[Federal Register Volume 63, Number 157 (Friday, August 14, 1998)]
[Proposed Rules]
[Pages 43642-43649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21866]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 502

[No. 98-74]
RIN 1550-AB20


Assessments and Fees

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 regulations to more equitably impose assessments on savings 
associations. OTS's experience has shown that the current assessment 
structure may cause some savings associations to pay assessments over 
or under OTS's costs of supervising those savings associations. The 
proposal seeks to minimize these disparities. In particular, the 
proposal would increase assessments on most institutions with 
significant off-balance sheet activities. In the aggregate, the 
proposed changes should initially result in decreased assessments with 
respect to healthy institutions without significant off-balance sheet 
activities. The proposal would also clarify certain other matters 
involving assessments and other fees and would revise the entire 
assessment and fee regulation using a plain language format.

DATES: Comments must be received on or before October 13, 1998.

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. 98-74. 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: 
[email protected]. 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: Christine Harrington, Counsel (Banking 
and Finance), (202) 906-7957, or Karen Osterloh, Assistant Chief 
Counsel, (202) 906-6639, Regulations and Legislation Division, Chief 
Counsel's Office; or Eric Hirschhorn, Principal Financial Economist, 
(202) 906-7350, Research & Analysis; William Brady, Acting Director, 
Planning & Budget, (202) 906-7408, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    OTS is charged with the mission of examining, regulating, and 
providing for the safe and sound operation of savings 
associations.1 Under 12 U.S.C. 1467, OTS funds these 
operations through assessments on savings associations and through 
other fees, as necessary and appropriate.
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    \1\ 12 U.S.C. 1463(a).
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    In the Federal Deposit Insurance Corporation Improvement Act of 
1991 (FDICIA), Congress amended OTS's statutory assessment authority by 
removing a provision requiring OTS to assess the costs of examining 
savings associations and their affiliates in proportion to their assets 
or resources. Instead, Congress authorized the Director of OTS to 
assess examination costs against savings associations and their 
affiliates, and to recover the agency's direct and indirect expenses, 
as the Director deems necessary or appropriate. OTS's experience has 
shown that the current assessment structure can be improved to more 
equitably correlate assessments with OTS's costs. OTS proposes to 
exercise FDICIA's added flexibility to better apportion the costs of 
OTS regulation among savings associations. The agency has two primary 
goals: (1) establishing an assessment structure that keeps the 
assessment rates as low as possible while providing the agency the 
resources essential to effective supervision of a changing industry, 
and (2) more closely tailoring rates to the agency's increased costs in 
supervising certain types of institutions. In the aggregate, the 
proposed changes should initially result in decreased assessments for 
healthy institutions without significant off-balance sheet activities, 
that is, for traditional thrift institutions. In the future, OTS's 
revenue would increase or decrease as the size, activities, and 
condition of institutions it regulates, change.

II. Description of Proposal

    Under the proposed rule, OTS will determine a savings association's 
assessment by adding together three components that reflect the size of 
the institution, its condition, and the complexity of its operations. 
As discussed more fully below, in the agency's experience, each of 
these factors substantially affects OTS's costs of supervising savings 
associations.

A. Asset Size

    Under the current OTS regulation, assessments are based on the 
savings association's total assets, as reported in the consolidated 
Thrift Financial Report. OTS's current regulation uses decreasing 
marginal assessment rates for increasingly larger institutions. This 
method was intended to reflect economies of scale realized in 
supervising and regulating larger institutions. However, OTS's 
experience has shown that the current regulation uses marginal 
assessment rates that are no longer consistent with OTS's economies of 
scale. Further, it omits certain fixed costs that are the same or 
nearly the same for institutions of all sizes, such as costs of 
drafting regulations and policies, and basic costs of conducting 
examinations.
    OTS derived information on the magnitude of economies of scale in 
thrift supervision and the relationship between other thrift 
institution attributes and supervisory expenses from a statistical 
analysis of the variation in total examiner hours among thrifts. 
Examiner hours are the main component of supervisory expenses that vary 
with the size, condition, or other

[[Page 43643]]

