[Federal Register Volume 69, Number 104 (Friday, May 28, 2004)]
[Rules and Regulations]
[Pages 30554-30571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12128]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 502

[No. 2004-29]
RIN 1550-AB47


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 rules 
on assessments and fees. The final rule replaces examination fees for 
savings and loan holding companies (SLHCs) with semi-annual 
assessments. OTS will charge a base assessment amount, and will add up 
to three additional components to this base amount. These assessments 
are based upon a combination of factors that have proven relevant to 
the on- and off-site supervisory costs OTS incurs: A SLHC's asset size, 
its risk or complexity, its organizational form, and its condition. OTS 
will compute the assessments for conglomerates using this same formula, 
except that the risk/complexity component will be triple the risk/
complexity component charged to a complex or higher risk holding 
company of the same asset size. OTS also has amended its rules 
governing the calculation of semi-annual assessments for savings 
associations to eliminate the alternative calculation for the asset 
size component.

DATES: Effective Date: This final rule is effective July 1, 2004.

FOR FURTHER INFORMATION CONTACT: Linda Duzick, Financial Analyst, 
Affiliates and Holding Company Supervision, (202) 906-6565; or Karen 
Osterloh, Special Counsel, Regulations and Legislation Division, Chief 
Counsel's Office, (202) 906-6639; Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    The Home Owners' Loan Act (HOLA) authorizes the OTS Director to 
assess fees against institutions that OTS supervises, including savings 
associations and SLHCs, to fund OTS's direct and indirect expenses as 
the Director deems necessary or appropriate.\1\ OTS also may assess 
savings associations and affiliates of savings associations for the 
costs of conducting examinations.\2\
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    \1\ 12 U.S.C. 1467(k). See also 12 U.S.C. 1462a, 1463, 1467, 
1467a.
    \2\ 12 U.S.C. 1467(a) and (b) and 1467a(b)(4). See also 12 
U.S.C. 1467(d) (trust examinations of savings associations).
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    OTS regulations implementing this authority are found at 12 CFR 
part 502. Under these rules, OTS charges each savings association a 
semi-annual assessment, which includes a size component, a condition 
component, and a complexity component. In addition, OTS charges an 
examination fee for thrifts that have trust assets that are under the 
$1 billion complexity component threshold. OTS charges SLHCs and other 
thrift affiliates fees for investigating and examining their

[[Page 30555]]

operations. These examination-related fees are assessed at an hourly 
rate for examiner time spent preparing for and conducting the 
examination.

II. Description of the Proposed Rule

    On February 10, 2004, OTS proposed to revise the assessment rules 
for SLHCs and savings associations.\3\ OTS proposed to eliminate most 
examination fees for SLHCs and instead charge semi-annual assessments. 
Under the proposed rule, the semi-annual SLHC assessment was made up of 
a base assessment amount, and up to three additional components. The 
three components were based on the risk or complexity and size of the 
SLHC's business, its organizational form, and its condition. In 
addition, OTS indicated that it was considering assessing certain large 
and complex SLHC enterprises (conglomerates) under a separate 
assessment procedure and solicited comments on these assessment 
procedures. OTS also proposed to revise the assessment procedures for 
savings associations by eliminating the alternative calculation for the 
asset size component currently available to small ``qualifying savings 
associations.'' OTS stated that it intended to implement these proposed 
changes in the July 2004 semi-annual assessment.
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    \3\ 69 FR 6201.
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    The comment period closed on March 26, 2004. OTS received 15 
comments from eight SLHCs or representatives of SLHCs, five depository 
institutions, four trade associations, and the Conference of State Bank 
Supervisors. Several depository institutions and their SLHCs submitted 
joint comments. These comments are addressed below.

III. Request for Additional Rulemaking Procedures

A. Re-Proposal of the Assessments Rule

    Commenters observed that OTS proposed to place many important 
details regarding the computation of SLHC assessments in a thrift 
bulletin rather than in rule text. Because the thrift bulletin was not 
finalized when the proposed rule was issued, some commenters argued 
that SLHCs did not have enough detail to understand the impact of the 
rule. Commenters requested that OTS treat the proposed rule as an 
advance notice of proposed rulemaking and re-propose a new rule 
providing greater specificity regarding the computation of SLHC 
assessments.
    To obtain meaningful public participation, a notice of proposed 
rulemaking must fairly apprise interested persons of the issues in the 
rulemaking. In the proposed rule and the accompanying preamble, OTS 
provided a significant amount of information regarding the computation 
of proposed assessment amounts. Specifically, OTS:
     Provided the likely amount of the semi-annual base charge.
     Set out proposed schedules for computing the risk/
complexity component for Category I and II SLHCs at all asset size 
levels. OTS also explained how it classifies SLHCs as Category I or II, 
indicated how many SLHCs currently fall in each category, and stated 
that any SLHC could obtain its classification by contacting its 
Regional Office.
     Indicated that OTS intended to assess an additional 50 
percent assessment on section 10(l) SLHCs \4\ under the organizational 
form component. OTS also requested comment on an additional adjustment 
under the organizational form component for SLHCs that control trust-
only depository institutions, and the appropriate amount of this 
adjustment.
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    \4\ Section 10(l) of the HOLA permits a state savings bank (or 
state cooperative bank) to elect to be treated as a savings 
association for the purposes of regulating the holding company. By 
making such an election, the holding company is regulated by OTS as 
a SLHC for purposes of section 10 of the HOLA, rather than by the 
Federal Reserve Board as a bank holding company. However, another 
appropriate federal banking regulator and the appropriate State 
regulator, not OTS, continue to be the primary regulators of the 
subsidiary state bank or cooperative bank.
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     Stated the condition component will apply to SLHCs rated 
``unsatisfactory'' and proposed an additional 100 percent assessment 
for these SLHCs.
    The preamble provided numerous examples and charts demonstrating 
how OTS would calculate the assessment for SLHCs with various 
characteristics.
    OTS acknowledged that the proposed assessment amounts in the 
preamble were subject to change depending on the content of the final 
rule.\5\ This alerted the public that the assessments rule, like any 
proposed rule, might be revised as a result of comments received in the 
rulemaking process.\6\
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    \5\ See, e.g., 69 FR at 6203, fn. 7.
    \6\ The Administrative Procedure Act (APA) does not require a 
new round of rulemaking whenever an agency alters a proposed rule. 
Indeed, a final rule must differ from the proposal if the record 
evidence warrants the change. As the D.C. Circuit has stated: ``A 
contrary rule [that a final rule may not change the proposed rule] 
would lead to the absurdity that in rule-making under the APA the 
agency can learn from the comments on its proposals only at the 
peril of starting a new procedural round of commentary.'' 
International Harvester Co. v. Ruckelshaus, 478 F.2d 615, 632, n. 51 
(D.C. Cir. 1973).
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    Under the circumstances, OTS was as informative as possible about 
potential assessments. In light of the few revisions to the 
computations under the final assessments rule, OTS has not materially 
altered the proposed computation nor revised the amount of the proposed 
assessment for most SLHCs. Accordingly, OTS concludes that a further 
round of rulemaking is not required.
    Commenters argued that the proposed assessment for conglomerates 
was deficient because OTS did not clearly describe which SLHCs would be 
subject to the separate assessment procedures, or how OTS would 
calculate the proposed assessment for these SLHCs. Commenters 
encouraged OTS to review the comments, draft a more definitive proposal 
on this issue, and seek further public comment.
    OTS agrees that the preamble was less specific with regard to the 
assessment for conglomerates. However, even here, OTS provided a 
considerable amount of information. Specifically, the preamble 
described conglomerates that would be subject to the assessment and 
included references to OTS Holding Company Handbook sections that 
described these entities with greater specificity; cited various 
computational methods that were under consideration, including a 
specific reference to the type of charge imposed under today's final 
rule (i.e., a charge that is a multiple of the Category II SLHC 
assessment schedule); stated that the assessment for these 
conglomerates would be significantly in excess of the amounts 
prescribed for other SLHCs under the rule; and noted that OTS retained 
the ability to exercise its authority under 12 CFR 502.60(e) to recover 
extraordinary expenses related to the examination, investigation, 
regulation or supervision of conglomerates and their affiliates.
    OTS believes that the assessment procedure for conglomerates 
prescribed under the final rule is a logical outgrowth of this 
proposal. Accordingly, OTS concludes that a further round of rulemaking 
is not required to finalize the rule on conglomerates.

B. Future Adjustments in Thrift Bulletins

    Other commenters asserted that the proposed process for making 
future adjustments to assessments through thrift bulletins violates the 
APA. Commenters argued that all future changes, including revisions to 
the base assessment amount, the application of an organizational form 
component to new types of SLHCs, and changes to applicable rates under 
the risk/complexity component, must be subject to notice and comment 
rulemaking.

[[Page 30556]]

    OTS disagrees that all future changes, no matter how insignificant, 
must be subject to notice and comment rulemaking. However, it has made 
several revisions to the text of the final rule in response to these 
commenters. The final rule specifically:
     States that the base semi-annual assessment amount is 
$3,000 and permits OTS to periodically revise this amount in a thrift 
bulletin to reflect changes for inflation based on a readily available 
index, such as the Gross Domestic Product Implicit Price Deflator.
     Indicates that section 10(l) SLHCs are subject to the 
organizational form component, and states that the amount of the 
adjustment for these SLHCs is 25 percent.
    The final rule on the risk/complexity component has been revised to 
clarify some issues, but is substantially unchanged. The final rule 
text continues to explain how the risk/complexity component is 
calculated and is accompanied by a chart that sets out the applicable 
asset size ranges. Like the proposed rule, the final rule does not set 
out the marginal rates applicable to each asset range. Rather, the 
final rule states that the marginal rates will be established in a 
thrift bulletin. As noted above, the preamble included proposed 
marginal rates for Category I and II SLHCs for all asset levels. OTS 
will charge these same marginal rates under the assessment schedules 
published today in the related thrift bulletin.
    This is the same structure that OTS uses to compute the asset size 
component of the savings association semi-annual assessment. In the 11 
semi-annual assessment cycles since it established the asset size 
component for savings associations, OTS has adjusted the rates for the 
asset size component only three times.\7\ The three revisions did not 
change the basic formula that OTS uses to calculate the size component 
and did not materially alter the relationships between the marginal 
rates applicable to the various asset size categories. Rather, the 
adjustments merely made routine corrections and refinements of the 
original methodology designed solely to adjust the original marginal 
rate schedules to reflect inflation. All of the revisions were based on 
inflationary indices published by the Bureau of Labor Statistics. OTS 
anticipates that future adjustments to the risk/complexity component 
for SLHC assessments will be similar in character. However, to the 
extent that any future revisions significantly change the way OTS 
computes the risk/complexity component, OTS anticipates that it will 
publish the revision for notice and comment before applying the 
revision.
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    \7\ See TB-48-17 (Dec. 1, 2000); TB-48-18 (Nov. 29, 2001); and 
TB-48-20 (Dec. 2, 2003).
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IV. SLHC Assessments

