[Federal Register Volume 60, Number 59 (Tuesday, March 28, 1995)]
[Rules and Regulations]
[Pages 15861-15864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7589]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563
[No. 95-55]
RIN 1550-AA78
Loans to one Borrower
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Office of Thrift Supervision (OTS) is amending its lending
limits regulation, also known as the loans to one borrower (LTOB) rule,
to reflect recent changes to the Office of the Comptroller of the
Currency's (OCC's) lending limits regulation. Section 5(u) of the Home
Owners' Loan Act requires that savings association lending limits
parallel those applicable to national banks. This interim final rule
amends OTS's LTOB regulation so that thrifts, like national banks, will
use regulatory capital as the starting point for determining
``unimpaired capital and unimpaired surplus'' for LTOB purposes,
removing the need for a separate calculation. It also removes other
outdated or redundant provisions.
DATES: The interim final rule is effective March 28, 1995. Written
comments on this interim final rule must be received on or before April
27, 1995.
ADDRESSES: Send comments to Director, Information Services Division,
Office of Thrift Supervision, 1700 G Street, NW., Washington, D.C.
20552, Attention Docket No. 95-55. These submissions may be hand-
delivered to 1700 G Street, NW., from 9 a.m. to 5 p.m. on business
days; they may be sent by facsimile transmission to FAX Number (202)
906-7755. Comments will be available for inspection at 1700 G Street,
NW., from 1 p.m. until 4 p.m. on business days. Visitors will be
escorted to and from the Public Reading Room at established intervals.
FOR FURTHER INFORMATION CONTACT: William J. Magrini, Project Manager,
Policy, (202) 906-5744; Valerie J. Lithotomos, Counsel (Banking and
Finance), (202) 906-6439; Deborah Dakin, Assistant Chief Counsel, (202)
906-6445, Regulations and Legislation Division, Chief Counsel's Office,
Office of Thrift Supervision, 1700 G Street, NW., Washington DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory and Regulatory Ties Between OCC and OTS Lending Limits
Both savings associations and national banks have statutory limits
placed on the amount an institution can lend to one borrower. Since
1989, Section 5(u) of the Home Owners' Loan Act (HOLA) has provided
that ``Section 5200 of the Revised Statutes applies to savings
associations in the same manner and to the same extent as it applies to
[[Page 15862]] national banks.''1 Section 5200 establishes lending
limits, measured as a percentage of an institution's capital and
surplus, for national banks.2 The OCC's implementing regulations
appear at 12 CFR part 32. The OTS's LTOB rule references the lending
limits set forth in the OCC rule and most lending limit
definitions.3 Therefore, as OCC amends those limits and
definitions in Part 32, the new limits and definitions apply directly
to savings associations, without further OTS action. However, section
563.93(b)(11) of the OTS LTOB rule currently defines the term
``unimpaired capital and unimpaired surplus'' by reference to another
OCC regulation, 12 CFR 3.100. Any OCC changes to the use of that
definition for lending limit purposes would require separate OTS
regulatory action to clarify what definition thrifts should use in
calculating lending limits.
\1\ 12 U.S.C. 1464(u)(1).
\2\ 12 U.S.C. 84.
\3\ 12 CFR 563.93(b), (c)(1994).
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B. Recent OCC Revisions to Lending Limits
As part of the OCC's Regulation Review Program, the OCC has
recently published final revisions to the national bank lending limits
regulation.4 OCC's primary purpose in revising this regulation was
to eliminate inefficient and unduly costly regulatory requirements for
national banks and thereby better focus the lending limits rule on
areas of significant safety and soundness concern.5 The regulation
also incorporates interpretations OCC has developed over the years.
These changes will apply to savings associations upon the OCC's rule
becoming effective.
\4\See 60 FR 8526 (February 15, 1995).
\5\Id. at 8527.
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One of the most important changes OCC's final rule makes is
redefining ``capital and surplus.'' Before amendment, OCC's lending
limit rule used a definition of ``capital and surplus'' at 12 CFR 3.100
that is calculated separately from the definitions of Tier 1 and Tier 2
capital used for determining capital adequacy. In its recent
rulemaking, the OCC redefined ``capital and surplus'' as Tier 1 and
Tier 2 capital included in calculating a bank's risk-based capital,
plus the balance of its allowances for loan and lease losses (ALLL) not
included in its Tier 2 capital. Thus, national banks no longer need to
perform totally different calculations for calculating lending limits
and capital adequacy, but can use the same Report of Bank Condition
(Call Report) line items to calculate both.
The OCC's new definition included the balance of ALLL not already
included in Tier 2 capital because the full amount of ALLL had long
been included under section 3100. The preamble to the proposal that
formed the basis for the recent final rule stated that ``The OCC
believes it is inadvisable to constrict the lending limit base at a
time when concerns about credit availability are widespread, and
believes this proposed change will not impact credit
availability.''6
\6\ 59 FR 6593, 6595 (February 11, 1994).
