequently than compounded interest is credited
on an account. For example, if monthly statements are sent for an
account that compounds interest daily and credits interest quarterly,
the balance for the second monthly statement would include interest that
had accrued for the prior month.
2. Rounding. The interest earned figure used to calculate the annual
percentage yield earned must be rounded to two decimals and reflect the
amount actually paid. For example, if the interest earned for a
statement period is $20.074 and the institution pays the consumer
$20.07, the institution must use $20.07 (not $20.074) to calculate the
annual percentage yield earned. For accounts paying interest based on
the daily balance method that compound and credit interest quarterly,
and send monthly statements, the institution may, but need not,
[[Page 43]]
round accrued interest to two decimals for calculating the annual
percentage yield earned on the first two monthly statements issued
during the quarter. However, on the quarterly statement the interest
earned figure must reflect the amount actually paid.
B. Special Formula for Use Where Periodic Statement is Sent More Often
Than the Period for Which Interest is Compounded
1. Statements triggered by Regulation E. Institutions may, but need
not, use this formula to calculate the annual percentage yield earned
for accounts that receive quarterly statements and are subject to
Regulation E's rule calling for monthly statements when an electronic
fund transfer has occurred. They may do so even though no monthly
statement was issued during a specific quarter. But institutions must
use this formula for accounts that compound and credit interest
quarterly and receive monthly statements that, while triggered by
Regulation E, comply with the provisions ofSec. 230.6.
2. Days in compounding period. Institutions using the special annual
percentage yield earned formula must use the actual number of days in
the compounding period.
Appendix B to Part 230--Model Clauses and Sample Forms
1. Modifications. Institutions that modify the model clauses will be
deemed in compliance as long as they do not delete required information
or rearrange the format in a way that affects the substance or clarity
of the disclosures.
2. Format. Institutions may use inserts to a document (see Sample
Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-7, which
use underlining to indicate terms that have been filled in) to show
current rates, fees, or other terms.
3. Disclosures for opening accounts. The sample forms illustrate the
information that must be provided to consumers when an account is
opened, as required bySec. 230.4(a)(1). (SeeSec. 230.4(a)(2), which
states the requirements for disclosing the annual percentage yield, the
interest rate, and the maturity of a time account in responding to a
consumer's request.)
4. Compliance with Regulation E. Institutions may satisfy certain
requirements under Regulation DD with disclosures that meet the
requirements of Regulation E. (SeeSec. 230.3(c).) For disclosures
covered by both this regulation and Regulation E (such as the amount of
fees for ATM usage, institutions should consult appendix A to Regulation
E for appropriate model clauses.
5. Duplicate disclosures. If a requirement such as a minimum balance
applies to more than one account term (to obtain a bonus and determine
the annual percentage yield, for example), institutions need not repeat
the requirement for each term, as long as it is clear which terms the
requirement applies to.
6. Sample forms. The sample forms (B-4 through B-8) serve a purpose
different from the model clauses. They illustrate ways of adapting the
model clauses to specific accounts. The clauses shown relate only to the
specific transactions described.
B-1 Model Clauses for Account Disclosures
B-1(h) Disclosures Relating to Time Accounts
1. Maturity. The disclosure in Clause (h)(i) stating a specific date
may be used in all cases. The statement describing a time period is
appropriate only when providing disclosures in response to a consumer's
request.
B-2 Model Clauses for Change in Terms
1. General. The second clause, describing a future decrease in the
interest rate and annual percentage yield, applies to fixed-rate
accounts only.
B-4 Sample Form (Multiple Accounts)
1. Rate sheet insert. In the rate sheet insert, the calculations of
the annual percentage yield for the three-month and six-month
certificates are based on 92 days and 181 days respectively. All
calculations in the insert assume daily compounding.
B-6 Sample Form (Tiered-Rate Money Market Account)
1. General. Sample Form B-6 uses Tiering Method A (discussed in
appendix A and Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account; institutions may use
different formats (for example, a chart similar to the one in Sample
Form B-4), as long as all required information for each tier is clearly
presented. The form does not contain a separate disclosure of the
minimum balance required to obtain the annual percentage yield; the
tiered-rate disclosure provides that information.
[Reg. DD, 59 FR 40221, Aug. 8, 1994, as amended at 59 FR 52658, Oct. 19,
1994; 63 FR 52107, Sept. 29, 1998; 66 FR 17803, Apr. 4, 2001; 70 FR
29594, May 24, 2005; 72 FR 63484, Nov. 9, 2007; 74 FR 5594, Jan. 29,
2009; 75 FR 31676, June 4, 2010; 76 FR 42020, July 18, 2011]
PART 231_NETTING ELIGIBILITY FOR FINANCIAL INSTITUTION (REGULATION EE)
--Table of Contents
Sec.
231.1 Authority, purpose, and scope.
231.2 Definitions.
[[Page 44]]
231.3 Qualification as a financial institution.
Authority: 12 U.S.C. 4402(1)(B) and 4402(9).
Source: Reg. EE, 59 FR 4784, Feb. 2, 1994, unless otherwise noted.
Sec. 231.1 Authority, purpose, and scope.
(a) Authority. This part (Regulation EE; 12 CFR part 231) is issued
by the Board of Governors of the Federal Reserve System under the
authority of sections 402(1)(B) and 402(9) of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4402(1)(B) and
4402(9)).
(b) Purpose and scope. The purpose of the Act and this part is to
enhance efficiency and reduce systemic risk in the financial markets.
This part expands the Act's definition of ``financial institution'' to
allow more financial market participants to avail themselves of the
netting provisions set forth in sections 401-407 of the Act (12 U.S.C.
4401-4407). This part does not affect the status of those financial
institutions specifically defined in the Act.
Sec. 231.2 Definitions.
As used in this part, unless the context requires otherwise:
(a) Act means the Federal Deposit Insurance Corporation Improvement
Act of 1991 (Pub. L. 102-242, 105 Stat. 2236), as amended.
(b) Affiliate, with respect to a person, means any other person that
controls, is controlled by, or is under common control with the person.
(c) Financial contract means a qualified financial contract as
defined in section 11(e)(8)(D) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)), as amended, except that a forward contract
includes a contract with a maturity date two days or less after the date
the contract is entered into (i.e., a ``spot'' contract).
(d) Financial market means a market for a financial contract.
(e) Gross mark-to-market positions in one or more financial
contracts means the sum of the absolute values of positions in those
contracts, adjusted to reflect the market values of those positions in
accordance with the methods used by the parties to each contract to
value the contract.
(f) Person means any legal entity, foreign or domestic, including a
corporation, unincorporated company, partnership, government unit or
instrumentality, trust, natural person, or any other entity or
organization.
Sec. 231.3 Qualification as a financial institution.
(a) A person qualifies as a financial institution for purposes of
sections 401-407 of the Act if it represents, orally or in writing, that
it will engage in financial contracts as a counterparty on both sides of
one or more financial markets and either--
(1) Had one or more financial contracts of a total gross dollar
value of at least $1 billion in notional principal amount outstanding on
any day during the previous 15-month period with counterparties that are
not its affiliates; or
(2) Had total gross mark-to-market positions of at least $100
million (aggregated across counterparties) in one or more financial
contracts on any day during the previous 15-month period with
counterparties that are not its affiliates.
(b) If a person qualifies as a financial institution under paragraph
(a) of this section, that person will be considered a financial
institution for the purposes of any contract entered into during the
period it qualifies, even if the person subsequently fails to qualify.
(c) If a person qualifies as a financial institution under paragraph
(a) of this section on March 7, 1994, that person will be considered a
financial institution for the purposes of any outstanding contract
entered into prior to March 7, 1994.
[Reg. EE, 59 FR 4784, Feb. 2, 1994, as amended at 61 FR 1274, Jan. 19,
1996]
PART 232_OBTAINING AND USING MEDICAL INFORMATION IN CONNECTION WITH
CREDIT (REGULATION FF)--Table of Contents
Sec.
232.1 Scope, General Prohibition and Definitions
232.2 Rule of Construction for Obtaining and Using Unsolicited Medical
Information
[[Page 45]]
232.3 Financial Information Exception for Obtaining and Using Medical
Information
232.4 Specific Exceptions for Obtaining and Using Medical Information
Authority: 15 U.S.C. 1681b.
Source: 70 FR 70682, Nov. 22, 2005, unless otherwise noted.
Sec. 232.1 Scope, General Prohibition and Definitions
(a) Scope. This part applies to creditors, as defined in paragraph
(c)(3) of this section, except for creditors that are subject to
Sec.Sec. 41.30, 222.30, 334.30, 571.30, or 717.30.
(b) 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.
(c) Definitions. (1) Consumer means an individual.
(2) Credit has the same meaning as in section 702 of the Equal
Credit Opportunity Act, 15 U.S.C. 1691a.
(3) Creditor has the same meaning as in section 702 of the Equal
Credit Opportunity Act, 15 U.S.C. 1691a.
(4) 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:
(i) 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;
(ii) 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
(iii) 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.
(5) Medical information means:
(i) 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--
(A) The past, present, or future physical, mental, or behavioral
health or condition of an individual;
(B) The provision of health care to an individual; or
(C) The payment for the provision of health care to an individual.
(ii) The term does not include:
(A) The age or gender of a consumer;
(B) Demographic information about the consumer, including a
consumer's residence address or e-mail address;
(C) 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
(D) Information that does not identify a specific consumer.
(6) Person means any individual, partnership, corporation, trust,
estate cooperative, association, government or governmental subdivision
or agency, or other entity.
Sec. 232.2 Rule of construction for obtaining and using unsolicited
medical information.
(a) 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.
(b) Use of unsolicited medical information. A creditor that receives
unsolicited medical information in the manner described in paragraph (a)
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 inSec. 232.3 orSec. 232.4.
(c) Examples. A creditor does not obtain medical information in
violation of the prohibition if, for example:
(1) 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.
[[Page 46]]
(2) In a conversation with the creditor's loan officer, the consumer
informs the creditor that the consumer has a particular medical
condition.
(3) 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.
Sec. 232.3 Financial information exception for obtaining and using
medical information.
(a) 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:
(1) 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;
(2) 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
(3) The creditor does not take the consumer's physical, mental, or
behavioral health, condition or history, type of treatment, or prognosis
into account as part of any such determination.
(b) Examples--(1) Examples of the types of information routinely
used in making credit eligibility determinations. Paragraph (a)(1) of
this section permits a creditor, for example, to obtain and use
information about:
(i) 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;
(ii) The value, condition, and lien status of a medical device that
may serve as collateral to secure a loan;
(iii) 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
(iv) 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.
(2) Examples of uses of medical information consistent with the
exception. (i) 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.
(ii) 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.
(iii) 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
[[Page 47]]
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.
(3) Examples of uses of medical information inconsistent with the
exception. (i) 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.
(ii) 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 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.
(iii) 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.
Sec. 232.4 Specific exceptions for obtaining and using medical
information.
(a) 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:
(1) 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;
(2) To comply with applicable requirements of local, state, or
Federal laws;
(3) To determine, at the consumer's request, whether the consumer
qualifies for a legally permissible special
[[Page 48]]
credit program or credit-related assistance program that is--
(i) Designed to meet the special needs of consumers with medical
conditions; and
(ii) Established and administered pursuant to a written plan that--
(A) Identifies the class of persons that the program is designed to
benefit; and
(B) Sets forth the procedures and standards for extending credit or
providing other credit-related assistance under the program;
(4) To the extent necessary for purposes of fraud prevention or
detection;
(5) 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;
(6) 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;
(7) 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;
(8) To determine the consumer's eligibility for, the triggering of,
or the reactivation of a debt cancellation contract or debt suspension
agreement if a medical condition or event is a triggering event for the
provision of benefits under the contract or agreement; or
(9) 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.
(b) 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.
(c) Examples of verifying the medical purpose of the loan or the use
of proceeds. (1) 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.
(2) 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.
(3) 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
[[Page 49]]
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.
(d) Examples of obtaining and using medical information at the
request of the consumer. (1) 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.
(2) 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 liquidating
assets, the creditor may, but is not required to, evaluate the
application using the sale 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.
(3) 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.
(4) 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.
(5) 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.
(e) 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
[[Page 50]]
attempts to contact the consumer and speaks with the consumer's adult
child, who is not the consumer's legal representative. The adult child
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.
PART 233_PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
(REGULATION GG)--Table of Contents
Sec.
233.1 Authority, purpose, collection of information, and incorporation
by reference.
233.2 Definitions.
233.3 Designated payment systems.
233.4 Exemptions.
233.5 Policies and procedures required.
233.6 Non-exclusive examples of policies and procedures.
233.7 Regulatory enforcement.
Appendix A to Part 233--Model Notice
Authority: 31 U.S.C. 5364.
Source: Reg. GG, 73 FR 69405, Nov. 18, 2008, unless otherwise noted.
Sec. 233.1 Authority, purpose, collection of information, and
incorporation by reference.
(a) Authority. This part is issued jointly by the Board of Governors
of the Federal Reserve System (Board) and the Secretary of the
Department of the Treasury (Treasury) under section 802 of the Unlawful
Internet Gambling Enforcement Act of 2006 (Act) (enacted as title VIII
of the Security and Accountability For Every Port Act of 2006, Pub. L.
No. 109-347, 120 Stat. 1884, and codified at 31 U.S.C. 5361-5367). The
Act states that none of its provisions shall be construed as altering,
limiting, or extending any Federal or State law or Tribal-State compact
prohibiting, permitting, or regulating gambling within the United
States. See 31 U.S.C. 5361(b). In addition, the Act states that its
provisions are not intended to change which activities related to
horseracing may or may not be allowed under Federal law, are not
intended to change the existing relationship between the Interstate
Horseracing Act of 1978 (IHA) (15 U.S.C. 3001 et seq.) and other Federal
statutes in effect on October 13, 2006, the date of the Act's enactment,
and are not intended to resolve any existing disagreements over how to
interpret the relationship between the IHA and other Federal statutes.
See 31 U.S.C. 5362(10)(D)(iii). This part is intended to be consistent
with these provisions.
(b) Purpose. The purpose of this part is to issue implementing
regulations as required by the Act. The part sets out necessary
definitions, designates payment systems subject to the requirements of
this part, exempts certain participants in designated payment systems
from certain requirements of this part, provides nonexclusive examples
of policies and procedures reasonably designed to identify and block, or
otherwise prevent and prohibit, restricted transactions, and sets out
the Federal entities that have exclusive regulatory enforcement
authority with respect to the designated payments systems and non-exempt
participants therein.
(c) Collection of information. The Office of Management and Budget
(OMB) has approved the collection of information requirements in this
part for the Department of the Treasury and assigned OMB control number
1505-0204. The Board has approved the collection of information
requirements in this part under the authority delegated to the Board by
OMB, and assigned OMB control number 7100-0317.
(d) Incorporation by reference--relevant definitions from ACH rules.
(1) This part incorporates by reference the relevant definitions of ACH
terms as published in the ``2008 ACH Rules: A Complete Guide to Rules &
Regulations Governing the ACH Network'' (the ``ACH Rules''). The
Director of the Federal Register approves this incorporation by
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies
of the ``2008 ACH Rules'' are available from the National Automated
Clearing House Association, Suite 100, 13450
[[Page 51]]
Sunrise Valley Drive, Herndon, Virginia 20171, http://nacha.org, (703)
561-1100. Copies also are available for public inspection at the
Department of Treasury Library, Room 1428, Main Treasury Building, 1500
Pennsylvania Avenue, NW., Washington, DC 20220, and the National
Archives and Records Administration (NARA). Before visiting the Treasury
library, you must call (202) 622-0990 for an appointment. For
information on the availability of this material at NARA, call (202)
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html 20002.
(2) Any amendment to definitions of the relevant ACH terms in the
ACH Rules shall not apply to this part unless the Treasury and the Board
jointly accept such amendment by publishing notice of acceptance of the
amendment to this part in the Federal Register. An amendment to the
definition of a relevant ACH term in the ACH Rules that is accepted by
the Treasury and the Board shall apply to this part on the effective
date of the rulemaking specified by the Treasury and the Board in the
joint Federal Register notice expressly accepting such amendment.
Sec. 233.2 Definitions.
The following definitions apply solely for purposes of this part:
(a) Actual knowledge with respect to a transaction or commercial
customer means when a particular fact with respect to that transaction
or commercial customer is known by or brought to the attention of:
(1) An individual in the organization responsible for the
organization's compliance function with respect to that transaction or
commercial customer; or
(2) An officer of the organization.
(b) Automated clearing house system or ACH system means a funds
transfer system, primarily governed by the ACH Rules, which provides for
the clearing and settlement of batched electronic entries for
participating financial institutions. When referring to ACH systems, the
terms in this regulation (such as ``originating depository financial
institution,'' ``operator,'' ``originating gateway operator,''
``receiving depository financial institution,'' ``receiving gateway
operator,'' and ``third-party sender'') are defined as those terms are
defined in the ACH Rules.
(c) Bet or wager:
(1) Means the staking or risking by any person of something of value
upon the outcome of a contest of others, a sporting event, or a game
subject to chance, upon an agreement or understanding that the person or
another person will receive something of value in the event of a certain
outcome;
(2) Includes the purchase of a chance or opportunity to win a
lottery or other prize (which opportunity to win is predominantly
subject to chance);
(3) Includes any scheme of a type described in 28 U.S.C. 3702;
(4) Includes any instructions or information pertaining to the
establishment or movement of funds by the bettor or customer in, to, or
from an account with the business of betting or wagering (which does not
include the activities of a financial transaction provider, or any
interactive computer service or telecommunications service); and
(5) Does not include--
(i) Any activity governed by the securities laws (as that term is
defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(47)) for the purchase or sale of securities (as that term
is defined in section 3(a)(10) of that act (15 U.S.C. 78c(a)(10));
(ii) Any transaction conducted on or subject to the rules of a
registered entity or exempt board of trade under the Commodity Exchange
Act (7 U.S.C. 1 et seq.);
(iii) Any over-the-counter derivative instrument;
(iv) Any other transaction that--
(A) Is excluded or exempt from regulation under the Commodity
Exchange Act (7 U.S.C. 1 et seq.); or
(B) Is exempt from State gaming or bucket shop laws under section
12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) or section 28(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78bb(a));
(v) Any contract of indemnity or guarantee;
(vi) Any contract for insurance;
(vii) Any deposit or other transaction with an insured depository
institution;
[[Page 52]]
(viii) Participation in any game or contest in which participants do
not stake or risk anything of value other than--
(A) Personal efforts of the participants in playing the game or
contest or obtaining access to the Internet; or
(B) Points or credits that the sponsor of the game or contest
provides to participants free of charge and that can be used or redeemed
only for participation in games or contests offered by the sponsor; or
(ix) Participation in any fantasy or simulation sports game or
educational game or contest in which (if the game or contest involves a
team or teams) no fantasy or simulation sports team is based on the
current membership of an actual team that is a member of an amateur or
professional sports organization (as those terms are defined in 28
U.S.C. 3701) and that meets the following conditions:
(A) All prizes and awards offered to winning participants are
established and made known to the participants in advance of the game or
contest and their value is not determined by the number of participants
or the amount of any fees paid by those participants.
(B) All winning outcomes reflect the relative knowledge and skill of
the participants and are determined predominantly by accumulated
statistical results of the performance of individuals (athletes in the
case of sports events) in multiple real-world sporting or other events.
(C) No winning outcome is based--
(1) On the score, point-spread, or any performance or performances
of any single real-world team or any combination of such teams, or
(2) Solely on any single performance of an individual athlete in any
single real-world sporting or other event.
(d) Block means to reject a particular transaction before or during
processing, but it does not require freezing or otherwise prohibiting
subsequent transfers or transactions regarding the proceeds or account.
(e) Card issuer means any person who issues a credit card, debit
card, pre-paid card, or stored value card, or the agent of such person
with respect to such card.
(f) Card system means a system for authorizing, clearing and
settling transactions in which credit cards, debit cards, pre-paid
cards, or stored value cards (such cards being issued or authorized by
the operator of the system), are used to purchase goods or services or
to obtain a cash advance. The term includes systems both in which the
merchant acquirer, card issuer, and system operator are separate
entities and in which more than one of these roles are performed by the
same entity.
(g) Check clearing house means an association of banks or other
payors that regularly exchange checks for collection or return.
(h) Check collection system means an interbank system for
collecting, presenting, returning, and settling for checks or intrabank
system for settling for checks deposited in and drawn on the same bank.
When referring to check collection systems, the terms in this regulation
(such as ``paying bank,'' ``collecting bank,'' ``depositary bank,''
``returning bank,'' and ``check'') are defined as those terms are
defined in 12 CFR 229.2. For purposes of this part, ``check'' also
includes an electronic representation of a check that a bank agrees to
handle as a check.
(i) Commercial customer means a person that is not a consumer and
that contracts with a non-exempt participant in a designated payment
system to receive, or otherwise accesses, payment transaction services
through that non-exempt participant.
(j) Consumer means a natural person.
(k) Designated payment system means a system listed inSec. ----.3.
(l) Electronic fund transfer has the same meaning given the term in
section 903 of the Electronic Fund Transfer Act (15 U.S.C. 1693a),
except that such term includes transfers that would otherwise be
excluded under section 903(6)(E) of that act (15 U.S.C. 1693a(6)(E)),
and includes any funds transfer covered by Article 4A of the Uniform
Commercial Code, as in effect in any State.
(m) Financial institution means a State or national bank, a State or
Federal savings and loan association, a
[[Page 53]]
mutual savings bank, a State or Federal credit union, or any other
person that, directly or indirectly, holds an account belonging to a
consumer. The term does not include a casino, sports book, or other
business at or through which bets or wagers may be placed or received.
(n) Financial transaction provider means a creditor, credit card
issuer, financial institution, operator of a terminal at which an
electronic fund transfer may be initiated, money transmitting business,
or international, national, regional, or local payment network utilized
to effect a credit transaction, electronic fund transfer, stored value
product transaction, or money transmitting service, or a participant in
such network, or other participant in a designated payment system.
(o) Foreign banking office means:
(1) Any non-U.S. office of a financial institution; and
(2) Any non-U.S. office of a foreign bank as described in 12 U.S.C.
3101(7).
(p) Interactive computer service means any information service,
system, or access software provider that provides or enables computer
access by multiple users to a computer server, including specifically a
service or system that provides access to the Internet and such systems
operated or services offered by libraries or educational institutions.
(q) Internet means the international computer network of
interoperable packet switched data networks.
(r) Internet gambling business means the business of placing,
receiving or otherwise knowingly transmitting a bet or wager by any
means which involves the use, at least in part, of the Internet, but
does not include the performance of the customary activities of a
financial transaction provider, or any interactive computer service or
telecommunications service.
(s) Intrastate transaction means placing, receiving, or otherwise
transmitting a bet or wager where--
(1) The bet or wager is initiated and received or otherwise made
exclusively within a single State;
(2) The bet or wager and the method by which the bet or wager is
initiated and received or otherwise made is expressly authorized by and
placed in accordance with the laws of such State, and the State law or
regulations include--
(i) Age and location verification requirements reasonably designed
to block access to minors and persons located out of such State; and
(ii) Appropriate data security standards to prevent unauthorized
access by any person whose age and current location has not been
verified in accordance with such State's law or regulations; and
(3) The bet or wager does not violate any provision of--
(i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
(ii) 28 U.S.C. chapter 178 (professional and amateur sports
protection);
(iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et
seq.); or
(iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
(t) Intratribal transaction means placing, receiving or otherwise
transmitting a bet or wager where--
(1) The bet or wager is initiated and received or otherwise made
exclusively--
(i) Within the Indian lands of a single Indian tribe (as such terms
are defined under the Indian Gaming Regulatory Act (25 U.S.C. 2703)); or
(ii) Between the Indian lands of two or more Indian tribes to the
extent that intertribal gaming is authorized by the Indian Gaming
Regulatory Act (25 U.S.C. 2701 et seq.);
(2) The bet or wager and the method by which the bet or wager is
initiated and received or otherwise made is expressly authorized by and
complies with the requirements of--
(i) The applicable tribal ordinance or resolution approved by the
Chairman of the National Indian Gaming Commission; and
(ii) With respect to class III gaming, the applicable Tribal-State
compact;
(3) The applicable tribal ordinance or resolution or Tribal-State
compact includes--
(i) Age and location verification requirements reasonably designed
to block access to minors and persons located out of the applicable
Tribal lands; and
[[Page 54]]
(ii) Appropriate data security standards to prevent unauthorized
access by any person whose age and current location has not been
verified in accordance with the applicable tribal ordinance or
resolution or Tribal-State Compact; and
(4) The bet or wager does not violate any provision of--
(i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
(ii) 28 U.S.C. chapter 178 (professional and amateur sports
protection);
(iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et
seq.); or
(iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
(u) Money transmitting business has the meaning given the term in 31
U.S.C. 5330(d)(1) (determined without regard to any regulations
prescribed by the Secretary of the Treasury thereunder).
(v) Operator of a designated payment system means an entity that
provides centralized clearing and delivery services between participants
in the designated payment system and maintains the operational framework
for the system. In the case of an automated clearinghouse system, the
term ``operator'' has the same meaning as provided in the ACH Rules.
(w) Participant in a designated payment system means an operator of
a designated payment system, a financial transaction provider that is a
member of, or has contracted for financial transaction services with, or
is otherwise participating in, a designated payment system, or a third-
party processor. This term does not include a customer of the financial
transaction provider, unless the customer is also a financial
transaction provider otherwise participating in the designated payment
system on its own behalf.
(x) Reasoned legal opinion means a written expression of
professional judgment by a State-licensed attorney that addresses the
facts of a particular client's business and the legality of the client's
provision of its services to relevant customers in the relevant
jurisdictions under applicable federal and State law, and, in the case
of intratribal transactions, applicable tribal ordinances, tribal
resolutions, and Tribal-State compacts. A written legal opinion will not
be considered ``reasoned'' if it does nothing more than recite the facts
and express a conclusion.
(y) Restricted transaction means any of the following transactions
or transmittals involving any credit, funds, instrument, or proceeds
that the Act prohibits any person engaged in the business of betting or
wagering (which does not include the activities of a financial
transaction provider, or any interactive computer service or
telecommunications service) from knowingly accepting, in connection with
the participation of another person in unlawful Internet gambling--
(1) Credit, or the proceeds of credit, extended to or on behalf of
such other person (including credit extended through the use of a credit
card);
(2) An electronic fund transfer, or funds transmitted by or through
a money transmitting business, or the proceeds of an electronic fund
transfer or money transmitting service, from or on behalf of such other
person; or
(3) Any check, draft, or similar instrument that is drawn by or on
behalf of such other person and is drawn on or payable at or through any
financial institution.
(z) State means any State of the United States, the District of
Columbia, or any commonwealth, territory, or other possession of the
United States, including the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and
the Virgin Islands.
(aa) Third-party processor means a service provider that--
(1) In the case of a debit transaction payment, such as an ACH debit
entry or card system transaction, has a direct relationship with the
commercial customer that is initiating the debit transfer transaction
and acts as an intermediary between the commercial customer and the
first depository institution to handle the transaction;
(2) In the case of a credit transaction payment, such as an ACH
credit entry, has a direct relationship with the commercial customer
that is to receive the proceeds of the credit transfer and acts
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as an intermediary between the commercial customer and the last
depository institution to handle the transaction; and
(3) In the case of a cross-border ACH debit or check collection
transaction, is the first service provider located within the United
States to receive the ACH debit instructions or check for collection.
(bb) Unlawful Internet gambling means to place, receive, or
otherwise knowingly transmit a bet or wager by any means which involves
the use, at least in part, of the Internet where such bet or wager is
unlawful under any applicable Federal or State law in the State or
Tribal lands in which the bet or wager is initiated, received, or
otherwise made. The term does not include placing, receiving, or
otherwise transmitting a bet or wager that is excluded from the
definition of this term by the Act as an intrastate transaction or an
intra-tribal transaction, and does not include any activity that is
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et
seq.; seeSec. 233.1(a)). The intermediate routing of electronic data
shall not determine the location or locations in which a bet or wager is
initiated, received, or otherwise made.
(cc) Wire transfer system means a system through which an
unconditional order to a bank to pay a fixed or determinable amount of
money to a beneficiary upon receipt, or on a day stated in the order, is
transmitted by electronic or other means through the network, between
banks, or on the books of a bank. When referring to wire transfer
systems, the terms in this regulation (such as ``bank,'' ``originator's
bank,'' ``beneficiary's bank,'' and ``intermediary bank'') are defined
as those terms are defined in 12 CFR part 210, appendix B.
Sec. 233.3 Designated payment systems.
The following payment systems could be used by participants in
connection with, or to facilitate, a restricted transaction:
(a) Automated clearing house systems;
(b) Card systems;
(c) Check collection systems;
(d) Money transmitting businesses solely to the extent they
(1) Engage in the transmission of funds, which does not include
check cashing, currency exchange, or the issuance or redemption of money
orders, travelers' checks, and other similar instruments; and
(2) Permit customers to initiate transmission of funds transactions
remotely from a location other than a physical office of the money
transmitting business; and
(e) Wire transfer systems.
Sec. 233.4 Exemptions.
(a) Automated clearing house systems. The participants processing a
particular transaction through an automated clearing house system are
exempt from this regulation's requirements for establishing written
policies and procedures reasonably designed to prevent or prohibit
restricted transactions with respect to that transaction, except for--
(1) The receiving depository financial institution and any third-
party processor receiving the transaction on behalf of the receiver in
an ACH credit transaction;
(2) The originating depository financial institution and any third-
party processor initiating the transaction on behalf of the originator
in an ACH debit transaction; and
(3) The receiving gateway operator and any third-party processor
that receives instructions for an ACH debit transaction directly from a
foreign sender (which could include a foreign banking office, a foreign
third-party processor, or a foreign originating gateway operator).
(b) Check collection systems. The participants in a particular check
collection through a check collection system are exempt from this
regulation's requirements for establishing written policies and
procedures reasonably designed to prevent or prohibit restricted
transactions with respect to that check collection, except for the
depositary bank.
(c) Money transmitting businesses. The participants in a money
transmitting business are exempt from this regulation's requirements for
establishing
[[Page 56]]
written policies and procedures reasonably designed to prevent or
prohibit restricted transactions, except for the operator.
(d) Wire transfer systems. The participants in a particular wire
transfer through a wire transfer system are exempt from this
regulation's requirements for establishing written policies and
procedures reasonably designed to prevent or prohibit restricted
transactions with respect to that transaction, except for the
beneficiary's bank.
Sec. 233.5 Policies and procedures required.
(a) All non-exempt participants in designated payment systems shall
establish and implement written policies and procedures reasonably
designed to identify and block or otherwise prevent or prohibit
restricted transactions.
(b) A non-exempt financial transaction provider participant in a
designated payment system shall be considered to be in compliance with
the requirements of paragraph (a) of this section if--
(1) It relies on and complies with the written policies and
procedures of the designated payment system that are reasonably designed
to--
(i) Identify and block restricted transactions; or
(ii) Otherwise prevent or prohibit the acceptance of the products or
services of the designated payment system or participant in connection
with restricted transactions; and
(2) Such policies and procedures of the designated payment system
comply with the requirements of this part.
(c) For purposes of paragraph (b)(2) in this section, a participant
in a designated payment system may rely on a written statement or notice
by the operator of that designated payment system to its participants
that states that the operator has designed or structured the system's
policies and procedures for identifying and blocking or otherwise
preventing or prohibiting restricted transactions to comply with the
requirements of this part as conclusive evidence that the system's
policies and procedures comply with the requirements of this part,
unless the participant is notified otherwise by its Federal functional
regulator or, in the case of participants that are not directly
supervised by a Federal functional regulator, the Federal Trade
Commission.
(d) As provided in the Act, a person that identifies and blocks a
transaction, prevents or prohibits the acceptance of its products or
services in connection with a transaction, or otherwise refuses to honor
a transaction, shall not be liable to any party for such action if--
(1) The transaction is a restricted transaction;
(2) Such person reasonably believes the transaction to be a
restricted transaction; or
(3) The person is a participant in a designated payment system and
blocks or otherwise prevents the transaction in reliance on the policies
and procedures of the designated payment system in an effort to comply
with this regulation.
(e) Nothing in this part requires or is intended to suggest that
designated payment systems or participants therein must or should block
or otherwise prevent or prohibit any transaction in connection with any
activity that is excluded from the definition of ``unlawful Internet
gambling'' in the Act as an intrastate transaction, an intratribal
transaction, or a transaction in connection with any activity that is
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et
seq.; seeSec. 233.1(a)).
(f) Nothing in this part modifies any requirement imposed on a
participant by other applicable law or regulation to file a suspicious
activity report to the appropriate authorities.
(g) The requirement of this part to establish and implement written
policies and procedures applies only to the U.S. offices of participants
in designated payment systems.
Sec. 233.6 Non-exclusive examples of policies and procedures.
(a) In general. The examples of policies and procedures to identify
and block or otherwise prevent or prohibit restricted transactions set
out in this section are non-exclusive. In establishing and implementing
written policies and procedures to identify and
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block or otherwise prevent or prohibit restricted transactions, a non-
exempt participant in a designated payment system is permitted to design
and implement policies and procedures tailored to its business that may
be different than the examples provided in this section. In addition,
non-exempt participants may use different policies and procedures with
respect to different business lines or different parts of the
organization.
(b) Due diligence. If a non-exempt participant in a designated
payment system establishes and implements procedures for due diligence
of its commercial customer accounts or commercial customer relationships
in order to comply, in whole or in part, with the requirements of this
regulation, those due diligence procedures will be deemed to be
reasonably designed to identify and block or otherwise prevent or
prohibit restricted transactions if the procedures include the steps set
out in paragraphs (b)(1), (b)(2), and (b)(3) of this section and subject
to paragraph (b)(4) of this section.
(1) At the establishment of the account or relationship, the
participant conducts due diligence of a commercial customer and its
activities commensurate with the participant's judgment of the risk of
restricted transactions presented by the customer's business.
(2) Based on its due diligence, the participant makes a
determination regarding the risk the commercial customer presents of
engaging in an Internet gambling business and follows either paragraph
(b)(2)(i) or (b)(2)(ii) of this section.
(i) The participant determines that the commercial customer presents
a minimal risk of engaging in an Internet gambling business.
(ii) The participant cannot determine that the commercial customer
presents a minimal risk of engaging in an Internet gambling business, in
which case it obtains the documentation in either paragraph
(b)(2)(ii)(A) or (b)(2)(ii)(B) of this section--
(A) Certification from the commercial customer that it does not
engage in an Internet gambling business; or
(B) If the commercial customer does engage in an Internet gambling
business, each of the following--
(1) Evidence of legal authority to engage in the Internet gambling
business, such as--
(i) A copy of the commercial customer's license that expressly
authorizes the customer to engage in the Internet gambling business
issued by the appropriate State or Tribal authority or, if the
commercial customer does not have such a license, a reasoned legal
opinion that demonstrates that the commercial customer's Internet
gambling business does not involve restricted transactions; and
(ii) A written commitment by the commercial customer to notify the
participant of any changes in its legal authority to engage in its
Internet gambling business.
(2) A third-party certification that the commercial customer's
systems for engaging in the Internet gambling business are reasonably
designed to ensure that the commercial customer's Internet gambling
business will remain within the licensed or otherwise lawful limits,
including with respect to age and location verification.
(3) The participant notifies all of its commercial customers,
through provisions in the account or commercial customer relationship
agreement or otherwise, that restricted transactions are prohibited from
being processed through the account or relationship.
(4) With respect to the determination in paragraph (b)(2)(i) of this
section, participants may deem the following commercial customers to
present a minimal risk of engaging in an Internet gambling business--
(i) An entity that is directly supervised by a Federal functional
regulator as set out inSec. 233.7(a); or
(ii) An agency, department, or division of the Federal government or
a State government.
(c) Automated clearing house system examples. (1) The policies and
procedures of the originating depository financial institution and any
third party processor in an ACH debit transaction, and the receiving
depository financial institution and any third party processor in an ACH
credit transaction, are deemed to be reasonably designed to identify and
block or otherwise prevent or prohibit restricted transactions if they--
[[Page 58]]
(i) Address methods to conduct due diligence in establishing a
commercial customer account or relationship as set out inSec.
233.6(b);
(ii) Address methods to conduct due diligence as set out inSec.
233.6(b)(2)(ii)(B) in the event that the participant has actual
knowledge that an existing commercial customer of the participant
engages in an Internet gambling business; and
(iii) Include procedures to be followed with respect to a commercial
customer if the originating depository financial institution or third-
party processor has actual knowledge that its commercial customer has
originated restricted transactions as ACH debit transactions or if the
receiving depository financial institution or third-party processor has
actual knowledge that its commercial customer has received restricted
transactions as ACH credit transactions, such as procedures that
address--
(A) The circumstances under which the commercial customer should not
be allowed to originate ACH debit transactions or receive ACH credit
transactions; and
(B) The circumstances under which the account should be closed.
(2) The policies and procedures of a receiving gateway operator and
third-party processor that receives instructions to originate an ACH
debit transaction directly from a foreign sender are deemed to be
reasonably designed to prevent or prohibit restricted transactions if
they include procedures to be followed with respect to a foreign sender
if the receiving gateway operator or third-party processor has actual
knowledge, obtained through notification by a government entity, such as
law enforcement or a regulatory agency, that such instructions included
instructions for restricted transactions. Such procedures may address
sending notification to the foreign sender, such as in the form of the
notice contained in appendix A to this part.
(d) Card system examples. The policies and procedures of a card
system operator, a merchant acquirer, third-party processor, or a card
issuer, are deemed to be reasonably designed to identify and block or
otherwise prevent or prohibit restricted transactions, if the policies
and procedures--
(1) Provide for either--
(i) Methods to conduct due diligence--
(A) In establishing a commercial customer account or relationship as
set out inSec. 233.6(b); and
(B) As set out inSec. 233.6(b)(2)(ii)(B) in the event that the
participant has actual knowledge that an existing commercial customer of
the participant engages in an Internet gambling business; or
(ii) Implementation of a code system, such as transaction codes and
merchant/business category codes, that are required to accompany the
authorization request for a transaction, including--
(A) The operational functionality to enable the card system operator
or the card issuer to reasonably identify and deny authorization for a
transaction that the coding procedure indicates may be a restricted
transaction; and
(B) Procedures for ongoing monitoring or testing by the card system
operator to detect potential restricted transactions, including--
(1) Conducting testing to ascertain whether transaction
authorization requests are coded correctly; and
(2) Monitoring and analyzing payment patterns to detect suspicious
payment volumes from a merchant customer; and
(2) For the card system operator, merchant acquirer, or third-party
processor, include procedures to be followed when the participant has
actual knowledge that a merchant has received restricted transactions
through the card system, such as--
(i) The circumstances under which the access to the card system for
the merchant, merchant acquirer, or third-party processor should be
denied; and
(ii) The circumstances under which the merchant account should be
closed.
(e) Check collection system examples. (1) The policies and
procedures of a depositary bank are deemed to be reasonably designed to
identify and block or otherwise prevent or prohibit restricted
transactions, if they--
(i) Address methods for the depositary bank to conduct due diligence
in establishing a commercial customer account or relationship as set out
inSec. 233.6(b);
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(ii) Address methods for the depositary bank to conduct due
diligence as set out inSec. 233.6(b)(2)(ii)(B) in the event that the
depositary bank has actual knowledge that an existing commercial
customer engages in an Internet gambling business; and
(iii) Include procedures to be followed if the depositary bank has
actual knowledge that a commercial customer of the depositary bank has
deposited checks that are restricted transactions, such as procedures
that address--
(A) The circumstances under which check collection services for the
customer should be denied; and
(B) The circumstances under which the account should be closed.
(2) The policies and procedures of a depositary bank that receives
checks for collection from a foreign banking office are deemed to be
reasonably designed to identify and block or otherwise prevent or
prohibit restricted transactions if they include procedures to be
followed by the depositary bank when it has actual knowledge, obtained
through notification by a government entity, such as law enforcement or
a regulatory agency, that a foreign banking office has sent checks to
the depositary bank that are restricted transactions. Such procedures
may address sending notification to the foreign banking office, such as
in the form of the notice contained in the appendix to this part.
(f) Money transmitting business examples. The policies and
procedures of an operator of a money transmitting business are deemed to
be reasonably designed to identify and block or otherwise prevent or
prohibit restricted transactions if they--
(1) Address methods for the operator to conduct due diligence in
establishing a commercial customer relationship as set out inSec.
233.6(b);
(2) Address methods for the operator to conduct due diligence as set
out inSec. 233.6(b)(2)(ii)(B) in the event that the operator has
actual knowledge that an existing commercial customer engages in an
Internet gambling business;
(3) Include procedures regarding ongoing monitoring or testing by
the operator to detect potential restricted transactions, such as
monitoring and analyzing payment patterns to detect suspicious payment
volumes to any recipient; and
(4) Include procedures when the operator has actual knowledge that a
commercial customer of the operator has received restricted transactions
through the money transmitting business, that address--
(i) The circumstances under which money transmitting services should
be denied to that commercial customer; and
(ii) The circumstances under which the commercial customer account
should be closed.
(g) Wire transfer system examples. The policies and procedures of
the beneficiary's bank in a wire transfer are deemed to be reasonably
designed to identify and block or otherwise prevent or prohibit
restricted transactions if they--
(1) Address methods for the beneficiary's bank to conduct due
diligence in establishing a commercial customer account as set out in
Sec. 233.6(b);
(2) Address methods for the beneficiary's bank to conduct due
diligence as set out inSec. 233.6(b)(2)(ii)(B) in the event that the
beneficiary's bank has actual knowledge that an existing commercial
customer of the bank engages in an Internet gambling business;
(3) Include procedures to be followed if the beneficiary's bank
obtains actual knowledge that a commercial customer of the bank has
received restricted transactions through the wire transfer system, such
as procedures that address
(i) The circumstances under which the beneficiary bank should deny
wire transfer services to the commercial customer; and
(ii) The circumstances under which the commercial customer account
should be closed.
Sec. 233.7 Regulatory enforcement.
The requirements under this part are subject to the exclusive
regulatory enforcement of--
(a) The Federal functional regulators, with respect to the
designated payment systems and participants therein that are subject to
the respective jurisdiction of such regulators under section 505(a) of
the Gramm-
[[Page 60]]
Leach-Bliley Act (15 U.S.C. 6805(a)) and section 5g of the Commodity
Exchange Act (7 U.S.C. 7b-2); and
(b) The Federal Trade Commission, with respect to designated payment
systems and participants therein not otherwise subject to the
jurisdiction of any Federal functional regulators (including the
Commission) as described in paragraph (a) of this section.
Sec. Appendix A to Part 233--Model Notice
[Date]
[Name of foreign sender or foreign banking office]
[Address]
Re: U.S. Unlawful Internet Gambling Enforcement Act Notice
Dear [Name of foreign counterparty]:
On [date], U.S. government officials informed us that your
institution processed payments through our facilities for Internet
gambling transactions restricted by U.S. law on [dates, recipients, and
other relevant information if available].
We provide this notice to comply with U.S. Government regulations
implementing the Unlawful Internet Gambling Enforcement Act of 2006
(Act), a U.S. federal law. Our policies and procedures established in
accordance with those regulations provide that we will notify a foreign
counterparty if we learn that the counterparty has processed payments
through our facilities for Internet gambling transactions restricted by
the Act. This notice ensures that you are aware that we have received
information that your institution has processed payments for Internet
gambling restricted by the Act.
The Act is codified in subchapter IV, chapter 53, title 31 of the
U.S. Code (31 U.S.C. 5361 et seq.). Implementing regulations that
duplicate one another can be found at part 233 of title 12 of the U.S.
Code of Federal Regulations (12 CFR part 233) and part 132 of title 31
of the U.S. Code of Federal Regulations (31 CFR part 132).
PART 234_DESIGNATED FINANCIAL MARKET UTILITIES (REGULATION HH)
--Table of Contents
Sec.
234.1 Authority, purpose, and scope.
234.2 Definitions.
234.3 Standards for payment systems.
234.4 Standards for central securities depositories and central
counterparties.
234.5 Changes to rules, procedures, or operations.
234.6 Access to Federal Reserve Bank accounts and services.
234.7 Interest on balances.
Authority: 12 U.S.C. 5461 et seq.
Source: 77 FR 45919, Aug. 2, 2012, unless otherwise noted.
Sec. 234.1 Authority, purpose, and scope.
(a) Authority. This part is issued under the authority of sections
805, 806, and 810 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376; 12
U.S.C. 5464, 5465, and 5469).
(b) Purpose and scope. This part establishes risk-management
standards governing the operations related to the payment, clearing, and
settlement activities of designated financial market utilities. The
risk-management standards do not apply, however, to a designated
financial market utility that is a derivatives clearing organization
registered under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-
1) or a clearing agency registered with the Securities and Exchange
Commission under section 17A of the Securities Exchange Act of 1934 (15
U.S.C. 78q-1), which are governed by the risk-management standards
promulgated by the Commodity Futures Trading Commission or the
Securities and Exchange Commission, respectively, for which each is the
Supervisory Agency (as defined below). In addition, this part sets out
requirements and procedures for a designated financial market utility
that proposes to make a change to its rules, procedures, or operations
that could materially affect the nature or level of risks presented by
the designated financial market utility and for which the Board is the
Supervisory Agency.
Effective Date Note: At 78 FR 76979, Dec. 20, 2013,Sec. 234.1 was
amended by revising paragraph (b), effective Feb. 18, 2014. For the
convenience of the user, the revised text is set forth as follows:
234.1 Authority, purpose, and scope.
* * * * *
(b) Purpose and scope. This part establishes risk-management
standards governing the operations related to the payment, clearing, and
settlement activities of designated financial market utilities. In
addition, this part sets out requirements and procedures for a
designated financial market utility
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that proposes to make a change to its rules, procedures, or operations
that could materially affect the nature or level of risks presented by
the designated financial market utility and for which the Board is the
Supervisory Agency (as defined below). The risk management standards do
not apply, however, to a designated financial market utility that is a
derivatives clearing organization registered under section 5b of the
Commodity Exchange Act (7 U.S.C. 7a-1) or a clearing agency registered
with the Securities and Exchange Commission under section 17A of the
Securities Exchange Act of 1934 (15 U.S.C. 78q-1), which are governed by
the risk-management standards promulgated by the Commodity Futures
Trading Commission or the Securities and Exchange Commission,
respectively, for which each is the Supervisory Agency. This part also
sets out standards, restrictions, and guidelines regarding a Federal
Reserve Bank establishing and maintaining an account for, and providing
services to, a designated financial market utility. In addition, this
part sets forth the terms under which a Reserve Bank may pay a
designated financial market utility interest on the designated financial
market utility's balances held at the Reserve Bank.
Sec. 234.2 Definitions.
As used in this part:
(a) Central counterparty means an entity that interposes itself
between the counterparties to trades, acting as the buyer to every
seller and the seller to every buyer.
(b) Central securities depository means an entity that holds
securities in custody to enable securities transactions to be processed
by means of book entries or an entity that enables securities to be
transferred and settled by book entry either free of or against payment.
(c) Designated financial market utility means a financial market
utility (as defined in paragraph (d) of this section) that the Financial
Stability Oversight Council has designated under section 804 of the
Dodd-Frank Act (12 U.S.C. 5463).
(d) Financial market utility has the same meaning as the term
defined in section 803(6) of the Dodd-Frank Act (12 U.S.C. 5462(6)).
(e) Payment system means a set of payment instructions, procedures,
and rules for the transfer of funds among system participants.
(f) Supervisory Agency has the same meaning as the term is defined
in section 803(8) of the Dodd-Frank Act (12 U.S.C. 5462(8)).
Sec. 234.3 Standards for payment systems.
(a) A designated financial market utility that is designated on the
basis of its role as the operator of a payment system must implement
rules, procedures, or operations designed to ensure that it meets or
exceeds the following risk-management standards with respect to the
payment, clearing, and settlement activities of that payment system:
(1) The payment system has a well-founded legal basis under all
relevant jurisdictions.
(2) The payment system's rules and procedures enable participants to
have a clear understanding of the payment system's impact on each of the
financial risks they incur through participation in it.
(3) The payment system has clearly defined procedures for the
management of credit risks and liquidity risks, which specify the
respective responsibilities of the payment system operator and the
participants and which provide appropriate incentives to manage and
contain those risks.
(4) The payment system provides prompt final settlement on the day
of value, during the day and at a minimum at the end of the day.
(5) A payment system in which multilateral netting takes place is,
at a minimum, capable of ensuring the timely completion of daily
settlements in the event of an inability to settle by the participant
with the largest single settlement obligation.
(6) Assets used for settlement are a claim on the central bank or
other assets that carry little or no credit risk and little or no
liquidity risk.
(7) The payment system ensures a high degree of security and
operational reliability and has contingency arrangements for timely
completion of daily processing.
(8) The payment system provides a means of making payments that is
practical for its users and efficient for the economy.
(9) The payment system has objective and publicly disclosed criteria
for participation, which permit fair and open access.
[[Page 62]]
(10) The payment system's governance arrangements are effective,
accountable, and transparent.
(b) The Board, by order, may apply heightened risk-management
standards to a particular designated financial market utility in
accordance with the risks presented by that designated financial market
utility. The Board, by order, may waive the application of a standard or
standards to a particular designated financial market utility where the
risks presented by or the design of that designated financial market
utility would make the application of the standard or standards
inappropriate.
Sec. 234.4 Standards for central securities depositories and central
counterparties.
(a) A designated financial market utility that is designated on the
basis of its role as a central securities depository or a central
counterparty must implement rules, procedures, or operations designed to
ensure that it meets or exceeds the following risk-management standards
with respect to the payment, clearing, and settlement activities of that
central securities depository or central counterparty:
(1) The central securities depository or central counterparty has a
well-founded, transparent, and enforceable legal framework for each
aspect of its activities in all relevant jurisdictions.
(2) The central securities depository or central counterparty
requires participants to have sufficient financial resources and robust
operational capacity to meet obligations arising from participation in
the central securities depository or central counterparty. The central
securities depository or central counterparty has procedures in place to
monitor that participation requirements are met on an ongoing basis. The
central securities depository's or central counterparty's participation
requirements are objective and publicly disclosed, and permit fair and
open access.
(3) The central securities depository or central counterparty holds
assets in a manner whereby risk of loss or of delay in its access to
them is minimized. Assets invested by a central securities depository or
central counterparty are held in instruments with minimal credit,
market, and liquidity risks.
(4) The central securities depository or central counterparty
identifies sources of operational risk and minimizes them through the
development of appropriate systems, controls, and procedures; has
systems that are reliable and secure, and has adequate, scalable
capacity; and has business continuity plans that allow for timely
recovery of operations and fulfillment of the central securities
depository's or central counterparty's obligations.
(5) The central securities depository or central counterparty
employs money settlement arrangements that eliminate or strictly limit
its settlement bank risks, that is, its credit and liquidity risks from
the use of banks to effect money settlements with its participants and
requires funds transfers to the central securities depository or central
counterparty be final when effected.
(6) The central securities depository or central counterparty is
cost-effective in meeting the requirements of participants while
maintaining safe and secure operations.
(7) The central securities depository or central counterparty
evaluates the potential sources of risks that can arise when the central
securities depository or central counterparty establishes links either
cross-border or domestically to settle transactions or clear trades, and
ensures that the risks are managed prudently on an ongoing basis.
(8) The central securities depository or central counterparty has
governance arrangements that are clear and transparent to fulfill public
interest requirements and to support the objectives of owners and
participants and promotes the effectiveness of a central securities
depository's or central counterparty's risk-management procedures.
(9) The central securities depository or central counterparty
provides market participants with sufficient information for them to
identify and evaluate accurately the risks and costs associated with
using its services.
(10) The central securities depository or central counterparty
establishes default procedures that ensures that the
[[Page 63]]
central securities depository or central counterparty can take timely
action to contain losses and liquidity pressures and to continue meeting
its obligations and provides for key aspects of the default procedures
to be publicly available.
(11) The central securities depository or central counterparty
ensures that final settlement occurs no later than the end of the
settlement day and requires that intraday or real-time finality be
provided where necessary to reduce risks.
(12) The central securities depository or central counterparty
eliminates principal risk by linking securities transfers to funds
transfers in a way that achieves delivery versus payment.
(13) The central securities depository or central counterparty
states its obligations with respect to physical deliveries, and the
risks from these obligations are identified and managed.
(14) The central securities depository immobilizes or dematerializes
securities certificates and transfers them by book entry to the greatest
extent possible.
(15) The central securities depository institutes risk controls that
include collateral requirements and limits, and ensure timely settlement
in the event that the participant with the largest payment obligation is
unable to settle when the central securities depository extends intraday
credit.
(16) The central counterparty measures its credit exposures to its
participants at least once a day and limits its exposures to potential
losses from defaults by its participants in normal market conditions so
that the operations of the central counterparty would not be disrupted
and non-defaulting participants would not be exposed to losses that they
cannot anticipate or control.
(17) The central counterparty uses margin requirements to limit its
credit exposures to participants in normal market conditions and uses
risk-based models and parameters to set margin requirements and reviews
them regularly. Specifically, the central counterparty--
(i) Provides for annual model validation consisting of evaluating
the performance of the central counterparty's margin models and the
related parameters and assumptions associated with such models by a
qualified person who does not perform functions associated with the
central counterparty's margin models (except as part of the annual model
validation) and does not report to such a person.
(ii) Reviews and backtests margin models and parameters at least
quarterly.
(18) The central counterparty maintains sufficient financial
resources to withstand, at a minimum, a default by the participant to
which it has the largest exposure in extreme but plausible market
conditions.
(b) The Board, by order, may apply heightened risk-management
standards to a particular designated financial market utility in
accordance with the risks presented by that designated financial market
utility. The Board, by order, may waive the application of a standard or
standards to a particular designated financial market utility where the
risks presented by or the design of that designated financial market
utility would make the application of the standard or standards
inappropriate.
Sec. 234.5 Changes to rules, procedures, or operations.
(a) Advance notice.
(1) A designated financial market utility shall provide at least 60-
days advance notice to the Board of any proposed change to its rules,
procedures, or operations that could materially affect the nature or
level of risks presented by the designated financial market utility.
(2) The notice of the proposed change shall describe--
(i) The nature of the change and expected effects on risks to the
designated financial market utility, its participants, or the market;
and
(ii) How the designated financial market utility plans to manage any
identified risks.
(3) The Board may require the designated financial market utility to
provide additional information necessary to assess the effect the
proposed change would have on the nature or level of risks associated
with the utility's payment, clearing, or settlement
[[Page 64]]
activities and the sufficiency of any proposed risk-management
techniques.
(4) A designated financial market utility shall not implement a
change to which the Board has an objection.
(5) The Board will notify the designated financial market utility of
any objection before the end of 60 days after the later of--
(i) The date the Board receives the notice of proposed change; or
(ii) The date the Board receives any further information it requests
for consideration of the notice.
(6) A designated financial market utility may implement a change if
it has not received an objection to the proposed change before the end
of 60 days after the later of--
(i) The date the Board receives the notice of proposed change; or
(ii) The date the Board receives any further information it requests
for consideration of the notice.
(7) With respect to proposed changes that raise novel or complex
issues, the Board may, by written notice during the 60-day review
period, extend the review period for an additional 60 days. Any
extension under this paragraph will extend the time periods under
paragraphs (a)(5) and (a)(6) of this section to 120 days.
(8) A designated financial market utility may implement a proposed
change before the expiration of the applicable review period if the
Board notifies the designated financial market utility in writing that
the Board does not object to the proposed change and authorizes the
designated financial market utility to implement the change on an
earlier date, subject to any conditions imposed by the Board.
(b) Emergency changes.
(1) A designated financial market utility may implement a change
that would otherwise require advance notice under this section if it
determines that--
(i) An emergency exists; and
(ii) Immediate implementation of the change is necessary for the
designated financial market utility to continue to provide its services
in a safe and sound manner.
(2) The designated financial market utility shall provide notice of
any such emergency change to the Board as soon as practicable and no
later than 24 hours after implementation of the change.
(3) In addition to the information required for changes requiring
advance notice in paragraph (a)(2) of this section, the notice of an
emergency change shall describe--
(i) The nature of the emergency; and
(ii) The reason the change was necessary for the designated
financial market utility to continue to provide its services in a safe
and sound manner.
(4) The Board may require modification or rescission of the change
if it finds that the change is not consistent with the purposes of the
Dodd-Frank Act or any applicable rules, order, or standards prescribed
under section 805(a) of the Dodd-Frank Act.
(c) Materiality.
(1) The term ``materially affect the nature or level of risks
presented'' in paragraph (a)(1) of this section means matters as to
which there is a reasonable possibility that the change would materially
affect the overall nature or level of risk presented by the designated
financial market utility, including risk arising in the performance of
payment, clearing, or settlement functions.
(2) A change to rules, procedures, or operations that would
materially affect the nature or level of risks presented includes, but
is not limited to, changes that materially affect any one or more of the
following:
(i) Participant eligibility or access criteria;
(ii) Product eligibility;
(iii) Risk management;
(iv) Settlement failure or default procedures;
(v) Financial resources;
(vi) Business continuity and disaster recovery plans;
(vii) Daily or intraday settlement procedures;
(viii) The scope of services, including the addition of a new
service or discontinuation of an existing service;
(ix) Technical design or operating platform, which results in non-
routine changes to the underlying technological framework for payment,
clearing, or settlement functions; or
(x) Governance.
[[Page 65]]
(3) A change to rules, procedures, or operations that does not meet
the conditions of paragraph (c)(2) of this section and would not
materially affect the nature or level of risks presented includes, but
is not limited to the following:
(i) A routine technology systems upgrade;
(ii) A change in a fee, price, or other charge for services provided
by the designated financial market utility;
(iii) A change related solely to the administration of the
designated financial market utility or related to the routine, daily
administration, direction, and control of employees; or
(iv) A clerical change and other non-substantive revisions to rules,
procedures, or other documentation.
Sec. 234.6 Access to Federal Reserve Bank accounts and services.
(a) This section applies to any designated financial market utility
for which the Board may authorize a Federal Reserve Bank to open an
account or provide services in accordance with section 806(a) of the
Dodd-Frank Act. Upon receipt of Board authorization and subject to any
limitations, restrictions, or other requirements established by the
Board, a Federal Reserve Bank may enter into agreements governing the
details of its accounts and services with a designated financial market
utility, consistent with this section and any other applicable Board
direction. The agreements may include, among other things, provisions
regarding documentation to establish the account and receive services,
conditions imposed on the account and services, service charges,
reporting, accounting for activity in the account, liability and duty of
care, and termination.
(b) A Federal Reserve Bank should ensure that its establishment and
maintenance of an account for or provision of services to a designated
financial market utility does not create undue credit, settlement, or
other risk to the Reserve Bank. In order to establish and maintain an
account with a Federal Reserve Bank or receive financial services from a
Federal Reserve Bank, the designated financial market utility must be in
compliance with the Supervisory Agency's regulatory and supervisory
requirements regarding financial resources, liquidity, participant
default management, and other aspects of risk management, as determined
by the Supervisory Agency. In addition, at a minimum, the designated
financial market utility must, in the Federal Reserve Bank's judgment--
(1) Be in generally sound financial condition, including maintenance
of sufficient working capital and cash flow to permit the designated
financial market utility to continue as a going concern and to meet its
current and projected operating expenses under a range of scenarios;
(2) Be in compliance with Board orders and policies, Federal Reserve
Bank account agreements and, as applicable, operating circulars, and
other applicable Federal Reserve requirements regarding the
establishment and maintenance of an account at a Federal Reserve Bank
and the receipt of financial services from a Federal Reserve Bank; and
(3) Have an ongoing ability, including during periods of market
stress or a participant default, to meet all of its obligations under
its agreement for a Federal Reserve Bank account and services, including
by maintaining--
(i) Sufficient liquid resources to meet its obligations under the
account agreement;
(ii) The operational capacity to ensure that such liquid resources
are available to satisfy the account obligations on a timely basis in
accordance with the account agreement; and
(iv) Sound money settlement processes designed to adequately monitor
its Federal Reserve Bank account on an intraday basis, process money
transfers through its account in an orderly manner, and complete final
money settlement no later than the value date.
(c) The Board will consult with the Supervisory Agency of a
designated financial market utility prior to authorizing a Federal
Reserve Bank to open an account, and periodically thereafter, to
ascertain the views of the Supervisory Agency regarding the designated
financial market utility's compliance with the requirements in paragraph
(b) of this section.