attributes of thrift institutions. As such, they are a useful standard 
for evaluating the consistency between an assessment schedule and 
actual supervision costs.
    An analysis of examiner hours at all OTS-supervised thrifts for 
1996 and 1997 confirmed that there are substantial economies of scale 
in thrift examination and found that the percentage decline in the 
number of examiner hours per million dollars of assets is fairly steady 
as size increases. OTS used regression analyses to estimate the 
marginal increases in examiner hours for different size groups and how 
these marginal increases change with size. This analysis further 
confirmed the economies of scale in thrift examination and provided 
support for the rate of decline in the proposed marginal assessment 
rates.
    The proposed regulation is designed to make OTS assessments more 
equitable for institutions of all sizes. First, as under the current 
regulation, the asset size component would impose marginal assessment 
rates that decline as asset size increases. Second, OTS would 
incorporate some of its fixed costs into the assessment rates schedule 
via an explicit fixed charge. The Office of the Comptroller of the 
Currency (OCC) has an analogous charge in its assessment schedule in 
the form of a very high rate on the first two million dollars of 
assets.
    In analyzing the effects of various base assessment rates, OTS 
found that the proposed changes, while reflecting OTS's costs, could 
have a disproportionate impact on assessments for the smallest savings 
associations, those with less than $100 million in assets. OTS is 
concerned that such a change might impose undue burdens on those 
savings associations, which may not be in a position to readily absorb 
such increased costs. Therefore, OTS proposes to include an alternative 
size component calculation for such institutions. Under the proposal, a 
savings association that existed on the effective date of the 
regulation and never had more than $100 million in assets at the end of 
any quarter would be a ``qualifying savings association.'' Such an 
institution would lose its status as a qualifying institution if, 
following the effective date of the regulation, its assets exceeded 
$100 million at the end of any quarter. Savings associations formed 
after the regulation becomes effective would not be considered 
qualifying savings associations. The size component for a qualifying 
savings association would be the lesser of the amount that would be 
required under the proposed regulation, or the amount that would be 
required under the current OTS assessment structure. Because this 
alternative is designed to minimize the potential burden associated 
with changing to a new assessment structure, OTS specifically requests 
comment on whether this treatment should be phased out in the future 
and, if so, what phase-out method or period would be appropriate.
    As proposed, the asset-based assessment would use a chart to 
identify base assessment amounts for total assets at a certain levels, 
and impose marginal rates on assets above those levels. This is similar 
to the treatment under existing part 502. However, unlike the existing 
regulation, proposed part 502 would not include specific base 
assessment

amounts or marginal rates in the regulatory text. Rather, OTS proposes 
to publish the specific base assessment amounts and marginal rates in 
Thrift Bulletins.\2\
    OTS currently publishes assessment rates in a Thrift Bulletin, 
under authority in current Sec. 502.6 to set rates lower than those 
published in current Sec. 502.1. Since the early 1990's, thrifts have 
been charged assessments that are different from those included in the 
regulation. Having outdated rates in the regulation has caused 
confusion. Publishing the rates solely in Thrift Bulletins is designed 
to eliminate this confusion. In addition to mailing Thrift Bulletins to 
every thrift, OTS puts its Thrift Bulletin on its website (http://
www.ots.treas.gov/) for ready public access. OTS believes that 
including this information in Thrift Bulletins rather than in a 
regulation would also allow more flexibility to match assessments with 
costs when OTS's supervisory costs change. As the industry changes, OTS 
costs of supervision and examination will continue to fluctuate. OTS 
solicits comments on whether this approach is appropriate.
    OTS is currently considering a size component initially containing 
the base amounts and marginal rates listed in the following chart:

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        If the amount of total assets is--                             The size component is--                  
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              Over                  But not over       This amount            Plus            Of excess over    
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$0.............................  $67 million......             $1,250          .00015424  $0                    
67 million.....................  215 million......             11,584          .00010288  67 million.           
215 milion.....................  1 billion........             26,810          .00008230  215 million.          
1 billion......................  6.03 billion.....             91,416          .00006584  1 billion.            
6.03 billion...................  18 billion.......            422,591          .00005267  6.03 billion.         
18 billion.....................  35 billion.......          1,053,051          .00004214  18 billion.           
35 billion.....................  .................          1,769,431          .00003371  35 billion.           
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The actual rates contained in the Thrift Bulletin implementing a final 
regulation may differ from those in this chart. The chart reflects 
OTS's current costs and the assessment structure proposed today. 
Because OTS intends the proposed changes to its assessments regulation 
to decrease assessments, in the aggregate, for healthy institutions 
without significant off-balance sheet activities, and because OTS is 
proposing different options for assessment methods, OTS cannot yet 
determine with certainty the base assessment amounts and marginal rates 
that would be in the initial Thrift Bulletin. For example, if OTS were 
to decide against including a complexity component (discussed below), 
the agency would charge higher rates under the size component. The 
actual amounts and rates therefore may change depending on which 
options OTS selects, taking into account comments OTS receives. At the 
same time, OTS wants to be as informative as possible about potential 
base assessment amounts and marginal rates. Savings associations may 
find this chart useful in determining how this proposed regulation may 
affect them. As discussed above, OTS will not include specific rates in 
the final rule. The rates assessed under an implementing Thrift 
Bulletin will reflect the final regulation structure and OTS's 
anticipated costs at the time it issues the Thrift Bulletin. 
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    \2\ This approach is similar to the OCC's long-standing approach 
in its assessment regulations at 12 CFR part 8 (1998).
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    OTS specifically seeks comment on how best to match assessments to 
OTS's costs of examining and supervising savings associations. While 
OTS has proposed to maintain a system of declining marginal assessment 
rates, it

[[Page 43644]]

seeks comment on whether any other assessment method may also be 
appropriate. OTS also seeks comment on how best to cover fixed costs 
that are the same or nearly the same for institutions of all sizes. For 
example, should OTS incorporate fixed costs into the assessment rate 
schedule or use some other method to cover these costs? OTS also 
solicits comments on any aspects of the proposed cap for the size 
component for qualifying small institutions. Further, OTS seeks 
comments on whether asset-based assessments should be based on total 
assets, as under the current regulation, or whether it should be based 
on some other measure of assets.

