[Federal Register Volume 76, Number 151 (Friday, August 5, 2011)]
[Rules and Regulations]
[Pages 47652-47833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18276]



[[Page 47651]]

Vol. 76

Friday,

No. 151

August 5, 2011

Part II





Federal Deposit Insurance Corporation





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12 CFR Parts 390 and 391





Transfer and Redesignation of Certain Regulations Involving State 
Savings Associations Pursuant to the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010; Interim Rule

  Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules 
and Regulations  

[[Page 47652]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 390 and 391

RIN 3064-AD82


Transfer and Redesignation of Certain Regulations Involving State 
Savings Associations Pursuant to the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comments.

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SUMMARY: Title III of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (the Dodd-Frank Act or the Act) provided that 
the functions, powers, and duties of the Office of Thrift Supervision 
(OTS) relating to State savings associations will transfer to the FDIC 
effective one year after July 21, 2010, the date that the Dodd-Frank 
Act was enacted. The Act also amended section 3 of the Federal Deposit 
Insurance Act (FDI Act) to designate the FDIC as the ``appropriate 
Federal banking agency'' for State savings associations. The FDIC is 
authorized to issue regulations pursuant to the FDI Act and other 
existing laws as the ``appropriate Federal banking agency'' (or under 
similar statutory terminology). As a result, pursuant to those laws, 
the FDIC, the newly-designated ``appropriate Federal banking agency'' 
for State savings associations, is authorized to issue certain 
regulations involving State savings associations.
    Consistent with the authority provided to the FDIC by the Dodd-
Frank Act, the FDI Act, and other statutory authorities, the FDIC is 
reissuing and redesigning certain transferring OTS regulations. In 
republishing these rules, the FDIC is making only technical changes to 
existing OTS regulations (such as nomenclature or address changes). The 
FDIC is not republishing those OTS regulations for which other 
appropriate Federal banking agencies are authorized to act. In the 
future, the FDIC may take other actions related to the transferred 
rules: Incorporating them into other FDIC regulations contained in 
Title 12, Chapter III, amending them, or rescinding them, as 
appropriate.

DATES: The interim rule becomes effective on July 22, 2011. Comments on 
the interim rule must be received by October 4, 2011.

ADDRESSES: You may submit comments on the Interim Rule by any of the 
following methods:
     Agency Web Site: http://www.FDIC.gov/regulations/laws/federal/notices.html. Follow instructions for submitting comments on 
the Agency Web Site.
    E-mail: [email protected]. Include RIN 3064-AD82 on the subject 
line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: http://www.regulations.gov.
    Instructions: All comments received will be posted generally 
without change to http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided. Paper copies 
of public comments may be ordered from the Public Information Center by 
telephone at 1-(877) 275-3342 or 1-(703) 562-2200.

FOR FURTHER INFORMATION CONTACT: A. Ann Johnson, Counsel, Legal 
Division, (202) 898-3573 or [email protected]; Rodney D. Ray, Counsel, 
Legal Division, (202) 898-3556 or [email protected]; or Martin P. Thompson, 
Senior Review Examiner, Division of Risk Management Supervision, (202) 
898-6767 or [email protected].

SUPPLEMENTARY INFORMATION:

I. General

    The Dodd-Frank Act, signed into law on July 21, 2010, provided for 
a substantial reorganization of the regulation of State and Federal 
savings associations and their holding companies. Beginning July 21, 
2011, the transfer date established by section 311 of the Dodd-Frank 
Act, the powers, duties, and functions formerly performed by the OTS 
will be divided among the FDIC, as to State savings associations, the 
Office of Comptroller of the Currency (OCC), as to Federal savings 
associations, and the Board of Governors of the Federal Reserve System 
(FRB), as to savings and loan holding companies. Section 316(b) of the 
Dodd-Frank Act provided that all orders, resolutions, determinations, 
and regulations issued, made, prescribed, or allowed to become 
effective by the OTS that were in effect on the day before the transfer 
date continue in effect and are enforceable by the appropriate 
successor agency until modified, terminated, set aside, or superseded 
in accordance with applicable law by such successor agency, by any 
court of competent jurisdiction, or by operation of law.
    Section 316(c) of the Dodd-Frank Act further directed the FDIC and 
the OCC to consult with one another and to publish a list of the OTS 
regulations continued which would be enforced by the FDIC and the OCC, 
respectively. On June 14, 2011, the FDIC approved a List of OTS 
Regulations to be Enforced by the OCC and the FDIC Pursuant to the 
Dodd-Frank Wall Street Reform and Consumer Protection Act that was 
published in a Joint Notice in the Federal Register on July 6, 2011.\1\ 
(The FRB is directed by the same section of the Act to identify and 
publish a list of OTS regulations relating to savings and loan holding 
companies that the FRB will enforce.)
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    \1\ 76 FR 39246 (July 6, 2011).
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    Apart from providing for the continuation and enforcement of 
regulations previously issued by the OTS, section 312 of the Dodd-Frank 
Act provided rulemaking authority to the OCC, with respect to both 
State and Federal savings associations, and to the FRB with respect to 
savings and loan holding companies. Although the Dodd-Frank Act did not 
provide the FDIC with specific rulemaking authority over State savings 
associations, the FDIC was named the ``appropriate Federal banking 
agency'' for State savings associations by section 312(c) of the Act. 
Nothing in the Dodd-Frank Act affected the FDIC's existing authority to 
issue regulations under the FDI Act and other laws as the ``appropriate 
Federal banking agency'' (or under similar statutory terminology). As a 
result, pursuant to those laws, the FDIC, the newly-designated 
``appropriate Federal banking agency'' for State savings associations, 
is authorized to issue regulations involving such associations.
    The FDIC has independent rulemaking authority for each of the 
transferred OTS rules that are republished as FDIC rules in this 
Interim Rule. The rules republished here regulate only State savings 
associations, consistent with the Dodd-Frank Act's allocation to the 
FDIC of the duties and functions of the OTS relating to these 
associations. Similarly, the OCC and the FRB will republish former OTS 
rules relating to the functions and duties of the OTS transferred to 
those agencies, respectively. Since the Dodd-Frank Act did not give the 
FDIC authority over Federal savings associations or savings and loan 
holding companies, the sections of the OTS rules that previously 
regulated those entities are not republished by the FDIC in this 
Interim Rule.

[[Page 47653]]

    The FDIC, through this Interim Rule, is formally transferring 
certain regulations applicable to State savings associations from 12 
CFR chapter V to 12 CFR chapter III, as indicated in the Derivation 
Table. To expedite republication of the former OTS rules, the 
regulations contained in this Interim Rule will be transferred to the 
FDIC with only minor technical, conforming, or nomenclature changes. No 
changes are being made at this time to the substantive content of the 
transferred regulations. (For example, references in the former OTS 
rules to the ``OTS,'' the ``Director, and the ``Office'' [of Thrift 
Supervision] will be changed to the ``FDIC'' or the ``Board of 
Directors'' [of the FDIC].) FDIC staff will evaluate the transferred 
OTS rules and may later recommend incorporating the transferred rules 
into existing FDIC rules, amending them, or rescinding them, as 
appropriate.
    A mass of transferred OTS rules are being republished in this 
Interim Rule. In republishing these rules, it is possible that some 
rules have been unintentionally omitted, that some nomenclature changes 
have not been identified, or that some internal cross-reference between 
transferring rules has not been changed. If there are such inadvertent 
errors they are not intended by the FDIC to alter the dictates of 
section 316(b) of the Dodd-Frank Act. That is, the former regulations 
of the OTS affecting State savings associations that are in effect the 
day before the transfer date continue in effect, and will be enforced 
by the FDIC until they are modified, terminated, set aside, or 
superseded in accordance with applicable law by the FDIC (or other 
Federal banking agency), any court of competent jurisdiction, or by 
operation of law.
    Since the republished OTS rules previously were issued by the OTS 
pursuant to notice and comment rulemaking and since the FDIC's proposed 
revisions to those rules involve only non-substantive, largely 
nomenclature changes, the FDIC finds good cause to make the Interim 
Rule effective immediately upon the transfer date. Public comment will 
be accepted for 60 days.

II. Description of Parts Effected by the Interim Rule and Derivation 
Table

    The following general descriptions discuss changes made to each 
former OTS part that the FDIC is republishing:

Part 390, Subpart A

    Former part 507 of the OTS regulations, addressing restrictions on 
post-employment activities of senior examiners, is being republished as 
subpart A of part 390. Revisions to the rule text have been made to 
reflect the abolishment of the OTS and internal cross-references have 
been revised to reflect new FDIC rule citations. Former Sec.  507.3(b) 
has been removed because it is no longer needed.

Part 390, Subpart B

    Former part 508 of the OTS regulations, addressing removals, 
suspensions, and prohibitions where a crime is charged or proven, is 
being republished as subpart B of part 390. Revisions to the rule text 
have been made to address the applicability of the regulation to State 
savings associations, reflect the FDIC's internal organization, and 
internal cross-references have been revised to reflect new FDIC rule 
citations.

Part 390, Subpart C

    Former subparts A and B of part 509 of the OTS regulations, 
addressing rules of practice and procedure for adjudicatory 
proceedings, are being republished as subpart C of part 390. Revisions 
to the rule text have been made to reflect the FDIC's internal 
organization and internal cross-references have been revised to reflect 
new FDIC rule citations. Former Sec.  509.100 (b) has been removed 
because it relates to activities by certain savings and loan holding 
companies or their non-insured subsidiaries. Former Sec.  509.103(b)(2) 
also has been removed to allow the FDIC greater flexibility regarding 
payments of civil money penalties in the event of an internal 
reorganization.

Part 390, Subpart D

    Former part 512 of the OTS regulations, addressing rules for 
investigative proceedings and formal examination proceedings, is being 
republished as subpart D of part 390. Minor revisions to the rule text 
have been made to reflect the FDIC's internal organization and internal 
cross-references have been revised to reflect new FDIC rule citations. 
Citations to the Savings and Loan Holding Company Act and the Home 
Owners' Loan Act have also been removed.

Part 390, Subpart E

    Former part 513 of the OTS regulations, addressing rules for 
practice before the FDIC, is being republished as subpart E of part 
390. Minor revisions to the rule text have been made to reflect the 
FDIC's internal organization and internal cross-references have been 
revised to reflect new FDIC rule citations.

Part 390, Subpart F

    Former part 513 of the OTS regulations, addressing application 
processing procedures, is being republished as subpart F of part 390. 
The procedures will be applicable to applications filed under parts 390 
and 391 by State savings associations. Minor revisions to the rule text 
have been made to reflect the FDIC's internal organization and 
responsibilities for State savings associations and internal cross-
references have been revised to reflect new FDIC or OCC rule citations. 
Former Sec.  516.40 also has been revised to reflect the states served 
by the FDIC's regional offices and former Sec.  516.45(a)(3) has been 
removed because the FDIC does not charge filing fees for applications.

Part 390, Subpart G

    Former part 528 of the OTS regulations, addressing 
nondiscrimination requirements, is being republished as subpart G of 
part 390. Internal cross-references have been revised to reflect new 
FDIC rule citations and appropriate FDIC office addresses have been 
added.

Part 390, Subpart H

    Former part 533 of the OTS regulations, addressing disclosure and 
reporting of CRA-related agreements, is being republished as subpart H 
of part 390. Internal cross-references have been revised to reflect new 
FDIC and OCC rule citations. Former Sec.  533.1(b)(2) has been removed 
because it addresses savings and loan holding companies and former 
Sec.  533.10 has been removed because it is no longer needed.

Part 390, Subpart I

    Former part 536 of the OTS regulations, addressing consumer 
protection in sales of insurance, is being republished as subpart H of 
part 390. Revisions to the rule text have been made to reflect the 
FDIC's responsibilities for State savings associations and internal 
cross-references have been revised to reflect new FDIC rule citations 
and appropriate FDIC office addresses have been added.

Part 390, Subpart J

    Former part 550 of the OTS regulations, addressing fiduciary powers 
of savings associations, focused almost exclusively on fiduciary powers 
of Federal savings associations, which will be supervised by the OCC 
after the Transfer Date. Because the FDIC will be responsible for 
supervising State savings associations after that date, only that 
portion of former Sec.  550.1(b) requiring compliance with State law 
and for the

[[Page 47654]]

operations to be conducted in a safe and sound manner is being 
republished as subpart J.

Part 390, Subpart K

    Former part 551 of the OTS regulations, addressing recordkeeping 
and confirmation requirements for securities transactions, is being 
republished as subpart K of part 390. Internal cross-references in the 
rule have been revised to reflect new FDIC rule citations.

Part 390, Subpart L

    Former subpart B of part 555 of the OTS regulations, addressing 
electronic operations, is being republished as subpart H of part 390. 
Internal cross-references in the rule have been revised to reflect new 
FDIC rule citations and former Sec.  555.310(b) has been removed 
because it is no longer needed.

Part 390, Subpart M

    Former subpart C of part 557 of the OTS regulations, addressing 
deposits, is being republished as subpart M of part 390. The rule text 
has been revised to reflect the FDIC's supervisory responsibility for 
State savings associations.

Part 390, Subpart N

    Former part 558 of the OTS regulations, addressing possession by 
conservators and receivers for Federal and State savings associations, 
is being republished as subpart N of part 390. The rule text has been 
revised to reflect certain responsibilities of the FDIC when it is 
appointed as conservator or receiver for a Federal or State savings 
association.

Part 390, Subpart O

    Former Sec. Sec.  559.1-559.2 and subpart B of part 559 of the OTS 
regulations, addressing subordinate organizations, is being republished 
as subpart O of part 390. Minor revisions to the rule text have been 
made to reflect the FDIC's supervisory responsibilities for State 
savings associations and internal cross-references have been revised to 
reflect new FDIC rule citations. References to ``operating subsidiary'' 
and ``service corporation'' have been removed from the rule because 
those terms relate to Federal savings associations.

Part 390, Subpart P

    Portions of part 560 of the OTS regulations, addressing lending and 
investment, are being republished as subpart P of part 390. The 
republished portions are former Sec.  560.1 and all of subpart B, 
except for Sec. Sec.  560.93 and 560.110. The latter two sections will 
be republished by the OCC and will be applicable to all savings 
associations. Otherwise, internal cross-references have been revised to 
reflect new FDIC rule citations.

Part 390, Subpart Q

    Former part 561 of the OTS regulations, addressing definitions for 
regulations affecting State savings associations, is being republished 
as subpart Q of part 390. Minor revisions to the rule text have been 
made to reflect the abolishment of the OTS, address the applicability 
of the regulation to State savings associations, and internal cross-
references have been revised to reflect new FDIC rule citations. A 
portion of former Sec.  561.18 (definition of Director) and former 
Sec.  561.34 (definition of Office) have been removed because they are 
no longer needed.

Part 390, Subpart R

    Former part 562 of the OTS regulations, addressing regulatory 
reporting standards, is being republished as subpart R of part 390. 
Minor revisions to the rule text have been made to reflect the 
abolishment of the OTS and internal cross-references have been revised 
to reflect new FDIC rule citations.

Part 390, Subpart S

    Former part 563 of the OTS regulations, addressing the operations 
of savings associations, is being republished as subpart S of part 390. 
Minor revisions to the rule text have been made to reflect the 
abolishment of the OTS and transfer of some regulatory authority to the 
Board of Governors of the Federal Reserve System and the Bureau of 
Consumer Financial Protection. Internal cross-references have been 
revised to reflect new FDIC rule citations.

Part 390, Subpart T

    Former part 563c of the OTS regulations, addressing accounting 
requirements, is being republished as subpart T of part 390. Minor 
revisions to the rule text have been made to conform to the FDIC's 
corporate structure, and internal cross-references have been revised to 
reflect new FDIC rule citations.

Part 390, Subpart U

    Former part 563d of the OTS regulations, addressing securities of 
State savings associations, is being republished as subpart U of part 
390. Minor revisions to the rule text have been made to reflect the 
abolishment of the OTS, and internal cross-references have been revised 
to reflect new FDIC rule citations. Former Sec.  536d.2 has been 
removed the FDIC will not require filings required by this subpart to 
be made to the appropriate Regional Office, as had been the OTS' 
practice. Rather, filings related to this subpart will be required to 
be filed at the designated address for the FDIC's offices in 
Washington, DC.

Part 390, Subpart V

    Former part 563f of the OTS regulations, addressing management 
official interlocks, is being republished as subpart V of part 390. 
Minor revisions to the rule have been made to reflect the abolishment 
of OTS, and internal cross-references have been revised to reflect new 
FDIC rule citations. The rule text has been amended to address its 
applicability solely to State savings associations.

Part 390, Subpart W

    Former part 563g of the OTS regulations, addressing securities 
offerings, is being republished as subpart W of part 390. Minor 
revisions to the rule text have been made to reflect the abolishment of 
OTS and internal cross-references have been revised to reflect new FDIC 
rule citations and corporate structure. References to the rule's 
applicability to federal savings associations have not been 
republished, nor have references to the enforceability of the rule 
under provisions of the Home Owners' Loan Act.

Part 390, Subpart X

    Former part 564 of the OTS regulations, addressing appraisals, is 
being republished as subpart X of part 390. Minor revisions to the rule 
text have been made to reflect the abolishment of OTS and internal 
cross-references have been revised to reflect new FDIC rule citations.

Part 390, Subpart Y

    Former part 565 of the OTS regulations, addressing prompt 
corrective action, is being republished as subpart Y of part 390. Minor 
revisions to the rule text have been made to reflect the abolishment of 
the OTS and internal cross-references have been revised to reflect new 
FDIC rule citations. Former section 565.5(h) will not be republished to 
avoid a filing redundancy.

Part 390, Subpart Z

    Former part 567 of the OTS regulations, addressing capital, is 
being republished as subpart Z of part 390. Minor revisions to the rule 
text have

[[Page 47655]]

been made to reflect the abolishment of the OTS and internal cross-
references have been revised to reflect new FDIC rule citations. The 
term ``qualified supervisory goodwill'' has not been republished 
because of the lapse of the 20 year applicability provision provided 
for in the former regulation.
    Former appendix C to part 567 of the OTS regulations, addressing 
risk-based capital requirements-internal ratings based and advanced 
measurement approaches, is being republished as appendix A to subpart 
Z. Minor revisions to the rule text have been made to reflect the 
abolishment of the OTS, and internal cross-references have been revised 
to reflect new FDIC rule citations. The appendix has been revised to 
reflect the FDIC's internal corporate structure.

Part 391, Subpart A

    Former part 568 of the OTS regulations, addressing security 
procedures, is being republished as subpart A of part 391. Minor 
revisions to the rule text have been made to reflect the abolishment of 
the OTS, and internal cross-references have been revised to reflect new 
FDIC rule citations.

Part 391, Subpart B

    Former part 570 of the OTS regulations, addressing safety and 
soundness guidelines and compliance procedures, is being republished as 
subpart B of part 391. Minor revisions to the rule text have been made 
to reflect the abolishment of the OTS, and internal cross-references 
have been revised to reflect new FDIC rule citations.

Part 391, Subpart C

    Former part 571 of the OTS regulations, addressing the Fair Credit 
Reporting Act, is being republished in part as subpart C of part 391. 
Minor revisions to the republished rule text have been made to reflect 
the abolishment of the OTS, and internal cross-references have been 
revised to reflect new FDIC rule citations. The FDIC has not 
republished sections of the former OTS rule regulating portions of the 
Fair Credit Reporting Act identified as ``enumerated consumer laws'' 
under Title X of the Dodd-Frank Act for which the Bureau of Consumer 
Financial Protection was given regulatory authority.

Part 391, Subpart D

    Former part 572 of the OTS regulations, addressing loans in areas 
having special flood hazards, is being republished as subpart D of part 
391. Minor revisions to the rule text have been made to reflect the 
abolishment of the OTS and internal cross-references have been revised 
to reflect new FDIC rule citations.

Part 391, Subpart E

    Former part 574 of the OTS regulations, addressing the acquisition 
of control savings associations, is being republished as subpart E of 
part 391. Minor revisions to the rule text have been made to reflect 
the abolishment of the OTS, and internal cross-references have been 
revised to reflect new FDIC rule citations. Reference to acquisition of 
control by savings and loan holding companies have been removed because 
the Board of Governors of the Federal Reserve System was given 
regulatory authority over such entities by virtue of Title III of the 
Dodd-Frank Act.
    The following Derivation Table is provided for reader reference:

                                                                 OTS Regulation Transfer
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        Existing section                        Existing title                          New section                            New title
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                                                                              Part 390
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Part 507                          Restrictions on post-employment activities  Subpart A                        Restrictions on post-employment
                                   of senior examiners                                                          activities of senior examiners
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507.1                             What does this part do?                     390.1                            What does this subpart do?
507.2                             Who is a senior examiner?                   390.2                            Who is a senior examiner?
507.3                             What post-employment restrictions apply to  390.3                            What post-employment restrictions apply
                                   senior examiners?                                                            to senior examiners?
507.4                             When will OTS waive the post-employment     390.4                            When will the FDIC waive the post-
                                   restrictions?                                                                employment restrictions?
507.5                             What are the penalties for violating the    390.5                            What are the penalties for violating the
                                   post-employment restrictions?                                                post-employment restrictions?
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Part 508                          Removals, suspensions, and prohibitions     Subpart B                        Removals, suspensions, and prohibitions
                                   where a crime is charged or proven                                           where a crime is charged or proven
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508.1                             Scope.                                      390.10                           Scope.
508.2                             Definitions.                                390.11                           Definitions.
508.3                             Issuance of Notice or Order.                390.12                           Issuance of Notice or Order.
508.4                             Contents and service of the Notice or       390.13                           Contents and service of the Notice or
                                   Order.                                                                       Order.
508.5                             Petition for hearing.                       390.14                           Petition for hearing.
508.6                             Initiation of hearing.                      390.15                           Initiation of hearing.
508.7                             Conduct of hearings.                        390.16                           Conduct of hearings.
508.8                             Default.                                    390.17                           Default.
508.9                             Rules of evidence.                          390.18                           Rules of evidence.
508.10                            Burden of persuasion.                       390.19                           Burden of persuasion.
508.11                            Relevant considerations.                    390.20                           Relevant considerations.
508.12                            Proposed findings and conclusions and       390.21                           Proposed findings and conclusions and
                                   recommended decision.                                                        recommended decision.
508.13                            Decision of the Office.                     390.22                           Decision of the FDIC Board of Directors.
508.14                            Miscellaneous.                              390.23                           Miscellaneous.
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Part 509                          Rules of Practice and Procedure in          Subpart C                        Rules of Practice and Procedure in
                                   adjudicatory proceedings                                                     adjudicatory proceedings
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Subpart A                         Uniform rules of Practice and Procedure     ...............................  .........................................
509.1                             Scope.                                      390.30                           Scope.

[[Page 47656]]

 
509.2                             Rules of construction.                      390.31                           Rules of construction.
509.3                             Definitions.                                390.32                           Definitions.
509.4                             Authority of Director.                      390.33                           Authority of the Board of Directors.
509.5                             Authority of the administrative law judge.  390.34                           Authority of the administrative law
                                                                                                                judge.
509.6                             Appearance and practice in adjudicatory     390.35                           Appearance and practice in adjudicatory
                                   proceedings.                                                                 proceedings.
509.7                             Good faith certification.                   390.36                           Good faith certification.
509.8                             Conflicts of interest.                      390.37                           Conflicts of interest.
509.9                             Ex parte communications.                    390.38                           Ex parte communications.
509.10                            Filing of papers.                           390.39                           Filing of papers.
509.11                            Service of papers.                          390.40                           Service of papers.
509.12                            Construction of time limits.                390.41                           Construction of time limits.
509.13                            Change of time limits.                      390.42                           Change of time limits.
509.14                            Witness fees and expenses.                  390.43                           Witness fees and expenses.
509.15                            Opportunity for informal settlement.        390.44                           Opportunity for informal settlement.
509.16                            Office's right to conduct examination.      390.45                           The FDIC's right to conduct examination.
509.17                            Collateral attacks on adjudicatory          390.46                           Collateral attacks on adjudicatory
                                   proceeding.                                                                  proceeding.
509.18                            Commencement of proceeding and contents of  390.47                           Commencement of proceeding and contents
                                   notice.                                                                      of notice.
509.19                            Answer.                                     390.48                           Answer.
509.20                            Amended pleadings.                          390.49                           Amended pleadings.
509.21                            Failure to appear.                          390.50                           Failure to appear.
509.22                            Consolidation and severance of actions.     390.51                           Consolidation and severance of actions.
509.23                            Motions.                                    390.52                           Motions.
509.24                            Scope of document discovery.                390.53                           Scope of document discovery.
509.25                            Request for document discovery from         390.54                           Request for document discovery from
                                   parties.                                                                     parties.
509.26                            Document subpoenas to nonparties.           390.55                           Document subpoenas to nonparties.
509.27                            Deposition of witness unavailable for       390.56                           Deposition of witness unavailable for
                                   hearing.                                                                     hearing.
509.28                            Interlocutory review.                       390.57                           Interlocutory review.
509.29                            Summary disposition.                        390.58                           Summary disposition.
509.30                            Partial summary disposition.                390.59                           Partial summary disposition.
509.31                            Scheduling and prehearing conferences.      390.60                           Scheduling and prehearing conferences.
509.32                            Prehearing submissions.                     390.61                           Prehearing submissions.
509.33                            Public hearings.                            390.62                           Public hearings.
509.34                            Hearing subpoenas.                          390.63                           Hearing subpoenas.
509.35                            Conduct of hearings.                        390.64                           Conduct of hearings.
509.36                            Evidence.                                   390.65                           Evidence.
509.37                            Post-hearing filings.                       390.66                           Post-hearing filings.
509.38                            Recommended decision and filing of record.  390.67                           Recommended decision and filing of
                                                                                                                record.
509.39                            Exceptions to recommended decision.         390.68                           Exceptions to recommended decision.
509.40                            Review by the Director.                     390.69                           Review by the Board of Directors.
509.41                            Stays pending judicial review.              390.70                           Stays pending judicial review.
Subpart B                         Local Rules                                 ...............................  .........................................
509.100                           Scope.                                      390.71                           Scope.
509.101                           Appointment of Office of Financial          390.72                           Appointment of Office of Financial
                                   Institution Adjudication.                                                    Institution Adjudication.
509.102                           Discovery.                                  390.73                           Discovery.
509.103                           Civil money penalties.                      390.74                           Civil money penalties.
509.104                           Additional procedures.                      390.75                           Additional procedures.
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Part 512                          Rules for investigative proceedings and     Subpart D                        Rules for investigative proceedings and
                                   formal examination proceedings                                               formal examination proceedings
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512.1                             Scope of part.                              390.80                           Scope of subpart.
512.2                             Definitions.                                390.81                           Definitions.
512.3                             Confidentiality of proceedings.             390.82                           Confidentiality of proceedings.
512.4                             Transcripts.                                390.83                           Transcripts.
512.5                             Rights of witnesses.                        390.84                           Rights of witnesses.
512.6                             Obstruction of the proceedings.             390.85                           Obstruction of the proceedings.
512.7                             Subpoenas.                                  390.86                           Subpoenas.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 513                          Practice before the office                  Subpart E                        Practice before the FDIC
--------------------------------------------------------------------------------------------------------------------------------------------------------
513.1                             Scope of part.                              390.90                           Scope of subpart.
513.2                             Definitions.                                390.91                           Definitions.
513.3                             Who may practice.                           390.92                           Who may practice.
513.4                             Suspension and debarment.                   390.93                           Suspension and debarment.
513.5                             Reinstatement.                              390.94                           Reinstatement.
513.6                             Duty to file information concerning         390.95                           Duty to file information concerning
                                   adverse judicial or administrative                                           adverse judicial or administrative
                                   action.                                                                      action.
513.7                             Proceeding under this part.                 390.96                           Proceeding under this subpart.

[[Page 47657]]

 
513.8                             Removal, suspension, or debarment of        390.97                           Removal, suspension, or debarment of
                                   independent public accountants and                                           independent public accountants and
                                   accounting firms performing audit                                            accounting firms performing audit
                                   services.                                                                    services.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 516                          Application processing procedures           Subpart F                        Application processing procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Pre-filing and filing procedures            ...............................  .........................................
516.1                             What does this part do?                     390.100                          What does this subpart do?
516.5                             Do the same procedures apply to all         390.101                          Do the same procedures apply to all
                                   applications under this part?                                                applications under this subpart?
516.10                            How does OTS compute time periods under     390.102                          How does the FDIC compute time periods
                                   this part?                                                                   under this subpart?
Subpart A                         Pre-Filing Procedures                       ...............................  .........................................
516.15                            Must I meet with OTS before I file my       390.103                          Must I meet with the FDIC before I file
                                   application?                                                                 my application?
516.20                            What information must I include in my       390.104                          What information must I include in my
                                   draft business plan?                                                         draft business plan?
516.25                            What type of application must I file?       390.105                          What type of application must I file?
516.30                            What information must I provide with my     390.106                          What information must I provide with my
                                   application?                                                                 application?
516.35                            May I keep portions of my application       390.107                          May I keep portions of my application
                                   confidential?                                                                confidential?
516.40                            Where do I file my application?             390.108                          Where do I file my application?
516.45                            What is the filing date of my application?  390.109                          What is the filing date of my
                                                                                                                application?
516.47                            How do I amend or supplement my             390.110                          How do I amend or supplement my
                                   application?                                                                 application?
Subpart B                         Publication Requirements                    ...............................  .........................................
516.50                            Who must publish a public notice of an      390.111                          Who must publish a public notice of an
                                   application?                                                                 application?
516.55                            What information must I include in my       390.112                          What information must I include in my
                                   public notice?                                                               public notice?
516.60                            When must I publish the public notice?      390.113                          When must I publish the public notice?
516.70                            Where must I publish the public notice?     390.114                          Where must I publish the public notice?
516.80                            What language must I use in my              390.115                          What language must I use in my
                                   publication?                                                                 publication?
Subpart C                         Comment Procedures                          ...............................  .........................................
516.100                           What does this subpart do?                  390.116                          Comment procedures.
516.110                           Who may submit a written comment?           390.117                          Who may submit a written comment?
516.120                           What information should a comment include?  390.118                          What information should a comment
                                                                                                                include?
516.130                           Where are comments filed?                   390.119                          Where are comments filed?
516.140                           How long is the comment period?             390.120                          How long is the comment period?
Subpart D                         Meeting Procedures                          ...............................  .........................................
516.160                           What does this subpart do?                  390.121                          Meeting procedures.
516.170                           When will OTS conduct a meeting on an       390.122                          When will the FDIC conduct a meeting on
                                   application?                                                                 an application?
516.180                           What procedures govern the conduct of the   390.123                          What procedures govern the conduct of the
                                   meeting?                                                                     meeting?
516.185                           Will OTS approve or disapprove an           390.124                          Will the FDIC approve or disapprove an
                                   application at a meeting?                                                    application at a meeting?
516.190                           Will a meeting affect application           390.125                          Will a meeting affect application
                                   processing time frames?                                                      processing time frames?
Subpart E                         OTS Review                                  ...............................  .........................................
Expedited Treatment               ..........................................  ...............................  .........................................
516.200                           If I file a notice under expedited          390.126                          If I file a notice under expedited
                                   treatment, when may I engage in the                                          treatment, when may I engage in the
                                   proposed activities?                                                         proposed activities?
Standard Treatment                ..........................................  ...............................  .........................................
516.210                           What will OTS do after I file my            390.127                          What will the FDIC do after I file my
                                   application?                                                                 application?
516.220                           If OTS requests additional information to   390.128                          If the FDIC requests additional
                                   complete my application, how will it                                         information to complete my application,
                                   process my application?                                                      how will it process my application?
516.230                           Will OTS conduct an eligibility             390.129                          Will the FDIC conduct an eligibility
                                   examination?                                                                 examination?
516.240                           What may OTS require me to do after my      390.130                          What may the FDIC require me to do after
                                   application is deemed complete?                                              my application is deemed complete?
516.250                           Will OTS require me to publish a new        390.131                          Will the FDIC require me to publish a new
                                   public notice?                                                               public notice?
516.260                           May OTS suspend processing of my            390.132                          May the FDIC suspend processing of my
                                   application?                                                                 application?
516.270                           How long is the OTS review period?          390.133                          How long is the FDIC review period?
516.280                           How will I know if my application has been  390.134                          How will I know if my application has
                                   approved?                                                                    been approved?

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516.290                           What will happen if OTS does not approve    390.135                          What will happen if the FDIC does not
                                   or disapprove my application within two                                      approve or disapprove my application
                                   calendar years after the filing date?                                        within two calendar years after the
                                                                                                                filing date?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 528                          Nondiscrimination requirements              Subpart G                        Nondiscrimination requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
528.1                             Definitions.                                390.140                          Definitions.
528.1a                            Supplementary guidelines.                   390.141                          Supplementary guidelines.
528.2                             Nondiscrimination in lending and other      390.142                          Nondiscrimination in lending and other
                                   services.                                                                    services.
528.2a                            Nondiscriminatory appraisal and             390.143                          Nondiscriminatory appraisal and
                                   underwriting.                                                                underwriting.
528.3                             Nondiscrimination in applications.          390.144                          Nondiscrimination in applications.
528.4                             Nondiscriminatory advertising.              390.145                          Nondiscriminatory advertising.
528.5                             Equal Housing Lender Poster.                390.146                          Equal Housing Lender Poster.
528.6                             Loan application register.                  390.147                          Loan application register.
528.7                             Nondiscrimination in employment.            390.148                          Nondiscrimination in employment.
528.8                             Complaints.                                 390.149                          Complaints.
528.9                             Guidelines relating to nondiscrimination    390.150                          Guidelines relating to nondiscrimination
                                   in lending.                                                                  in lending.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 533                          Disclosure and reporting of CRA-related     Subpart H                        Disclosure and reporting of CRA-related
                                   agreements                                                                   agreements
--------------------------------------------------------------------------------------------------------------------------------------------------------
533.1                             Purpose and scope of this part.             390.160                          Purpose and scope of this subpart.
533.2                             Definition of covered agreement.            390.161                          Definition of covered agreement.
533.3                             CRA communications.                         390.162                          CRA communications.
533.4                             Fulfillment of the CRA                      390.163                          Fulfillment of the CRA.
533.5                             Related agreements considered a single      390.164                          Related agreements considered a single
                                   agreement.                                                                   agreement.
533.6                             Disclosure of covered agreements.           390.165                          Disclosure of covered agreements.
533.7                             Annual reports.                             390.166                          Annual reports.
533.8                             Release of information under FOIA.          390.167                          Release of information under FOIA.
533.9                             Compliance provisions.                      390.168                          Compliance provisions.
533.10                            Transition provisions.                      390.169                          [Reserved].
533.11                            Other definitions and rules of              390.170                          Other definitions and rules of
                                   construction used in this part.                                              construction used in this subpart.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 536                          Consumer protection in sales of insurance   Subpart I                        Consumer protection in sales of insurance
--------------------------------------------------------------------------------------------------------------------------------------------------------
536.10                            Purpose and scope.                          390.180                          Purpose and scope.
536.20                            Definitions.                                390.181                          Definitions.
536.30                            Prohibited practices.                       390.182                          Prohibited practices.
536.40                            What you must disclose.                     390.183                          What you must disclose.
536.50                            Where insurance activities may take place.  390.184                          Where insurance activities may take
                                                                                                                place.
536.60                            Qualification and licensing requirements    390.185                          Qualification and licensing requirements
                                   for insurance sales personnel.                                               for insurance sales personnel.
Appendix                          Appendix A to Part 536--Consumer Grievance  ...............................  Appendix A to Part 390, Subpart I--
                                   Process                                                                      Consumer Grievance Process.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 550                          Fiduciary powers of Savings Associations    Subpart J                        Fiduciary powers of State Savings
                                                                                                                Associations
--------------------------------------------------------------------------------------------------------------------------------------------------------
550.10                            What regulations govern the fiduciary       390.190                          What regulations govern the fiduciary
                                   operations of savings associations?                                          operations of State savings
                                                                                                                associations?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 551                          Recordkeeping and confirmation              Subpart K                        Recordkeeping and confirmation
                                   requirements for securities transactions                                     requirements for securities transactions
--------------------------------------------------------------------------------------------------------------------------------------------------------
551.10                            What does this part do?                     390.200                          What does this subpart do?
551.20                            Must I comply with this part?               390.201                          Must I comply with this subpart?
551.30                            What requirements apply to all              390.202                          What requirements apply to all
                                   transactions?                                                                transactions?
551.40                            What definitions apply to this part?        390.203                          What definitions apply to this subpart?
Subpart A                         Recordkeeping requirements                  ...............................  .........................................
551.50                            What records must I maintain for            390.204                          What records must I maintain for
                                   securities transactions?                                                     securities transactions?
551.60                            How must I maintain my records?             390.205                          How must I maintain my records?
Subpart B                         Content and timing of notice                ...............................  .........................................
551.70                            What type of notice must I provide when I   390.206                          What type of notice must I provide when I
                                   effect a securities transaction for a                                        effect a securities transaction for a
                                   customer?                                                                    customer?
551.80                            How do I provide a registered broker-       390.207                          How do I provide a registered broker-
                                   dealer confirmation?                                                         dealer confirmation?
551.90                            How do I provide a written notice?          390.208                          How do I provide a written notice?
551.100                           What are the alternate notice               390.209                          What are the alternate notice
                                   requirements?                                                                requirements?
551.110                           May I provide a notice electronically?      390.210                          May I provide a notice electronically?
551.120                           May I charge a fee for a notice?            390.211                          May I charge a fee for a notice?

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Subpart C                         Settlement of securities transactions       ...............................  .........................................
551.130                           When must I settle a securities             390.212                          When must I settle a securities
                                   transaction?                                                                 transaction?
Subpart D                         Securities trading policies and procedures  ...............................  .........................................
551.140                           What policies and procedures must I         390.213                          What policies and procedures must I
                                   maintain and follow for securities                                           maintain and follow for securities
                                   transactions?                                                                transactions?
551.150                           How do my officers and employees file       390.214                          How do my officers and employees file
                                   reports of personal securities trading                                       reports of personal securities trading
                                   transactions?                                                                transactions?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 555                          Electronic operations                       Subpart L                        Electronic operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
555.100                           What does this part do?                     390.220                          What does this subpart do?
Subpart B                         Requirements applicable to all Savings      ...............................  .........................................
                                   Associations
555.300                           Must I inform OTS before I use electronic   390.221                          Must I inform the FDIC before I use
                                   means or facilities?                                                         electronic means or facilities?
555.310                           How do I notify OTS?                        390.222                          How do I notify the FDIC?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 557                          Deposits                                    Subpart M                        Deposits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         General                                     ...............................  .........................................
557.1                             What does this part do?                     390.230                          What does this subpart do?
Subpart C                         Deposit activities of all Savings           ...............................  .........................................
                                   Associations
557.20                            What records should I maintain on deposit   390.231                          What records should I maintain on deposit
                                   activities?                                                                  activities?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 558                          Possession by conservators and receivers    Subpart N                        Possession by conservators and receivers
                                   for Federal and State Savings                                                for Federal and State Savings
                                   Associations                                                                 Associations
--------------------------------------------------------------------------------------------------------------------------------------------------------
558.1                             Procedure upon taking possession.           390.240                          Procedure upon taking possession.
558.2                             Notice of appointment.                      390.241                          Notice of appointment.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 559                          Subordinate organizations                   Subpart O                        Subordinate organizations
--------------------------------------------------------------------------------------------------------------------------------------------------------
559.1                             What does this part cover?                  390.250                          What does this subpart cover?
559.2                             Definitions.                                390.251                          Definitions.
Subpart B                         Regulations applicable to all Savings       ...............................  .........................................
                                   Associations
559.10                            How must separate corporate identities be   390.252                          How must separate corporate identities be
                                   maintained?                                                                  maintained?
559.11                            What notices are required to establish or   390.253                          What notices are required to establish or
                                   acquire a new subsidiary or engage in new                                    acquire a new subsidiary or engage in
                                   activities through an existing                                               new activities through an existing
                                   subsidiary?                                                                  subsidiary?
559.12                            How may a subsidiary of a savings           390.254                          How may a subsidiary of a State savings
                                   association issue securities?                                                association issue securities?
559.13                            How may a savings association exercise its  390.255                          How may a State savings association
                                   salvage power in connection with a                                           exercise its salvage power in connection
                                   service corporation or lower-tier                                            with a service corporation or lower-tier
                                   entities?                                                                    entities?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 560                          Lending and investment                      Subpart P                        Lending and investment
--------------------------------------------------------------------------------------------------------------------------------------------------------
560.1                             General.                                    390.260                          General.
560.2                             Applicability of law.                       390.261                          [Reserved].
560.3                             Definitions.                                390.262                          Definitions.
Subpart B                         Lending and investment provisions           ...............................  .........................................
                                   applicable to all Savings Associations
560.93                            Lending limitations.                        390.263                          [Reserved].
560.100                           Real estate lending standards; purpose and  390.264                          Real estate lending standards; purpose
                                   scope.                                                                       and scope.
560.101                           Real estate lending standards.              390.265                          Real estate lending standards.
560.110                           Most favored lender usury preemption.       390.266                          [Reserved].
560.120                           Letters of credit and other independent     390.267                          Letters of credit and other independent
                                   undertakings to pay against documents.                                       undertakings to pay against documents.
560.121                           Investment in State housing corporations.   390.268                          Investment in State housing corporations.
560.130                           Prohibition on loan procurement fees.       390.269                          Prohibition on loan procurement fees.
560.160                           Asset classification.                       390.270                          Asset classification.
560.170                           Records for lending transactions.           390.271                          Records for lending transactions.
560.172                           Re-evaluation of real estate owned.         390.272                          Re-evaluation of real estate owned.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 561                          Definitions for regulations affecting all   Subpart Q                        Definitions for regulations affecting all
                                   Savings Associations                                                         State Savings Associations
--------------------------------------------------------------------------------------------------------------------------------------------------------
561.1                             When do the definitions in this part        390.280                          When do the definitions in this subpart
                                   apply?                                                                       apply?
561.2                             Account.                                    390.281                          Account.

[[Page 47660]]

 
561.3                             Accountholder.                              390.282                          Accountholder.
561.4                             Affiliate.                                  390.283                          Affiliate.
561.5                             Affiliated person.                          390.284                          Affiliated person.
561.6                             Audit period.                               390.285                          Audit period.
561.7-561.8                       [Reserved]                                  ...............................  .........................................
561.9                             Certificate account.                        390.286                          Certificate account.
561.12                            Consumer credit.                            390.287                          Consumer credit.
561.14                            Controlling person.                         390.288                          Controlling person.
561.15                            Corporation.                                390.289                          Corporation.
561.16                            Demand accounts.                            390.290                          Demand accounts.
561.18                            Director.                                   390.291                          Director.
561.19                            Financial institution.                      390.292                          Financial institution.
561.24                            Immediate family.                           390.293                          Immediate family.
561.26                            Land loan.                                  390.294                          Land loan.
561.27                            Low-rent housing.                           390.295                          Low-rent housing.
561.28                            Money Market Deposit Accounts.              390.296                          Money Market Deposit Accounts.
561.29                            Negotiable Order of Withdrawal Accounts.    390.297                          Negotiable Order of Withdrawal Accounts.
561.30                            Nonresidential construction loan.           390.298                          Nonresidential construction loan.
561.31                            Nonwithdrawable account.                    390.299                          Nonwithdrawable account.
561.33                            Note account.                               390.300                          Note account.
561.34                            Office.                                     390.301                          [Reserved].
561.35                            Officer.                                    390.302                          Officer.
561.37                            Parent company; subsidiary.                 390.303                          Parent company; subsidiary.
561.38                            Political subdivision.                      390.304                          Political subdivision.
561.39                            Principal office.                           390.305                          Principal office.
561.40                            Public unit.                                390.306                          Public unit.
561.41                            [Reserved]                                  ...............................  .........................................
561.42                            Savings account.                            390.307                          Savings account.
561.43                            Savings association.                        390.308                          State savings association.
561.44                            Security.                                   390.309                          Security.
561.45                            Service corporation.                        390.310                          Service corporation.
561.50                            State.                                      390.311                          State.
561.51                            Subordinated debt security.                 390.312                          Subordinated debt security.
561.52                            Tax and loan account.                       390.313                          Tax and loan account.
561.53                            United States Treasury General Account.     390.314                          United States Treasury General Account.
561.54                            United States Treasury Time Deposit Open    390.315                          United States Treasury Time Deposit Open
                                   Account.                                                                     Account.
561.55                            With recourse.                              390.316                          With recourse.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 562                          Regulatory reporting standards              Subpart R                        Regulatory reporting standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
562.1                             Regulatory reporting requirements.          390.320                          Regulatory reporting requirements.
562.2                             Regulatory reports.                         390.321                          Regulatory reports.
562.4                             Audit of savings associations and savings   390.322                          Audit of State savings associations.
                                   association holding companies.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 563                          Savings Associations--Operations            Subpart S                        State Savings Associations--Operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         Accounts                                    ...............................  .........................................
563.1                             Chartering documents.                       390.330                          Chartering documents.
563.4                             [Reserved]                                  ...............................  .........................................
563.5                             Securities: Statement of non-insurance.     390.331                          Securities: Statement of non-insurance.
Subpart B                         Operation and structure                     ...............................  .........................................
563.22                            Merger, consolidation, purchase or sale of  390.332                          Merger, consolidation, purchase or sale
                                   assets, or assumption of liabilities.                                        of assets, or assumption of liabilities.
563.27                            Advertising.                                390.333                          Advertising.
563.33                            Directors, officers, and employees.         390.334                          Directors, officers, and employees.
563.36                            Tying restriction exception.                390.335                          Tying restriction exception.
563.39                            Employment contracts.                       390.336                          Employment contracts.
563.41                            Transactions with affiliates.               390.337                          Transactions with affiliates.
563.43                            Loans by savings associations to their      390.338                          Loans by savings associations to their
                                   executive officers, directors and                                            executive officers, directors and
                                   principal shareholders.                                                      principal shareholders.
563.47                            Pension plans.                              390.339                          Pension plans.
Subpart C                         Securities and borrowings                   ...............................  .........................................
563.76                            Offers and sales of securities at an        390.340                          Offers and sales of securities at an
                                   office of a savings association.                                             office of a savings association.
563.81                            Inclusion of subordinated debt securities   390.341                          Inclusion of subordinated debt securities
                                   and mandatorily redeemable preferred                                         and mandatorily redeemable preferred
                                   stock as supplementary capital.                                              stock as supplementary capital.
Subpart E                         Capital distributions                       ...............................  .........................................
563.140                           What does this subpart cover?               390.342                          Capital distributions by State savings
                                                                                                                associations.

[[Page 47661]]

 
563.141                           What is a capital distribution?             390.343                          What is a capital distribution?
563.142                           What other definitions apply to this        390.344                          Definitions applicable to capital
                                   subpart?                                                                     distributions.
563.143                           Must I file with OTS?                       390.345                          Must I file with the FDIC?
563.144                           How do I file with the OTS?                 390.346                          How do I file with the FDIC?
563.145                           May I combine my notice or application      390.347                          May I combine my notice or application
                                   with other notices or applications?                                          with other notices or applications?
563.146                           Will the OTS permit my capital              390.348                          Will the FDIC permit my capital
                                   distribution?                                                                distribution?
Subpart F                         Financial management policies               ...............................  .........................................
563.161                           Management and financial policies.          390.349                          Management and financial policies.
563.170                           Examinations and audits; appraisals;        390.350                          Examinations and audits; appraisals;
                                   establishment and maintenance of records.                                    establishment and maintenance of
                                                                                                                records.
563.171                           Frequency of safety and soundness           390.351                          Frequency of safety and soundness
                                   examination.                                                                 examination.
563.172                           Financial derivatives.                      390.352                          Financial derivatives.
563.176                           Interest-rate-risk-management procedures.   390.353                          Interest-rate-risk-management procedures.
563.177                           Procedures for monitoring Bank Secrecy Act  390.354                          Procedures for monitoring Bank Secrecy
                                   (BSA) compliance.                                                            Act (BSA) compliance.
Subpart G                         Reporting and bonding                       ...............................  .........................................
563.180                           Suspicious Activity Reports and other       390.355                          Suspicious Activity Reports and other
                                   reports and statements.                                                      reports and statements.
563.190                           Bonds for directors, officers, employees,   390.356                          Bonds for directors, officers, employees,
                                   and agents; form of and amount of bonds.                                     and agents; form of and amount of bonds.
563.191                           Bonds for agents.                           390.357                          Bonds for agents.
563.200                           Conflicts of interest.                      390.358                          Conflicts of interest.
563.201                           Corporate opportunity.                      390.359                          Corporate opportunity.
Subpart H                         Notice of change of Director or Senior      ...............................  .........................................
                                   Executive Officer
563.550                           What does this subpart do?                  390.360                          Change of director or senior executive
                                                                                                                officer.
563.555                           What definitions apply to this subpart?     390.361                          Applicable definitions.
563.560                           Who must give prior notice?                 390.362                          Who must give prior notice?
563.565                           What procedures govern the filing of my     390.363                          What procedures govern the filing of my
                                   notice?                                                                      notice?
563.570                           What information must I include in my       390.364                          What information must I include in my
                                   notice?                                                                      notice?
563.575                           What procedures govern OTS review of my     390.365                          What procedures govern the FDIC review of
                                   notice for completeness?                                                     my notice for completeness?
563.580                           What standards and procedures will govern   390.366                          What standards and procedures will govern
                                   OTS review of the substance of my notice?                                    the FDIC review of the substance of my
                                                                                                                notice?
563.585                           When may a proposed director or senior      390.367                          When may a proposed director or senior
                                   executive officer begin service?                                             executive officer begin service?
563.590                           When will the OTS waive the prior notice    390.368                          When will the FDIC waive the prior notice
                                   requirement?                                                                 requirement?
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 563c                         Accounting requirements                     Subpart T                        Accounting requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         Form and content of financial statements.   ...............................  .........................................
563c.1                            Form and content of financial statements.   390.380                          Form and content of financial statements.
563c.2                            Definitions.                                390.381                          Definitions.
563c.3                            Qualification of public accountant.         390.382                          Qualification of public accountant.
563c.4                            Condensed financial information [Parent     390.383                          Condensed financial information [Parent
                                   only].                                                                       only].
Subpart B                         [Reserved]                                  ...............................  .........................................
Subpart C                         Financial statement presentation.           ...............................  .........................................
563c.101                          Application of this subpart.                390.384                          Financial statements for conversions, SEC
                                                                                                                filings, and offering circulars.
563c.102                          Financial statement presentation.           390.384 appendix                 Financial statement presentation appendix
                                                                                                                to 390.384.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 563d                         Securities of Savings Associations          Subpart U                        Securities of State Savings Associations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         Regulations                                 ...............................  .........................................
563d.1                            Requirements under certain sections of the  390.390                          Requirements under certain sections of
                                   Securities Exchange Act of 1934.                                             the Securities Exchange Act of 1934.
563d.2                            Mailing requirements for securities         390.391                          [Reserved].
                                   filings.
563d.3b-6                         Liability for certain statements by         390.392                          Liability for certain statements by state
                                   savings associations.                                                        savings associations.
563d.210                          Form and content of financial statements.   390.393                          Form and content of financial statements.
Subpart B                         Interpretations.                            ...............................  .........................................
563d.801                          Application of this subpart.                390.394                          Interpretations related to SEC filings.
563d.802                          Description of business.                    390.395                          Description of business.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 563f                         Management official interlocks              Subpart V                        Management official interlocks
--------------------------------------------------------------------------------------------------------------------------------------------------------
563f.1                            Authority, purpose, and scope.              390.400                          Authority, purpose, and scope.
563f.2                            Definitions.                                390.401                          Definitions.
563f.3                            Prohibitions.                               390.402                          Prohibitions.

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563f.4                            Interlocking relationships permitted by     390.403                          Interlocking relationships permitted by
                                   statute.                                                                     statute.
563f.5                            Small market share exemption.               390.404                          Small market share exemption.
563f.6                            General exemption.                          390.405                          General exemption.
563f.7                            Change in circumstances.                    390.406                          Change in circumstances.
563f.8                            Enforcement.                                390.407                          Enforcement.
563f.9                            Interlocking relationships permitted        390.408                          Interlocking relationships permitted
                                   pursuant to Federal Deposit Insurance                                        pursuant to Federal Deposit Insurance
                                   Act.                                                                         Act.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 563g                         Securities offerings                        Subpart W                        Securities offerings
--------------------------------------------------------------------------------------------------------------------------------------------------------
563g.1                            Definitions.                                390.410                          Definitions.
563g.2                            Offering circular requirement.              390.411                          Offering circular requirement.
563g.3                            Exemptions.                                 390.412                          Exemptions.
563g.4                            Non-public offering.                        390.413                          Non-public offering.
563g.5                            Filing and signature requirements.          390.414                          Filing and signature requirements.
563g.6                            Effective date.                             390.415                          Effective date.
563g.7                            Form, content, and accounting.              390.416                          Form, content, and accounting.
563g.8                            Use of the offering circular.               390.417                          Use of the offering circular.
563g.9                            Escrow requirement.                         390.418                          Escrow requirement.
563g.10                           Unsafe or unsound practices.                390.419                          Unsafe or unsound practices.
563g.11                           Withdrawal or abandonment.                  390.420                          Withdrawal or abandonment.
563g.12                           Securities sale report.                     390.421                          Securities sale report.
563g.13                           Public disclosure and confidential          390.422                          Public disclosure and confidential
                                   treatment.                                                                   treatment.
563g.14                           Waiver.                                     390.423                          Waiver.
563g.15                           Requests for interpretive advice or         390.424                          Requests for interpretive advice or
                                   waiver.                                                                      waiver.
563g.16                           Delayed or continuous offering and sale of  390.425                          Delayed or continuous offering and sale
                                   securities.                                                                  of securities.
563g.17                           Sales of securities at an office of a       390.426                          Sales of securities at an office of a
                                   savings association.                                                         State savings association.
563g.18                           Current and periodic reports.               390.427                          Current and periodic reports.
563g.19                           Approval of the security.                   390.428                          Approval of the security.
563g.20                           Form for securities sale report.            390.429                          Form for securities sale report.
563g.21                           Filing of copies of offering circulars in   390.430                          Filing of copies of offering circulars in
                                   certain exempt offerings.                                                    certain exempt offerings.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 564                          Appraisals                                  Subpart X                        Appraisals
--------------------------------------------------------------------------------------------------------------------------------------------------------
564.1                             Authority, purpose, and scope.              390.440                          Authority, purpose, and scope.
564.2                             Definitions.                                390.441                          Definitions.
564.3                             Appraisals required; transactions           390.442                          Appraisals required; transactions
                                   requiring a State certified or licensed                                      requiring a State certified or licensed
                                   appraiser.                                                                   appraiser.
564.4                             Minimum appraisal standards.                390.443                          Minimum appraisal standards.
564.5                             Appraiser independence.                     390.444                          Appraiser independence.
564.6                             Professional association membership;        390.445                          Professional association membership;
                                   competency.                                                                  competency.
564.7                             Enforcement.                                390.446                          Enforcement.
564.8                             Appraisal policies and practices of         390.447                          Appraisal policies and practices of State
                                   savings associations and subsidiaries.                                       savings associations and subsidiaries.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 565                          Prompt corrective action                    Subpart Y                        Prompt corrective action
--------------------------------------------------------------------------------------------------------------------------------------------------------
565.1                             Authority, purpose, scope, other            390.450                          Authority, purpose, scope, other
                                   supervisory authority, and disclosure of                                     supervisory authority, and disclosure of
                                   capital categories.                                                          capital categories.
565.2                             Definitions.                                390.451                          Definitions.
565.3                             Notice of capital category.                 390.452                          Notice of capital category.
565.4                             Capital measures and capital category       390.453                          Capital measures and capital category
                                   definitions.                                                                 definitions.
565.5                             Capital restoration plans.                  390.454                          Capital restoration plans.
565.6                             Mandatory and discretionary supervisory     390.455                          Mandatory and discretionary supervisory
                                   actions under section 38.                                                    actions under section 38.
565.7                             Directives to take prompt corrective        390.456                          Directives to take prompt corrective
                                   action.                                                                      action.
565.8                             Procedures for reclassifying a savings      390.457                          Procedures for reclassifying a State
                                   association based on criteria other than                                     savings association based on criteria
                                   capital.                                                                     other than capital.
565.9                             Order to dismiss a director or senior       390.458                          Order to dismiss a director or senior
                                   executive officer.                                                           executive officer.
565.10                            Enforcement of directives.                  390.459                          Enforcement of directives.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 567                          Capital                                     Subpart Z                        Capital
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         Scope                                       ...............................  .........................................
567.0                             Scope.                                      390.460                          Scope.
Subpart B                         Regulatory capital requirements             ...............................  .........................................
567.1                             Definitions.                                390.461                          Definitions.

[[Page 47663]]

 
567.2                             Minimum regulatory capital requirement.     390.462                          Minimum regulatory capital requirement.
567.3                             Individual minimum capital requirements.    390.463                          Individual minimum capital requirements.
567.4                             Capital directives.                         390.464                          Capital directives.
567.5                             Components of capital.                      390.465                          Components of capital.
567.6                             Risk-based capital credit risk-weight       390.466                          Risk-based capital credit risk-weight
                                   categories.                                                                  categories.
567.8                             Leverage ratio.                             390.467                          Leverage ratio.
567.9                             Tangible capital requirement.               390.468                          Tangible capital requirement.
567.10                            Consequences of failure to meet capital     390.469                          Consequences of failure to meet capital
                                   requirements.                                                                requirements.
567.11                            Reservation of authority.                   390.470                          Reservation of authority.
567.12                            Purchased credit card relationships,        390.471                          Purchased credit card relationships,
                                   servicing assets, intangible assets                                          servicing assets, intangible assets
                                   (other than purchased credit card                                            (other than purchased credit card
                                   relationships and servicing assets),                                         relationships and servicing assets),
                                   credit-enhancing interest-only strips,                                       credit-enhancing interest-only strips,
                                   and deferred tax assets.                                                     and deferred tax assets.
                                  Appendixes A-B [Reserved]                   ...............................  .........................................
                                  Appendix C--Risk-Based Capital              ...............................  Appendix A--Risk-Based Capital
                                   Requirements-Internal Ratings Based and                                      Requirements-Internal Ratings Based and
                                   Advanced Measurement Approaches                                              Advanced Measurement Approaches
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Part 391
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 568                          Security procedures                         Subpart A                        Security procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
568.1                             Authority, purpose, and scope.              391.1                            Authority, purpose, and scope.
568.2                             Designation of security officer.            391.2                            Designation of security officer.
568.3                             Security program.                           391.3                            Security program.
568.4                             Report.                                     391.4                            Report.
568.5                             Protection of customer information.         391.5                            Protection of customer information.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 570                          Safety and soundness guidelines and         Subpart B                        Safety and soundness guidelines and
                                   compliance procedures                                                        compliance procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
570.1                             Authority, purpose, scope and preservation  391.10                           Authority, purpose, scope and
                                   of existing authority.                                                       preservation of existing authority.
570.2                             Determination and notification of failure   391.11                           Determination and notification of failure
                                   to meet safety and soundness standards                                       to meet safety and soundness standards
                                   and request for compliance plan.                                             and request for compliance plan.
570.3                             Filing of safety and soundness compliance   391.12                           Filing of safety and soundness compliance
                                   plan.                                                                        plan.
570.4                             Issuance of orders to correct deficiencies  391.13                           Issuance of orders to correct
                                   and to take or refrain from taking other                                     deficiencies and to take or refrain from
                                   actions.                                                                     taking other actions.
570.5                             Enforcement of orders.                      391.14                           Enforcement of orders.
Appendix                          Appendix A to Part 570--Interagency         ...............................  Appendix A to Subpart B of Part 391--
                                   Guidelines Establishing Standards for                                        Interagency Guidelines Establishing
                                   Safety and Soundness                                                         Standards for Safety and Soundness
Appendix                          Appendix B to Part 570--Interagency         ...............................  Appendix B to Subpart B of Part 391--
                                   Guidelines Establishing Information                                          Interagency Guidelines Establishing
                                   Security Standards                                                           Information Security Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 571                          Fair credit reporting                       Subpart C                        Fair credit reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subpart A                         General provisions                          ...............................  .........................................
571.2                             Examples.                                   391.20                           Examples.
571.83                            Disposal of consumer information.           391.21                           Disposal of consumer information.
Subpart J                         Identity theft red flags                    ...............................  .........................................
571.90                            Duties regarding the detection,             391.22                           Duties regarding the detection,
                                   prevention, and mitigation of identity                                       prevention, and mitigation of identity
                                   theft.                                                                       theft.
571.91                            Duties of card issuers regarding changes    391.23                           Duties of card issuers regarding changes
                                   of address.                                                                  of address.
Appendix                          Appendix J to Part 571--Interagency         ...............................  Appendix to Section 391.90--Interagency
                                   Guidelines on Identity Theft Detection,                                      Guidelines on Identity Theft Detection,
                                   Prevention, and Mitigation                                                   Prevention, and Mitigation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 572                          Loans in areas having special flood         Subpart D                        Loans in areas having special flood
                                   hazards                                                                      hazards
--------------------------------------------------------------------------------------------------------------------------------------------------------
572.1                             Authority, purpose, and scope.              391.30                           Authority, purpose, and scope.
572.2                             Definitions.                                391.31                           Definitions.
572.3                             Requirement to purchase flood insurance     391.32                           Requirement to purchase flood insurance
                                   where available.                                                             where available.
572.4                             Exemptions.                                 391.33                           Exemptions.
572.5                             Escrow requirement.                         391.34                           Escrow requirement.
572.6                             Required use of standard flood hazard       391.35                           Required use of standard flood hazard
                                   determination form.                                                          determination form.
572.7                             Forced placement of flood insurance.        391.36                           Forced placement of flood insurance.

[[Page 47664]]

 
572.8                             Determination fees.                         391.37                           Determination fees.
572.9                             Notice of special flood hazards and         391.38                           Notice of special flood hazards and
                                   availability of Federal disaster relief                                      availability of Federal disaster relief
                                   assistance.                                                                  assistance.
572.10                            Notice of servicer's identity.              391.39                           Notice of servicer's identity.
Appendix                          Appendix A to Part 572--Sample Form of      ...............................  Appendix D to Part 391--Sample Form of
                                   Notice of Special Flood Hazards and                                          Notice of Special Flood Hazards and
                                   Availability of Federal Disaster Relief                                      Availability of Federal Disaster Relief
                                   Assistance                                                                   Assistance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part 574                          Acquisition of control of savings           Subpart E                        Acquisition of control of State savings
                                   associations.                                                                associations.
--------------------------------------------------------------------------------------------------------------------------------------------------------
574.1                             Scope of part.                              391.40                           Scope of subpart.
574.2                             Definitions.                                391.41                           Definitions.
574.3                             Acquisition of control of savings           391.42                           Acquisition of control of State savings
                                   associations.                                                                associations.
574.4                             Control.                                    391.43                           Control.
574.5                             Certifications of ownership.                391.44                           Certifications of ownership.
574.6                             Procedural requirements.                    391.45                           Procedural requirements.
574.7                             Determination by the OTS.                   391.46                           Determination by the FDIC.
574.8                             Qualified stock issuances by                391.47                           Qualified stock issuances by
                                   undercapitalized savings associations or                                     undercapitalized savings associations or
                                   holding companies.                                                           holding companies.
574.100                           Rebuttal of control agreement.              391.48                           Rebuttal of control agreement.
--------------------------------------------------------------------------------------------------------------------------------------------------------

III. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    The OTS previously promulgated the transferred regulations after 
notice and opportunity for public comment, when required. Moreover, the 
FDIC's action in republishing regulations as they appear in one chapter 
of the Code of Federal Regulations in another chapter of the Code is 
technical, as opposed to substantive action. The republication is 
consistent with the Dodd-Frank Act. The republication includes 
technical, conforming, or nomenclature changes, but no substantive 
change has been made to the content of the transferring regulations. 
Therefore, in accordance with section 553(b)(B) of the Administrative 
Procedure Act (APA), the FDIC has determined that good cause exists to 
waive the general notice and opportunity for pubic comment requirements 
of the APA. Similarly, and to avoid any possible questions regarding 
the continuity of the subject regulations, the FDIC has determined that 
good cause exists to make this Interim Rule effective as of the 
transfer date.

B. Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
(RCDRIA) requires that any new rule prescribed by a Federal banking 
agency that imposes additional reporting, disclosures, or other new 
requirements on insured depository institutions take effect on the 
first day of a calendar quarter unless the agency determines, for good 
cause published with the rule, that the rule should become effective 
before such time.\2\ Because this Interim Rule merely republishes (with 
only technical changes) certain transferring rules of the OTS, no 
additional reporting, disclosure, or other new requirements have been 
imposed on an insured depository institution by the FDIC. As a result, 
the FDIC does not believe that the RCDRIA applies in this instance. In 
the event that the RCDRIA is determined to be applicable to this 
Interim Rule, based on the transfer of the functions from the OTS to 
the FDIC effective on the required statutory transfer date of July 21, 
2011, the FDIC would invoke the RCDRIA's good cause exception to make 
this Interim Rule effective on the transfer date and not on the first 
date of a calendar quarter.
---------------------------------------------------------------------------

    \2\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the Interim 
Rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996 
(SBREFA), 5 U.S.C. 801 et seq. As required by SBREFA, the FDIC will 
submit the Interim Rule and other appropriate reports to Congress and 
the General Accounting Office for review.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., (RFA) 
applies only to rules for which an agency publishes a general notice of 
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed above, 
consistent with section 553(b)(B) of the APA, the FDIC has determined 
that good cause exists in this case to waive the general notice and 
opportunity for public comment requirements of the APA; therefore, 
pursuant to 5 U.S.C. 601(2), the RFA does not apply.

E. Paperwork Reduction Act

    Through this Interim Rule, the FDIC is reissuing certain 
transferring rules of the OTS. Nineteen (19) of these transferring and 
republished rules are associated with one or more collections of 
information for which the OTS had previously obtained approval from the 
Office of Management and Budget (OMB) under the Paperwork Reduction Act 
(44 U.S.C. 3501-3520). The Interim Rule adopted by the FDIC today does 
not introduce any new collections of information into the former OTS 
rules, nor does it amend the former OTS rules in a way that 
substantively modifies the collections of information that OMB has 
approved. Therefore, no PRA submission is being made to OMB at this 
time.
    The FDIC notes, however, that the OMB's previous approval of the 
collections of information related to the transferring OTS rules was 
based on burden estimates provided by the OTS that included the rules' 
impact on both State and Federal savings associations. Section 312(c) 
of the Dodd-Frank Act provided that the FDIC would be the ``appropriate 
Federal banking agency'' only with respect to State, and not Federal 
savings associations. Of the approximately 700 savings associations 
currently regulated by the OTS, only about 60 of those are state 
savings

[[Page 47665]]

associations for whom the FDIC will assume supervisory responsibility. 
As a result, the FDIC will review each of the relevant information 
collections, and, as necessary and appropriate, with OMB approval, 
incorporate the paperwork burden into FDIC's inventory by either 
establishing new FDIC collections of information or requesting 
nonmaterial, non-substantive changes to existing FDIC collections of 
information to include the burden for state savings associations.

List of Subjects in 12 CFR Parts 390 and 391

    Administrative practice and procedure, Advertising, Aged, Credit, 
Civil rights, Conflicts of interest, Crime, Equal employment 
opportunity, Ethics, Fair housing, Governmental employees, Home 
mortgage disclosure, Individuals with disabilities, OTS employees, 
Reporting and recordkeeping requirements, Savings associations.

    Accordingly, for the reasons set forth in the preamble, the Board 
of Directors of the Federal Deposit Insurance Corporation amends title 
12 of the Code of Federal Regulations by adding new parts 390 and 391 
to read as follows:

PART 390--REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT 
SUPERVISION

Subpart A--Restrictions on Post-Employment Activities of Senior 
Examiners
Sec.
390.1 What does this subpart do?
390.2 Who is a senior examiner?
390.3 What post-employment restrictions apply to senior examiners?
390.4 When will the FDIC waive the post-employment restrictions?
390.5 What are the penalties for violating the post-employment 
restrictions?
Subpart B--Removals, Suspensions, and Prohibitions Where a Crime Is 
Charged or Proven
390.10 Scope.
390.11 Definitions.
390.12 Issuance of Notice or Order.
390.13 Contents and service of the Notice or Order.
390.14 Petition for hearing.
390.15 Initiation of hearing.
390.16 Conduct of hearings.
390.17 Default.
390.18 Rules of evidence.
390.19 Burden of persuasion.
390.20 Relevant considerations.
390.21 Proposed findings and conclusions and recommended decision.
390.22 Decision of the FDIC Board of Directors.
390.23 Miscellaneous.
Subpart C--Rules of Practice and Procedure in Adjudicatory Proceedings
390.30 Scope.
390.31 Rules of construction.
390.32 Definitions.
390.33 Authority of the Board of Directors.
390.34 Authority of the administrative law judge.
390.35 Appearance and practice in adjudicatory proceedings.
390.36 Good faith certification.
390.37 Conflicts of interest.
390.38 Ex parte communications.
390.39 Filing of papers.
390.40 Service of papers.
390.41 Construction of time limits.
390.42 Change of time limits.
390.43 Witness fees and expenses.
390.44 Opportunity for informal settlement.
390.45 The FDIC's right to conduct examination.
390.46 Collateral attacks on adjudicatory proceeding.
390.47 Commencement of proceeding and contents of notice.
390.48 Answer.
390.49 Amended pleadings.
390.50 Failure to appear.
390.51 Consolidation and severance of actions.
390.52 Motions.
390.53 Scope of document discovery.
390.54 Request for document discovery from parties.
390.55 Document subpoenas to nonparties.
390.56 Deposition of witness unavailable for hearing.
390.57 Interlocutory review.
390.58 Summary disposition.
390.59 Partial summary disposition.
390.60 Scheduling and prehearing conferences.
390.61 Prehearing submissions.
390.62 Public hearings.
390.63 Hearing subpoenas.
390.64 Conduct of hearings.
390.65 Evidence.
390.66 Post-hearing filings.
390.67 Recommended decision and filing of record.
390.68 Exceptions to recommended decision.
390.69 Review by the Board of Directors.
390.70 Stays pending judicial review.
390.71 Scope.
390.72 Appointment of Office of Financial Institution Adjudication.
390.73 Discovery.
390.74 Civil money penalties.
390.75 Additional procedures.
Subpart D--Rules for Investigative Proceedings and Formal Examination 
Proceedings
390.80 Scope of subpart.
390.81 Definitions.
390.82 Confidentiality of proceedings.
390.83 Transcripts.
390.84 Rights of witnesses.
390.85 Obstruction of the proceedings.
390.86 Subpoenas.
Subpart E--Practice Before the FDIC
390.90 Scope of subpart.
390.91 Definitions.
390.92 Who may practice.
390.93 Suspension and debarment.
390.94 Reinstatement.
390.95 Duty to file information concerning adverse judicial or 
administrative action.
390.96 Proceeding under this subpart.
390.97 Removal, suspension, or debarment of independent public 
accountants and accounting firms performing audit services.
Subpart F--Application Processing Procedures
390.100 What does this subpart do?
390.101 Do the same procedures apply to all applications under this 
subpart?
390.102 How does the FDIC compute time periods under this subpart?
390.103 Must I meet with the FDIC before I file my application?
390.104 What information must I include in my draft business plan?
390.105 What type of application must I file?
390.106 What information must I provide with my application?
390.107 May I keep portions of my application confidential?
390.108 Where do I file my application?
390.109 What is the filing date of my application?
390.110 How do I amend or supplement my application?
390.111 Who must publish a public notice of an application?
390.112 What information must I include in my public notice?
390.113 When must I publish the public notice?
390.114 Where must I publish the public notice?
390.115 What language must I use in my publication?
390.116 Comment procedures.
390.117 Who may submit a written comment?
390.118 What information should a comment include?
390.119 Where are comments filed?
390.120 How long is the comment period?
390.121 Meeting procedures.
390.122 When will the FDIC conduct a meeting on an application?
390.123 What procedures govern the conduct of the meeting?
390.124 Will the FDIC approve or disapprove an application at a 
meeting?
390.125 Will a meeting affect application processing time frames?
390.126 If I file a notice under expedited treatment, when may I 
engage in the proposed activities?
390.127 What will the FDIC do after I file my application?
390.128 If the FDIC requests additional information to complete my 
application, how will it process my application?
390.129 Will the FDIC conduct an eligibility examination?
390.130 What may the FDIC require me to do after my application is 
deemed complete?
390.131 Will the FDIC require me to publish a new public notice?
390.132 May the FDIC suspend processing of my application?
390.133 How long is the FDIC review period?
390.134 How will I know if my application has been approved?
390.135 What will happen if the FDIC does not approve or disapprove 
my

[[Page 47666]]

application within two calendar years after the filing date?
Subpart G--Nondiscrimination Requirements
390.140 Definitions.
390.141 Supplementary guidelines.
390.142 Nondiscrimination in lending and other services.
390.143 Nondiscriminatory appraisal and underwriting.
390.144 Nondiscrimination in applications.
390.145 Nondiscriminatory advertising.
390.146 Equal Housing Lender Poster.
390.147 Loan application register.
390.148 Nondiscrimination in employment.
390.149 Complaints.
390.150 Guidelines relating to nondiscrimination in lending.
Subpart H--Disclosure and Reporting of CRA-Related Agreements
390.160 Purpose and scope of this subpart.
390.161 Definition of covered agreement.
390.162 CRA communications.
390.163 Fulfillment of the CRA.
390.164 Related agreements considered a single agreement.
390.165 Disclosure of covered agreements.
390.166 Annual reports.
390.167 Release of information under FOIA.
390.168 Compliance provisions.
390.169 [Reserved].
390.170 Other definitions and rules of construction used in this 
subpart.
Subpart I--Consumer Protection in Sales of Insurance
390.180 Purpose and scope.
390.181 Definitions.
390.182 Prohibited practices.
390.183 What you must disclose.
390.184 Where insurance activities may take place.
390.185 Qualification and licensing requirements for insurance sales 
personnel.

Appendix A to Subpart I of Part 390--Consumer Grievance Process

Subpart J--Fiduciary Powers of State Savings Associations
390.190 What regulations govern the fiduciary operations of State 
savings associations?
Subpart K--Recordkeeping and Confirmation Requirements for Securities 
Transactions
390.200 What does this subpart do?
390.201 Must I comply with this subpart?
390.202 What requirements apply to all transactions?
390.203 What definitions apply to this subpart?
390.204 What records must I maintain for securities transactions?
390.205 How must I maintain my records?
390.206 What type of notice must I provide when I effect a 
securities transaction for a customer?
390.207 How do I provide a registered broker-dealer confirmation?
390.208 How do I provide a written notice?
390.209 What are the alternate notice requirements?
390.210 May I provide a notice electronically?
390.211 May I charge a fee for a notice?
390.212 When must I settle a securities transaction?
390.213 What policies and procedures must I maintain and follow for 
securities transactions?
390.214 How do my officers and employees file reports of personal 
securities trading transactions?
Subpart L--Electronic Operations
390.220 What does this subpart do?
390.221 Must I inform the FDIC before I use electronic means or 
facilities?
390.222 How do I notify the FDIC?
Subpart M--Deposits
390.230 What does this subpart do?
390.231 What records should I maintain on deposit activities?
Subpart N--Possession by Conservators and Receivers for Federal and 
State Savings Associations
390.240 Procedure upon taking possession.
390.241 Notice of appointment.
Subpart O--Subordinate Organizations
390.250 What does this subpart cover?
390.251 Definitions.
390.252 How must separate corporate identities be maintained?
390.253 What notices are required to establish or acquire a new 
subsidiary or engage in new activities through an existing 
subsidiary?
390.254 How may a subsidiary of a State savings association issue 
securities?
390.255 How may a State savings association exercise its salvage 
power in connection with a service corporation or lower-tier 
entities?
Subpart P--Lending and Investment
390.260 General.
390.261 [Reserved].
390.262 Definitions.
390.263 [Reserved].
390.264 Real estate lending standards; purpose and scope.
390.265 Real estate lending standards.
390.266 [Reserved].
390.267 Letters of credit and other independent undertakings to pay 
against documents.
390.268 Investment in State housing corporations.
390.269 Prohibition on loan procurement fees.
390.270 Asset classification.
390.271 Records for lending transactions.
390.272 Re-evaluation of real estate owned.
Subpart Q--Definitions for Regulations Affecting all State Savings 
Associations
390.280 When do the definitions in this subpart apply?
390.281 Account.
390.282 Accountholder.
390.283 Affiliate.
390.284 Affiliated person.
390.285 Audit period.
390.286 Certificate account.
390.287 Consumer credit.
390.288 Controlling person.
390.289 Corporation.
390.290 Demand accounts.
390.291 Director.
390.292 Financial institution.
390.293 Immediate family.
390.294 Land loan.
390.295 Low-rent housing.
390.296 Money Market Deposit Accounts.
390.297 Negotiable Order of Withdrawal Accounts.
390.298 Nonresidential construction loan.
390.299 Nonwithdrawable account.
390.300 Note account.
390.301 [Reserved].
390.302 Officer.
390.303 Parent company; subsidiary.
390.304 Political subdivision.
390.305 Principal office.
390.306 Public unit.
390.307 Savings account.
390.308 State savings association.
390.309 Security.
390.310 Service corporation.
390.311 State.
390.312 Subordinated debt security.
390.313 Tax and loan account.
390.314 United States Treasury General Account.
390.315 United States Treasury Time Deposit Open Account.
390.316 With recourse.
Subpart R--Regulatory Reporting Standards
390.320 Regulatory reporting requirements.
390.321 Regulatory reports.
390.322 Audit of State savings associations.
Subpart S--State Savings Associations--Operations
390.330 Chartering documents.
390.331 Securities: Statement of non-insurance.
390.332 Merger, consolidation, purchase or sale of assets, or 
assumption of liabilities.
390.333 Advertising.
390.334 Directors, officers, and employees.
390.335 Tying restriction exception.
390.336 Employment contracts.
390.337 Transactions with affiliates.
390.338 Loans by savings associations to their executive officers, 
directors and principal shareholders.
390.339 Pension plans.
390.340 Offers and sales of securities at an office of a State 
savings association.
390.341 Inclusion of subordinated debt securities and mandatorily 
redeemable preferred stock as supplementary capital.
390.342 Capital distributions by State savings associations.
390.343 What is a capital distribution?
390.344 Definitions applicable to capital distributions.
390.345 Must I file with the FDIC?
390.346 How do I file with the FDIC?
390.347 May I combine my notice or application with other notices or 
applications?
390.348 Will the FDIC permit my capital distribution?
390.349 Management and financial policies.
390.350 Examinations and audits; appraisals; establishment and 
maintenance of records.

[[Page 47667]]

390.351 Frequency of safety and soundness examination.
390.352 Financial derivatives.
390.353 Interest-rate-risk-management procedures.
390.354 Procedures for monitoring Bank Secrecy Act (BSA) compliance.
390.355 Suspicious Activity Reports and other reports and 
statements.
390.356 Bonds for directors, officers, employees, and agents; form 
of and amount of bonds.
390.357 Bonds for agents.
390.358 Conflicts of interest.
390.359 Corporate opportunity.
390.360 Change of director or senior executive officer.
390.361 Applicable definitions.
390.362 Who must give prior notice?
390.363 What procedures govern the filing of my notice?
390.364 What information must I include in my notice?
390.365 What procedures govern the FDIC review of my notice for 
completeness?
390.366 What standards and procedures will govern the FDIC review of 
the substance of my notice?
390.367 When may a proposed director or senior executive officer 
begin service?
390.368 When will the FDIC waive the prior notice requirement?
Subpart T--Accounting Requirements
390.380 Form and content of financial statements.
390.381 Definitions.
390.382 Qualification of public accountant.
390.383 Condensed financial information [Parent only].
390.384 Financial statements for conversions, SEC filings, and 
offering circulars.
Subpart U--Securities of State Savings Associations
390.390 Requirements under certain sections of the Securities 
Exchange Act of 1934.
390.391 [Reserved].
390.392 Liability for certain statements by State savings 
associations.
390.393 Form and content of financial statements.
390.394 Interpretations related to SEC filings.
390.395 Description of business.
Subpart V--Management Official Interlocks
390.400 Authority, purpose, and scope.
390.401 Definitions.
390.402 Prohibitions.
390.403 Interlocking relationships permitted by statute.
390.404 Small market share exemption.
390.405 General exemption.
390.406 Change in circumstances.
390.407 Enforcement.
390.408 Interlocking relationships permitted pursuant to Federal 
Deposit Insurance Act.
Subpart W--Securities Offerings
390.410 Definitions.
390.411 Offering circular requirement.
390.412 Exemptions.
390.413 Non-public offering.
390.414 Filing and signature requirements.
390.415 Effective date.
390.416 Form, content, and accounting.
390.417 Use of the offering circular.
390.418 Escrow requirement.
390.419 Unsafe or unsound practices.
390.420 Withdrawal or abandonment.
390.421 Securities sale report.
390.422 Public disclosure and confidential treatment.
390.423 Waiver.
390.424 Requests for interpretive advice or waiver.
390.425 Delayed or continuous offering and sale of securities.
390.426 Sales of securities at an office of a State savings 
association.
390.427 Current and periodic reports.
390.428 Approval of the security.
390.429 Form for securities sale report.
390.430 Filing of copies of offering circulars in certain exempt 
offerings.
Subpart X--Appraisals
390.440 Authority, purpose, and scope.
390.441 Definitions.
390.442 Appraisals required; transactions requiring a State 
certified or licensed appraiser.
390.443 Minimum appraisal standards.
390.444 Appraiser independence.
390.445 Professional association membership; competency.
390.446 Enforcement.
390.447 Appraisal policies and practices of State savings 
associations and subsidiaries.
Subpart Y--Prompt Corrective Action
390.450 Authority, purpose, scope, other supervisory authority, and 
disclosure of capital categories.
390.451 Definitions.
390.452 Notice of capital category.
390.453 Capital measures and capital category definitions.
390.454 Capital restoration plans.
390.455 Mandatory and discretionary supervisory actions under 
section 38.
390.456 Directives to take prompt corrective action.
390.457 Procedures for reclassifying a State savings association 
based on criteria other than capital.
390.458 Order to dismiss a director or senior executive officer.
390.459 Enforcement of directives.
Subpart Z--Capital
390.460 Scope.
390.461 Definitions.
390.462 Minimum regulatory capital requirement.
390.463 Individual minimum capital requirements.
390.464 Capital directives.
390.465 Components of capital.
390.466 Risk-based capital credit risk-weight categories.
390.467 Leverage ratio.
390.468 Tangible capital requirement.
390.469 Consequences of failure to meet capital requirements.
390.470 Reservation of authority.
390.471 Purchased credit card relationships, servicing assets, 
intangible assets (other than purchased credit card relationships 
and servicing assets), credit-enhancing interest-only strips, and 
deferred tax assets.
Appendix A to Subpart Z of Part 390--Risk-Based Capital 
Requirements--Internal-Ratings-Based and Advanced Measurement 
Approaches

    Authority: 12 U.S.C. 1819.

    Subpart A also issued under 12 U.S.C. 1820.
    Subpart B also issued under 12 U.S.C. 1818.
    Subpart C also issued under 5 U.S.C. 504; 554-557; 12 U.S.C. 
1464; 1467; 1468; 1817; 1818; 1820; 1829; 3349, 4717; 15 U.S.C. 78l; 
78o-5; 78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.
    Subpart D also issued under 12 U.S.C. 1817; 1818; 1820; 15 
U.S.C. 78l.
    Subpart E also issued under 12 U.S.C. 1813; 1831m; 15 U.S.C. 78.
    Subpart F also issued under 5 U.S.C. 552; 559; 12 U.S.C. 2901 et 
seq.
    Subpart G also issued under 12 U.S.C. 2810 et seq., 2901 et 
seq.; 15 U.S.C. 1691; 42 U.S.C. 1981, 1982, 3601-3619.
    Subpart H also issued under 12 U.S.C. 1464; 1831y.
    Subpart I also issued under 12 U.S.C. 1831x.
    Subpart J also issued under 12 U.S.C. 1831p-1.
    Subpart K also issued under 12 U.S.C. 1817; 1818; 15 U.S.C. 78c; 
78l.
    Subpart L also issued under 12 U.S.C. 1831p-1.
    Subpart M also issued under 12 U.S.C. 1818.
    Subpart N also issued under 12 U.S.C. 1821.
    Subpart O also issued under 12 U.S.C. 1828.
    Subpart P also issued under 12 U.S.C. 1470; 1831e; 1831n; 1831p-
1; 3339.
    Subpart Q also issued under 12 U.S.C. 1462; 1462a; 1463; 1464.
    Subpart R also issued under 12 U.S.C. 1463; 1464; 1831m; 1831n; 
1831p-1.
    Subpart S also issued under 12 U.S.C. 1462; 1462a; 1463; 1464; 
1468a; 1817; 1820; 1828; 1831e; 1831o; 1831p-1; 1881-1884; 3207; 
3339; 15 U.S.C. 78b; 78l; 78m; 78n; 78p; 78q; 78w; 31 U.S.C. 5318; 
42 U.S.C. 4106.
    Subpart T also issued under 12 U.S.C. 1462a; 1463; 1464; 15 
U.S.C. 78c; 78l; 78m; 78n; 78w.
    Subpart U also issued under 12 U.S.C. 1462a; 1463; 1464; 15 
U.S.C. 78c; 78l; 78m; 78n; 78p; 78w; 78d-1; 7241; 7242; 7243; 7244; 
7261; 7264; 7265.
    Subpart V also issued under 12 U.S.C. 3201-3208.
    Subpart W also issued under 12 U.S.C. 1462a; 1463; 1464; 15 
U.S.C. 78c; 78l; 78m; 78n; 78p; 78w.
    Subpart X also issued under 12 U.S.C. 1462; 1462a; 1463; 1464; 
1828; 3331 et seq.
    Subpart Y also issued under 12 U.S.C.1831o.
    Subpart Z also issued under 12 U.S.C. 1462; 1462a; 1463; 1464; 
1828 (note).

