[Federal Register Volume 62, Number 226 (Monday, November 24, 1997)]
[Rules and Regulations]
[Pages 62509-62513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30431]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 566

[No. 97-116]
RIN 1550-AA77


Liquidity

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is issuing a final rule 
that updates, simplifies, and streamlines its liquidity regulation. 
This final rule follows a detailed review of the regulation to 
determine whether it is necessary, imposes the least possible burden 
consistent with statutory requirements and safety and soundness, and is 
written in a clear, straightforward manner. Today's final rule is made 
pursuant to the Regulatory Reinvention Initiative of the Vice 
President's National Performance Review and section 303 of the 
Community Development and Regulatory Improvement Act of 1994.

EFFECTIVE DATE: November 24, 1997.

FOR FURTHER INFORMATION CONTACT: Francis Raue, Program Analyst, (202) 
906-5750, Robyn Dennis, Manager, Thrift Policy, (202) 906-5751, 
Supervision Policy, or Susan Miles, Attorney, (202) 906-6798, Karen 
Osterloh, Assistant Chief Counsel, (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

    Section 6 of the Home Owners' Loan Act (HOLA) \1\ requires savings 
associations to hold a prescribed amount of statutorily defined liquid 
assets. The Director of the OTS may, by regulation, vary the amount of 
the liquidity requirement, but only within pre-established statutory 
limits. The requirement must be no less than four percent and no 
greater than ten percent of ``the obligation of the institution on 
withdrawable accounts and borrowings payable on demand or with 
unexpired maturities of one year or less.'' \2\ The Director may issue 
regulations defining the terms used in the statute, prescribing or 
limiting the extent to which certain assets included on the statutory 
liquidity list may be used to meet the liquidity requirement, and 
prescribing how to calculate the liquidity requirement.
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    \1\ 12 U.S.C. 1465.
    \2\ 12 U.S.C. 1465(b)(2).
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    Regulations implementing the Director's authority under section 6 
of the HOLA appear at 12 CFR part 566 (1997). These rules define liquid 
assets to include cash and certain securities with detailed maturity 
limitations and marketability requirements.\3\ The rules currently 
impose a liquidity requirement of five percent of an institution's 
liquidity base and a separate, ``short-term'' liquidity requirement of 
one percent of that base. The liquidity base in defined as net 
withdrawable accounts plus short-term borrowings. Except for 
institutions with less than $25,000,000 in assets, liquidity 
requirements are based on the ``average daily balance'' of the 
liquidity base during the preceding month. Institutions with less than 
$25,000,000 in assets may calculate their liquidity base using month-
end figures.
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    \3\ 12 CFR 566.1(g) (1997).
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    On May 14, 1997, the OTS published a notice of proposed rulemaking 
(NPR) seeking comment on its liquidity regulation.\4\ The OTS sought to 
reduce the burden of compliance with the statutory liquidity 
requirement to the maximum extent possible, consistent with statutory 
requirements and safety and soundness considerations. Specifically, the 
OTS proposed to: (1) reduce the liquidity requirement from five percent 
of net withdrawable accounts and short-term borrowings to four percent; 
(2) remove the one percent short-term liquidity requirement; (3) set 
forth an explicit requirement that thrifts maintain a safe and sound 
level of liquidity; (4) streamline the calculations used to measure 
compliance with the liquidity requirement; (5) expand the categories of 
liquid assets that may count toward satisfying a savings association's 
liquidity requirement; and (6) reduce the liquidity base by excluding 
withdrawable accounts payable in more than one year form the definition 
of the term ``net withdrawable accounts.''
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    \4\ 62 FR 26449.
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II. Summary of Comments and Description of the Final Rule

    The public comment period on the proposed rule closed on July 14, 
1997. The OTS received twelve comments on its proposal. Commenters 
included eight savings associations, two trade associations, one 
holding company, and one individual. Commenters generally concurred 
that the statutory liquidity requirement imposes an unnecessary burden 
on institutions and no longer serves any useful purpose. Seven 
commenters specifically urged the OTS to continue to seek legislation 
that would eliminate this requirement. Two of these commenters urged 
the elimination of the requirement for institutions rated 1 or 2 under 
the CAMELS system.
    Eleven commenters supported the proposed rule. These commenters 
generally concluded that the proposed rule would reduce the regulatory 
burden to the extent permitted by the statute, while maintaining the 
safety and soundness of institutions. Several commenters suggested 
revisions to the proposed rule which are discussed below. One commenter 
opposed the proposed rule.
    Today's final rule is substantially similar to the May proposal, 
but incorporates several changes and clarifications in response to 
comments received. Specific comments are discussed where appropriate in 
the analysis below.