B. Condition

    OTS's current regulation includes a 50% premium on the asset-based 
assessment for institutions with a composite safety and soundness 
examination rating of 4 or 5 because such institutions require more 
supervision than higher-rated institutions. Institutions that are rated 
in the top three categories are not charged this condition-based 
premium. OTS's experience with this assessment structure since 1990 has 
shown that the premium rate reflects the higher costs associated with 
4- or 5-rated institutions. However, OTS has also found that the 
current two-tiered premium structure does not fully reflect supervision 
costs for other institutions. Specifically, OTS used regression 
analyses of the variation in examiner hours across thrifts to estimate 
the percentage differences in examiner hours across thrifts grouped by 
safety and soundness examination rating. These analyses show that 3-
rated associations generally require substantially more supervision 
than 1-and 2-rated institutions, but not as much as 4- and 5-rated 
institutions. Thus, under the current regulation, the higher 
supervisory costs for 3-rated institutions may be subsidized by thrifts 
with ratings other than 3 since 3-rated institutions pay no additional 
premium.
    The proposed rule would amend OTS's current premium assessment to 
correlate the assessments more closely with OTS's costs. The 
statistical analysis of examiner hours found that the added burdens 
from 3-rated institutions are approximately half as great as those from 
4- and 5-rated institutions. Accordingly, the proposal would impose a 
25% premium on the size component of the asset-based assessment for 3-
rated institutions. The proposal would continue to increase the size 
component of the asset-based assessment by 50% for 4- and 5-rated 
institutions, consistent with OTS's current practice.
    OTS encourages comments on any aspects of the proposed condition 
component, including whether this component should be based on the 
examination ratings or some other factor. OTS further solicits comments 
on whether any condition component should be based on total assets, as 
under the current regulation, or whether it should be based on some 
other measure of assets.

C. Complexity

    OTS's current asset-based assessment is based on total assets as 
reported on the consolidated Thrift Financial Report. Accordingly, the 
asset-based assessment does not reach off-balance sheet assets. OTS 
must, however, examine and supervise activities involving off-balance 
sheet assets, as well as other assets, to ensure the safety and 
soundness of thrift institutions. As a result, OTS incurs expenses 
relating to institutions with off-balance sheet assets, and these 
expenses can be substantial. Under the current system, these costs are 
not assessed directly against the institutions with off-balance sheet 
assets, but are shared by all savings associations. Thus, institutions 
with minimal or no off-balance sheet assets effectively subsidize the 
supervisory costs of institutions with extensive off-balance sheet 
assets.
    OTS measured the supervisory expenses associated with certain off-
balance sheet activities by extending the regression models of examiner 
hours discussed above to determine whether thrifts engaged in these 
activities absorb more examiner hours than would be expected based on 
asset size and examination ratings. The off-balance sheet activities 
included in these analyses were those that impose significant 
supervisory burden--trust assets administered by the thrift, loans 
serviced for others, and off-balance sheet assets for which the thrift 
holds recourse obligations or that are direct credit substitutes. These 
analyses found significantly greater supervisory expenses for 
institutions with substantial volumes of these activities.
    To mitigate the inequities of assessments not matching costs of 
supervising complex assets, OTS proposes to amend the assessment 
regulation to include a new complexity component. By taking certain 
off-balance sheet assets into account, OTS's assessment rates can be 
more closely tailored to its expenses in examining institutions. The 
proposed complexity component would address trust assets administered 
by a savings association, loans serviced for others by a savings 
association (including both residential and non-residential loans), and 
off-balance sheet assets that are recourse obligations or direct credit 
substitutes, as described in the Thrift Financial Report.
    OTS is considering whether the complexity component should also 
address commercial and non-residential mortgage loans. OTS analyses 
have found a high correlation between amounts of these types of loans 
and the number of examiner hours and the amount of supervisory 
expenses. Savings associations that concentrate on residential mortgage 
loans require substantially less examination and supervision than 
associations with less traditional loan portfolio concentrations. An 
asset-based assessment that treats all loans equally causes traditional 
mortgage lenders to subsidize OTS's extra supervisory workload for non-
traditional thrifts. OTS, therefore, seeks comments on whether it 
should include commercial and non-residential mortgage loans in the 
complexity component.
    As proposed, the complexity component would apply only to the 
extent that assets included in each category of complex assets (trust 
assets, loans serviced for others, and recourse obligations or direct 
credit substitutes) exceed a threshold of $1 billion. OTS's experience 
shows that the added supervisory workload for institutions with such 
complex assets does not become significant until the assets reach 
relatively high levels. Therefore, OTS proposes a minimum level of 
assets below which OTS would not consider complexity. OTS would compute 
the $1 billion threshold separately for each class of complex assets.
    OTS currently expects that the assessment rate for complexity 
components would be 0.0015% of the amount of assets covered by each 
element of the complexity component over the $1 billion threshold, 
based on the proposed assessment provisions and OTS's costs. OTS would 
publish the assessment rate for the complexity component in a Thrift 
Bulletin, available on OTS's website, rather than in a regulation. This 
would allow OTS the flexibility to match assessments with fluctuating 
supervisory costs. Depending on the assessment structure of any final 
rule, the actual complexity component and the threshold may be 
different than the proposal.
    OTS solicits comments on whether it is appropriate to consider off-
balance sheet assets of any type, including the proposed types, for 
purposes of the assessment. OTS specifically requests