[[Page 47668]]

Subpart A--Restrictions on Post-Employment Activities of Senior 
Examiners


Sec.  390.1  What does this subpart part do?

    This subpart implements section 10(k) of the Federal Deposit 
Insurance Act (FDIA), (12 U.S.C. 1820(k)), which prohibits senior 
examiners from accepting compensation from certain companies following 
the termination of their employment. Except where otherwise provided, 
the terms used in this subpart have the meanings given in section 3 of 
the FDIA (12 U.S.C. 1813).


Sec.  390.2  Who is a senior examiner?

    An individual is a senior examiner for a particular savings 
association or savings and loan holding company if--
    (a) The individual was an officer or employee of the Office of 
Thrift Supervision (OTS) (including a special government employee) who 
was authorized by the OTS to conduct examinations or inspections of 
savings associations or savings and loan holding companies;
    (b) The individual was assigned continuing, broad and lead 
responsibility for the examination or inspection of that savings 
association or savings and loan holding company; and
    (c) The individual's responsibilities for examining, inspecting, or 
supervising that savings association or savings and loan holding 
company:
    (1) Represented a substantial portion of the individual's assigned 
responsibilities at the OTS; and
    (2) Required the individual to interact on a routine basis with 
officers and employees of the savings association, savings and loan 
holding company, or its affiliates.


Sec.  390.3  What post-employment restrictions apply to senior 
examiners?

    (a) Prohibition. (1) Senior examiner of savings association. An 
individual who served as a senior examiner of a savings association for 
two or more of the last 12 months of his or her employment with OTS may 
not, within one year after the termination date of his or her 
employment with OTS, knowingly accept compensation as an employee, 
officer, director, or consultant from--
    (i) The savings association; or
    (ii) A savings and loan holding company, bank holding company, or 
any other company that controls the savings association.
    (2) Senior examiner of a savings and loan holding company. An 
individual who served as a senior examiner of a savings and loan 
holding company for two or more of the last 12 months of his or her 
employment with OTS may not, within one year after the termination date 
of his or her employment with OTS, knowingly accept compensation as an 
employee, officer, director, or consultant from--
    (i) The savings and loan holding company; or
    (ii) Any depository institution that is controlled by the savings 
and loan holding company.
    (b) [Reserved].
    (c) Definitions. For the purposes of this section--
    Consultant. An individual acts as a consultant for a savings 
association or other company only if he or she directly works on 
matters for, or on behalf of, the savings association or company.
    Control. Control has the same meaning given in 12 CFR part 391, 
subpart E.


Sec.  390.4  When will the FDIC waive the post-employment restrictions?

    The post-employment restriction in Sec.  390.3 will not apply to a 
senior examiner if the Chairperson, or his or her designee, certifies 
in writing and on a case-by-case basis that a waiver of the restriction 
will not affect the integrity of the FDIC's supervisory program.


Sec.  390.5  What are the penalties for violating the post-employment 
restrictions?

    (a) Penalties. A senior examiner who violates Sec.  390.3 shall, in 
accordance with 12 U.S.C. 1820(k)(6), be subject to one or both of the 
following penalties:
    (1) An order--
    (i) Removing the person from office or prohibiting the person from 
further participating in the conduct of the affairs of the relevant 
depository institution, savings and loan holding company, bank holding 
company or other company for up to five years, and
    (ii) Prohibiting the person from participating in the affairs of 
any insured depository institution for up to five years.
    (2) A civil money penalty not to exceed $250,000.
    (b) Scope of prohibition orders. Any senior examiner who is subject 
to an order issued under paragraph (a)(1) of this section shall be 
subject to 12 U.S.C. 1818(e)(6) and (7) in the same manner and to the 
same extent as a person subject to an order issued under 12 U.S.C. 
1818(e).
    (c) Procedures. 12 U.S.C. 1820(k) describes the procedures that are 
applicable to actions under paragraph (a) of this section and the 
appropriate Federal banking agency authorized to take the action, which 
may be an agency other than the FDIC. Where the FDIC is the appropriate 
Federal banking agency, it will conduct administrative proceedings 
under subpart C of this part.
    (d) Other penalties. The penalties under this section are not 
exclusive. A senior examiner who violates the restriction in Sec.  
390.3 may also be subject to other administrative, civil, or criminal 
remedy or penalty as provided by law.

Subpart B--Removals, Suspensions, and Prohibitions Where a Crime Is 
Charged or Proven


Sec.  390.10  Scope.

    The rules in this subpart apply to hearings, which are exempt from 
the adjudicative provisions of the Administrative Procedure Act, 
afforded to any officer, director, or other person participating in the 
conduct of the affairs of a State savings association, where such 
person has been suspended or removed from office or prohibited from 
further participation in the conduct of the affairs of the State 
savings association by a Notice or Order served by the Board of 
Directors upon the grounds set forth in section 8(g) of the Federal 
Deposit Insurance Act (FDIA), (12 U.S.C. 1818(g)).


Sec.  390.11  Definitions.

    As used in this subpart--
    (a) The term Board of Directors means the Board of Directors of the 
FDIC or its designee.
    (b) The term Notice means a Notice of Suspension or Notice of 
Prohibition issued by the Board of Directors pursuant to section 8(g) 
of the FDIA.
    (c) The term Order means an Order of Removal or Order of 
Prohibition issued by the Board of Directors pursuant to section 8(g) 
of the FDIA.
    (d) The term association means a State savings association within 
the meaning of section 3(b)(3) of the FDIA, (12 U.S.C. 1813(b)(3)).
    (e) The term subject individual means a person served with a Notice 
or Order.
    (f) The term petitioner means a subject individual who has filed a 
petition for informal hearing under this part.


Sec.  390.12  Issuance of Notice or Order.

    (a) The Board of Directors may issue and serve a Notice upon an 
officer, director, or other person participating in the conduct of the 
affairs of an association, where the individual is charged in any 
information, indictment, or complaint with the commission of or 
participation in a crime involving dishonesty or breach of trust that 
is punishable by imprisonment for a term exceeding one year under State 
or Federal law, if the Board of Directors, upon due deliberation, 
determines that

[[Page 47669]]

continued service or participation by the individual may pose a threat 
to the interests of the association's depositors or may threaten to 
impair public confidence in the association. The Notice shall remain in 
effect until the information, indictment, or complaint is finally 
disposed of or until terminated by the Board of Directors.
    (b) The Board of Directors may issue and serve an Order upon a 
subject individual against whom a judgment of conviction, or an 
agreement to enter a pretrial diversion or other similar program has 
been rendered, where such judgment is not subject to further appellate 
review, and the Board of Directors, upon the deliberation, has 
determined that continued service or participation by the subject 
individual may pose a threat to the interests of the association's 
depositors or may threaten to impair public confidence in the 
association.


Sec.  390.13  Contents and service of the Notice or Order.

    (a) The Notice or Order shall set forth the basis and facts in 
support of the Board of Directors' issuance of such Notice or Order, 
and shall inform the subject individual of his right to a hearing, in 
accordance with this part, for the purpose of determining whether the 
Notice or Order should be continued, terminated, or otherwise modified.
    (b) The Executive Secretary shall serve a copy of the Notice or 
Order upon the subject individual and the related association in the 
manner set forth in Sec.  390.40.
    (c) Upon receipt of the Notice or Order, the subject individual 
shall immediately comply with the requirements thereof.


Sec.  390.14  Petition for hearing.

    (a) To obtain a hearing, the subject individual must file two 
copies of a petition with the Executive Secretary within 30 days of 
being served with the Notice or Order.
    (b) The petition filed under this section shall admit or deny 
specifically each allegation in the Notice or Order, unless the 
petitioner is without knowledge or information, in which case the 
petition shall so state and the statement shall have the effect of a 
denial. Any allegation not denied shall be deemed to be admitted. When 
a petitioner intends in good faith to deny only a part of or to qualify 
an allegation, he shall specify so much of it as is true and shall deny 
only the remainder.
    (c) The petition shall state whether the petitioner is requesting 
termination or modification of the Notice or Order, and shall state 
with particularity how the petitioner intends to show that his 
continued service to or participation in the conduct of the affairs of 
the association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or to impair public 
confidence in the association.


Sec.  390.15  Initiation of hearing.

    (a) Within 10 days of the filing of a petition for hearing, the 
Board of Directors shall notify the petitioner of the time and place 
fixed for hearing, and it shall designate one or more Board of 
Directors employees to serve as presiding officer.
    (b) The hearing shall be scheduled to be held no later than 30 days 
from the date the petition was filed, unless the time is extended at 
the request of the petitioner.
    (c) A petitioner may appear personally or through counsel, but if 
represented by counsel, said counsel is required to comply with Sec.  
390.35.
    (d) A representative(s) of the FDIC enforcement staff also may 
attend the hearing and participate therein as a party.


Sec.  390.16  Conduct of hearings.

    (a) Hearings provided by this section are not subject to the 
adjudicative provisions of the Administrative Procedure Act (5 U.S.C. 
554-557). The presiding officer is, however, authorized to exercise all 
of the powers enumerated in Sec.  390.34.
    (b) Witnesses may be presented, within time limits specified by the 
presiding officer, provided that at least 10 days prior to the hearing 
date, the party presenting the witnesses furnishes the presiding 
officer and the opposing party with a list of such witnesses and a 
summary of the proposed testimony. However, the requirement for 
furnishing such a witness list and summary of testimony shall not apply 
to the presentation of rebuttal witnesses. The presiding officer may 
ask questions of any witness, and each party shall have an opportunity 
to cross-examine any witness presented by an opposing party.
    (c) Upon the request of either the petitioner or a representative 
of the FDIC enforcement staff, the record shall remain open for a 
period of 5 business days following the hearing, during which time the 
parties may make any additional submissions for the record. Thereafter, 
the record shall be closed.
    (d) Following the introduction of all evidence, the petitioner and 
the representative of the FDIC enforcement staff shall have an 
opportunity for oral argument; however, the parties may jointly waive 
the right to oral argument, and, in lieu thereof, elect to submit 
written argument.
    (e) All oral testimony and oral argument shall be recorded, and 
transcripts made available to the petitioner upon payment of the cost 
thereof. A copy of the transcript shall be sent directly to the 
presiding officer, who shall have authority to correct the record sua 
sponte or upon the motion of any party.
    (f) The parties may, in writing, jointly waive an oral hearing and 
instead elect a hearing upon a written record in which all evidence and 
argument would be submitted to the presiding officer in documentary 
form and statements of individuals would be made by affidavit.


Sec.  390.17  Default.

    If the subject individual fails to file a petition for a hearing, 
or fails to appear at a hearing, either in person or by attorney, or 
fails to submit a written argument where oral argument has been waived 
pursuant to Sec.  390.16(d) or (f), the Notice shall remain in effect 
until the information, indictment, or complaint is finally disposed of 
and the Order shall remain in effect until terminated by the Board of 
Directors.


Sec.  390.18  Rules of evidence.

    (a) Formal rules of evidence shall not apply to a hearing, but the 
presiding officer may limit the introduction of irrelevant, immaterial, 
or unduly repetitious evidence.
    (b) All matters officially noticed by the presiding officer shall 
appear on the record.


Sec.  390.19  Burden of persuasion.

    The petitioner has the burden of showing, by a preponderance of the 
evidence, that his or her continued service to or participation in the 
conduct of the affairs of the association does not, or is not likely 
to, pose a threat to the interests of the association's depositors or 
threaten to impair public confidence in the association.


Sec.  390.20  Relevant considerations.

    (a) In determining whether the petitioner has shown that his or her 
continued service to or participation in the conduct of the affairs of 
the association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or threaten to impair public 
confidence in the association, in order to decide whether the Notice or 
Order should be continued, terminated, or otherwise modified, the Board 
of Directors will consider:
    (1) The nature and extent of the petitioner's participation in the 
affairs of the association;

[[Page 47670]]

    (2) The nature of the offense with which the petitioner has been 
charged;
    (3) The extent of the publicity accorded the indictment and trial; 
and
    (4) Such other relevant factors as may be entered on the record.
    (b) When considering a request for the termination or modification 
of a Notice, the Board of Directors will not consider the ultimate 
guilt or innocence of the petitioner with respect to the criminal 
charge that is outstanding.
    (c) When considering a request for the termination or modification 
of an Order which has been issued following a final judgment of 
conviction against a subject individual, the Board of Directors will 
not collaterally review such final judgment of conviction.


Sec.  390.21  Proposed findings and conclusions and recommended 
decision.

    (a) Within 30 days after completion of oral argument or the 
submission of written argument where oral argument has been waived, the 
presiding officer shall file with the Executive Secretary and certify 
to the Board of Directors for decision the entire record of the 
hearing, which shall include a recommended decision, the Notice or 
Order, and all other documents filed in connection with the hearing.
    (b) The recommended decision shall contain:
    (1) A statement of the issue(s) presented,
    (2) A statement of findings and conclusions, and the reasons or 
basis therefor, on all material issues of fact, law, or discretion 
presented on the record, and
    (3) An appropriate recommendation as to whether the suspension, 
removal, or prohibition should be continued, modified, or terminated.


Sec.  390.22  Decision of the FDIC Board of Directors.

    (a) Within 30 days after the recommended decision has been 
certified to the Board of Directors, the Board of Directors shall issue 
a final decision.
    (b) The Board of Director's final decision shall contain a 
statement of the basis therefor. The Board of Directors may satisfy 
this requirement where it adopts the recommended decision of the 
presiding officer upon finding that the recommended decision satisfies 
the requirements of Sec.  390.67.
    (c) The Executive Secretary shall serve upon the petitioner and the 
representative of the FDIC enforcement staff a copy of the Board of 
Director's final decision and the related recommended decision.


Sec.  390.23  Miscellaneous.

    The provisions of Sec. Sec.  390.39-390.41 shall apply to 
proceedings under this subpart.

Subpart C--Rules of Practice and Procedure in Adjudicatory 
Proceedings


Sec.  390.30  Scope.

    Sections 390.30-390.70 prescribe Uniform Rules of practice and 
procedure applicable to adjudicatory proceedings as to which hearings 
on the record are provided for by the following statutory provisions:
    (a) Cease-and-desist proceedings under section 8(b) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1818(b));
    (b) Removal and prohibition proceedings under section 8(e) of the 
FDIA (12 U.S.C. 1818(e));
    (c) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) to determine whether the FDIC should issue an 
order to approve or disapprove a person's proposed acquisition of an 
institution and/or institution holding company;
    (d) Proceedings under section 15C(c)(2) of the Securities Exchange 
Act of 1934 (Exchange Act) (15 U.S.C. 78o-5), to impose sanctions upon 
any government securities broker or dealer or upon any person 
associated or seeking to become associated with a government securities 
broker or dealer for which the FDIC is the appropriate regulatory 
agency;
    (e) Assessment of civil money penalties by the FDIC against 
institutions, institution-affiliated parties, and certain other persons 
for which it is the appropriate regulatory agency for any violation of:
    (1) Section 5 of the Home Owners' Loan Act (HOLA) or any regulation 
or order issued thereunder, pursuant to 12 U.S.C. 1464(d), (s) and (v);
    (2) Section 9 of the HOLA or any regulation or order issued 
thereunder, pursuant to 12 U.S.C. 1467(d);
    (3) Section 10 of HOLA, pursuant to 12 U.S.C. 1467a(i) and (r);
    (4) Any provisions of the Change in Bank Control Act, any 
regulation or order issued thereunder or certain unsafe or unsound 
practices or breaches of fiduciary duty, pursuant to 12 U.S.C. 
1817(j)(16);
    (5) Sections 22(h) and 23 of the Federal Reserve Act, or any 
regulation issued thereunder or certain unsafe or unsound practices or 
breaches of fiduciary duty, pursuant to 12 U.S.C. 1468;
    (6) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (7) Section 1120 of Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (12 U.S.C. 3349), or any order or regulation 
issued thereunder;
    (8) The terms of any final or temporary order issued or enforceable 
pursuant to section 8 of the FDIA or of any written agreement executed 
by the FDIC, the terms of any conditions imposed in writing by the FDIC 
in connection with the grant of an application or request, certain 
unsafe or unsound practices or breaches of fiduciary duty, or any law 
or regulation not otherwise provided herein pursuant to 12 U.S.C. 
1818(i)(2);
    (9) Any provision of law referenced in section 102 of the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or 
regulation issued thereunder; and
    (10) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (f) Remedial action under section 102 of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g));
    (g) Proceedings under section 10(k) of the FDIA (12 U.S.C. 1820(k)) 
to impose penalties on senior examiners for violation of post-
employment prohibitions; and
    (h) Sections 390.30 through 390.70 of this part also apply to all 
other adjudications required by statute to be determined on the record 
after opportunity for an agency hearing, unless otherwise specifically 
provided for in the Local Rules.


Sec.  390.31  Rules of construction.

    For purposes of Sec. Sec.  390.30 through 390.70 of this part:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate;
    (c) The term counsel includes a non-attorney representative; and
    (d) Unless the context requires otherwise, a party's counsel of 
record, if any, may, on behalf of that party, take any action required 
to be taken by the party.


Sec.  390.32  Definitions.

    For purposes of Sec. Sec.  390.30 through 390.70 of this part, 
unless explicitly stated to the contrary:
    Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    Adjudicatory proceeding means a proceeding conducted pursuant to 
these

[[Page 47671]]

rules and leading to the formulation of a final order other than a 
regulation.
    Board of Directors means the Board of Directors of the Federal 
Deposit Insurance Corporation or its designee.
    Decisional employee means any member of the FDIC's or 
administrative law judge's staff who has not engaged in an 
investigative or prosecutorial role in a proceeding and who may assist 
the Board of Directors or the administrative law judge, respectively, 
in preparing orders, recommended decisions, decisions, and other 
documents under the Uniform Rules.
    Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the FDIC in an adjudicatory 
proceeding.
    FDIC means the Federal Deposit Insurance Corporation.
    Final order means an order issued by the FDIC with or without the 
consent of the affected institution or the institution-affiliated 
party, that has become final, without regard to the pendency of any 
petition for reconsideration or review.
    Institution includes any State savings association as that term is 
defined in section 3(b) of the FDIA, (12 U.S.C. 1813(b)), any savings 
and loan holding company or any subsidiary thereof whether wholly or 
partly owned (other than a bank) as those terms are defined in section 
10(a) of the HOLA, (12 U.S.C. 1467(a)).
    Institution-affiliated party means any institution-affiliated party 
as that term is defined in section 3(u) of the FDIA, (12 U.S.C. 
1813(u)).
    Local Rules means those rules found in Sec. Sec.  390.71 through 
390.75 of this part.
    Office of Financial Institution Adjudication or OFIA means the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the Office of the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve Board, the National Credit Union Administration, and the FDIC.
    Party means the FDIC and any person named as a party in any notice.
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency or other entity or organization, including an 
institution as defined in paragraph (g) of this section.
    Respondent means any party other than the FDIC.
    Uniform Rules means those rules in Sec. Sec.  390.30 through 390.70 
of this part.
    Violation includes any action (alone or with another or others) for 
or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.


Sec.  390.33  Authority of the Board of Directors.

    The Board of Directors may, at any time during the pendency of a 
proceeding perform, direct the performance of, or waive performance of, 
any act which could be done or ordered by the administrative law judge.


Sec.  390.34  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in accordance with the provisions of chapter 5 of title 5 of 
the United States Code. The administrative law judge shall have all 
powers necessary to conduct a proceeding in a fair and impartial manner 
and to avoid unnecessary delay.
    (b) Powers. The administrative law judge shall have all powers 
necessary to conduct the proceeding in accordance with paragraph (a) of 
this section, including the following powers:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas and orders;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken as authorized by this 
subpart;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold scheduling and/or pre-hearing conferences as set forth 
in Sec.  390.60;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the Board 
of Directors shall have the power to grant any motion to dismiss the 
proceeding or to decide any other motion that results in a final 
determination of the merits of the proceeding;
    (8) To prepare and present to the Board of Directors a recommended 
decision as provided herein;
    (9) To recuse himself or herself by motion made by a party or on 
his or her own motion;
    (10) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (11) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.


Sec.  390.35  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before an FDIC or an administrative law judge--(1) 
By attorneys. Any member in good standing of the bar of the highest 
court of any state, commonwealth, possession, territory of the United 
States, or the District of Columbia may represent others before the 
FDIC if such attorney is not currently suspended or debarred from 
practice before the FDIC.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf; a member of a partnership may represent the partnership; a duly 
authorized officer, director, or employee of any government unit, 
agency, institution, corporation or authority may represent that unit, 
agency, institution, corporation or authority if such officer, 
director, or employee is not currently suspended or debarred from 
practice before the FDIC.
    (3) Notice of appearance. Any individual acting as counsel on 
behalf of a party, including the FDIC, shall file a notice of 
appearance with OFIA at or before the time that individual submits 
papers or otherwise appears on behalf of a party in the adjudicatory 
proceeding. The notice of appearance must include a written declaration 
that the individual is currently qualified as provided in paragraph 
(a)(1) or (2) of this section and is authorized to represent the 
particular party. By filing a notice of appearance on behalf of a party 
in an adjudicatory proceeding, the counsel agrees and represents that 
he or she is authorized to accept service on behalf of the represented 
party and that, in the event of withdrawal from representation, he or 
she will, if required by the administrative law judge, continue to 
accept service until new counsel has filed a notice of appearance or 
until the represented party indicates that he or she will proceed on a 
pro se basis.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudicatory proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding.


Sec.  390.36  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice shall be signed by at least one 
counsel of record in his or her individual name and shall state that 
counsel's address and telephone number. A party who acts as his or her 
own counsel shall sign his or her individual name and state his or her 
address and telephone number on every filing or submission of record.

[[Page 47672]]

    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read 
the filing or submission of record; to the best of his or her 
knowledge, information, and belief formed after reasonable inquiry, the 
filing or submission of record is well-grounded in fact and is 
warranted by existing law or a good faith argument for the extension, 
modification, or reversal of existing law; and the filing or submission 
of record is not made for any improper purpose, such as to harass or to 
cause unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
administrative law judge shall strike the filing or submission of 
record, unless it is signed promptly after the omission is called to 
the attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, 
and belief formed after reasonable inquiry, his or her statements are 
well-grounded in fact and are warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and are not made for any improper purpose, such as to harass or to 
cause unnecessary delay or needless increase in the cost of litigation.


Sec.  390.37  Conflicts of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudicatory proceeding if it 
reasonably appears that such representation may be materially limited 
by that counsel's responsibilities to a third person or by the 
counsel's own interests. The administrative law judge may take 
corrective measures at any stage of a proceeding to cure a conflict of 
interest in representation, including the issuance of an order limiting 
the scope of representation or disqualifying an individual from 
appearing in a representative capacity for the duration of the 
proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudicatory proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec.  390.35(a):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-
party; and
    (2) That each such party and non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.


Sec.  390.38  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding that was neither on the record nor on reasonable prior 
notice to all parties that takes place between:
    (i) An interested person outside the FDIC (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, the 
Board of Directors, or a decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the 
notice is issued by the Board of Directors until the date that the 
Board of Directors issues the final decision pursuant to Sec.  
390.69(c):
    (1) No interested person outside the FDIC shall make or knowingly 
cause to be made an ex parte communication to the Board of Directors, 
the administrative law judge, or a decisional employee; and
    (2) The Board of Directors, administrative law judge, or decisional 
employee shall not make or knowingly cause to be made to any interested 
person outside the FDIC any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by the administrative law judge, the 
Board of Directors or other person identified in paragraph (a) of this 
section, that person shall cause all such written communications (or, 
if the communication is oral, a memorandum stating the substance of the 
communication) to be placed on the record of the proceeding and served 
on all parties. All other parties to the proceeding shall have an 
opportunity, within ten days of receipt of service of the ex parte 
communication to file responses thereto and to recommend any sanctions, 
in accordance with paragraph (d) of this section, that they believe to 
be appropriate under the circumstances.
    (d) Sanctions. Any party or his or her counsel who makes a 
prohibited ex parte communication, or who encourages or solicits 
another to make any such communication, may be subject to any 
appropriate sanction or sanctions imposed by the Board of Directors or 
the administrative law judge including, but not limited to, exclusion 
from the proceedings and an adverse ruling on the issue which is the 
subject of the prohibited communication.
    (e) Separation-of-functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the 
administrative law judge may not consult a person or party on any 
matter relevant to the merits of the adjudication, unless on notice and 
opportunity for all parties to participate. An employee or agent 
engaged in the performance of investigative or prosecuting functions 
for the FDIC in a case may not, in that or a factually related case, 
participate or advise in the decision, recommended decision, or agency 
review of the recommended decision under Sec.  390.69, except as 
witness or counsel in public proceedings.


Sec.  390.39  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Sec. Sec.  
390.54 and 390.55, shall be filed with the OFIA, except as otherwise 
provided.
    (b) Manner of filing. Unless otherwise specified by the Board of 
Directors or the administrative law judge, filing may be accomplished 
by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if expressly authorized, 
and upon any conditions specified, by the Board of Directors or the 
administrative law judge. All papers filed by electronic media shall 
also concurrently be filed in accordance with paragraph (c) of this 
section as to form.
    (c) Formal requirements as to papers filed-- (1) Form. All papers 
filed must set forth the name, address, and telephone number of the 
counsel or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\ x 11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec.  390.36.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the FDIC and of the

[[Page 47673]]

filing party, the title and docket number of the proceeding, and the 
subject of the particular paper.
    (4) Number of copies. Unless otherwise specified by the Board of 
Directors, or the administrative law judge, an original and one copy of 
all documents and papers shall be filed, except that only one copy of 
transcripts of testimony and exhibits shall be filed.


Sec.  390.40  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers shall serve a copy upon the counsel of record for all other 
parties to the proceeding so represented, and upon any party not so 
represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec.  390.39(c) as to 
form.
    (c) By the Board of Directors or the administrative law judge. (1) 
All papers required to be served by the Board of Directors or the 
administrative law judge upon a party who has appeared in the 
proceeding through a counsel of record, shall be served by any means 
specified in paragraph (b) of this section.
    (2) If a party has not appeared in the proceeding in accordance 
with Sec.  390.35, the Board of Directors or the administrative law 
judge shall make service by any of the following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where 
the individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or 
to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual 
notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where 
the individual resides or works;
    (3) By delivery to an agent, which in the case of a corporation or 
other association, is delivery to an officer, managing or general 
agent, or to any other agent authorized by appointment or by law to 
receive service and, if the agent is one authorized by statute to 
receive service and the statute so requires, by also mailing a copy to 
the party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual 
notice.
    (e) Area of service. Service in any state, territory, possession of 
the United States, or the District of Columbia, on any person or 
company doing business in any state, territory, possession of the 
United States, or the District of Columbia, or on any person as 
otherwise provided by law, is effective without regard to the place 
where the hearing is held, provided that if service is made on a 
foreign bank in connection with an action or proceeding involving one 
or more of its branches or agencies located in any state, territory, 
possession of the United States, or the District of Columbia, service 
shall be made on at least one branch or agency so involved.


Sec.  390.41  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by 
this subpart, the date of the act or event that commences the 
designated period of time is not included. The last day so computed is 
included unless it is a Saturday, Sunday, or Federal holiday. When the 
last day is a Saturday, Sunday, or Federal holiday, the period runs 
until the end of the next day that is not a Saturday, Sunday, or 
Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays 
are included in the computation of time. However, when the time period 
within which an act is to be performed is ten days or less, not 
including any additional time allowed for in paragraph (c) of this 
section, intermediate Saturdays, Sundays, and Federal holidays are not 
included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective:
    (i) In the case of personal service or same day commercial courier 
delivery, upon actual service;
    (ii) In the case of overnight commercial delivery service, U.S. 
Express mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection; or
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing, and as 
agreed among the parties, in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Board of Directors or 
administrative law judge in the case of filing or by agreement of the 
parties in the case of service.
    (c) Calculation of time for service and filing of responsive 
papers. Whenever a time limit is measured by a prescribed period from 
the service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic media transmission, add one 
calendar day to the prescribed period, unless otherwise determined by 
the Board of Directors or the administrative law judge in the case of 
filing, or by agreement among the parties in the case of service.


Sec.  390.42  Change of time limits.

    Except as otherwise provided by law, the administrative law judge 
may, for good cause shown, extend the time limits prescribed by the 
Uniform Rules or any notice or order issued in the proceedings. After 
the referral of the case to the Board of Directors pursuant to Sec.  
390.67, the Board of Directors may grant extensions of the time limits 
for good cause shown. Extensions may be granted at the motion of a 
party or on the Board of Director's or the administrative law judge's 
own motion after notice and opportunity to respond is afforded all non-
moving parties.


Sec.  390.43  Witness fees and expenses.

    Witnesses subpoenaed for testimony or deposition shall be paid the 
same fees for attendance and mileage as are paid in the United States 
district courts in proceedings in which the United States is a party, 
provided that, in the case of a discovery subpoena addressed to a 
party, no witness fees or mileage need be paid. Fees for witnesses 
shall be

[[Page 47674]]

tendered in advance by the party requesting the subpoena, except that 
fees and mileage need not be tendered in advance where the FDIC is the 
party requesting the subpoena. The FDIC shall not be required to pay 
any fees to, or expenses of, any witness not subpoenaed by the FDIC.


Sec.  390.44  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to Enforcement Counsel written offers or proposals for 
settlement of a proceeding, without prejudice to the rights of any of 
the parties. No such offer or proposal shall be made to any FDIC 
representative other than Enforcement Counsel. Submission of a written 
settlement offer does not provide a basis for adjourning or otherwise 
delaying all or any portion of a proceeding under this part. No 
settlement offer or proposal, or any subsequent negotiation or 
resolution, is admissible as evidence in any proceeding.


Sec.  390.45  The FDIC's right to conduct examination.

    Nothing contained in this subpart limits in any manner the right of 
the FDIC to conduct any examination, inspection, or visitation of any 
institution or institution-affiliated party, or the right of the FDIC 
to conduct or continue any form of investigation authorized by law.


Sec.  390.46  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court concerning all or any part of an adjudicatory proceeding, the 
challenged adjudicatory proceeding shall continue without regard to the 
pendency of that court proceeding. No default or other failure to act 
as directed in the adjudicatory proceeding within the times prescribed 
in this subpart shall be excused based on the pendency before any court 
of any interlocutory appeal or collateral attack.


Sec.  390.47  Commencement of proceeding and contents of notice.

    (a) Commencement of proceeding. (1)(i) Except for change-in-control 
proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), a 
proceeding governed by this subpart is commenced by issuance of a 
notice by the FDIC.
    (ii) The notice must be served by the Executive Secretary upon the 
respondent and given to any other appropriate financial institution 
supervisory authority where required by law.
    (iii) The notice must be filed with the OFIA.
    (2) Change-in control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the 
Board of Directors.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the FDIC's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the FDIC 
is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time, place, and nature of the hearing as required by law 
or regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) The time within which to request a hearing as required by law 
or regulation; and
    (7) The answer and/or request for a hearing shall be filed with 
OFIA.


Sec.  390.48  Answer.

    (a) When. Within 20 days of service of the notice, respondent shall 
file an answer as designated in the notice. In a civil money penalty 
proceeding, respondent shall also file a request for a hearing within 
20 days of service of the notice.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has 
the effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice which is not denied in the answer must be deemed admitted for 
purposes of the proceeding. A respondent is not required to respond to 
the portion of a notice that constitutes the prayer for relief or 
proposed order. The answer must set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default--(1) Effect of failure to answer. Failure of a 
respondent to file an answer required by this section within the time 
provided constitutes a waiver of his or her right to appear and contest 
the allegations in the notice. If no timely answer is filed, 
Enforcement Counsel may file a motion for entry of an order of default. 
Upon a finding that no good cause has been shown for the failure to 
file a timely answer, the administrative law judge shall file with the 
Board of Directors a recommended decision containing the findings and 
the relief sought in the notice. Any final order issued by the Board of 
Directors based upon a respondent's failure to answer is deemed to be 
an order issued upon consent.
    (2) Effect of failure to request a hearing in civil money penalty 
proceedings. If respondent fails to request a hearing as required by 
law within the time provided, the notice of assessment constitutes a 
final and unappealable order.


Sec.  390.49  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended 
notice, whichever period is longer, unless the Board of Directors or 
administrative law judge orders otherwise for good cause.
    (b) Amendments to conform to the evidence. When issues not raised 
in the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
administrative law judge may admit the evidence when admission is 
likely to assist in adjudicating the merits of the action and the 
objecting party fails to satisfy the administrative law judge that the 
admission of such evidence would unfairly prejudice that party's action 
or defense upon the merits. The administrative law judge may grant a 
continuance to enable the objecting party to meet such evidence.


Sec.  390.50  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized counsel constitutes a waiver of respondent's right to a 
hearing and is deemed an admission of the facts as alleged and consent 
to the relief sought in the notice. Without further proceedings or 
notice to the respondent, the administrative law judge shall file with 
the Board of Directors a recommended decision containing the findings 
and the relief sought in the notice.

[[Page 47675]]

Sec.  390.51  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the 
administrative law judge's own motion, the administrative law judge may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule must be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The administrative law judge may, upon the motion of 
any party, sever the proceeding for separate resolution of the matter 
as to any respondent only if the administrative law judge finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.


Sec.  390.52  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the administrative law judge. Written memoranda, 
briefs, affidavits or other relevant material or documents may be filed 
in support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally on the record unless 
the administrative law judge directs that such motion be reduced to 
writing.
    (c) Filing of motions. Motions must be filed with the 
administrative law judge, but upon the filing of the recommended 
decision, motions must be filed with the Executive Secretary for 
disposition by the Board of Directors.
    (d) Responses. (1) Except as otherwise provided herein, within ten 
days after service of any written motion, or within such other period 
of time as may be established by the administrative law judge or the 
Executive Secretary, any party may file a written response to a motion. 
The administrative law judge shall not rule on any oral or written 
motion before each party has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the 
entry of an order substantially in the form of the order accompanying 
the motion.
    (e) Dilatory motions. Frivolous, dilatory or repetitive motions are 
prohibited. The filing of such motions may form the basis for 
sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Sec. Sec.  390.58 and 390.59.


Sec.  390.53  Scope of document discovery.

    (a) Limits on discovery. (1) Subject to the limitations set out in 
paragraphs (b), (c), and (d) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic 
form, and other data compilations from which information can be 
obtained, or translated, if necessary, by the parties through detection 
devices into reasonably usable form, as well as written material of all 
kinds.
    (2) Discovery by use of deposition is governed by Sec.  390.73.
    (3) Discovery by use of interrogatories is not permitted.
    (b) Relevance. A party may obtain document discovery regarding any 
matter, not privileged, that has material relevance to the merits of 
the pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec.  390.54.
    (c) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative-process 
privilege, and any other privileges the Constitution, any applicable 
act of Congress, or the principles of common law provide.
    (d) Time limits. All discovery, including all responses to 
discovery requests, shall be completed at least 20 days prior to the 
date scheduled for the commencement of the hearing, except as provided 
in the Local Rules. No exceptions to this time limit shall be 
permitted, unless the administrative law judge finds on the record that 
good cause exists for waiving the requirements of this paragraph (d).


Sec.  390.54  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. The request must identify the documents to be produced either 
by individual item or by category, and must describe each item and 
category with reasonable particularity. Documents must be produced as 
they are kept in the usual course of business or must be organized to 
correspond with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place, and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages 
is requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests 250 pages or 
more of copying, the requesting party shall pay for the copying and 
shipping charges. Copying charges are the current per-page copying rate 
imposed under part 309 for requests under the Freedom of Information 
Act (5 U.S.C. 552). The party to whom the request is addressed may 
require payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request with a response that was complete when made is not 
required to supplement the response to include documents thereafter 
acquired, unless the responding party learns that:
    (1) The response was materially incorrect when made; or
    (2) The response, though correct when made, is no longer true and a 
failure to amend the response is, in substance, a knowing concealment.

[[Page 47676]]

    (d) Motions to limit discovery. (1) Any party that objects to a 
discovery request may, within ten days of being served with such 
request, file a motion in accordance with the provisions of Sec.  
390.52 to revoke or otherwise limit the request. If an objection is 
made to only a portion of an item or category in a request, the portion 
objected to shall be specified. Any objections not made in accordance 
with this paragraph and Sec.  390.52 are waived.
    (2) The party who served the request that is the subject of a 
motion to revoke or limit may file a written response within five days 
of service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, the 
producing party must reasonably identify all documents withheld on the 
grounds of privilege and must produce a statement of the basis for the 
assertion of privilege. When similar documents that are protected by 
deliberative process, attorney-work-product, or attorney-client 
privilege are voluminous, these documents may be identified by category 
instead of by individual document. The administrative law judge retains 
discretion to determine when the identification by category is 
insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec.  390.52 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may file a written response to a motion to compel within 
five days of service of the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses pursuant 
to this section has expired, the administrative law judge shall rule 
promptly on all motions filed pursuant to this section. If the 
administrative law judge determines that a discovery request, or any of 
its terms, calls for irrelevant material, is unreasonable, oppressive, 
excessive in scope, unduly burdensome, or repetitive of previous 
requests, or seeks to obtain privileged documents, he or she may deny 
or modify the request, and may issue appropriate protective orders, 
upon such conditions as justice may require. The pendency of a motion 
to strike or limit discovery or to compel production is not a basis for 
staying or continuing the proceeding, unless otherwise ordered by the 
administrative law judge. Notwithstanding any other provision in this 
subpart, the administrative law judge may not release, or order a party 
to produce, documents withheld on grounds of privilege if the party has 
stated to the administrative law judge its intention to file a timely 
motion for interlocutory review of the administrative law judge's order 
to produce the documents, and until the motion for interlocutory review 
has been decided.
    (h) Enforcing discovery subpoenas. If the administrative law judge 
issues a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the administrative 
law judge against a party who fails to produce subpoenaed documents.


Sec.  390.55  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the administrative 
law judge for the issuance of a document discovery subpoena addressed 
to any person who is not a party to the proceeding. The application 
must contain a proposed document subpoena and a brief statement showing 
the general relevance and reasonableness of the scope of documents 
sought. The subpoenaing party shall specify a reasonable time, place, 
and manner for making production in response to the document subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec.  390.53(d). The party obtaining the 
document subpoena is responsible for serving it on the subpoenaed 
person and for serving copies on all parties. Document subpoenas may be 
served in any state, territory, or possession of the United States, the 
District of Columbia, or as otherwise provided by law.
    (3) The administrative law judge shall promptly issue any document 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon such conditions as may be consistent with the Uniform Rules.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such 
subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant shall serve the motion on all 
parties, and any party may respond to such motion within ten days of 
service of the motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec.  390.54(d), and 
during the same time limits during which such an objection could be 
filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order 
of the administrative law judge which directs compliance with all or 
any portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with so much of the document subpoena as the administrative 
law judge has not quashed or modified. A party's right to seek court 
enforcement of a document subpoena shall in no way limit the sanctions 
that may be imposed by the administrative law judge on a party who 
induces a failure to comply with subpoenas issued under this section.


Sec.  390.56  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party may apply in accordance with the procedures set forth 
in paragraph (a)(2) of this section, to the administrative law judge 
for the issuance of a subpoena, including a subpoena duces tecum, 
requiring the attendance of the witness at a deposition. The 
administrative law judge may issue a deposition subpoena under this 
section upon showing that:
    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness or infirmity, or will 
otherwise be unavailable;
    (ii) The witness' unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other

[[Page 47677]]

party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed at any place within the 
country in which that witness resides or has a regular place of 
employment or such other convenient place as the administrative law 
judge shall fix.
    (3) Any requested subpoena that sets forth a valid basis for its 
issuance must be promptly issued, unless the administrative law judge 
on his or her own motion, requires a written response or requires 
attendance at a conference concerning whether the requested subpoena 
should be issued.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the administrative law judge orders otherwise, no deposition under this 
section shall be taken on fewer than ten days' notice to the witness 
and all parties. Deposition subpoenas may be served in any state, 
territory, possession of the United States, or the District of 
Columbia, on any person or company doing business in any state, 
territory, possession of the United States, or the District of 
Columbia, or as otherwise permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion with the administrative law 
judge to quash or modify the subpoena prior to the time for compliance 
specified in the subpoena, but not more than ten days after service of 
the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The 
motion must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn, and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure 
to object to questions or documents is not deemed a waiver except where 
the ground for the objection might have been avoided if the objection 
had been timely presented. All questions, answers, and objections must 
be recorded.
    (2) Any party may move before the administrative law judge for an 
order compelling the witness to answer any questions the witness has 
refused to answer or submit any evidence the witness has refused to 
submit during the deposition.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or 
the witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply 
with any order of the administrative law judge which directs compliance 
with all or any portion of a deposition subpoena under paragraph (b) or 
(c)(2) of this section, the subpoenaing party or other aggrieved party 
may, to the extent authorized by applicable law, apply to an 
appropriate United States district court for an order requiring 
compliance with the portions of the subpoena that the administrative 
law judge has ordered enforced. A party's right to seek court 
enforcement of a deposition subpoena in no way limits the sanctions 
that may be imposed by the administrative law judge on a party who 
fails to comply with or procures a failure to comply with, a subpoena 
issued under this section.


Sec.  390.57  Interlocutory review.

    (a) General rule. The Board of Directors may review a ruling of the 
administrative law judge prior to the certification of the record to 
the Board of Directors only in accordance with the procedures set forth 
in this section and Sec.  390.52.
    (b) Scope of review. The Board of Directors may exercise 
interlocutory review of a ruling of the administrative law judge if the 
Board of Directors finds that:
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any request for interlocutory review shall be filed 
by a party with the administrative law judge within ten days of his or 
her ruling and shall otherwise comply with Sec.  390.52. Any party may 
file a response to a request for interlocutory review in accordance 
with Sec.  390.52(d). Upon the expiration of the time for filing all 
responses, the administrative law judge shall refer the matter to the 
Board of Directors for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Board of Directors 
under this section suspends or stays the proceeding unless otherwise 
ordered by the administrative law judge or the Board of Directors.


Sec.  390.58  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Board of Directors issue a final order granting a motion for 
summary disposition if the undisputed pleaded facts, admissions, 
affidavits, stipulations, documentary evidence, matters as to which 
official notice may be taken, and any other evidentiary materials 
properly submitted in connection with a motion for summary disposition 
show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (b) Filing of motions and responses. (1) Any party who believes 
that there is no genuine issue of material fact to be determined and 
that he or she is entitled to a decision as a matter of law may move at 
any time for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such a motion, 
or within such time period as allowed by the administrative law judge, 
may file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may take the form of admissions in pleadings, 
stipulations, depositions, investigatory depositions, transcripts, 
affidavits and any other evidentiary materials that the moving party 
contends support his or her position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the moving party. Any party opposing a motion for 
summary disposition must file a statement setting forth those material 
facts as to which he or she contends a genuine dispute exists. Such 
opposition must be supported by evidence of the same type as that 
submitted with the motion for summary disposition and a brief 
containing the

[[Page 47678]]

points and authorities in support of the contention that summary 
disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his or her 
own motion, the administrative law judge may hear oral argument on the 
motion for summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the administrative law judge 
shall determine whether the moving party is entitled to summary 
disposition. If the administrative law judge determines that summary 
disposition is warranted, the administrative law judge shall submit a 
recommended decision to that effect to the Board of Directors. If the 
administrative law judge finds that no party is entitled to summary 
disposition, he or she shall make a ruling denying the motion.


Sec.  390.59  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision as to those claims. A hearing on the 
remaining issues must be ordered. Those claims for which the 
administrative law judge has determined that summary disposition is 
warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.


Sec.  390.60  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order commencing a proceeding or such other time as parties may 
agree, the administrative law judge shall direct counsel for all 
parties to meet with him or her in person at a specified time and place 
prior to the hearing or to confer by telephone for the purpose of 
scheduling the course and conduct of the proceeding. This meeting or 
telephone conference is called a ``scheduling conference.'' The 
identification of potential witnesses, the time for and manner of 
discovery, and the exchange of any prehearing materials including 
witness lists, statements of issues, stipulations, exhibits and any 
other materials may also be determined at the scheduling conference.
    (b) Prehearing conferences. The administrative law judge may, in 
addition to the scheduling conference, on his or her own motion or at 
the request of any party, direct counsel for the parties to meet with 
him or her (in person or by telephone) at a prehearing conference to 
address any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact, and the contents, 
authenticity and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The administrative law judge, in his or her 
discretion, may require that a scheduling or prehearing conference be 
recorded by a court reporter. A transcript of the conference and any 
materials filed, including orders, becomes part of the record of the 
proceeding. A party may obtain a copy of the transcript at its expense.
    (d) Scheduling or prehearing orders. At or within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the administrative law judge shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations made.


Sec.  390.61  Prehearing submissions.

    (a) Within the time set by the administrative law judge, but in no 
case later than 14 days before the start of the hearing, each party 
shall serve on every other party, his or her:
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.


Sec.  390.62  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the FDIC, in its discretion, determines that holding an open hearing 
would be contrary to the public interest. Within 20 days of service of 
the notice or, in the case of change-in-control proceedings under 
section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), within 20 days from 
service of the hearing order, any respondent may file with the 
Executive Secretary a request for a private hearing, and any party may 
file a reply to such a request. A party must serve on the 
administrative law judge a copy of any request or reply the party files 
with the Executive Secretary. The form of, and procedure for, these 
requests and replies are governed by Sec.  390.52. A party's failure to 
file a request or a reply constitutes a waiver of any objections 
regarding whether the hearing will be public or private.
    (b) Filing document under seal. Enforcement Counsel, in his or her 
discretion, may file any document or part of a document under seal if 
disclosure of the document would be contrary to the public interest. 
The administrative law judge shall take all appropriate steps to 
preserve the confidentiality of such documents or parts thereof, 
including closing portions of the hearing to the public.


Sec.  390.63  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other 
evidence sought, the administrative law judge may issue a subpoena or a 
subpoena duces tecum requiring the attendance of a witness at the 
hearing or the production of documentary or physical evidence at the 
hearing. The application for a hearing subpoena must also contain a 
proposed subpoena specifying the attendance of a witness or the 
production of evidence from any state, territory, or possession of the 
United States, the District of Columbia, or as otherwise provided by 
law at any designated place where the hearing is being conducted. The 
party making the application shall serve a copy of the application and 
the proposed subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of a hearing. During a hearing, a party may make an 
application for a subpoena orally on the record before the 
administrative law judge.
    (3) The administrative law judge shall promptly issue any hearing 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she

[[Page 47679]]

may refuse to issue the subpoena or may issue it in a modified form 
upon any conditions consistent with this subpart. Upon issuance by the 
administrative law judge, the party making the application shall serve 
the subpoena on the person named in the subpoena and on each party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
the subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but not 
more than ten days after the date of service of the subpoena upon the 
movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply 
with any subpoena issued pursuant to this section or any order of the 
administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may seek enforcement of the subpoena pursuant to 
section Sec.  390.55(c).


Sec.  390.64  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted so as to provide 
a fair and expeditious presentation of the relevant disputed issues. 
Each party has the right to present its case or defense by oral and 
documentary evidence and to conduct such cross examination as may be 
required for full disclosure of the facts.
    (2) Order of hearing. Enforcement Counsel shall present its case-
in-chief first, unless otherwise ordered by the administrative law 
judge, or unless otherwise expressly specified by law or regulation. 
Enforcement Counsel shall be the first party to present an opening 
statement and a closing statement, and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order 
of presentation of their cases, but if they do not agree the 
administrative law judge shall fix the order.
    (3) Examination of witnesses. Only one counsel for each party may 
conduct an examination of a witness, except that in the case of 
extensive direct examination, the administrative law judge may permit 
more than one counsel for the party presenting the witness to conduct 
the examination. A party may have one counsel conduct the direct 
examination and another counsel conduct re-direct examination of a 
witness, or may have one counsel conduct the cross examination of a 
witness and another counsel conduct the re-cross examination of a 
witness.
    (4) Stipulations. Unless the administrative law judge directs 
otherwise, all stipulations of fact and law previously agreed upon by 
the parties, and all documents, the admissibility of which have been 
previously stipulated, will be admitted into evidence upon commencement 
of the hearing.
    (b) Transcript. The hearing must be recorded and transcribed. The 
reporter will make the transcript available to any party upon payment 
by that party to the reporter of the cost of the transcript. The 
administrative law judge may order the record corrected, either upon 
motion to correct, upon stipulation of the parties, or following notice 
to the parties upon the administrative law judge's own motion.


Sec.  390.65  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact which may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or state government agency.
    (2) All matters officially noticed by the administrative law judge 
or Board of Directors shall appear on the record.
    (3) If official notice is requested or taken of any material fact, 
the parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible 
copy of the original.
    (2) Subject to the requirements of paragraph (a) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by the appropriate Federal financial 
institution regulatory agency or state regulatory agency, is admissible 
either with or without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the administrative law judge's discretion, be 
used with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence 
must be timely made and rulings on all objections must appear on the 
record.
    (2) When an objection to a question or line of questioning 
propounded to a witness is sustained, the examining counsel may make a 
specific proffer on the record of what he or she expected to prove by 
the expected testimony of the witness, either by representation of 
counsel or by direct interrogation of the witness.
    (3) The administrative law judge shall retain rejected exhibits, 
adequately marked for identification, for the record, and transmit such 
exhibits to the Board of Directors.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing, and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing, and that witness has testified in 
a deposition to which all parties in a proceeding had notice and an 
opportunity to participate, a party may offer as evidence all or any 
part of the transcript of the deposition, including deposition 
exhibits, if any.
    (2) Such deposition transcript is admissible to the same extent 
that testimony would have been admissible had that person testified at 
the hearing, provided that if a witness refused to answer proper 
questions during the depositions, the administrative law judge may, on 
that basis, limit the admissibility of the deposition in any manner 
that justice requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.


Sec.  390.66  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the

[[Page 47680]]

same method of service for each party, the administrative law judge 
shall serve notice upon each party, that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the administrative law judge proposed findings of fact, 
proposed conclusions of law, and a proposed order within 30 days 
following service of this notice by the administrative law judge or 
within such longer period as may be ordered by the administrative law 
judge.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document. Any party who fails to file timely with the 
administrative law judge any proposed finding or conclusion is deemed 
to have waived the right to raise in any subsequent filing or 
submission any issue not addressed in such party's proposed finding or 
conclusion.
    (b) Reply briefs. Reply briefs may be filed within 15 days after 
the date on which the parties' proposed findings, conclusions, and 
order are due. Reply briefs must be strictly limited to responding to 
new matters, issues, or arguments raised in another party's papers. A 
party who has not filed proposed findings of fact and conclusions of 
law or a post-hearing brief may not file a reply brief.
    (c) Simultaneous filing required. The administrative law judge 
shall not order the filing by any party of any brief or reply brief in 
advance of the other party's filing of its brief.


Sec.  390.67  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under Sec.  
390.66(b), the administrative law judge shall file with and certify to 
the Executive Secretary, for decision, the record of the proceeding. 
The record must include the administrative law judge's recommended 
decision, recommended findings of fact, recommended conclusions of law, 
and proposed order; all prehearing and hearing transcripts, exhibits, 
and rulings; and the motions, briefs, memoranda, and other supporting 
papers filed in connection with the hearing. The administrative law 
judge shall serve upon each party the recommended decision, findings, 
conclusions, and proposed order.
    (b) Filing of index. At the same time the administrative law judge 
files with and certifies to the Board of Directors for final 
determination the record of the proceeding, the administrative law 
judge shall furnish to the Executive Secretary a certified index of the 
entire record of the proceeding. The certified index shall include, at 
a minimum, an entry for each paper, document or motion filed with the 
administrative law judge in the proceeding, the date of the filing, and 
the identity of the filer. The certified index shall also include an 
exhibit index containing, at a minimum, an entry consisting of exhibit 
number and title or description for: Each exhibit introduced and 
admitted into evidence at the hearing; each exhibit introduced but not 
admitted into evidence at the hearing; each exhibit introduced and 
admitted into evidence after the completion of the hearing; and each 
exhibit introduced but not admitted into evidence after the completion 
of the hearing.


Sec.  390.68  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec.  390.67, a party may file with the Executive Secretary written 
exceptions to the administrative law judge's recommended decision, 
findings, conclusions or proposed order, to the admission or exclusion 
of evidence, or to the failure of the administrative law judge to make 
a ruling proposed by a party. A supporting brief may be filed at the 
time the exceptions are filed, either as part of the same document or 
in a separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Board of Directors if 
the party taking exception had an opportunity to raise the same 
objection, issue, or argument before the administrative law judge and 
failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in, or omissions 
from, the administrative law judge's recommendations to which that 
party takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
administrative law judge's recommendations to which exception is taken, 
the page or paragraph references to those portions of the record relied 
upon to support each exception, and the legal authority relied upon to 
support each exception.


Sec.  390.69  Review by the Board of Directors.

    (a) Notice of submission to the Board of Directors. When the 
Executive Secretary determines that the record in the proceeding is 
complete, the Board of Directors shall serve notice upon the parties 
that the proceeding has been submitted to the Board of Directors for 
final decision.
    (b) Oral argument before the Board of Directors. Upon the 
initiative of the Board of Directors or on the written request of any 
party filed with the Executive Secretary within the time for filing 
exceptions, the Board of Directors may order and hear oral argument on 
the recommended findings, conclusions, decision, and order of the 
administrative law judge. A written request by a party must show good 
cause for oral argument and state reasons why arguments cannot be 
presented adequately in writing. A denial of a request for oral 
argument may be set forth in the Board of Director's final decision. 
Oral argument before the Board of Directors must be on the record.
    (c) Board of Director's final decision. (1) Decisional employees 
may advise and assist the Board of Directors in the consideration and 
disposition of the case. The final decision of the Board of Directors 
will be based upon review of the entire record of the proceeding, 
except that the director may limit the issues to be reviewed to those 
findings and conclusions to which opposing arguments or exceptions have 
been filed by the parties.
    (2) The Board of Directors shall render a final decision within 90 
days after notification of the parties that the case has been submitted 
for final decision, or 90 days after oral argument, whichever is later, 
unless the Board of Directors orders that the action or any aspect 
thereof be remanded to the administrative law judge for further 
proceedings. Copies of the final decision and order of the Board of 
Directors shall be served upon each party to the proceeding, upon other 
persons required by statute, and, if directed by the Board of Directors 
or required by statute, upon any appropriate state or Federal 
supervisory authority.


Sec.  390.70  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision

[[Page 47681]]

and order of the FDIC may not, unless specifically ordered by the Board 
of Directors or a reviewing court, operate as a stay of any order 
issued by the Board of Directors. The Board of Directors may, in its 
discretion, and on such terms as it finds just, stay the effectiveness 
of all or any part of its order pending a final decision on a petition 
for review of the order.


Sec.  390.71  Scope.

    The rules and procedures in Sec. Sec.  390.71 through 390.75 shall 
apply to those proceedings covered by Sec. Sec.  390.30 through 390.70. 
In addition, Sec. Sec.  390.30 through 390.75 shall apply to 
adjudicatory proceedings for which hearings on the record are provided 
for by the following statutory provisions:
    (a) Proceedings under section 10(a)(2)(D) of the HOLA (12 U.S.C. 
1467a(a)(2)(D)) to determine whether any person directly or indirectly 
exercises a controlling influence over the management or policies of a 
State savings association or any other company;
    (b) [Reserved]; and
    (c) Proceedings under section 15(c)(4) of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78o(c)(4)) (Exchange Act) to determine 
whether any association or person subject to the jurisdiction of the 
FDIC pursuant to section 12(i) of the Exchange Act (15 U.S.C. 78l(i)) 
has failed to comply with the provisions of sections 12, 13, 14(a), 
14(c), 14(d) or 14(f) of the Exchange Act.


Sec.  390.72  Appointment of Office of Financial Institution 
Adjudication.

    Unless otherwise directed by the FDIC, all hearings under sections 
390.30-390.75 shall be conducted by administrative law judges under the 
direction of the Office of Financial Institution Adjudication, 1700 G 
Street, NW., Washington, DC 20552.


Sec.  390.73  Discovery.

    (a) In general. A party may take the deposition of an expert, or of 
a person, including another party, who has direct knowledge of matters 
that are non-privileged, relevant and material to the proceeding and 
where there is a need for the deposition. The deposition of experts 
shall be limited to those experts who are expected to testify at the 
hearing.
    (b) Notice. A party desiring to take a deposition shall give 
reasonable notice in writing to the deponent and to every other party 
to the proceeding. The notice must state the time and place for taking 
the deposition and the name and address of the person to be deposed.
    (c) Time limits. A party may take depositions at any time after the 
commencement of the proceeding, but no later than ten days before the 
scheduled hearing date, except with permission of the administrative 
law judge for good cause shown.
    (d) Conduct of the deposition. The witness must be duly sworn, and 
each party shall have the right to examine the witness with respect to 
all non-privileged, relevant and material matters of which the witness 
has factual, direct and personal knowledge. Objections to questions or 
exhibits shall be in short form, stating the grounds for objection. 
Failure to object to questions or exhibits is not a waiver except where 
the grounds for the objection might have been avoided if the objection 
had been timely presented. The court reporter shall transcribe or 
otherwise record the witness's testimony, as agreed among the parties.
    (e) Protective orders. At any time after notice of a deposition has 
been given, a party may file a motion for the issuance of a protective 
order. Such protective order may prohibit, terminate, or limit the 
scope or manner of the taking of a deposition. The administrative law 
judge shall grant such protective order upon a showing of sufficient 
grounds, including that the deposition:
    (1) Is unreasonable, oppressive, excessive in scope, or unduly 
burdensome;
    (2) Involves privileged, investigative, trial preparation, 
irrelevant or immaterial matters; or
    (3) Is being conducted in bad faith or in such manner as to 
unreasonably annoy, embarrass, or oppress the deponent.
    (f) Fees. Deposition witnesses, including expert witnesses, shall 
be paid the same expenses in the same manner as are paid witnesses in 
the district courts of the United States in proceedings in which the 
United States Government is a party. Expenses in accordance with this 
paragraph shall be paid by the party seeking to take the deposition.
    (g) Deposition subpoenas. (1) Issuance. At the request of a party, 
the administrative law judge shall issue a subpoena requiring the 
attendance of a witness at a deposition. The attendance of a witness 
may be required from any place in any state or territory that is 
subject to the jurisdiction of the United States or as otherwise 
permitted by law.
    (2) Service. The party requesting the subpoena must serve it on the 
person named therein or upon that person's counsel, by any of the 
methods identified in Sec.  390.40(d). The party serving the subpoena 
must file proof of service with the administrative law judge.
    (3) Motion to quash. A person named in the subpoena or a party may 
file a motion to quash or modify the subpoena. A statement of the 
reasons for the motion must accompany it and a copy of the motion must 
be served on the party that requested the subpoena. The motion must be 
made prior to the time for compliance specified in the subpoena and not 
more than ten days after the date of service of the subpoena, or if the 
subpoena is served within 15 days of the hearing, within five days 
after the date of service.
    (4) Enforcement of deposition subpoena. Enforcement of a deposition 
subpoena shall be in accordance with the procedures of Sec.  390.56(d).


Sec.  390.74  Civil money penalties.

    (a) Assessment. In the event of consent, or if upon the record 
developed at the hearing the Board of Directors finds that any of the 
grounds specified in the notice issued pursuant to Sec.  390.47 have 
been established, the Executive Secretary may serve an order of 
assessment of civil money penalty upon the party concerned. The 
assessment order shall be effective immediately upon service or upon 
such other date as may be specified therein and shall remain effective 
and enforceable until it is stayed, modified, terminated, or set aside 
by the Board of Directors or by a reviewing court.
    (b) Payment. (1) Civil penalties assessed pursuant to Sec. Sec.  
390.30 through 390.75 are payable and to be collected within 60 days 
after the issuance of the notice of assessment, unless the Board of 
Directors fixes a different time for payment where it determines that 
the purpose of the civil money penalty would be better served thereby; 
however, if a party has made a timely request for a hearing to 
challenge the assessment of the penalty, the party may not be required 
to pay such penalty until the Board of Directors has issued a final 
order of assessment following the hearing. In such instances, the 
penalty shall be paid within 60 days of service of such order unless 
the Board of Directors fixes a different time for payment. 
Notwithstanding the foregoing, the FDIC may seek to attach the party's 
assets or to have a receiver appointed to secure payment of the 
potential civil money penalty or other obligation in advance of the 
hearing in accordance with section 8(i)(4) of the FDIA (12 U.S.C. 
1818(i)(4)).
    (2) [Reserved].
    (c) Inflation adjustment. Under the Federal Civil Monetary 
Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), FDIC 
must adjust for inflation the civil money penalties in

[[Page 47682]]

statutes that it administers. The following chart displays the adjusted 
civil money penalties. The amounts in this chart apply to violations 
that occur after October 27, 2008:

----------------------------------------------------------------------------------------------------------------
                                                                                                     New maximum
               U.S. Code citation                                 CMP description                      amount
----------------------------------------------------------------------------------------------------------------
12 U.S.C. 1464(v)(4)...........................  Reports of Condition--1st Tier...................        $2,200
12 U.S.C. 1464(v)(5)...........................  Reports of Condition--2nd Tier...................        32,500
12 U.S.C. 1464(v)(6)...........................  Reports of Condition--3rd Tier...................     1,375,000
12 U.S.C. 1467(d)..............................  Refusal to Cooperate in Exam.....................         7,500
12 U.S.C. 1467a(i)(2)..........................  Holding Company Act Violation....................        32,500
12 U.S.C. 1467a(i)(3)..........................  Holding Company Act Violation....................        32,500
12 U.S.C. 1467a(r)(1)..........................  Late/Inaccurate Reports--1st Tier................         2,200
12 U.S.C. 1467a(r)(2)..........................  Late/Inaccurate Reports--2nd Tier................        32,500
12 U.S.C. 1467a(r)(3)..........................  Late/Inaccurate Reports--3rd Tier................     1,375,000
12 U.S.C. 1817(j)(16)(A).......................  Change in Control--1st Tier......................         7,500
12 U.S.C. 1817(j)(16)(B).......................  Change in Control--2nd Tier......................        37,500
12 U.S.C. 1817(j)(16)(C).......................  Change in Control--3rd Tier......................     1,375,000
12 U.S.C. 1818(i)(2)(A)........................  Violation of Law or Unsafe or Unsound Practice--          7,500
                                                  1st Tier.
12 U.S.C. 1818(i)(2)(B)........................  Violation of Law or Unsafe or Unsound Practice--         37,500
                                                  2nd Tier.
12 U.S.C. 1818(i)(2)(C)........................  Violation of Law or Unsafe or Unsound Practice--      1,375,000
                                                  3rd Tier.
12 U.S.C. 1820(k)(6)(A)(ii)....................  Violation of Post Employment Restrictions........       275,000
12 U.S.C. 1884.................................  Violation of Security Rules......................           110
12 U.S.C. 3349(b)..............................  Appraisals Violation--1st Tier...................         7,500
12 U.S.C. 3349(b)..............................  Appraisals Violation--2nd Tier...................        37,500
12 U.S.C. 3349(b)..............................  Appraisals Violation--3rd Tier...................     1,375,000
42 U.S.C. 4012a(f).............................  Flood Insurance..................................       \1\ 385
                                                                                                     \2\ 135,000
----------------------------------------------------------------------------------------------------------------
\1\ Per day.
\2\ Per year.

Sec.  390.75  Additional procedures.

    (a) Replies to exceptions. Replies to written exceptions to the 
administrative law judge's recommended decision, findings, conclusions 
or proposed order pursuant to Sec.  390.68 shall be filed within 10 
days of the date such written exceptions were required to be filed.
    (b) Motions. All motions shall be filed with the administrative law 
judge and an additional copy shall be filed with the Executive 
Secretary, who receives adjudicatory filings; provided, however, that 
once the administrative law judge has certified the record to the 
Executive Secretary pursuant to Sec.  390.67, all motions must be filed 
with the Board of Directors, to the attention of the Executive 
Secretary, within the 10-day period following the filing of exceptions 
allowed for the filing of replies to exceptions. Responses to such 
motions filed in a timely manner with the Board of Directors, other 
than motions for oral argument before the Board of Directors, shall be 
allowed pursuant to the procedures at Sec.  390.52(d). No response is 
required for the Board of Directors to make a determination on a motion 
for oral argument.
    (c) Authority of administrative law judge. In addition to the 
powers listed in Sec.  390.34, the administrative law judge shall have 
the authority to deny any dispositive motion and shall follow the 
procedures set forth for motions for summary disposition at Sec.  
390.58 and partial summary disposition at Sec.  390.59 in making 
determinations on such motions.
    (d) Notification of submission of proceeding to the Board of 
Directors. Upon the expiration of the time for filing any exceptions, 
any replies to such exceptions or any motions and any ruling thereon, 
and after receipt of certified record, the Executive Secretary shall 
notify the parties within ten days of the submission of the proceeding 
to the Board of Directors for final determination.
    (e) Extensions of time for final determination. The Board of 
Directors may, sua sponte, extend the time for final determination by 
signing an order of extension of time within the 90 day time period and 
notifying the parties of such extension thereafter.
    (f) Service upon the FDIC. Service of any document upon the FDIC 
shall be made by filing with the Executive Secretary, in addition to 
the individuals and/or offices designated by the FDIC in its Notice 
issued pursuant to Sec.  390.47, or such other means reasonably suited 
to provide notice of the person and/or office designated to receive 
filings.
    (g) Filings with the Board of Directors. An additional copy of all 
materials required or permitted to be filed with or referred to the 
administrative law judge pursuant to this subpart shall be filed with 
the Executive Secretary. This rule shall not apply to the transcript of 
testimony and exhibits adduced at the hearing or to proposed exhibits 
submitted in advance of the hearing pursuant to an order of the 
administrative law judge under Sec.  390.61. Materials required or 
permitted to be filed with or referred to the Board of Directors 
pursuant to this part shall be filed with the Executive Secretary, to 
the attention of the Board of Directors.
    (h) Presence of cameras and other recording devices. The use of 
cameras and other recording devices, other than those used by the court 
reporter, shall be prohibited and excluded from the proceedings.

Subpart D--Rules for Investigative Proceedings and Formal 
Examination Proceedings


Sec.  390.80  Scope of subpart.

    This subpart prescribes rules of practice and procedure applicable 
to the conduct of investigative proceedings under section 7(j)(15) of 
the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) 
(``FDIA''), section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 
10(c) of the FDIA, 12 U.S.C. 1820(c). This subpart does not apply to 
adjudicatory proceedings as to which hearings are required by statute, 
the rules for which are contained in subpart C.


Sec.  390.81  Definitions.

    As used in this subpart:

[[Page 47683]]

    Board of Directors means the Board of Directors of the Federal 
Deposit Insurance Corporation or its designee;
    Designated representative means the person or persons empowered by 
the Board of Directors to conduct an investigative proceeding or a 
formal examination proceeding;
    FDIC means the Federal Deposit Insurance Corporation;
    Formal examination proceeding means the administration of oaths and 
affirmations, taking and preserving of testimony, requiring the 
production of books, papers, correspondence, memoranda, and all other 
records, the issuance of subpoenas, and all related activities in 
connection with examination of State savings associations and their 
affiliates conducted pursuant to section 7(j)(15) of the FDIA, section 
8(n) of the FDIA or section 10(c) of the FDIA;
    General Counsel means the General Counsel of the Federal Deposit 
Insurance Corporation; and
    Investigative proceeding means an investigation conducted under 
section 10(c) of the FDIA.


Sec.  390.82  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the FDIC, all investigative proceedings shall also 
be private. Unless otherwise ordered or permitted by the FDIC, or 
required by law, and except as provided in Sec. Sec.  390.83 and 
390.84, the entire record of any investigative proceeding or formal 
examination proceeding, including the order initiating the proceeding, 
the transcript of such proceeding, and all documents and information 
obtained by the designated representative(s) during the course of said 
proceedings shall be confidential.


Sec.  390.83  Transcripts.

    Transcripts or other recordings, if any, of investigative 
proceedings or formal examination proceedings shall be prepared solely 
by an official reporter or by any other person or means authorized by 
the designated representative. A person who has submitted documentary 
evidence or given testimony in an investigative proceeding or formal 
examination proceeding may procure a copy of his own documentary 
evidence or transcript of his own testimony upon payment of the cost 
thereof; provided, that a person seeking a transcript of his own 
testimony must file a written request with the designated 
representative stating the reason he desires to procure such 
transcript, and said persons may for good cause deny such request. In 
any event, any witness (or his counsel) shall have the right to inspect 
the transcript of the witness' own testimony.


Sec.  390.84  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish documentary 
evidence or give testimony at an investigative proceeding or formal 
examination proceeding shall have the right to examine, upon request, 
the order authorizing such proceeding. Copies of such resolution shall 
be furnished, for their retention, to such persons only with the 
written approval of the designated representative.
    (b) Any witness at an investigative proceeding or formal 
examination proceeding may be accompanied and advised by an attorney 
personally representing that witness.
    (1) Such attorney shall be a member in good standing of the bar of 
the highest court of any state, Commonwealth, possession, territory, or 
the District of Columbia, who has not been suspended or debarred from 
practice by the bar of any such political entity or before the FDIC in 
accordance with the provisions of subpart E and has not been excluded 
from the particular investigative proceeding or formal examination 
proceeding in accordance with paragraph (b)(3) of this section.
    (2) Such attorney may advise the witness before, during, and after 
the taking of his testimony and may briefly question the witness, on 
the record, at the conclusion of his testimony, for the sole purpose of 
clarifying any of the answers the witness has given. During the taking 
of the testimony of a witness, such attorney may make summary notes 
solely for his use in representing his client. All witnesses shall be 
sequestered, and, unless permitted in the discretion of the designated 
representative, no witness or accompanying attorney may be permitted to 
be present during the taking of testimony of any other witness called 
in such proceeding. Neither attorney(s) for the association(s) that are 
the subjects of the investigative proceedings or formal examination 
proceedings, nor attorneys for any other interested persons, shall have 
any right to be present during the testimony of any witness not 
personally being represented by such attorney.
    (3) The Board of Directors, for good cause, may exclude a 
particular attorney from further participation in any investigation in 
which the Board of Directors has found the attorney to have engaged in 
dilatory, obstructionist, egregious, contemptuous or contumacious 
conduct. The person conducting an investigation may report to the Board 
of Directors instances of apparently dilatory, obstructionist, 
egregious, contemptuous or contumacious conduct on the part of an 
attorney. After due notice to the attorney, the FDIC may take such 
action as the circumstances warrant based upon a written record 
evidencing the conduct of the attorney in that investigation or such 
other or additional written or oral presentation as the Board of 
Directors may permit or direct.


Sec.  390.85  Obstruction of the proceedings.

    The designated representative shall report to the Board of 
Directors any instances where any witness or counsel has engaged in 
dilatory, obstructionist, or contumacious conduct or has otherwise 
violated any provision of this part during the course of an 
investigative proceeding or formal examination proceeding; and the 
Board of Directors may take such action as the circumstances warrant, 
including the exclusion of counsel from further participation in such 
proceeding.


Sec.  390.86  Subpoenas.

    (a) Service. Service of a subpoena in connection with any 
investigative proceeding or formal examination proceeding shall be 
effected in the following manner:
    (1) Service upon a natural person. Service of a subpoena upon a 
natural person may be effected by handing it to such person; by leaving 
it at his office with the person in charge thereof, or, if there is no 
one in charge, by leaving it in a conspicuous place therein; by leaving 
it at his dwelling place or usual place of abode with some person of 
suitable age and discretion then residing therein; by mailing it to him 
by registered or certified mail or by an express delivery service at 
his last known address; or by any method whereby actual notice is given 
to him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, service of the subpoena may be effected by handing 
the subpoena to a registered agent for service, or to any officer, 
director, or agent in charge of any office of such person; by mailing 
it to any such representative by registered or certified mail or by an 
express delivery service at his last known address; or by any method 
whereby actual notice is given to such person.
    (b) Motions to quash. Any person to whom a subpoena is directed 
may, prior to the time specified therein for compliance, but in no 
event more than 10 days after the date of service of such subpoena, 
apply to the General Counsel or his designee to quash or modify such 
subpoena, accompanying such

[[Page 47684]]

application with a statement of the reasons therefor. The General 
Counsel or his designee, as appropriate, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
General Counsel or his designee determines to be just, reasonable, and 
proper.
    (c) Attendance of witnesses. Subpoenas issued in connection with an 
investigative proceeding or formal examination proceeding may require 
the attendance and/or testimony of witnesses from any State or 
territory of the United States and the production by such witnesses of 
documentary or other tangible evidence at any designated place where 
the proceeding is being (or is to be) conducted. Foreign nationals are 
subject to such subpoenas if such service is made upon a duly 
authorized agent located in the United States.
    (d) Witness fees and mileage. Witnesses summoned in any proceeding 
under this part shall be paid the same fees and mileage that are paid 
witnesses in the district courts of the United States. Such fees and 
mileage need not be tendered when the subpoena is issued on behalf of 
the FDIC by any of its designated representatives.

Subpart E--Practice Before the FDIC


Sec.  390.90  Scope of subpart.

    This subpart prescribes rules with regard to general practice 
before the FDIC on one's own behalf or in a representative capacity and 
prescribes rules describing the circumstances under which attorneys, 
accountants, appraisers, or other persons may be suspended or debarred, 
either temporarily or permanently, from practicing before the FDIC. In 
connection with any particular matter, reference also should be made to 
any special requirements of procedure and practice that may be 
contained in the particular statute involved or the rules and forms 
adopted by the FDIC thereunder, which special requirements are 
controlling. In addition to any suspension hereunder, a person may be 
excluded from further participation under parts 390 and 391 from an 
adjudicatory proceeding in accordance with Sec.  390.35(a)(1), from a 
removal hearing in accordance with Sec.  390.12, or from an 
investigatory proceeding in accordance with Sec.  390.84(b)(2). 
Furthermore, no person who has been suspended or debarred from practice 
before the FDIC in accordance with the provisions of this subpart may 
submit to the FDIC, either directly or on behalf of an interested 
party, any written documents or petitions otherwise permitted under the 
Administrative Procedure Act.


Sec.  390.91  Definitions.

    As used in this subpart:
    Attorney means any person who is a member in good standing of the 
bar of the highest court of any State, possession, territory, 
Commonwealth or the District of Columbia;
    Executive Secretary means the Executive Secretary of the FDIC;
    FDIC means the Federal Deposit Insurance Corporation;
    OTS means the Office of Thrift Supervision;
    Practice means transacting any business with the FDIC, including:
    (1) The representation of another person at any adjudicatory, 
investigatory, removal or rulemaking proceeding conducted before the 
FDIC, a presiding officer or the FDIC's staff, including those 
proceedings covered in subparts B, C, and D;
    (2) The preparation of any statement, opinion, financial statement, 
appraisal report, audit report, or other document or report by any 
attorney, accountant, appraiser or other licensed expert which is filed 
with or submitted to the FDIC, with such expert's consent or knowledge 
in connection with any application or other filing with the FDIC;
    (3) A presentation to the FDIC, a presiding officer or the FDIC's 
staff at a conference or meeting relating to an association's or other 
person's rights, privileges or liabilities under the laws administered 
by the FDIC and rules and regulations promulgated thereunder;
    (4) Any business correspondence or communication with the FDIC, a 
presiding officer or the FDIC's staff;
    (5) The transaction of any other formal business with the FDIC on 
behalf of another, in the capacity of an attorney, accountant, 
appraiser or other licensed expert; and
    Presiding officer includes the Board of Directors or an 
administrative law judge appointed under section 3105 or detailed 
pursuant to section 3344 of title 5 of the U.S. Code and, as used in 
this subpart, the term shall be construed to refer to whichever of the 
above-identified individuals presides at a hearing or other proceeding, 
except as otherwise specified in the text.


Sec.  390.92  Who may practice.

    (a) By non-attorneys. (1) An individual may appear on his own 
behalf (pro se); a member of a partnership may represent the 
partnership; a bona fide and duly authorized officer of a corporation, 
trust or association may represent the corporation, trust or 
association; and an officer or employee of a commission, department or 
political subdivision may represent that commission, department or 
political subdivision before the FDIC.
    (2) Any accountant, appraiser or other licensed expert may practice 
before the FDIC in a professional capacity.
    (b) By attorneys. Any association or other person may be 
represented in any proceeding or other matter before the FDIC by an 
attorney.
    (c) Authority to act as representative. Any licensed expert or 
professional transacting business with the FDIC in a representative 
capacity may be required to show his authority to act in such capacity.


Sec.  390.93  Suspension and debarment.

    (a) The FDIC may censure any person practicing before it or may 
deny, temporarily or permanently, the privilege of any person to 
practice before it if such person is found by the FDIC, after notice of 
and opportunity for hearing in the matter,
    (1) Not to possess the requisite qualifications to represent 
others,
    (2) To be lacking in character or professional integrity,
    (3) To have engaged in any dilatory, obstructionist, egregious, 
contemptuous, contumacious or other unethical or improper professional 
conduct before the OTS or FDIC, or
    (4) To have willfully violated, or willfully aided and abetted the 
violation of, any provision of the laws administered by the OTS or FDIC 
or the rules and regulations promulgated thereunder.
    (b) Automatic suspension. (1) Any person who, after being licensed 
as a professional or expert by any competent authority, has been 
convicted of a felony, or of a misdemeanor involving moral turpitude, 
personal dishonesty or breach of trust, shall be suspended forthwith 
from practicing before the FDIC.
    (2) Any accountant, appraiser or other licensed expert whose 
license to practice has been revoked in any State, possession, 
territory, Commonwealth or the District of Columbia, shall be suspended 
forthwith from practice before the FDIC.
    (3) Any attorney who has been suspended or disbarred by a court of 
the United States or in any State, possession, territory, Commonwealth 
or the District of Columbia, shall be suspended forthwith from 
practicing before the FDIC.
    (4) A conviction (including a judgment or order on a plea of nolo

[[Page 47685]]

contendere), revocation, suspension or disbarment under paragraphs 
(b)(1), (b)(2) and (b)(3) of this section shall be deemed to have 
occurred when the convicting, revoking, suspending or disbarring agency 
or tribunal enters its judgment or order, regardless of whether an 
appeal is pending or could be taken.
    (5) For purposes of this part, it shall be irrelevant that any 
attorney, accountant, appraiser or other licensed expert who has been 
suspended, disbarred or otherwise disqualified from practice before a 
court or in a jurisdiction continues in professional good standing 
before other courts or in other jurisdictions.
    (c) Temporary suspension. (1) The FDIC, with due regard to the 
public interest and without preliminary hearing, by order, may 
temporarily suspend any person from appearing or practicing before it 
who, by name, has been:
    (i) Permanently enjoined (whether by consent, default or summary 
judgment or after trial) by any court of competent jurisdiction or by 
the OTS or FDIC itself in a final administrative order, by reason of 
his misconduct in any action brought by the OTS or FDIC based upon 
violations of, or aiding and abetting the violation of, the Home 
Owners' Loan Act of 1933, as amended, 12 U.S.C. 1461 et seq., the 
Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 et seq. or 
any provision of the Securities Exchange Act of 1934, as amended, 15 
U.S.C. 78a, et seq., which is administered by the FDIC, or of any rule 
or regulation promulgated thereunder; or
    (ii) Found by any court of competent jurisdiction (whether by 
consent, default, or summary judgment, or after trial) in any action 
brought by the OTS or FDIC to which he is a party or found by the OTS 
or FDIC (whether by consent, default, upon summary judgment or after 
hearing) in any administrative proceeding in which the OTS or FDIC is a 
complainant and he is a party, to have willfully committed, caused or 
aided or abetted a violation of any provision of the Home Owners' Loan 
Act of 1933, as amended, 12 U.S.C. 1461 et seq., the Federal Deposit 
Insurance Act, as amended, 12 U.S.C. 1811 et seq. or any provision of 
the Securities Exchange Act of 1934, as amended, 15 U.S.C. 78a, et 
seq., which is administered by the OTS or FDIC, or of any rule or 
regulation promulgated thereunder.
    (2) An order of temporary suspension shall become effective when 
served by certified or registered mail directed to the last known 
business or residential address of the person involved. No order of 
temporary suspension shall be entered by the FDIC pursuant to paragraph 
(c)(1) of this section more than three months after the final judgment 
or order entered in a judicial or administrative proceeding described 
in paragraphs (c)(1)(i) or (ii) of this section has become effective 
and all review or appeal procedures have been completed or are no 
longer available.
    (3) Any person temporarily suspended from appearing and practicing 
before the OTS or FDIC in accordance with paragraph (c)(1) of this 
section may, within 30 days after service upon him of the order of 
temporary suspension, petition the FDIC to lift such suspension. If no 
petition is received by the FDIC within those 30 days, the suspension 
shall become permanent.
    (4) Within 30 days after the filing of a petition in accordance 
with paragraph (c)(3) of this section, the FDIC shall either lift the 
temporary suspension or set the matter down for hearing at a time and 
place to be designated by the FDIC, or both. After opportunity for 
hearing, the FDIC may censure the petitioner or may suspend the 
petitioner from appearing or practicing before the FDIC temporarily or 
permanently. In every case in which the temporary suspension has not 
been lifted, the hearing and any other action taken pursuant to this 
paragraph (c)(4) shall be expedited by the FDIC in order to ensure the 
petitioner's right to address the allegations against him.
    (5) In any hearing held on a petition filed in accordance with 
paragraph (c)(3) of this section, a showing that the petitioner has 
been enjoined or has been found to have committed, caused or aided or 
abetted violations as described in paragraph (c)(1) of this section, 
without more, may be a basis for suspension or debarment; that showing 
having been made, the burden shall then be on the petitioner to show 
why he should not be censured or be temporarily or permanently 
suspended or debarred. A petitioner will not be permitted to contest 
any findings against him or any admissions made by him in the judicial 
or administrative proceedings upon which the proposed censure, 
suspension or debarment is based. A petitioner who has consented to the 
entry of a permanent injunction or order as described in paragraph 
(c)(1)(i) of this section, without admitting the facts set forth in the 
complaint, shall nevertheless be presumed for all purposes under this 
section to have been enjoined or ordered by reason of the misconduct 
alleged in the complaint.


Sec.  390.94  Reinstatement.

    (a) Any person who is suspended from practicing before the OTS or 
FDIC under Sec.  390.93(a) or (c) of may file an application for 
reinstatement at any time. Denial of the privilege of practicing before 
the FDIC shall continue unless and until the applicant has been 
reinstated by order of the FDIC for good cause shown.
    (b) Any person suspended under paragraph Sec.  390.93(b) shall be 
reinstated by the FDIC, upon appropriate application, if all of the 
grounds for application of the provisions of Sec.  390.93(b) 
subsequently are removed by a reversal of the conviction or termination 
of the suspension, disbarment or revocation. An application for 
reinstatement on any other grounds by any person suspended under Sec.  
390.93(b) may be filed at any time. Such application shall state with 
particularity the relief desired and the grounds therefor and shall 
include supporting evidence, when available. The applicant shall be 
accorded an opportunity for an informal hearing in the matter, unless 
the applicant has waived a hearing in the application and, instead, has 
elected to have the matter determined on the basis of written 
submissions. Such hearing shall utilize the procedures established in 
Sec. Sec.  390.12 and 390.16(a). However, such suspension shall 
continue unless and until the applicant has been reinstated by order of 
the FDIC for good cause shown.


Sec.  390.95  Duty to file information concerning adverse judicial or 
administrative action.

    Any person appearing or practicing before the FDIC who has been or 
is the subject of a conviction, suspension, debarment, license 
revocation, injunction or other finding of the kind described in Sec.  
390.93(b) or (c) in an action not instituted by the OTS or FDIC shall 
promptly file a copy of the relevant order, judgment or decree with the 
Executive Secretary together with any related opinion or statement of 
the agency or tribunal involved. Any person who fails to so file a copy 
of the order, judgment or decree within 30 days after the entry of the 
order, judgment or decree, or the date such person initiates practice 
before the FDIC, for that reason alone may be disqualified from 
practicing before the FDIC until such time as the appropriate filing 
shall be made, but neither the filing of these documents nor the 
failure of a person to file them shall in any way impair the operation 
of any other provision of this subpart.

[[Page 47686]]

Sec.  390.96  Proceeding under this subpart.

    (a) All hearings required or permitted to be held under Sec.  
390.93(a) and (c) of this subpart shall be held before a presiding 
officer utilizing the procedures established in the rules of practice 
and procedure in adjudicatory proceedings under subpart C of this part.
    (b) All hearings held under this subpart shall be closed to the 
public unless the FDIC on its own motion or upon the request of a party 
otherwise directs.
    (c) Any proceeding brought under any section of this subpart shall 
not preclude a proceeding under any other section of this subpart or 
any other part of the FDIC's regulations.


Sec.  390.97  Removal, suspension, or debarment of independent public 
accountants and accounting firms performing audit services.