[[Page 66]]
(d) In addition to any right that a Reserve Bank has to limit or
terminate an account or the use of a service pursuant to its account
agreement, the Board may direct the Federal Reserve Bank to impose
limits, restrictions, or other conditions on the availability or use of
a Federal Reserve Bank account or service by a designated financial
market utility, including directing the Reserve Bank to terminate the
use of a particular service or to close the account. If the Reserve Bank
determines that a designated financial market utility no longer complies
with one or more of the minimum conditions in subsection (b), the
Reserve Bank will consult with the Board regarding continued maintenance
of the account and provision of services.
[78 FR 76979, Dec. 20, 2013]
Effective Date Note: At 78 FR 76979, Dec. 20, 2013,Sec. 234.6 was
added, effective Feb. 18, 2014.
Sec. 234.7 Interest on balances.
(a) A Federal Reserve Bank may pay interest on balances maintained
by a designated financial market utility at the Federal Reserve Bank in
accordance with this section and under such other terms and conditions
as the Board may prescribe.
(b) Interest on balances paid under this section shall be at the
rate paid on balances maintained by depository institutions or another
rate determined by the Board from time to time, not to exceed the
general level of short-term interest rates.
(c) For purposes of this section, ``short-term interest rates''
shall have the same meaning as the meaning provided for that term in
Sec. 204.10(b)(3) of this chapter.
[78 FR 76979, Dec. 20, 2013]
Effective Date Note: At 78 FR 76979, Dec. 20, 2013,Sec. 234.7 was
added, effective Feb. 18, 2014.
PART 235_DEBIT CARD INTERCHANGE FEES AND ROUTING--Table of Contents
Sec.
235.1 Authority and purpose.
235.2 Definitions.
235.3 Reasonable and proportional interchange fees.
235.4 Fraud-prevention adjustment.
235.5 Exemptions.
235.6 Prohibition on circumvention, evasion, or net compensation.
235.7 Limitation on payment card restrictions.
235.8 Reporting requirements and record retention.
235.9 Administrative enforcement.
235.10 Effective and compliance dates.
Appendix A to Part 235--Official Board Commentary on Regulation II
Authority: 15 U.S.C. 1693o-2.
Source: 76 FR 43466, July 20, 2011, unless otherwise noted.
Sec. 235.1 Authority and purpose.
(a) Authority. This part is issued by the Board of Governors of the
Federal Reserve System (Board) under section 920 of the Electronic Fund
Transfer Act (EFTA) (15 U.S.C. 1693o-2, as added by section 1075 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law
111-203, 124 Stat. 1376 (2010)).
(b) Purpose. This part implements the provisions of section 920 of
the EFTA, including standards for reasonable and proportional
interchange transaction fees for electronic debit transactions,
standards for receiving a fraud-prevention adjustment to interchange
transaction fees, exemptions from the interchange transaction fee
limitations, prohibitions on evasion and circumvention, prohibitions on
payment card network exclusivity arrangements and routing restrictions
for debit card transactions, and reporting requirements for debit card
issuers and payment card networks.
Sec. 235.2 Definitions.
For purposes of this part:
(a) Account (1) Means a transaction, savings, or other asset account
(other than an occasional or incidental credit balance in a credit plan)
established for any purpose and that is located in the United States;
and
(2) Does not include an account held under a bona fide trust
agreement that is excluded by section 903(2) of the Electronic Fund
Transfer Act and rules prescribed thereunder.
(b) Acquirer means a person that contracts directly or indirectly
with a merchant to provide settlement for the
[[Page 67]]
merchant's electronic debit transactions over a payment card network. An
acquirer does not include a person that acts only as a processor for the
services it provides to the merchant.
(c) Affiliate means any company that controls, is controlled by, or
is under common control with another company.
(d) Cardholder means the person to whom a debit card is issued.
(e) 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 Board
determines.
(f) Debit card (1) Means any card, or other payment code or device,
issued or approved for use through a payment card network to debit an
account, regardless of whether authorization is based on signature,
personal identification number (PIN), or other means, and regardless of
whether the issuer holds the account, and
(2) Includes any general-use prepaid card; and
(3) Does not include--
(i) Any card, or other payment code or device, that is redeemable
upon presentation at only a single merchant or an affiliated group of
merchants for goods or services; or
(ii) A check, draft, or similar paper instrument, or an electronic
representation thereof.
(g) Designated automated teller machine (ATM) network means either--
(1) All ATMs identified in the name of the issuer; or
(2) Any network of ATMs identified by the issuer that provides
reasonable and convenient access to the issuer's customers.
(h) Electronic debit transaction (1) Means the use of a debit card
by a person as a form of payment in the United States to initiate a
debit to an account, and
(2) Does not include transactions initiated at an ATM, including
cash withdrawals and balance transfers initiated at an ATM.
(i) General-use prepaid card means a card, or other payment code or
device, that is--
(1) Issued on a prepaid basis in a specified amount, whether or not
that amount may be increased or reloaded, in exchange for payment; and
(2) Redeemable upon presentation at multiple, unaffiliated merchants
for goods or services.
(j) Interchange transaction fee means any fee established, charged,
or received by a payment card network and paid by a merchant or an
acquirer for the purpose of compensating an issuer for its involvement
in an electronic debit transaction.
(k) Issuer means any person that authorizes the use of a debit card
to perform an electronic debit transaction.
(l) Merchant means any person that accepts debit cards as payment.
(m) Payment card network means an entity that--
(1) Directly or indirectly provides the proprietary services,
infrastructure, and software that route information and data to an
issuer from an acquirer to conduct the authorization, clearance, and
settlement of electronic debit transactions; and
(2) A merchant uses in order to accept as a form of payment a brand
of debit card or other device that may be used to carry out electronic
debit transactions.
(n) Person means a natural person or an organization, including a
corporation, government agency, estate, trust, partnership,
proprietorship, cooperative, or association.
(o) Processor means a person that processes or routes electronic
debit transactions for issuers, acquirers, or merchants.
(p) Route means to direct and send information and data to an
unaffiliated entity or to an affiliated entity acting on behalf of an
unaffiliated entity.
(q) United States means the States, territories, and possessions of
the United States, the District of Columbia, the Commonwealth of Puerto
Rico,
[[Page 68]]
or any political subdivision of any of the foregoing.
Sec. 235.3 Reasonable and proportional interchange transaction fees.
(a) In general. The amount of any interchange transaction fee that
an issuer may receive or charge with respect to an electronic debit
transaction shall be reasonable and proportional to the cost incurred by
the issuer with respect to the electronic debit transaction.
(b) Determination of reasonable and proportional fees. An issuer
complies with the requirements of paragraph (a) of this section only if
each interchange transaction fee received or charged by the issuer for
an electronic debit transaction is no more than the sum of--
(1) 21 cents and;
(2) 5 basis points multiplied by the value of the transaction.
Sec. 235.4 Fraud-prevention adjustment.
(a) In general. Subject to paragraph (b) of this section, an issuer
may receive or charge an amount of no more than 1 cent per transaction
in addition to any interchange transaction fee it receives or charges in
accordance withSec. 235.3.
(b) Issuer standards. (1) To be eligible to receive or charge the
fraud-prevention adjustment in paragraph (a) of this section, an issuer
must develop and implement policies and procedures reasonably designed
to take effective steps to reduce the occurrence of, and costs to all
parties from, fraudulent electronic debit transactions, including
through the development and implementation of cost-effective fraud-
prevention technology.
(2) An issuer's policies and procedures must address--
(i) Methods to identify and prevent fraudulent electronic debit
transactions;
(ii) Monitoring of the volume and value of its fraudulent electronic
debit transactions;
(iii) Appropriate responses to suspicious electronic debit
transactions in a manner designed to limit the costs to all parties from
and prevent the occurrence of future fraudulent electronic debit
transactions;
(iv) Methods to secure debit card and cardholder data; and
(v) Such other factors as the issuer considers appropriate.
(3) An issuer must review, at least annually, its fraud-prevention
policies and procedures, and their implementation and update them as
necessary in light of--
(i) Their effectiveness in reducing the occurrence of, and cost to
all parties from, fraudulent electronic debit transactions involving the
issuer;
(ii) Their cost-effectiveness; and
(iii) Changes in the types of fraud, methods used to commit fraud,
and available methods for detecting and preventing fraudulent electronic
debit transactions that the issuer identifies from--
(A) Its own experience or information;
(B) Information provided to the issuer by its payment card networks,
law enforcement agencies, and fraud-monitoring groups in which the
issuer participates; and
(C) Applicable supervisory guidance.
(c) Notification. To be eligible to receive or charge a fraud-
prevention adjustment, an issuer must annually notify its payment card
networks that it complies with the standards in paragraph (b) of this
section.
(d) Change in Status. An issuer is not eligible to receive or charge
a fraud-prevention adjustment if the issuer is substantially non-
compliant with the standards set forth in paragraph (b) of this section,
as determined by the issuer or the appropriate agency underSec. 235.9.
Such an issuer must notify its payment card networks that it is no
longer eligible to receive or charge a fraud-prevention adjustment no
later than 10 days after determining or receiving notification from the
appropriate agency underSec. 235.9 that the issuer is substantially
non-compliant with the standards set forth in paragraph (b) of this
section. The issuer must stop receiving and charging the fraud-
prevention adjustment no later than 30 days after notifying its payment
card networks.
[77 FR 46280, Aug. 3, 2012]
[[Page 69]]
Sec. 235.5 Exemptions.
(a) Exemption for small issuers. (1) In general. Except as provided
in paragraph (a)(3) of this section, Sec.Sec. 235.3, 235.4, and 235.6
do not apply to an interchange transaction fee received or charged by an
issuer with respect to an electronic debit transaction if--
(i) The issuer holds the account that is debited; and
(ii) The issuer, together with its affiliates, has assets of less
than $10 billion as of the end of the calendar year preceding the date
of the electronic debit transaction.
(2) Determination of issuer asset size. A person may rely on lists
published by the Board to determine whether an issuer, together with its
affiliates, has assets of less than $10 billion as of the end of the
calendar year preceding the date of the electronic debit transaction.
(3) Change in status. If an issuer qualifies for the exemption in
paragraph (a)(1) in a particular calendar year, but, as of the end of
that calendar year no longer qualifies for the exemption because at that
time it, together with its affiliates, has assets of $10 billion or
more, the issuer must begin complying with Sec.Sec. 235.3, 235.4, and
235.6 no later than July 1 of the succeeding calendar year.
(b) Exemption for government-administered programs. Except as
provided in paragraph (d) of this section, Sec.Sec. 235.3, 235.4, and
235.6 do not apply to an interchange transaction fee received or charged
by an issuer with respect to an electronic debit transaction if--
(1) The electronic debit transaction is made using a debit card that
has been provided to a person pursuant to a Federal, State, or local
government-administered payment program; and
(2) The cardholder may use the debit card only to transfer or debit
funds, monetary value, or other assets that have been provided pursuant
to such program.
(c) Exemption for certain reloadable prepaid cards--(1) In general.
Except as provided in paragraph (d) of this section, Sec.Sec. 235.3,
235.4, and 235.6 do not apply to an interchange transaction fee received
or charged by an issuer with respect to an electronic debit transaction
using a general-use prepaid card that is--
(i) Not issued or approved for use to access or debit any account
held by or for the benefit of the cardholder (other than a subaccount or
other method of recording or tracking funds purchased or loaded on the
card on a prepaid basis);
(ii) Reloadable and not marketed or labeled as a gift card or gift
certificate; and
(iii) The only means of access to the underlying funds, except when
all remaining funds are provided to the cardholder in a single
transaction.
(2) Temporary cards. For purposes of this paragraph (c), the term
``reloadable'' includes a temporary non-reloadable card issued solely in
connection with a reloadable general-use prepaid card.
(d) Exception. The exemptions in paragraphs (b) and (c) of this
section do not apply to any interchange transaction fee received or
charged by an issuer on or after July 21, 2012, with respect to an
electronic debit transaction if any of the following fees may be charged
to a cardholder with respect to the card:
(1) A fee or charge for an overdraft, including a shortage of funds
or a transaction processed for an amount exceeding the account balance,
unless the fee or charge is imposed for transferring funds from another
asset account to cover a shortfall in the account accessed by the card;
or
(2) A fee imposed by the issuer for the first withdrawal per
calendar month from an ATM that is part of the issuer's designated ATM
network.
Sec. 235.6 Prohibition on circumvention, evasion, and net
compensation.
(a) Prohibition of circumvention or evasion. No person shall
circumvent or evade the interchange transaction fee restrictions in
Sec.Sec. 235.3 and 235.4.
(b) Prohibition of net compensation. An issuer may not receive net
compensation from a payment card network with respect to electronic
debit transactions or debit card-related activities within a calendar
year. Net compensation occurs when the total amount of payments or
incentives received by an issuer from a payment card network
[[Page 70]]
with respect to electronic debit transactions or debit card-related
activities, other than interchange transaction fees passed through to
the issuer by the network, during a calendar year exceeds the total
amount of all fees paid by the issuer to the network with respect to
electronic debit transactions or debit card-related activities during
that calendar year. Payments and incentives paid by a network to an
issuer, and fees paid by an issuer to a network, with respect to
electronic debit transactions or debit card related activities are not
limited to volume-based or transaction-specific payments, incentives, or
fees, but also include other payments, incentives or fees related to an
issuer's provision of debit card services.
Sec. 235.7 Limitations on payment card restrictions.
(a) Prohibition on network exclusivity--(1) In general. An issuer or
payment card network shall not directly or through any agent, processor,
or licensed member of a payment card network, by contract, requirement,
condition, penalty, or otherwise, restrict the number of payment card
networks on which an electronic debit transaction may be processed to
less than two unaffiliated networks.
(2) Permitted arrangements. An issuer satisfies the requirements of
paragraph (a)(1) of this section only if the issuer allows an electronic
debit transaction to be processed on at least two unaffiliated payment
card networks, each of which does not, by rule or policy, restrict the
operation of the network to a limited geographic area, specific
merchant, or particular type of merchant or transaction, and each of
which has taken steps reasonably designed to enable the network to
process the electronic debit transactions that the network would
reasonably expect will be routed to it, based on expected transaction
volume.
(3) Prohibited exclusivity arrangements by networks. For purposes of
paragraph (a)(1) of this section, a payment card network may not
restrict or otherwise limit an issuer's ability to contract with any
other payment card network that may process an electronic debit
transaction involving the issuer's debit cards.
(4) Subsequent affiliation. If unaffiliated payment card networks
become affiliated as a result of a merger or acquisition such that an
issuer is no longer in compliance with paragraph (a) of this section,
the issuer must add an unaffiliated payment card network through which
electronic debit transactions on the relevant debit card may be
processed no later than six months after the date on which the
previously unaffiliated payment card networks consummate the
affiliation.
(b) Prohibition on routing restrictions. An issuer or payment card
network shall not, directly or through any agent, processor, or licensed
member of the network, by contract, requirement, condition, penalty, or
otherwise, inhibit the ability of any person that accepts or honors
debit cards for payments to direct the routing of electronic debit
transactions for processing over any payment card network that may
process such transactions.
(c) Compliance dates--(1) General. Except as otherwise provided in
paragraphs (c)(2), (c)(3), and (c)(4) of this section, the compliance
date of paragraph (a) of this section is April 1, 2012.
(2) Restrictions by payment card networks. The compliance date of
paragraphs (a)(1) and (a)(3) of this section for payment card networks
is October 1, 2011.
(3) Debit cards that use transaction qualification or substantiation
systems. Issuers shall comply with the requirements of paragraph (a) of
this section by April 1, 2013, for electronic debit transactions using
debit cards that use point-of-sale transaction qualification or
substantiation systems for verifying the eligibility of purchased goods
or services.
(4) General-use prepaid cards. Issuers shall comply with the
requirements of paragraph (a) of this section with respect to general-
use prepaid cards as set out below.
(i) With respect to non-reloadable general-use prepaid cards, the
compliance date is April 1, 2013. Non-reloadable general-use prepaid
cards sold prior to April 1, 2013 are not subject to paragraph (a) of
this section.
[[Page 71]]
(ii) With respect to reloadable general-use prepaid cards, the
compliance date is April 1, 2013. Reloadable general-use prepaid cards
sold prior to April 1, 2013 are not subject to paragraph (a) of this
section unless and until they are reloaded, in which case the following
compliance dates apply:
(A) With respect to reloadable general-use prepaid cards sold and
reloaded prior to April 1, 2013, the compliance date is May 1, 2013.
(B) With respect to reloadable general-use prepaid cards sold prior
to April 1, 2013, and reloaded on or after April 1, 2013, the compliance
date is 30 days after the date of reloading.
Sec. 235.8 Reporting requirements and record retention.
(a) Entities required to report. Each issuer that is not otherwise
exempt from the requirements of this part underSec. 235.5(a) and each
payment card network shall file a report with the Board in accordance
with this section.
(b) Report. Each entity required to file a report with the Board
shall submit data in a form prescribed by the Board for that entity.
Data required to be reported may include, but may not be limited to,
data regarding costs incurred with respect to an electronic debit
transaction, interchange transaction fees, network fees, fraud-
prevention costs, fraud losses, and transaction value, volume, and type.
(c) Record retention. (1) An issuer subject to this part shall
retain evidence of compliance with the requirements imposed by this part
for a period of not less than five years after the end of the calendar
year in which the electronic debit transaction occurred.
(2) Any person subject to this part having actual notice that it is
the subject of an investigation or an enforcement proceeding by its
enforcement agency shall retain the records that pertain to the
investigation, action, or proceeding until final disposition of the
matter unless an earlier time is allowed by court or agency order.
Sec. 235.9 Administrative enforcement.
(a) (1) Compliance with the requirements of this part shall be
enforced under--
(i) Section 8 of the Federal Deposit Insurance Act, by the
appropriate Federal banking agency, as defined in section 3(q) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(q)), with respect to--
(A) National banks, federal savings associations, and federal
branches and federal agencies of foreign banks;
(B) Member banks of the Federal Reserve System (other than national
banks), branches and agencies of foreign banks (other than federal
branches, federal Agencies, and insured state branches of foreign
banks), commercial lending companies owned or controlled by foreign
banks, and organizations operating under section 25 or 25A of the
Federal Reserve Act;
(C) Banks and state savings associations insured by the Federal
Deposit Insurance Corporation (other than members of the Federal Reserve
System), and insured state branches of foreign banks;
(ii) The Federal Credit Union Act (12 U.S.C. 1751 et seq.), by the
Administrator of the National Credit Union Administration (National
Credit Union Administration Board) with respect to any federal credit
union;
(iii) The Federal Aviation Act of 1958 (49 U.S.C. 40101 et seq.), by
the Secretary of Transportation, with respect to any air carrier or
foreign air carrier subject to that Act; and
(iv) The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), by
the Securities and Exchange Commission, with respect to any broker or
dealer subject to that Act.
(2) The terms used in paragraph (a)(1) of this section that are not
defined in this part or otherwise defined in section 3(s) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given
to them in section 1(b) of the International Banking Act of 1978 (12
U.S.C. 3101).
(b) Additional powers. (1) For the purpose of the exercise by any
agency referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of this
section of its power under any statute referred to in those paragraphs,
a violation of this part is deemed to be a violation of a requirement
imposed under that statute.
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(2) In addition to its powers under any provision of law
specifically referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of
this section, each of the agencies referred to in those paragraphs may
exercise, for the purpose of enforcing compliance under this part, any
other authority conferred on it by law.
(c) Enforcement authority of Federal Trade Commission. Except to the
extent that enforcement of the requirements imposed under this title is
specifically granted to another government agency under paragraphs
(a)(1)(i) through (a)(1)(iv) of this section, and subject to subtitle B
of the Consumer Financial Protection Act of 2010, the Federal Trade
Commission has the authority to enforce such requirements. For the
purpose of the exercise by the Federal Trade Commission of its functions
and powers under the Federal Trade Commission Act, a violation of this
part shall be deemed a violation of a requirement imposed under the
Federal Trade Commission Act. All of the functions and powers of the
Federal Trade Commission under the Federal Trade Commission Act are
available to the Federal Trade Commission to enforce compliance by any
person subject to the jurisdiction of the Federal Trade Commission with
the requirements of this part, regardless of whether that person is
engaged in commerce or meets any other jurisdictional tests under the
Federal Trade Commission Act.
Sec. 235.10 Effective and compliance dates.
Except as provided inSec. 235.7, this part becomes effective and
compliance is mandatory on October 1, 2011.
Sec. Appendix A to Part 235--Official Board Commentary on Regulation II
Introduction
The following commentary to Regulation II (12 CFR part 235) provides
background material to explain the Board's intent in adopting a
particular part of the regulation. The commentary also provides examples
to aid in understanding how a particular requirement is to work.
Section 235.2 Definitions
2(a) Account
1. Types of accounts. The term ``account'' includes accounts held by
any person, including consumer accounts (i.e., those established
primarily for personal, family or household purposes) and business
accounts. Therefore, the limitations on interchange transaction fees and
the prohibitions on network exclusivity arrangements and routing
restrictions apply to all electronic debit transactions, regardless of
whether the transaction involves a debit card issued primarily for
personal, family, or household purposes or for business purposes. For
example, an issuer of a business-purpose debit card is subject to the
restrictions on interchange transaction fees and is also prohibited from
restricting the number of payment card networks on which an electronic
debit transaction may be processed underSec. 235.7.
2. Bona fide trusts. This part does not define the term bona fide
trust agreement; therefore, institutions must look to state or other
applicable law for interpretation. An account held under a custodial
agreement that qualifies as a trust under the Internal Revenue Code,
such as an individual retirement account, is considered to be held under
a trust agreement for purposes of this part.
3. Account located in the United States. This part applies only to
electronic debit transactions that are initiated to debit (or credit,
for example, in the case of returned goods or cancelled services) an
account located in the United States. If a cardholder uses a debit card
to debit an account held outside the United States, then the electronic
debit transaction is not subject to this part.
2(b) Acquirer
1. In general. The term ``acquirer'' includes only the institution
that contracts, directly or indirectly, with a merchant to provide
settlement for the merchant's electronic debit transactions over a
payment card network (referred to as acquiring the merchant's electronic
debit transactions). In some acquiring relationships, an institution
provides processing services to the merchant and is a licensed member of
the payment card network, but does not settle the transactions with the
merchant (by crediting the merchant's account) or with the issuer. These
institutions are not ``acquirers'' because they do not provide credit to
the merchant for the transactions or settle the merchant's transactions
with the issuer. These institutions are considered processors and in
some circumstances may be considered payment card networks for purposes
of this part (See Sec.Sec. 235.2(m), 235.2(o), and commentary
thereto).
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2(c) Affiliate
1. Types of entities. The term ``affiliate'' includes any bank and
nonbank affiliates located in the United States or a foreign country.
2. Other affiliates. For commentary on whether merchants are
affiliated, see comment 2(f)-7.
2(d) Cardholder
1. Scope. In the case of debit cards that access funds in
transaction, savings, or other similar asset accounts, ``the person to
whom a card is issued'' generally will be the named person or persons
holding the account. If the account is a business account, multiple
employees (or other persons associated with the business) may have debit
cards that can access the account. Each employee that has a debit card
that can access the account is a cardholder. In the case of a prepaid
card, the cardholder generally is either the purchaser of the card or a
person to whom the purchaser gave the card, such as a gift recipient.
2(e) Control [Reserved]
2(f) Debit Card
1. Card, or other payment code or device. The term ``debit card'' as
defined inSec. 235.2(f) applies to any card, or other payment code or
device, even if it is not issued in a physical form. Debit cards
include, for example, an account number or code that can be used to
access funds in an account to make Internet purchases. Similarly, the
term ``debit card'' includes a device with a chip or other embedded
mechanism, such as a mobile phone or sticker containing a contactless
chip that links the device to funds stored in an account, and enables an
account to be debited. The term ``debit card,'' however, does not
include a one-time password or other code if such password or code is
used for the purposes of authenticating the cardholder and is used in
addition to another card, or other payment code or device, rather than
as the payment code or device.
2. Deferred debit cards. The term ``debit card'' includes a card, or
other payment code or device, that is used in connection with deferred
debit card arrangements in which transactions are not immediately posted
to and funds are not debited from the underlying transaction, savings,
or other asset account upon settlement of the transaction. Instead, the
funds in the account typically are held and made unavailable for other
transactions for a period of time specified in the issuer-cardholder
agreement. After the expiration of the time period, the cardholder's
account is debited for the value of all transactions made using the card
that have been submitted to the issuer for settlement during that time
period. For example, under some deferred debit card arrangements, the
issuer may debit the consumer's account for all debit card transactions
that occurred during a particular month at the end of the month.
Regardless of the time period between the transaction and account
posting, a card, or other payment code or device, that is used in
connection with a deferred debit arrangement is considered a debit card
for purposes of the requirements of this part.
3. Decoupled debit cards. Decoupled debit cards are issued by an
entity other than the financial institution holding the cardholder's
account. In a decoupled debit arrangement, transactions that are
authorized by the card issuer settle against the cardholder's account
held by an entity other than the issuer, generally via a subsequent ACH
debit to that account. The term ``debit card'' includes any card, or
other payment code or device, issued or approved for use through a
payment card network to debit an account, regardless of whether the
issuer holds the account. Therefore, decoupled debit cards are debit
cards for purposes of this part.
4. Hybrid cards.
i. Some cards, or other payment codes or devices, may have both
credit- and debit-like features (``hybrid cards''). For example, these
cards may enable a cardholder to access a line of credit, but select
certain transactions for immediate repayment (i.e., prior to the end of
a billing cycle) via a debit to the cardholder's account, as the term is
defined inSec. 235.2(a), held either with the issuer or at another
institution. If a card permits a cardholder to initiate transactions
that debit an account or funds underlying a prepaid card, the card is
considered a debit card for purposes of this part. Not all transactions
initiated by such a hybrid card, however, are electronic debit
transactions. Rather, only those transactions that debit an account as
defined in this part or funds underlying a prepaid card are electronic
debit transactions. If the transaction posts to a line of credit, then
the transaction is a credit transaction.
ii. If an issuer conditions the availability of a credit or charge
card that permits pre-authorized repayment of some or all transactions
on the cardholder maintaining an account at the issuer, such a card is
considered a debit card for purposes of this part.
5. Virtual wallets. A virtual wallet is a device (e.g., a mobile
phone) that stores several different payment codes or devices (``virtual
cards'') that access different accounts, funds underlying the card, or
lines of credit. At the point of sale, the cardholder may select from
the virtual wallet the virtual card he or she wishes to use for payment.
The virtual card that the cardholder uses for payment is considered a
debit card under this part if the virtual card that initiates a
transaction
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meets the definition of debit card, notwithstanding the fact that other
cards in the wallet may not be debit cards.
6. General-use prepaid card. The term ``debit card'' includes
general-use prepaid cards. SeeSec. 235.2(i) and related commentary for
information on general-use prepaid cards.
7. Store cards. The term ``debit card'' does not include prepaid
cards that may be used at a single merchant or affiliated merchants. Two
or more merchants are affiliated if they are related by either common
ownership or by common corporate control. For purposes of the ``debit
card'' definition, franchisees are considered to be under common
corporate control if they are subject to a common set of corporate
policies or practices under the terms of their franchise licenses.
8. Checks, drafts, and similar instruments. The term ``debit card''
does not include a check, draft, or similar paper instrument or a
transaction in which the check is used as a source of information to
initiate an electronic payment. For example, if an account holder
provides a check to buy goods or services and the merchant takes the
account number and routing number information from the MICR line at the
bottom of a check to initiate an ACH debit transfer from the
cardholder's account, the check is not a debit card, and such a
transaction is not considered an electronic debit transaction. Likewise,
the term ``debit card'' does not include an electronic representation of
a check, draft, or similar paper instrument.
9. ACH transactions. The term ``debit card'' does not include an
account number when it is used by a person to initiate an ACH
transaction that debits that person's account. For example, if an
account holder buys goods or services over the Internet using an account
number and routing number to initiate an ACH debit, the account number
is not a debit card, and such a transaction is not considered an
electronic debit transaction. However, the use of a card to purchase
goods or services that debits the cardholder's account that is settled
by means of a subsequent ACH debit initiated by the card issuer to the
cardholder's account, as in the case of a decoupled debit card
arrangement, involves the use of a debit card for purposes of this part.
2(g) Designated Automated Teller Machine (ATM) Network
1. Reasonable and convenient access clarified. UnderSec.
235.2(g)(2), a designated ATM network includes any network of ATMs
identified by the issuer that provides reasonable and convenient access
to the issuer's cardholders. Whether a network provides reasonable and
convenient access depends on the facts and circumstances, including the
distance between ATMs in the designated network and each cardholder's
last known home or work address, or if a home or work address is not
known, where the card was first issued.
2(h) Electronic Debit Transaction
1. Debit an account. The term ``electronic debit transaction''
includes the use of a card to debit an account. The account debited
could be, for example, the cardholder's asset account or the account
that holds the funds used to settle prepaid card transactions.
2. Form of payment. The term ``electronic debit transaction''
includes the use of a card as a form of payment that may be made in
exchange for goods or services, as a charitable contribution, to satisfy
an obligation (e.g., tax liability), or for other purposes.
3. Subsequent transactions. The term ``electronic debit
transaction'' includes both the cardholder's use of a debit card for the
initial payment and any subsequent use by the cardholder of the debit
card in connection with the initial payment. For example, the term
``electronic debit transaction'' includes using the debit card to return
merchandise or cancel a service that then results in a debit to the
merchant's account and a credit to the cardholder's account.
4. Cash withdrawal at the point of sale. The term ``electronic debit
transaction'' includes a transaction in which a cardholder uses the
debit card both to make a purchase and to withdraw cash (known as a
``cash-back transaction'').
5. Geographic limitation. This regulation applies only to electronic
debit transactions that are initiated at a merchant located in the
United States. If a cardholder uses a debit card at a merchant located
outside the United States to debit an account held in the United States,
the electronic debit transaction is not subject to this part.
2(i) General-Use Prepaid Card
1. Redeemable upon presentation at multiple, unaffiliated merchants.
A prepaid card is redeemable upon presentation at multiple, unaffiliated
merchants if such merchants agree to honor the card.
2. Selective authorization cards. Selective authorization cards,
(e.g., mall cards) are generally intended to be used or redeemed for
goods or services at participating retailers within a shopping mall or
other limited geographic area. Selective authorization cards are
considered general-use prepaid cards, regardless of whether they carry
the mark, logo, or brand of a payment card network, if they are
redeemable at multiple, unaffiliated merchants.
2(j) Interchange Transaction fee
1. In general. Generally, the payment card network is the entity
that establishes and charges the interchange transaction fee to the
acquirers or merchants. The acquirers then pay to the issuers any
interchange
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transaction fee established and charged by the network. Acquirers
typically pass the interchange transaction fee through to merchant-
customers.
2. Compensating an issuer. The term ``interchange transaction fee''
is limited to those fees that a payment card network establishes,
charges, or receives to compensate the issuer for its role in the
electronic debit transaction. By contrast, payment card networks
generally charge issuers and acquirers fees for services the network
performs. Such fees are not interchange transaction fees because the
payment card network is charging and receiving the fee as compensation
for services it provides.
3. Established, charged, or received. Interchange transaction fees
are not limited to those fees for which a payment card network sets the
value. A fee that compensates an issuer is an interchange transaction
fee if the fee is set by the issuer but charged to acquirers by virtue
of the network determining each participant's net settlement position.
2(k) Issuer
1. In general. A person issues a debit card by authorizing the use
of debit card by a cardholder to perform electronic debit transactions.
That person may provide the card directly to the cardholder or
indirectly by using a third party (such as a processor, or a telephone
network or manufacturer) to provide the card, or other payment code or
device, to the cardholder. The following examples illustrate the entity
that is the issuer under various card program arrangements. For purposes
of determining whether an issuer is exempted underSec. 235.5(a),
however, the term issuer is limited to the entity that holds the account
being debited.
2. Traditional debit card arrangements. In a traditional debit card
arrangement, the bank or other entity holds the cardholder's funds and
authorizes the cardholder to use the debit card to access those funds
through electronic debit transactions, and the cardholder receives the
card directly or indirectly (e.g., through an agent) from the bank or
other entity that holds the funds (except for decoupled debit cards,
discussed below). In this system, the bank or entity holding the
cardholder's funds is the issuer.
3. BIN-sponsor arrangements. Payment card networks assign Bank
Identification Numbers (BINs) to member-institutions for purposes of
issuing cards, authorizing, clearing, settling, and other processes. In
exchange for a fee or other financial considerations, some members of
payment card networks permit other entities to issue debit cards using
the member's BIN. The entity permitting the use of its BIN is referred
to as the ``BIN sponsor'' and the entity that uses the BIN to issue
cards is often referred to as the ``affiliate member.'' BIN sponsor
arrangements can follow at least two different models:
i. Sponsored debit card model. In some cases, a community bank or
credit union may provide debit cards to its account holders through a
BIN sponsor arrangement with a member institution. In general, the bank
or credit union will authorize its account holders to use debit cards to
perform electronic debit transactions that access funds in accounts at
the bank or credit union. The bank or credit union's name typically will
appear on the debit card. The bank or credit union may directly or
indirectly provide the cards to cardholders. Under these circumstances,
the bank or credit union is the issuer for purposes of this part. If
that bank or credit union, together with its affiliates, has assets of
less than $10 billion, then that bank or credit union is exempt from the
interchange transaction fee restrictions. Although the bank or credit
union may distribute cards through the BIN sponsors, the BIN sponsor
does not enter into the agreement with the cardholder that authorizes
the cardholder to use the card to perform electronic debit transactions
that access funds in the account at the bank or credit union, and
therefore the BIN sponsor is not the issuer.
ii. Prepaid card model. A member institution may also serve as the
BIN sponsor for a prepaid card program. Under these arrangements, a
program manager distributes prepaid cards to the cardholders and the
BIN-sponsoring institution generally holds the funds for the prepaid
card program in an omnibus or pooled account. Either the BIN sponsor or
the prepaid card program manager may keep track of the underlying funds
for each individual prepaid card through subaccounts. While the
cardholder may receive the card directly from the program manager or at
a retailer, the BIN sponsor authorizes the cardholder to use the card to
perform electronic debit transactions that access the funds in the
pooled account and the cardholder's relationship generally is with the
BIN sponsor. Accordingly, under these circumstances, the BIN sponsor, or
the bank holding the pooled account, is the issuer.
4. Decoupled debit cards. In the case of decoupled debit cards, an
entity other than the bank holding the cardholder's account enters into
a relationship with the cardholder authorizing the use of the card to
perform electronic debit transactions. The entity authorizing the use of
the card to perform electronic debit transaction typically arranges for
the card to be provided directly or indirectly to the cardholder and has
a direct relationship with the cardholder with respect to the card. The
bank holding the cardholder's account has agreed generally to permit ACH
debits to the account, but has not authorized the use of the debit card
to access
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the funds through electronic debit transactions. Under these
circumstances, the entity authorizing the use of the debit card, and not
the account-holding institution, is considered the issuer. An issuer of
a decoupled debit card is not exempt underSec. 235.5(a), even if,
together with its affiliates, it has assets of less than $10 billion,
because it is not the entity holding the account to be debited.
2(l) Merchant [Reserved]
2(m) Payment Card Network
1. In general. An entity is a considered a payment card network with
respect to an electronic debit transaction for purposes of this rule if
it routes information and data to the issuer from the acquirer to
conduct authorization, clearance, and settlement of the electronic debit
transaction. By contrast, if an entity receives transaction information
and data from a merchant and authorizes and settles the transaction
without routing the information and data to another entity (i.e., the
issuer or the issuer's processor) for authorization, clearance, or
settlement, that entity is not considered a payment card network with
respect to the electronic debit transaction.
2. Three-party systems. In the case of a three-party system,
electronic debit transactions are processed by an entity that acts as
system operator and issuer, and may also act as the acquirer. The entity
acting as system operator and issuer that receives the transaction
information from the merchant or acquirer also holds the cardholder's
funds. Therefore, rather than directing the transaction information to a
separate issuer, the entity authorizes and settles the transaction based
on the information received from the merchant. As these entities do not
connect (or ``network'') multiple issuers and do not route information
to conduct the transaction, they are not ``payment card networks'' with
respect to these transactions.
3. Processors as payment card networks. A processor is considered a
payment card network if, in addition to acting as processor for an
acquirer and issuer, the processor routes transaction information and
data received from a merchant or the merchant's acquirer to an issuer.
For example, if a merchant uses a processor in order to accept any,
some, or all brands of debit cards and the processor routes transaction
information and data to the issuer or issuer's processor, the merchant's
processor is considered a payment card network with respect to the
electronic debit transaction. If the processor establishes, charges, or
receives a fee for the purpose of compensating an issuer, that fee is
considered an interchange transaction fee for purposes of this part.
4. Automated clearing house (ACH) operators. An ACH operator is not
considered a payment card network for purposes of this part. While an
ACH operator processes transactions that debit an account and provides
for interbank clearing and settlement of such transactions, a person
does not use the ACH system to accept as a form of payment a brand of
debit card.
5. ATM networks. An ATM network is not considered a payment card
network for purposes of this part. While ATM networks process
transactions that debit an account and provide for interbank clearing
and settlement of such transactions, a cash withdrawal from an ATM is
not a payment because there is no exchange of money for goods or
services, or payment made as a charitable contribution, to satisfy an
obligation (e.g., tax liability), or for other purposes.
2(n) Person [Reserved]
2(o) Processor
1. Distinction from acquirers. A processor may perform all
transaction-processing functions for a merchant or acquirer, but if it
does not acquire (that is, settle with the merchant for the
transactions), it is not an acquirer. The entity that acquirers
electronic debit transactions is the entity that is responsible to other
parties to the electronic debit transaction for the amount of the
transaction.
2. Issuers. A processor may perform services related to
authorization, clearance, and settlement of transactions for an issuer
without being considered to be an issuer for purposes of this part.
2(p) Route
1. An entity routes information if it both directs and sends the
information to an unaffiliated entity (or affiliated entity acting on
behalf of the unaffiliated entity). This other entity may be a payment
card network or processor (if the entity directing and sending the
information is a merchant or an acquirer) or an issuer or processor (if
the entity directing and sending the information is a payment card
network).
2(q) United States [Reserved]
Section 235.3 Reasonable and Proportional Interchange Transaction Fees
3(a) [Reserved]
3(b) Determining Reasonable and Proportional Fees
1. Two components. The standard for the maximum permissible
interchange transaction fee that an issuer may receive consists of two
components: a base component that does not vary with a transaction's
value and an ad valorem component. The amount of any interchange
transaction fee received or charged by an issuer may not exceed the sum
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of the maximum permissible amounts of each component and any fraud-
prevention adjustment the issuer is permitted to receive underSec.
235.4 of this part.
2. Variation in interchange fees. An issuer is permitted to charge
or receive, and a network is permitted to establish, interchange
transaction fees that vary in their base component and ad valorem
component based on, for example, the type of transaction or merchant,
provided the amount of any interchange transaction fee for any
transaction does not exceed the sum of the maximum permissible base
component of 21 cents and 5 basis points of the value of the
transaction.
3. Example. For a $39 transaction, the maximum permissible
interchange transaction fee is 22.95 cents (21 cents plus 5 basis points
of $39). A payment card network may, for example, establish an
interchange transaction fee of 22 cents without any ad valorem
component.
Section 235.4 Fraud-Prevention Adjustment
4(b) Issuer Standards
Section 235.4 Fraud-prevention adjustment
4(a) [Reserved]
4(b)(1) Issuer standards
1. An issuer's policies and procedures should address fraud related
to debit card use by unauthorized persons. Examples of use by
unauthorized persons include, but are not limited to, the following:
i. A thief steals a cardholder's wallet and uses the debit card to
purchase goods, without the authority of the cardholder.
ii. A cardholder makes a purchase at a merchant. Subsequently, the
merchant's employee uses information from the debit card to initiate a
subsequent transaction, without the authority of the cardholder.
iii. A hacker steals cardholder account information from the issuer
or a merchant processor and uses the stolen information to make
unauthorized card-not-present purchases or to create a counterfeit card
to make unauthorized card-present purchases.
2. An issuer's policies and procedures must be designed to reduce
fraud, where cost effective, across all types of electronic debit
transactions in which its cardholders engage. Therefore, an issuer
should consider whether its policies and procedures are effective for
each method used to authenticate the card (e.g., a chip or a code
embedded in the magnetic stripe) and the cardholder (e.g., a signature
or a PIN), and for different sales channels (e.g., card-present and
card-not-present).
3. An issuer's policies and procedures must be designed to take
effective steps to reduce both the occurrence of and costs to all
parties from fraudulent electronic debit transactions. An issuer should
take steps reasonably designed to reduce the number and value of its
fraudulent electronic debit transactions relative to its non-fraudulent
electronic debit transactions. These steps should reduce the costs from
fraudulent transactions to all parties, not merely the issuer. For
example, an issuer should take steps to reduce the number and value of
its fraudulent electronic debit transactions relative to its non-
fraudulent transactions whether or not it bears the fraud losses as a
result of regulations or network rules.
4. For any given issuer, the number and value of fraudulent
electronic debit transactions relative to non-fraudulent transactions
may vary materially from year to year. Therefore, in certain
circumstances, an issuer's policies and procedures may be effective
notwithstanding a relative increase in the transactions that are
fraudulent in a particular year. However, continuing increases in the
share of fraudulent transactions would warrant further scrutiny.
5. In determining which fraud-prevention technologies to implement
or retain, an issuer must consider the cost-effectiveness of the
technology, that is, the expected cost of the technology relative to its
expected effectiveness in controlling fraud. In evaluating the cost of a
particular technology, an issuer should consider whether and to what
extent other parties will incur costs to implement the technology, even
though an issuer may not have complete information about the costs that
may be incurred by other parties, such as the cost of new merchant
terminals. In evaluating the costs, an issuer should consider both
initial implementation costs and ongoing costs of using the fraud-
prevention method.
6. An issuer need not develop fraud-prevention technologies itself
to satisfy the standards inSec. 235.4(b). An issuer may implement
fraud-prevention technologies that have been developed by a third party
that the issuer has determined are appropriate under its own policies
and procedures.
Paragraph 4(b)(2) Elements of fraud-prevention policies and procedures.
1. In general. An issuer may tailor its policies and procedures to
address its particular debit card program, including the size of the
program, the types of transactions in which its cardholders commonly
engage, fraud types and methods experienced by the issuer, and the cost
of implementing new fraud-prevention methods in light of the expected
fraud reduction.
Paragraph 4(b)(2)(i). Methods to identify and prevent fraudulent debit
card transactions.
1. In general. Examples of policies and procedures reasonably
designed to identify and
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prevent fraudulent electronic debit transactions include the following:
i. Practices to help determine whether a card is authentic and
whether the user is authorized to use the card at the time of a
transaction. For example, an issuer may specify the use of particular
authentication technologies or methods, such as dynamic data, to better
authenticate a card and cardholder at the time of the transaction, to
the extent doing so does not inhibit the ability of a merchant to direct
the routing of electronic debit transactions for processing over any
payment card network that may process such transactions. (SeeSec.
235.7 and commentary thereto.)
ii. An automated mechanism to assess the risk that a particular
electronic debit transaction is fraudulent during the authorization
process (i.e., before the issuer approves or declines an authorization
request). For example, an issuer may use neural networks to identify
transactions that present increased risk of fraud. As a result of this
analysis, the issuer may decide to decline to authorize these
transactions. An issuer may not be able to determine whether a given
transaction in isolation is fraudulent at the time of authorization, and
therefore may have implemented policies and procedures that monitor sets
of transactions initiated with a cardholder's debit card. For example,
an issuer could compare a set of transactions initiated with the card to
a customer's typical transactions in order to determine whether a
transaction is likely to be fraudulent. Similarly, an issuer could
compare a set of transactions initiated with a debit card and common
fraud patterns in order to determine whether a transaction or future
transaction is likely to be fraudulent.
iii. Practices to support reporting of lost and stolen cards or
suspected incidences of fraud by cardholders or other parties to a
transaction. As an example, an issuer may promote customer awareness by
providing text alerts of transactions in order to detect fraudulent
transactions in a timely manner. An issuer may also report debit cards
suspected of being fraudulent to their networks for inclusion in a
database of potentially compromised cards.
Paragraph 4(b)(2)(ii). Monitoring of the issuer's volume and value of
fraudulent electronic debit transactions.
1. Tracking its fraudulent electronic debit transactions over time
enables an issuer to assess whether its policies and procedures are
effective. Accordingly, an issuer must include policies and procedures
designed to monitor trends in the number and value of its fraudulent
electronic debit transactions. An effective monitoring program would
include tracking issuer losses from fraudulent electronic debit
transactions, fraud-related chargebacks to acquirers, losses passed on
to cardholders, and any other reimbursements from other parties. Other
reimbursements could include payments made to issuers as a result of
fines assessed to merchants for noncompliance with Payment Card Industry
(PCI) Data Security Standards or other industry standards. An issuer
should also establish procedures to track fraud-related information
necessary to perform its reviews underSec. 235.4(b)(3) and to retain
and report information as required underSec. 235.8.
Paragraph 4(b)(2)(iii). Appropriate responses to suspicious electronic
debit transactions.
1. An issuer may identify transactions that it suspects to be
fraudulent after it has authorized or settled the transaction. For
example, a cardholder may inform the issuer that the cardholder did not
initiate a transaction or transactions, or the issuer may learn of a
fraudulent transaction or possibly compromised debit cards from the
network, the acquirer, or other parties. An issuer must implement
policies and procedures designed to provide an appropriate response once
an issuer has identified suspicious transactions to reduce the
occurrence of future fraudulent electronic debit transactions and the
costs associated with such transactions. The appropriate response may
differ depending on the facts and circumstances, including the issuer's
assessment of the risk of future fraudulent electronic debit
transactions. For example, in some circumstances, it may be sufficient
for an issuer to monitor more closely the account with the suspicious
transactions. In other circumstances, it may be necessary to contact the
cardholder to verify a transaction, reissue a card, or close an account.
An appropriate response may also require coordination with industry
organizations, law enforcement agencies, and other parties, such as
payment card networks, merchants, and issuer or merchant processors.
Paragraph 4(b)(2)(iv). Methods to secure debit card and cardholder data.
1. An issuer must implement policies and procedures designed to
secure debit card and cardholder data. These policies and procedures
should apply to data that are transmitted by the issuer (or its service
provider) during transaction processing, that are stored by the issuer
(or its service provider), and that are carried on media (e.g., laptops,
transportable data storage devices) by employees or agents of the
issuer. This standard may be incorporated into an issuer's information
security program, as required by Section 501(b) of the Gramm-Leach-
Bliley Act.
Paragraph 4(b)(3) Review of and updates to policies and procedures.
1. i. An issuer's assessment of the effectiveness of its policies
and procedures should
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consider whether they are reasonably designed to reduce the number and
value of fraudulent electronic debit transactions relative to non-
fraudulent electronic debit transactions and are cost effective. (See
comment 4(b)(1)-3 and comment 4(b)(1)-5).
ii. An issuer must also assess its policies and procedures in light
of changes in fraud types (e.g., the use of counterfeit cards, lost or
stolen cards) and methods (e.g., common purchase patterns indicating
possible fraudulent behavior), as well as changes in the available
methods of detecting and preventing fraudulent electronic debit
transactions (e.g., transaction monitoring, authentication methods) as
part of its periodic review of its policies and procedures. An issuer's
review of its policies and procedures must consider information from the
issuer's own experience and that the issuer otherwise identified itself;
information from payment card networks, law enforcement agencies, and
fraud-monitoring groups in which the issuer participates; and
supervisory guidance. For example, an issuer should consider warnings
and alerts it receives from payment card networks regarding compromised
cards and data breaches.
2. An issuer should review its policies and procedures and their
implementation more frequently than annually if the issuer determines
that more frequent review is appropriate based on information obtained
from monitoring its fraudulent electronic debit transactions, changes in
the types or methods of fraud, or available methods of detecting and
preventing fraudulent electronic debit transactions. (SeeSec.
235.4(b)(1)(ii) and commentary thereto.)
3. In light of an issuer's review of its policies and procedures,
and their implementation, the issuer may determine that updates to its
policies and procedures, and their implementation, are necessary. Merely
determining that updates are necessary does not render an issuer
ineligible to receive or charge the fraud-prevention adjustment. To
remain eligible to receive or charge a fraud-prevention adjustment,
however, an issuer should develop and implement such updates as soon as
reasonably practicable, in light of the facts and circumstances.
4(c) Notification.
1. Payment card networks that plan to allow issuers to receive or
charge a fraud-prevention adjustment can develop processes for
identifying issuers eligible for this adjustment. Each issuer that wants
to be eligible to receive or charge a fraud-prevention adjustment must
notify annually the payment card networks in which it participates of
its compliance through the networks' processes.
Section 235.5 Exemptions for Certain Electronic Debit Transactions
1. Eligibility for multiple exemptions. An electronic debit
transaction may qualify for one or more exemptions. For example, a debit
card that has been provided to a person pursuant to a Federal, State, or
local government-administered payment program may be issued by an entity
that, together with its affiliates, has assets of less than $10 billion
as of the end of the preceding calendar year. In this case, an
electronic debit transaction made using that card may qualify for the
exemption underSec. 235.5(a) for small issuers or for the exemption
underSec. 235.5(b) for government-administered payment programs. A
payment card network establishing interchange fees for transactions that
qualify for more than one exemption need only satisfy itself that the
issuer's transactions qualify for at least one of the exemptions in
order to exempt the electronic debit transaction from the interchange
fee restrictions.
2. Certification process. Payment card networks that plan to allow
issuers to receive higher interchange fees than permitted under
Sec.Sec. 235.3 and 235.4 pursuant to one of the exemptions inSec.
235.5 could develop their own processes for identifying issuers and
products eligible for such exemptions. Section 235.5(a)(2) permits
payment card networks to rely on lists published by the Board to help
determine eligibility for the small issuer exemption set forth inSec.
235.5(a)(1).
5(a) Exemption for Small Issuers
1. Asset size determination. An issuer would qualify for the small-
issuer exemption if its total worldwide banking and nonbanking assets,
including assets of affiliates, other than trust assets under
management, are less than $10 billion, as of December 31 of the
preceding calendar year.
2. Change in status. If an exempt issuer becomes covered based on
its and its affiliates assets at the end of a calendar year, that issuer
must begin complying with the interchange fee standards (Sec. 235.3),
the fraud-prevention adjustment standards (to the extent the issuer
wishes to receive a fraud-prevention adjustment) (Sec. 235.4), and the
provisions prohibiting circumvention, evasion, and net compensation
(Sec. 235.6) no later than July 1.
5(b) Exemption for Government-Administered Payment Programs
1. Government-administered payment program. A program is considered
government-administered regardless of whether a Federal, State, or local
government agency operates the program or outsources some or all
functions to third parties so long as the program is operated on behalf
of the government agency. In addition, a program may be government-
administered even if a Federal, State, or local government agency is not
the
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source of funds for the program it administers. For example, child
support programs are government-administered programs even though a
Federal, State, or local government agency is not the source of funds. A
tribal government is considered a local government for purposes of this
exemption.
5(c) Exemption for Certain Reloadable Prepaid Cards
1. Subaccount clarified. A subaccount is an account within an
account, opened in the name of an agent, nominee, or custodian for the
benefit of two or more cardholders, where the transactions and balances
of individual cardholders are tracked in such subaccounts. An account
that is opened solely in the name of a single cardholder is not a
subaccount.
2. Reloadable. A general-use prepaid card is ``reloadable'' if the
terms and conditions of the agreement permit funds to be added to the
general-use prepaid card at any time after the initial purchase or
issuance. A general-use prepaid card is not ``reloadable'' merely
because the issuer or processor is technically able to add functionality
that would otherwise enable the general-use prepaid card to be reloaded.
3. Marketed or labeled as a gift card or gift certificate. i.
Electronic debit transactions made using a reloadable general-use
prepaid card are not exempt from the interchange fee restrictions if the
card is marketed or labeled as a gift card or gift certificate. The term
``marketed or labeled as a gift card or gift certificate'' means
directly or indirectly offering, advertising or otherwise suggesting the
potential use of a general-use prepaid card as a gift for another
person. Whether the exclusion applies generally does not depend on the
type of entity that makes the promotional message. For example, a card
may be marketed or labeled as a gift card or gift certificate if anyone
(other than the purchaser of the card), including the issuer, the
retailer, the program manager that may distribute the card, or the
payment network on which a card is used, promotes the use of the card as
a gift card or gift certificate. A general-use prepaid card is marketed
or labeled as a gift card or gift certificate even if it is only
occasionally marketed as a gift card or gift certificate. For example, a
network-branded general purpose reloadable card would be marketed or
labeled as a gift card or gift certificate if the issuer principally
advertises the card as a less costly alternative to a bank account but
promotes the card in a television, radio, newspaper, or Internet
advertisement, or on signage as ``the perfect gift'' during the holiday
season.
ii. The mere mention of the availability of gift cards or gift
certificates in an advertisement or on a sign that also indicates the
availability of exempted general-use prepaid cards does not by itself
cause the general-use prepaid card to be marketed as a gift card or a
gift certificate. For example, the posting of a sign in a store that
refers to the availability of gift cards does not by itself constitute
the marketing of otherwise exempted general-use prepaid cards that may
also be sold in the store along with gift cards or gift certificates,
provided that a person acting reasonably under the circumstances would
not be led to believe that the sign applies to all cards sold in the
store. (See, however, comment 5(c)-4.ii.)
4. Examples of marketed or labeled as a gift card or gift
certificate.
i. The following are examples of marketed or labeled as a gift card
or gift certificate:
A. Using the word ``gift'' or ``present'' on a card or accompanying
material, including documentation, packaging and promotional displays;
B. Representing or suggesting that a card can be given to another
person, for example, as a ``token of appreciation'' or a ``stocking
stuffer,'' or displaying a congratulatory message on the card or
accompanying material;
C. Incorporating gift-giving or celebratory imagery or motifs, such
as a bow, ribbon, wrapped present, candle, or a holiday or
congratulatory message, on a card, accompanying documentation, or
promotional material;
ii. The term does not include the following:
A. Representing that a card can be used as a substitute for a
checking, savings, or deposit account;
B. Representing that a card can be used to pay for a consumer's
health-related expenses--for example, a card tied to a health savings
account;
C. Representing that a card can be used as a substitute for
travelers checks or cash;
D. Representing that a card can be used as a budgetary tool, for
example, by teenagers, or to cover emergency expenses.
5. Reasonable policies and procedures to avoid marketing as a gift
card. The exemption for a general-use prepaid card that is reloadable
and not marketed or labeled as a gift card or gift certificate inSec.
235.5(c) applies if a reloadable general-use prepaid card is not
marketed or labeled as a gift card or gift certificate and if persons
involved in the distribution or sale of the card, including issuers,
program managers, and retailers, maintain policies and procedures
reasonably designed to avoid such marketing. Such policies and
procedures may include contractual provisions prohibiting a reloadable
general-use prepaid card from being marketed or labeled as a gift card
or gift certificate, merchandising guidelines or plans regarding how the
product must be displayed in a retail outlet, and controls to regularly
monitor or otherwise verify that the general-use prepaid card is not
being marketed as a gift card. Whether a general-use prepaid card has
been marketed as a gift card or gift certificate
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will depend on the facts and circumstances, including whether a
reasonable person would be led to believe that the general-use prepaid
card is a gift card or gift certificate. The following examples
illustrate the application ofSec. 235.5(c):
i. An issuer or program manager of prepaid cards agrees to sell
general-purpose reloadable cards through a retailer. The contract
between the issuer or program manager and the retailer establishes the
terms and conditions under which the cards may be sold and marketed at
the retailer. The terms and conditions prohibit the general-purpose
reloadable cards from being marketed as a gift card or gift certificate,
and require policies and procedures to regularly monitor or otherwise
verify that the cards are not being marketed as such. The issuer or
program manager sets up one promotional display at the retailer for gift
cards and another physically separated display for exempted products
underSec. 235.5(c), including general-purpose reloadable cards, such
that a reasonable person would not believe that the exempted cards are
gift cards. The exemption inSec. 235.5(c) applies because policies and
procedures reasonably designed to avoid the marketing of the general-
purpose reloadable cards as gift cards or gift certificates are
maintained, even if a retail clerk inadvertently stocks or a consumer
inadvertently places a general-purpose reloadable card on the gift card
display.
ii. Same facts as in comment 5(c)-5.i, except that the issuer or
program manager sets up a single promotional display at the retailer on
which a variety of prepaid cards are sold, including store gift cards
and general-purpose reloadable cards. A sign stating ``Gift Cards''
appears prominently at the top of the display. The exemption inSec.
235.5(c) does not apply with respect to the general-purpose reloadable
cards because policies and procedures reasonably designed to avoid the
marketing of exempted cards as gift cards or gift certificates are not
maintained.
iii. Same facts as in comment 5(c)-5.i, except that the issuer or
program manager sets up a single promotional multi-sided display at the
retailer on which a variety of prepaid card products, including store
gift cards and general-purpose reloadable cards are sold. Gift cards are
segregated from exempted cards, with gift cards on one side of the
display and exempted cards on a different side of a display. Signs of
equal prominence at the top of each side of the display clearly
differentiate between gift cards and the other types of prepaid cards
that are available for sale. The retailer does not use any more
conspicuous signage suggesting the general availability of gift cards,
such as a large sign stating ``Gift Cards'' at the top of the display or
located near the display. The exemption inSec. 235.5(c) applies
because policies and procedures reasonably designed to avoid the
marketing of the general-purpose reloadable cards as gift cards or gift
certificates are maintained, even if a retail clerk inadvertently stocks
or a consumer inadvertently places a general-purpose reloadable card on
the gift card display.
iv. Same facts as in comment 5(c)-5.i, except that the retailer
sells a variety of prepaid card products, including store gift cards and
general-purpose reloadable cards, arranged side-by-side in the same
checkout lane. The retailer does not affirmatively indicate or represent
that gift cards are available, such as by displaying any signage or
other indicia at the checkout lane suggesting the general availability
of gift cards. The exemption inSec. 235.5(c) applies because policies
and procedures reasonably designed to avoid marketing the general-
purpose reloadable cards as gift cards or gift certificates are
maintained.
6. On-line sales of prepaid cards. Some web sites may prominently
advertise or promote the availability of gift cards or gift certificates
in a manner that suggests to a consumer that the web site exclusively
sells gift cards or gift certificates. For example, a web site may
display a banner advertisement or a graphic on the home page that
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language
without mention of other available products, or use a web address that
includes only a reference to gift cards or gift certificates in the
address. In such a case, a consumer acting reasonably under the
circumstances could be led to believe that all prepaid products sold on
the web site are gift cards or gift certificates. Under these facts, the
web site has marketed all such products as gift cards or gift
certificates, and the exemption inSec. 235.5(c) does not apply to any
products sold on the web site.
7. Temporary non-reloadable cards issued in connection with a
general-use reloadable card. Certain general-purpose prepaid cards that
are typically marketed as an account substitute initially may be sold or
issued in the form of a temporary non-reloadable card. After the card is
purchased, the cardholder is typically required to call the issuer to
register the card and to provide identifying information in order to
obtain a reloadable replacement card. In most cases, the temporary non-
reloadable card can be used for purchases until the replacement
reloadable card arrives and is activated by the cardholder. Because the
temporary non-reloadable card may only be obtained in connection with
the reloadable card, the exemption inSec. 235.5(c) applies so long as
the card is not marketed as a gift card or gift certificate.
5(d) Exception
1. Additional ATM access. Some debit cards may be used to withdraw
cash from ATMs that are not part of the issuer's designated
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ATM network. An electronic debit card transaction may still qualify for
the exemption under Sec.Sec. 235.5(b) or (c) with a respect to a card
for which a fee may be imposed for a withdrawal from an ATM that is
outside of the issuer's designated ATM network as long as the card
complies with the condition set forth inSec. 235.5(d)(2) for
withdrawals within the issuer's designated ATM network. The condition
with respect to ATM fees does not apply to cards that do not provide ATM
access.
Section 235.6 Prohibition on Circumvention, Evasion, and Net
Compensation
1. No applicability to exempt issuers or electronic debit
transactions. The prohibition against circumventing or evading the
interchange transaction fee restrictions or against net compensation
does not apply to issuers or electronic debit transactions that qualify
for an exemption underSec. 235.5 from the interchange transaction fee
restrictions.
