[Federal Register Volume 65, Number 60 (Tuesday, March 28, 2000)]
[Proposed Rules]
[Pages 16350-16352]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7420]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 65, No. 60 / Tuesday, March 28, 2000 / 
Proposed Rules  

[[Page 16350]]



DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563, 563c, 563g

[No. 2000-31]
RIN 1550-AB38


Transfer and Repurchase of Government Securities

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to remove 
its regulation on the transfer and repurchase of government securities. 
This regulation is unnecessary and is overly burdensome to savings 
associations.

DATES: Comments must be received on or before April 27, 2000.

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. 2000-31. Hand 
deliver comments to Public Reference Room, 1700 G Street, NW., lower 
level, from 9:00 A.M. to 5:00 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 9:00 A.M. until 4:00 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 proposing to remove 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

[[Page 16351]]

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 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 proposing to delete 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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Comments; Accompanying Direct Final Rule

    If no significant adverse comments are timely received, no further 
activity is contemplated relative to this proposed rule. Rather, the 
related direct final rule published elsewhere in this issue of the 
Federal Register will automatically go into effect on the date 
specified in that rule. If significant adverse comments are timely 
received, the direct final rule will be withdrawn and all public 
comments received will be addressed in a subsequent final rule. Because 
OTS will not institute a second comment period for this proposed rule, 
any parties interested in commenting should do so during this comment 
period.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act,\17\ 
the Director certifies that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The rule would merely remove an unnecessary regulation that imposes 
overly burdensome requirements on all savings associations, including 
small savings associations.
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    \17\ Pub. L. No. 96-354, 5 U.S.C. 601.
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Executive Order 12866

    OTS has determined that this proposed 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 proposed 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 polices that have federalism 
implications or taking actions that preempt state law. OTS has 
determined that this proposed 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.

[[Page 16352]]

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 proposes to 
amend 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. 00-7420 Filed 3-27-00; 8:45 am]
BILLING CODE 6720-01-P