[Federal Register Volume 65, Number 134 (Wednesday, July 12, 2000)]
[Rules and Regulations]
[Pages 43088-43091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16346]



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Part II





Department of the Treasury





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Office of Thrift Supervision



12 CFR Parts 563b and 575



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Repurchases of Stock by Recently Converted Savings Associations, Mutual 
Holding Company Dividend Waivers, Gramm-Leach-Bliley Act Changes; 
Interim Rule



Mutual Savings Associations, Mutual Holding Company Reorganizations, 
and Conversions from Mutual to Stock Form; Proposed Rule

  Federal Register / Vol. 65, No. 134 / Wednesday, July 12, 2000 / 
Rules and Regulations  

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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563b and 575

[No. 2000-56]
RIN 1550-AB24


Repurchases of Stock by Recently Converted Savings Associations, 
Mutual Holding Company Dividend Waivers, Gramm-Leach-Bliley Act Changes

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Interim rule with request for comment.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its 
regulations governing repurchases of stock of insured savings 
associations and certain related provisions in the mutual holding 
company regulations to ease regulatory burden. OTS is also amending its 
rules to implement changes regarding waivers of dividends for mutual 
holding companies, and to incorporate certain changes resulting from 
the passage of the Gramm-Leach-Bliley Act of 1999 (GLB Act).

DATES: This interim final rule is effective July 12, 2000. Comments 
must be received by October 10, 2000.

ADDRESSES: Send comments to Manager, Dissemination Branch, Information 
Management and Services Division, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552, Attention Docket No. 2000-56. Hand-
deliver comments to the Guard's Desk, East Lobby Entrance, 1700 G 
Street, NW., from 9 a.m. to 4 p.m. on business days. Send facsimile 
transmissions to FAX Number (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 the Public Reference Room, 1700 G Street, NW., from 
10 a.m. until 4 p.m. on Tuesdays and Thursdays.

FOR FURTHER INFORMATION CONTACT: David A. Permut, Counsel (Banking and 
Finance), (202) 906-7505, or Gary Jeffers, Counsel (Banking and 
Finance), (202) 906-6457, Business Transactions Division, Chief 
Counsel's Office; or Timothy P. Leary, Counsel (Banking and Finance), 
(202) 906-7170, Regulations and Legislation Division, Chief Counsel's 
Office; or Mary Jo Johnson, Project Manager (202) 906-5739, Supervision 
Policy, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.

SUPPLEMENTARY INFORMATION:

A. Stock Repurchases

    Current OTS regulations require savings associations to follow OTS 
rules on stock repurchases for three years following a conversion from 
mutual to stock form. See 12 CFR 563b.3(g). In the first year following 
the transaction, the savings association cannot repurchase any stock. 
In the second and third years, the savings association may repurchase 
up to five percent of its stock in any twelve month period as long as 
the repurchases do not cause the institution to become 
undercapitalized, and certain other conditions have been met. OTS has 
also permitted repurchases in excess of those limits where an 
institution has established exceptional circumstances, such as when the 
stock price has fallen below the initial offering price. Because OTS 
regulations also prohibit savings association subsidiaries of mutual 
holding companies (MHCs) from repurchasing their stock for the first 
three years following the association's stock offering (12 CFR 
575.11(c)), savings associations that have reorganized into MHC form 
must request a waiver from OTS regulations to conduct a stock 
repurchase.
    Numerous stock savings associations and subsidiary holding 
companies of MHCs have requested waivers for stock repurchases in 
amounts that do not conform to OTS limitations. OTS has routinely 
granted the requested waivers. OTS has decided the repurchase of stock 
after the first year following conversion or issuance in an MHC 
minority stock offering should be a business decision of the 
institution. OTS believes that there are sufficient means, such as 
business plan review and approval, to ensure the safe and sound 
regulation of converted savings associations. Moreover, the current 
rule is inconsistent with the treatment accorded by other federal 
banking agencies.
    Therefore, OTS revises its regulations to eliminate restrictions on 
stock repurchases by converted savings associations after the first 
year following conversion. Where the institution has established 
extraordinary circumstances, a converted savings association may 
repurchase its stock during the first year after conversion, provided 
the savings association files a notice under amended Sec. 563b.3(g)(3) 
and OTS does not object to the planned repurchase.\1\ OTS will work 
with the FDIC to establish consistent practices among the agencies 
regarding implementation of this provision.
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    \1\ The proposed repurchase provisions conform to the FDIC's 
treatment of stock repurchases by converted institutions. See 12 CFR 
333.4(d) (1999).
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    In determining whether to object to a proposed stock repurchase 
during the first year following conversion, OTS will consider how the 
extraordinary circumstances, absent a repurchase, may detrimentally 
affect an institution's financial condition, the business purpose for 
the repurchase, and the permissibility of the repurchase under other 
applicable regulations. See amended Sec. 563b.3(g)(3).
    OTS also is making corresponding amendments to the mutual holding 
company (MHC) regulations, and amending the MHC regulations to address 
MHC purchases of stock of subsidiary savings associations or of 
subsidiary holding companies.

