[Federal Register Volume 65, Number 60 (Tuesday, March 28, 2000)]
[Rules and Regulations]
[Pages 16302-16305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7419]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563, 563c, 563g

[No. 2000-30]
RIN 1550-AB38


Transfer and Repurchase of Government Securities

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Direct final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is removing its 
regulation on the transfer and repurchase of government securities. 
This regulation is unnecessary and is

[[Page 16303]]

overly burdensome to savings associations.

DATES: The direct final rule is effective May 30, 2000 without further 
notice, unless OTS receives significant adverse comments by April 27, 
2000. If OTS receives such comments, it will publish a timely 
withdrawal informing the public that this rule will not take effect.

ADDRESSES: Send comments to Manager, Dissemination Branch, Information 
Management & Services Division, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552. Attention Docket No. 2000-30. Hand 
deliver comments to Public Reference Room, 1700 G Street, NW., lower 
level, from 9 a.m. to 5 p.m. on business days. Send facsimile 
transmissions to FAX (202) 906-7755 or (202) 906-6956 (if the comment 
is over 25 pages). Send e-mails to public.info@ots.treas.gov">public.info@ots.treas.gov and 
include your name and telephone number. Interested persons may inspect 
comments at 1700 G Street, NW., from 9 a.m. until 4 p.m. on business 
days.

FOR FURTHER INFORMATION CONTACT: Ed O'Connell, (202) 906-5694, Manager, 
Supervision Policy: or Teresa Scott (202) 906-6478, Counsel (Banking 
and Finance), Regulations and Legislation Division, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington DC 
20552.

SUPPLEMENTARY INFORMATION:  