    (a) Scope. This subpart, which implements section 36(g)(4) of the 
Federal Deposit Insurance Act (FDIA), (12 U.S.C. 1831m(g)(4)), provides 
rules and procedures for the removal, suspension, or debarment of 
independent public accountants and their accounting firms from 
performing independent audit and attestation services required by 
section 36 of the FDIA for insured State savings associations.
    (b) Definitions. As used in this section, the following terms have 
the meaning given below unless the context requires otherwise:
    Accounting firm. The term accounting firm means a corporation, 
proprietorship, partnership, or other business firm providing audit 
services.
    Audit services. The term audit services means any service required 
to be performed by an independent public accountant by section 36 of 
the FDIA and part 363, including attestation services. Audit services 
include any service performed with respect to a savings and loan 
holding company of a State savings association that is used to satisfy 
requirements imposed by section 36 of the FDIA or part 363 on that 
State savings association.
    Independent public accountant. The term independent public 
accountant means any individual who performs or participates in 
providing audit services.
    (c) Removal, suspension, or debarment of independent public 
accountants. The FDIC may remove, suspend, or debar an independent 
public accountant from performing audit services for State savings 
associations that are subject to section 36 of the FDIA if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the FDIC finds that the independent public accountant:
    (1) Lacks the requisite qualifications to perform audit services;
    (2) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
independent public accountants through the Sarbanes-Oxley Act of 2002, 
Public Law 107-204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and 
developed by the Public Company Accounting Oversight Board and the 
Securities and Exchange Commission;
    (3) Has engaged in negligent conduct in the form of:
    (i) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an independent public accountant knows, or should know, that 
heightened scrutiny is warranted; or
    (ii) Repeated instances of unreasonable conduct, each resulting in 
a violation of applicable professional standards, that indicate a lack 
of competence to perform audit services;
    (4) Has knowingly or recklessly given false or misleading 
information or knowingly or recklessly participated in any way in the 
giving of false or misleading information to the FDIC or any officer or 
employee of the FDIC;
    (5) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (6) Has been removed, suspended, or debarred from practice before 
any federal or state agency regulating the banking, insurance, or 
securities industries, other than by action listed in paragraph (j) of 
this section, on grounds relevant to the provision of audit services; 
or
    (7) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (d) Removal, suspension or debarment of an accounting firm. If the 
FDIC determines that there is good cause for the removal, suspension, 
or debarment of a member or employee of an accounting firm under 
paragraph (c) of this section, the FDIC also may remove, suspend, or 
debar such firm or one or more offices of such firm. In considering 
whether to remove, suspend, or debar an accounting firm or office 
thereof, and the term of any sanction against an accounting firm under 
this section, the FDIC may consider, for example:
    (1) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (2) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (3) The selection, training, supervision, and conduct of members or 
employees of the accounting firm involved in the performance of audit 
services;
    (4) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly or indirectly through 
oversight or review, in the act or failure to act; and
    (5) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (e) Remedies. The remedies provided in this section are in addition 
to any other remedies the FDIC may have under any other applicable 
provisions of law, rule, or regulation.
    (f) Proceedings to remove, suspend, or debar. (1) The FDIC may 
initiate a proceeding to remove, suspend, or debar an independent 
public accountant or accounting firm from performing audit services by 
issuing a written notice of intention to take such action that names 
the individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) An independent public accountant or accounting firm named as a 
respondent in the notice issued under paragraph (f)(1) of this section 
may request a hearing on the allegations in the notice. Hearings 
conducted under this paragraph shall be conducted in the same manner as 
other hearings under the Uniform Rules of Practice and Procedure 
contained in subpart C.
    (g) Immediate suspension from performing audit services. (1) If the 
FDIC serves written notice of intention to remove, suspend, or debar an 
independent public accountant or accounting firm from performing audit 
services, the FDIC may, with due regard for the public interest and 
without preliminary hearing, immediately suspend an independent public 
accountant or accounting firm from performing audit services for 
savings associations, if the FDIC:
    (i) Has a reasonable basis to believe that the independent public 
accountant or accounting firm engaged in conduct

[[Page 47687]]

(specified in the notice served upon the independent public accountant 
or accounting firm under paragraph (f) of this section) that would 
constitute grounds for removal, suspension, or debarment under 
paragraph (c) or (d) of this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors 
or to the depository system as a whole; and
    (iii) Serves such independent public accountant or accounting firm 
with written notice of the immediate suspension.
    (2) An immediate suspension notice issued under this paragraph will 
become effective upon service. Such suspension will remain in effect 
until the date the FDIC dismisses the charges contained in the notice 
of intention, or the effective date of a final order of removal, 
suspension, or debarment issued by the FDIC to the independent public 
accountant or accounting firm.
    (h) Petition to stay. (1) Any independent public accountant or 
accounting firm immediately suspended from performing audit services in 
accordance with paragraph (g) of this section may, within 10 calendar 
days after service of the notice of immediate suspension, file a 
petition with the FDIC for a stay of such suspension. If no petition is 
filed within 10 calendar days, the immediate suspension shall remain in 
effect.
    (2) Upon receipt of a stay petition, the FDIC will designate a 
presiding officer who shall fix a place and time (not more than 10 
calendar days after receipt of such petition, unless extended at the 
request of the petitioner), at which the immediately suspended party 
may appear, personally or through counsel, to submit written materials 
and oral argument. Any FDIC employee engaged in investigative or 
prosecuting functions for the FDIC in a case may not, in that or a 
factually related case, serve as a presiding officer or participate or 
advise in the decision of the presiding officer or of the FDIC, except 
as witness or counsel in the proceeding. In the sole discretion of the 
presiding officer, upon a specific showing of compelling need, oral 
testimony of witnesses may also be presented. In hearings held pursuant 
to this paragraph, there will be no discovery and the provisions of 
Sec. Sec.  390.35 through 390.41, 390.45, and 390.50 of the Uniform 
Rules will apply.
    (3) Within 30 calendar days after the hearing, the presiding 
officer shall issue a decision. The presiding officer will grant a stay 
upon a demonstration that a substantial likelihood exists of the 
respondent's success on the issues raised by the notice of intention 
and that, absent such relief, the respondent will suffer immediate and 
irreparable injury, loss, or damage. In the absence of such a 
demonstration, the presiding officer will notify the parties that the 
immediate suspension will be continued pending the completion of the 
administrative proceedings pursuant to the notice.
    (4) The parties may seek review of the presiding officer's decision 
by filing a petition for review with the presiding officer within 10 
calendar days after service of the decision. Replies must be filed 
within 10 calendar days after the petition filing date. Upon receipt of 
a petition for review and any reply, the presiding officer must 
promptly certify the entire record to the Board of Directors. Within 60 
calendar days of the presiding officer's certification, the Board of 
Directors shall issue an order notifying the affected party whether or 
not the immediate suspension should be continued or reinstated. The 
order shall state the basis of the Board of Director's decision.
    (i) Scope of any order of removal, suspension, or debarment. (1) 
Except as provided in paragraph (i)(2) of this section, any independent 
public accountant or accounting firm that has been removed, suspended 
(including an immediate suspension), or debarred from performing audit 
services by the FDIC may not, while such order is in effect, perform 
audit services for any State savings association.
    (2) An order of removal, suspension (including an immediate 
suspension), or debarment may, at the discretion of the FDIC, be made 
applicable to a limited number of State savings associations. (limited 
scope order).
    (j) Automatic removal, suspension, and debarment. (1) An 
independent public accountant or accounting firm may not perform audit 
services for a State savings association if the independent public 
accountant or accounting firm:
    (i) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Comptroller of the 
Currency, or the FDIC under section 36 of the FDIA;
    (ii) Is subject to a temporary suspension or permanent revocation 
of registration or a temporary or permanent suspension or bar from 
further association with any registered public accounting firm issued 
by the Public Company Accounting Oversight Board or the Securities and 
Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (iii) Is subject to an order of suspension or denial of the 
privilege of appearing or practicing before the Securities and Exchange 
Commission.
    (2) Upon written request, the FDIC, for good cause shown, may grant 
written permission to an independent public accountant or accounting 
firm to perform audit services for State savings associations. The 
request must contain a concise statement of action requested. The FDIC 
may require the applicant to submit additional information.
    (k) Notice of removal, suspension, or debarment. (1) Upon issuance 
of a final order for removal, suspension, or debarment of an 
independent public accountant or accounting firm from providing audit 
services, the FDIC shall make the order publicly available and provide 
notice of the order to the other Federal banking agencies.
    (2) An independent public accountant or accounting firm that 
provides audit services to a State savings association must provide the 
FDIC with written notice of:
    (i) Any currently effective order or other action described in 
paragraphs (c)(6) through (c)(7) or paragraphs (j)(1)(ii) through (iii) 
of this section; and
    (ii) Any currently effective action by the Public Company 
Accounting Oversight Board under sections 105(c)(4)(C) or (G) of the 
Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (3) Written notice required by this paragraph shall be given no 
later than 15 calendar days following the effective date of an order or 
action or 15 calendar days before an independent public accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.
    (l) Application for reinstatement. (1) Unless otherwise ordered by 
the FDIC, an independent public accountant, accounting firm, or office 
of a firm that was removed, suspended or debarred under this section 
may apply for reinstatement in writing at any time. The request shall 
contain a concise statement of action requested. The FDIC may require 
the applicant to submit additional information.
    (2) An applicant for reinstatement under paragraph (l)(1) of this 
section may, in the FDIC's sole discretion, be afforded a hearing. The 
independent public accountant or accounting firm shall bear the burden 
of going forward with an application and the burden of proving the 
grounds supporting the application. The FDIC may, in its sole 
discretion, direct that any reinstatement proceeding be limited to 
written submissions. The removal, suspension,

[[Page 47688]]

or debarment shall continue until the FDIC, for good cause shown, has 
reinstated the applicant or until, in the case of a suspension, the 
suspension period has expired. The filing of a petition for 
reinstatement shall not stay the effectiveness of the removal, 
suspension, or debarment of an independent public accountant or 
accounting firm.

Subpart F--Application Processing Procedures


Sec.  390.100  What does this subpart do?

    (a) This subpart explains the FDIC's procedures for processing 
applications, notices, or filings (applications) under parts 390 and 
391 for State savings associations. Except as provided in paragraph (b) 
of this section, Sec. Sec.  390.103 through 390.110 and Sec. Sec.  
390.126 through 390.135 apply whenever an FDIC regulation requires any 
person (you) to file an application with the FDIC. Sections 390.111 
through 390.125, however, only apply when a FDIC regulation 
incorporates the procedures in those sections or where otherwise 
required by the FDIC.
    (b) This subpart does not apply to any of the following:
    (1) An application related to a transaction under section 13(c) or 
(k) of the Federal Deposit Insurance Act, 12 U.S.C. 1823(c) or (k).
    (2) A request for reconsideration, modification, or appeal of a 
final FDIC action.
    (3) A request related to litigation, an enforcement proceeding, a 
supervisory directive or supervisory agreement. Such requests include a 
request seeking approval under, modification of, or termination of an 
order issued under subparts C or D, a supervisory agreement, a 
supervisory directive, a consent merger agreement or a document 
negotiated in settlement of an enforcement matter or other litigation, 
unless an applicable FDIC regulation specifically requires an 
application under this subpart.
    (4) An application filed under a FDIC regulation that prescribes 
other application processing procedures and time frames for the 
approval of applications.
    (c) If a FDIC regulation for a specific type of application 
prescribes some application processing procedures, or time frames, the 
FDIC will apply this subpart to the extent necessary to process the 
application. For example, if a FDIC regulation for a specific type of 
application does not identify time periods for the processing of an 
application, the time periods in this subpart apply.


Sec.  390.101  Do the same procedures apply to all applications under 
this subpart?

    The FDIC processes applications for State savings associations 
under this subpart using two procedures, expedited treatment and 
standard treatment. To determine which treatment applies, you may use 
the following chart:

------------------------------------------------------------------------
                                             Then the FDIC will process
                 If . . .                   your application under . . .
------------------------------------------------------------------------
(a) The applicable regulation does not      Standard treatment.
 specifically state that expedited
 treatment is available.
(b) You are not a State savings             Standard treatment.
 association.
(c) Your composite rating is 3, 4, or 5.    Standard treatment.
 The composite rating is the composite
 numeric rating that the FDIC or the other
 federal banking regulator assigned to you
 under the Uniform Financial Institutions
 Rating System or under a comparable
 rating system. The composite rating
 refers to the rating assigned and
 provided to you, in writing, as a result
 of the most recent examination.
(d) Your Community Reinvestment Act (CRA)   Standard treatment.
 rating is Needs to Improve or Substantial
 Noncompliance. The CRA rating is the
 Community Reinvestment Act performance
 rating that the FDIC or the other federal
 banking regulator assigned and provided
 to you, in writing, as a result of the
 most recent compliance examination. See,
 for example, 12 CFR 195.28.
(e) Your compliance rating is 3, 4, or 5.   Standard treatment.
 The compliance rating is the numeric
 rating that the FDIC or the other federal
 banking regulator assigned to you under
 the FDIC compliance rating system, or a
 comparable rating system used by the
 other federal banking regulator. The
 compliance rating refers to the rating
 assigned and provided to you, in writing,
 as a result of the most recent compliance
 examination.
(f) You fail any one of your capital        Standard treatment.
 requirements under subpart Z.
(g) The FDIC has notified you that you are  Standard treatment.
 an association in troubled condition.
(h) Neither the FDIC nor any other federal  Standard treatment.
 banking regulator has assigned you a
 composite rating, a CRA rating or a
 compliance rating.
(i) You do not meet any of the criteria     Expedited treatment.
 listed in paragraphs (a) through (h) of
 this section.
------------------------------------------------------------------------

Sec.  390.102  How does the FDIC compute time periods under this 
subpart?

    In computing time periods under this subpart, the FDIC does not 
include the day of the act or event that commences the time period. 
When the last day of a time period is a Saturday, Sunday, or Federal 
holiday, the time period runs until the end of the next day that is not 
a Saturday, Sunday, or Federal holiday.


Sec.  390.103  Must I meet with the FDIC before I file my application?

    (a) Chart. To determine whether you must attend a pre-filing 
meeting before you file an application, please consult the following 
chart:

------------------------------------------------------------------------
      If you file . . .                        Then . . .
------------------------------------------------------------------------
An application to acquire      The FDIC may require you to meet with the
 control of a State savings     FDIC before filing your application and
 association.                   may require you to submit a draft
                                business plan or other relevant
                                information before this meeting.
------------------------------------------------------------------------

    (b) Contacting the appropriate FDIC region. (1) You must contact 
the appropriate FDIC region a reasonable time before you file an 
application described in paragraph (a) of this section. Unless 
paragraph (a) already requires a pre-filing meeting or a draft business 
plan, the appropriate FDIC region will determine whether it will 
require a pre-filing meeting, and whether you must submit a business 
plan or other relevant information before the meeting. The appropriate 
FDIC region will also establish a

[[Page 47689]]

schedule for any meeting and the submission of any information.
    (2) All other applicants are encouraged to contact the appropriate 
FDIC region to determine whether a pre-filing meeting or the submission 
of a draft business plan or other relevant information would expedite 
the application review process.


Sec.  390.104  What information must I include in my draft business 
plan?

    If you are required to submit a draft business plan under Sec.  
309.103, your plan must:
    (a) Clearly and completely describe the State savings association's 
projected operations and activities;
    (b) Describe the risks associated with the transaction and the 
impact of this transaction on any existing activities and operations of 
the State savings association, including financial projections for a 
minimum of three years;
    (c) Identify the majority of the proposed board of directors and 
the key senior executive officers (as defined in Sec.  390.361) of the 
State savings association and demonstrate that these individuals have 
the expertise to prudently manage the activities and operations 
described in the savings association's draft business plan; and
    (d) Demonstrate how applicable requirements regarding serving the 
credit and lending needs in the market areas served by the State 
savings association will be met.


Sec.  390.105  What type of application must I file?

    (a) Expedited treatment. If you are eligible for expedited 
treatment under Sec.  390.101, you may file your application in the 
form of a notice that includes all information required by the 
applicable substantive regulation. If the FDIC has designated a form 
for your notice, you must file that form. Your notice is an application 
for the purposes of all statutory and regulatory references to 
``applications.''
    (b) Standard treatment. If you are subject to standard treatment 
under Sec.  390.101, you must file your application following all 
applicable substantive regulations and guidelines governing the filing 
of applications. If the FDIC has a designated form for your 
application, you must file that form.
    (c) Waiver requests. If you want the FDIC to waive a requirement 
that you provide certain information with the notice or application, 
you must include a written waiver request:
    (1) Describing the requirement to be waived and
    (2) Explaining why the information is not needed to enable the FDIC 
to evaluate your notice or application under applicable standards.


Sec.  390.106  What information must I provide with my application?

    (a) Required information. You may obtain information about required 
certifications, other regulations and guidelines affecting particular 
notices and applications, appropriate forms, and instructions from the 
appropriate FDIC region.
    (b) Captions and exhibits. You must caption the original 
application and required copies with the type of filing, and must 
include all exhibits and other pertinent documents with the original 
application and all required copies. You are not required to include 
original signatures on copies if you include a copy of the signed 
signature page or the copy otherwise indicates that the original was 
signed.


Sec.  390.107  May I keep portions of my application confidential?

    (a) Confidentiality. The FDIC makes submissions under this subpart 
available to the public, but may keep portions of your application 
confidential based on the rules in this section.
    (b) Confidentiality request. (1) You may request the FDIC to keep 
portions of your application confidential. You must submit your request 
in writing with your application and must explain in detail how your 
request is consistent with the standards under the Freedom of 
Information Act (5 U.S.C. 552) and part 309 of this chapter. For 
example, you should explain how you will be substantially harmed by 
public disclosure of the information. You must separately bind and mark 
the portions of the application you consider confidential and the 
portions you consider non-confidential.
    (2) The FDIC will not treat as confidential the portion of your 
application describing how you plan to meet your Community Reinvestment 
Act (CRA) objectives. The FDIC will make information in your CRA plan, 
including any information incorporated by reference from other parts of 
your application, available to the public upon request.
    (c) FDIC determination on confidentiality. The FDIC will determine 
whether information that you designate as confidential may be withheld 
from the public under the Freedom of Information Act (5 U.S.C. 552) and 
part 309 of this chapter. The FDIC will advise you before it makes 
information you designate as confidential available to the public.


Sec.  390.108  Where do I file my application?

    (a) Appropriate FDIC region. (1) You must file the original 
application and the number of copies indicated on the applicable form 
with the appropriate FDIC region. The appropriate FDIC region addresses 
are listed in paragraph (a)(2) of this section. If the form does not 
indicate the number of copies you must file or if FDIC has not 
prescribed a form for your application, you must file the original 
application and two copies.
    (2) The addresses of appropriate FDIC region and the states covered 
by each office are:

------------------------------------------------------------------------
           Region                Office address         States served
------------------------------------------------------------------------
New York....................  350 Fifth Avenue,     Connecticut,
                               Suite 1200, New       Delaware, District
                               York, NY 10118.       of Columbia, Maine,
                                                     Maryland,
                                                     Massachusetts, New
                                                     Hampshire, New
                                                     Jersey, New York,
                                                     Pennsylvania,
                                                     Puerto Rico, Rhode
                                                     Island, Vermont,
                                                     Virgin Islands.
Atlanta.....................  10 Tenth Street,      Alabama, Florida,
                               NE., Suite 800,       Georgia, North
                               Atlanta, GA 30309-    Carolina, South
                               3906.                 Carolina, Virginia,
                                                     West Virginia.
Chicago.....................  300 South Riverside   Illinois, Indiana,
                               Plaza, Suite 1700,    Kentucky, Ohio,
                               Chicago, Illinois     Michigan,
                               60606.                Wisconsin.
Kansas......................  1100 Walnut St.,      Iowa, Kansas,
                               Suite 2100, Kansas    Minnesota,
                               City, MO 64106.       Missouri, Nebraska,
                                                     North Dakota, South
                                                     Dakota.
Dallas......................  1601 Bryan Street,    Arkansas, Colorado,
                               Dallas, TX 75201.     Louisiana,
                                                     Mississippi, New
                                                     Mexico, Oklahoma,
                                                     Tennessee, Texas.
San Francisco...............  25 Jessie Street at   Alaska, Arizona,
                               Ecker Square, Suite   California, Guam,
                               2300, San             Hawaii, Idaho,
                               Francisco, CA 94105-  Montana, Nevada,
                               2780.                 Northern Mariana
                                                     Islands, Oregon,
                                                     Utah, Washington,
                                                     Wyoming.
------------------------------------------------------------------------


[[Page 47690]]

    (b) Additional filings with FDIC headquarters. (1) In addition to 
filing in the appropriate FDIC region, if your application involves a 
significant issue of law or policy or if an applicable regulation or 
form directs you to file with FDIC Headquarters, you must also file 
copies of your application with the Risk Management and Applications 
Section at FDIC headquarters, 550 17th Street, NW., Washington, DC 
20429. You must file the number of copies indicated on the applicable 
form. If the form does not indicate the number of copies you must file 
or if FDIC has not prescribed a form for your application, you must 
file three copies.
    (2)(i) You may request a list of applications involving significant 
issues of law or policy by contacting appropriate FDIC region.
    (ii) The FDIC reserves the right to identify significant issues of 
law or policy in a particular application. The FDIC will advise you, in 
writing, if it makes this determination.


Sec.  390.109  What is the filing date of my application?

    (a) Your application's filing date is the date that you complete 
all of the following requirements.
    (1) You attend a pre-filing meeting and submit a draft business 
plan or relevant information, if the FDIC requires you to do so under 
Sec.  390.103.
    (2) You file your application and all required copies with the 
FDIC, as described under Sec.  390.108.
    (i) If you are required to file with an appropriate FDIC region and 
with the FDIC headquarters, you have not filed with the FDIC until you 
file with both offices.
    (ii) You have not filed with the appropriate FDIC region or the 
FDIC headquarters until you file the application and the required 
number of copies with that office.
    (iii) If you file after the close of business established by 
appropriate FDIC region or the FDIC headquarters, you have filed with 
that office on the next business day.
    (3) [Reserved].
    (b) The FDIC may notify you that it has adjusted your application 
filing date if you fail to meet any applicable publication 
requirements.
    (c) If, after you properly file your application with the 
appropriate FDIC region, the FDIC determines that a significant issue 
of law or policy exists under Sec.  390.108(b)(2)(ii), the filing date 
of your application is the day you filed with the appropriate FDIC 
region. The 30-day review period under Sec.  390.126 or Sec.  390.127 
will restart in its entirety when the appropriate FDIC region forwards 
the appropriate number of copies of your application to the FDIC 
headquarters.


Sec.  390.110  How do I amend or supplement my application?

    To amend or supplement your application, you must file the 
amendment or supplemental information at the appropriate FDIC region 
along with the number of copies required under Sec.  390.108. Your 
amendment or supplemental information also must meet the caption and 
exhibit requirements at Sec.  390.106(b).


Sec.  390.111  Who must publish a public notice of an application?

    Sections 390.111 through 390.115 apply whenever a FDIC regulation 
requires an applicant (``you'') to follow the public notice procedures 
in this subpart.


Sec.  390.112  What information must I include in my public notice?

    Your public notice must include the following:
    (a) Your name and address.
    (b) The type of application.
    (c) The name of the depository institution(s) that is the subject 
matter of the application.
    (d) A statement indicating that the public may submit comments to 
the appropriate FDIC region.
    (e) The address of the appropriate FDIC region where the public may 
submit comments.
    (f) The date that the comment period closes.
    (g) A statement indicating that the nonconfidential portions of the 
application are on file in the appropriate FDIC region, and are 
available for public inspection during regular business hours.
    (h) Any other information that the FDIC requires you to publish. 
You may find the format for various publication notices in the appendix 
to the FDIC application processing handbook.


Sec.  390.113  When must I publish the public notice?

    You must publish a public notice of the application no earlier than 
seven days before and no later than the date of filing of the 
application.


Sec.  390.114  Where must I publish the public notice?

    You must publish the notice in a newspaper having a general 
circulation in the communities indicated in the following chart:

------------------------------------------------------------------------
                                   You must publish in the following
      If you file . . .                    communities . . .
------------------------------------------------------------------------
(a) Bank Merger Act            The community in which your home office
 application under              is located.
 390.332(a), or an
 application for a mutual to
 stock conversion under 12
 CFR part 192.
(b) A change of control        The community in which the home office of
 notice under part 391,         the State savings association whose
 subpart E.                     stock is to be acquired is located and,
                                if applicable, the community in which
                                the home office of the acquiror's
                                largest subsidiary State savings
                                association is located.
------------------------------------------------------------------------

Sec.  390.115  What language must I use in my publication?

    (a) English. You must publish the notice in a newspaper printed in 
the English language.
    (b) Other than English. If the FDIC determines that the primary 
language of a significant number of adult residents of the community is 
a language other than English, the FDIC may require that you 
simultaneously publish additional notice(s) in the community in the 
appropriate language(s).


Sec.  390.116  Comment procedures.

    Sections 390.116 though 390.120 contain the procedures governing 
the submission of public comments on certain types of applications or 
notices (``applications'') pending before the FDIC. It applies whenever 
a regulation incorporates the procedures in Sec. Sec.  390.116 through 
390.120, or where otherwise required by the FDIC.


Sec.  390.117  Who may submit a written comment?

    Any person may submit a written comment supporting or opposing an 
application.


Sec.  390.118  What information should a comment include?

    (a) A comment should recite relevant facts, including any 
demographic, economic, or financial data, supporting the commenter's 
position. A comment opposing an application should also:

[[Page 47691]]

    (1) Address at least one of the reasons why the FDIC may deny the 
application under the relevant statute or regulation;
    (2) Recite any relevant facts and supporting data addressing these 
reasons; and
    (3) Address how the approval of the application could harm the 
commenter or any community.
    (b) A commenter must include any request for a meeting under Sec.  
390.122 in its comment. The commenter must describe the nature of the 
issues or facts to be discussed and the reasons why written submissions 
are insufficient to adequately address these facts or issues.


Sec.  390.119  Where are comments filed?

    A commenter must file with the appropriate FDIC region (See table 
at Sec.  390.108(a)(2)). The commenter must simultaneously send a copy 
of the comment to the applicant.


Sec.  390.120  How long is the comment period?

    (a) General. Except as provided in paragraph (b) of this section, a 
commenter must file a written comment with the FDIC within 30 calendar 
days after the date of publication of the initial public notice.
    (b) Late-filed comments. The FDIC may consider late-filed comments 
if the FDIC determines that the comment will assist in the disposition 
of the application.


Sec.  390.121  Meeting procedures.

    Sections 390.121 through 390.125 contain meeting procedures. They 
apply whenever a regulation incorporates the procedures in Sec. Sec.  
390.121 through 390.125, or when otherwise required by the FDIC.


Sec.  390.122  When will the FDIC conduct a meeting on an application?

    (a) The FDIC will grant a meeting request or conduct a meeting on 
its own initiative, if it finds that written submissions are 
insufficient to address facts or issues raised in an application, or 
otherwise determines that a meeting will benefit the decision-making 
process. The FDIC may limit the issues considered at the meeting to 
issues that the FDIC decides are relevant or material.
    (b) The FDIC will inform the applicant and all commenters 
requesting a meeting of its decision to grant or deny a meeting 
request, or of its decision to conduct a meeting on its own initiative.
    (c) If the FDIC decides to conduct a meeting, the FDIC will invite 
the applicant and any commenters requesting a meeting and raising an 
issue that FDIC intends to consider at the meeting. The FDIC may also 
invite other interested persons to attend. The FDIC will inform the 
participants of the date, time, location, issues to be considered, and 
format for the meeting a reasonable time before the meeting.


Sec.  390.123  What procedures govern the conduct of the meeting?

    (a) The FDIC may conduct meetings in any format including, but not 
limited to, a telephone conference, a face-to-face meeting, or a more 
formal meeting.
    (b) The Administrative Procedure Act (5 U.S.C. 551 et seq.), the 
Federal Rules of Evidence (28 U.S.C. Appendix), the Federal Rules of 
Civil Procedure (28 U.S.C. Rule 1 et seq.) and the FDIC Rules of 
Practice and Procedure in Adjudicatory Proceedings (subpart C) do not 
apply to meetings under this section.


Sec.  390.124  Will FDIC approve or disapprove an application at a 
meeting?

    The FDIC will not approve or deny an application at a meeting under 
Sec. Sec.  390.121 through 390.125.


Sec.  390.125  Will a meeting affect application processing time 
frames?

    If the FDIC decides to conduct a meeting, it may suspend applicable 
application processing time frames, including the time frames for 
deeming an application complete and the applicable approval time frames 
in Sec. Sec.  390.126 through 390.135. If the FDIC suspends applicable 
application processing time frames, the time period will resume when 
the FDIC determines that a record has been developed that sufficiently 
supports a determination on the issues considered at the meeting.


Sec.  390.126  If I file a notice under expedited treatment, when may I 
engage in the proposed activities?

    If you are eligible for expedited treatment and you have 
appropriately filed your notice with the FDIC, you may engage in the 
proposed activities upon the expiration of 30 days after the filing 
date of your notice, unless the FDIC takes one of the following actions 
before the expiration of that time period:
    (a) The FDIC notifies you in writing that you must file additional 
information supplementing your notice. If you are required to file 
additional information, you may engage in the proposed activities upon 
the expiration of 30 calendar days after the date you file the 
additional information, unless the FDIC takes one of the actions 
described in paragraphs (b) through (d) of this section before the 
expiration of that time period;
    (b) The FDIC notifies you in writing that your notice is subject to 
standard treatment under Sec. Sec.  390.126 through 390.135. The FDIC 
will subject your notice to standard treatment if it raises a 
supervisory concern, raises a significant issue of law or policy, or 
requires significant additional information;
    (c) The FDIC notifies you in writing that it is suspending the 
applicable time frames under Sec.  390.125; or
    (d) The FDIC notifies you that it disapproves your notice.


Sec.  390.127  What will the FDIC do after I file my application?

    (a) FDIC action. Within 30 calendar days after the filing date of 
your application, the FDIC will take one of the following actions:

------------------------------------------------------------------------
           If the FDIC . . .                        Then . . .
------------------------------------------------------------------------
(1) Notifies you, in writing, that your  The applicable review period
 application is complete * * *.           will begin on the date that
                                          the FDIC deems your
                                          application complete.
(2) Notifies you, in writing, that you   You must submit the required
 must submit addition information to      additional information under
 complete your application * * *.         Sec.   390.128.
(3) Notifies you, in writing, that your  The FDIC will not process your
 application is materially deficient *    application.
 * *.
(4) Takes no action * * *..............  Your application is deemed
                                          complete. The applicable
                                          review period will begin on
                                          the day the 30-day time period
                                          expires.
------------------------------------------------------------------------

    (b) Waiver requests. If your application includes a request for 
waiver of an information requirement under Sec.  390.105(b), and the 
FDIC has not notified you that you must submit additional information 
under paragraph (a)(2) of this section, your request for waiver is 
granted.

[[Page 47692]]

Sec.  390.128  If the FDIC requests additional information to complete 
my application, how will it process my application?

    (a) You may use the following chart to determine the procedure that 
applies to your submission of additional information under Sec.  
390.127(a)(1):

------------------------------------------------------------------------
 If, within 30 calendar days
  after the date of FDIC's    Then, FDIC may . . .
   request for additional                                 And . . .
      information . . .
------------------------------------------------------------------------
(1) You file a response to    (i) Notify you in     The applicable
 all information requests *    writing within 15     review period will
 * *.                          days after the        begin on the date
                               filing date of your   that the FDIC deems
                               response that your    your application
                               application is        complete.
                               complete * * *
                               applicable to all
                               response that your
                               application is
                               complete * * *.
                              (ii) Notify you in    You must respond to
                               writing within 15     the additional
                               calendar days after   information request
                               the filing date of    within the time
                               your response that    period required by
                               you must submit       the FDIC. The FDIC
                               additional            will review your
                               information           response under the
                               regarding matters     procedures
                               derived from or       described in this
                               prompted by           section.
                               information already
                               furnished or any
                               additional
                               information
                               necessary to
                               resolve the issues
                               presented in your
                               application * * *.
                              (iii) Notify you in   The FDIC will not
                               writing within 15     process your
                               calendar days after   application.
                               the filing date of
                               your response that
                               your application is
                               materially
                               deficient * * *.
                              (iv) Take no action   Your application is
                               within 15 calendar    deemed complete.
                               days after the        The applicable
                               filing date of your   review period will
                               response * * *.       begin on the day
                                                     that the 15-day
                                                     time period
                                                     expires.
(2) You request an extension  (i) Grant an          You must fully
 of time to file additional    extension, in         respond within the
 information * * *.            writing, specifying   extended time
                               the number of days    period specified by
                               for the extension *   the FDIC. The FDIC
                               * *.                  will review your
                                                     response under the
                                                     procedures
                                                     described under
                                                     this section.
                              (ii) Notify you in    The FDIC will not
                               writing that your     process your
                               extension request     application
                               is disapproved * *    further. You may
                               *.                    resubmit the
                                                     application for
                                                     processing as a new
                                                     filing under the
                                                     applicable
                                                     regulation.
(3) You fail to respond       (i) Notify you in     The FDIC will not
 completely * * *.             writing that your     process your
                               application is        application
                               deemed withdrawn *    further. You may
                               * *.                  resubmit the
                                                     application for
                                                     processing as a new
                                                     filing under the
                                                     applicable
                                                     regulation.
                              (ii) Notify you, in   You must fully
                               writing, that your    respond within the
                               response is           extended time
                               incomplete and        period specified by
                               extend the response   the FDIC. The FDIC
                               period, specifying    will review your
                               the number of days    response under the
                               for the respond       procedures
                               extension * * *.      described under
                                                     this section.
------------------------------------------------------------------------

    (b) The FDIC may extend the 15-day period referenced in paragraph 
(a)(1) of this section by up to 15 calendar days, if the FDIC requires 
the additional time to review your response. The FDIC will notify you 
that it has extended the period before the end of the initial 15-day 
period and will briefly explain why the extension is necessary.
    (c) If your response filed under paragraph (a)(1) of this section 
includes a request for a waiver of an informational requirement, your 
request for a waiver is granted if the FDIC fails to act on it within 
15 calendar days after the filing of your response, unless the FDIC 
extends the review period under paragraph (b) of this section. If the 
FDIC extends the review period under paragraph (b), your request is 
granted if the FDIC fails to act on it by the end of the extended 
review period.


Sec.  390.129  Will the FDIC conduct an eligibility examination?

    (a) Eligibility examination. The FDIC may notify you at any time 
before it deems your application complete that it will conduct an 
eligibility examination. If the FDIC decides to conduct an eligibility 
examination, it will not deem your application complete until it 
concludes the examination.
    (b) Additional information. The FDIC may, as a result of the 
eligibility examination, notify you that you must submit additional 
information to complete your application. If so, you must respond to 
the additional information request within the time period required by 
the FDIC. The FDIC will review your response under the procedures 
described in Sec.  390.128.


Sec.  390.130  What may the FDIC require me to do after my application 
is deemed complete?

    After your application is deemed complete, but before the end of 
the applicable review period,
    (a) The FDIC may require you to provide additional information if 
the information is necessary to resolve or clarify the issues presented 
by your application.
    (b) The FDIC may determine that a major issue of law or a change in 
circumstances arose after you filed your application, and that the 
issue or changed circumstances will substantially effect your 
application. If the FDIC identifies such an issue or changed 
circumstances, it may:
    (1) Notify you, in writing, that your application is now incomplete 
and require you to submit additional information to complete the 
application under the procedures described at Sec.  390.128; and
    (2) Require you to publish a new public notice of your application 
under Sec.  390.131.


Sec.  390.131  Will the FDIC require me to publish a new public notice?

    (a) If your application was subject to a publication requirement, 
the FDIC may require you to publish a new public notice of your 
application if:

[[Page 47693]]

    (1) You submitted a revision to the application, you submitted new 
or additional information, or a major issue of law or a change in 
circumstances arose after the filing of your application; and
    (2) The FDIC determines that additional comment on these matters is 
appropriate because of the significance of the new information or 
circumstances.
    (b) The FDIC will notify you in writing if you must publish a new 
public notice of your revised application.
    (c) If you are required to publish a new public notice of your 
revised application, you must notify the FDIC after you publish the new 
public notice.


Sec.  390.132  May the FDIC suspend processing of my application?

    (a) Suspension. The FDIC may, at any time, indefinitely suspend 
processing of your application if:
    (1) The FDIC, another governmental entity, or a self-regulatory 
trade or professional organization initiates an investigation, 
examination, or administrative proceeding that is relevant to the 
FDIC's evaluation of your application;
    (2) You request the suspension or there are other extraordinary 
circumstances that have a significant impact on the processing of your 
application.
    (b) Notice. The FDIC will promptly notify you, in writing, if it 
suspends your application.


Sec.  390.133  How long is the FDIC review period?

    (a) General. The applicable FDIC review period is 60 calendar days 
after the date that your application is deemed complete, unless an 
applicable FDIC regulation specifies a different review period.
    (b) Multiple applications. If you submit more than one application 
in connection with a proposed action or if two or more applicants 
submit related applications, the applicable review period for all 
applications is the review period for the application with the longest 
review period, subject to statutory review periods.
    (c) Extensions. (1) The FDIC may extend the review period for up to 
30 calendar days beyond the period described in paragraph (a) or (b) of 
this section. The FDIC must notify you in writing of the extension and 
the duration of the extension. The FDIC must issue the written 
extension before the end of the review period.
    (2) The FDIC may also extend the review period as needed until it 
acts on the application, if the application presents a significant 
issue of law or policy that requires additional time to resolve. The 
FDIC must notify you in writing of the extension and the general 
reasons for the extension. The FDIC must issue the written extension 
before the end of the review period, including any extension of that 
period under paragraph (c)(1) of this section.


Sec.  390.134  How will I know if my application has been approved?

    (a) FDIC approval or denial. (1) The FDIC will approve or deny your 
application before the expiration of the applicable review period, 
including any extensions of the review period.
    (2) The FDIC will promptly notify you in writing of its decision to 
approve or deny your application.
    (b) No FDIC action. If the FDIC fails to act under paragraph (a)(1) 
of this section, your application is approved.


Sec.  390.135  What will happen if the FDIC does not approve or 
disapprove my application within two calendar years after the filing 
date?

    (a) Withdrawal. If the FDIC has not approved or denied your pending 
application within two calendar years after the filing date under Sec.  
390.109, the FDIC will notify you, in writing, that your application is 
deemed withdrawn unless the FDIC determines that you are actively 
pursuing a final FDIC determination on your application. You are not 
actively pursuing a final FDIC determination if you have failed to 
timely take an action required under this part, including filing 
required additional information, or the FDIC has suspended processing 
of your application under Sec.  390.132 based on circumstances that 
are, in whole or in part, within your control and you have failed to 
take reasonable steps to resolve these circumstances.
    (b) [Reserved].

Subpart G--Nondiscrimination Requirements


Sec.  390.140  Definitions.

    As used in this subpart--
    Application. For purposes of this part, an application for a loan 
or other service is as defined in Regulation C, 12 CFR 203.2(b).
    Dwelling. The term ``dwelling'' means a residential structure 
(whether or not it is attached to real property) located in a state of 
the United States of America, the District of Colombia, or the 
Commonwealth of Puerto Rico. The term includes an individual 
condominium unit, cooperative unit, or mobile or manufactured home.
    State savings association. The term ``State savings association'' 
means any State savings association as defined in 12 U.S.C. 1813(b).


Sec.  390.141  Supplementary guidelines.

    The FDIC's policy statement found at 12 CFR 390.150 supplements 
this subpart and should be read together with this subpart. Refer also 
to the HUD Fair Housing regulations at 24 CFR parts 100 et seq., 
Federal Reserve Regulation B at 12 CFR part 202, and Federal Reserve 
Regulation C at 12 CFR part 203.


Sec.  390.142  Nondiscrimination in lending and other services.

    (a) No State savings association may deny a loan or other service, 
or discriminate in the purchase of loans or securities or discriminate 
in fixing the amount, interest rate, duration, application procedures, 
collection or enforcement procedures, or other terms or conditions of 
such loan or other service on the basis of the age or location of the 
dwelling, or on the basis of the race, color, religion, sex, handicap, 
familial status (having one or more children under the age of 18), 
marital status, age (provided the person has the capacity to contract) 
or national origin of:
    (1) An applicant or joint applicant;
    (2) Any person associated with an applicant or joint applicant 
regarding such loan or other service, or with the purposes of such loan 
or other service;
    (3) The present or prospective owners, lessees, tenants, or 
occupants of the dwelling(s) for which such loan or other service is to 
be made or given;
    (4) The present or prospective owners, lessees, tenants, or 
occupants of other dwellings in the vicinity of the dwelling(s) for 
which such loan or other service is to be made or given.
    (b) A State savings association shall consider without prejudice 
the combined income of joint applicants for a loan or other service.
    (c) No State savings association may discriminate against an 
applicant for a loan or other service on any prohibited basis (as 
defined in 12 CFR 202.2(z) and 24 CFR part 100).


Sec.  390.143  Nondiscriminatory appraisal and underwriting.

    (a) Appraisal. No State savings association may use or rely upon an 
appraisal of a dwelling which the State savings association knows, or 
reasonably should know, is discriminatory on the basis of the age or 
location of the dwelling, or is discriminatory per se or in effect 
under the Fair Housing Act of 1968 or the Equal Credit Opportunity Act.

[[Page 47694]]

    (b) Underwriting. Each State savings association shall have clearly 
written, non-discriminatory loan underwriting standards, available to 
the public upon request, at each of its offices. Each association 
shall, at least annually, review its standards, and business practices 
implementing them, to ensure equal opportunity in lending.


Sec.  390.144  Nondiscrimination in applications.

    (a) No State savings association may discourage, or refuse to 
allow, receive, or consider, any application, request, or inquiry 
regarding a loan or other service, or discriminate in imposing 
conditions upon, or in processing, any such application, request, or 
inquiry on the basis of the age or location of the dwelling, or on the 
basis of the race, color, religion, sex, handicap, familial status 
(having one or more children under the age of 18), marital status, age 
(provided the person has the capacity to contract), national origin, or 
other characteristics prohibited from consideration in Sec.  
390.142(c), of the prospective borrower or other person, who:
    (1) Makes application for any such loan or other service;
    (2) Requests forms or papers to be used to make application for any 
such loan or other service; or
    (3) Inquires about the availability of such loan or other service.
    (b) A State savings association shall inform each inquirer of his 
or her right to file a written loan application, and to receive a copy 
of the association's underwriting standards.


Sec.  390.145  Nondiscriminatory advertising.

    No State savings association may directly or indirectly engage in 
any form of advertising that implies or suggests a policy of 
discrimination or exclusion in violation of title VIII of the Civil 
Rights Acts of 1968, the Equal Credit Opportunity Act, or this subpart. 
Advertisements for any loan for the purpose of purchasing, 
constructing, improving, repairing, or maintaining a dwelling or any 
loan secured by a dwelling shall include a facsimile of the following 
logotype and legend:
[GRAPHIC] [TIFF OMITTED] TR05AU11.000

Sec.  390.146  Equal Housing Lender Poster.

    (a) Each State savings association shall post and maintain one or 
more Equal Housing Lender Posters, the text of which is prescribed in 
paragraph (b) of this section, in the lobby of each of its offices in a 
prominent place or places readily apparent to all persons seeking 
loans. The poster shall be at least 11 by 14 inches in size, and the 
text shall be easily legible. It is recommended that savings 
associations post a Spanish language version of the poster in offices 
serving areas with a substantial Spanish-speaking population.
    (b) The text of the Equal Housing Lender Poster shall be as 
follows:
[GRAPHIC] [TIFF OMITTED] TR05AU11.001

    We Do Business In Accordance With Federal Fair Lending Laws.
    UNDER THE FEDERAL FAIR HOUSING ACT, IT IS ILLEGAL, ON THE BASIS OF 
RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX, HANDICAP, OR FAMILIAL 
STATUS (HAVING CHILDREN UNDER THE AGE OF 18) TO:
    [ ] Deny a loan for the purpose of purchasing, constructing, 
improving, repairing or maintaining a dwelling or to deny any loan 
secured by a dwelling; or
    [ ] Discriminate in fixing the amount, interest rate, duration, 
application procedures, or other terms or conditions of such a loan or 
in appraising property.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD:
    SEND A COMPLAINT TO:
    Assistant Secretary for Fair Housing and Equal Opportunity, 
Department of Housing and Urban Development, Washington, DC 20410.
    For processing under the Federal Fair Housing Act
    AND TO:
    Federal Deposit Insurance Corporation, Consumer Response Center, 
1100 Walnut St, Box 11, Kansas City, MO 64106
    For processing under FDIC Regulations.
    UNDER THE EQUAL CREDIT OPPORTUNITY ACT, IT IS ILLEGAL TO 
DISCRIMINATE IN ANY CREDIT TRANSACTION:
    [ ] On the basis of race, color, national origin, religion, sex, 
marital status, or age;
    [ ] Because income is from public assistance; or
    [ ] Because a right has been exercised under the Consumer Credit 
Protection Act.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD SEND 
A COMPLAINT TO:
    Federal Deposit Insurance Corporation, Consumer Response Center, 
1100 Walnut St, Box 11, Kansas City, MO 64106


Sec.  390.147  Loan application register.

    State savings associations and other lenders required to file Home 
Mortgage Disclosure Act Loan Application Registers with the FDIC in 
accordance with 12 CFR part 203 must enter the reason for denial, using 
the codes provided in 12 CFR part 203, with respect to all loan 
denials.


Sec.  390.148  Nondiscrimination in employment.

    (a) No State savings association shall, because of an individual's 
race, color, religion, sex, or national origin:
    (1) Fail or refuse to hire such individual;
    (2) Discharge such individual;
    (3) Otherwise discriminate against such individual with respect to 
such individual's compensation, promotion, or the terms, conditions, or 
privileges of such individual's employment; or
    (4) Discriminate in admission to, or employment in, any program of 
apprenticeship, training, or retraining, including on-the-job training.
    (b) No State savings association shall limit, segregate, or 
classify its employees in any way which would deprive or tend to 
deprive any individual of employment opportunities or otherwise 
adversely affect such individual's status as an employee because of 
such individual's race, color, religion, sex, or national origin.
    (c) No State savings association shall discriminate against any 
employee or applicant for employment because such employee or applicant 
has opposed any employment practice made unlawful by Federal, State, or 
local law or regulation or because he has in good faith made a charge 
of such practice or testified, assisted, or participated in any manner 
in an investigation, proceeding, or hearing of such practice by any 
lawfully constituted authority.
    (d) No State savings association shall print or publish or cause to 
be printed or published any notice or advertisement relating to 
employment by such savings association indicating any preference, 
limitation, specification, or discrimination based on race, color, 
religion, sex, or national origin.

[[Page 47695]]

    (e) This regulation shall not apply in any case in which the 
Federal Equal Employment Opportunities law is made inapplicable by the 
provisions of section 2000e-1 or sections 2000e-2 (e) through (j) of 
title 42, United States Code.
    (f) Any violation of the following laws or regulations by a State 
savings association shall be deemed to be a violation of this subpart:
    (1) The Equal Employment Opportunity Act, as amended, 42 U.S.C. 
2000e-2000h-2, and Equal Employment Opportunity Commission (EEOC) 
regulations at 29 CFR part 1600;
    (2) The Age Discrimination in Employment Act, 29 U.S.C. 621-633, 
and EEOC and Department of Labor regulations;
    (3) Department of the Treasury regulations at 31 CFR part 12 and 
Office of Federal Contract Compliance Programs (OFCCP) regulations at 
41 CFR part 60;
    (4) The Veterans Employment and Readjustment Act of 1972, 38 U.S.C. 
2011-2012, and the Vietnam Era Veterans Readjustment Adjustment 
Assistance Act of 1974, 38 U.S.C. 2021-2026;
    (5) The Rehabilitation Act of 1973, 29 U.S.C. 701 et al.; and
    (6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS 
regulations at 8 CFR part 274a.


Sec.  390.149   Complaints.

    Complaints regarding discrimination in lending by a State savings 
association shall be referred to the Assistant Secretary for Fair 
Housing and Equal Opportunity, U.S. Department of Housing and Urban 
Development, Washington, DC 20410 for processing under the Fair Housing 
Act, and to the Director, Division of Depositor and Consumer 
Protection, Federal Deposit Insurance Corporation, 550 17th Street, 
NW., Washington, DC 20249 for processing under FDIC regulations. 
Complaints regarding discrimination in employment by a State savings 
association should be referred to the Equal Employment Opportunity 
Commission, Washington, DC 20506 and a copy, for information only, sent 
to the Director, Division of Depositor and Consumer Protection, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20249.


Sec.  390.150   Guidelines relating to nondiscrimination in lending.

    (a) General. Fair housing and equal opportunity in home financing 
is a policy of the United States established by Federal statutes and 
Presidential orders and proclamations. In furtherance of the Federal 
civil rights laws and the economical home financing purposes of the 
statutes administered by the FDIC, the FDIC has adopted, in this 
subpart, nondiscrimination regulations that, among other things, 
prohibit arbitrary refusals to consider loan applications on the basis 
of the age or location of a dwelling, and prohibit discrimination based 
on race, color, religion, sex, handicap, familial status (having one or 
more children under the age of 18), marital status, age (provided the 
person has the capacity to contract), or national origin in fixing the 
amount, interest rate, duration, application procedures, collection or 
enforcement procedures, or other terms or conditions of housing related 
loans. Such discrimination is also prohibited in the purchase of loans 
and securities. This section provides supplementary guidelines to aid 
savings associations in developing and implementing nondiscriminatory 
lending policies. Each State savings association should reexamine its 
underwriting standards at least annually in order to ensure equal 
opportunity.
    (b) Loan underwriting standards. The basic purpose of the FDIC's 
nondiscrimination regulations is to require that every applicant be 
given an equal opportunity to obtain a loan. Each loan applicant's 
creditworthiness should be evaluated on an individual basis without 
reference to presumed characteristics of a group. The use of lending 
standards which have no economic basis and which are discriminatory in 
effect is a violation of law even in the absence of an actual intent to 
discriminate. However, a standard which has a discriminatory effect is 
not necessarily improper if its use achieves a genuine business need 
which cannot be achieved by means which are not discriminatory in 
effect or less discriminatory in effect.
    (c) Discriminatory practices-- (1) Discrimination on the basis of 
sex or marital status. The Civil Rights Act of 1968 and the National 
Housing Act prohibit discrimination in lending on the basis of sex. The 
Equal Credit Opportunity Act, in addition to this prohibition, forbids 
discrimination on the basis of marital status. Refusing to lend to, 
requiring higher standards of creditworthiness of, or imposing 
different requirements on, members of one sex or individuals of one 
marital status, is discrimination based on sex or marital status. Loan 
underwriting decisions must be based on an applicant's credit history 
and present and reasonably foreseeable economic prospects, rather than 
on the basis of assumptions regarding comparative differences in 
creditworthiness between married and unmarried individuals, or between 
men and women.
    (2) Discrimination on the basis of language. Requiring fluency in 
the English language as a prerequisite for obtaining a loan may be a 
discriminatory practice based on national origin.
    (3) Income of husbands and wives. A practice of discounting all or 
part of either spouse's income where spouses apply jointly is a 
violation of section 527 of the National Housing Act. As with other 
income, when spouses apply jointly for a loan, the determination as to 
whether a spouse's income qualifies for credit purposes should depend 
upon a reasonable evaluation of his or her past, present, and 
reasonably foreseeable economic circumstances. Information relating to 
child-bearing intentions of a couple or an individual may not be 
requested.
    (4) Supplementary income. Lending standards which consider as 
effective only the non-overtime income of the primary wage-earner may 
result in discrimination because they do not take account of variations 
in employment patterns among individuals and families. The FDIC favors 
loan underwriting which reasonably evaluates the credit worthiness of 
each applicant based on a realistic appraisal of his or her own past, 
present, and foreseeable economic circumstances. The determination as 
to whether primary income or additional income qualifies as effective 
for credit purposes should depend upon whether such income may 
reasonably be expected to continue through the early period of the 
mortgage risk. Automatically discounting other income from bonuses, 
overtime, or part-time employment, will cause some applicants to be 
denied financing without a realistic analysis of their credit 
worthiness. Since statistics show that minority group members and low- 
and moderate-income families rely more often on such supplemental 
income, the practice may be racially discriminatory in effect, as well 
as artificially restrictive of opportunities for home financing.
    (5) Applicant's prior history. Loan decisions should be based upon 
a realistic evaluation of all pertinent factors respecting an 
individual's creditworthiness, without giving undue weight to any one 
factor. The State savings association should, among other things, take 
into consideration that:
    (i) In some instances, past credit difficulties may have resulted 
from discriminatory practices;
    (ii) A policy favoring applicants who previously owned homes may 
perpetuate prior discrimination;

[[Page 47696]]

    (iii) A current, stable earnings record may be the most reliable 
indicator of credit-worthiness, and entitled to more weight than 
factors such as educational level attained;
    (iv) Job or residential changes may indicate upward mobility; and
    (v) Preferring applicants who have done business with the lender 
can perpetuate previous discriminatory policies.
    (6) Income level or racial composition of area. Refusing to lend or 
lending on less favorable terms in particular areas because of their 
racial composition is unlawful. Refusing to lend, or offering less 
favorable terms (such as interest rate, downpayment, or maturity) to 
applicants because of the income level in an area can discriminate 
against minority group persons.
    (7) Age and location factors. Sections 390.142-390.144 prohibit 
loan denials based upon the age or location of a dwelling. These 
restrictions are intended to prohibit use of unfounded or 
unsubstantiated assumptions regarding the effect upon loan risk of the 
age of a dwelling or the physical or economic characteristics of an 
area. Loan decisions should be based on the present market value of the 
property offered as security (including consideration of specific 
improvements to be made by the borrower) and the likelihood that the 
property will retain an adequate value over the term of the loan. 
Specific factors which may negatively affect its short-range future 
value (up to 3-5 years) should be clearly documented. Factors which in 
some cases may cause the market value of a property to decline are 
recent zoning changes or a significant number of abandoned homes in the 
immediate vicinity of the property. However, not all zoning changes 
will cause a decline in property values, and proximity to abandoned 
buildings may not affect the market value of a property because of 
rehabilitation programs or affirmative lending programs, or because the 
cause of abandonment is unrelated to high risk. Proper underwriting 
considerations include the condition and utility of the improvements, 
and various physical factors such as street conditions, amenities such 
as parks and recreation areas, availability of public utilities and 
municipal services, and exposure to flooding and land faults. However, 
arbitrary decisions based on age or location are prohibited, since many 
older, soundly constructed homes provide housing opportunities which 
may be precluded by an arbitrary lending policy.
    (8) Fair Housing Act (title VIII, Civil Rights Act of 1968, as 
amended). State savings associations, must comply with all regulations 
promulgated by the Department of Housing and Urban Development to 
implement the Fair Housing Act, found at 24 CFR part 100 et seq., 
except that they shall use the Equal Housing Lender logo and poster 
prescribed by FDIC regulations at Sec. Sec.  390.145 and 390.146 rather 
than the Equal Housing Opportunity logo and poster required by 24 CFR 
parts 109 and 110.
    (d) Marketing practices. State savings associations should review 
their advertising and marketing practices to ensure that their services 
are available without discrimination to the community they serve. 
Discrimination in lending is not limited to loan decisions and 
underwriting standards; a State savings association does not meet its 
obligations to the community or implement its equal lending 
responsibility if its marketing practices and business relationships 
with developers and real estate brokers improperly restrict its 
clientele to segments of the community. A review of marketing practices 
could begin with an examination of an association's loan portfolio and 
applications to ascertain whether, in view of the demographic 
characteristics and credit demands of the community in which the 
institution is located, it is adequately serving the community on a 
nondiscriminatory basis. The FDIC will systematically review marketing 
practices where evidence of discrimination in lending is discovered.

Subpart H--Disclosure and Reporting of CRA-Related Agreements


Sec.  390.160   Purpose and scope of this subpart.

    (a) General. This subpart implements section 711 of the Gramm-
Leach-Bliley Act (12 U.S.C. 1831y). That section requires any 
nongovernmental entity or person (NGEP), insured depository 
institution, or affiliate of an insured depository institution that 
enters into a covered agreement to--
    (1) Make the covered agreement available to the public and the 
appropriate Federal banking agency; and
    (2) File an annual report with the appropriate Federal banking 
agency concerning the covered agreement.
    (b) Scope of this subpart. The provisions of this subpart apply 
to--
    (1) State savings associations, as defined in section 3(b) of the 
Federal Deposit Insurance Act (FDIA), (12 U.S.C. 1813(b)) and their 
subsidiaries;
    (2) [Reserved]
    (3) Affiliates of State savings associations and savings and loan 
holding companies, other than bank holding companies, banks, and 
subsidiaries of bank holding companies and banks; and
    (4) NGEPs that enter into covered agreements with any company 
listed in paragraphs (b)(1) through (b)(3) of this section.
    (c) Relation to Community Reinvestment Act. This subpart does not 
affect in any way the Community Reinvestment Act of 1977 (CRA) (12 
U.S.C. 2901 et seq.), 12 CFR Part 345, 12 CFR part 195 issued by the 
Office of the Comptroller of the Currency and applicable to State 
savings associations, or FDIC's interpretations or administration of 
the CRA or Community Reinvestment rule.
    (d) Examples. (1) The examples in this subpart are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this subpart.
    (2) Examples in a paragraph illustrate only the issue described in 
the paragraph and do not illustrate any other issues that may arise in 
this subpart.


Sec.  390.161   Definition of covered agreement.

    (a) General definition of covered agreement. A covered agreement is 
any contract, arrangement, or understanding that meets all of the 
following criteria--
    (1) The agreement is in writing.
    (2) The parties to the agreement include--
    (i) One or more insured depository institutions or affiliates of an 
insured depository institution; and
    (ii) One or more NGEPs.
    (3) The agreement provides for the insured depository institution 
or any affiliate to--
    (i) Provide to one or more individuals or entities (whether or not 
parties to the agreement) cash payments, grants, or other consideration 
(except loans) that have an aggregate value of more than $10,000 in any 
calendar year; or
    (ii) Make to one or more individuals or entities (whether or not 
parties to the agreement) loans that have an aggregate principal amount 
of more than $50,000 in any calendar year.
    (4) The agreement is made pursuant to, or in connection with, the 
fulfillment of the CRA, as defined in Sec.  390.163.
    (5) The agreement is with a NGEP that has had a CRA communication 
as described in Sec.  390.162 prior to entering into the agreement.
    (b) Examples concerning written arrangements or understandings--(1) 
Example 1. A NGEP meets with an insured depository institution and 
states

[[Page 47697]]

that the institution needs to make more community development 
investments in the NGEP's community. The NGEP and insured depository 
institution do not reach an agreement concerning the community 
development investments the institution should make in the community, 
and the parties do not reach any mutual arrangement or understanding. 
Two weeks later, the institution unilaterally issues a press release 
announcing that it has established a general goal of making $100 
million of community development grants in low- and moderate-income 
neighborhoods served by the insured depository institution over the 
next 5 years. The NGEP is not identified in the press release. The 
press release is not a written arrangement or understanding.
    (2) Example 2. A NGEP meets with an insured depository institution 
and states that the institution needs to offer new loan programs in the 
NGEP's community. The NGEP and the insured depository institution reach 
a mutual arrangement or understanding that the institution will provide 
additional loans in the NGEP's community. The institution tells the 
NGEP that it will issue a press release announcing the program. Later, 
the insured depository institution issues a press release announcing 
the loan program. The press release incorporates the key terms of the 
understanding reached between the NGEP and the insured depository 
institution. The written press release reflects the mutual arrangement 
or understanding of the NGEP and the insured depository institution and 
is, therefore, a written arrangement or understanding.
    (3) Example 3. An NGEP sends a letter to an insured depository 
institution requesting that the institution provide a $15,000 grant to 
the NGEP. The insured depository institution responds in writing and 
agrees to provide the grant in connection with its annual grant 
program. The exchange of letters constitutes a written arrangement or 
understanding.
    (c) Loan agreements that are not covered agreements. A covered 
agreement does not include--
    (1) Any individual loan that is secured by real estate; or
    (2) Any specific contract or commitment for a loan or extension of 
credit to an individual, business, farm, or other entity, or group of 
such individuals or entities, if--
    (i) The funds are loaned at rates that are not substantially below 
market rates; and
    (ii) The loan application or other loan documentation does not 
indicate that the borrower intends or is authorized to use the borrowed 
funds to make a loan or extension of credit to one or more third 
parties.
    (d) Examples concerning loan agreements--(1) Example 1. An insured 
depository institution provides an organization with a $1 million loan 
that is documented in writing and is secured by real estate owned or 
to-be-acquired by the organization. The agreement is an individual 
mortgage loan and is exempt from coverage under paragraph (c)(1) of 
this section, regardless of the interest rate on the loan or whether 
the organization intends or is authorized to re-loan the funds to a 
third party.
    (2) Example 2. An insured depository institution commits to provide 
a $500,000 line of credit to a small business that is documented by a 
written agreement. The loan is made at rates that are within the range 
of rates offered by the institution to similarly situated small 
businesses in the market and the loan documentation does not indicate 
that the small business intends or is authorized to re-lend the 
borrowed funds. The agreement is exempt from coverage under paragraph 
(c)(2) of this section.
    (3) Example 3. An insured depository institution offers small 
business loans that are guaranteed by the Small Business Administration 
(SBA). A small business obtains a $75,000 loan, documented in writing, 
from the institution under the institution's SBA loan program. The loan 
documentation does not indicate that the borrower intends or is 
authorized to re-lend the funds. Although the rate charged on the loan 
is well below that charged by the institution on commercial loans, the 
rate is within the range of rates that the institution would charge a 
similarly situated small business for a similar loan under the SBA loan 
program. Accordingly, the loan is not made at substantially below 
market rates and is exempt from coverage under paragraph (c)(2) of this 
section.
    (4) Example 4. A bank holding company enters into a written 
agreement with a community development organization that provides that 
insured depository institutions owned by the bank holding company will 
make $250 million in small business loans in the community over the 
next 5 years. The written agreement is not a specific contract or 
commitment for a loan or an extension of credit and, thus, is not 
exempt from coverage under paragraph (c)(2) of this section. Each small 
business loan made by the insured depository institution pursuant to 
this general commitment would, however, be exempt from coverage if the 
loan is made at rates that are not substantially below market rates and 
the loan documentation does not indicate that the borrower intended or 
was authorized to re-lend the funds.
    (e) Agreements that include exempt loan agreements. If an agreement 
includes a loan, extension of credit or loan commitment that, if 
documented separately, would be exempt under paragraph (c) of this 
section, the exempt loan, extension of credit or loan commitment may be 
excluded for purposes of determining whether the agreement is a covered 
agreement.
    (f) Determining annual value of agreements that lack schedule of 
disbursements. For purposes of paragraph (a)(3) of this section, a 
multi-year agreement that does not include a schedule for the 
disbursement of payments, grants, loans or other consideration by the 
insured depository institution or affiliate, is considered to have a 
value in the first year of the agreement equal to all payments, grants, 
loans and other consideration to be provided at any time under the 
agreement.


Sec.  390.162  CRA communications.

    (a) Definition of CRA communication. A CRA communication is any of 
the following--
    (1) Any written or oral comment or testimony provided to a Federal 
banking agency concerning the adequacy of the performance under the CRA 
of the insured depository institution, any affiliated insured 
depository institution, or any CRA affiliate.
    (2) Any written comment submitted to the insured depository 
institution that discusses the adequacy of the performance under the 
CRA of the institution and must be included in the institution's CRA 
public file.
    (3) Any discussion or other contact with the insured depository 
institution or any affiliate about--
    (i) Providing (or refraining from providing) written or oral 
comments or testimony to any Federal banking agency concerning the 
adequacy of the performance under the CRA of the insured depository 
institution, any affiliated insured depository institution, or any CRA 
affiliate;
    (ii) Providing (or refraining from providing) written comments to 
the insured depository institution that concern the adequacy of the 
institution's performance under the CRA and must be included in the 
institution's CRA public file; or
    (iii) The adequacy of the performance under the CRA of the insured 
depository institution, any affiliated insured

[[Page 47698]]

depository institution, or any CRA affiliate.
    (b) Discussions or contacts that are not CRA communications. (1) 
Timing of contacts with a Federal banking agency. An oral or written 
communication with a Federal banking agency is not a CRA communication 
if it occurred more than 3 years before the parties entered into the 
agreement.
    (2) Timing of contacts with insured depository institutions and 
affiliates. A communication with an insured depository institution or 
affiliate is not a CRA communication if the communication occurred--
    (i) More than 3 years before the parties entered into the 
agreement, in the case of any written communication;
    (ii) More than 3 years before the parties entered into the 
agreement, in the case of any oral communication in which the NGEP 
discusses providing (or refraining from providing) comments or 
testimony to a Federal banking agency or written comments that must be 
included in the institution's CRA public file in connection with a 
request to, or agreement by, the institution or affiliate to take (or 
refrain from taking) any action that is in fulfillment of the CRA; or
    (iii) More than 1 year before the parties entered into the 
agreement, in the case of any other oral communication not described in 
paragraph (b)(2)(ii) of this section.
    (3) Knowledge of communication by insured depository institution or 
affiliate. (i) A communication is only a CRA communication under 
paragraph (a) of this section if the insured depository institution or 
its affiliate has knowledge of the communication under paragraph 
(b)(3)(ii) or (iii) of this section.
    (ii) Communication with insured depository institution or 
affiliate. An insured depository institution or affiliate has knowledge 
of a communication by the NGEP to the institution or its affiliate 
under this paragraph only if one of the following representatives of 
the insured depository institution or any affiliate has knowledge of 
the communication--
    (A) An employee who approves, directs, authorizes, or negotiates 
the agreement with the NGEP; or
    (B) An employee designated with responsibility for compliance with 
the CRA or executive officer if the employee or executive officer knows 
that the institution or affiliate is negotiating, intends to negotiate, 
or has been informed by the NGEP that it expects to request that the 
institution or affiliate negotiate an agreement with the NGEP.
    (iii) Other communications. An insured depository institution or 
affiliate is deemed to have knowledge of--
    (A) Any testimony provided to a Federal banking agency at a public 
meeting or hearing;
    (B) Any comment submitted to a Federal banking agency that is 
conveyed in writing by the agency to the insured depository institution 
or affiliate; and
    (C) Any written comment submitted to the insured depository 
institution that must be and is included in the institution's CRA 
public file.
    (4) Communication where NGEP has knowledge. A NGEP has a CRA 
communication with an insured depository institution or affiliate only 
if any of the following individuals has knowledge of the 
communication--
    (i) A director, employee, or member of the NGEP who approves, 
directs, authorizes, or negotiates the agreement with the insured 
depository institution or affiliate;
    (ii) A person who functions as an executive officer of the NGEP and 
who knows that the NGEP is negotiating or intends to negotiate an 
agreement with the insured depository institution or affiliate; or
    (iii) Where the NGEP is an individual, the NGEP.
    (c) Examples of CRA communications. (1) Examples of actions that 
are CRA communications. The following are examples of CRA 
communications. These examples are not exclusive and assume that the 
communication occurs within the relevant time period as described in 
paragraph (b)(1) or (2) of this section and the appropriate 
representatives have knowledge of the communication as specified in 
paragraphs (b)(3) and (4) of this section.
    (i) Example 1. A NGEP files a written comment with a Federal 
banking agency that states than an insured depository institution 
successfully addresses the credit needs of its community. The written 
comment is in response to a general request from the agency for 
comments on an application of the insured depository institution to 
open a new branch and a copy of the comment is provided to the 
institution.
    (ii) Example 2. A NGEP meets with an executive officer of an 
insured depository institution and states that the institution must 
improve its CRA performance.
    (iii) Example 3. A NGEP meets with an executive officer of an 
insured depository institution and states that the institution needs to 
make more mortgage loans in low- and moderate-income neighborhoods in 
its community.
    (iv) Example 4. A bank holding company files an application with a 
Federal banking agency to acquire an insured depository institution. 
Two weeks later, the NGEP meets with an executive officer of the bank 
holding company to discuss the adequacy of the performance under the 
CRA of the target insured depository institution. The insured 
depository institution was an affiliate of the bank holding company at 
the time the NGEP met with the target institution. (See Sec.  
390.170(a)) Accordingly, the NGEP had a CRA communication with an 
affiliate of the bank holding company.
    (2) Examples of actions that are not CRA communications. The 
following are examples of actions that are not by themselves CRA 
communications. These examples are not exclusive.
    (i) Example 1. A NGEP provides to a Federal banking agency comments 
or testimony concerning an insured depository institution or affiliate 
in response to a direct request by the agency for comments or testimony 
from that NGEP. Direct requests for comments or testimony do not 
include a general invitation by a Federal banking agency for comments 
or testimony from the public in connection with a CRA performance 
evaluation of, or application for a deposit facility (as defined in 
section 803 of the CRA (12 U.S.C. 2902(3)) by, an insured depository 
institution or an application by a company to acquire an insured 
depository institution.
    (ii) Example 2. A NGEP makes a statement concerning an insured 
depository institution or affiliate at a widely attended conference or 
seminar regarding a general topic. A public or private meeting, public 
hearing, or other meeting regarding one or more specific institutions, 
affiliates or transactions involving an application for a deposit 
facility is not considered a widely attended conference or seminar.
    (iii) Example 3. A NGEP, such as a civil rights group, community 
group providing housing and other services in low- and moderate-income 
neighborhoods, veterans organization, community theater group, or youth 
organization, sends a fundraising letter to insured depository 
institutions and to other businesses in its community. The letter 
encourages all businesses in the community to meet their obligation to 
assist in making the local community a better place to live and work by 
supporting the fundraising efforts of the NGEP.
    (iv) Example 4. A NGEP discusses with an insured depository 
institution

[[Page 47699]]

or affiliate whether particular loans, services, investments, community 
development activities, or other activities are generally eligible for 
consideration by a Federal banking agency under the CRA. The NGEP and 
insured depository institution or affiliate do not discuss the adequacy 
of the CRA performance of the insured depository institution or 
affiliate.
    (v) Example 5. A NGEP engaged in the sale or purchase of loans in 
the secondary market sends a general offering circular to financial 
institutions offering to sell or purchase a portfolio of loans. An 
insured depository institution that receives the offering circular 
discusses with the NGEP the types of loans included in the loan pool, 
whether such loans are generally eligible for consideration under the 
CRA, and which loans are made to borrowers in the institution's local 
community. The NGEP and insured depository institution do not discuss 
the adequacy of the institution's CRA performance.
    (d) Multiparty covered agreements. (1) A NGEP that is a party to a 
covered agreement that involves multiple NGEPs is not required to 
comply with the requirements of this part if--
    (i) The NGEP has not had a CRA communication; and
    (ii) No representative of the NGEP identified in paragraph (b)(4) 
of this section has knowledge at the time of the agreement that another 
NGEP that is a party to the agreement has had a CRA communication.
    (2) An insured depository institution or affiliate that is a party 
to a covered agreement that involves multiple insured depository 
institutions or affiliates is not required to comply with the 
requirements in Sec. Sec.  390.165 and 390.166 if--
    (i) No NGEP that is a party to the agreement has had a CRA 
communication concerning the insured depository institution or any 
affiliate; and
    (ii) No representative of the insured depository institution or any 
affiliate identified in paragraph (b)(3) of this section has knowledge 
at the time of the agreement that an NGEP that is a party to the 
agreement has had a CRA communication concerning any other insured 
depository institution or affiliate that is a party to the agreement.


Sec.  390.163  Fulfillment of the CRA.

    (a) List of factors that are in fulfillment of the CRA. Fulfillment 
of the CRA, for purposes of this subpart, means the following list of 
factors--
    (1) Comments to a Federal banking agency or included in CRA public 
file. Providing or refraining from providing written or oral comments 
or testimony to any Federal banking agency concerning the performance 
under the CRA of an insured depository institution or CRA affiliate 
that is a party to the agreement or an affiliate of a party to the 
agreement or written comments that are required to be included in the 
CRA public file of any such insured depository institution; or
    (2) Activities given favorable CRA consideration. Performing any of 
the following activities if the activity is of the type that is likely 
to receive favorable consideration by a Federal banking agency in 
evaluating the performance under the CRA of the insured depository 
institution that is a party to the agreement or an affiliate of a party 
to the agreement--
    (i) Home-purchase, home-improvement, small business, small farm, 
community development, and consumer lending, as described in 12 CFR 
195.22, including loan purchases, loan commitments, and letters of 
credit;
    (ii) Making investments, deposits, or grants, or acquiring 
membership shares, that have as their primary purpose community 
development, as described in 12 CFR 195.23;
    (iii) Delivering retail banking services, as described in 12 CFR 
195.24(d);
    (iv) Providing community development services, as described in 12 
CFR 195.24(e);
    (v) In the case of a wholesale or limited-purpose insured 
depository institution, community development lending, including 
originating and purchasing loans and making loan commitments and 
letters of credit, making qualified investments, or providing community 
development services, as described in 12 CFR 195.25(c);
    (vi) In the case of a small insured depository institution, any 
lending or other activity described in 12 CFR 195.26(a); or
    (vii) In the case of an insured depository institution that is 
evaluated on the basis of a strategic plan, any element of the 
strategic plan, as described in 12 CFR 195.27(f).
    (b) Agreements relating to activities of CRA affiliates. An insured 
depository institution or affiliate that is a party to a covered 
agreement that concerns any activity described in paragraph (a) of this 
section of a CRA affiliate must, prior to the time the agreement is 
entered into, notify each NGEP that is a party to the agreement that 
the agreement concerns a CRA affiliate.


Sec.  390.164  Related agreements considered a single agreement.

    The following rules must be applied in determining whether an 
agreement is a covered agreement under Sec.  390.161.
    (a) Agreements entered into by same parties. All written agreements 
to which an insured depository institution or an affiliate of the 
insured depository institution is a party shall be considered to be a 
single agreement if the agreements--
    (1) Are entered into with the same NGEP;
    (2) Were entered into within the same 12-month period; and
    (3) Are each in fulfillment of the CRA.
    (b) Substantively related contracts. All written contracts to which 
an insured depository institution or an affiliate of the insured 
depository institution is a party shall be considered to be a single 
agreement, without regard to whether the other parties to the contracts 
are the same or whether each such contract is in fulfillment of the 
CRA, if the contracts were negotiated in a coordinated fashion and a 
NGEP is a party to each contract.


Sec.  390.165  Disclosure of covered agreements.

    (a) Applicability date. This section applies only to covered 
agreements entered into after November 12, 1999.
    (b) Disclosure of covered agreements to the public--(1) Disclosure 
required. Each NGEP and each insured depository institution or 
affiliate that enters into a covered agreement must make a copy of the 
covered agreement available to any individual or entity upon request.
    (2) Nondisclosure of confidential and proprietary information 
permitted. In responding to a request for a covered agreement from any 
individual or entity under paragraph (b)(1) of this section, a NGEP, 
insured depository institution, or affiliate may withhold from public 
disclosure confidential or proprietary information that the party 
believes the relevant supervisory agency could withhold from disclosure 
under the Freedom of Information Act (5 U.S.C. 552 et seq.) (FOIA).
    (3) Information that must be disclosed. Notwithstanding paragraph 
(b)(2) of this section, a party must disclose any of the following 
information that is contained in a covered agreement--
    (i) The names and addresses of the parties to the agreement;
    (ii) The amount of any payments, fees, loans, or other 
consideration to be made or provided by any party to the agreement;
    (iii) Any description of how the funds or other resources provided 
under the agreement are to be used;

[[Page 47700]]

    (iv) The term of the agreement (if the agreement establishes a 
term); and
    (v) Any other information that the relevant supervisory agency 
determines is not properly exempt from public disclosure.
    (4) Request for review of withheld information. Any individual or 
entity may request that the relevant supervisory agency review whether 
any information in a covered agreement withheld by a party must be 
disclosed. Any requests for agency review of withheld information must 
be filed, and will be processed in accordance with, the relevant 
supervisory agency's rules concerning the availability of information 
(see part 309).
    (5) Duration of obligation. The obligation to disclose a covered 
agreement to the public terminates 12 months after the end of the term 
of the agreement.
    (6) Reasonable copy and mailing fees. Each NGEP and each insured 
depository institution or affiliate may charge an individual or entity 
that requests a copy of a covered agreement a reasonable fee not to 
exceed the cost of copying and mailing the agreement.
    (7) Use of CRA public file by insured depository institution or 
affiliate. An insured depository institution and any affiliate of an 
insured depository institution may fulfill its obligation under this 
paragraph (b) by placing a copy of the covered agreement in the insured 
depository institution's CRA public file if the institution makes the 
agreement available in accordance with the procedures set forth in 12 
CFR 195.43.
    (c) Disclosure by NGEPs of covered agreements to the relevant 
supervisory agency. (1) Each NGEP that is a party to a covered 
agreement must provide the following within 30 days of receiving a 
request from the relevant supervisory agency--
    (i) A complete copy of the agreement; and
    (ii) In the event the NGEP proposes the withholding of any 
information contained in the agreement in accordance with paragraph 
(b)(2) of this section, a public version of the agreement that excludes 
such information and an explanation justifying the exclusions. Any 
public version must include the information described in paragraph 
(b)(3) of this section.
    (2) The obligation to provide a covered agreement to the relevant 
supervisory agency terminates 12 months after the end of the term of 
the covered agreement.
    (d) Disclosure by insured depository institution or affiliate of 
covered agreements to the relevant supervisory agency--(1) In general. 
Within 60 days of the end of each calendar quarter, each insured 
depository institution and affiliate must provide each relevant 
supervisory agency with--
    (i)(A) A complete copy of each covered agreement entered into by 
the insured depository institution or affiliate during the calendar 
quarter; and
    (B) In the event the institution or affiliate proposes the 
withholding of any information contained in the agreement in accordance 
with paragraph (b)(2) of this section, a public version of the 
agreement that excludes such information (other than any information 
described in paragraph (b)(3) of this section) and an explanation 
justifying the exclusions; or
    (ii) A list of all covered agreements entered into by the insured 
depository institution or affiliate during the calendar quarter that 
contains--
    (A) The name and address of each insured depository institution or 
affiliate that is a party to the agreement;
    (B) The name and address of each NGEP that is a party to the 
agreement;
    (C) The date the agreement was entered into;
    (D) The estimated total value of all payments, fees, loans and 
other consideration to be provided by the institution or any affiliate 
of the institution under the agreement; and
    (E) The date the agreement terminates.
    (2) Prompt filing of covered agreements contained in list required. 
(i) If an insured depository institution or affiliate files a list of 
the covered agreements entered into by the institution or affiliate 
pursuant to paragraph (d)(1)(ii) of this section, the institution or 
affiliate must provide any relevant supervisory agency a complete copy 
and public version of any covered agreement referenced in the list 
within 7 calendar days of receiving a request from the agency for a 
copy of the agreement.
    (ii) The obligation of an insured depository institution or 
affiliate to provide a covered agreement to the relevant supervisory 
agency under this paragraph (d)(2) terminates 36 months after the end 
of the term of the covered agreement.
    (3) Joint filings. In the event that 2 or more insured depository 
institutions or affiliates are parties to a covered agreement, the 
insured depository institution(s) and affiliate(s) may jointly file the 
documents required by this paragraph (d) of this section. Any joint 
filing must identify the insured depository institution(s) and 
affiliate(s) for whom the filings are being made.


Sec.  390.166  Annual reports.

    (a) Applicability date. This section applies only to covered 
agreements entered into on or after May 12, 2000.
    (b) Annual report required. Each NGEP and each insured depository 
institution or affiliate that is a party to a covered agreement must 
file an annual report with each relevant supervisory agency concerning 
the disbursement, receipt, and uses of funds or other resources under 
the covered agreement.
    (c) Duration of reporting requirement--(1) NGEPs. A NGEP must file 
an annual report for a covered agreement for any fiscal year in which 
the NGEP receives or uses funds or other resources under the agreement.
    (2) Insured depository institutions and affiliates. An insured 
depository institution or affiliate must file an annual report for a 
covered agreement for any fiscal year in which the institution or 
affiliate--
    (i) Provides or receives any payments, fees, or loans under the 
covered agreement that must be reported under paragraphs (e)(1)(iii) 
and (iv) of this section; or
    (ii) Has data to report on loans, investments, and services 
provided by a party to the covered agreement under the covered 
agreement under paragraph (e)(1)(vi) of this section.
    (d) Annual reports filed by NGEP--(1) Contents of report. The 
annual report filed by a NGEP under this section must include the 
following--
    (i) The name and mailing address of the NGEP filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by providing the names 
of the parties to the agreement and the date the agreement was entered 
into or by providing a copy of the agreement;
    (iii) The amount of funds or resources received under the covered 
agreement during the fiscal year; and
    (iv) A detailed, itemized list of how the funds or resources 
received by the NGEP under the covered agreement were used during the 
fiscal year, including the total amount used for--
    (A) Compensation of officers, directors, and employees;
    (B) Administrative expenses;
    (C) Travel expenses;
    (D) Entertainment expenses;
    (E) Payment of consulting and professional fees; and
    (F) Other expenses and uses (specify expense or use).
    (2) More detailed reporting of uses of funds or resources 
permitted--(i) In general. If a NGEP allocated and used funds received 
under a covered agreement for a specific purpose, the

[[Page 47701]]

NGEP may fulfill the requirements of paragraph (d)(1)(iv) of this 
section with respect to such funds by providing--
    (A) A brief description of each specific purpose for which the 
funds or other resources were used; and
    (B) The amount of funds or resources used during the fiscal year 
for each specific purpose.
    (ii) Specific purpose defined. A NGEP allocates and uses funds for 
a specific purpose if the NGEP receives and uses the funds for a 
purpose that is more specific and limited than the categories listed in 
paragraph (d)(1)(iv) of this section.
    (3) Use of other reports. The annual report filed by a NGEP may 
consist of or incorporate a report prepared for any other purpose, such 
as the Internal Revenue Service Return of Organization Exempt From 
Income Tax on Form 990, or any other Internal Revenue Service form, 
state tax form, report to members or shareholders, audited or unaudited 
financial statements, audit report, or other report, so long as the 
annual report filed by the NGEP contains all of the information 
required by this paragraph (d).
    (4) Consolidated reports permitted. A NGEP that is a party to 2 or 
more covered agreements may file with each relevant supervisory agency 
a single consolidated annual report covering all the covered 
agreements. Any consolidated report must contain all the information 
required by this paragraph (d). The information reported under 
paragraphs (d)(1)(iv) and (d)(2) of this section may be reported on an 
aggregate basis for all covered agreements.
    (5) Examples of annual report requirements for NGEPs--(i) Example 
1. A NGEP receives an unrestricted grant of $15,000 under a covered 
agreement, includes the funds in its general operating budget and uses 
the funds during its fiscal year. The NGEP's annual report for the 
fiscal year must provide the name and mailing address of the NGEP, 
information sufficient to identify the covered agreement, and state 
that the NGEP received $15,000 during the fiscal year. The report must 
also indicate the total expenditures made by the NGEP during the fiscal 
year for compensation, administrative expenses, travel expenses, 
entertainment expenses, consulting and professional fees, and other 
expenses and uses. The NGEP's annual report may provide this 
information by submitting an Internal Revenue Service Form 990 that 
includes the required information. If the Internal Revenue Service Form 
does not include information for all of the required categories listed 
in this part, the NGEP must report the total expenditures in the 
remaining categories either by providing that information directly or 
by providing another form or report that includes the required 
information.
    (ii) Example 2. An organization receives $15,000 from an insured 
depository institution under a covered agreement and allocates and uses 
the $15,000 during the fiscal year to purchase computer equipment to 
support its functions. The organization's annual report must include 
the name and address of the organization, information sufficient to 
identify the agreement, and a statement that the organization received 
$15,000 during the year. In addition, since the organization allocated 
and used the funds for a specific purpose that is more narrow and 
limited than the categories of expenses included in the detailed, 
itemized list of expenses, the organization would have the option of 
providing either the total amount it used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section, 
or a statement that it used the $15,000 to purchase computer equipment 
and a brief description of the equipment purchased.
    (iii) Example 3. A community group receives $50,000 from an insured 
depository institution under a covered agreement. During its fiscal 
year, the community group specifically allocates and uses $5,000 of the 
funds to pay for a particular business trip and uses the remaining 
$45,000 for general operating expenses. The group's annual report for 
the fiscal year must include the name and address of the group, 
information sufficient to identify the agreement, and a statement that 
the group received $50,000. Because the group did not allocate and use 
all of the funds for a specific purpose, the group's annual report must 
provide the total amount of funds it used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section. 
The group's annual report also could state that it used $5,000 for a 
particular business trip and include a brief description of the trip.
    (iv) Example 4. A community development organization is a party to 
two separate covered agreements with two unaffiliated insured 
depository institutions. Under each agreement, the organization 
receives $15,000 during its fiscal year and uses the funds to support 
its activities during that year. If the organization elects to file a 
consolidated annual report, the consolidated report must identify the 
organization and the two covered agreements, state that the 
organization received $15,000 during the fiscal year under each 
agreement, and provide the total amount that the organization used 
during the year for each category of expenses included in paragraph 
(d)(1)(iv) of this section.
    (e) Annual report filed by insured depository institution or 
affiliate--(1) General. The annual report filed by an insured 
depository institution or affiliate must include the following--
    (i) The name and principal place of business of the insured 
depository institution or affiliate filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by providing the names 
of the parties to the agreement and the date the agreement was entered 
into or by providing a copy of the agreement;
    (iii) The aggregate amount of payments, aggregate amount of fees, 
and aggregate amount of loans provided by the insured depository 
institution or affiliate under the covered agreement to any other party 
to the agreement during the fiscal year;
    (iv) The aggregate amount of payments, aggregate amount of fees, 
and aggregate amount of loans received by the insured depository 
institution or affiliate under the covered agreement from any other 
party to the agreement during the fiscal year;
    (v) A general description of the terms and conditions of any 
payments, fees, or loans reported under paragraphs (e)(1)(iii) and (iv) 
of this section, or, in the event such terms and conditions are set 
forth--
    (A) In the covered agreement, a statement identifying the covered 
agreement and the date the agreement (or a list identifying the 
agreement) was filed with the relevant supervisory agency; or
    (B) In a previous annual report filed by the insured depository 
institution or affiliate, a statement identifying the date the report 
was filed with the relevant supervisory agency; and
    (vi) The aggregate amount and number of loans, aggregate amount and 
number of investments, and aggregate amount of services provided under 
the covered agreement to any individual or entity not a party to the 
agreement--
    (A) By the insured depository institution or affiliate during its 
fiscal year; and
    (B) By any other party to the agreement, unless such information is 
not known to the insured depository institution or affiliate filing the 
report or such information is or will be contained in the annual report 
filed by another party under this section.
    (2) Consolidated reports permitted--(i) Party to multiple 
agreements. An insured depository institution or

[[Page 47702]]

affiliate that is a party to 2 or more covered agreements may file a 
single consolidated annual report with each relevant supervisory agency 
concerning all the covered agreements.
    (ii) Affiliated entities party to the same agreement. An insured 
depository institution and its affiliates that are parties to the same 
covered agreement may file a single consolidated annual report relating 
to the agreement with each relevant supervisory agency for the covered 
agreement.
    (iii) Content of report. Any consolidated annual report must 
contain all the information required by this paragraph (e). The amounts 
and data required to be reported under paragraphs (e)(1)(iv) and (vi) 
of this section may be reported on an aggregate basis for all covered 
agreements.
    (f) Time and place of filing--(1) General. Each party must file its 
annual report with each relevant supervisory agency for the covered 
agreement no later than six months following the end of the fiscal year 
covered by the report.
    (2) Alternative method of fulfilling annual reporting requirement 
for a NGEP. (i) A NGEP may fulfill the filing requirements of this 
section by providing the following materials to an insured depository 
institution or affiliate that is a party to the agreement no later than 
six months following the end of the NGEP's fiscal year--
    (A) A copy of the NGEP's annual report required under paragraph (d) 
of this section for the fiscal year; and
    (B) Written instructions that the insured depository institution or 
affiliate promptly forward the annual report to the relevant 
supervisory agency or agencies on behalf of the NGEP.
    (ii) An insured depository institution or affiliate that receives 
an annual report from a NGEP pursuant to paragraph (f)(2)(i) of this 
section must file the report with the relevant supervisory agency or 
agencies on behalf of the NGEP within 30 days.