B. Dividend Waivers for Mutual Holding Companies

    OTS regulation Sec. 575.11(d) allows MHCs to waive dividends 
subject to certain restrictions. Under Sec. 575.11(d), MHCs file notice 
of their intent to waive dividends and include a copy of a board of 
directors resolution concluding that the dividend waiver is consistent 
with the board's fiduciary duties. OTS will not object to the notice if 
it determines that the waiver would not be detrimental to the safe and 
sound operation of the savings association.
    Waiving dividends saves the MHC from corporate taxation on the 
dividends and leaves capital at the subsidiary savings association 
where, in most cases, it can be deployed more efficiently. MHCs have 
requested clarification on whether the payment of dividends and MHC 
waiver of dividends will cause OTS to require minority shareholder 
dilution if the MHC subsequently determines to fully convert to stock 
form. Minority shareholder dilution would occur if OTS required 
converting MHCs to reduce the number of shares minority shareholders 
receive when they exchange their shares for shares in the fully 
converted company that correspond to the amount of waived dividends. 
The reduction in shares for minority shareholders reflects that they 
previously received their dividends while the MHC waived its dividends. 
OTS has required some dilution in past transactions, but only to the 
extent of excess or special dividends paid by the subsidiary holding 
company or savings association to minority shareholders

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and waived by the MHC. OTS has not required shareholder dilution for 
ordinary dividends.
    OTS has reexamined this issue and has determined to change its 
practice with respect to waived dividends. OTS will no longer require 
dilution for any waived dividends in a subsequent conversion to stock 
form. OTS believes the belief that the minority shareholders would 
experience dilution caused a number of institutions to fully convert to 
stock form, rather than remain in MHC form. Instead, to prevent 
excessive dividends OTS will rely on the business plan filed with the 
reorganization application and on existing restrictions in OTS capital 
distribution regulations, as well as the fiduciary duty of the board of 
directors of the MHC to protect the interests of the depositors. Today, 
OTS amends the MHC regulation to codify this policy.

C. Gramm-Leach-Bliley

    Finally, the Gramm-Leach-Bliley Act of 1999 (GLB Act) changed the 
activities limitations for MHCs to mirror those applicable to financial 
holding companies.\2\ OTS is amending its regulations to make the GLB 
Act changes in this interim final rule. These changes enhance the MHC 
as a more suitable long-term alternative then full conversion to stock 
form for mutual savings associations contemplating such a conversion. 
Before the GLB Act, MHCs were limited to the activities and investments 
available to multiple savings and loan holding companies and those 
permissible for bank holding companies under the Bank Holding Company 
Act and those available under Section 10(o)(5) of the Home Owners? Loan 
Act. This change will give MHCs parity with financial holding 
companies, which have the ability to create financial supermarkets--
banking, brokerage and insurance--all offered under one holding company 
that meets certain requirements.\3\ OTS is amending Sec. 575.11(a) to 
reflect this change.
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    \2\ 12 U.S.C. 1467a(o)(5)(E).
    \3\ Those requirements include requiring the depository 
institution controlled by the parent to be well capitalized, well 
managed and hold at least a satisfactory rating under the Community 
Reinvestment Act.
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D. Related Rulemaking

    Elsewhere in today?s Federal Register, OTS is publishing a related 
proposed regulation governing mutual savings association, mutual 
holding company reorganizations, and conversions to stock form.

