[Federal Register Volume 63, Number 229 (Monday, November 30, 1998)]
[Rules and Regulations]
[Pages 65663-65673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31745]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 502

[No. 98-118]
RIN 1550-AB20


Assessments and Fees

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending 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 
final rule is designed to correlate OTS's assessments on savings 
associations more closely with the costs associated with supervising 
those associations. At the same time, the final rule establishes a 
regulatory structure that allows OTS to keep its assessment rates as 
low as possible while providing OTS the resources essential to 
effectively supervise the industry. The rule also clarifies certain 
other matters involving assessments and other fees, and revises the 
entire assessment and fee regulation using a plain language format.

EFFECTIVE DATE: January 1, 1999.

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, 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. This section authorizes 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.
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    \1\ 12 U.S.C. 1463(a).
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    Recently, OTS analyzed its operating costs and compared these costs 
to its assessments on savings associations under its current 
regulation. OTS found that its assessments could be more closely 
correlated to its costs in certain respects. For these reasons, on 
August 14, 1998, OTS proposed to amend its assessment 
regulation.2 The proposed rule based assessments on three 
components: the savings association's asset size, its condition, and 
its complexity. The proposed rule also streamlined and clarified OTS's 
regulation concerning fees, and clarified administrative matters.
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    \2\ 63 FR 43642 (Aug. 14, 1998).
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    Today, OTS is issuing a final assessments rule. Briefly, this final 
rule is substantially identical to the proposal, but with certain 
changes to the complexity component. OTS limits its trust examinations 
fee to those associations not subject to the complexity component's 
coverage of trust assets. Additionally, OTS has decided to adopt a 
structure that will permit OTS to use one or more different assessment 
rates for each of the different activities covered by the complexity 
component. Currently, for trust assets and recourse obligations and 
direct credit substitutes, OTS will use flat rates. In contrast, for 
loans serviced for others, OTS will initially use two rates to reflect 
economies of scale in examining these activities. Additionally, the 
final rule clarifies which assets and activities are covered by each of 
the three categories within the complexity component. The final rule is 
described more specifically below.

II. General Discussion of Comments

    The comment period on the proposed rule closed on October 13, 1998. 
OTS received thirteen comments from eight savings associations, four 
trade associations, and one holding company. The comments were mixed, 
with most commenters supporting some parts of the proposal while 
opposing others. Several commenters opposed the complexity component as 
proposed, but expressed no opinions on other aspects of the proposal. 
One commenter supported the proposal, but suggested alternatives. One 
commenter discussed the proposal but did not take a position. All 
others had mixed reactions.
    In the proposed rule, OTS indicated that it has two goals with 
respect to the assessment rule. First, OTS wants to establish an 
assessment structure that keeps assessment rates as low as possible 
while providing the resources essential to effective supervision of a 
changing industry. One commenter opposed the proposal to the extent 
that it would result in an overall increase in assessments. The final 
rule adopted today is designed to correlate OTS assessments to the 
costs of supervision of the thrift industry. As the industry's size, 
condition, and complexity change in the future, OTS's costs will also 
change. The final rule will enable OTS's revenues to move along with 
these changes in its supervisory expenses. OTS believes the approach in 
the final rule is appropriate and should not result in overcharging the 
thrift industry.
    As its second goal, OTS wants to more closely tailor assessments 
with OTS's supervisory costs. To do so, OTS used statistical analyses 
of examiner hours to correlate its proposed assessments with 
supervisory costs. Two commenters supported basing assessments on 
examination costs, while one opposed this method, believing examiner 
hours are excessive. Examiner hours are the main component of OTS's 
supervisory expenses that vary with the size, condition, or other 
attributes of thrift institutions. As such, they are a useful standard 
for evaluating consistency between an assessment schedule and actual 
supervision. OTS has not found, and no one has proposed, a better 
alternative. OTS, therefore, will continue to base its assessments on 
its statistical analyses of examination costs.
    Commenters specifically argued that OTS did not provide empirical 
evidence supporting its assertions regarding examination time and 
costs. One commenter noted that OTS did not provide details regarding 
the actual supervision costs, the structure of the quantitative model 
used to analyze costs, or the variables in the model.
    While OTS studied examination costs and examination hours devoted 
to different tasks, it did not publish these studies in the Federal 
Register because they are too voluminous. Instead, OTS provided 
adequate details through other means. First, OTS summarized its 
findings in the notice of proposed rulemaking. In addition, OTS placed 
a paper providing background analysis in the public comment file. This 
paper has been available for inspection in the OTS public reading room. 
Moreover, the Principal Financial Economist who conducted the studies 
was listed as an

[[Page 65664]]

