[Federal Register Volume 69, Number 184 (Thursday, September 23, 2004)]
[Proposed Rules]
[Pages 56968-56970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21334]


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DEPARTMENT OF THE TREASURY

17 CFR Part 450

RIN 1505-AB06

[Docket No. BPD GSRS 04-02]


Government Securities Act Regulations: Custodial Holdings of 
Government Securities

AGENCY: Office of the Assistant Secretary for Financial Markets, 
Treasury.

ACTION: Proposed rule.

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SUMMARY: The Department of the Treasury (``Treasury,'' ``We,'' or 
``Us'') is issuing this proposed rule to solicit comments on a proposed 
amendment to the regulations issued under the Government Securities Act 
of 1986, as amended (``GSA''), that are applicable to depository 
institutions that hold government securities as fiduciary, custodian, 
or otherwise for the account of customers. The provisions of the GSA 
regulations for custodial holding of government securities held by 
depository institutions generally provide an exemption from these rules 
for a depository institution's holdings of such government securities 
that are subject to fiduciary standards of the Board of Governors of 
the Federal Reserve System (``the Board''), the Federal Deposit 
Insurance Corporation (``FDIC''), or the Office of the Comptroller of 
the Currency (``OCC''). This proposed amendment would modify the 
exemption to include savings associations subject to the fiduciary 
standards of the Office of Thrift Supervision (``OTS'').

DATES: Submit comments on or before October 25, 2004.

ADDRESSES: You may send comments to: Bureau of the Public Debt, 
Government Securities Regulations Staff, 799 9th Street NW., 
Washington, DC 20239-0001. You also may e-mail us comments at either 
[email protected], or through the Federal eRulemaking portal at 
http://www.regulations.gov and follow the instructions for submitting 
comments. When sending comments by e-mail, please provide your full 
name, mailing address, and docket number BPD GSRS 04-02 or RIN 1505-
AB06. You may download this proposed amendment from http://www.regulations.gov or the Bureau of the Public Debt's Web site at 
http://www.publicdebt.treas.gov. The comments we receive will be 
available on Public Debt's web site. The proposed amendment and 
comments received will also be available for public inspection and 
copying at the Treasury Department Library, Room 1428, Main Treasury 
Building, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. To visit 
the library, call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena (Executive Director), 
Lee Grandy (Associate Director), or Deidere Brewer (Government 
Securities Specialist), Bureau of the Public Debt, Government 
Securities Regulations Staff, (202) 504-3632 or e-mail us at 
[email protected].

I. Background

A. GSA Regulations

    Title II of the GSA \1\ requires Treasury to prescribe, by 
regulation, standards for the safeguarding and use of government 
securities. The standards apply to depository institutions that hold 
government securities as fiduciary, custodian, or otherwise for the 
account of a customer. The regulations are to provide for the adequate 
segregation of government securities, including government securities 
subject to repurchase transactions. Prior to the adoption of 
regulations, Treasury is required to determine with respect to each 
appropriate regulatory agency, whether its ``rules and standards 
adequately meet the purposes of the regulations'' \2\ to be issued, and 
if Treasury so determines, it must exempt any depository institution 
subject to those rules or standards from the regulations.
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    \1\ Pub. L. 99-571, 100 Stat. 3208 (1986).
    \2\ 31 U.S.C. 3121(h)(4) & 9110(d).
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    Treasury issued regulations under Title II of the GSA in l987 at 17 
CFR Part 450.\3\ Based on the information provided by the appropriate 
regulatory agencies \4\ and Treasury's own analysis, Treasury 
determined in 1987 that the rules and standards of the OCC, the FDIC, 
and the Board adequately met the purposes of the regulations.\5\ 
Consequently, Treasury provided an exemption in Sec. 450.3 for 
depository institutions \6\ subject to these standards with respect to 
their holdings in a fiduciary capacity. The exemption also extends to 
government securities held in a custodial capacity, provided the 
institutions have adopted policies and procedures that would apply to 
such custodial holdings all of the requirements imposed by their 
appropriate regulatory agency on government securities held in a 
fiduciary capacity, and the custodial holdings are subject to 
examination by the appropriate regulatory agency for compliance with 
such fiduciary requirements.
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    \3\ The GSA implementing regulations were published as a final 
rule on July 24, 1987 (52 FR 27901). The regulations, as amended, 
are codified at 17 CFR Chapter IV. The requirements for depository 
institutions that hold government securities as a fiduciary, 
custodian, or otherwise are set out in Subchapter B (17 CFR Part 
450).
    \4\ See 17 CFR 450.2(a).
    \5\ 52 FR 5677 (February 25, 1987).
    \6\ See 17 CFR 450.2(c). The GSA regulations at Sec. 450.2(c) 
define ``depository institution'' as having the meaning stated in 
clauses (i) through (vi) of Sec. 19(b)(1)(A) of the Federal Reserve 
Act (12 U.S.C. 461(b)(1)(A) (i)-(vi)). Savings associations are 
included in the definition of depository institutions at 12 U.S.C. 
461(b)(1)(A)(vi).
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    Whether or not they are exempt under 450.3, however, depository 
institutions that retain custody of government securities subject to a 
repurchase agreement are required to comply with the confirmation 
requirements for hold-in-custody repurchase agreements in the 
regulations under Title I of the GSA at 403.5(d).\7\ Although Treasury 
initially provided an exception from the hold-in-custody repurchase 
agreement requirements for financial institutions that held customer 
securities in safekeeping and that did not retain the right to 
substitute securities, Treasury