6(a) Prohibition of Circumvention or Evasion
1. Finding of circumvention or evasion. A finding of evasion or
circumvention will depend on all relevant facts and circumstances.
Although net compensation may be one form of circumvention or evasion
prohibited underSec. 235.6(a), it is not the only form.
2. Examples of circumstances that may constitute circumvention or
evasion.
The following examples do not constitute per se circumvention or
evasion, but may warrant additional supervisory scrutiny to determine
whether the totality of the facts and circumstances constitute
circumvention or evasion:
i. A payment card network decreases network processing fees paid by
issuers for electronic debit transactions by 50 percent and increases
the network processing fees charged to merchants or acquirers with
respect to electronic debit transactions by a similar amount. Because
the requirements of this subpart do not restrict or otherwise establish
the amount of fees that a network may charge for its services, the
increase in network fees charged to merchants or acquirers and decrease
in fees charged to issuers is not a per se circumvention or evasion of
the interchange transaction fee standards, but may warrant additional
supervisory scrutiny to determine whether the facts and circumstances
constitute circumvention or evasion.
ii. An issuer replaces its debit cards with prepaid cards that are
exempt from the interchange limits of Sec.Sec. 235.3 and 235.4. The
exempt prepaid cards are linked to its customers' transaction accounts
and funds are swept from the transaction accounts to the prepaid
accounts as needed to cover transactions made. Again, this arrangement
is not per se circumvention or evasion, but may warrant additional
supervisory scrutiny to determine whether the facts and circumstances
constitute circumvention or evasion.
6(b) Prohibition of Net Compensation
1. Net compensation. Net compensation to an issuer through the use
of network fees is prohibited.
2. Consideration of payments or incentives provided by the network
in net compensation determination.
i. For purposes of the net compensation determination, payments or
incentives paid by a payment card network to an issuer with respect to
electronic debit transactions or debit card related activities could
include, but are not limited to, marketing incentives; payments or
rebates for meeting or exceeding a specific transaction volume,
percentage share, or dollar amount of transactions processed; or other
payments for debit card related activities. For example, signing bonuses
paid by a network to an issuer for the issuer's debit card portfolio
would also be included in the total amount of payments or incentives
received by an issuer from a payment card network with respect to
electronic debit transactions. A signing bonus for an entire card
portfolio, including credit cards, may be allocated to the issuer's
debit card business based on the proportion of the cards or transactions
that are debit cards or electronic debit transactions, as appropriate to
the situation, for purposes of the net compensation determination.
ii. Incentives paid by the network with respect to multiple-year
contracts may be allocated over the life of the contract.
iii. For purposes of the net compensation determination, payments or
incentives paid by a payment card network with respect to electronic
debit transactions or debit card-related activities do not include
interchange transaction fees that are passed through to the issuer by
the network, or discounts or rebates provided by the network or an
affiliate of the network for issuer-processor services. In addition,
funds received by an issuer from a payment card network as a result of
chargebacks, fines paid by merchants or acquirers for violations of
network rules, or settlements or recoveries from merchants or acquirers
to offset the costs of fraudulent transactions or a data security breach
do not constitute incentives or payments made by a payment card network.
3. Consideration of fees paid by an issuer in net compensation
determination.
i. For purposes of the net compensation determination, fees paid by
an issuer to a payment card network with respect to electronic debit
transactions or debit card related activities include, but are not
limited to, membership or licensing fees, network administration fees,
and fees for optional
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network services, such as risk management services.
ii. For purposes of the net compensation determination, fees paid by
an issuer to a payment card network with respect to electronic debit
transactions or debit card-related activities do not include network
processing fees (such as switch fees and network connectivity fees) or
fees paid to an issuer processor affiliated with the network for
authorizing, clearing, or settling an electronic debit transaction.
4. Example of circumstances not involving net compensation to the
issuer. The following example illustrates circumstances that would not
indicate net compensation by the payment card network to the issuer:
i. Because of an increase in debit card transactions that are
processed through a payment card network during a calendar year, an
issuer receives an additional volume-based incentive payment from the
network for that period. Over the same period, however, the total
network fees (other than processing fees) the issuer pays the payment
card network with respect to debit card transactions also increase so
that the total amount of fees paid by the issuer to the network continue
to exceed incentive payments by the network to the issuer. Under these
circumstances, the issuer does not receive net compensation from the
network for electronic debit transactions or debit card related
activities.
Section 235.7 Limitations on Payment Card Restrictions
1. Application of small issuer, government-administered payment
program, and reloadable card exemptions to payment card network
restrictions. The exemptions underSec. 235.5 for small issuers, cards
issued pursuant to government-administered payment programs, and certain
reloadable prepaid cards do not apply to the limitations on payment card
network restrictions. For example, debit cards for government-
administered payment programs, although exempt from the restrictions on
interchange transaction fees, are subject to the requirement that
electronic debit transactions made using such cards must be capable of
being processed on at least two unaffiliated payment card networks and
to the prohibition on inhibiting a merchant's ability to determine the
routing for electronic debit transactions.
7(a) Prohibition on Network Exclusivity
1. Scope of restriction. Section 235.7(a) requires a debit card
subject to the regulation to be enabled on at least two unaffiliated
payment card networks. This paragraph does not, however, require an
issuer to have two or more unaffiliated networks available for each
method of cardholder authentication. For example, it is sufficient for
an issuer to issue a debit card that operates on one signature-based
card network and on one PIN-based card network, as long as the two card
networks are not affiliated. Alternatively, an issuer may issue a debit
card that is accepted on two unaffiliated signature-based card networks
or on two unaffiliated PIN-based card networks. See also, comment 7(a)-
7.
2. Permitted networks. i. A smaller payment card network could be
used to help satisfy the requirement that an issuer enable two
unaffiliated networks if the network was willing to expand its coverage
in response to increased merchant demand for access to its network and
it meets the other requirements for a permitted arrangement, including
taking steps reasonably designed to enable it to process the electronic
debit transactions that it would reasonably expect to be routed to it.
If, however, the network's policy or practice is to limit such
expansion, it would not qualify as one of the two unaffiliated networks.
ii. A payment card network that is accepted only at a limited
category of merchants (such as a particular grocery store chain,
merchants located in a particular shopping mall, or a single class of
merchants, such as grocery stores or gas stations) would not satisfy the
rule.
iii. One of the steps a network can take to form a reasonable
expectation of transaction volume is to consider factors such as the
number of cards expected to be issued that are enabled on the network
and expected card usage patterns.
3. Examples of prohibited network restrictions on an issuer's
ability to contract. The following are examples of prohibited network
restrictions on an issuer's ability to contract with other payment card
networks:
i. Network rules or contract provisions limiting or otherwise
restricting the other payment card networks that may be enabled on a
particular debit card, or network rules or contract provisions that
specify the other networks that may be enabled on a particular debit
card.
ii. Network rules or guidelines that allow only that network's (or
its affiliated network's) brand, mark, or logo to be displayed on a
particular debit card, or that otherwise limit the ability of brands,
marks, or logos of other payment card networks to appear on the debit
card.
4. Network logos or symbols on card not required. Section 235.7(a)
does not require that a debit card display the brand, mark, or logo of
each payment card network over which an electronic debit transaction may
be processed. For example, this rule does not require a debit card that
is enabled for two or more unaffiliated payment card networks to bear
the brand, mark, or logo for each card network.
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5. Voluntary exclusivity arrangements prohibited. Section 235.7(a)
requires the issuance of debit cards that are enabled on at least two
unaffiliated payment card networks, even if the issuer is not subject to
any rule of, or contract or other agreement with, a payment card network
requiring that all or a specified minimum percentage of electronic debit
transactions be processed on the network or its affiliated networks.
6. Affiliated payment card networks. Section 235.7(a) does not
prohibit an issuer from including an affiliated payment card network
among the networks that may process an electronic debit transaction with
respect to a particular debit card, as long as at least two of the
networks that are enabled on the card are unaffiliated. For example, an
issuer may offer debit cards that are accepted on a payment card network
for signature debit transactions and on an affiliated payment card
network for PIN debit transactions as long as those debit cards may also
be accepted on another unaffiliated payment card network.
7. Application of rule regardless of form factor. The network
exclusivity provisions inSec. 235.7(a) require that all debit cards be
enabled on at least two unaffiliated payment card networks for
electronic debit transactions, regardless of whether the debit card is
issued in card form. This applies to any supplemental device, such as a
fob or token, or chip or application in a mobile phone, that is issued
in connection with a plastic card, even if that plastic card fully
complies with the rule.
7(b) Prohibition on Routing Restrictions
1. Relationship to the network exclusivity restrictions. An issuer
or payment card network is prohibited from inhibiting a merchant's
ability to route or direct an electronic debit transaction over any of
the payment card networks that the issuer has enabled to process an
electronic debit transaction for that particular debit card. This rule
does not permit a merchant to route the transaction over a network that
the issuer did not enable to process transactions using that debit card.
2. Examples of prohibited merchant restrictions. The following are
examples of issuer or network practices that would inhibit a merchant's
ability to direct the routing of an electronic debit transaction that
are prohibited underSec. 235.7(b):
i. Prohibiting a merchant from encouraging or discouraging a
cardholder's use of a particular method of debit card authorization,
such as rules prohibiting merchants from favoring a cardholder's use of
PIN debit over signature debit, or from discouraging the cardholder's
use of signature debit.
ii. Establishing network rules or designating issuer priorities
directing the processing of an electronic debit transaction on a
specified payment card network or its affiliated networks, or directing
the processing of the transaction away from a specified network or its
affiliates, except as a default rule in the event the merchant, or its
acquirer or processor, does not designate a routing preference, or if
required by state law.
iii. Requiring a specific payment card network based on the type of
access device provided to the cardholder by the issuer.
3. Merchant payments not prohibited. A payment card network does not
restrict a merchant's ability to route transactions over available
payment card networks in violation ofSec. 235.7(b) by offering
payments or other incentives to encourage the merchant to route
electronic debit card transactions to the network for processing.
4. Real-time routing decision not required. A merchant need not make
network routing decisions on a transaction-by-transaction basis. A
merchant and its acquirer or processor may agree to a pre-determined set
of routing choices that apply to all electronic debit transactions that
are processed by the acquirer or processor on behalf of the merchant.
5. No effect on network rules governing the routing of subsequent
transactions. Section 235.7 does not supersede a network rule that
requires a chargeback or return of an electronic debit transaction to be
processed on the same network that processed the original transaction.
7(c) Effective Date
1. Health care and employee benefit cards. Section 235.7(c)(1)
delays the effective date of the network exclusivity provisions for
certain debit cards issued in connection with a health care or employee
benefit account to the extent such cards use (even if not required)
transaction substantiation or qualification authorization systems at
point of sale to verify that the card is only used for eligible goods
and services for purposes of qualifying for favorable tax treatment
under Internal Revenue Code requirements. Debit cards that may qualify
for the delayed effective date include, but may not be limited to, cards
issued in connection with flexible spending accounts established under
section 125 of the Internal Revenue Code for health care related
expenses and health reimbursement accounts established under section 105
of the Internal Revenue Code.
Section 235.8 Reporting Requirements and Record Retention
[Reserved]
Section 235.9 Administrative Enforcement
[Reserved]
[[Page 85]]
Section 235.10 Effective and Compliance Dates
[Reserved]
[76 FR 43466, July 20, 2011, as amended at 76 FR 43467, July 20, 2011;
77 FR 46280, Aug. 3, 2012]
PART 237_MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
(REGULATION KK)--Table of Contents
Subpart A [Reserved]
Subpart B_ Prohibition Against Federal Assistance to Swaps Entities
Sec.
237.20 Definitions.
237.21 Definition of insured depository institution for purposes of
section 716.
237.22 Transition period for insured depository institutions.
Authority: 15 U.S.C. 8305, 12 U.S.C. 343-350, 12 U.S.C. 1818, 12
U.S.C. 3101 et seq.
Source: 78 FR 34549, June 10, 2013, unless otherwise noted.
Subpart A [Reserved]
Subpart B_ Prohibition Against Federal Assistance to Swaps Entities
Sec. 237.20 Definitions.
Unless otherwise specified, for purposes of this subpart:
Board means the Board of Governors of the Federal Reserve System.
Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
Foreign bank has the same meaning as inSec. 211.21(n) of the
Board's Regulation K (12 CFR 211.21(n)).
Major security-based swap participant has the same meaning as in
section 3(a)(67) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(67)) and as implemented in rules and orders issued by the
Securities and Exchange Commission.
Major swap participant has the same meaning as in section 1a(33) of
the Commodity Exchange Act (7 U.S.C. 1a(33)) and as implemented in rules
and orders issued by the Commodity Futures Trading Commission.
Security-based swap has the same meaning as in section 3(a)(68) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)) and as
implemented in rules and orders issued by the Securities and Exchange
Commission.
Security-based swap dealer has the same meaning as in section
3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71))
and as implemented in rules and orders issued by the Commodity Futures
Trading Commission.
Swap dealer has the same meaning as in section 1a(49) of the
Commodity Exchange Act (7 U.S.C. 1a(49)) and as implemented in rules and
orders issued by the Commodity Futures Trading Commission.
Swaps entity means a person that is registered as a swap dealer,
security-based swap dealer, major swap participant, or major security-
based swap participant under the Commodity Exchange Act or Securities
Exchange Act of 1934, other than an insured depository institution that
is registered as a major swap participant or major security-based swap
participant.
Sec. 237.21 Definition of insured depository institution for purposes
of section 716.
For purposes of section 716 of the Dodd-Frank Act (15 U.S.C. 8305)
and this subpart, the term ``insured depository institution'' includes
any insured depository institution as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813) and any uninsured U.S.
branch or agency of a foreign bank. The terms branch, agency, and
foreign bank are defined in section 1 of the International Banking Act
of 1978 (12 U.S.C. 3101).
Sec. 237.22 Transition period for insured depository institutions.
(a) Approval of transition period. (1) To the extent an insured
depository institution for which the Board is the appropriate Federal
banking agency qualifies as a ``swaps entity'' and would be subject to
the Federal assistance prohibition in section 716(a) of the Dodd-Frank
Act, the insured depository institution may request a transition period
of up to 24 months from the later of July 16, 2013, or the date on
[[Page 86]]
which it becomes a swaps entity, during which to conform its swaps
activities to the requirements of this section by submitting a request
in writing to the Board. Any request submitted pursuant to this
paragraph (a) of this section shall, at a minimum, include the following
information:
(i) The length of the transition period requested;
(ii) A description of the quantitative and qualitative impacts of
divestiture or cessation of swap or security-based swaps activities on
the insured depository institution, including information that addresses
the factors in paragraph (d) of this section; and
(iii) A detailed explanation of the insured depository institution's
plan for conforming its activities to the requirements of section 716 of
the Dodd-Frank Act (15 U.S.C. 8305) and this part.
(2) The Board may, at any time, request additional information that
it believes is necessary for its decision.
(b) Transition period for insured depository institutions. Following
review of a written request submitted under paragraph (a) of this
section, the Board shall permit an insured depository institution for
which it is the appropriate Federal banking agency up to 24 months after
the later of July 16, 2013, or the date on which the insured depository
institution becomes a swaps entity, to comply with the requirements of
section 716 of the Dodd-Frank Act (15 U.S.C. 8305) and this subpart
based on its consideration of the factors in paragraph (c) of this
section.
(c) Factors governing Board determinations. In establishing an
appropriate transition period pursuant to any request under this
section, the Board will take into account and make written findings
regarding:
(1) The potential impact of divestiture or cessation of swap or
security-based swaps activities on the insured depository institution's:
(i) Mortgage lending;
(ii) Small business lending;
(iii) Job creation; and
(iv) Capital formation versus the potential negative impact on
insured depositors and the Deposit Insurance Fund of the Federal Deposit
Insurance Corporation; and
(2) Any other factor that the Board believes appropriate.
(d) Timing of Board review. The Board will seek to act on a request
under paragraph (a) of this section expeditiously after the receipt of a
complete request.
(e) Extension of transition period. The Board may extend a
transition period provided under this section for a period of up to one
additional year. To request an extension of the transition period, an
insured depository institution must submit a written request containing
the information set forth in paragraph (a) of this section no later than
60 days before the end of the transition period.
(f) Authority to impose restrictions during any transition period.
The Board may impose such conditions on any transition period granted
under this section as the Board determines are necessary or appropriate.
(g) Consultation. The Board shall consult with the Commodity Futures
Trading Commission or the Securities and Exchange Commission, as
appropriate, prior to the approval of a request by an insured depository
institution for a transition period under this section.
PART 238_SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)--
Table of Contents
Subpart A_General Provisions
Sec.
238.1 Authority, purpose and scope.
238.2 Definitions.
238.3 Administration.
238.4 Records, reports, and inspections.
238.5 Audit of savings association holding companies.
238.6 Penalties for violations.
238.7 Tying restriction exception.
238.8 Safe and sound operations.
Subpart B_Acquisitions of Savings Association Securities or Assets
238.11 Transactions requiring Board approval.
238.12 Transactions not requiring Board approval.
238.13 Prohibited acquisitions.
238.14 Procedural requirements.
238.15 Factors considered in acting on applications.
[[Page 87]]
Subpart C_Control Proceedings
238.21 Control proceedings.
Subpart D_Change in Bank Control
238.31 Transactions requiring prior notice.
238.32 Transactions not requiring prior notice.
238.33 Procedures for filing, processing, publishing, and acting on
notices.
Subpart E_Qualified Stock Issuances
238.41 Qualified stock issuances by undercapitalized savings
associations or holding companies.
Subpart F_Savings and Loan Holding Company Activities and Acquisitions
238.51 Prohibited activities.
238.52 Exempt savings and loan holding companies and grandfathered
activities.
238.53 Prescribed services and activities of savings and loan holding
companies.
238.54 Permissible bank holding company activities of savings and loan
holding companies.
Subpart G_Financial Holding Company Activities
238.61 Scope.
238.62 Definitions.
238.63 Requirements to engage in financial holding company activities.
238.64 Election required.
238.65 Election procedures.
238.66 Ongoing requirements.
Subpart H_Notice of Change of Director or Senior Executive Officer
238.71 Purpose.
238.72 Definitions.
238.73 Prior notice requirement.
238.74 Filing and processing procedures.
238.75 Standards for review.
238.76 Waiting period.
238.77 Waiver of prior notice requirement.
Subpart I_Prohibited Service at Savings and Loan Holding Companies
238.81 Purpose.
238.82 Definitions.
238.83 Prohibited actions.
238.84 Covered convictions or agreements to enter into pre-trial
diversions or similar programs.
238.85 Adjudications and offenses not covered.
238.86 Exemptions.
238.87 Filing procedures.
238.88 Factors for review.
238.89 Board action.
239.90 Hearings.
Subpart J_Management Official Interlocks
238.91 Authority, purpose, and scope.
238.92 Definitions.
238.93 Prohibitions.
238.94 Interlocking relationships permitted by statute.
238.95 Small market share exemption.
238.96 General exemption.
238.97 Change in circumstances.
238.98 Enforcement.
238.99 Interlocking relationships permitted pursuant to Federal Deposit
Insurance Act.
Subpart K_Dividends by Subsidiary Savings Associations
238.101 Authority and purpose.
238.102 Definitions.
238.103 Filing requirement.
238.104 Board action and criteria for review.
Subpart L_Investigative Proceedings and Formal Examination Proceedings
238.111 Scope.
238.112 Definitions.
238.113 Confidentiality of proceedings.
238.114 Transcripts.
238.115 Rights of witnesses.
238.116 Obstruction of the proceedings.
238.117 Subpoenas.
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464,
1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 78 l.
Source: Regulation LL, 76 FR 56532, Sept. 13, 2011, unless otherwise
noted.
Subpart A_General Provisions
Sec. 238.1 Authority, purpose and scope.
(a) Authority. This part is issued by the Board of Governors of the
Federal Reserve System (Board) under section 10(g) of the Home Owners'
Loan Act (HOLA); section 7(j)(13) of the Federal Deposit Insurance Act,
as amended by the Change in Bank Control Act of 1978 (12 U.S.C.
1817(j)(13)) (Bank Control Act); sections 8(b), 19 and 32 of the Federal
Deposit Insurance Act (12 U.S.C. 1818(b), 1829, and 1831i); and section
914 of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 (12 U.S.C. 1831i) and the Depository Institution Management
Interlocks Act (12 U.S.C. 3201 et seq.).
(b) Purpose. The principal purposes of this part are to:
(1) Regulate the acquisition of control of savings associations by
companies and individuals;
[[Page 88]]
(2) Define and regulate the activities in which savings and loan
holding companies may engage;
(3) Set forth the procedures for securing approval for these
transactions and activities; and
(4) Set forth the procedures under which directors and executive
officers may be appointed or employed by savings and loan holding
companies in certain circumstances.
Sec. 238.2 Definitions.
As used in this part and in the forms under this part, the following
definitions apply, unless the context otherwise requires:
(a) Affiliate means any person or company which controls, is
controlled by or is under common control with a person, savings
association or company.
(b) 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.
(c) Bank holding company has the meaning found in the Board's
Regulation Y (12 CFR 225.2(c)).
(d) Company means any corporation, partnership, trust, association,
joint venture, pool, syndicate, unincorporated organization, joint-stock
company or similar organization, as defined in paragraph (o) of this
section; but a company does not include:
(1) The Federal Deposit Insurance Corporation, the Resolution Trust
Corporation, 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.
(e) A person shall be deemed to have control of:
(1) 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;
(2) 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;
(3) A trust if the person is a trustee thereof; or
(4) A savings association or any other company if the Board
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.
(f) Director means any director of a corporation or any individual
who performs similar functions in respect of any company, including a
trustee under a trust.
(g) Management official means any president, chief executive
officer, chief 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.
(h) Multiple savings and loan holding company means any savings and
loan holding company which directly or indirectly controls two or more
savings associations.
(i) Officer 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.
(j) Person includes an individual, bank, corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, or any other form of entity.
[[Page 89]]
(k) Qualified thrift lender means a financial institution that meets
the appropriate qualified thrift lender test set forth in 12 U.S.C.
1467a(m).
(l) 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 of the Comptroller of the Currency 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 of the Comptroller of the Currency to be a savings association
under 12 U.S.C. 1467a(1).
(m) Savings and loan holding company means any company (including a
savings association) 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 Board) as will
permit the sale thereof on a reasonable basis;
(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;
(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);
(4) A company that controls a savings association that functions
solely in a trust or fiduciary capacity as provided in section
2(c)(2)(D) of the Bank Holding Company Act; or
(5) A company described in section 10(c)(9)(C) of HOLA solely by
virtue of such company's control of an intermediate holding company
established under section 10A of the Home Owners' Loan Act.
(n) Shareholder--(1) Controlling shareholder means a person that
owns or control, directly or indirectly, more than 25 percent of any
class of voting securities of a savings association or other company.
(2) Principal shareholder means a person that owns or controls,
directly or indirectly, 10 percent or more of any class of voting
securities of a savings association or other company, or any person that
the Board determines has the power, directly or indirectly, to exercise
a controlling influence over the management or policies of a savings
association or other company.
(o) Stock means common or preferred stock, general or limited
partnership shares or interests, or similar interests.
(p) 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.
(q) Uninsured institution means any financial institution the
deposits of which are not insured by the Federal Deposit Insurance
Corporation.
(r)(1) Voting securities means shares of common or preferred stock,
general or limited partnership shares or interests, or similar interests
if the shares or interest, 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 company); or
(ii) To vote on or to direct the conduct of the operations or other
significant policies of the issuing company.
(2) Nonvoting shares. Preferred shares, limited partnership shares
or interests,
[[Page 90]]
or similar interests are not voting securities if:
(i) Any voting rights associated with the shares or interest 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 security or other interest, such as the issuance of
additional amounts or classes of senior securities, the modification of
the terms of the security or interest, the dissolution of the issuing
company, or the payment of dividends by the issuing company when
preferred dividends are in arrears;
(ii) The shares or interest represent an essentially passive
investment or financing device and do not otherwise provide the holder
with control over the issuing company; and
(iii) The shares or interest do not entitle the holder, by statute,
charter, or in any manner, to select or to vote for the selection of
directors, trustees, or partners (or persons exercising similar
functions) of the issuing company.
(3) Class of voting shares. Shares of stock issued by a single
issuer are deemed to be the same class of voting shares, regardless of
differences in dividend rights or liquidation preference, if the shares
are voted together as a single class on all matters for which the shares
have voting rights other than matters described in paragraph (r)(2)(i)
of this section that affect solely the rights or preferences of the
shares.
(s) Well capitalized.
(1) A savings and loan holding company is well capitalized if:
(i) Each of the savings and loan holding company's depository
institutions is well capitalized; and
(ii) The savings and loan holding company is not subject to any
written agreement, order, capital directive, or prompt corrective action
directive issued by the Board to meet and maintain a specific capital
level for any capital measure.
(2) In the case of a savings association, ``well capitalized'' takes
the meaning provided inSec. 225.2(r)(2) of this chapter.
(t) Well managed. The term ``well managed'' takes the meaning
provided inSec. 225.2(s) of this chapter except that a ``satisfactory
rating for management'' refers to a management rating, if such rating is
given, or otherwise a risk-management rating, if such rating is given.
(u) Depository institution. For purposes of this part, the term
``depository institution'' has the same meaning as in section 3(c) of
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
Sec. 238.3 Administration.
(a) Delegation of authority. Designated Board members and officers
and the Federal Reserve Banks are authorized by the Board to exercise
various functions prescribed in this regulation, in the Board's Rules
Regarding Delegation of Authority (12 CFR part 265), the Board's Rules
of Procedure (12 CFR part 262), and in Board orders.
(b) Appropriate Federal Reserve Bank. In administering this
regulation, unless a different Federal Reserve Bank is designated by the
Board, the appropriate Federal Reserve Bank is as follows:
(1) For a savings and loan holding company (or a company applying to
become a savings and loan holding company): the Reserve Bank of the
Federal Reserve district in which the company's banking operations are
principally conducted, as measured by total domestic deposits in its
subsidiary savings association on the date it became (or will become) a
savings and loan holding company;
(2) For an individual or company submitting a notice under subpart D
of this part: The Reserve Bank of the Federal Reserve district in which
the banking operations of the savings and loan holding company to be
acquired are principally conducted, as measured by total domestic
deposits on the date the notice is filed.
Sec. 238.4 Records, reports, and inspections.
(a) Records. Each savings and loan holding company shall maintain
such books and records as may be prescribed by the Board. Each savings
and loan holding company and its non-depository 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
[[Page 91]]
Board 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 Board, at a location acceptable to the
Board.
(b) Reports. Each savings and loan holding company and each
subsidiary thereof, other than a savings association, shall file with
the Board such reports as may be required by the Board. Such reports
shall be made under oath or otherwise, and shall be in such form and for
such periods, as the Board may prescribe. Each report shall contain
information concerning the operations of such savings and loan holding
company and its subsidiaries as the Board may require.
(c) Registration statement--(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
Board by furnishing information in the manner and form prescribed by the
Board.
(2) 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 Board.
(3) Extension of time for registration. For timely and good cause
shown, the Board may extend the time within which a savings and loan
holding company shall register.
(d) Release from registration. The Board 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 Board shall determine that such company no longer has control of
any savings association or no longer qualifies as a savings and loan
holding company.
(e) Examinations. Each savings and loan holding company and each
subsidiary thereof shall be subject to such examinations as the Board
may prescribe. The Board 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.
(f) Appointment of agent. The Board may require any savings and loan
holding company, or persons connected therewith if it is not a
corporation, to execute and file a prescribed form of irrevocable
appointment of agent for service of process.
Sec. 238.5 Audit of savings association holding companies.
(a) General. The Board may require, at any time, an independent
audit of the financial statements of, or the application of procedures
agreed upon by the Board to a savings and loan holding company, or
nondepository affiliate by qualified independent public accountants when
needed for any safety and soundness reason identified by the Board.
(b) Audits required for safety and soundness purposes. The Board
requires an independent audit for safety and soundness purposes 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 Board requires an independent audit
because such an audit is needed for safety and soundness purposes, the
Board shall determine whether the audit was conducted and filed in a
manner satisfactory to the Board.
(2) When the Board requires the application of procedures agreed
upon by the Board for safety and soundness purposes, the Board shall
identify the procedures to be performed. The Board shall also determine
whether the agreed upon procedures were conducted and filed in a manner
satisfactory to the Board.
(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 Board with access
to and copies of any work papers, policies, and
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procedures relating to the services performed;
(3)(i) Is in compliance with the American Institute of Certified
Public Accountants' (AICPA) Code of Professional Conduct; and
(ii) Meets the independence requirements and interpretations of the
Securities and Exchange Commission and its staff; and
(4) Has received, or is enrolled in, a peer review program that
meets guidelines acceptable to the Board.
(e) Voluntary audits. When a savings and loan holding company or
nondepository affiliate 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.
Sec. 238.6 Penalties for violations.
(a) Criminal and civil penalties. (1) Section 10 of the HOLA
provides criminal penalties for willful violation, and civil penalties
for violation, by any company or individual, of HOLA or any regulation
or order issued under it, or for making a false entry in any book,
report, or statement of a savings and loan holding company.
(2) Civil money penalty assessments for violations of HOLA shall be
made in accordance with subpart C of the Board's Rules of Practice for
Hearings (12 CFR part 263, subpart C). For any willful violation of the
Bank Control Act or any regulation or order issued under it, the Board
may assess a civil penalty as provided in 12 U.S.C. 1817(j)(15).
(b) Cease-and-desist proceedings. For any violation of HOLA, the
Bank Control Act, this regulation, or any order or notice issued
thereunder, the Board may institute a cease-and-desist proceeding in
accordance with the Financial Institutions Supervisory Act of 1966, as
amended (12 U.S.C. 1818(b) et seq.).
Sec. 238.7 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 Board 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 Board that its
exercise of this authority is resulting in anti-competitive practices.
Sec. 238.8 Safe and sound operations.
(a) Savings and loan holding company policy and operations. (1) A
savings and loan holding company shall serve as a source of financial
and managerial strength to its subsidiary savings associations and shall
not conduct its operations in an unsafe or unsound manner.
(2) Whenever the Board believes an activity of a savings and loan
holding company or control of a nonbank subsidiary (other than a nonbank
subsidiary of a savings association) constitutes a serious risk to the
financial safety, soundness, or stability of a subsidiary savings
association of the savings and loan holding company and is inconsistent
with sound banking principles or the purposes of HOLA or the Financial
Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et
seq.), the Board may require the savings and loan holding company to
terminate the activity or to terminate control of the subsidiary, as
provided in section 10(g)(5) of the HOLA.
[[Page 93]]
Subpart B_Acquisitions of Saving Association Securities or Assets
Sec. 238.11 Transactions requiring Board approval.
The following transactions require the Board's prior approval under
section 10 of HOLA except as exempted underSec. 238.12:
(a) Formation of savings and loan holding company. Any action that
causes a savings association or other company to become a savings and
loan holding company.
(b) Acquisition of subsidiary savings association. Any action that
causes a savings association to become a subsidiary of a savings and
loan holding company.
(c) Acquisition of control of savings association or savings and
loan holding company securities. (1) The acquisition by a savings and
loan holding company of direct or indirect ownership or control of any
voting securities of a savings association or savings and loan holding
company, that is not a subsidiary, if the acquisition results in the
company's control of more than 5 percent of the outstanding shares of
any class of voting securities of the savings association or savings and
loan holding company.
(2) An acquisition includes the purchase of additional securities
through the exercise of preemptive rights, but does not include
securities received in a stock dividend or stock split that does not
alter the savings and loan holding company's proportional share of any
class of voting securities.
(3) In the case of a multiple savings and loan holding company,
acquisition of direct or indirect ownership or control of any voting
securities of a savings association or savings and loan holding company,
that is not a subsidiary, if the acquisition results in the company's
control of more than 5 percent of the outstanding shares of any class of
voting securities of the savings association or savings and loan holding
company that is engaged in any business activity other than those
specified inSec. 238.51 of this part.
(d) Acquisition of savings association or savings and loan holding
company assets. The acquisition by a savings and loan holding company or
by a subsidiary thereof (other than a savings association) of all or
substantially all of the assets of a savings association, or savings and
loan holding company.
(e) Merger of savings and loan holding companies. The merger or
consolidation of savings and loan holding companies, and the acquisition
of a savings association through a merger or consolidation.
(f) Acquisition of control by certain individuals. The acquisition,
by a director or officer of a savings and loan holding company, or by
any individual who owns, controls, or holds the power to vote (or holds
proxies representing) more than 25 percent of the voting shares of such
savings and loan holding company, of control of any savings association
that is not a subsidiary of such savings and loan holding company.
Sec. 238.12 Transactions not requiring Board approval.
(a) The requirements ofSec. 238.11(a), (b), (d), (e) and (f) do
not apply to:
(1) 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;
(2) 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 the designated form with the appropriate
Reserve Bank and have provided all additional information requested by
the Board or Reserve Bank, and the Board nor the appropriate Reserve
Bank object to the acquisition within 30 days of the filing date;
(3) 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;
(4) Control of a savings association acquired solely as a result of
a pledge or hypothecation of stock to secure a
[[Page 94]]
loan contracted for in good faith or 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 Board 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
Board 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 Board finds such extension is warranted and would not be
detrimental to the public interest;
(5) 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;
(6) Acquisitions of up to twenty-five percent (25%) of a class of
stock by a tax-qualified employee stock benefit plan; and
(7) 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 Board pursuant to subpart E.
(b) The requirements ofSec. 238.11(c) do not apply to voting
shares of a savings association or of a savings and loan holding
company--
(1) Held as a bona fide fiduciary (whether with or without the sole
discretion to vote such shares);
(2) Held temporarily pursuant to an underwriting commitment in the
normal course of an underwriting business;
(3) 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;
(4) 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 Board may permit if,
in the Board's judgment, such an extension would not be detrimental to
the public interest;
(5) 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);
(6) 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
(7) Acquired pursuant to a qualified stock issuance if such a
purchase is approved pursuant to subpart E of this part.
(c) The aggregate amount of shares held under paragraph (b) of this
section (other than pursuant to paragraphs (b)(1) through (4) and
(b)(6)) 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 involving savings association mergers and internal
corporate reorganizations--The requirements ofSec. 238.11 do not apply
to:
(1) Certain transactions subject to the Bank Merger Act. The
acquisition by a savings and loan holding company of shares of a savings
association or company controlling a savings association or the merger
of a company controlling a savings association with the savings and loan
holding company, if the transaction is part of the merger or
consolidation of the savings association with a subsidiary savings
association (other than a nonoperating subsidiary savings association)
of the acquiring savings and loan holding company, or is part of the
purchase of substantially all of the assets of the savings association
by a subsidiary savings association (other than a nonoperating
subsidiary savings
[[Page 95]]
association) of the acquiring savings and loan holding company, and if:
(i) The savings association merger, consolidation, or asset purchase
occurs simultaneously with the acquisition of the shares of the savings
association or savings and loan holding company or the merger of holding
companies, and the savings association is not operated by the acquiring
savings and loan holding company as a separate entity other than as the
survivor of the merger, consolidation, or asset purchase;
(ii) The transaction requires the prior approval of a federal
supervisory agency under the Bank Merger Act (12 U.S.C. 1828(c));
(iii) The transaction does not involve the acquisition of any
company that would require prior notice or approval under section 10(c)
of the HOLA;
(iv) The transaction does not involve a depository institution
organized in mutual form, a savings and loan holding company organized
in mutual form, a subsidiary holding company of a savings and loan
holding company organized in mutual form, or a bank holding company
organized in mutual form;
(v) The transaction will not have a material adverse impact on the
financial condition of the acquiring savings and loan holding company;
(vi) At least 10 days prior to the transaction, the acquiring
savings and loan holding company has provided to the Reserve Bank
written notice of the transaction that contains:
(A) A copy of the filing made to the appropriate federal banking
agency under the Bank Merger Act; and
(B) A description of the holding company's involvement in the
transaction, the purchase price, and the source of funding for the
purchase price; and
(vii) Prior to expiration of the period provided in paragraph
(d)(1)(vi) of this section, neither the Board nor the Reserve Bank has
informed the savings and loan holding company that an application under
Sec. 238.11 is required.
(2) Internal corporate reorganizations. (i) Subject to paragraph
(d)(2)(ii) of this section, any of the following transactions performed
in the United States by a savings and loan holding company:
(A) The merger of holding companies that are subsidiaries of the
savings and loan holding company;
(B) The formation of a subsidiary holding company; \1\
---------------------------------------------------------------------------
\1\ In the case of a transaction that results in the formation or
designation of a new savings and loan holding company, the new savings
and loan holding company must complete the registration requirements
described in section 238.11.
---------------------------------------------------------------------------
(C) The transfer of control or ownership of a subsidiary savings
association or a subsidiary holding company between one subsidiary
holding company and another subsidiary holding company or the savings
and loan holding company.
(ii) A transaction described in paragraph (d)(2)(i) of this section
qualifies for this exception if--
(A) The transaction represents solely a corporate reorganization
involving companies and insured depository institutions that, both
preceding and following the transaction, are lawfully controlled and
operated by the savings and loan holding company;
(B) The transaction does not involve the acquisition of additional
voting shares of an insured depository institution that, prior to the
transaction, was less than majority owned by the savings and loan
holding company;
(C) The transaction does not involve a savings and loan holding
company organized in mutual form, a subsidiary holding company of a
savings and loan holding company organized in mutual form, or a bank
holding company organized in mutual form; and
(D) The transaction will not have a material adverse impact on the
financial condition of the holding company.
Sec. 238.13 Prohibited acquisitions.
(a) 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.
(b) Control of mutual savings association. No savings and loan
holding company or any subsidiary thereof, or any
[[Page 96]]
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.
Sec. 238.14 Procedural requirements.
(a) Filing application. An application for the Board's prior
approval underSec. 238.11 shall be governed by the provisions of this
section and shall be filed with the appropriate Reserve Bank on the
designated form.
(b) Request for confidential treatment. An applicant may request
confidential treatment for portions of its application pursuant to 12
CFR 261.15.
(c) Public notice.--(1) Newspaper publication--(i) Location of
publication. In the case of each application, the applicant shall
publish a notice in a newspaper of general circulation, in the form and
at the locations specified inSec. 262.3 of the Rules of Procedure (12
CFR 262.3) in this chapter;
(ii) Contents of notice. A newspaper notice under this paragraph
shall provide an opportunity for interested persons to comment on the
proposal for a period of at least 30 calendar days;
(iii) Timing of publication. Each newspaper notice published in
connection with a proposal under this paragraph shall be published no
more than 15 calendar days before and no later than 7 calendar days
following the date that an application is filed with the appropriate
Reserve Bank.
(2) Federal Register Notice. (i) Publication by Board. Upon receipt
of an application, the Board shall promptly publish notice of the
proposal in the Federal Register and shall provide an opportunity for
interested persons to comment on the proposal for a period of no more
than 30 days;
(ii) Request for advance publication. An applicant may request that,
during the 15-day period prior to filing an application, the Board
publish notice of a proposal in the Federal Register. A request for
advance Federal Register Notice publication shall be made in writing to
the appropriate Reserve Bank and shall contain the identifying
information prescribed by the Board for Federal Register Notice
publication.
(3) Waiver or shortening of notice. The Board may waive or shorten
the required notice periods under this section if the Board determines
that an emergency exists requiring expeditious action on the proposal,
or if the Board finds that immediate action is necessary to prevent the
probable failure of an insured depository institution.
(d) Public comment--
(1) Timely comments. Interested persons may submit information and
comments regarding a proposal filed under this subpart. A comment shall
be considered timely for purposes of this subpart if the comment,
together with all supplemental information, is submitted in writing in
accordance with the Board's Rules of Procedure and received by the Board
or the appropriate Reserve Bank prior to the expiration of the latest
public comment period provided in paragraph (c) of this section.
(2) Extension of comment period--
(i) In general. The Board may, in its discretion, extend the public
comment period regarding any proposal submitted under this subpart.
(ii) Requests in connection with obtaining application or notice. In
the event that an interested person has requested a copy of a notice or
application submitted under this subpart, the Board may, in its
discretion and based on the facts and circumstances, grant such person
an extension of the comment period for up to 15 calendar days.
(iii) Joint requests by interested person and applicant. The Board
will grant a joint request by an interested person and the applicant for
an extension of the comment period for a reasonable period for a purpose
related to the statutory factors the Board must consider under this
subpart.
(3) Substantive comment. A comment will be considered substantive
for purposes of this subpart unless it involves individual complaints,
or raises frivolous, previously-considered or wholly unsubstantiated
claims or irrelevant issues.
(e) Hearings. The Board may order a formal or informal hearing or
other
[[Page 97]]
proceeding on the application, as provided inSec. 262.3(i)(2) of this
chapter. Any request for a hearing (other than from the primary
supervisor) shall comply withSec. 262.3(e) in this chapter.
(f) Accepting application for processing. Within 7 calendar days
after the Reserve Bank receives an application under this section, the
Reserve Bank shall accept it for processing as of the date the
application was filed or return the application if it is substantially
incomplete. Upon accepting an application, the Reserve Bank shall
immediately send copies to the Board and to the primary banking
supervisor of the savings association to be acquired and to the Attorney
General, and shall request from the Attorney General a report on the
competitive factors involved. The Reserve Bank or the Board may request
additional information necessary to complete the record of an
application at any time after accepting the application for processing.
(g) Action on applications--(1) Action under delegated authority.
Except as provided in paragraph (g)(4) of this section, unless the
Reserve Bank, upon notice to the applicant, refers the application to
the Board for decision because action under delegated authority is not
appropriate, the Reserve Bank shall approve an application under this
section:
(i) Not earlier than the third business day following the close of
the public comment period; and
(ii) Not later than the later of the fifth business day following
the close of the public comment period or the 30th calendar day after
the acceptance date for the application.
(2) Board action. The Board shall act on an application under this
section that is referred to it for decision within 60 calendar days
after the acceptance date for the application, unless the Board notifies
the applicant that the 60-day period is being extended for a specified
period and states the reasons for the extension. The Board may, at any
time, request additional information that it believes is necessary for
its decision.
(3) Approval through failure to act--(i) Ninety-one day rule. An
application shall be deemed approved if the Board fails to act on the
application within 91 calendar days after the date of submission to the
Board of the complete record on the application. For this purpose, the
Board acts when it issues an order stating that the Board has approved
or denied the application or notice, reflecting the votes of the members
of the Board, and indicating that a statement of the reasons for the
decision will follow promptly.
(ii) Complete record. For the purpose of computing the commencement
of the 91-day period, the record is complete on the latest of:
(A) The date of receipt by the Board of an application that has been
accepted by the Reserve Bank;
(B) The last day provided in any notice for receipt of comments and
hearing requests on the application or notice;
(C) The date of receipt by the Board of the last relevant material
regarding the application that is needed for the Board's decision, if
the material is received from a source outside of the Federal Reserve
System; or
(D) The date of completion of any hearing or other proceeding.
(4) Expedited reorganization.--(i) In general. The Board or the
appropriate Reserve Bank shall act on an application of a reorganization
that meets the requirements ofSec. 238.15(f):
(A) Not earlier than the third business day following the close of
the public comment period; and
(B) Not later than the fifth business day following the close of the
public comment period, except that the Board may extend the period for
action under this paragraph (g)(4) for up to 5 business days.
(ii) Acceptance of notice in event expedited procedure not
available. In the event that the Board or the Reserve Bank determines
that an application filed pursuant to 238.15(f) does not meet one or
more of the requirements ofSec. 238.15(f), paragraph (g)(4) of this
section shall not apply and the Board or Reserve Bank will act on the
application according to the other provisions of paragraph (g) of this
section.
[[Page 98]]
Sec. 238.15 Factors considered in acting on applications.
(a) Generally. The Board may not approve any application under this
subpart if:
(1) The transaction would result in a monopoly or would further any
combination or conspiracy to monopolize, or to attempt to monopolize,
the savings and loan business in any part of the United States;
(2) The effect of the transaction may be substantially to lessen
competition in any section of the country, tend to create a monopoly, or
in any other manner be in restraint of trade, unless the Board finds
that the transaction's anti-competitive effects are clearly outweighed
by its probable effect in meeting the convenience and needs of the
community;
(3) The applicant has failed to provide the Board with adequate
assurances that it will make available such information on its
operations or activities, and the operations or activities of any
affiliate of the applicant, that the Board deems appropriate to
determine and enforce compliance with HOLA and other applicable federal
banking statutes, and any regulations thereunder; or
(4) In the case of an application involving a foreign banking
organization, the foreign banking organization is not subject to
comprehensive supervision or regulation on a consolidated basis by the
appropriate authorities in its home country, as provided inSec.
211.24(c)(1)(ii) of the Board's Regulation K (12 CFR 211.24(c)(1)(ii)).
(5) In the case of an application by a savings and loan holding
company to acquire an insured depository institution, section
10(e)(2)(E) of HOLA prohibits the Board from approving the transaction.
(b) Other factors. In deciding applications under this subpart, the
Board also considers the following factors with respect to the acquiror,
its subsidiaries, any savings associations or banks related to the
acquiror through common ownership or management, and the savings
association or associations to be acquired:
(1) Financial condition. Their financial condition and future
prospects, including whether current and projected capital positions and
levels of indebtedness conform to standards and policies established by
the Board.
(2) Managerial resources. The competence, experience, and integrity
of the officers, directors, and principal shareholders of the acquiror,
its subsidiaries, and the savings association and savings and loan
holding companies concerned; their record of compliance with laws and
regulations; and the record of the applicant and its affiliates of
fulfilling any commitments to, and any conditions imposed by, the Board
in connection with prior applications.
(3) Convenience and needs of community. In the case of an
application required underSec. 238.11(c), (d), or (e), (or an
application by a savings and loan holding company underSec.
238.11(b)), the convenience and needs of the communities to be served,
including the record of performance under the Community Reinvestment Act
of 1977 (12 U.S.C. 2901 et seq.) and regulations issued thereunder,
including the Board's Regulation BB (12 CFR part 228).
(c) 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 (b) 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:
[[Page 99]]
(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 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 HOLA or the Bank Holding Company Act or otherwise,
(C) A notice relating to a change in control of any of the foregoing
under the CIC 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 Board, the Federal Deposit Insurance Corporation, the Resolution
Trust Corporation, the former Federal Savings and Loan Insurance
Corporation, or their predecessors) or principal 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 Board 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 this part or its predecessor regulations.
(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:
(i) Liability for amounts of debt which, in the opinion of the
Board, 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.
(d) Competitive factor. Before approving any such acquisition,
except a transaction under section 13(k) of the Federal Deposit
Insurance Act, the Board shall consider any report rendered by the
Attorney General within 30 days of such request underSec. 238.14(f) on
the competitive factors involved.
(e) Expedited reorganizations. An application 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 shall be eligible for expedited processing underSec.
238.14(g)(4) if it satisfies the following criteria:
(1) 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;
(2) 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 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
[[Page 100]]
to effect the reorganization), and the holding company is not also
seeking any regulatory waivers, regulatory forbearances, or resolution
of legal or supervisory issues;
(3) 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;
(4) The acquisition raises no significant issues of law or policy;
(5) Prior to consummation of the reorganization transaction, the
holding company shall enter into any dividend limitation, regulatory
capital maintenance, or prenuptial agreement required by Board
regulations, or in the absence thereof, required pursuant to policy
guidelines issued by the Board; and
(f) Conditional approvals. The Board may impose conditions on any
approval, including conditions to address competitive, financial,
managerial, safety and soundness, convenience and needs, compliance or
other concerns, to ensure that approval is consistent with the relevant
statutory factors and other provisions of HOLA.
(g) No acquisition shall be approved by the Board pursuant toSec.
238.11 which would result in the formation by any company, through one
or more subsidiaries or through one or more transactions, of a 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.
Subpart C_Control Proceedings
Sec. 238.21 Control proceedings.
(a) Preliminary determination of control. (1) The Board may issue a
preliminary determination of control under the procedures set forth in
this section in any case in which:
(i) Any of the presumptions of control set forth in paragraph (d) of
this section is present; or
(ii) It otherwise appears that a company has the power to exercise a
controlling influence over the management or policies of a savings
association or other company.
(2) If the Board makes a preliminary determination of control under
this section, the Board shall send notice to the controlling company
containing a statement of the facts upon which the preliminary
determination is based.
(b) Response to preliminary determination of control. Within 30
calendar days of issuance by the Board of a preliminary determination of
control or such longer period permitted by the Board, the company
against whom the determination has been made shall:
(1) Submit for the Board's approval a specific plan for the prompt
termination of the control relationship;
(2) File an application under this regulation to retain the control
relationship; or
(3) Contest the preliminary determination by filing a response,
setting forth the facts and circumstances in support of its position
that no control exists, and, if desired, requesting a hearing or other
proceeding.
[[Page 101]]
(c) Hearing and final determination. (1) The Board shall order a
formal hearing or other appropriate proceeding upon the request of a
company that contests a preliminary determination that the company has
the power to exercise a controlling influence over the management or
policies of a savings association or other company, if the Board finds
that material facts are in dispute. The Board may also in its discretion
order a formal hearing or other proceeding with respect to a preliminary
determination that the company controls voting securities of the savings
association or other company under the presumptions in paragraph (d)(1)
of this section.
(2) At a hearing or other proceeding, any applicable presumptions
established by paragraph (d) of this section shall be considered in
accordance with the Federal Rules of Evidence and the Board's Rules of
Practice for Formal Hearings (12 CFR part 263).
(3) After considering the submissions of the company and other
evidence, including the record of any hearing or other proceeding, the
Board shall issue a final order determining whether the company controls
voting securities, or has the power to exercise a controlling influence
over the management or policies, of the savings association or other
company. If a control relationship is found, the Board may direct the
company to terminate the control relationship or to file an application
for the Board's approval to retain the control relationship under
subpart B of this part.
(d) Rebuttable presumptions of control. The following rebuttable
presumptions shall be used in any proceeding under this section:
(1) Control of voting securities-- (i) Securities convertible into
voting securities. A company that owns, controls, or holds securities
that are immediately convertible, at the option of the holder or owner,
into voting securities of a bank or other company, controls the voting
securities.
(ii) Option or restriction on voting securities. A company that
enters into an agreement or understanding under which the rights of a
holder of voting securities of a savings association or other company
are restricted in any manner controls the securities. This presumption
does not apply where the agreement or understanding:
(A) Is a mutual agreement among shareholders granting to each other
a right of first refusal with respect to their shares;
(B) Is incident to a bona fide loan transaction; or
(C) Relates to restrictions on transferability and continues only
for the time necessary to obtain approval from the appropriate Federal
supervisory authority with respect to acquisition by the company of the
securities.
(2) Control over company -- (i) Management agreement. A company that
enters into any agreement or understanding with a savings association or
other company (other than an investment advisory agreement), such as a
management contract, under which the first company or any of its
subsidiaries directs or exercises significant influence over the general
management or overall operations of the savings association or other
company controls the savings association or other company.
(ii) Shares controlled by company and associated individuals. A
company that, together with its management officials or principal
shareholders (including members of the immediate families of either),
owns, controls, or holds with power to vote 25 percent or more of the
outstanding shares of any class of voting securities of a savings
association or other company controls the savings association or other
company, if the first company owns, controls, or holds with power to
vote more than 5 percent of the outstanding shares of any class of
voting securities of the savings association or other company.
(iii) Common management officials. A company that has one or more
management officials in common with a savings association or other
company controls the savings association or other company, if the first
company owns, controls or holds with power to vote more than 5 percent
of the outstanding shares of any class of voting securities of the
savings association or other company, and no other person controls as
much as 5 percent of the outstanding shares of any class of voting
securities of the savings association or other company.
[[Page 102]]
(e) Presumption of non-control-- (1) In any proceeding under this
section, there is a presumption that any company that directly or
indirectly owns, controls, or has power to vote less than 5 percent of
the outstanding shares of any class of voting securities of a savings
association or other company does not have control over that savings
association or other company.
(2) In any proceeding under this section, or judicial proceeding
under the Home Owners' Loan Act, other than a proceeding in which the
Board has made a preliminary determination that a company has the power
to exercise a controlling influence over the management or policies of
the savings association or other company, a company may not be held to
have had control over the savings association or other company at any
given time, unless that company, at the time in question, directly or
indirectly owned, controlled, or had power to vote 5 percent or more of
the outstanding shares of any class of voting securities of the savings
association or other company, or had already been found to have control
on the basis of the existence of a controlling influence relationship.
Subpart D_Change in Bank Control
Sec. 238.31 Transactions requiring prior notice.
(a) Prior notice requirement. Any person acting directly or
indirectly, or through or in concert with one or more persons, shall
give the Board 60 days' written notice, as specified inSec. 238.33 of
this subpart, before acquiring control of a savings and loan holding
company, unless the acquisition is exempt underSec. 238.32.
(b) Definitions. For purposes of this subpart:
(1) Acquisition includes a purchase, assignment, transfer, or pledge
of voting securities, or an increase in percentage ownership of a
savings and loan holding company resulting from a redemption of voting
securities.
(2) Acting in concert includes knowing participation in a joint
activity or parallel action towards a common goal of acquiring control
of a savings and loan holding company whether or not pursuant to an
express agreement.
(3) Immediate family includes a person's father, mother, stepfather,
stepmother, brother, sister, stepbrother, stepsister, son, daughter,
stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-
law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-
in-law, the spouse of any of the foregoing, and the person's spouse.
(c) Acquisitions requiring prior notice --(1) Acquisition of
control. The acquisition of voting securities of a savings and loan
holding company constitutes the acquisition of control under the Bank
Control Act, requiring prior notice to the Board, if, immediately after
the transaction, the acquiring person (or persons acting in concert)
will own, control, or hold with power to vote 25 percent or more of any
class of voting securities of the institution.
(2) Rebuttable presumption of control. The Board presumes that an
acquisition of voting securities of a savings and loan holding company
constitutes the acquisition of control under the Bank Control Act,
requiring prior notice to the Board, if, immediately after the
transaction, the acquiring person (or persons acting in concert) will
own, control, or hold with power to vote 10 percent or more of any class
of voting securities of the institution, and if:
(i) The institution has registered securities under section 12 of
the Securities Exchange Act of 1934 (15 U.S.C. 78l); or
(ii) No other person will own, control, or hold the power to vote a
greater percentage of that class of voting securities immediately after
the transaction.\2\
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\2\ If two or more persons, not acting in concert, each propose to
acquire simultaneously equal percentages of 10 percent or more of a
class of voting securities of the savings and loan holding company, each
person must file prior notice to the Board.
---------------------------------------------------------------------------
(d) Rebuttable presumption of concerted action. The following
persons shall be presumed to be acting in concert for purposes of this
subpart:
(1) A company and any principal shareholder, partner, trustee, or
management official of the company, if both the company and the person
own
[[Page 103]]
voting securities of the savings and loan holding company;
(2) An individual and the individual's immediate family;
(3) Companies under common control;
(4) Persons that are parties to any agreement, contract,
understanding, relationship, or other arrangement, whether written or
otherwise, regarding the acquisition, voting, or transfer of control of
voting securities of a savings and loan holding company, other than
through a revocable proxy as described inSec. 238.32(a)(5) of this
subpart;
(5) Persons that have made, or propose to make, a joint filing under
sections 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78n), and the rules promulgated thereunder by the Securities and
Exchange Commission; and
(6) A person and any trust for which the person serves as trustee.
(e) Acquisitions of loans in default. The Board presumes an
acquisition of a loan in default that is secured by voting securities of
a savings and loan holding company to be an acquisition of the
underlying securities for purposes of this section.
(f) Other transactions. Transactions other than those set forth in
paragraph (c) of this section resulting in a person's control of less
than 25 percent of a class of voting securities of a savings and loan
holding company are not deemed by the Board to constitute control for
purposes of the Bank Control Act.
(g) Rebuttal of presumptions. Prior notice to the Board is not
required for any acquisition of voting securities under the presumption
of control set forth in this section, if the Board finds that the
acquisition will not result in control. The Board shall afford any
person seeking to rebut a presumption in this section an opportunity to
present views in writing or, if appropriate, orally before its
designated representatives at an informal conference.
Sec. 238.32 Transactions not requiring prior notice.
(a) Exempt transactions. The following transactions do not require
notice to the Board under this subpart:
(1) Existing control relationships. The acquisition of additional
voting securities of a savings and loan holding company by a person who:
(i) Continuously since March 9, 1979 (or since the institution
commenced business, if later), held power to vote 25 percent or more of
any class of voting securities of the institution; or
(ii) Is presumed, underSec. 238.31(c)(2), to have controlled the
institution continuously since March 9, 1979, if the aggregate amount of
voting securities held does not exceed 25 percent or more of any class
of voting securities of the institution or, in other cases, where the
Board determines that the person has controlled the institution
continuously since March 9, 1979;
(2) Increase of previously authorized acquisitions. Unless the Board
or the Reserve Bank otherwise provides in writing, the acquisition of
additional shares of a class of voting securities of a savings and loan
holding company by any person (or persons acting in concert) who has
lawfully acquired and maintained control of the institution (for
purposes ofSec. 238.31(c)), after complying with the procedures and
receiving approval to acquire voting securities of the institution under
this subpart, or in connection with an application approved under
section 10(e) of HOLA (12 U.S.C. 1467a(e) andSec. 238.11 or section
18(c) of the Federal Deposit Insurance Act (Bank Merger Act, 12 U.S.C.
1828(c));
(3) Acquisitions subject to approval under HOLA or Bank Merger Act.
Any acquisition of voting securities subject to approval under section
10(e) of HOLA (12 U.S.C. 1467a(e) andSec. 238.11), or section 18(c) of
the Federal Deposit Insurance Act (Bank Merger Act, 12 U.S.C. 1828(c));
(4) Transactions exempt under HOLA. Any transaction described in
sections 10(a)(3)(A) or 10(e)(1)(B)(ii) of HOLA by a person described in
those provisions;
(5) Proxy solicitation. The acquisition of the power to vote
securities of a savings and loan holding company through receipt of a
revocable proxy in connection with a proxy solicitation for the purposes
of conducting business at a regular or special meeting of the
institution, if the proxy terminates within a reasonable period after
the meeting;
(6) Stock dividends. The receipt of voting securities of a savings
and loan
[[Page 104]]
holding company through a stock dividend or stock split if the
proportional interest of the recipient in the institution remains
substantially the same; and
(7) Acquisition of foreign banking organization. The acquisition of
voting securities of a qualifying foreign banking organization. (This
exemption does not extend to the reports and information required under
paragraphs 9, 10, and 12 of the Bank Control Act (12 U.S.C. 1817(j) (9),
(10), and (12)) andSec. 238.34.)
(b) Prior notice exemption. (1) The following acquisitions of voting
securities of a savings and loan holding company, which would otherwise
require prior notice under this subpart, are not subject to the prior
notice requirements if the acquiring person notifies the appropriate
Reserve Bank within 90 calendar days after the acquisition and provides
any relevant information requested by the Reserve Bank:
(i) Acquisition of voting securities through inheritance;
(ii) Acquisition of voting securities as a bona fide gift; and
(iii) Acquisition of voting securities in satisfaction of a debt
previously contracted (DPC) in good faith.
(2) The following acquisitions of voting securities of a savings and
loan holding company, which would otherwise require prior notice under
this subpart, are not subject to the prior notice requirements if the
acquiring person does not reasonably have advance knowledge of the
transaction, and provides the written notice required underSec. 238.33
to the appropriate Reserve Bank within 90 calendar days after the
transaction occurs:
(i) Acquisition of voting securities resulting from a redemption of
voting securities by the issuing savings and loan holding company; and
(ii) Acquisition of voting securities as a result of actions
(including the sale of securities) by any third party that is not within
the control of the acquiror.
(3) Nothing in paragraphs (b)(1) or (b)(2) of this section limits
the authority of the Board to disapprove a notice pursuant toSec.
238.33(h).
Sec. 238.33 Procedures for filing, processing, publishing, and acting
on notices.
(a) Filing notice. (1) A notice required under this subpart shall be
filed with the appropriate Reserve Bank and shall contain all the
information required by paragraph 6 of the Bank Control Act (12 U.S.C.
1817(j)(6)), or prescribed in the designated Board form.
(2) The Board may waive any of the informational requirements of the
notice if the Board determines that it is in the public interest.
(3) A notificant shall notify the appropriate Reserve Bank or the
Board immediately of any material changes in a notice submitted to the
Reserve Bank, including changes in financial or other conditions.