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C. Comparable OTS Revisions to Its Lending Limits Regulation
The OTS, in making conforming changes to its LTOB regulation,
enables savings associations to realize a similar reduction in
regulatory burden. Extensive revision is not necessary because nearly
all of the OCC changes will become effective for savings associations
by virtue of OTS's referencing of most of the OCC lending limits
regulation. However, a few small changes are required.
First, section 563.93(c) is being amended today to remove an
obsolete cross-reference to former section 32.7, which OCC removed.
Second, the OCC has changed its lending limits rule to allow
national banks to calculate their lending limits quarterly, rather than
every time a new loan is made. The OTS LTOB rule already incorporates
periodic calculations at section 563.93(f)(1). That section is being
modified only to remove an obsolete parenthetical reference to
``monthly or quarterly'' calculations.
Third, as discussed above, section 563.93(b)'s definition of
``unimpaired capital and unimpaired surplus'' currently incorporates 12
CFR 3.100. The OCC's lending limits regulation no longer refers to that
definition but substitutes a definition based on the components
national banks already use in calculating capital for capital adequacy
purposes. This has created confusion about how this change applies to
savings association calculation of ``unimpaired capital and unimpaired
surplus.'' OTS also wants savings associations to have their regulatory
calculation burden reduced as much as possible. Because of the
structure of the OTS capital regulation, however, an extra step is
required to reach the same result as the OCC revision.
For savings associations, the components calculated on their Thrift
Financial Report for capital adequacy purposes are core and
supplementary capital. These are substantially similar to Tier 1 and
Tier 2 capital for banks. However, in calculating core capital for
capital adequacy purposes, thrifts may not include investments in
certain subsidiaries, commonly known as ``nonincludable subsidiaries.''
This requirement, imposed pursuant to section 5(t) of the HOLA, is
designed to ensure that a thrift with investments in such subsidiaries
holds enough capital to fully protect it against any risks such
investments might pose. An ``includable subsidiary'' is one engaged
solely in activities permissible for a national bank, with a few
exceptions not relevant here.7 A national bank may have
subsidiaries, such as service corporations, that engage in activities
not authorized for the bank itself.8 Thus, a national bank may
have a subsidiary, which, if held by a savings association, would be
considered a ``nonincludable subsidiary'' and deducted in calculating
core capital pursuant to section 5(t).
\7\ 12 CFR 567.1(l) (1994).
\8\ 12 U.S.C. 1864(f) (bank service corporation may engage in
any activity other than deposit taking permitted for a bank holding
company, notwithstanding section 1864(d), which otherwise limits the
activities of a bank service corporation in which a national bank is
a shareholder to services authorized for a national bank).
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The section 5(t) deduction from capital has never affected savings
associations' lending limit calculations under section 5(u). Section
5(u) does not require such a deduction in calculating capital and
surplus for lending limits nor has the OCC required such a deduction.
Under both 12 CFR 3.100 and new section 32.2(b), investments in
subsidiaries are not deducted in calculating capital. Using the OTS
section 5(t) capital definitions could thus cause a savings association
with non-includable subsidiaries to have a lower lending limit than it
currently has or would have if it were a national bank with the
identical subsidiaries. Such a credit-limiting result would not be
driven by safety or soundness concerns on the part of either the OTS or
the OCC, but merely by a difference in capital components not relevant
for lending limit purposes.
If section 3.100 still applied, or if OTS were to reference section
32.2(b), a savings association would not be required to deduct any of
its investments in any of its subsidiaries in calculating capital and
surplus. However, this approach would not allow savings associations to
realize the benefit of being able to use the same basic components used
for capital adequacy purposes in calculating lending limits. Unlike
national banks, they would continue to have to [[Page 15863]] complete
a complex worksheet in order to determine their lending limit base of
capital and surplus.
II. Description of Interim Final Rule
The OTS has therefore determined that unimpaired capital and
unimpaired surplus is best defined as the sum of a savings
association's core and supplementary capital included in total capital
under 12 CFR part 567, plus the balance of its general valuation
allowances for loan and lease losses or ALLL not included in its
supplementary capital under part 567, plus its investments in
subsidiaries that are not included in calculating core capital under
part 567. Because the net worth certificates currently specifically
included in section 563.93(b)(11) are included in supplementary
capital, the new regulation removes this reference.
This definition neither raises nor lowers savings associations'
lending limits. It will make it substantially easier for all savings
associations to calculate their loan-to-one-borrower limitations
because all of the components are already reported on the Thrift
Financial Report. This definition eliminates the requirement that a
savings association prepare a separate and complex worksheet to
calculate its LTOB limit without itself raising or lowering savings
associations' lending limits. Just as OCC found it appropriate to
continue to include the full balance of the ALLL in its new definition
of capital and surplus in order to avoid a credit-limiting result, so
the OTS believes it is appropriate to continue to include both the full
balance of loss allowances and savings association investments in
subsidiaries in calculating unimpaired capital and unimpaired surplus
to avoid a credit-limiting result.