contact person in the proposed rule. Finally, OTS's financial 
statements, including information about OTS's expenses, are available 
on OTS's web site.
    Several commenters noted that the proposed assessments rule would 
place OTS-regulated institutions at a competitive disadvantage with 
regard to national banks and other entities. For example, these 
commenters pointed out that the Office of the Comptroller of the 
Currency (OCC), which regulates national banks, does not impose a 
complexity component, charges a lower condition premium for 4- and 5-
rated institutions, and does not charge for trust examinations. 
Commenters argued that the proposed complexity component would 
discourage thrifts from engaging in the certain activities, 
particularly where profit margins are low, as in the loan servicing 
field. Other commenters predicted that new or existing institutions may 
reconsider their charter choice.
    Competitive disparities are inevitable in any assessment structure. 
Savings associations compete with many institutions that are subject to 
differing assessments structures and other entities that are not 
subject to any assessments. For example, thrifts compete with credit 
unions, and with state chartered commercial and savings banks who do 
not pay Federal assessments. Thrifts also compete with entities that 
are not regulated by a federal banking agency, such as mutual funds.
    Moreover, eliminating the aspects of this rule that are different 
from the OCC assessments model would not eliminate all competitive 
inequities. Rather, such a change would merely move a competitive 
disparity from one thrift to another. For example, if OTS were to 
eliminate the assessment on trust activities or on loan servicing, it 
would necessarily transfer the costs of supervising those activities 
from the institutions that cause them to other savings associations. 
These other institutions would be forced to bear these costs while, at 
the same time, they are trying to compete with other institutions who 
do not have to cover such costs. OTS sees no benefit in such an 
approach. OTS's goal in amending its assessment regulation is to more 
closely tailor its assessments to its costs, which this regulation 
does. OTS believes this is the most equitable approach.
    One commenter encouraged OTS to meet with the OCC to discuss the 
disparities between the assessments for thrifts and national banks. 
Specifically, this commenter urged OTS to evaluate the merits of the 
complexity component with the OCC before implementing the proposed 
rule. This commenter encouraged OTS to work toward a uniform regulation 
with the OCC. Another commenter noted that section 303(a)(2) of the 
Riegle Community Development Act requires OTS to work toward uniform 
regulation with the other federal banking agencies.3
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    \3\ 12 U.S.C. 4803(a)(2). This statute required Federal banking 
agencies to work jointly toward uniform regulations in common areas.
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    OTS considered the OCC's assessment structure in developing its 
proposed and final rules, just as the OCC considered the OTS structure 
in adding a surcharge on its assessments for national banks requiring 
additional supervisory resources.4 However, because the 
thrift industry and the national bank industry differ in certain 
respects, identical rules are not necessarily the most equitable. For 
example, thrifts concentrate on mortgage lending operations, such as 
mortgage servicing, more than national banks. As a result, an 
assessment that does not cover mortgage loan servicing would have a 
more inequitable impact on institutions in the thrift industry than in 
the banking industry. OTS's system will reduce the cross-subsidies 
between thrifts. While this system is different than the OCC's, OTS 
believes it is more equitable for the thrift industry.
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    \4\ See 62 FR 54147 n.5 (Oct. 21, 1997).
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III. Description of the Final Rule

A. Size Component

    OTS proposed to base the first component of the assessment 
calculation on asset size, as reported in the Thrift Financial Report 
(TFR). Like the current regulation, the size component would use 
marginal assessment rates that decline as asset size increases. Second, 
OTS would incorporate some fixed costs into the assessment rate 
schedule via an explicit charge. Commenters generally supported the 
size component, and one noted that this method is easy to understand 
and to plan for. Specific comments regarding the size component are 
discussed below.
1. Declining Rate Schedule
    The proposed assessment structure uses assessment rates that 
decline as asset size increases because OTS realizes economies of scale 
in supervising and regulating larger savings associations. Because 
OTS's experience indicated that the current marginal assessment rates 
are no longer consistent with existing economies of scale, the 
projected marginal rates in the preamble to the proposed rule differed 
from the rates OTS had been using for assessments. Four commenters 
supported this system of declining rates.
    Like the current rule, the proposed graduated schedule included 
seven asset size classes. The highest class included institutions with 
over $35 billion in assets. One commenter urged OTS to add more asset 
size classes. This commenter believed that the largest asset size 
category, $35 billion and larger, denies economies of scale to the 
largest institutions.5 Another commenter suggested that OTS 
reexamine whether the proposed asset size categories are appropriate.
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    \5\ Alternatively, the commenter proposed that OTS base 
assessments on a per hour charge for examiners' actual time at each 
institution. While this method would correlate assessments with 
OTS's supervisory costs, it would also result in fluctuating and 
unpredictable assessments. OTS does not always examine thrifts at 
regular intervals. Some are examined more or less frequently in 
response to marketplace or other events. Currently, for example, OTS 
is conducting Year 2000 examinations, which are a temporary cost. 
OTS believes that the final assessments rule offers savings 
associations a measure of predictability as to the amount due at the 
time of each assessment. This will aid both institutions and the 
agency in the budgetary process. Further, this assessment scheme is 
simpler and less burdensome for the agency to administer.
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    OTS considered altering the asset size categories in its 
assessments regulation, but declines to amend them at this time. There 
currently are not enough savings institutions significantly over $35 
billion in size to justify a new, larger, size category. OTS believes 
the seven asset size categories, along with an adjustable marginal 
assessment rate for each category, will permit OTS to appropriately 
recognize existing economies of scale in the size component. If those 
economies of scale change over time, OTS can incorporate those changes 
by adjusting the rates, for each appropriate class, accordingly.
2. Fixed Charge
    OTS proposed to incorporate fixed supervision costs into the 
assessment rate schedule via an explicit charge assessed on all savings 
associations. Two commenters supported this proposal.6 One 
commenter, however, suggested that OTS should include a lower fixed 
cost in the schedule to cover only the ``basic'' cost of examination 
and impose the fixed cost of other activities (e.g., rule drafting) 
directly on those institutions that are affected by the specific 
regulatory activity.
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    \6\ Three commenters argued that the fixed charge could be 
burdensome to small institutions. These comments are discussed below 
in connection with the alternate fee calculation for small 
institutions.
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    The commenter's proposed alternative would impose excessive and 
unnecessary administrative burdens on

[[Page 65665]]