A. Reducing the Liquid Asset Requirement From Five to Four Percent and 
Removing the One Percent Short-Term Requirement

    The OTS proposed to reduce the liquid asset requirement from five 
percent of the liquidity base to four percent, the lowest percentage 
permissible by statute. Additionally, the OTS proposed to eliminate the 
one percent short-term liquidity requirement, which is not mandated by 
statute. The agency believed that these changes were consistent with 
safety and soundness and the goal of reducing unnecessary burdens on 
the industry.
    Commenters generally supported the reduction of the liquid asset 
requirement and the elimination of the short term liquidity 
requirement. One commenter noted that the OTS would retain sufficient 
flexibility through its examination process to determine the proper 
amount of liquid assets to support safe and sound operations. One 
commenter expressed general concern about this change, but did not cite 
specific reasons for its concern. These changes are adopted as 
proposed.

B. Adding a General Safety and Soundness Requirement

    The OTS proposed to incorporate a general requirement that a 
savings

[[Page 62510]]

association must maintain sufficient liquidity to ensure its safe and 
sound operation. This requirement reflects the OTS's position that the 
statutory requirement is not necessarily indicative of a safe level of 
liquidity. The OTS would determine the adequacy of an institution's 
liquidity on a case-by-case basis.
    Most commenters agreed that it is appropriate to determine 
liquidity requirements based on factors unique to each association, and 
supported this proposed requirement. One commenter, however, opposed 
the general safety and soundness requirement, suggesting that the 
proposed rule was vague. The OTS disagrees. The ``safe and sound 
operation'' standard is commonly used in banking parlance and in OTS 
regulations.\5\ Safety and soundness determinations are generally made 
on a case-by-case basis in light of the particular circumstances of 
each institution. In the context of liquidity, a thrift is generally 
required to ensure that its current and prospective sources of 
liquidity are sufficient to permit it to meet its obligations in a 
timely manner and to fulfill the legitimate banking needs of its 
community.\6\
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    \5\ See 12 CFR 559.1, 560.1, 562.2, and 563.161 (1997).
    \6\ For additional guidance, savings associations should refer 
to the Thrift Activities Handbook, Liquidity-Asset/Liability 
Management, Chapter 500.
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    One commenter encouraged the OTS to consider latent sources of 
liquidity when determining whether an association is maintaining 
sufficient liquidity for safety and soundness purposes. When OTS 
evaluates an institution's liquidity, examiners consider additional 
sources of liquidity, not only those assets that meet the regulatory 
definition of liquid assets. Examiners consider the institution's 
visible liquidity position (i.e., liquid assets such as cash and 
marketable securities) and the institution's invisible liquidity 
position (i.e., available borrowing capacity).\7\
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    \7\ See Section 530, Cash Flow and Liquidity Management, Thrift 
Activities Handbook.
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C. Streamlining the Average Balance Calculations of Liquid Assets and 
Liquidity Base

