[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13400]


[[Page Unknown]]

[Federal Register: June 2, 1994]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 574

[No. 94-20]
RIN 1550-AA63

 

Acquisition of Control of Savings Associations; Applications, 
Approval Standards and Procedural Requirements

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its 
acquisition of control regulations to implement section 211 of the 
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). 
The final rule specifies additional factors that the OTS must consider 
in acting on applications to acquire savings associations under section 
10(e) of the Home Owners' Loan Act (HOLA). The intended effect of these 
amendments is to conform OTS regulations to the statutory changes.
    In addition, the OTS is amending its acquisition of control 
regulations to reflect the previous combination of the various holding 
company application forms in order to provide consistency between the 
forms and the regulations, to eliminate confusion, and to streamline 
the regulations.

EFFECTIVE DATE: July 5, 1994.

FOR FURTHER INFORMATION CONTACT: David Sjogren, Program Manager, 
Corporate Analysis, (202) 906-6739, Supervisory Operations, Robyn 
Dennis, Program Manager, (202) 906-5751, Policy, or Kevin A. Corcoran, 
Assistant Chief Counsel, (202) 906-6962, Corporate and Securities 
Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    The OTS is adopting a final rule that revises its acquisition of 
control regulations to include new supervisory factors that the FDICIA 
requires the OTS to consider in reviewing and acting on applications to 
acquire savings associations under section 10(e) of the HOLA. These 
changes are required by section 211 of the FDICIA, Public Law 102-242, 
105 Stat. 2236. In addition, the OTS is amending its acquisition of 
control regulations to reflect the previous combination of the various 
holding company application forms.
    On November 23, 1993, the OTS issued notice of a proposal to amend 
the agency's regulations implementing section 10(e) of the HOLA in 
accordance with section 211 of the FDICIA, and to amend the acquisition 
of control regulations to reflect the combination of the holding 
company application forms.1 The public comment period expired on 
December 23, 1993.
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    \1\58 FR 61850 (November 23, 1993).
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    Section 211 of the FDICIA provides that the OTS must disapprove an 
application to acquire a savings association under section 10(e) of the 
HOLA:
    (1) If the company fails to provide adequate assurances to the OTS 
that the company will make available to the OTS such information on the 
operations or activities of the company, and any affiliate of the 
company, as the OTS determines to be appropriate to determine and 
enforce compliance with the HOLA; or (2) in the case of an application 
involving a foreign bank, if the foreign bank is not subject to 
comprehensive supervision or regulation on a consolidated basis by 
appropriate authorities in the bank's home country.
    Section 211 of the FDICIA also provides that the OTS's 
consideration of the managerial resources of a company or savings 
association shall include consideration of the competence, experience 
and integrity of the officers, directors and principal shareholders of 
the company or savings association.
    The OTS is adopting the final rule substantially as proposed. As 
proposed, the final rule, rather than including a separate definition 
of the term ``principal shareholder,'' relies on existing terminology, 
``controlling shareholder,'' in the OTS acquisition of control 
regulations for this purpose, and requires the OTS to consider the 
competence, experience, and integrity of ``controlling 
shareholders.''2
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    \2\Under the OTS acquisition of control regulations, a 
``controlling shareholder'' is ``any person who directly or 
indirectly or acting in concert with one or more persons or 
companies, or together with members of his or her immediate family, 
owns, controls, or holds with power to vote 10 percent or more of 
the voting stock of a company or controls in any manner the election 
or appointment of a majority of the company's board of directors.'' 
12 CFR 574.2(g).
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    In addition, the final rule provides that the OTS also will 
consider whether an applicant has provided the OTS 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 OTS deems appropriate to determine 
and enforce compliance with the HOLA.
    The OTS has determined, in general, not to require additional 
assurances from domestic applicants. The OTS currently seeks all 
information needed to consider holding company applications,3 has 
promulgated regulations and issued forms that require savings and loan 
holding companies to file information with the OTS on a regular 
basis,4 and has broad authority under section 10(b) of the HOLA to 
examine savings and loan holding companies and their affiliates. In 
addition, the OTS has broad authority to investigate and bring 
enforcement actions against holding companies and other affiliates of 
savings associations under section 10(g) of the HOLA, as well as other 
statutory provisions, including section 8 of the Federal Deposit 
Insurance Act. Nevertheless, section 10(e)(2)(C) gives the OTS broad 
discretion with respect to the circumstances under which additional 
assurances may be required, as well as the nature of such assurances, 