OTS. It would be impractical administratively to charge each affected 
institution for specific supervision costs on a rule by rule or policy 
by policy basis. It is impossible to determine all the thrifts affected 
by any rule or policy. It would also increase OTS's costs and create 
uncertainty over the assessments that thrifts would pay from one year 
to the next. Accordingly, OTS declines to adopts the commenter's 
alternative proposal. The final rule continues to incorporate the fixed 
cost aspect of the size component, as proposed.
3. Alternate Calculation for Certain Small Institutions
    OTS recognized that the size component could have a 
disproportionate impact on the smallest savings associations--those 
with less than $100 million in assets. Accordingly, OTS proposed to 
base the size component for certain qualifying savings associations on 
the lesser of the new size component or the assessment calculated under 
the current general assessment table. This grandfather provision would 
not be available to savings associations formed after this rule's 
effective date, or to institutions whose assets have exceeded $100 
million at the end of any quarter. Three commenters supported the 
grandfather provision.
    Three commenters suggested modifications to the grandfather 
provisions. These commenters suggested that institutions with less than 
$100 million in assets should qualify for the grandfather provision, 
even if they had more that $100 million in assets at the end of a prior 
quarter. Another commenter believed that institutions should qualify 
for the grandfather clause if their asset size is $150 million or less.
    These suggested approaches would have little effect. For the 
January 1999 assessment, the size component for institutions with over 
$67.5 million in assets will be lower under the new assessment schedule 
than under the existing general assessment schedule. Thus, even if 
these institutions qualified for the special treatment afforded small 
institutions, OTS would use the new size component to compute their 
assessment, rather than the grandfather provision. Institutions under 
$67.5 million in assets will find little difference between the two 
assessments. OTS acknowledges that if supervisory expenses increase in 
the future, this may no longer be true. However, if OTS needs to 
increase its rates, it will consider the effects of an increase on 
small institutions before increasing the marginal rates under the size 
component.
    Finally, one commenter urged that institutions that become savings 
associations after the rule's effective date should qualify for the 
small institution exemption. In proposing the small institution 
exemption, OTS was concerned that the new size component would impose 
undue burdens on existing savings associations, which may not be in a 
position to absorb the new burden. It is not necessary to minimize the 
potential burden of a changing regulatory structure for newly created 
institutions because those institutions will be able to plan for and 
take into account the new assessment schedule as they make their 
initial business decisions.
4. Assessment Rates
    In its proposed rulemaking, OTS included a chart indicating the 
base assessment amounts and marginal assessment rates it was 
considering for the initial size component. OTS, however, also 
indicated that these amounts and rates could change depending on 
changes to the final rule. For example, OTS noted that if it were to 
decide against imposing a complexity component, it would charge higher 
rates under the size component.
    As discussed below, OTS has adopted different assessment rates for 
the activities within the complexity component. As a result, the rates 
for the initial size component are different than those listed in the 
notice of proposed rulemaking. The rates OTS will apply for the January 
31, 1999 semi-annual assessment are set forth in a Thrift Bulletin 
issued simultaneously with this rulemaking and available on OTS's web 
site.

B. Condition Component

    Under the second component of the assessment calculation, OTS 
proposed to impose an additional 25% premium on the size component for 
3-rated institutions and to continue its current 50% premium on 4- and 
5-rated institutions. Commenters addressing the condition component 
generally favored it. One commenter, however, opposed the 25% 
surcharge, arguing that OTS's examination rating system is arbitrary 
and may pressure examiners to generate income through the rating 
system.
    The CAMELS rating system that OTS uses was developed jointly by all 
of the Federal banking regulators in an effort to establish a uniform 
rating system using standard criteria and definitions for rating in six 
different ratings areas. The CAMELS rating system, with its correlation 
to increased supervisory attention, is well suited to distinguish 
between savings associations whose performance is consonant with safe 
and sound operations (1- and 2-rated institutions), those whose 
performance is flawed in certain respects (3-rated institutions), and 
those whose performance is poor or unsatisfactory (4- and 5-rated 
institutions). Over the years, this rating system has proven to be an 
effective supervisory tool for evaluating the soundness of financial 
institutions on a uniform basis and for identifying those institutions 
requiring special supervisory attention or concerns.7
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    \7\ See 61 FR 67021 (Dec. 19, 1996) (Uniform Financial 
Institutions Rating System).
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    Moreover, OTS does not believe that the surcharge for 3-rated 
thrifts will place pressure on examiners to generate income. OTS's 
experience with its surcharge for 4- and 5-rated thrifts has shown no 
pressure to lower ratings to generate revenue. On the contrary, the 
number of 4- and 5-rated savings associations has steadily decreased 
since OTS began imposing a premium for lower rated associations. For 
example, there were 203 institutions rated 4 or 5 in 1992, which 
dropped to 101 in 1993, and plummeted to only 18 by June 1998.
    Two commenters were concerned that the condition component would 
take capital away from struggling institutions. While OTS agrees with 
these commenters' concerns, its analyses demonstrate that examiners 
devote substantially more hours to 3-rated institutions than 1-or 2-
rated institutions, although not as many hours as 4- and 5-rated 
institutions. In other words, 3-rated institutions cause OTS to incur 
extra supervisory costs. OTS must, therefore, pass along those costs 
either to 3-rated associations or to other institutions. Passing the 
costs to 4- and 5-rated institutions would worsen their condition. 
Passing the costs to 1- and 2-rated institutions would unfairly burden 
them. OTS believes the 25% surcharge for three-rated institutions in 
the condition component is the most fair and appropriate solution 
overall, and therefore adopts it as proposed.
    To alleviate some of the burden on 3-rated institutions, one 
commenter suggested a sliding scale within the 3-rated category. Under 
this alternative, some institutions would not incur a full 25% premium. 
OTS considered the commenter's suggestion, but believes that it would 
be impossible to administer fairly. OTS does not assign ``high'' and 
``low'' three-ratings and does not track its examiners' hours on this 
basis. Accordingly, OTS declines to adopt this suggestion.