[[Page 56969]]

rescinded that exception in August 1988.\8\
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    \7\ See 17 CFR 403.5(a)(2) & 401.4(b)(1)(ii).
    \8\ 53 FR 28981 (August 1, 1988). Treasury stated that 
securities transactions should be confirmed promptly and that such 
treatment is particularly appropriate for hold-in-custody repurchase 
transactions, even when the subject securities are delivered to a 
separate safekeeping department within the financial institution.
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B. OTS Request

    On October 6, 2003, the OTS submitted a written request that the 
exemption at Sec. 450.3 be extended to include OTS-regulated savings 
associations that meet its conditions.\9\ In 1987, when Treasury 
developed the GSA regulations, savings associations were not eligible 
for the exemption because the Federal Home Loan Bank Board, OTS' 
predecessor, had not completed its examination procedures or guidance 
related to the GSA regulations. Savings associations are not included 
in the exemption, therefore they must comply with the requirements 
contained in Part 450 with respect to all government securities held 
for the account of customers in a capacity as a fiduciary or a 
custodian, as well as the requirements under applicable fiduciary law, 
including OTS fiduciary regulations at 12 CFR part 550.
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    \9\ See Letter from Scott M. Albinson, Managing Director, Office 
of Thrift Supervision, Department of the Treasury, to Van Zeck, 
Commissioner of the Public Debt, Bureau of the Public Debt, 
Department of the Treasury (October 6, 2003).
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    The OTS request states that when Congress gave federal savings 
associations trust powers in 1980, the intent was to provide them with 
the ability to offer trust services on the same basis as national 
banks.\10\ Without this same ability, the OTS states that savings 
associations are at a competitive disadvantage and subject to 
duplicative rules.
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    \10\ See Sec. 5(n) of Home Owners' Loan Act (HOLA) 12 U.S.C. 
1464(n) for thrifts and 12 U.S.C. 92a for banks.
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    The OTS further states in its request that it now has examination 
procedures for the GSA regulations in place, and that OTS' regulation 
of fiduciary, custodial and other holdings of government securities 
adequately protects customer accounts. Further, the OTS states that the 
regulatory oversight of fiduciary activities of savings associations is 
the same as other federal banking agencies, and its trust regulations, 
policies and procedures are similarly aligned with those of the OCC.

