[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Proposed Rules]
[Pages 30778-30784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14616]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 575

[97-51]
RIN 1550-AB00


Mutual Holding Companies

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to amend 
its mutual holding company regulations to permit mutual holding 
companies (MHCs) to establish a subsidiary stock holding company that 
would hold all of the stock of a savings association subsidiary. This 
Notice of Proposed Rulemaking (NPR) follows a review of the comments 
received in response to an advance notice of proposed rulemaking. The 
OTS proposes to permit the establishment of intermediate stock holding 
companies (SHCs) that will be subject to restrictions that are 
substantially similar to those currently applicable to MHCs.

DATES: Comments must be received on or before August 4, 1997.

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. 97-51. 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 by e-mail: public 
[email protected]. Those commenting by e-mail should include their 
name and phone 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: James H. Underwood, Special Counsel 
(202/906-7354), Dwight C. Smith, Deputy Chief Counsel (202/906-6990), 
Business Transactions Division, Chief Counsel's Office; Gary Masters, 
Financial Analyst (202/906-6729) Corporate Activities Division; Office 
of Thrift Supervision, 1700 G Street, NW., Washington, D.C. 20552.

[[Page 30779]]

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background of the Proposal
II. Notice of Proposed Rulemaking:
    A. Summary and Purpose
    B. Stock Holding Company Powers
    C. Regulatory Restrictions on Stock Pledges, Dividend Waivers, 
Indemnification and Employment Contracts
    D. SHC Charter and Bylaw Requirements
    E. SHC Stock Issuances, Stock Repurchases, and Conversion of the 
MHC
    F. Miscellaneous
III. Request for Comments
IV. Paperwork Reduction Act of 1995
V. Executive Order 12866
VI. Regulatory Flexibility Act Analysis
VII. Unfunded Mandates Act of 1995

I. Background of the Proposal

    In response to inquiries from MHCs and mutual savings associations 
concerning the formation of a second-tier stock holding company to hold 
the stock of a MHC's savings association subsidiary, the OTS issued an 
Advance Notice of Proposed Rulemaking (ANPR)1 soliciting 
comment on issues raised by the existence of SHCs. Under current 12 CFR 
part 575, a mutual savings association may reorganize into a MHC 
structure in which the MHC owns at least a majority of the stock of a 
subsidiary savings association. Depositors of the mutual savings 
association continue to maintain a depositor-creditor relationship with 
the stock savings association subsidiary, while retaining their other 
indicia of ownership, e. g., voting and liquidation rights, with the 
MHC. Under this structure, the balance of the shares (up to 49.9%) of 
the stock savings association subsidiary may be sold to the public in 
one or more offerings when the MHC is formed or later.
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    \1\ 61 FR 58144 (November 13, 1996).
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    The proposed holding company structure would permit the MHC to form 
a SHC to hold the shares of the stock savings association subsidiary. 
The SHC, like the stock savings association subsidiary in the 
traditional model, would be required to issue at least a majority of 
its shares to the MHC and could issue up to 49.9% of its shares to the 
public. The SHC will be required to hold 100% of the shares of the 
savings association subsidiary.
    The ANPR solicited comments on seven specific issues involving the 
formation of SHCs. The OTS received fifteen comments on the proposal 
from three MHCs, four savings associations, three trade associations, 
two law firms, two investment banking firms and an individual investor. 
All but one of the commenters generally supported the concept of SHCs. 
Most of the commenters also indicated their support for the SHC to have 
the full powers of a unitary savings and loan holding company. The 
comments are discussed in further detail in the description of the 
proposed revisions to 12 CFR Part 575 set forth below.

II. Notice of Proposed Rulemaking

A. Summary and Purpose

    The OTS proposes to amend its MHC regulations to permit the 
formation of federally chartered SHCs. By permitting the formation and 
operation of SHCs, the MHC structure will be enhanced. For example, a 
MHC will be able to form a subsidiary that can engage in a stock 
repurchase program without adverse tax consequences. Currently, savings 
association subsidiaries of MHCs do not repurchase minority stock due 
to adverse tax consequences related to bad debt reserves recapture 
provisions. Moreover, SHCs will enhance the organizational flexibility 
of the MHC structure and enable MHCs to compete more effectively in the 
marketplace.
    The proposed rule does not authorize SHCs to act as unitary savings 
and loan holding companies. As discussed below, the OTS believes that 
the proposed rule should follow the current statutory framework and not 
authorize unitary savings and loan holding company powers as part of 
the MHC structure. The proposed rule contemplates that the SHC will 
``stand in the shoes'' of the parent MHC or, in certain instances, the 
subsidiary savings association. Thus, generally, the SHC should be 
subject to the same restrictions and limitations that are currently 
applicable to a MHC and its savings association subsidiary. The 
proposed rule also provides that the SHC structure may not be utilized 
as a means to evade or frustrate the purposes of 12 CFR part 575 or 
related provisions of 12 CFR part 563b which governs mutual to stock 
conversions by savings associations.