[[Page 65666]]

C. Complexity Component

    OTS proposed to include a new complexity component in its 
assessment regulation. This component would impose an assessment based 
on a percentage of the value of certain complex assets or activities 
that require OTS to expend supervisory resources beyond those at 
institutions of similar size and condition. OTS proposed that the 
complexity component cover loans serviced for others, trust assets, and 
recourse obligations and direct credit substitutes, to the extent that 
any of these categories exceed $1 billion. OTS solicited comments on 
whether commercial loans and non-residential real estate loans should 
also be included in the basis for the complexity component.
    The complexity component drew the most public comment. One 
commenter agreed that the component was logical, and another supported 
the complexity component for larger institutions with complex 
operations but not for local community institutions that make consumer 
and commercial loans. Ten others opposed at least one aspect of the 
proposed complexity component. As detailed below, OTS adopts much of 
the complexity component as proposed, but makes certain changes and 
clarifications in response to the comments.
1. Assets or Activities Subject to the Complexity Component
    (a) Loan serviced for others. The proposed rule would include loans 
serviced for others as part of the base for the complexity component. 
Three commenters asked how OTS would interpret ``loans serviced for 
others.'' Loans serviced for others, as clarified in the final rule, 
means the principal amount of loans serviced for others, as currently 
reported in the TFR on line SI390.8 This definition is 
familiar to all thrifts that service loans for others because they 
routinely use it in completing TFRs. OTS, therefore, believes this is 
the most appropriate definition to use.
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    \8\ This definition covers loans and securities that a savings 
association or its consolidated subsidiary services but does not 
own. It excludes loans and securities for which the savings 
association or its consolidated subsidiary owns the servicing rights 
but for which it has subcontracted subservicing to a third party. It 
also excludes loans and securities serviced for a savings 
association by its consolidated subsidiary or a subsidiary 
depository institution.
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    Four commenters noted that loans serviced for others are reflected 
on the balance sheet under some circumstances (i.e., mortgage servicing 
rights and asset backed securities), and are therefore covered by the 
size component. At the same time, these assets would also be covered by 
the complexity component. Commenters urged OTS to either remove the 
asset from the complexity component base or from the size component 
base.
    OTS's statistical analyses of examiner hours showed that 
institutions that service loans for others require more examiner hours 
than institutions of similar size and condition without such 
activities. Thus, even to the extent that some assets related to these 
activities are also covered by the size component, the analyses 
demonstrates that the size component alone does not cover the 
supervisory costs for such activities.9
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    \9\ OTS recognizes that servicing rights are covered by the size 
component. However, the value of those rights, within the size 
component, is a very small percentage of the loan size. For example, 
in June 1998, no thrift reported servicing rights assets over 2.25% 
of loans serviced for others. Therefore, even to the extent that 
loan servicing is counted in two components, the amount counted 
twice is very small. Because the amount involved is so small, OTS 
does not believe that the deduction of these amounts is warranted.
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    One commenter observed that there could also be inconsistent 
counting on an industry-wide basis. For example, loans included under 
one association's size component could also be covered by another 
association's complexity component as loans serviced for others. By 
contrast, if an originator retained both the loans and the servicing, 
the loans would be included in the originator's size component, but the 
servicing would not be assessed under the complexity component. This 
commenter questioned why OTS should collect more revenue in the first 
instance than in the second.
    When loans are split into their components and spread between 
institutions, it is appropriate to assess under different components to 
correlate to OTS's costs. Separating loans from their servicing 
increases OTS's supervisory workload because both the loans and the 
loan servicing require OTS's review, sometimes by different groups of 
examiners. To the extent that loan servicing for others exceeds $1 
billion, OTS has found that this activity increases OTS's examination 
costs independently of an institution's size and condition.
    Finally, one commenter noted that complex assets are often 
supported by other related on-balance sheet assets (e.g., fixed assets 
to generate cash flow) and that these related assets are also assessed 
under the size component. Such fixed assets are not included in the 
complexity component, so they are not assessed twice. Rather, they are 
included only in the size component, as are all fixed assets. OTS sees 
no reason to treat these assets differently than the fixed assets that 
support any lines of business.
    Two commenters suggested that mortgage loans serviced for 
government sponsored entities (GSEs) should be excluded from the 
complexity component because GSEs already supervise their servicers. 
GSEs, however, do not always examine servicing for the same purposes as 
OTS, so OTS oversight is also necessary. The complexity component is 
based on, and reflects, OTS's examination costs. If OTS did not assess 
for those costs through the complexity component, the same costs would 
necessarily be imposed on other savings associations.
    One commenter urged OTS to distinguish between loan servicing and 
subservicing. This commenter argued that subservicing does not raise 
the same safety and soundness concerns that servicing does, and that 
subservicing should therefore be excluded from the complexity 
component. In this rulemaking, OTS is seeking to correlate assessments 
with its costs of supervision rather than with the safety and soundness 
of activities. Nevertheless, OTS did consider this concern about 
subservicing. The agency's workload analyses are based on TFRs, which 
do not distinguish between servicing and subservicing. Therefore, the 
agency's statistical analysis cannot separate examination time spent on 
subservicing specifically. However, the agency's experience is that 
supervising loan servicing and subservicing are quite similar and 
require substantially the same amount of examiner time. With both 
servicing and subservicing, examiners look at the quality of 
operations, and they analyze future expected income and costs.
    Subservicing may require slightly less examiner time than 
servicing. However, this is counterbalanced by the fact that direct 
servicing is assessed under the size component because a small 
percentage of the loan value does appear on the balance sheet as a 
servicing asset. Thus, while subservicing may require slightly less 
examining than direct servicing, subservicing is assessed less under 
this rule than direct servicing.
    Current information demonstrates that subservicing should be 
covered by the complexity component. OTS will monitor the amount of its 
time examiners spend on subservicing. If, over time, OTS determines 
that subservicing requires less examination than direct servicing, OTS 
may partially or wholly exclude subservicing from assessments.
    (b) Trust assets administered by the association.