and the OTS may, where appropriate, seek additional assurances 
regarding the availability of information from an applicant and its 
affiliates.
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    \3\See OTS Form H-(e)______.
    \4\See 12 CFR 584.1 and OTS Forms H-(b)10 and H-(b)11.
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    With respect to holding company applications submitted by foreign 
acquirors, the OTS has, as a matter of policy, required foreign 
acquirors to enter into a foreign acquiror agreement.5 Foreign 
acquiror agreements generally state, inter alia, that the foreign 
acquiror (i) voluntarily consents to United States jurisdiction for 
purposes of laws relating to United States depository institutions, 
(ii) shall designate agents in the United States for service of 
process, and (iii) shall permit the OTS to examine it to such extent as 
the Director may prescribe. In addition, as a policy matter, the OTS 
and its predecessor, the Federal Home Loan Bank Board, have generally 
required foreign acquirors to establish a United States holding company 
as the direct holding company of the acquired savings association.
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    \5\In addition, the OTS has required foreign acquirors that 
attempt to rebut a rebuttable determination of control under 12 CFR 
574.4(b) and 574.4(e) to file a foreign acquiror agreement.
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    The OTS will continue to require foreign acquirors to enter into 
foreign acquiror agreements, but will not require further assurances as 
a general matter. As noted above, the OTS, where appropriate in the 
context of a particular application, may seek additional assurances 
from a foreign acquiror that it will make information available to the 
OTS concerning itself or its affiliates.
    In the case of applications involving a foreign bank, the OTS will 
consider whether the bank is subject to comprehensive supervision on a 
consolidated basis by the appropriate authorities in the foreign bank's 
home country. In the proposal, the OTS requested comment on the 
standards to be applied in this area, and on whether the OTS should 
subject foreign bank holding companies to the same requirement. As the 
statute refers only to foreign banks, the final rule, as was the case 
with the proposal, refers only to foreign banks.
    The regulations of the Board of Governors of the Federal Reserve 
System (Federal Reserve Board) implementing section 202(a) of the 
FDICIA set forth the basis on which the Federal Reserve Board will 
determine whether a foreign bank is subject to ``comprehensive 
supervision or regulation on a consolidated basis.''6 The Federal 
Reserve Board regulation provides that the Federal Reserve Board will 
determine whether the foreign bank is supervised or regulated in such a 
manner that its home country supervisor receives sufficient information 
on the worldwide operations of the foreign bank (including the 
relationships of the bank to any affiliate) to assess the foreign 
bank's overall financial condition and compliance with law and 
regulation.7
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    \6\See 58 FR 6348, 6360-6361 (12 CFR 211.24(c)(1)(ii)).
    \7\Id. The regulation sets forth certain factors that the 
Federal Reserve Board will assess, including the extent to which the 
home country supervisor: Ensures that the foreign bank has adequate 
procedures for monitoring and controlling its activities worldwide; 
obtains information on the foreign bank and its subsidiaries and 
offices outside the home country through regular reports of 
examination, audit reports, or otherwise; obtains information on the 
dealings and relationships between the foreign bank and its foreign 
and domestic affiliates; receives from the foreign bank financial 
reports that are consolidated on a worldwide basis, or comparable 
information; and evaluates prudential standards, such as capital 
adequacy and risk asset exposure, on a worldwide basis.
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    The OTS believes that Federal Reserve Board regulations set forth 
appropriate standards in this area, and is not currently aware of any 
compelling reasons to use a standard differing from that used by the 
Federal Reserve Board. Accordingly, the final regulation generally 
incorporates the standard set forth in the Federal Reserve Board's 
regulations. OTS believes this approach also will promote regulatory 
uniformity by applying similar standards to foreign banks that propose 
to acquire banks and savings associations.
    The OTS also requested comment regarding the manner in which the 
OTS should implement this standard, i.e., whether the OTS should 
conduct a case-by-case analysis, or adopt some other approach, such as 
a country-by-country, or regulator-by-regulator approach. The OTS has 
decided to adopt the approach taken by the Federal Reserve Board. The 
Federal Reserve Board has stated that as the standard requires a bank-
specific determination, it will address the standard on a case-by-case 
basis.8
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    \8\The Federal Reserve Board has stated that it expects, as it 
acts on applications, to use information already reviewed regarding 
comprehensive supervision in particular countries to make judgments 
without requiring significant input from similar applicants 
chartered in the same country. See 58 FR 6348, 6349.
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II. Summary of Comments

