[Federal Register Volume 62, Number 68 (Wednesday, April 9, 1997)]
[Proposed Rules]
[Pages 17115-17117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8952]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 543

[No. 97-31]
RIN 1550-AB06


Incorporation, Organization, and Conversion of Federal Mutual 
Associations

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to amend its 
regulations governing conversions to federal mutual savings 
associations to permit the direct conversion of all types of mutual 
depository institutions into federal mutual savings associations. This 
proposal would simplify the conversion process.

DATES: Comments must be received on or before June 9, 1997.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records 
Management and Information Policy, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, D.C. 20552, Attention Docket No, 97-31. These 
submissions may be hand-delivered to 1700 G Street, NW., from 9:00 a.m. 
to 5:00 p.m. on business days; they may be sent by facsimile 
transmission to FAX Number (202) 906-7755; or they may be sent by e-
mail: [email protected]. Those commenting by e-mail should 
include their name and telephone number. Comments will be available for 
inspection at 1700 G Street, NW., from 9:00 a.m. until 4:00 p.m. on 
business days.

FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Senior Analyst, 
Corporate Activities Division (202/906-6960); David A. Permut, Counsel 
(Banking and Finance) (202/906-7505) or Kevin A. Corcoran, Assistant 
Chief Counsel for Business Transactions (202/906-6962), Business 
Transactions Division, Chief Counsel's Office, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Various types of depository institutions have expressed interest in 
converting to a federal savings association charter.1 The OTS has

[[Page 17116]]

received, for example, inquiries from credit unions and commercial 
banks on the process of converting to a federal thrift charter. 
Depository institutions may determine that because their businesses 
focus on housing or consumer credit needs, these operations may be 
conducted most efficiently through a federal thrift charter. The Home 
Owners' Loan Act (HOLA) 2 sets forth the purposes of a federal 
thrift charter as providing for the deposit of funds and for the 
extension of credit for homes and other goods and services.3
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    \1\ Section 2(5) of the Home Owners' Loan Act defines ``federal 
savings associations'' to include federal savings associations and 
federal savings banks. Accordingly, references herein to federal 
savings associations include federal savings banks.
    \2\ 12 U.S.C. 1461 et seq.
    \3\ 12 U.S.C. 1464.
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    The OTS has long taken the position that depository institutions 
should be free to operate under whatever charter best suits their 
business needs, consistent with safety and soundness. To that end, the 
OTS has granted federal savings associations explicit authority to 
convert directly to a bank charter,4 and has promulgated 
regulations enabling stock depository institutions to convert directly 
to a federal stock savings association charter.5 The purpose of 
today's proposed regulation is to permit mutual depository institutions 
to convert directly to a savings association charter.
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    \4\ 12 CFR 552.2-7.
    \5\ 12 CFR 552.2-6.
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II. Current Law

    Sections 5(i) and 5(o) of the HOLA provide for direct conversions 
of, respectively, state savings associations and state-chartered 
savings banks that are Bank Insurance Fund members to a federal 
charter.6 Separately, pursuant to Section 5(a) of the HOLA, the 
OTS has promulgated a regulation permitting the direct conversion to a 
federal stock savings association charter of any stock depository 
institution that is, or is eligible to become, a member of a Federal 
Home Loan Bank.7
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    \6\ 12 U.S.C. 1464 (i) and (o).
    \7\ 12 CFR 552.2-6.
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    Depository institutions in mutual or stock form also may convert to 
a federal association charter indirectly, by obtaining a new federal 
savings association charter, and causing the existing institution to 
combine with the new federal association in a merger or purchase and 
assumption transaction.8 This method, however, is more burdensome 
to the applicant because it involves several different regulatory 
approvals.
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    \8\ The authority for federal mutual and stock associations to 
engage in these types of transactions is set forth at 12 CFR 546.2 
and 552.13, respectively.
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    Section 5(a) is a broad grant of authority to the Director of the 
OTS, encompassing (among other things) approval of direct conversions 
of mutual depository institutions to a federal mutual charter. Section 
5(a) authorizes the Director of the OTS, under such regulations as the 
Director may prescribe, to provide for the organization, examination, 
operation and regulation of federal savings associations. Section 5(a) 
of the HOLA gives the OTS plenary authority to provide for the 
organization and regulation of federal savings associations, consistent 
with the ``best practices'' of thrift institutions in the United States 
and for the purpose of encouraging such institutions to provide credit 
for housing safely and soundly.9
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    \9\ 12 U.S.C. 1464(a).
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    In addition, recent revisions to HOLA provisions governing 
permissible investments (Section 5(c)), and to its definition of 
``qualified thrift investment'' (Section 10(m)) reflect a congressional 
intent for federal savings associations and savings banks to have a 
significant role in many kinds of consumer finance, as well as in home 
mortgage lending.10 The OTS believes that non-thrift depository 
institutions that conclude that their operations in providing credit 
for housing and other consumer-related purposes make the federal 
savings association charter the optimal charter should be able to 
convert to that charter without encountering unnecessary regulatory 
burdens.
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    \10\ See Economic Growth and Regulatory Paperwork Reduction Act 
of 1996, Pub. L. 104-208, section 2303(a)-(e), (g), 110 Stat. 3009 
(codified in portions of 12 U.S.C. 1464(b), (c), 1467a(m)).
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    The OTS already has amended its regulations to facilitate the 
direct conversion of stock depository institutions to federal stock 
savings associations.11 The OTS has now determined, pursuant to 
its Section 5(a) authority, to amend its regulations to facilitate 
direct conversions of mutual depository institutions to a federal 
mutual thrift charter.
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    \11\ 12 CFR 552.2-6.
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III. Proposed Amendments