[[Page 65667]]

    The proposed rule would include an assessment under the complexity 
component on trust assets administered by a savings association. For 
purposes of this rule, OTS uses the trust assets identified in Line 
SI350 of the TFR. This covers assets in both discretionary and 
nondiscretionary accounts.
    Two commenters pointed out that OTS currently charges an hourly 
examination fee for trust examinations. Commenters argued that this fee 
in addition to the complexity component's assessment of trust assets 
would be too burdensome. One, a state-chartered trust company, noted 
that it is subject to both state and OTS charges for trust 
examinations.10 Another commenter argued that OTS should 
impose only a trust examination fee and should not impose any 
complexity component on trust assets.
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    \10\ This commenter felt that, while state and federal agencies 
acknowledge the desirability of working together, they generally do 
not coordinate trust examinations. The commenter would prefer to see 
a proposal aimed at finding remedies for these inefficiencies. OTS 
agrees that regulators should avoid duplicative examinations when 
possible. As a policy matter, OTS makes every effort to coordinate 
examinations with state regulators, but it is not always possible to 
do so. OTS will continue its efforts to coordinate examinations 
where appropriate.
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    OTS agrees that coverage of trust assets under the complexity 
component, when combined with the trust examination fee, is 
duplicative. OTS will not assess both against the same institution. 
Under the final rule, the complexity component will only apply when 
trust assets administered by an association exceed $1 billion. The 
trust examination fee, on the other hand, as set forth in a Thrift 
Bulletin issued today, will apply only to trust examinations of savings 
associations that administer $1 billion or less in trust assets. The 
final rule, at Secs. 502.5(c) and 502.50(a), states that trust 
examination fees do not apply to associations that administer more than 
$1 billion in trust assets. This approach should alleviate concerns 
about overly burdensome assessments on savings associations that 
administer trust assets. At the same time, it will keep assessments and 
fees correlated to OTS's costs of supervising associations that 
administer trust assets.
    (c) Recourse obligations and direct credit substitutes.
    The proposed rule would impose an assessment, as part of the 
complexity component, on off-balance sheet activities that are recourse 
obligations and direct credit substitutes, if those activities exceed 
$1 billion. One commenter asked OTS to clarify what this assessment 
covers. For purposes of this rule, OTS uses the same definitions for 
recourse obligations and direct credit substitutes that OTS uses for 
the TFR line CC455. This definition includes the full value of assets 
covered, fully or partially, by a savings association's recourse 
obligations or direct credit substitutes. The final rule, at 
Sec. 502.25(a)(3), contains this clarification. Generally, recourse 
obligations are arrangements by which an association retains credit 
risk on assets that it sells to a third party. Direct credit 
substitutes are arrangements by which an association assumes credit 
risk on assets that another institution sells to a third party.
    One commenter specifically requested that OTS clarify its use of 
the phrase ``off-balance sheet assets.'' This commenter noted that that 
some off-balance sheet assets, such as routine interest rate swaps, 
require less OTS oversight than other types, such as complex hedging 
strategies. The complexity component would not be assessed against all 
off-balance sheet activities, but only those identified in the 
regulation. To avoid confusion with other types of off-balance sheet 
activities, however, OTS has revised the rule text to delete the phrase 
``off-balance sheet assets.''
    Another commenter observed that some direct credit substitutes and 
recourse obligations are also on-balance sheet assets, and are subject 
to assessment twice, under the size and the complexity components. 
However, these items have an independent significant effect on OTS's 
costs. OTS's statistical analyses of examiner hours showed that 
institutions with recourse obligations or direct credit substitutes 
require more examiner hours than institutions of similar size and 
condition without such activities. Thus, even to the extent that some 
recourse obligations and direct credit substitutes are covered by the 
size component, the analysis demonstrates that the size component alone 
does not cover the supervisory costs for such activities.
    (d) Commercial and non-residential real estate loans.
    OTS asked for comment whether commercial and non-residential real 
estate loans should be included in the complexity component. The four 
commenters addressing this question advocated excluding these loan 
types from the complexity component's coverage. One pointed out that 
while these are more complex than other loans, they have higher 
balances and produce economies of scale in the examination process. 
Another commenter believed that all on-balance sheet assets should be 
subject to the same assessment rate no matter their complexity. 
Finally, one commenter believed that commercial and non-residential 
mortgages should not be included in the complexity component without 
sound empirical evidence that this lending entails more examination 
costs.11
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    \11\ One commenter believed that commercial and non-residential 
mortgage loans only require extra supervisory efforts if they suffer 
from credit problems. This commenter argued that OTS's extra costs 
for such credit problem would be covered by the condition component 
and that covering the costs in the complexity component is 
unnecessary. OTS agrees that credit risk is a part of commercial 
lending, but it does not follow that savings associations exposed to 
some credit risk are necessarily rated a 3, 4, or 5. Thus, the 
condition component may not apply to associations with commercial 
loans that require extra supervision.
---------------------------------------------------------------------------

    OTS has decided against including commercial loans and non-
residential real estate loans in the complexity component. OTS wishes 
to encourage thrifts to diversify their operations where they can do so 
safely and soundly. Additionally, commercial and non-residential real 
estate lending is currently a relatively minor part of the industry's 
overall activities. However, OTS will continue to collect empirical 
data on this lending activity. If in the future, OTS determines that 
its costs of supervision warrant the addition of commercial and non-
residential loans to the complexity component, it will propose 
appropriate revisions to the assessment rule.
    (e) Loans sold with servicing released.
    OTS considered including another type of asset in the complexity 
component--loans sold with servicing released. Some savings 
associations originate large volumes of loans and immediately sell the 
loans and the servicing. Because the originators sell these loans 
quickly, only a portion of the loans appear on the savings 
association's September or March TFR and are subject to assessment 
under the size component. These associations, however, can incur 
serious risks to their safety and soundness and significant compliance 
obligations in producing and selling large volumes of these loans. As a 
consequence, examiners must expend considerable amounts of time 
examining these operations.
    The final rule does not specifically address loans sold with 
servicing released. However, if OTS determines that a particular 
savings association is taking on additional risks with this type of 
activity, thus requiring OTS to incur extraordinary expenses to examine 
and supervise the activity, the agency may impose a fee under 
Secs. 502.5(c) and 502.60(c).12 If in the future, the risks

[[Page 65668]]

from this activity become more commonplace or more severe, OTS may 
consider amending this rule to specifically cover the activity.
---------------------------------------------------------------------------