Background

    OTS regulations at 12 CFR 563.84 govern the transfer and repurchase 
of government securities under certain circumstances where the savings 
association is obligated to repurchase.\1\ This rule applies to 
repurchase obligations evidencing an indebtedness arising from a 
transfer of direct obligations of, or obligations which are fully 
guaranteed as to principal and interest by, the United States or any 
agency of the United States.
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    \1\ Under these repurchase obligations, a savings association 
obtains funds by selling government securities, and simultaneously 
agrees to buy back the securities at a specified price and date.
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    The rule prohibits savings associations from issuing repurchase 
agreement obligations in denominations under $100,000 and a maturity of 
90 days or more, unless the savings association issues the obligation 
to an institution whose accounts or deposits are insured by the Federal 
Deposit Insurance Corporation (``FDIC'') or to a broker or dealer 
registered with the Securities and Exchange Commission. Repurchase 
agreement obligations under $100,000 with a maturity of less than 90 
days are subject to various consumer protection and other requirements. 
Specifically, the rule: (1) Mandates that all such agreements, related 
advertisements and offering statements must include a legend indicating 
that the obligation is not a savings account or deposit and is not 
insured by the FDIC; (2) prohibits savings associations from making 
specified representations regarding deposit insurance, guarantees, 
etc.; (3) requires the purchaser under the repurchase agreement to 
obtain a perfected security interest in the securities under applicable 
state law; (4) requires that the value of the security underlying the 
repurchase agreement be maintained at a level at least equal to the 
principal amount of the repayment obligation; (5) requires that savings 
associations issuing repurchase agreements to the public make full and 
accurate disclosures of all material information regarding the 
repurchase agreement; (6) imposes additional requirements on certain 
renewals beyond 89 days; and (7) requires a savings association to 
provide additional safeguards and financial disclosures if it does not 
meet specified requirements regarding total capital.\2\
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    \2\ Under this requirement, a savings association's total 
capital must equal one percent of its liabilities plus 20 percent of 
its classified assets.
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    OTS is removing Sec. 563.84 because it is unnecessary and imposes 
overly burdensome requirements on savings associations. One of the 
original purposes of the predecessor of Sec. 563.84 was to ensure that 
savings associations would not use repurchase agreements as a method of 
offering small denomination accounts to avoid existing interest rate 
ceiling restrictions on deposit accounts.\3\ In 1979, the Federal Home 
Loan Bank Board (FHLBB) issued a policy statement prohibiting savings 
associations from entering into any government securities repurchase 
agreements in amounts under $100,000, except with federally insured 
depository institutions or with broker dealers. Because the potential 
for circumvention of the maximum interest rate ceiling was reduced if 
the maturity of the agreement was less than 90 days, the FHLBB revised 
the policy statement to permit short term agreements in amounts under 
$100,000, subject to certain consumer protections.\4\ The FHLBB 
codified the policy statement in its regulations in 1982 and expanded 
consumer protection requirements.\5\
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    \3\ See 12 CFR 531.12, published 44 FR 33669 (June 12, 1979).
    \4\ 44 FR 46445 (August 6, 1979).
    \5\ 47 FR 23140 (May 27, 1982).
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    It is no longer necessary to retain Sec. 563.84 to prevent evasions 
of maximum interest rate ceilings on deposit accounts. Interest rate 
ceilings have not been in effect since March of 1986 when the FHLBB's 
authority to set these ceilings expired.\6\ Savings associations, of 
course, still may not pay interest on commercial checking accounts.\7\ 
However, OTS has concluded that federal savings associations may offer 
various sweep accounts to transfer idle, non-interest bearing demand 
deposit account (DDA) checking funds to investment vehicles to generate 
earnings.\8\ OTS has specifically stated that these sweep accounts, 
including sweep arrangements that use government security repurchase 
agreements, are permissible notwithstanding the prohibition on the 
payment of interest on DDAs.
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    \6\ As of March 31, 1986, the FHLBB's authority to regulate 
payment of interest under section 5B of the Federal Home Loan Bank 
Act expired. 12 U.S.C. 1425b (1980). The FHLBB amended its 
regulations to reflect these changes on March 31, 1986. See 51 FR 
10810 (March 31, 1986).
    \7\ 12 U.S.C. 1464(b)(1)(B)(i).
    \8\ Op. Chief Counsel (March 2, 1998). Typically, under these 
transactions, funds are swept out of a DDA at the end of a business 
day and into an investment vehicle, and swept back to the DDA the 
next morning to pay checks as needed. This process is repeated each 
business day.
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    To the extent that Sec. 563.84 was designed to protect consumers 
who buy United States government securities under repurchase 
agreements, OTS believes that existing statutes, regulations and 
guidance already adequately serve this function. The commercial 
repurchase market is much more developed than when the regulation was 
adopted and is regulated now in other ways. The Government Securities 
Act of 1986 (the GSA),\9\ for example, protects investors in government 
securities by establishing appropriate financial responsibility and 
custodial standards. Under the Department of Treasury's implementing 
regulations,\10\ a thrift that holds government securities for another 
party to a hold-in-custody repurchase agreement must comply with 
requirements for safeguarding and custody of the securities. The 
savings association is also subject to other provisions requiring 
written agreements, confirmations and disclosures, including 
disclosures that the obligation is not a deposit and is not insured by 
the FDIC.\11\ Moreover, Thrift Bulletin 23-2, Interagency Statement on 
Retail Sales of Non-deposit Investment