    The current rule requires each savings association (except certain 
small associations and mutual savings banks) to calculate monthly 
average daily balances of liquid assets and the liquidity base. Thus, a 
savings association must calculate liquid assets and the liquidity base 
at the close of each business day, and then compute the average daily 
balance of the liquid assets and liquidity base for each month.
    The proposal would streamline these calculations. While an 
institution would be required to continually satisfy the liquidity 
requirement, it would be required to calculate the liquidity base only 
on the last day of the preceding calendar quarter. This change would 
eliminate the need to calculate the average daily balance of the 
liquidity base for each month.
    Commenters generally supported the proposed change to the liquidity 
base calculation as less burdensome, but suggested certain 
clarifications and modifications to further reduce the burden of 
compliance. For example, one commenter noted that it may be difficult 
or burdensome for some institutions to make the change to the new 
liquidity base calculation. The OTS goal is to decrease, rather than 
increase, regulatory burden connected with the statutory liquidity 
calculation. Accordingly, the final rule permits institutions to choose 
to use either the current or new method as set forth in the proposal of 
calculating the liquidity base.
    Several commenters asked OTS to clarify how the liquid asset amount 
is to be calculated. For example, commenters asked whether liquid 
assets would be based on the actual balance at the end of each business 
day, the end of each calendar month, or the end of each quarter, and 
whether liquid assets would be based on the average daily balance for 
each month or quarter.
    The final rule does not require a savings association to hold the 
required amount of liquid assets every day. Such a requirement would 
increase, rather than decrease, the regulatory burden imposed on 
institutions under the current regulation. Conversely, while a 
requirement that a savings association must hold the required amount of 
liquid assets only on one day during a quarter or month would reduce 
regulatory burden, such a requirement would, in effect, nullify the 
statutory liquidity requirement, and would be contrary to the statutory 
directive that liquid assets be maintained at a level specified by the 
Director.\8\ Accordingly, the final rule continues to require savings 
associations to calculate liquid assets based on an average daily 
balance over a period of time. However, instead of determining the 
average daily balance for each month, a savings association will now 
determine the average daily balance for each quarter.
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    \8\ See 12 U.S.C. 1465(b)(1).
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    Under the final rule, a savings association may choose to calculate 
its liquidity ratio in one of two ways. It can maintain an average 
daily balance of liquid assets in each calendar quarter of not less 
than four percent of either: (1) its liquidity base at the end of the 
preceding quarter, or (2) the average daily balance of its liquidity 
base during the preceding quarter. The method of calculating the 
average daily balances for a period would be unchanged under the final 
rule.

D. Expanding the Categories of Liquid Assets That Count Toward 
Satisfaction of the Liquidity Requirement

    Under sections 6(b)(1)(C) (vi) and (vii) of the HOLA,\9\ as added 
by the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989 (FIRREA),\10\ certain mortgage-related securities and mortgage 
loans qualify as liquid assets to the extent approved by the Director 
of the OTS. The first category consists of mortgage-related securities 
that are defined in section 3(a)(41) of the Securities Exchange Act of 
1934. The second category consists of mortgage loans on the security of 
a first lien on residential real property, if the mortgage loans 
qualify as backing for mortgage-backed securities issued by the Federal 
National Mortgage Association (FNMA) or the Federal Home Loan Mortgage 
Corporation (FHLMC) or are guaranteed by the Government National 
Mortgage Association (GNMA). The qualifying mortgage-related securities 
and mortgage loans must have one year or less remaining until maturity, 
or be subject to an agreement (including a repurchase agreement, put 
option, right of redemption, or takeout commitment) that requires 
another person to purchase the securities within a period that does not 
exceed one year. In addition, the person that agrees to purchase the 
securities must be an insured depository institution (as defined in 
section 3 of the Federal Deposit Insurance Act) that is in compliance 
with applicable capital standards, a primary dealer in United States 
Government securities, or a broker or dealer registered under the 
Securities Exchange Act of 1934.
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    \9\ 12 U.S.C. 1465(b)(1)(C)(vi), (vii).
    \10\ Pub. L. 101-73, 103 Stat. 183, 313-314 (1989).
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    The OTS proposed to add the FIRREA categories to the definition of 
liquid assets. Commenters generally supported the addition of these new 
categories. Accordingly, these new categories are added in the final 
rule.
    The proposed rule text described the specific requirements for 
loans and mortgage-related securities with cross-references to other 
regulations and statutes. One commenter argued that the cross-
references are different to

[[Page 62511]]