The OTS is also removing an obsolete definition of ``qualifying
association'' and an outdated provision in the Appendix to section
563.93 and correcting cross-references.
III. Need for an Interim Final Rule
The OTS believes that an immediately effective interim final rule
is appropriate and necessary because of how closely the OTS lending
limits regulation is tied to the OCC lending limits regulation. The
OCC's final rule is effective March 17, 1995, 30 days after its
publication in the Federal Register.9
\9\ 60 FR 8526 (February 15, 1995).
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The OTS's interim final rule will eliminate any potential confusion
for savings associations that may result from the OCC's new lending
limit requirements; it will also eliminate any possible lending limit
disparities savings associations may have as compared to national
banks. Additionally, immediate application of the OTS interim final
rule will relieve unnecessary regulatory burdens and provide savings
associations with the increased flexibility that national banks have
been accorded by the OCC's final rule.
Section 553 of the Administrative Procedure Act10 requires
separate findings for good cause, first, that notice and comment are
impracticable, unnecessary, or contrary to the public interest when an
agency determines to issue a rule without prior notice and comment and
second, when it determines to make a rule effective without a 30-day
delay. Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 199411 requires that a regulation that imposes
new requirements take effect on the first day of the quarter following
publication of the final rule. That section provides, however, that an
agency may determine that the rule should take effect earlier upon a
finding of good cause.
\10\ 5 U.S.C. 553.
\11\ 12 U.S.C. 4802.
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Under existing section 563.93, savings associations are already
bound by the lending limits of the new OCC rule. Allowing 12 CFR
563.93(b)'s outdated cross-reference to 12 CFR 3.100 to remain in place
during notice and comment rulemaking and a delayed effective date could
lead to considerable confusion and result in savings associations
performing unnecessary calculations. Additionally, the OTS believes (as
does the OCC with respect to its rule) that this rule relieves burden
by eliminating inefficient and unduly costly regulatory requirements
and better focusing the lending limit rules on areas of significant
safety and soundness concern.12 For these reasons, the OTS
believes there is good cause to make this rule effective immediately
upon publication.
\12\See 60 FR at 8531.
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IV. Comment Solicitation
Because OTS application of the OCC's new limits is statutorily
mandated, this interim final rulemaking does not seek comments on the
substance of the OCC's revisions that are referenced in the OTS LTOB
rule. However, interested parties are invited to submit written
comments on the interim final rule as to the amendments adopted here. A
30-day comment period is provided.
V. Regulatory Flexibility Act
This regulation simplifies lending limit calculations for all
savings associations. Other alternatives might result in some smaller
savings associations having lower lending limits.
VI. Executive Order 12866
It has been determined that this document is not a significant
regulatory action. It will benefit savings associations by simplifying
their lending limit calculations. It is not expected to raise or lower
savings association lending limits themselves.
List of Subjects in 12 CFR Part 563
Accounting, Advertising, Crime, Currency, Flood insurance,
Investments, Reporting and recordkeeping requirements, Savings
associations, Securities, Surety bonds.
Accordingly, the Office of Thrift Supervision hereby amends part
563, chapter V, title 12 of the Code of Federal Regulations as set
forth below.
SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS
PART 563--OPERATIONS
1. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1828, 3806; 42 U.S.C. 4106.
2. Section 563.93 is amended by:
a. Removing the phrase ``See 2 CFR part 32.'' from the introductory
text of paragraph (b) and by adding in lieu thereof the phrase ``See 12
CFR Part 32.'';
b. revising paragraphs (b)(6) and (b)(11);
c. removing the phrase ``12 CFR 541.20'' from paragraph (b)(9) and
by adding in lieu thereof the phrase ``12 CFR 541.25'';
d. removing the phrase ``, but not including 12 CFR 32.7'' from the
introductory text of paragraph (c);
e. removing the phrase ``paragraph (b)(11)'' from paragraph
(d)(3)(ii) and by adding in lieu thereof the phrase ``paragraph
(b)(6)'';
f. removing the phrase ``(monthly or quarterly)'' from paragraph
(f)(1); and
g. in the appendix to Sec. 563.93, by removing section 563.93-102.
Sec. 563.93 Lending limitations.
* * * * *
(b) * * *
(6) The term fully phased-in capital standards means the capital
standards that will be in effect at the expiration of
[[Page 15864]] all statutory and regulatory phase-in requirements set
forth in 12 U.S.C. 1464(t) and 12 CFR 567.2, 567.5, and 567.9.
* * * * *
(11) Unimpaired capital and unimpaired surplus means--(i) A savings
association's core capital and supplementary capital included in its
total capital under part 567 of this chapter; plus
(ii) The balance of a savings association's general valuation
allowances for loan and lease losses not included in supplementary
capital under part 567 of this chapter; plus
(iii) The amount of a savings association's loans to, investments
in, and advances to subsidiaries not included in calculating core
capital under part 567 of this chapter.
* * * * *
Dated: March 14, 1995.
By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 95-7589 Filed 3-27-95; 8:45 am]
BILLING CODE 6720-01-P