A. Increased Charges

    Most commenters observed that SLHC charges would increase 
substantially under the proposed rule and objected to the magnitude of 
the increases. Commenters cited increases for various types of SLHC 
that ranged from 125 percent to 1400 percent. Commenters asserted that 
these increases were significantly out of proportion to the examination 
work performed by OTS. One noted that its increase exceeded the fees 
charged by the thrift's external auditors. Commenters predicted that 
these higher fees would drive some enterprises out of business, cause 
some institutions to change charters, or discourage savings 
associations from maintaining structural flexibility by setting up 
SLHCs to meet their future needs. Commenters urged OTS to look more 
critically at cumulative costs assessed on the industry and reassess 
the allocation of these costs.
    OTS acknowledges that the supervision charges for many SLHCs will 
rise under the final rule. This was an expected outcome since OTS was 
not fully recovering the entire cost of supervising SLHCs. OTS must 
maintain sufficient resources to provide quality supervisory services 
and must, to the extent possible, recover the cost of these resources 
from the appropriate regulated entities.
    In the past, OTS recovered SLHC supervision costs based only on on-
site examiner hours. As SLHCs have become more complex in both 
structure and nature of operations, OTS staff has increasingly spent 
more off-site time addressing supervisory issues affecting the SLHC 
industry as a whole, and monitoring the condition and activities of 
individual SLHCs. Thus, OTS's comprehensive SLHC supervision process 
has become much more than an on-site review of records and interaction 
with SLHC representatives.
    Current examination fees do not reflect off-site supervisory 
efforts and, thus, do not capture a significant portion of the 
resources OTS devotes to comprehensive supervision of SLHCs. As a 
result, past examination charges significantly understated the amount 
of OTS resources engaged in SLHC supervision and, thus, did not nearly 
cover the actual costs of this supervision. Until now, OTS avoided 
imposing the costs of SLHC regulation on other regulated entities by 
using its reserves, improving the efficiency of its operations, and 
undertaking various cost-cutting measures. These measures alone no 
longer suffice to allow OTS to ensure that it can continue to provide 
quality supervision of the thrift industry, SLHCs, and other 
affiliates.
    OTS is aware that, for some SLHCs, the percentage increases in 
annual assessment charges appear to be substantial. However, cost 
comparisons of the prior examination fee to assessments under the 
proposed rules ignore the significant expenses incurred by OTS in the 
supervision of SLHCs--expenses that must properly be assessed against 
SLHCs. In addition, examination time varies from year to year and 
simply looking at the prior examination bill as a point of comparison 
can distort the picture.
    A few SLHCs claimed that their annual assessments would increase 
1200 to 1400 percent over their current examination charges. Based on 
its analysis of the impact of the proposed rule, OTS has concluded that 
percentage increases of this scale typically occur at SLHCs with low 
dollar assessments, where the imposition of the base assessment ($3,000 
semi-annually) significantly exceeds the prior examination hours 
approach. OTS recognizes that the percentage increase may be high for 
some, but we believe that the change in approach is warranted to 
accurately assess for the total cost of SLHC supervision--whether the 
work is performed on- or off-site. The charges reflect OTS's attempt to 
tailor assessments more closely to the actual costs of their 
supervision. The magnitude of the cited increases to a great degree 
underscores the fact that previous OTS charges were substantially 
understated vis a vis actual supervisory costs.
    To mitigate the impact of the cost increases to all or a part of 
the industry, commenters suggested that OTS gradually phase-in the 
final assessments rule for all SLHCs or for certain types of SLHCs. 
Commenters also urged OTS to phase-in certain components of the final 
rule, such as the section 10(l) organizational form component. 
Commenters also requested that OTS grandfather existing SLHCs from 
assessments under all or a portion of the final rule.
    While OTS cannot fully accommodate these suggestions without 
potentially compromising the resources needed to regulate SLHCs, it 
does agree that a phase-in would be appropriate. The final assessment 
rule will result in higher annual fees for certain SLHCs, but OTS 
firmly believes the final rule

[[Page 30557]]

provides for a fair and equitable recovery of our supervisory costs 
from supervised entities. OTS understands that SLHCs need the ability 
to budget for planned expenditures. Therefore, to mitigate the impact 
of these changes, OTS will phase in the final rule according to the 
following assessment schedule:

------------------------------------------------------------------------
                                                              Percent of
            Semi-annual assessment billing date               final rule
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July 1, 2004...............................................           25
January 1, 2005............................................           50
July 1, 2005...............................................          100
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B. Elimination of Examination Fees

    Several commenters urged OTS to continue to base assessments on 
examiner time and to charge for both on- and off-site hours. They noted 
that OTS could also recover future increases to supervisory expenses by 
adjusting the hourly rate. Commenters acknowledged that tracking and 
charging for actual hours involves inefficiency and expense. However, 
they observed that many professions charge by the hour and do not find 
tracking hours overly burdensome. Commenters also suggested various 
alternatives. For example, one commenter urged OTS to develop formulae 
similar to those used by manufacturing and other companies for 
specified tasks.
    OTS has three goals with respect to the assessments rule: (1) Keep 
charges as low as possible while providing the agency with the 
resources essential to effectively supervise a changing industry; (2) 
tailor charges to accurately reflect the agency's costs of supervising 
institutions and their affiliates; and (3) provide institutions and 
their affiliates with consistent and predictable assessments to 
facilitate financial planning.
    While assessments based on actual hours would serve the first two 
OTS goals, such a system would fail to provide transparency and 
predictability to the industry regarding costs. The current system can 
result in sharp fluctuations or unexpected examination billings. As 
conditions and activities at the SLHC change from year-to-year, OTS 
adjusts the scope of its examinations to conduct its work in a risk-
focused manner. Examiners do not spend the same amount of time at a 
particular SLHC during each examination. OTS believes that the recovery 
of supervisory costs based on regular assessments offers a measure of 
predictability as to the assessment amount and will aid SLHCs in their 
budget process.
    OTS notes that, until 1989, savings associations paid fees to the 
Federal Home Loan Banks to cover the costs of examinations by Federal 
Home Loan Bank System employees. See 55 FR 34519, at 34520 (Aug. 23, 
1990). This system was also based on a per hour charge, but was 
abandoned after OTS was created. Since then, OTS has assessed savings 
associations using a structure conceptually similar to the assessments 
proposed for SLHCs. Based on OTS experience with thrifts, OTS believes 
that the proposed assessment structure for SLHCs is practicable and 
viable and will serve all of the goals of this rulemaking.
    By contrast, OTS is not convinced that it can use on-site and off-
site hours without generating a significant number of disputes over 
inherently supervisory decisions regarding the amount of on- and off-
site time devoted to particular SLHCs from year to year. In 2003, OTS 
tracked both on-site and off-site hours in the manner proposed by 
commenters. OTS issued a thrift bulletin stating that we would bill 
SLHCs directly for these on- and off-site services. Thrift Bulletin 48-
19 (Sept. 23, 2003). Following the publication of Thrift Bulletin 48-
19, various members of the industry contacted OTS to discuss the 
proposed examination charges. In addition, as bills were sent out using 
this approach, excessive time was devoted to explaining and defending 
off-site hours. OTS also conducted an analysis of off-site examination 
time records and collected input from staff on the process of 
collecting and tracking off-site examination time and properly 
allocating overhead associated with the supervision of SLHCs. Based on 
the industry and staff feedback, OTS determined that the administrative 
burden of collecting and billing off-site hours outweighed the cost-
recovery benefit, and abandoned this cost-recovery method. OTS regional 
management already are asked to mediate disputes regarding the number 
of on-site examination hours charged in examination billings. OTS 
anticipates that imposing direct charges for off-site hours would 
generate significantly more inquiries.
    Finally, OTS believes that the proposed change will better support 
our risk-focused examination and supervisory processes and encourage 
efforts to perform exam related SLHC work off premise, when possible. 
With SLHC assessment fees set at fixed rates based on a variety of 
critical factors, staff will be encouraged to conduct its SLHC 
supervision in the most effective and efficient manner. With fixed 
assessments, staff will not feel undue pressure to expand or restrict 
on-site examination time due to concerns about the potential 
examination charges.\8\ Accordingly, OTS has decided to replace the 
current examination billing structure with the assessment rate 
structure included in the proposed rule.
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    \8\ One commenter predicted that the new process would lead to 
unproductive and unnecessary staff work because OTS staff would 
spend more time than necessary during examinations without time 
records to monitor the examination. OTS does not believe that the 
commenter's assertions are accurate. OTS has based savings 
association assessments on a set formula for many years. In 2003, 
OTS conducted its first Annual Thrift Satisfaction Survey to solicit 
feedback about our regulatory processes. One of the broad themes 
that emerged from the responses was that we have introduced many 
examination enhancements to improve efficiency. Nonetheless, OTS 
will continue to monitor examination time spent on supervisory 
activities for thrifts, SLHCs, affiliates, and service providers to 
ensure the most efficient and effective utilization of supervisory 
resources.
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    Commenters asked OTS to clarify whether it would cease charging 
fees for all SLHC general examinations. For example, one commenter 
asked OTS to clarify whether it intends to charge for special 
examinations, such as information technology examinations.
    Under the final rule, OTS will cease charging fees for regularly 
scheduled general examinations of SLHCs. OTS will continue to charge 
for extraordinary examinations, such as eligibility examinations 
conducted in connection with an application and specialty examinations, 
including information technology examinations. OTS may also continue to 
charge additional fees under 12 CFR 502.60(e) when staff is required to 
spend an inordinate amount of supervisory time as a result of an 
extraordinary event or circumstances.
    Accordingly, the final rule continues to state that OTS may impose 
fees for examining and investigating savings association affiliates. 
Additionally, if OTS incurs any extraordinary expenses related to the 
examination, investigation, regulation, or supervision of a savings 
association or its affiliate, the Director may charge a fee to fund 
those expenses. See 12 CFR 502.5(c), 502.50, and 502.60(e).

C. Assessments of Specific Types of SLHCs

    Commenters argued that the proposed rule did not tailor OTS charges 
to accurately reflect the actual cost of supervision of certain types 
of SLHCs. As a result, commenters asserted that these SLHCs will pay 
more than their fair share of OTS costs. Commenters urged OTS to 
specifically consider the availability of information from other state 
and federal regulators, and to address the application of the rules to 
various types of holding companies, including large, diverse SLHCs and 
shell SLHCs.

[[Page 30558]]

1. Shell SLHCs
    Several commenters argued that the proposed rule requires shell 
SLHCs to pay more than their fair share of OTS costs. These commenters 
observed that shell SLHCs conduct few activities beyond the thrift, and 
that the management and boards of shell SLHCs and the subsidiary 
thrifts are usually identical. Commenters asserted that OTS expends 
little effort on the SLHC examination and reviews most SLHC activities 
in conjunction with the thrift safety and soundness examination. 
Commenters provided examples of some shell SLHC charges that would 
increase significantly over current examination fees, and argued that 
these increases would discourage institutions from anticipating future 
needs or maintaining structural flexibility by setting up SLHCs.
    To address this issue, some commenters asked OTS to adjust the base 
assessment charge for shell SLHCs. Commenters asserted that this charge 
is contrary to the rest of the rule, which adjusts the assessment to 
reflect the complexity of the organization. The commenters urged OTS to 
eliminate the base assessment charge, or provide a negative adjustment 
to the base assessment under the organizational form component.
    The final rule continues to impose the base assessment charge. The 
base charge reflects the base expense OTS incurs in supervising every 
holding company structure, regardless of organizational form, relative 
risk or complexity, or the identity of its board or management. The 
charge reflects OTS's estimate of the costs of conducting on- and off-
site supervision of a small, low risk, noncomplex SLHC. The base 
assessment charge includes the costs of conducting an on-site 
examination using the abbreviated holding company examination 
program,\9\ conducting off-site activities in preparation for such an 
examination,\10\ performing off-site monitoring between examinations 
for such an SLHC,\11\ and preparing supervisory guidance for SLHCs. OTS 
also recovers a portion of its operating costs, such as the cost of OTS 
facilities and examination support personnel allocated to these 
activities.\12\
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    \9\ See Holding Company Handbook, Section 720, Abbreviated 
Holding Company Examination Program.
    \10\ This would include, for example, the costs of completing 
pre-examination procedures and the risk classification for a low 
risk, noncomplex, SLHC. See Holding Company Handbook, Section 710 
Holding Company Administrative Program.
    \11\ These costs would include the costs to review and analyze 
basic reports filed by the savings association and SLHC (e.g., 
Schedule HC of the Thrift Financial Report (TFR), the SLHC's 
quarterly and annual H-(b)11 reports, and relevant private sector 
information).
    \12\ Several commenters argued that the application of the base 
assessment amount to multiple top-tier SLHCs in certain 
circumstances was inappropriate. These comments are addressed below.
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    Other commenters urged OTS to deduct thrift assets from 
consolidated SLHC assets under the risk/complexity component. These 
commenters noted that the operations of shell SLHCs and their 
subsidiary savings associations are largely identical and that OTS 
already has reviewed thrift operations and charged for the savings 
association examination.
    OTS believes that the rule already takes shell SLHCs into account 
under the risk/complexity component and declines to make any further 
adjustments. OTS generally considers a SLHC to be a shell if it holds 
minimal debt that can be easily serviced by its own resources and 
engages only in limited activities (e.g., the investment of cash from 
dividends or proceeds of stock sales in liquid interest-bearing 
instruments as opposed to highly leveraged instruments). These SLHCs 
will typically be classified as a Category I SLHC, unless the SLHC's 
unique circumstances warrant Category II classification.
    The proposed assessment schedule included two adjustments designed 
to reflect the fact that non-complex low risk SLHCs require less 
supervisory resources. First, the proposed schedule did not charge any 
amount for the first $150 million of consolidated assets. As a result, 
the risk/complexity component for approximately 150 of the 400 Category 
I SLHCs is zero. Second, the marginal rates used in the Category I 
schedule are substantially lower than the marginal rates used in the 
Category II schedule. Thus, under the proposed schedules, the risk/
complexity components for the remaining 250 Category I SLHCs are 
significantly less than the risk/complexity components for similarly 
sized Category II SLHCs. For example, a Category I SLHC with 
consolidated assets of $250 million will be charged an additional $750 
above the base assessment. A Category II SLHC of the same size will be 
assessed an additional $4,000. OTS believes that these two adjustments 
take into account the characteristics of shell SLHCs under the risk/
complexity component. OTS has not made further adjustments to this 
component to address shell SLHCs.
2. Regulation by Other Federal and State Regulators
    Several commenters argued that the proposed rule ignores the 
functional regulatory framework developed in the Gramm-Leach-Bliley Act 
(GLBA), which was designed to avoid duplicative and overlapping 
oversight by defining and distinguishing the roles of the various 
regulators. Commenters asserted that, to the extent that OTS uses 
examination reports and other information provided by other federal and 
state regulators, OTS examination costs are reduced. Without an 
adjustment to reflect this fact, commenters claimed that the proposed 
rule requires these SLHCs to pay more than their fair share. A 
commenter noted that it is difficult to see how so much more time would 
be needed during the examination process, unless OTS examiners planned 
to duplicate some of the efforts of these regulators. Commenters urged 
OTS to revise the proposed rule to reflect the availability of this 
information, and proposed various revisions to the risk/complexity 
component and organizational form component.
    OTS fully supports the concept of functional regulation set out in 
the GLBA. Since well before the GLBA, OTS has long sought to coordinate 
regulatory activities with relevant supervisors. Our goal is to 
leverage off of the work of other regulators to the maximum extent 
possible, while ensuring that we fully meet our statutory and 
regulatory responsibilities. In no way are our supervisory efforts 
designed to or intended to replicate the work of other responsible 
supervisors.
    An OTS SLHC examination includes a review of the entire corporate 
enterprise, including the consolidated, top-tier SLHC and all 
subsidiaries of the SLHC. As a general rule, OTS has a broad grant of 
authority to examine each registered SLHC and each subsidiary of a 
SLHC, as the Director prescribes. However, under the GLBA, which 
included new provisions designed to avoid regulatory duplication, OTS 
must follow certain procedures when it seeks to obtain information 
about or examine functionally regulated subsidiaries of SLHCs. These 
procedures address OTS's acquisition and reliance on reports and data 
prepared by the entity's primary regulator and establish conditions on 
examining functionally regulated subsidiaries of SLHCs. The GLBA does 
not restrict OTS's ability to examine the SLHC.
    OTS recognizes and respects the role of fellow regulators, and 
makes every effort to coordinate examination and supervisory efforts 
with other regulators. While the reports and other materials provided 
by functional regulators are helpful in the supervision of SLHCs, other 
functional regulators generally do not focus on the primary

