[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Proposed Rules]
[Pages 38114-38117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18565]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 502, 516, 562, 563, 565, 574

[No. 96-69]
RIN 1550-AA99


Regulatory Citations to Uniform Financial Institutions Rating 
System

AGENCY: Office of Thrift Supervision, Treasury (OTS).

ACTION: Notice of proposed rulemaking.

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SUMMARY: In a related document published in the July 18, 1996 issue of 
the Federal Register, the Federal Financial Institutions Examination 
Council (FFIEC) requested comment on proposed changes to the Uniform 
Financial Institutions Rating System (UFIRS). In this document, the OTS 
is proposing to make conforming changes to its regulations that cross-
reference the UFIRS. The effect of these changes will be to confirm 
that OTS regulations are intended to refer to the UFIRS as revised from 
time to time.

DATES: Comments must be received on or before September 23, 1996.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records 
Management and Information Policy, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552, Attention Docket No. 96-69. These 
submissions may also be hand-delivered to 1700 G Street, NW., from 9 
a.m. to 5 p.m. on business days or may be sent by facsimile 
transmission to FAX Number (202) 906-7755. Comments will be available 
for inspection at 1700 G Street, NW., from 9 a.m. until 4 p.m. on 
business days.

FOR FURTHER INFORMATION CONTACT: William J. Magrini, Senior Project 
Manager, Supervision Policy, (202) 906-5744, Karen Osterloh, Counsel 
(Banking & Finance), Regulations and Legislation Division, (202) 906-
6639 or 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. Proposal

    The UFIRS is a supervisory rating system used by the OTS and other 
agencies represented on FFIEC to evaluate the soundness of depository 
institutions on a uniform basis. The agencies have implemented the 
UFIRS through CAMEL ratings. Under CAMEL, the agencies have organized 
the relevant

[[Page 38115]]

UFIRS factors into five major areas (Capital Adequacy, Asset Quality, 
Management, Earnings, and Liquidity). FFIEC has proposed changes to the 
UFIRS system that: reformat and clarify the rating descriptions; add a 
sixth rating area addressing sensitivity to market risk; emphasize risk 
management processes; and make other changes. Currently, market risk is 
evaluated within other rating areas.
    Under current OTS regulations, ratings are used: (1) To define 
``troubled savings association'' for purposes of the OTS assessment 
system, 12 CFR 502.1; (2) to determine if a savings association is 
eligible for expedited or standard treatment under the application 
processing guidelines, 12 CFR Part 516; (3) to determine when an 
independent audit is required for safety and soundness purposes and to 
determine whether the Director may waive this independent audit 
requirement, 12 CFR 562.4; (4) to determine when the OTS may require a 
savings association and its subsidiaries to provide notification before 
entering into transactions with affiliates, 12 CFR 563.41; (5) to 
define ``eligible savings association'' for the purposes of exempting 
loans to small and medium size businesses and farms from recordkeeping 
requirements, 12 CFR 563.170(c)(10); 1 (6) to define ``adequately 
capitalized'' and ``undercapitalized'' under the prompt corrective 
action regulation, 12 CFR Part 565; (7) to determine whether a savings 
association should be reclassified based on supervisory criteria other 
than capital for the purposes of the prompt corrective action 
regulation; and (8) to define a savings association in ``troubled 
condition'' under rules requiring prior notice of the addition of any 
individual to the board of directors or the employment of any 
individual as senior executive officer, 12 CFR 574.9.2 Most of 
these regulations currently refer to ``CAMEL'' ratings. Under the 
proposed changes to UFIRS, the ``CAMEL'' acronym will become obsolete. 
Accordingly, the OTS is proposing to revise its regulations to refer 
more generally to the UFIRS as it may exist from time to time or to any 
comparable rating system that the OTS may adopt in lieu of UFIRS.
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    \1\ In January 17, 1996, the OTS proposed to substantially 
revise 12 CFR 563.170(c) in a way that would remove paragraph 
(c)(10). 61 FR 1162 (Jan. 17, 1996). If that proposed amendment is 
adopted, it will supersede the amendment proposed here.
    \2\ The OTS previously proposed a revision to the capital 
distributions regulation at 12 CFR 563.134 that would define 
``troubled condition'' by reference to the examination rating 
system. 59 FR 62356 (Dec. 5, 1994). When that regulation is 
finalized, it will also include appropriate references to the 
revised UFIRS system.
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    Two other minor changes are also being proposed. First, for the 
sake of consistency and to prevent confusion, each regulation cross 
referencing UFIRS will indicate that the OTS will use the most recent 
rating (as determined either on-site or off-site by the most recent 
examination) of which the savings association has been notified in 
writing. Currently, some of the cited regulations include this 
provision, while others do not. Additionally, the OTS proposes to 
clarify 12 CFR 562.4. Currently, that regulation requires, inter alia, 
all institutions receiving a rating of 3, 4 or 5 to obtain an 
independent audit. However, the Director of the OTS is authorized to 
waive the independent audit requirement for these institutions, if the 
Director ``determines that an audit would not address the safety and 
soundness issues that caused the [low] examination rating.'' To be more 
precise, the OTS proposes to state that a waiver may be granted if an 
audit ``would not provide further information on safety and soundness 
issues relevant to the examination rating.''
    The OTS request comments on all aspects of this aspects of this 
proposal.