II. Analysis

    Based on the information provided by the OTS and our analysis, we 
are proposing to amend the GSA regulations to add savings associations 
regulated by the OTS to the exemption in Sec. 450.3 under the same 
conditions that currently apply to depository institutions regulated by 
the OCC, the FDIC and the Board. We are not proposing any other changes 
to the current rule.
    The OTS is responsible for ensuring that fiduciary powers are 
exercised by savings associations in a manner consistent with the best 
interests of fiduciary beneficiaries and other parties at interest 
through conformity with applicable federal and state law and sound 
fiduciary principles. The OTS also is responsible for ensuring that the 
safekeeping of fiduciary assets are kept separate from the savings 
association's assets.\11\ Savings associations regulated by the OTS are 
also subject to examination procedures that require a review of the 
institution's systems and procedures to ensure that assets are 
adequately protected; review of applicable laws, regulations and 
fiduciary principles governing the safekeeping of assets; review of the 
institution's accounting system to insure that records are accurate and 
reliable; and review of the adequacy of the institution's audit 
program. Additionally, the OTS has confirmation requirements that are 
consistent with those of the other bank regulators. All savings 
associations must comply with 12 CFR part 551, subpart A, which 
established recordkeeping and confirmation requirements for securities 
transactions.\12\ Accordingly, based on the information provided by the 
OTS and Treasury's own analysis, we have determined that the rules and 
standards of the OTS adequately meet the purposes of part 450.
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    \11\ See 12 U.S.C. 1464(n)(2), also 12 CFR part 550.
    \12\ 67 FR 76293 (December 12, 2002).
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    We welcome comments on this proposed rule amendment and in 
particular whether it meets the intent of protecting custodial holdings 
of government securities for customers by depository institutions. We 
believe the proposed change would ensure that savings associations 
subject to the jurisdiction of the OTS are not subject to duplicative 
requirements. In developing this proposed amendment, we have consulted 
with the staffs of the bank regulatory agencies and also the staff of 
the Securities and Exchange Commission.
    While the Treasury does not anticipate that subsequent 
modifications of the applicable OTS rules and standards will make this 
exemption inappropriate, we expect (as provided in Sec. 450.3(b)) that 
the OTS would inform us of any material revisions to such rules and 
standards.

III. Special Analysis

    This proposed rule would make a technical amendment to the GSA 
regulations that would expand the exemption from the part 450 
requirements, thus making OTS regulated savings associations eligible 
for the exemption. This proposed rule amendment does not meet the 
criteria for a ``significant regulatory action'' for the purposes of 
Executive Order 12866.
    In addition, pursuant to the Regulatory Flexibility Act,\13\ we 
certify that the proposed regulations, if adopted, will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule is deregulatory in that it provides a basis for 
exempting OTS regulated savings associations from the requirements of 
part 450. Accordingly, a regulatory flexibility analysis is not 
required.
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    \13\ 5 U.S.C. 601, et seq.
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    The Paperwork Reduction Act of 1995 requires that collections of 
information prescribed in proposed rules be submitted to the Office of 
Management and Budget for review and approval.\14\ Collections of 
information contained in the GSA regulations have been previously 
reviewed and approved by the Office of Management and Budget under 
Control Number 1535-0089. Under the Act, an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid OMB control number.
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    \14\ 44 U.S.C. 3507(d).
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    The collections of information related to this proposed rule are 
contained in part 450 of the GSA regulations. This proposed rule would 
expand the exemption at Sec. 450.3 to include savings associations 
regulated by the OTS that meet the conditions of the exemption. The OTS 
estimates that 132 savings associations would qualify for the 
exemption, thus making them no longer subject to part 450.

List of Subjects in 17 CFR Part 450

    Banks, banking, Depository institutions, Government securities, 
Reporting and recordkeeping requirements.

    For the reasons set out in the preamble, we propose that 17 CFR 
part 450.3 be amended as follows:

PART 450--CUSTODIAL HOLDINGS OF GOVERNMENT SECURITIES BY DEPOSITORY 
INSTITUTIONS

    1. The authority citation for part 450 continues to read as 
follows:


[[Page 56970]]


    Authority: Sec. 201, Pub. L. 99-571, 100 Stat. 3222-23 (31 
U.S.C. 3121, 9110); Sec. 101, Pub. L. 99-571, 100 Stat. 3208 (15 
U.S.C. 78o-5(b)(1)(A), (b)(4), (b)(5)(B)).

    2. Section 450.3 is amended by revising paragraph (a) to read as 
follows:


Sec. 450.3  Exemption for holdings subject to fiduciary standards.

    (a) The Secretary has determined that the rules and standards of 
the Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, and the 
Office of Thrift Supervision governing the holding of government 
securities in a fiduciary capacity by depository institutions subject 
thereto are adequate. Accordingly, such depository institutions are 
exempt from this Part with respect to their holdings of government 
securities in a fiduciary capacity and their holdings of government 
securities in a custodial capacity provided that:
    (1) Such institution has adopted policies and procedures that would 
apply to such custodial holdings all the requirements imposed by its 
appropriate regulatory agency that are applicable to government 
securities held in a fiduciary capacity, and
    (2) Such custodial holdings are subject to examination by the 
appropriate regulatory agency for compliance with such fiduciary 
requirements.
* * * * *

    Dated: September 8, 2004.
Timothy S. Bitsberger,
Acting Assistant Secretary for Financial Markets.
[FR Doc. 04-21334 Filed 9-22-04; 8:45 am]
BILLING CODE 4810-39-P