B. Stock Holding Company Powers

    In the ANPR, the OTS solicited comments on whether the SHC should 
be limited to the activities of the parent MHC 2 or be 
treated as a unitary savings and loan holding company. Most of the 
commenters argued in favor of treating the SHC as a unitary savings and 
loan holding company. This would grant the SHC a broader range of 
powers and investment authority than are currently available to a MHC. 
Several of the commenters stated that they did not perceive any policy 
reasons, such as safety and soundness concerns, that support a 
different treatment for SHCs simply because they are controlled by a 
MHC.
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    \2\ See 12 U.S.C. 1467a(o)(5) and 12 CFR 575.11(a) for a 
description of MHC activities restrictions.
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    After careful review of the comments and the statute, the OTS does 
not believe that it is appropriate to treat SHCs as unitary savings and 
loan holding companies under the mutual holding company statute. When 
Congress authorized MHCs as part of the Competitive Equality Banking 
Act of 1987 (CEBA), it clearly chose to limit the activities of MHCs to 
those permitted for multiple savings and loan holding companies and 
bank holding companies. Although the legislative history of CEBA does 
not indicate why Congress made this choice, it is reasonable to assume 
that Congress was aware of the unique nature of mutual institutions and 
their relationship with these newly authorized holding companies and 
wished to limit their activities to those more closely related to 
banking.3
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    \3\ Under 12 U.S.C. 1467a(o)(6), a MHC may acquire another 
holding company but such company must divest any assets and cease 
any activities not permissible for a MHC within the two year period 
following such acquisition.
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    As noted by one commenter who opposed unitary powers for SHCs, 
Congress is currently reviewing the issue of charter powers and 
permissible affiliations between insured financial institutions and 
commercial firms and several bills are pending before Congress that 
address these issues. While some commenters argued that a SHC should be 
treated as a unitary savings and loan holding company, the OTS believes 
that the proposed rule appropriately tracks the statute on this issue. 
Therefore, the proposed rule does not expand the powers of the SHC 
beyond those of a MHC.
    The OTS notes, however, that a SHC, like the MHC parent, may 
utilize its authority under 12 U.S.C. 1467a(o)(5) and 12 CFR 
575.10(a)(6) to acquire a controlling or non-controlling interest in 
corporations whose stock may be purchased by a federal savings 
association under 12 CFR part 559 or by a state savings association 
under the law of any state where a savings association subsidiary of 
the SHC has its home office. Although the permissible activities of 
these types of subsidiaries are more limited than those of a unitary 
savings and loan holding company, they are more extensive than those 
permitted to the parent MHC.

[[Page 30780]]