II. Reporting and Recordkeeping Requirements

    Reporting and recordkeeping requirements in this proposed rule are 
currently found in 12 CFR 563.41(e), 563.170(c), and 574.9. These 
requirements are addressed in the following OMB approved packages: 
Control Nos. 1550-0011, 1550-0083, and 1550-0032. The reporting burden 
under these packages remains unchanged under the rule.

III. Executive Order 12866

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

IV. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule includes a 
federal mandate that may result in expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. As discussed in the preamble, 
this proposed rule incorporates appropriate citations to the revised 
Uniform Financial Institutions Rating System proposed by the Federal 
Financial Institutions Examination Council. The revisions will merely 
reduce confusion by updating the terminology used in the OTS 
regulations to reflect the current rating system. The OTS has 
determined that the proposed rule will not result in expenditures by 
state, local, or tribal governments or by the private sector of $100 
million or more. Accordingly, a budgetary impact statement is not 
required under section 202 of the Unfunded Mandates Act of 1995.

V. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. The OTS does 
not anticipate that the application of the revised UFIRS rating system 
will result in a change in composite ratings assigned to depository 
institutions. Today's proposed rule will merely reduce confusion by 
updating the terminology used in the OTS regulations to reflect the 
current rating system.

List of Subjects

12 CFR Part 502

    Assessments, Federal home loan banks, Reporting and recordkeeping 
requirements, Savings associations.

12 CFR Part 516

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Savings associations.

12 CFR Part 562

    Accounting, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Flood insurance, 
Investments, Mortgages, Reporting and recordkeeping requirements, 
Savings associations, Securities, Surety bonds.

12 CFR Part 565

    Administrative practice and procedure, Capital, Savings 
associations.

12 CFR Part 574

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

[[Page 38116]]

Authority and Issuance

    Accordingly, the Office of Thrift Supervision proposes to amend 
chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 502--ASSESSMENTS

    1. The authority citation for part 502 is revised to read as 
follows:

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

    2. Section 502.1 is amended by revising paragraph (f) to read as 
follows:


Sec. 502.1  Asset-based assessments.

* * * * *
    (f) Definition. For purposes of this section only, a troubled 
savings association shall be defined as a savings association with a 
composite rating of 4 or 5, as defined in Sec. 516.3(c) of this 
chapter. A troubled savings institution also includes a savings 
association in conservatorship so long as the association requires 
increased supervision and examination by the Office.
* * * * *

PART 516--APPLICATION PROCESSING GUIDELINES AND PROCEDURES

    3. The authority citation for part 516 continues to read as 
follows:

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

    4. Section 516.3 is amended by revising paragraphs (a)(1)(i), 
(b)(1)(i), and (c) to read as follows:


Sec. 516.3  Definitions.