[[Page 30559]]

area of OTS's statutory responsibility--the financial and operational 
condition of the entire SLHC enterprise. Inherent in the OTS SLHC 
examination approach is the identification of significant risks, 
internal control weakness, risk management deficiencies or other 
financial or operational issues especially as they relate to the 
current and prospective effect that holding company enterprises have on 
the subsidiary insured savings association or other regulated entities 
in the corporate family.
    OTS agrees that reports of the other functional regulators often 
provide helpful insights into certain aspects of SLHC operations. 
Furthermore, OTS does reflect the role of other regulators in 
determining the appropriate risk/complexity category. For example, when 
there is another lead consolidated regulator, OTS may classify an 
enterprise that is otherwise a conglomerate in Category II.\13\ This 
decision depends on the roles and responsibilities of the lead 
consolidated regulator and the scope of their examination and other 
supervisory factors.
---------------------------------------------------------------------------

    \13\ See discussion of European Union regulation at Section 
III.D.4. of this preamble.
---------------------------------------------------------------------------

    Nonetheless, to obtain this information, OTS examiners take extra 
steps to communicate and coordinate with the other regulators. Such 
efforts take additional time and cause OTS to incur additional expense. 
As a result of these efforts and in some cases the differing goals of 
the other regulators, OTS does not believe that these reports alone 
will always meaningfully reduce the effort and time expended by OTS 
examiners in the review of an enterprise as a whole. When they do, OTS 
will reflect the reduced supervisory effort required in determining the 
appropriate risk/complexity category. Accordingly, OTS has not revised 
the proposed rule since this factor is already reflected in the 
proposed approach.
3. Large, Diverse SLHCs
    Several commenters argued that the proposed rule would assess 
large, diverse SLHCs more than their fair share of examination costs. 
Commenters noted many large diversified SLHCs are insurance companies 
or securities firms, and that information about their condition should 
be readily available from other regulators. For the reasons set forth 
immediately above, OTS has concluded that the risk/complexity 
classification adequately reflects the availability of this information 
and the degree to which that information contributes to fulfilling 
OTS's supervisory objectives for SLHCs.
    Commenters also noted that large or diversified SLHCs have 
substantial consolidated assets. Because thrift assets will reflect 
only a small proportion of consolidated assets, the commenters argued 
that any assessment based on consolidated assets would not bear a 
reasonable connection to OTS examination costs.\14\
---------------------------------------------------------------------------

    \14\ Commenters urged various revisions to the proposed fee 
structure. For example, commenters urged OTS to assess solely on 
examiner time, to revise the risk/complexity component to eliminate 
the use of consolidated assets, or assess large diversified SLHCs 
based on formulae for specified tasks similar to those used by 
manufacturing and other companies.
---------------------------------------------------------------------------

    OTS is not persuaded by this argument. OTS's supervisory approach 
is designed to evaluate the condition of the entire holding company 
enterprise so that OTS may ensure that the thrift and other regulated 
entities will not be harmed by the affiliation. To realistically 
evaluate the risks presented by a SLHC, OTS must understand the 
activities and operations of the holding company enterprise. OTS has 
found that the costs of making these types of determinations increase 
as the size of the holding company enterprise increases. To reflect 
this fact, OTS bases the amount of each SLHC assessment, in part, on 
total consolidated holding company assets under the risk/complexity 
component. This component recognizes that there are economies of scale 
in such analyses, particularly in the supervision of larger structures. 
Accordingly, the marginal rates established under the proposed 
schedules decline significantly as asset size increases.

D. Computation of Assessment

    For most SLHCs, the method for computing assessment under the final 
rule is substantially unchanged from the proposal. OTS will charge 
semi-annual assessments on the responsible SLHCs in each holding 
company structure. This semi-annual SLHC assessment will be made up of 
a base assessment amount and up to three additional components. The 
three components are based on the risk or complexity of the SLHC's 
business, its organizational form, and its condition. OTS will compute 
the assessments for conglomerates using this same formula, except that 
the risk/complexity component will be triple the risk/complexity 
component for a complex or higher risk SLHC of the same asset size. The 
final rule and comments received on the proposed computations are 
discussed below.
1. Responsible SLHCs--Sec.  502.26(b)(1)
    In most cases, OTS performs only one examination of each SLHC 
structure, even though the examination may include a review of multiple 
tiers of direct and indirect thrift ownership. Because our SLHC 
examination and supervisory efforts consider the entire holding company 
structure, OTS did not propose to assess intermediate-level SLHCs. 
Instead, OTS proposed to assess the top-tier SLHCs in every SLHC 
structure. The top-tier SLHC was defined as the highest level of 
ownership by a registered SLHC in the holding company structure.\15\
---------------------------------------------------------------------------

    \15\ As a related matter, one commenter observed that some 
holding company structures include industrial loan companies (ILC) 
that are affiliated with savings associations. The commenter 
presented an example where a holding company directly owns both a 
savings association and an ILC. The ILC has no direct or indirect 
interest in the savings association. The commenter asked for 
clarification whether OTS intended to assert supervisory 
jurisdiction over the ILC.
    A company that owns or controls a savings association and an ILC 
is a SLHC subject to OTS jurisdiction under 12 U.S.C. 1467a, unless 
it also owns a bank. (In this latter case, the company would be a 
bank holding company subject to the jurisdiction of the FRB. 12 
U.S.C. 1843.) An ILC owned by a SLHC would remain subject to the 
primary supervisory jurisdiction of FDIC and the state regulator. 
The OTS assessments rule has no impact on the ILC except that the 
ILC assets would be included in the SLHC consolidated assets and 
would increase the amount of the SLHC assessment.
---------------------------------------------------------------------------

    The preamble noted that two or more SLHCs may own a controlling 
interest in a savings association. This occurs, for example, where two 
companies each directly owns 50 percent of the savings association's 
voting stock. Where there are two or more distinct controlling 
interests in a savings association, OTS examines each ownership 
structure separately. Under these circumstances, the preamble indicated 
that OTS would impose a semi-annual assessment on the top-tier SLHC in 
each ownership path.
    Commenters urged OTS to take into account unique organizational 
structures in determining which entity in the chain of ownership should 
be assessed. Some commenters argued that OTS should assess only one 
SLHC in each holding company structure. One commenter, for example, 
reported that its holding company structure includes multiple top-tier 
SLHCs and asserted that the proposed rule would result in multiple 
assessments even though all financial reporting is consolidated and all 
operations dovetail.
    In response to an OTS request for comment, several commenters 
argued that OTS should not assess multiple top-tier family trusts that 
own controlling interests in intermediate-tier SLHCs. These commenters 
argued that

[[Page 30560]]

the majority of OTS supervisory efforts in such structures are expended 
in the review of the operations of the intermediate-tier SLHC. By 
contrast, the top-tier family trusts usually are shells that conduct no 
activities and that require little OTS oversight.
    Under the final rule, OTS has retained the ability to address the 
issues raised by the comments on a case-by-case basis. The final rule 
now uses the term responsible holding company to indicate which SLHC 
will be subject to the assessment. The responsible holding company 
generally is the registered holding company at the highest level of 
ownership in a holding company structure, but OTS may designate another 
SLHC in the holding company structure for assessment.
    OTS anticipates that it will designate another SLHC within an 
ownership structure only in rare instances. For example, OTS may 
designate an intermediate tier SLHC in a holding company structure 
where there are multiple top-tier SLHCs that are closely held family 
trusts, the trusts conduct no activities and essentially hold only 
passive investments in the intermediate-tier SLHC, and thrift assets 
are not consolidated onto the balance sheet of the trusts. Under these 
instances, substantially all of OTS supervisory efforts will be 
directed at the intermediate tier SLHC. If OTS were to assess each 
family trust in such a structure, it would, in essence, recover a base 
assessment amount for each trust. As noted above, the base assessment 
amount was designed to reflect the base expense incurred by OTS with 
respect to every holding company structure. Under such circumstances, 
the combined charges to multiple family trusts would bear little 
relationship to actual OTS examination, supervision, or regulatory 
efforts.
    In addition, OTS has found that some top-tier SLHCs are organized 
outside of the United States and do not use U.S. GAAP or U.S. SAP \16\ 
to compute their total assets. By contrast, a lower-tier SLHC may be 
organized in the United States and may use U.S. GAAP or U.S. SAP. When 
such companies have a foreign regulator that performs a review 
equivalent to OTS's approach, a lower or intermediate tier's reported 
assets may more accurately reflect OTS's costs of supervising the 
structure.
---------------------------------------------------------------------------

    \16\ See discussion at Section IV.D.3.b., below for a discussion 
of SAP.
---------------------------------------------------------------------------