C. Regulatory Restrictions on Stock Pledges, Dividend Waivers, 
Indemnification and Employment Contracts

    Under 12 CFR part 575, a MHC and its savings association subsidiary 
are subject to various restrictions on their activities and operations. 
In the ANPR, the OTS solicited comment on whether some or all of these 
restrictions should be applicable to the SHC. The comments on these 
issues are addressed below.
(1) Pledges of Subsidiary Savings Association Stock
    Commenters were divided as to whether the SHC should be subject to 
the same restrictions as a MHC on pledges of stock of the savings 
association subsidiary. It is clear that 12 U.S.C. 1467a(o)(8), which 
authorizes stock pledges by MHCs, requires that the transaction 
increase the capital of the savings association subsidiary. Thus, the 
implementing regulation, Sec. 575.11(b) requires that the proceeds of 
any loan secured by the savings association's stock be infused into the 
savings association.
    The OTS believes that the reasons supporting the restrictions on a 
MHC are also applicable to a SHC. Application of this rule to the SHC 
is consistent with the statute and will ensure that any borrowing using 
the savings association subsidiary's stock or the SHC's stock as 
collateral will directly benefit the savings association. Some 
commenters argued that the SHC should be subject only to restrictions 
that are applicable to other savings and loan holding companies. The 
OTS does not find this argument persuasive. The intention of this 
proposal, as stated above, is to increase the flexibility of the MHC 
structure without diminishing the safeguards imposed by Congress in 
adopting the MHC statute.
(2) Dividend Waivers
    Commenters also were divided as to whether dividend waiver 
restrictions should be imposed on the SHC. Commenters supporting the 
dividend waiver restriction generally acknowledged that the policy 
reasons supporting dividend waiver restrictions should apply to 
dividends declared by the SHC. Commenters opposed to the dividend 
waiver restrictions argued that the SHC should be treated like any 
other stock holding company. The OTS does not believe that there are 
sound policy reasons to differentiate between dividends paid to a MHC 
parent by a savings association subsidiary and a SHC subsidiary. Thus, 
the proposed rule requires that the MHC follow the procedures set forth 
at 12 CFR 575.11(d) with respect to waiving any dividends declared by 
the SHC. The intent of this section is to ensure that the waiver of 
dividends payable to the MHC is subject to regulatory review and is 
consistent with the directors' fiduciary duties to its mutual members.
    The OTS intends to continue to review dividend waivers in 
connection with the mutual to stock conversion of a MHC pursuant to the 
``fair and reasonable'' exchange standard set forth at 12 CFR 
575.12(a)(2). The formation of a SHC by an existing MHC with minority 
stockholders will not generally result in different treatment of the 
minority stockholders under Sec. 575.12(a)(2) in the event of a 
conversion of the MHC to stock form.
(3) Indemnification and Employment Contracts
    Under 12 CFR 575.11(f)-(g), MHCs are subject to the same 
restrictions regarding indemnification and employment contracts as 
mutual savings associations.4 With one exception, all of the 
commenters responding to this issue were opposed to the imposition of 
these restrictions on a SHC. The commenters assumed that a SHC, unlike 
the MHC, would not be chartered by the OTS and that the OTS should not 
preempt state law policies in these areas. The commenters also stated 
that state-chartered stock savings and loan holding companies are not 
subject to these restrictions and that SHCs should be treated 
similarly. As discussed below, the OTS is proposing that the SHC be 
federally chartered and thus subject to OTS policies.
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    \4\ See 12 CFR 545.121 and 563.39, respectively.
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    The OTS concludes that there are valid reasons for imposing these 
restrictions on the SHC. As noted above, the SHC should not be utilized 
to evade requirements imposed on the MHC. The OTS has determined that 
because of the unique nature of the MHC structure, i.e., the combining 
of mutual and stock interests in one corporate structure, it is 
appropriate to impose greater oversight on the MHC than is imposed on 
stock holding companies. Since the SHC is, in essence, ``standing in 
the shoes'' of the MHC, the proposed rule will require that the SHC be 
subject to the same restrictions.

D. SHC Charter and Bylaw Requirements

    Most of the commenters opposed any requirement that a SHC's charter 
and bylaws (and amendments) be subject to OTS review and approval. The 
commenters assumed that the SHC would be a state-chartered corporation 
and would be able to utilize the corporate governance procedures that 
are available under state law. The OTS has determined to require that 
the SHC be federally chartered. This will help ensure consistent 
treatment for the various entities in the mutual holding company 
structure and eliminate any confusion about the treatment of the SHC 
under 12 U.S.C. 1467a(o)(9), which addresses insolvency and liquidation 
issues of MHCs, in the event of a default of the SHC. The OTS 
anticipates that in the event of the default by the MHC, the SHC or the 
savings association subsidiary, the OTS would have the right to file a 
petition seeking the appointment of a bankruptcy trustee for the 
purpose of liquidating the MHC and the SHC.
    The OTS also believes that its authority to regulate the corporate 
governance aspects of the subsidiary holding company is clearer if the 
subsidiary holding company is federally chartered. The MHC statute 
clearly contemplates that the reorganized savings association will be a 
directly owned subsidiary of a federally chartered entity. Requiring 
that the subsidiary holding company be federally chartered ensures that 
the savings association remains a direct subsidiary of a federally 
chartered entity. Finally, requiring the subsidiary holding company to 
be federally chartered is consistent with the provision of the OTS 
regulations that preempts state law with regard to the creation of and 
regulation of MHCs.
    The federal charter and bylaw requirements for the SHC are modeled 
after the charter and bylaw requirements for federal stock savings 
associations. The OTS believes that the recent amendments to the OTS 
charter and bylaw requirements provide greater corporate flexibility 
for federally chartered stock savings associations and will enable 
federally chartered SHCs to utilize many of the corporate law 
provisions available to state-chartered corporations. The OTS, however, 
will reserve the right to object to any provision of the SHC's charter 
or bylaws that is contrary to the requirements of 12 CFR part 575.