[[Page 43645]]

comments on how to treat off-balance sheet assets held by subsidiaries 
owned or controlled by the savings association. For example, where a 
savings association owns or controls a subsidiary that is a trust 
company, how should the trust assets administered by that trust company 
be considered under the complexity component? OTS also specifically 
seeks comments on whether, and if so, how best, to include commercial 
and non-residential mortgage loans or other on-balance sheet assets in 
any complexity component.
    Further, OTS seeks comments on whether the complexity component 
should have a threshold below which complex assets should not be 
considered and, if so, whether the proposed $1 billion threshold is too 
high or too low. Additionally, OTS seeks comments on whether the 
threshold for any particular category should be expressed in dollar 
terms, as a percentage of assets (e.g. for commercial loans and non-
residential real estate loans), or in any other terms. OTS also asks 
whether there should be any cap on the amount of the complexity 
component. Commenters who favor a cap should address how OTS should set 
the cap. OTS additionally seeks comments on whether the proposed 
assessment rate for any complexity component would be appropriate.

D. Consolidation

    Under the current regulation, OTS assessments are based on the 
savings association's total assets, as reported in the consolidated 
Thrift Financial Report. OTS specifically requests comment on whether 
this continues to be the proper approach for subsidiaries that are 
other depository institutions or regulated entities. This issue affects 
all three proposed components of the assessment calculation. For 
example, if Savings Association A directly owns Savings Association B, 
looking at the size component by itself would usually make 
consolidation result in a lower assessment. However, if Savings 
Association A were rated ``1'' while Savings Association B were rated 
``3'', the issue arises of what condition component should be assigned 
to the consolidated entity. For the complexity component, if Savings 
Association A had trust assets of $750 million and Savings Association 
B also had trust assets of $750 million, consolidation would result in 
the consolidated entity being assessed a complexity component, while 
neither thrift would be assessed that component if considered 
separately.
    Therefore, OTS solicits comments on whether, when a savings 
association owns or controls another OTS-regulated savings association, 
the two should be considered one entity for assessment purposes. Would 
a discount be appropriate? The OCC recently amended its assessment 
regulation to give a discount to national banks that are in a holding 
company with other national banks but are not the ``lead bank'' in that 
structure.See 12 CFR 8.2(a)(6) (1998). Should the OTS consider a 
similar approach for savings associations that are in a savings and 
loan holding company structure with other OTS-regulated savings 
associations? What if the thrift owns or controls another depository 
institution, such as a state bank, that is not regulated by OTS? 
Similarly, where a savings association owns or controls a non-
depository institution that is regulated by a non-bank regulator (e.g., 
a state-supervised insurance company), should the assets of the 
subordinate organization be included in the assets of the parent 
savings association?

E. Other Matters

    OTS seeks comment on other proposed amendments to the assessments 
regulation. First, the existing regulation provides for quarterly or 
semi-annual assessments. Under the proposed rule, all assessments would 
be semi-annual. OTS has found that semi-annual assessments impose less 
regulatory and administrative burden than quarterly assessments and 
therefore has imposed semi-annual assessments since January 1992.
    The proposed rule would clarify the existing regulation and 
incorporate OTS's long-standing practice concerning requests for 
refunds or proration of assessments paid by institutions that cease to 
be savings associations. The proposed rule would explicitly state that 
assessments will not be prorated or refundable to institutions that 
cease to be savings associations. The proposal would also clarify an 
ambiguity in the existing regulation about the date as of which OTS 
determines assessments. Under the proposed rule, and consistent with 
current practice, an assessment would not change, either up or down, 
due to events that occur after the date of the Thrift Financial Report 
upon which the assessment is based.3 Further, the proposed 
rule would clarify that the composite rating upon which an 
institution's condition component would be based would be the most 
recent composite rating of which the savings association has been 
notified in writing, as defined in 12 CFR part 516, before an 
assessment's due date.
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    \3\ Consistent with OTS's current practice, an assessment could 
be adjusted to reflect corrections to errors contained in the 
applicable Thrift Financial Report.
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    The proposed rule also addresses several matters relating to the 
imposition of other fees (e.g., application, examination, and 
investigation fees). Currently, the regulation includes a formula for 
calculating these fees, with the actual fees published annually in a 
Thrift Bulletin. The proposed rule, like the long-standing OCC 
regulation, would not include such a formula. Fees would continue to be 
announced in a Thrift Bulletin available on OTS's website.
    The proposed regulation would also clarify that OTS may charge fees 
for extraordinary expenses relating to examining, regulating, or 
supervising savings associations and their affiliates. While OTS 
expects that any such fees would be unusual, they may be necessary or 
appropriate in some circumstances. Such extraordinary fees may be 
appropriate for recovering supervisory costs from institutions that 
pose extraordinary burdens, or of obtaining expert advice in areas 
beyond those that OTS normally encounters. Under the proposed rule, OTS 
would be able to adjust, add, waive, or eliminate fees in unusual 
circumstances.
    Finally, OTS proposes to revise all of part 502 using the plain 
language format, consistent with the Vice President's National 
Performance Review Initiative and guidance in the Federal Register 
Document Drafting Handbook (April 1997 edition). This would not affect 
the substance of the regulation, but should help to make it easier to 
understand.