Sec.  390.167  Release of information under FOIA.

    FDIC will make covered agreements and annual reports available to 
the public in accordance with the Freedom of Information Act (5 U.S.C. 
552 et seq.) and the FDIC's rules (part 309). A party to a covered 
agreement may request confidential treatment of proprietary and 
confidential information in a covered agreement or an annual report 
under those procedures.


Sec.  390.168  Compliance provisions.

    (a) Willful failure to comply with disclosure and reporting 
obligations. (1) If FDIC determines that a NGEP has willfully failed to 
comply in a material way with Sec.  390.165 or Sec.  390.166, FDIC will 
notify the NGEP in writing of that determination and provide the NGEP a 
period of 90 days (or such longer period as FDIC finds to be reasonable 
under the circumstances) to comply.
    (2) If the NGEP does not comply within the time period established 
by FDIC, the agreement shall thereafter be unenforceable by that NGEP 
by operation of section 48 of the Federal Deposit Insurance Act (12 
U.S.C. 1831y).
    (3) FDIC may assist any insured depository institution or affiliate 
that is a party to a covered agreement that is unenforceable by a NGEP 
by operation of section 48 of the Federal Deposit Insurance Act (12 
U.S.C. 1831y) in identifying a successor to assume the NGEP's 
responsibilities under the agreement.
    (b) Diversion of funds. If a court or other body of competent 
jurisdiction determines that funds or resources received under a 
covered agreement have been diverted contrary to the purposes of the 
covered agreement for an individual's personal financial gain, FDIC may 
take either or both of the following actions--
    (1) Order the individual to disgorge the diverted funds or 
resources received under the agreement;
    (2) Prohibit the individual from being a party to any covered 
agreement for a period not to exceed 10 years.
    (c) Notice and opportunity to respond. Before making a 
determination under paragraph (a)(1) of this section, or taking any 
action under paragraph (b) of this section, FDIC will provide written 
notice and an opportunity to present information to FDIC concerning any 
relevant facts or circumstances relating to the matter.
    (d) Inadvertent or de minimis errors. Inadvertent or de minimis 
errors in annual reports or other documents filed with FDIC under 
Sec. Sec.  390.165 or 390.166 will not subject the reporting party to 
any penalty.
    (e) Enforcement of provisions in covered agreements. No provision 
of this subpart shall be construed as authorizing FDIC to enforce the 
provisions of any covered agreement.


Sec.  390.169  [Reserved].


Sec.  390.170  Other definitions and rules of construction used in this 
subpart.

    (a) Affiliate. Affiliate means--
    (1) Any company that controls, is controlled by, or is under common 
control with another company; and
    (2) For the purpose of determining whether an agreement is a 
covered agreement under Sec.  390.161, an affiliate includes any 
company that would be under common control or merged with another 
company on consummation of any transaction pending before a Federal 
banking agency at the time--
    (i) The parties enter into the agreement; and
    (ii) The NGEP that is a party to the agreement makes a CRA 
communication, as described in Sec.  390.162.
    (b) Control. Control is defined in section 2(a) of the Bank Holding 
Company Act (12 U.S.C. 1841(a)).
    (c) CRA affiliate. A CRA affiliate of an insured depository 
institution is any company that is an affiliate of an insured 
depository institution to the extent, and only to the extent, that the 
activities of the affiliate were considered by the appropriate Federal 
banking agency when evaluating the CRA performance of the institution 
at its most recent CRA examination prior to the agreement. An insured 
depository institution or affiliate also may designate any company as a 
CRA affiliate at any time prior to the time a covered agreement is 
entered into by informing the NGEP that is a party to the agreement of 
such designation.
    (d) CRA public file. CRA public file means the public file 
maintained by an insured depository institution and described in 12 CFR 
195.43.
    (e) Executive officer. The term executive officer has the same 
meaning as in Sec.  215.2(e)(1) of the Board of Governors of the 
Federal Reserve's Regulation O (12 CFR 215.2(e)(1)). In applying this 
definition under this subpart, the term State savings association shall 
be used in place of the term bank.
    (f) Federal banking agency; appropriate Federal banking agency. The 
terms Federal banking agency and appropriate Federal banking agency 
have the same meanings as in section 3 of the Federal Deposit Insurance 
Act (12 U.S.C. 1813).
    (g) Fiscal year. (1) The fiscal year for a NGEP that does not have 
a fiscal year shall be the calendar year.
    (2) Any NGEP, insured depository institution, or affiliate that has 
a fiscal year may elect to have the calendar year be its fiscal year 
for purposes of this part.
    (h) Insured depository institution. Insured depository institution 
has the same meaning as in section 3 of the Federal Deposit Insurance 
Act (12 U.S.C. 1813).
    (i) Nongovernmental entity or person or NGEP--(1) General. A 
nongovernmental entity or person or NGEP is any partnership, 
association,

[[Page 47703]]

trust, joint venture, joint stock company, corporation, limited 
liability corporation, company, firm, society, other organization, or 
individual.
    (2) Exclusions. A nongovernmental entity or person does not 
include--
    (i) The United States government, a state government, a unit of 
local government (including a county, city, town, township, parish, 
village, or other general-purpose subdivision of a state) or an Indian 
tribe or tribal organization established under Federal, state or Indian 
tribal law (including the Department of Hawaiian Home Lands), or a 
department, agency, or instrumentality of any such entity;
    (ii) A federally-chartered public corporation that receives Federal 
funds appropriated specifically for that corporation;
    (iii) An insured depository institution or affiliate of an insured 
depository institution; or
    (iv) An officer, director, employee, or representative (acting in 
his or her capacity as an officer, director, employee, or 
representative) of an entity listed in paragraphs (i)(2)(i), (ii), or 
(iii) of this section.
    (j) Party. The term party with respect to a covered agreement means 
each NGEP and each insured depository institution or affiliate that 
entered into the agreement.
    (k) Relevant supervisory agency. The relevant supervisory agency 
for a covered agreement means the appropriate Federal banking agency 
for--
    (1) Each insured depository institution (or subsidiary thereof) 
that is a party to the covered agreement;
    (2) Each insured depository institution (or subsidiary thereof) or 
CRA affiliate that makes payments or loans or provides services that 
are subject to the covered agreement; and
    (3) Any company (other than an insured depository institution or 
subsidiary thereof) that is a party to the covered agreement.
    (l) Term of agreement. An agreement that does not have a fixed 
termination date is considered to terminate on the last date on which 
any party to the agreement makes any payment or provides any loan or 
other resources under the agreement, unless the relevant supervisory 
agency for the agreement otherwise notifies each party in writing.

Subpart I--Consumer Protection in Sales of Insurance


Sec.  390.180  Purpose and scope.

    (a) General rule. This subpart establishes consumer protections in 
connection with retail sales practices, solicitations, advertising, or 
offers of any insurance product or annuity to a consumer by:
    (1) Any State savings association, as defined in section 3 of the 
Federal Deposit Insurance Act (FDIA), (12 U.S.C. 1813(b)); or
    (2) Any other person that is engaged in such activities at an 
office of a State savings association or on behalf of a State savings 
association.
    (b) Application to subsidiaries. A subsidiary is subject to this 
subpart only to the extent that it sells, solicits, advertises, or 
offers insurance products or annuities at an office of a State savings 
association or on behalf of a State savings association.


Sec.  390.181  Definitions.

    As used in this subpart:
    Affiliate means a company that controls, is controlled by, or is 
under common control with another company.
    Company means any corporation, partnership, business trust, 
association or similar organization, or any other trust (unless by its 
terms the trust must terminate within twenty-five years or not later 
than twenty-one years and ten months after the death of individuals 
living on the effective date of the trust). It does not include any 
corporation the majority of the shares of which are owned by the United 
States or by any State, or a qualified family partnership, as defined 
in section 2(o)(10) of the Bank Holding Company Act of 1956, as amended 
(12 U.S.C. 1841(o)(10)).
    Consumer means an individual who purchases, applies to purchase, or 
is solicited to purchase from a covered person insurance products or 
annuities primarily for personal, family, or household purposes.
    Control of a company has the same meaning as in section 3(w)(5) of 
the FDIA, (12 U.S.C. 1813(w)(5)).
    Domestic violence means the occurrence of one or more of the 
following acts by a current or former family member, household member, 
intimate partner, or caretaker:
    (1) Attempting to cause or causing or threatening another person 
physical harm, severe emotional distress, psychological trauma, rape, 
or sexual assault;
    (2) Engaging in a course of conduct or repeatedly committing acts 
toward another person, including following the person without proper 
authority, under circumstances that place the person in reasonable fear 
of bodily injury or physical harm;
    (3) Subjecting another person to false imprisonment; or
    (4) Attempting to cause or causing damage to property so as to 
intimidate or attempt to control the behavior of another person.
    Electronic media includes any means for transmitting messages 
electronically between a covered person and a consumer in a format that 
allows visual text to be displayed on equipment, for example, a 
personal computer monitor.
    Office means the premises of a State savings association where 
retail deposits are accepted from the public.
    Subsidiary has the same meaning as in section 3(w)(4) of the FDIA, 
(12 U.S.C. 1813(w)(4)).
    You means:
    (1) A State savings association, as defined in Sec.  390.308; or
    (2) Any other person only when the person sells, solicits, 
advertises, or offers an insurance product or annuity to a consumer at 
an office of a State savings association, or on behalf of a State 
savings association. For purposes of this definition, activities on 
behalf of a State savings association include activities where a 
person, whether at an office of the State savings association or at 
another location, sells, solicits, advertises, or offers an insurance 
product or annuity and at least one of the following applies:
    (i) The person represents to a consumer that the sale, 
solicitation, advertisement, or offer of any insurance product or 
annuity is by or on behalf of the State savings association;
    (ii) The State savings association refers a consumer to a seller of 
insurance products and annuities and the State savings association has 
a contractual arrangement to receive commissions or fees derived from a 
sale of an insurance product or annuity resulting from that referral; 
or
    (iii) Documents evidencing the sale, solicitation, advertising, or 
offer of an insurance product or annuity identify or refer to the State 
savings association.


Sec.  390.182  Prohibited practices.

    (a) Anti-coercion and anti-tying rules. You may not engage in any 
practice that would lead a consumer to believe that an extension of 
credit, in violation of section 5(q) of the Home Owners' Loan Act (12 
U.S.C. 1464(q)), is conditional upon either:
    (1) The purchase of an insurance product or annuity from a State 
savings association or any of its affiliates; or
    (2) An agreement by the consumer not to obtain, or a prohibition on 
the consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (b) Prohibition on misrepresentations generally. You may not engage 
in any practice or use any advertisement at any office of, or on behalf 
of, a State savings

[[Page 47704]]

association or a subsidiary of a State savings association that could 
mislead any person or otherwise cause a reasonable person to reach an 
erroneous belief with respect to:
    (1) The fact that an insurance product or annuity you or any 
subsidiary of a State savings association sell or offer for sale is not 
backed by the Federal government or a State savings association, or the 
fact that the insurance product or annuity is not insured by the 
Federal Deposit Insurance Corporation;
    (2) In the case of an insurance product or annuity that involves 
investment risk, the fact that there is an investment risk, including 
the potential that principal may be lost and that the product may 
decline in value; or
    (3) In the case of a State savings association or subsidiary of a 
State savings association at which insurance products or annuities are 
sold or offered for sale, the fact that:
    (i) The approval of an extension of credit to a consumer by the 
State savings association or subsidiary may not be conditioned on the 
purchase of an insurance product or annuity by the consumer from the 
State savings association or a subsidiary of a State savings 
association; and
    (ii) The consumer is free to purchase the insurance product or 
annuity from another source.
    (c) Prohibition on domestic violence discrimination. You may not 
sell or offer for sale, as principal, agent, or broker, any life or 
health insurance product if the status of the applicant or insured as a 
victim of domestic violence or as a provider of services to victims of 
domestic violence is considered as a criterion in any decision with 
regard to insurance underwriting, pricing, renewal, or scope of 
coverage of such product, or with regard to the payment of insurance 
claims on such product, except as required or expressly permitted under 
State law.


Sec.  390.183  What you must disclose.

    (a) Insurance disclosures. In connection with the initial purchase 
of an insurance product or annuity by a consumer from you, you must 
disclose to the consumer, except to the extent the disclosure would not 
be accurate, that:
    (1) The insurance product or annuity is not a deposit or other 
obligation of, or guaranteed by, a State savings association or an 
affiliate of a State savings association;
    (2) The insurance product or annuity is not insured by the Federal 
Deposit Insurance Corporation (FDIC) or any other agency of the United 
States, a State savings association, or (if applicable) an affiliate of 
a State savings association; and
    (3) In the case of an insurance product or annuity that involves an 
investment risk, there is investment risk associated with the product, 
including the possible loss of value.
    (b) Credit disclosures. In the case of an application for credit in 
connection with which an insurance product or annuity is solicited, 
offered, or sold, you must disclose that a State savings association 
may not condition an extension of credit on either:
    (1) The consumer's purchase of an insurance product or annuity from 
the State savings association or any of its affiliates; or
    (2) The consumer's agreement not to obtain, or a prohibition on the 
consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (c) Timing and method of disclosures--(1) In general. The 
disclosures required by paragraph (a) of this section must be provided 
orally and in writing before the completion of the initial sale of an 
insurance product or annuity to a consumer. The disclosure required by 
paragraph (b) of this section must be made orally and in writing at the 
time the consumer applies for an extension of credit in connection with 
which an insurance product or annuity is solicited, offered, or sold.
    (2) Exception for transactions by mail. If you conduct an insurance 
product or annuity sale by mail, you are not required to make the oral 
disclosures required by paragraph (a) of this section. If you take an 
application for credit by mail, you are not required to make the oral 
disclosure required by paragraph (b) of this section.
    (3) Exception for transactions by telephone. If a sale of an 
insurance product or annuity is conducted by telephone, you may provide 
the written disclosures required by paragraph (a) of this section by 
mail within 3 business days beginning on the first business day after 
the sale, solicitation, or offer, excluding Sundays and the legal 
public holidays specified in 5 U.S.C. 6103(a). If you take an 
application for credit by telephone, you may provide the written 
disclosure required by paragraph (b) of this section by mail, provided 
you mail it to the consumer within three days beginning the first 
business day after the application is taken, excluding Sundays and the 
legal public holidays specified in 5 U.S.C. 6103(a).
    (4) Electronic form of disclosures. (i) Subject to the requirements 
of section 101(c) of the Electronic Signatures in Global and National 
Commerce Act (12 U.S.C. 7001(c)), you may provide the written 
disclosures required by paragraph (a) and (b) of this section through 
electronic media instead of on paper, if the consumer affirmatively 
consents to receiving the disclosures electronically and if the 
disclosures are provided in a format that the consumer may retain or 
obtain later, for example, by printing or storing electronically (such 
as by downloading).
    (ii) You are not required to provide orally any disclosures 
required by paragraphs (a) or (b) of this section that you provide by 
electronic media.
    (5) Disclosures must be readily understandable. The disclosures 
provided shall be conspicuous, simple, direct, readily understandable, 
and designed to call attention to the nature and significance of the 
information provided. For instance, you may use the following 
disclosures in visual media, such as television broadcasting, ATM 
screens, billboards, signs, posters and written advertisements and 
promotional materials, as appropriate and consistent with paragraphs 
(a) and (b) of this section:
     NOT A DEPOSIT
     NOT FDIC-INSURED
     NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
     NOT GUARANTEED BY THE STATE SAVINGS ASSOCIATION
     MAY GO DOWN IN VALUE
    (6) Disclosures must be meaningful. (i) You must provide the 
disclosures required by paragraphs (a) and (b) of this section in a 
meaningful form. Examples of the types of methods that could call 
attention to the nature and significance of the information provided 
include:
    (A) A plain-language heading to call attention to the disclosures;
    (B) A typeface and type size that are easy to read;
    (C) Wide margins and ample line spacing;
    (D) Boldface or italics for key words; and
    (E) Distinctive type size, style, and graphic devices, such as 
shading or sidebars, when the disclosures are combined with other 
information.
    (ii) You have not provided the disclosures in a meaningful form if 
you merely state to the consumer that the required disclosures are 
available in printed material, but do not provide the printed material 
when required and do not orally disclose the information to the 
consumer when required.
    (iii) With respect to those disclosures made through electronic 
media for which paper or oral disclosures are not required, the 
disclosures are not meaningfully provided if the consumer may bypass 
the visual text of the

[[Page 47705]]

disclosures before purchasing an insurance product or annuity.
    (7) Consumer acknowledgment. You must obtain from the consumer, at 
the time a consumer receives the disclosures required under paragraphs 
(a) or (b) of this section, or at the time of the initial purchase by 
the consumer of an insurance product or annuity, a written 
acknowledgment by the consumer that the consumer received the 
disclosures. You may permit a consumer to acknowledge receipt of the 
disclosures electronically or in paper form. If the disclosures 
required under paragraphs (a) or (b) of this section are provided in 
connection with a transaction that is conducted by telephone, you must:
    (i) Obtain an oral acknowledgment of receipt of the disclosures and 
maintain sufficient documentation to show that the acknowledgment was 
given; and
    (ii) Make reasonable efforts to obtain a written acknowledgment 
from the consumer.
    (d) Advertisements and other promotional material for insurance 
products or annuities. The disclosures described in paragraph (a) of 
this section are required in advertisements and promotional material 
for insurance products or annuities unless the advertisements and 
promotional material are of a general nature describing or listing the 
services or products offered by a State savings association.


Sec.  390.184  Where insurance activities may take place.

    (a) General rule. A State savings association must, to the extent 
practicable:
    (1) Keep the area where the State savings association conducts 
transactions involving insurance products or annuities physically 
segregated from areas where retail deposits are routinely accepted from 
the general public;
    (2) Identify the areas where insurance product or annuity sales 
activities occur; and
    (3) Clearly delineate and distinguish those areas from the areas 
where the State savings association's retail deposit-taking activities 
occur.
    (b) Referrals. Any person who accepts deposits from the public in 
an area where such transactions are routinely conducted in a State 
savings association may refer a consumer who seeks to purchase an 
insurance product or annuity to a qualified person who sells that 
product only if the person making the referral receives no more than a 
one-time, nominal fee of a fixed dollar amount for each referral that 
does not depend on whether the referral results in a transaction.


Sec.  390.185  Qualification and licensing requirements for insurance 
sales personnel.

    A State savings association may not permit any person to sell or 
offer for sale any insurance product or annuity in any part of the 
State savings association's office or on its behalf, unless the person 
is at all times appropriately qualified and licensed under applicable 
State insurance licensing standards with regard to the specific 
products being sold or recommended.

Appendix A to Subpart I of Part 390--Consumer Grievance Process

    Any consumer who believes that any State savings association or 
any other person selling, soliciting, advertising, or offering 
insurance products or annuities to the consumer at an office of the 
State savings association or on behalf of the State savings 
association has violated the requirements of this subpart should 
contact the FDIC at the following address: Federal Deposit Insurance 
Corporation, Consumer Response Center, 1100 Walnut St, Box 
11, Kansas City, MO 64106, or telephone 1-877-275-3342 (1-
877-ASK FDIC), or e-mail http://www.fdic.gov/consumers/consumer/ccc/contact.html.

Subpart J--Fiduciary Powers of State Savings Associations


Sec.  390.190  What regulations govern the fiduciary operations of 
State savings associations?

    A State savings association must conduct its fiduciary operations 
in accordance with applicable State law, and must exercise its 
fiduciary powers in a safe and sound manner.

Subpart K--Recordkeeping and Confirmation Requirements for 
Securities Transactions


Sec.  390.200  What does this subpart do?

    This subpart establishes recordkeeping and confirmation 
requirements that apply when a State savings association (``you'') 
effects certain securities transactions for customers.


Sec.  390.201  Must I comply with this subpart?

    (a) General. Except as provided under paragraph (b) of this 
section, you must comply with this subpart when:
    (1) You effect a securities transaction for a customer.
    (2) You effect a transaction in government securities.
    (3) You effect a transaction in municipal securities and are not 
registered as a municipal securities dealer with the SEC.
    (4) You effect a securities transaction as fiduciary. If you are a 
State savings association, you must comply with applicable law when you 
effect such a transaction.
    (b) Exceptions--(1) Small number of transactions. You are not 
required to comply with Sec.  390.204(b) through (d) (recordkeeping) 
and Sec.  390.213(a) through (c) (policies and procedures), if you 
effected an average of fewer than 500 securities transactions per year 
for customers over the three prior calendar years. You may exclude 
transactions in government securities when you calculate this average.
    (2) Government securities. If you effect fewer than 500 government 
securities brokerage transactions per year, you are not required to 
comply with Sec.  390.204 (recordkeeping) for those transactions. This 
exception does not apply to government securities dealer transactions. 
See 17 CFR 404.4(a).
    (3) Municipal securities. If you are registered with the SEC as a 
``municipal securities dealer,'' as defined in 15 U.S.C. 78c(a)(30) 
(see 15 U.S.C. 78o-4), you are not required to comply with this subpart 
when you conduct municipal securities transactions.
    (4) Foreign branches. You are not required to comply with this 
subpart when you conduct a transaction at your foreign branch.
    (5) Transactions by registered broker-dealers. You are not required 
to comply with this subpart for securities transactions effected by a 
registered broker-dealer, if the registered broker-dealer directly 
provides the customer with a confirmation. These transactions include a 
transaction effected by your employee who also acts as an employee of a 
registered broker-dealer (``dual employee'').


Sec.  390.202  What requirements apply to all transactions?

    You must effect all transactions, including transactions excepted 
under Sec.  390.201, in a safe and sound manner. You must maintain 
effective systems of records and controls regarding your customers' 
securities transactions. These systems must clearly and accurately 
reflect all appropriate information and provide an adequate basis for 
an audit.


Sec.  390.203  What definitions apply to this subpart?

    Asset-backed security means a security that is primarily serviced 
by the cash flows of a discrete pool of receivables or other financial 
assets, either fixed or revolving, that by their terms convert into 
cash within a finite time period. Asset-backed security

[[Page 47706]]

includes any rights or other assets designed to ensure the servicing or 
timely distribution of proceeds to the security holders.
    Common or collective investment fund means with respect to a 
fiduciary account, a fund established and administered by you in 
compliance with 12 CFR 9.18 or any fund established under 12 CFR 9.18.
    Completion of the transaction means:
    (1) If the customer purchases a security through or from you, 
except as provided in paragraph (2) of this definition, the time the 
customer pays you any part of the purchase price. If payment is made by 
a bookkeeping entry, the time you make the bookkeeping entry for any 
part of the purchase price.
    (2) If the customer purchases a security through or from you and 
pays for the security before you request payment or notify the customer 
that payment is due, the time you deliver the security to or into the 
account of the customer.
    (3) If the customer sells a security through or to you, except as 
provided in paragraph (4) of this definition, the time the customer 
delivers the security to you. If you have custody of the security at 
the time of sale, the time you transfer the security from the 
customer's account.
    (4) If the customer sells a security through or to you and delivers 
the security to you before you request delivery or notify the customer 
that delivery is due, the time you pay the customer or pay into the 
customer's account.
    Customer means a person or account, including an agency, trust, 
estate, guardianship, or other fiduciary account for which you effect a 
securities transaction. Customer does not include a broker or dealer, 
or you when you: act as a broker or dealer; act as a fiduciary with 
investment discretion over an account; are a trustee that acts as the 
shareholder of record for the purchase or sale of securities; or are 
the issuer of securities that are the subject of the transaction.
    Debt security means any security, such as a bond, debenture, note, 
or any other similar instrument that evidences a liability of the 
issuer (including any security of this type that is convertible into 
stock or a similar security). Debt security also includes a fractional 
or participation interest in these debt securities. Debt security does 
not include securities issued by an investment company registered under 
the Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq.
    Government security means:
    (1) A security that is a direct obligation of, or an obligation 
that is guaranteed as to principal and interest by, the United States;
    (2) A security that is issued or guaranteed by a corporation in 
which the United States has a direct or indirect interest if the 
Secretary of the Treasury has designated the security for exemption as 
necessary or appropriate in the public interest or for the protection 
of investors;
    (3) A security issued or guaranteed as to principal and interest by 
a corporation if a statute specifically designates, by name, the 
corporation's securities as exempt securities within the meaning of the 
laws administered by the SEC; or
    (4) Any put, call, straddle, option, or privilege on a government 
security described in this definition, other than a put, call, 
straddle, option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    Investment discretion means with respect to a fiduciary account, 
the sole or shared authority to determine what securities or other 
assets to purchase or sell on behalf of the account, regardless of 
whether this authority has been exercised.
    Investment company plan means any plan under which:
    (1) A customer purchases securities issued by an open-end 
investment company or unit investment trust registered under the 
Investment Company Act of 1940, making the payments directly to, or 
made payable to, the registered investment company, or the principal 
underwriter, custodian, trustee, or other designated agent of the 
registered investment company; or
    (2) A customer sells securities issued by an open-end investment 
company or unit investment trust registered under the Investment 
Company Act of 1940 under:
    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code; or
    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, securities in specified amounts 
(calculated in security units or dollars) at specified time intervals, 
and stating the commissions or charges (or the means of calculating 
them) that the customer will pay in connection with the purchase.
    Municipal security means:
    (1) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision.
    (2) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security that is an industrial development bond, the interest 
on which is excludable from gross income under section 103(a) of the 
Code (26 U.S.C. 103(a)).
    Periodic plan means a written document that authorizes you to act 
as agent to purchase or sell for a customer a specific security or 
securities (other than securities issued by an open end investment 
company or unit investment trust registered under the Investment 
Company Act of 1940). The written document must authorize you to 
purchase or sell in specific amounts (calculated in security units or 
dollars) or to the extent of dividends and funds available, at specific 
time intervals, and must set forth the commission or charges to be paid 
by the customer or the manner of calculating them.
    SEC means the Securities and Exchange Commission.
    Security means any note, stock, treasury stock, bond, debenture, 
certificate of interest or participation in any profit-sharing 
agreement or in any oil, gas, or other mineral royalty or lease, any 
collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, and any put, call, straddle, option, or privilege on any 
security or group or index of securities (including any interest 
therein or based on the value thereof), or, in general, any instrument 
commonly known as a ``security''; or any certificate of interest or 
participation in, temporary or interim certificate for, receipt for, or 
warrant or right to subscribe to or purchase, any of the foregoing. 
Security does not include currency; any note, draft, bill of exchange, 
or banker's acceptance which has a maturity at the time of issuance of 
less than nine months, exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited; a deposit or share 
account in a Federal or State chartered depository institution; a loan 
participation; a letter of credit or other form of bank indebtedness 
incurred in the ordinary course of business; units of a collective 
investment fund; interests in a variable amount (master) note of a 
borrower of prime credit; U.S. Savings Bonds; or any

[[Page 47707]]

other instrument FDIC determines does not constitute a security for 
purposes of this subpart.
    Sweep account means any prearranged, automatic transfer or sweep of 
funds above a certain dollar level from a deposit account to purchase a 
security or securities, or any prearranged, automatic redemption or 
sale of a security or securities when a deposit account drops below a 
certain level with the proceeds being transferred into a deposit 
account.


Sec.  390.204  What records must I maintain for securities 
transactions?

    If you effect securities transactions for customers, you must 
maintain all of the following records for at least three years:
    (a) Chronological records. You must maintain an itemized daily 
record of each purchase and sale of securities in chronological order, 
including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) The name and amount of the securities;
    (3) The unit and aggregate purchase or sale price;
    (4) The trade date; and
    (5) The name or other designation of the registered broker-dealer 
or other person from whom you purchased the securities or to whom you 
sold the securities.
    (b) Account records. You must maintain account records for each 
customer reflecting:
    (1) Purchases and sales of securities;
    (2) Receipts and deliveries of securities;
    (3) Receipts and disbursements of cash; and
    (4) Other debits and credits pertaining to transactions in 
securities.
    (c) Memorandum (order ticket). You must make and keep current a 
memorandum (order ticket) of each order or any other instruction given 
or received for the purchase or sale of securities (whether executed or 
not), including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) Whether the transaction was a market order, limit order, or 
subject to special instructions;
    (3) The time the trader received the order;
    (4) The time the trader placed the order with the registered 
broker-dealer, or if there was no registered broker-dealer, the time 
the trader executed or cancelled the order;
    (5) The price at which the trader executed the order;
    (6) The name of the registered broker-dealer you used.
    (d) Record of registered broker-dealers. You must maintain a record 
of all registered broker-dealers that you selected to effect securities 
transactions and the amount of commissions that you paid or allocated 
to each registered broker-dealer during each calendar year.
    (e) Notices. You must maintain a copy of the written notice 
required under sections 390.206-390.211.


Sec.  390.205  How must I maintain my records?

    (a) You may maintain the records required under Sec.  390.204 in 
any manner, form, or format that you deem appropriate. However, your 
records must clearly and accurately reflect the required information 
and provide an adequate basis for an audit of the information.
    (b) You, or the person that maintains and preserves records on your 
behalf, must:
    (1) Arrange and index the records in a way that permits easy 
location, access, and retrieval of a particular record;
    (2) Separately store, for the time required for preservation of the 
original record, a duplicate copy of the record on any medium allowed 
by this section;
    (3) Provide promptly any of the following that FDIC examiners or 
your directors may request:
    (i) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (ii) A legible, true, and complete printout of the record; and
    (iii) Means to access, view, and print the records.
    (4) In the case of records on electronic storage media, you, or the 
person that maintains and preserves records for you, must establish 
procedures:
    (i) To maintain, preserve, and reasonably safeguard the records 
from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, your directors, and FDIC examiners; and
    (iii) To reasonably ensure that any reproduction of a non-
electronic original record on electronic storage media is complete, 
true, and legible when retrieved.
    (c) You may contract with third party service providers to maintain 
the records.


Sec.  390.206  What type of notice must I provide when I effect a 
securities transaction for a customer?

    If you effect a securities transaction for a customer, you must 
give or send the customer the registered broker-dealer confirmation 
described at Sec.  390.207, or the written notice described at Sec.  
390.208. For certain types of transactions, you may elect to provide 
the alternate notices described in Sec.  390.209.


Sec.  390.207  How do I provide a registered broker-dealer 
confirmation?

    (a) If you elect to satisfy Sec.  390.206 by providing the customer 
with a registered broker-dealer confirmation, you must provide the 
confirmation by having the registered broker-dealer send the 
confirmation directly to the customer or by sending a copy of the 
registered broker-dealer's confirmation to the customer within one 
business day after you receive it.
    (b) If you have received or will receive remuneration from any 
source, including the customer, in connection with the transaction, you 
must provide a statement of the source and amount of the remuneration 
in addition to the registered broker-dealer confirmation described in 
paragraph (a) of this section.


Sec.  390.208  How do I provide a written notice?

    If you elect to satisfy Sec.  390.206 by providing the customer a 
written notice, you must give or send the written notice at or before 
the completion of the securities transaction. You must include all of 
the following information in a written notice:
    (a) Your name and the customer's name.
    (b) The capacity in which you acted (for example, as agent).
    (c) The date and time of execution of the securities transaction 
(or a statement that you will furnish this information within a 
reasonable time after the customer's written request), and the 
identity, price, and number of shares or units (or principal amount in 
the case of debt securities) of the security the customer purchased or 
sold.
    (d) The name of the person from whom you purchased or to whom you 
sold the security, or a statement that you will furnish this 
information within a reasonable time after the customer's written 
request.
    (e) The amount of any remuneration that you have received or will 
receive from the customer in connection with the transaction unless the 
remuneration paid by the customer is determined under a written 
agreement, other than on a transaction basis.
    (f) The source and amount of any other remuneration you have 
received or will receive in connection with the transaction. If, in the 
case of a purchase, you were not participating in a distribution, or in 
the case of a sale, were not participating in a tender offer, the 
written notice may state whether you have or will receive any other 
remuneration and state that you will furnish the source and amount of 
the other remuneration within a reasonable

[[Page 47708]]

time after the customer's written request.
    (g) That you are not a member of the Securities Investor Protection 
Corporation, if that is the case. This does not apply to a transaction 
in shares of a registered open-end investment company or unit 
investment trust if the customer sends funds or securities directly to, 
or receives funds or securities directly from, the registered open-end 
investment company or unit investment trust, its transfer agent, its 
custodian, or a designated broker or dealer who sends the customer 
either a confirmation or the written notice in this section.
    (h) Additional disclosures. You must provide all of the additional 
disclosures described in the following chart for transactions involving 
certain debt securities:

------------------------------------------------------------------------
                                          You must provide the following
If you effect a transaction involving .   additional information in your
                  . .                          written notice . . .
------------------------------------------------------------------------
(1) A debt security subject to           A statement that the issuer may
 redemption before maturity.              redeem the debt security in
                                          whole or in part before
                                          maturity, that the redemption
                                          could affect the represented
                                          yield, and that additional
                                          redemption information is
                                          available upon request.
(2) A debt security that you effected    (i) The dollar price at which
 exclusively on the basis of a dollar     you effected the transaction;
 price.                                   and
                                         (ii) The yield to maturity
                                          calculated from the dollar
                                          price. You do not have to
                                          disclose the yield to maturity
                                          if:
                                            (A) The issuer may extend
                                             the maturity date of the
                                             security with a variable
                                             interest rate; or
                                            (B) The security is an asset-
                                             backed security that
                                             represents an interest in,
                                             or is secured by, a pool of
                                             receivables or other
                                             financial assets that are
                                             subject continuously to
                                             prepayment.
(3) A debt security that you effected    (i) The yield at which the
 on basis of yield.                       transaction, including the
                                          percentage amount and its
                                          characterization (e.g.,
                                          current yield, yield to
                                          maturity, or yield to call).
                                          If you effected the
                                          transaction at yield to call,
                                          you must indicate the type of
                                          call, the call date, and the
                                          call price;
                                         (ii) The dollar price
                                          calculated from that yield;
                                          and
                                         (iii) The yield to maturity and
                                          the represented yield, if you
                                          effected the transaction on a
                                          basis other than yield to
                                          maturity and the yield to
                                          maturity is lower than the
                                          represented yield. You are not
                                          required to disclose this
                                          information if:
                                            (A) The issuer may extend
                                             the maturity date of the
                                             security with a variable
                                             interest rate; or
                                            (B) The security is an asset-
                                             backed security that
                                             represents an interest in,
                                             or is secured by, a pool of
                                             receivables or other
                                             financial assets that are
                                             subject continuously to
                                             prepayment.
(4) A debt security that is an asset-    (i) A statement that the actual
 backed security that represents an       yield of the asset-backed
 interest in, or is secured by, a pool    security may vary according to
 of receivables or other financial        the rate at which the
 assets that are subject continuously     underlying receivables or
 to prepayment.                           other financial assets are
                                          prepaid; and
                                         (ii) A statement that you will
                                          furnish information concerning
                                          the factors that affect yield
                                          (including at a minimum
                                          estimated yield, weighted
                                          average life, and the
                                          prepayment assumptions
                                          underlying yield) upon the
                                          customer's written request.
(5) A debt security, other than a        A statement that the security
 government security.                     is unrated by a nationally
                                          recognized statistical rating
                                          organization, if that is the
                                          case.
------------------------------------------------------------------------

Sec.  390.209  What are the alternate notice requirements?

    You may elect to satisfy Sec.  390.206 by providing the alternate 
notices described in the following chart for certain types of 
transactions.

------------------------------------------------------------------------
 If you effect a securities transaction
                 . . .                     Then you may elect to . . .
------------------------------------------------------------------------
(a) For or with the account of a         Give or send to the customer
 customer under a periodic plan, sweep    within five business days
 account, or investment company plan.     after the end of each
                                          quarterly period a written
                                          statement disclosing:
                                            (1) Each purchase and
                                             redemption that you
                                             effected for or with, and
                                             each dividend or
                                             distribution that you
                                             credited to or reinvested
                                             for, the customer's account
                                             during the period;
                                            (2) The date of each
                                             transaction;
                                            (3) The identity, number,
                                             and price of any securities
                                             that the customer purchased
                                             or redeemed in each
                                             transaction;
                                            (4) The total number of
                                             shares of the securities in
                                             the customer's account;
                                            (5) Any remuneration that
                                             you received or will
                                             receive in connection with
                                             the transaction; and
                                            (6) That you will give or
                                             send the registered broker-
                                             dealer confirmation
                                             described in Sec.   390.207
                                             or the written notice
                                             described in Sec.   390.208
                                             within a reasonable time
                                             after the customer's
                                             written request.

[[Page 47709]]

 
(b) For or with the account of a         Give or send to the customer
 customer in shares of an open-ended      the written statement
 management company registered under      described at paragraph (a) of
 the Investment Company Act of 1940       this section on a monthly
 that holds itself out as a money         basis. You may not use the
 market fund and attempts to maintain a   alternate notice, however, if
 stable net asset value per share.        you deduct sales loads upon
                                          the purchase or redemption of
                                          shares in the money market
                                          fund.
(c) For an account for which you do not  Give or send to the customer a
 exercise investment discretion, and      written notice at the agreed-
 for which you and the customer have      upon time and with the agreed-
 agreed in writing to an arrangement      upon content, and include a
 concerning the time and content of the   statement that you will
 written notice.                          furnish the registered broker-
                                          dealer confirmation described
                                          in Sec.   390.207 or the
                                          written notice described in
                                          Sec.   390.208 within a
                                          reasonable time after the
                                          customer's written request.
(d) For an account for which you         Give or send the registered
 exercise investment discretion other     broker-dealer confirmation
 than in an agency capacity, excluding    described in Sec.   390.207 or
 common or collective investment funds.   the written notice described
                                          in Sec.   390.208 within a
                                          reasonable time after a
                                          written request by the person
                                          with the power to terminate
                                          the account or, if there is no
                                          such person, any person
                                          holding a vested beneficial
                                          interest in the account.
(e) For an account in which you          Give or send each customer a
 exercise investment discretion in an     written itemized statement
 agency capacity.                         specifying the funds and
                                          securities in your custody or
                                          possession and all debits,
                                          credits, and transactions in
                                          the customer's account. You
                                          must provide this information
                                          to the customer not less than
                                          once every three months. You
                                          must give or send the
                                          registered broker-dealer
                                          confirmation described in Sec.
                                            390.207 or the written
                                          notice described in Sec.
                                          390.208 within a reasonable
                                          time after a customer's
                                          written request.
(f) For a common or collective           (1) Give or send to a customer
 investment fund.                         who invests in the fund a copy
                                          of the annual financial report
                                          of the fund, or
                                         (2) Notify the customer that a
                                          copy of the report is
                                          available and that you will
                                          furnish the report within a
                                          reasonable time after a
                                          written request by a person to
                                          whom a regular periodic
                                          accounting would ordinarily be
                                          rendered with respect to each
                                          participating account.
------------------------------------------------------------------------

Sec.  390.210  May I provide a notice electronically?

    You may provide any written notice required under Sec. Sec.  
390.206 through 390.211 electronically. If a customer has a facsimile 
machine, you may send the notice by facsimile transmission. You may use 
other electronic communications if:
    (a) The parties agree to use electronic instead of hard copy 
notices;
    (b) The parties are able to print or download the notice;
    (c) Your electronic communications system cannot automatically 
delete the electronic notice; and
    (d) Both parties are able to receive electronic messages.


Sec.  390.211  May I charge a fee for a notice?

    You may not charge a fee for providing a notice required under 
Sec. Sec.  390.206 through 390.211, except that you may charge a 
reasonable fee for the notices provided under Sec.  390.209(a), (d), 
and (e).


Sec.  390.212  When must I settle a securities transaction?

    (a) You may not effect or enter into a contract for the purchase or 
sale of a security that provides for payment of funds and delivery of 
securities later than the latest of:
    (1) The third business day after the date of the contract. This 
deadline is no later than the fourth business day after the contract 
for contracts involving the sale for cash of securities that are priced 
after 4:30 p.m. Eastern Standard Time on the date the securities are 
priced and are sold by an issuer to an underwriter under a firm 
commitment underwritten offering registered under the Securities Act of 
1933, 15 U.S.C. 77a, et seq., or are sold by you to an initial 
purchaser participating in the offering;
    (2) Such other time as the SEC specifies by rule (see SEC Rule 
15c6-1, 17 CFR 240.15c6-1); or
    (3) Such time as the parties expressly agree at the time of the 
transaction. The parties to a contract are deemed to have expressly 
agreed to an alternate date for payment of funds and delivery of 
securities at the time of the transaction for a contract for the sale 
for cash of securities under a firm commitment offering, if the 
managing underwriter and the issuer have agreed to the date for all 
securities sold under the offering and the parties to the contract have 
not expressly agreed to another date for payment of funds and delivery 
of securities at the time of the transaction.
    (b) The deadlines in paragraph (a) of this section do not apply to 
the purchase or sale of limited partnership interests that are not 
listed on an exchange or for which quotations are not disseminated 
through an automated quotation system of a registered securities 
association.


Sec.  390.213  What policies and procedures must I maintain and follow 
for securities transactions?

    If you effect securities transactions for customers, you must 
maintain and follow policies and procedures that meet all of the 
following requirements:
    (a) Your policies and procedures must assign responsibility for the 
supervision of all officers or employees who:
    (1) Transmit orders to, or place orders with, registered broker-
dealers;
    (2) Execute transactions in securities for customers; or
    (3) Process orders for notice or settlement purposes, or perform 
other back office functions for securities transactions that you effect 
for customers. Policies and procedures for personnel described in this 
paragraph (a)(3) must provide supervision and reporting lines that are 
separate from supervision and reporting lines for personnel described 
in paragraphs (a)(1) and (2) of this section.
    (b) Your policies and procedures must provide for the fair and 
equitable allocation of securities and prices to accounts when you 
receive orders for the same security at approximately the same time and 
you place the orders for execution either individually or in 
combination.
    (c) Your policies and procedures must provide for securities 
transactions in which you act as agent for the buyer and seller 
(crossing of buy and sell orders) on a fair and equitable basis to the 
parties to the transaction, where permissible under applicable law.
    (d) Your policies and procedures must require your officers and 
employees to file the personal securities trading

[[Page 47710]]

reports described at Sec.  390.214, if the officer or employee:
    (1) Makes investment recommendations or decisions for the accounts 
of customers;
    (2) Participates in the determination of these recommendations or 
decisions; or
    (3) In connection with their duties, obtains information concerning 
which securities you intend to purchase, sell, or recommend for 
purchase or sale.


Sec.  390.214  How do my officers and employees file reports of 
personal securities trading transactions?

    An officer or employee described in Sec.  390.213(d) must report 
all personal transactions in securities made by or on behalf of the 
officer or employee if he or she has a beneficial interest in the 
security.
    (a) Contents and filing of report. The officer or employee must 
file the report with you no later than 30 calendar days after the end 
of each calendar quarter. The report must include the following 
information:
    (1) The date of each transaction, the title and number of shares, 
the interest rate and maturity date (if applicable), and the principal 
amount of each security involved.
    (2) The nature of each transaction (i.e., purchase, sale, or other 
type of acquisition or disposition).
    (3) The price at which each transaction was effected.
    (4) The name of the broker, dealer, or other intermediary effecting 
the transaction.
    (5) The date the officer or employee submitted the report.
    (b) Report not required for certain transactions. Your officer or 
employee is not required to report a transaction if:
    (1) He or she has no direct or indirect influence or control over 
the account for which the transaction was effected or over the 
securities held in that account;
    (2) The transaction was in shares issued by an open-end investment 
company registered under the Investment Company Act of 1940;
    (3) The transaction was in direct obligations of the government of 
the United States;
    (4) The transaction was in bankers' acceptances, bank certificates 
of deposit, commercial paper or high quality short term debt 
instruments, including repurchase agreements; or
    (5) The officer or employee had an aggregate amount of purchases 
and sales of $10,000 or less during the calendar quarter.
    (c) Alternate report. When you act as an investment adviser to an 
investment company registered under the Investment Company Act of 1940, 
an officer or employee that is an ``access person'' may fulfill his or 
her reporting requirements under this section by filing with you the 
``access person'' personal securities trading report required by SEC 
Rule 17j-1(d), 17 CFR 270.17j-1(d).

Subpart L--Electronic Operations


Sec.  390.220  What does this subpart do?

    This subpart addresses notification of the FDIC by State savings 
associations who intend to establish a transactional Web site.


Sec.  390.221  Must I inform FDIC before I use electronic means or 
facilities?

    (a) General. A State savings association (``you'') are not required 
to inform FDIC before you use electronic means or facilities, except as 
provided in paragraphs (b) and (c) of this section. However, FDIC 
encourages you to consult with your appropriate FDIC region before you 
engage in any activities using electronic means or facilities.
    (b) Activities requiring advance notice. You must file a written 
notice as described in Sec.  390.222 before you establish a 
transactional Web site. A transactional Web site is an Internet site 
that enables users to conduct financial transactions such as accessing 
an account, obtaining an account balance, transferring funds, 
processing bill payments, opening an account, applying for or obtaining 
a loan, or purchasing other authorized products or services.
    (c) Other procedures. If the appropriate FDIC region informs you of 
any supervisory or compliance concerns that may affect your use of 
electronic means or facilities, you must follow any procedures it 
imposes in writing.


Sec.  390.222  How do I notify FDIC?

    (a) Notice requirement. You must file a written notice with the 
appropriate FDIC region at least 30 days before you establish a 
transactional Web site. The notice must do three things:
    (1) Describe the transactional Web site.
    (2) Indicate the date the transactional Web site will become 
operational.
    (3) List a contact familiar with the deployment, operation, and 
security of the transactional Web site.
    (b) [Reserved].

Subpart M--Deposits


Sec.  390.230  What does this subpart do?

    This subpart applies to the deposit activities of State savings 
associations.


Sec.  390.231  What records should I maintain on deposit activities?

    All State savings associations (``you'') should establish and 
maintain deposit documentation practices and records that demonstrate 
that you appropriately administer and monitor deposit-related 
activities. Your records should adequately evidence ownership, 
balances, and all transactions involving each account. You may maintain 
records on deposit activities in any format that is consistent with 
standard business practices.

Subpart N--Possession by Conservators and Receivers for Federal and 
State Savings Associations


Sec.  390.240  Procedure upon taking possession.

    (a) The conservator or receiver for a Federal or State savings 
association shall take possession of the savings association by taking 
possession of the principal office of the Federal or State savings 
association in accordance with the terms of the OCC's or State bank 
supervisor's, as appropriate, appointment.
    (b) Upon taking possession, the conservator or receiver shall 
immediately:
    (1) Take possession of the savings association's books, records and 
assets.
    (2) Notify in writing, served personally or by registered mail or 
telegraph, all persons and entities that the conservator or receiver 
knows to be holding or in possession of assets of the savings 
association, that the conservator or receiver has succeeded to all 
rights, titles, powers and privileges of the savings associations.
    (3) File with the Executive Secretary a statement that possession 
was taken, including the time of the taking, which statement shall be 
conclusive evidence thereof.
    (4) Post a notice on the door of the principal and other offices of 
the savings association in the form, if any, prescribed by the OCC or 
State bank supervisor, as appropriate.
    (5) By operation of law and without any conveyance or other 
instrument, act or deed, succeed to the rights, titles, powers and 
privileges of the savings association, and to the rights, powers, and 
privileges of its stockholders, members, accountholders, depositors, 
officers, and directors. No stockholder, member, accountholder, 
depositor, officer or director shall thereafter have or exercise any 
right, power, or privilege, or act in connection with any of the 
savings association's assets or property.

[[Page 47711]]

Sec.  390.241  Notice of appointment.

    (a) When the OCC or State bank supervisor, as appropriate, issues 
an order for the appointment of a conservator or receiver, the FDIC 
will designate the persons or entities whose employees or agents must, 
before the conservator or receiver takes possession of the savings 
association:
    (1) Give notice of the appointment to any officer or employee who 
is present in and appears to be in charge at the principal office of 
the savings association as determined by the FDIC.
    (2) Serve a copy of the order for the appointment upon the savings 
association or upon the conservator by:
    (i) Leaving a certified copy of the order of appointment at the 
principal office of the savings association as determined by the FDIC; 
or
    (ii) Handing a certified copy of the order of appointment to the 
previous conservator of the savings association, or to the officer or 
employee of the savings association, or to the previous conservator who 
is present in and appears to be in charge at the principal office of 
the savings association as determined by the FDIC.
    (3) File with the Executive Secretary of the FDIC a statement that 
includes the date and time that notice of the appointment was given and 
service of the order of appointment was made.
    (b) If the OCC or State bank supervisor, as appropriate, appoints a 
conservator or receiver under this subpart, the FDIC will immediately 
file a notice of the appointment for publication in the Federal 
Register.

Subpart O--Subordinate Organizations


Sec.  390.250  What does this subpart cover?

    (a) The FDIC is issuing this subpart O pursuant to its general 
rulemaking and supervisory authority under the Federal Deposit 
Insurance Act, 12 U.S.C. 1811 et seq., and its specific authority under 
section 18(m) of the Federal Deposit Insurance Act, 12 U.S.C. 1828(m). 
This subpart applies to subordinate organizations of State savings 
associations. The FDIC may, at any time, limit a State savings 
association's investment in any of these entities, or may limit or 
refuse to permit any activities of any of these entities for 
supervisory, legal, or safety and soundness reasons.
    (b) Notices under this subpart are applications for purposes of 
statutory and regulatory references to ``applications.'' Any conditions 
that the FDIC imposes in approving any application are enforceable as a 
condition imposed in writing by the FDIC in connection with the 
granting of a request by a State savings association within the meaning 
of 12 U.S.C. 1818(b) or 1818(i).


Sec.  390.251  Definitions.

    For purposes of this subpart:
    Control has the same meaning as in part 391, subpart E.
    GAAP-consolidated subsidiary means an entity in which a State 
savings association has a direct or indirect ownership interest and 
whose assets are consolidated with those of the savings association for 
purposes of reporting under Generally Accepted Accounting Principles 
(GAAP). Generally, these are entities in which a State savings 
association has a majority ownership interest.
    Lower-tier entity includes any company in which a subsidiary has a 
direct or indirect ownership interest.
    Ownership interest means any equity interest in a business 
organization, including stock, limited or general partnership 
interests, or shares in a limited liability company.
    Subordinate organization means any corporation, partnership, 
business trust, association, joint venture, pool, syndicate, or other 
similar business organization in which a State savings association has 
a direct or indirect ownership interest, unless that ownership interest 
qualifies as a pass-through investment and is so designated by the 
investing State savings association.
    Subsidiary means any subordinate organization directly or 
indirectly controlled by a State savings association.


Sec.  390.252  How must separate corporate identities be maintained?

    (a) Each State savings association and subordinate organization 
thereof must be operated in a manner that demonstrates to the public 
that each maintains a separate corporate existence. Each must operate 
so that:
    (1) Their respective business transactions, accounts, and records 
are not intermingled;
    (2) Each observes the formalities of their separate corporate 
procedures;
    (3) Each is adequately financed as a separate unit in light of 
normal obligations reasonably foreseeable in a business of its size and 
character;
    (4) Each is held out to the public as a separate enterprise; and
    (5) Unless the parent State savings association has guaranteed a 
loan to the subordinate organization, all borrowings by the subordinate 
organization indicate that the parent is not liable.
    (b) The FDIC regulations that apply both to State savings 
associations and subordinate organizations shall not be construed as 
requiring a State savings association and its subordinate organizations 
to operate as a single entity.


Sec.  390.253  What notices are required to establish or acquire a new 
subsidiary or engage in new activities through an existing subsidiary?

    When required by section 18(m) of the Federal Deposit Insurance 
Act, a State savings association (``you'') must file a notice 
(``Notice'') with the FDIC before establishing or acquiring a 
subsidiary or engaging in new activities in a subsidiary. The Notice 
must contain all of the information the required under 12 CFR 362.15. 
If the FDIC notifies you within 30 days that the Notice presents 
supervisory concerns, or raises significant issues of law or policy, 
you must apply for and receive the FDIC's prior written approval before 
establishing or acquiring the subsidiary or engaging in new activities 
in the subsidiary.


Sec.  390.254  How may a subsidiary of a State savings association 
issue securities?

    (a) A subsidiary may issue, either directly or through a third 
party intermediary, any securities that its parent State savings 
association (``you'') may issue. The subsidiary must not state or imply 
that the securities it issues are covered by federal deposit insurance. 
A subsidiary may not issue any security the payment, maturity, or 
redemption of which may be accelerated upon the condition that you are 
insolvent or have been placed into receivership.
    (b) You must file a notice with the FDIC in accordance with Sec.  
390.253 at least 30 days before your first issuance of any securities 
through an existing subsidiary or in conjunction with establishing or 
acquiring a new subsidiary. If the FDIC notifies you within 30 days 
that the notice presents supervisory concerns or raises significant 
issues of law or policy, you must receive the FDIC's prior written 
approval before issuing securities through your subsidiary.
    (c) For as long as any securities are outstanding, you must 
maintain all records generated through each securities issuance in the 
ordinary course of business, including a copy of any prospectus, 
offering circular, or similar document concerning such issuance, and 
make such records available for examination by the FDIC. Such records 
must include, but are not limited to:
    (1) The amount of your assets or liabilities (including any 
guarantees you make with respect to the securities

[[Page 47712]]

issuance) that have been transferred or made available to the 
subsidiary; the percentage that such amount represents of the current 
book value of your assets on an unconsolidated basis; and the current 
book value of all such assets of the subsidiary;
    (2) The terms of any guarantee(s) issued by you or any third party;
    (3) A description of the securities the subsidiary issued;
    (4) The net proceeds from the issuance of securities (or the pro 
rata portion of the net proceeds from securities issued through a 
jointly owned subsidiary); the gross proceeds of the securities 
issuance; and the market value of assets collateralizing the securities 
issuance (any assets of the subsidiary, including any guarantees of its 
securities issuance you have made);
    (5) The interest or dividend rates and yields, or the range 
thereof, and the frequency of payments on the subsidiary's securities;
    (6) The minimum denomination of the subsidiary's securities; and
    (7) Where the subsidiary marketed or intends to market the 
securities.


Sec.  390.255  How may a State savings association exercise its salvage 
power in connection with a service corporation or lower-tier entities?

    (a) In accordance with this section, a State savings association 
(``you'') may exercise your salvage power to make a contribution or a 
loan (including a guarantee of a loan made by any other person) to a 
lower-tier entity (``salvage investment'') that exceeds the maximum 
amount otherwise permitted under law or regulation. You must notify the 
FDIC at least 30 days before making such a salvage investment. This 
notice must demonstrate that:
    (1) The salvage investment protects your interest in the lower-tier 
entity;
    (2) The salvage investment is consistent with safety and soundness; 
and
    (3) You considered alternatives to the salvage investment and 
determined that such alternatives would not adequately satisfy 
paragraphs (a)(1) and (2) of this section.
    (b) If the FDIC notifies you within 30 days that the Notice 
presents supervisory concerns, or raises significant issues of law or 
policy, you must apply for and receive the FDIC's prior written 
approval before making a salvage investment.
    (c) If your lower-tier entity is a GAAP-consolidated subsidiary, 
your salvage investment under this section will be considered an 
investment in a subsidiary for purposes of subpart Z.

Subpart P--Lending and Investment


Sec.  390.260  General.

    (a) Authority and scope. This subpart is being issued by the FDIC 
under its general rulemaking and supervisory authority under the 
Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1811 et seq. Sections 
390.264, 390.265, and 390.267 through 390.272 contain safety-and-
soundness based lending and investment provisions applicable to State 
savings associations.
    (b) General lending standards. Each State savings association is 
expected to conduct its lending and investment activities prudently. 
Each State savings association should use lending and investment 
standards that are consistent with safety and soundness, ensure 
adequate portfolio diversification and are appropriate for the size and 
condition of the institution, the nature and scope of its operations, 
and conditions in its lending market. Each State savings association 
should adequately monitor the condition of its portfolio and the 
adequacy of any collateral securing its loans.


Sec.  390.261  [Reserved].


Sec.  390.262  Definitions.

    For purposes of this subpart:
    Consumer loans include loans for personal, family, or household 
purposes and loans reasonably incident thereto, and may be made as 
either open-end or closed-end consumer credit (as defined at 12 CFR 
226.2(a)(10) and (20)). Consumer loans do not include credit extended 
in connection with credit card loans, bona fide overdraft loans, and 
other loans that the State savings association has designated as made 
under investment or lending authority other than section 5(c)(2)(D) of 
the HOLA.
    Credit card is any card, plate, coupon book, or other single credit 
device that may be used from time to time to obtain credit.
    Credit card account is a credit account established in conjunction 
with the issuance of, or the extension of credit through, a credit 
card. This term includes loans made to consolidate credit card debt, 
including credit card debt held by other lenders, and participation 
certificates, securities and similar instruments secured by credit card 
receivables.
    Home loans include any loans made on the security of a home 
(including a dwelling unit in a multi-family residential property such 
as a condominium or a cooperative), combinations of homes and business 
property (i.e., a home used in part for business), farm residences, and 
combinations of farm residences and commercial farm real estate.
    Loan commitment includes a loan in process, a letter of credit, or 
any other commitment to extend credit.
    Real estate loan is a loan for which the State savings association 
substantially relies upon a security interest in real estate given by 
the borrower as a condition of making the loan. A loan is made on the 
security of real estate if:
    (1) The security property is real estate pursuant to the law of the 
state in which the property is located;
    (2) The security interest of the State savings association may be 
enforced as a real estate mortgage or its equivalent pursuant to the 
law of the state in which the property is located;
    (3) The security property is capable of separate appraisal; and
    (4) With regard to a security property that is a leasehold or other 
interest for a period of years, the term of the interest extends, or is 
subject to extension or renewal at the option of the State savings 
association for a term of at least five years following the maturity of 
the loan.
    Small business includes a small business concern or entity as 
defined by section 3(a) of the Small Business Act, 15 U.S.C. 632(a), 
and implemented by the regulations of the Small Business Administration 
at 13 CFR part 121.
    Small business loans and loans to small businesses include any loan 
to a small business as defined in this section; or a loan that does not 
exceed $2 million (including a group of loans to one borrower) and is 
for commercial, corporate, business, or agricultural purposes.


Sec.  390.263  [Reserved].


Sec.  390.264  Real estate lending standards; purpose and scope.

    This section, and Sec.  390.265, issued pursuant to section 18(o) 
of the Federal Deposit Insurance Act, (12 U.S.C. 1828(o)), prescribe 
standards for real estate lending to be used by State savings 
associations and all their includable subsidiaries, as defined in Sec.  
390.461, over which the State savings associations exercise control, in 
adopting internal real estate lending policies.


Sec.  390.265  Real estate lending standards.

    (a) Each State savings association shall adopt and maintain written 
policies that establish appropriate limits and standards for extensions 
of credit that are secured by liens on or interests in real estate, or 
that are made for the

[[Page 47713]]

purpose of financing permanent improvements to real estate.
    (b)(1) Real estate lending policies adopted pursuant to this 
section must:
    (i) Be consistent with safe and sound banking practices;
    (ii) Be appropriate to the size of the institution and the nature 
and scope of its operations; and
    (iii) Be reviewed and approved by the State savings association's 
board of directors at least annually.
    (2) The lending policies must establish:
    (i) Loan portfolio diversification standards;
    (ii) Prudent underwriting standards, including loan-to-value 
limits, that are clear and measurable;
    (iii) Loan administration procedures for the State savings 
association's real estate portfolio; and
    (iv) Documentation, approval, and reporting requirements to monitor 
compliance with the State savings association's real estate lending 
policies.
    (c) Each State savings association must monitor conditions in the 
real estate market in its lending area to ensure that its real estate 
lending policies continue to be appropriate for current market 
conditions.
    (d) The real estate lending policies adopted pursuant to this 
section should reflect consideration of the Interagency Guidelines for 
Real Estate Lending Policies established by the Federal banking 
agencies.

Appendix to Sec.  390.265--Interagency Guidelines for Real Estate 
Lending Policies

    The agencies' regulations require that each insured depository 
institution adopt and maintain a written policy that establishes 
appropriate limits and standards for all extensions of credit that 
are secured by liens on or interests in real estate or made for the 
purpose of financing the construction of a building or other 
improvements.\1\ These guidelines are intended to assist 
institutions in the formulation and maintenance of a real estate 
lending policy that is appropriate to the size of the institution 
and the nature and scope of its individual operations, as well as 
satisfies the requirements of the regulation.
---------------------------------------------------------------------------

    \1\ The agencies have adopted a uniform rule on real estate 
lending. See 12 CFR part 365 and Sec. Sec.  390.264-390.265 (FDIC); 
12 CFR part 208, subpart C (FRB); and 12 CFR part 34, subpart D 
(OCC).
---------------------------------------------------------------------------

    Each institution's policies must be comprehensive, and 
consistent with safe and sound lending practices, and must ensure 
that the institution operates within limits and according to 
standards that are reviewed and approved at least annually by the 
board of directors. Real estate lending is an integral part of many 
institutions' business plans and, when undertaken in a prudent 
manner, will not be subject to examiner criticism.

Loan Portfolio Management Considerations

    The lending policy should contain a general outline of the scope 
and distribution of the institution's credit facilities and the 
manner in which real estate loans are made, serviced, and collected. 
In particular, the institution's policies on real estate lending 
should:
     Identify the geographic areas in which the institution 
will consider lending.
     Establish a loan portfolio diversification policy and 
set limits for real estate loans by type and geographic market 
(e.g., limits on higher risk loans).
     Identify appropriate terms and conditions by type of 
real estate loan.
     Establish loan origination and approval procedures, 
both generally and by size and type of loan.
     Establish prudent underwriting standards that are clear 
and measurable, including loan-to-value limits, that are consistent 
with these supervisory guidelines.
     Establish review and approval procedures for exception 
loans, including loans with loan-to-value percentages in excess of 
supervisory limits.
     Establish loan administration procedures, including 
documentation, disbursement, collateral inspection, collection, and 
loan review.
     Establish real estate appraisal and evaluation 
programs.
     Require that management monitor the loan portfolio and 
provide timely and adequate reports to the board of directors.
    The institution should consider both internal and external 
factors in the formulation of its loan policies and strategic plan. 
Factors that should be considered include:
     The size and financial condition of the institution.
     The expertise and size of the lending staff.
     The need to avoid undue concentrations of risk.
     Compliance with all real estate related laws and 
regulations, including the Community Reinvestment Act, anti-
discrimination laws, and for State savings associations, the 
Qualified Thrift Lender test.
     Market conditions.
    The institution should monitor conditions in the real estate 
markets in its lending area so that it can react quickly to changes 
in market conditions that are relevant to its lending decisions. 
Market supply and demand factors that should be considered include:
     Demographic indicators, including population and 
employment trends.
     Zoning requirements.
     Current and projected vacancy, construction, and 
absorption rates.
     Current and projected lease terms, rental rates, and 
sales prices, including concessions.
     Current and projected operating expenses for different 
types of projects.
     Economic indicators, including trends and 
diversification of the lending area.
     Valuation trends, including discount and direct 
capitalization rates.

Underwriting Standards

    Prudently underwritten real estate loans should reflect all 
relevant credit factors, including:
     The capacity of the borrower, or income from the 
underlying property, to adequately service the debt.
     The value of the mortgaged property.
     The overall creditworthiness of the borrower.
     The level of equity invested in the property.
     Any secondary sources of repayment.
     Any additional collateral or credit enhancements (such 
as guarantees, mortgage insurance or takeout commitments).
    The lending policies should reflect the level of risk that is 
acceptable to the board of directors and provide clear and 
measurable underwriting standards that enable the institution's 
lending staff to evaluate these credit factors. The underwriting 
standards should address:
     The maximum loan amount by type of property.
     Maximum loan maturities by type of property.
     Amortization schedules.
     Pricing structure for different types of real estate 
loans.
     Loan-to-value limits by type of property.
    For development and construction projects, and completed 
commercial properties, the policy should also establish, 
commensurate with the size and type of the project or property:
     Requirements for feasibility studies and sensitivity 
and risk analyses (e.g., sensitivity of income projections to 
changes in economic variables such as interest rates, vacancy rates, 
or operating expenses).
     Minimum requirements for initial investment and 
maintenance of hard equity by the borrower (e.g., cash or 
unencumbered investment in the underlying property).
     Minimum standards for net worth, cash flow, and debt 
service coverage of the borrower or underlying property.
     Standards for the acceptability of and limits on non-
amortizing loans.
     Standards for the acceptability of and limits on the 
use of interest reserves.
     Pre-leasing and pre-sale requirements for income-
producing property.
     Pre-sale and minimum unit release requirements for non-
income-producing property loans.
     Limits on partial recourse or nonrecourse loans and 
requirements for guarantor support.
     Requirements for takeout commitments.
     Minimum covenants for loan agreements.

Loan Administration

    The institution should also establish loan administration 
procedures for its real estate portfolio that address:
     Documentation, including:
    Type and frequency of financial statements, including 
requirements for verification of information provided by the 
borrower;
    Type and frequency of collateral evaluations (appraisals and 
other estimates of value).

[[Page 47714]]

     Loan closing and disbursement.
     Payment processing.
     Escrow administration.
     Collateral administration.
     Loan payoffs.
     Collections and foreclosure, including:
    Delinquency follow-up procedures;
    Foreclosure timing;
    Extensions and other forms of forbearance;
    Acceptance of deeds in lieu of foreclosure.
     Claims processing (e.g., seeking recovery on a 
defaulted loan covered by a government guaranty or insurance 
program).
     Servicing and participation agreements.

Supervisory Loan-to-Value Limits

    Institutions should establish their own internal loan-to-value 
limits for real estate loans. These internal limits should not 
exceed the following supervisory limits:

------------------------------------------------------------------------
                                                               Loan-to-
                                                                 value
                        Loan category                            limit
                                                               (percent)
------------------------------------------------------------------------
Raw land....................................................          65
Land development............................................          75
Construction:
  Commercial, multifamily,\2\ and other nonresidential......          80
  1- to 4-family residential................................          85
Improved property...........................................          85
Owner-occupied 1- to 4-family and home equity...............       (\3\)
------------------------------------------------------------------------


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

    \2\ Multifamily construction includes condominiums and 
cooperatives.
    \3\ A loan-to-value limit has not been established for permanent 
mortgage or home equity loans on owner-occupied, 1- to 4-family 
residential property. However, for any such loan with a loan-to-
value ratio that equals or exceeds 90 percent at origination, an 
institution should require appropriate credit enhancement in the 
form of either mortgage insurance or readily marketable collateral.
---------------------------------------------------------------------------

    The supervisory loan-to-value limits should be applied to the 
underlying property that collateralizes the loan. For loans that 
fund multiple phases of the same real estate project (e.g., a loan 
for both land development and construction of an office building), 
the appropriate loan-to-value limit is the limit applicable to the 
final phase of the project funded by the loan; however, loan 
disbursements should not exceed actual development or construction 
outlays. In situations where a loan is fully cross-collateralized by 
two or more properties or is secured by a collateral pool of two or 
more properties, the appropriate maximum loan amount under 
supervisory loan-to-value limits is the sum of the value of each 
property, less senior liens, multiplied by the appropriate loan-to-
value limit for each property. To ensure that collateral margins 
remain within the supervisory limits, lenders should redetermine 
conformity whenever collateral substitutions are made to the 
collateral pool.
    In establishing internal loan-to-value limits, each lender is 
expected to carefully consider the institution-specific and market 
factors listed under ``Loan Portfolio Management Considerations,'' 
as well as any other relevant factors, such as the particular 
subcategory or type of loan. For any subcategory of loans that 
exhibits greater credit risk than the overall category, a lender 
should consider the establishment of an internal loan-to-value limit 
for that subcategory that is lower than the limit for the overall 
category.
    The loan-to-value ratio is only one of several pertinent credit 
factors to be considered when underwriting a real estate loan. Other 
credit factors to be taken into account are highlighted in the 
``Underwriting Standards'' section above. Because of these other 
factors, the establishment of these supervisory limits should not be 
interpreted to mean that loans at these levels will automatically be 
considered sound.

Loans in Excess of the Supervisory Loan-to-Value Limits

    The agencies recognize that appropriate loan-to-value limits 
vary not only among categories of real estate loans but also among 
individual loans. Therefore, it may be appropriate in individual 
cases to originate or purchase loans with loan-to-value ratios in 
excess of the supervisory loan-to-value limits, based on the support 
provided by other credit factors. Such loans should be identified in 
the institutions' records, and their aggregate amount reported at 
least quarterly to the institution's board of directors. (See 
additional reporting requirements described under ``Exceptions to 
the General Policy.'') The aggregate amount of all loans in excess 
of the supervisory loan-to-value limits should not exceed 100 
percent of total capital.\4\ Moreover, within the aggregate limit, 
total loans for all commercial, agricultural, multifamily or other 
non-1- to 4-family residential properties should not exceed 30 
percent of total capital. An institution will come under increased 
supervisory scrutiny as the total of such loans approaches these 
levels.
---------------------------------------------------------------------------

    \4\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in Appendix A to 12 CFR part 
208. For insured state non-member banks, ``total capital'' refers to 
that term described in table I of Appendix A to 12 CFR part 325. For 
national banks, the term ``total capital'' is defined at 12 CFR 
3.2(e). For State savings associations, the term ``total capital'' 
refers to the term as described in subpart Z.
---------------------------------------------------------------------------

    In determining the aggregate amount of such loans, institutions 
should: (a) Include all loans secured by the same property if any 
one of those loans exceeds the supervisory loan-to-value limits; and 
(b) include the recourse obligation of any such loan sold with 
recourse. Conversely, a loan should no longer be reported to the 
directors as part of aggregate totals when reduction in principal or 
senior liens, or additional contribution of collateral or equity 
(e.g., improvements to the real property securing the loan), bring 
the loan-to-value ratio into compliance with supervisory limits.

Excluded Transactions

    The agencies also recognize that there are a number of lending 
situations in which other factors significantly outweigh the need to 
apply the supervisory loan-to-value limits.
    These include:
     Loans guaranteed or insured by the U.S. government or 
its agencies, provided that the amount of the guaranty or insurance 
is at least equal to the portion of the loan that exceeds the 
supervisory loan-to-value limit.
     Loans backed by the full faith and credit of a state 
government, provided that the amount of the assurance is at least 
equal to the portion of the loan that exceeds the supervisory loan-
to-value limit.
     Loans guaranteed or insured by a state, municipal or 
local government, or an agency thereof, provided that the amount of 
the guaranty or insurance is at least equal to the portion of the 
loan that exceeds the supervisory loan-to-value limit, and provided 
that the lender has determined that the guarantor or insurer has the 
financial capacity and willingness to perform under the terms of the 
guaranty or insurance agreement.
     Loans that are to be sold promptly after origination, 
without recourse, to a financially responsible third party.
     Loans that are renewed, refinanced, or restructured 
without the advancement of new funds or an increase in the line of 
credit (except for reasonable closing costs), or loans that are 
renewed, refinanced, or restructured in connection with a workout 
situation, either with or without the advancement of new funds, 
where consistent with safe and sound banking practices and part of a 
clearly defined and well-documented program to achieve orderly 
liquidation of the debt, reduce risk of loss, or maximize recovery 
on the loan.
     Loans that facilitate the sale of real estate acquired 
by the lender in the ordinary course of collecting a debt previously 
contracted in good faith.
     Loans for which a lien on or interest in real property 
is taken as additional collateral through an abundance of caution by 
the lender (e.g., the institution takes a blanket lien on all or 
substantially all of the assets of the borrower, and the value of 
the real property is low relative to the aggregate value of all 
other collateral).
     Loans, such as working capital loans, where the lender 
does not rely principally on real estate as security and the 
extension of credit is not used to acquire, develop, or construct 
permanent improvements on real property.
     Loans for the purpose of financing permanent 
improvements to real property, but not secured by the property, if 
such security interest is not required by prudent underwriting 
practice.

Exceptions to the General Lending Policy

    Some provision should be made for the consideration of loan 
requests from creditworthy borrowers whose credit needs do not fit 
within the institution's general lending policy. An institution may 
provide for prudently underwritten exceptions to its lending 
policies, including loan-to-value limits, on a loan-by-loan basis. 
However, any exceptions from the supervisory loan-to-value limits 
should conform to the aggregate limits on such loans discussed 
above.
    The board of directors is responsible for establishing standards 
for the review and approval of exception loans. Each institution

[[Page 47715]]

should establish an appropriate internal process for the review and 
approval of loans that do not conform to its own internal policy 
standards. The approval of any such loan should be supported by a 
written justification that clearly sets forth all of the relevant 
credit factors that support the underwriting decision. The 
justification and approval documents for such loans should be 
maintained as a part of the permanent loan file. Each institution 
should monitor compliance with its real estate lending policy and 
individually report exception loans of a significant size to its 
board of directors.

Supervisory Review of Real Estate Lending Policies and Practices

    The real estate lending policies of institutions will be 
evaluated by examiners during the course of their examinations to 
determine if the policies are consistent with safe and sound lending 
practices, these guidelines, and the requirements of the regulation. 
In evaluating the adequacy of the institution's real estate lending 
policies and practices, examiners will take into consideration the 
following factors:
     The nature and scope of the institution's real estate 
lending activities.
     The size and financial condition of the institution.
     The quality of the institution's management and 
internal controls.
     The expertise and size of the lending and loan 
administration staff.
     Market conditions.
    Lending policy exception reports will also be reviewed by 
examiners during the course of their examinations to determine 
whether the institutions' exceptions are adequately documented and 
appropriate in light of all of the relevant credit considerations. 
An excessive volume of exceptions to an institution's real estate 
lending policy may signal a weakening of its underwriting practices, 
or may suggest a need to revise the loan policy.

Definitions

    For the purposes of these Guidelines:
    Construction loan means an extension of credit for the purpose 
of erecting or rehabilitating buildings or other structures, 
including any infrastructure necessary for development.
    Extension of credit or loan means:
    (1) The total amount of any loan, line of credit, or other 
legally binding lending commitment with respect to real property; 
and
    (2) The total amount, based on the amount of consideration paid, 
of any loan, line of credit, or other legally binding lending 
commitment acquired by a lender by purchase, assignment, or 
otherwise.
    Improved property loan means an extension of credit secured by 
one of the following types of real property:
    (1) Farmland, ranchland or timberland committed to ongoing 
management and agricultural production;
    (2) 1- to 4-family residential property that is not owner-
occupied;
    (3) Residential property containing five or more individual 
dwelling units;
    (4) Completed commercial property; or
    (5) Other income-producing property that has been completed and 
is available for occupancy and use, except income-producing owner-
occupied 1- to 4-family residential property.
    Land development loan means an extension of credit for the 
purpose of improving unimproved real property prior to the erection 
of structures. The improvement of unimproved real property may 
include the laying or placement of sewers, water pipes, utility 
cables, streets, and other infrastructure necessary for future 
development.
    Loan origination means the time of inception of the obligation 
to extend credit (i.e., when the last event or prerequisite, 
controllable by the lender, occurs causing the lender to become 
legally bound to fund an extension of credit).
    Loan-to-value or loan-to-value ratio means the percentage or 
ratio that is derived at the time of loan origination by dividing an 
extension of credit by the total value of the property(ies) securing 
or being improved by the extension of credit plus the amount of any 
readily marketable collateral and other acceptable collateral that 
secures the extension of credit. The total amount of all senior 
liens on or interests in such property(ies) should be included in 
determining the loan-to-value ratio. When mortgage insurance or 
collateral is used in the calculation of the loan-to-value ratio, 
and such credit enhancement is later released or replaced, the loan-
to-value ratio should be recalculated.
    Other acceptable collateral means any collateral in which the 
lender has a perfected security interest, that has a quantifiable 
value, and is accepted by the lender in accordance with safe and 
sound lending practices. Other acceptable collateral should be 
appropriately discounted by the lender consistent with the lender's 
usual practices for making loans secured by such collateral. Other 
acceptable collateral includes, among other items, unconditional 
irrevocable standby letters of credit for the benefit of the lender.
    Owner-occupied, when used in conjunction with the term 1- to 4-
family residential property means that the owner of the underlying 
real property occupies at least one unit of the real property as a 
principal residence of the owner.
    Readily marketable collateral means insured deposits, financial 
instruments, and bullion in which the lender has a perfected 
interest. Financial instruments and bullion must be salable under 
ordinary circumstances with reasonable promptness at a fair market 
value determined by quotations based on actual transactions, on an 
auction or similarly available daily bid and ask price market. 
Readily marketable collateral should be appropriately discounted by 
the lender consistent with the lender's usual practices for making 
loans secured by such collateral.
    Value means an opinion or estimate, set forth in an appraisal or 
evaluation, whichever may be appropriate, of the market value of 
real property, prepared in accordance with the agency's appraisal 
regulations and guidance. For loans to purchase an existing 
property, the term ``value'' means the lesser of the actual 
acquisition cost or the estimate of value.
    1- to 4-family residential property means property containing 
fewer than five individual dwelling units, including manufactured 
homes permanently affixed to the underlying property (when deemed to 
be real property under state law).


Sec.  390.266  [Reserved].


Sec.  390.267  Letters of credit and other independent undertakings to 
pay against documents.

    (a) General authority. A State savings association may issue and 
commit to issue letters of credit within the scope of applicable laws 
or rules of practice recognized by law. It may also issue other 
independent undertakings within the scope of such laws or rules of 
practice recognized by law, that have been approved by the FDIC 
(approved undertaking).\1\ Under such letters of credit and approved 
undertakings, the State savings association's obligation to honor 
depends upon the presentation of specified documents and not upon 
nondocumentary conditions or resolution of questions of fact or law at 
issue between the account party and the beneficiary. A State savings 
association may also confirm or otherwise undertake to honor or 
purchase specified documents upon their presentation under another 
person's independent undertaking within the scope of such laws or 
rules.
---------------------------------------------------------------------------

    \1\ Samples of laws or rules of practice applicable to letters 
of credit and other independent undertakings include, but are not 
limited to: the applicable version of Article 5 of the Uniform 
Commercial Code (UCC) (1962, as amended 1990) or revised Article 5 
of the UCC (as amended 1995) (available from West Publishing Co., 1/
800/328-4880); the Uniform Customs and Practice for Documentary 
Credits (International Chamber of Commerce (ICC) Publication No. 
500) (available from ICC Publishing, Inc., 212/206-1150; the United 
Nations Convention on Independent Guarantees and Standby Letters of 
Credit (adopted by the U.N. General Assembly in 1995 and signed by 
the U.S. in 1997) (available from the U.N. Commission on 
International Trade Law, 212/963-5353); and the Uniform Rules for 
Bank-to-Bank Reimbursements Under Documentary Credits (ICC 
Publication No. 525) (available from ICC Publishing, Inc., 212/206-
1150).
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, State savings associations that issue 
letters of credit or approved undertakings should not be exposed to 
undue risk. At a minimum, State savings associations should consider 
the following:
    (i) The independent character of the letter of credit or approved 
undertaking should be apparent from its terms (such as terms that 
subject it to laws or rules providing for its independent character);
    (ii) The letter of credit or approved undertaking should be limited 
in amount;

[[Page 47716]]

    (iii) The letter of credit or approved undertaking should:
    (A) Be limited in duration; or
    (B) Permit the State savings association to terminate the letter of 
credit or approved undertaking, either on a periodic basis (consistent 
with the State savings association's ability to make any necessary 
credit assessments) or at will upon either notice or payment to the 
beneficiary; or
    (C) Entitle the State savings association to cash collateral from 
the account party on demand (with a right to accelerate the customer's 
obligations, as appropriate); and
    (iv) The State savings association either should be fully 
collateralized or have a post-honor right of reimbursement from its 
customer or from another issuer of a letter of credit or an independent 
undertaking. Alternatively, if the State savings association's 
undertaking is to purchase documents of title, securities, or other 
valuable documents, it should obtain a first priority right to realize 
on the documents if the State savings association is not otherwise to 
be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
letters of credit and approved undertakings require particular 
protections against credit, operational, and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the State savings association should 
ensure that market fluctuations that affect the value of the item will 
not cause the State savings association to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should allow the State savings 
association to make any necessary credit assessment prior to renewal;
    (iii) In the event that a State savings association issues an 
undertaking for its own account, the underlying transaction for which 
it is issued must be within the State savings association's authority 
and comply with any safety and soundness requirements applicable to 
that transaction.
    (3) Operational expertise. The State savings association should 
possess operational expertise that is commensurate with the 
sophistication of its letter of credit or independent undertaking 
activities.
    (4) Documentation. The State savings association must accurately 
reflect its letters of credit or approved undertakings in its records, 
including any acceptance or deferred payment or other absolute 
obligation arising out of its contingent undertaking.


Sec.  390.268  Investment in State housing corporations.

    (a) Any State savings association to the extent it has legal 
authority to do so, may make investments in, commitments to invest in, 
loans to, or commitments to lend to any state housing corporation; 
provided, that such obligations or loans are secured directly, or 
indirectly through a fiduciary, by a first lien on improved real estate 
which is insured under the National Housing Act, as amended, and that 
in the event of default, the holder of such obligations or loans has 
the right directly, or indirectly through a fiduciary, to subject to 
the satisfaction of such obligations or loans the real estate described 
in the first lien, or the insurance proceeds.
    (b) Any State savings association that is adequately capitalized 
may, to the extent it has legal authority to do so, invest in 
obligations (including loans) of, or issued by, any state housing 
corporation incorporated in the state in which such State savings 
association has its home or a branch office; provided (except with 
respect to loans), that:
    (1) The obligations are rated in one of the four highest grades as 
shown by the most recently published rating made of such obligations by 
a nationally recognized rating service; or
    (2) The obligations, if not rated, are approved by the FDIC. The 
aggregate outstanding direct investment in obligations under paragraph 
(b) of this section shall not exceed the amount of the State savings 
association's total capital.
    (c) Each state housing corporation in which a State savings 
association invests under the authority of paragraph (b) of this 
section shall agree, before accepting any such investment (including 
any loan or loan commitment), to make available at any time to the FDIC 
such information as the FDIC may consider to be necessary to ensure 
that investments are properly made under this section.


Sec.  390.269  Prohibition on loan procurement fees.

    If you are a director, officer, or other natural person having the 
power to direct the management or policies of a State savings 
association, you must not receive, directly or indirectly, any 
commission, fee, or other compensation in connection with the 
procurement of any loan made by the State savings association or a 
subsidiary of the State savings association.


Sec.  390.270  Asset classification.

    (a)(1) Each State savings association must evaluate and classify 
its assets on a regular basis in a manner consistent with, or 
reconcilable to, the asset classification system used by the FDIC.
    (2) In connection with the examination of a State savings 
association or its affiliates, the FDIC examiners may identify problem 
assets and classify them, if appropriate. The association must 
recognize such examiner classifications in its subsequent reports to 
the FDIC.
    (b) Based on the evaluation and classification of its assets, each 
State savings association shall establish adequate valuation allowances 
or charge-offs, as appropriate, consistent with generally accepted 
accounting principles and the practices of the federal banking 
agencies.


Sec.  390.271  Records for lending transactions.

    In establishing and maintaining its records pursuant to Sec.  
390.350, each State savings association should establish and maintain 
loan documentation practices that:
    (a) Ensure that the institution can make an informed lending 
decision and can assess risk on an ongoing basis;
    (b) Identify the purpose and all sources of repayment for each 
loan, and assess the ability of the borrower(s) and any guarantor(s) to 
repay the indebtedness in a timely manner;
    (c) Ensure that any claims against a borrower, guarantor, security 
holders, and collateral are legally enforceable;
    (d) Demonstrate appropriate administration and monitoring of its 
loans; and
    (e) Take into account the size and complexity of its loans.


Sec.  390.272  Re-evaluation of real estate owned.