    Accordingly, the final rule indicates that OTS may designate an 
intermediate-tier SLHC as the responsible holding company, if the 
assessment of this entity would more accurately reflect OTS's costs of 
supervision and there are multiple top-tier holding companies in the 
holding company structure, the top-tier holding company is organized 
outside of the United States and is subject to the consolidated review 
of a foreign regulator, or other circumstances indicate that the 
assessment of the top-tier holding company would be inappropriate.
2. Base Assessment Amount--Sec.  502.26(a)(1)
    OTS proposed to include a base assessment charge in each SLHC 
assessment. The base assessment charge includes the costs of conducting 
an on-site examination using the abbreviated holding company 
examination program, conducting off-site activities in preparation for 
such an examination, performing off-site monitoring between 
examinations for such SLHCs, and preparing general SLHC supervisory 
guidance. OTS also recovers a portion of its operating costs, such as 
the cost of OTS facilities and examination support personnel allocated 
to these activities. The proposed rule indicated that OTS would 
establish the amount of the base assessment component in a thrift 
bulletin.
    OTS initially estimated that the base assessment charge would be 
$3,000 for each semi-annual assessment or $6,000 per year. As discussed 
above, OTS has revised the final rule to include the amount of the base 
assessment in the text of the rule and to permit OTS to periodically 
revise this amount in a thrift bulletin to reflect changes for 
inflation based on an index, such as the Gross Domestic Product 
Implicit Price Deflator.
3. Risk/Complexity Component--Sec.  502.27
    The first component of the semi-annual SLHC assessment is the risk/
complexity component. OTS proposed to compute this component using 
separate schedules that set out charges based on OTS holding company 
risk/complexity classifications and total consolidated holding company 
assets.
    Several commenters argued that this component improperly linked 
complexity and risk. These commenters asserted that the proposed rule 
did not adequately explain how complexity impacts on risk or 
oversimplified the relationship between risk and complexity.
    While the proposed rule described this component as the ``risk and 
complexity component,'' OTS did not assert that there is a link between 
complexity of an SLHC and its overall risk profile. Rather, these two 
matters are separate, albeit sometimes overlapping, considerations. The 
purpose of the holding company risk/complexity categories is to 
identify those SLHCs that require a more intensive supervisory 
approach. Such supervision may consume more OTS resources either if the 
SLHC has a complex structure or presents a high risk profile. Stated 
differently, OTS will classify an SLHC as Category I only if its 
structure is not complex and it has a low risk profile. If an SLHC has 
a complex structure or a high risk profile complex, OTS will assign the 
SLHC to Category II.
    a. Risk/complexity classification.
    Commenters argued that the proposed rule did not adequately explain 
how OTS classifies SLHCs as Category I or II. The proposed rule 
specifically stated that holding company risk/complexity 
classifications reflect OTS's assessment of five factors: (1) The 
SLHC's financial condition; (2) financial independence; (3) operational 
independence; (4) reputational risk; and (5) management experience. The 
proposed rule text also referred readers to the OTS Holding Company 
Handbook, which fully describes OTS's risk/complexity classification 
methods.\17\
    Because the risk/complexity classification system previously was 
used only for internal purposes, OTS provided additional information 
regarding the application of this system. Specifically, OTS reported 
that approximately 80 percent of SLHCs were classified as Category I 
when the proposed rule was published,\18\ and indicated that regional 
staff would inform individual SLHCs of their risk/complexity 
classification upon request. Accordingly, OTS believes that the 
proposed rule adequately described the proposed risk/complexity 
classification system and its application.
    Several commenters asked for guidance regarding OTS's application 
of various aspects of the risk/complexity classification system,\19\ 
especially how

[[Page 30561]]

OTS applies those aspects of the classification system that require 
subjective judgment.
---------------------------------------------------------------------------

    \17\ Holding Company Handbook, Section 100, Supervisory 
Approach, and Section 710, Administrative Program.
    \18\ A commenter argued that OTS should not designate a specific 
number or percentage of SLHCs as Category I or II. The statement in 
the preamble merely reflected OTS's current assessment of existing 
SLHCs. OTS has no preset notions regarding what number or percentage 
of SLHCs should fall in each category. Rather, OTS assesses the risk 
imposed by each SLHC and the level of oversight required based 
solely on the particular characteristics of the company.
    \19\ For example, one commenter observed that a simple shell 
SLHC could conclude that it is complex, because it would fail the 
financial and operational independence components of the 
classification system. As described in the OTS Holding Company 
Handbook and the preamble to the proposed rule, OTS reviews whether 
the subsidiary savings association and other affiliates that are 
regulated financial entities are financially or operationally 
dependent on the SLHC. The final rule text clarifies this matter at 
12 CFR 502.27(b).
---------------------------------------------------------------------------

    A certain amount of subjective judgment is inherent in assigning an 
SLHC to a risk/complexity category. OTS must make considered decisions 
regarding the current and prospective risks posed by an SLHC in its 
evaluation of each factor and in its overall assignment of a category. 
These supervisory judgments simply cannot be reduced to a precise set 
of hard and fast rules, since an individual SLHC may present 
particularly egregious or mitigating characteristics that could not be 
reflected in such a mathematical formula.\20\
---------------------------------------------------------------------------

    \20\ Moreover, under the OTS holding company classification 
system, a negative finding with regard to one factor may be 
sufficient to place an SLHC in Category II, or may have no impact on 
the overall classification. For example, if an SLHC's financial 
condition is such that it there is a greater incentive to try and 
boost earnings or cash flow from the thrift, OTS may place the SLHC 
in Category II regardless of its determinations regarding other 
factors.
---------------------------------------------------------------------------

    The proposed rule text listed the factors that OTS considers when 
assigning SLHCs to Category I or II. In addition, the preamble set out 
various considerations that guided OTS's assessment of each of these 
factors.\21\ These considerations were derived from the classification 
checklist that provides guidelines for staff to use in determining the 
appropriate classification.\22\ The checklist is set up in a series of 
yes and no questions, and is designed so that the more ``yes'' 
responses that are assigned, the more indicative that the SLHC is high 
risk or complex.\23\ The risk/complexity classification system has been 
used internally for over two years. OTS staff has had time to 
understand the approach and review all SLHCs using the classification 
criteria. Senior management in the Regional Offices and in Washington 
review these classifications to ensure accuracy and consistent 
classification of similar SLHCs. In addition, as with other supervisory 
determinations, SLHCs may appeal their holding company classification 
as described further in section VI. of this preamble.
---------------------------------------------------------------------------

    \21\ See 69 FR at 6203-04.
    \22\ See Holding Company Handbook, Section 710, Holding Company 
Administrative Program, pp. 5-10.
    \23\ A commenter specifically recommended placing large complex 
organizations with debt ratings in the two highest ratings 
categories in Category I. The commenter asserted that OTS examiners 
consider downgrades in debt ratings, but do not consider when an 
SLHC receives a high debt rating from a major ratings agency. For 
insurance companies, the commenter asserted that the highest claims 
paying rating is a good indication of financial strength. OTS agrees 
that positive factors should be considered. OTS's beginning 
presumption in the application of the checklist is that an SLHC is 
an Category I, unless a pattern of indicators of higher risk (e.g., 
a significant downgrade in debt ratings) or complexity are present.
---------------------------------------------------------------------------

    One commenter urged OTS to base all classifications solely on 
actual performance, as determined by examination ratings. OTS has not 
made this change. The OTS risk/complexity classification system 
distinguishes low risk or noncomplex SLHCs from SLHCs that have complex 
operations or exhibit a higher risk profile. The purpose of this system 
is to identify those SLHCs that will require more OTS resources. Under 
the examination rating system, many Category II SLHCs will receive 
above average or satisfactory ratings because they effectively manage 
their higher risks and because the complexity of their organization 
does not raise supervisory issues. Notwithstanding the assigned rating, 
the examination and continuing supervision of Category II SLHCs will 
consume significant OTS resources, which would not be recovered if the 
classification were based solely on examination ratings. While OTS 
agrees that an unsatisfactorily rated SLHC, in any category, will also 
consume greater supervisory resources, OTS believes that it has 
adequately considered these issues under the condition component.\24\
---------------------------------------------------------------------------

    \24\ One commenter suggested that OTS should adjust the risk/
complexity component or organizational form component to address 
whether a company is a private, public, or mutual organization. In 
OTS's experience, these factors do not appreciably affect the amount 
of OTS resources devoted to the supervision of SLHCs. Accordingly, 
the final rule does not reflect these factors.
---------------------------------------------------------------------------

    Finally, one commenter alleged that the proposed rule is contrary 
to ongoing OTS efforts to reduce regulatory burden on the industry 
because SLHCs will incur costs to clarify their category. The 
assessment rule does not impose any classification burdens on SLHCs. 
Instead, the rule requires OTS to keep all SLHCs apprised of their 
current category. Specifically, the rule states that OTS will use the 
most recent risk/complexity classification assigned by OTS of which the 
SLHC has been notified in writing before an assessment due date. An 
SLHC's classification is ``unpublished OTS information,'' which remains 
the property of OTS following the notification. An SLHC may not 
disclose its risk/complexity classification, except as permitted under 
12 CFR 510.5.
    b. Use of consolidated assets.
    Several commenters objected to a charge that is based upon a 
consolidated holding company's assets. As discussed above, some 
commenters argued that using total consolidated assets will unfairly 
burden large or diversified SLHCs. Other commenters noted that 
consolidated SLHC assets include the subsidiary savings association's 
assets, which are already assessed in the semi-annual thrift 
assessment. To eliminate this ``double-counting,'' commenters urged OTS 
to deduct thrift assets from the consolidated SLHC assets.
    The final rule continues to use consolidated assets. In OTS's 
experience, there is a direct correlation between the size of the 
responsible SLHC and the resources required to properly supervise the 
holding company structure. OTS does not agree that the final rule 
inappropriately double counts thrift assets. The risk/complexity 
component schedules do not assess any charge for the first $150 million 
of assets for Category I SLHCs. For all SLHCs, the marginal rates in 
the schedules are a small fraction of the marginal rates applicable to 
savings associations under the asset size component of their 
assessment. For example, the marginal rate applicable to an SLHC at $1 
billion in consolidated holding company assets is 0.0000005 (Category I 
SLHC) and 0.000002250 (Category II SLHC). By contrast, the marginal 
rate for a savings association beginning with $1 billion in assets is 
.00007142.
    The proposed rule defined consolidated holding company assets as 
the total assets reported on Schedule HC of the TFR. If Schedule HC is 
not available, OTS indicated that it would use total assets reported on 
financial statements filed with the H-(b)11 Annual/Current Report.
    One insurance company observed that all SLHCs do not prepare 
consolidated financial statements in accordance with GAAP. The 
commenter noted that non-public insurance companies prepare financial 
statements only under SAP, which require the use of the equity method 
for subsidiaries and do not require consolidated statements. The 
commenter encouraged OTS to accept data from these financial statements 
for the purposes of the assessments rule.
    SLHCs that underwrite insurance must file financial statements with 
state insurance departments using SAP. While many of these insurance 
underwriters are publicly traded and must also prepare and file GAAP 
statements with the SEC, mutual or closely held insurance underwriters 
typically prepare only SAP statements. While there are major 
differences

[[Page 30562]]

between GAAP and SAP,\25\ OTS does not believe that these differences 
will result in significantly different assessments under the final 
rule. OTS believes that the costs of preparing a separate set of GAAP 
financial statements solely for the purposes of the assessments rule 
would impose unnecessary expenses on these SLHCs and would be contrary 
to OTS's ongoing regulatory burden reduction efforts.
---------------------------------------------------------------------------

    \25\ These differences are described in Holding Company 
Handbook, Section 930, Insurance Holding Companies, Appendix B, 
State Regulation.
---------------------------------------------------------------------------

    It is not necessary to revise the rule to specifically permit the 
use of SAP statements. The rule defines total consolidated assets as 
the total assets as reported on the TFR or the financial statements 
filed with the H-(b)11 Annual/Current Report. The instructions to 
Schedule HC of the TFR permits savings associations to submit data for 
holding companies based on SAP financial statements if the SLHC is an 
insurance company and does not prepare financial statements for 
external use in conformity with GAAP. The H-(b)11 Annual/Current Report 
also permits SAP financial statements under these circumstances.
    c. Schedules for Category I and II SLHCs.
    The preamble to the proposed rule included charts indicating the 
applicable marginal rates under the risk/complexity component for 
Category I and II SLHCs with consolidated assets of varying levels. The 
rates OTS will use for the July 2004 semi-annual assessment are the 
same. These rates are set out in a thrift bulletin that has been issued 
simultaneously with this final rule and is available on OTS's web site.
4. Conglomerates (Category III) \26\
---------------------------------------------------------------------------

    \26\ OTS has decided to refer to conglomerates as a new 
category. Thus, conglomerates are considered Category III.
---------------------------------------------------------------------------