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Products (February 22, 1994) provides for certain customer protections, 
including disclosures, for retail sales of non-deposit investment 
products, including government securities repurchase agreements. In 
addition, OTS notes that state and federal anti-fraud provisions, which 
generally require the disclosure of facts that would be material to a 
decision to invest in a security, also apply to repurchase 
transactions.\12\
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    \9\ The Government Securities Act of 1986 (Pub. L. 99-571, 100 
Stat 3208), as amended by, Pub. L. 103-202, 107 Stat 2344.
    \10\ 17 CFR parts 400 through 450.
    \11\ Savings associations that enter into repurchase agreements 
should pay particular attention to the requirements and required 
disclosures at 17 CFR 403.5.
    \12\ See The Federal Financial Institutions Examination 
Council's Policy Statement on Repurchase Agreements of Depository 
Institutions with Security Dealers and Others, 63 FR 6935 (February 
11, 1998) and Thrift Bulletin 23-2.
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    OTS also believes that Sec. 563.84 may unduly restrict savings 
associations' ability to engage in certain types of transactions. Since 
none of the other federal banking agencies currently have similar 
provisions, OTS believes that the retention of this rule may have a 
negative impact on the ability of OTS-regulated institutions to compete 
on an equal footing.
    For example, in a recent opinion letter, OTS clarified the 
authority of savings associations to offer various types of sweep 
accounts, including the use of repurchase agreements in sweep 
accounts.\13\ Section 563.84, however, requires that the interest of a 
repurchase agreement purchaser in the security or securities underlying 
the repurchase agreement constitute a perfected security interest under 
applicable state law. Various state laws \14\ no longer allow for the 
perfection of a security interest in a security through placement with 
a trustee, such as a Federal Home Loan Bank. Other perfection methods 
may be operationally impractical in the context of repurchase agreement 
sweep accounts that typically involve repeated collateralizations of 
varying dollar amounts.\15\ As a result, this regulation may 
effectively bar savings associations' use of repurchase agreement sweep 
accounts to accommodate the cash management needs of their commercial 
customers. As noted above, other financial institutions are not subject 
to similar restrictions.
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    \13\ Op. Chief Counsel (March 2, 1998).
    \14\ See Uniform Commercial Code, Article 8, as amended by the 
various states.
    \15\ Although this rule eliminates the requirement that the 
purchaser under the repurchase agreement obtain a perfected security 
interest in the securities under state law, 17 CFR 450.4 of the 
Treasury GSA regulations provides specific protections for 
safeguarding and custody of the securities.
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    For these reasons, OTS is deleting Sec. 563.84. In the absence of 
this provision, federal savings associations would continue to be 
authorized to engage in repurchase agreements. This authority would be 
subject to applicable statutes and regulations, including the GSA, 
Treasury's implementing regulations, Thrift Bulletin 23-2, and state 
and federal securities laws. In addition, the Federal Financial 
Institutions Examination Council's Policy Statement on Repurchase 
Agreements of Depository Institutions with Securities Dealers and 
Others \16\ provides safety and soundness guidance to depository 
institutions entering into repurchase agreements. The FFIEC Policy 
Statement cautions that institutions should have adequate policies and 
controls for their particular circumstances, provides explicit guidance 
for controlling collateral for securities sold under an agreement to 
repurchase, and contains other pertinent guidance.
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    \16\ 63 FR 6935 (February 11, 1998).
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Rulemaking Procedures

    Direct final rulemaking is a technique for expediting the issuance 
of non-controversial rules. Under this procedure, an agency may publish 
a rule in the Federal Register with a statement that, unless a 
significant adverse comment is received within a specified time period, 
the rule will become effective as a final rule on a particular date. If 
a significant adverse comment is filed, however, the agency must 
withdraw the direct final rule and complete standard notice and comment 
procedures. This procedure permits an agency to issue final rules 
expeditiously, while at the same time offering the public the 
opportunity to challenge the agency's view that the rule is non-
controversial.\17\
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    \17\ Under current law, direct final rulemaking is supported by 
two rationales. First, it is justified by the Administrative 
Procedure Act's ``good cause'' exemption from notice-and-comment 
procedures where such procedures are ``unnecessary.'' The agency's 
solicitation of public comment does not undercut this argument, but 
rather is used to validate the agency's initial determination.
    Alternatively, direct final rulemaking also complies with the 
basic notice-and-comment requirements in section 553 of the APA. The 
agency provides notice and opportunity to comment on the rule 
through its Federal Register notice; the publication requirements 
are met, although the information has been published earlier in the 
process than normal; and the requisite advance notice of the 
effective date required by the APA is provided.
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    Several other federal agencies, including the Environmental 
Protection Agency, the Department of Agriculture, and the Department of 
Transportation, have used this procedure to expedite non-controversial 
rules. The primary advantage of the procedure is that it permits an 
agency to issue rules without having to go through internal and 
external review processes twice (i.e., at the proposed and final rule 
stage).
    The Administrative Conference of the United States adopted 
Recommendation 95-4 encouraging the use of direct final rulemaking,\18\ 
and recommending that agencies develop a direct final rulemaking 
process for issuing rules that are unlikely to result in significant 
adverse comments.
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    \18\ 60 FR 43108 (Aug. 18, 1995). The National Performance 
Review has also endorsed the use of this process. See Office of the 
Vice President, Creating a Government that Works Better and Costs 
Less, Improving Regulatory Systems, National Performance Review, 42-
44 (1993).
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    OTS has concluded that this rule is non-controversial and should 
elicit no significant adverse comment.\19\ Accordingly, the agency has 
determined that it is appropriate to apply direct final rulemaking 
procedures. This preamble explains the procedures OTS intends to use 
for direct final rules. The agency welcomes any comments on how to make 
this process more useful.
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    \19\ The rulemaking record includes a copy of a petition for 
rulemaking requesting OTS to initiate this proceeding.
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    Consistent with the Administrative Conference's recommendations, 
OTS is applying the following procedures in this rulemaking:
    OTS is publishing this notice of direct final rule in the final 
rule section of the Federal Register and is including an opportunity 
for public comment on the substance of the change (i.e., a 30-day 
public comment period). Consistent with the Administrative Conference 
recommendation, OTS has included a statement of basis and purpose for 
the rule and has discussed relevant substantive issues in the 
discussion above.
    The direct final rule will automatically become effective in 60 
days, unless OTS receives a significant adverse comment within the 30-
day comment period. If a timely, significant adverse comment is 
received, OTS will withdraw the direct final rule before the stated 
effective date. To be a significant adverse comment, the comment must 
explain why the rule would be inappropriate, including challenges to 
the rule's underlying premise or approach, or why the rule would be 
ineffective or unacceptable without a change.
    To ensure that the promulgation of a final rule will not be delayed 
if significant adverse comments are submitted, OTS has published a 
related notice of proposed rulemaking (NPRM) elsewhere in today's 
Federal Register. This related notice cross-references the direct final 
rule. The related notice indicates that if a timely, significant 
adverse comment on the matter is received, OTS will address all public