    A State savings association shall appraise each parcel of real 
estate owned at the earlier of in-substance foreclosure or at the time 
of the State savings association's acquisition of such property, and at 
such times thereafter as dictated by prudent management policy; such 
appraisals shall be consistent with the requirements of subpart X of 
this part. The appropriate regional director or his or her designee may 
require subsequent appraisals if, in his or her discretion, such 
subsequent appraisal is necessary under the particular circumstances. 
The foregoing requirement shall not apply to any parcel of real estate 
that is sold and reacquired less than 12 months subsequent to the most 
recent appraisal made pursuant to this subpart. A dated,

[[Page 47717]]

signed copy of each report of appraisal made pursuant to any provisions 
of this subpart shall be retained in the State savings association's 
records.

Subpart Q--Definitions for Regulations Affecting All State Savings 
Associations


Sec.  390.280  When do the definitions in this subpart apply?

    The definitions in this subpart apply throughout parts 390 and 391, 
unless another definition is specifically provided.


Sec.  390.281  Account.

    The term account means any savings account, demand account, 
certificate account, tax and loan account, note account, United States 
Treasury general account or United States Treasury time deposit-open 
account, whether in the form of a deposit or a share, held by an 
accountholder in a State savings association.


Sec.  390.282  Accountholder.

    The term accountholder means the holder of an account or accounts 
in a State savings association insured by the Deposit Insurance Fund. 
The term does not include the holder of any subordinated debt security 
or any mortgage-backed bond issued by the State savings association.


Sec.  390.283  Affiliate.

    The term affiliate of a State savings association, unless otherwise 
defined, means any corporation, business trust, association, or other 
similar organization:
    (a) Of which a State savings association, directly or indirectly, 
owns or controls either a majority of the voting shares or more than 50 
per centum of the number of shares voted for the election of its 
directors, trustees, or other persons exercising similar functions at 
the preceding election, or controls in any manner the election of a 
majority of its directors, trustees, or other persons exercising 
similar functions; or
    (b) Of which control is held, directly or indirectly through stock 
ownership or in any other manner, by the shareholders of a State 
savings association who own or control either a majority of the shares 
of such State savings association or more than 50 per centum of the 
number of shares voted for the election of directors of such State 
savings association at the preceding election, or by trustees for the 
benefit of the shareholders of any such State savings association; or
    (c) Of which a majority of its directors, trustees, or other 
persons exercising similar functions are directors of any one State 
savings association.


Sec.  390.284  Affiliated person.

    The term affiliated person of a State savings association means the 
following:
    (a) A director, officer, or controlling person of such association;
    (b) A spouse of a director, officer, or controlling person of such 
association;
    (c) A member of the immediate family of a director, officer, or 
controlling person of such association, who has the same home as such 
person or who is a director or officer of any subsidiary of such 
association or of any holding company affiliate of such association;
    (d) Any corporation or organization (other than the State savings 
association or a corporation or organization through which the State 
savings association operates) of which a director, officer or the 
controlling person of such association:
    (1) Is chief executive officer, chief financial officer, or a 
person performing similar functions;
    (2) Is a general partner;
    (3) Is a limited partner who, directly or indirectly either alone 
or with his or her spouse and the members of his or her immediate 
family who are also affiliated persons of the association, owns an 
interest of 10 percent or more in the partnership (based on the value 
of his or her contribution) or who, directly or indirectly with other 
directors, officers, and controlling persons of such association and 
their spouses and their immediate family members who are also 
affiliated persons of the association, owns an interest of 25 percent 
or more in the partnership; or
    (4) Directly or indirectly either alone or with his or her spouse 
and the members of his or her immediate family who are also affiliated 
persons of the association, owns or controls 10 percent or more of any 
class of equity securities or owns or controls, with other directors, 
officers, and controlling persons of such association and their spouses 
and their immediate family members who are also affiliated persons of 
the association, 25 percent or more of any class of equity securities; 
and
    (5) Any trust or other estate in which a director, officer, or 
controlling person of such association or the spouse of such person has 
a substantial beneficial interest or as to which such person or his or 
her spouse serves as trustee or in a similar fiduciary capacity.


Sec.  390.285  Audit period.

    The audit period of a State savings association means the twelve 
month period (or other period in the case of a change in audit period) 
covered by the annual audit conducted to satisfy Sec.  390.350.


Sec.  390.286  Certificate account.

    The term certificate account means a savings account evidenced by a 
certificate that must be held for a fixed or minimum term.


Sec.  390.287  Consumer credit.

    The term consumer credit means credit extended to a natural person 
for personal, family, or household purposes, including loans secured by 
liens on real estate and chattel liens secured by mobile homes and 
leases of personal property to consumers that may be considered the 
functional equivalent of loans on personal security: Provided, the 
State savings association relies substantially upon other factors, such 
as the general credit standing of the borrower, guaranties, or security 
other than the real estate or mobile home, as the primary security for 
the loan. Appropriate evidence to demonstrate justification for such 
reliance should be retained in a State savings association's files. 
Among the types of credit included within this term are consumer loans; 
educational loans; unsecured loans for real property alteration, repair 
or improvement, or for the equipping of real property; loans in the 
nature of overdraft protection; and credit extended in connection with 
credit cards.


Sec.  390.288  Controlling person.

    The term controlling person of a State savings association means 
any person or entity which, either directly or indirectly, or acting in 
concert with one or more other persons or entities, owns, controls, or 
holds with power to vote, or holds proxies representing, ten percent or 
more of the voting shares or rights of such State savings association; 
or controls in any manner the election or appointment of a majority of 
the directors of such State savings association. However, a director of 
a State savings association will not be deemed to be a controlling 
person of such State savings association based upon his or her voting, 
or acting in concert with other directors in voting, proxies:
    (a) Obtained in connection with an annual solicitation of proxies, 
or
    (b) Obtained from savings account holders and borrowers if such 
proxies are voted as directed by a majority vote of the entire board of 
directors of such association, or of a committee of such directors if 
such committee's composition and authority are controlled by a majority 
vote of the

[[Page 47718]]

entire board and if its authority is revocable by such a majority.


Sec.  390.289  Corporation.

    The terms Corporation and FDIC mean the Federal Deposit Insurance 
Corporation.


Sec.  390.290  Demand accounts.

    The term demand accounts means non-interest-bearing demand deposits 
that are subject to check or to withdrawal or transfer on negotiable or 
transferable order to the State savings association and that are 
permitted to be issued by statute, regulation, or otherwise and are 
payable on demand.


Sec.  390.291  Director.

    The term director means any director, trustee, or other person 
performing similar functions with respect to any organization whether 
incorporated or unincorporated. Such term does not include an advisory 
director, honorary director, director emeritus, or similar person, 
unless the person is otherwise performing functions similar to those of 
a director.


Sec.  390.292  Financial institution.

    The term financial institution has the same meaning as the term 
depository institution set forth in 12 U.S.C. 1813(c)(1).


Sec.  390.293  Immediate family.

    The term immediate family of any natural person means the following 
(whether by the full or half blood or by adoption):
    (a) Such person's spouse, father, mother, children, brothers, 
sisters, and grandchildren;
    (b) The father, mother, brothers, and sisters of such person's 
spouse; and
    (c) The spouse of a child, brother, or sister of such person.


Sec.  390.294  Land loan.

    The term land loan means a loan:
    (a) Secured by real estate upon which all facilities and 
improvements have been completely installed, as required by local 
regulations and practices, so that it is entirely prepared for the 
erection of structures;
    (b) To finance the purchase of land and the accomplishment of all 
improvements required to convert it to developed building lots; or
    (c) Secured by land upon which there is no structure.


Sec.  390.295  Low-rent housing.

    The term low-rent housing means real estate which is, or which is 
being constructed, remodeled, rehabilitated, modernized, or renovated 
to be, the subject of an annual contributions contract for low-rent 
housing under the provisions of the United States Housing Act of 1937, 
as amended.


Sec.  390.296  Money Market Deposit Accounts.

    (a) Money Market Deposit Accounts (MMDAs) offered by State savings 
associations in accordance with applicable state law are savings 
accounts on which interest may be paid if issued subject to the 
following limitations:
    (1) The State savings association shall reserve the right to 
require at least seven days' notice prior to withdrawal or transfer of 
any funds in the account; and
    (2)(i) The depositor is authorized by the State savings association 
to make no more than six transfers per calendar month or statement 
cycle (or similar period) of at least four weeks by means of 
preauthorized, automatic, telephonic, or data transmission agreement, 
order, or instruction to another account of the depositor at the same 
State savings association to the State savings association itself, or 
to a third party.
    (ii) State savings associations may permit holders of MMDAs to make 
unlimited transfers for the purpose of repaying loans (except overdraft 
loans on the depositor's demand account) and associated expenses at the 
same State savings association (as originator or servicer), to make 
unlimited transfers of funds from this account to another account of 
the same depositor at the same State savings association or to make 
unlimited payments directly to the depositor from the account when such 
transfers or payments are made by mail, messenger, automated teller 
machine, or in person, or when such payments are made by telephone (via 
check mailed to the depositor).
    (3) In order to ensure that no more than the number of transfers 
specified in paragraph (a)(2)(i) of this section are made, a State 
savings association must either:
    (i) Prevent transfers of funds in excess of the limitations; or
    (ii) Adopt procedures to monitor those transfers on an after-the-
fact basis and contact customers who exceed the limits on more than an 
occasional basis. For customers who continue to violate those limits 
after being contacted by the depository State savings association the 
depository State savings association must either place funds in another 
account that the depositor is eligible to maintain or take away the 
account's transfer and draft capacities.
    (iii) Insured State savings associations at their option, may use 
on a consistent basis either the date on a check or the date it is paid 
in determining whether the transfer limitations within the specified 
interval are exceeded.
    (b) State savings associations may offer MMDAs to any depositor not 
inconsistent with applicable state law.


Sec.  390.297  Negotiable Order of Withdrawal Accounts.

    (a) Negotiable Order of Withdrawal (NOW) accounts are savings 
accounts authorized by 12 U.S.C. 1832 on which the State savings 
association reserves the right to require at least seven days' notice 
prior to withdrawal or transfer of any funds in the account.
    (b) For purposes of 12 U.S.C. 1832:
    (1) An organization shall be deemed ``operated primarily for 
religious, philanthropic, charitable, educational, or other similar 
purposes and * * * not * * * for profit'' if it is described in 
sections 501(c)(3) through (13), 501(c)(19), or 528 of the Internal 
Revenue Code; and
    (2) The funds of a sole proprietorship or unincorporated business 
owned by a husband and wife shall be deemed beneficially owned by ``one 
or more individuals.''


Sec.  390.298  Nonresidential construction loan.

    The term nonresidential construction loan means a loan for 
construction of other than one or more dwelling units.


Sec.  390.299  Nonwithdrawable account.

    The term nonwithdrawable account means an account which by the 
terms of the contract of the accountholder with the State savings 
association or by provisions of state law cannot be paid to the 
accountholder until all liabilities, including other classes of share 
liability of the State savings association have been fully liquidated 
and paid upon the winding up of the State savings association is 
referred to as a nonwithdrawable account.


Sec.  390.300  Note account.

    The term note account means a note, subject to the right of 
immediate call, evidencing funds held by depositories electing the note 
option under applicable United States Treasury Department regulations. 
Note accounts are not savings accounts or savings deposits.


Sec.  390.301  [Reserved]


Sec.  390.302  Officer.

    The term Officer means the president, any vice-president (but not 
an assistant vice-president, second vice-president, or other vice 
president having authority similar to an assistant or second vice-
president), the secretary, the treasurer, the comptroller, and any 
other person

[[Page 47719]]

performing similar functions with respect to any organization whether 
incorporated or unincorporated. The term officer also includes the 
chairman of the board of directors if the chairman is authorized by the 
charter or by-laws of the organization to participate in its operating 
management or if the chairman in fact participates in such management.


Sec.  390.303  Parent company; subsidiary.

    The term parent company means any company which directly or 
indirectly controls any other company or companies. The term subsidiary 
means any company which is owned or controlled directly or indirectly 
by a person, and includes a subsidiary owned in whole or in part by a 
State savings association, or a subsidiary of that subsidiary.


Sec.  390.304  Political subdivision.

    The term political subdivision includes any subdivision of a public 
unit, any principal department of such public unit:
    (a) The creation of which subdivision or department has been 
expressly authorized by state statute,
    (b) To which some functions of government have been delegated by 
state statute, and
    (c) To which funds have been allocated by statute or ordinance for 
its exclusive use and control. It also includes drainage, irrigation, 
navigation, improvement, levee, sanitary, school or power districts and 
bridge or port authorities and other special districts created by state 
statute or compacts between the states. Excluded from the term are 
subordinate or nonautonomous divisions, agencies or boards within 
principal departments.


Sec.  390.305  Principal office.

    The term principal office means the home office of a State savings 
association established as such in conformity with the laws under which 
the State savings association is organized.


Sec.  390.306  Public unit.

    The term public unit means the United States, any state of the 
United States, the District of Columbia, any territory of the United 
States, Puerto Rico, the Virgin Islands, any county, any municipality 
or any political subdivision thereof.


Sec.  390.307  Savings account.

    The term savings account means any withdrawable account, except a 
demand account as defined in Sec.  390.290, a tax and loan account, a 
note account, a United States Treasury general account, or a United 
States Treasury time deposit-open account.


Sec.  390.308  State savings association.

    The term State savings association means a State savings 
association as defined in section 3 of the Federal Deposit Insurance 
Act, the deposits of which are insured by the Corporation. It includes 
a building and loan, savings and loan, or homestead association, or a 
cooperative bank (other than a cooperative bank which is a State bank 
as defined in section 3(a)(2) of the Federal Deposit Insurance Act) 
organized and operating according to the laws of the State in which it 
is chartered or organized, or a corporation (other than a bank as 
defined in section 3(a)(1) of the Federal Deposit Insurance Act) that 
the Board of Directors of the Federal Deposit Insurance Corporation 
determine to be operating substantially in the same manner as a State 
savings association.


Sec.  390.309  Security.

    The term security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, or, in general, any interest or instrument commonly known 
as a security, or any certificate of interest or participation in, 
temporary or interim certificate for, receipt for, guarantee of, or 
warrant or right to subscribe to or purchase, any of the foregoing, 
except that a security shall not include an account or deposit insured 
by the Federal Deposit Insurance Corporation.


Sec.  390.310  Service corporation.

    The term service corporation means any corporation, the majority of 
the capital stock of which is owned by one or more savings associations 
and which engages, directly or indirectly, in any activities similar to 
activities which may be engaged in by a service corporation in which a 
Federal savings association may invest.


Sec.  390.311  State.

    The term State means a State, the District of Columbia, Guam, 
Puerto Rico, and the Virgin Islands of the United States.


Sec.  390.312  Subordinated debt security.

    The term subordinated debt security means any unsecured note, 
debenture, or other debt security issued by a State savings association 
and subordinated on liquidation to all claims having the same priority 
as account holders or any higher priority.


Sec.  390.313  Tax and loan account.

    The term tax and loan account means an account, the balance of 
which is subject to the right of immediate withdrawal, established for 
receipt of payments of Federal taxes and certain United States 
obligations. Such accounts are not savings accounts or savings 
deposits.


Sec.  390.314  United States Treasury General Account.

    The term United States Treasury General Account means an account 
maintained in the name of the United States Treasury the balance of 
which is subject to the right of immediate withdrawal, except in the 
case of the closure of the member, and in which a zero balance may be 
maintained. Such accounts are not savings accounts or savings deposits.


Sec.  390.315  United States Treasury Time Deposit Open Account.

    The term United States Treasury Time Deposit Open Account means a 
non-interest-bearing account maintained in the name of the United 
States Treasury which may not be withdrawn prior to the expiration of 
30 days' written notice from the United States Treasury, or such other 
period of notice as the Treasury may require. Such accounts are not 
savings accounts or savings deposits.


Sec.  390.316  With recourse.

    (a) The term with recourse means, in connection with the sale of a 
loan or a participation interest in a loan, an agreement or arrangement 
under which the purchaser is to be entitled to receive from the seller 
a sum of money or thing of value, whether tangible or intangible 
(including any substitution), upon default in payment of any loan 
involved or any part thereof or to withhold or to have withheld from 
the seller a sum of money or anything of value by way of security 
against default. The recourse liability resulting from a sale with 
recourse shall be the total book value of any loan sold with recourse 
less:
    (1) The amount of any insurance or guarantee against loss in the 
event of default provided by a third party,
    (2) The amount of any loss to be borne by the purchaser in the 
event of default, and
    (3) The amount of any loss resulting from a recourse obligation 
entered on the books and records of the State savings association.
    (b) The term with recourse does not include loans or interests 
therein where the agreement of sale provides for the

[[Page 47720]]

State savings association directly or indirectly
    (1) To hold or retain a subordinate interest in a specified 
percentage of the loans or interests; or
    (2) To guarantee against loss up to a specified percentage of the 
loans or interests, which specified percentage shall not exceed ten 
percent of the outstanding balance of the loans or interests at the 
time of sale: Provided, that the State savings association designates 
adequate reserves for the subordinate interest or guarantee.
    (c) This definition does not apply for purposes of determining the 
capital adequacy requirements under subpart Z.

Subpart R--Regulatory Reporting Standards


Sec.  390.320  Regulatory reporting requirements.

    (a) Authority and scope. This subpart is issued by the FDIC 
pursuant to 12 U.S.C. sections 1831m; 1831n(a)(2); 1831p-1;1464(v)(1). 
It applies to all State savings associations regulated by the FDIC.
    (b) Records and reports--general--(1) Records. Each State savings 
association and its affiliates shall maintain accurate and complete 
records of all business transactions. Such records shall support and be 
readily reconcilable to any regulatory reports submitted to the FDIC 
and financial reports prepared in accordance with GAAP. The records 
shall be maintained in the United States and be readily accessible for 
examination and other supervisory purposes within 5 business days upon 
request by the FDIC, at a location acceptable to the FDIC.
    (2) Reports. For purposes of examination by and regulatory reports 
to the FDIC and compliance with this section, all State savings 
associations shall use such forms and follow such regulatory reporting 
requirements as the FDIC may require by regulation or otherwise.


Sec.  390.321  Regulatory reports.

    (a) Definition and scope. This section applies to all regulatory 
reports, as defined herein. A regulatory report is any report that the 
FDIC prepares, or is submitted to, or is used by the FDIC, to determine 
compliance with its rules and regulations, and to evaluate the safe and 
sound condition and operation of State savings associations. Regulatory 
reports are regulatory documents, not accounting documents.
    (b) Regulatory reporting requirements --(1) General. The 
instructions to regulatory reports are referred to as ``regulatory 
reporting requirements.'' Regulatory reporting requirements include, 
but are not limited to, the accounting instructions, guidance contained 
in FDIC regulations, financial institution letters, manuals, bulletins, 
examination handbooks, and safe and sound practices. Regulatory 
reporting requirements are not limited to the minimum requirements 
under generally accepted accounting principles (GAAP) because of the 
special supervisory, regulatory, and economic policy needs served by 
such reports. Regulatory reporting by State savings associations that 
purports to comply with GAAP shall incorporate the GAAP that best 
reflects the underlying economic substance of the transaction at issue. 
Regulatory reporting requirements shall, at a minimum:
    (i) Incorporate GAAP whenever GAAP is the referenced accounting 
instruction for regulatory reports to the Federal banking agencies;
    (ii) Incorporate safe and sound practices contained in FDIC 
regulations, financial institution letters, bulletins, examination 
handbooks, manuals, and instructions to regulatory reports; and
    (iii) Incorporate additional safety and soundness requirements more 
stringent than GAAP, as the FDIC may prescribe.
    (2) Exceptions. Regulatory reporting requirements that are not 
consistent with GAAP, if any, are not required to be reflected in 
audited financial statements, including financial statements contained 
in securities filings submitted to the FDIC pursuant to the Securities 
and Exchange Act of 1934 or subparts U and W and 12 CFR part 192.
    (3) Compliance. When the FDIC determines that a State savings 
association's regulatory reports did not conform to regulatory 
reporting requirements in previous reporting periods, the association 
shall correct its regulatory reports in accordance with the directions 
of the FDIC.


Sec.  390.322  Audit of State savings associations.

    (a) General. The FDIC may require, at any time, an independent 
audit of the financial statements of, or the application of procedures 
agreed upon by the FDIC to a State savings association, by qualified 
independent public accountants when needed for any safety and soundness 
reason identified by the FDIC.
    (b) Audits required for safety and soundness purposes. The FDIC 
requires an independent audit for safety and soundness purposes:
    (1) If a State savings association has received a composite rating 
of 3, 4 or 5, as defined at Sec.  390.101(c).
    (2) [Reserved]
    (c) Procedures. (1) When the FDIC requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
FDIC shall determine whether the audit was conducted and filed in a 
manner satisfactory to the FDIC.
    (2) The FDIC may waive the independent audit requirement described 
at paragraph (b)(1) of this section, if the FDIC determines that an 
audit would not provide further information on safety and soundness 
issues relevant to the examination rating.
    (3) When the FDIC requires the application of procedures agreed 
upon by the FDIC for safety and soundness purposes, the FDIC shall 
identify the procedures to be performed. The FDIC shall also determine 
whether the agreed upon procedures were conducted and filed in a manner 
satisfactory to the FDIC.
    (d) Qualifications for independent public accountants. The audit 
shall be conducted by an independent public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the State savings 
association`s or holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the FDIC with access 
to and copies of any work papers, policies, and procedures relating to 
the services performed;
    (3)(i) Is in compliance with the American Institute of Certified 
Public Accountants' (AICPA) Code of Professional Conduct; and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff; and
    (4) Has received, or is enrolled in, a peer review program that 
meets guidelines acceptable to the FDIC.
    (e) Voluntary audits. When a State savings association obtains an 
independent audit voluntarily, it must be performed by an independent 
public accountant who satisfies the requirements of paragraphs (d)(1), 
(2), and (3)(i) of this section.

Subpart S--State Savings Associations--Operations


Sec.  390.330  Chartering documents.

    (a) Submission for approval. Any de novo State savings association 
prior to commencing operations shall file its charter and bylaws with 
the FDIC for approval, together with a certification

[[Page 47721]]

that such charter and bylaws are permissible under all applicable laws, 
rules and regulations.
    (b) Availability of chartering documents. Each State savings 
association shall cause a true copy of its charter and bylaws and all 
amendments thereto to be available to accountholders at all times in 
each office of the State savings association, and shall upon request 
deliver to any accountholders a copy of such charter and bylaws or 
amendments thereto.


Sec.  390.331  Securities: Statement of non-insurance.

    Every security issued by a State savings association must include 
in its provisions a clear statement that the security is not insured by 
the Federal Deposit Insurance Corporation.


Sec.  390.332  Merger, consolidation, purchase or sale of assets, or 
assumption of liabilities.

    (a) No State savings association may, without application to and 
approval by the FDIC:
    (1) Combine with any insured depository institution, if the 
acquiring or resulting institution is to be a State savings 
association; or
    (2) Assume liability to pay any deposit made in, any insured 
depository institution.
    (b)(1) No State savings association may, without notifying the 
FDIC, as provided in paragraph (h)(1) of this section:
    (i) Combine with another insured depository institution where a 
State savings association is not the resulting institution; or
    (ii) In the case of a State savings association that meets the 
conditions for expedited treatment under Sec.  390.101, convert, 
directly or indirectly, to a national or state bank.
    (2) A State savings association that does not meet the conditions 
for expedited treatment under Sec.  390.101 may not, directly or 
indirectly, convert to a national or state bank without prior 
application to and approval of FDIC, as provided in paragraph 
(h)(2)(ii) of this section.
    (c) No State savings association may make any transfer (excluding 
transfers subject to paragraphs (a) or (b) of this section) without 
notice or application to the FDIC, as provided in paragraph (h)(2) of 
this section. For purposes of this paragraph, the term ``transfer'' 
means purchases or sales of assets or liabilities in bulk not made in 
the ordinary course of business including, but not limited to, 
transfers of assets or savings account liabilities, purchases of 
assets, and assumptions of deposit accounts or other liabilities, and 
combinations with a depository institution other than an insured 
depository institution.
    (d)(1) In determining whether to confer approval for a transaction 
under paragraphs (a), (b)(2), or (c) of this section, the FDIC shall 
take into account the following:
    (i) The capital level of any resulting State savings association;
    (ii) The financial and managerial resources of the constituent 
institutions;
    (iii) The future prospects of the constituent institutions;
    (iv) The convenience and needs of the communities to be served;
    (v) The conformity of the transaction to applicable law, 
regulation, and supervisory policies;
    (vi) Factors relating to the fairness of and disclosure concerning 
the transaction, including, but not limited to:
    (A) Equitable treatment. The transaction should be equitable to all 
concerned--savings account holders, borrowers, creditors and 
stockholders (if any) of each State savings association--giving proper 
recognition of and protection to their respective legal rights and 
interests. The transaction will be closely reviewed for fairness where 
the transaction does not appear to be the result of arms' length 
bargaining or, in the case of a stock State savings association, where 
controlling stockholders are receiving different consideration from 
other stockholders. No finder's or similar fee should be paid to any 
officer, director, or controlling person of a State savings association 
which is a party to the transaction.
    (B) Full disclosure. The filing should make full disclosure of all 
written or oral agreements or understandings by which any person or 
company will receive, directly or indirectly, any money, property, 
service, release of pledges made, or other thing of value, whether 
tangible or intangible, in connection with the transaction.
    (C) Compensation to officers. Compensation, including deferred 
compensation, to officers, directors and controlling persons of the 
disappearing State savings association by the resulting institution or 
an affiliate thereof should not be in excess of a reasonable amount, 
and should be commensurate with their duties and responsibilities. The 
filing should fully justify the compensation to be paid to such 
persons. The transaction will be particularly scrutinized where any of 
such persons is to receive a material increase in compensation above 
that paid by the disappearing State savings association prior to the 
commencement of negotiations regarding the proposed transaction. An 
increase in compensation in excess of the greater of 15% or $10,000 
gives rise to presumptions of unreasonableness and sale of control. In 
the case of such an increase, evidence sufficient to rebut such 
presumptions should be submitted.
    (D) Advisory boards. Advisory board members should be elected for a 
term not exceeding one year. No advisory board fees should be paid to 
salaried officers or employees of the resulting State savings 
association. The filing should describe and justify the duties and 
responsibilities and any compensation paid to any advisory board of the 
resulting State savings association that consists of officers, 
directors or controlling persons of the disappearing institution, 
particularly if the disappearing institution experienced significant 
supervisory problems prior to the transaction. No advisory board fees 
should exceed the director fees paid by the resulting State savings 
association. Advisory board fees that are in excess of 115 percent of 
the director fees paid by the disappearing State savings association 
prior to commencement of negotiations regarding the transaction give 
rise to presumptions of unreasonableness and sale of control unless 
sufficient evidence to rebut such presumptions is submitted. Rebuttal 
evidence is not required if:
    (1) The advisory board fees do not exceed the fee that advisory 
board members of the resulting institution receive for each monthly 
meeting attended or $150, whichever is greater; or
    (2) The advisory board fees do not exceed $100 per meeting attended 
for disappearing State savings associations with assets greater than 
$10,000,000 or $50 per meeting attended for disappearing State savings 
associations with assets of $10,000,000 or less, based on a schedule of 
12 meetings per year.
    (E) The accounting and tax treatment of the transaction; and
    (F) Fees paid and professional services rendered in connection with 
the transaction.
    (2) In conferring approval of a transaction under paragraph (a) of 
this section, the FDIC also will consider the competitive impact of the 
transaction, including whether:
    (i) The transaction would result in a monopoly, or would be in 
furtherance of any monopoly or conspiracy to monopolize or to attempt 
to monopolize the State savings association business in any part of the 
United States; or

[[Page 47722]]

    (ii) The effect of the transaction on any section of the country 
may be substantially to lessen competition, or tend to create a 
monopoly, or in any other manner would be in restraint of trade, unless 
the FDIC finds that the anticompetitive effects of the proposed 
transaction are clearly outweighed in the public interest by the 
probable effect of the transaction in meeting the convenience and needs 
of the communities to be served.
    (3) Applications and notices filed under this section shall be upon 
forms prescribed by the FDIC.
    (4) Applications filed under paragraph (a) of this section must be 
processed in accordance with the time frames set forth in Sec. Sec.  
390.127 through 390.135, provided that the period for review may be 
extended only if the FDIC determines that the applicant has failed to 
furnish all requested information or that the information submitted is 
substantially inaccurate, in which case the review period may be 
extended for up to 30 days.
    (e)(1) The following procedures apply to applications described in 
paragraph (a) of this section, unless the FDIC finds that it must act 
immediately to prevent the probable default of one of the depository 
institutions involved:
    (i) The applicant must publish a public notice of the application 
in accordance with the procedures in Sec. Sec.  390.111 through 
390.115. In addition to the initial publication, the applicant must 
also publish on a weekly basis during the public comment period.
    (ii) Commenters may submit comments on an application in accordance 
with the procedures in Sec. Sec.  390.116 through 390.120. The public 
comment period is 30 calendar days after the date of publication of the 
initial public notice. However, if the FDIC has advised the Attorney 
General that an emergency exists requiring expeditious action, the 
public comment period is 10 calendar days after the date of publication 
of the initial public notice.
    (iii) The FDIC may arrange a meeting in accordance with the 
procedures in Sec. Sec.  390.121 through 390.125.
    (iv) The FDIC will request the Attorney General, the Office of the 
Comptroller of the Currency, and the Board of Governors of the Federal 
Reserve System to provide reports on the competitive impacts involved 
in the transaction.
    (v) The FDIC will immediately notify the Attorney General of the 
approval of the transaction. The applicant may not consummate the 
transaction before the date established under 12 U.S.C. 1828(c)(6).
    (2) For applications described in Sec.  390.332, certain State 
savings associations described below must provide affected 
accountholders with a notice of a proposed account transfer and an 
option of retaining the account in the transferring State savings 
association. The notice must allow affected accountholders at least 30 
days to consider whether to retain their accounts in the transferring 
State savings association. The following State savings associations 
must provide the notices:
    (i) A State savings association transferring account liabilities to 
an institution the accounts of which are not insured by the Deposit 
Insurance Fund or the National Credit Union Share Insurance Fund; and
    (ii) Any mutual State savings association transferring account 
liabilities to a stock form depository institution.
    (f) Automatic approvals by the FDIC. Applications filed pursuant to 
paragraph (a) of this section shall be deemed to be approved 
automatically by the FDIC 30 calendar days after the FDIC sends written 
notice to the applicant that the application is complete, unless:
    (1) The acquiring State savings association does not meet the 
criteria for expedited treatment under Sec.  390.101;
    (2) The FDIC recommends the imposition of non-standard conditions 
prior to approving the application;
    (3) The FDIC suspends the applicable processing time frames under 
Sec.  390.125;
    (4) The FDIC raises objections to the transaction;
    (5) The resulting State savings association would be one of the 3 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 5 or fewer depository 
institutions, the resulting State savings association would have 25 
percent or more of the total deposits held by depository institutions 
in the relevant geographic area, and the share of total deposits would 
have increased by 5 percent or more;
    (6) The resulting State savings association would be one of the 2 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 6 to 11 depository 
institutions the resulting State savings association would have 30 
percent or more of the total deposits held by depositing institutions 
in the relevant geographic area, and the share of total deposits would 
have increased by 10 percent or more;
    (7) The resulting State savings association would be one of the 2 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 12 or more depository 
institutions, the resulting State savings association would have 35 
percent or more of the total deposits held by the depository 
institutions in the relevant geographic area, and the share of total 
deposits would have increased by 15 percent or more;
    (8) The Herfindahl-Hirschman Index (HHI) in the relevant geographic 
area was more than 1800 before the transaction, and the increase in the 
HHI used by the transaction would be 50 or more;
    (9) In a transaction involving potential competition, the FDIC 
determines that the acquiring State savings association is one of three 
or fewer potential entrants into the relevant geographic area;
    (10) The acquiring State savings association has assets of $1 
billion or more and proposes to acquire assets of $1 billion or more;
    (11) The State savings association that will be the resulting State 
savings association in the transaction has a composite Community 
Reinvestment Act rating of less than satisfactory, or is otherwise 
seriously deficient with respect to the FDIC's nondiscrimination 
regulations and the deficiencies have not been resolved to the 
satisfaction of the FDIC;
    (12) The transaction involves any supervisory or assistance 
agreement with the FDIC;
    (13) The transaction is part of a conversion under 12 CFR part 192;
    (14) The transaction raises a significant issue of law or policy; 
or
    (15) The transaction is opposed by any constituent institution or 
contested by a competing acquiror.
    (g) Definitions. (1) The terms used in this subpart shall have the 
same meaning as set forth in 12 CFR 152.13(b).
    (2) Insured depository institution. Insured depository institution 
has the same meaning as defined in section 3(c)(2) of the Federal 
Deposit Insurance Act.
    (3) With regard to paragraph (f) of this section, the term relevant 
geographic area is used as a substitute for relevant geographic market, 
which means the area within which the competitive effects of a merger 
or other combination may be evaluated. The relevant geographic area 
shall be delineated as a county or similar political subdivision, an 
area smaller than a county, or an aggregation of counties within which 
the merging or combining insured depository institutions compete. In 
addition, the FDIC may consider commuting patterns, newspaper and

[[Page 47723]]

other advertising activities, or other factors as the FDIC deems 
relevant.
    (h) Special requirements and procedures for transactions under 
paragraphs (b) and (c) of this section--(1)(i) Certain transactions 
with no surviving State savings association. The FDIC must be notified 
of any transaction under paragraph (b)(1) of this section. Such 
notification must be submitted to the appropriate FDIC region, as 
defined in Sec.  303.2 of this chapter, at least 30 days prior to the 
effective date of the transaction, but not later than the date on which 
an application relating to the proposed transaction is filed with the 
primary regulator of the resulting institution; the FDIC may, upon 
request or on its own initiative, shorten the 30-day prior notification 
requirement. Notifications under this paragraph must demonstrate 
compliance with applicable stockholder or accountholder approval 
requirements. Where the State savings association submitting the 
notification maintains a liquidation account established pursuant to 12 
CFR part 192, the notification must state that the resulting 
institution will assume such liquidation account.
    (ii) The notification may be in the form of either a letter 
describing the material features of the transaction or a copy of a 
filing made with another Federal or state regulatory agency seeking 
approval from that agency for the transaction under the Bank Merger Act 
or other applicable statute. If the action contemplated by the 
notification is not completed within one year after the FDIC's receipt 
of the notification, a new notification must be submitted to the FDIC.
    (2) Other transfer transactions--(i) Expedited treatment. A notice 
in conformity with Sec.  390.105(a) may be submitted to the appropriate 
FDIC region, as defined in Sec.  303.2 of this chapter, under Sec.  
390.108 for any transaction under paragraph (c) of this section, 
provided all constituent State savings associations meet the conditions 
for expedited treatment under Sec.  390.101. Notices submitted under 
this paragraph must be deemed approved automatically by the FDIC 30 
days after receipt, unless the FDIC advises the applicant in writing 
prior to the expiration of such period that the proposed transaction 
may not be consummated without the FDIC's approval of an application 
under paragraphs (h)(2)(ii) or (h)(2)(iii) of this section.
    (ii) Standard treatment. An application in conformity with Sec.  
390.105(b) and paragraph (d) of this section must be submitted to the 
appropriate FDIC region, as defined in Sec.  303.2 of this chapter, 
under Sec.  390.108 by each State savings association participating in 
a transaction under paragraph (b)(2) or (c) of this section, where any 
constituent State savings association does not meet the conditions for 
expedited treatment under Sec.  390.101. Applications under this 
paragraph must be processed in accordance with Sec. Sec.  390.103 
through 390.110 and Sec. Sec.  390.126 through 390.135.


Sec.  390.333  Advertising.

    No State savings association shall use advertising (which includes 
print or broadcast media, displays or signs, stationery, and all other 
promotional materials), or make any representation which is inaccurate 
in any particular or which in any way misrepresents its services, 
contracts, investments, or financial condition.


Sec.  390.334  Directors, officers, and employees.

    (a) Directors--(1) Requirements. The composition of the board of 
directors of a State savings association must be in accordance with the 
following requirements:
    (i) A majority of the directors must not be salaried officers or 
employees of the State savings association or of any subsidiary or 
(except in the case of a State savings association having 80% or more 
of any class of voting shares owned by a holding company) any holding 
company affiliate thereof.
    (ii) Not more than two of the directors may be members of the same 
immediate family.
    (iii) Not more than one director may be an attorney with a 
particular law firm.
    (2) Prospective application. In the case of an association whose 
board of directors does not conform with any requirement set forth in 
paragraph (a)(1) of this section as of October 5, 1983, this paragraph 
(a) shall not prohibit the uninterrupted service, including re-election 
and re-appointment, of any person serving on the board of directors at 
that date.
    (b) [Reserved]


Sec.  390.335  Tying restriction exception.

    For applicable rules, see the regulations issued by the Board of 
Governors of the Federal Reserve System.


Sec.  390.336  Employment contracts.

    (a) General. A State savings association may enter into an 
employment contract with its officers and other employees only in 
accordance with the requirements of this section. All employment 
contracts shall be in writing and shall be approved specifically by a 
State savings association's board of directors. A State savings 
association shall not enter into an employment contract with any of its 
officers or other employees if such contract would constitute an unsafe 
or unsound practice. The making of such an employment contract would be 
an unsafe or unsound practice if such contract could lead to material 
financial loss or damage to the State savings association or could 
interfere materially with the exercise by the members of its board of 
directors of their duty or discretion provided by law, charter, bylaw 
or regulation as to the employment or termination of employment of an 
officer or employee of the State savings association. This may occur, 
depending upon the circumstances of the case, where an employment 
contract provides for an excessive term.
    (b) Required provisions. Each employment contract shall provide 
that:
    (1) The State savings association's board of directors may 
terminate the officer or employee's employment at any time, but any 
termination by the State savings association's board of directors other 
than termination for cause, shall not prejudice the officer or 
employee's right to compensation or other benefits under the contract. 
The officer or employee shall have no right to receive compensation or 
other benefits for any period after termination for cause. Termination 
for cause shall include termination because of the officer or 
employee's personal dishonesty, incompetence, willful misconduct, 
breach of fiduciary duty involving personal profit, intentional failure 
to perform stated duties, willful violation of any law, rule, or 
regulation (other than traffic violations or similar offenses) or final 
cease-and-desist order, or material breach of any provision of the 
contract.
    (2) If the officer or employee is suspended and/or temporarily 
prohibited from participating in the conduct of the State savings 
association's affairs by a notice served under section 8(e)(3) or 
(g)(1) of Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and 
(g)(1)), the State savings association's obligations under the contract 
shall be suspended as of the date of service unless stayed by 
appropriate proceedings. If the charges in the notice are dismissed, 
the State savings association may in its discretion:
    (i) Pay the officer or employee all or part of the compensation 
withheld while its contract obligations were suspended; and

[[Page 47724]]

    (ii) Reinstate (in whole or in part) any of its obligations which 
were suspended.
    (3) If the officer or employee is removed and/or permanently 
prohibited from participating in the conduct of the State savings 
association's affairs by an order issued under section 8 (e)(4) or 
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or 
(g)(1)), all obligations of the State savings association under the 
contract shall terminate as of the effective date of the order, but 
vested rights of the contracting parties shall not be affected.
    (4) If the State savings association is in default (as defined in 
section 3(x)(1) of the Federal Deposit Insurance Act), all obligations 
under the contract shall terminate as of the date of default, but this 
paragraph (b)(4) shall not affect any vested rights of the contracting 
parties: Provided, that this paragraph (b)(4) need not be included in 
an employment contract if prior written approval is secured from the 
FDIC.
    (5)(i) All obligations under the contract shall be terminated, 
except to the extent determined that continuation of the contract is 
necessary of the continued operation of the State savings association
    (A) By the FDIC, at the time the FDIC enters into an agreement to 
provide assistance to or on behalf of the State savings association 
under the authority contained in 13(c) of the Federal Deposit Insurance 
Act; or
    (B) By the FDIC, at the time the FDIC approves a supervisory merger 
to resolve problems related to operation of the State savings 
association or when the State savings association is determined by the 
FDIC to be in an unsafe or unsound condition.
    (ii) Any rights of the parties that have already vested, however, 
shall not be affected by such action.


Sec.  390.337  Transactions with affiliates.

    For applicable rules, see the regulations issued by the Board of 
Governors of the Federal Reserve System.


Sec.  390.338  Loans by State savings associations to their executive 
officers, directors, and principal shareholders.

    For applicable rules, see the regulations issued by the Board of 
Governors of the Federal Reserve System.


Sec.  390.339  Pension plans.

    (a) General. No State savings association shall sponsor an employee 
pension plan which, because of unreasonable costs or any other reason, 
could lead to material financial loss or damage to the sponsor. For 
purposes of this section, an employee pension plan is defined in 
section 3(2) of the Employee Retirement Income Security Act of 1974, as 
amended. The prospective obligation or liability of a plan sponsor to 
each plan participant shall be stated in or determinable from the plan, 
and, for a defined benefit plan, shall also be based upon an actuarial 
estimate of future experience under the plan.
    (b) Funding. Actuarial cost methods permitted under the Employee 
Retirement Income Security Act of 1974 and the Internal Revenue Code of 
1954, as amended, shall be used to determine plan funding.
    (c) Plan amendment. A plan may be amended to provide reasonable 
annual cost-of-living increases to retired participants: Provided, That
    (1) Any such increase shall be for a period and amount determined 
by the sponsor's board of directors, but in no event shall it exceed 
the annual increase in the Consumer Price Index published by the Bureau 
of Labor Statistics; and
    (2) No increase shall be granted unless:
    (i) Anticipated charges to net income for future periods have first 
been found by such board of directors to be reasonable and are 
documented by appropriate resolution and supporting analysis; and
    (ii) The increase will not reduce the State savings association's 
regulatory capital below its regulatory capital requirement.
    (d) Termination. The plan shall permit the sponsor's board of 
directors and its successors to terminate such plan. Notice of intent 
to terminate shall be filed with the FDIC at least 60 days prior to the 
proposed termination date.
    (e) Records. Each State savings association maintaining a plan not 
subject to recordkeeping and reporting requirements of the Employee 
Retirement Income Security Act of 1974, and the Internal Revenue Code 
of 1954, as amended, shall establish and maintain records containing 
the following:
    (1) Plan description;
    (2) Schedule of participants and beneficiaries;
    (3) Schedule of participants and beneficiaries' rights and 
obligations;
    (4) Plan's financial statements; and
    (5) Except for defined contribution plans, an opinion signed by an 
enrolled actuary (as defined by the Employee Retirement Income Security 
Act of 1974) affirming that actuarial assumptions in the aggregate are 
reasonable, take into account the plan's experience and expectations, 
and represent the actuary's best estimate of the plan's projected 
experiences.


Sec.  390.340   Offers and sales of securities at an office of a State 
savings association.

    (a) A State saving association may not offer or sell debt or equity 
securities issued by the State savings association or an affiliate of 
the State savings association at an office of the State savings 
association; except that equity securities issued by the State savings 
association or an affiliate in connection with the State savings 
association's conversion from the mutual to stock form of organization 
in a conversion approved pursuant to 12 CFR part 192 may be offered and 
sold at the State savings association's offices: Provided, That:
    (1) The FDIC does not object on supervisory grounds that the offer 
and sale of the securities at the offices of the State savings 
association;
    (2) No commissions, bonuses, or comparable payments are paid to any 
employee of the State savings association or its affiliates or to any 
other person in connection with the sale of securities at an office of 
a State savings association; except that compensation and commissions 
consistent with industry norms may be paid to securities personnel of 
registered broker-dealers;
    (3) No offers or sales are made by tellers or at the teller 
counter, or by comparable persons at comparable locations;
    (4) Sales activity is conducted in a segregated or separately 
identifiable area of the State savings association's offices apart from 
the area accessible to the general public for the purposes of making or 
withdrawing deposits;
    (5) Offers and sales are made only by regular, full-time employees 
of the State savings association or by securities personnel who are 
subject to supervision by a registered broker-dealer;
    (6) An acknowledgment, in the form set forth in paragraph (c) of 
this section, is signed by any customer to whom the security is sold in 
the State savings association's offices prior to the sale of any such 
securities;
    (7) A legend that the security is not a deposit or account and is 
not federally insured or guaranteed appears conspicuously on the 
security and in all offering documents and advertisements for the 
securities; the legend must state in bold or other prominent type at 
least as large as other textual type in the document that ``This 
security is not a deposit or account and is not federally insured or 
guaranteed''; and

[[Page 47725]]

    (8) The State savings association will be in compliance with its 
current capital requirements upon completion of the conversion stock 
offering.
    (b) Securities sales practices, advertisements, and other sales 
literature used in connection with offers and sales of securities by 
State savings associations shall be subject to Sec.  390.419.
    (c) Offers and sales of securities of a State savings association 
or its affiliates in any office of the State savings association must 
use a one-page, unambiguous, certification in substantially the 
following form:
FORM OF CERTIFICATION
    I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS 
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name of State 
savings association] OR BY THE FEDERAL GOVERNMENT.
    If anyone asserts that this security is federally insured or 
guaranteed, or is as safe as an insured deposit, I should call the 
FDIC's appropriate regional director [insert name and telephone number 
with area code of the appropriate regional director, as defined in 
section 303.2 of this chapter].
    I further certify that, before purchasing the [description of 
security being offered] of [name of issuer, name of State savings 
association and affiliation to issuer (if different)], I received an 
offering circular.
    The offering circular that I received contains disclosure 
concerning the nature of the security being offered and describes the 
risks involved in the investment, including:
    [List briefly the principal risks involved and cross reference 
certain specified pages of the offering circular where a more complete 
description of the risks is made.]
Signature:-------------------------------------------------------------

Date:------------------------------------------------------------------

    (d) For purposes of this section, an ``office'' of a State savings 
association means any premises used by the State savings association 
that are identified to the public through advertising or signage using 
the State savings association's name, trade name, or logo.


Sec.  390.341   Inclusion of subordinated debt securities and 
mandatorily redeemable preferred stock as supplementary capital.

    (a) Scope. A State savings association must comply with this 
section in order to include subordinated debt securities or mandatorily 
redeemable preferred stock (``covered securities'') in supplementary 
capital (tier 2 capital) under subpart Z. If a State savings 
association does not include covered securities in supplementary 
capital, it is not required to comply with this section.
    (b) Application and notice procedures. (1) A State savings 
association must file an application or notice under Sec. Sec.  390.103 
through 390.110 seeking FDIC approval of, or non-objection to, the 
inclusion of covered securities in supplementary capital. The State 
savings association may file its application or notice before or after 
it issues covered securities, but may not include covered securities in 
supplementary capital until the FDIC approves the application or does 
not object to the notice.
    (2) A State savings association must also comply with the 
securities offering rules at subpart W by filing an offering circular 
for a proposed issuance of covered securities, unless the offering 
qualifies for an exemption under that subpart.
    (c) Securities requirements. To be included in supplementary 
capital, covered securities must meet the following requirements:
    (1) Form. (i) Each certificate evidencing a covered security must:
    (A) Bear the following legend on its face, in bold type: ``This 
security is not a savings account or deposit and it is not insured by 
the United States or any agency or fund of the United States;''
    (B) State that the security is subordinated on liquidation, as to 
principal, interest, and premium, to all claims against the State 
savings association that have the same priority as savings accounts or 
a higher priority;
    (C) State that the security is not secured by the State savings 
association's assets or the assets of any affiliate of the State 
savings association. For purposes of this subpart, the term affiliate 
means any person or company which controls, is controlled by, or is 
under common control with such State savings association.
    (D) State that the security is not eligible collateral for a loan 
by the State savings association;
    (E) State the prohibition on the payment of dividends or interest 
at 12 U.S.C. 1828(b) and, in the case of subordinated debt securities, 
state the prohibition on the payment of principal and interest at 12 
U.S.C. 1831o(h);
    (F) For subordinated debt securities, state or refer to a document 
stating the terms under which the State savings association may prepay 
the obligation; and
    (G) State or refer to a document stating that the State savings 
association must obtain FDIC approval before the voluntarily prepayment 
of principal on subordinated debt securities, the acceleration of 
payment of principal on subordinated debt securities, or the 
voluntarily redemption of mandatorily redeemable preferred stock (other 
than scheduled redemptions), if the State savings association is 
undercapitalized, significantly undercapitalized, or critically 
undercapitalized as described in Sec.  390.453(4)(b), fails to meet the 
regulatory capital requirements at subpart Z, or would fail to meet any 
of these standards following the payment.
    (ii) A State savings association must include such additional 
statements as the FDIC may prescribe for certificates, purchase 
agreements, indentures, and other related documents.
    (2) Maturity requirements. Covered securities must have an original 
weighted average maturity or original weighted average period to 
required redemption of at least five years.
    (3) Mandatory prepayment. Subordinated debt securities and related 
documents may not provide events of default or contain other provisions 
that could result in a mandatory prepayment of principal, other than 
events of default that:
    (i) Arise from the State savings association's failure to make 
timely payment of interest or principal;
    (ii) Arise from its failure to comply with reasonable financial, 
operating, and maintenance covenants of a type that are customarily 
included in indentures for publicly offered debt securities; or
    (iii) Relate to bankruptcy, insolvency, receivership, or similar 
events.
    (4) Indenture. (i) Except as provided in paragraph (c)(4)(ii) of 
this section, a State savings association must use an indenture for 
subordinated debt securities. If the aggregate amount of subordinated 
debt securities publicly offered (excluding sales in a non-public 
offering as defined in Sec.  390.413 and sold in any consecutive 12-
month or 36-month period exceeds $5,000,000 or $10,000,000 respectively 
(or such lesser amount that the Securities and Exchange Commission 
shall establish by rule or regulation under 15 U.S.C. 77ddd), the 
indenture must provide for the appointment of a trustee other than the 
State savings association or an affiliate of the State savings 
association (as defined at Sec.  390.283) and for collective 
enforcement of the security holders' rights and remedies.
    (ii) A State savings association is not required to use an 
indenture if the subordinated debt securities are sold only to 
accredited investors, as that term is defined in 15 U.S.C. 77d(6). A 
State savings association must have an indenture that meets the 
requirements

[[Page 47726]]

of paragraph (c)(4)(i) of this section in place before any debt 
securities for which an exemption from the indenture requirement is 
claimed, are transferred to any non-accredited investor. If a State 
savings association relies on this exemption from the indenture 
requirement, it must place a legend on the debt securities indicating 
that an indenture must be in place before the debt securities are 
transferred to any non-accredited investor.
    (d) FDIC review. (1) The FDIC will review notices and applications 
under Sec. Sec.  390.126 through 390.135.
    (2) In reviewing notices and applications under this section, the 
FDIC will consider whether:
    (i) The issuance of the covered securities is authorized under 
applicable laws and regulations and is consistent with the State 
savings association's charter and bylaws.
    (ii) The State savings association is at least adequately 
capitalized under Sec.  390.453(4)(b) and meets the regulatory capital 
requirements at subpart Z.
    (iii) The State savings association is or will be able to service 
the covered securities.
    (iv) The covered securities are consistent with the requirements of 
this section.
    (v) The covered securities and related transactions sufficiently 
transfer risk from the Deposit Insurance Fund.
    (vi) The FDIC has no objection to the issuance based on the State 
savings association's overall policies, condition, and operations.
    (3) The FDIC approval or non-objection is conditioned upon no 
material changes to the information disclosed in the application or 
notice submitted to the FDIC. The FDIC may impose such additional 
requirements or conditions as it may deem necessary to protect 
purchasers, the State savings association, or the Deposit Insurance 
Fund.
    (e) Amendments. If a State savings association amends the covered 
securities or related documents following the completion of the FDIC's 
review, it must obtain the FDIC's approval or non-objection under this 
section before it may include the amended securities in supplementary 
capital.
    (f) Sale of covered securities. The State savings association must 
complete the sale of covered securities within one year after the 
FDIC's approval or non-objection under this section. A State savings 
association may request an extension of the offering period by filing a 
written request with the FDIC. The State savings association must 
demonstrate good cause for the extension and file the request at least 
30 days before the expiration of the offering period or any extension 
of the offering period.
    (g) Reports. A State savings association must file the following 
information with the FDIC within 30 days after the State savings 
association completes the sale of covered securities includable as 
supplementary capital. If the State savings association filed its 
application or notice following the completion of the sale, it must 
submit this information with its application or notice:
    (1) A written report indicating the number of purchasers, the total 
dollar amount of securities sold, the net proceeds received by the 
State savings association from the issuance, and the amount of covered 
securities, net of all expenses, to be included as supplementary 
capital;
    (2) Three copies of an executed form of the securities and a copy 
of any related documents governing the issuance or administration of 
the securities; and
    (3) A certification by the appropriate executive officer indicating 
that the State savings association complied with all applicable laws 
and regulations in connection with the offering, issuance, and sale of 
the securities.


Sec.  390.342   Capital distributions by State savings associations.

    Sections 390.342 through 390.348 apply to all capital distributions 
by a State savings association (``you'').


Sec.  390.343   What is a capital distribution?

    A capital distribution is:
    (a) A distribution of cash or other property to your owners made on 
account of their ownership, but excludes:
    (1) Any dividend consisting only of your shares or rights to 
purchase your shares; or
    (2) If you are a mutual State savings association, any payment that 
you are required to make under the terms of a deposit instrument and 
any other amount paid on deposits that the FDIC determines is not a 
distribution for the purposes of this section;
    (b) Your payment to repurchase, redeem, retire or otherwise acquire 
any of your shares or other ownership interests, any payment to 
repurchase, redeem, retire, or otherwise acquire debt instruments 
included in your total capital under subpart Z, and any extension of 
credit to finance an affiliate's acquisition of your shares or 
interests;
    (c) Any direct or indirect payment of cash or other property to 
owners or affiliates made in connection with a corporate restructuring. 
This includes your payment of cash or property to shareholders of 
another savings association or to shareholders of its holding company 
to acquire ownership in that savings association, other than by a 
distribution of shares;
    (d) Any other distribution charged against your capital accounts if 
you would not be well capitalized, as set forth in Sec.  390.453(b)(1), 
following the distribution; and
    (e) Any transaction that the FDIC determines, by order or 
regulation, to be in substance a distribution of capital.


Sec.  390.344  Definitions applicable to capital distributions.

    The following definitions apply to sections 390.342 through 
390.348:
    Affiliate means an affiliate, as defined in regulations governing 
transactions with affiliates as issued by the Board of Governors of the 
Federal Reserve System.
    Capital means total capital, as computed under subpart Z.
    Net income means your net income computed in accordance with 
generally accepted accounting principles.
    Retained net income means your net income for a specified period 
less total capital distributions declared in that period.
    Shares means common and preferred stock, and any options, warrants, 
or other rights for the acquisition of such stock. The term ``share'' 
also includes convertible securities upon their conversion into common 
or preferred stock. The term does not include convertible debt 
securities prior to their conversion into common or preferred stock or 
other securities that are not equity securities at the time of a 
capital distribution.


Sec.  390.345  Must I file with the FDIC?

    Whether and what you must file with the FDIC depends on whether you 
and your proposed capital distribution fall within certain criteria.
    (a) Application required.

[[Page 47727]]



------------------------------------------------------------------------
                     If:                               Then you:
------------------------------------------------------------------------
(1) You are not eligible for expedited         Must file an application
 treatment under Sec.   390.101.                with the FDIC.
(2) The total amount of all of your capital    Must file an application
 distributions (including the proposed          with the FDIC.
 capital distribution) for the applicable
 calendar year exceeds your net income for
 that year to date plus your retained net
 income for the preceding two years.
(3) You would not be at least adequately       Must file an application
 capitalized, as set forth in Sec.              with the FDIC.
 390.453(b)(2), following the distribution.
(4) Your proposed capital distribution would   Must file an application
 violate a prohibition contained in any         with the FDIC.
 applicable statute, regulation, or agreement
 between you and the FDIC, or violate a
 condition imposed on you in an FDIC-approved
 application or notice.
------------------------------------------------------------------------

    (b) Notice required.

------------------------------------------------------------------------
      If you are not required to file an
   application under paragraph (a) of this             Then you:
                section, but:
------------------------------------------------------------------------
(1) You would not be well capitalized, as set  Must file a notice with
 forth under Sec.   390.453(b)(1), following    the FDIC.
 the distribution.
(2) Your proposed capital distribution would   Must file a notice with
 reduce the amount of or retire any part of     the FDIC.
 your common or preferred stock or retire any
 part of debt instruments such as notes or
 debentures included in capital under subpart
 Z (other than regular payments required
 under a debt instrument approved under Sec.
  390.341).
------------------------------------------------------------------------

    (c) No prior notice required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
If neither you nor your proposed capital       Then you do not need to
 distribution meet any of the criteria listed   file a notice or an
 in paragraphs (a) and (b) of this section.     application with the
                                                FDIC before making a
                                                capital distribution.
------------------------------------------------------------------------

Sec.  390.346  How do I file with the FDIC?

    (a) Contents. Your notice or application must:
    (1) Be in narrative form.
    (2) Include all relevant information concerning the proposed 
capital distribution, including the amount, timing, and type of 
distribution.
    (3) Demonstrate compliance with Sec.  390.348.
    (b) Schedules. Your notice or application may include a schedule 
proposing capital distributions over a specified period, not to exceed 
12 months.
    (c) Timing. You must file your notice or application at least 30 
days before the proposed declaration of dividend or approval of the 
proposed capital distribution by your board of directors.


Sec.  390.347  May I combine my notice or application with other 
notices or applications?

    You may combine the notice or application required under Sec.  
390.345 with any other notice or application, if the capital 
distribution is a part of, or is proposed in connection with, another 
transaction requiring a notice or application under Parts 390 and 391. 
If you submit a combined filing, you must:
    (a) State that the related notice or application is intended to 
serve as a notice or application under Sec. Sec.  390.342 through 
390.348; and
    (b) Submit the notice or application in a timely manner.


Sec.  390.348  Will the FDIC permit my capital distribution?

    The FDIC will review your notice or application under the review 
procedures in Sec. Sec.  390.126 through 390.135. The FDIC may 
disapprove your notice or deny your application filed under Sec.  
390.345 in whole or in part, if the FDIC makes any of the following 
determinations.
    (a) You will be undercapitalized, significantly undercapitalized, 
or critically undercapitalized as set forth in Sec.  390.453(b), 
following the capital distribution. If so, the FDIC will determine if 
your capital distribution is permitted under 12 U.S.C. 1831o(d)(1)(B).
    (b) Your proposed capital distribution raises safety or soundness 
concerns.
    (c) Your proposed capital distribution violates a prohibition 
contained in any statute, regulation, agreement between you and the 
FDIC or a condition imposed on you in an FDIC-approved application or 
notice. If so, the FDIC will determine whether it may permit your 
capital distribution notwithstanding the prohibition or condition.


Sec.  390.349  Management and financial policies.

    (a)(1) For the protection of depositors and other State savings 
associations, each State savings association must be well managed and 
operate safely and soundly. Each also must pursue financial policies 
that are safe and consistent with economical home financing and the 
purposes of State savings associations.
    (2) As part of meeting its requirements under paragraph (a)(1) of 
this section, each State savings association must maintain sufficient 
liquidity to ensure its safe and sound operation.
    (b) Compensation to officers, directors, and employees of each 
State savings association shall not be in excess of that which is 
reasonable and commensurate with their duties and responsibilities. 
Former officers, directors, and employees of State savings association 
who regularly perform services therefor under consulting contracts are 
employees thereof for purposes of this paragraph (b).


Sec.  390.350  Examinations and audits; appraisals; establishment and 
maintenance of records.

    (a) Examinations and audits. Each State savings association and 
affiliate thereof shall be examined periodically, and may be examined 
at any time, by the FDIC, with appraisals when deemed advisable, in 
accordance with general policies from time to time established by the 
FDIC.
    (b) Appraisals. (1) Unless otherwise ordered by the FDIC, appraisal 
of real estate by the FDIC in connection with any examination or audit 
of a State savings association or its affiliate shall

[[Page 47728]]

be made by an appraiser, or by appraisers, selected by the appropriate 
FDIC region, as that term is defined in Sec.  303.2 of this chapter, in 
which such State savings association is located. The cost of such 
appraisal shall promptly be paid by such State savings association or 
its affiliate direct to such appraiser or appraisers upon receipt by 
the State savings association or its affiliate of a statement of such 
cost as approved by the appropriate regional director. A copy of the 
report of each appraisal made by the FDIC pursuant to any of the 
foregoing provisions of this section shall be furnished to the State 
savings association or its affiliate, as appropriate within a 
reasonable time, not to exceed 90 days, following the completion of 
such appraisals and the filing of a report thereof by the appraiser, or 
appraisers, with the appropriate FDIC office.
    (2) The FDIC may obtain at any time, at its expense, such 
appraisals of any of the assets, including the security therefor, of a 
State savings association or its affiliate as the FDIC deems 
appropriate.
    (c) Establishment and maintenance of records. To enable the FDIC to 
examine State savings associations and affiliates and audit State 
savings associations and its affiliates, pursuant to the provisions of 
paragraph (a) of this section, each State savings association, and its 
affiliate shall establish and maintain such accounting and other 
records as will provide an accurate and complete record of all business 
it transacts. This includes, without limitation, establishing and 
maintaining such other records as are required by statute or any other 
regulation to which the State savings association and its affiliate is 
subject. The documents, files, and other material or property 
comprising said records shall at all times be available for such 
examination and audit wherever any of said records, documents, files, 
material, or property may be.
    (d) Change in location of records. A State savings association 
shall not transfer the location of any of its general accounting or 
control records, or the maintenance thereof, from its home office to a 
branch or service office, or from a branch or service office to its 
home office or to another branch or service office unless prior to the 
date of transfer its board of directors has:
    (1) By resolution authorized the transfer or maintenance and;
    (2) Sent a certified copy of the resolution to the appropriate 
regional director for the region in which the principal office of the 
State savings association is located.
    (e) Use of data processing services for maintenance of records. A 
State savings association which determines to maintain any of its 
records by means of data processing services shall so notify the 
appropriate regional director for the region in which the principal 
office of such State savings association is located, in writing, at 
least 90 days prior to the date on which such maintenance of records 
will begin. Such notification shall include identification of the 
records to be maintained by data processing services and a statement as 
to the location at which such records will be maintained. Any contract, 
agreement, or arrangement made by a State savings association pursuant 
to which data processing services are to be performed for such State 
savings association shall be in writing and shall expressly provide 
that the records to be maintained by such services shall at all times 
be available for examination and audit.


Sec.  390.351  Frequency of safety and soundness examination.

    (a) General. The FDIC examines State savings associations pursuant 
to authority conferred by 12 U.S.C. 1463 and the requirements of 12 
U.S.C. 1820(d). The FDIC is required to conduct a full-scope, on-site 
examination of every State savings association at least once during 
each 12-month period.
    (b) 18-month rule for certain small institutions. The FDIC may 
conduct a full-scope, on-site examination of a State savings 
association at least once during each 18-month period, rather than each 
12-month period as provided in paragraph (a) of this section, if the 
following conditions are satisfied:
    (1) The State savings association has total assets of less than 
$500 million;
    (2) The State savings association is well capitalized as defined in 
Sec.  390.453;
    (3) At its most recent examination, the FDIC--
    (i) Assigned the State savings association a rating of 1 or 2 for 
management as part of the State savings association's composite rating 
under the Uniform Financial Institutions Rating System (commonly 
referred to as CAMELS), and
    (ii) Determined that the State savings association was in 
outstanding or good condition, that is, it received a composite rating, 
as defined in Sec.  390.101(c), of 1 or 2;
    (4) The State savings association currently is not subject to a 
formal enforcement proceeding or order by the FDIC; and
    (5) No person acquired control of the State savings association 
during the preceding 12-month period in which a full-scope, on-site 
examination would have been required but for this section.
    (c) Authority to conduct more frequent examinations. This section 
does not limit the authority of the FDIC to examine any State savings 
association as frequently as the agency deems necessary.


Sec.  390.352  Financial derivatives.

    (a) What is a financial derivative? A financial derivative is a 
financial contract whose value depends on the value of one or more 
underlying assets, indices, or reference rates. The most common types 
of financial derivatives are futures, forward commitments, options, and 
swaps. A mortgage derivative security, such as a collateralized 
mortgage obligation or a real estate mortgage investment conduit, is 
not a financial derivative under this section.
    (b) May I engage in transactions involving financial derivatives? 
(1) [Reserved]
    (2) If you are a State savings association, you may engage in a 
transaction involving a financial derivative if your charter or 
applicable State law authorizes you to engage in such transactions, the 
transaction is safe and sound, and you otherwise meet the requirements 
in this section.
    (3) In general, if you engage in a transaction involving a 
financial derivative, you should do so to reduce your risk exposure.
    (c) What are my board of directors' responsibilities with respect 
to financial derivatives? (1) Your board of directors is responsible 
for effective oversight of financial derivatives activities.
    (2) Before you may engage in any transaction involving a financial 
derivative, your board of directors must establish written policies and 
procedures governing authorized financial derivatives. Your board of 
directors should review Thrift Bulletin 13a, ``Management of Interest 
Rate Risk, Investment Securities, and Derivatives Activities,'' and 
other applicable agency guidance on establishing a sound risk 
management program.
    (3) Your board of directors must periodically review:
    (i) Compliance with the policies and procedures established under 
paragraph (c)(2) of this section; and
    (ii) The adequacy of these policies and procedures to ensure that 
they continue to be appropriate to the nature and scope of your 
operations and existing market conditions.
    (4) Your board of directors must ensure that management establishes 
an adequate system of internal controls for

[[Page 47729]]

transactions involving financial derivatives.
    (d) What are management's responsibilities with respect to 
financial derivatives? (1) Management is responsible for daily 
oversight and management of financial derivatives activities. 
Management must implement the policies and procedures established by 
the board of directors and must establish a system of internal 
controls. This system of internal controls should, at a minimum, 
provide for periodic reporting to the board of directors and 
management, segregation of duties, and internal review procedures.
    (2) Management must ensure that financial derivatives activities 
are conducted in a safe and sound manner and should review Thrift 
Bulletin 13a, ``Management of Interest Rate Risk, Investment 
Securities, and Derivatives Activities,'' and other applicable agency 
guidance on implementing a sound risk management program.
    (e) What records must I keep on financial derivative transactions? 
You must maintain records adequate to demonstrate compliance with this 
section and with your board of directors' policies and procedures on 
financial derivatives.


Sec.  390.353  Interest-rate-risk-management procedures.

    State savings associations shall take the following actions:
    (a) The board of directors or a committee thereof shall review the 
State savings association's interest-rate-risk exposure and devise a 
policy for the State savings association's management of that risk.
    (b) The board of directors shall formerly adopt a policy for the 
management of interest-rate risk. The management of the State savings 
association shall establish guidelines and procedures to ensure that 
the board's policy is successfully implemented.
    (c) The management of the State savings association shall 
periodically report to the board of directors regarding implementation 
of the State savings association's policy for interest-rate-risk 
management and shall make that information available upon request to 
the FDIC.
    (d) The State savings association's board of directors shall review 
the results of operations at least quarterly and shall make such 
adjustments as it considers necessary and appropriate to the policy for 
interest-rate-risk management, including adjustments to the authorized 
acceptable level of interest-rate risk.


Sec.  390.354  Procedures for monitoring Bank Secrecy Act (BSA) 
compliance.

    (a) Purpose. The purpose of this regulation is to require State 
savings associations (as defined by Sec.  390.308 to establish and 
maintain procedures reasonably designed to assure and monitor 
compliance with the requirements of subchapter II of chapter 53 of 
title 31, United States Code, and the implementing regulations 
promulgated thereunder by the U.S. Department of Treasury, 31 CFR part 
103.
    (b) Establishment of a BSA compliance program--(1) Program 
requirement. Each State savings association shall develop and provide 
for the continued administration of a program reasonably designed to 
assure and monitor compliance with the recordkeeping and reporting 
requirements set forth in subchapter II of chapter 53 of title 31, 
United States Code and the implementing regulations issued by the 
Department of the Treasury at 31 CFR part 103. The compliance program 
must be written, approved by the State savings association's board of 
directors, and reflected in the minutes of the State savings 
association.
    (2) Customer identification program. Each State savings association 
is subject to the requirements of 31 U.S.C. 5318(l) and the 
implementing regulation promulgated at 31 CFR 103.121, which require a 
customer identification program to be implemented as part of the BSA 
compliance program required under this section.
    (c) Contents of compliance program. The compliance program shall, 
at a minimum:
    (1) Provide for a system of internal controls to assure ongoing 
compliance;
    (2) Provide for independent testing for compliance to be conducted 
by a savings association's in-house personnel or by an outside party;
    (3) Designate individual(s) responsible for coordinating and 
monitoring day-to-day compliance; and
    (4) Provide training for appropriate personnel.


Sec.  390.355  Suspicious Activity Reports and other reports and 
statements.

    (a) Periodic reports. Each State savings association shall make 
such periodic or other reports of its affairs in such manner and on 
such forms as the FDIC may prescribe. The FDIC may provide that reports 
filed by State savings associations to meet the requirements of other 
regulations also satisfy requirements imposed under this section.
    (b) False or misleading statements or omissions. No State savings 
association or director, officer, agent, employee, affiliated person, 
or other person participating in the conduct of the affairs of such 
State savings association nor any person filing or seeking approval of 
any application shall knowingly:
    (1) Make any written or oral statement to the FDIC or to an agent, 
representative or employee of the FDIC that is false or misleading with 
respect to any material fact or omits to state a material fact 
concerning any matter within the jurisdiction of the FDIC; or
    (2) Make any such statement or omission to a person or organization 
auditing a State savings association or otherwise preparing or 
reviewing its financial statements concerning the accounts, assets, 
management condition, ownership, safety, or soundness, or other affairs 
of the State savings association.
    (c) Notifications of loss and reports of increase in deductible 
amount of bond. A State savings association maintaining bond coverage 
as required by Sec.  390.356 shall promptly notify its bond company and 
file a proof of loss under the procedures provided by its bond, 
concerning any covered losses greater than twice the deductible amount.
    (d) Suspicious Activity Reports--(1) Purpose and scope. This 
paragraph (d) ensures that State savings associations and service 
corporations file a Suspicious Activity Report when they detect a known 
or suspected violation of Federal law or a suspicious transaction 
related to a money laundering activity or a violation of the Bank 
Secrecy Act.
    (2) Definitions. For the purposes of this paragraph (d):
    (i) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (ii) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(9) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(9)).
    (iii) SAR means a Suspicious Activity Report on the form prescribed 
by the FDIC.
    (3) SARs required. A State savings association shall file a SAR 
with the appropriate Federal law enforcement agencies and the 
Department of the Treasury in accordance with the form's instructions, 
by sending a completed SAR to FinCEN in the following circumstances:
    (i) Insider abuse involving any amount. Whenever the State savings 
association detects any known or suspected Federal criminal violation, 
or pattern of criminal violations,

[[Page 47730]]

committed or attempted against the State savings association or 
involving a transaction or transactions conducted through the State 
savings association where the State savings association believes that 
it was either an actual or potential victim of a criminal violation, or 
series of criminal violations, or that it was used to facilitate a 
criminal transaction, and it has a substantial basis for identifying 
one of its directors, officers, employees, agents or other institution-
affiliated parties as having committed or aided in the commission of a 
criminal act, regardless of the amount involved in the violation.
    (ii) Violations aggregating $5,000 or more where a suspect can be 
identified. Whenever the State savings association detects any known or 
suspected Federal criminal violation, or pattern of criminal 
violations, committed or attempted against the State savings 
association involving a transaction or transactions conducted through 
the State savings association and involving or aggregating $5,000 or 
more in funds or other assets, where the State savings association 
believes that it was either an actual or potential victim of a criminal 
violation or series of criminal violations, or that it was used to 
facilitate a criminal transaction, and it has a substantial basis for 
identifying a possible suspect or group of suspects. If it is 
determined prior to filing this report that the identified suspect or 
group of suspects has used an alias, then information regarding the 
true identity of the suspect or group of suspects, as well as alias 
identifiers, such as drivers' license or social security numbers, 
addresses and telephone numbers, must be reported.
    (iii) Violations aggregating $25,000 or more regardless of 
potential suspects. Whenever the State savings association detects any 
known or suspected Federal criminal violation, or pattern of criminal 
violations, committed or attempted against the State savings 
association involving a transaction or transactions conducted through 
the State savings association and involving or aggregating $25,000 or 
more in funds or other assets, where the State savings association 
believes that it was either an actual or potential victim of a criminal 
violation or series of criminal violations, or that it was used to 
facilitate a criminal transaction, even though there is no substantial 
basis for identifying a possible suspect or group of suspects.
    (iv) Transactions aggregating $5,000 or more that involve potential 
money laundering or violations of the Bank Secrecy Act. Any transaction 
(which for purposes of this paragraph (d)(3)(iv) means a deposit, 
withdrawal, transfer between accounts, exchange of currency, loan, 
extension of credit, purchase or sale of any stock, bond, certificate 
of deposit, or other monetary instrument or investment security, or any 
other payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected) conducted or attempted by, at 
or through the State savings association involving or aggregating 
$5,000 or more in funds or other assets, if the State savings 
association knows, suspects, or has reason to suspect that:
    (A) The transaction involves funds derived from illegal activities 
or is intended or conducted in order to hide or disguise funds or 
assets derived from illegal activities (including, without limitation, 
the ownership, nature, source, location, or control of such funds or 
assets) as part of a plan to violate or evade any law or regulation or 
to avoid any transaction reporting requirement under Federal law;
    (B) The transaction is designed to evade any regulations 
promulgated under the Bank Secrecy Act; or
    (C) The transaction has no business or apparent lawful purpose or 
is not the sort in which the particular customer would normally be 
expected to engage, and the institution knows of no reasonable 
explanation for the transaction after examining the available facts, 
including the background and possible purpose of the transaction.
    (4) [Reserved].
    (5) Time for reporting. A State savings association is required to 
file a SAR no later than 30 calendar days after the date of initial 
detection of facts that may constitute a basis for filing a SAR. If no 
suspect was identified on the date of detection of the incident 
requiring the filing, a State savings association may delay filing a 
SAR for an additional 30 calendar days to identify a suspect. In no 
case shall reporting be delayed more than 60 calendar days after the 
date of initial detection of a reportable transaction. In situations 
involving violations requiring immediate attention, such as when a 
reportable violation is ongoing, the State savings association shall 
immediately notify, by telephone, an appropriate law enforcement 
authority and the FDIC in addition to filing a timely SAR.
    (6) Reports to state and local authorities. A State savings 
association is encouraged to file a copy of the SAR with state and 
local law enforcement agencies where appropriate.
    (7) Exception. A State savings association need not file a SAR for 
a robbery or burglary committed or attempted that is reported to 
appropriate law enforcement authorities.
    (8) Retention of records. A State savings association shall 
maintain a copy of any SAR filed and the original or business record 
equivalent of any supporting documentation for a period of five years 
from the date of the filing of the SAR. Supporting documentation shall 
be identified and maintained by the State savings association as such, 
and shall be deemed to have been filed with the SAR. A State savings 
association shall make all supporting documentation available to 
appropriate law enforcement agencies upon request.
    (9) Notification to board of directors--(i) Generally. Whenever a 
State savings association files a SAR pursuant to this paragraph (d), 
the management of the State savings association shall promptly notify 
its board of directors, or a committee of directors or executive 
officers designated by the board of directors to receive notice.
    (ii) Suspect is a director or executive officer. If the State 
savings association files a SAR pursuant to this paragraph (d) and the 
suspect is a director or executive officer, the State savings 
association may not notify the suspect, pursuant to 31 U.S.C. 
5318(g)(2), but shall notify all directors who are not suspects.
    (10) Compliance. Failure to file a SAR in accordance with this 
section and the instructions may subject the State savings association, 
its directors, officers, employees, agents, or other institution-
affiliated parties to supervisory action.
    (11) Obtaining SARs. A State savings association may obtain SARs 
and the instructions from the appropriate FDIC region as defined in 
Sec.  303.2 of this chapter.
    (12) Confidentiality of SARs. SARs are confidential. Any 
institution or person subpoenaed or otherwise requested to disclose a 
SAR or the information contained in a SAR shall decline to produce the 
SAR or to provide any information that would disclose that a SAR has 
been prepared or filed, citing this paragraph (d), applicable law 
(e.g., 31 U.S.C. 5318(g)), or both, and shall notify the FDIC.
    (13) Safe harbor. The safe harbor provision of 31 U.S.C. 5318(g), 
which exempts any financial institution that makes a disclosure of any 
possible violation of law or regulation from liability under any law or 
regulation of the United States, or any constitution, law or regulation 
of any state or political subdivision, covers all reports of suspected 
or known criminal violations and suspicious activities to law 
enforcement and financial institution supervisory authorities, 
including supporting documentation, regardless of

[[Page 47731]]

whether such reports are filed pursuant to this paragraph (d), or are 
filed on a voluntary basis.
    (e) Adjustable-rate mortgage indices--(1) Reporting obligation. 
Upon the request of a Federal Home Loan Bank, all State savings 
associations within the jurisdiction of that Federal Home Loan Bank 
shall report the data items set forth in paragraph (e)(2) of this 
section for the Federal Home Loan Bank to use in calculating and 
publishing an adjustable-rate mortgage index.
    (2) Data to be reported. For purposes of paragraph (e)(1) of this 
section, the term ``data items'' means the data items previously 
collected from the monthly Thrift Financial Report or Consolidated 
Reports of Condition or Income (``Call Report''), as applicable, and 
such data items as may be altered, amended, or substituted by the 
requesting Federal Home Loan Bank.
    (3) Applicable indices. For the purpose of this reporting 
requirement, the term ``adjustable-rate mortgage index'' means any of 
the adjustable-rate mortgage indices calculated and published by a 
Federal Home Loan Bank or the Federal Home Loan Bank Board on or before 
August 9, 1989.


Sec.  390.356  Bonds for directors, officers, employees, and agents; 
form of and amount of bonds.

    (a) Each State savings association shall maintain fidelity bond 
coverage. The bond shall cover each director, officer, employee, and 
agent who has control over or access to cash, securities, or other 
property of the State savings association.
    (b) The amount of coverage to be required for each State savings 
association shall be determined by the association's management, based 
on its assessment of the level that would be safe and sound in view of 
the association's potential exposure to risk; provided, such 
determination shall be subject to approval by the association's board 
of directors.
    (c) Each State savings association may maintain bond coverage in 
addition to that provided by the insurance underwriter industry's 
standard forms, through the use of endorsements, riders, or other forms 
of supplemental coverage, if, in the judgment of the State savings 
association's board of directors, additional coverage is warranted.
    (d) The board of directors of each State savings association shall 
formally approve the State savings association's bond coverage. In 
deciding whether to approve the bond coverage, the board shall review 
the adequacy of the standard coverage and the need for supplemental 
coverage. Documentation of the board's approval shall be included as a 
part of the minutes of the meeting at which the board approves 
coverage. Additionally, the board of directors shall review the State 
savings association's bond coverage at least annually to assess the 
continuing adequacy of coverage.


Sec.  390.357  Bonds for agents.

    In lieu of the bond provided in Sec.  390.356 in the case of agents 
appointed by a State savings association, a fidelity bond may be 
provided in an amount at least twice the average monthly collections of 
such agents, provided such agents shall be required to make settlement 
with the State savings association at least monthly, and provided such 
bond is approved by the board of directors of the State savings 
association. No bond need be obtained for any agent that is a financial 
institution insured by the FDIC.


Sec.  390.358  Conflicts of interest.

    If you are a director, officer, or employee of a State savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a State savings association:
    (a) You must not advance your own personal or business interests, 
or those of others with whom you have a personal or business 
relationship, at the expense of the State savings association; and
    (b) You must, if you have an interest in a matter or transaction 
before the board of directors:
    (1) Disclose to the board all material nonprivileged information 
relevant to the board's decision on the matter or transaction, 
including:
    (i) The existence, nature and extent of your interests; and
    (ii) The facts known to you as to the matter or transaction under 
consideration;
    (2) Refrain from participating in the board's discussion of the 
matter or transaction; and
    (3) Recuse yourself from voting on the matter or transaction (if 
you are a director).


Sec.  390.359  Corporate opportunity.

    (a) If you are a director or officer of a State savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a State savings association, you must 
not take advantage of corporate opportunities belonging to the State 
savings association.
    (b) A corporate opportunity belongs to a State savings association 
if:
    (1) The opportunity is within the corporate powers of the State 
savings association or a subsidiary of the State savings association; 
and
    (2) The opportunity is of present or potential practical advantage 
to the State savings association, either directly or through its 
subsidiary.
    (c) The FDIC will not deem you to have taken advantage of a 
corporate opportunity belonging to the State savings association if a 
disinterested and independent majority of the State savings 
association's board of directors, after receiving a full and fair 
presentation of the matter, rejected the opportunity as a matter of 
sound business judgment.


Sec.  390.360  Change of director or senior executive officer.

    Sections 390.360 through 390.368 implement 12 U.S.C. 1831i, which 
requires certain State savings associations to notify the FDIC before 
appointing or employing directors and senior executive officers.


Sec.  390.361  Applicable definitions.

    The following definitions apply to Sec. Sec.  390.360 through 
390.368:
    Director means an individual who serves on the board of directors 
of a State savings association. This term does not include an advisory 
director who:
    (1) Is not elected by the shareholders;
    (2) Is not authorized to vote on any matters before the board of 
directors or any committee of the board of directors;
    (3) Provides only general policy advice to the board of directors 
or any committee of the board of directors; and
    (4) Has not been identified by the FDIC in writing as an individual 
who performs the functions of a director, or who exercises significant 
influence over, or participates in, major policymaking decisions of the 
board of directors.
    Senior executive officer means an individual who holds the title or 
performs the function of one or more of the following positions 
(without regard to title, salary, or compensation): president, chief 
executive officer, chief operating officer, chief financial officer, 
chief lending officer, or chief investment officer. Senior executive 
officer also includes any other person identified by the FDIC in 
writing as an individual who exercises significant influence over, or 
participates in, major policymaking decisions, whether or not hired as 
an employee.
    Troubled condition means:
    (1) A State savings association that has a composite rating of 4 or 
5, as composite rating is defined in Sec.  390.101(c).

[[Page 47732]]

    (2) [Reserved].
    (3) A State savings association that is subject to a capital 
directive, a cease-and-desist order, a consent order, a formal written 
agreement, or a prompt corrective action directive relating to the 
safety and soundness or financial viability of the State savings 
association, unless otherwise informed in writing by the FDIC; or
    (4) A State savings association that is informed in writing by the 
FDIC that it is in troubled condition based on information available to 
the FDIC.


Sec.  390.362  Who must give prior notice?

    (a) State savings association. Except as provided under Sec.  
390.368, you must notify the FDIC at least 30 days before adding or 
replacing any member of your board of directors, employing any person 
as a senior executive officer, or changing the responsibilities of any 
senior executive officer so that the person would assume a different 
senior executive position if:
    (1) You are a State savings association and at least one of the 
following circumstances apply:
    (i) You do not comply with all minimum capital requirements under 
subpart Z;
    (ii) You are in troubled condition; or
    (iii) The FDIC has notified you, in connection with its review of a 
capital restoration plan required under section 38 of the Federal 
Deposit Insurance Act or subpart Y or otherwise, that a notice is 
required under Sec. Sec.  390.360 through 390.368; or
    (2) [Reserved].
    (b) Notice by individual. If you are an individual seeking election 
to the board of directors of a State savings association described in 
paragraph (a) of this section, and have not been nominated by 
management, you must either provide the prior notice required under 
paragraph (a) of this section or follow the process under Sec.  
390.368(b).


Sec.  390.363  What procedures govern the filing of my notice?

    The procedures found in Sec. Sec.  390.103 through 390.110 govern 
the filing of your notice under Sec.  390.362.


Sec.  390.364  What information must I include in my notice?

    (a) Content requirements. Your notice must include:
    (1) The information required under 12 U.S.C. 1817(j)(6)(A), and the 
information prescribed in the Interagency Notice of Change in Director 
or Senior Executive Officer and the Interagency Biographical and 
Financial Report which are available from the appropriate FDIC regions 
as defined in Sec.  303.2 of this chapter;
    (2) Legible fingerprints of the proposed director or senior 
executive officer. You are not required to file fingerprints if, within 
three years prior to the date of submission of the notice, the proposed 
director or senior executive officer provided legible fingerprints as 
part of a notice filed with the FDIC under 12 U.S.C. 1831i; and
    (3) Such other information required by the FDIC.
    (b) Modification of content requirements. The FDIC may require or 
accept other information in place of the content requirements in 
paragraph (a) of this section.


Sec.  390.365  What procedures govern the FDIC's review of my notice 
for completeness?

    The FDIC will first review your notice to determine whether it is 
complete.
    (a) If your notice is complete, the FDIC will notify you in writing 
of the date that the FDIC received the complete notice.
    (b) If your notice is not complete, the FDIC will notify you in 
writing what additional information you need to submit, why we need the 
information, and when you must submit it. You must, within the 
specified time period, provide additional information or request that 
the FDIC suspend processing of the notice. If you fail to act within 
the specified time period, the FDIC may treat the notice as withdrawn 
or may review the application based on the information provided.


Sec.  390.366  What standards and procedures will govern the FDIC 
review of the substance of my notice?

    The FDIC will disapprove a notice if, pursuant to the standard set 
forth in 12 U.S.C. 1831i(e), the FDIC finds that the competence, 
experience, character, or integrity of the proposed FDIC or senior 
executive officer indicates that it would not be in the best interests 
of the depositors of the State savings association or of the public to 
permit the individual to be employed by, or associated with, the State 
savings association. If the FDIC disapproves a notice, it will issue a 
written notice that explains why the FDIC disapproved the notice. The 
FDIC will send the notice to the State savings association and the 
individual.


Sec.  390.367  When may a proposed director or senior executive officer 
begin service?