III. 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.

IV. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act of 
1980,4 OTS has evaluated the effects this proposed 
rulemaking would have on small businesses, small organizations, and 
small governmental jurisdictions. As required, OTS has prepared the 
following initial regulatory flexibility analysis.
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    \4\ 5 U.S.C. 605(b).
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    OTS proposes this rulemaking to revise its current assessments 
system to match assessments more closely with

[[Page 43646]]

OTS's costs. The Director of OTS is authorized by statute to impose 
assessments.5 As described in this preamble, OTS has found 
that under its current assessment system OTS's costs of supervising 
some institutions are higher or lower than those associations pay in 
assessments. Therefore, OTS is attempting, through this proposed 
rulemaking, to more closely associate its costs with assessments.
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    \5\ 12 U.S.C. 1462a, 1463, 1467, 1467a.
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    OTS has two primary objectives for this proposed rulemaking: (1) 
establishing an assessment structure that keeps the assessment rates as 
low as possible while providing the agency the resources essential to 
effective supervision of a changing industry, and (2) more closely 
tailoring rates to the agency's increased costs in supervising certain 
types of institutions.
    The proposed rule could affect small savings associations through 
the proposed condition, size, or complexity components. The proposal 
would have no effect on small businesses or small organizations other 
than small savings associations and, indirectly, small holding 
companies, and would not affect small governmental jurisdictions. Small 
savings associations are generally defined, for Regulatory Flexibility 
Act purposes, as those with assets under $100 million.6
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    \6\ 13 CFR 121.201, Division H (1998).
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A. Impact of Proposed Condition Component.

    The proposed condition component would affect small savings 
associations. As discussed earlier in this preamble, it would impose an 
assessment equal to 25% of an association's size component for each 3-
rated association, regardless of its size. Currently, there are 44 
savings associations that are 3-rated and that have assets under $100 
million. If a small 3-rated association, for example, were to have $10 
million in assets, its assessment would increase $864 annually due to 
the condition component (basing its size component on Thrift Bulletin 
48-9, December 21, 1992). If its assets were $100 million and its 
rating were 3, its assessment would increase $5,462 annually due to the 
condition component. Other small, 3-rated savings associations would 
see their assessments increase depending on their size.
    As discussed earlier, 3-rated savings associations require more 
supervisory attention than 1- or 2-rated associations. OTS therefore 
has three alternatives: impose extra assessments on all 3-rated 
associations; require institutions not rated 3 to subsidize the extra 
supervisory costs of 3-rated institutions; or, require some but not all 
3-rated institutions to cover those costs. OTS believes it is most 
equitable to relate assessments to OTS's supervisory costs, and 
therefore proposes a condition component for 3-rated associations. 
Furthermore, OTS believes that requiring 3-rated institutions to pay 
for their extra supervisory costs would provide an incentive for those 
institutions to improve their condition and their ratings. OTS believes 
that the proposed condition component best accomplishes OTS's objective 
of closely tailoring assessment rates to OTS's increased costs in 
supervising 3-rated institutions while keeping assessment rates as low 
as possible.

B. Impact of Proposed Size Component.

    OTS believes the proposed size component would not have a 
significant economic impact on a substantial number of small entities. 
OTS specifically designed the proposed rule to allow qualifying savings 
associations, generally those with assets under $100 million, to choose 
between calculating their size components under either the existing 
regulation or the proposed regulation. These institutions can therefore 
avoid any increases in their size component.
    For an institution that increases above $100 million in assets then 
shrinks below $100 million, or a savings association that is formed 
after the rule's effective date, this choice would not be available. 
OTS cannot predict the number of savings associations that will exceed 
then shrink below $100 million in assets, and cannot predict the number 
of savings associations that will be formed in the future. OTS cannot 
predict the economic impact of the proposed regulation on such 
institutions because OTS's assessment rates, as proposed, will vary as 
OTS's supervisory costs change.
    OTS has considered, as an alternative to the proposed size 
component with protection for small institutions, leaving its 
assessment system as it is. OTS believes this alternative would not 
meet OTS's objective of more closely tailoring assessment rates to 
OTS's increased supervisory costs, while minimizing significant 
economic impacts on small savings associations.