    \12\ One commenter opposed proposed Secs. 502.5(c) and 502.60, 
arguing that the condition component should cover all extraordinary 
expenses. OTS continues to believe that the most appropriate 
treatment of extraordinary expenses is to charge the institution 
that causes OTS to incur the expenses. Contrary to the commenter's 
assertion, OTS does not always incur such costs in examining 3-, 4- 
or 5-rated institutions. Rather, extraordinary fees may be 
appropriate for recovering supervisory costs from any institution 
that poses an extraordinary burden, or requires OTS to obtain expert 
advice in areas beyond those that OTS normally encounters. Such 
costs might, for example, include the cost of an interpreter where 
numerous documents are in a foreign language. OTS might also assess 
a fee for extraordinary expenses if assets are nominally transferred 
to on affiliate to avoid assessments, but the savings association 
retains the risks and responsibilities of those assets. For these 
reasons, OTS adopts Secs. 502.5(c) and 502.60(e) as proposed.
---------------------------------------------------------------------------

2. $1 Billion Threshold
    OTS proposed to assess the complexity component only when assets 
included in each category of complex assets (trust assets, loans 
serviced for others, and recourse obligations and direct credit 
substitutes) exceed $1 billion. OTS solicited comments on this proposed 
$1 billion threshold. One commenter believed the $1 billion proposed 
threshold is reasonable, while another thought it is too high. One 
commenter opined that complex assets require less supervisory attention 
in larger institutions than in smaller institutions. This commenter 
argued that the complexity component should apply when complex assets 
exceed a specified percentage of assets.
    OTS's statistical analyses found that a $1 billion threshold is 
better correlated with the agency's examination workload than a 
percentage-of-assets threshold. Additionally, a threshold based on a 
percentage of assets would be more difficult to administer, and would 
be more uncertain for thrifts. For these reasons, OTS adopts the $1 
billion threshold as proposed.
3. Assessment Rates for Complexity Component
    OTS proposed to use the same assessment rate for all assets subject 
to the complexity component. The preamble to the proposed rule 
indicated that OTS expected to apply a flat rate of 0.0015% to all 
complex assets that exceed the $1 billion thresholds.
    Several commenters questioned whether all complex assets warrant 
the same assessment rate. Commenters argued that different off-balance 
sheet assets may require differing levels of supervision.
    In response to these comments, OTS reviewed its cost statistics. 
OTS found that loans serviced for others, trust assets, and recourse 
obligations and direct credit substitutes do not all have identical 
effects on examination hours. More specifically, OTS found that 
recourse obligations and direct credit substitutes have a greater 
effect on examiner hours than trust assets administered by a savings 
association, which, in turn, have a greater effect on examiner hours 
than loans serviced for others. OTS therefore believes different 
assessment rates should apply to the different activities within the 
complexity component. Initially, OTS will assess trust assets at a rate 
of 0.0015%, and recourse obligations and direct credit substitutes at 
0.0030%. For loans serviced for others, OTS will use two different 
assessment rates to recognize economies of scale, as discussed 
immediately below.
    OTS proposed no upper limit on the complexity component, but 
requested comment on whether there should be a cap on this component. 
Five commenters discussed economies of scale in administering or 
supervising complex activities. One thought a cap of $3 billion would 
avoid penalizing thrifts who have achieved economies of scale in their 
operations. Three favored a declining marginal assessment rate as asset 
size increases, and one of these suggested a flat fee together with a 
declining assessment rate. The fifth commenter did not suggest a 
specific method for addressing economies of scale. In addition, two 
commenters suggested some unspecified cap on the complexity component.
    In response to comments, OTS reviewed its data, focusing on the 
extent to which economies of scale affect examiner workload for complex 
activities. The analysis demonstrates that OTS may realize some 
economies of scale in supervising loans serviced for others for 
portfolios above $10 billion.
    OTS's experience with the examination of trust assets, recourse 
obligations and direct credit substitutes, on the other hand, does not 
support a conclusion that the economies of scale for these activities 
should be reflected in the assessment rates. Therefore, the agency 
continues to use a flat rate for each of these activities above the $1 
billion threshold. OTS will continue to collect and analyze data 
concerning these activities to determine whether it should recognize 
economies of scale in the future.
    Therefore, OTS has revised Sec. 502.25 to indicate that it may 
establish one or more assessment rates for activities under the 
complexity component. OTS will set forth all assessment rates for the 
complexity component in a Thrift Bulletin and will revise theses rates 
periodically. Initially, OTS will use the following rates:

 
                                                              Assessment
                Complexity component category                    rate
                                                               (percent)
 
Loans serviced for others, over $1 billion, up to $10
 billion....................................................     0.0010
Loans serviced for others, over $10 billion.................     0.0005
Trust assets administered...................................     0.0015
Recourse obligations and direct credit substitutes..........     0.0030
 

D. Consolidation

    OTS solicited comments on how it should assess savings associations 
that own depository institutions or non-depository institutions, or 
multiple savings associations owned by one holding company. Four 
commenters favored consolidating thrifts that own thrifts for 
assessment purposes, while one opposed this approach. One commenter 
opposed aggregating off-balance sheet activities of a thrift's 
consolidated subsidiary with the parent's off-balance sheet activities, 
believing that the parent-subsidiary structure insulates the thrift 
from risk. Two commenters thought OTS should adjust assessments to 
reflect economies of scale in supervising institutions within the same 
family structure. Finally, two commenters believed that non-lead 
thrifts owned by a multiple savings and loan holding company should get 
a discount on their assessments.
    OTS will continue to include consolidated depository institution or 
other regulated subsidiaries in the assessment calculations for parent 
thrifts on the same basis as all other consolidated subsidiaries. This 
will incorporate economies of scale into the assessment of consolidated 
companies through the decreased assessment rates for larger 
associations. OTS believes recognizing these economies of scale is 
appropriate because it reflects OTS's costs of supervising consolidated 
entities. OTS will not, at this time, incorporate any discount for a 
non-lead thrift owned by a multiple savings and loan holding company, 
but will continue its practice of treating the sister thrifts as 
separate corporations. Because sister thrifts do not necessarily 
operate as one company, and can have very different operations and 
different types or amounts of risk, OTS does not realize the same 
economies of scale as it does with one larger thrift.

