[Federal Register Volume 62, Number 17 (Monday, January 27, 1997)]
[Rules and Regulations]
[Pages 3779-3781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1811]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

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

[No. 97-6]
RIN 1550-AA99


Regulatory Citations to Uniform Financial Institutions Rating 
System

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

ACTION: Final rule.

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SUMMARY: In the December 19, 1996 issue of the Federal Register, the 
Federal Financial Institutions Examination Council (FFIEC) published 
changes to the Uniform Financial Institutions Rating System (UFIRS). 
The OTS is making conforming changes to OTS regulations that cross-
reference the UFIRS, confirming that these regulations are intended to 
refer to the UFIRS as it is revised from time to time.

EFFECTIVE DATE: February 26, 1997.

FOR FURTHER INFORMATION CONTACT: William J. Magrini, Senior Project 
Manager, Supervision Policy, (202) 906-5744, or Karen Osterloh, 
Assistant Chief Counsel, Regulations and Legislation Division, (202) 
906-6639, Regulations and Legislation Division, Chief Counsel's Office, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    The UFIRS is a supervisory rating system used by the OTS and other 
agencies represented on the 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 UFIRS factors into five major areas 
(Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity). 
In the July 18, 1996 issue of the Federal Register, the FFIEC proposed 
to add a sixth component to the UFIRS system, Sensitivity to Market 
Risk. Currently, market risk is evaluated within other rating areas. 
The FFIEC also proposed to reformat and clarify the rating 
descriptions; to revise the rating system to emphasize risk management 
processes; and to make other changes. The FFIEC published a notice of 
the final text of the UFIRS in the December 19, 1996 issue of the 
Federal Register.
    Under OTS regulations, CAMEL ratings are currently used: (1) To 
define ``troubled savings association'' for purposes of OTS 
assessments, 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 ``adequately capitalized'' and ``undercapitalized'' under the 
prompt corrective action regulation, 12 CFR part 565; (6) 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, 12 CFR Part 565; and (7) 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.
    Most of these regulations currently refer to ``CAMEL'' ratings. 
Because the proposed changes to UFIRS would make these references 
obsolete, the OTS proposed revisions to its regulations on July 23, 
1996.1 The OTS proposed 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\ 61 FR 38114 (July 23, 1996).
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    Two other minor changes were also proposed. First, for the sake of 
consistency and to prevent confusion, the OTS proposed to revise each 
regulation that will cross reference UFIRS to 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 proposed 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 unless the Director 
``determines that an audit would not address the safety and soundness 
issues that caused the (low) examination rating.'' The OTS proposed to 
modify Sec. 562.4 to better reflect when OTS may waive the audit 
requirement. As proposed, a waiver may be granted if an audit ``would 
not provide further information on safety and soundness issues relevant 
to the examination rating.''

Summary of Comments and Description of the Final Rule

    The OTS received one comment on the proposed rule changes. This 
commenter suggested that the OTS delay changing references to a rating 
system until the FFIEC determines whether the existing rating system 
should be modified and designates a new acronym. The commenter 
supported all other clarifying changes to the OTS rules.
    As noted above, FFIEC has finalized its changes to the UFIRS 
system. In any event, under the OTS proposal, the regulations would 
refer generally to the UFIRS as it may exist from time to time, or to a 
comparable rating system that the

[[Page 3780]]

OTS may adopt in lieu of UFIRS. The proposed rule did not refer 
specifically to the then-existing UFIRS system (i.e., CAMEL) or to the 
proposed rating system then under consideration by FFIEC (i.e., 
CAMELS). By referring to UFIRS, rather than acronyms adopted from time 
to time to describe UFIRS, the proposed rule would obviate the need to 
make regulatory amendments if the FFIEC or the OTS proposes changes to 
the rating system in the future.
    The proposed rule is therefore adopted without substantial 
modifications. 2 Since the publication of the proposed regulation, 
the OTS has removed former Sec. 563.170(c)(10) as part of its Lending 
and Investments regulation, 3 eliminating the need for the 
proposed UFIRS change to that section.
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    \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 (December 5, 1994). When that regulation is 
finalized, it will also include appropriate references to the 
revised UFIRS system.
    \3\ 61 FR 50951 (September 30, 1996).
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III. Paperwork Reduction Act

    Reporting and recordkeeping requirements in this final rule are 
currently found in 12 CFR 563.41(e) and 574.9. These requirements are 
addressed in the following OMB approved packages: Control Nos. 1550-
0078 and 1550-0047. The reporting burden under this package remains 
unchanged under the rule.

IV. Executive Order 12866

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

V. Unfunded Mandates Act of 1995

    The OTS has determined that the requirements of this final rule 
will not result in expenditures by state, local, or tribal governments 
or by the private sector of more than $100 million. Accordingly, a 
budgetary impact statement is not required under section 202 of the 
Unfunded Mandates Act of 1995.

VI. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this final 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 rule will merely reduce confusion by updating the 
terminology used in the OTS regulations to reflect the current rating 
system.

VII. Effective Date

    Section 302 of CDRIA delays the effective date of regulations 
promulgated by the Federal banking agencies that impose additional 
reporting, disclosure, or new requirements to the first day of the 
first calendar quarter following publication of the final rule. OTS 
believes that CDRIA does not apply to this final rule because it 
imposes no new burden. The revisions 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.

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, Conflicts of Interest, Corporate 
Opportunity, Crime, Currency, Investments, 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.

Authority and Issuance

    Accordingly, the Office of Thrift Supervision amends 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 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.
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    \1\ Copies are available at the address specified in Sec. 516.1 
of this part.
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* * * * *

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) * * *

[[Page 3781]]

    (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 at 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.

    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;

* * * * *

PART 565--PROMPT CORRECTIVE ACTION

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

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

    10. 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) of this 
part, that the savings association received 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,1 or an equivalent rating under a 
comparable rating system adopted by the OTS; and has not corrected the 
conditions that served as the basis for the less than satisfactory 
rating. 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.
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    \1\ Copies are available at the address specified in Sec. 516.1 
of this chapter.
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PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS

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

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

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


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: January 15, 1997.

    By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-1811 Filed 1-24-97; 8:45 am]
BILLING CODE 6720-01-P