(4) When the acquiring person is an individual, or group of
individuals acting in concert, the requirement to provide personal
financial data may be satisfied by a current statement of assets and
liabilities and an income summary, as required in the designated Board
form, together with a statement of any material changes since the date
of the statement or summary. The Reserve Bank or the Board,
nevertheless, may request additional information, if appropriate.
(b) Acceptance of notice. The 60-day notice period specified in
Sec. 238.31 of this subpart begins on the date of receipt of a complete
notice. The Reserve Bank shall notify the person or persons submitting a
notice under this subpart in writing of the date the notice is or was
complete and thereby accepted for processing. The Reserve Bank or the
Board may request additional relevant information at any time after the
date of acceptance.
(c) Publication--(1) Newspaper Announcement. Any person(s) filing a
notice under this subpart shall publish, in a form prescribed by the
Board, an announcement soliciting public comment on the proposed
acquisition. The announcement shall be published in a newspaper of
general circulation in the community in which the head office of the
savings and loan holding company is located and in the community in
which the head office of each of its subsidiary savings associations is
located. The announcement shall be published
[[Page 105]]
no earlier than 15 calendar days before the filing of the notice with
the appropriate Reserve Bank and no later than 10 calendar days after
the filing date; and the publisher's affidavit of a publication shall be
provided to the appropriate Reserve Bank.
(2) Contents of newspaper announcement. The newspaper announcement
shall state:
(i) The name of each person identified in the notice as a proposed
acquiror of the savings and loan holding company;
(ii) The name of the savings and loan holding company to be
acquired, including the name of each of the savings and loan holding
company's subsidiary savings association; and
(iii) A statement that interested persons may submit comments on the
notice to the Board or the appropriate Reserve Bank for a period of 20
days, or such shorter period as may be provided, pursuant to paragraph
(c)(5) of this section.
(3) Federal Register Announcement. The Board shall, upon filing of a
notice under this subpart, publish announcement in the Federal Register
of receipt of the notice. The Federal Register announcement shall
contain the information required under paragraphs (c)(2)(i) and
(c)(2)(ii) of this section and a statement that interested persons may
submit comments on the proposed acquisition for a period of 15 calendar
days, or such shorter period as may be provided, pursuant to paragraph
(c)(5) of this section. The Board may waive publication in the Federal
Register if the Board determines that such action is appropriate.
(4) Delay of publication. The Board may permit delay in the
publication required under paragraphs (c)(1) and (c)(3) of this section
if the Board determines, for good cause shown, that it is in the public
interest to grant such delay. Requests for delay of publication may be
submitted to the appropriate Reserve Bank.
(5) Shortening or waiving notice. The Board may shorten or waive the
public comment or newspaper publication requirements of this paragraph,
or act on a notice before the expiration of a public comment period, if
it determines in writing that an emergency exists, or that disclosure of
the notice, solicitation of public comment, or delay until expiration of
the public comment period would seriously threaten the safety or
soundness of the savings and loan holding company to be acquired.
(6) Consideration of public comments. In acting upon a notice filed
under this subpart, the Board shall consider all public comments
received in writing within the period specified in the newspaper or
Federal Register announcement, whichever is later. At the Board's
option, comments received after this period may, but need not, be
considered.
(7) Standing. No person (other than the acquiring person) who
submits comments or information on a notice filed under this subpart
shall thereby become a party to the proceeding or acquire any standing
or right to participate in the Board's consideration of the notice or to
appeal or otherwise contest the notice or the Board's action regarding
the notice.
(d) Time period for Board action-- (1) Consummation of acquisition--
(i) The notificant(s) may consummate the proposed acquisition 60 days
after submission to the Reserve Bank of a complete notice under
paragraph (a) of this section, unless within that period the Board
disapproves the proposed acquisition or extends the 60-day period, as
provided under paragraph (d)(2) of this section.
(ii) The notificant(s) may consummate the proposed transaction
before the expiration of the 60-day period if the Board notifies the
notificant(s) in writing of the Board's intention not to disapprove the
acquisition.
(2) Extensions of time period. (i) The Board may extend the 60-day
period in paragraph (d)(1) of this section for an additional 30 days by
notifying the acquiring person(s).
(ii) The Board may further extend the period during which it may
disapprove a notice for two additional periods of not more than 45 days
each, if the Board determines that:
(A) Any acquiring person has not furnished all the information
required under paragraph (a) of this section;
(B) Any material information submitted is substantially inaccurate;
[[Page 106]]
(C) The Board is unable to complete the investigation of an
acquiring person because of inadequate cooperation or delay by that
person; or
(D) Additional time is needed to investigate and determine that no
acquiring person has a record of failing to comply with the requirements
of the Bank Secrecy Act, subchapter II of Chapter 53 of title 31, United
States Code.
(iii) If the Board extends the time period under this paragraph, it
shall notify the acquiring person(s) of the reasons therefor and shall
include a statement of the information, if any, deemed incomplete or
inaccurate.
(e) Advice to bank supervisory agencies. The Reserve Bank shall send
a copy of any notice to the Comptroller of the Currency and the Federal
Deposit Insurance Corporation.
(f) Investigation and report. (1) After receiving a notice under
this subpart, the Board or the appropriate Reserve Bank shall conduct an
investigation of the competence, experience, integrity, and financial
ability of each person by and for whom an acquisition is to be made. The
Board shall also make an independent determination of the accuracy and
completeness of any information required to be contained in a notice
under paragraph (a) of this section. In investigating any notice
accepted under this subpart, the Board or Reserve Bank may solicit
information or views from any person, including any savings and loan
holding company involved in the notice, and any appropriate state,
federal, or foreign governmental authority.
(2) The Board or the appropriate Reserve Bank shall prepare a
written report of its investigation, which shall contain, at a minimum,
a summary of the results of the investigation.
(g) Factors considered in acting on notices. In reviewing a notice
filed under this subpart, the Board shall consider the information in
the record, the views and recommendations of the appropriate bank
supervisor, and any other relevant information obtained during any
investigation of the notice.
(h) Disapproval and hearing-- (1) Disapproval of notice. The Board
may disapprove an acquisition if it finds adverse effects with respect
to any of the factors set forth in paragraph 7 of the Bank Control Act
(12 U.S.C. 1817(j)(7)) (i.e., competitive, financial, managerial,
banking, or incompleteness of information).
(2) Disapproval notification. Within three days after its decision
to issue a notice of intent to disapprove any proposed acquisition, the
Board shall notify the acquiring person in writing of the reasons for
the action.
(3) Hearing. Within 10 calendar days of receipt of the notice of the
Board's intent to disapprove, the acquiring person may submit a written
request for a hearing. Any hearing conducted under this paragraph shall
be in accordance with the Rules of Practice for Formal Hearings (12 CFR
part 263). At the conclusion of the hearing, the Board shall, by order,
approve or disapprove the proposed acquisition on the basis of the
record of the hearing. If the acquiring person does not request a
hearing, the notice of intent to disapprove becomes final and
unappealable.
Subpart E_Qualified Stock Issuances
Sec. 238.41 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 Board under this subpart, unless the acquiring savings
and loan holding company, directly or indirectly, or acting in concert
with 1 or more other persons, or through one 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
[[Page 107]]
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 HOLA; or
(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
Board in accordance with the provisions of section 10(b) of the HOLA and
the Board's regulations promulgated thereunder.
(4) Subject to paragraph (c) of this section, the Board 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 HOLA and the Board's regulations promulgated
thereunder.
(c) Approval of acquisitions--(1) Criteria. The Board, 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 inSec. 238.15(a), (b), and (c).
(2) Additional capital commitments not required. The Board 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 Board or any other Federal agency having jurisdiction.
(3) Other conditions. The Board shall impose such conditions on any
approval of an application for the purchase of stock in connection with
a qualified stock issuance as the Board 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 Board may require; and
(ii) Such other conditions as the Board deems necessary or
appropriate to prevent evasions of this section.
[[Page 108]]
(4) Application deemed approved if not disapproved within 90 days.
(i) 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 Board if such application has not been disapproved by the Board
before the end of the 90-day period beginning on the date of submission
to the Board of the complete record on the application as defined in
Sec. 238.14(g)(3)(ii).
(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
subpart shall submit the appropriate form to the appropriate Reserve
Bank.
Subpart F_Savings and Loan Holding Company Activities and Acquisitions
Sec. 238.51 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 inSec. 238.53, subject to the limitations
therein; or
(7) (i) 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 Board
pursuant toSec. 238.41.
(ii) 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.
238.51, 238.52, 238.53, and 238.54.
Sec. 238.52 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. 238.51(b):
(i) Any savings and loan holding company (or subsidiary of such
company)
[[Page 109]]
that controls only one savings association, if the savings association
subsidiary of such company is a qualified thrift lender as defined in
Sec. 238.2(k).
(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 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 inSec. 238.2(k).
(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 underSec. 238.51(b) of this part,
except that, the Board 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 inSec. 238.51(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. NotwithstandingSec. 238.51(b) 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 underSec. 238.51(b) 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 Board of grandfathered activities.
Notwithstanding the
[[Page 110]]
provisions of paragraph (b) of this section, the Board 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 1, 1984
(including any subsidiary thereof that is not a savings association)
that controlled a single savings association on August 10, 1987, shall
not be subject to the restrictions set forth inSec. 238.51(b) with
respect to any activities of such holding company that are conducted
exclusively in a foreign country.
Sec. 238.53 Prescribed services and activities of savings and loan
holding companies.
(a) General. For the purpose ofSec. 238.51(b)(6)(ii), 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 toSec. 238.51(b),
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 inSec. 160.3 of this title,
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:
[[Page 111]]
(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;
(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 Public Law 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. A notice to
engage in or acquire a company engaged in a service or activity
prescribed by paragraph (b) of this section (other than purchase or sale
of a government debt security) shall be filed by a savings and loan
holding company (including a company seeking to become a savings and
loan holding company) with the appropriate Reserve Bank in accordance
with this paragraph and the Board's Rules of Procedure (12 CFR 262.3).
(1) Engaging de novo in services or activities. A savings and loan
holding company seeking to commence or to engage de novo in a service or
activity pursuant to this section, either directly or through a
subsidiary, shall file a notice containing a description of the
activities to be conducted and the identity of the company that will
conduct the activity.
(2) Acquiring company engaged in services or activities. A savings
and loan holding company seeking to acquire or control voting securities
or assets of a company engaged in a service or activity pursuant to this
section, shall file a notice containing the following:
(i) A description of the proposal, including a description of each
proposed service or activity;
(ii) The identity of any entity involved in the proposal, and, if
the notificant proposes to conduct the service or activity through an
existing subsidiary, a description of the existing activities of the
subsidiary;
(iii) If the savings and loan holding company has consolidated
assets of $150 million or more:
(A) Parent company and consolidated pro forma balance sheets for the
acquiring savings and loan holding company as of the most recent quarter
showing credit and debit adjustments that reflect the proposed
transaction;
(B) Consolidated pro forma risk-based capital and leverage ratio
calculations for the acquiring savings and loan holding company as of
the most recent quarter; and
(C) A description of the purchase price and the terms and sources of
funding for the transaction;
(iv) If the savings and loan holding company has consolidated assets
of less than $150 million:
(A) A pro forma parent-only balance sheet as of the most recent
quarter showing credit and debit adjustments that reflect the proposed
transaction; and
(B) A description of the purchase price and the terms and sources of
funding for the transaction and, if the
[[Page 112]]
transaction is debt funded, one-year income statement and cash flow
projections for the parent company, and the sources and schedule for
retiring any debt incurred in the transaction;
(v) For each insured depository institution whose Tier 1 capital,
total capital, total assets or risk-weighted assets change as a result
of the transaction, the total risk-weighted assets, total assets, Tier 1
capital and total capital of the institution on a pro forma basis; and
(vi) A description of the management expertise, internal controls
and risk management systems that will be utilized in the conduct of the
proposed service or activity; and
(vii) A copy of the purchase agreements, and balance sheet and
income statements for the most recent quarter and year-end for any
company to be acquired.
(d) Notice provided to Board. The Reserve Bank shall immediately
send to the Board a copy of any notice received under paragraphs (c)(1)
or (c)(2) of this section.
(e) Notice to public--(1) the Reserve Bank shall notify the Board
for publication in the Federal Register immediately upon receipt by the
Reserve Bank of:
(i) A notice under paragraph (c) of this section or
(ii) A written request that notice of a proposal under paragraph (c)
of this section be published in the Federal Register. Such a request may
request that Federal Register publication occur up to 15 calendar days
prior to submission of a notice under this subpart.
(2) The Federal Register notice published under this paragraph (e)
shall invite public comment on the proposal, generally for a period of
15 days.
(f) Action on notices--(1) Reserve Bank action--(i) In general.
Within 30 calendar days after receipt by the Reserve Bank of a notice
filed pursuant to paragraphs (c)(1) or (c)(2) of this section, the
Reserve Banks shall:
(A) Approve the notice; or
(B) Refer the notice to the Board for decision because action under
delegated authority is not appropriate.
(ii) Return of incomplete notice. Within 7 calendar days of receipt,
the Reserve Bank may return any notice as informationally incomplete
that does not contain all of the information required by this section.
The return of such a notice shall be deemed action on the notice.
(iii) Notice of action. The Reserve Bank shall promptly notify the
savings and loan holding company of any action or referral under this
paragraph.
(iv) Close of public comment period. The Reserve Bank shall not
approve any notice under this paragraph (e)(1) of this section prior to
the third business day after the close of the public comment period,
unless an emergency exists that requires expedited or immediate action.
(2) Board action; internal schedule. The Board seeks to act on every
notice referred to it for decision within 60 days of the date that the
notice is filed with the Reserve Bank. If the Board is unable to act
within this period, the Board shall notify the notificant and explain
the reasons and the date by which the Board expects to act.
(3)(i) Required time limit for System action. The Board or the
Reserve Bank shall act on any notice under this section within 60 days
after the submission of a complete notice.
(ii) Extension of required period for action. The Board may extend
the 60-day period required for Board action under paragraph (e)(3)(i) of
this section for an additional 30 days upon notice to the notificant.
(4) Requests for additional information. The Board or the Reserve
Bank may modify the information requirements under this section or at
any time request any additional information that either believes is
needed for a decision on any notice under this section.
(5) Tolling of period. The Board or the Reserve Bank may at any time
extend or toll the time period for action on a notice for any period
with the consent of the notificant.
(g) Modification or termination of service or activity. The Board
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 Board finds necessary in order to ensure compliance with the
[[Page 113]]
provisions and purposes of this part and of section 10 of the Home
Owners' Loan Act, as amended, or to prevent evasions thereof.
(h) Alterations. Except as may be otherwise provided in a resolution
by or on behalf of the Board 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.
(i) Service corporation subsidiaries of savings associations. The
Board hereby approves without application the furnishing or performing
of such services or engaging in such activities as permitted by the OTS
pursuant toSec. 545.74 of this title, 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.
Sec. 238.54 Permissible bank holding company activities of savings
and loan holding companies.
(a) General. For purposes ofSec. 238.51(b)(6)(i), the services and
activities permissible for bank holding companies pursuant to
regulations that the Board 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 Board 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 inSec. 238.72, 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 bothSec. 238.53 and this section, the
procedures ofSec. 238.53 shall govern.
(b) Procedures for applications. Applications to commence any
activity prescribed under paragraph (a) of this section shall be filed
with the appropriate Reserve Bank on the designated form. The Board must
act upon such application according to the procedures ofSec.
238.53(d), (e), and (f).
(c) Factors considered in acting on applications. In evaluating an
application filed under paragraph (b) of this section, the Board 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.
Subpart G_Financial Holding Company Activities
Sec. 238.61 Scope.
Section 10(c)(2)(H) of the HOLA (12 U.S.C. 1467a(c)(2)(H)) permits a
savings and loan holding company to engage in activities that are
permissible for a financial holding company if the savings and holding
company meets the criteria to qualify as a financial holding company and
complies with all of the requirements applicable to a financial holding
company under sections 4(l) and 4(m) of the BHC Act as if the savings
and loan holding company was a bank holding company. This subpart
[[Page 114]]
provides the requirements and restrictions for a savings and holding
company to be treated as a financial holding company for the purpose of
engaging in financial holding company activities. This subpart does not
apply to savings and loan holding companies described in section
10(c)(9)(C) of the HOLA (12 U.S.C. 1467a(c)(9)(C)).
Sec. 238.62 Definitions.
For the purposes of this subpart:
(a) Financial holding company activities refers to activities
permissible under section 4(k) of the Bank Holding Company Act of 1956
(12 U.S.C. 1843(k)) andSec. 225.86 of this chapter.
(b) [Reserved]
Sec. 238.63 Requirements to engage in financial holding company
activities.
(a) In general. In order for a savings and loan holding company to
engage in financial holding company activities:
(1) The savings and loan holding company and all depository
institutions controlled by the savings and loan holding company must be
and remain well capitalized;
(2) The savings and loan holding company and all depository
institutions controlled by the savings and loan company must be and
remain well managed; and
(3) The savings and loan holding company must have made an effective
election to be treated as a financial holding company.
Sec. 238.64 Election required.
(a) In general. Except as provided below, a savings and loan holding
company that wishes to engage in financial holding company activities
must have an effective election to be treated as a financial holding
company.
(b) Activities performed under separate HOLA authority. A savings
and loan holding company that conducts only the following activities is
not required to elect to be treated as a financial holding company:
(1) BHC Act section 4(c)(8) activities. Activities permissible under
section 10(c)(2)(F)(i) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(i)).
(2) Insurance agency or escrow business activities. Activities
permissible under section 10(c)(2)(B) of the HOLA (12 U.S.C.
1467a(c)(2)(B)).
(3) ``1987 List'' activities. Activities permissible under section
10(c)(2)(F)(ii) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(ii)).
(c) Existing requirements apply. A savings and loan holding company
that has not made an effective election to be treated as a financial
holding company and that conducts the activities described in paragraphs
(b)(1) through (3) of this section remains subject to any rules and
requirements applicable to the conduct of such activities.
Sec. 238.65 Election procedures.
(a) Filing requirement. A savings and loan holding company may elect
to be treated as a financial holding company by filing a written
declaration with the appropriate Reserve Bank. A declaration by a
savings and loan holding company is considered to be filed on the date
that all information required by paragraph (b) of this section is
received by the appropriate Reserve Bank.
(b) Contents of declaration. To be deemed complete, a declaration
must:
(1) State that the savings and loan holding company elects to be
treated as a financial holding company in order to engage in financial
holding company activities;
(2) Provide the name and head office address of the savings and loan
holding company and of each depository institution controlled by the
savings and loan holding company;
(3) Certify that the savings and loan holding company and each
depository institution controlled by the savings and loan holding
company is well capitalized as of the date the savings and loan holding
company submits its declaration;
(4) Certify that the savings and loan holding company and each
savings association controlled by the savings and loan holding company
is well managed as of the date the savings and loan holding company
submits its declaration;
(c) Effectiveness of election. An election by a savings and loan
holding company to be treated as a financial holding company shall not
be effective
[[Page 115]]
if, during the period provided in paragraph (d) of this section, the
Board finds that, as of the date the declaration was filed with the
appropriate Reserve Bank:
(1) Any insured depository institution controlled by the savings and
loan holding company (except an institution excluded under paragraph (d)
of this section) has not achieved at least a rating of ``satisfactory
record of meeting community credit needs'' under the Community
Reinvestment Act at the savings association's most recent examination;
or
(2) Any depository institution controlled by the bank holding
company is not both well capitalized and well managed.
(d) Consideration of the CRA performance of a recently acquired
savings association. Except as provided in paragraph (f) of this
section, a savings association will be excluded for purposes of the
review of the Community Reinvestment Act rating provisions of paragraph
(c)(1) of this section if:
(1) The savings and loan holding company acquired the savings
association during the 12-month period preceding the filing of an
election under paragraph (a) of this section;
(2) The savings and loan holding company has submitted an
affirmative plan to the appropriate Federal banking agency for the
savings association to take actions necessary for the institution to
achieve at least a rating of ``satisfactory record of meeting community
credit needs'' under the Community Reinvestment Act at the next
examination of the savings association; and
(3) The appropriate Federal banking agency for the savings
association has accepted the plan described in paragraph (d)(2) of this
section.
(e) Effective date of election.
(1) In general. An election filed by a savings and loan holding
company under paragraph (a) of this section is effective on the 31st
calendar day after the date that a complete declaration was filed with
the appropriate Reserve Bank, unless the Board notifies the savings and
loan holding company prior to that time that the election is
ineffective.
(2) Earlier notification that an election is effective. The Board or
the appropriate Reserve Bank may notify a savings and loan holding
company that its election to be treated as a financial holding company
is effective prior to the 31st day after the date that a complete
declaration was filed with the appropriate Reserve Bank. Such a
notification must be in writing.
(3) Special effective date rules for the OTS transfer date.
(i) Deadline for filing declaration. For savings and loan holding
companies that meet the requirements ofSec. 238.63 and that are
engaged in financial holding company activities pursuant to existing
authority as of July 21, 2011, an election under paragraph (a) must be
filed with the appropriate Reserve Bank by December 31, 2011. The
election must be accompanied by a description of the financial holding
company activities conducted by the savings and loan holding company.
(ii) Effective date of election. An election filed under paragraph
(e)(3)(i) of this section is effective on the 61st calendar day after
the date that a complete declaration was filed with the appropriate
Reserve Bank, unless the Board notifies the savings and loan holding
company prior to that time that the election is ineffective.
(iii) Earlier notification that an election is effective. The Board
or the appropriate Reserve Bank may notify a savings and loan holding
company that its election under paragraph (e)(3)(i) of this section to
be treated as a financial holding company is effective prior to the 61st
day after the date that a complete declaration was filed with the
appropriate Reserve Bank. Such notification must be in writing.
(iv) Filings by savings and loan holding companies that do not meet
requirements. (A) For savings and loan holding companies that are
engaged in financial holding company activities as of July 21, 2011 but
do not meet the requirements ofSec. 238.63, a declaration must be
filed with the appropriate Reserve Bank by December 31, 2011,
specifying:
(1) The name and head office address of the savings and loan holding
company and of each despoitory institution controlled by the savings and
loan holding company;
[[Page 116]]
(2) The financial holding company activities that the savings and
loan holding company is engaged in;
(3) The requirements ofSec. 238.63 that the savings and loan
holding company does not meet; and
(4) A description of how the savings and loan holding company will
achieve compliance withSec. 238.63 prior to June 30, 2012.
(B) A savings and loan holding company covered by this subparagraph
will be subject to:
(1) The notice, remediation agreement, divestiture, and any other
requirements described inSec. 225.83 of this chapter; or
(2) The activities limitations and any other requirements described
inSec. 225.84 of this chapter, depending on which requirements of
Sec. 238.63 the savings and loan holding company does not meet.
(f) Requests to be treated as a financial holding company submitted
as part of an application to become a savings and loan holding company.
A company that is not a savings and loan holding company and has applied
for the Board's approval to become a savings and loan holding company
under section 10(e) of the HOLA (12 U.S.C. 1467a(e)) may as part of that
application submit a request to be treated as a financial holding
company. Such requests shall be made and reviewed by the Board as
described inSec. 225.82(f) of this chapter.
(g) Board's authority to exercise supervisory authority over a
savings and loan holding company treated as a financial holding company.
An effective election to be treated as a financial holding company does
not in any way limit the Board's statutory authority under the HOLA, the
Federal Deposit Insurance Act, or any other relevant Federal statute to
take appropriate action, including imposing supervisory limitations,
restrictions, or prohibitions on the activities and acquisitions of a
savings and loan holding company that has elected to be treated as a
financial holding company, or enforcing compliance with applicable law.
Sec. 238.66 Ongoing requirements.
(a) In general. A savings and loan holding company with an effective
election to be treated as a financial holding company is subject to the
same requirements applicable to a financial holding company, under
sections 4(l) and 4(m) of the Bank Holding Company Act and section
804(c) of the Community Reinvestment Act of 1977 (12 U.S.C. 2903(c)) as
if the savings and loan holding company was a bank holding company.
(b) Consequences of failing to continue to meet applicable capital
and management requirements. A savings and loan holding company with an
effective election to be treated as a financial holding company that
fails to meet applicable capital and management requirements atSec.
238.63 is subject to the notice, remediation agreement, divestiture, and
any other requirements described inSec. 225.83 of this chapter.
(c) Consequences of failing to continue to maintain a satisfactory
or better rating under the Community Reinvestment Act at all insured
depository institution subsidiaries. A savings and loan holding company
with an effective election to be treated as a financial holding company
that fails to maintain a satisfactory or better rating under the
Community Reinvestment Act at all insured deposit institution
subsidiaries is subject to the activities limitations and any other
requirements described inSec. 225.84 of this chapter.
(d) Notice and approval requirements for conducting financial
holding company activities; permissible activities. A savings and loan
holding company with an effective election to be treated as a financial
holding company may conduct the activities listed inSec. 225.86 of
this chapter subject to the notice, approval, and any other requirements
described in Sec.Sec. 225.85 through 225.89 of this chapter.
Subpart H_Notice of Change of Director or Senior Executive Officer
Sec. 238.71 Purpose.
This subpart implements 12 U.S.C. 1831i, which requires certain
savings and loan holding companies to notify the Board before appointing
or employing directors and senior executive officers.
[[Page 117]]
Sec. 238.72 Definitions.
The following definitions apply to this subpart:
(a) Director means an individual who serves on the board of
directors of a 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 Board or Reserve Bank 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.
(b) 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 Board or
Reserve Bank in writing as an individual who exercises significant
influence over, or participates in, major policymaking decisions,
whether or not hired as an employee.
(c) Troubled condition means:
(1) A savings and loan holding company that has an unsatisfactory
rating under the applicable holding company rating system, or that is
informed in writing by the Board or Reserve Bank that it has an adverse
effect on its subsidiary savings association.
(2) A 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 Board or Reserve Bank; or
(3) A savings and loan holding company that is informed in writing
by the Board or Reserve Bank that it is in troubled condition based on
information available to the Board or Reserve Bank.
Sec. 238.73 Prior notice requirements.
(a) Savings and loan holding company. Except as provided underSec.
238.78, a savings and loan holding company must give the Board 30 days'
written notice, as specified inSec. 238.74, before adding or replacing
any member of its 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 the savings and loan holding company is in
troubled condition.
(b) Notice by individual. An individual seeking election to the
board of directors of a savings and loan holding company described in
paragraph (a) of this section that has not been nominated by management,
must either provide the prior notice required under paragraph (a) of
this section or follow the process underSec. 238.78(b).
Sec. 238.74 Filing and processing procedures.
(a) Filing notice--(1) Content. The notice required inSec. 238.73
shall be filed with the appropriate Reserve Bank and shall contain:
(i) The information required by paragraph 6(A) of the Change in Bank
Control Act (12 U.S.C. 1817(j)(6)(A)) as may be prescribed in the
designated Board form;
(ii) Additional information consistent with the Federal Financial
Institutions Examination Council's Joint Statement of Guidelines on
Conducting Background Checks and Change in Control Investigations, as
set forth in the designated Board form; and
(iii) Such other information as may be required by the Board or
Reserve Bank.
(2) Modification. The Reserve Bank may modify or accept other
information in place of the requirements of this section for a notice
filed under this subpart.
(3) Acceptance and processing of notice. The 30-day notice period
specified in
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section 238.73 shall begin on the date all information required to be
submitted by the notificant pursuant to this section is received by the
appropriate Reserve Bank. The Reserve Bank shall notify the savings and
loan holding company or individual submitting the notice of the date on
which all required information is received and the notice is accepted
for processing, and of the date on which the 30-day notice period will
expire. The Board or Reserve Bank may extend the 30-day notice period
for an additional period of not more than 60 days by notifying the
savings and loan holding company or individual filing the notice that
the period has been extended and stating the reason for not processing
the notice within the 30-day notice period.
(b) [Reserved]
Sec. 238.75 Standards for review.
(a) Notice of disapproval. The Board or Reserve Bank will disapprove
a notice if, pursuant to the standard set forth in 12 U.S.C. 1831i(e),
the Board or Reserve Bank finds that the competence, experience,
character, or integrity of the proposed individual indicates that it
would not be in the best interests of the depositors of the savings and
loan holding company or of the public to permit the individual to be
employed by, or associated with, the savings and loan holding company.
If the Board or Reserve Bank disapproves a notice, it will issue a
written notice that explains why the Board or Reserve Bank disapproved
the notice. The Board or Reserve Bank will send the notice to the
savings and loan holding company and the individual.
(b) Appeal of a notice of disapproval. (1) A disapproved individual
or a regulated institution that has submitted a notice that is
disapproved under this section may appeal the disapproval to the Board
within 15 days of the effective date of the notice of disapproval. An
appeal shall be in writing and explain the reasons for the appeal and
include all facts, documents, and arguments that the appealing party
wishes to be considered in the appeal, and state whether the appealing
party is requesting an informal hearing.
(2) Written notice of the final decision of the Board shall be sent
to the appealing party within 60 days of the receipt of an appeal,
unless the appealing party's request for an informal hearing is granted.
(3) The disapproved individual may not serve as a director or senior
executive officer of the state member bank or bank holding company while
the appeal is pending.
(c) Informal hearing. (1) An individual or regulated institution
whose notice under this section has been disapproved may request an
informal hearing on the notice. A request for an informal hearing shall
be in writing and shall be submitted within 15 days of a notice of
disapproval. The Board may, in its sole discretion, order an informal
hearing if the Board finds that oral argument is appropriate or
necessary to resolve disputes regarding material issues of fact.
(2) An informal hearing shall be held within 30 days of a request,
if granted, unless the requesting party agrees to a later date.
(3) Written notice of the final decision of the Board shall be given
to the individual and the regulated institution within 60 days of the
conclusion of any informal hearing ordered by the Board, unless the
requesting party agrees to a later date.
Sec. 238.76 Waiting period.
(a) At expiration of period. A proposed director or senior executive
officer may begin service at the end of the 30-day period and any
extension as provided underSec. 238.74 unless the Board or Reserve
Bank notifies you that it has disapproved the notice before the end of
the period.
(b) Prior to expiration of period. A proposed director or senior
executive officer may begin service before the end of the 30-day period
and any extension as provided under section 238.74 of this section, if
the Board or the Reserve Bank notifies in writing the savings and loan
holding company or individual submitting the notice of the Board's or
Reserve Bank's intention not to disapprove the notice.
Sec. 238.77 Waiver of prior notice requirement.
(a) Waiver request. An individual may serve as a director or senior
executive officer before filing a notice under this
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subpart if the Board or Reserve Bank finds that:
(1) Delay would threaten the safety or soundness of the savings and
loan holding company;
(2) Delay would not be in the public interest; or
(3) Other extraordinary circumstances exist that justify waiver of
prior notice.
(b) Automatic waiver. An individual may serve as a director upon
election to the board of directors before filing a notice under this
subpart, if the individual:
(1) Is not proposed by the management of the savings and loan
holding company;
(2) Is elected as a new member of the board of directors at a
meeting of the savings and loan holding company; and
(3) Provides to the appropriate Reserve Bank all the information
required inSec. 238.74 within two (2) business days after the
individual's election.
(c) Subsequent Board or Reserve Bank action. The Board or Reserve
Bank may disapprove a notice within 30 days after the Board or Reserve
Bank 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.
Subpart I_Prohibited Service at Savings and Loan Holding Companies
Sec. 238.81 Purpose.
This subpart 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 Board to provide exemptions, by regulation or
order, from the application of the prohibition. This subpart 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 subpart also describes procedures for applying to
the Board for an exemption.
Sec. 238.82 Definitions.
The following definitions apply to this subpart:
(a) 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.
(b) Enforcement Counsel means any individual who files a notice of
appearance to serve as counsel on behalf of the Board in the proceeding.
(c) Person means an individual and does not include a corporation,
firm or other business entity.
(d) Savings and loan holding company is defined atSec. 238.2(m),
but excludes a subsidiary of a savings and loan holding company that is
not itself a savings and loan holding company.
Sec. 238.83 Prohibited actions.
(a) Person. If a person was convicted of a criminal offense
described inSec. 238.84, or agreed to enter into a pretrial 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 subpart D of
this part.
(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.
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Sec. 238.84 Covered convictions or agreements to enter into pre-trial
diversions or similar programs.
(a) Covered convictions and agreements. Except as described inSec.
238.85, this subpart covers:
(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. 238.85 Adjudications and offenses not covered.
(a) Youthful offender or juvenile delinquent. This subpart 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 subpart 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 inSec. 238.83(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.
Sec. 238.86 Exemptions.
(a) Employees. An employee of a savings and loan holding company is
exempt from the prohibition inSec. 238.83, 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.
[[Page 121]]
(4) The employee:
(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 December 31, 2012, unless the savings
and loan holding company or the person files an application seeking a
case-by-case exemption for the person underSec. 238.87 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 a Board approval of the application
underSec. 238.89(a);
(ii) The expiration of the 20-day period for filing a request for
hearing underSec. 238.90(a) provided there is no timely request for
hearing following the issuance by the Board of a denial of the
application under that section;
(iii) The date that the Board denies a timely request for hearing
underSec. 238.90(b) following the issuance of a Board denial of the
application underSec. 238.89(b);
(iv) The date that the Board issues a decision underSec.
238.90(d); or
(v) The date an applicant withdraws the application.
Sec. 238.87 Filing procedures.
(a) Who may file. (1) A savings and loan holding company or a person
who was convicted of a criminal offense described inSec. 238.84 or who
has agreed to enter into a pre-trial diversion or similar program in
connection with a prosecution for such a criminal offense may file an
application with the Board seeking an exemption from the prohibitions in
this subpart.
(2) A savings and loan holding company or a person may seek an
exemption only for a designated position (or positions) with respect to
a named savings and loan holding company.
(3) A savings and loan holding company or a person may not file an
application less than one year after the latter of the date of a denial
of the same exemption underSec. 238.89(b),Sec. 238.90(a) orSec.
238.90(d).
(b) Prohibition pending Board action. Unless a savings and loan
holding company or a person is exempt underSec. 238.86(b), the
prohibitions inSec. 238.83 continue to apply pending Board action on
the application.
Sec. 238.88 Factors for review.
(a) Board review. (1) In determining whether to approve an exemption
application filed underSec. 238.87, the Board will consider the extent
to which the position that is the subject of the 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) The Board will also consider whether the applicant has
demonstrated the person's fitness to hold the described position. Some
positions may be approved without an extensive review of a person's
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, the Board 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
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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. 238.89 Board action.
(a) Approval. The Board will notify an applicant if an application
under this subpart is approved. An approval by the Board may include
such conditions as the Board determines to be appropriate.
(b) Denial. If Board denies an application, the Board will notify an
applicant promptly.
Sec. 238.90 Hearings.
(a) Hearing requests. Within 20 days of the date of issuance of a
denial of an application filed under this subpart, a savings and loan
holding company or a person whose application the Board has denied may
file a written request demonstrating good cause for a hearing on the
denial.
(b) Board review of hearing request. The Board will review the
hearing request to determine if the savings and loan holding company or
person has demonstrated good cause for a hearing on the application.
Within 30 days after the filing of a timely request for a hearing, the
Board will notify the savings and loan holding company or person in
writing of its decision to grant or deny the hearing request. If the
Board grants the 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 Board may at its discretion order a later
hearing date.
(c) Hearing procedures. The following procedures apply to hearings
under this subpart.
(1) The hearing shall be held in Washington, DC, or at another
designated place, before a presiding officer designated by the Board.
(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 Enforcement Counsel and the
applicant.
(4) The provisions of Sec.Sec. 263.2, 263.4, 263.6 through 263.12,
and 263.16 of this chapter 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
prior 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. The Board 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 section 263.14 of this chapter.
(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) 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 Board,
where
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possible, within 20 days after the last day for the parties to submit
additions to the record.
(12) The presiding officer must forward his or her recommendation to
the Board who shall promptly certify the entire record, including the
presiding officer's recommendations. The Board's certification will
close the record.
(d) Decision. After the certification of the record, the Board will
notify the parties of its 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
underSec. 238.88(b).
Subpart J_Management Official Interlocks
Sec. 238.91 Authority, purpose, and scope.
(a) Authority. This subpart 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 subpart 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 subpart applies to management officials of savings
and loan holding companies, and their affiliates.
Sec. 238.92 Definitions.
For purposes of this subpart, 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 and
loan holding company based on common ownership does not exist if the
Board 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 Board 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
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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.
(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 inSec.
225.71(c) 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 Board 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 Board 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 Comptroller of the Currency 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'
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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.
Sec. 238.93 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 Board 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 Board will announce the revised thresholds by
publishing a final rule without notice and comment in the Federal
Register.
Sec. 238.94 Interlocking relationships permitted by statute.
The prohibitions ofSec. 238.93 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
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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 Board 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 Board.
(3) The Board 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 Board has determined that such service is consistent with the
purposes of the Interlocks Act and the Home Owners' Loan Act.
Sec. 238.95 Small market share exemption.
(a) Exemption. A management interlock that is prohibited bySec.
238.93 is permissible, if:
(1) The interlock is not prohibited bySec. 238.93(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.
Sec. 238.96 General exemption.
(a) Exemption. The Board may by agency order exempt an interlock
from the prohibitions inSec. 238.93 if the Board 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 the Board for an exemption.
(b) Presumptions. In reviewing an application for an exemption under
this section, the Board 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 has been chartered for less
than two years; or
(4) Is deemed to be in ``troubled condition'' as defined inSec.
238.72.
(c) Duration. Unless a shorter expiration period is provided in the
Board 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 Board 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 Board in writing.
Sec. 238.97 Change in circumstances.
(a) Termination. A management official shall terminate his or her
service
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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 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 Board may shorten this period under appropriate
circumstances.
Sec. 238.98 Enforcement.
Except as provided in this section, the Board administers and
enforces the Interlocks Act with respect to savings and loan holding
companies and its affiliates, 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 and loan holding company
is subject to the primary regulation of another Federal depository
organization supervisory agency, then the Board does not administer and
enforce the Interlocks Act with respect to that affiliate.
Sec. 238.99 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)).
Subpart K_Dividends by Subsidiary Savings Associations
Sec. 238.101 Authority and purpose.
This subpart implements section 10(f) of HOLA which requires savings
associations with holding companies to provide the Board not less than
30 days' notice of a proposed declaration of a dividend. This subpart
applies to all declarations of dividends by a subsidiary savings
association of a savings and loan holding company.
Sec. 238.102 Definitions.
The following definitions apply to this subpart:
(a) Appropriate Federal banking agency has the same meaning as in 12
U.S.C. 1813(q) and includes, with respect to agreements entered into and
conditions imposed prior to July 21, 2011, the Office of Thrift
Supervision.
(b) Dividend means:
(1) A distribution of cash or other property to owners of a savings
association made on account of their ownership, but not any dividend
consisting only of shares or rights to purchase shares; or
(2) Any transaction that the Board determines, by order or
regulation, to be in substance a dividend.
(c) 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
dividend.
Sec. 238.103 Filing requirement.
(a) Filing. A subsidiary savings association of a savings and loan
holding company must file a notice with the appropriate Reserve Bank on
the designated form at least 30 days before the proposed declaration of
a dividend by its board of directors.
(b) Schedules. A notice may include a schedule proposing dividends
over a specified period, not to exceed 12 months.
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Sec. 238.104 Board action and criteria for review.
(a) Board action. (1) A subsidiary savings association of a savings
and loan holding company may declare a proposed dividend after the end
of a 30-day review period commencing on the date of submission to the
Federal Reserve System of the complete record on the notice, unless the
Board or Reserve Bank disapproves the notice before the end of the
period.
(2) A subsidiary savings association of a savings and loan holding
company may declare a proposed dividend before the end of the 30-day
period if the Board or Reserve Bank notifies the applicant in writing of
the Board's or Reserve Bank's intention not to disapprove the notice.
(b) Criteria. The Board or Reserve Bank may disapprove a notice, in
whole or in part, if the Board or Reserve Bank makes any of the
following determinations.
(1) Following the dividend the subsidiary savings association will
be undercapitalized, significantly undercapitalized, or critically
undercapitalized as set forth in applicable regulations under 12 U.S.C.
1831o.
(2) The proposed dividend raises safety or soundness concerns.
(3) The proposed dividend violates a prohibition contained in any
statute, regulation, enforcement action, or agreement between the
subsidiary savings association or any savings and loan holding company
of which it is a subsidiary and an appropriate Federal banking agency, a
condition imposed on the subsidiary savings association or any savings
and loan holding company of which it is a subsidiary in an application
or notice approved by an appropriate Federal banking agency, or any
formal or informal enforcement action involving the subsidiary savings
association or any savings and loan holding company of which it is a
subsidiary. If so, the Board will determine whether it may permit the
dividend notwithstanding the prohibition, condition, or enforcement
action.
Subpart L_Investigative Proceedings and Formal Examination Proceedings
Sec. 238.111 Scope.
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
and loan holding companies 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 262 of this chapter.
Sec. 238.112 Definitions.
As used in this part:
(a) Investigative proceeding means an investigation conducted under
section 10(g)(2) of the HOLA;
(b) 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 and loan holding companies 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
(c) Designated representative means the person or persons empowered
by the Board to conduct an investigative proceeding or a formal
examination proceeding.
Sec. 238.113 Confidentiality of proceedings.
All formal examination proceedings shall be private and, unless
otherwise ordered by the Board, all investigative proceedings shall also
be private. Unless otherwise ordered or permitted by
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the Board, or required by law, and except as provided in Sec.Sec.
238.114 and 238.115, the entire record of any investigative proceeding
or formal examination proceeding, including the resolution of the Board
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. 238.114 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 Board stating the reason
he desires to procure such transcript, and the Board 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.
Sec. 238.115 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 Board resolution authorizing such proceeding. Copies of such
resolution shall be furnished, for their retention, to such persons only
with the written approval of the Board.
(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 Board in
accordance with the provisions of part 263 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 Board, for good cause, may exclude a particular attorney
from further participation in any investigation in which the Board has
found the attorney to have engaged in dilatory, obstructionist,
egregious, contemptuous or contumacious conduct. The person conducting
an investigation may report to the Board instances of apparently
dilatory, obstructionist, egregious, contemptuous or contumacious
conduct on the part of an attorney. After due notice to the attorney,
the Board 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 presentation
as the Board may permit or direct.
Sec. 238.116 Obstruction of proceedings.
The designated representative shall report to the Board any
instances
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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 Board may take such action as the
circumstances warrant, including the exclusion of counsel from further
participation in such proceeding.
Sec. 238.117 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
Board or its designee to quash or modify such subpoena, accompanying
such application with a statement of the reasons therefore. The Board or
its 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
Board or its 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 Board by any of its designated representatives.
PART 239_MUTUAL HOLDING COMPANIES (REGULATION MM)--Table of Contents
Subpart A_General Provisions
Sec.
239.1 Authority, purpose, and scope.
239.2 Definitions.
Subpart B_Mutual Holding Companies
239.3 Mutual holding company reorganizations.
239.4 Grounds for disapproval of reorganizations.
239.5 Membership rights.
239.6 Contents of Reorganization Plans.
239.7 Acquisition and disposition of savings associations, savings and
loan holding companies, and other corporations by mutual
holding companies.
239.8 Operating restrictions.
239.9 Conversion or liquidation of mutual holding companies.
239.10 Procedural requirements.
239.11 Subsidiary holding companies.
239.12 Communication between members of a mutual holding company.
239.13 Charters.
239.14 Charter amendments.
239.15 Bylaws.
239.16 Voluntary dissolution.
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Subpart C_Subsidiary Holding Companies
239.20 Scope.
239.21 Charters.
239.22 Charter amendments.
239.23 Bylaws.
239.24 Issuances of stock by subsidiary holding companies of mutual
holding companies.
239.25 Contents of Stock Issuance Plans.
239.26 Shareholders.
239.27 Board of directors.
239.28 Officers.
239.29 Certificates for shares and their transfer.
239.30 Annual reports; books and records.
239.31 Indemnification; employment contracts.
Subpart D_Indemnification; Employment Contracts
239.40 Indemnification of directors, officers and employees.
239.41 Employment contracts.
Subpart E_Conversions from Mutual to Stock Form
239.50 Purpose and scope.
239.51 Acquiring another insured stock depository institution as part of
a conversion.
239.52 Definitions.
239.53 Prior to conversion.
239.54 Plan of conversion.
239.55 Filing requirements.
239.56 Vote by members.
239.57 Proxy solicitation.
239.58 Offering circular.
239.59 Offers and sales of stock.
239.60 Completion of the offering.
239.61 Completion of the conversion.
239.62 Liquidation account.
239.63 Post-conversion.
239.64 Contributions to charitable organizations.
239.65 Voluntary supervisory conversions.
239.66 Board review of the voluntary supervisory conversion application.
Appendix A to Part 239--Mutual Holding Company Model Charter
Appendix B to Part 239--Subsidiary Holding Company of a Mutual Holding
Company Model Charter
Appendix C to Part 239--Mutual Holding Company Model Bylaws
Appendix D to Part 239--Subsidiary Holding Company of a Mutual Holding
Company Model Bylaws
Authority: 12 U.S.C. 1462, 1462a, 1464, 1467a, 1828, and 2901.
Source: Regulation MM, 76 FR 56357, Sept. 13, 2011, unless otherwise
noted.
Subpart A_General Provisions
Sec. 239.1 Authority, purpose, and scope.
(a) Authority. This part is issued by the Board of Governors of the
Federal Reserve System (``Board'') under section 10(g) and (o) of the
Home Owners' Loan Act (``HOLA'').
(b) Purpose. The principal purposes of this part are to:
(1) Regulate the reorganization of mutual savings associations to
mutual holding companies and the creation of subsidiary holding
companies of mutual holding companies;
(2) Define and regulate the operations of mutual holding companies
and subsidiary holding companies of mutual holding companies; and
(3) Set forth the procedures for securing approval for these
transactions.
(c) Scope. Except as the Board may otherwise determine, the
reorganization of mutual savings associations into mutual holding
companies, any related stock issuances by subsidiary holding companies,
and the conversion of mutual holding companies into stock form are
exclusively governed by the provisions of this part, and no mutual
savings association shall reorganize to a mutual holding company, no
subsidiary holding company of a mutual holding company shall issue
minority stock, and no mutual holding company shall convert into stock
form without the prior written approval of the Board. The Board may
grant a waiver in writing from any requirement of this part for good
cause shown.
Sec. 239.2 Definitions.
As used in this part and in the forms under this part, the following
definitions apply, unless the context otherwise requires:
(a) 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.
(b) Acting in concert has the same meaning as inSec. 238.31(b) of
this chapter.
(c) Affiliate has the same meaning as inSec. 238.2(a) of this
chapter.
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(d) Associate of a person is:
(1) A corporation or organization (other than the mutual holding
company, subsidiary holding company, or any majority-owned subsidiaries
of such holding companies), 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. 239.59(k), 239.59(m),
239.59(n), 239.59(o), 239.59(p), 239.63(b), a person who has a
substantial beneficial interest in the mutual holding company or
subsidiary holding company's 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 ofSec. 239.59(k), the
mutual holding company or subsidiary holding company's tax-qualified
employee stock benefit plan is not an associate of a person.
(3) Any natural 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 a director or senior officer of the mutual holding
company, subsidiary holding company, or other subsidiary.
(e) Company means any corporation, partnership, trust, association,
joint venture, pool, syndicate, unincorporated organization, joint-stock
company or similar organization, as defined in paragraph (u) of this
section; but a company does not include:
(1) The Federal Deposit Insurance Corporation, the Resolution Trust
Corporation, 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.
(f) Control has the same meaning as inSec. 238.2(e) of this
chapter.
(g) 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 subsidiary savings association of a
mutual holding company.
(h) Demand accounts mean 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.
(i) 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.
(j) 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 subsidiary savings association 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.
(k) Mutual holding company means a holding company organized in
mutual form under this part, and unless otherwise indicated, a
subsidiary holding company controlled by a mutual holding company,
organized under this part.
(l) Parent means any company which directly or indirectly controls
any other company or companies.
(m) Person includes an individual, bank, corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, or any other form of entity.
(n) Reorganization Notice means a notice of a proposed mutual
holding company reorganization that is in the form and contains the
information required by the Board.
(o) Reorganization Plan means a plan to reorganize into the mutual
holding company format containing the information required bySec.
239.6.
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(p) Reorganizing association means a mutual savings association that
proposes to reorganize to become a mutual holding company pursuant to
this part.
(q) 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.
(r) Savings account means any withdrawable account, except a demand
account, a tax and loan account, a note account, a United States
Treasury general account, or a United States Treasury time deposit-open
account.
(s) Savings Association has the same meaning as inSec. 238.2(l) of
this chapter.
(t) Savings and loan holding company has the same meaning as
specified in section 10(a)(1) of the HOLA andSec. 238.2(m) of this
chapter.
(u) Similar organization for purposes of paragraph (e) 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.
(v) 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.
(w) Stock Issuance Plan means a plan, submitted pursuant toSec.
239.24 and containing the information required bySec. 239.25,
providing for the issuance of stock by a subsidiary holding company.
(x) 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.
(y) 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.
(z) 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.
(aa) Tax-qualified employee stock benefit plan means 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).
(bb) 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.
(cc) 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.
Subpart B_Mutual Holding Companies
Sec. 239.3 Mutual holding company reorganizations.
(a) A mutual savings association may not reorganize to become a
mutual holding company, or join in a mutual holding company
reorganization as an acquiree association, unless it satisfies the
following conditions:
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(1) A Reorganization Plan is approved by a majority of the board of
directors of the reorganizing association and any acquiree association;
(2) A Reorganization Notice is filed with the Board pursuant to
Sec. 238.14 of this chapter;
(3) The Reorganization Plan is submitted to the members of the
reorganizing association and any acquiree association pursuant and 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 in accordance with the procedures prescribed by
each association's charter and bylaws; and
(4) All necessary regulatory approvals have been obtained and all
conditions imposed by the Board have been satisfied.
(b) Upon receipt of an application under this section, the Reserve
Bank will promptly furnish notice and a copy of the Reorganization Plan
to the primary federal supervisor of any savings association involved in
the transaction. The primary supervisor will have 30 calendar days from
the date of the letter giving notice in which to submit its views and
recommendations to the Board.
Sec. 239.4 Grounds for disapproval of reorganizations.
(a) Basic standards. The Board may disapprove a proposed mutual
holding company reorganization filed pursuant toSec. 239.3(a) 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 toSec. 239.24 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 Board in connection
with the proposed reorganization; or
(6) The proposed reorganization would violate any provision of law,
including (without limitation)Sec. 239.3(a) and (c) (regarding board
of directors and membership approval) orSec. 239.5(a) (regarding
continuity of membership rights).
(b) Capitalization. (1) The Board 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''
under the regulatory capital requirements applicable to the savings
association.
(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
Comptroller of the Currency or the Federal Deposit Insurance
Corporation, as applicable, governing capital distributions by savings
associations in effect at the time of the reorganization.
(c) Presumptive disqualifiers --
(1) Managerial resources. The factors specified inSec.
238.15(d)(1)(i) through (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 inSec. 238.15(d)(1)(i) through (vi) of this chapter,
it shall be read to mean the reorganizing association or any acquiree
association, and the reference inSec. 238.15(d)(1)(v) of this chapter
to filings under this part shall be deemed to include filings under
either part 238 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 the reorganizing association or acquiree
association's proposed market area or
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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.
(d) Failure of the Board to act on a Reorganization Notice within
the prescribed time period. A proposed reorganization that obtains
regulatory clearance from the Board due to the operation ofSec. 238.14
of this chapter 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 Board's review period underSec. 238.14
of this chapter;
(2) The mutual holding company shall not be capitalized in an amount
in excess of what is permissible underSec. 239.4(b);
(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 Board 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 Board 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
withSec. 239.3 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 Board 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 Board a certification stating that
the mutual holding company will not deviate materially, or cause its
subsidiary savings associations to deviate materially, from the business
plan submitted in connection with the Reorganization Notice, unless
prior written approval from the Board is obtained.
Sec. 239.5 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
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(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 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. 239.6 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 subsidiary savings association 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, 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 those terms are defined in this part) of the reorganizing association
shall be transferred to the resulting association, which shall thereupon
become an operating subsidiary savings association 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
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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 Board; and that 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 Board;
(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.
Sec. 239.7 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 not acquire control of a savings association that is in the
stock form unless the necessary approvals are obtained from the Board,
including approval pursuant toSec. 238.11 of this chapter.
(2) Mutual savings associations. A mutual holding company may not
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 subsidiary savings association of the mutual holding
company, unless:
(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 and 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 Board, including
approval pursuant toSec. 238.11 of this chapter, and any other
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 withSec.
239.6(a); and
(iv) The approval of the members of the mutual holding company is
obtained, if the Board 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 not acquire control of another mutual
holding company, including a subsidiary holding company, by merging with
or into such company, unless the necessary approvals are obtained from
the Board, including approval pursuant toSec. 238.11 of this chapter.
The approval of the members of the mutual holding companies shall also
be obtained if the Board advises the mutual holding companies in writing
that such approval will be required.
(4) Stock holding companies. A mutual holding company may not
acquire control of a savings and loan holding company in the stock form
that is not a subsidiary holding company, unless the necessary approvals
are obtained from the Board, including approval pursuant toSec. 238.11
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.
238.41 and 238.11 of this chapter.
(6) Other corporations. A mutual holding company may not acquire
control of, or make non-controlling investments in the stock of, any
corporation other than a savings association or
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savings and loan holding company unless:
(i)(A) Such corporation is engaged exclusively in activities that
are permissible for mutual holding companies pursuant toSec. 239.8(a);
or
(B) It is lawful for the stock of such corporation to be purchased
by a federal savings association under the applicable regulations of the
Comptroller of the Currency or by a state savings association under the
applicable regulations of the Federal Deposit Insurance Corporation and
the laws 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 subsidiary savings association of the mutual holding company.
(b) Dispositions. (1) A mutual holding company shall provide written
notice to the appropriate Reserve Bank 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. 239.8(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, as appropriate, and with any other applicable statute or
regulation.
(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 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 appropriate Reserve Bank
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 those imposed
by this part or Regulation LL.
Sec. 239.8 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 inSec.
239.7(a)(6). A mutual holding company or its subsidiaries may engage in
the foregoing activities only upon compliance with the procedures
specified in Sec.Sec. 238.53(c) or 238.54(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 subsidiary
savings association 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 subsidiary savings
association, the loan proceeds shall, unless otherwise approved by the
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Board, be infused in equal amounts to each subsidiary savings
association. Any amount of the stock of such association or subsidiary
holding company may be pledged for these purposes. Nothing in this
paragraph 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
(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 subsidiary savings association provided that the stock pledged of
each such subsidiary association is proportionate to the proceeds of the
loan infused into each subsidiary association.
(2) 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 appropriate Reserve Bank.
(c) Restrictions on stock repurchases. (1) 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 the requirements set forth inSec.
239.63;
(ii) Is part of a general repurchase made on a pro rata basis
pursuant to an offer approved by the Board 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
Board's 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 withSec. 239.63. For
purposes of this section, the reference inSec. 239.63 to five percent
refers to minority shareholders.
(d) Restrictions on waiver of dividends. (1) A mutual holding
company may waive the right to receive any dividend declared by a
subsidiary of the mutual holding company, if--
(i) 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 the stock in the
class of stock to which the waiver would apply; or
(ii) The mutual holding company gives written notice to the Board of
the intent of the mutual holding company to waive the right to receive
dividends, not later than 30 days before the date of the proposed date
of payment of the dividend, and the Board does not object to the waiver.
(2) A notice of a waiver under paragraph (d)(1)(ii) of this section
shall include a copy of the resolution of the board of directors of the
mutual holding company together with any supporting materials relied
upon by the board of directors of the mutual holding company, concluding
that the proposed dividend waiver is consistent with the fiduciary
duties of the board of directors to the mutual members of the mutual
holding company.
The resolution shall include:
(i) A description of the conflict of interest that exists because of
a mutual holding company director's ownership of stock in the subsidiary
declaring dividends and any actions the mutual holding company and board
of directors have taken to eliminate the conflict of interest, such as
waiver by the directors of their right to receive dividends;
(ii) A finding by the mutual holding company's board of directors
that the waiver of dividends is consistent with the board of directors'
fiduciary duties despite any conflict of interest;
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(iii) If the mutual holding company has pledged the stock of a
subsidiary holding company or subsidiary savings association as
collateral for a loan made to the mutual holding company, or is subject
to any other loan agreement, an affirmation that the mutual holding
company is able to meet the terms of the loan agreement; and
(iv) An affirmation that a majority of the mutual members of the
mutual holding company eligible to vote have, within the 12 months prior
to the declaration date of the dividend by the subsidiary of the mutual
holding company, approved a waiver of dividends by the mutual holding
company, and any proxy statement used in connection with the member vote
contained--
(A) A detailed description of the proposed waiver of dividends by
the mutual holding company and the reasons the board of directors
requested the waiver of dividends;
(B) The disclosure of any mutual holding company director's
ownership of stock in the subsidiary declaring dividends and any actions
the mutual holding company and board of directors have taken to
eliminate the conflict of interest, such as the directors waiving their
right to receive dividends; and
(C) A provision providing that the proxy concerning the waiver of
dividends given by the mutual members may be used for no more than 12
months from the date it is given.
(3) The Board may not object to a waiver of dividends under
paragraph (d)(1)(ii) of this section if:
(i) The waiver would not be detrimental to the safe and sound
operation of the savings association;
(ii) The board of directors of the mutual holding company expressly
determines that a waiver of the dividend by the mutual holding company
is consistent with the fiduciary duties of the board of directors to the
mutual members of the mutual holding company; and
(iii) The mutual holding company has, prior to December 1, 2009--
(A) Reorganized into a mutual holding company under section 10(o) of
HOLA;
(B) Issued minority stock either from its mid-tier stock holding
company or its subsidiary stock savings association; and
(C) Waived dividends it had a right to receive from the subsidiary
stock savings association.
(4) For a mutual holding company that does not meet each of the
conditions in paragraph (d)(3) of this section, the Board will not
object to a waiver of dividends under paragraph (d)(1)(ii) of this
section if--:
(i) The savings association currently operates in a manner
consistent with the safe and sound operation of a savings association,
and the waiver is not detrimental to the safe and sound operation of the
savings association;
(ii) If the mutual holding company has pledged the stock of a
subsidiary holding company or subsidiary savings association as
collateral for a loan made to the mutual holding company, or is subject
to any other loan agreement, an affirmation that the mutual holding
company is able to meet the terms of the loan agreement;
(iii) Within the 12 months prior to the declaration date of the
dividend by the subsidiary of the mutual holding company, a majority of
the mutual members of the mutual holding company has approved the waiver
of dividends by the mutual holding company. Any proxy statement used in
connection with the member vote must contain--
(A) A detailed description of the proposed waiver of dividends by
the mutual holding company and the reasons the board of directors
requested the waiver of dividends;
(B) The disclosure of any mutual holding company director's
ownership of stock in the subsidiary declaring dividends and any actions
the mutual holding company and board of directors have taken to
eliminate the conflict of interest, such as the directors waiving their
right to receive dividends; and
(C) A provision providing that the proxy concerning the waiver of
dividends given by the mutual members may be used for no more than 12
months from the date it is given;
(iv) The board of directors of the mutual holding company expressly
determines that the waiver of dividends is consistent with the board of
directors'
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fiduciary duties despite any conflict of interest;
(v)(A) A majority of the entire board of directors of the mutual
holding company approves the waiver of dividends and any director with
direct or indirect ownership, control, or the power to vote shares of
the subsidiary declaring the dividend, or who otherwise directly or
indirectly benefits through an associate from the waiver of dividends,
has abstained from the board vote; or
(B) Each officer or director of the mutual holding company or its
affiliates, associate of such officer or director, and any tax-qualified
or non-tax-qualified employee stock benefit plan in which such officer
or director participates that holds any share of the stock in the class
of stock to which the waiver would apply waives the right to receive any
dividend declared by a subsidiary of the mutual holding company;
(vi) The Board does not object to the amount of dividends declared
by a subsidiary of the mutual holding company. In reviewing whether a
declaration by a subsidiary of the mutual holding company is
appropriate, the Board may consider, among other factors, the
reasonableness of the entire dividend distribution declared if the
waiver is not approved;
(vii) The waived dividends are excluded from the capital accounts of
the subsidiary holding company or savings association, as applicable,
for purposes of calculating any future dividend payments;
(viii) The mutual holding company appropriately accounts for all
waived dividends in a manner that permits the Board to consider the
waived dividends in evaluating the proposed exchange ratio in the event
of a full conversion of the mutual holding company to stock form; and
(ix) The mutual holding company complies with such other conditions
as the Board may require to prevent conflicts of interest or actions
detrimental to the safe and sound operation of the savings association.