    The OTS received two comments regarding the proposed amendments, 
one from a savings association and one from a thrift industry trade 
association. The savings association expressed general support for the 
proposed rule. The trade association commenter addressed four issues.
    First, the commenter requested that the OTS, in defining the term 
``principal shareholder,'' consider alternatives to the ten percent 
threshold, and urged the OTS to address the merits of a 25 percent 
threshold.
    The OTS continues to believe that a ten percent threshold is 
appropriate. Under the OTS acquisition of control regulations, an 
individual acquiror generally acquires control of a savings association 
or savings and loan holding company, subject to rebuttal, upon 
acquiring over ten percent of a class of voting stock and acquiring a 
``control factor.''9 Such an acquiror must submit a change of 
control notice or rebuttal of control prior to exceeding the ten 
percent threshold.10
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    \9\12 CFR 574.4 (b) and (c).
    \1\0See 12 CFR 574.3, 574.4.
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    As the OTS noted in the proposal, the statutory language does not 
prevent the OTS from considering the extent to which a ``principal 
shareholder'' or ``controlling shareholder'' is involved in the affairs 
of a savings association or savings and loan holding company. An 
underlying purpose of section 211 is to permit the OTS to consider the 
abilities of the principal shareholders of savings associations and 
savings and loan holding companies in appropriate situations, including 
situations where a principal shareholder has or could have a 
significant effect on the financial and managerial resources, future 
prospects, or safety and soundness of a savings association or savings 
and loan holding company. Thus, the OTS, in weighing the shareholder's 
experience and competence, would give significant consideration to 
whether the shareholder proposes to be a passive investor. For 
instance, a principal shareholder who holds a passive investment would 
not need the same level of experience and competence required of a 
principal shareholder who could exert significant influence upon the 
direction of the savings association or savings and loan holding 
company.
    The OTS notes that its approach is similar to the approach taken by 
the Federal Reserve Board.11
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    \1\1See 58 FR 471, 472 (January 6, 1993), and 58 FR 4073, 4074 
(January 13, 1993), in which the Federal Reserve Board defines 
``principal shareholder'' using a ten percent threshold.
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    Second, the commenter responded to the OTS's request for comment as 
to whether the OTS should seek specific assurances concerning the 
operations or activities of an acquiror or its affiliates.12 The 
commenter urged that the OTS not add requirements regarding such 
assurances to the proposed regulations. As previously noted, the OTS 
generally will not require specific assurances regarding these matters.
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    \1\2In this context, in response to the OTS's request for 
comment regarding foreign acquiror agreements, the commenter made 
general observations regarding the enforceability of foreign 
acquiror agreements.
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    Third, the commenter responded to the OTS's specific request for 
comment on the manner in which assurances should be presented to the 
OTS as to the availability of information on the operations or 
activities of certain companies. The commenter observed that it is a 
federal crime to file false statements with the OTS, and, therefore, 
that the assurances need not take the form of an affidavit or 
certification.
    The OTS has, under various circumstances, required materials to be 
submitted in the form of an affidavit or certification. As noted above, 
the OTS is not generally requiring applicants to provide specific 
assurances regarding the availability of information. In the event that 
the OTS requires additional assurances in a particular case, the OTS 
will determine what form of assurance is appropriate under the 
circumstances.
    Fourth, the commenter addressed the OTS's determination of whether 
a foreign bank is subject to ``comprehensive supervision or regulation 
on a consolidated basis by the appropriate authorities in the bank's 
home country.'' The commenter noted that the OTS has not traditionally 
made determinations regarding this issue, and urged the OTS to consider 
deferring to or otherwise using the resources of the Federal Reserve 
Board and other banking agencies. The commenter urged the OTS to take 
advantage of the expertise of other agencies in this area.
    As the OTS must act on applications under section 10(e) of the 
HOLA, it is the OTS's responsibility to determine whether the applicant 
satisfies the applicable standards. Nevertheless, the OTS intends to 
consider previous determinations made by the Federal Reserve Board (or 
other applicable Federal regulatory agency) regarding supervision or 
regulation of a foreign bank, and applicants should provide such 
information to the OTS in the application process. The OTS believes 
that consideration of determinations made by other regulatory agencies 
decreases the burden on applicants to provide information, and 
facilitates prompt processing of applications. The OTS recognizes that 
such determinations may not be available in every case, because the 
Federal Reserve Board (and the OTS) make their determinations on a 
case-by-case (rather than, e.g., a country-by-country) basis. In 
addition, as stated above, the OTS has generally incorporated the 
Federal Reserve Board's standards in this area.

III. Executive Order 12866

    The Director of the OTS has determined that this proposal does not 
constitute a ``significant regulatory action'' for purposes of 
Executive Order 12866.

IV. Regulatory Flexibility Act

    It is certified that this proposal will not have a significant 
economic impact on a substantial number of small entities. 
Consequently, a Regulatory Flexibility Analysis is not required.

List of Subjects in 12 CFR Part 574

    Administrative practice and procedure, Holding companies, Reporting 
and recordkeeping requirements, Savings associations, Securities.

    Accordingly, the Office of Thrift Supervision hereby amends part 
574, subchapter D, chapter V, title 12, Code of Federal Regulations as 
set forth below:

PART 574--[AMENDED]

    1. The authority citation for part 574 continues to read as 
follows:

    Authority: 12 U.S.C. 1467a, 1817, 1831i.