    (a) A proposed director or senior executive officer may begin 
service 30 days after the date the FDIC receives all required 
information, unless:
    (1) The FDIC notifies you that it has disapproved the notice; or
    (2) The FDIC extends the 30-day period for an additional period not 
to exceed 60 days. If the FDIC extends the 30-day period, it will 
notify you in writing that the period has been extended, and will state 
the reason for the extension. The proposed director or senior executive 
officer may begin service upon expiration of the extended period, 
unless the FDIC notifies you that it has disapproved the notice during 
the extended period.
    (b) Notwithstanding paragraph (a) of this section, a proposed or 
senior executive officer may begin service after the FDIC notifies you, 
in writing, of its intention not to disapprove the notice.


Sec.  390.368  When will the FDIC waive the prior notice requirement?

    (a) Waiver request. (1) An individual may serve as a director or 
senior executive officer before filing a notice as described in 
Sec. Sec.  390.360 through 390.368 if the FDIC issues a written finding 
that:
    (i) Delay would threaten the safety or soundness of the State 
savings association;
    (ii) Delay would not be in the public interest; or
    (iii) Other extraordinary circumstances exist that justify waiver 
of prior notice.
    (2) If the FDIC grants a waiver, you must file a notice as 
described in Sec. Sec.  390.360-390.368 within the time period 
specified by the FDIC.
    (b) Automatic waiver. An individual may serve as a director before 
filing a notice as described in Sec. Sec.  390.360 through 390.368, if 
the individual was not nominated by management and the individual 
submits a notice as described in Sec. Sec.  390.360 through 390.368 
within seven days after election as a director.
    (c) Subsequent FDIC action. The FDIC may disapprove a notice within 
30 days after the FDIC issues a waiver under paragraph (a) of this 
section or within 30 days after the election of an individual who has 
filed a notice and is serving pursuant to an automatic waiver under 
paragraph (b) of this section.

Subpart T--Accounting Requirements


Sec.  390.380  Form and content of financial statements.

    (a) This section states the requirements as to form and content of 
financial statements included by a State savings association in the 
following documents. However, the FDIC's regulations governing the 
applicable documents specify the actual financial statements that are 
to be included in that document.
    (1) Any proxy statement or offering circular required to be used in

[[Page 47733]]

connection with a conversion under 12 CFR part 192.
    (2) Any offering circular or nonpublic offering materials required 
to be used in connection with an offer or sale of securities under 
subpart W.
    (3) Any filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., made pursuant to the requirements of subpart U.
    (b) Except as otherwise provided by the FDIC by rule, regulation, 
or order made specifically applicable to financial statements governed 
by this section, financial statements shall:
    (1) Be prepared and presented in accordance with generally accepted 
accounting principles;
    (2) Comply with Sec.  390.384;
    (3) Consistent with the provisions of this subpart, comply with 
articles 1, 2, 3, 4, 10, and 11 of Regulation S-X adopted by the 
Securities and Exchange Commission (17 CFR 210.l through 210.4, 210.10, 
and 210.11).
    (4) Be audited, when required, by an independent auditor in 
accordance with the standards imposed by the American Institute of 
Certified Public Accountants.
    (c) The term ``financial statements'' includes all notes to the 
statements and related schedules.


Sec.  390.381  Definitions.

    (See also 17 CFR 210.1-02.)
    (a) Registrant. The term ``registrant'' means an applicant, a State 
savings association, or any other person required to prepare financial 
statements in accordance with this subpart.
    (b) Significant subsidiary. The term ``significant subsidiary'' 
means a subsidiary, including its subsidiaries, which meets any of the 
following conditions:
    (1) The State savings association's and its other subsidiaries' 
investments in and advances to the subsidiary exceed 10 percent of the 
total assets of the association and its subsidiaries consolidated as of 
the end of the most recently completed fiscal year (for purposes of 
determining whether financial statements of a business acquired or to 
be acquired in a business combination accounted for as a pooling of 
interests are required pursuant to 17 CFR 210.3-05, this condition is 
also met when the number of common shares exchanged by the State 
savings association exceeds 10 percent of its total common shares 
outstanding at the date the combination is initiated); or
    (2) The State savings association's and its other subsidiaries' 
proportionate share of the total assets (after intercompany 
eliminations) of the subsidiary exceeds 10 percent of the total assets 
of the State savings association and its subsidiaries consolidated as 
of the end of the most recently completed fiscal year; or
    (3) The State savings association's and its other subsidiaries' 
equity in the income from continuing operations before income taxes, 
extraordinary items, and cumulative effect of a change in accounting 
principle of the subsidiary exceeds 10 percent of such income of the 
State savings association and its subsidiaries consolidated for the 
most recently completed fiscal year.
    (4) Computational note: For purposes of making the prescribed 
income test the following guidance should be applied:
    (i) When a loss has been incurred by either the parent or its 
consolidated subsidiaries or the tested subsidiary, but not both, the 
equity in the income or loss of the tested subsidiary should be 
excluded from the income of the State savings association and its 
subsidiaries consolidated for purposes of the computation.
    (ii) If income of the State savings association and its 
subsidiaries consolidated for the most recent fiscal year is at least 
10 percent lower than the average of the income for the last five 
fiscal years, such average income should be substituted for purposes of 
the computation. Any loss years should be omitted for purposes of 
computing average income.


Sec.  390.382  Qualification of public accountant.

    (See also 17 CFR 210.2-01.)
    The term ``qualified public accountant'' means a certified public 
accountant or licensed public accountant certified or licensed by a 
regulatory authority of a State or other political subdivision of the 
United States who is in good standing as such under the laws of the 
jurisdiction where the home office of the registrant to be audited is 
located. Any person or firm who is suspended from practice before the 
Securities and Exchange Commission or other governmental agency is not 
a ``qualified public accountant'' for purposes of this section.


Sec.  390.383  Condensed financial information [Parent only].

    (a) The information prescribed by Schedule III required by section 
IV of the appendix to Sec.  390.384 shall be presented in a note to the 
financial statements when the restricted net assets (17 CFR 210.4-
08(e)(3)) of consolidated subsidiaries exceed 25 percent of 
consolidated net assets as of the end of the most recently completed 
fiscal year. The investment in and indebtedness of and to State savings 
association subsidiaries shall be stated separately in the condensed 
balance sheet from amounts for other subsidiaries; and the amount of 
cash dividends paid to the parent State savings association for each of 
the last three years by the State savings association subsidiaries 
shall be stated separately in the condensed income statement from 
amounts for other subsidiaries.
    (b) For purposes of the above test, restricted net assets of 
consolidated subsidiaries shall mean that amount of the State savings 
association's proportionate share of net assets of consolidated 
subsidiaries (after intercompany eliminations) which as of the end of 
the most recent year may not be transferred to the parent company by 
subsidiaries in the form of loans, advances, or cash dividends without 
the consent of a third party (i.e., lender, regulatory agency, foreign 
government, etc.).
    (c) Where restrictions on the amount of funds which may be loaned 
or advanced differ from the amount restricted as to transfer in the 
form of cash dividends, the amount least restrictive to the subsidiary 
shall be used. Redeemable preferred stocks (See item I (22) in the 
appendix to Sec.  390.384) and minority interest (See item I (21) in 
the appendix to Sec.  390.384) shall be deducted in computing net 
assets for purposes of this test.


Sec.  390.384  Financial statements for conversions, SEC filings, and 
offering circulars.

    This section and its appendix pertain to the form and content of 
financial statements included as part of:
    (a) A conversion application under 12 CFR part 192 including 
financial statements in proxy statements and offering circulars,
    (b) A filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., and
    (c) Any offering circular required to be used in connection with 
the issuance of mutual capital certificates under 12 CFR 163.74 and 
debt securities under Sec.  390.341.

Appendix to Sec.  390.384--Financial Statement Presentation.

    This appendix specifies the various line items which should 
appear on the face of the financial statements governed by Sec.  
390.384 and additional disclosures which should be included with the 
financial statements in related notes.

I. Balance Sheet

    Balance sheets shall comply with the following provisions:

[[Page 47734]]

Assets

    1. Cash and amounts due from depository institutions. (a) The 
amounts in this caption should include noninterest-bearing deposits 
with depository institutions.
    (b) State in a note the amount and terms of any deposits in 
depository institutions held as compensating balances against long- 
or short-term borrowing arrangements. This disclosure should include 
the provisions of any restrictions as to withdrawal or usage. 
Restrictions may include legally restricted deposits held as 
compensating balances against short-term borrowing arrangements, 
contracts entered into with others, or company statements of 
intention with regard to particular deposits; however, time deposits 
and short-term certificates of deposits are not generally included 
in legally restricted deposits. In cases where compensating balance 
arrangements exist but are not agreements which legally restrict the 
use of cash amounts shown on the balance sheet, describe in the 
notes to the financial statements these arrangements and the amount 
involved, if determinable, for the most recent audited balance sheet 
required and for any subsequent unaudited balance sheet required. 
Compensating balances that are maintained under an agreement to 
ensure future credit availability shall be disclosed in the notes to 
the financial statements along with the amount and terms of the 
agreement.
    (c) Checks outstanding in excess of an applicant's book balance 
in a demand deposit account shall be shown as a liability.
    2. Interest-bearing deposits in other banks.
    3. Federal funds sold and securities purchased under resale 
agreements or similar arrangements. These amounts should be 
presented, i.e., gross and not netted against Federal funds 
purchased and securities sold under agreement to repurchase, as 
reported in caption 15.
    4. Trading account assets. Include securities considered to be 
held for trading purposes.
    5. Other short-term investments.
    6. Investment securities. (a) Include securities considered to 
be held for investment purposes. Disclose the aggregate book value 
of investment securities as the line item on the balance sheet; and 
also show on the face of the balance sheet the aggregate market 
value at the balance sheet date. The aggregate amounts should 
include securities pledged, loaned, or sold under repurchase 
agreements and similar arrangements. Borrowed securities and 
securities purchased under resale agreements or similar arrangements 
should be excluded.
    (b) Disclose in a note the carrying value and market value of 
securities of (i) the U.S. Treasury and other U.S. Government 
agencies and corporations; (ii) states of the U.S. and political 
subdivisions thereof; and (iii) other securities.
    7. Assets held for sale. Investments in assets considered to be 
held for sale purposes should be reported separately in the 
statement of financial condition.
    8. Loans. (a) Disclose separately: (i) Total loans (including 
financing type leases), (ii) allowance for loan losses, (iii) 
unearned income on installment loans, (iv) discount on loans 
purchased, and (v) loans in process.
    (b) State on the balance sheet or in a note the amount of loans 
in each of the following categories: (i) Real estate mortgage; (ii) 
real estate construction; (iii) installment; and (iv) commercial, 
financial, and agricultural.
    (c)(i) Include under the real estate mortgage category loans 
payable in monthly, quarterly, or other periodic installments and 
secured by developed income property and/or personal residences.
    (ii) Include under the real estate construction category loans 
secured by real estate which are made for the purpose of financing 
construction of real estate and land development projects.
    (iii) Include under the installment category loans to 
individuals generally repayable in monthly installments. This 
category shall include, but not be limited to, credit card and 
related activities, individual automobile loans, other installment 
loans, mobile home loans, and residential repair and modernization 
loans.
    (iv) Include under the commercial, financial, and agricultural 
category all loans not included in another category. This category 
shall include, but not be limited to, loans to real estate 
investment trusts, mortgage companies, banks, and other financial 
institutions; loans for carrying securities; and loans for 
agricultural purposes. Do not include loans secured primarily by 
developed real estate.
    (d) State separately any other loan category regardless of 
relative size if necessary to reflect any unusual risk 
concentration.
    (e) Unearned income on installment loans shall be shown and 
deducted separately from total loans.
    (f) Unamortized discounts on purchased loans shall be deducted 
separately from total loans.
    (g) Loans in process shall be deducted separately from total 
loans.
    (h) A series of categories other than those specified in item 
(b) of paragraph 8. may be used to present details of loans if 
considered a more appropriate presentation. The categories specified 
in item (b) of paragraph 8. should be considered the minimum 
categories that may be presented.
    (i) For each period for which an income statement is presented, 
disclose in a note the total dollar amount of loans being serviced 
by the State savings association for the benefit of others.
    (j)(i)(A) As of each balance sheet date, disclose in a note the 
aggregate dollar amount of loans (exclusive of loans to any such 
persons which in the aggregate do not exceed $60,000 during the last 
year) made by the State savings association or any of its 
subsidiaries to directors, executive officers, or principal holders 
of equity securities (17 CFR 210.1-02) of the State savings 
association or any of its significant subsidiaries (17 CFR 210.1-02) 
or to any associate of such persons. For the latest fiscal year, an 
analysis of activity with respect to such aggregate loans to related 
parties should be provided. The analysis should include at the 
beginning of the period new loans, repayments, and other changes. 
(Other changes, if significant, should be explained.)
    (B) This disclosure need not be furnished when the aggregate 
amount of such loans at the balance sheet date (or with respect to 
the latest fiscal year, the maximum amount outstanding during the 
period) does not exceed 5 percent of stockholders' equity at the 
balance sheet date.
    (ii) If a significant portion of the aggregate amount of loans 
outstanding at the end of the fiscal year disclosed pursuant to item 
(i)(A) of this paragraph (j) relates to nonaccrual, past due, 
restructured, and potential problem loans (see Securities and 
Exchange Commission's Securities Act Industry Guide 3, section 
III.C.), so state and disclose the aggregate amount of such loans 
along with such other information necessary to an understanding of 
the effects of the transactions on the financial statements.
    (iii) Notwithstanding the aggregate disclosure called for by 
paragraph (j)(i) of this balance sheet caption 8, if any loans were 
not made in the ordinary course of business during any period for 
which an income statement is required to be filed, provide an 
appropriate description of each such loan (see 17 CFR 210.9-
03.7(e)(3)).
    (iv) For purposes only of Balance Sheet item 8(j), the following 
definitions shall apply:
    (A) Associate used to indicate a relationship with any person 
means (1) any corporation, venture, or organization of which such 
person is a general partner or is, directly or indirectly, the 
beneficial owner of 10 percent or more of any class of equity 
securities; (2) any trust or other estate in which such person has a 
substantial beneficial interest or for which such person serves as 
trustee or in a similar capacity; and (3) any member of the 
immediate family of any of the foregoing persons.
    (B) Executive officer means the president, any vice president in 
charge of a principal business unit, division, or function (such as 
loans, investments, operations, administration, or finance), and any 
other officer or person who performs similar policy-making 
functions.
    (C) Immediate family with regard to a person means such person's 
spouse, parents, children, siblings, mother- and father-in-law, 
sons- and daughters-in-law, and brothers- and sisters-in-law.
    (D) Ordinary course of business with regard to loans means those 
loans which were made on substantially the same terms, including 
interest rate and collateral, as those prevailing at the same time 
for comparable transactions with unrelated persons and did not 
involve more than the normal risk of collectibility or present other 
unfavorable features.
    (k) For each period for which an income statement is presented, 
furnish in a note a statement of changes in the allowance for loan 
losses, showing balances at beginning and end of the period, 
provision charged to income, recoveries of amounts previously 
charged off, and losses charged to the allowance.
    9. Premises and equipment.
    10. Real estate owned. State, parenthetically or otherwise:
    (a) The amount of real estate owned by class as described in 
item (b) of paragraph 10. and the basis for determining that amount; 
and

[[Page 47735]]

    (b) A description of each class of real estate owned (i) 
acquired by foreclosure or by deed in lieu of foreclosure, (ii) in 
judgment and subject to redemption, or (iii) acquired for 
development or resale. Show separately any accumulated depreciation 
or valuation allowances. Disclose the policies regarding, and 
amounts of, capitalized costs, including interest.
    11. Investment in joint ventures. In a note, present summarized 
aggregate financial statements for investments in real estate or 
other joint ventures which individually (a) are 20 percent or more 
owned by the State savings association or any of its subsidiaries, 
or (b) have liabilities (including contingent liabilities) to the 
parent exceeding 10 percent of the parent's regulatory capital. If 
an allowance for real estate losses subsequent to acquisition is 
maintained, the amount shall be disclosed, deducted from the other 
real estate owned, and a statement of changes in the allowance 
showing balances at beginning and end of period should be included. 
Provision charged to income and losses charged to the allowance 
account shall be furnished for each period for which an income 
statement is filed.
    12. Other assets. (a) Disclose separately on the balance sheet 
or in a note thereto any of the following assets or any other asset 
the amount of which exceeds 30 percent of stockholders' equity. The 
remaining assets may be shown as one amount.
    (i) Accrued interest receivable. State separately those amounts 
relating to loans and those amounts relating to investments.
    (ii) Excess of cost over assets acquired (net of amortization).
    (b) State in a note (i) amounts representing investments in 
affiliates and investments in other persons which are accounted for 
by the equity method, and (ii) indebtedness of affiliates and other 
persons, the investments in which are accounted for by the equity 
method. State the basis of determining the amounts reported under 
paragraph (b)(i).
    13. Total assets.

Liabilities, and Stockholders' Equity

    14. Deposits. (a) Disclose separately on the balance sheet or in 
a note the amounts in the following categories of interest-bearing 
and noninterest-bearing deposits: (i) NOW account and MMDA deposits, 
(ii) savings deposits, and (iii) time deposits.
    (b) Include under the savings-deposits category interest-bearing 
deposits without specified maturity or contractual provisions 
requiring advance notice of intention to withdraw funds. Include 
deposits for which a State savings association may require at its 
option written notice of intended withdrawal not less than 14 days 
in advance.
    (c) Include under the time-deposits category deposits subject to 
provisions specifying maturity or other withdrawal conditions such 
as time certificates of deposits, open account time deposits, and 
deposits accumulated for the payment of personal loans.
    (d) Include accrued interest or dividends, if appropriate.
    15. Short-term borrowings. (a) State separately, here or in a 
note, the amounts payable for (i) Federal funds purchased and 
securities sold under agreements to repurchase, (ii) commercial 
paper, and (iii) other short-term borrowings.
    (b) Federal funds purchased and sales of securities under 
repurchase agreements shall be reported gross and not netted against 
sales of Federal funds and purchase of securities under resale 
agreements.
    (c) Include as securities sold under agreements to repurchase 
all transactions of this type regardless of (i) whether they are 
called simultaneous purchases and sales, buy-backs, turnarounds, 
overnight transactions, delayed deliveries, or other terms 
signifying the same substantive transaction, and (ii) whether the 
transactions are with the same or different institutions, if the 
purpose of the transactions is to repurchase identical or similar 
securities.
    (d) The amount and terms (including commitment fees and the 
conditions under which lines may be withdrawn) of unused lines of 
credit for short-term financing shall be disclosed, if significant, 
in the notes to the financial statements. The amount of these lines 
of credit which support a commercial paper borrowing arrangement or 
similar arrangements shall be separately identified.
    16. Advance payments by borrowers for taxes and insurance.
    17. Other liabilities. Disclose separately on the balance sheet 
or in a note any of the following liabilities or any other items 
which are individually in excess of 30 percent of stockholders' 
equity (except that amounts in excess of 5 percent of stockholders' 
equity should be disclosed with respect to item (d)). The remaining 
items may be shown as one amount.
    (a) Income taxes payable.
    (b) Deferred income taxes.
    (c) Indebtedness to affiliate and other persons the investment 
in which is accounted for by the equity method.
    (d) Indebtedness to directors, executive officers, and principal 
holders of equity securities of the registrant or any of its 
significant subsidiaries. (The guidance in balance sheet caption 
``8(j)'' shall be used to identify related parties for purposes of 
this disclosure.)
    18. Bonds, mortgages, and similar debt. (a) Include bonds, 
Federal Home Loan Bank advances, capital notes, debentures, 
mortgages, and similar debt.
    (b) For each issue or type of obligation state in a note:
    (i) The general character of each type of debt, including: (A) 
The rate of interest, (B) the date of maturity, or, if maturing 
serially, a brief indication of the serial maturities, such as 
``maturing serially from 1980 to 1990,'' (C) if the payment of 
principal or interest is contingent, an appropriate indication of 
such contingency, (D) a brief indication of priority, and (E) if 
convertible, the basis. For amounts owed to related parties see 17 
CFR 210.4-08(k).
    (ii) The amount and terms (including commitment fees and the 
conditions under which commitments may be withdrawn) of unused 
commitments for long-term financing arrangements that, if used, 
would be disclosed under this caption shall be disclosed in the 
notes to the financial statements, if significant.
    (c) State in the notes with appropriate explanations (i) the 
title and amount of each issue of debt of a subsidiary included in 
item (a) of paragraph 18 which has not been assumed or guaranteed by 
the State savings association, and (ii) any liens on premises of a 
subsidiary or its consolidated subsidiaries which have not been 
assumed by the subsidiary or its consolidated subsidiaries.
    19. Deferred credits. State separately those items which exceed 
30 percent of stockholders' equity.
    20. Commitments and contingent liabilities. Total commitments to 
fund loans should be disclosed. The dollar amounts and terms of 
other than floating market-rate commitments should also be 
disclosed.
    21. Minority interest in consolidated subsidiaries.
    22. Preferred stock subject to mandatory redemption requirements 
or the redemption of which is outside the control of the issuer. (a) 
Include under this caption amounts applicable to any class of stock 
which has any of the following characteristics: (i) It is redeemable 
at a fixed or determinable price on a fixed or determinable date or 
dates, whether by operation of a sinking fund or otherwise; (ii) it 
is redeemable at the option of the holder; or (iii) it has 
conditions for redemption which are not solely within the control of 
the issuer, such as stock which must be redeemed out of future 
earnings. Amounts attributable to preferred stock which is not 
redeemable or is redeemable solely at the option of the issuer shall 
be included under caption 23 unless it meets one or more of the 
above criteria.
    (b) State on the face of the balance sheet the title, carrying 
amount, and redemption amount of each issue. (If there is more than 
one issue, these amounts may be aggregated on the face of the 
balance sheet and details concerning each issue may be presented in 
the note required by item (c) of paragraph 22.) Show also the dollar 
amount of any shares subscribed for but unissued, and show the 
deduction of subscriptions receivable therefrom. If the carrying 
value is different from the redemption amount, describe the 
accounting treatment for such difference in the note required by 
item (c) of paragraph 22. Also state in this note or on the face of 
the balance sheet, for each issue, the number of shares authorized 
and the number of shares issued or outstanding, as appropriate. (See 
17 CFR 210.4-07.)
    (c) State in a separate note captioned ``Redeemable Preferred 
Stock'' (i) a general description of each issue, including its 
redemption features (e.g., sinking fund, at option of holders, out 
of future earnings) and the rights, if any, of holders in the event 
of default, including the effect, if any, on junior securities in 
the event a required dividend, sinking fund, or other redemption 
payment(s) is not made, (ii) the combined aggregate amount of 
redemption requirements for all issues each year for the five years 
following the date of the latest balance sheet, and (iii) the 
changes in each issue for each period for which an income statement 
is required to be presented. (See also 17 CFR 210.4-08(d).)
    (d) Securities reported under this caption are not to be 
included under a general heading ``stockholders' equity'' or 
combined

[[Page 47736]]

in a total with items described in captions 23, 24 or 25, which 
follow.
    23. Preferred stock which is not redeemable or is redeemed 
solely at the option of the issuer. State on the face of the balance 
sheet, or, if more than one issue is outstanding, state in a note, 
the title of each issue and the dollar amount thereof. Show also the 
dollar amount of any shares subscribed for but unissued, and show 
the deduction of subscriptions receivable. State on the face of the 
balance sheet or in a note, for each issue, the number of shares 
authorized and the number of shares issued or outstanding, as 
appropriate. (See 17 CFR 210.4-07.) Show in a note or separate 
statement the changes in each class of preferred shares reported 
under this caption for each period for which an income statement is 
required to be presented. (See also 17 CFR 210.4-08(d).)
    24. Common stock. For each class of common shares state, on the 
face of the balance sheet, the number of shares issued or 
outstanding, as appropriate (see 17 CFR 210.4-07), and the dollar 
amount thereof. If convertible, this fact should be indicated on the 
face of the balance sheet. For each class of common stock state, on 
the face of the balance sheet or in a note, the title of the issue, 
the number of shares authorized, and, if convertible, the basis for 
conversion (see also 17 CFR 210.4-08(d).) Show also the dollar 
amount of any common stock subscribed for but unissued, and show the 
deduction of subscriptions receivable. Show in a note or statement 
the changes in each class of common stock for each period for which 
an income statement is required to be presented.
    25. Other stockholders' equity. (a) Separate captions shall be 
shown on the face of the balance sheet for (i) additional paid-in 
capital, (ii) other additional capital, and (iii) retained earnings, 
both (A) restricted and (B) unrestricted. (See 17 CFR 210.4-08(e).) 
Additional paid-in capital and other additional capital may be 
combined with the stock caption to which it applies, if appropriate. 
State whether or not the State savings association is in compliance 
with the Federal regulatory capital requirements (and state 
requirements where applicable). Also include the dollar amount of 
those regulatory capital requirements and the amount by which the 
State savings association exceeds or fails to meet those 
requirements.
    (b) For a period of at least 10 years subsequent to the 
effective date of a quasi-reorganization, any description of 
retained earnings shall indicate the point in time from which the 
new retained earnings dates, and for a period of at least three 
years shall indicate, on the face of the balance sheet, the total 
amount of the deficit eliminated.
    (c) Changes in stockholders' equity shall be disclosed in 
accordance with the requirements of 17 CFR 210.3-04.
    26. Total liabilities and stockholders' equity.

II. Income Statement

    Income statements shall comply with the following provisions:
    1. Interest and fees on loans. (a) Include interest, service 
charges, and fees which are related to or are an adjustment of the 
loan interest yield.
    (b) Current amortization of premiums on mortgages or other loans 
shall be deducted from interest on loans, and current accretion of 
discount on such items shall be added to interest on loans.
    (c) Discounts and other deferred amounts which are related to or 
are an adjustment of the loan interest yield shall be amortized into 
income using the interest (level yield) method.
    2. Interest and dividends on investment securities. Include 
accretion of discount on securities and deduct amortization of 
premiums on securities.
    3. Trading account interest. Include interest from securities 
carried in a dealer trading account or accounts that are held 
principally for resale to customers.
    4. Other interest income. Include interest on short-term 
investments (Federal funds sold and securities purchased under 
agreements to resell) and interest on bank deposits.
    5. Total interest income.
    6. Interest on deposits. Include interest on all deposits. On 
the income statement or in a note, state separately, in the same 
categories as those specified for deposits at balance sheet caption 
14(a), the interest on those deposits. Early withdrawal penalties 
should be netted against interest on deposits and, if material, 
disclosed on the income statement.
    7. Interest on short-term borrowings. Include interest on 
borrowed funds, including Federal funds purchased, securities sold 
under agreements to repurchase, commercial paper, and other short-
term borrowings.
    8. Interest on long-term borrowings. Include interest on bonds, 
capital notes, debentures, mortgages on State savings association 
premises, capitalized leases, and similar debt.
    9. Total interest expense.
    10. Net interest income.
    11. Provision for loan losses.
    12. Net interest income after provision for loan losses.
    13. Other income. Disclose separately any of the following 
amounts, or any other item of other income, which exceeds 1 percent 
of the aggregate of total interest income and other income. The 
remaining amount may be shown as one amount, except for investment 
securities gains or losses which shall be shown separately 
regardless of size.
    (a) Commissions and fees from fiduciary activities.
    (b) Fees for other services to customers.
    (c) Commissions, fees, and markups on securities underwriting 
and other securities activities.
    (d) Profit or loss on transactions in investment securities.
    (e) Equity in earnings of unconsolidated subsidiaries and 50-
percent- or less-owned persons.
    (f) Gains or losses on disposition of investments in securities 
of subsidiaries and 50-percent- or less-owned persons.
    (g) Profit or loss from real estate operations.
    (h) Other fees related to loan originations or commitments not 
included in income statement caption 1.
    The remaining other income may be shown in one amount.
    (i) Investment securities gains or losses. The method followed 
in determining the cost of investments sold (e.g., ``average cost,'' 
``first-in, first-out,'' or ``identified certificate'') and related 
income taxes shall be disclosed.
    14. Other expenses. Disclose separately any of the following 
amounts, or any other item of other expense, which exceeds 1 percent 
of the aggregate of total interest income and other income. The 
remaining amounts may be shown as one amount.
    (a) Salaries and employee benefits.
    (b) Net occupancy expense of premises.
    (c) Net cost of operations of other real estate (including 
provisions for real estate losses, rental income, and gains and 
losses on sales of real estate).
    (d) Minority interest in income of consolidated subsidiaries.
    (e) Goodwill amortization.
    15. Other income and expenses. State separately material events 
or transactions that are unusual in nature or occur infrequently, 
but not both, and therefore do not meet both criteria for 
classification as an extraordinary item. Examples of items which 
would be reported separately are gain or loss from the sale of 
premises and equipment, provision for loss on real estate owned, or 
provision for gain or loss on the sale of loans.
    16. Income or losses before income tax expense.
    17. Income tax expense. The information required by 17 CFR 
210.4-08(h) should be disclosed.
    18. Income or loss before extraordinary items effects of changes 
in accounting principles.
    19. Extraordinary items, less applicable tax.
    20. Cumulative effects of changes in accounting principles.
    21. Net income or loss.
    22. Earnings-per-share data.
    23. Conversion footnote. If the State savings association is an 
applicant for conversion from a mutual to a stock association or has 
converted within the last three years, describe in a note the 
general terms of the conversion and restrictions on the operations 
of the State savings association imposed by the conversion. Also, 
state the amount of net proceeds received from the conversion and 
costs associated with the conversion.
    24. Mergers and acquisitions. For the period in which a business 
combination occurs and is accounted for by the purchase method of 
accounting, in addition to those disclosures required by Accounting 
Principles Board Opinion No. 16, the State savings association shall 
make those disclosures as noted below for all combinations involving 
significant acquisitions. (A significant acquisition is defined for 
this purpose to be one in which the assets of the acquired State 
savings association, or group of State savings associations, exceed 
10 percent of the assets of the consolidated State savings 
association at the end of the most recent period being reported 
upon).
    (a) Amounts and descriptions of discounts and premiums related 
to recording the

[[Page 47737]]

aggregate interest-bearing assets and liabilities at their fair 
market value. The disclosure should also include the methods of 
amortization or accretion and the estimated remaining lives.
    (b) The net effect on net income before taxes of the 
amortization and accretion of discounts, premiums, and intangible 
assets related to the purchase accounting transaction(s). For 
subsequent periods, the State savings association shall disclose the 
remaining total unamortized or unaccreted amounts of discounts, 
premiums, and intangible assets as of the date of the most recent 
balance sheet presented. In addition, the State savings association 
shall disclose the net effect on net income before taxes of the 
amortization and accretion of discounts, premiums, and intangible 
assets related to prior business combinations accounted for by the 
purchase method of accounting. Such disclosures need not be made if 
the total amounts of discounts, premiums, or intangible assets do 
not exceed 30 percent of stockholders' equity as of the date of the 
most recent balance sheet presented.

III. Statement of Cash Flows

    The amounts shown in this statement should be those items which 
materially enhance the reader's understanding of the State savings 
association's business. For example, gains from sales of loans 
should be segregated from sales of mortgage-backed securities and 
other securities, if material, proceeds from principal repayments 
and maturities from loans and mortgage-backed securities should be 
segregated from proceeds from sales of loans and mortgage-backed 
securities, purchases of loans, mortgage-backed securities and other 
securities should be segregated, if material. Additional guidance 
may be found in the FASB's Statement of Financial Accounting 
Standards No. 95 Statement of Cash Flows.

IV. Schedules Required To Be Filed

    The following schedules, which should be examined by an 
independent accountant, shall be filed unless the required 
information is not applicable or is presented in the related 
financial statements:
    (1) Schedule I--Indebtedness of and to related parties--Not 
Current. For each period for which an income statement is required, 
the following schedule should be filed in support of the amounts 
required to be reported by balance sheet items 8(j) and 17(c) unless 
such aggregate amount does not exceed 5 percent of stockholders' 
equity at either the beginning or the end of the period:

                               Indebtedness of and to Related Parties--Not Current
----------------------------------------------------------------------------------------------------------------
                                                Indebtedness of--
-----------------------------------------------------------------------------------------------------------------
  Name of person \1\    Balance at beginning      Additions \2\          Deductions \3\        Balance at end
----------------------------------------------------------------------------------------------------------------
                A                      B                       C                     D                      E
----------------------------------------------------------------------------------------------------------------


                               Indebtedness of and to Related Parties--Not Current
----------------------------------------------------------------------------------------------------------------
                                                Indebtedness to--
-----------------------------------------------------------------------------------------------------------------
  Name of person \1\    Balance at beginning      Additions \2\          Deductions \3\        Balance at end
----------------------------------------------------------------------------------------------------------------
                A                      F                      G                      H                      I
----------------------------------------------------------------------------------------------------------------

    (2) Schedule II--Guarantees of securities of other issuers. The 
following schedule should be filed as of the date of the most 
recently audited balance sheet with respect to any guarantees of 
securities of other issuers by the person for which the statements 
are being filed:
     
---------------------------------------------------------------------------

    \1\ The persons named shall be grouped as in the related 
schedule required for investments in related parties. The 
information called for shall be shown separately for any persons 
whose investments were shown separately in such related schedule.
    \2\ For each person named in column A, explain in a note the 
nature and purpose of any increase during the period that is in 
excess of 10 percent of the related balance at either the beginning 
or end of the period.
    \3\ If deduction was other than a receipt or disbursement of 
cash, explain.

[[Page 47738]]



              Guarantees of Securities of Other Issuers \4\
------------------------------------------------------------------------
 Col. A. Name of
    issuer of       Col. B. Title of                     Col. D. Amount
    securities       issue of each      Col. C. Total    owned by person
  guaranteed by         class of           amount        or persons for
 person for which      securities      guaranteed and    which statement
   statement is        guaranteed      outstanding \5\      is filed
      filed
------------------------------------------------------------------------
 
------------------------------------------------------------------------


              Guarantees of Securities of Other Issuers \4\
------------------------------------------------------------------------
                                                         Col. G. Nature
                                                         of any default
                                                           by issue of
 Col. A. Name of                                           securities
    issuer of      Col. E. Amount in                      guaranteed in
    securities        treasury of      Col. F. Nature      principal,
  guaranteed by        issuer of      of guarantee \6\      interest,
 person for which      securities                        sinking fund or
   statement is        guaranteed                          redemption
      filed                                              provisions, or
                                                           payment of
                                                          dividends \7\
------------------------------------------------------------------------
 
------------------------------------------------------------------------

    (3) Schedule III--Condensed financial information. The following 
schedule shall be filed as of the dates and for the periods 
specified in the schedule.
---------------------------------------------------------------------------

    \4\ Indicate in a note to the most recent schedule being filed 
for a particular person or group any significant changes since the 
date of the related balance sheet. If this schedule is filed in 
support of consolidated or combined statements, there shall be set 
forth guarantees by any person included in the consolidation or 
combination, except that such guarantees of securities which are 
included in the consolidated or combined balance sheet need not be 
set forth.
    \5\ Indicate any amounts included in column C which are included 
also in column D or E.
    \6\ There need be made only a brief statement of the nature of 
the guarantee, such as ``Guarantee of principal and interest,'' or 
``Guarantee of dividends.'' If the guarantee is of interest or 
dividends, state the annual aggregate amount of interest or 
dividends so guaranteed.
    \7\ Only a brief statement as to any such defaults need be made.
---------------------------------------------------------------------------

Condensed Financial Information

    [Parent only]
    [The State savings association may determine disclosure based on 
information provided in footnotes below]
    (a) Provide condensed financial information as to financial 
position, changes in financial position, and results of operations 
of the State savings association as of the same dates and for the 
same periods for which audited consolidated financial statements are 
required. The financial information required need not be presented 
in greater detail than is required for condensed statement by 17 CFR 
210.10-01(a) (2), (3), (4). Detailed footnote disclosure which would 
normally be included with complete financial statements may be 
omitted with the exception of disclosure regarding material 
contingencies, long-term obligations, and guarantees. Description of 
significant provisions of the state savings association's long-term 
obligations, mandatory dividend, or redemption requirements of 
redeemable stocks, and guarantees of the State savings association 
shall be provided along with a 5-year schedule of maturities of 
debt. If the material contingencies, long-term obligations, 
redeemable stock requirements, and guarantees of the State savings 
association have been separately disclosed in the consolidated 
statements, they need not be repeated in this schedule.
    (b) Disclose separately the amount of cash dividends paid to the 
State savings association for each of the last three fiscal years by 
consolidated subsidiaries, unconsolidated subsidiaries, and 50-
percent- or less-owned persons accounted for by the equity method, 
respectively.

Subpart U--Securities of State Savings Associations


Sec.  390.390  Requirements under certain sections of the Securities 
Exchange Act of 1934.

    In respect to any securities issued by State savings associations, 
the powers, functions, and duties vested in the Securities and Exchange 
Commission (the ``Commission'') to administer and enforce sections 
10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of the Securities 
Exchange Act of 1934, as amended (the ``Act'') (15 U.S.C. 78l, 78m, 
78n(a), 78n(c), 78n(d), 78n(f), and 78p), and sections 302, 303, 304, 
306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7241, 7242, 7243, 7244, 7261, 7262, 7264, and 7265) are vested 
in the FDIC. The rules, regulations and forms prescribed by the 
Commission pursuant to those sections or applicable in connection with 
obligations imposed by those sections, shall apply to securities issued 
by State savings associations, except as otherwise provided. The term 
``Commission'' as used in those rules and regulations shall, with 
respect to securities issued by State savings associations, be deemed 
to refer to the FDIC unless the context otherwise requires. All filings 
with respect to securities issued by State savings associations 
required by those rules and regulations to be made with the Commission 
shall be made with the FDIC, ATTN: Accounting and Securities Disclosure 
Section, 550 17th Street, NW, Washington, DC 20429, by submitting such 
filings to the above address, except as noted in Sec.  390.391.


Sec.  390.391  [Reserved].


Sec.  390.392  Liability for certain statements by State savings 
associations.

    This section replaces adherence to 17 CFR 240.3b-6 and applies as 
follows:
    (a) A statement within the coverage of paragraph (b) of this 
section which is made by or on behalf of an issuer or by an outside 
reviewer retained by the issuer shall be deemed not to be a fraudulent 
statement (as defined in paragraph (d) of this section), unless it is 
shown that such statement was made or reaffirmed without a reasonable 
basis or was disclosed other than in good faith.
    (b) This section applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of 
this section) made in a proxy statement or offering circular filed with 
the OCC under 12 CFR part 192; in a registration statement filed with 
the FDIC under the Act on Form 10 (17 CFR 249.210); in part I of a 
quarterly report filed with the FDIC on Form 10-Q (17 CFR 249.308a); in 
an annual report to shareholders meeting the requirements of Sec.  
390.390, particularly 17 CFR 240.14a-3(b) and (c) or 17 CFR 240.14c-
3(a) and (b) under the Act; in a statement reaffirming such forward-
looking statement subsequent to the date the document was filed or the 
annual report was made publicly available; or a forward-looking 
statement made prior to the date the document was filed or the date the 
annual report was made publicly available if such statement is 
reaffirmed in a filed document or annual report made publicly available 
within a reasonable time after the making of such forward-looking 
statement: Provided, that
    (i) At the time such statements are made or reaffirmed, either:

[[Page 47739]]

    (A) The issuer is subject to the reporting requirements of section 
13(a) or 15(d) of the Act and has complied with the requirements of 17 
CFR 240.13a-1 or 240.15d-1 thereunder, if applicable, to file its most 
recent annual report on Form 10-K; or
    (B) If the issuer is not subject to the reporting requirements of 
section 13(a) or 15(d) of the Act, the statements are made either in a 
registration statement filed under the Securities Act of 1933 or 
pursuant to section 12(b) or (g) of the Act, or in a proxy statement or 
offering circular filed with the OCC under 12 CFR Part 192 if such 
statements are reaffirmed in a registration statement under the Act on 
Form 10, filed with the FDIC within 180 days of the State savings 
association's conversion, and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940;
    (2) Information--
    (i) Relating to the effects of changing prices on the business 
enterprise presented voluntarily or pursuant to item 303 of Regulation 
S-K (17 CFR 229.303), management's discussion and analysis of financial 
condition and results of operations, or item 302 of Regulation S-K (17 
CFR 229.302), supplementary financial information; and
    (ii) Disclosed in a document filed with the FDIC or in an annual 
report to shareholders meeting the requirements of 17 CFR 240.14a-3(b) 
and (c) or 17 CFR 240.14c-3(a) and (b) under the Act: Provided, that 
such information included in a proxy statement or offering circular 
filed pursuant to 12 CFR Part 192 shall be reaffirmed in a registration 
statement under the Act on Form 10 filed with the OCC within 180 days 
of the association's conversion.
    (c) For purposes of this section, the term ``forward-looking 
statement'' shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure, or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations pursuant to item 303 of Regulation S-K; or
    (4) A statement of the assumptions underlying or relating to any of 
the statements described in paragraph (c)(1), (2), or (3) of this 
section.
    (d) For purposes of this section, the term ``fraudulent statement'' 
shall mean a statement which is an untrue statement of a material fact, 
a statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Securities Act of 1933 or the rules or regulations 
promulgated thereunder.


Sec.  390.393  Form and content of financial statements.

    The financial statements required to be contained in filings with 
the FDIC under the Act are as set out in the applicable form and 
Regulation S-X, 17 CFR part 210. Those financial statements, however, 
shall conform as to form and content to the requirements of Sec.  
390.380.


Sec.  390.394  Interpretations related to SEC filings.

    Sections 390.394 and 390.395 contain interpretations pertaining to 
the requirements of the Act and the rules and regulations thereunder as 
applied to State savings associations by the FDIC.


Sec.  390.395  Description of business.

    (a) This section applies to the description-of-business portion of:
    (1) Registration statements filed on Form 10 (item 1) (17 CFR 
249.210),
    (2) Proxy and information statements relating to mergers, 
consolidations, acquisitions, and similar matters (item 14 of Schedule 
14A and item 1 of Schedule 14C) (17 CFR 240.14a-101 and 240.14c-101), 
and
    (3) Annual reports filed on Form 10-K (item 7) (17 CFR 249.310).
    (b) The description of business should conform to the description 
of business required by item 7 of Form PS under 12 CFR part 192.
    (c) No repetitive disclosure is required by virtue of similar 
requirements in item 7 of Form PS and items 301 and 303 of Regulation 
S-K (17 CFR 229.301, 303). However, there should be included 
appropriate disclosure which arises by virtue of the registrant being a 
State savings association that is organized in stock form. For example, 
the table regarding return on equity and assets, item 7(d)(5), should 
include a line item for ``dividend payout ratio (dividends declared per 
share divided by net income per share).''

Subpart V--Management Official Interlocks


Sec.  390.400  Authority, purpose, and scope.

    (a) Authority. This subpart is issued under the provisions of the 
Federal Deposit Insurance Act, 12 U.S.C. 1819 (Tenth) and the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended.
    (b) Purpose. The purpose of the Interlocks Act and this subpart is 
to foster competition by generally prohibiting a management official 
from serving two nonaffiliated depository organizations in situations 
where the management interlock likely would have an anticompetitive 
effect.
    (c) Scope. This part applies to management officials of State 
savings associations and their affiliates.


Sec.  390.401  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of 
that section 202, shares held by an individual include shares held by 
members of his or her immediate family. ``Immediate family'' means 
spouse, mother, father, child, grandchild, sister, brother, or any of 
their spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a State savings 
association based on common ownership does not exist if the FDIC 
determines, after giving the affected persons the opportunity to 
respond, that the asserted affiliation was established in order to 
avoid the prohibitions of the Interlocks Act and does not represent a 
true commonality of interest between the depository organizations. In 
making this determination, the FDIC considers, among other things, 
whether a person, including members of his or her immediate family, 
whose shares are necessary to constitute the group owns a nominal 
percentage of the shares of one of the organizations and the percentage 
is substantially disproportionate to that person's ownership of shares 
in the other organization.
    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or
    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.

[[Page 47740]]

    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road miles of each other at their closest points. The 
property line of an office located in an unincorporated city, town, or 
village is the boundary line of that city, town, or village for the 
purpose of this definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a State savings 
association, a building and loan association, a homestead association, 
a cooperative bank, an industrial bank, or a credit union, chartered 
under the laws of the United States and having a principal office 
located in the United States. Additionally, a United States office, 
including a branch or agency, of a foreign commercial bank is a 
depository institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.
    (j) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in Sec.  
390.361;
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragraph (j)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (k) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
Primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (n) Representative or nominee means a natural person who serves as 
a management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The FDIC will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management 
responsibilities. The FDIC will determine, after giving the affected 
persons an opportunity to respond, whether a person is a representative 
or nominee.
    (o) State savings association means:
    (1) [Reserved]
    (2) Any State savings association (as defined in section 3(b)(3) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3)) the deposits 
of which are insured by the Federal Deposit Insurance Corporation; and
    (3) Any corporation (other than a bank as defined in section 
3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1)) the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation, that the Board of Directors of the Federal Deposit 
Insurance Corporation determines to be operating in substantially the 
same manner as a State savings association.
    (p) Total assets. (1) The term total assets means assets measured 
on a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) other than the assets of its depository institution 
affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.


Sec.  390.402  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices 
in the same community.
    (b) RMSA. A management official of a depository organization may 
not serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $50 million 
or more.
    (c) Major assets. A management official of a depository 
organization with total assets exceeding $2.5 billion (or any affiliate 
of such an organization) may not serve at the same time as a management 
official of an unaffiliated depository organization with total assets 
exceeding $1.5 billion (or any affiliate of such an organization), 
regardless of the location of the two depository organizations. The 
FDIC will adjust these thresholds, as necessary, based on the year-to-
year change in the average of the Consumer Price Index for the Urban 
Wage Earners and Clerical Workers, not seasonally adjusted, with 
rounding to the nearest $100 million. The FDIC will announce the 
revised thresholds by publishing a final rule without notice and 
comment in the Federal Register.


Sec.  390.403  Interlocking relationships permitted by statute.

    The prohibitions of Sec.  390.402 do not apply in the case of any 
one or more of the following organizations or to a subsidiary thereof:

[[Page 47741]]

    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United States except as an incident to its activities outside the 
United States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository 
institutions regulatory agency and is acquired by another depository 
organization. This exemption lasts for five years, beginning on the 
date the depository organization is acquired;
    (h)(1) A diversified savings and loan holding company (as defined 
in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository institutions regulatory agency at least 60 days before the 
dual service is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The FDIC may disapprove a notice of proposed service if it 
finds that:
    (i) The service cannot be structured or limited so as to preclude 
an anticompetitive effect in financial services in any part of the 
United States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the FDIC.
    (3) The FDIC may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the 
notice period; and
    (i) Any State savings association which has issued stock in 
connection with a qualified stock issuance pursuant to section 10(q) of 
the Home Owners' Loan Act, except that this paragraph (i) shall apply 
only with regard to service as a single management official of such 
State savings association or any subsidiary of such State savings 
association by a single management official of a savings and loan 
holding company which purchased the stock issued in connection with 
such qualified stock issuance, and shall apply only when the FDIC has 
determined that such service is consistent with the purposes of the 
Interlocks Act and the Home Owners' Loan Act.


Sec.  390.404  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec.  
390.402 is permissible, if:
    (1) The interlock is not prohibited by Sec.  390.402(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have 
offices. The amount of deposits shall be determined by reference to the 
most recent annual Summary of Deposits published by the FDIC for the 
RMSA or community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.


Sec.  390.405  General exemption.

    (a) Exemption. The FDIC may exempt an interlock from the 
prohibitions in Sec.  390.402 if the FDIC finds that the interlock 
would not result in a monopoly or substantial lessening of competition 
and would not present safety and soundness concerns. A depository 
organization may apply to FDIC for an exemption under Sec. Sec.  
390.126 through 390.135.
    (b) Presumptions. In reviewing an application for an exemption 
under this section, the FDIC will apply a rebuttable presumption that 
an interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low- and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that or has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in Sec.  
390.361.
    (c) Duration. Unless a shorter expiration period is provided in the 
FDIC approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the FDIC grants 
an interlock exemption in reliance upon a presumption under paragraph 
(b) of this section, the interlock may continue for three years, unless 
otherwise provided by the FDIC in writing.


Sec.  390.406  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in asset size of an organization, a change in the 
delineation of the RMSA or community, the establishment of an office, 
an increase in the aggregate deposits of the depository organization, 
or an acquisition, merger, consolidation, or reorganization of the 
ownership structure of a depository organization that causes a 
previously permissible interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the 
change in circumstances. The FDIC may shorten this period under 
appropriate circumstances.


Sec.  390.407  Enforcement.

    Except as provided in this section, the FDIC administers and 
enforces the Interlocks Act with respect to State savings associations 
and its affiliates, and may refer any case of a prohibited interlocking 
relationship involving these entities to the Attorney General of the 
United States to enforce compliance with the Interlocks Act and this 
subpart. If an affiliate of a State savings association is subject to 
the primary regulation of another Federal depository organization 
supervisory agency, then the FDIC does not administer and enforce the 
Interlocks Act with respect to that affiliate.

[[Page 47742]]

Sec.  390.408  Interlocking relationships permitted pursuant to Federal 
Deposit Insurance Act.

    A management official or prospective management official of a 
depository organization may enter into an otherwise prohibited 
interlocking relationship with another depository organization for a 
period of up to 10 years if such relationship is approved by the 
Federal Deposit Insurance Corporation pursuant to section 
13(k)(1)(A)(v) of the Federal Deposit Insurance Act, as amended (12 
U.S.C. 1823(k)(1)(A)(v)).

Subpart W--Securities Offerings


Sec.  390.410  Definitions.

    (a) For purposes of this subpart, the following definitions apply:
    (1) Accredited investor means the same as in Commission Rule 501(a) 
(17 CFR 230.501(a)) under the Securities Act, and includes any State 
savings association.
    (2) Commission means the Securities and Exchange Commission.
    (3) Dividend or interest reinvestment plan means a plan which is 
offered solely to existing security holders of the State savings 
association which allows such persons to reinvest dividends or interest 
paid to them on securities issued by the State savings association, and 
which also may allow additional cash amounts to be contributed by the 
participants in the plan, provided that the securities to be issued are 
newly issued, or are purchased for the account of plan participants, at 
prices not in excess of current market prices at the time of purchase, 
or at prices not in excess of an amount determined in accordance with a 
pricing formula specified in the plan and based upon average or current 
market prices at the time of purchase.
    (4) Employee benefit plan means any purchase, savings, option, 
rights, bonus, ownership, appreciation, profit sharing, thrift, 
incentive, pension or similar plan solely for officers, directors or 
employees.
    (5) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a-78jj).
    (6) Filing date means the date on which a document is actually 
received during business hours, 9 a.m. to 5 p.m. Eastern Standard Time, 
by the FDIC, 550 17th Street, NW., Washington, DC 20429. However if the 
last date on which a document can be accepted falls on a Saturday, 
Sunday, or holiday, such document may be filed on the next business 
day.
    (7) Issuer means a State savings association which issues or 
proposes to issue any security.
    (8) Offer; Sale or sell. For purposes of this subpart, the term 
offer, offer to sell, or offer for sale shall include every attempt or 
offer to dispose of, or solicitation of an offer to buy, a security or 
interest in a security, for value. However, these terms shall not 
include preliminary negotiations or agreements between an issuer and 
any underwriter or among underwriters who are or are to be in privity 
of contract with the issuer. Sale and sell includes every contract to 
sell or otherwise dispose of a security or interest in a security for 
value. Every offer or sale of a warrant or right to purchase or 
subscribe to another security of the same or another issuer, as well as 
every sale or offer of a security which gives the holder a present or 
future right or privilege to convert the security into another security 
of the same or another issuer, includes an offer and sale of the other 
security only at the time of the offer or sale of the warrant or right 
or convertible security; but neither the exercise of the right to 
purchase or subscribe or to convert nor the issuance of securities 
pursuant thereto is an offer or sale.
    (9) Person means the same as in 12 CFR 192.25, and includes a State 
savings association.
    (10) Purchase and buy mean the same as in 12 CFR 192.25.
    (11) State savings association means the same as in section 3(b) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(b)), and includes a 
state-chartered savings association in organization which is granted 
conditional approval of insurance of accounts by the Federal Deposit 
Insurance Corporation. In addition, for purposes of Sec.  390.411, 
State savings association includes any underwriter participating in the 
distribution of securities of a State savings association.
    (12) Securities Act means the Securities Act of 1933 (15 U.S.C. 
77a-77aa).
    (13) Security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization or subscription, 
transferable share, investment contract, voting trust certificate or, 
in general, any interest or instrument commonly known as a security, or 
any certificate of interest or participation in, temporary or interim 
certificate for, receipt for, guarantee of, or warrant or right to 
subscribe to or purchase any of the foregoing, except that a security 
shall not include an account insured, in whole or in part, by the 
Federal Deposit Insurance Corporation.
    (14) Underwriter means any person who has purchased from an issuer 
with a view to, or offers or sells for an issuer in connection with, 
the distribution of any security, or participates or has a 
participation in the direct or indirect underwriting of any such 
undertaking; but such term shall not include a person whose interest is 
limited to a commission from an underwriter or dealer not in excess of 
the usual and customary distributors' or sellers' commission and such 
term shall also not include any person who has continually held the 
securities being transferred for a period of two (2) consecutive years 
provided that the securities sold in any one (1) transaction shall be 
less than ten percent (10%) of the issued and outstanding securities of 
the same class. The following shall apply for the purpose of 
determining the period securities have been held:
    (i) Stock dividends, splits and recapitalizations. Securities 
acquired from the issuer as a dividend or pursuant to a stock split, 
reverse split or recapitalization shall be deemed to have been acquired 
at the same time as the securities on which the dividend or, if more 
than one, the initial dividend was paid, the securities involved in the 
split or reverse split, or the securities surrendered in connection 
with the recapitalization.
    (ii) Conversions. If the securities sold were acquired from the 
issuer for consideration consisting solely of other securities of the 
same issuer surrendered for conversion, the securities so acquired 
shall be deemed to have been acquired at the same time as the 
securities surrendered for conversion.
    (iii) Contingent issuance of securities. Securities acquired as a 
contingent payment of the purchase price of an equity interest in a 
business, or the assets of a business, sold to the issuer or an 
affiliate of the issuer shall be deemed to have been acquired at the 
time of such sale if the issuer was then committed to issue the 
securities subject only to conditions other than the payment of further 
consideration for such securities. An agreement entered into in 
connection with any such purchase to remain in the employment of, or 
not to compete with, the issuer or affiliate or the rendering of 
services pursuant to such agreement shall not be deemed to be the 
payment of further consideration for such securities.
    (iv) Pledged securities. Securities which are bona fide pledged by 
any person other than the issuer when sold by the pledgee, or by a 
purchaser, after

[[Page 47743]]

a default in the obligation secured by the pledge, shall be deemed to 
have been acquired when they were acquired by the pledgor, except that 
if the securities were pledged without recourse they shall be deemed to 
have been acquired by the pledgee at the time of the pledge or by the 
purchaser at the time of purchase.
    (v) Gifts of securities. Securities acquired from any person, other 
than the issuer, by gift shall be deemed to have been acquired by the 
donee when they were acquired by the donor.
    (vi) Trusts. Securities acquired from the settler of a trust by the 
trust or acquired from the trust by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the settler.
    (vii) Estates. Securities held by the estate of a deceased person 
or acquired from such an estate by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the deceased 
person, except that no holding period is required if the estate is not 
an affiliate of the issuer or if the securities are sold by a 
beneficiary of the estate who is not such an affiliate.
    (viii) Exchange transactions. A person receiving securities in a 
transaction involving an exchange of the securities of one issuer for 
securities of another issuer shall be deemed to have acquired the 
securities received when such person acquired the securities exchanged.
    (b) A term not defined in this subpart but defined elsewhere in 
this part, when used in subpart, shall have the meanings given 
elsewhere in this part, unless the context otherwise requires.
    (c) When used in the rules, regulations, or forms of the Commission 
referred to in this subpart, the term Commission shall be deemed to 
refer to the FDIC, the term registrant shall be deemed to refer to an 
issuer defined in this subpart, and the term registration statement or 
prospectus shall be deemed to refer to an offering circular filed under 
this subpart, unless the context otherwise requires.


Sec.  390.411  Offering circular requirement.

    (a) General. No State savings association shall offer or sell, 
directly or indirectly, any security issued by it unless:
    (1) The offer or sale is accompanied or preceded by an offering 
circular which includes the information required by this subpart and 
which has been filed and declared effective pursuant to this subpart; 
or
    (2) An exemption is available under this subpart.
    (b) Communications not deemed an offer. The following 
communications shall not be deemed an offer under this subpart:
    (1) Prior to filing an offering circular, any notice of a proposed 
offering which satisfies the requirements of Commission Rule 135 (17 
CFR 230.135) under the Securities Act;
    (2) Subsequent to filing an offering circular, any notice circular, 
advertisement, letter, or other communication published or transmitted 
to any person which satisfies the requirements of Commission Rule 134 
(17 CFR 230.134) under the Securities Act; and
    (3) Oral offers of securities covered by an offering circular made 
after filing the offering circular with the FDIC.
    (c) Preliminary offering circular. Notwithstanding paragraph (a) of 
this section, a preliminary offering circular may be used for an offer 
of any security prior to the effective date of the offering circular 
if:
    (1) The preliminary offering circular has been filed pursuant to 
this subpart;
    (2) The preliminary offering circular includes the information 
required by this subpart, except for the omission of information 
relating to offering price, discounts or commissions, amount of 
proceeds, conversion rates, call prices, or other matters dependent on 
the offering price; and
    (3) The offering circular declared effective by the FDIC is 
furnished to the purchaser prior to, or simultaneously with, the sale 
of any such security.


Sec.  390.412  Exemptions.

    The offering circular requirement of Sec.  390.411 shall not apply 
to an issuer's offer or sale of securities:
    (a) [Reserved]
    (b) Exempt from registration under either section 3(a) or section 4 
of the Securities Act, but only by reason of an exemption other than 
section 3(a)(5) (for regulated State savings associations), and section 
3(a)(11) (for intrastate offerings) of the Securities Act;
    (c) In a conversion from the mutual to the stock form of 
organization pursuant to12 CFR part 192, except for a supervisory 
conversion undertaken pursuant to subpart C of 12 CFR part 192;
    (d) In a non-public offering which satisfies the requirements of 
Sec.  390.413;
    (e) That are debt securities issued in denominations of $100,000 or 
more, which are fully collateralized by cash, any security issued, or 
guaranteed as to principal and interest, by the United States, the 
Federal Home Loan Mortgage Corporation, Federal National Mortgage 
Association, Government National Mortgage Association or by interests 
in mortgage notes secured by real property;
    (f) Distributed exclusively abroad to foreign nationals: Provided, 
That--
    (1) The offering is made subject to safeguards reasonably designed 
to preclude distribution or redistribution of the securities within, or 
to nationals of, the United States; and
    (2) Such safeguards include, without limitation, measures that 
would be sufficient to ensure that registration of the securities would 
not be required if the securities were not exempt under the Securities 
Act; or
    (g) To its officers, directors or employees pursuant to an employee 
benefit plan or a dividend or interest reinvestment plan, and provided 
that any such plan has been approved by the majority of shareholders 
present in person or by proxy at an annual or special meeting of the 
shareholders of the State savings association.


Sec.  390.413  Non-public offering.

    Offers and sales of securities by an issuer that satisfy the 
conditions of paragraph (a) or (b) of this section and the requirements 
of paragraphs (c) and (d) of this section shall be deemed to be 
transactions not involving any public offering within the meaning of 
section 4(2) of the Securities Act and Sec. Sec.  390.412(b) and 
390.412(d). However, an issuer shall not be deemed to be not in 
compliance with the provisions of this subpart solely by reason of 
making an untimely filing of the notice required to be filed by 
paragraph (c) of this section so long as the notice is actually filed 
and all other conditions and requirements of this subpart are 
satisfied.
    (a) Regulation D. The offer and sale of all securities in the 
transaction satisfies the Commission's Regulation D (17 CFR 230.501-
230.506), except for the notice requirements of Commission Rule 503 (17 
CFR 230.503) and the limitations on resale in Commission Rule 502(d) 
(17 CFR 230.502(d)).
    (b) Sales to 35 persons. The offer and sale of all securities in 
the transaction satisfies each of the following conditions:
    (1) Sales of the security are not made to more than 35 persons 
during the offering period, as determined under the integration 
provisions of Commission Rule 502(a) (17 CFR 230.502(a)). The number of 
purchasers referred to above is exclusive of any accredited investor, 
officer, director or affiliate of the issuer. For purposes of paragraph 
(b) of this section, a husband and wife (together with any custodian or 
trustee acting for the account of their minor children) are counted as 
one person and a

[[Page 47744]]

partnership, corporation or other organization which was not 
specifically formed for the purpose of purchasing the security offered 
in reliance upon this exemption, is counted as one person.
    (2) All purchasers either have a preexisting personal or business 
relationship with the issuer or any of its officers, directors or 
controlling persons, or by reason of their business or financial 
experience or the business or financial experience of their 
professional advisors who are unaffiliated with and who are not 
compensated by the issuer or any affiliate or selling agent of the 
issuer, directly or indirectly, could reasonably be assumed to have the 
capacity to protect their own interests in connection with the 
transaction.
    (3) Each purchaser represents that the purchaser is purchasing for 
the purchaser's own account (or a trust account if the purchaser is a 
trustee) and not with a view to or for sale in connection with any 
distribution of the security.
    (4) The offer and sale of the security is not accomplished by the 
publication of any advertisement.
    (c) Filing of notice of sales. Within 30 days after the first sale 
of the securities, every six months after the first sale of the 
securities and not later than 30 days after the last sale of securities 
in an offering pursuant to this subpart, the issuer, shall file with 
the FDIC a report describing the results of the sale of securities as 
required by Sec.  390.421(b).
    (d) Limitation on resale. The issuer shall exercise reasonable care 
to assure that the purchasers of the securities are not underwriters 
within the meaning of Sec.  390.410(a)(14), which reasonable care shall 
include, but not be limited to, the following:
    (1) Reasonable inquiry to determine if the purchaser is acquiring 
the securities for the purchaser or for other persons;
    (2) Written disclosure to each purchaser prior to the sale that the 
securities are not offered by an offering circular filed with, and 
declared effective by, the FDIC pursuant to Sec.  390.411, but instead 
are being sold in reliance upon the exemption from the offering 
circular requirement provided for by this subpart; and
    (3) Placement of a legend on the certificate, or other document 
evidencing the securities, indicating that the securities have not been 
offered by an offering circular filed with, and declared effective by, 
the FDIC and that due care should be taken to ensure that the seller of 
the securities is not an underwriter within the meaning of Sec.  
390.410(a)(14).


Sec.  390.414   Filing and signature requirements.

    (a) Procedures. An offering circular, amendment, notice, report, or 
other document required by this subpart shall, unless otherwise 
indicated, be filed in accordance with the requirements of 12 CFR 
192.115(a), 192.150(a)(6), 192.155, 192.180(b), and Form AC, General 
Instruction B, of this subpart.
    (b) Number of copies. (1) Unless otherwise required, any filing 
under this subpart shall include nine copies of the document to be 
filed with the FDIC, as follows:
    (i) Seven copies, which shall include one manually signed copy with 
exhibits, three conformed copies with exhibits, and three conformed 
copies without exhibits, to the FDIC, ATTN: Accounting and Securities 
Disclosure Section, 550 17th Street NW, Washington, DC 20429; and
    (ii) Two copies, which shall include one manually signed copy with 
exhibits and one conformed copy, without exhibits, to the appropriate 
regional director.
    (2) Within five days after the effective date of an offering 
circular or the commencement of a public offering after the effective 
date, whichever occurs later, nine copies of the offering circular used 
shall be filed with the FDIC as follows: Seven copies to the FDIC, 550 
17th Street NW., ATTN: Accounting and Securities Disclosure Section, 
Washington, DC, and two copies to the appropriate Regional Director.
    (3) After the effective date of an offering circular, an offering 
circular which varies from the form previously filed shall not be used, 
unless it includes only non-material supplemental or additional 
information and until 10 copies have been filed with the FDIC in the 
manner required.
    (c) Signature. (1) Any offering circular, amendment, or consent 
filed with the FDIC pursuant to this subpart shall include an attached 
manually signed signature page which authorizes the filing and has been 
signed by:
    (i) The issuer, by its duly authorized representative;
    (ii) The issuer's principal executive officer;
    (iii) The issuer's principal financial officer;
    (iv) The issuer's principal accounting officer; and
    (v) At least a majority of the issuer's directors.
    (2) Any other document filed pursuant to this subpart shall be 
signed by a person authorized to do so.
    (3) At least one copy of every document filed pursuant to this 
subpart shall be manually signed, and every copy of a document filed 
shall:
    (i) Have the name of each person who signs typed or printed beneath 
the signature;
    (ii) State the capacity or capacities in which the signature is 
provided;
    (iii) Provide the name of each director of the issuer, if a 
majority of directors is required to sign the document; and
    (iv) With regard to any copies not manually signed, bear typed or 
printed signatures.


Sec.  390.415   Effective date.

    (a) Except as provided for in paragraph (d) of this section, an 
offering circular filed by a State savings association shall be deemed 
to be automatically declared effective by the FDIC on the twentieth day 
after filing or on such earlier date as the FDIC may determine for good 
cause shown.
    (b) If any amendment is filed prior to the effective date, the 
offering circular shall be deemed to have been filed when such 
amendment was filed.
    (c) The period until automatic effectiveness under this subpart 
shall be stated at the bottom of the facing page of the Form OC or any 
amendment.
    (d) The effectiveness will be delayed if a duly authorized 
amendment, telegram confirmed in writing, or letter states that the 
effective date is delayed until a further amendment is filed 
specifically stating that the offering circular will become effective 
in accordance with this subpart.
    (e) An amendment filed after the effective date of the offering 
circular shall become effective on such date as the FDIC may determine.
    (f) If it appears to the FDIC at any time that the offering 
circular includes any untrue statement of a material fact or omits to 
state any material fact required to be stated therein or necessary to 
make the statements therein not misleading, then the FDIC may pursue 
any remedy it is authorized to pursue under section 8 of the Federal 
Deposit Insurance Act, as amended (12 U.S.C. 1818), including, but not 
limited to, institution of cease-and-desist proceedings.


Sec.  390.416   Form, content, and accounting.

    (a) Form and content. Any offering circular or amendment filed 
pursuant to this subpart shall:
    (1) Be filed under cover of Form OC, which is under 12 CFR part 
192;
    (2) Comply with the requirements of Items 3 and 4 of Form OC and 
the requirements of all items of the form for registration (17 CFR part 
239) that the issuer would be eligible to use were it required to 
register the securities under the Securities Act;

[[Page 47745]]

    (3) Comply with all item requirements of the Form S-1 (17 CFR part 
239) for registration under the Securities Act, if the association 
issuing the securities is not in compliance with the FDIC's regulatory 
capital requirements during the time the offering is made;
    (4) Where a form specifies that the information required by an item 
in the Commission's Regulation S-K (17 CFR part 229) should be 
furnished, include such information and all of the information required 
by Item 7 of Form PS, which is under 12 CFR part 192;
    (5) Include after the facing page of the Form OC a cross-reference 
sheet listing each item requirement of the form for registration under 
the Securities Act and indicate for each item the applicable heading or 
subheading in the offering circular under which the required 
information is disclosed;
    (6) Include in part II of the Form OC the applicable undertakings 
required by the form for registration under the Securities Act;
    (7) If the issuer has not previously been required to file reports 
pursuant to section 13(a) of the Exchange Act or Sec.  390.427, include 
in part II of Form OC the following undertaking: ``The issuer hereby 
undertakes, in connection with any distribution of the offering 
circular, to have a preliminary or effective offering circular 
including the information required by this subpart distributed to all 
persons expected to be mailed confirmations of sale not less than 48 
hours prior to the time such confirmations are expected to be mailed;''
    (8) In offerings involving the issuance of options, warrants, 
subscription rights or conversion rights within the meaning of Sec.  
390.410(a)(8), include in part II of Form OC an undertaking to provide 
a copy of the issuer's most recent audited financial statements to 
persons exercising such options, warrants or rights promptly upon 
receiving written notification of the exercise thereof;
    (9) Include as supplemental information and not as part of the Form 
OC and only with respect to de novo offerings, a copy of the 
application for insurance of accounts as submitted to the Federal 
Deposit Insurance Corporation for state-chartered savings associations; 
and
    (10) In addition to the information expressly required to be 
included by this subpart, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in light of the circumstances under which they are made, 
not misleading.
    (b) Accounting requirements. To be declared effective an offering 
circular or amendment shall satisfy the accounting requirements in 
subpart T.


Sec.  390.417   Use of the offering circular.

    (a) An offering circular or amendment declared effective by the 
FDIC shall not be used more than nine months after the effective date, 
unless the information contained therein is as of a date not more than 
16 months prior to such use.
    (b) An offering circular filed under Sec.  390.414(b)(3) shall not 
extend the period for which an effective offering circular or amendment 
may be used under paragraph (c) of this section.
    (c) If any event arises, or change in fact occurs, after the 
effective date and such event or change in fact, individually or in the 
aggregate, results in the offering circular containing any untrue 
statement of material fact, or omitting to state a material fact 
necessary in order to make statements made in the offering circular not 
misleading under the circumstances, then no offering circular, which 
has been declared effective under this subpart, shall be used until an 
amendment reflecting such event or change in fact has been filed with, 
and declared effective by, the FDIC.


Sec.  390.418   Escrow requirement.

    (a) Any funds received in an offering which is offered and sold on 
a best efforts all-or-none condition or with a minimum-maximum amount 
to be sold shall be held in an escrow or similar separate account until 
such time as all of the securities are sold with respect to a best 
efforts all-or-none offering or the stated minimum amount of securities 
are sold in a minimum-maximum offering.
    (b) If the amount of securities required to be sold under escrow 
conditions in paragraph (a) of this section are not sold within the 
time period for the offering as disclosed in the offering circular, all 
funds in the escrow account shall be promptly refunded unless the FDIC 
otherwise approves an extension of the offering period upon a showing 
of good cause and provided that the extension is consistent with the 
public interest and the protection of investors.


Sec.  390.419   Unsafe or unsound practices.

    (a) No person shall directly or indirectly,
    (1) Employ any device, scheme or artifice to defraud,
    (2) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make statements made, in light of 
the circumstances under which they were made, not misleading, or
    (3) Engage in any act, practice, or course of business which 
operates as a fraud or deceit upon any person, in connection with the 
purchase or sale of any security of a State savings association.
    (b) Violations of this subpart shall constitute an unsafe or 
unsound practice within the meaning of section 8 of the Federal Deposit 
Insurance Act, as amended, 12 U.S.C. 1818.
    (c) Nothing in this subpart shall be construed as a limitation on 
the applicability of section 10(b) of the Exchange Act (15 U.S.C. 
78j(b)) or Rule 10b-5 promulgated thereunder (17 CFR 240.10b-5).


Sec.  390.420   Withdrawal or abandonment.

    (a) Any offering circular, amendment, or exhibit may be withdrawn 
prior to the effective date. A withdrawal shall be signed and state the 
grounds upon which it is made. Any document withdrawn will not be 
removed from the files of the FDIC, but will be marked ``Withdrawn upon 
the request of the issuer on (date).''
    (b) When an offering circular or amendment has been on file with 
the FDIC for a period of nine months and has not become effective, the 
FDIC may, in its discretion, determine whether the filing has been 
abandoned, after notifying the issuer that the filing is out of date 
and must either be amended to comply with the applicable requirements 
of this subpart or be withdrawn within 30 days after the date of such 
notice. When a filing is abandoned, the filing will not be removed from 
the files of the FDIC, but will be marked ``Declared abandoned by the 
FDIC on (date).''


Sec.  390.421   Securities sale report.

    (a) Within 30 days after the first sale of the securities, every 
six months after such 30 day period and not later than 30 days after 
the later of the last sale of securities in an offering pursuant to 
Sec.  390.411 or the application of the proceeds therefrom, the issuer 
shall file with the FDIC a report describing the results of the sale of 
the securities and the application of the proceeds, which shall include 
all of the information required by Form G-12 set forth at Sec.  390.429 
and shall also include the following:
    (1) The name, address, and docket number of the issuer;
    (2) The title, number, aggregate and per-unit offering price of the 
securities sold;
    (3) The aggregate and per-unit dollar amounts of actual itemized 
expenses, discounts or commissions, and other fees;

[[Page 47746]]

    (4) The aggregate and per-unit dollar amounts of the net proceeds 
raised, and the use of proceeds therefrom; and
    (5) The number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities after the issuance of the securities or termination of the 
offer.
    (b) Within 30 days after the first sale of the securities, every 
six months after the first sale of the securities and not later than 30 
days after the last sale of securities in an offering pursuant to Sec.  
390.413, the issuer shall file with the FDIC a report describing the 
results of the sale of securities, which shall include all of the 
information required by Form G-12 set forth at Sec.  390.429, and shall 
also include the following:
    (1) All of the information required by paragraph (a) of this 
section; and
    (2) A detailed statement of the factual and legal grounds for the 
exemption claimed.


Sec.  390.422   Public disclosure and confidential treatment.

    (a) Any offering circular, amendment, exhibit, notice, or report 
filed pursuant to this subpart will be publicly available. Any other 
related documents will be treated in accordance with the provisions of 
the Freedom of Information Act (5 U.S.C. 552), the Privacy Act of 1974 
(5 U.S.C. 552a), and parts 309 and 310 of this chapter.
    (b) Any requests for confidential treatment of information in a 
document required to be filed under this subpart shall be made as 
required under Commission Rule 24b-2 (17 CFR 240.24b-2) under the 
Exchange Act.


Sec.  390.423   Waiver.

    (a) The FDIC may waive any requirement of this subpart, or any 
required information:
    (1) Determined to be unnecessary by the FDIC;
    (2) In connection with a transaction approved by the FDIC for 
supervisory reasons, or
    (3) Where a provision of this subpart conflicts with a requirement 
of applicable state law.
    (b) Any condition, stipulation or provision binding any person 
acquiring a security issued by a State savings association which seeks 
to waive compliance with any provision of this subpart shall be void, 
unless approved by the FDIC.


Sec.  390.424   Requests for interpretive advice or waiver.

    Any requests to the FDIC for interpretive advice or a waiver with 
respect to any provision of this subpart shall satisfy the following 
requirements:
    (a) A copy of the request, including any attachments, shall be 
filed with the FDIC;
    (b) The provisions of this subpart to which the request relates, 
the participants in the proposed transaction, and the reasons for the 
request, shall be specifically identified or described; and
    (c) The request shall include a legal opinion as to each legal 
issue raised and an accounting opinion as to each accounting issue 
raised.


Sec.  390.425   Delayed or continuous offering and sale of securities.

    Any offer or sale of securities under Sec.  390.411 may be made on 
a continuous or delayed basis in the future, if:
    (a) The securities would satisfy all of the eligibility 
requirements of the Commission's Rule 415, 17 CFR 230.415; and
    (b) The association issuing the securities is in compliance with 
the FDIC's regulatory capital requirements during the time the offering 
is made.


Sec.  390.426   Sales of securities at an office of a State savings 
association.

    Sales of securities of a State savings association or its 
affiliates at an office of a State savings association may only be made 
in accordance with the provisions of Sec.  390.340.


Sec.  390.427   Current and periodic reports.

    (a) Each State savings association which files an offering circular 
which becomes effective pursuant to this subpart, after such effective 
date, shall file with the FDIC periodic and current reports on Forms 8-
K, 10-Q and 10-K as may be required by section 13 of the Exchange Act 
(15 U.S.C. 78m) as if the securities sold by such offering circular 
were securities registered pursuant to section 12 of the Exchange Act 
(15 U.S.C. 78l). The duty to file periodic and current reports under 
this subpart shall be automatically suspended if and so long as any 
issue of securities of the State savings association is registered 
pursuant to section 12 of the Exchange Act (15 U.S.C. 78l). The duty to 
file under this subpart shall also be automatically suspended as to any 
fiscal year, other than the fiscal year within which such offering 
circular became effective, if, at the beginning of such fiscal year, 
the securities of each class to which the offering circular relates are 
held of record by less than three hundred persons and upon the filing 
of a Form 15.
    (b) For purposes of registering securities under section 12(b) or 
12(g) of the Exchange Act, an issuer subject to the reporting 
requirements of paragraph (a) of this section may use the Commission's 
registration statement on Form 10 or Form 8-A or 8-B as applicable.


Sec.  390.428   Approval of the security.

    Any securities of a State savings association which are not exempt 
under this subpart and are offered or sold pursuant to an offering 
circular which becomes effective under this subpart, are deemed to be 
approved as to form and terms for purposes of this subpart.


Sec.  390.429   Form for securities sale report.

FDIC, 550 17th Street, NW., Washington, DC 20429
[Form G-12]

Securities Sale Report Pursuant to Sec.  390.12

FDIC No.---------------------------------------------------------------
Issuer's Name:---------------------------------------------------------
Address:---------------------------------------------------------------

    If in organization, state the date of FDIC certification of 
insurance of accounts: ----
    State the title, number, aggregate and per-unit offering price of 
the securities sold: --------
    State the aggregate and per-unit dollar amounts of actual itemized 
offering expenses, discounts, commissions, and other fees: --------
    State the aggregate and per-unit dollar amounts of the net proceeds 
raised: --------
    Describe the use of proceeds. If unknown, provide reasonable 
estimates of the dollar amount allocated to each purpose for which the 
proceeds will be used: --------
    State the number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities at the close or termination of the offering: --------
    For a non-public offering, also state the factual and legal grounds 
for the exemption claimed (attach additional pages if necessary): ----
----
    For a non-public offering, all offering materials used should be 
listed: --------

Person to Contact:-----------------------------------------------------
Telephone No.:---------------------------------------------------------

    This issuer has duly caused this securities sale report to be 
signed on its behalf by the undersigned person.

Date of securities sale report-----------------------------------------
Issuer:----------------------------------------------------------------
Signature:-------------------------------------------------------------
Name:------------------------------------------------------------------
Title:-----------------------------------------------------------------

    Instruction: Print the name and title of the signing representative 
under his or her signature. Ten copies of the securities sale report 
should be filed,

[[Page 47747]]

including one copy manually signed, as required under 12 CFR 390.414.
    Attention
    Intentional misstatements or omissions of fact constitute 
violations of Federal law (See 18 U.S.C. 1001 and Sec.  390.355(b)).


Sec.  390.430   Filing of copies of offering circulars in certain 
exempt offerings.

    A copy of the offering circular, or similar document, if any, used 
in connection with an offering exempt from the offering circular 
requirement of Sec.  390.411 by reason of Sec.  390.412(e) or Sec.  
390.413 shall be mailed to the FDIC within 30 days after the first sale 
of such securities. Such copy of the offering circular, or similar 
document, is solely for the information of the FDIC and shall not be 
deemed to be ``filed'' with the FDIC pursuant to Sec.  390.411. The 
mailing to the FDIC of such offering circular, or similar document, 
shall not be a pre-condition of the applicable exemption from the 
offering circular requirements of Sec.  390.411.

Subpart X--Appraisals


Sec.  390.440   Authority, purpose, and scope.

    (a) Authority. This subpart is issued by the FDIC under title XI of 
the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989 (``FIRREA'') (Pub. L. 101-73, 103 Stat. 183, 511 (1989)), 12 
U.S.C. 3301 et seq., and portions of the Home Owners' Loan Act 
(``HOLA''), 12 U.S.C. 1461 et seq., as amended by FIRREA.
    (b) Purpose and scope. (1) Title XI provides protection for federal 
financial and public policy interests in real estate related 
transactions by requiring real estate appraisals used in connection 
with federally related transactions to be performed in writing, in 
accordance with uniform standards, by appraisers whose competency has 
been demonstrated and whose professional conduct will be subject to 
effective supervision. This subpart implements the requirements of 
title XI and applies to all federally related transactions entered into 
by the FDIC or by institutions regulated by the FDIC (``regulated 
institutions'').
    (2) This subpart:
    (i) Identifies which real estate related financial transactions 
require the services of an appraiser;
    (ii) Prescribes which categories of federally related transactions 
shall be appraised by a State certified appraiser and which by a State 
licensed appraiser; and
    (iii) Prescribes minimum standards for the performance of real 
estate appraisals in connection with federally related transactions 
under the jurisdiction of the FDIC.


Sec.  390.441   Definitions.

    Appraisal means a written statement independently and impartially 
prepared by a qualified appraiser setting forth an opinion as to the 
market value of an adequately described property as of a specific 
date(s), supported by the presentation and analysis of relevant market 
information.
    Appraisal Foundation means the Appraisal Foundation established on 
November 30, 1987, as a not-for-profit corporation under the laws of 
Illinois.
    Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institution Examination Council.
    Business loan means a loan or extension of credit to any 
corporation, general or limited partnership, business trust, joint 
venture, pool, syndicate, sole proprietorship, or other business 
entity.
    Complex 1-to-4 family residential property appraisal means one in 
which the property to be appraised, the form of ownership, or market 
conditions are atypical.
    Federally related transaction means any real estate-related 
financial transaction entered into on or after August 9, 1990, that:
    (1) The FDIC or any regulated institution engages in or contracts 
for; and
    (2) Requires the services of an appraiser.
    Market value means the most probable price which a property should 
bring in a competitive and open market under all conditions requisite 
to a fair sale, the buyer and seller each acting prudently and 
knowledgeably, and assuming the price is not affected by undue 
stimulus. Implicit in this definition is the consummation of a sale as 
of a specified date and the passing of title from seller to buyer under 
conditions whereby:
    (1) Buyer and seller are typically motivated;
    (2) Both parties are well informed or well advised, and acting in 
what they consider their own best interests;
    (3) A reasonable time is allowed for exposure in the open market;
    (4) Payment is made in terms of cash in U.S. dollars or in terms of 
financial arrangements comparable thereto; and
    (5) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    Real estate or real property means an identified parcel or tract of 
land, with improvements, and includes easements, rights of way, 
undivided or future interests, or similar rights in a tract of land, 
but does not include mineral rights, timber rights, growing crops, 
water rights, or similar interests severable from the land when the 
transaction does not involve the associated parcel or tract of land.
    Real estate-related financial transaction means any transaction 
involving:
    (1) The sale, lease, purchase, investment in or exchange of real 
property, including interests in property, or the financing thereof; or
    (2) The refinancing of real property or interests in real property; 
or
    (3) The use of real property or interests in property as security 
for a loan or investment, including mortgage-backed securities.
    State certified appraiser means any individual who has satisfied 
the requirements for certification in a State or territory whose 
criteria for certification as a real estate appraiser currently meet 
the minimum criteria for certification issued by the Appraiser 
Qualifications Board of the Appraisal Foundation. No individual shall 
be a State certified appraiser unless such individual has achieved a 
passing grade upon a suitable examination administered by a State or 
territory that is consistent with and equivalent to the Uniform State 
Certification Examination issued or endorsed by the Appraiser 
Qualifications Board of the National Foundation. In addition, the 
Appraisal Subcommittee must not have issued a finding that the 
policies, practices, or procedures of the State or territory are 
inconsistent with title XI of FIRREA. The FDIC may, from time to time, 
impose additional qualification criteria for certified appraisers 
performing appraisals in connection with federally related transactions 
within its jurisdiction.
    State licensed appraiser means any individual who has satisfied the 
requirements for licensing in a State or territory where the licensing 
procedures comply with title XI of FIRREA and where the Appraisal 
Subcommittee has not issued a finding that the policies, practices, or 
procedures of the State or territory are inconsistent with title XI. 
The FDIC may, from time to time, impose additional qualification 
criteria for licensed appraisers performing appraisals in connection 
with federally related transactions within its jurisdiction.
    Tract development means a project of five units or more that is 
constructed or is to be constructed as a single development.
    Transaction value means:

[[Page 47748]]

    (1) For loans or other extensions of credit, the amount of the loan 
or extension of credit;
    (2) For sales, leases, purchases, and investments in or exchanges 
of real property, the market value of the real property interest 
involved; and
    (3) For the pooling of loans or interests in real property for 
resale or purchase, the amount of the loan or market value of the real 
property calculated with respect to each such loan or interest in real 
property.


Sec.  390.442  Appraisals required; transactions requiring a State 
certified or licensed appraiser.