C. Impact of Proposed Complexity Component.

    The proposed complexity component would apply only to savings 
associations that have more than $1 billion in certain off balance 
sheet assets. For Regulatory Flexibility Act purposes, a small savings 
association is generally defined as one having less than $100 million 
in assets on its balance sheet. There are currently only four savings 
associations that have less than $100 million in balance sheet assets 
that would be subject to the proposed complexity component. OTS 
believes that four savings associations is not a substantial number of 
small savings associations. For purposes of this initial regulatory 
flexibility analysis regarding the proposed complexity component, OTS 
defines small savings association as one with less than $100 million in 
assets including off-balance sheet assets.7 The Regulatory 
Flexibility Act is designed to protect the interests of small 
businesses, while the proposed complexity component would only affect 
savings associations that own or administer assets in excess of $1 
billion. OTS does not believe that institutions that own or administer 
assets exceeding $1 billion need any special protection from the 
proposed complexity component.
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    \7\ OTS has established this definition of small savings 
association for the sole purpose of this regulatory flexibility 
analysis, after consultation with the Small Business 
Administration's Office of Advocacy.
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    In any event, OTS has considered alternatives to the proposed 
complexity component. OTS has considered using no such component, or 
including different complex assets in the component, such as commercial 
and non-residential mortgage loans. As discussed earlier, OTS is 
seeking comment on all aspects of the proposed complexity component. 
OTS tentatively believes the component, as proposed, best accomplishes 
OTS's objective of tailoring assessments to better match OTS's 
supervisory costs, while minimizing significant economic impacts on 
small savings associations.

D. Other Matters

    The proposed rule would streamline the existing regulation and put 
it in a plain language format. It would state that the Director's 
statutory authority to charge fees for appropriate expenses would be 
used only for extraordinary expenses. OTS believes these changes would 
have no significant impact on small savings associations. Under the 
proposed rule, assessments would continue to be based on Thrift 
Financial Reports that savings associations are otherwise required to 
file with OTS, and OTS would continue to collect assessments by its 
current procedures. Therefore, the proposed rule would impose no new or 
additional reporting, recordkeeping, or compliance requirements.

[[Page 43647]]

    Finally, there are no federal rules that duplicate, overlap, or 
conflict with this proposed rule.
    OTS encourages comments on all aspects of this initial regulatory 
flexibility analysis, including any significant economic impacts the 
proposed rule would have on small entities.

V. 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.

VI. Paperwork Reduction Act

    This proposed rule contains no new information collection 
requirements. The information collection requirements in proposed 
Sec. 502.70 are the same as those in the current assessments 
regulation, 12 CFR 502.3 (1998), which the Office of Management and 
Budget has previously received and approved in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under OMB Control 
No. 1550-0053.

List of Subjects in 12 CFR Part 502

    Assessments, Federal home loan banks, Reporting and recordkeeping 
requirements, Savings associations.
    Accordingly, the Office of Thrift Supervision proposes to amend 
chapter V, title 12, Code of Federal Regulations by revising part 502 
to read as follows:

PART 502--ASSESSMENTS AND FEES

Sec.
502.5 Who must pay assessments and fees?

Subpart A--Assessments

502.10  How does OTS calculate my assessment?
502.15  How does OTS determine my size component?
502.20  How does OTS determine my condition component?
502.25  How does OTS determine my complexity component?
502.30  When must I pay my assessment?
502.35  How must I pay my assessment?
502.40  Can I get a refund or proration of my assessment?
502.45  What if I do not pay my assessment on time?

Subpart B--Fees

502.50  What fees does OTS charge?
502.55  Where can I find OTS's fee schedule?
502.60  When will OTS adjust, add, waive, or eliminate a fee?
502.65  When is an application fee due?
502.70  How must I pay an application fee?
502.75  What if I do not pay my fees on time?

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


Sec. 502.5  Who must pay assessments and fees?

    (a) Authority. Section 9 of the HOLA, 12 U.S.C. 1467, authorizes 
the Director to charge assessments to recover the costs of examining 
savings associations and their affiliates, to charge fees to recover 
the costs of processing applications and other filings, and to charge 
fees to cover OTS's direct and indirect expenses in regulating savings 
associations and their affiliates.
    (b) Assessments. If you are a savings association that OTS 
regulates on the last day of January or on the last day of July of each 
year, you must pay a semi-annual assessment due on that day. Subpart A 
of this part describes OTS's assessment procedures and requirements.
    (c) Fees. Whether or not you are a savings association, if you make 
any filings with OTS or use OTS services, the Director may require you 
to pay a fee to cover the costs of processing your submission or 
providing those services. The filings for which the Director may charge 
a fee include notices, applications, and securities filings. Among the 
services for which the Director may charge a fee are publications, 
seminars, certifications for official copies of agency documents, and 
records or services requested by other agencies. The Director also 
assesses fees for examining and investigating affiliates of savings 
associations. If you are a savings association and you or any of your 
affiliates cause OTS to incur extraordinary expenses related to your 
examination, investigation, regulation, or supervision, the Director 
may charge you a fee to fund those expenses. Subpart B of this part 
describes OTS's fee procedures and requirements.