Notice and Comment, Effective Date, and Request for Comment

    Section 553 of the Administrative Procedure Act (APA) permits an 
agency to issue rules without prior notice and comment if the agency, 
for good cause, finds that notice and comment are impracticable, 
unnecessary, or contrary to the public interest and explains its 
finding when it publishes the rule. 5 U.S.C. 553(b)(B).
    OTS has concluded that it may issue an interim final rule revising 
the stock repurchase provisions. The current rule is inconsistent with 
the treatment accorded by other federal banking agencies, not required 
for the safe and sound regulation of converted savings associations, 
significantly restricts the ability of institution?s managers to make 
appropriate business decisions and, thus, unnecessarily limits the 
ability of savings associations to repurchase stock following a 
conversion. As a result, the retention of these restrictions would, in 
the absence of an interim final rule, continue to negatively impact the 
operations of thrifts and their holding companies. Accordingly, OTS 
concludes that public notice and comment on these changes are 
unnecessary and contrary to the public interest.
    Notice and public comment also are not required for the interim 
rule on dividend waivers and shareholder dilution. As noted above, 
OTS's current policy on shareholder dilution may have inappropriately: 
(1) Encouraged some institutions in MHC structures to fully convert to 
stock form; (2) discouraged MHCs from taking full advantage of 
corporate tax advantages from dividend waivers; and (3) prevented MHCs 
from exercising their business judgment in deploying capital at the 
most appropriate level within the corporate structure. These regulatory 
disincentives would continue to hamper effective decision-making by 
MHCs in the absence of an effective interim final rule. As a result, 
OTS concludes that notice and public comment are inappropriate and 
contrary to public interest.
    Similarly, OTS does not believe that public notice and comment are 
required for the technical change regarding MHC activities. The interim 
rule merely updates OTS regulations to correctly cite new statutory 
authority expanding the activities authorized for MHCs. Notice and 
comment procedures for this change are impractical and contrary to the 
public interest because such procedures could delay implementation of 
this new expanded authority for MHCs.
    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRIA), 12 U.S.C. 4802, requires that new OTS 
regulations and amendments to existing regulations take effect on the 
first day of a calendar quarter which begins on or after the date on 
which the regulations are published. This delayed effective date 
provision, however, does not apply unless the rule imposes additional 
reporting, disclosures, or other new requirements on insured depository 
institution. As a related matter, section 553(d) of the APA states that 
publication of a rule shall be made not less than 30 days before its 
effective date. 5 U.S.C. 553(d). This APA provision does not apply if 
the rule grants or recognizes an exemption or relieves a restriction. 
OTS believes neither CDRIA nor the APA precludes the publication of 
this rule with an immediate effective date. As noted above, this rule 
makes only burden reducing, clarifying and technical conforming 
amendments to OTS rules and relieves current restrictions on 
repurchases.\4\
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    \4\ In addition, both CDRIA and the APA permit an agency to 
select an earlier effective date for ``good cause'' published with 
the regulation. As noted above, the OTS has determined that there is 
good cause for publishing rule without notice and public comment. 
For these same reasons, OTS finds good cause to dispense with the 
delayed effective date requirements under CDRIA and the APA.
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    OTS invites comments on this interim final rule during the 60-day 
period that runs concurrently with its request for comment on companion 
proposed regulation published elsewhere in today's Federal Register.