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comments in subsequent final rule based on the NPRM. If no significant 
adverse comments are timely received, OTS will take no further action 
on the NPRM.

Effective Date

    This direct final rule imposes no additional requirements on 
insured depository institutions. This rule is therefore exempt from the 
requirement found in section 302 of the Riegle Community Development 
and Regulatory Improvement Act of 1994 \20\ that regulations must not 
take effect before the first day of the quarter following publication.
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    \20\ Pub. L. No. 103-325, 12 U.S.C. 4802.
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Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act,\21\ 
the Director certifies that this direct final rule will not have a 
significant economic impact on a substantial number of small entities. 
The rule merely removes an unnecessary regulation that imposes overly 
burdensome requirements on all savings associations, including small 
savings associations.
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    \21\ Pub. L. No. 96-354, 5 U.S.C. 601.
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Executive Order 12866

    OTS has determined that this direct final rule is not a 
``significant regulatory action'' for purposes of Executive Order 
12866.

Unfunded Mandates Reform Act of 1995

    OTS has determined that the requirements of this direct final rule 
will not result in expenditures by State, local, and tribal governments 
or by the private sector of $100 million or more in any one year. 
Accordingly, a budgetary impact statement is not required under section 
202 of the Unfunded Mandates Reform Act of 1995.

Federalism

    Executive Order 13132 imposes certain requirements on an agency 
when formulating and implementing policies that have federalism 
implications or taking actions that preempt state law. OTS has 
determined that this direct final rule will not have substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government, and will not 
preempt State law.

List of Subjects

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Investments, Reporting 
and recordkeeping requirements, Savings associations, Securities, 
Surety bonds.

12 CFR Part 563c

    Accounting, Savings associations, Securities.

12 CFR Part 563g

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

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

PART 563--OPERATIONS

    1. The authority citation for part 563 continues to read as 
follows:

    Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
1817, 1820, 1828, 1831i, 3806; 42 U.S.C. 4106.


Sec. 563.84  [Removed]

    2. Section 563.84 is removed.

PART 563c--ACCOUNTING REQUIREMENTS

    3. The authority citation for part 563c continues to read as 
follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 78c(b), 78m, 
78n, 78w.


    4. Section 563c.101 is amended by revising paragraph (c) to read as 
follows:


Sec. 563c.101  Application of this subpart.

* * * * *
    (c) Any offering circular required to be used in connection with 
the issuance of mutual capital certificates under Sec. 563.74 and debt 
securities under Sec. 563.80 and Sec. 563.81 of this chapter.

PART 563g--SECURITIES OFFERINGS

    5. The authority citation for part 563g continues to read as 
follows:


    Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 78c(b), 78l, 
78m, 78n, 78p, 78w.


Sec. 563g.3  [Amended]

    6. Section 563g.3 is amended by removing and reserving paragraph 
(a).

    Dated: March 21, 2000.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 00-7419 Filed 3-27-00; 8:45 am]
BILLING CODE 6720-01-P