    The proposed rule indicated that OTS intended to assess 
conglomerates under separate assessment procedures, and requested 
comment on various approaches. In this final rule, OTS has decided to 
compute the assessments for conglomerates using this same formula, 
except that the risk/complexity component will be triple the risk/
complexity component of a Category II SLHC of the same asset size. 
Commenters raised the following issues with respect to conglomerates.
    a. Definition of conglomerate.
    Several commenters argued that OTS failed to clearly describe which 
SLHCs would be subject to the conglomerate assessment procedures. The 
preamble to the proposed rule described conglomerates as a limited, 
select number of large and particularly complex enterprises that are 
made up of a number of different companies, or legal entities that 
operate in diversified fields. Unlike traditional SLHCs, these 
conglomerates are often highly integrated and are managed with less 
regard for separate corporate existence and with more focus on product 
lines or geographic areas. OTS examines and supervises these SLHCs 
along functional or centralized lines in order to match the SLHC's 
business practices. OTS's supervision of these entities often involves 
increased planning and off-site monitoring; a more formalized 
supervisory process that focuses OTS's efforts on major risk areas and 
evaluates the enterprise across business lines; and substantial 
coordination with other domestic and foreign regulators. See Holding 
Company Handbook, Section 940, Large and Complex Enterprises 
(Conglomerates).
    OTS believes that this description from the preamble sufficiently 
describes conglomerates that may be subject to the final rule. In the 
final rule, OTS has refined this description and included a definition 
of conglomerate. Specifically, the final rule states that a 
conglomerate is a SLHC that: (1) Is one of the most complex or highest 
risk holding companies under the holding company risk/complexity 
classification system (i.e., is significantly more complex or higher 
risk than a holding company enterprise classified as Category II); (2) 
is made up of a number of different companies or legal enterprises that 
offer products from more than one financial sector (e.g., insurance, 
securities and banking) or operate in diversified fields; and (3) 
generally manages these companies and enterprises along functional 
lines, rather than as separate legal entities. These SLHC structures 
are examined under the procedures set forth in OTS Holding Company 
Handbook, Section 940.
    One commenter urged OTS to specifically address complex 
internationally active organizations that fall within the definition of 
conglomerates in the European Union (EU) Directive issued December 16, 
2002. This EU Directive defines a conglomerate as a group of companies 
under common control that engage predominantly in financial activities 
(banking, insurance, and securities). Conglomerates must have a 
significant interest in insurance and at least one other financial 
activity (banking or securities) to fall within the scope of the EU 
Directive. In addition, the ratio of aggregate assets of all financial 
sector entities to total consolidated assets of the conglomerate should 
exceed 40 percent.
    The EU is seeking to ensure that financial conglomerates domiciled 
outside EU member countries are subject to an equivalent level of 
supervision by foreign supervisors. As the consolidated supervisor of a 
number of financial conglomerates active in the EU, OTS is seeking 
equivalency status under the EU Directive. The EU has not yet 
determined whether OTS, or any United States regulator, will be 
recognized as an equivalent regulator, and decisions are not expected 
until later this year. Until such recognition is granted or denied, OTS 
cannot predict the level of supervisory activity that may be required 
for any SLHC that meets the EU definition and believes that it may be 
premature to specifically include all of these entities as 
conglomerates for the purposes of this rule. OTS may revisit this issue 
once the EU issues its determinations.
    One commenter feared that SLHCs will incur costs to clarify whether 
they are conglomerates within the scope of the rule and that the 
imposition of these costs would be contrary to ongoing OTS efforts to 
reduce regulatory burden on the industry. OTS currently classifies 
fewer than five SLHCs as conglomerates. These organizations are aware 
of their classification as conglomerates. Nonetheless, the final rule 
ensures that no SLHC will be subject to undue regulatory burden. The 
final rule specifically states that OTS will notify a SLHC in writing 
of its risk/complexity classification before an assessment's due date.
    b. Computation of assessment.
    To ensure that the costs of supervision for conglomerates are not 
subsidized by other SLHCs, the preamble stated that OTS would assess 
conglomerates under separate assessment procedures. OTS stated that it 
was considering various approaches to calculating assessments for 
complex conglomerates including: (1) A set charge or flat fee; (2) a 
variable charge that is based upon a percentage of the total holding 
company assets or some other financial measure (OTS indicated that the 
applicable percentage may vary as the size of holding company assets 
(or other financial measure) increases or may represent a multiple of 
the Category II SLHC assessment schedule); (3) an additional charge for 
complex multinational conglomerates with activities that require a high 
degree of coordination with other regulators (see e.g., Holding Company 
Handbook, Section 940A, Financial Activities in the European Union); or 
(4) a fee structure that combines some of the

[[Page 30563]]

elements listed above. The agency requested comment on these possible 
calculations and any alternative methods for calculating semi-annual 
assessments for complex conglomerates.
    Few commenters specifically addressed the assessment formulae. 
Commenters generally restated arguments, addressed above, promoting the 
use of actual examiner hours, discouraging reliance on consolidated 
assets for large SLHCs, and promoting adjustments to reflect the 
availability of information from state, federal, and international 
regulators.
    OTS selected one of the methods suggested in the preamble of the 
proposed rule. Under the final rule, OTS will base conglomerate 
assessments on a multiple of the Category II SLHC assessment. 
Specifically, OTS will compute the assessments for conglomerates using 
a risk/complexity component that is triple the risk/complexity 
component of a Category II SLHC of the same asset size. OTS believes 
that it is appropriate to assess a multiple of the Category II SLHC 
risk/complexity component because the examination and regulation of 
conglomerates consume a disproportionate amount of agency resources vis 
a vis other SLHCs. Conglomerates are composed of a number of different 
companies and enterprises that operate in diversified fields and are 
managed on functional lines. As a result, conclusions based on the 
oversight of individual entities within the conglomerate may be 
incomplete unless viewed in the context of other related entities or 
centralized functions.
    To match these business practices, OTS reviews conglomerate 
operations along functional or centralized lines. Such supervision 
requires OTS to analyze more areas than it addresses with respect to 
the typical Category II SLHCs. For example, OTS must understand very 
complex organizational structures, review a broader scope of intra-
group relationships and transactions, address risk concentrations 
across company lines, and analyze group-wide capital adequacy, 
including capital adequacy relative to the needs of each major business 
sector and the parent company's own capital adequacy. Moreover, because 
of the diversity and complexity of the businesses in which these 
conglomerates engage, often unregulated, these SLHCs are more likely to 
present OTS with novel legal and policy issues that require the 
attention of highly experienced regulatory personnel with specialized 
knowledge and intensive review by senior management within OTS. In 
addition, as the consolidated regulator of a conglomerate, OTS must 
coordinate closely with all interested regulators, which may include 
foreign financial regulators.
    To reflect this consumption of a greater proportion of OTS 
resources, OTS will calculate the semi-annual assessment for a 
conglomerate at triple the risk/complexity component for a Category II 
SLHC of the same asset size. However, OTS will closely monitor the 
supervisory resources allocated to conglomerate supervision and may 
bill individual conglomerates for extraordinary expenses in instances 
where the cost of OTS's supervisory efforts significantly exceed the 
conglomerate assessment calculated under this rule.
    One commenter observed that OTS has expended substantial regulatory 
effort seeking equivalency determinations from the EU as the 
consolidated regulator for certain large internationally active 
conglomerates. The commenter argued that OTS must ensure that these 
internationally active conglomerates bear these costs. Another 
commenter urged OTS to adjust the assessment imposed on conglomerates 
whenever the enterprise conducts activities in the EU.
    OTS current practice is to directly recover the costs of its 
efforts before the EU from the SLHC for which it seeks recognition as 
an equivalent regulator. See 12 CFR 502.60(e), which permits OTS to 
recover extraordinary expenses related to the examination, 
investigation, regulation, or supervision of savings associations and 
their affiliates. Rather than attempt to craft an adjustment that would 
apply to all semi-annual assessments to account for extraordinary, 
nonrecurring events that impose costs beyond OTS supervisory 
expectations, OTS believes that it is more appropriate to continue to 
recover these expenses on a case-by-case basis.
5. Organizational Form Component--Sec.  502.28
    OTS-regulated SLHCs may take a variety of organizational forms, 
including stock holding companies, mutual holding companies, and trust 
holding companies. For example, OTS regulates certain holding companies 
under section 10(l) of the HOLA. In addition, certain SLHCs own thrifts 
that operate as trust-only institutions and do not accept insured 
deposits from the public.
    To recognize that OTS may incur different supervisory costs to 
properly supervise SLHCs with particular organizational forms, the 
proposed rule permitted OTS to modify the amount of the assessment 
charged by applying an organizational form component. The amount of the 
organizational form component was computed by adding the base 
assessment to the risk/complexity component, and multiplying this total 
by a factor (positive or negative) established for the particular 
organizational form.
    a. Section 10(l) SLHCs.
    OTS indicated that it was considering applying a 50 percent 
increase for section 10(l) SLHCs. Several commenters opposed this 
adjustment. Commenters questioned whether examinations of section 10(l) 
SLHCs are more burdensome since the Federal Deposit Insurance 
Corporation (FDIC) and state regulators examine these institutions and 
provide a great deal of information to OTS. Commenters urged OTS to 
rely to the fullest extent possible on the primary federal and state 
regulators to provide supervisory information to evaluate section 10(l) 
SLHCs, and to work closely with these regulators to expand examination 
and information sharing protocols. Commenters asserted that these steps 
would eliminate any need for a section 10(l) SLHC charge.
    OTS regulation of section 10(l) holding companies presents many 
challenges. OTS's primary regulatory goal for section 10(l) holding 
companies is the same as its goal for SLHCs--to understand how holding 
company operations may affect the operations of the subsidiary 
depository institution. When OTS examines a SLHC that controls a 
savings association, it already has a thorough knowledge of thrift 
operations because it has examined the thrift. As a result, OTS can 
focus its primary efforts on understanding the operations of the SLHC. 
When it undertakes the examination of a section 10(l) holding company, 
however, OTS has little direct information on the operations of the 
state subsidiary depository institution and must undertake additional 
steps to understand those operations.
    As commenters point out, a great deal of information about the 
subsidiary depository institution is available to OTS from other 
regulators. OTS relies to the fullest extent possible on state 
regulators and FDIC to provide relevant supervisory information needed 
to evaluate the depository institution. While the information provided 
by state and federal regulators includes helpful information regarding 
the operations of the subsidiary institution, OTS must take additional 
steps--steps that are not required with respect to SLHCs with only 
savings association subsidiaries--

[[Page 30564]]

to come to a complete understanding of the depository institution's 
operations. For example, OTS must obtain information from other 
regulators, review and analyze this information, consult with these 
regulators regarding areas of concern, and formulate joint strategies 
where corrective action is necessary. OTS continues to believe that an 
adjustment under the organizational form component is necessary to 
account for these additional activities.\27\
---------------------------------------------------------------------------

    \27\ OTS is also responsible for ensuring that the state 
subsidiary depository institution complies with a number of 
requirements applicable under section 10 of the HOLA. For example, a 
state savings bank (or a cooperative bank) that is deemed to be a 
savings association for purposes of section 10 of the HOLA must 
comply with section 10(d) of the HOLA, which subjects it to 
additional transactions with affiliate restrictions under section 11 
of the HOLA. 12 U.S.C. 1468. In addition, section 10(f) of the HOLA 
requires the subsidiary insured institution to file advance notices 
of dividend declarations with OTS. OTS must also ensure that the 
state savings bank (or a cooperative bank) meets the requirements of 
a qualified thrift lender. See 12 U.S.C. 1467a(l)(2).
---------------------------------------------------------------------------

    Commenters asserted that the proposed 50 percent increase was 
excessive. These commenters suggested that OTS reduce the multipliers 
to 15 or 20 percent. OTS has reconsidered the proposed amount of the 
additional assessment and has reduced the size of the organizational 
form component for section 10(l) SLHCs to 25 percent. OTS believes that 
this amount more adequately reflects the additional efforts that it 
must undertake with respect to these entities.
    The proposed rule permitted OTS to establish the amount of the 
factor (positive or negative) applicable to particular organizational 
forms in a thrift bulletin. For the reasons set out above, OTS has 
revised the final rule to specifically state that OTS will apply the 
organizational form component to section 10(l) SLHCs, and will compute 
the assessment for section 10(l) SLHCs by adding the base assessment to 
the risk/complexity component, and multiplying this amount times 125 
percent.
    b. SLHCs that control trust-only institutions.
    OTS specifically requested comments on whether it should include a 
negative adjustment under the organizational form component for SLHCs 
that control trust-only savings associations that do not accept insured 
deposits from the public. Several commenters supported this change. 
These commenters argued assessments should be lower because these SLHCs 
typically are: (1) Insurance companies and securities firms that are 
subject to significant regulation by the states, the SEC, and other 
regulatory authorities; and (2) large, diversified SLHCs whose 
assessments are based on consolidated assets and may already be 
overstated. For the reasons set forth above, OTS has concluded that it 
is not necessary to adjust SLHC assessments to reflect these two 
factors.
    Commenters also observed that trust-only institutions do not pose 
the same risks, complexity, or public policy concerns as other insured 
depository institutions. The primary objective of the SLHC examination 
is to examine the areas of the SLHC enterprise that pose risks to the 
thrift subsidiary. Even where a thrift has virtually no insured 
deposits, making the prospect of a loss to the insurance fund unlikely, 
OTS examiners still review all relevant SLHC operations. For example, 
examiners must review whether the enterprise is operated in a manner 
that the thrift can survive the collapse of its parent. Because the 
possible loss to the insurance fund does not affect the scope of the 
SLHC examination, the final rule does not include a negative adjustment 
for SLHCs that hold trust-only institutions. Accordingly, OTS does not 
believe that additional adjustments are necessary to account for these 
SLHCs.
6. Condition Component--Sec.  502.29
    OTS proposed to charge a condition component if the most recent 
examination rating assigned to the top-tier SLHC (or the most recent 
examination rating assigned to any SLHC directly or indirectly 
controlled by the top-tier SLHC) was ``unsatisfactory.'' The proposed 
amount of the condition component was 100 percent of the sum of the 
base assessment, risk/complexity component, and organizational form 
component. OTS received no comments on this aspect of the proposed 
rule.\28\ This component is adopted with only minor changes to clarify 
the rule and to reflect changes to terminology.
---------------------------------------------------------------------------

    \28\ As a related matter, some commenters suggested that OTS 
include adjustments under the organizational form component to 
reflect SLHC examination ratings. OTS believes that this issue is 
adequately addressed under the condition component.
---------------------------------------------------------------------------

E. Payment and Collection of Assessments--Sec. Sec.  502.30-502.45

    OTS proposed to bill SLHCs using the same procedures it uses to 
bill the semi-annual assessments from savings associations. No 
commenters addressed the proposed procedures. The proposed procedures 
are adopted without change.