E. SHC Stock Issuances, Stock Repurchases, and Conversion of the MHC

    The proposed rule will apply the current restrictions on the 
issuance of securities by a savings association subsidiary set forth at 
12 CFR 575.7 and 575.8 to the SHC. Most of the commenters generally 
supported this concept. However, several commenters

[[Page 30781]]

suggested that the SHC be permitted to issue stock in some cases 
without complying with the requirement that priority subscription 
rights be issued to the mutual members. The OTS concludes that 575.7 
and 575.8 should apply to securities issuances by the SHC. This is 
consistent with the fact that the SHC, and not the savings association 
subsidiary, will be issuing stock to minority stockholders. Thus, it 
follows that all current stock issuance restrictions should apply to 
the SHC.
    The OTS does not agree that the SHC should be able to issue shares 
to the public without first offering them to the mutual members. Mutual 
members have first priority to subscription rights in a conversion. To 
permit a stock offering without first offering the shares to the mutual 
members would, in essence, permit a partial conversion of the mutual 
institution in a manner that conflicts with 12 CFR part 563b. One of 
the fundamental principles underlying the mutual holding company 
regulations is that the mutual members' rights, including their rights 
under part 563b, should not be diminished or eliminated merely because 
the mutual institution is reorganized into a MHC. For that reason, the 
OTS will not permit a SHC to issue stock to the public, whether by way 
of merger or otherwise, without affording the mutual members a priority 
subscription right to purchase the stock.
    Although this results in the MHC structure having less flexibility 
than a stock holding company structure, this is consistent with the 
fact that a MHC structure is a hybrid corporate entity that is part 
mutual and part stock. This unique structure has both advantages and 
disadvantages and can create potential conflicts of interest that 
require more restrictions on the operation of MHCs.
    The proposed rule will require that all stock 5 
issuances by the SHC receive prior approval of the OTS. This 
restriction currently applies to a MHC's savings association 
subsidiary, and it is consistent to require that any stock issued by 
the SHC also be subject to this requirement.
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    \5\ Stock is defined at 12 CFR 575.2 (n) to mean common or 
preferred stock, or any other type of equity security, including 
securities that are convertible into common or preferred stock.
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    The proposed rule will also require that if a SHC is established by 
a MHC, the SHC must hold 100% of the stock of the resulting savings 
association subsidiary. This will restrict the savings association 
subsidiary from issuing stock to persons other than the SHC. Permitting 
minority stockholders at the SHC level and the subsidiary savings 
association level will result in potential conflicts of interests and 
create difficult valuation problems if the MHC decides to convert to 
stock form.
    A primary motivation for the establishment of a SHC is that it will 
permit the SHC, assuming it has issued stock to the public, to engage 
in stock repurchase programs without the adverse tax consequences that 
may occur if such repurchases are made directly by the savings 
association subsidiary. The proposed rule will permit SHCs to engage in 
stock repurchase programs provided that the SHC complies with the 
requirements of 12 CFR 575.11(c). One commenter inquired how the three-
year period set forth in Sec. 575.11(c) that limits stock repurchases 
would be applied in the case of a SHC formed after minority shares have 
been issued by a savings association subsidiary. Absent unusual 
circumstances, the OTS generally will permit the SHC to ``tack'' on or 
include the period that the shares initially issued by the savings 
association were outstanding. Thus, if minority shares have been 
outstanding for a period of two years at the time the SHC is formed, 
the SHC will be subject to the repurchase restriction for a one-year 
period.
    In the event the MHC decides to convert to stock form, the proposed 
rule contemplates that the minority stockholders of the SHC would be 
able to exchange their shares for shares of the converted MHC in the 
same manner that minority stockholders of the savings association 
subsidiary currently do. The OTS will continue to use the ``fair and 
reasonable'' standard set forth at 12 CFR 575.12(a) in evaluating such 
exchange offers.

F. Miscellaneous

    The proposed rule also makes a number of clarifying changes to 12 
CFR Part 575 to ensure that the regulations will be consistent for a 
MHC with or without a SHC subsidiary.

III. Request for Comments

    OTS invites comment on all aspects of the proposal as well as 
specific comments on the proposed changes.