(5) Valuation. (i) The Board will consider waived dividends in
determining an appropriate exchange ratio in the event of a full
conversion to stock form.
(ii) In the case of a savings association that has reorganized into
a mutual holding company, has issued minority stock from a mid-tier
stock holding company or a subsidiary stock savings association of the
mutual holding company, and has waived dividends it had a right to
receive from a subsidiary savings association before December 1, 2009,
the Board shall 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
appropriate Reserve Bank at least 30 days prior to the stock issuance,
and the Reserve Bank or the Board does not object to the subsequent
stock issuance. Subsidiary holding companies may issue stock to such
persons only in accordance withSec. 239.24.
(f) 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 the provisions of parts 207, 228, and 238 of this chapter.
(g) 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.
Sec. 239.9 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 subpart E of this part.
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(2) Exchange of subsidiary savings association or subsidiary holding
company stock. Any stock issued by a subsidiary savings association, or
by a subsidiary holding company pursuant toSec. 239.24, of a mutual
holding company to persons other than the parent mutual holding company
may be exchanged for the stock issued by the successor to 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 must demonstrate to the satisfaction of the
Board 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 Board 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.
(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 and, if
applicable, the stock holders of the subsidiary holding company in
accordance with the charter of the mutual holding company and, if
applicable, the charter of the subsidiary holding company.
(3) If the FDIC incurs a loss as a result of the default of any
subsidiary savings association 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 ofSec. 239.16 shall
apply to mutual holding companies.
Sec. 239.10 Procedural requirements.
(a) Proxies and proxy statements--(1) Solicitation of proxies. The
provisions of Sec.Sec. 239.56 and 239.57(a) through (d) and (f)
through (h) shall apply to all solicitations of proxies by any person in
connection with any membership vote required by this part. Proxy
materials must be in the form specified by the Board and contain the
information specified in Sec.Sec. 239.57(b) and 239.57(d), 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 required under this part, or as are necessary or
appropriate under the disclosure standard set forth inSec. 239.57(f).
File proxies and proxy statements in accordance withSec. 239.55(c) and
address them to the appropriate Reserve Bank. For purposes of this
paragraph, the term conversion, as it appears in the provisions of part
subpart E of this part, refers to the reorganization, the stock
issuance, or other corporate action, as appropriate.
(2) Additional proxy disclosure requirements. In addition to the
requirements in paragraph (a) of this section, 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
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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. Subsidiary holding
companies proposing non-conforming minority stock issuances pursuant to
Sec. 239.24(c)(6)(ii) 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. Unless otherwise prohibited, a
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 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 by a mutual holding company, dividend waiver, 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 the Board under this part must be filed in accordance
withSec. 238.14 of this chapter. The Board will review any filing made
under this part in accordance withSec. 238.14 of this chapter.
(c) Reorganization Notices and stock issuance applications--(1)
Contents. Each Reorganization Notice submitted to the appropriate
Reserve Bank pursuant toSec. 239.3(a) and each application for
approval of the issuance of stock submitted to the appropriate Reserve
Bank pursuant toSec. 239.24(a) shall be in the form and contain the
information specified by the Board.
(2) Filing instructions. Any Reorganization Notice submitted under
Sec. 239.3(a) must be filed in accordance withSec. 238.14 of this
chapter. Any stock issuance application submitted pursuant toSec.
239.24(a) shall be filed in accordance withSec. 239.55.
(3) Public notice, public comment, and meetings. Mutual holding
company reorganizations are subject to applicable public notice, public
comment, and meeting requirements under the Bank Merger Act regulations
atSec. 238.11(e) of this chapter and the Savings and Loan Holding
Company Act regulations atSec. 238.14 of this chapter.
(d) Amendments. Any 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 Board or upon the
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 the
processing procedures atSec. 238.14 of this chapter. Any related
approvals requested in connection with Reorganization Notices or
applications for approval of stock
[[Page 144]]
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 the Board of any materials used in
connection with the issuance of stock underSec. 239.24 must not be
subject to the applications processing time-frames set forth in
Sec.Sec. 238.14(f) and (g) 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 inSec. 238.14(b) of this chapter for notices,
applications, and public comments filed underSec. 238.14 of this
chapter.
(g) Appeals. Any party aggrieved by a final action by the Board
which approves or disapproves any application or notice pursuant to this
part may obtain review of such action in accordance with 12 U.S.C.
1467a(j).
(h) Federal preemption. This part preempts state law with regard to
the creation and regulation of mutual holding companies.
Sec. 239.11 Subsidiary holding companies.
(a) Subsidiary holding companies. A mutual holding company may
establish a subsidiary holding company as a direct subsidiary to hold
100 percent of the stock of its subsidiary savings association. 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. 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 Board.
(b) Stock issuances. Sec.Sec. 239.24 and 239.25 apply to issuance
of stock by a subsidiary holding company. 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 percent of the subsidiary holding company's total outstanding common
stock.
(c) Charters and bylaws for subsidiary holding companies. The
charter and bylaws of a subsidiary holding company shall be in the form
set forth in Appendices B and D, respectively.
Sec. 239.12 Communication between members of a mutual holding company.
(a) Right of communication with other members. A member of a mutual
holding company has the right to communicate, as prescribed in paragraph
(b) of this section, with other members of the mutual holding company
regarding any matter related to the mutual holding company's affairs,
except for ``improper'' communications, as defined in paragraph (c) of
this section. The mutual holding company may not defeat that right by
redeeming a savings member's savings account in the subsidiary savings
association.
(b) Member communication procedures. If a member of a mutual holding
company desires to communicate with other members, the following
procedures shall be followed:
(1) The member shall give the mutual holding company a written
request to communicate;
(2) If the proposed communication is in connection with a meeting of
the mutual holding company'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 mutual
holding company 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 145]]
(4) The mutual holding company 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 mutual holding company's members and the
estimated reasonable cost to the mutual holding company of mailing to
them the proposed communication; or
(ii) Notification that the mutual holding company 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 mutual holding company 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 mutual holding company refuses to mail the proposed
communication, it shall return the requesting member's materials
together with a written statement of the specific reasons for refusal,
and shall simultaneously send to the appropriate Reserve Bank a copy of
each of the requesting member's materials, the mutual holding company'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 mutual holding company 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 mutual holding company or is not within
the control of the mutual holding company; 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
mutual holding company.
Sec. 239.13 Charters.
(a) Charters. The charter of a mutual holding company shall be in
the form set forth in Appendix A of this part and may be amended
pursuant to this paragraph. The Board may amend the form of charter set
forth in Appendix A to this part.
(b) Corporate title. The corporate title of each mutual holding
company shall include the term ``mutual'' or the abbreviation ``M.H.C.''
(c) Availability of charter. 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, including any amendments, and shall deliver
such a copy to any member upon request.
[[Page 146]]
Sec. 239.14 Charter amendments.
(a) General. In order to adopt a charter amendment, a mutual holding
company must comply with the following requirements:
(1) Board of directors approval. The board of directors of the
mutual holding company 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 mutual holding
company, or the removal of incumbent management; or involve a
significant issue of law or policy; then, the mutual holding shall
submit the charter amendment to the appropriate Reserve Bank for
approval. Applications submitted under this paragraph are subject to the
processing procedures atSec. 238.14 of this chapter.
(ii) Notice requirement. If the proposed charter amendment does not
implicate paragraph (a)(2)(i) of this section and is permissible under
all applicable laws, rules and regulations, the mutual holding company
shall submit the proposed amendment to the appropriate Reserve Bank 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 with the appropriate Reserve Bank,
provided that the mutual holding company follows the requirements of its
charter in adopting such amendment, unless the Reserve Bank or the Board
notifies the mutual holding company prior to the expiration of such 30-
day period that such amendment is rejected or is deemed to be filed
under the provisions of paragraph (a)(2)(i) of this section.
Notwithstanding anything in paragraph (a) of this section to the
contrary, the following charter amendments, including the adoption of
the Federal mutual holding company charter as set forth in Appendix A,
shall be effective and deemed approved at the time of adoption, if
adopted without change and filed with Board, within 30 days after
adoption, provided the mutual holding company follows the requirements
of its charter in adopting such amendments.
(1) Title change. (i) Subject toSec. 239.13 and this paragraph
(b), a mutual holding company may amend its charter by substituting a
new corporate title in section 1 of its charter.
(ii) Prior to changing its corporate title, a mutual holding company
must file with the Board a written notice indicating the intended
change. The Board shall provide to the mutual holding company a timely
written acknowledgment stating when the notice was received. If, within
30 days of receipt of notice, the Board does not notify the mutual
holding company of its objection to the corporate title change on the
grounds that the title misrepresents the nature of the institution or
the services it offers, the mutual holding company may change its title
by amending its charter in accordance withSec. 239.14(b) orSec.
239.22 and the amendment provisions of its charter.
(2) Maximum number of votes. A mutual holding company may amend
section 5 of its charter by substituting the maximum number of votes per
member to any number from 1 to 1000.
(c) Reissuance of charter. A mutual holding company that has amended
its charter may apply to have its charter, including the amendments,
reissued by the Board. Such request for reissuance should be filed with
the appropriate Reserve Bank.
Sec. 239.15 Bylaws.
(a) General. A mutual holding company shall operate under bylaws
that contain provisions that comply with all requirements specified by
the Board, the provisions of this section, the mutual holding company'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 Board. Bylaws may be adopted,
amended or repealed by a majority of the votes cast by the members at a
legal meeting or a majority of the mutual holding company's board of
directors. Throughout this section, the term ``trustee'' may be
[[Page 147]]
substituted for the term ``director'' as relevant.
(b) The following requirements are applicable to mutual holding
companies:
(1) Annual meetings of members. A mutual holding company shall
provide for and conduct an annual meeting of its members for the
election of directors and at which any other business of the mutual
holding company 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 subsidiary
savings 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 mutual holding company's fiscal year. At each annual
meeting, the officers shall make a full report of the financial
condition of the mutual holding company 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 mutual holding company 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 subsidiary savings 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
mutual holding company. A similar notice shall be posted in a
conspicuous place in each of the offices of the subsidiary savings
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
subsidiary savings association the members entitled to vote. Such date
shall be not more than 60 days or 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 Board, including the placing of such
proxies on file with the secretary of the mutual holding company, 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 148]]
eleven months or solicited at the expense of the subsidiary savings
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 withSec. 239.12. No
member, however, shall have the right to inspect or copy any portion of
any books or records of a mutual holding company containing:
(i) A list of depositors in or borrowers from the subsidiary savings
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 Board. Each director of the mutual
holding company shall be a member of the mutual holding company.
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.
(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 mutual holding company, their
functions, duties, and powers. The officers of the mutual holding
company 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 mutual holding company, as
between themselves and the mutual holding company, shall have such
authority and perform such duties in the management of the mutual
holding company 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 officer 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
mutual holding company shall elect directors by ballot: Provided, that
in the event of a vacancy on the board, the board of directors may, by
their affirmative vote, fill such vacancy, even if the remaining
directors constitute less than a quorum. A director elected to fill a
vacancy shall be elected to serve only until the next election of
directors by the members. The bylaws shall set out the procedure for the
resignation of a director, which shall be by written notice or by any
other procedure established in the bylaws. Directors may be removed only
for cause as defined inSec. 239.41, by a vote of the holders of a
[[Page 149]]
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 mutual holding company.
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 mutual holding
company 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 mutual holding company
at a legal meeting; and
(B) After receipt of any applicable regulatory approval.
(ii) When a mutual holding company 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 mutual
holding company.
(c) Form of filing--(1) Application requirement. (i) Any bylaw
amendment shall be submitted to the appropriate Reserve Bank for
approval if it would:
(A) Render more difficult or discourage a merger, proxy contest, the
assumption of control by a mutual account holder of the mutual holding
company, 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 mutual holding company's
charter.
(ii) Applications submitted under paragraph (c)(1)(i) of this
section are subject to the processing procedures atSec. 238.14 of this
chapter.
(iii) For purposes of this paragraph (c), bylaw provisions that
adopt the language of the model bylaws contained in Appendix C to this
part, if adopted without change, and filed with Board within 30 days
after adoption, are effective upon adoption. The Board may amend the
model bylaws provided in Appendix C to this part.
[[Page 150]]
(2) Filing requirement. If the proposed bylaw amendment does not
implicate paragraph (c)(1) or (c)(3) of this section, then the mutual
holding company shall submit the amendment to the appropriate Reserve
Bank at least 30 days prior to the date the bylaw amendment is to be
adopted by the mutual holding company.
(3) Corporate governance procedures. A mutual holding company 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)(i) of
this section. If this election is selected, a mutual holding company
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 do not require an application under paragraph
(c)(1)(i) 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 mutual holding
company follows the requirements of its charter and bylaws in adopting
such amendment, unless the Board notifies the mutual holding company
prior to the expiration of the 30-day period that such amendment is
rejected or that such amendment requires an application to be filed
pursuant to paragraph (c)(1) of this section.
(e) Availability of 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 bylaws, including any amendments, and shall deliver
such a copy to any member upon request.
Sec. 239.16 Voluntary dissolution.
(a) A mutual holding company's board of directors may propose a plan
for dissolution of the mutual holding company. All references in this
section to mutual holding company shall also apply to a subsidiary
holding company organized under this part. The plan may provide for
either:
(1) Transfer of all the mutual holding company's assets to another
mutual holding company or home-financing institutions under Federal
charter either for cash sufficient to pay all obligations of the mutual
holding company and retire all outstanding accounts or in exchange for
that mutual holding company's payment of all the mutual holding
company's outstanding obligations and issuance of share accounts or
other evidence of interest to the mutual holding company's members on a
pro rata basis; or
(2) Dissolution in a manner proposed by the directors which they
consider best for all concerned.
(b) The plan, and a statement of reasons for proposing dissolution
and for proposing the plan, shall be submitted to the appropriate
Reserve Bank for approval. The Board will approve the plan if the Board
believes dissolution is advisable and the plan is best for all
concerned. If the Board considers the plan inadvisable, the Board may
either make recommendations to the mutual holding company concerning the
plan or disapprove it. When the plan is approved by the mutual holding
company's board of directors and by the Board, it shall be submitted to
the mutual holding company'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 Board may
require, shall immediately be filed with the Board. When the Board
receives such evidence satisfactory to the Board, it will terminate the
corporate existence of the dissolved mutual holding company and the
mutual holding company's charter shall thereby be canceled.
[[Page 151]]
Subpart C_Subsidiary Holding Companies
Sec. 239.20 Scope.
This subpart applies only to a subsidiary holding company of a
mutual holding company.
Sec. 239.21 Charters.
(a) Charters. The charter of a subsidiary holding company of a
mutual holding company shall be in the form set forth in Appendix B of
this part and may be amended pursuant toSec. 239.22. The Board may
amend the form of charter provided in Appendix B.
(b) Optional charter provision limiting minority stock ownership.
(1) 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, subject to the condition below, 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 subpart E of this part, include in its charter
the provision set forth in paragraph (b)(2) of this section. For
purposes of the charter provision set forth in paragraph (b)(2), the
definitions set forth atSec. 239.22(b)(8) 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 set forth in paragraph (b)(2) of this section 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 subsidiary holding company might adopt such a
charter provision.
(2) 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 subsidiary holding company held by persons other than the subsidiary
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 underSec.
238.12(a)(7) of this chapter.
(c) 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.
Sec. 239.22 Charter amendments.
(a) General. In order to adopt a charter amendment, a subsidiary
holding company must comply with the following requirements:
(1) Board of directors approval. The board of directors of the
subsidiary holding company 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
subsidiary holding company's stock, the removal of incumbent management,
or involve a significant issue of law or policy, the subsidiary holding
company shall file the proposed amendment with and shall obtain the
prior approval of the Board pursuant toSec. 238.14 of this chapter;
and
(ii) Notice requirement. If the proposed charter amendment does not
implicate paragraph (a)(2)(i) of this section and such amendment is
permissible under all applicable laws, rules or regulations, the
subsidiary holding company shall submit the proposed amendments to the
appropriate Reserve Bank, at least 30 days prior to the date the
proposed charter amendment is to be mailed for consideration by the
subsidiary holding company's shareholders.
[[Page 152]]
(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 subsidiary
holding company follows the requirements of its charter in adopting such
amendment, unless the Board notifies the mutual holding company prior to
the expiration of such 30-day period that such amendment is rejected or
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 charter as set forth in Appendix B of this part,
shall be approved at the time of adoption, if adopted without change and
filed with the Board within 30 days after adoption, provided the
subsidiary holding company follows the requirements of its charter in
adopting such amendments.
(1) Title change. Prior to changing its corporate title, a
subsidiary holding company must file with the appropriate Reserve Bank a
written notice indicating the intended change. The Reserve Bank shall
provide to the subsidiary holding company a timely written
acknowledgment stating when the notice was received. If, within 30 days
of receipt of notice, the Reserve Bank or the Board does not notify the
subsidiary holding company of its objection on the grounds that the
title misrepresents the nature of the institution or the services it
offers, the subsidiary holding company may change its title by amending
section 1 of its charter in accordance with this section and the
amendment provisions of its charter.
(2) Home office. A subsidiary holding company may amend its charter
by substituting a new domicile in section 2 of its charter.
(3) Number of shares of stock and par value. A subsidiary holding
company 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 subsidiary holding company 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 subsidiary holding company 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 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), labor, or services actually performed for the 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 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 subsidiary holding company 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
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 of the association or subsidiary holding company
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
[[Page 153]]
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 subsidiary holding company 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 subsidiary holding company 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 or pursuant to the direction of the Board 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 subsidiary holding company in a merger or
consolidation for the subsidiary holding company, shall not be
considered to be such an adverse change.
A description of the different classes and series (if any) of the
subsidiary holding company'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
subsidiary holding company, 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 subsidiary holding
company available for distribution remaining after: (i) Payment or
provision for payment of the subsidiary holding company'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 subsidiary holding company. 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 subsidiary holding company 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 subsidiary holding company;
(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
subsidiary holding company and, if so,
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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 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 subsidiary holding company shall file with the
appropriate Reserve Bank 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 subsidiary holding
company 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 subsidiary holding company 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 subsidiary holding
company is located, a subsidiary holding company 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 subsidiary holding company'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 subsidiary holding company 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 subsidiary
holding company. This limitation shall not apply to a transaction in
which the subsidiary holding company 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 underSec. 238.12(a) of this chapter.
In the event shares are acquired in violation of this section 8, all
shares beneficially owned by any person in excess of 10 percent 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 subsidiary holding
company.
(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,
[[Page 155]]
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 subsidiary holding company or
amendments to its charter shall be called only upon direction of the
board of directors.
(c) Anti-takeover provisions. The Board 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 subsidiary holding company shall file as part of its
application for approval an opinion, acceptable to the Board, of counsel
independent from the subsidiary holding company that the proposed
charter provision would be permitted to be adopted by a corporation
chartered by the state in which the principal office of the subsidiary
holding company is located. Any such provision must be consistent with
applicable statutes, regulations, and Board policies. Further, any such
provision that would have the effect of rendering more difficult a
change in control of the subsidiary holding company 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 subsidiary holding company that has
amended its charter may apply to have its charter, including the
amendments, reissued by the Board. Such requests for reissuance should
be filed with the appropriate Reserve Bank, and contain signatures
required by the charter in Appendix B to this part, together with such
supporting documents as needed to demonstrate that the amendments were
properly adopted.
Sec. 239.23 Bylaws.
(a) General. At its first organizational meeting, the board of
directors of a subsidiary holding company 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
subsidiary holding company in accordance with the requirements of
Sec.Sec. 239.26, 239.27, 239.28, and 239.29 and shall not contain any
provision that is inconsistent with those sections or with applicable
laws, rules, regulations or the subsidiary holding company's charter,
except that a bylaw provision inconsistent with Sec.Sec. 239.26,
239.27, 239.28, and 239.29 may be adopted with the approval of the
Board.
(b) Form of filing --(1) Application requirement.
(i) Any bylaw amendment shall be submitted to the appropriate
Reserve Bank 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 subsidiary holding company's stock, or the removal of incumbent
management; or
(B) Be inconsistent with Sec.Sec. 239.26, 239.27, 239.28, and
239.29, with applicable laws, rules, regulations or the subsidiary
holding company'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 the processing procedures underSec. 238.14 of
this chapter;
(iii) For purposes of this paragraph (b), bylaw provisions that
adopt the language of the model bylaws contained in Appendix D to this
part, if adopted without change and filed with Board within 30 days
after adoption, are effective upon adoption. The Board may amend the
model bylaws provided in Appendix D.
(2) Filing requirement. If the proposed bylaw amendment does not
implicate paragraph (b)(1) or (b)(3) of this section and is permissible
under all applicable laws, rules, or regulations, the subsidiary holding
company shall submit the amendment to the appropriate Reserve Bank at
least 30 days prior to the date the bylaw amendment is to be
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adopted by the subsidiary holding company.
(3) Corporate governance procedures. A subsidiary holding company
may elect to follow the corporate governance procedures of: The laws of
the state where the main office of the subsidiary holding company is
located; 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)(i) of this section. If this election is
selected, a subsidiary holding company shall designate in its bylaws the
provision or provisions from the body or bodies of law selected for its
corporate governance procedures, and shall file a copy of such bylaws,
which are effective upon adoption, within 30 days after adoption. The
submission shall indicate, where not obvious, why the bylaw provisions
do not require an application under paragraph (b)(1)(i) 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 subsidiary holding
company follows the requirements of its charter and bylaws in adopting
such amendment, unless the Board notifies the subsidiary holding company
prior to the expiration of such 30-day period that such amendment is
rejected or 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
subsidiary holding company to engage in any transaction shall be
determined only by the subsidiary holding company's charter or bylaws
then in effect, unless otherwise provided by Federal law or regulation.
Sec. 239.24 Issuances of stock by subsidiary holding companies of
mutual holding companies.
(a) Requirements. No subsidiary holding company of a mutual holding
company 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 subsidiary holding company's acquisition by
the mutual holding company, unless the subsidiary holding company
obtains advance approval of each such issuance from the Board. Approval
of a mutual holding company reorganization filed pursuant toSec.
239.3(a) 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 Board. The Board shall
approve any proposed issuance that meets each of the criteria set forth
below in paragraphs (a)(1) through (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 bySec. 239.25.
(2) The Stock Issuance Plan is consistent with the terms of the
subsidiary holding company'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 subsidiary holding
company, its mutual holding company parent, and any subsidiary savings
associations of the subsidiary holding company with fully sufficient
capital and would not be inequitable or detrimental to the subsidiary
holding company 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 Board shall review the reasonableness of the proposed
price or price range.
(5) The aggregate amount of outstanding common stock of the
subsidiary holding company 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 percent of the subsidiary
holding company's total outstanding common stock, unless the subsidiary
holding company was a stock holding company when acquired by the mutual
holding
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company, in which case the foregoing restriction shall not apply. Any
amount of preferred stock may be issued by any subsidiary holding
company of a mutual holding company to persons other than the subsidiary
holding company's mutual holding company, consistent with any other
applicable laws and regulations.
(6) The subsidiary holding company furnishes the information
required by the Board in connection with the proposed issuance.
(7) The proposed stock issuance meets the convenience and needs
standard ofSec. 239.55(g).
(8) The proposed issuance complies with all other applicable laws
and regulations.
(9) Unless otherwise determined by the Board, the limitations on the
minimum and maximum amounts of the estimated price range required by
Sec. 239.59(c) shall apply.
(b) Related approvals. Approval by the Board of any stock issuance
pursuant to this section shall also be deemed to constitute:
(1) Approval 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) Approval 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
Board or that the stock has been approved or disapproved by the Board or
that the Board 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 subsidiary holding company 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 Board.
(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 withSec. 239.59 and, to the extent applicable, the form
or forms specified by the Board; and
(ii) Provide that the offering be structured in a manner similar to
a standard conversion under subpart E of this part, including the stock
purchase priorities accorded members of the issuing subsidiary holding
company's mutual holding company, unless the subsidiary holding company
would qualify for a supervisory conversion if it were to undertake a
conversion under subpart E of this part; or demonstrates to the
satisfaction of the Board that a non-conforming issuance would be more
beneficial to the savings association and subsidiary holding company
compared to a conforming offering, considering, in the aggregate,
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the effect of each on the savings association and subsidiary holding
company's financial and managerial resources and future prospects, the
effect of the issuance upon the savings association and subsidiary
holding company, 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 (c)(6)(ii) of this
section, a subsidiary holding company 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 subpart E of this
part.
(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. 239.64(b) to 239.64(f), provided such contribution does
not result in any taxes on excess business 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 subpart E of this part shall apply to all
mutual holding company stock issuances and subsidiary holding company
stock issuances under this section, unless clearly inapplicable, as
determined by the Board. For purposes of this paragraph, the term
conversion as it appears in the provisions of subpart E of this part
shall refer to the stock issuance, and the term mutual holding company
shall refer to the subsidiary holding company undertaking the stock
issuance.
Sec. 239.25 Contents of Stock Issuance Plans.
(a) Mandatory provisions. Each of the provisions mandatory for all
stock issuance plans under this paragraph (a) 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 inSec. 239.65(f) 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;
(2) Provide that the aggregate amount of outstanding common stock of
the subsidiary holding company 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 fifty percent of the
subsidiary holding company's total outstanding common stock (This
provision may be omitted if the proposed issuance will be conducted by a
subsidiary holding company that was in the stock form when acquired by
its mutual holding company parent);
(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 subsidiary holding company's common stock or
4.9 percent of the subsidiary holding company'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 subsidiary holding company's common stock
or 4.9 percent of the subsidiary holding company's stockholders' equity
at the close of the proposed issuance. However, if the subsidiary
holding company's tangible capital equals at least ten percent at the
time of implementation of the plan, the Board 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 subsidiary holding
company or 1.47 percent of the subsidiary
[[Page 159]]
holding company's stockholders' equity at the close of the proposed
issuance. However, if the subsidiary holding company's tangible capital
is at least ten percent at the time of implementation of the plan, the
Board may permit MRPs to encompass, in the aggregate, up to 1.96 percent
of the outstanding shares of the subsidiary holding company's common
stock or 1.96 percent of the savings subsidiary holding company'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
subsidiary holding company's outstanding common stock at the close of
the proposed issuance or 4.9 percent of the subsidiary holding company'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: the proposed
issuance, or any subsequent issuance that is made in substantial
conformity with the purchase prioritiesSec. 239.59(a) set forth in
subpart E of this part, 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 subsidiary holding company and subsidiary savings association and
associates of insiders of the subsidiary holding company and subsidiary
savings association, must not exceed the following percentages of common
stock or stockholders' equity of the subsidiary holding company, held by
persons other than the subsidiary holding company'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) of this
section 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 subpart E of this part.
(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
subsidiary holding company's mutual holding company parent at the close
of the proposed issuance;
(10) Provide that the issuance shall be conducted in compliance
with, to the extent applicable, the forms required by the Board;
(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. 239.24;
(12) Provide that, if at the close of the stock issuance the
subsidiary holding company has more than thirty-five shareholders of any
class of stock, the subsidiary holding company shall promptly register
that class of stock
[[Page 160]]
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
subsidiary holding company has more than one hundred shareholders of any
class of stock, the subsidiary holding company 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 subsidiary holding company or his
or her associates shall purchase, without the prior written approval of
the Board, any stock of the subsidiary holding company 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 subsidiary holding
company even if such stock is attributable to insiders of the subsidiary
holding company and subsidiary savings association or their associates;
(15) Provide that stock purchased by insiders of the subsidiary
holding company and subsidiary savings 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 subsidiary
holding company'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 subsidiary holding company 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 subsidiary holding company;
(18) Provide that, if necessary, the subsidiary holding company'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 subsidiary holding company as a result of comments from
regulatory authorities or otherwise prior to approval of the Plan by the
Board, and at any time thereafter with the concurrence of the Board; 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 Board, and at any time
thereafter with the concurrence of the Board;
(21) Provide that, unless an extension is granted by the Board, the
Stock Issuance Plan shall be terminated if not completed within 90 days
of the date of such approval; or
(22) Provide that the subsidiary holding company may make scheduled
discretionary contributions to a tax-qualified employee stock benefit
plan provided such contributions do not cause the subsidiary holding
company 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
[[Page 161]]
or at any time after the mailing to the members of the reorganizing
association and any acquiree association of any proxy statement(s). 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
subsidiary holding company not sold in the offering may be sold in such
other manner as provided in the Stock Issuance Plan, with the Board's
approval;
(3) Provide that the subsidiary holding company 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 inSec. 239.24 to stock
shall apply to such units of equity securities unless the context
otherwise requires; or
(4) Provide that the subsidiary holding company 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 ofSec. 239.63(a)(1) to minority
stock issuances. NotwithstandingSec. 239.24(d),Sec. 239.63(a)(1)(ii)
do not apply to minority stock issuances, because 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 239.63(a)(4) through (a)(14), apply for
one year after the subsidiary holding company engages in a minority
stock issuance that is conducted in accordance with the purchase
priorities set forth in subpart E of this part. In addition to the
shareholder vote requirement for Option Plans and MRPs set forth at
Sec. 239.63(a)(1)(vi), 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 subpart E of this part must be
approved by a majority of the votes cast by stockholders other than the
mutual holding company.
Sec. 239.26 Shareholders.
(a) Shareholder meetings. An annual meeting of the shareholders of
the subsidiary holding company for the election of directors and for the
transaction of any other business of the subsidiary holding company
shall be held annually within 150 days after the end of the subsidiary
holding company's fiscal year. Unless otherwise provided in the
subsidiary holding company'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 subsidiary holding company. 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 subsidiary savings 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 natural 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 subsidiary
holding company 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
subsidiary holding company that is wholly owned shall not be subject to
the shareholder notice requirement.
[[Page 162]]
(c) Fixing of record date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors shall
fix in advance a date as the record date for any such determination of
shareholders. Such date in any case shall be not more than 60 days and,
in case of a meeting of shareholders, not less than 10 days prior to the
date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any
adjournment thereof.
(d) Voting lists. (1) At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer
books for the shares of the subsidiary holding company 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 subsidiary
holding company 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 subsidiary holding company 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 subsidiary holding company in performance
of the act or acts required.
(e) Shareholder quorum. A majority of the outstanding shares of the
subsidiary holding company 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 subsidiary holding company'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, 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 subsidiary holding company. Neither
treasury shares of its own stock held by the subsidiary holding company
nor shares held by another corporation, if a majority of
[[Page 163]]
the shares entitled to vote for the election of directors of such other
corporation are held by the subsidiary holding company, 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
subsidiary holding company at least five days prior to the date of the
annual meeting. Ballots bearing the names of all the natural persons
nominated shall be provided for use at the annual meeting.
(h) Informal action by stockholders. If the bylaws of the subsidiary
holding company 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.
Sec. 239.27 Board of directors.
(a) General powers and duties. The business and affairs of the
subsidiary holding company 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 Board. 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 subsidiary holding company 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 Board.
(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 inSec. 239.41, by a vote of the
holders of a majority of the shares then entitled to vote at an election
of directors. Subsidiary holding companies 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
[[Page 164]]
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 subsidiary holding company, 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 subsidiary holding company; 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 subsidiary holding company otherwise than in the usual and regular
course of its business; a voluntary dissolution of the subsidiary
holding company; a revocation of any of the foregoing; or the approval
of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest. The
designation of any committee and the delegation of authority thereto
shall not operate to 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 subsidiary holding
company who is present at a meeting of the board of directors at which
action on any subsidiary holding company 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 individual acting
as the secretary of the meeting before the adjournment thereof or shall
be forwarded by registered mail to the secretary of the subsidiary
holding company 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 subsidiary holding company may
provide a bylaw on age limitation for directors. Bylaws on age
limitations must comply with all Federal laws, rules and regulations.
Sec. 239.28 Officers.
(a) Positions. The officers of the subsidiary holding company 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 individual 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 subsidiary holding company may require.
[[Page 165]]
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 subsidiary holding
company will be served thereby; but such removal, other than for cause,
shall be without prejudice to the contractual rights, if any, of the
individual so removed. Employment contracts shall conform withSec.
239.41.
(c) Age limitation on officers. A subsidiary holding company may
provide a bylaw on age limitation for officers. Bylaws on age
limitations must comply with all Federal laws, rules, and regulations.
Sec. 239.29 Certificates for shares and their transfer.
(a) Certificates for shares. Certificates representing shares of
capital stock of the subsidiary holding company shall be in such form as
shall be determined by the board of directors and approved by the Board.
The certificates shall be signed by the chief executive officer or by
any other officer of the subsidiary holding company 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 subsidiary holding company 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
subsidiary holding company. All certificates surrendered to the
subsidiary holding company 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 subsidiary holding company
as the board of directors may prescribe.
(b) Transfer of shares. Transfer of shares of capital stock of the
subsidiary holding company 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 subsidiary holding company. 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 subsidiary holding company shall be deemed by the
subsidiary holding company to be the owner for all purposes.
Sec. 239.30 Annual reports; books and records.
(a) Annual reports to stockholders. A subsidiary holding company 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 subsidiary holding company,
together with a copy of the report, shall be transmitted by the
subsidiary holding company to the appropriate Reserve Bank.
(b) Books and records. (1) Each subsidiary holding company 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
[[Page 166]]
and series, if any, of the shares held by each.
(2) Any stockholder or group of stockholders of a subsidiary holding
company, holding of record the number of voting shares of such
subsidiary holding company specified below, upon making written demand
stating a proper purpose, shall have the right to examine, in person or
by agent or attorney, at any reasonable time or times, nonconfidential
portions of its books and records of account, minutes and record of
stockholders and to make extracts therefrom. Such right of examination
is limited to a stockholder or group of stockholders holding of record:
(i) Voting shares having a cost of not less than $100,000 or
constituting not less than one percent of the total outstanding voting
shares, provided in either case such stockholder or group of
stockholders have held of record such voting shares for a period of at
least six months before making such written demand, or
(ii) Not less than five percent of the total outstanding voting
shares.
No stockholder or group of stockholders of a subsidiary holding
company 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.
(3) The right to examination authorized by paragraph (b)(2) of this
section and the right to inspect the list of stockholders provided by a
subsidiary holding company'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 subsidiary holding company, 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 subsidiary holding company, 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 subsidiary holding
company 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.
(4) 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 subsidiary
holding company containing:
(i) A list of depositors in or borrowers from such subsidiary
holding company;
(ii) Their addresses;
(iii) Individual deposit or loan balances or records; or
(iv) Any data from which such information could be reasonably
constructed.
Sec. 239.31 Indemnification; employment contracts.
(a) Restrictions on indemnification. The provisions ofSec. 239.40
shall apply to subsidiary holding companies.
(b) Restrictions on employment contracts. The provisions ofSec.
239.41 and any policies of the Board thereunder shall apply to
subsidiary holding companies.
Subpart D_Indemnification; Employment Contracts
Sec. 239.40 Indemnification of directors, officers and employees.
A mutual holding company 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 means any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal, or otherwise, including
any appeal or other proceeding for review;
(ii) Court includes, without limitation, any court to which or in
which any appeal or any proceeding for review is brought.
(iii) 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.
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(iv) 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 mutual holding company, shall include legal
representatives, successors, and assigns thereof.
(b) General. Subject to paragraphs (c) and (g) of this section, a
mutual holding company shall indemnify any person against whom an action
is brought or threatened because that person is or was a director,
officer, or employee of the mutual holding company, 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 mutual holding
company 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 mutual holding company or its members.
However, no indemnification shall be made unless the mutual holding
company gives the Board 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 appropriate Reserve Bank, 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
Board advises the mutual holding company in writing, within such notice
period, of its objection to the indemnification.
(d) Insurance. A mutual holding company 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 mutual holding company may obtain
insurance which provides for payment of losses of any individual
incurred as a consequence of his or her willful or criminal misconduct.
(e) Payment of expenses. If a majority of the directors of a mutual
holding company 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 shall prevent the
directors of a mutual holding company from imposing such conditions on a
payment of expenses as they deem warranted and in the interests of the
mutual holding company. Before making advance payment of expenses under
this paragraph, the mutual holding company shall obtain an agreement
that the mutual holding company 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 mutual holding company 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, a mutual holding company 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.
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(g) The indemnification provided for in paragraph (b) of this
section is subject to and qualified by 12 U.S.C. 1821(k).
Sec. 239.41 Employment contracts.
(a) General. A mutual holding company 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 the respective mutual
holding company's board of directors. A mutual holding company 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 mutual holding company 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 mutual holding company. 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 mutual holding company's board of directors may terminate
the officer or employee's employment at any time, but any termination by
the mutual holding company'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 mutual holding
company'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
mutual holding company'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 mutual
holding company 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 mutual holding
company'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 mutual holding company 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 subsidiary 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) shall not affect any vested rights of
the contracting parties: Provided, that this paragraph (b) need not be
included in an employment contract if prior written approval is secured
from the Board.
(5) If the mutual holding company is subject to bankruptcy
proceedings under title 11 of the United States Code, all obligations of
the mutual holding company under the contract shall terminate as of the
date that the petition is filed, but vested rights of the contracting
parties shall not be affected: Provided, that this paragraph (b) need
not be included in an employment contract if prior written approval is
secured from the Board.
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(6) All obligations under the contract shall be terminated, except
to the extent determined that continuation of the contract is necessary
to the continued operation of the mutual holding company--
(i) By the Board, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on
behalf of the subsidiary savings association under the authority
contained in 13(c) of the Federal Deposit Insurance Act; or
(ii) By the Board, at the time the Board approves a supervisory
merger to resolve problems related to operation of the mutual holding
company or when the mutual holding company is determined by the Board to
be in an unsafe or unsound condition.
Subpart E_Conversions From Mutual to Stock Form
Sec. 239.50 Purpose and scope.
(a) General. This subpart governs how a mutual holding company may
convert from the mutual to the stock form of ownership. This subpart
supersedes all inconsistent charter and bylaw provisions of mutual
holding companies converting to stock form.
(b) Prescribed forms. A mutual holding company must use the forms
prescribed under this subpart and provide such information as the Board
may require under the forms by regulation or otherwise. The forms
required under this subpart include: Form AC (Application for
Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); and
Form OF (Order Form).
(c) Waivers. The Board may waive any requirement of this subpart or
a provision in any prescribed form. To obtain a waiver, a mutual holding
company must file a written request with the Board that:
(1) Specifies the requirement(s) or provision(s) that the mutual
holding company wants the Board to waive;
(2) Demonstrates that the waiver is equitable; is not detrimental to
the mutual holding company, mutual members, or other mutual holding
companies or 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 waiver of the requirement or provision.
Sec. 239.51 Acquiring another insured stock depository institution
as part of a conversion.
When a mutual holding company converts to stock form, the subsidiary
savings association may acquire for cash or stock another insured
depository institution that is already in the stock form of ownership.
Sec. 239.52 Definitions.
The following definitions apply to this subpart and the forms
prescribed under this subpart:
(a) Association members or members are persons who, under applicable
law, are eligible to vote at the meeting on conversion.
(b) Eligibility record date is the date for determining eligible
account holders. The eligibility record date must be at least one year
before the date that the board of directors adopts the plan of
conversion.
(c) Eligible account holders are any persons holding qualifying
deposits on the eligibility record date.
(d) IRS is the United States Internal Revenue Service.
(e) Local community includes:
(1) Every county, parish, or similar governmental subdivision in
which the mutual holding company has a home or branch office;
(2) Each county's, parish's, or subdivision's metropolitan
statistical area;
(3) All zip code areas in the mutual holding company's Community
Reinvestment Act assessment area; and
(4) Any other area or category the mutual holding company sets out
in its plan of conversion, as approved by the Board.
(f) Mutual holding company has the same meaning in this subpart as
that term is given in subpart A. For purposes of this subpart,
references to mutual holding company shall also include a resulting
stock holding company, where applicable.
(g) Offer, offer to sell, or offer for sale is an attempt or offer
to dispose of, or
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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 the
mutual holding company or resulting stock holding company, are not
offers, offers to sell, or offers for sale.
(h) Proxy soliciting material includes a proxy statement, form of
proxy, or other written or oral communication regarding the conversion.
(i) Purchase or buy includes every contract to acquire a security or
interest in a security for value.
(j) 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. The mutual holding company's plan
of conversion may provide that only savings accounts with total deposit
balances of $50 or more will qualify.
(k) Resulting stock holding company means the stock savings and loan
holding company that is issuing stock in connection with conversion of a
mutual holding company pursuant to this subpart.
(l) 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 the Board is not a sale.
(m) 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 the 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.
(n) Subscription offering is the offering of shares through
nontransferable subscription rights to:
(1) Eligible account holders underSec. 239.59(h);
(2) Tax-qualified employee stock ownership plans underSec.
239.59(m);
(3) Supplemental eligible account holders underSec. 239.59(h); and
(4) Other voting members underSec. 239.59(j).
(o) 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 the Board
approves the conversion and will occur only if the Board has not
approved the conversion within 15 months of the eligibility record date.
(p) Supplemental eligible account holders are any persons, except
officers, directors, and their associates of the mutual holding company
or subsidiary savings association, holding qualifying deposits on the
supplemental eligibility record date.
(q) Underwriter is any person who purchases any securities from the
mutual holding company or resulting stock holding company with a view to
distributing the securities, offers or sells securities for the mutual
stock holding company or resulting stock holding company 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.
Sec. 239.53 Prior to conversion.
(a) Pre-filing meeting and consultation. (1) The mutual holding
company's board, or a subcommittee of the board, may meet with the staff
of the appropriate Reserve Bank or Board staff before the mutual holding
company's board of directors votes on the plan of conversion. At that
meeting the mutual holding company may provide the Reserve Bank or Board
staff with a written strategic plan that outlines the objectives of the
proposed conversion and the intended use of the conversion proceeds.
(2) The mutual holding company should also consult with the Board or
appropriate Reserve Bank before it files its application for conversion.
The Reserve Bank or Board will discuss the information that the mutual
holding
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company must include in the application for conversion, general issues
that the mutual holding company may confront in the conversion process,
and any other pertinent issues.
(b) Business plan. (1) Prior to filing an application for
conversion, the mutual holding company must adopt a business plan
reflecting the mutual holding company's intended plans for deployment of
the proposed conversion proceeds. The business plan is required, under
Sec. 239.55(b), to be included in the mutual holding company's
conversion application. At a minimum, the business plan must address:
(i) The subsidiary savings association's projected operations and
activities for three years following the conversion. The business plan
must describe how the conversion proceeds will be deployed at the
savings association (and holding company, if applicable), what
opportunities are available to reasonably achieve the planned deployment
of conversion proceeds in the relevant proposed market areas, and how
its 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. The business plan must
include three years of projected financial statements. The business plan
must provide that the subsidiary savings associations receive at least
50 percent of the net conversion proceeds. The Board may require that a
larger percentage of proceeds be contributed to the subsidiary savings
associations.
(ii) The mutual holding company's plan for deploying conversion
proceeds to meet credit and lending needs in the proposed market areas.
The Board 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.
(iii) The risks associated with the plan for deployment of
conversion proceeds, and the effect of this plan on management
resources, staffing, and facilities.
(iv) The expertise of the mutual holding company and saving
association subsidiary's management and board of directors, or that the
mutual holding company has planned for adequate staffing and controls to
prudently manage the growth, expansion, new investment, and other
operations and activities proposed in its business plan.
(2) The mutual holding company 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.
(c) Management and board review of business plan. (1) The chief
executive officer and members of the board of directors of the mutual
holding company must review, and at least two-thirds of the board of
directors must approve, the business plan.
(2) The chief executive officer and at least two-thirds of the board
of directors of the mutual holding company 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. The mutual holding company must
submit these certifications with its business plan, as part of the
conversion application under paragraph (b) of this section.
(d) Board review of the business plan. (1) The Board will review the
business plan to determine whether it demonstrates a safe and sound
deployment of conversion proceeds, as part of its review of the
conversion application. In making its determination, the Board will
consider how the mutual holding company has addressed the applicable
factors of paragraph (b) of this section. No single factor will be
determinative. The Board will review every case on its merits.
(2) The mutual holding company must file its business plan with the
appropriate Reserve Bank. The Board or appropriate Reserve Bank may
request additional information, if necessary, to support its
determination under paragraph (d)(1) of this section. The mutual holding
company must file its business plan as a confidential exhibit to the
Form AC.
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(3) If the Board approves the application for conversion and the
mutual holding company completes the conversion, the resulting stock
holding company must operate within the parameters of the business plan.
The Board must approve any material deviation from the business plan in
writing prior to such material deviation.
(e) Disclosure of business plan.
(1) The mutual holding company may discuss information about the
conversion with individuals that it authorizes to prepare documents for
the conversion.
(2) Except as permitted under paragraph (e)(1) of this section, the
mutual holding company must keep all information about the conversion
confidential until the board of directors adopts the plan of conversion.
(3) If the mutual holding company violates this section, the Board
may require it to take remedial action. For example, the Board may
require the mutual holding company to take any or all of the following
actions:
(i) Publicly announce that the mutual holding company is considering
a conversion;
(ii) Set an eligibility record date acceptable to the Board;
(iii) Limit the subscription rights of any person who violates or
aids in a violation of this section; or
(iv) Take any other action to ensure that the conversion is fair and
equitable.
Sec. 239.54 Plan of conversion.
(a) Adoption by the board of directors. Prior to filing an
application for conversion, the board of directors of the mutual holding
company must adopt a plan of conversion that conforms to Sec.Sec.
239.59 through 239.62 and 239.63(b). The board of directors must adopt
the plan by at least a two-thirds vote. The plan of conversion is
required, underSec. 239.55(b), to be included in the conversion
application.
(b) Contents of the plan of conversion. The mutual holding company
must include the information included in Sec.Sec. 239.59 through
239.62 and 239.63(b) in the plan of conversion. The Board may require
the mutual holding company to delete or revise any provision in the plan
of conversion if the Board determines the provision is inequitable; is
detrimental to the mutual holding company, the account holders, other
mutual holding companies, or other savings associations; or is contrary
to public interest.
(c) Notice of board of directors' approval of the plan of
conversion. (1) Notice. The mutual holding company must promptly notify
its members that the board of directors adopted a plan of conversion and
that a copy of the plan is available for the members' inspection in the
mutual holding company's home office and in each of the subsidiary
savings association's branch offices. The mutual holding company must
mail a letter to each member or publish a notice in the local newspaper
in every local community where the savings association has an office.
The mutual holding company may also issue a press release. The Board may
require broader publication, if necessary, to ensure adequate notice to
the members.
(2) Contents of notice. The mutual holding company may include any
of the following statements and descriptions in the letter, notice, or
press release.
(i) The board of directors adopted a proposed plan to convert from
mutual to stock form.
(ii) The mutual holding company will send its members a proxy
statement with detailed information on the proposed conversion before
the mutual holding company convenes a members' meeting to vote on the
conversion.
(iii) The 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.
(iv) The mutual holding company will not vote existing proxies to
approve or disapprove the conversion. The mutual holding company will
solicit new proxies for voting on the proposed conversion.
(v) The Board must approve the conversion before the conversion will
be effective. The members will have an opportunity to file written
comments, including objections and materials supporting the objections,
with the Board.
(vi) The IRS must issue a favorable tax ruling, or a tax expert must
issue
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an appropriate tax opinion, on the tax consequences of the conversion
before the Board will approve the conversion. The ruling or opinion must
indicate the conversion will be a tax-free reorganization.
(vii) The Board might not approve the conversion, and the IRS or a
tax expert might not issue a favorable tax ruling or tax opinion.
(viii) Savings account holders will continue to hold accounts in the
savings association with the same dollar amounts, rates of return, and
general terms as existing deposits. The FDIC will continue to insure the
accounts.
(ix) The mutual holding company's conversion will not affect
borrowers' loans, including the amount, rate, maturity, security, and
other contractual terms.
(x) The savings association's business of accepting deposits and
making loans will continue without interruption.
(xi) The current management and staff will continue to conduct
current services for depositors and borrowers under current policies and
in existing offices.
(xii) The subsidiary savings association may continue to be a member
of the Federal Home Loan Bank System.
(xiii) The mutual holding company may substantively amend the
proposed plan of conversion before the members' meeting.
(xiv) The mutual holding company may terminate the proposed
conversion.
(xv) After the Board approves the proposed conversion, the mutual
holding company will send proxy materials providing additional
information. After the mutual holding company sends proxy materials,
members may telephone or write to the mutual holding company with
additional questions.
(xvi) The proposed record date for determining the eligible account
holders who are entitled to receive subscription rights to purchase the
shares.
(xvii) A brief description of the circumstances under which
supplemental eligible account holders will receive subscription rights
to purchase the shares.
(xviii) A brief description of how voting members may participate in
the conversion.
(xix) A brief description of how directors, officers, and employees
will participate in the conversion.
(xx) A brief description of the proposed plan of conversion.
(xxi) The par value (if any) and approximate number of shares that
will be issued and sold in the conversion.
(3) Other requirements.
(i) The mutual holding company may not solicit proxies, provide
financial statements, describe the benefits of conversion, or estimate
the value of the shares upon conversion in the letter, notice, or press
release.
(ii) If the mutual holding company responds to inquiries about the
conversion, it may address only the matters listed in paragraph (c)(2)
of this section.
(d) Amending a plan of conversion. The mutual holding company may
amend its plan of conversion before it solicits proxies. After the
mutual holding company solicits proxies, it may amend the plan of
conversion only if the Board concurs.
Sec. 239.55 Filing requirements.
(a) Applications under this subpart. Any filing with the Board
required under this subpart must be filed in accordance withSec.
238.14 of this chapter. The Board will review any filing made under this
subpart in accordance withSec. 238.14 of this chapter.
(b) Requirements. (1) The application for conversion must include
all of the following information.
(i) A plan of conversion meeting the requirements ofSec.
239.54(b).
(ii) Pricing materials meeting the requirements paragraph (g)(2) of
this section.
(iii) Proxy soliciting materials underSec. 239.57(d), including:
(A) A preliminary proxy statement with signed financial statements;
(B) A form of proxy meeting the requirements ofSec. 239.57(b); and
(C) Any additional proxy soliciting materials, including press
releases, personal solicitation instructions, radio or television
scripts that the mutual holding company plans to use or furnish to the
members, and a legal opinion indicating that any marketing materials
comply with all applicable securities laws.
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(iv) An offering circular described inSec. 239.58(a).
(v) The documents and information required by Form AC. The mutual
holding company may obtain Form AC from the appropriate Reserve Bank and
the Board's Web site (http://www.federalreserve.gov).
(vi) 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).
(vii) The business plan, submitted as a separately bound,
confidential exhibit. See paragraph (c) of this section.
(viii) Any additional information the Board requests.
(2) The Board 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.
(c) Filing an application for conversion. (1) The mutual holding
company must file the application for conversion on Form AC with the
appropriate Reserve Bank.
(2) Upon receipt of an application under this subpart, the Reserve
Bank will promptly furnish notice and a copy of the application to the
primary federal supervisor of any subsidiary savings association. The
primary supervisor will have 30 calendar days from the date of the
letter giving notice in which to submit its views and recommendations to
the Board.
(d) Confidential treatment of portions of an application for
conversion. (1) The Board makes all filings under this subpart available
to the public, but may keep portions of the application for conversion
confidential under paragraph (d)(2) of this section.
(2) The mutual holding company may request the Board keep portions
of the application confidential. To do so, the mutual holding company
must separately bind and clearly designate as ``confidential'' any
portion of the application for conversion that the mutual holding
company deems confidential. The mutual holding company must provide a
written statement specifying the grounds supporting the request for
confidentiality. The Board will not treat as confidential the portion of
the application describing how the mutual holding company plans to meet
the Community Reinvestment Act (CRA) objectives. The CRA portion of the
application may not incorporate by reference information contained in
the confidential portion of the application.
(3) The Board will determine whether confidential information must
be made available to the public under 5 U.S.C. 552 and part 261 of this
chapter. The Board will advise the mutual holding company before it
makes information the mutual holding company designated as
``confidential'' available to the public.
(e) Amending an application for conversion. To amend an application
for conversion, the mutual holding company must:
(1) File an amendment with an appropriate facing sheet;
(2) Number each amendment consecutively;
(3) Respond to all issues raised by the Board; and
(4) Demonstrate that the amendment conforms to all applicable
regulations.
(f) Notice of filing of application and comment process--(1) Public
notice of an application for conversion. (i) The mutual holding company
must publish a public notice of the application for conversion in
accordance with the procedures inSec. 238.14 of this chapter. The
mutual holding company must simultaneously prominently post the notice
in its home office and in all of the branch offices of its subsidiary
savings associations.
(ii) Promptly after publication, the mutual holding company must
file a copy of any public notice and an affidavit of publication from
each publisher with the appropriate Reserve Bank.
(iii) If the Board does not accept the application for conversion
underSec. 239.55(g) and requires the mutual holding company to file a
new application, the mutual holding company must publish and post a new
notice and allow an additional 30 days for comment.
(2) Public comments. Commenters may submit comments on the
application in accordance with the procedures in
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Sec. 238.14 of this chapter. A commenter must file any comments with
the appropriate Reserve Bank.
(g) Board review of the application for conversion--(1) Board action
on a conversion application. The Board may approve an application for
conversion only if:
(i) The conversion complies with this subpart;
(ii) The mutual holding company will meet all applicable regulatory
capital requirements after the conversion; and
(iii) The conversion will not result in a taxable reorganization
under the Internal Revenue Code of 1986, as amended.
(2) Board review of appraisal. The Board will review the appraisal
required by paragraph (b)(1)(ii) of this section in determining whether
to approve the application. The Board will review the appraisal under
the following requirements.
(i) Independent persons experienced and expert in corporate
appraisal, and acceptable to the Board, must prepare the appraisal
report.
(ii) An affiliate of the appraiser may serve as an underwriter or
selling agent, if the mutual holding company ensures 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.
(iii) The appraiser may not receive any fee in connection with the
conversion other than for appraisal services.
(iv) 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.
(v) If the appraisal is based on a capitalization of the 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.
(vi) If the appraisal is based on a comparison of the 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.
(vii) The Board 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.
(viii) The mutual holding company may not represent or imply that
the Board has approved the appraisal.
(3) Board review of compliance record. The Board will review the
compliance record of the subsidiary savings association under the
regulations applicable to the savings association and the business plan
to determine how the conversion will affect the convenience and needs of
its communities.
(i) Based on this review, the Board may approve the application,
deny the application, or approve the application on the condition that
the resulting stock holding company will improve the CRA performance or
will address the particular credit or lending needs of the communities
that it will serve.
(ii) The Board may deny the application if the business plan does
not demonstrate that the proposed use of conversion proceeds will help
the resulting stock holding company to meet the credit and lending needs
of the communities that the resulting stock holding company will serve.
(4) The Board may request that the mutual holding company amend the
application if further explanation is necessary, material is missing, or
material must be corrected.
(5) The Board will deny the application if the application does not
meet the requirements of this subpart, unless the Board waives the
requirement underSec. 239.50(c).
(h) Judicial review. (1) Any person aggrieved by the Board's final
action on the 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.
1467a(j), which provisions shall apply in all respects as if such final
action were an order, subject to paragraph (h)(2) of this section.
[[Page 176]]
(2) To obtain court review of the action, the aggrieved person must
file a written petition requesting that the court modify, terminate, or
set aside the final Board action. The aggrieved person must file the
petition with the court within the later of 30 days after the Board
publishes notice of its final action in the Federal Register or 30 days
after the mutual holding company mails the proxy statement to its
members underSec. 239.56(c).
Sec. 239.56 Vote by members.
(a) Mutual member approval of the plan of conversion
(1) After the Board approves the plan of conversion, the mutual
holding company must submit the plan of conversion to its members for
approval. The mutual holding company must obtain this approval at a
meeting of its members.
(2) The members must approve the plan of conversion by a majority of
the total outstanding votes.
(3) The members may vote in person or by proxy.
(4) The mutual holding company may notify eligible account holders
or supplemental eligible account holders who are not voting members of
the proposed conversion. The mutual holding company may include only the
information inSec. 239.54(c) in the notice.
(b) Eligibility to vote for the plan of conversion. The mutual
holding company determines members' eligibility to vote by setting a
voting record date. The mutual holding company must set a voting record
date that is not more than 60 days nor less than 20 days before the
meeting.
(c) Notifying members of the meeting.
(1) The mutual holding company must notify the members of the
meeting to consider the conversion by sending the members a proxy
statement.
(2) The mutual holding company must notify its members 20 to 45 days
before the meeting.
(3) The mutual holding company must also notify each beneficial
holder of an account at any subsidiary savings association held in a
fiduciary capacity:
(i) If the subsidiary savings association is a federal association
and the name of the beneficial holder is disclosed on the records of the
subsidiary savings association; or
(ii) If the subsidiary savings association is a state-chartered
association and the beneficial holder possesses voting rights under
state law.
(d) Submissions to the Board after the members' meeting.
(1) Promptly after the members' meeting, the mutual holding company
must file all of the following information with the appropriate Reserve
Bank:
(i) A certified copy of each adopted resolution on the conversion.
(ii) The total votes eligible to be cast.
(iii) The total votes represented in person or by proxy.
(iv) The total votes cast in favor of and against each matter.
(v) The percentage of votes necessary to approve each matter.
(vi) An opinion of counsel that the mutual holding company conducted
the members' meeting in compliance with all applicable state or federal
laws and regulations.
(2) Promptly after completion of the conversion, the mutual holding
company must submit to the appropriate Reserve Bank an opinion of
counsel that the mutual holding company has complied with all laws
applicable to the conversion.
Sec. 239.57 Proxy solicitation.
(a) Applicability of proxy solicitation provisions. (1) The mutual
holding company must comply with these proxy solicitation provisions
when the mutual holding company provides proxy solicitation material to
members for the meeting to vote on the plan of conversion.
(2) Members of the mutual holding company must comply with these
proxy solicitation provisions when they provide proxy solicitation
materials to members for the meeting to vote on the conversion, pursuant
to paragraph (f) of this section except where:
(i) The member solicits 50 people or fewer and does not solicit
proxies on behalf of the mutual holding company; or
(ii) The member solicits proxies through newspaper advertisements
[[Page 177]]
after the board of directors adopts the plan of conversion. Any
newspaper advertisements may include only the following information:
(A) The name of the mutual holding company;
(B) The reason for the advertisement;
(C) The proposal or proposals to be voted upon;
(D) Where a member may obtain a copy of the proxy solicitation
material; and
(E) A request for the members of the mutual holding company to vote
at the meeting.
(b) Form of proxy. The form of proxy must include all of the
following:
(1) A statement in bold face type stating that management is
soliciting the proxy.
(2) Blank spaces where the member must date and sign the proxy.
(3) Clear and impartial identification of each matter or group of
related matters that members will vote upon. It must include any
proposed charitable contribution as an item to be voted on separately.
(4) The phrase ``Revocable Proxy'' in bold face type (at least 18
point).
(5) A description of any charter or state law requirement that
restricts or conditions votes by proxy.
(6) An acknowledgment that the member received a proxy statement
before he or she signed the form of proxy.
(7) The date, time, and the place of the meeting, when available.
(8) A way for the member to specify by ballot whether he or she
approves or disapproves of each matter that members will vote upon.
(9) A statement that management will vote the proxy in accordance
with the member's specifications.
(10) A statement in bold face type indicating how management will
vote the proxy if the member does not specify a choice for a matter.
(c) Permissible use of proxies. (1) The mutual holding company may
not use previously executed proxies for the plan of conversion vote. If
members consider the plan of conversion at an annual meeting, the mutual
holding company may vote proxies obtained through other proxy
solicitations only on matters not related to the plan of conversion.
(2) The mutual holding company may vote a proxy obtained under this
subpart on matters that are incidental to the conduct of the meeting.
The mutual holding company or its management 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 the plan of conversion.
(d) Proxy statement requirements. (1) Content requirements. The
mutual holding company must prepare the proxy statement in compliance
with this subpart and Form PS. The mutual holding company may obtain
Form PS from the appropriate Reserve Bank and the Board's Web site
(http://www.federalreserve.gov).
(2) Other requirements.
(i) The Board will review the proxy solicitation material in its
review of the application for conversion.