Regulatory Flexibility Act Analysis

    An initial regulatory flexibility analysis under the Regulatory 
Flexibility Act (RFA) is required when an agency must publish a general 
notice of proposed rulemaking. 5 U.S.C. 603. As noted previously, OTS 
has determined that it is not necessary to publish a notice of proposed 
rulemaking for this interim final rule. Accordingly, the RFA does not 
require an initial regulatory flexibility analysis. Nonetheless, OTS 
has considered the likely impact of the rule on small entities and 
believes that the rule will not have a significant impact on a 
substantial number of small entities. This interim rule eliminates 
restrictions, imposes no new requirements, and makes only burden 
reducing, clarifying, and technical conforming amendments to OTS 
current regulations.

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Paperwork Reduction Act

    OTS invites comments on all of the following issues:
    (1) Whether the information collections contained in this proposal 
are necessary for the proper performance of OTS? functions, including 
whether the information has practical utility.
    (2) The accuracy of OTS? estimate of the burden of the information 
collections.
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected.
    (4) Ways to minimize the burden of the information collection of 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    (5) Estimates of capital and start-up costs of operation, 
maintenance and purchases of services to provide information.
    Respondents/recordkeepers are not required to respond to these 
collections of information unless they display a currently valid OMB 
control number.
    OTS has submitted the collections of information requirements 
contained in this proposal to the Office of Management and Budget for 
review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Send comments on the collections of information to the 
Office of Management and Budget, Paperwork Reduction Act Project 
(conversion information collection requirement: 1550-0014 or the mutual 
holding company information collection requirement: 1550-0072) 
Washington, DC 20503, with copies to the Regulations and Legislation 
Division (1550-0014 or 1550-0072), Chief Counsel's Office, Office of 
Thrift Supervisions, 1700 G Street, NW., Washington, DC 20552.
    The collections of information requirements in this rule are in 
parts 563b and 575. OTS requires this information for the proper 
supervision of savings associations that convert from mutual to stock 
form under OTS regulations and mutual holding company activities. The 
likely respondents/recordkeepers are Federal savings associations or 
mutual holding companies.
    OMB Control Number: 1550-0014.
    Estimated average annual burden hours per respondent/recordkeeper: 
510 hours.
    Estimated number of respondents/recordkeepers: 16 per year.
    Estimated total annual reporting and recordkeeping burden: 8,160 
hours.
    Start up costs to respondents/recordkeepers: N/A.
    OMB Control Number: 1550-0072.
    Estimated average annual burden hours per respondent/recordkeeper: 
263 hours.
    Estimated number of respondents/recordkeepers: 16 per year
    Estimated total annual reporting and recordkeeping burdenhours: 
4,874 hours.
    Start up costs to respondents/recordkeepers: N/A.

Executive Order 12866

    OTS has determined that this interim final rule is not a 
significant regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act Analysis

    The Unfunded Mandates Reform Act of 1995 (UMA), Pub. L. 104-4, 
applies only when an agency is required to issue a general notice of 
proposed rulemaking or a final rule for which a general notice of 
proposed rulemaking was published. 2 U.S.C. 1532. As noted previously, 
OTS has determined, for good cause, that this interim final rule should 
take immediate effect and, therefore, that a notice of proposed 
rulemaking is not required. Accordingly, OTS has concluded that the UMA 
does not require an unfunded mandates analysis of this interim final 
rule.
    Moreover, OTS finds that this interim rule will not result in 
expenditure by state, local, and tribal governments, or by the private 
sector, of more than $100 million in any one year. Rather, the rule 
eliminates restrictions, imposes no new requirements, and makes only 
burden reducing, clarifying, and technical conforming amendments to OTS 
regulations. Accordingly, OTS has not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

List of Subjects

12 CFR Part 563b

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 575

    Administrative practice and procedure, Capital, Holding companies, 
Reporting and recordkeeping requirements, Savings associations, 
Securities.

    Accordingly, the Office of Thrift Supervision amends title 12, 
Chapter V, Code of Federal Regulations as set forth below:

PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM

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

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 
U.S.C. 78c,78l, 78m,78n,78w.