IV. Paperwork Reduction Act of 1995

    The OTS invites comments on:
    (1) Whether the proposed collection of information contained in 
this notice of proposed rulemaking is necessary for the proper 
performance of the agency's functions, including whether the 
information has practical utility;
    (2) The accuracy of the agency's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (4) Ways to minimize the burden of the information collection 
including the use of automated collection techniques or other forms of 
information technology.
    (5) Estimates of capital and startup costs of operation, 
maintenance and purchases of services to provide information.
    Respondents/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.
    The reporting and recordkeeping requirements contained in this 
notice of proposed rulemaking have been submitted to the Office of 
Management and Budget for review in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on all aspects of 
this information collection should be sent to the Office of Management 
and Budget, Paperwork Reduction Project (1550), Washington, DC 20503 
with copies to the OTS, 1700 G Street, NW., Washington, DC 20552.
    The reporting/recordkeeping requirements contained in this notice 
of proposed rulemaking are found at 12 CFR part 575. The information is 
needed by the OTS in order to supervise savings associations and mutual 
holding companies and develop regulatory policy. The likely 
respondents/recordkeepers are OTS-regulated savings associations and 
mutual holding companies. The information collection currently approved 
under OMB Control No. 1550-0072 will be amended to include the burden 
under this regulation.
    Estimated number of respondents/recordkeepers: 20.
    Estimated average annual burden hours per recordkeeper/respondent: 
343.70.
    Estimated total annual reporting/recordkeeping burden: 6,874 hours.
    Start-up costs to respondents/recordkeepers: None.
    Records are to be maintained in accordance with normal and 
customary business practices as recommended by private counsel, 
accountants, etc., but no less than three years.

V. Executive Order 12866

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

[[Page 30782]]

VI. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS 
certifies that this proposed rule will not have a significant impact on 
a substantial number of small entities. The proposal will create 
additional organizational flexibility for all savings associations that 
create mutual holding company structures.

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 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. 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 575

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

    Accordingly, the Office of Thrift Supervision hereby proposes to 
amend chapter V, title 12, Code of Federal Regulations, as follows:

PART 575--MUTUAL HOLDING COMPANIES

    1. The authority citation for part 575 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.

    2. Section 575.2 is amended by revising paragraphs (h) and (o) and 
adding paragraph (q) to read as follows:


Sec. 575.2  Definitions.

* * * * *
    (h) The term mutual holding company means a mutual holding company 
organized under this part, and unless otherwise indicated, a subsidiary 
holding company controlled by a mutual holding company, organized under 
this part.
* * * * *
    (o) The term Stock Issuance Plan means a plan providing for the 
issuance of stock by:
    (1) A savings association subsidiary of a mutual holding company; 
or
    (2) A subsidiary holding company submitted pursuant to Sec. 575.7 
and containing the information required by Sec. 575.8.
* * * * *
    (q) The term subsidiary holding company means a federally chartered 
stock holding company, controlled by a mutual holding company, that 
owns the stock of a savings association whose depositors have 
membership rights in the parent mutual holding company.
    3. Section 575.6 is amended by redesignating paragraphs (c) through 
(i) as paragraphs (d) through (j) and adding a new paragraph (c) to 
read as follows:


Sec. 575.6  Contents of Reorganization Plans.

* * * * *
    (c) If the reorganizing association proposes to form a subsidiary 
holding company, provide for the organization of a subsidiary holding 
company and attach and incorporate the proposed charter and bylaws of 
such subsidiary holding company.
* * * * *
    4. Section 575.10 is amended by:
    a. Removing, in the introductory text of paragraph (a)(2), the 
phrase ``the holding company'', and by adding in lieu thereof the 
phrase ``the parent mutual holding company'';
    b. Revising the first sentence of paragraph (a)(3);
    c. Revising the first sentence of paragraph (a)(4);
    d. Revising paragraph (a)(6)(i)(B); and
    e. Revising the first sentence of paragraph (b)(1).
    The revisions read as follows:


Sec. 575.10  Acquisition and disposition of savings associations, 
savings and loan holding companies, and other corporations by mutual 
holding companies.