V. Savings Association Assessments

    Under part 502, OTS charges each savings association a semi-annual 
assessment. OTS determines the semi-annual assessment totaling three 
components:
     An asset size component. OTS applies an assessment rate to 
the total asset size of the institution, as reported on the TFR. OTS 
currently provides a reduced assessment for certain qualifying savings 
associations under an alternate asset size component. To be eligible 
for this calculation, a savings association must have been a savings 
association as of January 1, 1999, and its total assets must not exceed 
$100 million at the end of the current or any previous quarter. The 
asset size component for qualifying thrifts is calculated under pre-
1998 assessment tables.
     A condition component based on the thrift's composite 
rating in its most recent safety and soundness examination.
     A complexity component applied to trust assets 
administered by the thrift, recourse obligations and direct credit 
substitutes held by the thrift, and loans serviced by the thrift for 
others.
    OTS proposed to eliminate the reduced assessment for qualifying 
savings associations under the alternative asset size component. 
Commenters generally supported this change, but suggested 
modifications. Several commenters urged OTS to ease the regulatory 
burden on qualifying savings associations by phasing in the higher 
rates over time.
    OTS adopted the alternative asset size component in 1998. At that 
time, it was concerned that the asset size component could impose undue 
burdens on small savings associations that might not be in a position 
to absorb the increased costs. Qualifying savings associations have now 
had the benefit of the alternative calculation through 11 semi-annual 
assessment cycles. OTS believes that this time period has provided 
sufficient protection to small institutions. In light of the extra 
burdens that have been imposed on non-qualifying savings association 
through these 11 cycles,\29\ OTS does not believe that it is equitable 
to extend the adjustment period with an additional phase-in period.
---------------------------------------------------------------------------

    \29\ These burdens were discussed in the proposed rule at 69 FR 
at 6207.
---------------------------------------------------------------------------

    Other commenters urged OTS to retain the alternative asset size 
component for qualifying trust-only savings associations. These 
commenters noted that these thrifts are already subject to a complexity 
component for trust assets. Therefore, commenters asserted that other 
savings associations do not carry an additional costs burden for 
qualifying trust-only savings associations.

[[Page 30565]]

    Trust assets administered by a savings association are not included 
as assets on the balance sheet of the thrift. As a result, the asset 
size component of the thrift semi-annual assessment does not address 
OTS supervisory efforts expended in the review of these assets. Rather, 
OTS recovers the costs of supervising savings associations that 
administer trust assets in one of two ways. For savings associations 
that administer more than $1 billion of trust assets, OTS collects 
additional amounts under the complexity component of the semi-annual 
thrift assessment.\30\ For savings associations that administer trust 
assets of $1 billion or less, OTS collects an examination fee, which is 
based on examiner hours.\31\ Since neither the asset size component nor 
the alternative asset size component were designed to recover the costs 
related to the review of trust activities, OTS does not agree that 
qualifying savings associations administering trust assets carry 
additional costs relative to their costs of supervision, and has not 
retained the alternative size component for these thrifts.
---------------------------------------------------------------------------

    \30\ 12 CFR 502.25(a)(1).
    \31\ 12 CFR 502.50(a).
---------------------------------------------------------------------------

VI. Review and Appeal of Assessments

    One commenter urged OTS to outline the avenues of review and appeal 
of assessments and the component elements of assessments. OTS intends 
to address review and appeal of assessments under the procedures set 
out in TB 68--Supervisory Review, Appeal and Reconsideration Process 
and Ombudsman Matters (July 15, 1996). Thrift Bulletin 68 describes an 
existing process for review and appeal of OTS supervisory decisions and 
examination findings. While on its face this thrift bulletin states 
that it applies to savings association appeals, OTS has applied these 
processes to SLHC appeals of other supervisory issues. OTS intends to 
apply these processes to appeals of such supervisory determinations as 
the categorization of a SLHC as Category I or II or a conglomerate and 
the assignment of examination ratings and is clarifying TB 68 
accordingly. OTS will not entertain any requests for refund, reduction 
or proration of assessments, other than for computational errors.\32\ 
While OTS will address computational errors in assessments through 
these procedures, it anticipates that most errors will first be 
addressed through informal contacts with the agency.
---------------------------------------------------------------------------

    \32\ See 12 CFR 502.40(a).
---------------------------------------------------------------------------

VII. Executive Order 12866

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

VIII. Regulatory Flexibility Act Analysis

    Under section 605(b) of the Regulatory Flexibility Act of 1980,\33\ 
OTS has evaluated the impact that the final rule will have on small 
businesses, small organizations, and small governmental jurisdictions. 
OTS published an initial regulatory flexibility analysis (IRFA) with 
the proposed rule. No commenters addressed the IRFA. Accordingly, OTS 
has prepared the following final regulatory flexibility analysis 
(FRFA).
---------------------------------------------------------------------------

    \33\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Legal Basis for the Rule; Objectives of the Rule

    The HOLA authorizes the Director to assess fees against savings 
associations and holding companies to fund OTS's direct and indirect 
expenses as the Director deems necessary or appropriate.\34\ OTS also 
may assess savings associations and affiliates of savings associations 
for the costs of conducting examinations.\35\
---------------------------------------------------------------------------

    \34\ 12 U.S.C. 1467(k). See also 12 U.S.C. 1462a, 1463, 1467, 
1467a.
    \35\ 12 U.S.C. 1467(a) and (b) and 1467a(b)(4). See also 12 
U.S.C. 1467(d) (trust examinations of savings associations).
---------------------------------------------------------------------------

    OTS regulations implementing this authority are located at 12 CFR 
part 502. Under these rules, OTS currently charges each savings 
association a semi-annual assessment, which includes a size component, 
a condition component, and a complexity component. In addition, OTS 
charges an examination fee for thrifts that have trust assets that are 
under the $1 billion complexity component threshold. OTS also charges 
SLHCs and other thrift affiliates fees for investigating and examining 
their operations. These examination-related fees are assessed at an 
hourly rate for examiner time spent preparing for and conducting the 
examination.
    The final rule seeks to more accurately apportion the cost of OTS 
supervision among savings associations, SLHCs, and other affiliates. 
The agency has three primary goals: (1) Keep charges as low as possible 
while providing the agency with the resources essential to effectively 
supervise a changing industry; (2) tailor its charges to accurately 
reflect the agency's costs of supervising institutions and their 
affiliates; and (3) provide institutions and their affiliates with 
consistent and predictable assessments to facilitate financial 
planning.

B. Impact of the Rule

    The final rule affects small savings associations and small SLHCs. 
It does not affect other small businesses, small organizations, or 
small governmental jurisdictions. OTS addresses the impact of the rule 
on small savings associations and small SLHCs below. OTS has considered 
various alternatives to the final rule to reduce the impact of the rule 
on small savings associations and small SLHCs. These alternatives are 
also discussed below.
1. Effect on Small SLHCs
    a. Size standard for small SLHCs
    The Small Business Administration (SBA) prescribes size standards 
for various economic activities and industries using the North American 
Industry Classification System (NAICS).\36\ Under the SBA's standards, 
companies that are primarily engaged in holding securities of (or other 
equity interests in) depository institutions for the purpose of 
controlling those companies are addressed at NAICS Codes 551111 and 
551112 (Office of Bank Holding Companies and Offices of Other Holding 
Companies). Companies within this group are considered to be small if 
they have annual receipts of $6 million or less. Companies that are 
primarily engaged in holding the securities of depository institutions 
and operating these entities are classified under NAICS Codes 522110-
522190. Companies classified in this group are considered to be small 
if their total assets are less than 50 million. In this FRFA, OTS 
analyzes the impact of the final rule using both the $150 million asset 
size standard and the $6 million annual receipts standard.
---------------------------------------------------------------------------

    \36\ 13 CFR part 121.
---------------------------------------------------------------------------

    b. Impact on small SLHCs.
    The final rule replaces examination fees for SLHCs with semi-annual 
assessments on each responsible SLHC. OTS imposes a base assessment 
amount, and adds up to three components to this base amount. The three 
components are based on the risk or complexity of the SLHC's business, 
its organizational form, and its condition. No small SLHC is subject to 
the alternative assessment on conglomerate enterprises.
    OTS calculates that there are 944 OTS-regulated SLHCs, including 
many intermediate holding companies within a single ownership 
structure. The final rule charges semi-annual assessments only on the 
responsible SLHC in each holding company structure. There are

[[Page 30566]]

508 responsible SLHCs. Of these 508 responsible SLHCs, 162 have total 
consolidated assets of less than $150 million and are considered to be 
small under the asset size standard. OTS estimates that 103 responsible 
SLHCs have annual receipts of $6 million or less and are small under 
the annual receipts standard.\37\
---------------------------------------------------------------------------

    \37\ OTS has used December 2003 financial data for the purposes 
of this FRFA. OTS electronically collects information on total 
consolidated assets held by most SLHCs. However, it does not 
electronically collect annual receipts data. OTS has estimated the 
number of small SLHCs under the annual receipts standard by 
analyzing actual trailing 12-month revenues reported for 277 
publicly traded SLHCs for the fiscal/calendar year ending December 
31, 2003. Source: SNLDataSource. Using total revenue figures, OTS 
has concluded that approximately 20.2 percent of the 508 holding 
company structures are small under the annual receipts standard.
---------------------------------------------------------------------------

    The final assessment rule affects all of these small SLHCs in 
varying degrees. The impact of the rule will be phased-in in three 
stages. OTS will assess 25 percent of the full assessment amount for 
the July 1, 2004 semi-annual assessment, 50 percent of the full 
assessment amount for the January 1, 2005 semi-annual assessment and 
the full assessment amount for the July 1, 2005 semi-annual assessment. 
The fully phased-in impact of the rule is set out below:
    Base assessment charge. The base assessment charge affects all 
small SLHCs. Under the final rule, these small SLHCs will be assessed a 
charge of $3,000 for each semi-annual assessment (or $6,000 per year).
    Risk/complexity component. OTS does not impose any additional 
charge on small Category I SLHCs under the recently published schedules 
for the risk/complexity component. Small Category II SLHCs, however, 
will be assessed an additional semi-annual charge of $1,000 to $3,000 
(or $2,000 to $6,000 per year) under these schedules, depending on 
total consolidated assets.
    There are 152 small Category I SLHCs and ten small Category II 
SLHCs under the asset size standard. OTS estimates that there are 96 
small Category I SLHCs and seven small Category II SLHCs under the 
annual receipts standard.\38\
---------------------------------------------------------------------------

    \38\ OTS does not electronically collect annual receipts data 
for SLHCs. OTS has estimated the number of small Category I and II 
SLHCs, small section 10(l) SLHCs, and small unsatisfactorily rated 
SLHCs under the annual revenues standard by applying the proportion 
of small SLHCs in these categories under the asset size standard.
---------------------------------------------------------------------------