(ii) The mutual holding company must provide a written proxy
statement to the members before or at the same time the mutual holding
company provides any other soliciting material. The mutual holding
company must mail proxy solicitation material to the members no later
than ten days after the Board approves the conversion.
(e) Filing revised proxy materials. (1) The mutual holding company
must file revised proxy materials as an amendment to the application for
conversion.
(2) To revise the proxy solicitation materials, the mutual holding
company must file:
(i) Revised proxy materials as required by Form PS;
(ii) Revised form of proxy, if applicable; and
(iii) Any additional proxy solicitation material subject to
paragraph (d) of this section.
(3) The mutual holding company must clearly indicate changes from
the prior filing.
(4) The mutual holding company must file a definitive copy of all
proxy solicitation material, in the form in which the mutual holding
company furnishes the material to the members. The mutual holding
company must file no later than the date that it sends or gives the
proxy solicitation material to
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the members. The mutual holding company must indicate the date that it
plans to release the materials.
(5) Unless the Board requests the mutual holding company to do so,
the mutual holding company does not have to file copies of replies to
inquiries from the members or copies of communications that merely
request members to sign and return proxy forms.
(f) Mailing proxy solicitation material. (1) The mutual holding
company must mail the member's proxy solicitation material if:
(i) The board of directors adopted a plan of conversion;
(ii) A member requests in writing that the mutual holding company
mail the proxy solicitation material; and
(iii) The member agrees to defray reasonable expenses of the mutual
holding company.
(2) As soon as practicable after the mutual holding company receives
a request under paragraph (f)(1) of this section, the mutual holding
company must mail or otherwise furnish the following information to the
member:
(i) The approximate number of members that the mutual holding
company solicited or will solicit, or the approximate number of members
of any group of account holders that the member designates; and
(ii) The estimated cost of mailing the proxy solicitation material
for the member.
(3) The mutual holding company must mail 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 the mutual holding company.
(4) The mutual holding company is not responsible for the content of
a member's proxy solicitation material.
(5) A member may furnish other members its own proxy solicitation
material, subject to the rules in this section.
(g) Prohibited solicitations. (1) False or misleading statements.
(i) 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:
(A) Is false or misleading with respect to any material fact;
(B) Omits any material fact that is necessary to make the statements
not false or misleading; or
(C) Omits any material fact that is necessary to correct a statement
in an earlier communication that has become false or misleading.
(ii) No one may represent or imply that the Board determined that
the proxy solicitation material is accurate, complete, not false or not
misleading, or passed upon the merits of or approved any proposal.
(2) Other prohibited solicitations. No person may solicit:
(i) An undated or post-dated proxy;
(ii) A proxy that states it will be dated after the date it is
signed by a member;
(iii) A proxy that is not revocable at will by the member; or
(iv) A proxy that is part of another document or instrument.
(3) If a solicitation violates this section, the Board may require
remedial measures, including:
(i) Correction of the violation by a retraction and a new
solicitation;
(ii) Rescheduling the members' meeting; or
(iii) Any other actions necessary to ensure a fair vote.
(4) The Board may also bring an enforcement action against the
violator for violations of this section.
(h) Re-soliciting proxies. If the mutual holding company amends its
application for conversion, the Board may require it to re-solicit
proxies for the members' meeting as a condition of approval of the
amendment.
Sec. 239.58 Offering circular.
(a) Filing requirements. (1) The mutual holding company must prepare
and file the offering circular with the appropriate Reserve Bank in
compliance with this subpart and Form OC. The mutual holding company may
obtain Form OC from the Reserve Bank and the Board's Web site (http://
www.federalreserve.gov).
(2) The mutual holding company must condition the stock offering
upon member approval of the plan of conversion.
[[Page 179]]
(3) The Board will review the Form OC and may comment on the
included disclosures and financial statements.
(4) The mutual holding company must file a revised offering
circular, final offering circular, and any post-effective amendment to
the final offering circular.
(5) The Board will not approve the adequacy or accuracy of the
offering circular or the disclosures.
(b) Distribution of the offering circular. (1) The mutual holding
company may distribute a preliminary offering circular at the same time
as or after the mutual holding company mails the proxy statement to its
members.
(2) The mutual holding company must distribute the offering circular
in accordance with this subpart and with all applicable securities laws.
(3) The mutual holding company must distribute the offering circular
to persons listed in the plan of conversion no later than ten days after
the Board approves the conversion.
(c) Post-effective amendments to the offering circular. (1) The
mutual holding company must file a post-effective amendment to the
offering circular with the Board when a material event or change of
circumstance occurs.
(2) After the Securities and Exchange Commission declares the post-
effective amendment effective, the mutual holding company must
immediately deliver the amendment to each person who subscribed for or
ordered shares in the offering.
(3) The post-effective amendment must indicate that each person may
increase, decrease, or rescind their subscription or order.
(4) The post-effective offering period must remain open no less than
10 days nor more than 20 days, unless the Board approves a longer
rescission period.
Sec. 239.59 Offers and sales of stock.
(a) Purchase priorities. The mutual holding company must offer to
sell the conversion shares in the following order:
(1) Eligible account holders.
(2) Tax-qualified employee stock ownership plans.
(3) Supplemental eligible account holders.
(4) Other voting members who have subscription rights.
(5) The community, the community and the general public, or the
general public.
(b) Offering conversion shares. (1) The mutual holding company may
offer to sell the conversion shares if the Board approves the
conversion, subject to compliance with requirements of the Securities
and Exchange Commission.
(2) The offer may commence at the same time as the proxy
solicitation of the members begins.
(c) Pricing conversion shares. (1) The conversion shares must be
sold at a uniform price per share and at a total price that is equal to
the estimated pro forma market value of the shares after conversion.
(2) The maximum price must be no more than 15 percent above the
midpoint of the estimated price range in the offering circular.
(3) The minimum price must be no more than 15 percent below the
midpoint of the estimated price range in the offering circular.
(4) If the Board permits, the maximum price of conversion shares
sold may be increased. The maximum price, as adjusted, must be no more
than 15 percent above the maximum price computed under paragraph (c)(2)
of this section.
(5) The maximum price must be between $5 and $50 per share.
(6) The mutual holding company must include the estimated price in
any preliminary offering circular.
(d) Selling conversion shares. (1) The mutual holding company 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. The mutual holding company may either send the order forms
with the offering circular or after it distributes the offering
circular.
(2) The mutual holding company may sell the conversion shares in a
community offering, a public offering, or both. The mutual holding
company may begin the community offering, the public offering, or both
at any time during
[[Page 180]]
the subscription offering or upon conclusion of the subscription
offering.
(3) The mutual holding company may pay underwriting commissions
(including underwriting discounts). The Board may object to the payment
of unreasonable commissions. The mutual holding company may reimburse an
underwriter for accountable expenses in a subscription offering if the
public offering is limited. If no public offering occurs, the mutual
holding company may pay an underwriter a consulting fee. The Board may
object to the payment of unreasonable consulting fees.
(4) If the mutual holding company conducts the community offering,
the public offering, or both at the same time as the subscription
offering, it must fill all subscription orders first.
(5) The mutual holding company must prepare the order form in
compliance with this subpart and Form OF. The mutual holding company may
obtain Form OF from the Reserve Bank and from the Board's Web site
(www.federalreserve.gov).
(e) Prohibited sales practices. (1) In connection with offers,
sales, or purchases of conversion shares under this subpart, the mutual
holding company and its directors, officers, agents, or employees may
not:
(i) Employ any device, scheme, or artifice to defraud;
(ii) 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
(iii) 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.
(2) During the conversion, no person may:
(i) Transfer, or enter into any agreement or understanding to
transfer, the legal or beneficial ownership of subscription rights for
the conversion shares or the underlying securities to the account of
another;
(ii) Make any offer, or any announcement of an offer, to purchase
any of the conversion shares from anyone but the mutual holding company;
or
(iii) Knowingly acquire more than the maximum purchase allowable
under the plan of conversion.
(3) The restrictions in paragraphs (e)(2)(i) and (e)(2)(ii) of this
section do not apply to offers for more than 10 percent of any class of
conversion shares by:
(i) An underwriter or a selling group, acting on behalf of the
mutual holding company or resulting stock holding company, that makes
the offer with a view toward public resale; or
(ii) One or more of the 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 the equity securities in the aggregate.
(4) Any person that violates the restrictions in paragraphs
(e)(2)(i) and (e)(2)(ii) of this section may face prosecution or other
legal action.
(f) Payment for conversion shares. (1) 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
conversion shares by a withdrawal from a certificate of deposit, the
mutual holding company or its subsidiary savings association may not
assess a penalty for the withdrawal.
(2) The mutual holding company may not extend credit to any person
to purchase the conversion shares.
(g) Interest on payments for conversion shares. (1) The mutual
holding company or its subsidiary savings association must pay interest
from the date it receives a payment for conversion shares until the date
it completes or terminates the conversion. The mutual holding company or
its subsidiary savings association must pay interest at no less than the
passbook rate for amounts paid in cash, check, or money order.
(2) If a subscriber withdraws money from a savings account to
purchase conversion shares, the mutual holding company or its subsidiary
savings association must pay interest on the payment until the mutual
holding company completes or terminates the conversion as if the
withdrawn amount remained in the account.
[[Page 181]]
(3) 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, the mutual holding company or its
subsidiary savings association may cancel the certificate and pay
interest at no less than the passbook rate on any remaining balance.
(h) Subscription rights for each eligible account holder and each
supplemental eligible account holder. (1) The mutual holding company
must give each eligible account holder subscription rights to purchase
conversion shares in an amount equal to the greater of:
(i) The maximum purchase limitation established for the community
offering or the public offering under paragraph (p) of this section;
(ii) One-tenth of one percent of the total stock offering; or
(iii) Fifteen times the following number: The total number of
conversion shares that the mutual holding company will issue, multiplied
by the following fraction: the numerator is the total qualifying deposit
of the eligible account holder, and the denominator is the total
qualifying deposits of all eligible account holders. The mutual holding
company must round down the product of this multiplied fraction to the
next whole number.
(2) The mutual holding company must give subscription rights to
purchase shares to each supplemental eligible account holder in the same
amount as described in paragraph (h)(1) of this section, except that the
mutual holding company must compute the fraction described in paragraph
(h)(1)(iii) of this section as follows: the numerator is the total
qualifying deposit of the supplemental eligible account holder, and the
denominator is the total qualifying deposits of all supplemental
eligible account holders.
(i) Officers, directors, and their associates as eligible account
holders. The officers, directors, and their associates of the mutual
holding company and subsidiary savings association 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, the mutual holding company
must subordinate subscription rights for these deposits to subscription
rights exercised by other eligible account holders.
(j) Other voting members eligible to purchase conversion shares. (1)
The mutual holding company must give rights to purchase the conversion
shares in the conversion to voting members who are neither eligible
account holders nor supplemental eligible account holders. The mutual
holding company must allocate rights to each voting member that are
equal to the greater of:
(i) The maximum purchase limitation established for the community
offering and the public offering under paragraph (p) of this section; or
(ii) One-tenth of one percent of the total stock offering.
(2) The mutual holding company must subordinate the voting members'
rights to the rights of eligible account holders, tax-qualified employee
stock ownership plans, and supplemental eligible account holders.
(k) Purchase limitations for officers, directors, and their
associates. (1) When the mutual holding company converts, the officers,
directors, and their associates of the mutual holding company and
subsidiary savings association may not purchase, in the aggregate, more
than the following percentage of the total stock offering:
------------------------------------------------------------------------
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
------------------------------------------------------------------------
(2) The purchase limitations in this section do not apply to shares
held in tax-qualified employee stock benefit plans that are attributable
to the officers, directors, and their associates.
(l) Allocating conversion shares in the event of oversubscription.
(1) If the conversion shares are oversubscribed by the eligible
account holders, the mutual holding company
[[Page 182]]
must allocate shares among the eligible account holders so that each, to
the extent possible, may purchase 100 shares.
(2) If the conversion shares are oversubscribed by the supplemental
eligible account holders, the mutual holding company must allocate
shares among the supplemental eligible account holders so that each, to
the extent possible, may purchase 100 shares.
(3) If a person is an eligible account holder and a supplemental
eligible account holder, the mutual holding company must include the
eligible account holder's allocation in determining the number of
conversion shares that the mutual holding company may allocate to the
person as a supplemental eligible account holder.
(4) For conversion shares that the mutual holding company does not
allocate under paragraphs (l)(1) and (l)(2) of this section, the mutual
holding company must allocate the shares among the eligible or
supplemental eligible account holders equitably, based on the amounts of
qualifying deposits. The mutual holding company must describe this
method of allocation in its plan of conversion.
(5) If shares remain after the mutual holding company has allocated
shares as provided in paragraphs (l)(1) and (l)(2) of this section, and
if the voting members oversubscribe, the mutual holding company must
allocate the conversion shares among those members equitably. The mutual
holding company must describe the method of allocation in its plan of
conversion.
(m) Employee stock ownership plan purchase of conversion shares. (1)
The tax-qualified employee stock ownership plan of the mutual holding
company may purchase up to 10 percent of the total offering of the
conversion shares.
(2) If the Board approves a revised stock valuation range as
described in paragraph (c)(5) of this section, and the final conversion
stock valuation range exceeds the former maximum stock offering range,
the mutual holding company may allocate conversion shares to the tax-
qualified employee stock ownership plan, up to the 10 percent limit in
paragraph (m)(1) of this section.
(3) If the tax-qualified employee stock ownership plan is not able
to or chooses not to purchase stock in the offering, it may, with prior
Board approval and appropriate disclosure in the offering circular,
purchase stock in the open market, or purchase authorized but unissued
conversion shares.
(4) The mutual holding company may include stock contributed to a
charitable organization in the conversion in the calculation of the
total offering of conversion shares under paragraphs (m)(1) and (m)(2)
of this section, unless the Board objects on supervisory grounds.
(n) Purchase limitations. (1) The mutual holding company 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.
(2) If the mutual holding company sets a limit of five percent under
paragraph (n)(1) of this section, it may modify that limit with Board
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.
(3) The mutual holding company 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.
(4) In setting purchase limitations under this section, the mutual
holding company may not aggregate conversion shares attributed to a
person in the tax-qualified employee stock ownership plan with shares
purchased directly by, or otherwise attributable to, that person.
(o) Purchase preference for persons in the local community. (1) In
the subscription offering, subject to the purchase priorities set forth
in paragraph (a) of this section, the mutual holding company may give a
purchase preference to eligible account holders, supplemental eligible
account holders, and voting
[[Page 183]]
members residing in the local community.
(2) In the community offering, the mutual holding company must give
a purchase preference to natural persons residing in the local
community.
(p) Conditions on community offerings and public offerings. (1) If
the mutual holding company offers conversion shares in a community
offering, a public offering, or both, it must offer and sell the stock
to achieve a widespread distribution of the stock.
(2) If the mutual holding company offers shares in a community
offering, a public offering, or both, it must first fill orders for the
stock up to a maximum of two percent of the conversion stock on a basis
that will promote a widespread distribution of stock. The mutual holding
company must allocate any remaining shares on an equal number of shares
per order basis until it fills all orders.
Sec. 239.60 Completion of the offering.
(a) Deadline for completing the sale of stock. The mutual holding
company must complete all sales of the stock within 45 calendar days
after the last day of the subscription period, unless the offering is
extended under paragraph (b) of this section.
(b) Offering period extension. (1) The mutual holding company must
request, in writing, an extension of any offering period.
(2) The Board may grant extensions of time to sell the shares. The
Board will not grant any single extension of more than 90 days.
(3) If the Board grants the request for an extension of time, the
mutual holding company must provide a post-effective amendment to the
offering circular underSec. 239.58(c) to each person who subscribed
for or ordered stock. The amendment must indicate that the Board
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.
Sec. 239.61 Completion of the conversion.
(a) Completion of the conversion. (1) In the plan of conversion, the
mutual holding company must set a date by which the conversion must be
completed. This date must not be more than 24 months from the date that
the members approve the plan of conversion. The date, once set, may not
be extended by the mutual holding company or by the Board. The mutual
holding company must terminate the conversion if it is not completed by
that date.
(2) The conversion is complete on the date that the mutual holding
company accepts the offers for stock of the resulting stock holding
company.
(b) Termination of the conversion. (1) The members may terminate the
conversion by failing to approve the conversion at the members' meeting.
(2) The mutual holding company may terminate the conversion before
the members' meeting.
(3) The mutual holding company may terminate the conversion after
the members' meeting only if the Board concurs.
(c) Voting rights for stockholders following conversion. The
resulting stock holding company must provide the stockholders with
exclusive voting rights.
(d) Rights of savings account holders. The resulting stock holding
company must provide a liquidation account for each eligible and
supplemental eligible account holder underSec. 239.62(a)(1)-(3).
Sec. 239.62 Liquidation accounts.
(a) Liquidation account. (1) A liquidation account represents the
potential interest of eligible account holders and supplemental eligible
account holders in the mutual holding company's net worth at the time of
conversion. The resulting stock holding company must maintain a sub-
account to reflect the interest of each account holder.
(2) Before the resulting stock holding company may provide a
liquidation distribution to common stockholders, the resulting stock
holding company 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.
(3) The resulting stock holding company may not record the
liquidation account in the financial statements. The resulting stock
holding company must disclose the liquidation account
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in the footnotes to the financial statements.
(4) The initial balance of the liquidation account is the net worth
in the statement of financial condition included in the final offering
circular.
(b) Liquidation sub-accounts. (1)(i) The resulting stock holding
company determines 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 on the eligibility record
date. The denominator is total qualifying deposits of all eligible
account holders on that date.
(ii) The resulting stock holding company determines 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 on the supplemental eligibility record
date. The denominator is total qualifying deposits of all supplemental
eligible account holders on that date.
(iii) If an account holder holds a savings account on the
eligibility record date and a separate savings account on the
supplemental eligibility record date, the resulting stock holding
company must compute separate sub-accounts for the qualifying deposits
in the savings account on each record date.
(2) The resulting stock holding company may not increase the initial
sub-account balances. The resulting stock holding company must decrease
the initial balance underSec. 239.62(d) as depositors reduce or close
their accounts.
(c) Retention of voting rights based on liquidation sub-accounts.
Eligible account holders or supplemental eligible account holders do not
retain any voting rights based on their liquidation sub-accounts.
(d) Adjusting liquidation sub-accounts. (1)(i) The resulting stock
holding company 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 the
fiscal year end, after the relevant eligibility record dates is less
than:
(A) 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
(B) The qualifying deposits in the account holder's savings account
on the relevant eligibility record date.
(ii) The reduction must be proportionate to the reduction in the
deposit balance.
(2) If the resulting stock holding company reduces the balance of a
liquidation sub-account, the resulting stock holding company may not
subsequently increase it if the deposit balance increases.
(3) The resulting stock holding company is not required to adjust
the liquidation account and sub-account balances at each annual closing
date if it maintains sufficient records to make the computations if a
liquidation subsequently occurs.
(4) The resulting stock holding company 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 or tax
identification number, as applicable.
(5) If there is a complete liquidation, the resulting stock holding
company must provide each account holder with a liquidation distribution
in the amount of the sub-account balance.
(e) Liquidation defined. (1) For purposes of this subpart, a
liquidation is a sale of the assets and settlement of the liabilities
with the intent to cease operations and close. Upon liquidation, the
resulting stock holding company must return the charter to the
governmental agency that issued it. The government agency must cancel
the charter.
(2) A merger, consolidation, or similar combination or transaction
with another depository institution, is not a liquidation. If the
resulting stock holding company is involved in such a transaction, the
surviving institution must assume the liquidation account.
(f) Effect of liquidation on net worth. The liquidation account does
not affect the net worth.
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Sec. 239.63 Post-conversion.
(a) Management stock benefit plans. (1) During the 12 months after
the conversion, the resulting stock holding company 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 the resulting stock
holding company meets all of the following requirements.
(i) The resulting stock holding company discloses the plans in the
proxy statement and offering circular and indicates in the 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. The ESOP must be
tax-qualified.
(ii) The Option Plan does not exceed more than ten percent of the
number of shares that the resulting stock holding company issued in the
conversion.
(iii)(A) The ESOP and MRP do not exceed, in the aggregate, more than
ten percent of the number of shares that the resulting stock holding
company issued in the conversion. If the resulting stock holding company
has tangible capital of ten percent or more following the conversion,
the Board may permit the ESOP and MRP to represent, in the aggregate, up
to 12 percent of the number of shares issued in the conversion; and
(B) The MRP does not exceed more than three percent of the number of
shares that the resulting stock holding company issued in the
conversion. If the resulting stock holding company has tangible capital
of ten percent or more after the conversion, the Board may permit the
MRP to represent up to four percent of the number of shares that the
resulting stock holding company issued in the conversion.
(iv) No individual receives more than 25 percent of the shares under
any plan.
(v) The directors who are not the officers do not receive more than
five percent of the shares of the MRP or Option Plan individually, or 30
percent of any such plan in the aggregate.
(vi) The 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 the resulting stock holding company establishes or
implements the plan. The resulting stock holding company may not hold
this meeting until six months after the conversion.
(vii) When the resulting stock holding company distributes proxies
or related material to shareholders in connection with the vote on a
plan, the resulting stock holding company states that the plan complies
with Board regulations and that the Board does not endorse or approve
the plan in any way. The resulting stock holding company may not make
any written or oral representations to the contrary.
(viii) The resulting stock holding company does not grant stock
options at less than the market price at the time of grant.
(ix) The resulting stock holding company does not fund the Option
Plan or the MRP at the time of the conversion.
(x) The 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.
(xi) The plan permits accelerated vesting only for disability or
death, or if the resulting stock holding company undergoes a change of
control.
(xii) The plan provides that the executive officers or directors
must exercise or forfeit their options in the event the institution
becomes critically undercapitalized under the applicable regulatory
capital requirements, is subject to Board enforcement action, or
receives a capital directive underSec. 263.83 of this chapter.
(xiii) The resulting stock holding company files a copy of the
proposed Option Plan or MRP with the Board and certifies to the Board
that the plan approved by the shareholders is the same plan that the
resulting stock holding company filed with, and disclosed in, the proxy
materials distributed to shareholders in connection with the vote on the
plan.
(xiv) The resulting stock holding company files the plan and the
certification with the Board within five calendar days after the
shareholders approve the plan.
(2) The resulting stock holding company may provide dividend
equivalent
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rights or dividend adjustment rights to allow for stock splits or other
adjustments to the stock in the ESOP, MRP, and Option Plan.
(3) The restrictions in paragraph (a)(1) 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)(1) of
this section is amended more than 12 months following the conversion,
the shareholders must ratify any material deviations to the requirements
in paragraph (a)(1) of this section.
(b) Restrictions on the sale of conversion shares by directors,
officers, and their associates. (1) 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.
(2) The resulting stock holding company must include notice of the
restriction described in paragraph (b)(1) 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.
(3) The resulting stock holding company must instruct the stock
transfer agent about the transfer restrictions in this section.
(4) For three years after the resulting stock holding company
converts, the officers, directors, and their associates may purchase
stock of the resulting stock holding company only from a broker or
dealer registered with the Securities and Exchange Commission. However,
the officers, directors, and their associates may engage in a negotiated
transaction involving more than one percent of the outstanding stock,
and may purchase stock through any of the management or employee stock
benefit plans.
(c) Repurchase of conversion shares. (1) The resulting stock holding
company may not repurchase its shares in the first year after the
conversion except:
(i) In extraordinary circumstances, the resulting stock holding
company may make open market repurchases of up to five percent of the
outstanding stock in the first year after the conversion if the
resulting stock holding company files a notice under paragraph (d)(1) of
this section and the Board does not disapprove the repurchase. The Board
will not approve such repurchases unless the repurchase meets the
standards in paragraph (d)(3) of this section, and the repurchase is
consistent with paragraph (c)(3) of this section.
(ii) The resulting stock holding company may repurchase qualifying
shares of a director or conduct a Board approved repurchase pursuant to
an offer made to all shareholders of the stock holding company.
(iii) 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 the Board.
(iv) Purchases to fund tax qualified employee stock benefit plans do
not count toward the repurchase limitations in this section.
(2) After the first year, the resulting stock holding company may
repurchase the shares, subject to all other applicable regulatory and
supervisory restrictions and paragraph (c)(3) of this section.
(3) All stock repurchases are subject to the following restrictions.
(i) The resulting stock holding company may not repurchase the
shares if the repurchase will reduce its applicable capital levels below
the amount required for the liquidation account underSec. 239.62(a).
The resulting stock holding company must comply with the capital
distribution requirements of this subpart.
(ii) The restrictions on share repurchases apply to a charitable
organization underSec. 239.64(b). The resulting stock holding company
must aggregate purchases of shares by the charitable organization with
the repurchases.
(d) Board review of repurchase of conversion shares. (1) To
repurchase stock in the first year following conversion,
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other than repurchases under paragraphs (c)(1)(iii) or (c)(1)(iv) of
this section, the resulting stock holding company must file a written
notice with the appropriate Reserve Bank. The resulting stock holding
company must provide the following information:
(i) The proposed repurchase program;
(ii) The effect of the repurchases on the regulatory capital and
other capital levels; and
(iii) The purpose of the repurchases and, if applicable, an
explanation of the extraordinary circumstances necessitating the
repurchases.
(2) The resulting stock holding company must file the notice with
the appropriate Reserve Bank at least thirty days before the resulting
stock holding company begins the repurchase program. The Board may
extend its review of the notice for an additional sixty days.
(3) The resulting stock holding company may not repurchase the
shares if the Board objects to the repurchase program. The Board will
not object to the repurchase program if:
(i) The repurchase program will not adversely affect the financial
condition of the resulting savings association;
(ii) The resulting stock holding company submits sufficient
information to evaluate the proposed repurchases;
(iii) The resulting stock holding company demonstrate extraordinary
circumstances and a compelling and valid business purpose for the share
repurchases; and
(iv) The repurchase program would not be contrary to other
applicable regulations.
(e) Declaring and paying dividends following conversion. The
resulting stock holding company may declare or pay a dividend on its
shares after it converts if:
(1) The dividend will not reduce the regulatory capital below the
amount required for the liquidation account underSec. 239.62(a);
(2) The resulting stock holding company complies with all applicable
regulatory capital requirements after it declares or pays dividends;
(3) The resulting stock holding company complies with the capital
distribution requirements under this subpart; and
(4) The resulting stock holding company does not return any capital,
other than ordinary dividends, to purchasers during the term of the
business plan submitted with the conversion.
(f) Eligibility to acquire shares after conversion. (1) For three
years after the resulting stock holding company converts, no person may,
directly or indirectly, acquire or offer to acquire the beneficial
ownership of more than ten percent of any class of the equity securities
without the Board's prior written approval. If a person violates this
prohibition, the resulting stock holding company 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.
(2) A person acquires beneficial ownership of more than ten percent
of a class of shares when he or she holds any combination of the stock
or revocable or irrevocable proxies under circumstances that give rise
to a conclusive control determination or rebuttable control
determination under Sec.Sec. 238.21(a) and (d) of this chapter. The
Board 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 communicated. An
offer does not include non-binding expressions of understanding or
letters of intent regarding the terms of a potential acquisition.
(3) Notwithstanding the restrictions in this section:
(i) Paragraphs (f)(1) and (f)(2) of this section do not apply to any
offer with a view toward public resale made exclusively to the resulting
stock holding company, to the underwriters, or to a selling group acting
on behalf of the resulting savings association.
(ii) Unless the Board 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.
(iii) A corporation whose ownership is, or will be, substantially
the same as the ownership may acquire or offer to acquire more than ten
percent of the common stock, if it makes the offer or
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acquisition more than one year after the resulting stock holding company
converts.
(iv) One or more of the tax-qualified employee stock benefit plans
may acquire the shares, if the plan or plans do not beneficially own
more than 25 percent of any class of shares of the resulting savings
association in the aggregate.
(v) An acquiror does not have to file a separate application to
obtain Board approval under paragraph (f)(1) of this section, if the
acquiror files an application under part 238 of this chapter that
specifically addresses the criteria listed under paragraph (f)(4) of
this section and the resulting stock holding company does not oppose the
proposed acquisition.
(4) The Board may deny an application under paragraph (f)(1) of this
section if the proposed acquisition:
(i) Is contrary to the purposes of this subpart;
(ii) Is manipulative or deceptive;
(iii) Subverts the fairness of the conversion;
(iv) Is likely to injure the resulting stock holding company;
(v) Is inconsistent with the plan to meet the credit and lending
needs of the proposed market area;
(vi) Otherwise violates laws or regulations; or
(vii) Does not prudently deploy the conversion proceeds.
(g) Additional requirements that apply following conversion. After
conversion, the resulting stock holding company must:
(1) Promptly register the shares under the Securities Exchange Act
of 1934 (15 U.S.C. 78a-78jj, as amended). The resulting stock holding
company may not deregister the shares for three years.
(2) Encourage and assist a market maker to establish and to maintain
a market for the shares. A market maker for a security is a dealer who:
(i) Regularly publishes bona fide competitive bid and offer
quotations for the security in a recognized inter-dealer quotation
system;
(ii) Furnishes bona fide competitive bid and offer quotations for
the security on request; or
(iii) May effect transactions for the security in reasonable
quantities at quoted prices with other brokers or dealers.
(3) Use the best efforts to list the shares on a national or
regional securities exchange or on the National Association of
Securities Dealers Automated Quotation system.
(4) File all post-conversion reports that the Board requires.
Sec. 239.64 Contributions to charitable organizations.
(a) Forming a charitable organization as part of a conversion. When
a mutual holding company converts to the stock form, it may form a
charitable organization. Its contributions to the charitable
organization are governed by the requirements of paragraphs (b) through
(f) of this section.
(b) Donating conversion shares or conversion proceeds to a
charitable organization. Some of the conversion shares or proceeds may
be contributed to a charitable organization if:
(1) The plan of conversion provides for the proposed contribution;
(2) The members approve the proposed contribution; and
(3) 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.
(c) Member approval of charitable contributions. At the meeting to
consider conversion of the mutual holding company, the members must
separately approve by at least a majority of the total eligible votes, a
contribution of conversion shares or proceeds. If the mutual holding
company has a subsidiary holding company with minority shareholders, or
if the subsidiary savings association has minority shareholders, and the
mutual holding company is adding a charitable contribution as part of a
second step stock conversion, it must also have the minority
shareholders separately approve the charitable contribution by a
majority of their total eligible votes.
(d) Charitable organization contribution limits. A reasonable amount
of conversion shares or proceeds may be contributed to a charitable
organization, if the contribution will not exceed limits
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for charitable deductions under the Internal Revenue Code and the Board
does not object on supervisory grounds. If the mutual holding company or
resulting stock holding company is well-capitalized pursuant toSec.
238.62 of this chapter, the Board generally will not object if it
contributes an aggregate amount of eight percent or less of the
conversion shares or proceeds.
(e) Charitable organization requirements. The charitable
organization's charter (or trust agreement) and gift instrument must
provide that:
(1) The charitable organization's primary purpose is to serve and
make grants in the local community;
(2) 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 the shareholders;
(3) 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 the local
community. This director may not be the officer, director, or employee,
or the affiliate's officer, director, or employee, and should have
experience with local community charitable organizations and grant
making; and
(4) 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 the board of directors or the board of
directors of an acquiror or resulting institution in the event of a
merger or acquisition of the organization.
(5) The Board may examine the charitable organization at the
charitable organization's expense;
(6) The charitable organization must comply with all supervisory
directives that the Board imposes;
(7) The charitable organization must annually provide the Board with
a copy of the annual report that the charitable organization submitted
to the IRS;
(8) 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
(9) 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.
(f) Conflicts of interest involving the directors of the mutual
holding company or resulting stock holding company.
(1) An individual who is the director, officer, or employee, or a
person who has the power to direct the management or policies, or
otherwise owes a fiduciary duty to the mutual holding company or
resulting stock holding company and who will serve as an officer,
director, or employee of the charitable organization, is subject to the
following obligations:
(i) The individual must not advance their own personal or business
interests, or those of others with whom the individual has a personal or
business relationship, at the expense of the mutual holding company or
resulting stock holding company;
(ii) If the individual has an interest in a matter or transaction
before the board of directors, the individual must:
(A) Disclose to the board all material nonprivileged information
relevant to the board's decision on the matter or transaction, including
the existence, nature and extent of the individual's interests, and the
facts known to the individual as to the matter or transaction under
consideration;
(B) Refrain from participating in the board's discussion of the
matter or transaction; and
(C) Recuse themselves from voting on the matter or transaction (if
the individual is a director). See Form AC, which provides further
information or operating plans and conflict of interest plans. The
mutual holding company may obtain Form AC from the appropriate Reserve
Bank and the Board's Web site at http://www.federalreserve.gov.
(2) Before the board of directors may adopt a plan of conversion
that includes a charitable organization, the mutual holding company must
identify the directors that will serve on the charitable organization's
board. These directors may not participate in the board's discussions
concerning contributions to the charitable organization, and may not
vote on the matter.
[[Page 190]]
(3) The stock certificates of shares contributed to the charitable
organization or that the charitable organization otherwise acquires must
bear the following legend: ``The board of directors must consider the
shares that this stock certificate represents as voted in the same ratio
as all other shares voted on each proposal considered by the
shareholders, as long as the shares are controlled by the charitable
organization.''
(4) As long as the charitable organization controls shares, the
resulting stock holding company must consider those shares as voted in
the same ratio as all of the shares voted on each proposal considered by
the shareholders.
(5) After the stock offering is complete, the resulting stock
holding company must submit an executed copy of the following documents
to the appropriate Reserve Bank: the charitable organization's charter
and bylaws (or trust agreement), operating plan (within six months after
the stock offering), conflict of interest policy, and the gift
instrument for the contributions of either stock or cash to the
charitable organization.
Sec. 239.65 Voluntary supervisory conversions.
(a) Voluntary supervisory conversion.
(1) The mutual holding company must comply with this section and
Sec. 239.66 to engage in a voluntary supervisory conversion. This
subpart applies to all voluntary supervisory conversions under sections
10(o)(7) and 10(p) of the Home Owners' Loan Act (12 U.S.C. 1467a(o) and
(p)).
(2) Sections 239.50 through 239.64 also apply to a voluntary
supervisory conversion, unless a requirement is clearly inapplicable.
(b) Conducting a voluntary supervisory conversion. In conducting a
voluntary supervisory conversion, the mutual holding company may:
(1) Sell its shares to the public;
(2) Convert into stock form by merging into a state-chartered
corporation; or
(3) Sell its shares directly to an acquiror, who may be an
individual, company, depository institution, or depository institution
holding company.
(c) Member rights in a voluntary supervisory conversion. Members of
the mutual holding company 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 the Board provides otherwise. The members may have interests in a
liquidation account, if one is established.
(d) Eligibility for a voluntary supervisory conversion. A mutual
holding company may be eligible to engage in a voluntary supervisory
conversion if:
(1) Either the mutual holding company or its subsidiary savings
association is significantly undercapitalized under applicable
regulatory capital requirements (or the mutual holding company or its
subsidiary savings association is undercapitalized under applicable
regulatory capital requirements and a standard conversion that would
make it adequately capitalized is not feasible) and will be a viable
entity following the conversion;
(2) Severe financial conditions threaten stability of the mutual
holding company, and a conversion is likely to improve its financial
condition.
(e) A mutual holding company or its subsidiary savings association
will be a viable entity following the conversion if it satisfies all of
the following:
(1) It will be adequately capitalized as a result of the conversion;
(2) It, the proposed conversion, and its acquiror(s) comply with
applicable supervisory policies;
(3) The transaction is in the best interest of the mutual holding
company and its subsidiary savings associations, and the best interest
of the Deposit Insurance Fund and the public; and
(4) The transaction will not injure or be detrimental to the mutual
holding company and its subsidiary savings associations, the Deposit
Insurance Fund, or the public interest.
(f) Plan of voluntary supervisory conversion. A majority of the
board of directors of the mutual holding company must approve a plan of
voluntary supervisory conversion. The mutual holding company must
include all of the following information in the plan of voluntary
supervisory conversion.
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(1) The name and address of the mutual holding company.
(2) The name, address, date and place of birth, and social security
number or tax identification number, as applicable, of each proposed
purchaser of conversion shares and a description of that purchaser's
relationship to the mutual holding company.
(3) The title, per-unit par value, number, and per-unit and
aggregate offering price of shares that the mutual holding company will
issue.
(4) The number and percentage of shares that each investor will
purchase.
(5) The aggregate number and percentage of shares that each
director, officer, and any affiliates or associates of the director or
officer will purchase.
(6) A description of any liquidation account.
(7) Certified copies of all resolutions of the board of directors
relating to the conversion.
(g) Voluntary supervisory conversion application. The mutual holding
company must include all of the following information and documents in a
voluntary supervisory conversion application to the Board under this
subpart:
(1) Eligibility.
(i) Evidence establishing that the mutual holding company meets the
eligibility requirements under paragraph (d) of this section.
(ii) 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.
(2) Plan of conversion. A plan of voluntary supervisory conversion
that complies with paragraph (e) of this section.
(3) Business plan. A business plan that complies withSec.
239.53(b), when required by the Board.
(4) Financial data. (i) The most recent audited financial statements
and Thrift Financial Report. The mutual holding company must explain how
its current capital levels or the capital levels of its subsidiary
savings associations make it eligible to engage in a voluntary
supervisory conversion under paragraph (d) of this section.
(ii) A description of the estimated conversion expenses.
(iii) Evidence supporting the value of any non-cash asset
contributions. Appraisals must be acceptable to the Board and the non-
cash asset must meet all other Board policy guidelines.
(iv) Pro forma financial statements that reflect the effects of the
transaction. The mutual holding company must identify the tangible,
core, and risk-based capital levels and show the adjustments necessary
to compute the capital levels. The mutual holding company must prepare
the pro forma statements in conformance with Board regulations and
policy.
(5) Proposed documents. (i) The proposed charter and bylaws.
(ii) The proposed stock certificate form.
(6) Agreements. (i) A copy of any agreements between the mutual
holding company and proposed purchasers.
(ii) A copy and description of all existing and proposed employment
contracts. The mutual holding company 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.
(7) Related applications. (i) All filings required under the
securities offering rules of subpart E of this part.
(ii) Any required Holding Company Act application or Control Act
notice under part 238 of this chapter.
(iii) A subordinated debt application, if applicable.
(iv) Applications for permission to organize a stock savings and
loan holding company and for approval of a merger.
(v) A statement describing any other applications required under
federal or state banking laws for all transactions related to the
conversion, copies of all dispositive documents issued by regulatory
authorities relating to the applications, and, if requested by the
Board, copies of the applications and related documents.
(8) Waiver request. A description of any of the features of the
application
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that do not conform to the requirements of this subpart, including any
request for waiver of any of these requirements.
(h) Offers and sales of stock. If the mutual holding company
converts under this subpart, the conversion shares must be offered and
sold in compliance withSec. 239.59.
(i) Post-conversion acquisition of shares. For three years after the
completion of a voluntary supervisory conversion, neither the resulting
stock holding company nor the principal shareholder(s) may acquire
shares from minority shareholders without the Board's prior approval.
Sec. 239.66 Board review of the voluntary supervisory conversion
application.
(a) Board review of a voluntary supervisory conversion application.
The Board will generally approve the application to engage in a
voluntary supervisory conversion unless it determines:
(1) The mutual holding company does not meet the eligibility
requirements for a voluntary supervisory conversion under Sec.Sec.
239.65(d) or because the proceeds from the sale of the conversion stock,
less the expenses of the conversion, would be insufficient to satisfy
any applicable viability requirement;
(2) The transaction is detrimental to or would cause potential
injury to the mutual holding company, its subsidiary savings
association, or the Deposit Insurance Fund or is contrary to the public
interest;
(3) The mutual holding company or the acquiror, or the controlling
parties or directors and officers of the mutual holding company or the
acquiror, have engaged in unsafe or unsound practices in connection with
the voluntary supervisory conversion; or
(4) The mutual holding company fails 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, the Board generally will not approve
employment contracts of more than one year for the existing management.
(b) Conditions the Board may impose on an approval.
(1) The Board will condition approval of a voluntary supervisory
conversion application on all of the following.
(i) The conversion stock sale must be complete within three months
after the Board approves the application. The Board may grant an
extension for good cause.
(ii) The mutual holding company and the resulting stock holding
company must comply with all filing requirements of subpart E of this
part.
(iii) The mutual holding company must submit an opinion of
independent legal counsel indicating that the sale of the shares
complies with all applicable state securities law requirements.
(iv) The mutual holding company and the resulting stock holding
company must comply with all applicable laws, rules, and regulations.
(v) The mutual holding company and the resulting stock holding
company must satisfy any other requirements or conditions the Board may
impose.
(2) The Board may condition approval of a voluntary supervisory
conversion application on either of the following:
(i) The mutual holding company and the resulting stock holding
company must satisfy any conditions and restrictions the Board 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 the mutual holding company before and after the conversion.
The Board may impose these conditions and restrictions on the mutual
holding company and the resulting stock holding company (before and
after the conversion), the acquiror, controlling parties, or directors
and officers of the mutual holding company or the acquiror; or
(ii) The mutual holding company or the resulting stock holding
company must infuse a larger amount of capital, if necessary, for safety
and soundness reasons.
Sec. Appendix A to Part 239--Mutual Holding Company Model Charter
FEDERAL MUTUAL HOLDING COMPANY CHARTER
Section 1: Corporate title. The name of the mutual holding company
is ----(the ``Mutual Holding Company'').
[[Page 193]]
Section 2: Duration. The duration of the Mutual Holding Company is
perpetual.
Section 3: Purpose and powers. The purpose of the Mutual Holding
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 Federal Reserve
Board (``Board'').
Section 4: Capital. The Mutual Holding 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 239.5;
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 239.5.]
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 Holding Company. With respect to all questions
requiring action by the members of the Mutual Holding 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 Holding 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 Holding 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 Board.
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
holding company derive from deposit accounts in the resulting
association, any changes required to provide that the Board 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 239.5].
The Mutual Holding 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
Board, provided that the Mutual Holding 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 Holding 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 Holding 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 Board prior to
approval by the
[[Page 194]]
members at a legal meeting and shall be effective upon filing with the
Board in accordance with regulatory procedures.
Attest:________________________________________________________________
Secretary of the Association
By:____________________________________________________________________
President or Chief Executive Officer of the Association
By:____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
Effective Date:________________________________________________________
Sec. Appendix B to Part 239--Subsidiary Holding Company of a Mutual
Holding Company Model Charter
FEDERAL MHC SUBSIDIARY HOLDING COMPANY CHARTER
Section 1. Corporate title. The full corporate title of the mutual
holding company (``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 Board of Governors of
the Federal Reserve System (``Board'').
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 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
[[Page 195]]
be fewer than five nor more than fifteen except when a greater or lesser
number is approved by the Board, 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 Board.
Attest:________________________________________________________________
Secretary of the Subsidiary Holding Company
By:____________________________________________________________________
President or Chief Executive Officer of the Subsidiary Holding Company
By:____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
Effective Date:________________________________________________________
Sec. Appendix C to Part 239--Mutual Holding Company Model Bylaws
MODEL BYLAWS FOR MUTUAL HOLDING COMPANIES
The term ``trustees'' may be substituted for the term ``directors.''
1. Annual meeting of members. The annual meeting of the members of
the mutual holding company for the election of directors and for the
transaction of any other business of the mutual holding company shall be
held, as designated by the board of directors, at a location within the
state that constitutes the principal place of business of the mutual
holding company, or at any other convenient place the board of directors
may designate, at (insert date and time within 150 days after the end of
the mutual holding company's fiscal year, if not a legal holiday, or if
a legal holiday then on the next succeeding day not a legal holiday). At
each annual meeting, the officers shall make a full report of the
financial condition of the mutual holding company and of its progress
for the preceding year and shall outline a program for the succeeding
year.
2. Special meetings of members. Special meetings of the members of
the mutual holding company may be called at any time by the president or
the board of directors and shall be called by the president, a vice
president, or the secretary upon the written request of members of
record, holding in the aggregate at least one-tenth of the voting
capital of the mutual holding company. Such written request shall state
the purpose of the meeting and shall be delivered at the principal place
of business of the mutual holding company addressed to the president.
For purposes of this section, ``voting capital'' means FDIC-insured
deposits as of the voting record date. Annual and special meetings shall
be conducted in accordance with the most current edition of Robert's
Rules of Order or any other set of written procedures agreed to by the
board of directors.
3. Notice of meeting of members. Notice of each meeting shall be
either published once a week for the two successive calendar weeks (in
each instance on any day of the week) immediately prior to the week in
which such meeting shall convene, in a newspaper printed in the English
language and of general circulation in the city or county in which the
principal place of business of the mutual holding company is located, or
mailed postage prepaid at least (insert number no less than 15) days and
not more than (insert number 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 mutual holding company.
Such notice shall state the name of the mutual holding company, the
place of the meeting, the date and time when it shall convene, and the
matters to be considered. A similar notice shall be posted in a
conspicuous place in each of the offices of the mutual holding company
during the 14 days immediately preceding the date on which such meeting
shall convene. If any member, in person or by authorized attorney, shall
waive in writing notice of any meeting of members, notice thereof need
not be given to such member. 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 board of directors shall fix in advance a
record date for any such determination of members. 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
member entitled to participate in any such action shall be the member of
record on the books of the mutual holding company on such record date.
The number of votes which each member shall be entitled to cast at any
meeting of the members shall be determined from the books of the mutual
holding company as of such record date. Any member of such record date
who ceases to be a member prior to such meeting shall not be entitled to
vote at that meeting. 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
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meeting of the members shall determine any question, unless otherwise
required by regulation. Directors, however, are elected by a plurality
of the votes cast at an election of directors. At any adjourned meeting
any business may be transacted which 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. Voting at any annual or special meeting of the
members may be by proxy pursuant to the rules and regulations of the
Board of Governors of the Federal Reserve System (Board), provided, that
no proxies shall be voted at any meeting unless such proxies shall have
been placed on file with the secretary of the mutual holding company,
for verification, prior to the convening of such meeting. Proxies may be
given telephonically or electronically as long as the holder uses a
procedure for verifying the identity of the member. All proxies with a
term greater than eleven months or solicited at the expense of the
mutual holding company must run to the board of directors as a whole, or
to a committee appointed by a majority of such board. Accounts held by
an administrator, executor, guardian, conservator or receiver may be
voted in person or by proxy by such person. Accounts held by a trustee
may be voted by such trustee either in person or by proxy, in accordance
with the terms of the trust agreement, but no trustee shall be entitled
to vote accounts without a transfer of such accounts into the trustee
name. Accounts held in trust in an IRA or Keogh Account, however, may be
voted by the mutual holding company if no other instructions are
received. Joint accounts shall be entitled to no more than 1000 votes,
and any owner may cast all the votes unless the mutual holding company
has otherwise been notified in writing.
7. Communication between members. Communication between members
shall be subject to any applicable rules or regulations of the Board. No
member, however, shall have the right to inspect or copy any portion of
any books or records of a mutual holding company containing: (i) a list
of depositors in or borrowers from such mutual holding company; (ii)
their addresses; (iii) individual deposit or loan balances or records;
or (iv) any data from which such information could reasonably be
constructed.
8. Number of directors, membership. The number of directors shall be
----[not fewer than five nor more than fifteen], except where authorized
by the Board. Each director shall be a member of the mutual holding
company. Directors shall 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.
9. Meetings of the board. The board of directors shall meet
regularly without notice at the principal place of business of the
mutual holding company at least once each month at an hour and date
fixed by resolution of the board, provided that the place of meeting may
be changed by the directors. Special meetings of the board may be held
at any place specified in a notice of such meeting and shall be called
by the secretary upon the written request of the chairman or of three
directors. All special meetings shall be held upon at least 24 hours
written notice to each director unless notice is waived in writing
before or after such meeting. Such notice shall state the place, date,
time, and purposes of such meeting. 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. Action may be taken without a
meeting if unanimous written consent is obtained for such action. The
board may also permit telephonic participation at 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.
10. Officers, employees, and agents. Annually at the meeting of the
board of directors of the mutual holding company following the annual
meeting of the members of the mutual holding company, the board shall
elect a president, one or more vice presidents, a secretary, and a
treasurer or comptroller: Provided, that the offices of president and
secretary may not be held by the same person and a vice president may
also be the treasurer or comptroller. The board may appoint such
additional officers, employees, and agents as it may from time to time
determine. The term of office of all officers shall be one year or until
their respective successors are elected and qualified. Any officer may
be removed at any time by the board 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. In the absence of
designation from time to time of powers and duties by the board, the
officers shall have such powers and duties as generally pertain to their
respective offices. Any indemnification by the mutual holding company of
the mutual holding company's personnel is subject to any applicable
rules or regulations of the Board.
11. Vacancies, resignation or removal of directors. Members of the
mutual holding company shall elect directors by ballot: Provided, that
in the event of a vacancy on the board between meetings of members, the
board of directors may, by their affirmative
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vote, fill such vacancy, even if the remaining directors constitute less
than a quorum. A director elected to fill a vacancy shall be elected to
serve only until the next election of directors by the members. Any
director may resign at any time by sending a written notice of such
resignation to the mutual holding company delivered to the secretary.
Unless otherwise specified therein such resignation shall take effect
upon receipt by the secretary. More than three consecutive absences from
regular meetings of the board, unless excused by resolution of the
board, shall automatically constitute a resignation, effective when such
resignation is accepted by the board. At a meeting of members called
expressly for that purpose, directors or the entire board may be
removed, only with cause, 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: (a) By resolution, to appoint from among its members and remove
an executive committee, which committee shall have and may exercise the
powers of the board between the meetings of 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 mutual holding company. Such committee shall not operate to
relieve the board, or any member thereof, of any responsibility imposed
by law; (b) To appoint and remove by resolution the members of such
other committees as may be deemed necessary and prescribe the duties
thereof; (c) To fix the compensation of directors, officers, and
employees; and to remove any officer or employee at any time with or
without cause; (d) To limit payments on capital which may be accepted;
and (e) To exercise any and all of the powers of the mutual holding
company not expressly reserved by the charter to the members.
13. Execution of instruments, generally. All documents and
instruments or writings of any nature shall be signed, executed,
verified, acknowledged, and delivered by such officers, agents, or
employees of the mutual holding company or any one of them and in such
manner as from time to time may be determined by resolution of the
board. All notes, drafts, acceptances, checks, endorsements, and all
evidences of indebtedness of the mutual holding company whatsoever shall
be signed by such officer or officers or such agent or agents of the
mutual holding company and in such manner as the board may from time to
time determine. Endorsements for deposit to the credit of the mutual
holding company in any of its duly authorized depositories shall be made
in such manner as the board may from time to time determine. Proxies to
vote with respect to shares or accounts of other mutual holding
companies or stock of other corporations owned by, or standing in the
name of, the mutual holding company may be executed and delivered from
time to time on behalf of the mutual holding company by the president or
a vice president and the secretary or an assistant secretary of the
mutual holding company or by any other persons so authorized by the
board.
14. Nominating committee. The chairman, at least 30 days prior to
the date of each annual meeting, shall appoint a nominating committee of
three individuals who are members of the mutual holding company. Such
committee shall make nominations for directors in writing and deliver to
the secretary such written nominations at least 15 days prior to the
date of the annual meeting, which nominations shall then be posted in a
prominent place in the principal place of business for the 15-day period
prior to the date of the annual meeting, except in the case of a nominee
substituted as a result of death or other incapacity. Provided such
committee is appointed and makes such nominations, no nominations for
directors except those made by the nominating committee shall be voted
upon at the annual meeting unless other nominations by members are made
in writing and delivered to the secretary of the mutual holding company
at least 10 days prior to the date of the annual meeting, which
nominations shall then be posted in a prominent place in the principal
place of business for the 10-day period prior to the date of the annual
meeting, except in the case of a nominee substituted as a result of
death or other incapacity. Ballots bearing the names of all individuals
nominated by the nominating committee and by other members prior to the
annual meeting shall be provided for use by the members at the annual
meeting. If at any time the chairman shall fail to appoint such
nominating committee, or the nominating committee shall fail or refuse
to act at least 15 days prior to the annual meeting, nominations for
directors may be made at the annual meeting by any member and shall be
voted upon.
15. New business. Any new business to be taken up at the annual
meeting, including any proposal to increase or decrease the number of
directors of the mutual holding company, shall be stated in writing and
filed with the secretary of the mutual holding company at least 30 days
before the date of the annual meeting, and all business so stated,
proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any member may
make any other proposal at the annual meeting and the same may be
discussed and considered; but unless stated in writing and filed with
the secretary 30 days before the meeting, such proposal shall
[[Page 198]]
be laid over for action at an adjourned, special, or regular meeting of
the members taking place at least 30 days thereafter. This provision
shall not prevent the consideration and approval or disapproval at the
annual meeting of the reports of officers and committees, but in
connection with such reports no new business shall be acted upon at such
annual meeting unless stated and filed as herein provided.
16. Seal. The seal shall be two concentric circles between which
shall be the name of the mutual holding company. The year of
incorporation, the word ``Incorporated'' or an emblem may appear in the
center.
17. Amendment. Adoption of any bylaw amendment pursuant toSec.
239.15 of the Board's regulations, as long as consistent with applicable
law, rules and regulations, and which adequately addresses the subject
and purpose of the stated by law section, shall be effective after (i)
approval of the amendment by a majority vote of the authorized board, or
by a vote of the members of the mutual holding company at a legal
meeting; and (ii) receipt of any applicable regulatory approval. When a
mutual holding company 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.
18. Age limitations. [Bylaws on age limitations must comply with all
Federal laws, such as the Age Discrimination in Employment Act and the
Employee Retirement Income Security Act.]
(a) Directors. No individual ---- years of age shall be eligible for
election, reelection, appointment, or reappointment to the board of the
mutual holding company. No director shall serve as such beyond the
annual meeting of the mutual holding company immediately following the
director becoming ----(fill in age used above), except that a director
serving on ----(fill in bylaw adoption date) may complete the term as
director. This age limitation does not apply to an advisory director.
(b) Officers. No individual ---- years of age shall be eligible for
election, reelection, appointment, or reappointment as an officer of the
mutual holding company. No officer shall serve beyond the annual meeting
of the mutual holding company immediately following the officer becoming
----(fill in age used above), except that an officer serving on ----
(fill in bylaw adoption date) may complete the term. However, an officer
shall, at the option of the board, retire at age ---- if the officer has
served in an executive or high policy-making post for at least two years
immediately prior to retirement and is immediately entitled to
nonforfeitable annual retirement benefits of at least ----.
Sec. Appendix D to Part 239--Subsidiary Holding Company of a Mutual
Holding Company Model Bylaws
MHC Subsidiary Holding Company Bylaws
Article I--Home Office
The home office of the Subsidiary Holding Company shall be at ------
---------- [set forth the full address] in the County of --------------
-- , in the State of ---------------- .
Article II--Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Subsidiary Holding
Company or at such other convenient place as the board of directors may
determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Subsidiary Holding Company for the election of directors and for the
transaction of any other business of the Subsidiary Holding Company
shall be held annually within 150 days after the end of the Subsidiary
Holding Company's fiscal year on the ----of ---- if not a legal holiday,
and if a legal holiday, then on the next day following which is not a
legal holiday, at ----, or at such other date and time within such 150-
day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the
regulations of the Board of Governors of the Federal Reserve System
(``Board''), may be called at any time by the chairman of the board, the
president, or a majority of the board of directors, and shall be called
by the chairman of the board, the president, or the secretary upon the
written request of the holders of not less than one-tenth of all of the
outstanding capital stock of the Subsidiary Holding Company entitled to
vote at the meeting. Such written request shall state the purpose or
purposes of the meeting and shall be delivered to the home office of the
Subsidiary Holding Company addressed to the chairman of the board, the
president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules
of Order unless otherwise prescribed by regulations of the Board or
these bylaws or the board of directors adopts another written procedure
for the conduct of meetings. The board of directors shall designate,
when present, either the chairman of the board or president to preside
at such meetings.
Section 5. Notice of Meetings. Written notice stating the place,
day, and hour of the meeting and the purpose(s) for which the
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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, or the
secretary, or the directors 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 as it appears on the stock transfer books or
records of the Subsidiary Holding Company as of the record date
prescribed in section 6 of this article II with postage 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. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
Section 6. 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, 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 fewer 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.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer
books for shares of the Subsidiary Holding Company shall make a complete
list of the shareholders of record entitled to vote at such meeting, or
any adjournment 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 Subsidiary Holding
Company and shall be subject to inspection by any shareholder of record
or the shareholder's agent at any time during usual business hours for a
period of 20 days prior to such meeting. Such list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder of record or any shareholder's
agent during the entire time of the meeting. The original stock transfer
book shall constitute prima facie evidence of the shareholders entitled
to examine such list or transfer books or to vote at any meeting of
shareholders. In lieu of making the shareholder list available for
inspection by shareholders as provided in the preceding paragraph, the
board of directors may elect to follow the procedures prescribed in
Sec. 239.26(d) of the Board's regulations as now or hereafter in
effect.
Section 8. Quorum. A majority of the outstanding shares of the
Subsidiary Holding Company entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. If less
than a majority of the outstanding shares is represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time
to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
enough shareholders to constitute 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 shareholders, unless the vote of a greater number of
shareholders 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.
Section 9. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his or
her 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. 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.
Section 10. Voting of Shares in the Name of Two or More Persons.
When ownership stands in the name of two or more persons, in the absence
of written directions to the Subsidiary Holding Company to the contrary,
at any meeting of the shareholders of the Subsidiary Holding Company any
one or more of such shareholders may cast, in person or by proxy, all
votes to which such ownership is entitled. In the event an attempt is
made to cast conflicting votes, in person or by proxy, by the several
persons in whose names shares of stock stand, the vote or votes to which
those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or
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by proxy at such meeting, but no votes shall be cast for such stock if a
majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by any officer, agent, or
proxy as the bylaws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation
may determine. Shares held by an administrator, executor, guardian, or
conservator may be voted by him or her, either in person or by proxy,
without a transfer of such shares into his or her name. Shares standing
in the name of a trustee may be voted by him or her, either in person or
by proxy, but no trustee shall be entitled to vote shares held by him or
her without a transfer of such shares into his or her name. Shares held
in trust in an IRA or Keogh Account, however, may by voted by the
Subsidiary Holding Company if no other instructions are received. Shares
standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such
receiver without the transfer into his or her name if authority to do so
is contained in an appropriate order of the court or other public
authority by which such receiver was appointed. A shareholder whose
shares are pledged shall be entitled to vote such shares until the
shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so
transferred. Neither treasury shares of its own stock held by the
Subsidiary Holding Company 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 Subsidiary Holding Company, 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. [If
charter authorizes cumulative voting, the following Section 12 shall
apply, otherwise renumber Sections 13-16 as Sections 12-15.]
Section 12. Cumulative Voting. Every shareholder entitled to vote at
an election for directors shall have the right to vote, in person or by
proxy, the number of shares owned by the shareholder for as many persons
as there are directors to be elected and for whose election the
shareholder has a right to vote, or to cumulate the votes by giving one
candidate as many votes as the number of such directors to be elected
multiplied by the number of shares shall equal or by distributing such
votes on the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any individual other
than nominees for office as inspectors of election to act at such
meeting or any adjournment. The number of inspectors shall be either one
or three. Any such appointment shall not be altered at the meeting. If
inspectors of election are not so appointed, the chairman of the board
or the president may, or on the request of not fewer than 10 percent of
the votes represented at the meeting shall, make such appointment at the
meeting. If appointed at the meeting, the majority of the votes present
shall determine whether one or three inspectors are to be appointed. In
case any individual appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of
the board or the president. Unless otherwise prescribed by regulations
of the Board, the duties of such inspectors shall include: determining
the number of shares and the voting power of each share, the shares
represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any
way arising in connection with the rights to vote; counting and
tabulating all votes or consents; determining the result; and such acts
as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board of directors shall act
as a nominating committee for selecting the management nominees for
election as directors. Except in the case of a nominee substituted as a
result of the death or other incapacity of a management nominee, the
nominating committee shall deliver written nominations to the secretary
at least 20 days prior to the date of the annual meeting. Upon delivery,
such nominations shall be posted in a conspicuous place in each office
of the Subsidiary Holding Company. No nominations for directors except
those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Subsidiary Holding Company at least
five days prior to the date of the annual meeting. Upon delivery, such
nominations shall be posted in a conspicuous place in each office of the
Subsidiary Holding Company. Ballots bearing the names of all persons
nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the
annual meeting, nominations for directors may be made at the annual
meeting by any shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the secretary
of the Subsidiary Holding Company at least five days before the date of
the
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annual meeting, and all business so stated, proposed, and filed shall be
considered at the annual meeting; but no other proposal shall be acted
upon at the annual meeting. Any shareholder may make any other proposal
at the annual meeting and the same may be discussed and considered, but
unless stated in writing and filed with the secretary at least five days
before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place
30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of
reports of officers, directors, and committees; but in connection with
such reports, no new business shall be acted upon at such annual meeting
unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any other action which may
be taken at a meeting of shareholders, may be taken without a meeting if
consent in writing, setting forth the action so taken, shall be given by
all of the shareholders entitled to vote with respect to the subject
matter.