understand and urged the OTS to restate all applicable requirements in 
the rule text. The statutes and regulations cross-referenced by the 
proposed rule are rather lengthy. The OTS believes that the benefit of 
having a concise rule outweighs the inconvenience of having to look to 
the HOLA, the statute governing most savings association activities. 
Consequently, the cross-references are retained.
    Another commenter recommended that the OTS should also include, in 
the definition of liquid assets, adjustable rate mortgage-backed 
securities issued by the FNMA, the FHLMC, or the GNMA. This commenter 
pointed out that the definition of liquid assets in the regulation 
suggests that an asset's final maturity always has a link to its price 
sensitivity or liquidity. The commenter noted that over the years the 
more common types of adjustable rate mortgage-backed securities have 
developed significant secondary market liquidity, and have price 
sensitivities that are lower than many of the currently qualifying 
liquid asset alternatives.
    Section 6(b)(1) of the HOLA describes the specific types of assets 
that the OTS may consider to be liquid assets. The statutory listing 
includes ``such obligations, including such special obligations, of the 
United States, a State, any territory or possession of the United 
States, or a political subdivision, agency or instrumentality of any 
one or more of the foregoing, and bankers' acceptances, as the Director 
may approve.'' \11\ The OTS, and its predecessor, the Federal Home Loan 
Bank Board (FHLBB), have long included obligations of FNMA, GNMA, and 
FHLMC among such special obligations.\12\ While section 6(b)(1)(c)(ii) 
of the HOLA does not contain any maturity requirement for such 
obligations, the current OTS regulation provides that, in order to 
qualify as a liquid asset, such obligations must have five years or 
less remaining until maturity. The ostensible basis for the imposition 
of these liquidity requirements was to reduce the risk of loss on the 
securities held as liquid assets.\13\
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    \11\ 12 U.S.C. 1465(b)(1)(c)(ii).
    \12\ See 12 CFR 566.1(g)(3) (1997).
    \13\ See 39 FR 41263 (November 26, 1974).
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    Upon review, the OTS believes that the maximum five-year maturity 
requirement for these specific obligations under Sec. 566.1(g)(3) and 
the related maturity requirement for obligations of the United States 
under Sec. 566.1(g)(2) are outdated and unnecessary.\14\ In addition, 
we note that the other federal banking agencies do not impose, for 
liquidity purposes, a five-year maturity requirement for obligations. 
The continuing imposition of this requirement is contrary to our 
objectives of relieving unnecessary burden on the industry, and is 
consistent with the treatment of these assets by the other federal 
banking regulators in their safety and soundness examinations. 
Therefore, the OTS has removed the maturity requirement for these 
obligations.
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    \14\ We note that the agency has adjusted this maturity 
requirement in the past. See 39 FR 17219 (May 14, 1974).
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E. Excluding Accounts With Unexpired Maturities Exceeding One Year From 
the Definition of ``Net Withdrawable Accounts''

    A savings association must maintain liquid assets of not less than 
a stated percentage of the amount of its liquidity base. The regulation 
defines ``liquidity base'' as net withdrawable accounts plus short term 
borrowings.\15\ It defines ``net withdrawable accounts'' as all 
withdrawable accounts less the unpaid balance of all loans secured by 
such accounts with certain exclusions.\16\ ``Short term borrowings'' is 
defined as borrowings where any portion of the principal is payable on 
demand or in one year or less.\17\
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    \15\ 12 CFR 566.1(c) (1997).
    \16\ 12 CFR 566.1(d) (1997).
    \17\ 12 CFR 566.1(e) (1997).
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    The OTS proposed to redefine ``net withdrawable accounts'' by 
excluding accounts with unexpired maturities exceeding one year and by 
deleting the word ``all'' from the phrase ``all withdrawable accounts'' 
in the first part of the definition. These changes would reduce a 
savings association's liquidity base which would reduce the 
association's liquid asset requirement.
    Three commenters addressed this change. One commenter observed that 
this change is consistent with the regulation's current exclusion from 
the liquidity base of borrowings payable in more than one year. The 
commenter also noted that the statute does not specify different 
maturity requirements for withdrawable accounts and borrowings in the 
liquidity base.
    Another commenter agreed with the proposed exclusion, provided that 
excluded accounts with maturities of more than one year are subject to 
an effective early withdrawal penalty. The OTS has decided not to 
impose an early withdrawal penalty requirement for excluded accounts 
with maturities of more than one year. Such a requirement is 
unnecessary and would place an additional burden on savings 
associations, which is contrary to the spirit of this rulemaking.
    Two commenters noted that associations would have to create new 
reports in order to exclude deposits with unexpired maturities 
exceeding one year from their liquidity bases. These commenters 
requested that the final rule explicitly permit institutions to elect 
to use either the proposed or the current, more stringent, method of 
calculating the liquidity base.
    The OTS agrees. Accordingly, the final rule provides a savings 
association with the option to exclude deposits with unexpired 
maturities exceeding one year from its liquidity base as proposed, or 
to continue to use the more stringent method of calculating the 
liquidity base. To implement this change, the OTS has amended the 
current definition of net withdrawable accounts to give institutions 
the option of either applying the current definition of net 
withdrawable accounts or excluding withdrawable account deposits with 
maturities exceeding one year from the computation of net withdrawable 
accounts.