Subpart A--Assessments


Sec. 502.10  How does OTS calculate my assessment?

    OTS determines your semi-annual assessment by totaling three 
components: your size, your condition, and the complexity of your 
business. For the size and complexity components, OTS uses the 
September 30 Thrift Financial Report to determine amounts due at the 
January 31 assessment; and the March 31 Thrift Financial Report to 
determine amounts due at the July 31 assessment. For purposes of this 
subpart, total assets are your total assets as reported on Thrift 
Financial Reports filed with OTS. For the condition component, OTS uses 
the most recent composite rating, as defined in 12 CFR part 516 of this 
chapter, of which you have been notified in writing before an 
assessment's due date.


Sec. 502.15  How does OTS determine my size component?

    (a) General. (1) Unless you are a qualifying savings association 
under paragraph (b) of this section, OTS uses the following chart to 
calculate your size component:

                                                                                                                
            If your total assets are:--                                Your size component is--                 
----------------------------------------------------------------------------------------------------------------
                                                       This amount--                                            
                                                      Base assessment    Plus--Marginal    Of assets over--Class
             Over--                But not over--         amount              rate                 floor        
                                                                                                                
Column A                         Column B..........  Column C          Column D           Column E              
----------------------------------------------------------------------------------------------------------------
0..............................  $67 million.......  C1                D1                 0                     
$67 million....................  215 million.......  C2                D2                 $67 million.          
215 million....................  1 billion.........  C3                D3                 215 million.          
1 billion......................  6.03 billion......  C4                D4                 1 billion.            
6.03 billion...................  18 billion........  C5                D5                 6.03 billion.         

[[Page 43648]]

                                                                                                                
18 billion.....................  35 billion........  C6                D6                 18 billion.           
35 billion.....................  ..................  C7                D7                 35 billion.           
----------------------------------------------------------------------------------------------------------------

    (2) To calculate your size component, find the row in Columns A and 
B that describes your total assets. Reading across in that same row, 
find your base assessment amount in Column C, your marginal rate in 
Column D, and your class floor in Column E. Calculate how much your 
total assets exceed your Column E class floor. Multiply this number by 
your Column D marginal rate. Add this number to your Column C base 
assessment amount. The total is your size component. OTS will establish 
the base assessment amounts and the marginal rates in columns C and D 
in a Thrift Bulletin.
    (b) Special size component calculation for qualifying savings 
associations. If you meet all of the criteria set forth in paragraph 
(b)(1) of this section, you are a qualifying savings association and 
OTS will calculate your size component in accordance with paragraph 
(b)(2) of this section.
    (1) Criteria for qualifying savings association status. (i) You 
were a savings association as of [effective date of final rule].
    (ii) Your total assets have never exceeded $100 million at the end 
of any quarter.
    (2) Size component for qualifying savings associations. If you are 
a qualifying savings association, your size component is the lesser of:
    (i) Your size component calculated under paragraph (a) of this 
section; or
    (ii) Your assessment calculated using the general assessment table 
at 12 CFR 502.1(c) as contained in the 12 CFR, parts 500 to 599, 
edition revised as of January 1, 1998, as implemented in Thrift 
Bulletin 48-9, dated December 21, 1992.


Sec. 502.20  How does OTS determine my condition component?

    OTS uses the following chart to determine your condition component:

------------------------------------------------------------------------
                                                 Then your condition    
       If your composite rating is--               component is--       
------------------------------------------------------------------------
1 or 2....................................  zero.                       
3.........................................  25 percent of your size     
                                             component.                 
4 or 5....................................  50 percent of your size     
                                             component.                 
------------------------------------------------------------------------

Sec. 502.25  How does OTS determine my complexity component?

    If your portfolio exceeds any of the thresholds set forth in 
paragraph (a) of this section, OTS will calculate your complexity 
component as set forth in paragraph (b) of this section. If your 
portfolio does not exceed any of the thresholds set forth in paragraph 
(a) of this section, your complexity component is zero.
    (a) Thresholds for complexity component. (1) You administer trust 
assets valued at over $1 billion.
    (2) You service loans for others and the total amount of the loans 
exceeds $1 billion.
    (3) You have off-balance sheet assets that are recourse obligations 
or direct credit substitutes, as described in the Thrift Financial 
Report, and the total amount of these off-balance sheet assets exceeds 
$1 billion.
    (b) Calculation of complexity component. OTS calculates your 
complexity component by separately determining the amount(s) by which 
you exceed each of the thresholds under paragraph (a) of this section, 
adding these excess amounts together, and multiplying this total by a 
percentage published in a Thrift Bulletin.