Article III--Board of Directors
Section 1. General Powers. The business and affairs of the
Subsidiary Holding Company shall be under the direction of its board of
directors. The board of directors shall annually elect a chairman of the
board and a president from among its members and shall designate, when
present, either the chairman of the board or the president to preside at
its meetings.
Section 2. Number and Term. The board of directors shall consist of
---- [not fewer than five nor more than fifteen] members, and shall be
divided into three classes as nearly equal in number as possible. The
members of each class shall be elected for a term of three years and
until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw following
the annual meeting of shareholders. The board of directors may provide,
by resolution, the time and place, for the holding of additional regular
meetings without other notice than such resolution. Directors may
participate in a meeting by means of a conference telephone or similar
communications device through which all individuals participating can
hear each other at the same time. Participation by such means shall
constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Subsidiary Holding Company unless the Subsidiary Holding Company is a
wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman of the
board, the president, or one-third of the directors. The persons
authorized to call special meetings of the board of directors may fix
any place, within the Subsidiary Holding Company's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons. Members of the board of directors may
participate in special meetings by means of conference telephone or
similar communications equipment by which all persons participating in
the meeting can hear each other. Such participation shall constitute
presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be
given to each director at least 24 hours prior thereto when delivered
personally or by telegram or at least five days prior thereto when
delivered by mail at the address at which the director is most likely to
be reached. Such notice shall be deemed to be delivered when deposited
in the mail so addressed, with postage prepaid if mailed, when delivered
to the telegraph company if sent by telegram, or when the Subsidiary
Holding Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing
filed with the secretary. 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 of the board of directors need be specified in the
notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
section 2 of this article III shall constitute a quorum for the
transaction of business at any meeting of the board of directors; but if
less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time. Notice of
any adjourned meeting shall be given in the same manner as prescribed by
section 5 of this article III.
Section 8. Manner of Acting. 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 Board or by these bylaws.
Section 9. 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
action so taken, shall be signed by all of the directors.
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Section 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Subsidiary Holding Company addressed to the chairman of the board or the
president. Unless otherwise specified, such resignation shall take
effect upon receipt by the chairman of the board or the president. More
than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation
is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on 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.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may
be allowed for attendance at each regular or special meeting of the
board of directors. Members of either standing or special committees may
be allowed such compensation for attendance at committee meetings as the
board of directors may determine.
Section 13. Presumption of Assent. A director of the Subsidiary
Holding Company who is present at a meeting of the board of directors at
which action on any Subsidiary Holding Company 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
he or she shall file a written dissent to such action with the
individual acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the
secretary of the Subsidiary Holding Company within five days after the
date 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.
Section 14. Removal of Directors. At a meeting of shareholders
called expressly for that purpose, any director may be removed only for
cause by a vote of the holders of a majority of the shares then entitled
to vote at an election of directors. 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. [If cumulative voting has been deleted, the
preceding sentence should be deleted.] 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.
Article IV--Executive and Other Committees
Section 1. Appointment. The board of directors, by resolution
adopted by a majority of the full board, may designate the chief
executive officer and two or more of the other directors to constitute
an executive committee. The designation of any committee pursuant to
this Article IV and the delegation of authority shall not operate to
relieve the board of directors, or any director, of any responsibility
imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the
authority of the board of directors except to the extent, if any, that
such authority shall be limited by the resolution appointing the
executive committee; and except also that the executive committee shall
not have the authority of the board of directors with reference to: the
declaration of dividends; the amendment of the charter or bylaws of the
Subsidiary Holding Company, or recommending to the shareholders 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 Subsidiary Holding Company otherwise than in the usual and regular
course of its business; a voluntary dissolution of the Subsidiary
Holding Company; a revocation of any of the foregoing; or the approval
of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this
article IV, each member of the executive committee shall hold office
until the next regular annual meeting of the board of directors
following his or her designation and until a successor is designated as
a member of the executive committee.
Section 4. Meetings. Regular meetings of the executive committee may
be held without notice at such times and places as the executive
committee may fix from time to time by resolution. Special meetings of
the executive committee may be called by any member thereof upon not
less than one day's notice stating the place, date, and hour of the
meeting, which notice may be written or
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oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the
meeting.
Section 5. Quorum. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at
any meeting thereof, and action of the executive committee must be
authorized by the affirmative vote of a majority of the members present
at a meeting at which a quorum is present.
Section 6. Action Without a Meeting. Any action required or
permitted to be taken by the executive committee at a meeting may be
taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by all of the members of the executive
committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of
directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time
by giving written notice to the president or secretary of the Subsidiary
Holding Company. Unless otherwise specified, such resignation shall take
effect upon its receipt; the acceptance of such resignation shall not be
necessary to make it effective. No notice of any meeting need be given
to any member thereof who attends in person. The notice of a meeting of
the executive committee need not state the business proposed to be
transacted at the meeting.
Section 9. Procedure. The executive committee shall elect a
presiding officer from its members and may fix its own rules of
procedure, which shall not be inconsistent with these bylaws. It shall
keep regular minutes of its proceedings and report the same to the board
of directors for its information at the meeting held next after the
proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by
resolution establish an audit, loan, or other committee composed of
directors as they may determine to be necessary or appropriate for the
conduct of the business of the Subsidiary Holding Company and may
prescribe the duties, constitution, and procedures thereof.
Article V--Officers
Section 1. Positions. The officers of the Subsidiary Holding Company
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 individual and a 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 Subsidiary Holding Company 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.
Section 2. Election and Term of Office. The officers of the
Subsidiary Holding Company shall be elected annually at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If the election of officers is not held at such meeting,
such election shall be held as soon thereafter as possible. Each officer
shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee,
or agent shall not of itself create contractual rights. The board of
directors may authorize the Subsidiary Holding Company to enter into an
employment contract with any officer in accordance with regulations of
the Board; but no such contract shall impair the right of the board of
directors to remove any officer at any time in accordance with section 3
of this article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Subsidiary
Holding Company will be served thereby, but such removal, other than for
cause, shall be without prejudice to the contractual rights, if any, of
the officer so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by
the board of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
Article VI--Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the
Board, and except as otherwise prescribed by these bylaws with respect
to certificates for shares, the board of directors may authorize any
officer, employee, or agent of the Subsidiary Holding
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Company to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Subsidiary Holding Company. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Subsidiary Holding Company and no evidence of indebtedness shall be
issued in its name unless authorized by the board of directors. Such
authority may be general or confined to specific instances.
Section 3. Checks; Drafts. etc. All checks, drafts, or other orders
for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Subsidiary Holding Company shall be signed by
one or more officers, employees or agents of the Subsidiary Holding
Company in such manner as shall from time to time be determined by the
board of directors.
Section 4. Deposits. All funds of the Subsidiary Holding Company not
otherwise employed shall be deposited from time to time to the credit of
the Subsidiary Holding Company in any duly authorized depositories as
the board of directors may select.
Article VII--Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares
of capital stock of the Subsidiary Holding Company shall be in such form
as shall be determined by the board of directors and approved by the
Board. Such certificates shall be signed by the chief executive officer
or by any other officer of the Subsidiary Holding Company 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 Subsidiary Holding Company 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
Subsidiary Holding Company. All certificates surrendered to the
Subsidiary Holding Company for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like
number of shares has been surrendered and canceled, except that in the
case of a lost or destroyed certificate, a new certificate may be issued
upon such terms and indemnity to the Subsidiary Holding Company as the
board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock
of the Subsidiary Holding Company shall be made only on its stock
transfer books. Authority for such transfer shall be given only by the
holder of record or by his or her legal representative, who shall
furnish proper evidence of such authority, or by his or her attorney
authorized by a duly executed power of attorney and filed with the
Subsidiary Holding Company. Such transfer shall be made only on
surrender for cancellation of the certificate for such shares. The
person in whose name shares of capital stock stand on the books of the
Subsidiary Holding Company shall be deemed by the Subsidiary Holding
Company to be the owner for all purposes.
Article VIII--Fiscal Year
The fiscal year of the Subsidiary Holding Company shall end on the
----------------of----------------each year. The appointment of
accountants shall be subject to annual ratification by the shareholders.
Article IX--Dividends
Subject to the terms of the Subsidiary Holding Company's charter and
the regulations and orders of the Board, the board of directors may,
from time to time, declare, and the Subsidiary Holding Company may pay,
dividends on its outstanding shares of capital stock.
Article X--Corporate Seal
The board of directors shall provide a Subsidiary Holding Company
seal, which shall be two concentric circles between which shall be the
name of the Subsidiary Holding Company. The year of incorporation or an
emblem may appear in the center.
Article XI--Amendments
These bylaws may be amended in a manner consistent with regulations
of the Board and shall be effective after: (i) approval of the amendment
by a majority vote of the authorized board of directors, or by a
majority vote of the votes cast by the shareholders of the Subsidiary
Holding Company at any legal meeting, and (ii) receipt of any applicable
regulatory approval. When a Subsidiary Holding Company fails to meet its
quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to
amend the bylaws.
PART 240_RETAIL FOREIGN EXCHANGE TRANSACTIONS (REGULATION NN)
--Table of Contents
Sec.
240.1 Authority, purpose, and scope.
240.2 Definitions.
240.3 Prohibited transactions.
240.4 Notification.
[[Page 205]]
240.5 Application and closing out of offsetting long and short
positions.
240.6 Disclosure.
240.7 Recordkeeping.
240.8 Capital requirements.
240.9 Margin requirements.
240.10 Required reporting to customers.
240.11 Unlawful representations.
240.12 Authorization to trade.
240.13 Trading and operational standards.
240.14 Supervision.
240.15 Notice of transfers.
240.16 Customer dispute resolution.
240.17 Reservation of authority.
Authority: 7 U.S.C. 2(c)(2)(E), 12 U.S.C. 248, 321-338, 1813(q),
1818, 1844(b), 3106a, 3108.
Source: 78 FR 21027, Apr. 9, 2013, unless otherwise noted.
Sec. 240.1 Authority, purpose and scope.
(a) Authority. This part is issued by the Board of Governors of the
Federal Reserve System (the Board) under the authority of section
2(c)(2)(E) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(E)), sections
9 and 11 of the Federal Reserve Act (12 U.S.C. 321-338 and 248), section
5(b) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(b)),
sections 9 and 13a of the International Banking Act of 1978 (12 U.S.C.
3106a and 3108), and sections 3(q) and 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q) and 1818).
(b) Purpose. This part establishes rules applicable to retail
foreign exchange transactions engaged in by banking institutions on or
after May 13, 2013.
(c) Scope. Except as provided in paragraph (d) of this section, this
part applies to banking institutions, as defined in section 240.2(b) of
this part, and any branches or offices of those institutions wherever
located. This part applies to subsidiaries of banking institutions
organized under the laws of the United States or any U.S. state that are
not subject to the jurisdiction of another federal regulatory agency
authorized to prescribe rules or regulations under section 2(c)(2)(E) of
the Commodity Exchange Act (7 U.S.C. (2)(c)(2)(E)).
(d) International applicability. Sections 240.3 and 240.5 through
240.16 do not apply to retail foreign exchange transactions between a
foreign branch or office of a banking institution and a non-U.S.
customer. With respect to those transactions, the foreign branch or
office remains subject to any disclosure, recordkeeping, capital,
margin, reporting, business conduct, documentation, and other
requirements of applicable foreign law.
Sec. 240.2 Definitions.
For purposes of this part, the following terms have the same meaning
as in the Commodity Exchange Act (7 U.S.C. 1 et seq.): ``affiliated
person of a futures commission merchant''; ``associated person'';
``contract of sale''; ``commodity''; ``futures commission merchant'';
``future delivery''; ``option''; ``security''; and ``security futures
product.''
(a) Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
(b) Banking institution means:
(1) A state member bank (as defined in 12 CFR 208.2);
(2) An uninsured state-licensed U.S. branch or agency of a foreign
bank;
(3) A financial holding company (as defined in section 2 of the Bank
Holding Company Act of 1956; 12 U.S.C. 1841);
(4) A bank holding company (as defined in section 2 of the Bank
Holding Company Act of 1956; 12 U.S.C. 1841);
(5) A savings and loan holding company (as defined in section 10 of
the Home Owners Loan Act; 12 U.S.C. 1467a)
(6) A corporation operating under the fifth undesignated paragraph
of section 25 of the Federal Reserve Act (12 U.S.C. 603), commonly known
as ``an agreement corporation;'' and
(7) A corporation organized under section 25A of the Federal Reserve
Act (12 U.S.C. 611 et seq.), commonly known as an ``Edge Act
corporation.''
(c) Commodity Exchange Act means the Commodity Exchange Act (7
U.S.C. 1 et seq.).
(d) Eligible contract participant has the same meaning as in the
Commodity Exchange Act (7 U.S.C. 1 et seq., as implemented in 17 CFR
1.3(m).
(e) Forex means foreign exchange.
(f) Identified banking product has the same meaning as in section
401(b) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C.
27(b)).
[[Page 206]]
(g) Institution-affiliated party or IAP has the same meaning as in
12 U.S.C. 1813(u)(1), (2), or (3).
(h) Introducing broker means any person who solicits or accepts
orders from a retail forex customer in connection with retail forex
transactions.
(i) Related person, when used in reference to a retail forex
counterparty, means:
(1) Any general partner, officer, director, or owner of ten percent
or more of the capital stock of the retail forex counterparty;
(2) An associated person or employee of the retail forex
counterparty, if the retail forex counterparty is not an insured
depository institution;
(3) An IAP, if the retail forex counterparty is an insured
depository institution; and
(4) Any relative or spouse of any of the foregoing persons, or any
relative of such spouse, who shares the same home as any of the
foregoing persons.
(j) Retail foreign exchange dealer means any person other than a
retail forex customer that is, or that offers to be, the counterparty to
a retail forex transaction, except for a person described in item (aa),
(bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II) of the
Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
(k) Retail forex account means the account of a retail forex
customer, established with a banking institution, in which retail forex
transactions with the banking institution as counterparty are
undertaken, or the account of a retail forex customer that is
established in order to enter into such transactions.
(l) Retail forex account agreement means the contractual agreement
between a banking institution and a retail forex customer that contains
the terms governing the customer's retail forex account with the banking
institution.
(m) Retail forex business means engaging in one or more retail forex
transactions with the intent to derive income from those transactions,
either directly or indirectly.
(n) Retail forex counterparty includes, as appropriate:
(1) A banking institution;
(2) A retail foreign exchange dealer;
(3) A futures commission merchant;
(4) An affiliated person of a futures commission merchant; and
(5) A broker or dealer registered under section 15(b) (except
paragraph (11) thereof) or 15C of the Securities Exchange Act of 1934
(15 U.S.C. 78o(b), 78o-5) or a U.S. financial institution other than a
banking institution, provided the counterparty is subject to a rule or
regulation of a Federal regulatory agency covering retail forex
transactions.
(o) Retail forex customer means a customer that is not an eligible
contract participant, acting on his, her, or its own behalf and engaging
in retail forex transactions.
(p) Retail forex proprietary account means a retail forex account
carried on the books of a banking institution for one of the following
persons; a retail forex account of which 10 percent or more is owned by
one of the following persons; or a retail forex account of which an
aggregate of 10 percent or more of which is owned by more than one of
the following persons:
(1) The banking institution;
(2) An officer, director or owner of ten percent or more of the
capital stock of the banking institution; or
(3) An employee of the banking institution, whose duties include:
(i) The management of the banking institution's business;
(ii) The handling of the banking institution's retail forex
transactions;
(iii) The keeping of records, including without limitation the
software used to make or maintain those records, pertaining to the
banking institution's retail forex transactions; or
(iv) The signing or co-signing of checks or drafts on behalf of the
banking institution;
(4) A spouse or minor dependent living in the same household as of
any of the foregoing persons; or
(5) An affiliate of the banking institution;
(q) Retail forex transaction means an agreement, contract, or
transaction in foreign currency, other than an identified banking
product or a part of an identified banking product, that is offered or
entered into by a banking institution with a person that is not an
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eligible contract participant and that is:
(1) A contract of sale of a commodity for future delivery or an
option on such a contract; or
(2) An option, other than an option executed or traded on a national
securities exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or
(3) Offered or entered into on a leveraged or margined basis, or
financed by a banking institution, its affiliate, or any person acting
in concert with the banking institution or its affiliate on a similar
basis, other than:
(i) A security that is not a security futures product as defined in
section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or
(ii) A contract of sale that--
(A) Results in actual delivery within two days; or
(B) Creates an enforceable obligation to deliver between a seller
and buyer that have the ability to deliver and accept delivery,
respectively, in connection with their line of business; or
(iii) An agreement, contract, or transaction that the Board
determines is not functionally or economically similar to an agreement,
contract, or transaction described in paragraph (p)(1) or (p)(2) of this
section.
Sec. 240.3 Prohibited transactions.
(a) Fraudulent conduct prohibited. No banking institution or its
related persons may, directly or indirectly, in or in connection with
any retail forex transaction:
(1) Cheat or defraud or attempt to cheat or defraud any person;
(2) Knowingly make or cause to be made to any person any false
report or statement or cause to be entered for any person any false
record; or
(3) Knowingly deceive or attempt to deceive any person by any means
whatsoever.
(b) Acting as counterparty and exercising discretion prohibited. A
banking institution that has authority to cause retail forex
transactions to be effected for a retail forex customer without the
retail forex customer's specific authorization may not (and an affiliate
of such an institution may not) act as the counterparty for any retail
forex transaction with that retail forex customer.
Sec. 240.4 Notification.
(a) Notification required. Before commencing a retail forex
business, a banking institution shall provide the Board with prior
written notice in compliance with this section. The notice will become
effective 60 days after a complete notice is received by the Board,
provided the Board does not request additional information or object in
writing. In the event the Board requests additional information, the
notice will become effective 60 days after all information requested by
the Board is received by the Board unless the Board objects in writing.
(b) Notification requirements. A banking institution shall provide
the following in its written notification:
(1) Information concerning customer due diligence, including without
limitation credit evaluations, customer appropriateness, and ``know your
customer'' documentation;
(2) The haircuts to be applied to noncash margin as provided in
240.9(b)(2);
(3) Information concerning new product approvals;
(4) Information on addressing conflicts of interest; and
(5) A resolution by the banking institution's Board of Directors
that the banking institution has established and implemented written
policies, procedures, and risk measurement and management systems and
controls for the purpose of ensuring that it conducts retail forex
transactions in a safe and sound manner and in compliance with this
part.
(c) Treatment of existing retail forex businesses. A banking
institution that is engaged in a retail forex business on the effective
date of this part may continue to do so, until and unless the Board
objects in writing, so long as the institution submits the information
required to be submitted under paragraphs (b)(1) through (5) of this
section within 30 days of the effective date of this part, subject to an
extension of time by the Board, and such additional information as
requested by the Board thereafter.
[[Page 208]]
(d) Compliance with the Commodity Exchange Act. A banking
institution that is engaged in a retail forex business on the effective
date of this part and complies with paragraph (c) of this section shall
be deemed to be acting pursuant to a rule or regulation described in
section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C.
2(c)(2)(E)(ii)(I)).
Sec. 240.5 Application and closing out of offsetting long and short
positions.
(a) Application of purchases and sales. Any banking institution
that--
(1) Engages in a retail forex transaction involving the purchase of
any currency for the account of any retail forex customer when the
account of such retail forex customer at the time of such purchase has
an open retail forex transaction for the sale of the same currency;
(2) Engages in a retail forex transaction involving the sale of any
currency for the account of any retail forex customer when the account
of such retail forex customer at the time of such sale has an open
retail forex transaction for the purchase of the same currency;
(3) Purchases a put or call option involving foreign currency for
the account of any retail forex customer when the account of such retail
forex customer at the time of such purchase has a short put or call
option position with the same underlying currency, strike price, and
expiration date as that purchased; or
(4) Sells a put or call option involving foreign currency for the
account of any retail forex customer when the account of such retail
forex customer at the time of such sale has a long put or call option
position with the same underlying currency, strike price, and expiration
date as that sold shall:
(i) Immediately apply such purchase or sale against such previously
held opposite transaction with the same customer; and
(ii) Promptly furnish such retail forex customer with a statement
showing the financial result of the transactions involved and the name
of any introducing broker to the account.
(b) Close-out against oldest open position. In all instances in
which the short or long position in a customer's retail forex account
immediately prior to an offsetting purchase or sale is greater than the
quantity purchased or sold, the banking institution shall apply such
offsetting purchase or sale to the oldest portion of the previously held
short or long position.
(c) Transactions to be applied as directed by customer.
Notwithstanding paragraphs (a) and (b) of this section, the offsetting
transaction shall be applied as directed by a retail forex customer's
specific instructions. These instructions may not be made by the banking
institution or a related person.
Sec. 240.6 Disclosure.
(a) Risk disclosure statement required. No banking institution may
open or maintain an account for a retail forex customer for the purpose
of engaging in retail forex transactions unless the banking institution
has furnished the retail forex customer with a separate written
disclosure statement containing only the language set forth in paragraph
(d) of this section and the disclosures required by paragraphs (e), (f),
and (g) of this section.
(b) Acknowledgement of risk disclosure statement required. The
banking institution must receive from the retail forex customer a
written acknowledgement signed and dated by the customer that the
customer received and understood the written disclosure statement
required by paragraph (a) of this section.
(c) Placement of risk disclosure statement. The disclosure statement
may be attached to other documents as the initial page(s) of such
documents and as the only material on such page(s).
(d) Content of risk disclosure statement. The language set forth in
the written disclosure statement required by paragraph (a) of this
section shall be as follows:
Risk Disclosure Statement
Retail forex transactions generally involve the leveraged trading of
contracts denominated in foreign currency with a banking institution as
your counterparty. Because of the leverage and the other risks disclosed
here, you can rapidly lose all of the funds or property you give the
banking institution as margin for such trading and you may lose more
than you pledge as margin. You should
[[Page 209]]
be aware of and carefully consider the following points before
determining whether such trading is appropriate for you.
(1) Trading foreign currencies is a not on a regulated market or
exchange--your banking institution is your trading counterparty and has
conflicting interests. The retail forex transaction you are entering
into is not conducted on an interbank market, nor is it conducted on a
futures exchange subject to regulation by the Commodity Futures Trading
Commission. The foreign currency trades you transact are trades with
your banking institution as the counterparty. When you sell, the banking
institution is the buyer. When you buy, the banking institution is the
seller. As a result, when you lose money trading, your banking
institution is making money on such trades, in addition to any fees,
commissions, or spreads the banking institution may charge.
(2) Any electronic trading platform that you may use for retail
foreign currency transactions with your banking institution is not a
regulated exchange. It is an electronic connection for accessing your
banking institution. The terms of availability of such a platform are
governed only by your contract with your banking institution. Any
trading platform that you may use to enter into off-exchange foreign
currency transactions is only connected to your banking institution. You
are accessing that trading platform only to transact with your banking
institution. You are not trading with any other entities or customers of
the banking institution by accessing such platform. The availability and
operation of any such platform, including the consequences of the
unavailability of the trading platform for any reason, is governed only
by the terms of your account agreement with the banking institution.
(3) You may be able to offset or liquidate any trading positions
only through your banking institution because the transactions are not
made on an exchange, and your banking institution may set its own
prices. Your ability to close your transactions or offset positions is
limited to what your banking institution will offer to you, as there is
no other market for these transactions. Your banking institution may
offer any prices it wishes. Your banking institution may establish its
prices by offering spreads from third party prices, but it is under no
obligation to do so or to continue to do so. Your banking institution
may offer different prices to different customers at any point in time
on its own terms. The terms of your account agreement alone govern the
obligations your banking institution has to you to offer prices and
offer offset or liquidating transactions in your account and make any
payments to you. The prices offered by your banking institution may or
may not reflect prices available elsewhere at any exchange, interbank,
or other market for foreign currency.
(4) Paid solicitors may have undisclosed conflicts. The banking
institution may compensate introducing brokers for introducing your
account in ways that are not disclosed to you. Such paid solicitors are
not required to have, and may not have, any special expertise in
trading, and may have conflicts of interest based on the method by which
they are compensated. You should thoroughly investigate the manner in
which all such solicitors are compensated and be very cautious in
granting any person or entity authority to trade on your behalf. You
should always consider obtaining dated written confirmation of any
information you are relying on from your banking institution in making
any trading or account decisions.
(5) Retail forex transactions are not insured by the Federal Deposit
Insurance Corporation.
(6) Retail forex transactions are not a deposit in, or guaranteed
by, a banking institution.
(7) Retail forex transactions are subject to investment risks,
including possible loss of all amounts invested.
Finally, you should thoroughly investigate any statements by any
banking institution that minimize the importance of, or contradict, any
of the terms of this risk disclosure. Such statements may indicate sales
fraud.
This brief statement cannot, of course, disclose all the risks and
other aspects of trading off-exchange foreign currency with a banking
institution. I hereby acknowledge that I have received and understood
this risk disclosure statement.
________________________________________________________________________
Date
________________________________________________________________________
Signature of Customer
(e)(1) Disclosure of profitable accounts ratio. Immediately
following the language set forth in paragraph (d) of this section, the
statement required by paragraph (a) of this section shall include, for
each of the most recent four calendar quarters during which the banking
institution maintained retail forex customer accounts:
(i) The total number of retail forex customer accounts maintained by
the banking institution over which the banking institution does not
exercise investment discretion;
(ii) The percentage of such accounts that were profitable for retail
forex customer accounts during the quarter; and
[[Page 210]]
(iii) The percentage of such accounts that were not profitable for
retail forex customer accounts during the quarter.
(2) Statement of profitable trades. (i) The banking institution's
statement of profitable trades shall include the following legend: Past
performance is not necessarily indicative of future results.
(ii) Each banking institution shall provide, upon request, to any
retail forex customer or prospective retail forex customer the total
number of retail forex accounts maintained by the banking institution
for which the banking institution does not exercise investment
discretion, the percentage of such accounts that were profitable, and
the percentage of such accounts that were not profitable for each
calendar quarter during the most recent five-year period during which
the banking institution maintained such accounts.
(f) Disclosure of fees and other charges. Immediately following the
language required by paragraph (e) of this section, the statement
required by paragraph (a) of this section shall include:
(1) The amount of any fee, charge, spread, or commission that the
banking institution may impose on the retail forex customer in
connection with a retail forex account or retail forex transaction;
(2) An explanation of how the banking institution will determine the
amount of such fees, charges, spreads, or commissions; and
(3) The circumstances under which the banking institution may impose
such fees, charges, spreads, or commissions.
(g) Set-off. Immediately following the language required by
paragraph (f) of this section, the statement required by paragraph (a)
of this section shall include:
(1) A statement as to whether the banking institution will or will
not retain the right to set off obligations of the retail forex customer
arising from the customer's retail forex transactions, including margin
calls and losses, against the customer's other assets held by the
banking institution;
(2) If the banking institution states that it reserves its right to
set off obligations of the retail forex customer arising from the
customer's retail forex transactions against the customer's other
assets, the banking institution must receive from the retail forex
customer a written acknowledgement signed and dated by the customer that
the customer received and understood the written disclosure required by
paragraph (g)(1) of this section.
(h) Future disclosure requirements. If, with regard to a retail
forex customer, the banking institution changes any fee, charge, or
commission required to be disclosed under paragraph (f) of this section,
then the banking institution shall mail or deliver to the retail forex
customer a notice of the changes at least 15 days prior to the effective
date of the change.
(i) Form of disclosure requirements. The disclosures required by
this section shall be clear and conspicuous and designed to call
attention to the nature and significance of the information provided.
(j) Other disclosure requirements unaffected. This section does not
relieve a banking institution from any other disclosure obligation it
may have under applicable law.
Sec. 240.7 Recordkeeping.
(a) General rule. A banking institution engaging in retail forex
transactions shall keep full, complete and systematic records, together
with all pertinent data and memoranda, of all transactions relating to
its retail forex business, including:
(1) Retail forex account records. For each retail forex account:
(i) The name and address of the person for whom such retail forex
account is carried or introduced and the principal occupation or
business of the person;
(ii) The name of any other person guaranteeing the account or
exercising trading control with respect to the account;
(iii) The establishment or termination of the account;
(iv) A means to identify the person who has solicited and is
responsible for the account or assign account numbers in such a manner
as to identify that person;
(v) The funds in the account, net of any commissions and fees;
[[Page 211]]
(vi) The account's net profits and losses on open trades;
(vii) The funds in the account plus or minus the net profits and
losses on open trades, adjusted for the net option value in the case of
open options positions;
(viii) Financial ledger records that show separately for each retail
forex customer all charges against and credits to such retail forex
customer's account, including but not limited to retail forex customer
funds deposited, withdrawn, or transferred, and charges or credits
resulting from losses or gains on closed transactions; and
(ix) A list of all retail forex transactions executed for the
account, with the details specified in paragraph (a)(2) of this section.
(2) Retail forex transaction records. For each retail forex
transaction:
(i) The date and time the banking institution received the order;
(ii) The price at which the banking institution placed the order,
or, in the case of an option, the premium that the retail forex customer
paid;
(iii) The customer account identification information;
(iv) The currency pair;
(v) The size or quantity of the order;
(vi) Whether the order was a buy or sell order;
(vii) The type of order, if the order was not a market order;
(viii) The size and price at which the order is executed, or in the
case of an option, the amount of the premium paid for each option
purchased, or the amount credited for each option sold;
(ix) For options, whether the option is a put or call, expiration
date, quantity, underlying contract for future delivery or underlying
physical, strike price, and details of the purchase price of the option,
including premium, mark-up, commission, and fees;
(x) For futures, the delivery date; and
(xi) If the order was made on a trading platform:
(A) The price quoted on the trading platform when the order was
placed, or, in the case of an option, the premium quoted;
(B) The date and time the order was transmitted to the trading
platform; and
(C) The date and time the order was executed.
(3) Price changes on a trading platform. If a trading platform is
used, daily logs showing each price change on the platform, the time of
the change to the nearest second, and the trading volume at that time
and price.
(4) Methods or algorithms. Any method or algorithm used to determine
the bid or asked price for any retail forex transaction or the prices at
which customers orders are executed, including, but not limited to, any
mark-ups, fees, commissions or other items which affect the
profitability or risk of loss of a retail forex customer's transaction.
(5) Daily records which show for each business day complete details
of:
(i) All retail forex transactions that are futures transactions
executed on that day, including the date, price, quantity, market,
currency pair, delivery date, and the person for whom such transaction
was made;
(ii) All retail forex transactions that are option transactions
executed on that day, including the date, whether the transaction
involved a put or call, the expiration date, quantity, currency pair,
delivery date, strike price, details of the purchase price of the
option, including premium, mark-up, commission and fees, and the person
for whom the transaction was made; and
(iii) All other retail forex transactions executed on that day for
such account, including the date, price, quantity, currency and the
person for whom such transaction was made.
(6) Other records. Written acknowledgements of receipt of the risk
disclosure statement required bySec. 240.6(b), offset instructions
pursuant toSec. 240.5(c), records required under paragraphs (b)
through (f) of this section, trading cards, signature cards, street
books, journals, ledgers, payment records, copies of statements of
purchase, and all other records, data and memoranda that have been
prepared in the course of the banking institution's retail forex
business.
(b) Ratio of profitable accounts. (1) With respect to its active
retail forex customer accounts over which it did not exercise investment
discretion and that are not retail forex proprietary accounts open for
any period of time
[[Page 212]]
during the quarter, a banking institution shall prepare and maintain on
a quarterly basis (calendar quarter):
(i) A calculation of the percentage of such accounts that were
profitable;
(ii) A calculation of the percentage of such accounts that were not
profitable; and
(iii) Data supporting the calculations described in paragraphs
(b)(1)(i) and (b)(1)(ii) of this section.
(2) In calculating whether a retail forex account was profitable or
not profitable during the quarter, the banking institution shall compute
the realized and unrealized gains or losses on all retail forex
transactions carried in the retail forex account at any time during the
quarter, and subtract all fees, commissions, and any other charges
posted to the retail forex account during the quarter, and add any
interest income and other income or rebates credited to the retail forex
account during the quarter. All deposits and withdrawals of funds made
by the retail forex customer during the quarter must be excluded from
the computation of whether the retail forex account was profitable or
not profitable during the quarter. Computations that result in a zero or
negative number shall be considered a retail forex account that was not
profitable. Computations that result in a positive number shall be
considered a retail forex account that was profitable.
(3) A retail forex account shall be considered ``active'' for
purposes of paragraph (b)(1) of this section if and only if, for the
relevant calendar quarter, a retail forex transaction was executed in
that account or the retail forex account contained an open position
resulting from a retail forex transaction.
(c) Records related to possible violations of law. A banking
institution engaging in retail forex transactions shall make a record of
all communications received by the banking institution or its related
persons concerning facts giving rise to possible violations of law
related to the banking institution's retail forex business. The record
shall contain: the name of the complainant, if provided; the date of the
communication; the relevant agreement, contract, or transaction; the
substance of the communication; and the name of the person who received
the communication and the final disposition of the matter.
(d) Records for noncash margin. A banking institution shall maintain
a record of all noncash margin collected pursuant toSec. 240.9. The
record shall show separately for each retail forex customer:
(1) A description of the securities or property received;
(2) The name and address of such retail forex customer;
(3) The dates when the securities or property were received;
(4) The identity of the depositories or other places where such
securities or property are segregated or held, if applicable;
(5) The dates on which the banking institution placed or removed
such securities or property into or from such depositories; and
(6) The dates of return of such securities or property to such
retail forex customer, or other disposition thereof, together with the
facts and circumstances of such other disposition.
(e) Order tickets.
(1) Except as provided in paragraph (e)(2) of this section,
immediately upon the receipt of a retail forex transaction order, a
banking institution shall prepare an order ticket for the order (whether
unfulfilled, executed or canceled). The order ticket shall include:
(i) Account identification (account or customer name with which the
retail forex transaction was effected);
(ii) Order number;
(iii) Type of order (market order, limit order, or subject to
special instructions);
(iv) Date and time, to the nearest minute, the retail forex
transaction order was received (as evidenced by timestamp or other
timing device);
(v) Time, to the nearest minute, the retail forex transaction order
was executed; and
(vi) Price at which the retail forex transaction was executed.
(2) Post-execution allocation of bunched orders. Specific
identifiers for retail forex accounts included in bunched orders need
not be recorded at time of order placement or upon report of execution
as required under paragraph
[[Page 213]]
(e)(1) of this section if the following requirements are met:
(i) The banking institution placing and directing the allocation of
an order eligible for post-execution allocation has been granted written
investment discretion with regard to participating customer accounts and
makes the following information available to customers upon request:
(A) The general nature of the post-execution allocation methodology
the banking institution will use;
(B) Whether the banking institution has any interest in accounts
which may be included with customer accounts in bunched orders eligible
for post-execution allocation; and
(C) Summary or composite data sufficient for that customer to
compare the customer's results with those of other comparable customers
and, if applicable, any account in which the banking institution has an
interest.
(ii) Post-execution allocations are made as soon as practicable
after the entire transaction is executed;
(iii) Post-execution allocations are fair and equitable, with no
account or group of accounts receiving consistently favorable or
unfavorable treatment; and
(iv) The post-execution allocation methodology is sufficiently
objective and specific to permit the Board to verify fairness of the
allocations using that methodology.
(f) Record of monthly statements and confirmations. A banking
institution shall retain a copy of each monthly statement and
confirmation required bySec. 240.10.
(g) Form of record and manner of maintenance. The records required
by this section must clearly and accurately reflect the information
required and provide an adequate basis for the audit of the information.
A banking institution must create and maintain audio recordings of oral
orders and oral offset instructions. Record maintenance may include the
use of automated or electronic records provided that the records are
easily retrievable, and readily available for inspection.
(h) Length of maintenance. A banking institution shall keep each
record required by this section for at least five years from the date
the record is created.
Sec. 240.8 Capital requirements.
(a) Capital required for a state member bank. A banking institution
defined in section 240.2(b)(1) offering or entering into retail forex
transactions must be well-capitalized as defined in section 208.43 of
Regulation H (12 CFR 208.43).
(b) Capital required for an uninsured state-licensed branch of a
foreign bank. A banking institution defined inSec. 240.2(b)(2)
offering or entering into retail forex transactions must be well-
capitalized under the capital rules made applicable to it pursuant to
Sec. 225.2(r)(3) of Regulation Y (12 CFR 225.2(r)(3)).
(c) Capital required for financial holding companies and bank
holding companies. A banking institution defined inSec. 240.2(b)(3) or
(4) offering or entering into retail forex transactions must be well-
capitalized as defined inSec. 225.2(r) of Regulation Y (12 CFR
225.2(r)).
(d) Capital required for savings and loan holding companies. A
banking institution defined inSec. 240.2(b)(5) offering or entering
into retail forex transactions must be well-capitalized as defined in
Sec. 238.2(s) of Regulation LL (12 CFR 238.2(s)).
(e) Capital required for an agreement corporation or Edge Act
corporation. A banking institution defined inSec. 240.2(b)(6) or (7)
offering or entering into retail forex transactions must maintain
capital in compliance with the capital adequacy guidelines that are made
applicable to an Edge corporation engaged in banking pursuant toSec.
211.12 (c)(2) of Regulation K (12 CFR 211.12(c)(2)).
Sec. 240.9 Margin requirements
(a) Margin required. A banking institution engaging, or offering to
engage, in retail forex transactions must collect from each retail forex
customer an amount of margin not less than:
(1) Two percent of the notional value of the retail forex
transaction for major currency pairs and 5 percent of the notional value
of the retail forex transaction for all other currency pairs;
(2) For short options, 2 percent for major currency pairs and 5
percent for
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all other currency pairs of the notional value of the retail forex
transaction, plus the premium received by the retail forex customer; or
(3) For long options, the full premium charged and received by the
banking institution.
(b)(1) Form of margin. Margin collected under paragraph (a) of this
section or pledged by a retail forex customer for retail forex
transactions in excess of the requirements of paragraph (a) of this
section must be in the form of cash or the following financial
instruments:
(i) Obligations of the United States and obligations fully
guaranteed as to principal and interest by the United States;
(ii) General obligations of any State or of any political
subdivision thereof;
(iii) General obligations issued or guaranteed by any enterprise, as
defined in 12 U.S.C. 4502(10);
(iv) Certificates of deposit issued by an insured depository
institution, as defined in section 3(c)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(c)(2));
(v) Commercial paper;
(vi) Corporate notes or bonds;
(vii) General obligations of a sovereign nation;
(viii) Interests in money market mutual funds; and
(ix) Such other financial instruments as the Board deems
appropriate.
(2) Haircuts. A banking institution shall establish written policies
and procedures that include:
(i) Haircuts for noncash margin collected under this section; and
(ii) Annual evaluation, and, if appropriate, modification of the
haircuts.
(c) Major currencies. (1) for the purposes of paragraphs (a)(1) and
(a)(2) of this section, major currency means:
(i) United States Dollar (USD)
(ii) Canadian Dollar (CAD)
(iii) Euro (EUR)
(iv) United Kingdom Pound (GBP)
(v) Japanese Yen (JPY)
(vi) Swiss Franc (CHF)
(vii) New Zealand Dollar (NZD)
(viii) Australian Dollar (AUD)
(ix) Swedish Kronor (SEK)
(x) Danish Kroner (DKK)
(xi) Norwegian Krone (NOK), and
(xii) Any other currency as determined by the Board.
(d) Margin calls; liquidation of position. For each retail forex
customer, at least once per day, a banking institution shall:
(1) Mark the value of the retail forex customer's open retail forex
positions to market;
(2) Mark the value of the margin collected under this section from
the retail forex customer to market;
(3) Determine whether, based on the marks in paragraphs (d)(1) and
(d)(2) of this section, the banking institution has collected margin
from the retail forex customer sufficient to satisfy the requirements of
this section; and
(4) If, pursuant to paragraph (d)(3) of this section, the banking
institution determines that it has not collected margin from the retail
forex customer sufficient to satisfy the requirements of this section
then, within a reasonable period of time, the banking institution shall
either:
(i) Collect margin from the retail forex customer sufficient to
satisfy the requirements of this section; or
(ii) Liquidate the retail forex customer's retail forex
transactions.
Sec. 240.10 Required reporting to customers.
(a) Monthly statements. Each banking institution must promptly
furnish to each retail forex customer, as of the close of the last
business day of each month or as of any regular monthly date selected,
except for accounts in which there are neither open positions at the end
of the statement period nor any changes to the account balance since the
prior statement period, but in any event not less frequently than once
every three months, a statement that clearly shows:
(1) For each retail forex customer:
(i) The open retail forex transactions with prices at which
acquired;
(ii) The net unrealized profits or losses in all open retail forex
transactions marked to the market;
(iii) Any money, securities or other property held as margin for
retail forex transactions; and
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(iv) A detailed accounting of all financial charges and credits to
the retail forex customer's retail forex accounts during the monthly
reporting period, including: money, securities, or property received
from or disbursed to such customer; realized profits and losses; and
fees, charges, and commissions.
(2) For each retail forex customer engaging in retail forex
transactions that are options:
(i) All such options purchased, sold, exercised, or expired during
the monthly reporting period, identified by underlying retail forex
transaction or underlying currency, strike price, transaction date, and
expiration date;
(ii) The open option positions carried for such customer and arising
as of the end of the monthly reporting period, identified by underlying
retail forex transaction or underlying currency, strike price,
transaction date, and expiration date;
(iii) All such option positions marked to the market and the amount
each position is in the money, if any;
(iv) Any money, securities or other property held as margin for
retail forex transactions; and
(v) A detailed accounting of all financial charges and credits to
the retail forex customer's retail forex accounts during the monthly
reporting period, including: money, securities, or property received
from or disbursed to such customer; realized profits and losses;
premiums and mark-ups; and fees, charges, and commissions.
(b) Confirmation statement. Each banking institution must, not later
than the next business day after any retail forex transaction, send:
(1) To each retail forex customer, a written confirmation of each
retail forex transaction caused to be executed by it for the customer,
including offsetting transactions executed during the same business day
and the rollover of an open retail forex transaction to the next
business day;
(2) To each retail forex customer engaging in forex option
transactions, a written confirmation of each forex option transaction,
containing at least the following information:
(i) The retail forex customer's account identification number;
(ii) A separate listing of the actual amount of the premium, as well
as each mark-up thereon, if applicable, and all other commissions,
costs, fees and other charges incurred in connection with the forex
option transaction;
(iii) The strike price;
(iv) The underlying retail forex transaction or underlying currency;
(v) The final exercise date of the forex option purchased or sold;
and
(vi) The date the forex option transaction was executed.
(3) To each retail forex customer engaging in forex option
transactions, upon the expiration or exercise of any option, a written
confirmation statement thereof, which statement shall include the date
of such occurrence, a description of the option involved, and, in the
case of exercise, the details of the retail forex or physical currency
position which resulted therefrom including, if applicable, the final
trading date of the retail forex transaction underlying the option.
(c) Notwithstanding the provisions of paragraphs (b)(1) through (3)
of this section, a retail forex transaction that is caused to be
executed for a pooled investment vehicle that engages in retail forex
transactions need be confirmed only to the operator of such pooled
investment vehicle.
(d) Controlled accounts. With respect to any account controlled by
any person other than the retail forex customer for whom such account is
carried, each banking institution shall promptly furnish in writing to
such other person the information required by paragraphs (a) and (b) of
this section.
(e) Introduced accounts. Each statement provided pursuant to the
provisions of this section must, if applicable, show that the account
for which the banking institution was introduced by an introducing
broker and the name of the introducing broker.
Sec. 240.11 Unlawful representations.
(a) No implication or representation of limiting losses. No banking
institution engaged in retail foreign exchange transactions or its
related persons may imply or represent that it will, with respect to any
retail customer forex account, for or on behalf of any person:
[[Page 216]]
(1) Guarantee such person or account against loss;
(2) Limit the loss of such person or account; or
(3) Not call for or attempt to collect margin as established for
retail forex customers.
(b) No implication of representation of engaging in prohibited acts.
No banking institution or its related persons may in any way imply or
represent that it will engage in any of the acts or practices described
in paragraph (a) of this section.
(c) No Federal government endorsement. No banking institution or its
related persons may represent or imply in any manner whatsoever that any
retail forex transaction or retail forex product has been sponsored,
recommended, or approved by the Board, the Federal government, or any
agency thereof.
(d) Assuming or sharing of liability from bank error. This section
shall not be construed to prevent a banking institution from assuming or
sharing in the losses resulting from the banking institution's error or
mishandling of a retail forex transaction.
(e) Certain guaranties unaffected. This section shall not affect any
guarantee entered into prior to the effective date of this part, but
this section shall apply to any extension, modification or renewal
thereof entered into after such date.
Sec. 240.12 Authorization to trade.
(a) Specific authorization required. No banking institution may
directly or indirectly effect a retail forex transaction for the account
of any retail forex customer unless, before the transaction occurs, the
retail forex customer specifically authorized the banking institution to
effect the retail forex transaction.
(b) A retail forex transaction is ``specifically authorized'' for
purposes of this section if the retail forex customer specifies:
(1) The precise retail forex transaction to be effected;
(2) The exact amount of the foreign currency to be purchased or
sold; and
(3) In the case of an option, the identity of the foreign currency
or contract that underlies the option.
Sec. 240.13 Trading and operational standards.
(a) Internal rules, procedures, and controls required. A banking
institution engaging in retail forex transactions shall establish and
implement internal rules, procedures, and controls designed, at a
minimum, to:
(1) Ensure, to the extent reasonable, that each order received from
a retail forex customer that is executable at or near the price that the
banking institution has quoted to the customer is entered for execution
before any order in any retail forex transaction for:
(i) A proprietary account;
(ii) An account in which a related person has an interest, or any
account for which such a related person may originate orders without the
prior specific consent of the account owner, if the related person has
gained knowledge of the retail forex customer's order prior to the
transmission of an order for a proprietary account;
(iii) An account in which a related person has an interest, if the
related person has gained knowledge of the retail forex customer's order
prior to the transmission of an order for a proprietary account; or
(iv) An account in which a related person may originate orders
without the prior specific consent of the account owner, if the related
person has gained knowledge of the retail forex customer's order prior
to the transmission of an order for a proprietary account;
(2) Prevent banking institution related persons from placing orders,
directly or indirectly, with another person in a manner designed to
circumvent the provisions of paragraph (a)(1) of this section; and
(3) Fairly and objectively establish settlement prices for retail
forex transactions.
(b) Disclosure of retail forex transactions. No banking institution
engaging in retail forex transactions may disclose that an order of
another person is being held by the banking institution, unless the
disclosure is necessary to the effective execution of such order or the
disclosure is made at the request of the Board.
[[Page 217]]
(c) Handling of retail forex accounts of related persons of retail
forex counterparties. No banking institution engaging in retail forex
transactions shall knowingly handle the retail forex account of any
related person of another retail forex counterparty unless the banking
institution:
(1) Receives written authorization from a person designated by such
other retail forex counterparty with responsibility for the surveillance
over such account;
(2) Prepares immediately upon receipt of an order for the account a
written record of the order, including the account identification and
order number, and records thereon to the nearest minute, by time-stamp
or other timing device, the date and time the order is received; and
(3) Transmits on a regular basis to the other retail forex
counterparty copies of all statements for the account and of all written
records prepared upon the receipt of orders for the account pursuant to
paragraph (c)(2) of this section.
(d) Related person of banking institution establishing account at
another retail forex counterparty. No related person of a banking
institution working in the banking institution's retail forex business
may have an account, directly or indirectly, with another retail forex
counterparty unless the other retail forex counterparty:
(1) Receives written authorization to open and maintain the account
from a person designated by the banking institution of which it is a
related person with responsibility for the surveillance over the account
pursuant to paragraph (a)(2) of this section;
(2) Prepares immediately upon receipt of an order for the account a
written record of the order, including the account identification and
order number, and records thereon to the nearest minute, by time-stamp
or other timing device, the date and time the order is received; and
(3) Transmits on a regular basis to the banking institution copies
of all statements for the account and of all written records prepared by
the other retail forex counterparty upon receipt of orders for such
account pursuant to paragraph (d)(2) of this section.
(e) Prohibited trading practices. No banking institution engaging in
retail forex transactions may:
(1) Enter into a retail forex transaction, to be executed pursuant
to a market or limit order at a price that is not at or near the price
at which other retail forex customers, during that same time period,
have executed retail forex transactions with the banking institution;
(2) Adjust or alter prices for a retail forex transaction after the
transaction has been confirmed to the retail forex customer;
(3) Provide a retail forex customer a new bid price for a retail
forex transaction that is higher than its previous bid without providing
a new asked price that is also higher than its previous asked price by a
similar amount;
(4) Provide a retail forex customer a new bid price for a retail
forex transaction that is lower than its previous bid without providing
a new asked price that is also lower than its previous asked price by a
similar amount; or
(5) Establish a new position for a retail forex customer (except one
that offsets an existing position for that retail forex customer) where
the banking institution holds outstanding orders of other retail forex
customers for the same currency pair at a comparable price.
Sec. 240.14 Supervision.
(a) Supervision by the banking institution. A banking institution
engaging in retail forex transactions shall diligently supervise the
handling by its officers, employees, and agents (or persons occupying a
similar status or performing a similar function) of all retail forex
accounts carried, operated, or advised by the banking institution and
all activities of its officers, employees, and agents (or persons
occupying a similar status or performing a similar function) relating to
its retail forex business.
(b) Supervision by officers, employees, or agents. An officer,
employee, or agent of a banking institution must diligently supervise
his or her subordinates' handling of all retail forex accounts at the
banking institution and all the subordinates' activities relating
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to the banking institution's retail forex business.
Sec. 240.15 Notice of transfers.
(a) Prior notice generally required. Except as provided in paragraph
(b) of this section, a banking institution must provide a retail forex
customer with 30 days' prior notice of any assignment of any position or
transfer of any account of the retail forex customer. The notice must
include a statement that the retail forex customer is not required to
accept the proposed assignment or transfer and may direct the banking
institution to liquidate the positions of the retail forex customer or
transfer the account to a retail forex counterparty of the retail forex
customer's selection.
(b) Exceptions. The requirements of paragraph (a) of this section
shall not apply to transfers:
(1) Requested by the retail forex customer;
(2) Made by the Federal Deposit Insurance Corporation as receiver or
conservator under the Federal Deposit Insurance Act or other law; or
(3) Otherwise authorized by applicable law.
(c) Obligations of transferee banking institution. A banking
institution to which retail forex accounts or positions are assigned or
transferred under paragraph (a) of this section must provide to the
affected retail forex customers the risk disclosure statements and forms
of acknowledgment required by this part and receive the required signed
acknowledgments within sixty days of such assignments or transfers. This
requirement shall not apply if the banking institution has clear written
evidence that the retail forex customer has received and acknowledged
receipt of the required disclosure statements.
Sec. 240.16 Customer dispute resolution.
(a) No banking institution shall enter into any agreement or
understanding with a retail forex customer in which the customer agrees,
prior to the time a claim or grievance arises, to submit any claim or
grievance regarding any retail forex transaction or disclosure to any
settlement procedure.
(b) Election of forum. (1) Within 10 business days after the receipt
of notice from the retail forex customer that the customer intends to
submit a claim to arbitration, the banking institution shall provide the
customer with a list of persons qualified in dispute resolution.
(2) The customer must, within 45 days after receipt of such list,
notify the banking institution of the person selected. The customer's
failure to provide such notice shall give the banking institution the
right to select a person from the list.
(c) Enforceability. A dispute settlement procedure may require
parties using the procedure to agree, under applicable state law,
submission agreement, or otherwise, to be bound by an award rendered in
the procedure if the agreement to submit the claim or grievance to the
procedure was made after the claim or grievance arose. Any award so
rendered by the procedure will be enforceable in accordance with
applicable law.
(d) Time limits for submission of claims. The dispute settlement
procedure used by the parties may not include any unreasonably short
limitation period foreclosing submission of a customer's claims or
grievances or counterclaims.
(e) Counterclaims. A procedure for the settlement of a retail forex
customer's claims or grievances against a banking institution or
employee thereof may permit the submission of a counterclaim in the
procedure by a person against whom a claim or grievance is brought if
the counterclaim:
(1) Arises out of the transaction or occurrence that is the subject
of the retail forex customer's claim or grievance; and
(2) Does not require for adjudication the presence of essential
witnesses, parties, or third persons over which the settlement process
lacks jurisdiction.
(f) Cross-border transactions. This section shall not apply to
transactions within the scope of sections 202, 302, and 305 of the
Federal Arbitration Act (9 U.S.C. 202, 302, and 305).
[[Page 219]]
Sec. 240.17 Reservation of authority.
The Board may modify the disclosure, recordkeeping, capital and
margin, reporting, business conduct, documentation, or other standards
or requirements under this part for a specific retail forex transaction
or a class of retail forex transactions if the Board determines that the
modification is consistent with safety and soundness and the protection
of retail forex customers.
PART 241_SECURITIES HOLDING COMPANIES (REGULATION OO)--
Table of Contents
Sec.
241.1 Authority and purpose.
241.2 Definitions.
241.3 Registration as a supervised securities holding company.
Authority: 12 U.S.C. 1850a.
Source: 77 FR 32884, June 5, 2012, unless otherwise noted.
Sec. 241.1 Authority and purpose.
(a) Authority. This part is issued by the Board pursuant to section
618 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12
U.S.C. 1850a).
(b) Purpose. This part establishes the procedures by which a
securities holding company may elect to register to be supervised by the
Board.
Sec. 241.2 Definitions.
Except as defined below, terms used in this part have the same
meaning given them in 12 CFR 225.2.
(a) Securities holding company. (1) A securities holding company
means--
(i) Any company that directly or indirectly owns or controls, is
controlled by, or is under common control with, one or more brokers or
dealers registered with the Securities and Exchange Commission; and
(ii) Is required by a foreign regulator or provision of foreign law
to be subject to comprehensive consolidated supervision.
(2) A securities holding company does not include a company that
is--
(i) A nonbank financial company supervised by the Board pursuant to
title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(12 U.S.C. 5301 et seq.);
(ii) An insured bank (other than an institution described in
subparagraphs (D), (F), or (H) of section 2(c)(2) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(c)(2))) or a savings association;
(iii) An affiliate of an insured bank (other than an institution
described in subparagraphs (D), (F), or (H) of section 2(c)(2) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2))) or an affiliate
of a savings association;
(iv) A foreign bank, foreign company, or company that is described
in section 8(a) of the International Banking Act of 1978 (12 U.S.C.
3106(a));
(v) A foreign bank that controls, directly or indirectly, a
corporation chartered under section 25A of the Federal Reserve Act (12
U.S.C. 611 et seq.); or
(vi) Currently subject to comprehensive consolidated supervision by
a foreign regulator.
(b) Supervised securities holding company means a securities holding
company that is supervised by the Board pursuant to this part.
Sec. 241.3 Registration as a supervised securities holding company.
(a) Registration.
(1) Filing Requirement. A securities holding company may elect to
register to become a supervised securities holding company by filing the
appropriate form with the responsible Reserve Bank. The responsible
Reserve Bank is determined by the Director of Banking Supervision and
Regulation at the Board, or the Director's delegee.
(2) Request for additional information. The Board may, at any time,
request additional information that it believes is necessary to complete
the registration.
(3) Complete filing. A registration by a securities holding company
is considered to be filed on the date that all information required on
the appropriate form is received.
(b) Effective date of registration.
(1) In general. A registration filed by a securities holding company
under paragraph (a) of this section is effective on the 45th calendar
day after the
[[Page 220]]
date that a complete filing is received by the responsible Reserve Bank.
(2) Earlier notification that a registration is effective. The Board
may notify a securities holding company that its registration to become
a supervised securities holding company is effective prior to the 45th
calendar day after the date that a complete filing is received by the
responsible Reserve Bank. Such a notification must be in writing.
(3) Supervision and regulation of securities holding companies. (i)
Upon an effective registration and except as otherwise provided by order
of the Board, a supervised securities holding company shall be treated,
and shall be subject to supervision and regulation by the Board, as if
it were a bank holding company, or as otherwise appropriate to protect
the safety and soundness of the supervised securities holding company
and address the risks posed by such company to financial stability.
(ii) The provisions of section 4 of the Bank Holding Company Act of
1956 (12 U.S.C. 1841 et seq.) do not apply to a supervised securities
holding company.
PART 242_DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT
(REGULATION PP)--Table of Contents
Sec.
242.1 Authority and purpose.
242.2 Definitions.
242.3 Nonbank companies ``predominantly engaged'' in financial
activities.
242.4 Significant nonbank financial companies and significant bank
holding companies.
Appendix A to Part 242--Financial Activities for Purposes of Title I of
the Dodd-Frank Act
Authority: 12 U.S.C. 5311.
Source: 78 FR 20776, April 5, 2013, unless otherwise noted.
Sec. 242.1 Authority and purpose.
(a) Authority. This part is issued by the Board pursuant to sections
102(a)(7) and (b) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) (12 U.S.C. 5311(a)(7) and (b)).
(b) Purpose. (1) This part establishes the criteria for determining
if a company is ``predominantly engaged in financial activities'' as
required under section 102(b) of the Dodd-Frank Act (12 U.S.C. 5311(b))
for purposes of Title I of the Dodd-Frank Act.
(2) This part defines the terms ``significant nonbank financial
company'' and ``significant bank holding company'' as provided in
section 102(a)(6) of the Dodd-Frank Act for purposes of--
(i) Section 113 of the Dodd-Frank Act (12 U.S.C. 5323) relating to
the designation of nonbank financial companies by the Financial
Stability Oversight Council (Council) for supervision by the Board; and
(ii) Section 165(d)(2) of the Dodd-Frank Act (12 U.S.C. 5365(d)(2))
relating to the credit exposure reports required to be filed by--
(A) A nonbank financial company supervised by the Board; and
(B) A bank holding company or foreign bank subject to the Bank
Holding Company Act (BHC Act) (12 U.S.C. 1841 et seq.) that has $50
billion or more in total consolidated assets.
Sec. 242.2 Definitions.
For purposes of this part, the following definitions shall apply:
Applicable accounting standards.--The term ``applicable accounting
standards'' with respect to a company means:
(1) U.S. generally accepted accounting principles (GAAP), if the
company uses GAAP in the ordinary course of its business in preparing
its consolidated financial statements;
(2) International Financial Reporting Standards (IFRS), if the
company uses IFRS in the ordinary course of its business in preparing
its consolidated financial statements, or
(3) Such other accounting standards that the Council, with respect
to the definition of a nonbank financial company for purposes of Title I
of the Dodd-Frank Act (other than with respect to the definition of a
significant nonbank financial company), or the Board, with respect to
the definition of a significant nonbank financial company, determines
are appropriate on a case-by-case basis.
Foreign nonbank financial company.--The term ``foreign nonbank
financial company'' means a company (other than a company that is, or is
treated in
[[Page 221]]
the United States, as a bank holding company) that is--
(1) Incorporated or organized in a country other than the United
States; and
(2) Predominantly engaged in (including through a branch in the
United States) financial activities as defined inSec. 242.3 of this
part.
Nonbank financial company.--The term ``nonbank financial company''
means a U.S. nonbank financial company and a foreign nonbank financial
company.
Nonbank financial company supervised by the Board.--The term
``nonbank financial company supervised by the Board'' means a nonbank
financial company or other company that the Council has determined under
section 113 of the Dodd-Frank Act (12 U.S.C. 5323) should be supervised
by the Board and for which such determination is still in effect.
State.--The term ``State'' includes any State, commonwealth,
territory, or possession of the United States, the District of Columbia,
the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, American Samoa, Guam, and the United States Virgin
Islands.