    (a) Appraisals required. An appraisal performed by a State 
certified or licensed appraiser is required for all real estate-related 
financial transactions except those in which:
    (1) The transaction value is $250,000 or less;
    (2) A lien on real estate has been taken as collateral in an 
abundance of caution;
    (3) The transaction is not secured by real estate;
    (4) A lien on real estate has been taken for purposes other than 
the real estate's value;
    (5) The transaction is a business loan that:
    (i) Has a transaction value of $1 million or less; and
    (ii) Is not dependent on the sale of, or rental income derived 
from, real estate as the primary source of repayment;
    (6) A lease of real estate is entered into, unless the lease is the 
economic equivalent of a purchase or sale of the leased real estate;
    (7) The transaction involves an existing extension of credit at the 
lending institution, provided that:
    (i) There has been no obvious and material change in market 
conditions or physical aspects of the property that threatens the 
adequacy of the institution's real estate collateral protection after 
the transaction, even with the advancement of new monies; or
    (ii) There is no advancement of new monies, other than funds 
necessary to cover reasonable closing costs;
    (8) The transaction involves the purchase, sale, investment in, 
exchange of, or extension of credit secured by, a loan or interest in a 
loan, pooled loans, or interests in real property, including mortgaged-
backed securities, and each loan or interest in a loan, pooled loan, or 
real property interest met the FDIC's regulatory requirements for 
appraisals at the time of origination;
    (9) The transaction is wholly or partially insured or guaranteed by 
a United States government agency or United States government sponsored 
agency;
    (10) The transaction either:
    (i) Qualifies for sale to a United States government agency or 
United States government sponsored agency; or
    (ii) Involves a residential real estate transaction in which the 
appraisal conforms to the Federal National Mortgage Association or 
Federal Home Loan Mortgage Corporation appraisal standards applicable 
to that category of real estate;
    (11) The regulated institution is acting in a fiduciary capacity 
and is not required to obtain an appraisal under other law; or
    (12) The FDIC determines that the services of an appraiser are not 
necessary in order to protect Federal financial and public policy 
interests in real estate-related financial transactions or to protect 
the safety and soundness of the institution.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (5), or (7) of this section, the institution shall obtain an 
appropriate evaluation of real property collateral that is consistent 
with safe and sound banking practices.
    (c) Appraisals to address safety and soundness concerns. The FDIC 
reserves the right to require an appraisal under this subpart whenever 
the agency believes it is necessary to address safety and soundness 
concerns.
    (d) Transactions requiring a State certified appraiser--(1) All 
transactions of $1,000,000 or more. All federally related transactions 
having a transaction value of $1,000,000 or more shall require an 
appraisal prepared by a State certified appraiser.
    (2) Nonresidential and residential (other than 1-to-4 family) 
transactions of $250,000 or more. All federally related transactions 
having a transaction value of $250,000 or more, other than those 
involving appraisals of 1-to-4 family residential properties, shall 
require an appraisal prepared by a State certified appraiser.
    (3) Complex residential transactions of $250,000 or more. All 
complex 1-to-4 family residential property appraisals rendered in 
connection with federally related transactions shall require a State 
certified appraiser if the transaction value is $250,000 or more. A 
regulated institution may presume that appraisals of 1-to-4 family 
residential properties are not complex, unless the institution has 
readily available information that a given appraisal will be complex. 
The regulated institution shall be responsible for making the final 
determination of whether the appraisal is complex. If during the course 
of the appraisal a licensed appraiser identifies factors that would 
result in the property, form of ownership, or market conditions being 
considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or
    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
    (e) Transactions requiring either a State certified or licensed 
appraiser. All appraisals for federally related transactions not 
requiring the services of a State certified appraiser shall be prepared 
by either a State certified appraiser or a State licensed appraiser.
    (f) Effective date. State savings associations are required to use 
State certified or licensed appraisers as set forth in this subpart no 
later than December 31, 1992.


Sec.  390.443  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    (a) Conform to generally accepted appraisal standards as evidenced 
by the Uniform Standards of Professional Appraisal Practice (USPAP) 
promulgated by the Appraisal Standards Board of the Appraisal 
Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless 
principles of safe and sound banking require compliance with stricter 
standards;
    (b) Be written and contain sufficient information and analysis to 
support the institution's decision to engage in the transaction;
    (c) Analyze and report appropriate deductions and discounts for 
proposed construction or renovation, partially leased buildings, non-
market lease terms, and tract developments with unsold units;
    (d) Be based upon the definition of market value as set forth in 
this subpart; and
    (e) Be performed by State licensed or certified appraisers in 
accordance with requirements set forth in this subpart.


Sec.  390.444  Appraiser independence.

    (a) Staff appraisers. If an appraisal is prepared by a staff 
appraiser, that appraiser must be independent of the lending, 
investment, and collection functions and not involved, except as an 
appraiser, in the federally related transaction, and have no direct or 
indirect interest, financial or otherwise, in the property. If the only 
qualified persons available to perform an appraisal are involved in the 
lending, investment, or collection functions of

[[Page 47749]]

the regulated institution, the regulated institution shall take 
appropriate steps to ensure that the appraisers exercise independent 
judgment and that the appraisal is adequate. Such steps include, but 
are not limited to, prohibiting an individual from performing an 
appraisal in connection with federally related transactions in which 
the appraiser is otherwise involved and prohibiting directors and 
officers from participating in any vote or approval involving assets on 
which they performed an appraisal.
    (b) Fee appraisers. (1) If an appraisal is prepared by a fee 
appraiser, the appraiser shall be engaged directly by the regulated 
institution or its agent, and have no direct or indirect interest, 
financial or otherwise, in the property or the transaction.
    (2) A regulated institution also may accept an appraisal that was 
prepared by an appraiser engaged directly by another financial services 
institution, if:
    (i) The appraiser has no direct or indirect interest, financial or 
otherwise, in the property or the transaction; and
    (ii) The regulated institution determines that the appraisal 
conforms to the requirements of this subpart and is otherwise 
acceptable.


Sec.  390.445  Professional association membership; competency.

    (a) Membership in appraisal organizations. A State certified 
appraiser or a State licensed appraiser may not be excluded from 
consideration for an assignment for a federally related transaction 
solely by virtue of membership or lack of membership in any particular 
appraisal organization.
    (b) Competency. All staff and fee appraisers performing appraisals 
in connection with federally related transactions must be State 
certified or licensed, as appropriate. However, a State certified or 
licensed appraiser may not be considered competent solely by virtue of 
being certified or licensed. Any determination of competency shall be 
based upon the individual's experience and educational background as 
they relate to the particular appraisal assignment for which he or she 
is being considered.


Sec.  390.446  Enforcement.

    Institutions and institution-affiliated parties, including staff 
appraisers and fee appraisers, who violate this subpart may be subject 
to removal and/or prohibition orders, cease and desist orders, and the 
imposition of civil money penalties pursuant to the Federal Deposit 
Insurance Act, 12 U.S.C. 1811 et seq., as amended, or other applicable 
law.


Sec.  390.447  Appraisal policies and practices of State savings 
associations and subsidiaries.

    (a) Introduction. The soundness of a State savings association's 
mortgage loans and real estate investments, and those of its 
subsidiary(ies), depends to a great extent upon the adequacy of the 
loan underwriting used to support these transactions. An appraisal 
standard is one of several critical components of a sound underwriting 
policy because appraisal reports contain estimates of the value of 
collateral held or assets owned. This section sets forth the 
responsibilities of management to develop, implement, and maintain 
appraisal standards in determining compliance with the appraisal 
requirements of Sec.  390.350.
    (b) Definition. For purposes of this section, management means: the 
directors and officers of a State savings association or 
subsidiary(ies) of such State savings association as those terms are 
defined in Sec. Sec.  390.291 and 390.302, respectively.
    (c) Responsibilities of management. An appraisal is a critical 
component of the loan underwriting or real estate investment decision. 
Therefore, management shall develop, implement, and maintain appraisal 
policies to ensure that appraisals reflect professional competence and 
to facilitate the reporting of estimates of market value upon which 
State savings associations may rely to make lending decisions. To 
achieve these results:
    (1) Management shall develop written appraisal policies, subject to 
formal adoption by the State savings association's board of directors, 
that it shall implement in consultation with other appropriate 
personnel. These policies shall ensure that adequate appraisals are 
obtained and proper appraisal procedures are followed consistent with 
the requirements of this subpart.
    (2) Management shall develop and adopt guidelines and institute 
procedures pertaining to the hiring of appraisers to perform appraisal 
services for the State savings association consistent with the 
requirements of this subpart. These guidelines shall set forth specific 
factors to be considered by management including, but not limited to, 
an appraiser's State certification or licensing, professional 
education, and type of experience. An appraiser's membership in 
professional appraisal organizations may be considered consistent with 
the requirements of subpart X.
    (3) Management shall review on an annual basis the performance of 
all approved appraisers used within the preceding 12-month period for 
compliance with:
    (i) The State savings association's appraisal policies and 
procedures; and
    (ii) The reasonableness of the value estimates reported.
    (d) Exemptions. The requirements of Sec.  390.443(b) through (d) 
shall not apply with respect to appraisals on nonresidential properties 
prepared on form reports approved by the FDIC and completed in 
accordance with the applicable instructional booklet.

Subpart Y--Prompt Corrective Action


Sec.  390.450  Authority, purpose, scope, other supervisory authority, 
and disclosure of capital categories.

    (a) Authority. This subpart is issued by the FDIC pursuant to 
section 38 of the Federal Deposit Insurance Act (FDI Act) as added by 
section 131 of the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (Pub. L. 102-242, 105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
    (b) Purpose. Section 38 of the FDI Act establishes a framework of 
supervisory actions for insured depository institutions that are not 
adequately capitalized. The principal purpose of this subpart is to 
define, for State savings associations, the capital measures and 
capital levels that are used for determining the supervisory actions 
authorized under section 38 of the FDI Act. This subpart also 
establishes procedures for submission and review of capital restoration 
plans and for issuance and review of directives and orders pursuant to 
section 38.
    (c) Scope. This subpart implements the provisions of section 38 of 
the FDI Act as they apply to State savings associations. Certain of 
these provisions also apply to officers, directors and employees of 
State savings associations.
    (d) Other supervisory authority. Neither section 38 nor this 
subpart in any way limits the authority of the FDIC under any other 
provision of law to take supervisory actions to address unsafe or 
unsound practices, deficient capital levels, violations of law, unsafe 
or unsound conditions, or other practices. Action under section 38 of 
the FDI Act and this subpart may be taken independently of, in 
conjunction with, or in addition to any other enforcement action 
available to the FDIC, including issuance of cease and desist orders, 
capital directives, approval or denial of applications or notices, 
assessment of civil money penalties, or any other actions authorized by 
law.
    (e) Disclosure of capital categories. The assignment of a State 
savings

[[Page 47750]]

association under this subpart within a particular capital category is 
for purposes of implementing and applying the provisions of section 38. 
Unless permitted by the FDIC or otherwise required by law, no State 
savings association may state in any advertisement or promotional 
material its capital category under this subpart or that the FDIC or 
any other federal banking agency has assigned the State savings 
association to a particular category.


Sec.  390.451  Definitions.

    For purposes of this subpart, except as modified in this section or 
unless the context otherwise requires, the terms used in this subpart 
have the same meanings as set forth in sections 38 and 3 of the FDI 
Act.
    (a)(1) Control has the same meaning assigned to it in section 2 of 
the Bank Holding Company Act (12 U.S.C. 1841), and the term 
``controlled'' shall be construed consistently with the term 
``control.''
    (2) Exclusion for fiduciary ownership. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares in a 
fiduciary capacity. Shares shall not be deemed to have been acquired in 
a fiduciary capacity if the acquiring insured depository institution or 
company has sole discretionary authority to exercise voting rights with 
respect thereto.
    (3) Exclusion for debts previously contracted. No insured 
depository institution or company controls another insured depository 
institution or company by virtue of its ownership or control of shares 
acquired in securing or collecting a debt previously contracted in good 
faith, until two years after the date of acquisition. The two-year 
period may be extended at the discretion of the appropriate federal 
banking agency for up to three one-year periods.
    (b) Controlling person means any person having control of an 
insured depository institution and any company controlled by that 
person.
    (c) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with subpart Z.
    (d) Management fee means any payment of money or provision of any 
other thing of value to a company or individual for the provision of 
management services or advice to the State savings association or 
related overhead expenses, including payments related to supervisory, 
executive, managerial or policymaking functions, other than 
compensation to an individual in the individual's capacity as an 
officer or employee of the State savings association.
    (e) Risk-weighted assets means total risk-weighted assets, as 
calculated in accordance with subpart Z.
    (f) Tangible equity means the amount of a State savings 
association's core capital as computed in subpart Z plus the amount of 
its outstanding cumulative perpetual preferred stock (including related 
surplus), minus intangible assets as defined in Sec.  390.461, except 
mortgage servicing assets to the extent they are includable under Sec.  
390.471. Non-mortgage servicing assets that have not been previously 
deducted in calculating core capital are deducted.
    (g) Tier 1 capital means the amount of core capital as defined in 
subpart Z.
    (h) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk-weighted assets, as calculated in accordance with 
subpart Z.
    (i) Total assets, for purposes of Sec.  390.453(b)(5), means 
adjusted total assets as calculated in accordance with subpart Z, minus 
intangible assets as provided in the definition of tangible equity.
    (j) Total risk-based capital ratio means the ratio of total capital 
to risk-weighted assets, as calculated in accordance with subpart Z.


Sec.  390.452  Notice of capital category.

    (a) Effective date of determination of capital category. A State 
savings association shall be deemed to be within a given capital 
category for purposes of section 38 of the FDI Act and this subpart as 
of the date the State savings association is notified of, or is deemed 
to have notice of, its capital category, pursuant to paragraph (b) of 
this section.
    (b) Notice of capital category. A State savings association shall 
be deemed to have been notified of its capital levels and its capital 
category as of the most recent date:
    (1) A Thrift Financial Report (TFR) or Consolidated Reports of 
Condition or Income (``Call Report''), as applicable, is required to be 
filed with the FDIC;
    (2) A final report of examination is delivered to the State savings 
association; or
    (3) Written notice is provided by the FDIC to the State savings 
association of its capital category for purposes of section 38 of the 
FDI Act and this subpart or that the State savings association's 
capital category has changed as provided in paragraph (c) of this 
section or Sec.  390.453(c).
    (c) Adjustments to reported capital levels and category --(1) 
Notice of adjustment by State savings association. A State savings 
association shall provide the FDIC with written notice that an 
adjustment to the State savings association's capital category may have 
occurred no later than 15 calendar days following the date that any 
material event has occurred that would cause the State savings 
association to be placed in a lower capital category from the category 
assigned to the State savings association for purposes of section 38 
and this section on the basis of the State savings association's most 
recent report of examination.
    (2) Determination by the FDIC to change capital category. After 
receiving notice pursuant to paragraph (c)(1) of this section, the FDIC 
shall determine whether to change the capital category of the State 
savings association and shall notify the State savings association of 
the FDIC's determination.


Sec.  390.453  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this subpart, 
the relevant capital measures shall be:
    (1) The total risk-based capital ratio;
    (2) The Tier 1 risk-based capital ratio; and
    (3) The leverage ratio.
    (b) Capital categories. For purposes of section 38 and this 
subpart, a State savings association shall be deemed to be:
    (1) Well capitalized if the State savings association:
    (i) Has a total risk-based capital ratio of 10.0 percent or 
greater; and
    (ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order, capital 
directive, or prompt corrective action directive issued by FDIC under 
section 8 of the FDI Act, the International Lending Supervision Act of 
1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 
1464(t)(6)), or section 38 of the FDI Act, or any regulation 
thereunder, to meet and maintain a specific capital level for any 
capital measure.
    (2) Adequately capitalized if the State savings association:
    (i) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 4.0 percent or 
greater; and
    (iii) Has:
    (A) A leverage ratio of 4.0 percent or greater; or
    (B) A leverage ratio of 3.0 percent or greater if the State savings 
association is assigned a composite rating of 1, as composite rating is 
defined in Sec.  390.101(c); and

[[Page 47751]]

    (iv) Does not meet the definition of a well capitalized State 
savings association.
    (3) Undercapitalized if the State savings association:
    (i) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (ii) Has a Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (iii) (A) Except as provided in paragraph (b)(3)(iii)(B) of this 
section, has a leverage ratio that is less than 4.0 percent; or
    (B) Has a leverage ratio that is less than 3.0 percent if the State 
savings association is assigned a composite rating of 1, as composite 
rating is defined in Sec.  390.101(c).
    (4) Significantly undercapitalized if the State savings association 
has:
    (i) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (ii) A Tier 1 risk-based capital ratio that is less than 3.0 
percent; or
    (iii) A leverage ratio that is less than 3.0 percent.
    (5) Critically undercapitalized if the State savings association 
has a ratio of tangible equity to total assets that is equal to or less 
than 2.0 percent.
    (c) Reclassification based on supervisory criteria other than 
capital. The FDIC may reclassify a well capitalized State savings 
association as adequately capitalized and may require an adequately 
capitalized or undercapitalized State savings association to comply 
with certain mandatory or discretionary supervisory actions as if the 
State savings association were in the next lower capital category 
(except that the FDIC may not reclassify a significantly 
undercapitalized State savings association as critically 
undercapitalized) (each of these actions are hereinafter referred to 
generally as ``reclassifications'') in the following circumstances:
    (1) Unsafe or unsound condition. The FDIC has determined, after 
notice and opportunity for hearing pursuant to Sec.  390.457(a), that 
the State savings association is in an unsafe or unsound condition; or
    (2) Unsafe or unsound practice. The FDIC has determined, after 
notice and an opportunity for hearing pursuant to Sec.  390.457(a) that 
the State savings association received a less-than-satisfactory rating 
for any rating category (other than in a rating category specifically 
addressing capital adequacy) under the Uniform Financial Institutions 
Rating System,\1\ or an equivalent rating under a comparable rating 
system adopted by the FDIC; and has not corrected the conditions that 
served as the basis for the less than satisfactory rating. Ratings 
under this paragraph (c)(2) refer to the most recent ratings (as 
determined either on-site or off-site by the most recent examination) 
of which the State savings association has been notified in writing.
---------------------------------------------------------------------------

    \1\ Copies are available at the address specified in Sec.  
390.108.
---------------------------------------------------------------------------


Sec.  390.454  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A State savings 
association shall file a written capital restoration plan with the 
appropriate Regional Office within 45 days of the date that the State 
savings association receives notice or is deemed to have notice that 
the State savings association is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, unless the FDIC 
notifies the State savings association in writing that the plan is to 
be filed within a different period. An adequately capitalized State 
savings association that has been required pursuant to Sec.  390.453(c) 
to comply with supervisory actions as if the State savings association 
were undercapitalized is not required to submit a capital restoration 
plan solely by virtue of the reclassification.
    (2) Additional capital restoration plans. Notwithstanding paragraph 
(a)(1) of this section, a State savings association that has already 
submitted and is operating under a capital restoration plan approved 
under section 38 and this subpart is not required to submit an 
additional capital restoration plan based on a revised calculation of 
its capital measures or a reclassification of the institution under 
Sec.  390.453(c) unless the FDIC notifies the State savings association 
that it must submit a new or revised capital plan. A State savings 
association that is notified that it must submit a new or revised 
capital restoration plan shall file the plan in writing with the 
appropriate Regional Office within 45 days of receiving such notice, 
unless the FDIC notifies the State savings association in writing that 
the plan is to be filed within a different period.
    (b) Contents of plan. All financial data submitted in connection 
with a capital restoration plan shall be prepared in accordance with 
the instructions provided on the TFR, or Consolidated Reports of 
Condition or Income (``Call Report''), as applicable, unless the FDIC 
instructs otherwise. The capital restoration plan shall include all of 
the information required to be filed under section 38(e)(2) of the FDI 
Act. A State savings association that is required to submit a capital 
restoration plan as the result of a reclassification of the State 
savings association pursuant to Sec.  390.453(c) shall include a 
description of the steps the State savings association will take to 
correct the unsafe or unsound condition or practice. No plan shall be 
accepted unless it includes any performance guarantee described in 
section 38(e)(2)(C) of the FDI Act by each company that controls the 
State savings association.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this subpart, the FDIC shall 
provide written notice to the State savings association of whether the 
plan has been approved. The FDIC may extend the time within which 
notice regarding approval of a plan shall be provided.
    (d) Disapproval of capital plan. If a capital restoration plan is 
not approved by the FDIC, the State savings association shall submit a 
revised capital restoration plan, when directed to do so, within the 
time specified by the FDIC. Upon receiving notice that its capital 
restoration plan has not been approved, any undercapitalized State 
savings association (as defined in Sec.  390.453(b)(3)) shall be 
subject to all of the provisions of section 38 and this section 
applicable to significantly undercapitalized institutions. These 
provisions shall be applicable until such time as a new or revised 
capital restoration plan submitted by the State savings association has 
been approved by the FDIC.
    (e) Failure to submit a capital restoration plan. A State savings 
association that is undercapitalized (as defined in Sec.  
390.453(b)(3)) and that fails to submit a written capital restoration 
plan within the period provided in this section shall, upon the 
expiration of that period, be subject to all of the provisions of 
section 38 and this subpart applicable to significantly 
undercapitalized institutions.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized State savings association that fails in any material 
respect to implement a capital restoration plan shall be subject to all 
of the provisions of section 38 and this subpart applicable to 
significantly undercapitalized institutions.
    (g) Amendment of capital plan. A State savings association that has 
filed an approved capital restoration plan may, after prior written 
notice to and approval by the FDIC, amend the plan to reflect a change 
in circumstance. Until such time as a proposed amendment has been 
approved, the State savings association shall implement the capital 
restoration plan

[[Page 47752]]

as approved prior to the proposed amendment.
    (h) [Reserved]
    (i) Performance guarantee by companies that control a State savings 
association--(1) Limitation on liability--(i) Amount limitation. The 
aggregate liability under the guarantee provided under section 38 and 
this subpart for all companies that control a specific State savings 
association that is required to submit a capital restoration plan under 
this subpart shall be limited to the lesser of:
    (A) An amount equal to 5.0 percent of the State savings 
association's total assets at the time the State savings association 
was notified or deemed to have notice that the State savings 
association was undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures 
of the State savings association to the levels required for the State 
savings association to be classified as adequately capitalized, as 
those capital measures and levels are defined at the time that the 
State savings association initially fails to comply with a capital 
restoration plan under this subpart.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this subpart shall expire after the FDIC notifies the 
State savings association that it has remained adequately capitalized 
for each of four consecutive calendar quarters. The expiration or 
fulfillment by a company of a guarantee of a capital restoration plan 
shall not limit the liability of the company under any guarantee 
required or provided in connection with any capital restoration plan 
filed by the same State savings association after expiration of the 
first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
State savings association shall be jointly and severally liable for the 
guarantee for such State savings association as required under section 
38 and this subpart, and the FDIC may require and collect payment of 
the full amount of that guarantee from any or all of the companies 
issuing the guarantee.
    (2) Failure to provide guarantee. In the event that a State savings 
association that is controlled by any company submits a capital 
restoration plan that does not contain the guarantee required under 
section 38(e)(2) of the FDI Act, the State savings association shall, 
upon submission of the plan, be subject to the provisions of section 38 
and this subpart are applicable to State savings associations that have 
not submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a State savings association to perform fully its guarantee of 
any capital plan shall constitute a material failure to implement the 
plan for purposes of section 38(f) of the FDI Act. Upon such failure, 
the State savings association shall be subject to the provisions of 
section 38 and this subpart that are applicable to State savings 
associations that have failed in a material respect to implement a 
capital restoration plan.


Sec.  390.455  Mandatory and discretionary supervisory actions under 
section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
State savings associations. All State savings associations are subject 
to the restrictions contained in section 38(d) of the FDI Act on 
payment of capital distributions and management fees.
    (2) Provisions applicable to undercapitalized, significantly 
undercapitalized, and critically undercapitalized State savings 
associations. Immediately upon receiving notice or being deemed to have 
notice, as provided in Sec.  390.452 or Sec.  390.454, that the State 
savings association is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the State savings 
association shall become subject to the provisions of section 38 of the 
FDI Act:
    (i) Restricting payment of capital distributions and management 
fees (section 38(d));
    (ii) Requiring that the FDIC monitor the condition of the State 
savings association (section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this subpart (section 38(e)(2));
    (iv) Restricting the growth of the State savings association's 
assets (section 38(e)(3)); and
    (v) Requiring prior approval of certain expansion proposals 
(section 38(e)(4)).
    (3) Additional provisions applicable to significantly 
undercapitalized, and critically undercapitalized State savings 
associations. In addition to the provisions of section 38 of the FDI 
Act described in paragraph (a)(2) of this section, immediately upon 
receiving notice or being deemed to have notice, as provided in Sec.  
390.452 or Sec.  390.454, that the State savings association is 
significantly undercapitalized, or critically undercapitalized, or that 
the State savings association is subject to the provisions applicable 
to institutions that are significantly undercapitalized because the 
State savings association failed to submit or implement in any material 
respect an acceptable capital restoration plan, the State savings 
association shall become subject to the provisions of section 38 of the 
FDI Act that restrict compensation paid to senior executive officers of 
the institution (section 38(f)(4)).
    (4) Additional provisions applicable to critically undercapitalized 
State savings associations. In addition to the provisions of section 38 
of the FDI Act described in paragraphs (a)(2) and (a)(3) of this 
section, immediately upon receiving notice or being deemed to have 
notice, as provided in Sec.  390.452 that the State savings association 
is critically undercapitalized, the State savings association shall 
become subject to the provisions of section 38 of the FDI Act:
    (i) Restricting the activities of the State savings association 
(section 38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the State savings 
association (section 38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the FDIC's discretion to take in connection 
with: A State savings association that is deemed to be 
undercapitalized, significantly undercapitalized or critically 
undercapitalized, or has been reclassified as undercapitalized, or 
significantly undercapitalized; an officer or director of such State 
savings association; or a company that controls such State savings 
association, the FDIC shall follow the procedures for issuing 
directives under Sec. Sec.  390.456 and 390.458 unless otherwise 
provided in section 38 or this subpart.


Sec.  390.456  Directives to take prompt corrective action.

    (a) Notice of intent to issue a directive--(1) In general. The FDIC 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized State savings association or, where 
appropriate, any company that controls the State savings association, 
prior written notice of the FDIC's intention to issue a directive 
requiring such State savings association or company to take actions or 
to follow proscriptions described in section 38 that are within the 
FDIC's discretion to require or impose under section 38 of the FDI Act, 
including sections 38(e)(5), (f)(2), (f)(3), or (f)(5). The State 
savings association shall have such time to respond to a proposed 
directive as provided by the FDIC under paragraph (c) of this section.
    (2) Immediate issuance of final directive. If the FDIC finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the FDIC may, without providing the notice prescribed

[[Page 47753]]

in paragraph (a)(1) of this section, issue a directive requiring a 
State savings association or any company that controls a State savings 
association immediately to take actions or to follow proscriptions 
described in section 38 that are within the FDIC's discretion to 
require or impose under section 38 of the FDI Act, including section 
38(e)(5), (f)(2), (f)(3), or (f)(5). A State savings association or 
company that is subject to such an immediately effective directive may 
submit a written appeal of the directive to the FDIC. Such an appeal 
must be received by the FDIC within 14 calendar days of the issuance of 
the directive, unless the FDIC permits a longer period. The FDIC shall 
consider any such appeal, if filed in a timely matter, within 60 days 
of receiving the appeal. During such period of review, the directive 
shall remain in effect unless the FDIC, in its sole discretion, stays 
the effectiveness of the directive.
    (b) Contents of notice. A notice of intention to issue a directive 
shall include:
    (1) A statement of the State savings association's capital measures 
and capital levels;
    (2) A description of the restrictions, prohibitions or affirmative 
actions that the FDIC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of such affirmative 
actions; and
    (4) The date by which the State savings association or company 
subject to the directive may file with the FDIC a written response to 
the notice.
    (c) Response to notice--(1) Time for response. A State savings 
association or company may file a written response to a notice of 
intent to issue a directive within the time period set by the FDIC. The 
date shall be at least 14 calendar days from the date of the notice 
unless the FDIC determines that a shorter period is appropriate in 
light of the financial condition of the State savings association or 
other relevant circumstances.
    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the FDIC is not an 
appropriate exercise of discretion under section 38;
    (ii) Any recommended modification of the proposed directive; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
State savings association or company regarding the proposed directive.
    (d) FDIC consideration of response. After considering the response, 
the FDIC may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the State 
savings association or company; or
    (3) Seek additional information or clarification of the response 
from the State savings association or company, or any other relevant 
source.
    (e) Failure to file response. Failure by a State savings 
association or company to file with the FDIC, within the specified time 
period, a written response to a proposed directive shall constitute a 
waiver of the opportunity to respond and shall constitute consent to 
the issuance of the directive.
    (f) Request for modification or rescission of directive. Any State 
savings association or company that is subject to a directive under 
this subpart, upon a change in circumstances, request in writing that 
the FDIC reconsider the terms of the directive, and may propose that 
the directive be rescinded or modified. Unless otherwise ordered by the 
FDIC, the directive shall continue in place while such request is 
pending before the FDIC.


Sec.  390.457  Procedures for reclassifying a State savings association 
based on criteria other than capital.

    (a) Reclassification based on unsafe or unsound condition or 
practice--(1) Issuance of notice of proposed reclassification--(i) 
Grounds for reclassification. (A) Pursuant to Sec.  390.453(c), the 
FDIC may reclassify a well capitalized State savings association as 
adequately capitalized or subject an adequately capitalized or 
undercapitalized institution to the supervisory actions applicable to 
the next lower capital category if:
    (1) The FDIC determines that the State savings association is in 
unsafe or unsound condition; or
    (2) The FDIC deems the State savings association to be engaged in 
an unsafe or unsound practice and not to have corrected the deficiency.
    (B) Any action pursuant to this paragraph (a)(1)(i) shall 
hereinafter be referred to as ``reclassification.''
    (ii) Prior notice to institution. Prior to taking action pursuant 
to Sec.  390.453(c)(1), the FDIC shall issue and serve on the State 
savings association a written notice of the FDIC's intention to 
reclassify the State savings association.
    (2) Contents of notice. A notice of intention to reclassify a State 
savings association based on unsafe or unsound condition shall include:
    (i) A statement of the State savings association's capital measures 
and capital levels and the category to which the State savings 
association would be reclassified;
    (ii) The reasons for reclassification of the State savings 
association;
    (iii) The date by which the State savings association subject to 
the notice of reclassification may file with the FDIC a written appeal 
of the proposed reclassification and a request for a hearing, which 
shall be at least 14 calendar days from the date of service of the 
notice unless the FDIC determines that a shorter period is appropriate 
in light of the financial condition of the State savings association or 
other relevant circumstances.
    (3) Response to notice of proposed reclassification. A State 
savings association may file a written response to a notice of proposed 
reclassification within the time period set by the FDIC. The response 
should include:
    (i) An explanation of why the State savings association is not in 
unsafe or unsound condition or otherwise should not be reclassified; 
and
    (ii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
State savings association or company regarding the reclassification.
    (4) Failure to file response. Failure by a State savings 
association to file, within the specified time period, a written 
response with the FDIC to a notice of proposed reclassification shall 
constitute a waiver of the opportunity to respond and shall constitute 
consent to the reclassification.
    (5) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the FDIC or its designee under this section. If the State 
savings association desires to present oral testimony or witnesses at 
the hearing, the State savings association shall include a request to 
do so with the request for an informal hearing. A request to present 
oral testimony or witnesses shall specify the names of the witnesses 
and the general nature of their expected testimony. Failure to request 
a hearing shall constitute a waiver of any right to a hearing, and 
failure to request the opportunity to present oral testimony or 
witnesses shall constitute a waiver of any right to present oral 
testimony or witnesses.
    (6) Order for informal hearing. Upon receipt of a timely written 
request that includes a request for a hearing, the FDIC shall issue an 
order directing an informal hearing to commence no later than 30 days 
after receipt of the request, unless the FDIC allows further time at

[[Page 47754]]

the request of the State savings association. The hearing shall be held 
in Washington, DC or at such other place as may be designated by the 
FDIC, before a presiding officer(s) designated by the FDIC to conduct 
the hearing.
    (7) Hearing procedures. (i) The State savings association shall 
have the right to introduce relevant written materials and to present 
oral argument at the hearing. The State savings association may 
introduce oral testimony and present witnesses only if expressly 
authorized by the FDIC or the presiding officer(s). Neither the 
provisions of the Administrative Procedure Act (5 U.S.C. 554-557) 
governing adjudications required by statute to be determined on the 
record nor subpart C apply to an informal hearing under this section 
unless the FDIC orders that such procedures shall apply.
    (ii) The informal hearing shall be recorded and a transcript 
furnished to the State savings association upon request and payment of 
the cost thereof. Witnesses need not be sworn, unless specifically 
requested by a party or the presiding officer(s). The presiding 
officer(s) may ask questions of any witness.
    (iii) The presiding officer(s) may order that the hearing be 
continued for a reasonable period (normally five business days) 
following completion of oral testimony or argument to allow additional 
written submissions to the hearing record.
    (8) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the 
FDIC on the reclassification.
    (9) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where 
no hearing was requested, the FDIC will decide whether to reclassify 
the State savings association and notify the State savings association 
of the FDIC's decision.
    (b) Request for rescission of reclassification. Any State savings 
association that has been reclassified under this section, may, upon a 
change in circumstances, request in writing that the FDIC reconsider 
the reclassification, and may propose that the reclassification be 
rescinded and that any directives issued in connection with the 
reclassification be modified, rescinded, or removed. Unless otherwise 
ordered by the FDIC, the State savings association shall remain subject 
to the reclassification and to any directives issued in connection with 
that reclassification while such request is pending before the FDIC.


Sec.  390.458  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the FDIC issues and serves a directive 
on a State savings association pursuant to Sec.  390.456 requiring the 
State savings association to dismiss any director or senior executive 
officer under section 38(f)(2)(F)(ii) of the FDI Act, the FDIC shall 
also serve a copy of the directive, or the relevant portions of the 
directive where appropriate, upon the person to be dismissed.
    (b) Response to directive--(1) Request for reinstatement. A 
director or senior executive officer who has been served with a 
directive under paragraph (a) of this section (Respondent) may file a 
written request for reinstatement. The request for reinstatement shall 
be filed within 10 calendar days of the receipt of the directive by the 
Respondent, unless further time is allowed by the FDIC at the request 
of the Respondent.
    (2) Contents of request; informal hearing. The request for 
reinstatement should include reasons why the Respondent should be 
reinstated, and may include a request for an informal hearing before 
the FDIC or its designee under this section. If the Respondent desires 
to present oral testimony or witnesses at the hearing, the Respondent 
shall include a request to do so with the request for an informal 
hearing. The request to present oral testimony or witnesses shall 
specify the names of the witnesses and the general nature of their 
expected testimony. Failure to request a hearing shall constitute a 
waiver of any right to a hearing and failure to request the opportunity 
to present oral testimony or witnesses shall constitute a waiver of any 
right or opportunity to present oral testimony or witnesses.
    (3) Effective date. Unless otherwise ordered by the FDIC, the 
dismissal shall remain in effect while a request for reinstatement is 
pending.
    (c) Order for informal hearing. Upon receipt of a timely written 
request from a Respondent for an informal hearing on the portion of a 
directive requiring a State savings association to dismiss from office 
any director or senior executive officer, the FDIC shall issue an order 
directing an informal hearing to commence no later than 30 days after 
receipt of the request, unless the Respondent requests a later date. 
The hearing shall be held in Washington, DC, or at such other place as 
may be designated by the FDIC, before a presiding officer(s) designated 
by the FDIC to conduct the hearing.
    (d) Hearing procedures. (1) A Respondent may appear at the hearing 
personally or through counsel. A Respondent shall have the right to 
introduce relevant written materials and to present oral argument. A 
Respondent may introduce oral testimony and present witnesses only if 
expressly authorized by the FDIC or the presiding officer(s). Neither 
the provisions of the Administrative Procedure Act governing 
adjudications required by statute to be determined on the record nor 
subpart C apply to an informal hearing under this section unless the 
FDIC orders that such procedures shall apply.
    (2) The informal hearing shall be recorded and a transcript 
furnished to the Respondent upon request and payment of the cost 
thereof. Witnesses need not be sworn, unless specifically requested by 
a party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (3) The presiding officer(s) may order that the hearing be 
continued for a reasonable period (normally five business days) 
following completion of oral testimony or argument to allow additional 
written submissions to the hearing record.
    (e) Standard for review. A Respondent shall bear the burden of 
demonstrating that his or her continued employment by or service with 
the State savings association would materially strengthen the State 
savings association's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the State savings association's 
capital level or failure to submit or implement a capital restoration 
plan; and
    (2) To correct the unsafe or unsound condition or unsafe or unsound 
practice, to the extent that the directive was issued as a result of 
classification of the State savings association based on supervisory 
criteria other than capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the 
FDIC concerning the Respondent's request for reinstatement with the 
State savings association.
    (g) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where 
no hearing has been requested, the FDIC shall grant or deny the request 
for reinstatement and notify the Respondent of the FDIC's decision. If 
the FDIC denies the request for reinstatement, the FDIC shall set

[[Page 47755]]

forth in the notification the reasons for the FDIC's action.


Sec.  390.459  Enforcement of directives.

    (a) Judicial remedies. Whenever a State savings association or 
company that controls a State savings association fails to comply with 
a directive issued under section 38, the FDIC may seek enforcement of 
the directive in the appropriate United States district court pursuant 
to section 8(i)(1) of the FDI Act.
    (b) Administrative remedies--(1) Failure to comply with directive. 
Pursuant to section 8(i)(2)(A) of the FDI Act, the FDIC may assess a 
civil money penalty against any State savings association or company 
that controls a State savings association that violates or otherwise 
fails to comply with any final directive issued under section 38 and 
against any institution-affiliated party who participates in such 
violation or noncompliance.
    (2) Failure to implement capital restoration plan. The failure of a 
State savings association to implement a capital restoration plan 
required under section 38, or this subpart, or the failure of a company 
having control of a State savings association to fulfill a guarantee of 
a capital restoration plan made pursuant to section 38(e)(2) of the FDI 
Act shall subject the State savings association or company to the 
assessment of civil money penalties pursuant to section 8(i)(2)(A) of 
the FDI Act.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the FDIC may seek 
enforcement of the provisions of section 38 or this subpart through any 
other judicial or administrative proceeding authorized by law.

Subpart Z--Capital


Sec.  390.460  Scope.

    (a) This subpart prescribes the minimum regulatory capital 
requirements for State savings associations. The subpart applies to 
State savings associations, except as described in paragraph (b) of 
this section.
    (b)(1) A State savings association that uses Appendix A must comply 
with the minimum qualifying criteria for internal risk measurement and 
management processes for calculating risk-based capital requirements, 
utilize the methodologies for calculating risk-based capital 
requirements, and make the required disclosures described in that 
appendix.
    (2) Sections 390.461 through 390.471 do not apply to the 
computation of risk-based capital requirements by a State savings 
association that uses Appendix A of this subpart. However, these State 
savings associations:
    (i) Must compute the components of capital under Sec.  390.465, 
subject to the modifications in sections 11 and 12 of Appendix A of 
this subpart.
    (ii) Must meet the leverage ratio requirement at Sec. Sec.  
390.462(a)(2) and 390.467 with tier 1 capital, as computed under 
sections 11 and 12 of Appendix A of this subpart.
    (iii) Must meet the tangible capital requirement described at 
Sec. Sec.  390.462(a)(3) and 390.468.
    (iv) Are subject to Sec. Sec.  390.463 (individual minimum capital 
requirement), 390.464 (capital directives); and 390.469 (consequences 
of failure to meet capital requirements).
    (v) Are subject to the reservations of authority at Sec.  390.470, 
which supplement the reservations of authority at section 1 of Appendix 
A of this subpart.


Sec.  390.461  Definitions.

    For the purposes of this subpart:
    Adjusted total assets. The term adjusted total assets means:
    (1) A State savings association's total assets as that term is 
defined in this section;
    (2) Plus
    (i) The prorated assets of any includable subsidiary in which the 
State savings association has a minority ownership interest that is not 
consolidated under generally accepted accounting principles; and
    (ii) The remaining goodwill (FSLIC Capital Contributions) resulting 
from prior regulatory accounting practices as provided in the 
definition of qualifying supervisory goodwill in this section;
    (3) Minus
    (i) Assets not included in the applicable capital standard except 
for those subject to paragraphs (3)(ii) and (3)(iii) of this 
definition;
    (ii) Investments in any includable subsidiary in which a State 
savings association has a minority interest;
    (iii) Investments in any subsidiary subject to consolidation under 
paragraph (2)(ii) of this definition; and
    (iv) For purposes of determining core capital, qualifying 
supervisory goodwill.
    Asset-backed commercial paper program. The term asset-backed 
commercial paper program (ABCP program) means a program that primarily 
issues commercial paper that has received a credit rating from an NRSRO 
and that is backed by assets or other exposures held in a bankruptcy-
remote special purpose entity. The term sponsor of an ABCP program 
means a State savings association that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the asset pools to be purchased by an ABCP program; or
    (4) Administers the ABCP program by monitoring the assets, 
arranging for debt placement, compiling monthly reports, or ensuring 
compliance with the program documents and with the program's credit and 
investment policy.
    Cash items in the process of collection. The term cash items in the 
process of collection means checks or drafts in the process of 
collection that are drawn on another depository institution, including 
a central bank, and that are payable immediately upon presentation; 
U.S. Government checks that are drawn on the United States Treasury or 
any other U.S. Government or Government-sponsored agency and that are 
payable immediately upon presentation; broker's security drafts and 
commodity or bill-of-lading drafts payable immediately upon 
presentation; and unposted debits.
    Commitment. The term commitment means any arrangement that 
obligates a State savings association to:
    (1) Purchase loans or securities;
    (2) Extend credit in the form of loans or leases, participations in 
loans or leases, overdraft facilities, revolving credit facilities, 
home equity lines of credit, eligible ABCP liquidity facilities, or 
similar transactions.
    Common stockholders' equity. The term common stockholders' equity 
means common stock, common stock surplus, retained earnings, and 
adjustments for the cumulative effect of foreign currency translation, 
less net unrealized losses on available-for-sale equity securities with 
readily determinable fair values.
    Conditional guarantee. The term conditional guarantee means a 
contingent obligation of the United States Government or its agencies, 
the validity of which to the beneficiary is dependent upon some 
affirmative action--e.g., servicing requirements--on the part of the 
beneficiary of the guarantee or a third party.
    Credit derivative. The term credit derivative means a contract that 
allows one party (the protection purchaser) to transfer the credit risk 
of an asset or off-balance sheet credit exposure to another party (the 
protection provider). The value of a credit derivative is dependent, at 
least in part, on the credit performance of a ``referenced asset.''
    Credit-enhancing interest-only strip. (1) The term credit-enhancing 
interest-

[[Page 47756]]

only strip means an on-balance sheet asset that, in form or in 
substance:
    (i) Represents the contractual right to receive some or all of the 
interest due on transferred assets; and
    (ii) Exposes the State savings association to credit risk directly 
or indirectly associated with the transferred assets that exceeds its 
pro rata share of the State savings association's claim on the assets 
whether through subordination provisions or other credit enhancement 
techniques.
    (2) The FDIC reserves the right to identify other cash flows or 
related interests as a credit-enhancing interest-only strip. In 
determining whether a particular interest cash flow functions as a 
credit-enhancing interest-only strip, the FDIC will consider the 
economic substance of the transaction.
    Credit-enhancing representations and warranties. (1) The term 
credit-enhancing representations and warranties means representations 
and warranties that are made or assumed in connection with a transfer 
of assets (including loan servicing assets) and that obligate a State 
savings association to protect investors from losses arising from 
credit risk in the assets transferred or loans serviced.
    (2) Credit-enhancing representations and warranties include 
promises to protect a party from losses resulting from the default or 
nonperformance of another party or from an insufficiency in the value 
of the collateral.
    (3) Credit-enhancing representations and warranties do not include:
    (i) Early-default clauses and similar warranties that permit the 
return of, or premium refund clauses covering, qualifying mortgage 
loans for a period not to exceed 120 days from the date of transfer. 
These warranties may cover only those loans that were originated within 
one year of the date of the transfer;
    (ii) Premium refund clauses covering assets guaranteed, in whole or 
in part, by the United States government, a United States government 
agency, or a United States government-sponsored enterprise, provided 
the premium refund clause is for a period not to exceed 120 days from 
the date of transfer; or
    (iii) Warranties that permit the return of assets in instances of 
fraud, misrepresentation or incomplete documentation.
    Depository institution. The term domestic depository institution 
means a financial institution that engages in the business of banking; 
that is recognized as a bank by the bank supervisory or monetary 
authorities of the country of its incorporation and the country of its 
principal banking operations; that receives deposits to a substantial 
extent in the regular course of business; and that has the power to 
accept demand deposits. In the United States, this definition 
encompasses all federally insured offices of commercial banks, mutual 
and stock savings banks, savings or building and loan associations 
(stock and mutual), cooperative banks, credit unions, and international 
banking facilities of domestic depository institutions. Bank holding 
companies and savings and loan holding companies are excluded from this 
definition. For the purposes of assigning risk weights, the 
differentiation between OECD depository institutions and non-OECD 
depository institutions is based on the country of incorporation. 
Claims on branches and agencies of foreign banks located in the United 
States are to be categorized on the basis of the parent bank's country 
of incorporation.
    Direct credit substitute. The term direct credit substitute means 
an arrangement in which a State savings association assumes, in form or 
in substance, credit risk associated with an on- or off-balance sheet 
asset or exposure that was not previously owned by the State savings 
association (third-party asset) and the risk assumed by the State 
savings association exceeds the pro rata share of the State savings 
association's interest in the third-party asset. If a State savings 
association has no claim on the third-party asset, then the State 
savings association's assumption of any credit risk is a direct credit 
substitute. Direct credit substitutes include:
    (1) Financial standby letters of credit that support financial 
claims on a third party that exceed a State savings association's pro 
rata share in the financial claim;
    (2) Guarantees, surety arrangements, credit derivatives, and 
similar instruments backing financial claims that exceed a State 
savings association's pro rata share in the financial claim;
    (3) Purchased subordinated interests that absorb more than their 
pro rata share of losses from the underlying assets;
    (4) Credit derivative contracts under which the State savings 
association assumes more than its pro rata share of credit risk on a 
third-party asset or exposure;
    (5) Loans or lines of credit that provide credit enhancement for 
the financial obligations of a third party;
    (6) Purchased loan servicing assets if the servicer is responsible 
for credit losses or if the servicer makes or assumes credit-enhancing 
representations and warranties with respect to the loans serviced. 
Servicer cash advances as defined in this section are not direct credit 
substitutes;
    (7) Clean-up calls on third party assets. However, clean-up calls 
that are 10 percent or less of the original pool balance and that are 
exercisable at the option of the State savings association are not 
direct credit substitutes; and
    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Eligible ABCP liquidity facility. The term eligible ABCP liquidity 
facility means a liquidity facility that supports asset-backed 
commercial paper, in form or in substance, and that meets the following 
criteria:
    (1)(i) At the time of the draw, the liquidity facility must be 
subject to an asset quality test that precludes funding against assets 
that are 90 days or more past due or in default; and
    (ii) If the assets that the liquidity facility is required to fund 
against are assets or exposures that have received a credit rating by a 
NRSRO at the time the inception of the facility, the facility can be 
used to fund only those assets or exposures that are rated investment 
grade by an NRSRO at the time of funding; or
    (2) If the assets that are funded under the liquidity facility do 
not meet the criteria described in paragraph (1) of this definition, 
the assets must be guaranteed, conditionally or unconditionally, by the 
United States Government, its agencies, or the central government of an 
OECD country.
    Eligible State savings association. (1) The term eligible State 
savings association means a State savings association with respect to 
which the FDIC has determined, on the basis of information available at 
the time, that:
    (i) The State savings association's management appears to be 
competent;
    (ii) The State savings association, as certified by its Board of 
Directors, is in substantial compliance with all applicable statutes, 
regulations, orders and written agreements and directives; and
    (iii) The State savings association's management, as certified by 
its Board of Directors, has not engaged in insider dealing, speculative 
practices, or any other activities that have or may jeopardize the 
association's safety and soundness or contributed to impairing the 
association's capital.
    (2) State savings associations, for purposes of this paragraph, 
will be deemed to be eligible unless the FDIC makes a determination 
otherwise or notifies the State savings association of

[[Page 47757]]

its intent to conduct either an informal or formal examination to 
determine eligibility and provides written notification thereof to the 
State savings association.
    Equity investments. (1) The term equity investments includes 
investments in equity securities and real property that would be 
considered an equity investment under generally accepted accounting 
principles.
    (2)(i) The term equity securities means any:
    (A) Stock, certificate of interest of participation in any profit-
sharing agreement, collateral trust certificate or subscription, 
preorganization certificate or subscription, transferable share, 
investment contract, or voting trust certificate; or
    (B) In general, any interest or instrument commonly known as an 
equity security; or
    (C) Loans having profit sharing features which generally accepted 
accounting principles would reclassify as equity securities; or
    (D) Any security immediately convertible at the option of the 
holder without payment of substantial additional consideration into 
such a security; or
    (E) Any security carrying any warrant or right to subscribe to or 
purchase such a security; or
    (F) Any certificate of interest or participation in, temporary or 
Interim certificate for, or receipt for any of the foregoing or any 
partnership interest; or
    (G) Investments in equity securities and loans or advances to and 
guarantees issued on behalf of partnerships or joint ventures in which 
a State savings association holds an interest in real property under 
generally accepted accounting principles.
    (ii) The term equity securities does not include investments in a 
subsidiary as that term is defined in this section, equity investments 
that are permissible for national banks, ownership interests in pools 
of assets that are risk-weighted in accordance with Sec.  
390.466(a)(1)(vi), or the stock of Federal Home Loan Banks or Federal 
Reserve Banks.
    (3) For purposes of this subpart, the term equity investments in 
real property does not include interests in real property that are 
primarily used or intended to be used by the State savings association, 
its subsidiaries, or its affiliates as offices or related facilities 
for the conduct of its business.
    (4) In addition, for purposes of this part, the term equity 
investments in real property does not include interests in real 
property that are acquired in satisfaction of a debt previously 
contracted in good faith or acquired in sales under judgments, decrees, 
or mortgages held by the State savings association, provided that the 
property is not intended to be held for real estate investment purposes 
but is expected to be disposed of within five years or a longer period 
approved by the FDIC.
    Exchange rate contracts. The term exchange rate contracts includes 
cross-currency interest rate swaps; forward foreign exchange rate 
contracts; currency options purchased; and any similar instrument that, 
in the opinion of the FDIC, may give rise to similar risks.
    Face amount. The term face amount means the notational principal, 
or face value, amount of an off-balance sheet item or the amortized 
cost of an on-balance sheet asset.
    Financial asset. The term financial asset means cash or other 
monetary instrument, evidence of debt, evidence of an ownership 
interest in an entity, or a contract that conveys a right to receive or 
exchange cash or another financial instrument from another party.
    Financial standby letter of credit. The term financial standby 
letter of credit means a letter of credit or similar arrangement that 
represents an irrevocable obligation to a third-party beneficiary:
    (1) To repay money borrowed by, or advanced to, or for the account 
of, a second party (the account party); or
    (2) To make payment on behalf of the account party, in the event 
that the account party fails to fulfill its obligation to the 
beneficiary.
    Includable subsidiary. The term includable subsidiary means a 
subsidiary of a State savings association that is:
    (1) Engaged solely in activities not impermissible for a national 
bank;
    (2) Engaged in activities not permissible for a national bank, but 
only if acting solely as agent for its customers and such agency 
position is clearly documented in the State savings association's 
files;
    (3) Engaged solely in mortgage-banking activities;
    (4)(i) Itself an insured depository institution or a company the 
sole investment of which is an insured depository institution, and
    (ii) Was acquired by the parent State savings association prior to 
May 1, 1989; or
    (5) A subsidiary of any Federal savings association existing as a 
Federal savings association on August 9, 1989 that
    (i) Was chartered prior to October 15, 1982, as a savings bank or a 
cooperative bank under State law, or
    (ii) Acquired its principal assets from an association that was 
chartered prior to October 15, 1982, as a savings bank or a cooperative 
bank under State law.
    Intangible assets. The term intangible assets means assets 
considered to be intangible assets under generally accepted accounting 
principles. These assets include, but are not limited to, goodwill, 
core deposit premiums, purchased credit card relationships, favorable 
leaseholds, and servicing assets (mortgage and non-mortgage). Interest-
only strips receivable and other nonsecurity financial instruments are 
not intangible assets under this definition.
    Interest-rate contracts. The term interest-rate contracts includes 
single currency interest-rate swaps; basis swaps; forward rate 
agreements; interest-rate options purchased; forward deposits accepted; 
and any other instrument that, in the opinion of the FDIC, may give 
rise to similar risks, including when-issued securities.
    Liquidity facility. The term liquidity facility means a legally 
binding commitment to provide liquidity support to asset-backed 
commercial paper by lending to, or purchasing assets from any 
structure, program or conduit in the event that funds are required to 
repay maturing asset-backed commercial paper.
    Mortgage-related securities. The term mortgage-related securities 
means any mortgage-related qualifying securities under section 3(a)(41) 
of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(41), Provided, 
That the rating requirements of that section shall not be considered 
for purposes of this definition.
    Nationally recognized statistical rating organization (NRSRO). The 
term nationally recognized statistical rating organization means an 
entity recognized by the Division of Market Regulation of the 
Securities and Exchange Commission (Commission) as a nationally 
recognized statistical rating organization for various purposes, 
including the Commission's uniform net capital requirements for brokers 
and dealers.
    OECD-based country. The term OECD-based country means a member of 
that grouping of countries that are full members of the Organization 
for Economic Cooperation and Development (OECD) plus countries that 
have concluded special lending arrangements with the International 
Monetary Fund (IMF) associated with the IMF's General Arrangements to 
Borrow. This term excludes any country that has rescheduled its 
external sovereign debt within the previous five

[[Page 47758]]

years. A rescheduling of external sovereign debt generally would 
include any renegotiation of terms arising from a country's inability 
or unwillingness to meet its external debt service obligations, but 
generally would not include renegotiations of debt in the normal course 
of business, such as a renegotiation to allow the borrower to take 
advantage of a decline in interest rates or other change in market 
conditions.
    Original maturity. The term original maturity means, with respect 
to a commitment, the earliest date after a commitment is made on which 
the commitment is scheduled to expire (i.e., it will reach its stated 
maturity and cease to be binding on either party), Provided, That 
either:
    (i) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (ii) If the commitment is subject to extension or renewal beyond 
its stated expiration date, the stated expiration date will be deemed 
the original maturity only if the extension or renewal must be based 
upon terms and conditions independently negotiated in good faith with 
the customer at the time of the extension or renewal and upon a new, 
bona fide credit analysis utilizing current information on financial 
condition and trends.
    Performance-based standby letter of credit. The term performance-
based standby letter of credit means any letter of credit, or similar 
arrangement, however named or described, which represents an 
irrevocable obligation to the beneficiary on the part of the issuer to 
make payment on account of any default by a third party in the 
performance of a nonfinancial or commercial obligation. Such letters of 
credit include arrangements backing subcontractors' and suppliers' 
performance, labor and materials contracts, and construction bids.
    Perpetual preferred stock. The term perpetual preferred stock means 
preferred stock without a fixed maturity date that cannot be redeemed 
at the option of the holder, and that has no other provisions that will 
require future redemption of the issue. For purposes of these 
instruments, preferred stock that can be redeemed at the option of the 
holder is deemed to have an ``original maturity'' of the earliest 
possible date on which it may be so redeemed. Cumulative perpetual 
preferred stock is preferred stock where the dividends accumulate from 
one period to the next. Noncumulative perpetual preferred stock is 
preferred stock where the unpaid dividends are not carried over to 
subsequent dividend periods.
    Problem institution. The term problem institution means a State 
savings association that, at the time of its acquisition, merger, 
purchase of assets or other business combination with or by another 
State savings association:
    (1) Was subject to special regulatory controls by its primary 
Federal or state regulatory authority;
    (2) Posed particular supervisory concerns to its primary Federal or 
state regulatory authority; or
    (3) Failed to meet its regulatory capital requirement immediately 
before the transaction.
    Prorated assets. The term prorated assets means the total assets 
(as determined in the most recently available GAAP report but in no 
event more than one year old) of a subsidiary (including those 
subsidiaries where the State savings association has a minority 
interest) multiplied by the State savings association's percentage of 
ownership of that subsidiary.
    Qualifying mortgage loan. (1) The term qualifying mortgage loan 
means a loan that:
    (i) Is fully secured by a first lien on a one-to four-family 
residential property;
    (ii) Is underwritten in accordance with prudent underwriting 
standards, including standards relating the ratio of the loan amount to 
the value of the property (LTV ratio). See Appendix to 12 CFR 390.265. 
A nonqualifying mortgage loan that is paid down to an appropriate LTV 
ratio (calculated using value at origination) may become a qualifying 
loan if it meets all other requirements of this definition;
    (iii) Maintains an appropriate LTV ratio based on the amortized 
principal balance of the loan; and
    (iv) Is performing and is not more than 90 days past due.
    (2) If a State savings association holds the first and junior 
lien(s) on a residential property and no other party holds an 
intervening lien, the transaction is treated as a single loan secured 
by a first lien for the purposes of determining the LTV ratio and the 
appropriate risk weight under Sec.  390.466(a).
    (3) A loan to an individual borrower for the construction of the 
borrower's home may be included as a qualifying mortgage loan.
    (4) A loan that meets the requirements of this section prior to 
modification on a permanent or trial basis under the U.S. Department of 
Treasury's Home Affordable Mortgage Program may be included as a 
qualifying mortgage loan, so long as the loan is not 90 days or more 
past due.
    Qualifying multifamily mortgage loan. (1) The term qualifying 
multifamily mortgage loan means a loan secured by a first lien on 
multifamily residential properties consisting of 5 or more dwelling 
units, provided that:
    (i) The amortization of principal and interest occurs over a period 
of not more than 30 years;
    (ii) The original minimum maturity for repayment of principal on 
the loan is not less than seven years;
    (iii) When considering the loan for placement in a lower risk-
weight category, all principal and interest payments have been made on 
a timely basis in accordance with its terms for the preceding year;
    (iv) The loan is performing and not 90 days or more past due;
    (v) The loan is made by the State savings association in accordance 
with prudent underwriting standards; and
    (vi) If the interest rate on the loan does not change over the term 
of the loan:
    (A) The current loan balance amount does not exceed 80 percent of 
the value of the property securing the loan; and
    (B) For the property's most recent fiscal year, the ratio of annual 
net operating income generated by the property (before payment of any 
debt service on the loan) to annual debt service on the loan is not 
less than 120 percent, or in the case of cooperative or other not-for-
profit housing projects, the property generates sufficient cash flows 
to provide comparable protection to the institution; or
    (vii) If the interest rate on the loan changes over the term of the 
loan:
    (A) The current loan balance amount does not exceed 75 percent of 
the value of the property securing the loan; and
    (B) For the property's most recent fiscal year, the ratio of annual 
net operating income generated by the property (before payment of any 
debt service on the loan) to annual debt service on the loan is not 
less than 115 percent, or in the case of cooperative or other not-for-
profit housing projects, the property generates sufficient cash flows 
to provide comparable protection to the institution.
    (2) The term qualifying multifamily mortgage loan also includes a 
multifamily mortgage loan that on March 18, 1994 was a first mortgage 
loan on an existing property consisting of 5-36 dwelling units with an 
initial loan-to-value ratio of not more than 80% where an average 
annual occupancy rate of 80% or more of total units had existed for at 
least one year, and continues to meet these criteria.
    (3) For purposes of paragraphs (1)(vi) and (vii) of this 
definition, the term

[[Page 47759]]

value of the property means, at origination of a loan to purchase a 
multifamily property: the lower of the purchase price or the amount of 
the initial appraisal, or if appropriate, the initial evaluation. In 
cases not involving the purchase of a multifamily loan, the value of 
the property is determined by the most current appraisal, or if 
appropriate, the most current evaluation.
    (4) In cases where a borrower refinances a loan on an existing 
property, as an alternative to paragraphs (1)(iii), (vi), and (vii) of 
this definition:
    (i) All principal and interest payments on the loan being 
refinanced have been made on a timely basis in accordance with the 
terms of that loan for the preceding year; and
    (ii) The net income on the property for the preceding year would 
support timely principal and interest payments on the new loan in 
accordance with the applicable debt service requirement.
    Qualifying residential construction loan. (1) The term qualifying 
residential construction loan, also referred to as a residential bridge 
loan, means a loan made in accordance with sound lending principles 
satisfying the following criteria:
    (i) The builder must have substantial project equity in the home 
construction project;
    (ii) The residence being constructed must be a 1-4 family residence 
sold to a home purchaser;
    (iii) The lending State savings association must obtain sufficient 
documentation from a permanent lender (which may be the construction 
lender) demonstrating that:
    (A) The home buyer intends to purchase the residence; and
    (B) Has the ability to obtain a permanent qualifying mortgage loan 
sufficient to purchase the residence;
    (iv) The home purchaser must have made a substantial earnest money 
deposit;
    (v) The construction loan must not exceed 80 percent of the sales 
price of the residence;
    (vi) The construction loan must be secured by a first lien on the 
lot, residence under construction, and other improvements;
    (vii) The lending State savings association must retain sufficient 
undisbursed loan funds throughout the construction period to ensure 
project completion;
    (viii) The builder must incur a significant percentage of direct 
costs (i.e., the actual costs of land, labor, and material) before any 
drawdown on the loan;
    (ix) If at any time during the life of the construction loan any of 
the criteria of this rule are no longer satisfied, the State savings 
association must immediately recategorize the loan at a 100 percent 
risk-weight and must accurately report the loan in the State savings 
association's next quarterly Thrift Financial Report or Consolidated 
Reports of Condition or Income (``Call Report''), as applicable;
    (x) The home purchaser must intend that the home will be owner-
occupied;
    (xi) The home purchaser(s) must be an individual(s), not a 
partnership, joint venture, trust corporation, or any other entity 
(including an entity acting as a sole proprietorship) that is 
purchasing the home(s) for speculative purposes; and
    (xii) The loan must be performing and not more than 90 days past 
due.
    (2) The documentation for each loan and home sale must be 
sufficient to demonstrate compliance with the criteria in paragraph (1) 
of this definition. The FDIC retains the discretion to determine that 
any loans not meeting sound lending principles must be placed in a 
higher risk-weight category. The FDIC also reserves the discretion to 
modify these criteria on a case-by-case basis provided that any such 
modifications are not inconsistent with the safety and soundness 
objectives of this definition.
    Qualifying securities firm. The term qualifying securities firm 
means:
    (1) A securities firm incorporated in the United States that is a 
broker-dealer that is registered with the Securities and Exchange 
Commission (SEC) and that complies with the SEC's net capital 
regulations (17 CFR 240.15c3(1)); and
    (2) A securities firm incorporated in any other OECD-based country, 
if the State savings association is able to demonstrate that the 
securities firm is subject to consolidated supervision and regulation 
(covering its subsidiaries, but not necessarily its parent 
organizations) comparable to that imposed on depository institutions in 
OECD countries. Such regulation must include risk-based capital 
requirements comparable to those imposed on depository institutions 
under the Accord on International Convergence of Capital Measurement 
and Capital Standards (1988, as amended in 1998).
    Reciprocal holdings of depository institution instruments. The term 
reciprocal holdings of depository institution instruments means cross-
holdings or other formal or informal arrangements in which two or more 
depository institutions swap, exchange, or otherwise agree to hold each 
other's capital instruments. This definition does not include holdings 
of capital instruments issued by other depository institutions that 
were taken in satisfaction of debts previously contracted, provided 
that the reporting State savings association has not held such 
instruments for more than five years or a longer period approved by the 
FDIC.
    Recourse. The term recourse means a State savings association's 
retention, in form or in substance, of any credit risk directly or 
indirectly associated with an asset it has sold (in accordance with 
generally accepted accounting principles) that exceeds a pro rata share 
of that State savings association's claim on the asset. If a State 
savings association has no claim on an asset it has sold, then the 
retention of any credit risk is recourse. A recourse obligation 
typically arises when a State savings association transfers assets in a 
sale and retains an explicit obligation to repurchase assets or to 
absorb losses due to a default on the payment of principal or interest 
or any other deficiency in the performance of the underlying obligor or 
some other party. Recourse may also exist implicitly if a State savings 
association provides credit enhancement beyond any contractual 
obligation to support assets it has sold. Recourse obligations include:
    (1) Credit-enhancing representations and warranties made on 
transferred assets;
    (2) Loan servicing assets retained pursuant to an agreement under 
which the State savings association will be responsible for losses 
associated with the loans serviced. Servicer cash advances as defined 
in this section are not recourse obligations;
    (3) Retained subordinated interests that absorb more than their pro 
rata share of losses from the underlying assets;
    (4) Assets sold under an agreement to repurchase, if the assets are 
not already included on the balance sheet;
    (5) Loan strips sold without contractual recourse where the 
maturity of the transferred portion of the loan is shorter than the 
maturity of the commitment under which the loan is drawn;
    (6) Credit derivatives that absorb more than the State savings 
association's pro rata share of losses from the transferred assets;
    (7) Clean-up calls on assets the State savings association has 
sold. However, clean-up calls that are 10 percent or less of the 
original pool balance and that are exercisable at the option of the 
State savings association are not recourse arrangements; and

[[Page 47760]]

    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Replacement cost. The term replacement cost means, with respect to 
interest rate and exchange-rate contracts, the loss that would be 
incurred in the event of a counterparty default, as measured by the net 
cost of replacing the contract at the current market value. If default 
would result in a theoretical profit, the replacement value is 
considered to be zero. This mark-to-market process must incorporate 
changes in both interest rates and counterparty credit quality.
    Residential properties. The term residential properties means 
houses, condominiums, cooperative units, and manufactured homes. This 
definition does not include boats or motor homes, even if used as a 
primary residence, or timeshare properties.
    Residual characteristics. The term residual characteristics means 
interests similar to a multi-class pay-through obligation representing 
the excess cash flow generated from mortgage collateral over the amount 
required for the issue's debt service and ongoing administrative 
expenses or interests presenting similar degrees of interest-rate/
prepayment risk and principal loss risks.
    Residual interest. (1) The term residual interest means any on-
balance sheet asset that:
    (i) Represents an interest (including a beneficial interest) 
created by a transfer that qualifies as a sale (in accordance with 
generally accepted accounting principles) of financial assets, whether 
through a securitization or otherwise; and
    (ii) Exposes a State savings association to credit risk directly or 
indirectly associated with the transferred asset that exceeds a pro 
rata share of that State savings association's claim on the asset, 
whether through subordination provisions or other credit enhancement 
techniques.
    (2) Residual interests generally include credit-enhancing interest-
only strips, spread accounts, cash collateral accounts, retained 
subordinated interests (and other forms of overcollateralization), and 
similar assets that function as a credit enhancement.
    (3) Residual interests further include those exposures that, in 
substance, cause the State savings association to retain the credit 
risk of an asset or exposure that had qualified as a residual interest 
before it was sold.
    (4) Residual interests generally do not include assets purchased 
from a third party. However, a credit-enhancing interest-only strip 
that is acquired in any asset transfer is a residual interest.
    Risk participation. The term risk participation means a 
participation in which the originating party remains liable to the 
beneficiary for the full amount of an obligation (e.g., a direct credit 
substitute), notwithstanding that another party has acquired a 
participation in that obligation.
    Risk-weighted assets. The term risk-weighted assets means the sum 
total of risk-weighted on-balance sheet assets and the total of risk-
weighted off-balance sheet credit equivalent amounts. These assets are 
calculated in accordance with Sec.  390.466.
    Securitization. The term securitization means the pooling and 
repackaging by a special purpose entity of assets or other credit 
exposures that can be sold to investors. Securitization includes 
transactions that create stratified credit risk positions whose 
performance is dependent upon an underlying pool of credit exposures, 
including loans and commitments.
    Servicer cash advance. The term servicer cash advance means funds 
that a residential mortgage servicer advances to ensure an 
uninterrupted flow of payments, including advances made to cover 
foreclosure costs or other expenses to facilitate the timely collection 
of the loan. A servicer cash advance is not a recourse obligation or a 
direct credit substitute if:
    (1) The servicer is entitled to full reimbursement and this right 
is not subordinated to other claims on the cash flows from the 
underlying asset pool; or
    (2) For any one loan, the servicer's obligation to make 
nonreimbursable advances is contractually limited to an insignificant 
amount of the outstanding principal amount on that loan.
    State. The term State means any one of the several states of the 
United States of America, the District of Columbia, Puerto Rico, and 
the territories and possessions of the United States.
    Structured financing program. The term structured financing program 
means a program where receivable interests and asset- or mortgage-
backed securities issued by multiple participants are purchased by a 
special purpose entity that repackages those exposures into securities 
that can be sold to investors. Structured financing programs allocate 
credit risk, generally, between the participants and credit enhancement 
provided to the program.
    Subsidiary. The term subsidiary means any corporation, partnership, 
business trust, joint venture, association or similar organization in 
which a State savings association directly or indirectly holds an 
ownership interest and the assets of which are consolidated with those 
of the State savings association for purposes of reporting under 
Generally Accepted Accounting Principles (GAAP). Generally, these are 
majority-owned subsidiaries.\1\ This definition does not include 
ownership interests that were taken in satisfaction of debts previously 
contracted, provided that the reporting State savings association has 
not held the interest for more than five years or a longer period 
approved by the FDIC.
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    \1\ The FDIC reserves the right to review a State savings 
association's investment in a subsidiary on a case-by-case basis. If 
the FDIC determines that such investment is more appropriately 
treated as an equity security or an ownership interest in a 
subsidiary, it will make such determination regardless of the 
percentage of ownership held by the State savings association.
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    Tier 1 capital. The term Tier 1 capital means core capital as 
computed in accordance with Sec.  390.465(a).
    Tier 2 capital. The term Tier 2 capital means supplementary capital 
as computed in accordance with Sec.  390.465.
    Total assets. The term total assets means total assets as would be 
required to be reported for consolidated entities on period-end reports 
filed with the FDIC in accordance with generally accepted accounting 
principles.
    Traded position. The term traded position means a position 
retained, assumed, or issued in connection with a securitization that 
is rated by a NRSRO, where there is a reasonable expectation that, in 
the near future, the rating will be relied upon by:
    (1) Unaffiliated investors to purchase the security; or
    (2) An unaffiliated third party to enter into a transaction 
involving the position, such as a purchase, loan, or repurchase 
agreement.
    Unconditionally cancelable. The term unconditionally cancelable 
means, with respect to a commitment-type lending arrangement, that the 
State savings association may, at any time, with or without cause, 
refuse to advance funds or extend credit under the facility. In the 
case of home equity lines of credit, the State savings association is 
deemed able to unconditionally cancel the commitment if it can, at its 
option, prohibit additional extensions of credit, reduce the line, and 
terminate the commitment to the full extent permitted by relevant 
Federal law.
    United States Government or its agencies. The term United States 
Government or its agencies means an instrumentality of the U.S. 
Government whose debt obligations are fully and explicitly guaranteed 
as to the timely payment of principal and interest by the full faith 
and credit of the United States Government.

[[Page 47761]]

    United States Government-sponsored agency or corporation. The term 
United States Government-sponsored agency or corporation means an 
agency or corporation originally established or chartered to serve 
public purposes specified by the United States Congress but whose 
obligations are not explicitly guaranteed by the full faith and credit 
of the United States Government.


Sec.  390.462  Minimum regulatory capital requirement.

    (a) To meet its regulatory capital requirement a State savings 
association must satisfy each of the following capital standards:
    (1) Risk-based capital requirement. (i) A State savings 
association's minimum risk-based capital requirement shall be an amount 
equal to 8% of its risk-weighted assets as measured under Sec.  
390.466.
    (ii) A State savings association may not use supplementary capital 
to satisfy this requirement in an amount greater than 100% of its core 
capital as defined in Sec.  390.465.
    (2) Leverage ratio requirement. (i) A State savings association's 
minimum leverage ratio requirement shall be the amount set forth in 
Sec.  390.467.
    (ii) A State savings association must satisfy this requirement with 
core capital as defined in Sec.  390.465(a).
    (3) Tangible capital requirement. (i) A State savings association's 
minimum tangible capital requirement shall be the amount set forth in 
Sec.  390.468.
    (ii) A State savings association must satisfy this requirement with 
tangible capital as defined in Sec.  390.468 in an amount not less than 
1.5% of its adjusted total assets.
    (b) [Reserved]
    (c) State savings associations are expected to maintain compliance 
with all of these standards at all times.


Sec.  390.463  Individual minimum capital requirements.

    (a) Purpose and scope. The rules and procedures specified in this 
section apply to the establishment of an individual minimum capital 
requirement for a State savings association that varies from the risk-
based capital requirement, the leverage ratio requirement or the 
tangible capital requirement that would otherwise apply to the State 
savings association under this subpart.
    (b) Appropriate considerations for establishing individual minimum 
capital requirements. Minimum capital levels higher than the risk-based 
capital requirement, the leverage ratio requirement or the tangible 
capital requirement required under this subpart may be appropriate for 
individual State savings associations. Increased individual minimum 
capital requirements may be established upon a determination that the 
State savings association's capital is or may become inadequate in view 
of its circumstances. For example, higher capital levels may be 
appropriate for:
    (1) A State savings association receiving special supervisory 
attention;
    (2) A State savings association that has or is expected to have 
losses resulting in capital inadequacy;
    (3) A State savings association that has a high degree of exposure 
to interest rate risk, prepayment risk, credit risk, concentration of 
credit risk, certain risks arising from nontraditional activities, or 
similar risks; or a high proportion of off-balance sheet risk, 
especially standby letters of credit;
    (4) A State savings association that has poor liquidity or cash 
flow;
    (5) A State savings association growing, either internally or 
through acquisitions, at such a rate that supervisory problems are 
presented that are not dealt with adequately by other FDIC regulations 
or other guidance;
    (6) A State savings association that may be adversely affected by 
the activities or condition of its holding company, affiliate(s), 
subsidiaries, or other persons or State savings associations with which 
it has significant business relationships, including concentrations of 
credit;
    (7) A State savings association with a portfolio reflecting weak 
credit quality or a significant likelihood of financial loss, or that 
has loans in nonperforming status or on which borrowers fail to comply 
with repayment terms;
    (8) A State savings association that has inadequate underwriting 
policies, standards, or procedures for its loans and investments; or
    (9) A State savings association that has a record of operational 
losses that exceeds the average of other, similarly situated State 
savings associations; has management deficiencies, including failure to 
adequately monitor and control financial and operating risks, 
particularly the risks presented by concentrations of credit and 
nontraditional activities; or has a poor record of supervisory 
compliance.
    (c) Standards for determination of appropriate individual minimum 
capital requirements. The appropriate minimum capital level for an 
individual State savings association cannot be determined solely 
through the application of a rigid mathematical formula or wholly 
objective criteria. The decision is necessarily based, in part, on 
subjective judgment grounded in agency expertise. The factors to be 
considered in the determination will vary in each case and may include, 
for example:
    (1) The conditions or circumstances leading to the determination 
that a higher minimum capital requirement is appropriate or necessary 
for the State savings association;
    (2) The exigency of those circumstances or potential problems;
    (3) The overall condition, management strength, and future 
prospects of the State savings association and, if applicable, its 
holding company, subsidiaries, and affiliates;
    (4) The State savings association's liquidity, capital and other 
indicators of financial stability, particularly as compared with those 
of similarly situated State savings associations; and
    (5) The policies and practices of the State savings association's 
directors, officers, and senior management as well as the internal 
control and internal audit systems for implementation of such adopted 
policies and practices.
    (d) Procedures--(1) Notification. When the FDIC determines that a 
minimum capital requirement is necessary or appropriate for a 
particular State savings association, it shall notify the State savings 
association in writing of its proposed individual minimum capital 
requirement; the schedule for compliance with the new requirement; and 
the specific causes for determining that the higher individual minimum 
capital requirement is necessary or appropriate for the State savings 
association. The FDIC shall forward the notifying letter to the 
appropriate state supervisor if a state-chartered savings association 
would be subject to an individual minimum capital requirement.
    (2) Response. (i) The response shall include any information that 
the State savings association wants the FDIC to consider in deciding 
whether to establish or to amend an individual minimum capital 
requirement for the State savings association, what the individual 
capital requirement should be, and, if applicable, what compliance 
schedule is appropriate for achieving the required capital level. The 
responses of the State savings association and appropriate state 
supervisor must be in writing and must be delivered to the FDIC within 
30 days after the date on which the notification was received. Such 
response must be filed in accordance with Sec. Sec.  390.106 and 
390.108. The FDIC may extend the time period for good cause. The time 
period for response by the insured State savings association may be 
shortened for good cause:

[[Page 47762]]

    (A) When, in the opinion of the FDIC, the condition of the State 
savings association so requires, and the FDIC informs the State savings 
association of the shortened response period in the notice;
    (B) With the consent of the State savings association; or
    (C) When the State savings association already has advised the FDIC 
that it cannot or will not achieve its applicable minimum capital 
requirement.
    (ii) Failure to respond within 30 days, or such other time period 
as may be specified by the FDIC, may constitute a waiver of any 
objections to the proposed individual minimum capital requirement or to 
the schedule for complying with it, unless the FDIC has provided an 
extension of the response period for good cause.
    (3) Decision. After expiration of the response period, the FDIC 
shall decide whether or not it believes the proposed individual minimum 
capital requirement should be established for the State savings 
association, or whether that proposed requirement should be adopted in 
modified form, based on a review of the State savings association's 
response and other relevant information. The FDIC's decision shall 
address comments received within the response period from the State 
savings association and the appropriate state supervisor and shall 
state the level of capital required, the schedule for compliance with 
this requirement, and any specific remedial action the State savings 
association could take to eliminate the need for continued 
applicability of the individual minimum capital requirement. The FDIC 
shall provide the State savings association and the appropriate state 
supervisor with a written decision on the individual minimum capital 
requirement, addressing the substantive comments made by the State 
savings association and setting forth the decision and the basis for 
that decision. Upon receipt of this decision by the State savings 
association, the individual minimum capital requirement becomes 
effective and binding upon the State savings association. This decision 
represents final agency action.
    (4) Failure to comply. Failure to satisfy an individual minimum 
capital requirement, or to meet any required incremental additions to 
capital under a schedule for compliance with such an individual minimum 
capital requirement, shall constitute a legal basis for issuing a 
capital directive pursuant to Sec.  390.464.
    (5) Change in circumstances. If, after a decision is made under 
paragraph (d)(3) of this section, there is a change in the 
circumstances affecting the State savings association's capital 
adequacy or its ability to reach its required minimum capital level by 
the specified date, FDIC may amend the individual minimum capital 
requirement or the State savings association's schedule for such 
compliance. The FDIC may decline to consider a State savings 
association's request for such changes that are not based on a 
significant change in circumstances or that are repetitive or 
frivolous. Pending the FDIC's reexamination of the original decision, 
that original decision and any compliance schedule established 
thereunder shall continue in full force and effect.


Sec.  390.464  Capital directives.

    (a) Issuance of a Capital Directive--(1) Purpose. In addition to 
any other action authorized by law, the FDIC, may issue a capital 
directive to a State savings association that does not have an amount 
of capital satisfying its minimum capital requirement. Issuance of such 
a capital directive may be based on a State savings association's 
noncompliance with the risk-based capital requirement, the leverage 
ratio requirement, the tangible capital requirement, or individual 
minimum capital requirement established under this subpart, by a 
written agreement under 12 U.S.C. 1464(s), or as a condition for 
approval of an application. A capital directive may order a State 
savings association to:
    (i) Achieve its minimum capital requirement by a specified date;
    (ii) Adhere to the compliance schedule for achieving its individual 
minimum capital requirement;
    (iii) Submit and adhere to a capital plan acceptable to the FDIC 
describing the means and a time schedule by which the State savings 
association shall reach its required capital level;
    (iv) Take other action, including but not limited to, reducing the 
State savings association's assets or its rate of liability growth, or 
imposing restrictions on the State savings association's payment of 
dividends, in order to cause the State savings association to reach its 
required capital level;
    (v) Take any action authorized under Sec.  390.469(e); or
    (vi) Take a combination of any of these actions.
    (2) Enforcement of capital directive. A capital directive issued 
under this section, including a plan submitted pursuant to a capital 
directive, is enforceable under 12 U.S.C. 1818 in the same manner and 
to the same extent as an effective and outstanding cease and desist 
order which has become final under 12 U.S.C. 1818.
    (3) Notice of intent to issue capital directive. The FDIC will 
determine whether to initiate the process of issuing a capital 
directive. The FDIC will notify a State savings association in writing 
by registered mail of its intention to issue a capital directive. Since 
a state-chartered savings association is involved, the FDIC will also 
notify and solicit comment from the appropriate state supervisor. The 
notice will state:
    (i) The reasons for issuance of the capital directive and
    (ii) The proposed contents of the capital directive.
    (3) Response to notice of intent. (i) A State savings association 
may respond to the notice of intent by submitting its own compliance 
plan, or may propose an alternative plan. The response should also 
include any information that the State savings association wishes the 
FDIC to consider in deciding whether to issue a capital directive. The 
appropriate state supervisor may also submit a response. These 
responses must be in writing and be delivered within 30 days after the 
receipt of the notices. Such responses must be filed in accordance with 
Sec. Sec.  390.106 and 390.108. In its discretion, the FDIC may extend 
the time period for the response for good cause. The FDIC may, for good 
cause, shorten the 30-day time period for response by the insured State 
savings association:
    (A) When, in the opinion of the FDIC, the condition of the State 
savings association so requires, and the FDIC informs the State savings 
association of the shortened response period in the notice;
    (B) With the consent of the State savings association; or
    (C) When the State savings association already has advised the FDIC 
that it cannot or will not achieve its applicable minimum capital 
requirement.
    (ii) Failure to respond within 30 days of receipt, or such other 
time period as may be specified by the FDIC, may constitute a waiver of 
any objections to the capital directive unless the FDIC grants an 
extension of the time period for good cause.
    (4) Decision. After the closing date of the State savings 
association's response period, or upon receipt of the State savings 
association's response, if earlier, the FDIC shall consider the State 
savings association's response and may seek additional information or 
clarification of the response. Thereafter, the FDIC will determine 
whether or not to issue a capital directive and, if one is to be 
issued, whether it should be as originally proposed or in modified 
form.

[[Page 47763]]

    (5) Service and effectiveness. (i) Upon issuance, a capital 
directive will be served upon the State savings association. It will 
include or be accompanied by a statement of reasons for its issuance 
and shall address the responses received during the response period.
    (ii) A capital directive shall become effective upon the expiration 
of 30 days after service upon the State savings association, unless the 
FDIC determines that a shorter effective period is necessary either on 
account of the public interest or in order to achieve the capital 
directive's purpose. If the State savings association has consented to 
issuance of the capital directive, it may become effective immediately. 
A capital directive shall remain in effect and enforceable unless, and 
then only to the extent that, it is stayed, modified, or terminated by 
the FDIC.
    (6) Change in circumstances. Upon a change in circumstances, a 
State savings association may submit a request to the FDIC to 
reconsider the terms of the capital directive or consider changes in 
the State savings association's capital plan issued under a directive 
for the State savings association to achieve its minimum capital 
requirement. If the FDIC believes such a change is warranted, the FDIC 
may modify the State savings association's capital requirement or may 
refuse to make such modification if it determines that there are not 
significant changes in circumstances. Pending a decision on 
reconsideration, the capital directive and capital plan shall continue 
in full force and effect.
    (b) Relation to other administrative actions. The FDIC--
    (1) May consider a State savings association's progress in adhering 
to any capital plan required under this section whenever such State 
savings association or any affiliate of such State savings association 
seeks approval for any proposal that would have the effect of diverting 
earnings, diminishing capital, or otherwise impeding such State savings 
association's progress in meeting its minimum capital requirement; and
    (2) May disapprove any proposal referred to in paragraph (b)(1) of 
this section if the FDIC determines that the proposal would adversely 
affect the ability of the State savings association on a current or pro 
forma basis to satisfy its capital requirement.


Sec.  390.465  Components of capital.