    2. Section 563b.3 is amended by revising paragraphs (g)(1) and 
(g)(3) to read as follows:


Sec. 563b.3   General principles for conversions.

* * * * *
    (g) * * *
    (1) No converted savings association may, for a period of one year 
from the date of the completion of the conversion, repurchase any of 
its capital stock from any person, except that this restriction shall 
not apply to:
    (i) A repurchase, on a pro rata basis, pursuant to an offer 
approved by OTS and made to all shareholders of such association;
    (ii) A repurchase of qualifying shares of a director; or
    (iii) A repurchase approved by OTS under paragraph (g)(3) of this 
section.
* * * * *
    (3) A savings association that is subject to paragraph (g)(1) of 
this section may not repurchase its capital stock within one year 
following its conversion to stock form, except that open market stock 
repurchases of up to five percent of its outstanding capital stock may 
occur during the first year after the conversion where extraordinary 
circumstances exist. The savings association must establish compelling 
and valid business purposes for the repurchases, to the satisfaction of 
the OTS. The savings association must file a notice with the Regional 
Director, with a copy to the Office of Examination and Supervision, at 
least ten days before commencement of the proposed repurchase. The 
notice must describe the proposed repurchase program and the effects of 
the proposed repurchases on the savings association's regulatory 
capital. OTS will not object to the proposed repurchase program if:
    (i) The repurchase does not adversely affect the savings 
association's financial condition;
    (ii) The savings association submits sufficient information to 
evaluate the repurchase program;
    (iii) The savings association demonstrates extraordinary 
circumstances and a compelling and valid business purpose for the 
repurchase program consistent with the savings association's business 
plan; or

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    (iv) The repurchase program would not be contrary to other 
applicable regulations.
* * * * *

PART 575--MUTUAL HOLDING COMPANIES

    3. The authority citation for part 575 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.

    4. Section 575.11 is amended by:

    a. Removing, in paragraph (a) the phrase ``12 U.S.C. 1467a(c)(2)(A) 
or (c)(2)(C)-(c)(2)(G)'', and by adding in lieu thereof the phrase 
``;12 U.S.C. 1467a(c)(2) or (c)(9)(A)(ii)'';
    b. Redesignating, in paragraph (c), the introductory text as 
paragraph (c)(1) introductory text, and paragraphs (c)(1), (c)(2) and 
(c)(3), as (c)(1)(ii), (c)(1)(iii) and (c)(1)(iv), respectively;
    c. Removing, in newly designated paragraph (c)(1) introductory text 
the word ``shall'', and by adding in lieu thereof the word ``may''; by 
removing the phrase ``three years'', and by adding in lieu thereof the 
phrase ``one year'';
    d. Adding, in newly designated paragraph (c)(1), a new paragraph 
(c)(1)(i);
    e. Removing, in newly designated paragraph (c)(1)(iv) the phrase 
``but not'' and by adding in lieu thereof the word ``or'';
    f. Adding a new paragraph (c)(2); and
    g. Adding a new paragraph (d)(3).
    The additions and revisions read as follows:


Sec. 575.11   Operating restrictions.

* * * * *
    (c)(1) *  * *
    (i) Is in compliance with Sec. 563b3(g)(1) of this chapter;
* * * * *
    (2) No mutual holding company may purchase shares of its subsidiary 
savings association or subsidiary holding company within one year after 
a stock issuance, except if the purchase complies with 
Sec. 563b.3(g)(1) of this chapter. For purposes of this subsection, the 
reference in Sec. 563b.3(g)(3) of this chapter to five percent refers 
to minority shareholders.
* * * * *
    (d)* * *
    (3) The OTS will not consider waived dividends in determining an 
appropriate exchange ratio in the event of a full conversion to stock 
form.
* * * * *

    Dated: June 20, 2000.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 00-16346 Filed 7-11-00; 8:45 am]
BILLING CODE 6720-01-P