    (a) * * *
    (3) Mutual holding companies. A mutual holding company that is not 
a subsidiary holding company may acquire control of another mutual 
holding company, including a subsidiary holding company, by merging 
with or into such company, provided the necessary approvals are 
obtained from the OTS, including (without limitation) approval pursuant 
to part 574 of this chapter. * * *
    (4) Stock holding companies. A mutual holding company may acquire 
control of a savings and loan holding company in the stock form that is 
not a subsidiary holding company, provided the necessary approvals are 
obtained from the OTS, including (without limitation) approval pursuant 
to part 574 of this chapter. * * *
* * * * *
    (6) * * *
    (i) * * *
    (B) It is lawful for the stock of such corporation to be purchased 
by a federal savings association under Part 559 of this chapter or by a 
state savings association under the law of any state where any 
subsidiary savings association of the mutual holding company has its 
home office; and
* * * * *
    (b) Dispositions. (1) A mutual holding company shall provide 
written notice to the OTS at least 30 days prior to the effective date 
of any direct or indirect transfer of any of the stock that it holds in 
a subsidiary holding company, a resulting association, an acquiree 
association, or any subsidiary savings association that was in the 
mutual form when acquired by the mutual holding company, including 
stock transferred in connection with a pledge pursuant to 
Sec. 575.11(b) or any transfer of all or a substantial portion of the 
assets or liabilities of any such subsidiary holding company or 
association. * * *
* * * * *
    5. Section 575.11 is amended by:
    a. Revising paragraph (b)(1) introductory text, redesignating 
existing paragraph (b)(1)(ii) as paragraph (b)(1)(iii), and adding a 
new paragraph (b)(1)(ii);
    b. Revising paragraph (b)(2);
    c. Revising the introductory text of paragraph (c) and paragraphs 
(c)(1) and (c)(3); and
    d. Revising paragraph (e).
    The revisions read as follows:


Sec. 575.11  Operating restrictions.

* * * * *
    (b) Pledging stock. (1) No mutual holding company may pledge the 
stock of its resulting association, an acquiree association, or any 
subsidiary savings association that was in the mutual form when 
acquired by the mutual holding company (or its parent mutual holding 
company), unless the proceeds of the loan secured by the pledge are 
infused into the association whose stock is pledged. No mutual holding 
company may pledge the stock of its subsidiary holding company unless 
the proceeds of the loan secured by the pledge are infused into any 
savings association subsidiary of the subsidiary holding company that 
is a resulting association, an acquiree association, or a subsidiary 
savings association that was in the mutual form when acquired by the 
subsidiary holding company (or its

[[Page 30783]]

parent mutual holding company). In the event the subsidiary holding 
company has more than one savings association subsidiary, the loan 
proceeds shall, unless otherwise approved by the OTS, be infused in 
equal amounts to each savings association subsidiary. Any amount of the 
stock of such association or subsidiary holding company may be pledged 
for these purposes. Nothing in this paragraph (b)(1) shall be deemed to 
prohibit:
* * * * *
    (ii) The payment of dividends from a subsidiary holding company to 
its mutual holding company parent to the extent otherwise permissible; 
or
* * * * *
    (2) Within ten days after its pledge of stock pursuant to paragraph 
(b)(1) of this section, a mutual holding company shall provide written 
notice to the OTS regarding the terms of the transaction (including the 
amount of principal and interest, repayment terms, maturity date, the 
nature and amount of collateral, and the terms governing seizure of the 
collateral) and shall include in such notice a certification that the 
proceeds of the loan have been transferred to the subsidiary savings 
association whose stock (or the stock of its parent subsidiary holding 
company) has been pledged.
* * * * *
    (c) Restrictions on stock repurchases. No subsidiary savings 
association of a mutual holding company that has any stockholders other 
than the association's mutual holding company and no subsidiary holding 
company that has any stockholders other than its parent mutual holding 
company shall repurchase any share of stock within three years of its 
date of issuance, unless the repurchase: (1) Is part of a general 
repurchase made on a pro rata basis pursuant to an offer approved by 
the OTS and made to all stockholders of the association or subsidiary 
holding company (except that the parent mutual holding company may be 
excluded from the repurchase with the OTS' approval);
* * * * *
    (3) Is purchased in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the association or subsidiary 
holding company in an amount reasonable and appropriate to fund such 
plan.
* * * * *
    (e) Restrictions on issuance of stock to insiders. A subsidiary of 
a mutual holding company that is not a savings association or 
subsidiary holding company may issue stock to any insider, associate of 
an insider or tax-qualified or non-tax-qualified employee stock benefit 
plan of the mutual holding company or any subsidiary of the mutual 
holding company, provided that such persons or plans provide written 
notice to the OTS at least 30 days prior to the stock issuance. 
Subsidiary savings associations and subsidiary holding companies may 
issue stock to such persons only in accordance with Sec. 575.7.
* * * * *
    6. Section 575.12 is amended by:
    a. Revising paragraph (a)(2);
    b. Revising paragraphs (b)(1)(ii) and (iii); and
    c. Revising paragraph (b)(2).
    The revisions read as follows:


Sec. 575.12  Conversion or liquidation of mutual holding companies.