    2. Section 574.6 is amended by revising paragraph (a) to read as 
follows:


Sec. 574.6  Procedural requirements.

    (a) Form of application or notice. An application, notice, or 
informational filing required by Sec. 574.3 of this part shall be filed 
on the Application/Information Filing H-(e) ________ form. (As 
specified in the form's instructions, the blank line following the H-
(e) should be filled in by applicants with the appropriate ``1'', ``1-
S'', ``2'', ``3'', or ``4'' depending on the type of application.) The 
specific application requirements for each type of filing are indicated 
on the form. An acquiror may request confidential treatment of portions 
of an application or notice only by complying with the requirements of 
paragraph (f) of this section. In the case of an application involving 
a merger (including a merger with an interim association) the 
Application/Information Filing H-(e) ________ form shall be used in 
lieu of an application that otherwise would be required for such merger 
under Secs. 546.2, 552.13, and 563.22 of this chapter.
    (1) H-(e)1. This application type shall be filed under 
Sec. 574.3(a) of this part by a company, other than a savings and loan 
holding company, for approval to acquire direct or indirect control of 
one savings association.
    (2) H-(e)1-S. This application type shall be filed under 
Sec. 574.3(a) of this part by a savings association for approval to 
reorganize into a holding company structure, provided that the proposed 
transaction satisfies each of the conditions for automatic approval 
specified in Sec. 574.7 (a)(2) and (a)(3) of this part.
    (3) H-(e)2. (i) This application type shall be filed under 
Sec. 574.3(a) of this part:
    (A) By a savings and loan holding company for approval to acquire 
and hold separately one or more savings associations;
    (B) By any other company for approval to acquire and hold 
separately more than one savings association;
    (C) By a savings and loan holding company for approval of an 
acquisition of shares issued by a savings association in a qualified 
stock issuance pursuant to Sec. 574.8 of this part; or
    (D) By any director, officer, or any individual who owns, controls, 
or holds with power to vote (or holds proxies representing) more than 
25 percent of the voting shares of a savings and loan holding company 
for approval of an acquisition of one or more savings associations.
    (ii) The OTS may determine as a general matter or on a case-by-case 
basis not to require application information not relevant to 
transactions described in paragraphs (a)(3)(i) (C) and (D) of this 
section.
* * * * *
    3. Section 574.7 is amended by revising the section heading and 
paragraph (c) to read as follows:


Sec. 574.7  Determination by the OTS.

* * * * *
    (c) Application criteria. (1) The OTS may deny an application by a 
company or certain persons, described in paragraph (b) of this section, 
affiliated with a savings and loan holding company, to acquire control 
of a savings association, or by a savings and loan holding company to 
acquire a qualified stock issuance pursuant to Sec. 574.8 of this part:
    (i) If the OTS finds that the financial and managerial resources 
and future prospects of the acquiror and association involved would be 
detrimental to the association or the insurance risk of the SAIF or 
BIF; or
    (ii) If the acquiror fails or refuses to furnish information 
requested by the OTS.
    (2) Consideration of the managerial resources of a company or 
savings association shall include consideration of the competence, 
experience, and integrity of the officers, directors, and controlling 
shareholders of the company or association. In connection with the 
applications filed pursuant to Secs. 574.6 (a)(3) and (a)(4), and 574.8 
of this part, the OTS will also consider the convenience and needs of 
the community to be served. Moreover, the OTS shall not approve any 
proposed acquisition:
    (i) Which would result in a monopoly, or which would be in 
furtherance of any combination or conspiracy to monopolize or to 
attempt to monopolize the savings and loan business in any part of the 
United States;
    (ii) The effect of which on any section of the country may be 
substantially to lessen competition, or tend to create a monopoly, or 
which in any other manner would be in restraint of trade, unless the 
OTS finds that the anticompetitive effects of the proposed acquisition 
are clearly outweighed in the public interest by the probable effect of 
the acquisition in meeting the convenience and needs of the community 
to be served;
    (iii) If the company fails to provide adequate assurances to the 
OTS that the company will make available to the OTS such information on 
the operations or activities of the company, and any affiliate of the 
company, as the OTS determines to be appropriate to determine and 
enforce compliance with the Home Owners' Loan Act; or
    (iv) In the case of an application by a foreign bank, if the 
foreign bank is not subject to comprehensive supervision or regulation 
on a consolidated basis by the appropriate authorities in the home 
country of the foreign bank. For purposes of this paragraph (c)(2)(iv), 
``comprehensive supervision or regulation on a consolidated basis by 
the appropriate authorities'' shall be determined using the standards 
set forth at 12 CFR 211.24(c)(1)(ii).
* * * * *
    Dated: March 1, 1994.

    By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 94-13400 Filed 6-1-94; 8:45 am]
BILLING CODE 6720-01-P