    Organizational form component. The organizational form component 
applies only to section 10(l) SLHCs. For small section 10(l) holding 
companies that are Category I SLHCs, this component increases the semi-
annual assessment by an additional 25 percent or $750 ($1,500 per 
year).\39\ For small section 10(l) holding companies that are Category 
II SLHCs, this component also increases the semi-annual assessment by 
25 percent. The increase to the semi-annual assessment for these SLHCs 
under this component will range from $1,000 to $1,500 ($2,000 to $3,000 
per year).\40\ The actual amount of the increase will depend upon total 
consolidated SLHC assets.
---------------------------------------------------------------------------

    \39\ The additional semi-annual organizational charge of $750 is 
25 percent times the total of the base assessment component ($3,000) 
plus the risk/complexity component for Category I SLHCs ($0).
    \40\ This $1,000 to $1,500 range for the semi-annual 
organizational form component is 25 percent times the total of the 
base charge ($3,000) plus the risk/complexity component for a 
Category II SLHC. As noted above, the risk/complexity component for 
a Category II SLHC will range from $1,000 to 3,000.
---------------------------------------------------------------------------

    OTS regulates 45 section 10(l) SLHCs. Twelve of these section 10(l) 
SLHCs are small under the asset size standard. Of these 12 small 
section 10(l) SLHCs, 11 are Category I and one is Category II. OTS 
estimates that eight section 10(l) SLHCs are small under the annual 
receipts standard, and that seven of these small SLHCs are Category I 
and that one of these SLHCs is Category II.
    Condition component. The final rule imposes an additional charge on 
SLHCs that are rated ``unsatisfactory.'' For these small SLHCs, the 
condition component increases the assessment by 100 percent. Applying 
the asset size standard, only six small SLHCs are rated unsatisfactory. 
Under the annual receipts standard, only four small SLHCs are rated 
unsatisfactory.\41\
---------------------------------------------------------------------------

    \41\ OTS cannot provide a more specific breakdown regarding the 
impact of the condition component on each of these small SLHCs 
because such information may result in the public disclosure of 
sensitive and privileged supervisory rating information for specific 
SLHCs. See 12 CFR 510.5.
---------------------------------------------------------------------------

    The following chart summarizesthe impact of the final rule on the 
semi-annual assessment for small SLHCs:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     A                      B                     C                        D
                                                          ----------------------------------------------------------------------------------------------
                                    Number of small SLHCs     Base assessment        Risk/complexity     Organizational form       Total semi-annual
                                                                amount \42\          component \43\        component \44\           assessment \45\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small Category I SLHCs that are     141 (asset size        $3,000...............  $0..................  N/A.................  $3,000
 not section 10(1) SLHCs.            standard).
                                    89 (receipts
                                     standard).
Small Category II SLHCs that are    9 (asset size          3,000................  3,000 (Maximum).....  N/A.................  6,000 (Maximum)
 not section 10(1) SLHCs.            standard).
                                    6 (receipts standard)
Small Category I SLHCs that are     11 (asset size         3,000................  0...................  750.................  3,750
 section 10(1) SLHCs.                standard).
                                    7 (receipts standard)
Small Category II SLHCs that are    1 (asset size          3,000................  3,000 (Maximum).....  1,500 (Maximum).....  7,500 (Maximum)
 section 10(1) SLHCs.                standard).
                                    1 (receipts standard)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As noted above, for the SLHCs that are rated unsatisfactory, the 
amount of the semi-annual assessment is doubled. This will affect six 
SLHCs under the asset size standard and four SLHCs under the receipts 
standard.
    The amounts charged under the new assessments rule for SLHCs will 
be offset by the elimination of the periodic SLHC examination fees. 
Although the amount of this offset will vary from SLHC-to-SLHC, OTS 
estimates that the average examination for a small SLHC is conducted 
every 18 months, and consumes approximately 39 examiner hours. At the 
current OTS billing rate of $145 per hour, OTS estimates that the 
average small SLHC will avoid on-site examination charges of $5,655 or 
an annualized charge of $3,770 per year.
---------------------------------------------------------------------------

    \42\ OTS has imposed a $3,000 base semi-annual assessment amount 
for all SLHCs.
    \43\ Amounts in Column B are from the published schedules for 
the risk/complexity component.
    \44\ Amounts in Column C are 25 percent of the total of Column A 
+ Column B.
    \45\ Amounts in Column D equal Column A + Column B + Column C.

---------------------------------------------------------------------------

[[Page 30567]]

    In any event, OTS has considered alternatives to the final 
assessment rule. OTS considered, for example, assessing all SLHCs the 
same base assessment amount; computing the semi-annual assessment 
amount for all SLHCs using the same asset-based assessment schedule; 
and continuing to assess only on-site examination and off-site 
examination related fees rather than semi-annual assessments.
    OTS does not believe that the first two alternatives will further 
the goal of tailoring OTS charges more closely to the costs of 
supervising various types of SLHCs, and could result in some SLHCs 
subsidizing the increased costs of supervising others.\46\ For the 
reasons set forth at Section III.B.2. of the preamble, OTS further 
believes that continuing to assess examination fees will not provide 
SLHCs with consistency and predictability of assessments to facilitate 
financial planning.
---------------------------------------------------------------------------

    \46\ Moreover, OTS believes that requiring unsatisfactory-rated 
SLHCs to pay for their extra supervisory costs will provide an added 
incentive for those SLHCs to promptly address the supervisory 
concerns that could adversely impact the depository subsidiary and 
to take other actions to improve their ratings.
---------------------------------------------------------------------------

    Although no commenter specifically addressed the IRFA, several 
commenters raised issues of concern to small SLHCs. Several argued that 
charges for all SLHCs, including small SLHCs, would increase 
substantially under the final rule. OTS acknowledges that the 
supervision charges for many SLHCs will rise under the final rule. This 
was an expected outcome because OTS was not fully recovering the entire 
costs of SLHC supervision. To mitigate the impact of these increases, 
however, OTS will phase in the assessment in three stages. See 
discussion at Section III.B.1.
    Several commenters urged OTS to reduce assessments of shell SLHCs, 
which include many small SLHCs. For the reasons stated in Section 
III.C.1. of this preamble, OTS believes that the proposed assessment 
computation already included appropriate adjustments designed to 
address shell SLHCs. However, to mitigate the impact of the rule on 
top-tier family trusts, which include many small shell SLHCs, OTS has 
retained the ability to designate an intermediate tier SLHC in the 
holding company structure as the responsible SLHC under the rule. OTS 
will make this designation where there are multiple top-tier SLHCs in a 
holding company structure, the top-tier SLHCs are closely held family 
trusts, the trusts conduct no activities and essentially hold only 
passive investments, and the thrift assets are not consolidated onto 
the balance sheets of the trusts. As a result of these changes, such 
top-tier family trusts will not be subject to multiple assessments that 
would not reflect OTS examination, supervision or regulatory efforts. 
See discussion at Section III.D.1.
    Finally, several commenters urged OTS to eliminate or reduce the 
organizational form component applicable to section 10(1) SLHCs, 
including small section 10(1) SLHCs. For the reasons discussed at 
Section III.D.5., OTS continues to believe that an organizational form 
component for section 10(1) SLHCs is appropriate. However, OTS has 
reduced the amount of the multiplier used under this component from 50 
percent to 25 percent.
2. Effect on Small Savings Associations
    This final rule affects small savings associations by eliminating 
the alternative calculation of the size component currently available 
to certain small savings associations. To be eligible for this 
calculation, a savings association must have been a savings association 
as of January 1, 1999, and its total assets must not exceed $100 
million at the end of the current or any previous quarter.
    Small savings associations are defined as institutions with assets 
under $150 million.\47\ OTS estimates that approximately 281 small 
savings associations would have taken advantage of the alternative size 
calculation during the July 2004 semi-annual assessment.
---------------------------------------------------------------------------

    \47\ 13 CFR 121.201.
---------------------------------------------------------------------------

    Under the alternate calculation, the asset size component for a 
qualifying savings association is its assessment calculated under pre-
1998 assessment schedules, rather than the current assessment 
schedules. Unlike the pre-1998 assessment schedules, the current 
assessment schedules use rates that have been adjusted for inflation 
and include a base charge for certain fixed costs that are the same or 
nearly the same for all institutions. Because the amount of the size 
component varies with the size of the institution, the impact of this 
change on small thrifts will vary. Using the most recent assessment 
table published in TB 48-20 for the January 2004 semi-annual 
assessment, the asset size component computed under the standard method 
and the alternative methods for institutions of various selected sizes 
is illustrated by the following chart:

                  Impact of the Alternative Size Computation on Institutions of Selected Sizes
----------------------------------------------------------------------------------------------------------------
                                                             Asset size
                                                             component      Alternative asset   Net reduction of
                       Asset size                        computed under TB    size component       assessment
                                                          48-20 schedules      computation
----------------------------------------------------------------------------------------------------------------
$0 Million.............................................             $2,042                 $0             $2,042
$35 Million............................................              7,898              6,046              1,852
$67 Million............................................             13,252             11,575              1,677
$100 Million...........................................             16,935             15,993                942
----------------------------------------------------------------------------------------------------------------

    Approximately 12 of the 281 small savings associations are 
currently rated ``3'' and are subject to an additional assessment under 
the condition component. This additional assessment is equal to 50 
percent of the size component. For these 12 thrifts, the overall 
benefit of the alternative size calculation is 150 percent of the 
amount in the final column of the chart. Thus, the overall semi-annual 
benefit from the alternative size calculation for any individual 3-
rated savings association would have ranged from $1,413 to $3,063, 
depending on the institution's asset size. Two small savings 
associations are rated ``4'' or ``5'' and are subject to an additional 
assessment under the condition component that is equal to 100 percent 
of the size component. For these two institutions, the overall benefit 
of the alternative size calculation is 200 percent of the figure in the 
final column of the chart. The overall semi-annual benefit from the 
alternative size calculation for any individual 4-or 5-rated savings

[[Page 30568]]

association will range from $1,884 to $4,084, depending on the 
institution's asset size.\48\
---------------------------------------------------------------------------

    \48\ See 12 CFR 502.20. OTS cannot provide a more specific 
breakdown regarding the impact of the condition component on each of 
these small savings associations because such information may result 
in the public disclosure of sensitive and privileged supervisory 
rating information for specific institutions. See 12 CFR 510.5.
---------------------------------------------------------------------------

    OTS considered various alternatives to the final rule. For example, 
it considered retaining the alternative asset size component for 
qualifying savings associations, prescribing a separate asset size 
schedule for smaller institutions with a lower base assessment rate or 
lower rates for smaller institutions, or phasing out the alternative 
schedule over time. Although no commenter specifically addressed the 
IRFA, several supported a gradual phase-out of the alternative 
schedule.
    OTS's assessment regulation, to the maximum extent possible, 
attempts to tailor rates and charges to the agency's costs of 
supervising particular institutions. While it may have been appropriate 
to provide qualifying savings associations with an initial period to 
adjust to the assessment regulation originally adopted in 1998, it is 
not equitable to continue to require non-qualifying savings 
associations to carry the cost burdens for qualifying savings 
associations. Non-qualifying savings associations, which include many 
small savings associations,\49\ have carried an extra burden for 
qualifying institutions for five years. This burden has not remained 
static, but rather has increased over the five-year period.\50\ OTS 
believes that all institutions, even small institutions, should be able 
to plan for, adjust to, and carry the burden of inflation-related and 
cost changes reflected in OTS's assessments schedule. Accordingly, OTS 
does not believe that it is appropriate to compel other institutions to 
continue to carry an increased burden.
---------------------------------------------------------------------------

    \49\ OTS estimates that 194 of the 475 institutions with assets 
under $150 million are not qualifying savings associations.
    \50\ See discussion at 69 FR at 6207.
---------------------------------------------------------------------------

    Some commenters urged OTS to retain the alternative size component 
for qualifying small trust-only institutions. For the reasons set forth 
in Section V., OTS does not agree that qualifying savings associations 
administering trust assets carry additional costs relative to their 
cost of supervision, and has not retained the alternative size 
component for these thrifts.

C. Other Matters

    The final rule imposes no reporting, recordkeeping, or other 
compliance requirements. The current savings association assessment and 
the new SLHC assessment will be based on information contained in TFRs 
or in H-(b)11 Current/Annual Report, which savings associations and 
their SLHCs otherwise must file with OTS. While state-regulated 
depository institutions held by section 10(l) SLHCs do not file TFRs, 
they are still expected to submit holding company asset size 
information to OTS in the format of Schedule HC. OTS is working on a 
means to collect this information electronically from section 10(l) 
SLHCs.
    OTS will continue to use its current collection procedures for 
savings associations and will use similar procedures for billing and 
collecting semi-annual assessments from SLHCs.
    No federal rules duplicate, overlap, or conflict with this final 
rule.