    (a) * * *
    (1) * * *
    (i) The savings association has a composite rating of 1 or 2;
* * * * *
    (b) * * *
    (1) * * *
    (i) The savings association has a composite rating of 3, 4 or 5;
* * * * *
    (c) Composite rating. Composite rating means the composite 
numerical rating assigned to the savings association by the OTS under 
the Uniform Financial Institutions Rating System (For availability, see 
Sec. 516.1.) or an equivalent rating under a comparable rating system 
adopted by the OTS, and refers to the most recent rating (as determined 
either on-site or off-site by the most recent examination) of which the 
savings association has been notified in writing.
* * * * *

PART 562--REGULATORY REPORTING STANDARDS

    5. The authority citation for part 562 continues to read as 
follows:

    Authority: 12 U.S.C. 1463.

    6. Section 562.4 is amended by revising paragraphs (b)(1) and (c 
)(2) to read as follows:


Sec. 562.4  Audit of savings associations and savings association 
holding companies.

* * * * *
    (b) * * *
    (1) If a savings association has received a composite rating of 3, 
4 or 5, as defined at Sec. 516.3(c) of this chapter; or
* * * * *
    (c ) * * *
    (2) The Director may waive the independent audit requirement 
described in paragraph (b)(1) of this section, if the Director 
determines that an audit would not provide further information on 
safety and soundness issues relevant to the examination rating.
* * * * *

PART 563--OPERATIONS

    7. 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.

    8. Section 563.41 is amended by revising paragraph (e)(2)(ii)(A) to 
read as follows:


Sec. 563.41  Loans and other transactions with affiliates and 
subsidiaries.

* * * * *
    (e) * * *
    (2) * * *
    (ii) * * *
    (A) Has a composite rating of 4 or 5, as defined in Sec. 516.3(c) 
of this chapter;
* * * * *
    9. Section 563.170 is amended by revising paragraph (c)(10)(i)(B) 
to read as follows:


Sec. 563.170  Examinations and audits; appraisals; establishment and 
maintenance of records.

* * * * *
    (c) * * *
    (10) * * *
    (i) * * *
    (B) Eligible savings association means any savings association that 
is well- or adequately capitalized, as defined in part 565 of this 
chapter and was either:
    (1) Assigned a composite rating of 1 or 2, as defined in 
Sec. 516.3(c) of this chapter; or
    (2) Assigned a composite rating of 3, as defined in Sec. 516.3(c) 
of this chapter, and has obtained written permission from the Regional 
Director to employ this exemption.
* * * * *

PART 565--PROMPT CORRECTIVE ACTION

    10. The authority citation for part 565 continues to read as 
follows:

    Authority: 12 U.S.C. 1831o.

    11. Section 565.4 is amended by revising paragraphs (b)(2)(iii)(B), 
(b)(3)(iii)(B), and (c)(2) to read as follows:


Sec. 565.4  Capital measures and capital category definitions.

* * * * *
    (b) * * *
    (2) * * *
    (iii) * * *
    (B) A leverage ratio of 3.0 percent or greater if the savings 
association is assigned a composite rating of 1, as defined in 
Sec. 516.3(c) of this chapter; and
* * * * *
    (3) * * *
    (iii)(A) * * *
    (B) Has a leverage ratio that is less than 3.0 percent if the 
savings association is assigned a composite rating of 1, as defined in 
Sec. 516.3(c) of this chapter.
* * * * *
    (c) * * *
    (2) Unsafe or unsound practice. The OTS has determined, after 
notice and an opportunity for hearing pursuant to Sec. 565.8(a), that 
the savings association received, and has not corrected, a less-than-
satisfactory rating for any rating category (other than in a rating 
category specifically addressing capital adequacy) under the Uniform 
Financial Institutions Rating System (For availability, see Sec. 516.1 
of this chapter.), or an equivalent rating under a comparable rating 
system adopted by the OTS. Ratings under this paragraph (c)(2) refer to 
the most recent ratings (as determined either on-site or off-site by 
the most recent examination) of which the savings association has been 
notified in writing.

PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS

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

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

    13. Section 574.9 is amended by revising paragraph (a)(5)(i)(A) to 
read as follows:

[[Page 38117]]

Sec. 574.9  Additions of directors and employment of senior executive 
officers of savings associations and savings and loan holding 
companies.

    (a) * * *
    (5) * * *
    (i) * * *
    (A) Has a composite rating of 4 or 5, as defined in Sec. 516.3(c) 
of this chapter;
* * * * *
    Dated: July 9, 1996.

    By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 96-18565 Filed 7-22-96; 8:45 am]
BILLING CODE 6720-01-P