Sec. 502.30  When must I pay my assessment?

    OTS will bill you semiannually for your assessments. Assessments 
are due January 31 and July 31 of each year. At least seven days before 
your assessment is due, the Director will mail you a notice that 
indicates the amount of your assessment, explains how OTS calculated 
the amount, and specifies when payment is due.


Sec. 502.35  How must I pay my assessment?

    (a) Debit at Federal Home Loan Banks. If you are a member of a 
Federal Home Loan Bank, you must maintain a demand deposit account at 
your Federal Home Loan Bank with sufficient funds to pay your 
assessment when due. OTS will notify your Federal Home Loan Bank of the 
amount of your assessment. OTS will debit your account for your 
assessments.
    (b) Direct billing. If you are not a member of a Federal Home Loan 
Bank, OTS will directly debit an account you must maintain at your 
association.


Sec. 502.40  Can I get a refund or proration of my assessment?

    OTS will not refund or prorate your assessment, even if you cease 
to be a savings association. If you are a savings association for whom 
a conservator or receiver has been appointed, you must continue to pay 
assessments in accordance with this part. OTS will not increase or 
decrease your assessment based on events that occur after the date of 
the Thrift Financial Report upon which your assessment is based.


Sec. 502.45  What if I do not pay my assessment on time?

    The Director will charge interest on delinquent assessments. 
Interest will accrue at a rate (that OTS will determine quarterly) 
equal to 150 percent of the average of the bond-equivalent rates of 13-
week Treasury bills auctioned during the preceding calendar quarter. 
Assessments under this subpart A are delinquent if you do not pay them 
when required by Sec. 502.30.

Subpart B--Fees


Sec. 502.50  What fees does OTS charge?

    (a) The Director assesses fees for examining or investigating 
savings association affiliates. ``Affiliate'' has the meaning in 12 
U.S.C. 1462(9), except that, for this part only, ``affiliate'' does not 
include any entity that is consolidated with a savings association on 
the Consolidated Statement of the Thrift Financial Report.
    (b) The Director assesses fees for processing notices, 
applications, securities filings, and requests, and for providing other 
services.

[[Page 43649]]

Sec. 502.55  Where can I find OTS's fee schedule?

    OTS will periodically publish a schedule of its fees in a Thrift 
Bulletin. OTS will publish these fees at least thirty days before they 
are effective.


Sec. 502.60  When will OTS adjust, add, waive, or eliminate a fee?

    Under unusual circumstances, the Director may deem it necessary or 
appropriate to adjust, add, waive, or eliminate a fee. For example, the 
Director may:
    (a) Reduce any fee to adjust for any inequities, efficiencies, or 
changed procedures that OTS projects will reduce its applications 
processing costs but that OTS did not consider in determining its fees;
    (b) Reduce or waive any fee if OTS determines that the fee would 
unduly or unjustifiably discourage particular types of applications or 
applications for particular categories of transactions;
    (c) Add a fee for a new type of application;
    (d) Increase a fee for an application that presents unusual or 
particularly complex issues of law or policy or otherwise causes the 
agency to incur unusually high processing costs; or
    (e) Charge a fee to recover extraordinary expenses related to 
examination, investigation, regulation, or supervision of savings 
associations or their affiliates.


Sec. 502.65  When is an application fee due?

    (a) You must pay the application fee when you file an application. 
OTS will not process your application if you do not include the 
required fee.
    (b) If OTS cannot complete its review of your application because 
the application is materially deficient and it refuses to accept your 
application for processing, you must pay a new application fee upon 
filing a revised application.
    (c) If a transaction involves multiple applications, you must pay 
the appropriate fee for each application, unless OTS specifies 
otherwise by Thrift Bulletin.


Sec. 502.70  How must I pay an application fee?

    You must pay an application fee to the Office of Thrift 
Supervision. You must include a statement of the fee and how you 
calculated the fee.


Sec. 502.75  What if I do not pay my fees on time?

    (a) Interest. An examination or investigation fee is delinquent if 
OTS does not receive the fee within 30 days of the date specified in a 
bill. The Director will charge interest on a delinquent examination or 
investigation fee. Interest will accrue at a rate (that OTS will 
determine quarterly) equal to 150 percent of the average of the bond-
equivalent rates of 13-week Treasury bills auctioned during the 
preceding calendar quarter.
    (b) Failure to pay. If your holding company, affiliate, or 
subsidiary fails to pay any examination or investigation fee within 60 
days of the date specified in a bill, the Director may assess that fee, 
with interest, against you and collect it from you. If any such entity 
is a holding company, affiliate, or subsidiary of more than one savings 
association, the Director may assess the fee against and collect it 
from each savings association as the Director may prescribe.

    Dated: August 7, 1998.

By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-21866 Filed 8-13-98; 8:45 am]
BILLING CODE 6720-01-U