U.S. nonbank financial company.--The term ``U.S. nonbank financial
company'' means a company that--
(1) Is incorporated or organized under the laws of the United States
or any State;
(2) Is predominantly engaged in financial activities as defined in
Sec. 242.3 of this part; and
(3) Is not--
(i) A bank holding company;
(ii) A Farm Credit System institution chartered and subject to the
provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
(iii) A national securities exchange (or parent thereof), clearing
agency (or parent thereof, unless the parent is a bank holding company),
security-based swap execution facility, or security-based swap data
repository that, in each case, is registered with the Securities and
Exchange Commission as such; or
(iv) A board of trade designated as a contract market (or parent
thereof), a derivatives clearing organization (or parent thereof, unless
the parent is a bank holding company), a swap execution facility, or a
swap data repository that, in each case, is registered with the
Commodity Futures Trading Commission as such.
Sec. 242.3 Nonbank companies ``predominantly engaged'' in financial
activities.
(a) In general. A company is ``predominantly engaged in financial
activities'' for purposes of this section if--
(1) The consolidated annual gross financial revenues of the company
in either of its two most recently completed fiscal years represent 85
percent or more of the company's consolidated annual gross revenues (as
determined in accordance with applicable accounting standards) in that
fiscal year;
(2) The consolidated total financial assets of the company as of the
end of either of its two most recently completed fiscal years represent
85 percent or more of the company's consolidated total assets (as
determined in accordance with applicable accounting standards) as of the
end of that fiscal year; or
(3) The Council, with respect to the definition of a nonbank
financial company for purposes of Title I of the Dodd-Frank Act (other
than with respect to the definition of a significant nonbank financial
company), or the Board, with respect to the definition of a significant
nonbank financial company, determines, based on all the facts and
circumstances, that--
(i) The consolidated annual gross financial revenues of the company
represent 85 percent or more of the company's consolidated annual gross
revenues; or
(ii) The consolidated total financial assets of the company
represent 85 percent or more of the company's consolidated total assets.
(b) Consolidated annual gross financial revenues. For purposes of
this section, the ``consolidated annual gross financial revenues'' of a
company means that portion of the consolidated annual gross revenues of
the company (as determined in accordance with applicable accounting
standards) that are derived, directly or indirectly, by the company or
any of its subsidiaries from--
[[Page 222]]
(1) Activities that are financial in nature; or
(2) The ownership, control, or activities of an insured depository
institution or any subsidiary of an insured depository institution.
(c) Consolidated total financial assets. For purposes of this
section, the ``consolidated total financial assets'' of a company means
that portion of the consolidated total assets of the company (as
determined in accordance with applicable accounting standards) that are
related to--
(1) Activities that are financial in nature; or
(2) The ownership, control, or activities of an insured depository
institution or any subsidiary of an insured depository institution.
(d) Activities that are financial in nature--(1) In general. For
purposes of determining whether a company is predominantly engaged in
financial activities under this section, activities that are financial
in nature are set forth in the appendix to this part. Nothing in this
part limits the authority of the Board under any other provision of law
or regulation to modify the activities determined to be financial in
nature for purposes of this section or for purposes of the BHC Act or to
provide interpretations of section 4(k) of the BHC Act.
(2) Effect of other authority. Any activity described in the
appendix is financial in nature for purposes of this part regardless of
whether--
(i) A bank holding company (including a financial holding company or
a company that is, or is treated in the United States as, a bank holding
company) may be authorized to engage in the activity, or own or control
shares of a company engaged in such activity, under any other provisions
of the BHC Act or other Federal law including, but not limited to,
section 4(a)(2), section 4(c)(5), section 4(c)(6), section 4(c)(7),
section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C.
1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board's
implementing regulations; or
(ii) Other provisions of Federal or state law or regulations
prohibit, restrict, or otherwise place conditions on the conduct of the
activity by a bank holding company (including a financial holding
company or a company that is, or is treated in the United States, as a
bank holding company) or bank holding companies generally.
(e) Rules of construction. For purposes of determining whether a
company is predominantly engaged in financial activities under this
section--
(1) Unconsolidated investments. (i) Unless otherwise determined by
the Council or the Board in accordance with paragraph (e)(1)(ii) of this
section, revenues derived from, and assets related to, an investment by
the company in an entity whose financial statements are not consolidated
with those of the company are presumed to be financial in nature.
(ii) A company may seek to rebut the presumption described in
paragraph (e)(1)(i) of this section by providing evidence to the
Council, with respect to the definition of a nonbank financial company
for purposes of Title I of the Dodd-Frank Act (other than with respect
to the definition of a significant nonbank financial company), or the
Board, with respect to the definition of a significant nonbank financial
company, that the shares or ownership interests are not held in
connection with a bona fide merchant or investment banking activity, are
not held in connection with the activity of investing for others, do not
represent an investment in an entity engaged in activities that are
financial in nature as defined in the appendix, or are not otherwise
related to a financial activity.
(2) Accounts receivable. (i) Unless otherwise determined by the
Council or the Board in accordance with paragraph (e)(2)(ii) of this
section, an account receivable is presumed to be an asset related to the
financial activity of extending credit.
(ii) A company may seek to rebut the presumption described in
paragraph (e)(2)(i) of this section by providing evidence to the
Council, with respect to the definition of a nonbank financial company
for purposes of Title I of the Dodd-Frank Act (other than with respect
to the definition of a significant nonbank financial company), or the
Board, with respect to the definition of a significant nonbank financial
company, that the account receivable is not related to a financial
activity.
[[Page 223]]
(3) Goodwill. Goodwill is excluded from a company's consolidated
total assets and consolidated total financial assets.
(4) Cash and cash equivalents. (i) Cash is excluded from a company's
consolidated total assets and consolidated total financial assets.
(ii) Cash equivalents are assets related to a financial activity.
(5) Intangible assets. Intangible assets are treated in the same
manner as the transaction or asset that gives rise to the intangible
asset.
Sec. 242.4 Significant nonbank financial companies and significant
bank holding companies.
For purposes of Title I of the Dodd-Frank Act, the following
definitions shall apply:
(a) Significant nonbank financial company. A ``significant nonbank
financial company'' means--
(1) Any nonbank financial company supervised by the Board; and
(2) Any other nonbank financial company that had $50 billion or more
in total consolidated assets (as determined in accordance with
applicable accounting standards) as of the end of its most recently
completed fiscal year.
(b) Significant bank holding company. A ``significant bank holding
company'' means any bank holding company or company that is, or is
treated in the United States as, a bank holding company, that had $50
billion or more in total consolidated assets as of the end of the most
recently completed calendar year, as reported on either the Federal
Reserve's FR Y-9C (Consolidated Financial Statement for Bank Holding
Companies), or any successor form thereto, or the Federal Reserve's Form
FR Y-7Q (Capital and Asset Report for Foreign Banking Organizations), or
any successor form thereto.
Sec. Appendix A to Part 242--Financial Activities for Purposes of Title
I of the Dodd-Frank Act
(a) Lending, exchanging, transferring, investing for others, or
safeguarding money or securities.
(b) Insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and issuing
annuities, and acting as principal, agent, or broker for purposes of the
foregoing, in any state.
(c) Providing financial, investment, or economic advisory services,
including advising an investment company (as defined in section 3 of the
Investment Company Act of 1940).
(d) Issuing or selling instruments representing interests in pools
of assets permissible for a bank to hold directly.
(e) Underwriting, dealing in, or making a market in securities.
(f) Engaging in any activity that the Board has determined to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereto, which include--
(1) Extending credit and servicing loans. Making, acquiring,
brokering, or servicing loans or other extensions of credit (including
factoring, issuing letters of credit and accepting drafts) for the
company's account or for the account of others.
(2) Activities related to extending credit. Any activity usual in
connection with making, acquiring, brokering or servicing loans or other
extensions of credit, including the following activities:
(i) Real estate and personal property appraising. Performing
appraisals of real estate and tangible and intangible personal property,
including securities.
(ii) Arranging commercial real estate equity financing. Acting as
intermediary for the financing of commercial or industrial income-
producing real estate by arranging for the transfer of the title,
control, and risk of such a real estate project to one or more
investors.
(iii) Check-guaranty services. Authorizing a subscribing merchant to
accept personal checks tendered by the merchant's customers in payment
for goods and services, and purchasing from the merchant validly
authorized checks that are subsequently dishonored.
(iv) Collection agency services. Collecting overdue accounts
receivable, either retail or commercial.
(v) Credit bureau services. Maintaining information related to the
credit history of consumers and providing the information to a credit
grantor who is considering a borrower's application for credit or who
has extended credit to the borrower.
(vi) Asset management, servicing, and collection activities.
Engaging under contract with a third party in asset management,
servicing, and collection \1\ of assets of a type that
[[Page 224]]
an insured depository institution may originate and own.
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\1\ Asset management services include acting as agent in the
liquidation or sale of loans and collateral for loans, including real
estate and other assets acquired through foreclosure or in satisfaction
of debts previously contracted.
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(vii) Acquiring debt in default. Acquiring debt that is in default
at the time of acquisition.
(viii) Real estate settlement servicing. Providing real estate
settlement services.\2\
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\2\ For purposes of this section, real estate settlement services do
not include providing title insurance as principal, agent, or broker.
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(3) Leasing personal or real property. Leasing personal or real
property or acting as agent, broker, or adviser in leasing such property
if:
(i) The lease is on a nonoperating basis; \3\
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\3\ The requirement that the lease is on a nonoperating basis means
that the company does not, directly or indirectly, engage in operating,
servicing, maintaining, or repairing leased property during the lease
term. For purposes of the leasing of automobiles, the requirement that
the lease is on a nonoperating basis means that the company does not,
directly or indirectly: (1) Provide servicing, repair, or maintenance of
the leased vehicle during the lease term; (2) purchase parts and
accessories in bulk or for an individual vehicle after the lessee has
taken delivery of the vehicle; (3) provide the loan of an automobile
during servicing of the leased vehicle; (4) purchase insurance for the
lessee; or (5) provide for the renewal of the vehicle's license merely
as a service to the lessee where the lessee could renew the license
without authorization from the lessor.
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(ii) The initial term of the lease is at least 90 days; and
(iii) In the case of leases involving real property:
(A) At the inception of the initial lease, the effect of the
transaction will yield a return that will compensate the lessor for not
less than the lessor's full investment in the property plus the
estimated total cost of financing the property over the term of the
lease from rental payments, estimated tax benefits, and the estimated
residual value of the property at the expiration of the initial lease;
and
(B) The estimated residual value of property for purposes of
paragraph (f)(3)(iii)(A) of this section shall not exceed 25 percent of
the acquisition cost of the property to the lessor.
(4) Operating nonbank depository institutions.
(i) Industrial banking. Owning, controlling, or operating an
industrial bank, Morris Plan bank, or industrial loan company that is
not a bank for purposes of the BHC Act.
(ii) Operating savings associations. Owning, controlling, or
operating a savings association.
(5) Trust company functions. Performing functions or activities that
may be performed by a trust company (including activities of a
fiduciary, agency, or custodial nature), in the manner authorized by
federal or state law that is not a bank for purposes of section 2(c) of
the Bank Holding Company Act.
(6) Financial and investment advisory activities. Acting as
investment or financial advisor to any person, including (without, in
any way, limiting the foregoing):
(i) Serving as investment adviser (as defined in section 2(a)(20) of
the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(20)), to an
investment company registered under that act, including sponsoring,
organizing, and managing a closed-end investment company;
(ii) Furnishing general economic information and advice, general
economic statistical forecasting services, and industry studies;
(iii) Providing advice in connection with mergers, acquisitions,
divestitures, investments, joint ventures, leveraged buyouts,
recapitalizations, capital structurings, financing transactions and
similar transactions, and conducting financial feasibility studies; \4\
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\4\ Feasibility studies do not include assisting management with the
planning or marketing for a given project or providing general
operational or management advice.
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(iv) Providing information, statistical forecasting, and advice with
respect to any transaction in foreign exchange, swaps, and similar
transactions, commodities, and any forward contract, option, future,
option on a future, and similar instruments;
(v) Providing educational courses, and instructional materials to
consumers on individual financial management matters; and
(vi) Providing tax-planning and tax-preparation services to any
person.
(7) Agency transactional services for customer investments.
(i) Securities brokerage. Providing securities brokerage services
(including securities clearing and/or securities execution services on
an exchange), whether alone or in combination with investment advisory
services, and incidental activities (including related securities credit
activities and custodial services).
(ii) Riskless principal transactions. Buying and selling in the
secondary market all types of securities on the order of customers as a
``riskless principal'' to the extent of engaging in a transaction in
which the company, after receiving an order to buy (or sell) a security
from a customer, purchases (or sells) the security for its own account
to offset a contemporaneous sale to (or purchase from) the customer.
(iii) Private placement services. Acting as agent for the private
placement of securities in accordance with the requirements of the
Securities Act of 1933 (1933 Act) and the rules of the Securities and
Exchange Commission.
[[Page 225]]
(iv) Futures commission merchant. Acting as a futures commission
merchant for unaffiliated persons in the execution, clearance, or
execution and clearance of any futures contract and option on a futures
contract.
(v) Other transactional services. Providing to customers as agent
transactional services with respect to swaps and similar transactions,
any transaction described in paragraph (f)(8) of this appendix, any
transaction that is permissible for a state member bank, and any other
transaction involving a forward contract, option, futures, option on a
futures or similar contract (whether traded on an exchange or not)
relating to a commodity that is traded on an exchange.
(8) Investment transactions as principal.
(i) Underwriting and dealing in government obligations and money
market instruments. Underwriting and dealing in obligations of the
United States, general obligations of states and their political
subdivisions, and other obligations that state member banks of the
Federal Reserve System may be authorized to underwrite and deal in under
12 U.S.C. 24 and 335, including banker's acceptances and certificates of
deposit.
(ii) Investing and trading activities. Engaging as principal in:
(A) Foreign exchange;
(B) Forward contracts, options, futures, options on futures, swaps,
and similar contracts, whether traded on exchanges or not, based on any
rate, price, financial asset (including gold, silver, platinum,
palladium, copper, or any other metal), nonfinancial asset, or group of
assets, other than a bank-ineligible security,\5\ if--
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\5\ A bank-ineligible security is any security that a state member
bank is not permitted to underwrite or deal in under 12 U.S.C. 24 and
335.
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(1) A state member bank is authorized to invest in the asset
underlying the contract;
(2) The contract requires cash settlement;
(3) The contract allows for assignment, termination, or offset prior
to delivery or expiration, and the company--
(i) Makes every reasonable effort to avoid taking or making delivery
of the asset underlying the contract; or
(ii) Receives and instantaneously transfers title to the underlying
asset, by operation of contract and without taking or making physical
delivery of the asset; or
(4) The contract does not allow for assignment, termination, or
offset prior to delivery or expiration and is based on an asset for
which futures contracts or options on futures contracts have been
approved for trading on a U.S. contract market by the Commodity Futures
Trading Commission, and the company--
(i) Makes every reasonable effort to avoid taking or making delivery
of the asset underlying the contract; or
(ii) Receives and instantaneously transfers title to the underlying
asset, by operation of contract and without taking or making physical
delivery of the asset.
(C) Forward contracts, options,\6\ futures, options on futures,
swaps, and similar contracts, whether traded on exchanges or not, based
on an index of a rate, a price, or the value of any financial asset,
nonfinancial asset, or group of assets, if the contract requires cash
settlement.
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\6\ This reference does not include acting as a dealer in options
based on indices of bank-ineligible securities when the options are
traded on securities exchanges. These options are securities for
purposes of the federal securities laws and bank-ineligible securities
for purposes of section 20 of the Glass-Steagall Act, 12 U.S.C. 337.
Similarly, this reference does not include acting as a dealer in any
other instrument that is a bank-ineligible security for purposes of
section 20. Bank holding companies that deal in these instruments must
do so in accordance with the Board's orders on dealing in bank-
ineligible securities.
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(iii) Buying and selling bullion, and related activities. Buying,
selling and storing bars, rounds, bullion, and coins of gold, silver,
platinum, palladium, copper, and any other metal for the company's own
account and the account of others, and providing incidental services
such as arranging for storage, safe custody, assaying, and shipment.
(9) Management consulting and counseling activities.
(i) Management consulting.
(A) Providing management consulting advice: \7\
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\7\ In performing this activity, companies are not authorized to
perform tasks or operations or provide services to client institutions
either on a daily or continuing basis, except as necessary to instruct
the client institution on how to perform such services for itself. See
also the Board's interpretation of bank management consulting advice (12
CFR 225.131).
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(1) On any matter to unaffiliated depository institutions, including
commercial banks, savings and loan associations, savings banks, credit
unions, industrial banks, Morris Plan banks, cooperative banks,
industrial loan companies, trust companies, and branches or agencies of
foreign banks;
(2) On any financial, economic, accounting, or audit matter to any
other company.
(B) Revenues derived from, or assets related to, a company's
management consulting activities under this subparagraph will not be
considered to be financial if the company:
(1) Owns or controls, directly or indirectly, more than 5 percent of
the voting securities of the client institution; or
[[Page 226]]
(2) Allows a management official, as defined in 12 CFR 212.2(h), of
the company or any of its affiliates to serve as a management official
of the client institution, except where such interlocking relationship
is permitted pursuant to an exemption permitted by the Board.
(C) Up to 30 percent of a nonbank company's assets or revenues
related to management consulting services provided to customers not
described in paragraph (f)(9)(i)(A)(1) or regarding matters not
described in paragraph (f)(9)(i)(A)(2) of this appendix will be included
in the company's financial assets or revenues.
(ii) Employee benefits consulting services. Providing consulting
services to employee benefit, compensation and insurance plans,
including designing plans, assisting in the implementation of plans,
providing administrative services to plans, and developing employee
communication programs for plans.
(iii) Career counseling services. Providing career counseling
services to:
(A) A financial organization \8\ and individuals currently employed
by, or recently displaced from, a financial organization;
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\8\ Financial organization refers to insured depository institution
holding companies and their subsidiaries, other than nonbanking
affiliates of diversified savings and loan holding companies that engage
in activities not permissible under section 4(c)(8) of the Bank Holding
Company Act (12 U.S.C. 1842(c)(8)).
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(B) Individuals who are seeking employment at a financial
organization; and
(C) Individuals who are currently employed in or who seek positions
in the finance, accounting, and audit departments of any company.
(10) Support services.
(i) Courier services. Providing courier services for:
(A) Checks, commercial papers, documents, and written instruments
(excluding currency or bearer-type negotiable instruments) that are
exchanged among banks and financial institutions; and
(B) Audit and accounting media of a banking or financial nature and
other business records and documents used in processing such media.\9\
---------------------------------------------------------------------------
\9\ See also the Board's interpretation on courier activities (12
CFR 225.129), which sets forth conditions for company entry into the
activity.
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(ii) Printing and selling MICR-encoded items. Printing and selling
checks and related documents, including corporate image checks, cash
tickets, voucher checks, deposit slips, savings withdrawal packages, and
other forms that require Magnetic Ink Character Recognition (MICR)
encoding.
(11) Insurance agency and underwriting.
(i) Credit insurance. Acting as principal, agent, or broker for
insurance (including home mortgage redemption insurance) that is:
(A) Directly related to an extension of credit by the company or any
of its subsidiaries; and
(B) Limited to ensuring the repayment of the outstanding balance due
on the extension of credit \10\ in the event of the death, disability,
or involuntary unemployment of the debtor.
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\10\ Extension of credit includes direct loans to borrowers, loans
purchased from other lenders, and leases of real or personal property so
long as the leases are nonoperating and full-payout leases that meet the
requirements of paragraph (f)(3) of this appendix.
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(ii) Finance company subsidiary. Acting as agent or broker for
insurance directly related to an extension of credit by a finance
company \11\ that is a subsidiary of a company, if:
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\11\ Finance company includes all non-deposit-taking financial
institutions that engage in a significant degree of consumer lending
(excluding lending secured by first mortgages) and all financial
institutions specifically defined by individual states as finance
companies and that engage in a significant degree of consumer lending.
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(A) The insurance is limited to ensuring repayment of the
outstanding balance on such extension of credit in the event of loss or
damage to any property used as collateral for the extension of credit;
and
(B) The extension of credit is not more than $10,000, or $25,000 if
it is to finance the purchase of a residential manufactured home \12\
and the credit is secured by the home; and
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\12\ These limitations increase at the end of each calendar year,
beginning with 1982, by the percentage increase in the Consumer Price
Index for Urban Wage Earners and Clerical Workers published by the
Bureau of Labor Statistics.
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(C) The applicant commits to notify borrowers in writing that:
(1) They are not required to purchase such insurance from the
applicant;
(2) Such insurance does not insure any interest of the borrower in
the collateral; and
(3) The applicant will accept more comprehensive property insurance
in place of such single-interest insurance.
(iii) Insurance in small towns. Engaging in any insurance agency
activity in a place where the company or a subsidiary has a lending
office and that:
(A) Has a population not exceeding 5,000 (as shown in the preceding
decennial census); or
(B) Has inadequate insurance agency facilities, as determined by the
Board, after notice and opportunity for hearing.
[[Page 227]]
(iv) Insurance-agency activities conducted on May 1, 1982. Engaging
in any specific insurance-agency activity \13\ if the company, or
subsidiary conducting the specific activity, conducted such activity on
May 1, 1982, or received Board approval to conduct such activity on or
before May 1, 1982.\14\ Revenues derived from, or assets related to, a
company's specific insurance agency activity under this clause will be
considered financial only if the company:
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\13\ Nothing contained in this provision precludes a subsidiary that
is authorized to engage in a specific insurance-agency activity under
this clause from continuing to engage in the particular activity after
merger with an affiliate, if the merger is for legitimate business
purposes.
\14\ For the purposes of this paragraph, activities engaged in on
May 1, 1982, include activities carried on subsequently as the result of
an application to engage in such activities pending before the Board on
May 1, 1982, and approved subsequently by the Board or as the result of
the acquisition by such company pursuant to a binding written contract
entered into on or before May 1, 1982, of another company engaged in
such activities at the time of the acquisition.
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(A) Engages in such specific insurance agency activity only at
locations:
(1) In the state in which the company has its principal place of
business (as defined in 12 U.S.C. 1842(d));
(2) In any state or states immediately adjacent to such state; and
(3) In any state in which the specific insurance-agency activity was
conducted (or was approved to be conducted) by such company or
subsidiary thereof or by any other subsidiary of such company on May 1,
1982; and
(B) Provides other insurance coverages that may become available
after May 1, 1982, so long as those coverages insure against the types
of risks as (or are otherwise functionally equivalent to) coverages sold
or approved to be sold on May 1, 1982, by the company or subsidiary.
(v) Supervision of retail insurance agents. Supervising on behalf of
insurance underwriters the activities of retail insurance agents who
sell:
(A) Fidelity insurance and property and casualty insurance on the
real and personal property used in the operations of the company or its
subsidiaries; and
(B) Group insurance that protects the employees of the company or
its subsidiaries.
(vi) Small companies. Engaging in any insurance-agency activity if
the company has total consolidated assets of $50 million or less.
Revenues derived from, or assets related to, a company's insurance-
agency activities under this paragraph will be considered financial only
if the company does not engage in the sale of life insurance or
annuities except as provided in paragraphs (f)(11) (i) and (iii) of this
appendix, and does not continue to engage in insurance-agency activities
pursuant to this provision more than 90 days after the end of the
quarterly reporting period in which total assets of the company and its
subsidiaries exceed $50 million.
(vii) Insurance-agency activities conducted before 1971. Engaging in
any insurance-agency activity performed at any location in the United
States directly or indirectly by a company that was engaged in
insurance-agency activities prior to January 1, 1971, as a consequence
of approval by the Board prior to January 1, 1971.
(12) Community development activities.
(i) Financing and investment activities. Making equity and debt
investments in corporations or projects designed primarily to promote
community welfare, such as the economic rehabilitation and development
of low-income areas by providing housing, services, or jobs for
residents.
(ii) Advisory activities. Providing advisory and related services
for programs designed primarily to promote community welfare.
(13) Money orders, savings bonds, and traveler's checks. The
issuance and sale at retail of money orders and similar consumer-type
payment instruments; the sale of U.S. savings bonds; and the issuance
and sale of traveler's checks.
(14) Data processing.
(i) Providing data processing, data storage and data transmission
services, facilities (including data processing, data storage and data
transmission hardware, software, documentation, or operating personnel),
databases, advice, and access to such services, facilities, or data-
bases by any technological means, if the data to be processed, stored or
furnished are financial, banking or economic.
(ii) Up to 30 percent of a nonbank company's assets or revenues
related to providing general purpose hardware in connection with
providing data processing products or services described in paragraph
(f)(14)(i) of this appendix will be included in the company's financial
assets or revenues.
(15) Administrative services. Providing administrative and other
services to mutual funds.
(16) Securities exchange. Owning shares of a securities exchange.
(17) Certification authority. Acting as a certification authority
for digital signatures and authenticating the identity of persons
conducting financial and nonfinancial transactions.
(18) Employment histories. Providing employment histories to third
parties for use in making credit decisions and to depository
institutions and their affiliates for use in the ordinary course of
business.
[[Page 228]]
(19) Check cashing and wire transmission. Check cashing and wire
transmission services.
(20) Services offered in connection with banking services. In
connection with offering banking services, providing notary public
services, selling postage stamps and postage-paid envelopes, providing
vehicle registration services, and selling public transportation tickets
and tokens.
(21) Real estate title abstracting.
(g) Engaging, in the United States, in any activity that a bank
holding company may engage in outside of the United States; and the
Board has determined, under regulations prescribed or interpretations
issued pursuant to section 4(c)(13) of the BHC Act (12 U.S.C.
1843(c)(13)) to be usual in connection with the transaction of banking
or other financial operations abroad. Those activities include--
(1) Providing management consulting services, including to any
person with respect to nonfinancial matters, so long as the management
consulting services are advisory and do not allow the company to control
the person to which the services are provided.
(2) Operating a travel agency in connection with financial services.
(3) Organizing, sponsoring, and managing a mutual fund.
(4) Commercial banking and other banking activities.
(h) Directly, or indirectly acquiring or controlling, whether as
principal, on behalf of 1 or more entities, or otherwise, shares,
assets, or ownership interests (including debt or equity securities,
partnership interests, trust certificates, or other instruments
representing ownership) of a company or other entity, whether or not
constituting control of such company or entity, engaged in any activity
not financial in nature as defined in this appendix if:
(1) Such shares, assets, or ownership interests are acquired and
held as part of a bona fide underwriting or merchant or investment
banking activity, including investment activities engaged in for the
purpose of appreciation and ultimate resale or disposition of the
investment;
(2) Such shares, assets, or ownership interests are held for a
period of time to enable the sale or disposition thereof on a reasonable
basis consistent with the financial viability of the activities
described in paragraph (h)(1) of this appendix; and
(3) During the period such shares, assets, or ownership interests
are held, the company does not routinely manage or operate such company
or entity except as may be necessary or required to obtain a reasonable
return on investment upon resale or disposition.
(i) Directly or indirectly acquiring or controlling, whether as
principal, on behalf of 1 or more entities, or otherwise, shares,
assets, or ownership interests (including debt or equity securities,
partnership interests, trust certificates or other instruments
representing ownership) of a company or other entity, whether or not
constituting control of such company or entity, engaged in any activity
not financial in nature as defined in this appendix if--
(1) Such shares, assets, or ownership interests are acquired and
held by an insurance company that is predominantly engaged in
underwriting life, accident and health, or property and casualty
insurance (other than credit-related insurance) or providing and issuing
annuities;
(2) Such shares, assets, or ownership interests represent an
investment made in the ordinary course of business of such insurance
company in accordance with relevant state law governing such
investments; and
(3) During the period such shares, assets, or ownership interests
are held, the company does not routinely manage or operate such company
except as may be necessary or required to obtain a reasonable return on
investment.
(j) Lending, exchanging, transferring, investing for others, or
safeguarding financial assets other than money or securities.
(k) Providing any device or other instrumentality for transferring
money or other financial assets.
(l) Arranging, effecting, or facilitating financial transactions for
the account of third parties.
PART 243_RESOLUTION PLANS--Table of Contents
Sec.
243.1 Authority and scope.
243.2 Definitions.
243.3 Resolution plan required.
243.4 Informational content of a resolution plan.
243.5 Review of resolution plans; resubmission of deficient resolution
plans.
243.6 Failure to cure deficiencies on resubmission of a resolution plan.
243.7 Consultation.
243.8 No limiting effect or private right of action; confidentiality of
resolution plans.
243.9 Enforcement.
Authority: 12 U.S.C. 5365.
Source: 76 FR 67340, Nov. 1, 2011, unless otherwise noted.
Sec. 243.1 Authority and scope.
(a) Authority. This part is issued pursuant to section 165(d)(8) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1426-1427), 12 U.S.C.
5365(d)(8), which requires the Board of Governors of the
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Federal Reserve System (Board) and the Federal Deposit Insurance
Corporation (Corporation) to jointly issue rules implementing the
provisions of section 165(d) of the Dodd-Frank Act.
(b) Scope. This part applies to each covered company and establishes
rules and requirements regarding the submission and content of a
resolution plan, as well as procedures for review by the Board and
Corporation of a resolution plan.
Sec. 243.2 Definitions.
For purposes of this part:
(a) Bankruptcy Code means title 11 of the United States Code.
(b) Company means a corporation, partnership, limited liability
company, depository institution, business trust, special purpose entity,
association, or similar organization, but does not include any
organization, the majority of the voting securities of which are owned
by the United States.
(c) Control. A company controls another company when the first
company, directly or indirectly, owns, or holds with power to vote, 25
percent or more of any class of the second company's outstanding voting
securities.
(d) Core business lines means those business lines of the covered
company, including associated operations, services, functions and
support, that, in the view of the covered company, upon failure would
result in a material loss of revenue, profit, or franchise value.
(e) Council means the Financial Stability Oversight Council
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
(f) Covered company. (1) In general. A ``covered company'' means:
(i) Any nonbank financial company supervised by the Board;
(ii) Any bank holding company, as that term is defined in section 2
of the Bank Holding Company Act, as amended (12 U.S.C. 1841), and the
Board's Regulation Y (12 CFR part 225), that has $50 billion or more in
total consolidated assets, as determined based on the average of the
company's four most recent Consolidated Financial Statements for Bank
Holding Companies as reported on the Federal Reserve's Form FR Y-9C
(``FR Y-9C''); and
(iii) Any foreign bank or company that is a bank holding company or
is treated as a bank holding company under section 8(a) of the
International Banking Act of 1978 (12 U.S.C. 3106(a)), and that has $50
billion or more in total consolidated assets, as determined based on the
foreign bank's or company's most recent annual or, as applicable, the
average of the four most recent quarterly Capital and Asset Reports for
Foreign Banking Organizations as reported on the Federal Reserve's Form
FR Y-7Q (``FR Y-7Q'').
(2) Once a covered company meets the requirements described in
paragraph (f)(1)(ii) or (iii) of this section, the company shall remain
a covered company for purposes of this part unless and until the company
has less than $45 billion in total consolidated assets, as determined
based on the--
(i) Average total consolidated assets as reported on the company's
four most recent FR Y-9Cs, in the case of a covered company described in
paragraph (f)(1)(ii) of this section; or
(ii) Total consolidated assets as reported on the company's most
recent annual FR Y-7Q, or, as applicable, average total consolidated
assets as reported on the company's four most recent quarterly FR Y-7Qs,
in the case of a covered company described in paragraph (f)(1)(iii) of
this section.
Nothing in this paragraph (f)(2) shall preclude a company from
becoming a covered company pursuant to paragraph (f)(1) of this section.
(3) Multi-tiered holding company. In a multi-tiered holding company
structure, covered company means the top-tier of the multi-tiered
holding company only.
(4) Asset threshold for bank holding companies and foreign banking
organizations. The Board may, pursuant to a recommendation of the
Council, raise any asset threshold specified in paragraph (f)(1)(ii) or
(iii) of this section.
(5) Exclusion. A bridge financial company chartered pursuant to 12
U.S.C. 5390(h) shall not be deemed to be a covered company hereunder.
(g) Critical operations means those operations of the covered
company, including associated services, functions
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and support, the failure or discontinuance of which, in the view of the
covered company or as jointly directed by the Board and the Corporation,
would pose a threat to the financial stability of the United States.
(h) Depository institution has the same meaning as in section
3(c)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(1)) and
includes a state-licensed uninsured branch, agency, or commercial
lending subsidiary of a foreign bank.
(i) Foreign banking organization means--
(1) A foreign bank, as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7)), that:
(i) Operates a branch, agency, or commercial lending company
subsidiary in the United States;
(ii) Controls a bank in the United States; or
(iii) Controls an Edge corporation acquired after March 5, 1987; and
(2) Any company of which the foreign bank is a subsidiary.
(j) Foreign-based company means any covered company that is not
incorporated or organized under the laws of the United States.
(k) Functionally regulated subsidiary has the same meaning as in
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C.
1844(c)(5)).
(l) Material entity means a subsidiary or foreign office of the
covered company that is significant to the activities of a critical
operation or core business line (as defined in this part).
(m) Material financial distress with regard to a covered company
means that:
(1) The covered company has incurred, or is likely to incur, losses
that will deplete all or substantially all of its capital, and there is
no reasonable prospect for the company to avoid such depletion;
(2) The assets of the covered company are, or are likely to be, less
than its obligations to creditors and others; or
(3) The covered company is, or is likely to be, unable to pay its
obligations (other than those subject to a bona fide dispute) in the
normal course of business.
(n) Nonbank financial company supervised by the Board means a
nonbank financial company or other company that the Council has
determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323)
shall be supervised by the Board and for which such determination is
still in effect.
(o) Rapid and orderly resolution means a reorganization or
liquidation of the covered company (or, in the case of a covered company
that is incorporated or organized in a jurisdiction other than the
United States, the subsidiaries and operations of such foreign company
that are domiciled in the United States) under the Bankruptcy Code that
can be accomplished within a reasonable period of time and in a manner
that substantially mitigates the risk that the failure of the covered
company would have serious adverse effects on financial stability in the
United States.
(p) Subsidiary means a company that is controlled by another
company, and an indirect subsidiary is a company that is controlled by a
subsidiary of a company.
(q) United States means the United States and includes any state of
the United States, the District of Columbia, any territory of the United
States, Puerto Rico, Guam, American Samoa, and the Virgin Islands.
Sec. 243.3 Resolution plan required.
(a) Initial and annual resolution plans required.--(1) Each covered
company shall submit its initial resolution plan to the Board and the
Corporation on or before the date set forth below (``Initial Submission
Date''):
(i) July 1, 2012, with respect to any covered company that, as of
the effective date of this part, had $250 billion or more in total
nonbank assets (or, in the case of a covered company that is a foreign-
based company, in total U.S. nonbank assets);
(ii) July 1, 2013, with respect to any covered company that is not
described in paragraph (a)(1)(i) of this section, and that, as of the
effective date of this part had $100 billion or more in total nonbank
assets (or, in the case of a covered company that is a foreign-based
company, in total U.S. nonbank assets); and
(iii) December 31, 2013, with respect to any other covered company
that is a covered company as of the effective
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date of this part but that is not described in paragraph (a)(1)(i) or
(ii) of this section.
(2) A company that becomes a covered company after the effective
date of this part shall submit its initial resolution plan no later than
the next July 1 following the date the company becomes a covered
company, provided such date occurs no earlier than 270 days after the
date on which the company became a covered company.
(3) After filing its initial resolution plan pursuant to paragraph
(a)(1) or (2) of this section, each covered company shall annually
submit a resolution plan to the Board and the Corporation on or before
each anniversary date of its Initial Submission Date.
(4) Notwithstanding anything to the contrary in this paragraph (a),
the Board and Corporation may jointly determine that a covered company
shall file its initial or annual resolution plan by a date other than as
provided in this paragraph (a). The Board and the Corporation shall
provide a covered company with written notice of a determination under
this paragraph (a)(4) no later than 180 days prior to the date on which
the Board and Corporation jointly determined to require the covered
company to submit its resolution plan.
(b) Authority to require interim updates and notice of material
events.--(1) In general. The Board and the Corporation may jointly
require that a covered company file an update to a resolution plan
submitted under paragraph (a) of this section, within a reasonable
amount of time, as jointly determined by the Board and Corporation. The
Board and the Corporation shall make a request pursuant to this
paragraph (b)(1) in writing, and shall specify the portions or aspects
of the resolution plan the covered company shall update.
(2) Notice of material events. Each covered company shall provide
the Board and the Corporation with a notice no later than 45 days after
any event, occurrence, change in conditions or circumstances, or other
change that results in, or could reasonably be foreseen to have, a
material effect on the resolution plan of the covered company. Such
notice should describe the event, occurrence or change and explain why
the event, occurrence or change may require changes to the resolution
plan. The covered company shall address any event, occurrence or change
with respect to which it has provided notice pursuant to this paragraph
(b)(2) in the following resolution plan submitted by the covered
company.
(3) Exception. A covered company shall not be required to file a
notice under paragraph (b)(2) of this section if the date on which the
covered company would be required to submit the notice under paragraph
(b)(2) would be within 90 days prior to the date on which the covered
company is required to file an annual resolution plan under paragraph
(a) of this section.
(c) Authority to require more frequent submissions or extend time
period.--The Board and Corporation may jointly:
(1) Require that a covered company submit a resolution plan more
frequently than required pursuant to paragraph (a) of this section; and
(2) Extend the time period that a covered company has to submit a
resolution plan or a notice following material events under paragraphs
(a) and (b) of this section.
(d) Access to information.--In order to allow evaluation of the
resolution plan, each covered company must provide the Board and the
Corporation such information and access to personnel of the covered
company as the Board and the Corporation jointly determine during the
period for reviewing the resolution plan is necessary to assess the
credibility of the resolution plan and the ability of the covered
company to implement the resolution plan. The Board and the Corporation
will rely to the fullest extent possible on examinations conducted by or
on behalf of the appropriate Federal banking agency for the relevant
company.
(e) Board of directors approval of resolution plan.--Prior to
submission of a resolution plan under paragraph (a) of this section, the
resolution plan of a covered company shall be approved by:
(1) The board of directors of the covered company and noted in the
minutes; or
(2) In the case of a foreign-based covered company only, a delegee
acting under the express authority of the
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board of directors of the covered company to approve the resolution
plan.
(f) Resolution plans provided to the Council.--The Board shall make
the resolution plans and updates submitted by the covered company
pursuant to this section available to the Council upon request.
Sec. 243.4 Informational content of a resolution plan.
(a) In general.--(1) Domestic covered companies. Except as otherwise
provided in paragraph (a)(3) of this section, the resolution plan of a
covered company that is organized or incorporated in the United States
shall include the information specified in paragraphs (b) through (i) of
this section with respect to the subsidiaries and operations that are
domiciled in the United States as well as the foreign subsidiaries,
offices, and operations of the covered company.
(2) Foreign-based covered companies.--Except as otherwise provided
in paragraph (a)(3) of the section, the resolution plan of a covered
company that is organized or incorporated in a jurisdiction other than
the United States (other than a bank holding company) or that is a
foreign banking organization shall include:
(i) The information specified in paragraphs (b) through (i) of this
section with respect to the subsidiaries, branches and agencies, and
critical operations and core business lines, as applicable, that are
domiciled in the United States or conducted in whole or material part in
the United States. With respect to the information specified in
paragraph (g) of this section, the resolution plan of a foreign-based
covered company shall also identify, describe in detail, and map to
legal entity the interconnections and interdependencies among the U.S.
subsidiaries, branches and agencies, and critical operations and core
business lines of the foreign-based covered company and any foreign-
based affiliate; and
(ii) A detailed explanation of how resolution planning for the
subsidiaries, branches and agencies, and critical operations and core
business lines of the foreign-based covered company that are domiciled
in the United States or conducted in whole or material part in the
United States is integrated into the foreign-based covered company's
overall resolution or other contingency planning process.
(3) Tailored resolution plan. (i) Eligible covered company.--
Paragraph (a)(3)(ii) of this section applies to any covered company that
as of December 31 of the calendar year prior to the date its resolution
plan is required to be submitted under this part--
(A) Has less than $100 billion in total nonbank assets (or, in the
case of a covered company that is a foreign-based company, in total U.S.
nonbank assets); and
(B) The total insured depository institution assets of which
comprise 85 percent or more of the covered company's total consolidated
assets (or, in the case of a covered company that is a foreign-based
company, the assets of the U.S. insured depository institution
operations, branches, and agencies of which comprise 85 percent or more
of such covered company's U.S. total consolidated assets).
(ii) Tailored resolution plan elements. A covered company described
in paragraph (a)(3)(i) of this section may file a resolution plan that
is limited to the following items--
(A) An executive summary, as specified in paragraph (b) of this
section;
(B) The information specified in paragraphs (c) through (f) and
paragraph (h) of this section, but only with respect to the covered
company and its nonbanking material entities and operations;
(C) The information specified in paragraphs (g) and (i) of this
section with respect to the covered company and all of its insured
depository institutions (or, in the case of a covered company that is a
foreign-based company, the U.S. insured depository institutions,
branches, and agencies) and nonbank material entities and operations.
The interconnections and interdependencies identified pursuant to (g) of
this section shall be included in the analysis provided pursuant to
paragraph (c) of this section.
(iii) Notice.--A covered company that meets the requirements of
paragraph (a)(3)(i) of this section and that intends to submit a
resolution plan pursuant to this paragraph (a)(3), shall provide the
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Board and Corporation with written notice of such intent and its
eligibility under paragraph (a)(3)(i) no later than 270 days prior to
the date on which the covered company is required to submit its
resolution plan. Within 90 of receiving such notice, the Board and
Corporation may jointly determine that the covered company must submit a
resolution plan that meets some or all of the requirements as set forth
in paragraph (a)(1) or (2) of this section, as applicable.
(4) Required and prohibited assumptions.--In preparing its plan for
rapid and orderly resolution in the event of material financial distress
or failure required by this part, a covered company shall:
(i) Take into account that such material financial distress or
failure of the covered company may occur under the baseline, adverse and
severely adverse economic conditions provided to the covered company by
the Board pursuant to 12 U.S.C. 5365(i)(1)(B); provided, however, a
covered company may submit its initial resolution plan assuming the
baseline conditions only, or, if a baseline scenario is not then
available, a reasonable substitute developed by the covered company; and
(ii) Not rely on the provision of extraordinary support by the
United States or any other government to the covered company or its
subsidiaries to prevent the failure of the covered company.
(b) Executive summary.--Each resolution plan of a covered company
shall include an executive summary describing:
(1) The key elements of the covered company's strategic plan for
rapid and orderly resolution in the event of material financial distress
at or failure of the covered company.
(2) Material changes to the covered company's resolution plan from
the company's most recently filed resolution plan (including any notices
following a material event or updates to the resolution plan).
(3) Any actions taken by the covered company since filing of the
previous resolution plan to improve the effectiveness of the covered
company's resolution plan or remediate or otherwise mitigate any
material weaknesses or impediments to effective and timely execution of
the resolution plan.
(c) Strategic analysis.--Each resolution plan shall include a
strategic analysis describing the covered company's plan for rapid and
orderly resolution in the event of material financial distress or
failure of the covered company. Such analysis shall--
(1) Include detailed descriptions of the--
(i) Key assumptions and supporting analysis underlying the covered
company's resolution plan, including any assumptions made concerning the
economic or financial conditions that would be present at the time the
covered company sought to implement such plan;
(ii) Range of specific actions to be taken by the covered company to
facilitate a rapid and orderly resolution of the covered company, its
material entities, and its critical operations and core business lines
in the event of material financial distress or failure of the covered
company;
(iii) Funding, liquidity and capital needs of, and resources
available to, the covered company and its material entities, which shall
be mapped to its critical operations and core business lines, in the
ordinary course of business and in the event of material financial
distress at or failure of the covered company;
(iv) Covered company's strategy for maintaining operations of, and
funding for, the covered company and its material entities, which shall
be mapped to its critical operations and core business lines;
(v) Covered company's strategy in the event of a failure or
discontinuation of a material entity, core business line or critical
operation, and the actions that will be taken by the covered company to
prevent or mitigate any adverse effects of such failure or
discontinuation on the financial stability of the United States;
provided, however, if any such material entity is subject to an
insolvency regime other than the Bankruptcy Code, a covered company may
exclude that entity from its strategic analysis unless that entity
either has $50 billion or more in total assets or conducts a critical
operation; and
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(vi) Covered company's strategy for ensuring that any insured
depository institution subsidiary of the covered company will be
adequately protected from risks arising from the activities of any
nonbank subsidiaries of the covered company (other than those that are
subsidiaries of an insured depository institution);
(2) Identify the time period(s) the covered company expects would be
needed for the covered company to successfully execute each material
aspect and step of the covered company's plan;
(3) Identify and describe any potential material weaknesses or
impediments to effective and timely execution of the covered company's
plan;
(4) Discuss the actions and steps the covered company has taken or
proposes to take to remediate or otherwise mitigate the weaknesses or
impediments identified by the covered company, including a timeline for
the remedial or other mitigatory action; and
(5) Provide a detailed description of the processes the covered
company employs for:
(i) Determining the current market values and marketability of the
core business lines, critical operations, and material asset holdings of
the covered company;
(ii) Assessing the feasibility of the covered company's plans
(including timeframes) for executing any sales, divestitures,
restructurings, recapitalizations, or other similar actions contemplated
in the covered company's resolution plan; and
(iii) Assessing the impact of any sales, divestitures,
restructurings, recapitalizations, or other similar actions on the
value, funding, and operations of the covered company, its material
entities, critical operations and core business lines.
(d) Corporate governance relating to resolution planning.--Each
resolution plan shall:
(1) Include a detailed description of:
(i) How resolution planning is integrated into the corporate
governance structure and processes of the covered company;
(ii) The covered company's policies, procedures, and internal
controls governing preparation and approval of the covered company's
resolution plan;
(iii) The identity and position of the senior management official(s)
of the covered company that is primarily responsible for overseeing the
development, maintenance, implementation, and filing of the covered
company's resolution plan and for the covered company's compliance with
this part; and
(iv) The nature, extent, and frequency of reporting to senior
executive officers and the board of directors of the covered company
regarding the development, maintenance, and implementation of the
covered company's resolution plan;
(2) Describe the nature, extent, and results of any contingency
planning or similar exercise conducted by the covered company since the
date of the covered company's most recently filed resolution plan to
assess the viability of or improve the resolution plan of the covered
company; and
(3) Identify and describe the relevant risk measures used by the
covered company to report credit risk exposures both internally to its
senior management and board of directors, as well as any relevant risk
measures reported externally to investors or to the covered company's
appropriate Federal regulator.
(e) Organizational structure and related information.--Each
resolution plan shall--
(1) Provide a detailed description of the covered company's
organizational structure, including:
(i) A hierarchical list of all material entities within the covered
company's organization (including legal entities that directly or
indirectly hold such material entities) that:
(A) Identifies the direct holder and the percentage of voting and
nonvoting equity of each legal entity and foreign office listed; and
(B) The location, jurisdiction of incorporation, licensing, and key
management associated with each material legal entity and foreign office
identified;
(ii) A mapping of the covered company's critical operations and core
business lines, including material asset holdings and liabilities
related to such
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critical operations and core business lines, to material entities;
(2) Provide an unconsolidated balance sheet for the covered company
and a consolidating schedule for all material entities that are subject
to consolidation by the covered company;
(3) Include a description of the material components of the
liabilities of the covered company, its material entities, critical
operations and core business lines that, at a minimum, separately
identifies types and amounts of the short-term and long-term
liabilities, the secured and unsecured liabilities, and subordinated
liabilities;
(4) Identify and describe the processes used by the covered company
to:
(i) Determine to whom the covered company has pledged collateral;
(ii) Identify the person or entity that holds such collateral; and
(iii) Identify the jurisdiction in which the collateral is located,
and, if different, the jurisdiction in which the security interest in
the collateral is enforceable against the covered company;
(5) Describe any material off-balance sheet exposures (including
guarantees and contractual obligations) of the covered company and its
material entities, including a mapping to its critical operations and
core business lines;
(6) Describe the practices of the covered company, its material
entities and its core business lines related to the booking of trading
and derivatives activities;
(7) Identify material hedges of the covered company, its material
entities, and its core business lines related to trading and derivative
activities, including a mapping to legal entity;
(8) Describe the hedging strategies of the covered company;
(9) Describe the process undertaken by the covered company to
establish exposure limits;
(10) Identify the major counterparties of the covered company and
describe the interconnections, interdependencies and relationships with
such major counterparties;
(11) Analyze whether the failure of each major counterparty would
likely have an adverse impact on or result in the material financial
distress or failure of the covered company; and
(12) Identify each trading, payment, clearing, or settlement system
of which the covered company, directly or indirectly, is a member and on
which the covered company conducts a material number or value amount of
trades or transactions. Map membership in each such system to the
covered company's material entities, critical operations and core
business lines.
(f) Management information systems.--(1) Each resolution plan shall
include--
(i) A detailed inventory and description of the key management
information systems and applications, including systems and applications
for risk management, accounting, and financial and regulatory reporting,
used by the covered company and its material entities. The description
of each system or application provided shall identify the legal owner or
licensor, the use or function of the system or application, service
level agreements related thereto, any software and system licenses, and
any intellectual property associated therewith;
(ii) A mapping of the key management information systems and
applications to the material entities, critical operations and core
business lines of the covered company that use or rely on such systems
and applications;
(iii) An identification of the scope, content, and frequency of the
key internal reports that senior management of the covered company, its
material entities, critical operations and core business lines use to
monitor the financial health, risks, and operation of the covered
company, its material entities, critical operations and core business
lines; and
(iv) A description of the process for the appropriate supervisory or
regulatory agencies to access the management information systems and
applications identified in paragraph (f) of this section; and
(v) A description and analysis of--
(A) The capabilities of the covered company's management information
systems to collect, maintain, and report, in a timely manner to
management of the covered company, and to the Board, the information and
data underlying the resolution plan; and
[[Page 236]]
(B) Any deficiencies, gaps or weaknesses in such capabilities, and a
description of the actions the covered company intends to take to
promptly address such deficiencies, gaps, or weaknesses, and the time
frame for implementing such actions.
(2) The Board will use its examination authority to review the
demonstrated capabilities of each covered company to satisfy the
requirements of paragraph (f)(1)(v) of this section. The Board will
share with the Corporation information regarding the capabilities of the
covered company to collect, maintain, and report in a timely manner
information and data underlying the resolution plan.
(g) Interconnections and interdependencies. To the extent not
elsewhere provided, identify and map to the material entities the
interconnections and interdependencies among the covered company and its
material entities, and among the critical operations and core business
lines of the covered company that, if disrupted, would materially affect
the funding or operations of the covered company, its material entities,
or its critical operations or core business lines. Such interconnections
and interdependencies may include:
(1) Common or shared personnel, facilities, or systems (including
information technology platforms, management information systems, risk
management systems, and accounting and recordkeeping systems);
(2) Capital, funding, or liquidity arrangements;
(3) Existing or contingent credit exposures;
(4) Cross-guarantee arrangements, cross-collateral arrangements,
cross-default provisions, and cross-affiliate netting agreements;
(5) Risk transfers; and
(6) Service level agreements.
(h) Supervisory and regulatory information. Each resolution plan
shall--
(1) Identify any:
(i) Federal, state, or foreign agency or authority (other than a
Federal banking agency) with supervisory authority or responsibility for
ensuring the safety and soundness of the covered company, its material
entities, critical operations and core business lines; and
(ii) Other Federal, state, or foreign agency or authority (other
than a Federal banking agency) with significant supervisory or
regulatory authority over the covered company, and its material entities
and critical operations and core business lines.
(2) Identify any foreign agency or authority responsible for
resolving a foreign-based material entity and critical operations or
core business lines of the covered company; and
(3) Include contact information for each agency identified in
paragraphs (h)(1) and (2) of this section.
(i) Contact information. Each resolution plan shall identify a
senior management official at the covered company responsible for
serving as a point of contact regarding the resolution plan of the
covered company, and include contact information (including phone
number, email address, and physical address) for a senior management
official of the material entities of the covered company.
(j) Inclusion of previously submitted resolution plan informational
elements by reference. An annual submission of or update to a resolution
plan submitted by a covered company may include by reference
informational elements (but not strategic analysis or executive summary
elements) from a resolution plan previously submitted by the covered
company to the Board and the Corporation, provided that:
(1) The resolution plan seeking to include informational elements by
reference clearly indicates:
(i) The informational element the covered company is including by
reference; and
(ii) Which of the covered company's previously submitted resolution
plan(s) originally contained the information the covered company is
including by reference; and
(2) The covered company certifies that the information the covered
company is including by reference remains accurate.
(k) Exemptions. The Board and the Corporation may jointly exempt a
covered company from one or more of the requirements of this section.
[[Page 237]]
Sec. 243.5 Review of resolution plans; resubmission of deficient
resolution plans.
(a) Acceptance of submission and review. (1) The Board and
Corporation shall review a resolution plan submitted under section this
subpart within 60 days.
(2) If the Board and Corporation jointly determine within the time
described in paragraph (a)(1) of this section that a resolution plan is
informationally incomplete or that substantial additional information is
necessary to facilitate review of the resolution plan:
(i) The Board and Corporation shall jointly inform the covered
company in writing of the area(s) in which the resolution plan is
informationally incomplete or with respect to which additional
information is required; and
(ii) The covered company shall resubmit an informationally complete
resolution plan or such additional information as jointly requested to
facilitate review of the resolution plan no later than 30 days after
receiving the notice described in paragraph (a)(2)(i) of this section,
or such other time period as the Board and Corporation may jointly
determine.
(b) Joint determination regarding deficient resolution plans. If the
Board and Corporation jointly determine that the resolution plan of a
covered company submitted underSec. ----.3(a) is not credible or would
not facilitate an orderly resolution of the covered company under the
Bankruptcy Code, the Board and Corporation shall jointly notify the
covered company in writing of such determination. Any joint notice
provided under this paragraph shall identify the aspects of the
resolution plan that the Board and Corporation jointly determined to be
deficient.
(c) Resubmission of a resolution plan. Within 90 days of receiving a
notice of deficiencies issued pursuant to paragraph (b) of this section,
or such shorter or longer period as the Board and Corporation may
jointly determine, a covered company shall submit a revised resolution
plan to the Board and Corporation that addresses the deficiencies
jointly identified by the Board and Corporation, and that discusses in
detail:
(1) The revisions made by the covered company to address the
deficiencies jointly identified by the Board and the Corporation;
(2) Any changes to the covered company's business operations and
corporate structure that the covered company proposes to undertake to
facilitate implementation of the revised resolution plan (including a
timeline for the execution of such planned changes); and
(3) Why the covered company believes that the revised resolution
plan is credible and would result in an orderly resolution of the
covered company under the Bankruptcy Code.
(d) Extensions of time. Upon their own initiative or a written
request by a covered company, the Board and Corporation may jointly
extend any time period under this section. Each extension request shall
be supported by a written statement of the covered company describing
the basis and justification for the request.
Sec. 243.6 Failure to cure deficiencies on resubmission of a
resolution plan.
(a) In general. The Board and Corporation may jointly determine that
a covered company or any subsidiary of a covered company shall be
subject to more stringent capital, leverage, or liquidity requirements,
or restrictions on the growth, activities, or operations of the covered
company or the subsidiary if:
(1) The covered company fails to submit a revised resolution plan
underSec. ----.5(c) within the required time period; or
(2) The Board and the Corporation jointly determine that a revised
resolution plan submitted underSec. ----.5(c) does not adequately
remedy the deficiencies jointly identified by the Board and the
Corporation underSec. ----.5(b).
(b) Duration of requirements or restrictions.--Any requirements or
restrictions imposed on a covered company or a subsidiary thereof
pursuant to paragraph (a) of this section shall cease to apply to the
covered company or subsidiary, respectively, on the date that the Board
and the Corporation jointly determine the covered company has submitted
a revised resolution plan
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that adequately remedies the deficiencies jointly identified by the
Board and the Corporation underSec. ----.5(b).
(c) Divestiture. The Board and Corporation, in consultation with the
Council, may jointly, by order, direct the covered company to divest
such assets or operations as are jointly identified by the Board and
Corporation if:
(1) The Board and Corporation have jointly determined that the
covered company or a subsidiary thereof shall be subject to requirements
or restrictions pursuant to paragraph (a) of this section; and
(2) The covered company has failed, within the 2-year period
beginning on the date on which the determination to impose such
requirements or restrictions under paragraph (a) of this section was
made, to submit a revised resolution plan that adequately remedies the
deficiencies jointly identified by the Board and the Corporation under
Sec. ----.5(b); and
(3) The Board and Corporation jointly determine that the divestiture
of such assets or operations is necessary to facilitate an orderly
resolution of the covered company under the Bankruptcy Code in the event
the company was to fail.
Sec. 243.7 Consultation.
Prior to issuing any notice of deficiencies underSec. ----.5(b),
determining to impose requirements or restrictions underSec. --
--.6(a), or issuing a divestiture order pursuant toSec. ----.6(c) with
respect to a covered company that is likely to have a significant impact
on a functionally regulated subsidiary or a depository institution
subsidiary of the covered company, the Board--
(a) Shall consult with each Council member that primarily supervises
any such subsidiary; and
(b) May consult with any other Federal, state, or foreign supervisor
as the Board considers appropriate.
Sec. 243.8 No limiting effect or private right of action;
confidentiality of resolution plans.
(a) No limiting effect on bankruptcy or other resolution
proceedings.--A resolution plan submitted pursuant to this part shall
not have any binding effect on:
(1) A court or trustee in a proceeding commenced under the
Bankruptcy Code;
(2) A receiver appointed under title II of the Dodd-Frank Act (12
U.S.C. 5381 et seq.);
(3) A bridge financial company chartered pursuant to 12 U.S.C.
5390(h); or
(4) Any other authority that is authorized or required to resolve a
covered company (including any subsidiary or affiliate thereof) under
any other provision of Federal, state, or foreign law.
(b) No private right of action.--Nothing in this part creates or is
intended to create a private right of action based on a resolution plan
prepared or submitted under this part or based on any action taken by
the Board or the Corporation with respect to any resolution plan
submitted under this part.
(c) Form of resolution plans. Each resolution plan of a covered
company shall be divided into a public section and a confidential
section. Each covered company shall segregate and separately identify
the public section from the confidential section. The public section
shall consist of an executive summary of the resolution plan that
describes the business of the covered company and includes, to the
extent material to an understanding of the covered company:
(1) The names of material entities;
(2) A description of core business lines;
(3) Consolidated or segment financial information regarding assets,
liabilities, capital and major funding sources;
(4) A description of derivative activities and hedging activities;
(5) A list of memberships in material payment, clearing and
settlement systems;
(6) A description of foreign operations;
(7) The identities of material supervisory authorities;
(8) The identities of the principal officers;
(9) A description of the corporate governance structure and
processes related to resolution planning;
(10) A description of material management information systems; and
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(11) A description, at a high level, of the covered company's
resolution strategy, covering such items as the range of potential
purchasers of the covered company, its material entities and core
business lines.
(d) Confidential treatment of resolution plans. (1) The
confidentiality of resolution plans and related materials shall be
determined in accordance with applicable exemptions under the Freedom of
Information Act (5 U.S.C. 552(b)) and the Board's Rules Regarding
Availability of Information (12 CFR part 261), and the Corporation's
Disclosure of Information Rules (12 CFR part 309).
(2) Any covered company submitting a resolution plan or related
materials pursuant to this part that desires confidential treatment of
the information under 5 U.S.C. 552(b)(4), the Board's Rules Regarding
Availability of Information (12 CFR part 261), and the Corporation's
Disclosure of Information Rules (12 CFR part 309) may file a request for
confidential treatment in accordance with those rules.
(3) To the extent permitted by law, information comprising the
Confidential Section of a resolution plan will be treated as
confidential.
(4) To the extent permitted by law, the submission of any nonpublic
data or information under this part shall not constitute a waiver of, or
otherwise affect, any privilege arising under Federal or state law
(including the rules of any Federal or state court) to which the data or
information is otherwise subject. Privileges that apply to resolution
plans and related materials are protected pursuant to Section 18(x) of
the FDI Act, 12 U.S.C. 1828(x).
Sec. 243.9 Enforcement.
The Board and Corporation may jointly enforce an order jointly
issued by the Board and Corporation underSec. ----.6(a) or ----.6(c)
of this part. The Board, in consultation with the Corporation, may take
any action to address any violation of this part by a covered company
under section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818).