[Federal Register Volume 70, Number 98 (Monday, May 23, 2005)]
[Rules and Regulations]
[Pages 29445-29446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10217]



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DEPARTMENT OF THE TREASURY

17 CFR Part 450

RIN 1505-AB06

[Docket No. BPD GSRS 05-01]


Government Securities Act Regulations: Custodial Holdings of 
Government Securities

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

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Treasury,'' ``We,'' or 
``Us'') is issuing in final form an 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 the 
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''). 
We published a proposed rule amendment to the exemption on September 
23, 2004, and are now adopting the change as proposed. Specifically, 
this amendment modifies the exemption to include savings associations 
subject to the fiduciary standards of the Office of Thrift Supervision 
(``OTS'').

EFFECTIVE DATE: May 23, 2005.

ADDRESSES: You may download this final rule from the Bureau of the 
Public Debt's Web site at http://www.publicdebt.treas.gov or from the 
Electronic Code of Federal Regulations (e-CFR) Web site at http://www.gpoaccess.gov/ecfr. It is also available for public inspection and 
copying at the Treasury Department Library, Room 1318, 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 Kevin Hawkins (Government 
Securities Specialist), Bureau of the Public Debt, Government 
Securities Regulations Staff, (202) 504-3632 or e-mail us at 
[email protected].

SUPPLEMENTARY INFORMATION: On October 6, 2003, we received a letter 
from the OTS requesting that the exemption at 17 CFR 450.3 of the GSA 
regulations for holdings subject to fiduciary standards be expanded to 
include OTS-regulated savings associations.\1\ On September 23, 2004, 
we published a proposed amendment to Sec.  450.3 that would make OTS-
regulated savings associations eligible for the exemption under the 
same conditions that apply to depository institutions regulated by the 
OCC, the FDIC and the Board.\2\ We received one comment letter that 
strongly supported the proposed amendment. Therefore, as explained in 
more detail below, we are adopting the rule as proposed.
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    \1\ See Letter from Scoot 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).
    \2\ 69 FR 56968 (September 23, 2004).
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I. Background

A. GSA Regulations

    Title II of the GSA \3\ 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'' \4\ 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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    \3\ Pub. L. 99-571, 100 Stat. 3208 (1986).
    \4\ 31 U.S.C. 3121(h)(4) & 9110(d).
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    Treasury issued regulations under Title II of the GSA in 1987 at 17 
CFR part 450.\5\ Based on the information provided by the appropriate 
regulatory agencies \6\ 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.\7\ 
Consequently, Treasury provided an exemption in Sec.  450.3 for 
depository institutions \8\ subject to these standards with respect to 
their holdings in a fiduciary capacity.\9\
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    \5\ 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).
    \6\ See 17 CFR 450.2(a).
    \7\ 52 FR 5677 (February 25, 1987).
    \8\ 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).
    \9\ 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. 
Whether or not they are exempt under Sec.  450.3, 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 Sec.  403.5(d). See 17 CFR 
403.5(a)(2) & 401.4(b)(1)(ii).
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B. OTS Request

    In 1987, when Treasury developed the GSA regulations, savings 
associations were not eligible for the exemption because the Federal 
Home Loan Bank Board, OTS's predecessor, had not completed its 
examination procedures or guidance related to the GSA regulations. 
Savings associations were not included in the exemption and, therefore, 
were required to 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.
    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.\10\ 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.\11\ 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 supra note 2.
    \11\ 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

[[Page 29446]]

that OTS's 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. Comments Received in Response to the Proposed Rule

    On September 23, 2004, we issued a proposed amendment to the GSA 
regulations to make savings associations regulated by the OTS eligible 
for the exemption in Sec.  450.3.\12\ We received one comment letter on 
the proposed rule amendment, from America's Community Bankers 
(``ACB''), which strongly supported the proposal.\13\ ACB stated that 
``extending the exemption to savings associations supervised by the OTS 
would ensure that savings associations are not subject to duplicative 
requirements and would meet the objectives of the GSA regulations.''
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    \12\ See supra note 2.
    \13\ The proposed rule and the comment letter, dated October 25, 
2004, are available for downloading from http://www.publicdebt.treas.gov and for inspection and copying at the 
Treasury Department Library at the address provided earlier in this 
final rule.
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III. Analysis

    After considering the comment letter, and based on the information 
provided by the OTS and our analysis, we are amending 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 changing any other provisions of 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 in 
the safekeeping of fiduciary assets, such assets are kept separate from 
the savings association's assets.\14\ 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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    \14\ See 12 U.S.C. 1464(n)(2), also 12 CFR part 550. 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. 67 FR 76293 
(December 12, 2002).
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    We believe this change will ensure that savings associations 
subject to the jurisdiction of the OTS are not subject to duplicative 
requirements. In developing this amendment, we have consulted with the 
staffs of the bank regulatory agencies and 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.

IV. Special Analysis

    This final rule makes a technical amendment to the GSA regulations 
that expands the exemption from the part 450 requirements, thus making 
OTS-regulated savings associations eligible for the exemption. This 
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,\15\ we 
certify that the regulation, if adopted, will not have a significant 
economic impact on a substantial number of small entities. The 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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    \15\ 5 U.S.C. 601, et. seq.
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    The Office of Management and Budget previously approved the 
collections of information contained in this final rule in accordance 
with the Paperwork Reduction Act under Control Number 1535-0089.\16\ 
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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    \16\ 44 U.S.C. 3507(d).
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    The collections of information related to this final rule are 
contained in part 450 of the GSA regulations. This rule expands 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 will 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.


0
For the reasons set out in the preamble, 17 CFR part 450 is amended as 
follows:

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

0
1. The authority citation for part 450 continues to read as follows:

    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)).

0
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: May 18, 2005.
Timothy S. Bitsberger,
Assistant Secretary for Financial Markets.
[FR Doc. 05-10217 Filed 5-20-05; 8:45 am]
BILLING CODE 4810-39-P