F. Technical Revisions

    The OTS has made several technical revisions to Sec. 566.1. These 
revisions include appropriate cross-references in paragraph (g)(8) to 
new paragraphs (g)(12) and (g)(13) and punctuation and other minor 
changes throughout paragraph (g).

III. Paperwork Reduction Act

    The recordkeeping requirements contained in this final rule have 
been submitted to and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under OMB control number 1550-0011.
    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.
    Under the Paperwork Reduction Act of 1995, no persons are required 
to respond to a collection of information unless it displays a valid 
OMB control number. The valid OMB control number assigned to the 
collection of information in this final rule is displayed at 12 CFR 
506.1(b).
    The recordkeeping requirements contained in this final rule are 
found at 12 CFR 566.4 (1997). The information is needed by the OTS in 
order to ensure that associations comply with a

[[Page 62512]]

statutory liquidity requirement. The likely recordkeepers are OTS-
regulated savings associations. Records are to be maintained in 
accordance with basic business practices, but not less than a period of 
three years.

IV. Executive Order 12866

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

V. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. 
L. 96-354, 5 U.S.C. 601), the OTS certifies that this regulation will 
not have a significant economic impact on a substantial number of small 
entities. It reduces the liquidity requirement from five percent to 
four percent, which should increase all savings associations' abilities 
to manage their assets. Additionally, the final regulation should ease 
the administrative burden of calculating compliance with liquidity 
requirements for all savings associations, including small savings 
associations.

VI. 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. As discussed in the preamble, 
this final rule reduces regulatory burden. The OTS has determined that 
the final 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.

VII. Effective Date

    Section 302 of the CDRIA requires that regulations that impose 
additional reporting, disclosure, or other new requirements take effect 
on the first day of the calendar quarter following publication of the 
rule unless, among other things, the agency determines, for good cause, 
that the regulations should become effective before that date. The OTS 
believes that CDRIA does not apply because this final rule imposes no 
new burden on thrifts. Further, the OTS believes that an immediate 
effective date is appropriate since the final rule relieves regulatory 
burden on savings associations. An immediate effective date would 
permit savings associations to better manage their assets by reducing 
the liquidity requirement from five to four percent and by eliminating 
the short-term liquidity requirement. Additionally, the final rule 
should ease administrative burden of computing compliance with 
liquidity requirements. For these reasons, the OTS believes that an 
immediate effective date is appropriate for this final rule.
    Section 553(d) of the Administrative Procedure Act requires an 
agency to publish a substantive rule at least 30 days before its 
effective date. Section 553(d) of the APA permits waiver of the 30-day 
delayed effective date requirement for, inter alia, good cause or where 
a rule relieves a restriction. The OTS further finds that the 30-day 
delayed effective date requirement may be waived because this final 
rule relieves regulatory restrictions.

List of Subjects in 12 CFR Part 566

    Liquidity, Reporting and recordkeeping requirements, Savings 
associations.

    Accordingly, the Office of Thrift Supervision hereby amends part 
566, chapter V, title 12, Code of Federal Regulations, as set forth 
below:

PART 566--LIQUIDITY

    1. The authority citation for part 566 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1465, 1467a; 15 
U.S.C. 1691, 1691a.

    2. Section 566.1 is amended by:
    a. Revising paragraph (d);
    b. Revising paragraph (g)(2);
    c. Revising paragraph (g)(3) introductory text;
    d. Revising paragraphs (g)(4)(i)(A) and (g)(4)(i)(B);
    e. Revising paragraphs (g)(8), (g)(9) and (g)(10);
    f. In paragraph (g)(11)(i), removing ``(``Association member'').'' 
and adding ``(``Association member'') or'' in its place;
    g. In paragraph (g)(11), removing the period at the end of the 
concluding text and adding a semicolon in its place;
    h. Adding paragraphs (g)(12) and (g)(13); and
    i. Removing paragraph (h).
    The additions and revisions read as follows:


Sec. 566.1  Definitions.