E. Other Matters

1. Semi-annual Assessment
    Unlike the current rule, which provides for quarterly or semi-
annual

[[Page 65669]]

assessments, the proposed rule would collect all assessments on a semi-
annual basis. Three commenters supported the semi-annual assessment, 
and none opposed it. OTS believes that a semi-annual assessment will 
impose the least burden on the thrift industry and the agency. 
Accordingly, the final rule requires semi-annual assessments.
    One commenter requested that OTS clarify whether the complexity 
component would be imposed on a semiannual basis. The proposed rule 
stated, at Sec. 502.10, ``OTS determines your semiannual assessment by 
totaling three components: your size, your condition and the complexity 
of your business.'' OTS calculates each component semiannually.
2. Publication of Assessment Schedules
    The size component would use a chart to identify base assessment 
amounts for total assets at certain levels, and would impose marginal 
rates on assets above those levels. This is similar to the treatment 
under existing part 502. However, unlike the existing regulation, the 
proposed rule would not include specific base assessment amounts or 
marginal rates in the regulatory text. Rather, OTS proposed to publish 
the specific base amounts and marginal rates in publicly available 
Thrift Bulletins and on its web site. Similarly, OTS proposed to 
publish the assessment rate for the complexity component in the Thrift 
Bulletin and on its web site.
    Three commenters agreed that this approach is reasonable. These 
commenters argued that this system eliminates delays, is more flexible, 
and will make rates more easily available. One commenter, however, 
argued that OTS should not increase the assessment rate schedule 
without publishing a proposal in the Federal Register for notice and 
comment. This commenter, however, would not object to the current 
system where the regulation reflects higher assessment levels that are 
subject to a reduction in a Thrift Bulletin. This commenter also argued 
that OTS may be required to publish a new proposal if the rates in the 
final regulation differ significantly from the proposal.
    OTS currently publishes assessment rates in a Thrift Bulletin, 
under the authority in existing Sec. 502.6 to set rates lower than 
those published in its regulation. Thus, since the early 1990s, thrift 
have been charged assessments that are different from those included in 
the regulation. Having outdated rates in the regulation has caused 
confusion. For this reason, OTS does not want to codify rates in a 
regulation that will quickly become obsolete.
    Additionally, OTS's goals in this rulemaking are to keep its rates 
as low as it can while still providing OTS with essential resources, 
and to more closely tailor its rates to its costs. With actual rates in 
a Thrift Bulletin rather than in a regulation, OTS can readily revise 
the rates to lower them when it is appropriate, and can more readily 
align them to changes in OTS's costs of supervising the thrift 
industry. The industry has received an opportunity to comment on the 
structure through this rulemaking. Conducting new rulemakings for 
adjustments in rates would impede the agency's ability to adjust its 
rates to reflect increases in its supervisory workload, and thus could 
impair its ability to regulate the industry. For these reasons, OTS 
will announce the rates in Thrift Bulletins.
3. Refund and Proration of Assessments
    In the proposed rule, OTS clarified the existing regulation and 
incorporated OTS's long-standing practice by stating that it will not 
refund or prorate assessments, even if an entity ceases to be a savings 
association. Further, OTS stated that it would not increase or decrease 
assessments based on events that occur after the date of the TFR upon 
which the assessment is based, except for errors in the TFR. One 
commenter believed that this approach avoids burden.
    OTS believes that changing assessments for events after the 
relevant TFR date complicates the assessment process without adding any 
benefit. Accordingly, OTS adopts proposed Sec. 502.40 without 
amendment. At the same time, however, assessments must be calculated 
accurately and should not be based on errors in the TFR. Therefore, 
consistent with its current practice, OTS will, where necessary, 
continue to adjust assessment to reflect corrections to errors 
contained in the TFR.

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et. seq., applies to 
this rulemaking. Accordingly, OTS included in its notice of proposed 
rulemaking an initial regulatory flexibility analysis (IRFA). With this 
final rule, OTS includes the following final regulatory flexibility 
analysis, as required by section 604(a) of the Regulatory Flexibility 
Act, 5 U.S.C. 604(a). In the IRFA, OTS solicited comments on all 
aspects of the IRFA, including any significant impacts the proposed 
rule would have on small entities. OTS received no comments on its 
IRFA. However, OTS did receive comments discussing small savings 
associations and the proposed rule's special size component calculation 
for qualifying associations. These comments are discussed earlier in 
this preamble.
    Reasons for rulemaking. OTS is issuing this final rule to revise 
its current assessments system to match assessments more closely with 
OTS's costs. As described in this preamble and in the notice of 
proposed rulemaking, OTS has found that, under its prior assessment 
system, OTS's costs of supervising some institutions are higher or 
lower than those associations pay in assessments. OTS believes it is 
inappropriate for some savings associations to subsidize the costs of 
others. Therefore, OTS is attempting, through this rule, to more 
closely associate its costs with assessments.
    Objectives of and legal basis for the final rule. OTS has two 
primary objectives for this final rule: (1) establishing an assessment 
structure that keeps the agency's rates as low as possible, and (2) 
more closely tailoring rates to the agency's increased costs in 
supervising certain types of institutions. The Director of OTS is 
authorized by statute to impose assessments.13
---------------------------------------------------------------------------

    \13\ 12 U.S.C. 1462a, 1463, 1467, 1467a.
---------------------------------------------------------------------------

    Effect of the final rule on small savings associations. This final 
rule could affect small savings associations through its condition, 
size, or complexity components. The rule will have no effect on small 
businesses or small organizations other than small savings 
associations, and will not affect small governmental jurisdictions. 
Small savings associations are generally defined, for Regulatory 
Flexibility Act purposes, as those with assets under $100 
million.14
---------------------------------------------------------------------------

    \14\ 13 CFR 121.201 Division H (1998).
---------------------------------------------------------------------------