VIII. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), requires an agency to prepare a 
budgetary impact statement before promulgating a rule that includes a 
federal mandate that may result in expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. OTS has determined that the 
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.

List of Subjects in 12 CFR Part 502

    Assessments, Federal home loan banks, Reporting and recordkeeping 
requirements, Savings associations.

0
Accordingly, the Office of Thrift Supervision amends part 502, chapter 
V, title 12, Code of Federal Regulations as set forth below.

PART 502--ASSESSMENTS AND FEES

0
1. The authority citation for part 502 continues to read as follows:

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


0
2. In Sec.  502.5, revise paragraphs (b) and (c) to read as follows:


Sec.  502.5  Who must pay assessments and fees?

    (b) Assessments. If you are a savings association or a responsible 
savings and loan holding company, and OTS regulates you 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. If you make a filing 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 Director may charge a 
fee for any filing including notices, applications, and securities 
filings. The Director may charge a fee for any service including 
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 
savings association affiliates. If OTS incurs extraordinary expenses 
related to examination, investigation, regulation, or supervision of a 
savings association or its affiliate, the Director may charge the 
savings association or the affiliate a fee to fund those expenses. 
Subpart B of this part describes OTS's fee procedures and requirements.

0
3. Revise part 502, subpart A to read as follows:

Subpart A--Assessments

Savings Associations--Calculation of Assessments


Sec.  502.10  How does OTS calculate the semi-annual assessment for 
savings associations?

    (a) If you are a savings association, OTS determines your semi-
annual assessment by totaling three components: your size, your 
condition, and the complexity of your business. OTS determines the 
amounts of each component under Sec. Sec.  502.15 through 502.25 of 
this part.
    (b) 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 Sec. Sec.  502.10 through 502.25 of this part, total 
assets are your total assets as reported on Thrift Financial Reports 
filed with OTS.


Sec.  502.15  How does OTS determine my size component?

    (a) Chart. If you are a savings association, OTS uses the following 
chart to calculate your size component:

[[Page 30569]]



----------------------------------------------------------------------------------------------------------------
             If your total assets are: . . .                              Your size component is:
----------------------------------------------------------------------------------------------------------------
            Over-- *                   But not over--      This amount-- Plus--Marginal   Of assets over--Class
----------------------------------------------------------     Base           rate                floor
                                                            assessment  ----------------------------------------
                                                              amount
            Column A                      Column B        --------------    Column D             Column E
                                                             Column C
----------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------

    (b) Calculation. 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.


Sec.  502.20  How does OTS determine my condition component?

    (a) If you are a savings association, OTS uses the following chart 
to determine your condition component:

------------------------------------------------------------------------
                                                 Then your condition
       If your composite  rating is:                component is:
------------------------------------------------------------------------
1 or 2....................................  Zero.
3.........................................  50 percent of your size
                                             component.
4 or 5....................................  100 percent of your size
                                             component.
------------------------------------------------------------------------

    (b) For the purposes of this section, 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.  502.25  How does OTS determine my complexity component?

    If you are a savings association and 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 that you administer.
    (2) The outstanding principal balances of assets that are 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 thresholds 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.

Savings and Loan Holding Companies--Calculation of Assessments


Sec.  502.26  How does OTS calculate the semi-annual assessment for 
savings and loan holding companies?

    (a) OTS calculates the semi-annual assessment savings and loan 
holding companies as follows:
    (1) OTS will assess a base assessment amount of $3,000 on 
responsible savings and loan holding companies. The base assessment 
amount reflects OTS's estimate of the base costs of conducting on- and 
off-site supervision of a noncomplex, low risk savings and loan holding 
company structure. OTS will periodically revise this amount to reflect 
changes in inflation based on a readily available index. OTS will 
establish the revised amount of the base assessment in a Thrift 
Bulletin.
    (2) OTS will add three components to the base assessment amount to 
compute the amount of the semi-annual assessment for responsible 
savings and loan holding companies: a component based on the risk or 
complexity of the savings and loan holding company's business, a 
component based on its organizational form, and a component based on 
its condition. OTS determines the amount of each component under 
Sec. Sec.  502.27 through 502.29 of this part.
    (b) For purposes of the semi-annual assessment of savings and loan 
holding companies:
    (1) The responsible holding company is the registered holding 
company at the highest level of ownership in a holding company 
structure, unless OTS designates another savings and loan holding 
company in the holding company structure. OTS may designate an 
intermediate-tier holding company if the assessment of this entity 
would more accurately reflect OTS costs of supervising the holding 
company structure and:
    (i) There are multiple top-tier holding companies in the holding 
company structure;
    (ii) The top-tier holding company is organized outside of the 
United States, and is subject to the consolidated review of a foreign 
regulator; or
    (iii) Other circumstances indicate that the assessment of the top-
tier holding company is inappropriate.
    (2) Total consolidated holding company assets are the total assets 
as reported on the Thrift Financial Report, Schedule HC. If Schedule HC 
is unavailable, OTS will use total assets reported on report H-(b)11. 
OTS uses information contained in the September 30 Schedule HC or 
report H-(b)11 to determine amounts due at the January 31 assessment; 
and the March 31 Schedule HC or report H-(b)11 to determine amounts due 
at the July 31 assessment.

[[Page 30570]]

Sec.  502.27  How does OTS determine the risk/complexity component for 
a savings and loan holding company?

    (a) OTS computes the risk/complexity component for responsible 
savings and loan holding companies using schedules that set out charges 
based on OTS holding company risk/complexity classifications and total 
consolidated holding company assets. OTS will establish these schedules 
in a Thrift Bulletin.
    (b) For the purposes of this section, the holding company risk/
complexity classification is the most recent risk/complexity 
classification of which OTS notified the savings and loan holding 
company in writing before an assessment's due date.
    (1) OTS classifies holding companies as Category I (low risk, 
noncomplex holding company); Category II (complex or high risk holding 
company); or Category III (conglomerate).
    (2) The OTS holding company risk/complexity classifications reflect 
OTS's assessment of a holding company's financial condition, financial 
independence of the savings association and other affiliates that are 
regulated financial entities, operational independence of the savings 
association and other affiliates that are regulated financial entities, 
reputational risks raised by affiliation with the holding company, and 
management experience of the holding company, savings association, and 
affiliates. The OTS holding company risk/complexity classification 
system is more fully described in the OTS Holding Company Handbook.
    (3) A conglomerate is a holding company that: (i) is one of the 
most complex or highest risk holding companies under the holding 
company risk/complexity classification system; (ii) is made up of a 
number of different companies or legal enterprises that offer products 
from more than one financial sector (e.g., insurance, securities, and 
banking) or operate in diversified fields; and (iii) generally manages 
these companies and enterprises along functional lines, rather than as 
separate legal entities.
    (c) OTS uses the following chart to compute the risk/complexity 
component under this section. OTS will establish the amounts in column 
C and D in the Thrift Bulletin for each holding company risk/complexity 
classification. The amounts established for column C and D that are 
applicable to conglomerates will be three times the amounts established 
for column C and D for complex or higher risk holding company 
enterprises of the same asset size.

----------------------------------------------------------------------------------------------------------------
        If your total consolidated assets are . . .                Your risk/complexity component is . . .
----------------------------------------------------------------------------------------------------------------
           Over . . .                But not over . . .      This amount   Plus--this     Of assets over . . .
-----------------------------------------------------------     . . .       marginal   -------------------------
                                                           --------------  rate . . .
            Column A                      Column B                       --------------         Column E
                                                              Column C      Column D
----------------------------------------------------------------------------------------------------------------
$0..............................  $150 Million............             C1          D1   $0
150 Million.....................  250 Million.............             C2          D2   150 Million
250 Million.....................  500 Million.............             C3          D3   250 Million
500 Million.....................  1 Billion...............             C4          D4   500 Million
1 Billion.......................  5 Billion...............             C5          D5   1 Billion
5 Billion.......................  50 Billion..............             C6          D6   5 Billion
50 Billion......................  100 Billion.............             C7          D7   50 Billion
100 Billion.....................  300 Billion.............             C8          D8   100 Billion
Over 300 Billion..........................................             C9          D9   300 Billion
----------------------------------------------------------------------------------------------------------------

    (d) To compute your risk/complexity component, find the row in the 
appropriate schedule that describes your total consolidated assets by 
referring to the amounts in Columns A and B. In that row, calculate how 
much your total consolidated assets exceed the class floor (Column E); 
multiply this number by your marginal rate (Column D); and add the 
product to the amount in Column C. The total is your risk/complexity 
component.


Sec.  502.28  How does OTS determine the organizational form component 
for a savings and loan holding company?

    OTS will include an organizational form component if you are a 
responsible savings and loan holding company that OTS regulates under 
section 10(l) of the HOLA. OTS will compute your organizational form 
component by adding the base assessment to your risk/complexity 
component, and multiplying this amount by 25 percent.


Sec.  502.29  How does OTS determine the condition component for a 
savings and loan holding company?

    (a) If the most recent examination rating assigned to the 
responsible savings and loan holding company (or the most recent 
examination rating assigned to any savings and loan holding company in 
the holding company structure) is ``unsatisfactory,'' OTS will assess a 
charge under the condition component. The amount of the condition 
component is equal to 100 percent of the sum of the base assessment 
amount, the risk/complexity component, and any organizational form 
component.
    (b) For the purposes of this section, examination ratings are the 
ratings that OTS assigns under the OTS holding company rating system. 
OTS uses the most recent rating of which the savings and loan holding 
company has been notified in writing before an assessment's due date.

Payment of Assessments


Sec.  502.30  When must I pay my assessment?

    OTS will bill you semi-annually for your assessments. Assessments 
are due January 31 and July 31 of each year, unless that date is a 
Saturday, Sunday, or Federal holiday. If the due date is a Saturday, 
Sunday or Federal holiday, your assessment is due on the first day 
preceding the due date that is not a Saturday, Sunday or Federal 
holiday. 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 do I pay my assessment?

    (a) Savings associations. (1) If you are a member of a Federal Home 
Loan Bank that offers demand deposit accounts which permit direct 
debits, you must maintain a demand deposit account at your Federal Home 
Loan Bank with

[[Page 30571]]

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.
    (2) If paragraph (a)(1) of this section does not apply to you, OTS 
will directly debit an account you must maintain at your association.
    (b) Savings and loan holding companies. You may establish an 
account at an insured depository institution and authorize OTS to debit 
the account for your semi-annual assessment. If you do not establish an 
account and maintain funds in the account sufficient to pay the semi-
annual assessment when due, OTS may charge you a fee to cover its 
administrative costs of collecting and billing your assessment. This 
fee is in addition to interest on delinquent assessments charged under 
Sec.  502.45 of this part. OTS will establish the amount of the 
administrative fee and publish the amount of the fee in a Thrift 
Bulletin.


Sec.  502.40  Will OTS refund or prorate my assessment?

    (a) OTS will not refund or prorate your assessment, even if you 
cease to be a savings association or a savings and loan holding 
company.
    (b) If 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 or H-(b)11 Annual/Current 
Report upon which your assessment is based.


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

    (a) Your assessment is delinquent if you do not pay it on the date 
it is due under Sec.  502.30 of this part. 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 calendar quarter preceding the assessment.
    (b) If a savings and loan holding company fails to pay an 
assessment within 60 days of the date it is due under Sec.  502.30 of 
this part, the Director may assess and collect the assessment with 
interest from a subsidiary savings association. If a savings and loan 
holding company controls more than one savings association, the 
Director may assess and collect the assessment from each savings 
association as the Director may prescribe.


0
4. Revise Sec.  502.50 to read as follows:


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 saving association affiliates. Because OTS recovers the 
ordinary costs of examining and investigating savings and loan holding 
companies through the semi-annual assessment under Sec. Sec.  502.25 
through 502.29 of this part, the Director will not generally charge an 
examination fee to a savings and loan holding company. ``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 Condition of the 
Thrift Financial Report.
    (b) The Director assesses fees for processing notices, 
applications, securities filings, and requests, and for providing other 
services.

0
5. Revise Sec.  502.75(b) to read as follows


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

* * * * *
    (b) Failure to pay. If you are a savings association and your 
holding company, affiliate, or subsidiary fails to pay any fee within 
60 days of the date specified in a bill, the Director may assess and 
collect that fee, with interest, from you. If the holding company, 
affiliate, or subsidiary is related to 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: May 28, 2004.

    By the Office of Thrift Supervision.
James Gilleran,
Director.
[FR Doc. 04-12128 Filed 5-27-04; 8:45 am]
BILLING CODE 6720-01-P