* * * * *
    (d) Net withdrawable accounts. The term net withdrawable accounts 
means withdrawable accounts less the unpaid balance of loans secured by 
such accounts. In computing net withdrawable accounts, a savings 
association may, at its option, exclude withdrawable accounts maturing 
in more than one year. Tax and loan accounts, note accounts, accounts 
to the extent that security has been given upon them pursuant to any 
applicable regulations, U.S. Treasury General Accounts, and U.S. Time 
Deposit Accounts are not withdrawable accounts.
* * * * *
    (g) * * *
    (2) Except as the Office may otherwise direct in a specific case, 
obligations of the United States;
    (3) Obligations issued or fully guaranteed as to principal and 
interest, by:
* * * * *
    (4) * * *
    (i) * * *
    (A) Negotiable and will mature in one year or less;
    (B) Not negotiable and will mature in 90 days or less; or
* * * * *
    (8) Shares or certificates in any open-end management investment 
company registered with the Securities and Exchange Commission under 
the Investment Company Act of 1940, while the portfolio of such company 
is restricted by its investment policy, changeable only by vote of the 
shareholders, to investments described in the other provisions of 
paragraphs (g)(1) through (g)(7), (g)(9), (g)(12), and (g)(13) of this 
section;
    (9) Corporate debt obligations and commercial paper denominated in 
dollars, Provided, That:
    (i) Such corporate debt obligations:
    (A) Continue to be rated in one of the four highest categories by 
the most recently published rating of such obligations by a nationally 
recognized investment rating service;
    (B) Are marketable as defined by Sec. 541.7 of this chapter;
    (C) Will mature in three years or less; and
    (D) Are not convertible to common stock;
    (ii) Such commercial paper:
    (A) Continues to be rated in one of the two highest categories by 
the most recently published rating of such paper by two nationally 
recognized investment rating services, or, if unrated, is guaranteed by 
a company having outstanding paper that is so rated; and

[[Page 62513]]

    (B) Will mature in 270 days or less; and
    (iii) An amount not in excess of one percent of such institution's 
assets invested in eligible corporate debt obligations or commercial 
paper of a single issuer shall be counted as a liquid asset;
    (10) Reserves required to be maintained pursuant to title I of the 
Depository Institution Deregulation and Monetary Control Act of 1980 
(94 Stat. 132) and established pursuant to 12 CFR part 204, whether in 
the form of:
    (i) Vault cash, as defined in 12 CFR 204.2, provided that vault 
cash shall be included only once in calculating the aggregate amount of 
liquid assets;
    (ii) Balances maintained directly with the Federal Reserve Bank in 
the district in which the savings association is located; or
    (iii) A pass through account as defined in 12 CFR 204.2;
* * * * *
    (12) Mortgage-related securities as described in 12 U.S.C. 
1465(b)(1)(C)(vi); and
    (13) Mortgage loans on the security of a first lien on residential 
real property as described in 12 U.S.C. 1465(b)(1)(C)(vii).
    3. Section 566.2 is revised to read as follows:


Sec. 566.2  Requirements.

    (a) Safety and soundness requirement. In addition to meeting the 
minimum requirement under paragraph (b) of this section, each saving 
association must maintain sufficient liquidity to ensure its safe and 
sound operation.
    (b) Minimum statutory liquidity requirement. (1) Except as 
otherwise provided in paragraph (c) of this section, each savings 
association shall maintain an average daily balance of liquid assets in 
each calendar quarter of not less than 4 percent of:
    (i) The amount of its liquidity base at the end of the preceding 
calendar quarter; or
    (ii) The average daily balance of its liquidity base during the 
preceding quarter.
    (2) The average daily balance of either liquid assets or liquidity 
base in a quarter is calculated by adding the respective balance as of 
the close of each business day in a quarter, and for any non-business 
day, as of the close of the nearest preceding business day, and 
dividing the total by the number of days in the quarter.
    (c) Reduction and suspension of liquidity requirements. The Office 
may, to the extent and under conditions it may prescribe, permit a 
savings association to reduce its liquid assets below the minimum 
amount required by paragraph (b) of this section to meet withdrawals or 
pay obligations. The Office may suspend part or all of the liquidity 
requirements of paragraph (b) of this section whenever it determines 
that conditions of national emergency or unusual economic stress exist. 
Any such suspension, unless sooner terminated by its terms or by the 
Office, shall terminate after 90 days, but the Office may again suspend 
part or all of such requirement at any time.

    Dated: November 13, 1997.

    By the Office of Thrift Supervision.
Ellen S. Seidman,
Director.
[FR Doc. 97-30431 Filed 11-21-97; 8:45 am]
BILLING CODE 6720-01-M