    (a) * * *
    (2) Exchange of savings association stock. Any stock issued 
pursuant to Sec. 575.7 by a subsidiary savings association or 
subsidiary holding company of a mutual holding company to persons other 
than the parent mutual holding company may be exchanged for the stock 
issued by the parent mutual holding company in connection with the 
conversion of the parent mutual holding company to stock form. The 
parent mutual holding company and the subsidiary holding company or 
savings association must demonstrate to the satisfaction of the OTS 
that the basis for the exchange is fair and reasonable.
* * * * *
    (b) * * * (1) * * *
    (ii) The default of the parent mutual holding company or its 
subsidiary holding company; or
    (iii) Foreclosure on any pledge by the mutual holding company of 
subsidiary savings association or subsidiary holding company stock 
pursuant to Sec. 575.11(b).
    (2) Except as provided in paragraph (b)(3) of this section, the net 
proceeds of any liquidation of any mutual holding company shall be 
transferred to the members of the mutual holding company or the stock 
holders of the subsidiary holding company in accordance with the 
charter of the mutual holding company or subsidiary holding company.
* * * * *
    7. Section 575.14 is added to read as follows:


Sec. 575.14  Subsidiary holding companies.

    (a) Subsidiary holding companies. A mutual holding company may 
establish a subsidiary holding company as a direct subsidiary to hold 
100% of the stock of its savings association subsidiary. The formation 
and operation of the subsidiary holding company may not be utilized as 
a means to evade or frustrate the purposes of this part 575 or part 
563b of this chapter. The subsidiary holding company may be established 
either at the time of the initial mutual holding company reorganization 
or at a subsequent date, subject to the approval of the OTS.
    (b) Stock issuances. For purposes of Secs. 575.7 and 575.8, the 
subsidiary holding company shall be treated as a savings association 
issuing stock and shall be subject to the requirements of those 
sections. In the case of a stock issuance by a subsidiary holding 
company, the aggregate amount of outstanding common stock of the 
association owned or controlled by persons other than the subsidiary 
holding company's mutual holding company parent at the close of the 
proposed issuance shall be less than 50% of the subsidiary holding 
company's total outstanding common stock.
    (c) Charters and bylaws for subsidiary holding companies--(1) 
Charters. The charter of a subsidiary holding company shall be in the 
form set forth in this paragraph (c)(1) and may include any of the 
additional provisions permitted pursuant to paragraph (c)(2) of this 
section. The form of the charter is as follows:

Federal MHC Subsidiary Holding Company Charter

    Section 1. Corporate title. The full corporate title of the MHC 
subsidiary holding company is XXX.
    Section 2. Domicile. The domicile of the MHC subsidiary holding 
company shall be in the city of ____________________, in the state 
of ____________________.
    Section 3. Duration. The duration of the MHC subsidiary holding 
company is perpetual.
    Section 4. Purpose and powers. The purpose of the MHC subsidiary 
holding company is to pursue any or all of the lawful objectives of 
a federal mutual holding company chartered under section 10(o) of 
the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all 
of the express, implied, and incidental powers conferred thereby and 
by all acts amendatory thereof and supplemental thereto, subject to 
the Constitution and laws of the United States as they are now in 
effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office 
of Thrift Supervision (``Office'').
    Section 5. Capital stock. The total number of shares of all 
classes of the capital stock that the MHC subsidiary holding company 
has the authority to issue is ____________________, all of which 
shall be common stock of par [or if no par is specified then shares 
shall have a stated] value of ____________ per share. The shares may 
be issued from time to time as authorized by the board of directors 
without the approval of its