    The proposed rule would revise 12 CFR 543.8 and 543.9 to permit any 
type of mutual depository institution to convert to a federal mutual 
savings association. The proposed rule would apply all existing 
regulatory requirements currently applicable to direct conversions by 
state mutual associations and savings banks to this expanded class of 
applicants and would revise Sections 543.8 and 543.9 as described 
below. Proposed Section 543.8 would permit conversion subject to three 
requirements.
    First, the institution must, upon consummation of the conversion, 
have deposits insured by the Federal Deposit Insurance Corporation 
(``FDIC''). See also Sec. 543.9(c)(3).
    Second, the depository institution, in accomplishing the 
conversion, must comply with all applicable state and federal statutes 
and regulations, and OTS policies, and obtain all necessary regulatory 
and member approvals. This provision requires, among other things, that 
the converting depository institution have authority to convert to a 
federal association under the statutes and regulations applicable to 
the converting institution, and the conversion be approved by a vote of 
its members pursuant to the laws applicable to the converting 
institution.
    Third, depository institutions converting to a federal mutual 
association charter must conform with the investment limitations of 
Section 5(c) of the HOLA 12 within a time frame prescribed by the 
OTS. Section 552.2-6 of the OTS regulations already contains this 
requirement for federal stock associations.
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    \12\ 12 U.S.C. 1464(c).
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    The proposal also would revise Section 543.9(a) to set forth the 
filing requirements. Section 543.9(c) would be revised to eliminate the 
statement that the OTS will not consider the application of a 
converting institution not insured by the FDIC until the FDIC completes 
an eligibility examination. The OTS does not believe it is necessary to 
delay consideration of an application until the eligibility examination 
has been completed. Moreover, the OTS has the ability to deem a 
conversion application incomplete, if processing of the application 
hinges on the final results of the eligibility examination, under the 
application processing procedures at Section 516.2.
    In addition, Section 543.9(c) would be revised to provide 
explicitly that the OTS will consider applications to convert to a 
federal mutual charter under the standards set forth at section 5(e) of 
the HOLA, as well as Section 543.2(g). Moreover the revised regulation 
would explicitly state that converting institutions that have been in 
existence as depository institutions for less than three years will be 
subject to all approval criteria and other requirements applicable to 
de novo federal associations.13
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    \13\ See 12 CFR 571.6.

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[[Page 17117]]

IV. Solicitation of Comments

    The OTS invites public comment on all aspects of the proposal.

V. 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.

VI. Regulatory Flexibility Act Analysis

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this proposal, which will reduce regulatory burdens, 
will not have a significant economic impact on a substantial number of 
small entities, because small entities utilizing the regulation may be 
able to reduce the number of applications they must file in order to 
convert to a federal charter. Accordingly, an initial Regulatory 
Flexibility Analysis is not required.

VII. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
federal mandate that may result in expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, or $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. 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, this rulemaking is not subject to Section 202 of the 
Unfunded Mandates Act.

List of Subjects in 12 CFR Part 543

    Conversions, Reporting and recordkeeping requirements, Savings 
associations.

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

PART 543--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL 
MUTUAL ASSOCIATIONS

    1. The authority citation for part 543 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq.

    2. Section 543.8 is amended by revising the heading and paragraph 
(a) to read as follows:


Sec. 543.8  Conversion of depository institutions to Federal mutual 
charter.

    (a) With the approval of the OTS, any depository institution, as 
defined in Sec. 552.13 of this chapter, that is in mutual form may 
convert into a Federal mutual savings association, provided that:
    (1) The depository institution, upon conversion, will have deposits 
insured by the Federal Deposit Insurance Corporation;
    (2) The depository institution, in accomplishing the conversion, 
complies with all applicable state and federal statutes and 
regulations, and OTS policies, and obtains all necessary member 
approvals; and
    (3) The resulting Federal mutual association conforms within the 
time prescribed by the OTS to the requirements of section 5(c) of the 
Home Owners' Loan Act.
* * * * *
    3. Section 543.9 is amended by revising paragraph (a) and the 
introductory text of paragraph (c) to read as follows:


Sec. 543.9  Application for conversion to Federal mutual charter.

    (a) Filing. Any depository institution that proposes to convert to 
a Federal mutual association as provided in Sec. 543.8 shall, after 
approval by its board of directors, file in accordance with Sec. 516.1 
of this chapter an application on forms obtained from the OTS. The 
applicant shall submit any financial statements or other information 
the OTS may require.
* * * * *
    (c) Action on application. The OTS will consider such application 
and any information submitted therewith, and may approve the 
application in accordance with section 5(e) of the Home Owners' Loan 
Act and Sec. 543.2(g)(1). Converting depository institutions that have 
been in existence less than three years will be subject to all approval 
criteria and other requirements applicable to de novo Federal 
associations. Approval of an application and issuance by the OTS of a 
charter will be subject to:
* * * * *
    Dated: April 2, 1997.

    By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-8952 Filed 4-8-97; 8:45 am]
BILLING CODE 6720-01-P