    The condition component will affect small savings associations. As 
discussed earlier in this preamble and in the notice of proposed 
rulemaking, the condition component imposes an assessment equal to 25% 
of an association's size component for each 3-rated association, 
regardless of its size. Currently, there are 43 savings associations 
that are 3-rated and that have assets under $100 million. The smallest 
of these has assets of approximately $5 million, and the largest has 
approximately $100 million. Their assessments will increase due to the 
condition component by approximately $422 and $5464 annually, 
respectively. Other 3-rated small savings associations will see their 
assessments increase, depending on their size. The largest increase 
will be $5792 for a thrift with $69 million in assets. (Thrifts between 
$69 million and

[[Page 65670]]

$100 million will realize a smaller asset-based assessment under the 
new rule, while thrifts below $69 million will see no change in their 
asset-based assessment. Because the condition component is a percentage 
of the asset-based assessment, it will be greater for a $69 million 
thrift than for a $100 million thrift.)
    As discussed more fully in the notice of proposed rulemaking, 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 match assessments 
with OTS's supervisory costs, and therefore adopts a condition 
component for 3-rated associations. Furthermore, OTS believes that 
requiring 3-rated institutions to pay for their extra supervisory costs 
will provide an incentive for those institutions to improve their 
condition and their ratings. OTS believes that the 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.
    OTS believes the size component will not have a significant 
economic impact on a small number of small entities. OTS specifically 
designed this rule to allow qualifying savings associations, generally 
those with assets under $100 million, to choose between calculating 
their size components under either the old regulation or the new 
regulation. These institutions can therefore avoid any increases in 
their size components.
    If an institution increases above $100 million in assets then 
shrinks below $100 million, or for savings associations that are not 
yet formed, 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. Likewise, OTS cannot 
predict the economic impact of the final rule on such institutions. 
That is because OTS's assessment rates will vary in the future, as 
OTS's supervisory costs change.
    OTS considered, as an alternative to the size component with 
protection for small institutions, leaving its assessment system 
unchanged. OTS believes this alternative would not meet OTS's objective 
of closely tailoring assessment rates to OTS's increased supervisory 
costs while keeping assessment rates as low as possible, while 
minimizing significant economic impacts on small savings associations.
    The complexity component applies only to savings associations that 
have more than $1 billion in certain activities, mostly off balance 
sheet. 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 five savings associations 
that have less than $100 million in balance sheet assets that are 
subject to the complexity component. OTS believes that a regulatory 
flexibility analysis is not necessary regarding the complexity 
component for two reasons. First, OTS believes that five savings 
associations is not a substantial number of small savings associations. 
Second, for purposes of the regulatory flexibility analysis regarding 
the complexity component, OTS defines a small savings association as 
one with less than $100 million in assets including off-balance sheet 
assets. OTS received no public comments on this definition of small 
savings association. The Regulatory Flexibility Act is designed to 
protect the interests of small businesses, while the complexity 
component only affects savings associations with assets or activities 
in excess of $1 billion. OTS does not believe that institutions whose 
activities involve more than $1 billion in off-balance sheet assets 
need any particular protection from the complexity component.
    In any event, OTS considered alternatives to the complexity 
component. OTS considered using no such component, and considered 
including different complex assets in the component, such as commercial 
and non-residential mortgage loans. With no complexity component, less 
complex thrifts would have to subsidize OTS's costs of supervising 
complex institutions. OTS believes the complexity component best 
accomplishes OTS's objective of tailoring assessments to match OTS's 
supervisory costs and keeping assessments as low as possible, while 
minimizing significant economic impacts on small savings associations.
    Other matters. The final rule imposes no reporting, recordkeeping, 
or other compliance requirements. Assessments will continue to be based 
on Thrift Financial Reports that savings associations are otherwise 
required to file with OTS, and OTS will continue to collect assessments 
by its current procedures. Therefore, the final rule will impose no new 
or additional reporting, recordkeeping, or compliance requirements.
    Finally, there are no federal rules that duplicate, overlap, or 
conflict with this rule.

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. This 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.

VI. Paperwork Reduction Act of 1995

    This final rule contains no new information collection 
requirements. The information collection requirements in Sec. 502.70 
are the same as those in the prior 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.

VII. Executive Order 12866

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

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 amends 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?

[[Page 65671]]

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 savings associations that 
administer trust assets of $1 billion or less, and 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 
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    Plus-- Marginal
                Over--                            But not over--          assessment amount         rate               Of assets over-- Class floor
Column A                                   Column B....................                   Column C            ColColumn 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.
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 January 1, 1999.
    (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:

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


[[Page 65672]]

Sec. 502.25  How does OTS determine my complexity component?

    If your portfolio exceeds any of the thresholds in paragraph (a) of 
this section, OTS will calculate your complexity component according to 
paragraph (c) of this section. If your portfolio does not exceed any of 
the thresholds in paragraph (a) of this section, your complexity 
component is zero.
    (a) Thresholds for complexity component. OTS uses three separate 
thresholds in calculating your complexity component. You exceed a 
threshold if you have more than $1 billion in any of the following:
    (1) Trust assets you administer.
    (2) The outstanding principal balance of assets covered, fully or 
partially, by your recourse obligations or direct credit substitutes.
    (3) The principal amount of loans that you service for others.
    (b) Assessment rates. OTS will establish one or more assessment 
rates for each of the types of activities listed in paragraph (a) of 
this section. OTS will publish those assessment rates in a Thrift 
Bulletin.
    (c) Calculation of complexity component. OTS separately considers 
each of the thresholds in paragraph (a) of this section in calculating 
your complexity component. OTS first calculates the amount by which you 
exceed any of those thresholds. OTS multiplies the amount by which you 
exceed any threshold in paragraph (a) of this section by the applicable 
assessment rate(s) under paragraph (b) of this section. OTS then totals 
the results. This total is your complexity component.


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 associations that administer trust assets of $1 billion or 
less, and 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.


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: November 20, 1998.

[[Page 65673]]

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-31745 Filed 11-27-98; 8:45 am]
BILLING CODE 6720-01-P