[[Page 30784]]

shareholders, except as otherwise provided in this section 5 or to 
the extent that such approval is required by governing law, rule, or 
regulation. The consideration for the issuance of the shares shall 
be paid in full before their issuance and shall not be less than the 
par [or stated] value. Neither promissory notes nor future services 
shall constitute payment or part payment for the issuance of shares 
of the MHC subsidiary holding company. The consideration for the 
shares shall be cash, tangible or intangible property (to the extent 
direct investment in such property would be permitted to the MHC 
subsidiary holding company), labor, or services actually performed 
for the MHC subsidiary holding company, or any combination of the 
foregoing. In the absence of actual fraud in the transaction, the 
value of such property, labor, or services, as determined by the 
board of directors of the MHC subsidiary holding company, shall be 
conclusive. Upon payment of such consideration, such shares shall be 
deemed to be fully paid and nonassessable. In the case of a stock 
dividend, that part of the retained earnings of the MHC subsidiary 
holding company that is transferred to common stock or paid-in 
capital accounts upon the issuance of shares as a stock dividend 
shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the MHC 
subsidiary holding company, no shares of capital stock (including 
shares issuable upon conversion, exchange, or exercise of other 
securities) shall be issued, directly or indirectly, to officers, 
directors, or controlling persons (except for shares issued to the 
parent mutual holding company) of the MHC subsidiary holding company 
other than as part of a general public offering or as qualifying 
shares to a director, unless the issuance or the plan under which 
they would be issued has been approved by a majority of the total 
votes eligible to be cast at a legal meeting.
    The holders of the common stock shall exclusively possess all 
voting power. Each holder of shares of common stock shall be 
entitled to one vote for each share held by such holder, except as 
to the cumulation of votes for the election of directors, unless the 
charter provides that there shall be no such cumulative voting. 
Subject to any provision for a liquidation account, in the event of 
any liquidation, dissolution, or winding up of the MHC subsidiary 
holding company, the holders of the common stock shall be entitled, 
after payment or provision for payment of all debts and liabilities 
of the MHC subsidiary holding company, to receive the remaining 
assets of the MHC subsidiary holding company available for 
distribution, in cash or in kind. Each share of common stock shall 
have the same relative rights as and be identical in all respects 
with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of 
the MHC subsidiary holding company shall not be entitled to 
preemptive rights with respect to any shares of the MHC subsidiary 
holding company which may be issued.
    Section 7. Directors. The MHC subsidiary holding company shall 
be under the direction of a board of directors. The authorized 
number of directors, as stated in the MHC subsidiary holding 
company's bylaws, shall not be fewer than five nor more than fifteen 
except when a greater or lesser number is approved by the Director 
of the Office, or his or her delegate.
    Section 8. Amendment of charter. Except as provided in Section 
5, no amendment, addition, alteration, change or repeal of this 
charter shall be made, unless such is proposed by the board of 
directors of the MHC subsidiary holding company, approved by the 
shareholders by a majority of the votes eligible to be cast at a 
legal meeting, unless a higher vote is otherwise required, and 
approved or preapproved by the Office

Attest:----------------------------------------------------------------
Secretary of the Subsidiary Holding Company

By:--------------------------------------------------------------------
President or Chief Executive Officer of the Subsidiary Holding 
Company

Attest:----------------------------------------------------------------
Secretary of the Office of Thrift Supervision

By:--------------------------------------------------------------------
Director of the Office of Thrift Supervision

Effective Date:--------------------------------------------------------

    (2) Charter amendments. The rules and regulations set forth in 
Sec. 552.4 of this chapter regarding charter amendments and reissuances 
of charters (including delegations and filing instructions) shall be 
applicable to subsidiary holding companies to the same extent as if the 
subsidiary holding companies were Federal stock savings associations, 
except that, with respect to the pre-approved charter amendments set 
forth in Sec. 552.4 of this chapter, the reference to home office in 
Sec. 552.4(b)(2) of this chapter shall be deemed to refer to the 
domicile of the subsidiary holding company and the requirements of 
Sec. 545.95 of this chapter shall not apply to subsidiary holding 
companies.
    (3) Bylaws. The rules and regulations set forth in Sec. 552.5 of 
this chapter regarding bylaws (including their content, any amendments 
thereto, delegations, and filing instructions) shall be applicable to 
subsidiary holding companies to the same extent as if subsidiary 
holding companies were federal stock savings associations. The model 
bylaws for Federal stock savings associations set forth in the OTS 
Applications Processing Handbook shall also serve as the model bylaws 
for subsidiary holding companies, except that the term ``association'' 
each time it appears therein shall be replaced with the term 
``Subsidiary Holding Company.''
    (4) Annual reports and books and records. The rules and regulations 
set forth in Secs. 552.10 and 552.11 of this chapter regarding annual 
reports to stockholders and maintaining books and records shall be 
applicable to subsidiary holding companies to the same extent as if 
subsidiary holding companies were federal stock savings associations.

    Dated: May 16, 1997.

    By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-14616 Filed 6-4-97; 8:45 am]
BILLING CODE 6720-01-P