[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outdated or redundant provisions.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