    (a) Core Capital. (1) The following elements,\1\ less the amount of 
any deductions pursuant to paragraph (a)(2) of this section, comprise a 
State savings association' s core capital:
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    \1\ Stock issues where the dividend is reset periodically based 
on current market conditions and the State savings association's 
current credit rating, including but not limited to, auction rate, 
money market or remarketable preferred stock, are assigned to 
supplementary capital, regardless of cumulative or noncumulative 
characteristics.
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    (i) Common stockholders' equity (including retained earnings);
    (ii) Noncumulative perpetual preferred stock and related surplus; 
\2\
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    \2\ Stock issued by subsidiaries that may not be counted by the 
parent State savings association on the Thrift Financial Report or 
Consolidated Reports of Condition or Income (``Call Report''), as 
applicable, likewise shall not be considered in calculating capital. 
For example, preferred stock issued by a State savings association 
or a subsidiary that is, in effect, collateralized by assets of the 
State savings association or one of its subsidiaries shall not be 
included in capital. Similarly, common stock with mandatorily 
redeemable provisions is not includable in core capital.
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    (iii) Minority interests in the equity accounts of the subsidiaries 
that are fully consolidated.
    (iv) Nonwithdrawable accounts and pledged deposits of mutual State 
savings associations (excluding any treasury shares held by the State 
savings association) meeting the criteria of regulations and memoranda 
of the FDIC to the extent that such accounts or deposits have no fixed 
maturity date, cannot be withdrawn at the option of the accountholder, 
and do not earn interest that carries over to subsequent periods;
    (2) Deductions from core capital. (i) Intangible assets, as defined 
in Sec.  390.461, are deducted from assets and capital in computing 
core capital, except as otherwise provided by Sec.  390.471.
    (ii) Servicing assets that are not includable in core capital 
pursuant to Sec.  390.471 are deducted from assets and capital in 
computing core capital.
    (iii) Credit-enhancing interest-only strips that are not includable 
in core capital under Sec.  390.471 are deducted from assets and 
capital in computing core capital.
    (iv) Investments, both equity and debt, in subsidiaries that are 
not includable subsidiaries (including those subsidiaries where the 
State savings association has a minority ownership interest) are 
deducted from assets and, thus core capital except as provided in 
paragraphs (a)(2)(v) and (vi) of this section.
    (v) If a State savings association has any investments (both debt 
and equity) in one or more subsidiaries engaged in any activity that 
would not fall within the scope of activities in which includable 
subsidiaries may engage, it must deduct such investments from assets 
and, thus, core capital in accordance with this paragraph (a)(2)(v). 
The State savings association must first deduct from assets and, thus, 
core capital the amount by which any investments in such 
subsidiary(ies) exceed the amount of such investments held by the State 
savings association as of April 12, 1989. Next the State savings 
association must deduct from assets and, thus, core capital, the State 
savings association's investments in and extensions of credit to the 
subsidiary on the date as of which the State savings association's 
capital is being determined.
    (vi) If a State savings association holds a subsidiary (either 
directly or through a subsidiary) that is itself a domestic depository 
institution, the FDIC may, in its sole discretion upon determining that 
the amount of core capital that would be required would be higher if 
the assets and liabilities of such subsidiary were consolidated with 
those of the parent State savings association than the amount that 
would be required if the parent State savings association's investment 
were deducted pursuant to paragraphs (a)(2)(iv) and (v) of this 
section, consolidate the assets and liabilities of that subsidiary with 
those of the parent State savings association in calculating the 
capital adequacy of the parent State savings association, regardless of 
whether the subsidiary would otherwise be an includable subsidiary as 
defined in Sec.  390.461.
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec.  390.471 are deducted from assets and capital in 
computing core capital.
    (b) Supplementary Capital. Supplementary capital counts towards a 
State savings association's total capital up to a maximum of 100% of 
the State savings association's core capital. The following elements 
comprise a State savings association's supplementary capital:
    (1) Permanent Capital Instruments. (i) Cumulative perpetual 
preferred stock and other perpetual preferred stock \3\

[[Page 47764]]

issued pursuant to regulations and memoranda of the FDIC;
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    \3\ Preferred stock issued by subsidiaries that may not be 
counted by the parent State savings association on the Thrift 
Financial Report or Consolidated Reports of Condition or Income 
(``Call Report''), as applicable, likewise may not be considered in 
calculating capital. Preferred stock issued by a State savings 
association or a subsidiary that is, in effect, collateralized by 
assets of the State savings association or one of its subsidiaries 
may not be included in capital.
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    (ii) [Reserved]
    (iii) Nonwithdrawable accounts and pledged deposits (excluding any 
treasury shares held by the State savings association) meeting the 
criteria of 12 CFR 390.307 to the extent that such instruments are not 
included in core capital under paragraph (a) of this section;
    (iv) Perpetual subordinated debt issued pursuant to regulations and 
memoranda of the FDIC; and
    (v) Mandatory convertible subordinated debt (capital notes) issued 
pursuant to regulations and memoranda of the FDIC.
    (2) Maturing Capital Instruments. (i) Subordinated debt issued 
pursuant to regulations and memoranda of the FDIC;
    (ii) Intermediate-term preferred stock issued pursuant to 
regulations and memoranda of the FDIC and any related surplus:
    (iii) Mandatory convertible subordinated debt (commitment notes) 
issued pursuant to regulations and memoranda of the FDIC; and
    (iv) Mandatorily redeemable preferred stock that was issued before 
July 23, 1985 or issued pursuant to regulations and memoranda of the 
Office of Thrift Supervision and approved in writing by the FSLIC for 
inclusion as regulatory capital before or after issuance.
    (3) Transition rules for maturing capital instruments--A State 
savings association may include maturing capital instruments issued on 
or before November 7, 1989, in supplementary capital in accordance with 
the treatment set forth in paragraph (b)(3)(ii) of this section.
    (A) At the beginning of each of the last five years of the life of 
the maturing capital instrument, the amount that is eligible to be 
included as supplementary capital is reduced by 20% of the original 
amount of that instrument (net of redemptions).\4\
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    \4\ Capital instruments may be redeemed prior to maturity and 
without the prior approval of the FDIC, as long as the instruments 
are redeemed with the proceeds of, or replaced by, a like amount of 
a similar or higher quality capital instrument. However, the FDIC 
must be notified in writing at least 30 days in advance of such 
redemption.
---------------------------------------------------------------------------

    (B) Only the aggregate amount of maturing capital instruments that 
mature in any one year during the seven years immediately prior to an 
instrument's maturity that does not exceed 20% of an institution's 
capital will qualify as supplementary capital.
    (C) Once a State savings association selects either paragraph 
(b)(3)(ii)(A) or (B) of this section for the issuance of a maturing 
capital instrument, it must continue to elect that option for all 
subsequent issuances of maturing capital instruments for as long as 
there is a balance outstanding of such post-November 7, 1989, 
issuances. Only when such issuances have all been repaid and the State 
savings association has no balance of such issuances outstanding may 
the State savings association elect the other option.
    (4) Allowance for loan and lease losses. Allowance for loan and 
lease losses established under FDIC regulations and memoranda to a 
maximum of 1.25 percent of risk-weighted assets.\5\
---------------------------------------------------------------------------

    \5\ The amount of the allowance for loan and lease losses that 
may be included in capital is based on a percentage of risk-weighted 
assets. The gross sum of risk-weighted assets used in this 
calculation includes all risk-weighted assets, with the exception of 
assets required to be deducted under Sec.  390.466 in establishing 
risk-weighted assets. ``Excess reserves for loan and lease losses'' 
is defined as assets required to be deducted from capital under 
Sec.  390.465(a)(2). A State savings association may deduct excess 
reserves for loan and lease losses from the gross sum of risk-
weighted assets (i.e., risk-weighted assets including allowance for 
loan and lease losses) in computing the denominator of the risk-
based capital standard. Thus, a State savings association will 
exclude the same amount of excess allowance for loan and lease 
losses from both the numerator and the denominator of the risk-based 
capital ratio.
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    (5) Unrealized gains on equity securities. Up to 45 percent of 
unrealized gains on available-for-sale equity securities with readily 
determinable fair values may be included in supplementary capital. 
Unrealized gains are unrealized holding gains, net of unrealized 
holding losses, before income taxes, calculated as the amount, if any, 
by which fair value exceeds historical cost. The FDIC may disallow such 
inclusion in the calculation of supplementary capital if the FDIC 
determines that the equity securities are not prudently valued.
    (c) Total capital. (1) A State savings association's total capital 
equals the sum of its core capital and supplementary capital (to the 
extent that such supplementary capital does not exceed 100% of its core 
capital).
    (2) The following assets, in addition to assets required to be 
deducted elsewhere in calculating core capital, are deducted from 
assets for purposes of determining total capital:
    (i) Reciprocal holdings of depository institution capital 
instruments; and
    (ii) All equity investments.


Sec.  390.466  Risk-based capital credit risk-weight categories.

    (a) Risk-weighted assets. Risk-weighted assets equal risk-weighted 
on-balance sheet assets (computed under paragraph (a)(1) of this 
section), plus risk-weighted off-balance sheet activities (computed 
under paragraph (a)(2) of this section), plus risk-weighted recourse 
obligations, direct credit substitutes, and certain other positions 
(computed under paragraph (b) of this section). Assets not included 
(i.e., deducted from capital) for purposes of calculating capital under 
Sec.  390.465 are not included in calculating risk-weighted assets.
    (1) On-balance sheet assets. Except as provided in paragraph (b) of 
this section, risk-weighted on-balance sheet assets are computed by 
multiplying the on-balance sheet asset amounts times the appropriate 
risk-weight categories. The risk-weight categories are:
    (i) Zero percent Risk Weight (Category 1). (A) Cash, including 
domestic and foreign currency owned and held in all offices of a State 
savings association or in transit. Any foreign currency held by a State 
savings association must be converted into U.S. dollar equivalents;
    (B) Securities issued by and other direct claims on the U.S. 
Government or its agencies (to the extent such securities or claims are 
unconditionally backed by the full faith and credit of the United 
States Government) or the central government of an OECD country;
    (C) Notes and obligations issued by either the Federal Savings and 
Loan Insurance Corporation or the Federal Deposit Insurance Corporation 
and backed by the full faith and credit of the United States 
Government;
    (D) Deposit reserves at, claims on, and balances due from Federal 
Reserve Banks;
    (E) The book value of paid-in Federal Reserve Bank stock;
    (F) That portion of assets that is fully covered against capital 
loss and/or yield maintenance agreements by the Federal Savings and 
Loan Insurance Corporation or any successor agency;
    (G) That portion of assets directly and unconditionally guaranteed 
by the United States Government or its agencies, or the central 
government of an OECD country;
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm that are collateralized by cash on deposit in the State savings 
association or by securities issued or guaranteed by the United States 
Government or its agencies, or the central government of an OECD 
country. To be eligible for this risk weight, the State savings 
association must maintain a positive margin of collateral on the claim 
on a daily basis, taking into account any change in a State savings 
association's exposure to the obligor or counterparty under the claim 
in relation to the market value of the collateral held in support of 
the claim.

[[Page 47765]]

    (ii) 20 percent Risk Weight (Category 2). (A) Cash items in the 
process of collection;
    (B) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by the United States 
government or its agencies, or the central government of an OECD 
country;
    (C) That portion of assets conditionally guaranteed by the United 
States Government or its agencies, or the central government of an OECD 
country;
    (D) Securities (not including equity securities) issued by and 
other claims on the U.S. Government or its agencies which are not 
backed by the full faith and credit of the United States Government;
    (E) Securities (not including equity securities) issued by, or 
other direct claims on, United States Government-sponsored agencies;
    (F) That portion of assets guaranteed by United States Government-
sponsored agencies;
    (G) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by United States Government-
sponsored agencies;
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm, subject to the following conditions:
    (1) A qualifying securities firm must have a long-term issuer 
credit rating, or a rating on at least one issue of long-term unsecured 
debt, from a NRSRO. The rating must be in one of the three highest 
investment grade categories used by the NRSRO. If two or more NRSROs 
assign ratings to the qualifying securities firm, the State savings 
association must use the lowest rating to determine whether the rating 
requirement of this paragraph is met. A qualifying securities firm may 
rely on the rating of its parent consolidated company, if the parent 
consolidated company guarantees the claim.
    (2) A collateralized claim on a qualifying securities firm does not 
have to comply with the rating requirements under paragraph 
(a)(1)(ii)(H)(1) of this section if the claim arises under a contract 
that:
    (i) Is a reverse repurchase/repurchase agreement or securities 
lending/borrowing transaction executed using standard industry 
documentation;
    (ii) Is collateralized by debt or equity securities that are liquid 
and readily marketable;
    (iii) Is marked-to-market daily;
    (iv) Is subject to a daily margin maintenance requirement under the 
standard industry documentation; and
    (v) Can be liquidated, terminated or accelerated immediately in 
bankruptcy or similar proceeding, and the security or collateral 
agreement will not be stayed or avoided under applicable law of the 
relevant jurisdiction. For example, a claim is exempt from the 
automatic stay in bankruptcy in the United States if it arises under a 
securities contract or a repurchase agreement subject to section 555 or 
559 of the Bankruptcy Code (11 U.S.C. 555 or 559), a qualified 
financial contract under section 11(e)(8) of the Federal Deposit 
Insurance Act (12 U.S.C. 1821(e)(8)), or a netting contract between or 
among financial institutions under sections 401-407 of the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401-
4407), or Regulation EE (12 CFR part 231).
    (3) If the securities firm uses the claim to satisfy its applicable 
capital requirements, the claim is not eligible for a risk weight under 
this paragraph (a)(1)(ii)(H);
    (I) Claims representing general obligations of any public-sector 
entity in an OECD country, and that portion of any claims guaranteed by 
any such public-sector entity;
    (J) Bonds issued by the Financing Corporation or the Resolution 
Funding Corporation;
    (K) Balances due from and all claims on domestic depository 
institutions. This includes demand deposits and other transaction 
accounts, savings deposits and time certificates of deposit, federal 
funds sold, loans to other depository institutions, including 
overdrafts and term federal funds, holdings of the State savings 
association's own discounted acceptances for which the account party is 
a depository institution, holdings of bankers acceptances of other 
institutions and securities issued by depository institutions, except 
those that qualify as capital;
    (L) The book value of paid-in Federal Home Loan Bank stock;
    (M) Deposit reserves at, claims on and balances due from the 
Federal Home Loan Banks;
    (N) Assets collateralized by cash held in a segregated deposit 
account by the reporting State savings association;
    (O) Claims on, or guaranteed by, official multilateral lending 
institutions or regional development institutions in which the United 
States Government is a shareholder or contributing member; \1\
---------------------------------------------------------------------------

    \1\ These institutions include, but are not limited to, the 
International Bank for Reconstruction and Development (World Bank), 
the Inter-American Development Bank, the Asian Development Bank, the 
African Development Bank, the European Investments Bank, the 
International Monetary Fund and the Bank for International 
Settlements.
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    (P) That portion of assets collateralized by the current market 
value of securities issued by official multilateral lending 
institutions or regional development institutions in which the United 
States Government is a shareholder or contributing member;
    (Q) All claims on depository institutions incorporated in an OECD 
country, and all assets backed by the full faith and credit of 
depository institutions incorporated in an OECD country. This includes 
the credit equivalent amount of participations in commitments and 
standby letters of credit sold to other depository institutions 
incorporated in an OECD country, but only if the originating bank 
remains liable to the customer or beneficiary for the full amount of 
the commitment or standby letter of credit. Also included in this 
category are the credit equivalent amounts of risk participations in 
bankers' acceptances conveyed to other depository institutions 
incorporated in an OECD country. However, bank-issued securities that 
qualify as capital of the issuing bank are not included in this risk 
category;
    (R) Claims on, or guaranteed by depository institutions other than 
the central bank, incorporated in a non-OECD country, with a remaining 
maturity of one year or less;
    (S) That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the State 
savings association has local currency liabilities in that country.
    (iii) 50 percent Risk Weight (Category 3). (A) Revenue bonds issued 
by any public-sector entity in an OECD country for which the underlying 
obligor is a public-sector entity, but which are repayable solely from 
the revenues generated from the project financed through the issuance 
of the obligations;
    (B) Qualifying mortgage loans and qualifying multifamily mortgage 
loans;
    (C) Privately-issued mortgage-backed securities (i.e., those that 
do not carry the guarantee of a government or government sponsored 
entity) representing an interest in qualifying mortgage loans or 
qualifying multifamily mortgage loans. If the security is backed by 
qualifying multifamily mortgage loans, the State savings association 
must receive timely payments of principal and interest in accordance 
with the terms of the security. Payments will generally be considered 
timely if they are not 30 days past due;
    (D) Qualifying residential construction loans as defined in Sec.  
390.461.

[[Page 47766]]

    (iv) 100 percent Risk Weight (Category 4). All assets not specified 
above or deducted from calculations of capital pursuant to Sec.  
390.465, including, but not limited to:
    (A) Consumer loans;
    (B) Commercial loans;
    (C) Home equity loans;
    (D) Non-qualifying mortgage loans;
    (E) Non-qualifying multifamily mortgage loans;
    (F) Residential construction loans;
    (G) Land loans;
    (H) Nonresidential construction loans;
    (I) Obligations issued by any state or any political subdivision 
thereof for the benefit of a private party or enterprise where that 
party or enterprise, rather than the issuing state or political 
subdivision, is responsible for the timely payment of principal and 
interest on the obligations, e.g., industrial development bonds;
    (J) Debt securities not otherwise described in this section;
    (K) Investments in fixed assets and premises;
    (L) Certain nonsecurity financial instruments including servicing 
assets and intangible assets includable in core capital under Sec.  
390.471;
    (M) Interest-only strips receivable, other than credit-enhancing 
interest-only strips;
    (N)-(O) [Reserved]
    (P) That portion of equity investments not deducted pursuant to 
Sec.  390.465;
    (Q) The prorated assets of subsidiaries (except for the assets of 
includable, fully consolidated subsidiaries) to the extent such assets 
are included in adjusted total assets;
    (R) All repossessed assets or assets that are more than 90 days 
past due; and
    (S) Equity investments that the FDIC determines have the same risk 
characteristics as foreclosed real estate by the State savings 
association;
    (T) Equity investments permissible for a national bank.
    (v) [Reserved]
    (vi) Indirect ownership interests in pools of assets. Assets 
representing an indirect holding of a pool of assets, e.g., mutual 
funds, are assigned to risk-weight categories under this section based 
upon the risk weight that would be assigned to the assets in the 
portfolio of the pool. An investment in shares of a mutual fund whose 
portfolio consists primarily of various securities or money market 
instruments that, if held separately, would be assigned to different 
risk-weight categories, generally is assigned to the risk-weight 
category appropriate to the highest risk-weighted asset that the fund 
is permitted to hold in accordance with the investment objectives set 
forth in its prospectus. The State savings association may, at its 
option, assign the investment on a pro rata basis to different risk-
weight categories according to the investment limits in its prospectus. 
In no case will an investment in shares in any such fund be assigned to 
a total risk weight less than 20 percent. If the State savings 
association chooses to assign investments on a pro rata basis, and the 
sum of the investment limits of assets in the fund's prospectus exceeds 
100 percent, the State savings association must assign the highest pro 
rata amounts of its total investment to the higher risk categories. If, 
in order to maintain a necessary degree of short-term liquidity, a fund 
is permitted to hold an insignificant amount of its assets in short-
term, highly liquid securities of superior credit quality that do not 
qualify for a preferential risk weight, such securities will generally 
be disregarded in determining the risk-weight category into which the 
State savings association's holding in the overall fund should be 
assigned. The prudent use of hedging instruments by a mutual fund to 
reduce the risk of its assets will not increase the risk weighting of 
the mutual fund investment. For example, the use of hedging instruments 
by a mutual fund to reduce the interest rate risk of its government 
bond portfolio will not increase the risk weight of that fund above the 
20 percent category. Nonetheless, if the fund engages in any activities 
that appear speculative in nature or has any other characteristics that 
are inconsistent with the preferential risk-weighting assigned to the 
fund's assets, holdings in the fund will be assigned to the 100 percent 
risk-weight category.
    (2) Off-balance sheet items. Except as provided in paragraph (b) of 
this section, risk-weighted off-balance sheet items are determined by 
the following two-step process. First, the face amount of the off-
balance sheet item must be multiplied by the appropriate credit 
conversion factor listed in this paragraph (a)(2). This calculation 
translates the face amount of an off-balance sheet exposure into an on-
balance sheet credit-equivalent amount. Second, the credit-equivalent 
amount must be assigned to the appropriate risk-weight category using 
the criteria regarding obligors, guarantors, and collateral listed in 
paragraph (a)(1) of this section, provided that the maximum risk weight 
assigned to the credit-equivalent amount of an interest-rate or 
exchange-rate contract is 50 percent. The following are the credit 
conversion factors and the off-balance sheet items to which they apply.
    (i) 100 percent credit conversion factor (Group A).
    (A) [Reserved]
    (B) Risk participations purchased in bankers' acceptances;
    (C) [Reserved]
    (D) Forward agreements and other contingent obligations with a 
certain draw down, e.g., legally binding agreements to purchase assets 
at a specified future date. On the date an institution enters into a 
forward agreement or similar obligation, it should convert the 
principal amount of the assets to be purchased at 100 percent as of 
that date and then assign this amount to the risk-weight category 
appropriate to the obligor or guarantor of the item, or the nature of 
the collateral;
    (E) Indemnification of customers whose securities the State savings 
association has lent as agent. If the customer is not indemnified 
against loss by the State savings association, the transaction is 
excluded from the risk-based capital calculation. When a State savings 
association lends its own securities, the transaction is treated as a 
loan. When a State savings association lends its own securities or is 
acting as agent, agrees to indemnify a customer, the transaction is 
assigned to the risk weight appropriate to the obligor or collateral 
that is delivered to the lending or indemnifying institution or to an 
independent custodian acting on their behalf.
    (ii) 50 percent credit conversion factor (Group B). (A) 
Transaction-related contingencies, including, among other things, 
performance bonds and performance-based standby letters of credit 
related to a particular transaction;
    (B) Unused portions of commitments (including home equity lines of 
credit and eligible ABCP liquidity facilities) with an original 
maturity exceeding one year except those listed in paragraph (a)(2)(v) 
of this section. For eligible ABCP liquidity facilities, the resulting 
credit equivalent amount is assigned to the risk category appropriate 
to the assets to be funded by the liquidity facility based on the 
assets or the obligor, after considering any collateral or guarantees, 
or external credit ratings under paragraph (b)(3) of this section, if 
applicable; and
    (C) Revolving underwriting facilities, note issuance facilities, 
and similar arrangements pursuant to which the State savings 
association's customer can issue short-term debt obligations in its own 
name, but for which the State savings association has a legally binding 
commitment to either:

[[Page 47767]]

    (1) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (2) Advance funds to its customer, if the obligations cannot be 
sold.
    (iii) 20 percent credit conversion factor (Group C). Trade-related 
contingencies, i.e., short-term, self-liquidating instruments used to 
finance the movement of goods and collateralized by the underlying 
shipment. A commercial letter of credit is an example of such an 
instrument.
    (iv) 10 percent credit conversion factor (Group D). Unused portions 
of eligible ABCP liquidity facilities with an original maturity of one 
year or less. The resulting credit equivalent amount is assigned to the 
risk category appropriate to the assets to be funded by the liquidity 
facility based on the assets or the obligor, after considering any 
collateral or guarantees, or external credit ratings under paragraph 
(b)(3) of this section, if applicable;
    (v) Zero percent credit conversion factor (Group E). (A) Unused 
portions of commitments with an original maturity of one year or less, 
except for eligible ABCP liquidity facilities;
    (B) Unused commitments with an original maturity greater than one 
year, if they are unconditionally cancelable at any time at the option 
of the State savings association and the State savings association has 
the contractual right to make, and in fact does make, either:
    (1) A separate credit decision based upon the borrower's current 
financial condition before each drawing under the lending facility; or
    (2) An annual (or more frequent) credit review based upon the 
borrower's current financial condition to determine whether or not the 
lending facility should be continued; and
    (C) The unused portion of retail credit card lines or other related 
plans that are unconditionally cancelable by the State savings 
association in accordance with applicable law.
    (vi) Off-balance sheet contracts; interest-rate and foreign 
exchange rate contracts (Group F)--(A) Calculation of credit equivalent 
amounts. The credit equivalent amount of an off-balance sheet interest 
rate or foreign exchange rate contract that is not subject to a 
qualifying bilateral netting contract in accordance with paragraph 
(a)(2)(vi)(B) of this section is equal to the sum of the current credit 
exposure, i.e., the replacement cost of the contract, and the potential 
future credit exposure of the off-balance sheet rate contract. The 
calculation of credit equivalent amounts is measured in U.S. dollars, 
regardless of the currency or currencies specified in the off-balance 
sheet rate contract.
    (1) Current credit exposure. The current credit exposure of an off-
balance sheet rate contract is determined by the mark-to-market value 
of the contract. If the mark-to-market value is positive, then the 
current credit exposure equals that mark-to-market value. If the mark-
to-market value is zero or negative, then the current exposure is zero. 
In determining its current credit exposure for multiple off-balance 
sheet rate contracts executed with a single counterparty, a State 
savings association may net positive and negative mark-to-market values 
of off-balance sheet rate contracts if subject to a bilateral netting 
contract as provided in paragraph (a)(2)(vi)(B) of this section.
    (2) Potential future credit exposure. The potential future credit 
exposure of an off-balance sheet rate contract, including a contract 
with a negative mark-to-market value, is estimated by multiplying the 
notional principal \2\ by a credit conversion factor. State savings 
associations, subject to examiner review, should use the effective 
rather than the apparent or stated notional amount in this calculation. 
The conversion factors are: \3\
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    \2\ For purposes of calculating potential future credit exposure 
for foreign exchange contracts and other similar contracts, in which 
notional principal is equivalent to cash flows, total notional 
principal is defined as the net receipts to each party falling due 
on each value date in each currency.
    \3\ No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon 
two floating rate indices, so-called floating/floating or basis 
swaps; the credit equivalent amount is measured solely on the basis 
of the current credit exposure.

------------------------------------------------------------------------
                                                               Foreign
                                                  Interest     exchange
              Remaining maturity                    rate         rate
                                                 contracts    contracts
                                                 (percents)   (percents)
------------------------------------------------------------------------
One year or less..............................          0.0          1.0
Over one year.................................          0.5          5.0
------------------------------------------------------------------------

    (B) Off-balance sheet rate contracts subject to bilateral netting 
contracts. In determining its current credit exposure for multiple off-
balance sheet rate contracts executed with a single counterparty, a 
State savings association may net off-balance sheet rate contracts 
subject to a bilateral netting contract by offsetting positive and 
negative mark-to-market values, provided that:
    (1) The bilateral netting contract is in writing;
    (2) The bilateral netting contract creates a single legal 
obligation for all individual off-balance sheet rate contracts covered 
by the bilateral netting contract. In effect, the bilateral netting 
contract provides that the State savings association has a single claim 
or obligation either to receive or pay only the net amount of the sum 
of the positive and negative mark-to-market values on the individual 
off-balance sheet rate contracts covered by the bilateral netting 
contract. The single legal obligation for the net amount is operative 
in the event that a counterparty, or a counterparty to whom the 
bilateral netting contract has been validly assigned, fails to perform 
due to any of the following events: default, insolvency, bankruptcy, or 
other similar circumstances;
    (3) The State savings association obtains a written and reasoned 
legal opinion(s) representing, with a high degree of certainty, that in 
the event of a legal challenge, including one resulting from default, 
insolvency, bankruptcy or similar circumstances, the relevant court and 
administrative authorities would find the State savings association's 
exposure to be the net amount under:
    (i) The law of the jurisdiction in which the counterparty is 
chartered or the equivalent location in the case of noncorporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (ii) The law that governs the individual off-balance sheet rate 
contracts covered by the bilateral netting contract; and
    (iii) The law that governs the bilateral netting contract;
    (4) The State savings association establishes and maintains 
procedures to monitor possible changes in relevant law and to ensure 
that the bilateral netting contract continues to satisfy the 
requirements of this section; and
    (5) The State savings association maintains in its files 
documentation adequate to support the netting of an off-balance sheet 
rate contract.\4\
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    \4\ By netting individual off-balance sheet rate contracts for 
the purpose of calculating its credit equivalent amount, a State 
savings association represents that documentation adequate to 
support the netting of an off-balance sheet rate contract is in the 
State savings association's files and available for inspection by 
the FDIC. Upon determination by the FDIC that a State savings 
association's files are inadequate or that a bilateral netting 
contract may not be legally enforceable under any one of the bodies 
of law described in paragraphs (a)(2)(vi)(B)(3) (i) through (iii) of 
this section, the underlying individual off-balance sheet rate 
contracts may not be netted for the purposes of this section.
---------------------------------------------------------------------------

    (C) Walkaway clause. A bilateral netting contract that contains a 
walkaway clause is not eligible for netting for purposes of calculating 
the current credit exposure amount. The term ``walkaway clause'' means 
a provision in a bilateral netting contract

[[Page 47768]]

that permits a nondefaulting counterparty to make a lower payment than 
it would make otherwise under the bilateral netting contract, or no 
payment at all, to a defaulter or the estate of a defaulter, even if 
the defaulter or the estate of the defaulter is a net creditor under 
the bilateral netting contract.
    (D) Risk weighting. Once the State savings association determines 
the credit equivalent amount for an off-balance sheet rate contract, 
that amount is assigned to the risk-weight category appropriate to the 
counterparty, or, if relevant, to the nature of any collateral or 
guarantee. Collateral held against a netting contract is not recognized 
for capital purposes unless it is legally available for all contracts 
included in the netting contract. However, the maximum risk weight for 
the credit equivalent amount of such off-balance sheet rate contracts 
is 50 percent.
    (E) Exceptions. The following off-balance sheet rate contracts are 
not subject to the above calculation, and therefore, are not part of 
the denominator of a State savings association's risk-based capital 
ratio:
    (1) A foreign exchange rate contract with an original maturity of 
14 calendar days or less; and
    (2) Any interest rate or foreign exchange rate contract that is 
traded on an exchange requiring the daily payment of any variations in 
the market value of the contract.
    (3) If a State savings association has multiple overlapping 
exposures (such as a program-wide credit enhancement and a liquidity 
facility) to an ABCP program that is not consolidated for risk-based 
capital purposes, the State savings association is not required to hold 
duplicative risk-based capital under this subpart against the 
overlapping position. Instead, the State savings association should 
apply to the overlapping position the applicable risk-based capital 
treatment that results in the highest capital charge.
    (b) Recourse obligations, direct credit substitutes, and certain 
other positions--(1) In general. Except as otherwise permitted in this 
paragraph (b), to determine the risk-weighted asset amount for a 
recourse obligation or a direct credit substitute (but not a residual 
interest):
    (i) Multiply the full amount of the credit-enhanced assets for 
which the State savings association directly or indirectly retains or 
assumes credit risk by a 100 percent conversion factor. (For a direct 
credit substitute that is an on-balance sheet asset (e.g., a purchased 
subordinated security), a State savings association must use the amount 
of the direct credit substitute and the full amount of the asset its 
supports, i.e., all the more senior positions in the structure); and
    (ii) Assign this credit equivalent amount to the risk-weight 
category appropriate to the obligor in the underlying transaction, 
after considering any associated guarantees or collateral. Paragraph 
(a)(1) of this section lists the risk-weight categories.
    (2) Residual interests. Except as otherwise permitted under this 
paragraph (b), a State savings association must maintain risk-based 
capital for residual interests as follows:
    (i) Credit-enhancing interest-only strips. After applying the 
concentration limit under Sec.  390.471(e)(2), a state saving 
association must maintain risk-based capital for a credit-enhancing 
interest-only strip equal to the remaining amount of the strip (net of 
any existing associated deferred tax liability), even if the amount of 
risk-based capital that must be maintained exceeds the full risk-based 
capital requirement for the assets transferred. Transactions that, in 
substance, result in the retention of credit risk associated with a 
transferred credit-enhancing interest-only strip are treated as if the 
strip was retained by the State savings association and was not 
transferred.
    (ii) Other residual interests. A state saving association must 
maintain risk-based capital for a residual interest (excluding a 
credit-enhancing interest-only strip) equal to the face amount of the 
residual interest (net of any existing associated deferred tax 
liability), even if the amount of risk-based capital that must be 
maintained exceeds the full risk-based capital requirement for the 
assets transferred. Transactions that, in substance, result in the 
retention of credit risk associated with a transferred residual 
interest are treated as if the residual interest was retained by the 
State savings association and was not transferred.
    (iii) Residual interests and other recourse obligations. Where a 
State savings association holds a residual interest (including a 
credit-enhancing interest-only strip) and another recourse obligation 
in connection with the same transfer of assets, the State savings 
association must maintain risk-based capital equal to the greater of:
    (A) The risk-based capital requirement for the residual interest as 
calculated under paragraph (b)(2)(i) and (ii) of this section; or
    (B) The full risk-based capital requirement for the assets 
transferred, subject to the low-level recourse rules under paragraph 
(b)(7) of this section.
    (3) Ratings-based approach--(i) Calculation. A State savings 
association may calculate the risk-weighted asset amount for an 
eligible position described in paragraph (b)(3)(ii) of this section by 
multiplying the face amount of the position by the appropriate risk 
weight determined in accordance with Table A or B of this section.

    Note: Stripped mortgage-backed securities or other similar 
instruments, such as interest-only and principal-only strips, that 
are not credit enhancing must be assigned to the 100% risk-weight 
category.


                        Table A to Sec.   390.466
------------------------------------------------------------------------
                                                            Risk weight
                Long term rating category                  (in percent)
------------------------------------------------------------------------
Highest or second highest investment grade..............              20
Third highest investment grade..........................              50
Lowest investment grade.................................             100
One category below investment grade.....................             200
------------------------------------------------------------------------


                        Table B to Sec.   390.466
------------------------------------------------------------------------
                                                            Risk weight
               Short term rating category                  (in percent)
------------------------------------------------------------------------
Highest investment grade................................              20
Second highest investment grade.........................              50
Lowest investment grade.................................             100
------------------------------------------------------------------------

    (ii) Eligibility--(A) Traded positions. A position is eligible for 
the treatment described in paragraph (b)(3)(i) of this section, if:
    (1) The position is a recourse obligation, direct credit 
substitute, residual interest, or asset- or mortgage-backed security 
and is not a credit-enhancing interest-only strip;
    (2) The position is a traded position; and
    (3) The NRSRO has rated a long term position as one grade below 
investment grade or better or a short term position as investment 
grade. If two or more NRSROs assign ratings to a traded position, the 
State savings association must use the lowest rating to determine the 
appropriate risk-weight category under paragraph (b)(3)(i) of this 
section.
    (B) Non-traded positions. A position that is not traded is eligible 
for the treatment described in paragraph (b)(3)(i) of this section if:
    (1) The position is a recourse obligation, direct credit 
substitute, residual interest, or asset- or mortgage-backed security 
extended in connection with a securitization and is not a credit-
enhancing interest-only strip;
    (2) More than one NRSRO rate the position;
    (3) All of the NRSROs that provide a rating rate a long term 
position as one

[[Page 47769]]

grade below investment grade or better or a short term position as 
investment grade. If the NRSROs assign different ratings to the 
position, the State savings association must use the lowest rating to 
determine the appropriate risk-weight category under paragraph 
(b)(3)(i) of this section;
    (4) The NRSROs base their ratings on the same criteria that they 
use to rate securities that are traded positions; and
    (5) The ratings are publicly available.
    (C) Unrated senior positions. If a recourse obligation, direct 
credit substitute, residual interest, or asset- or mortgage-backed 
security is not rated by an NRSRO, but is senior or preferred in all 
features to a traded position (including collateralization and 
maturity), the State savings association may risk-weight the face 
amount of the senior position under paragraph (b)(3)(i) of this 
section, based on the rating of the traded position, subject to 
supervisory guidance. The State savings association must satisfy FDIC 
that this treatment is appropriate. This paragraph (b)(3)(i)(C) applies 
only if the traded position provides substantive credit support to the 
unrated position until the unrated position matures.
    (4) Certain positions that are not rated by NRSROs--(i) 
Calculation. A State savings association may calculate the risk-
weighted asset amount for eligible position described in paragraph 
(b)(4)(ii) of this section based on the State savings association's 
determination of the credit rating of the position. To risk-weight the 
asset, the State savings association must multiply the face amount of 
the position by the appropriate risk weight determined in accordance 
with Table C of this section.

                        Table C to Sec.   390.466
------------------------------------------------------------------------
                                                            Risk weight
                     Rating category                       (in percent)
------------------------------------------------------------------------
Investment grade........................................             100
One category below investment grade.....................             200
------------------------------------------------------------------------

    (ii) Eligibility. A position extended in connection with a 
securitization is eligible for the treatment described in paragraph 
(b)(4)(i) of this section if it is not rated by an NRSRO, is not a 
residual interest, and meets one of the three alternative standards 
described in paragraph (b)(4)(ii)(A), (B), or (C) of this section:
    (A) Position rated internally. A direct credit substitute, but not 
a purchased credit-enhancing interest-only strip, is eligible for the 
treatment described under paragraph (b)(4)(i) of this section, if the 
position is assumed in connection with an asset-backed commercial paper 
program sponsored by the State savings association. Before it may rely 
on an internal credit risk rating system, the state saving association 
must demonstrate to FDIC's satisfaction that the system is adequate. 
Adequate internal credit risk rating systems typically:
    (1) Are an integral part of the State savings association's risk 
management system that explicitly incorporates the full range of risks 
arising from the State savings association's participation in 
securitization activities;
    (2) Link internal credit ratings to measurable outcomes, such as 
the probability that the position will experience any loss, the 
expected loss on the position in the event of default, and the degree 
of variance in losses in the event of default on that position;
    (3) Separately consider the risk associated with the underlying 
loans or borrowers, and the risk associated with the structure of the 
particular securitization transaction;
    (4) Identify gradations of risk among ``pass'' assets and other 
risk positions;
    (5) Use clear, explicit criteria to classify assets into each 
internal rating grade, including subjective factors;
    (6) Employ independent credit risk management or loan review 
personnel to assign or review the credit risk ratings;
    (7) Include an internal audit procedure to periodically verify that 
internal risk ratings are assigned in accordance with the State savings 
association's established criteria;
    (8) Monitor the performance of the assigned internal credit risk 
ratings over time to determine the appropriateness of the initial 
credit risk rating assignment, and adjust individual credit risk 
ratings or the overall internal credit risk rating system, as needed; 
and
    (9) Make credit risk rating assumptions that are consistent with, 
or more conservative than, the credit risk rating assumptions and 
methodologies of NRSROs.
    (B) Program ratings. (1) A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for the treatment 
described in paragraph (b)(4)(i) of this section, if the position is 
retained or assumed in connection with a structured finance program and 
an NRSRO has reviewed the terms of the program and stated a rating for 
positions associated with the program. If the program has options for 
different combinations of assets, standards, internal or external 
credit enhancements and other relevant factors, and the NRSRO specifies 
ranges of rating categories to them, the State savings association may 
apply the rating category applicable to the option that corresponds to 
the State savings association's position.
    (2) To rely on a program rating, the State savings association must 
demonstrate to FDIC's satisfaction that the credit risk rating assigned 
to the program meets the same standards generally used by NRSROs for 
rating traded positions. The State savings association must also 
demonstrate to FDIC's satisfaction that the criteria underlying the 
assignments for the program are satisfied by the particular position.
    (3) If a State savings association participates in a securitization 
sponsored by another party, FDIC may authorize the State savings 
association to use this approach based on a program rating obtained by 
the sponsor of the program.
    (C) Computer program. A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for the treatment 
described in paragraph (b)(4)(i) of this section, if the position is 
extended in connection with a structured financing program and the 
State savings association uses an acceptable credit assessment computer 
program to determine the rating of the position. An NRSRO must have 
developed the computer program and the State savings association must 
demonstrate to FDIC's satisfaction that the ratings under the program 
correspond credibly and reliably with the rating of traded positions.
    (5) Alternative capital computation for small business 
obligations--(i) Definitions. For the purposes of this paragraph 
(b)(5):
    (A) Qualified State savings association means a State savings 
association that:
    (1) Is well capitalized as defined in Sec.  390.453 without 
applying the capital treatment described in this paragraph (b)(5); or
    (2) Is adequately capitalized as defined in Sec.  390.453 without 
applying the capital treatment described in this paragraph (b)(5) and 
has received written permission from the FDIC to apply that capital 
treatment.
    (B) Small business means a business that meets the criteria for a 
small business concern established by the Small Business Administration 
in 13 CFR 121 pursuant to 15 U.S.C. 632.
    (ii) Capital requirement. Notwithstanding any other provision of 
this paragraph (b), with respect to a transfer of a small business loan 
or lease of personal property with recourse that is a sale under 
generally accepted accounting principles, a qualified State

[[Page 47770]]

savings association may elect to include only the amount of its 
recourse in its risk-weighted assets. To qualify for this election, the 
State savings association must establish and maintain a reserve under 
generally accepted accounting principles sufficient to meet the 
reasonable estimated liability of the State savings association under 
the recourse obligation.
    (iii) Aggregate amount of recourse. The total outstanding amount of 
recourse retained by a qualified State savings association with respect 
to transfers of small business loans and leases of personal property 
and included in the risk-weighted assets of the State savings 
association as described in paragraph (b)(5)(ii) of this section, may 
not exceed 15 percent of the association's total capital computed under 
Sec.  390.465(c).
    (iv) State savings association that ceases to be a qualified State 
savings association or that exceeds aggregate limits. If a State 
savings association ceases to be a qualified State savings association 
or exceeds the aggregate limit described in paragraph (b)(5)(iii) of 
this section, the State savings association may continue to apply the 
capital treatment described in paragraph (b)(5)(ii) of this section to 
transfers of small business loans and leases of personal property that 
occurred when the association was a qualified State savings association 
and did not exceed the limit.
    (v) Prompt corrective action not affected. (A) A State savings 
association shall compute its capital without regard to this paragraph 
(b)(5) of this section for purposes of prompt corrective action (12 
U.S.C. 1831o), unless the State savings association is adequately or 
well capitalized without applying the capital treatment described in 
this paragraph (b)(5) and would be well capitalized after applying that 
capital treatment.
    (B) A State savings association shall compute its capital 
requirement without regard to this paragraph (b)(5) for the purposes of 
applying 12 U.S.C. 1831o(g), regardless of the association's capital 
level.
    (6) Risk participations and syndications of direct credit 
substitutes. A State savings association must calculate the risk-
weighted asset amount for a risk participation in, or syndication of, a 
direct credit substitute as follows:
    (i) If a State savings association conveys a risk participation in 
a direct credit substitute, the State savings association must convert 
the full amount of the assets that are supported by the direct credit 
substitute to a credit equivalent amount using a 100 percent conversion 
factor. The State savings association must assign the pro rata share of 
the credit equivalent amount that was conveyed through the risk 
participation to the lower of: The risk-weight category appropriate to 
the obligor in the underlying transaction, after considering any 
associated guarantees or collateral; or the risk-weight category 
appropriate to the party acquiring the participation. The State savings 
association must assign the pro rata share of the credit equivalent 
amount that was not participated out to the risk-weight category 
appropriate to the obligor, after considering any associated guarantees 
or collateral.
    (ii) If a State savings association acquires a risk participation 
in a direct credit substitute, the State savings association must 
multiply its pro rata share of the direct credit substitute by the full 
amount of the assets that are supported by the direct credit 
substitute, and convert this amount to a credit equivalent amount using 
a 100 percent conversion factor. The State savings association must 
assign the resulting credit equivalent amount to the risk-weight 
category appropriate to the obligor in the underlying transaction, 
after considering any associated guarantees or collateral.
    (iii) If the State savings association holds a direct credit 
substitute in the form of a syndication where each State savings 
association or other participant is obligated only for its pro rata 
share of the risk and there is no recourse to the originating party, 
the State savings association must calculate the credit equivalent 
amount by multiplying only its pro rata share of the assets supported 
by the direct credit substitute by a 100 percent conversion factor. The 
State savings association must assign the resulting credit equivalent 
amount to the risk-weight category appropriate to the obligor in the 
underlying transaction after considering any associated guarantees or 
collateral.
    (7) Limitations on risk-based capital requirements--(i) Low-level 
exposure rule. If the maximum contractual exposure to loss retained or 
assumed by a State savings association is less than the effective risk-
based capital requirement, as determined in accordance with this 
paragraph (b), for the assets supported by the State savings 
association's position, the risk-based capital requirement is limited 
to the State savings association's contractual exposure less any 
recourse liability account established in accordance with generally 
accepted accounting principles. This limitation does not apply when a 
State savings association provides credit enhancement beyond any 
contractual obligation to support assets it has sold.
    (ii) Mortgage-related securities or participation certificates 
retained in a mortgage loan swap. If a State savings association holds 
a mortgage-related security or a participation certificate as a result 
of a mortgage loan swap with recourse, it must hold risk-based capital 
to support the recourse obligation and that percentage of the mortgage-
related security or participation certificate that is not covered by 
the recourse obligation. The total amount of risk-based capital 
required for the security (or certificate) and the recourse obligation 
is limited to the risk-based capital requirement for the underlying 
loans, calculated as if the State savings association continued to hold 
these loans as an on-balance sheet asset.
    (iii) Related on-balance sheet assets. If an asset is included in 
the calculation of the risk-based capital requirement under this 
paragraph (b) and also appears as an asset on the State savings 
association's balance sheet, the State savings association must risk-
weight the asset only under this paragraph (b), except in the case of 
loan servicing assets and similar arrangements with embedded recourse 
obligations or direct credit substitutes. In that case, the State 
savings association must separately risk-weight the on-balance sheet 
servicing asset and the related recourse obligations and direct credit 
substitutes under this section, and incorporate these amounts into the 
risk-based capital calculation.
    (8) Obligations of subsidiaries. If a State savings association 
retains a recourse obligation or assumes a direct credit substitute on 
the obligation of a subsidiary that is not an includable subsidiary, 
and the recourse obligation or direct credit substitute is an equity or 
debt investment in that subsidiary under generally accepted accounting 
principles, the face amount of the recourse obligation or direct credit 
substitute is deducted for capital under Sec. Sec.  390.465(a)(2) and 
390.468(c). All other recourse obligations and direct credit 
substitutes retained or assumed by a State savings association on the 
obligations of an entity in which the State savings association has an 
equity investment are risk-weighted in accordance with this paragraph 
(b).


Sec.  390.467  Leverage ratio.

    (a) The minimum leverage capital requirement for a State savings 
association assigned a composite rating of 1, as defined in this 
subpart, shall consist of a ratio of core capital to adjusted total 
assets of 3 percent. These generally are strong State savings

[[Page 47771]]

associations that are not anticipating or experiencing significant 
growth and have well-diversified risks, including no undue interest 
rate risk exposure, excellent asset quality, high liquidity, and good 
earnings.
    (b) For all State savings associations not meeting the conditions 
set forth in paragraph (a) of this section, the minimum leverage 
capital requirement shall consist of a ratio of core capital to 
adjusted total assets of 4 percent. Higher capital ratios may be 
required if warranted by the particular circumstances or risk profiles 
of an individual State savings association. In all cases, State savings 
associations should hold capital commensurate with the level and nature 
of all risks, including the volume and severity of problem loans, to 
which they are exposed.


Sec.  390.468  Tangible capital requirement.

    (a) State savings associations shall have and maintain tangible 
capital in an amount equal to at least 1.5% of adjusted total assets.
    (b) The following elements, less the amount of any deductions 
pursuant to paragraph (c) of this section, comprise a State savings 
association's tangible capital:
    (1) Common stockholders' equity (including retained earnings);
    (2) Noncumulative perpetual preferred stock and related earnings;
    (3) Nonwithdrawable accounts and pledged deposits that would 
qualify as core capital under Sec.  390.465; and
    (4) Minority interests in the equity accounts of fully consolidated 
subsidiaries.
    (c) Deductions from tangible capital. In calculating tangible 
capital, a State savings association must deduct from assets, and, 
thus, from capital:
    (1) Intangible assets (as defined in Sec.  390.461) except for 
mortgage servicing assets to the extent they are includable in tangible 
capital under Sec.  390.471, and credit enhancing interest-only strips 
and deferred tax assets not includable in tangible capital under Sec.  
390.471.
    (2) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the State 
savings association has a minority ownership interest), except as 
provided in paragraphs (c)(3) and (4) of this section.
    (3) If a State savings association has any investments (both debt 
and equity) in one or more subsidiary(ies) engaged as of April 12, 
1989, and continuing to be engaged in any activity that would not fall 
within the scope of activities in which includable subsidiaries may 
engage, it must deduct such investments from assets and, thus, tangible 
capital in accordance with this paragraph (c)(3). The State savings 
association must first deduct from assets and, thus, capital the amount 
by which any investments in such a subsidiary(ies) exceed the amount of 
such investments held by the State savings association as of April 12, 
1989. Next, the State savings association must deduct from assets and, 
thus, tangible capital the lesser of:
    (i) The State savings association's investments in and extensions 
of credit to the subsidiary as of April 12, 1989; or
    (ii) The State savings association's investments in and extensions 
of credit to the subsidiary on the date as of which the State savings 
association's capital is being determined.
    (4) If a State savings association holds a subsidiary (either 
directly or through a subsidiary) that is itself a domestic depository 
institution the FDIC may, in its sole discretion upon determining that 
the amount of tangible capital that would be required would be higher 
if the assets and liabilities of such subsidiary were consolidated with 
those of the parent State savings association than the amount that 
would be required if the parent State savings association's investment 
were deducted pursuant to paragraphs (c)(2) and (3) of this section, 
consolidate the assets and liabilities of that subsidiary with those of 
the parent State savings association in calculating the capital 
adequacy of the parent State savings association, regardless of whether 
the subsidiary would otherwise be an includable subsidiary as defined 
in Sec.  390.461.


Sec.  390.469  Consequences of failure to meet capital requirements.

    (a) Capital plans. (1) [Reserved]
    (2) The FDIC shall require any State savings association not in 
compliance with capital standards to submit a capital plan that:
    (i) Addresses the State savings association's need for increased 
capital;
    (ii) Describes the manner in which the State savings association 
will increase capital so as to achieve compliance with capital 
standards;
    (iii) Specifies types and levels of activities in which the State 
savings association will engage;
    (iv) Requires any increase in assets to be accompanied by increase 
in tangible capital not less in percentage amount than the leverage 
limit then applicable;
    (v) Requires any increase in assets to be accompanied by an 
increase in capital not less in percentage amount than required under 
the risk-based capital standard then applicable; and
    (vi) Is acceptable to the FDIC.
    (3) To be acceptable to the FDIC under this section, a plan must, 
in addition to satisfying all of the requirements set forth in 
paragraphs (a)(2)(i) through (v) of this section, contain a 
certification that while the plan is under review by the FDIC, the 
State savings association will not, without the prior written approval 
of the appropriate Regional Director:
    (i) Grow beyond net interest credited;
    (ii) Make any capital distributions; or
    (iii) Act inconsistently with any other limitations on activities 
established by statute, regulation or by the FDIC in supervisory 
guidance for State savings associations not meeting capital standards.
    (4) If the plan submitted to the FDIC under paragraph (a)(2) of 
this section is not approved by the FDIC, the State savings association 
shall immediately and without any further action, be subject to the 
following restrictions:
    (i) It may not increase its assets beyond the amount held on the 
day it receives written notice of the FDIC's disapproval of the plan; 
and
    (ii) It must comply with any other restrictions or limitations set 
forth in the written notice of the FDIC's disapproval of the plan.
    (b) On or after January 1, 1991, the FDIC shall:
    (1) Prohibit any asset growth by any State savings association not 
in compliance with capital standards, except as provided in paragraph 
(d) of this section; and
    (2) Require any State savings association not in compliance with 
capital standards to comply with a capital directive issued by the FDIC 
which may include the restrictions contained in paragraph (e) of this 
section and any other restrictions the FDIC determines appropriate.
    (c) A State savings association that wishes to obtain an exemption 
from the sanctions provided in paragraph (b)(2) of this section must 
file a request for exemption with the appropriate Regional Director. 
Such request must include a capital plan that satisfies the 
requirements of paragraph (a)(2) of this section.
    (d) The FDIC may permit any State savings association that is 
subject to paragraph (b) of this section to increase its assets in an 
amount not exceeding the amount of net interest credited to the State 
savings association's deposit liabilities, if:
    (1) The State savings association obtains the FDIC's prior 
approval;
    (2) Any increase in assets is accompanied by an increase in 
tangible capital in an amount not less than 3% of the increase in 
assets;

[[Page 47772]]

    (3) Any increase in assets is accompanied by an increase in capital 
not less in percentage amount than required under the risk-based 
capital standards then applicable;
    (4) Any increase in assets is invested in low-risk assets; and
    (5) The State savings association's ratio of core capital to total 
assets is not less than the ratio existing on January 1, 1991.
    (e) If a State savings association fails to meet the risk-based 
capital requirement, the leverage ratio requirement, or the tangible 
capital requirement established under this subpart, the FDIC may, 
through enforcement proceedings or otherwise, require such State 
savings association to take one or more of the following corrective 
actions:
    (1) Increase the amount of its regulatory capital to a specified 
level or levels;
    (2) Convene a meeting or meetings with the FDIC for the purpose of 
accomplishing the objectives of this section;
    (3) Reduce the rate of earnings that may be paid on savings 
accounts;
    (4) Limit the receipt of deposits to those made to existing 
accounts;
    (5) Cease or limit the issuance of new accounts of any or all 
classes or categories, except in exchange for existing accounts;
    (6) Cease or limit lending or the making of a particular type or 
category of loan;
    (7) Cease or limit the purchase of loans or the making of specified 
other investments;
    (8) Limit operational expenditures to specified levels;
    (9) Increase liquid assets and maintain such increased liquidity at 
specified levels; or
    (10) Take such other action or actions as the FDIC may deem 
necessary or appropriate for the safety and soundness of the State 
savings association, or depositors or investors in the State savings 
association.
    (f) The FDIC shall treat as an unsafe and unsound practice any 
material failure by a State savings association to comply with any 
plan, regulation, written agreement undertaken under this section or 
order or directive issued to comply with the requirements of this 
subpart.


Sec.  390.470  Reservation of authority.

    (a) Transactions for purposes of evasion. The FDIC may disregard 
any transaction entered into primarily for the purpose of reducing the 
minimum required amount of regulatory capital or otherwise evading the 
requirements of this subpart.
    (b) Average versus period-end figures. The FDIC reserves the right 
to require a State savings association to compute its capital ratios on 
the basis of average, rather than period-end, assets when the FDIC 
determines appropriate to carry out the purposes of this subpart.
    (c)(1) Reservation of authority. Notwithstanding the definitions of 
core and supplementary capital in Sec.  390.465, the FDIC may find that 
a particular type of purchased intangible asset or capital instrument 
constitutes or may constitute core or supplementary capital, and may 
permit one or more State savings associations to include all or a 
portion of such intangible asset or funds obtained through such capital 
instrument as core or supplementary capital, permanently or on a 
temporary basis, for the purposes of compliance with this subpart or 
for any other purposes. Similarly, the FDIC may find that a particular 
asset or core or supplementary capital component has characteristics or 
terms that diminish its contribution to a State savings association's 
ability to absorb losses, and the FDIC may require the discounting or 
deduction of such asset or component from the computation of core, 
supplementary, or total capital.
    (2) Notwithstanding Sec.  390.466, the FDIC will look to the 
substance of a transaction and may find that the assigned risk weight 
for any asset, or credit equivalent amount or credit conversion factor 
for any off-balance sheet item does not appropriately reflect the risks 
imposed on the State savings association. The FDIC may require the 
State savings association to apply another risk-weight, credit 
equivalent amount, or credit conversion factor that the FDIC deems 
appropriate.
    (3) The FDIC may find that the capital treatment for an exposure to 
a transaction not subject to consolidation on the State savings 
association's balance sheet does not appropriately reflect the risks 
imposed on the State savings association. Accordingly, the FDIC may 
require the State savings association to treat the transaction as if it 
were consolidated on the State savings association's balance sheet. The 
FDIC will look to the substance of and risk associated with the 
transaction as well as other relevant factors in determining whether to 
require such treatment and in calculating risk based capital as the 
FDIC deems appropriate.
    (4) If this subpart does not specifically assign a risk weight, 
credit equivalent amount, or credit conversion factor, the FDIC may 
assign any risk weight, credit equivalent amount, or credit conversion 
factor that it deems appropriate. In making this determination, the 
FDIC will consider the risks associated with the asset or off-balance 
sheet item as well as other relevant factors.
    (d) In making a determination under this paragraph (c) of this 
section, the FDIC will notify the State savings association of the 
determination and solicit a response from the State savings 
association. After review of the response by the State savings 
association, the FDIC shall issue a final supervisory decision 
regarding the determination made under paragraph (c) of this section.


Sec.  390.471  Purchased credit card relationships, servicing assets, 
intangible assets (other than purchased credit card relationships and 
servicing assets), credit-enhancing interest-only strips, and deferred 
tax assets.

    (a) Scope. This section prescribes the maximum amount of purchased 
credit card relationships, serving assets, intangible assets (other 
than purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that State 
savings associations may include in calculating tangible and core 
capital.
    (b) Computation of core and tangible capital. (1) Purchased credit 
card relationships may be included (that is, not deducted) in computing 
core capital in accordance with the restrictions in this section, but 
must be deducted in computing tangible capital.
    (2) In accordance with the restrictions in this section, mortgage 
servicing assets may be included in computing core and tangible capital 
and nonmortgage servicing assets may be included in core capital.
    (3) Intangible assets, as defined in Sec.  390.461, other than 
purchased credit card relationships described in paragraph (b)(1) of 
this section, servicing assets described in paragraph (b)(2) of this 
section, and core deposit intangibles described in paragraph (g)(3) of 
this section, are deducted in computing tangible and core capital, 
subject to paragraph (e)(3)(ii) of this section.
    (4) Credit-enhancing interest-only strips may be included (that is 
not deducted) in computing core capital subject to the restrictions of 
this section, and may be included in tangible capital in the same 
amount.
    (5) Deferred tax assets may be included (that is not deducted) in 
computing core capital subject to the restrictions of paragraph (h) of 
this section, and may be included in tangible capital in the same 
amount.
    (c) Market valuations. The FDIC reserves the authority to require 
any State savings association to perform an

[[Page 47773]]

independent market valuation of assets subject to this section on a 
case-by-case basis or through the issuance of policy guidance. An 
independent market valuation, if required, shall be conducted in 
accordance with any policy guidance issued by the FDIC. A required 
valuation shall include adjustments for any significant changes in 
original valuation assumptions, including changes in prepayment 
estimates or attrition rates. The valuation shall determine the current 
fair value of assets subject to this section. This independent market 
valuation may be conducted by an independent valuation expert 
evaluating the reasonableness of the internal calculations and 
assumptions used by the State savings association in conducting its 
internal analysis. The State savings association shall calculate an 
estimated fair value for assets subject to this section at least 
quarterly regardless of whether an independent valuation expert is 
required to perform an independent market valuation.
    (d) Value limitation. For purposes of calculating core capital 
under this subpart (but not for financial statement purposes), 
purchased credit card relationships and servicing assets must be valued 
at the lesser of:
    (1) Ninety (90) percent of their fair value determined in 
accordance with paragraph (c) of this section; or
    (2) One hundred (100) percent of their remaining unamortized book 
value determined in accordance with the instructions for the Thrift 
Financial Report or Consolidated Reports of Condition or Income (``Call 
Report.''), as applicable.
    (e) Core capital limitations --(1) Servicing assets and purchased 
credit card relationships. (i) The maximum aggregate amount of 
servicing assets and purchased credit card relationships that may be 
included in core capital is limited to the lesser of:
    (A) 100 percent of the amount of core capital; or
    (B) The amount of servicing assets and purchased credit card 
relationships determined in accordance with paragraph (d) of this 
section.
    (ii) In addition to the aggregate limitation in paragraph (e)(1)(i) 
of this section, a sublimit applies to purchased credit card 
relationships and non mortgage-related serving assets. The maximum 
allowable amount of these two types of assets combined is limited to 
the lesser of:
    (A) 25 percent the amount of core capital; and
    (B) The amount of purchased credit card relationships and non 
mortgage-related servicing assets determined in accordance with 
paragraph (d) of this section.
    (2) Credit-enhancing interest-only strips. The maximum aggregate 
amount of credit-enhancing interest-only strips that may be included in 
core capital is limited to 25 percent of the amount of core capital. 
Purchased and retained credit-enhancing interest-only strips, on a non-
tax adjusted basis, are included in the total amount that is used for 
purposes of determining whether a State savings association exceeds the 
core capital limit.
    (3) Computation. (i) For purposes of computing the limits and 
sublimits in paragraphs (e) and (h) of this section, core capital is 
computed before the deduction of disallowed servicing assets, 
disallowed purchased credit card relationships, disallowed credit-
enhancing interest-only strips (purchased and retained), and disallowed 
deferred tax assets.
    (ii) A State savings association may elect to deduct the following 
items on a basis net of deferred tax liabilities:
    (A) Disallowed servicing assets;
    (B) Goodwill such that only the net amount must be deducted from 
Tier 1 capital;
    (C) Disallowed credit-enhancing interest-only strips (both 
purchased and retained); and
    (D) Other intangible assets arising from non-taxable business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than purchased credit card relationships) 
arising from a nontaxable business combination may be netted against 
this intangible asset. The net amount of the intangible asset must be 
deducted from Tier 1 capital.
    (iii) Deferred tax liabilities that are netted in accordance with 
paragraph (e)(3)(ii) of this section cannot also be netted against 
deferred tax assets when determining the amount of deferred tax assets 
that are dependent upon future taxable income.
    (f) Tangible capital limitation. The maximum amount of mortgage 
servicing assets that may be included in tangible capital shall be the 
same amount includable in core capital in accordance with the 
limitations set by paragraph (e) of this section. All nonmortgage 
servicing assets are deducted in computing tangible capital.
    (g) Exemption for certain subsidiaries--(1) Exemption standard. A 
State savings association holding purchased mortgage servicing rights 
in separately capitalized, non-includable subsidiaries may submit an 
application for approval by the FDIC for an exemption from the 
deductions and limitations set forth in this section. The deductions 
and limitations will apply to such purchased mortgage servicing rights, 
however, if the FDIC determines that:
    (i) The State savings association and subsidiary are not conducting 
activities on an arm's length basis; or
    (ii) The exemption is not consistent with the State savings 
association's safe and sound operation.
    (2) Applicable requirements. If the FDIC determines to grant or to 
permit the continuation of an exemption under paragraph (h)(1) of this 
section, the State savings association receiving the exemption must 
ensure the following:
    (i) The State savings association's investments in, and extensions 
of credit to, the subsidiary are deducted from capital when calculating 
capital under this subpart;
    (ii) Extensions of credit and other transactions with the 
subsidiary are conducted in compliance with the rules for covered 
transactions with affiliates set forth in sections 23A and 23B of the 
Federal Reserve Act, as applied to State savings associations; and
    (iii) Any contracts entered into by the subsidiary include a 
written disclosure indicating that the subsidiary is not a bank or 
State savings association; the subsidiary is an organization separate 
and apart from any bank or State savings association; and the 
obligations of the subsidiary are not backed or guaranteed by any bank 
or State savings association and are not insured by the FDIC.
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this subpart (but not for financial statement 
purposes) deferred tax assets are subject to the conditions, 
limitations, and restrictions described in this section.
    (1) Tier 1 capital limitations. (i) The maximum allowable amount of 
deferred tax assets net of any valuation allowance that are dependent 
upon future taxable income will be limited to the lesser of:
    (A) The amount of deferred tax assets that are dependent upon 
future taxable income that is expected to be realized within one year 
of the calendar quarter-end date, based on a projected future taxable 
income for that year; or
    (B) Ten percent of the amount of Tier 1 capital that exists before 
the deduction of any disallowed servicing assets, any disallowed 
purchased credit card relationships, any disallowed credit-enhancing 
interest-only strips, and any disallowed deferred tax assets.
    (ii) For purposes of this limitation, all existing temporary 
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are

[[Page 47774]]

dependent upon future taxable income, net of any valuation allowance 
for deferred tax assets, in excess of this limitation will be deducted 
from assets and from equity capital for purposes of determining Tier 1 
capital under this subpart. The amount of deferred tax assets that can 
be realized from taxes paid in prior carryback years and from the 
reversal of existing taxable temporary differences generally would not 
be deducted from assets and from equity capital.
    (iii) Notwithstanding paragraph (h)(1)(B)(ii) of this section, the 
amount of carryback potential that may be considered in calculating the 
amount of deferred tax assets that a State savings association that is 
part of a consolidated group (for tax purposes) may include in Tier 1 
capital may not exceed the amount which the association could 
reasonably expect to have refunded by its parent.
    (2) Projected future taxable income. Projected future taxable 
income should not include net operating loss carryforwards to be used 
within one year of the most recent calendar quarter-end date or the 
amount of existing temporary differences expected to reverse within 
that year. Projected future taxable income should include the estimated 
effect of tax planning strategies that are expected to be implemented 
to realize tax carryforwards that will otherwise expire during that 
year. Future taxable income projections for the current fiscal year 
(adjusted for any significant changes that have occurred or are 
expected to occur) may be used when applying the capital limit at an 
interim calendar quarter-end date rather than preparing a new 
projection each quarter.
    (3) Unrealized holding gains and losses on available-for-sale debt 
securities. The deferred tax effects of any unrealized holding gains 
and losses on available-for-sale debt securities may be excluded from 
the determination of the amount of deferred tax assets that are 
dependent upon future taxable income and the calculation of the maximum 
allowable amount of such assets. If these deferred tax effects are 
excluded, this treatment must be followed consistently over time.

Appendix A to Subpart Z of Part 390--Risk-Based Capital Requirements--
Internal-Ratings-Based and Advanced Measurement Approaches

Part I General Provisions
Section 1 Purpose, Applicability, Reservation of Authority, and 
Principle of Conservatism
Section 2 Definitions
Section 3 Minimum Risk-Based Capital Requirements
Part II Qualifying Capital
Section 11 Additional Deductions
Section 12 Deductions and Limitations Not Required
Section 13 Eligible Credit Reserves
Part III Qualification
Section 21 Qualification Process
Section 22 Qualification Requirements
Section 23 Ongoing Qualification
Section 24 Merger and Acquisition Transitional Arrangements
Part IV Risk-Weighted Assets for General Credit Risk
Section 31 Mechanics for Calculating Total Wholesale and Retail 
Risk-Weighted Assets
Section 32 Counterparty Credit Risk of Repo-Style Transactions, 
Eligible Margin Loans, and OTC Derivative Contracts
Section 33 Guarantees and Credit Derivatives: PD Substitution and 
LGD Adjustment Approaches
Section 34 Guarantees and Credit Derivatives: Double Default 
Treatment
Section 35 Risk-Based Capital Requirement for Unsettled Transactions
Part V Risk-Weighted Assets for Securitization Exposures
Section 41 Operational Criteria for Recognizing the Transfer of Risk
Section 42 Risk-Based Capital Requirement for Securitization 
Exposures
Section 43 Ratings-Based Approach (RBA)
Section 44 Internal Assessment Approach (IAA)
Section 45 Supervisory Formula Approach (SFA)
Section 46 Recognition of Credit Risk Mitigants for Securitization 
Exposures
Section 47 Risk-Based Capital Requirement for Early Amortization 
Provisions
Part VI Risk-Weighted Assets for Equity Exposures
Section 51 Introduction and Exposure Measurement
Section 52 Simple Risk Weight Approach (SRWA)
Section 53 Internal Models Approach (IMA)
Section 54 Equity Exposures to Investment Funds
Section 55 Equity Derivative Contracts
Part VII Risk-Weighted Assets for Operational Risk
Section 61 Qualification Requirements for Incorporation of 
Operational Risk Mitigants
Section 62 Mechanics of Risk-Weighted Asset Calculation
Part VIII Disclosure
Section 71 Disclosure Requirements
Part IX Transition Provisions
Section 81 Optional Transition Provisions Related to the 
Implementation of Consolidation Requirements Under FAS 167

Part I. General Provisions

Section 1. Purpose, Applicability, Reservation of Authority, and 
Principle of Conservatism

    (a) Purpose. This appendix establishes:
    (1) Minimum qualifying criteria for State savings associations 
using State savings association-specific internal risk measurement 
and management processes for calculating risk-based capital 
requirements;
    (2) Methodologies for such State savings associations to 
calculate their risk-based capital requirements; and
    (3) Public disclosure requirements for such State savings 
associations.
    (b) Applicability. (1) This appendix applies to a State savings 
association that:
    (i) Has consolidated assets, as reported on the most recent 
year-end Thrift Financial Report (TFR) or Consolidated Reports of 
Condition or Income (``Call Report''), as applicable, equal to $250 
billion or more;
    (ii) Has consolidated total on-balance sheet foreign exposure at 
the most recent year-end equal to $10 billion or more (where total 
on-balance sheet foreign exposure equals total cross-border claims 
less claims with head office or guarantor located in another country 
plus redistributed guaranteed amounts to the country of head office 
or guarantor plus local country claims on local residents plus 
revaluation gains on foreign exchange and derivative products, 
calculated in accordance with the Federal Financial Institutions 
Examination Council (FFIEC) 009 Country Exposure Report);
    (iii) Is a subsidiary of a depository institution that uses 12 
CFR part 3, appendix C, 12 CFR part 208, appendix F, 12 CFR part 
325, appendix D, or 12 CFR subpart Z of part 390, appendix A, to 
calculate its risk-based capital requirements; or
    (iv) Is a subsidiary of a bank holding company that uses 12 CFR 
part 225, appendix G, to calculate its risk-based capital 
requirements.
    (2) Any State savings association may elect to use this appendix 
to calculate its risk-based capital requirements.
    (3) A State savings association that is subject to this appendix 
must use this appendix unless the FDIC determines in writing that 
application of this appendix is not appropriate in light of the 
State savings association's asset size, level of complexity, risk 
profile, or scope of operations. In making a determination under 
this paragraph, the FDIC will apply notice and response procedures 
in the same manner and to the same extent as the notice and response 
procedures in Sec.  390.463(d).
    (c) Reservation of authority--(1) Additional capital in the 
aggregate. The FDIC may require a State savings association to hold 
an amount of capital greater than otherwise required under this 
appendix if the FDIC determines that the State savings association's 
risk-based capital requirement under this appendix is not 
commensurate with the State savings association's credit, market, 
operational, or other risks. In making a determination under this 
paragraph, the FDIC will apply notice and response procedures in the 
same manner and to the same extent as the notice and response 
procedures in Sec.  390.463(d).
    (2) Specific risk-weighted asset amounts. (i) If the FDIC 
determines that the risk-weighted asset amount calculated under this 
appendix by the State savings association for one or more exposures 
is not commensurate with the risks associated with those exposures, 
the FDIC may require the State savings association to assign a 
different risk-weighted

[[Page 47775]]

asset amount to the exposures, to assign different risk parameters 
to the exposures (if the exposures are wholesale or retail 
exposures), or to use different model assumptions for the exposures 
(if relevant), all as specified by the FDIC.
    (ii) If the FDIC determines that the risk-weighted asset amount 
for operational risk produced by the State savings association under 
this appendix is not commensurate with the operational risks of the 
State savings association, the FDIC may require the State savings 
association to assign a different risk-weighted asset amount for 
operational risk, to change elements of its operational risk 
analytical framework, including distributional and dependence 
assumptions, or to make other changes to the State savings 
association's operational risk management processes, data and 
assessment systems, or quantification systems, all as specified by 
the FDIC.
    (3) Regulatory capital treatment of unconsolidated entities. The 
FDIC may find that the capital treatment for an exposure to a 
transaction not subject to consolidation on the State savings 
association's balance sheet does not appropriately reflect the risks 
imposed on the State savings association. Accordingly, the FDIC may 
require the State savings association to treat the transaction as if 
it were consolidated on the State savings association's balance 
sheet. The FDIC will look to the substance of and risk associated 
with the transaction as well as other relevant factors in 
determining whether to require such treatment and in calculating 
risk-based capital as the FDIC deems appropriate.
    (4) Other supervisory authority. Nothing in this appendix limits 
the authority of the FDIC under any other provision of law or 
regulation to take supervisory or enforcement action, including 
action to address unsafe or unsound practices or conditions, 
deficient capital levels, or violations of law.
    (d) Principle of conservatism. Notwithstanding the requirements 
of this appendix, a State savings association may choose not to 
apply a provision of this appendix to one or more exposures, 
provided that:
    (1) The State savings association can demonstrate on an ongoing 
basis to the satisfaction of the FDIC that not applying the 
provision would, in all circumstances, unambiguously generate a 
risk-based capital requirement for each such exposure greater than 
that which would otherwise be required under this appendix;
    (2) The State savings association appropriately manages the risk 
of each such exposure;
    (3) The State savings association notifies the FDIC in writing 
prior to applying this principle to each such exposure; and
    (4) The exposures to which the State savings association applies 
this principle are not, in the aggregate, material to the State 
savings association.

Section 2. Definitions

    Advanced internal ratings-based (IRB) systems means a State 
savings association's internal risk rating and segmentation system; 
risk parameter quantification system; data management and 
maintenance system; and control, oversight, and validation system 
for credit risk of wholesale and retail exposures.
    Advanced systems means a State savings association's advanced 
IRB systems, operational risk management processes, operational risk 
data and assessment systems, operational risk quantification 
systems, and, to the extent the State savings association uses the 
following systems, the internal models methodology, double default 
excessive correlation detection process, IMA for equity exposures, 
and IAA for securitization exposures to ABCP programs.
    Affiliate with respect to a company means any company that 
controls, is controlled by, or is under common control with, the 
company.
    Applicable external rating means:
    (1) With respect to an exposure that has multiple external 
ratings assigned by NRSROs, the lowest solicited external rating 
assigned to the exposure by any NRSRO; and
    (2) With respect to an exposure that has a single external 
rating assigned by an NRSRO, the external rating assigned to the 
exposure by the NRSRO.
    Applicable inferred rating means:
    (1) With respect to an exposure that has multiple inferred 
ratings, the lowest inferred rating based on a solicited external 
rating; and
    (2) With respect to an exposure that has a single inferred 
rating, the inferred rating.
    Asset-backed commercial paper (ABCP) program means a program 
that primarily issues commercial paper that:
    (1) Has an external rating; and
    (2) Is backed by underlying exposures held in a bankruptcy-
remote SPE.
    Asset-backed commercial paper (ABCP) program sponsor means a 
State savings association that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the exposures to be purchased by an ABCP program; 
or
    (4) Administers the ABCP program by monitoring the underlying 
exposures, underwriting or otherwise arranging for the placement of 
debt or other obligations issued by the program, compiling monthly 
reports, or ensuring compliance with the program documents and with 
the program's credit and investment policy.
    Backtesting means the comparison of a State savings 
association's internal estimates with actual outcomes during a 
sample period not used in model development. In this context, 
backtesting is one form of out-of-sample testing.
    Bank holding company is defined in section 2 of the Bank Holding 
Company Act (12 U.S.C. 1841).
    Benchmarking means the comparison of a State savings 
association's internal estimates with relevant internal and external 
data or with estimates based on other estimation techniques.
    Business environment and internal control factors means the 
indicators of a State savings association's operational risk profile 
that reflect a current and forward-looking assessment of the State 
savings association's underlying business risk factors and internal 
control environment.
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of the State savings association, 
determined in accordance with GAAP.
    Clean-up call means a contractual provision that permits an 
originating State savings association or servicer to call 
securitization exposures before their stated maturity or call date. 
See also eligible clean-up call.
    Commodity derivative contract means a commodity-linked swap, 
purchased commodity-linked option, forward commodity-linked 
contract, or any other instrument linked to commodities that gives 
rise to similar counterparty credit risks.
    Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose 
entity, association, or similar organization.
    Control. A person or company controls a company if it:
    (1) Owns, controls, or holds with power to vote 25 percent or 
more of a class of voting securities of the company; or
    (2) Consolidates the company for financial reporting purposes.
    Controlled early amortization provision means an early 
amortization provision that meets all the following conditions:
    (1) The originating State savings association has appropriate 
policies and procedures to ensure that it has sufficient capital and 
liquidity available in the event of an early amortization;
    (2) Throughout the duration of the securitization (including the 
early amortization period), there is the same pro rata sharing of 
interest, principal, expenses, losses, fees, recoveries, and other 
cash flows from the underlying exposures based on the originating 
State savings association's and the investors' relative shares of 
the underlying exposures outstanding measured on a consistent 
monthly basis;
    (3) The amortization period is sufficient for at least 90 
percent of the total underlying exposures outstanding at the 
beginning of the early amortization period to be repaid or 
recognized as in default; and
    (4) The schedule for repayment of investor principal is not more 
rapid than would be allowed by straight-line amortization over an 
18-month period.
    Credit derivative means a financial contract executed under 
standard industry credit derivative documentation that allows one 
party (the protection purchaser) to transfer the credit risk of one 
or more exposures (reference exposure) to another party (the 
protection provider). See also eligible credit derivative.
    Credit-enhancing interest-only strip (CEIO) means an on-balance 
sheet asset that, in form or in substance:
    (1) Represents a contractual right to receive some or all of the 
interest and no more than a minimal amount of principal due on the 
underlying exposures of a securitization; and
    (2) Exposes the holder to credit risk directly or indirectly 
associated with the underlying exposures that exceeds a pro rata 
share of the holder's claim on the underlying exposures, whether 
through subordination provisions or other credit-enhancement 
techniques.

[[Page 47776]]

    Credit-enhancing representations and warranties means 
representations and warranties that are made or assumed in 
connection with a transfer of underlying exposures (including loan 
servicing assets) and that obligate a State savings association to 
protect another party from losses arising from the credit risk of 
the underlying exposures. Credit-enhancing representations and 
warranties include provisions to protect a party from losses 
resulting from the default or nonperformance of the obligors of the 
underlying exposures or from an insufficiency in the value of the 
collateral backing the underlying exposures. Credit-enhancing 
representations and warranties do not include:
    (1) Early default clauses and similar warranties that permit the 
return of, or premium refund clauses that cover, first-lien 
residential mortgage exposures for a period not to exceed 120 days 
from the date of transfer, provided that the date of transfer is 
within one year of origination of the residential mortgage exposure;
    (2) Premium refund clauses that cover underlying exposures 
guaranteed, in whole or in part, by the U.S. government, a U.S. 
government agency, or a U.S. government sponsored enterprise, 
provided that the clauses are for a period not to exceed 120 days 
from the date of transfer; or
    (3) Warranties that permit the return of underlying exposures in 
instances of misrepresentation, fraud, or incomplete documentation.
    Credit risk mitigant means collateral, a credit derivative, or a 
guarantee.
    Credit-risk-weighted assets means 1.06 multiplied by the sum of:
    (1) Total wholesale and retail risk-weighted assets;
    (2) Risk-weighted assets for securitization exposures; and
    (3) Risk-weighted assets for equity exposures.
    Current exposure means, with respect to a netting set, the 
larger of zero or the market value of a transaction or portfolio of 
transactions within the netting set that would be lost upon default 
of the counterparty, assuming no recovery on the value of the 
transactions. Current exposure is also called replacement cost.
    Default--(1) Retail. (i) A retail exposure of a State savings 
association is in default if:
    (A) The exposure is 180 days past due, in the case of a 
residential mortgage exposure or revolving exposure;
    (B) The exposure is 120 days past due, in the case of all other 
retail exposures; or
    (C) The State savings association has taken a full or partial 
charge-off, write-down of principal, or material negative fair value 
adjustment of principal on the exposure for credit-related reasons.
    (ii) Notwithstanding paragraph (1)(i) of this definition, for a 
retail exposure held by a non-U.S. subsidiary of the State savings 
association that is subject to an internal ratings-based approach to 
capital adequacy consistent with the Basel Committee on Banking 
Supervision's ``International Convergence of Capital Measurement and 
Capital Standards: A Revised Framework'' in a non-U.S. jurisdiction, 
the State savings association may elect to use the definition of 
default that is used in that jurisdiction, provided that the State 
savings association has obtained prior approval from the FDIC to use 
the definition of default in that jurisdiction.
    (iii) A retail exposure in default remains in default until the 
State savings association has reasonable assurance of repayment and 
performance for all contractual principal and interest payments on 
the exposure.
    (2) Wholesale. (i) A State savings association's wholesale 
obligor is in default if:
    (A) The State savings association determines that the obligor is 
unlikely to pay its credit obligations to the State savings 
association in full, without recourse by the State savings 
association to actions such as realizing collateral (if held); or
    (B) The obligor is past due more than 90 days on any material 
credit obligation(s) to the State savings association.\1\
---------------------------------------------------------------------------

    \1\ Overdrafts are past due once the obligor has breached an 
advised limit or been advised of a limit smaller than the current 
outstanding balance.
---------------------------------------------------------------------------

    (ii) An obligor in default remains in default until the State 
savings association has reasonable assurance of repayment and 
performance for all contractual principal and interest payments on 
all exposures of the State savings association to the obligor (other 
than exposures that have been fully written-down or charged-off).
    Dependence means a measure of the association among operational 
losses across and within units of measure.
    Depository institution is defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    Derivative contract means a financial contract whose value is 
derived from the values of one or more underlying assets, reference 
rates, or indices of asset values or reference rates. Derivative 
contracts include interest rate derivative contracts, exchange rate 
derivative contracts, equity derivative contracts, commodity 
derivative contracts, credit derivatives, and any other instrument 
that poses similar counterparty credit risks. Derivative contracts 
also include unsettled securities, commodities, and foreign exchange 
transactions with a contractual settlement or delivery lag that is 
longer than the lesser of the market standard for the particular 
instrument or five business days.
    Early amortization provision means a provision in the 
documentation governing a securitization that, when triggered, 
causes investors in the securitization exposures to be repaid before 
the original stated maturity of the securitization exposures, unless 
the provision:
    (1) Is triggered solely by events not directly related to the 
performance of the underlying exposures or the originating State 
savings association (such as material changes in tax laws or 
regulations); or
    (2) Leaves investors fully exposed to future draws by obligors 
on the underlying exposures even after the provision is triggered.
    Economic downturn conditions means, with respect to an exposure 
held by the State savings association, those conditions in which the 
aggregate default rates for that exposure's wholesale or retail 
exposure subcategory (or subdivision of such subcategory selected by 
the State savings association) in the exposure's national 
jurisdiction (or subdivision of such jurisdiction selected by the 
State savings association) are significantly higher than average.
    Effective maturity (M) of a wholesale exposure means:
    (1) For wholesale exposures other than repo-style transactions, 
eligible margin loans, and OTC derivative contracts described in 
paragraph (2) or (3) of this definition:
    (i) The weighted-average remaining maturity (measured in years, 
whole or fractional) of the expected contractual cash flows from the 
exposure, using the undiscounted amounts of the cash flows as 
weights; or
    (ii) The nominal remaining maturity (measured in years, whole or 
fractional) of the exposure.
    (2) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts subject to a qualifying master netting 
agreement for which the State savings association does not apply the 
internal models approach in paragraph (d) of section 32 of this 
appendix, the weighted-average remaining maturity (measured in 
years, whole or fractional) of the individual transactions subject 
to the qualifying master netting agreement, with the weight of each 
individual transaction set equal to the notional amount of the 
transaction.
    (3) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts for which the State savings association applies 
the internal models approach in paragraph (d) of section 32 of this 
appendix, the value determined in paragraph (d)(4) of section 32 of 
this appendix.
    Effective notional amount means, for an eligible guarantee or 
eligible credit derivative, the lesser of the contractual notional 
amount of the credit risk mitigant and the EAD of the hedged 
exposure, multiplied by the percentage coverage of the credit risk 
mitigant. For example, the effective notional amount of an eligible 
guarantee that covers, on a pro rata basis, 40 percent of any losses 
on a $100 bond would be $40.
    Eligible clean-up call means a clean-up call that:
    (1) Is exercisable solely at the discretion of the originating 
State savings association or servicer;
    (2) Is not structured to avoid allocating losses to 
securitization exposures held by investors or otherwise structured 
to provide credit enhancement to the securitization; and
    (3)(i) For a traditional securitization, is only exercisable 
when 10 percent or less of the principal amount of the underlying 
exposures or securitization exposures (determined as of the 
inception of the securitization) is outstanding; or
    (ii) For a synthetic securitization, is only exercisable when 10 
percent or less of the principal amount of the reference portfolio 
of underlying exposures (determined as of the inception of the 
securitization) is outstanding.

[[Page 47777]]

    Eligible credit derivative means a credit derivative in the form 
of a credit default swap, nth-to-default swap, total return swap, or 
any other form of credit derivative approved by the FDIC, provided 
that:
    (1) The contract meets the requirements of an eligible guarantee 
and has been confirmed by the protection purchaser and the 
protection provider;
    (2) Any assignment of the contract has been confirmed by all 
relevant parties;
    (3) If the credit derivative is a credit default swap or nth-to-
default swap, the contract includes the following credit events:
    (i) Failure to pay any amount due under the terms of the 
reference exposure, subject to any applicable minimal payment 
threshold that is consistent with standard market practice and with 
a grace period that is closely in line with the grace period of the 
reference exposure; and
    (ii) Bankruptcy, insolvency, or inability of the obligor on the 
reference exposure to pay its debts, or its failure or admission in 
writing of its inability generally to pay its debts as they become 
due, and similar events;
    (4) The terms and conditions dictating the manner in which the 
contract is to be settled are incorporated into the contract;
    (5) If the contract allows for cash settlement, the contract 
incorporates a robust valuation process to estimate loss reliably 
and specifies a reasonable period for obtaining post-credit event 
valuations of the reference exposure;
    (6) If the contract requires the protection purchaser to 
transfer an exposure to the protection provider at settlement, the 
terms of at least one of the exposures that is permitted to be 
transferred under the contract provides that any required consent to 
transfer may not be unreasonably withheld;
    (7) If the credit derivative is a credit default swap or nth-to-
default swap, the contract clearly identifies the parties 
responsible for determining whether a credit event has occurred, 
specifies that this determination is not the sole responsibility of 
the protection provider, and gives the protection purchaser the 
right to notify the protection provider of the occurrence of a 
credit event; and
    (8) If the credit derivative is a total return swap and the 
State savings association records net payments received on the swap 
as net income, the State savings association records offsetting 
deterioration in the value of the hedged exposure (either through 
reductions in fair value or by an addition to reserves).
    Eligible credit reserves means all general allowances that have 
been established through a charge against earnings to absorb credit 
losses associated with on- or off-balance sheet wholesale and retail 
exposures, including the allowance for loan and lease losses (ALLL) 
associated with such exposures but excluding specific reserves 
created against recognized losses.
    Eligible double default guarantor, with respect to a guarantee 
or credit derivative obtained by a State savings association, means:
    (1) U.S.-based entities. A depository institution, a bank 
holding company, a savings and loan holding company (as defined in 
12 U.S.C. 1467a) provided all or substantially all of the holding 
company's activities are permissible for a financial holding company 
under 12 U.S.C. 1843(k), a securities broker or dealer registered 
with the SEC under the Securities Exchange Act of 1934 (15 U.S.C. 
78o et seq.), or an insurance company in the business of providing 
credit protection (such as a monoline bond insurer or re-insurer) 
that is subject to supervision by a State insurance regulator, if:
    (i) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the State savings association 
assigned a PD to the guarantor's rating grade that was equal to or 
lower than the PD associated with a long-term external rating in the 
third-highest investment-grade rating category; and
    (ii) The State savings association currently assigns a PD to the 
guarantor's rating grade that is equal to or lower than the PD 
associated with a long-term external rating in the lowest 
investment-grade rating category; or
    (2) Non-U.S.-based entities. A foreign bank (as defined in Sec.  
211.2 of the Federal Reserve Board's Regulation K (12 CFR 211.2)), a 
non-U.S.-based securities firm, or a non-U.S.-based insurance 
company in the business of providing credit protection, if:
    (i) The State savings association demonstrates that the 
guarantor is subject to consolidated supervision and regulation 
comparable to that imposed on U.S. depository institutions, 
securities broker-dealers, or insurance companies (as the case may 
be), or has issued and outstanding an unsecured long-term debt 
security without credit enhancement that has a long-term applicable 
external rating of at least investment grade;
    (ii) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the State savings association 
assigned a PD to the guarantor's rating grade that was equal to or 
lower than the PD associated with a long-term external rating in the 
third-highest investment-grade rating category; and
    (iii) The State savings association currently assigns a PD to 
the guarantor's rating grade that is equal to or lower than the PD 
associated with a long-term external rating in the lowest 
investment-grade rating category.
    Eligible guarantee means a guarantee that:
    (1) Is written and unconditional;
    (2) Covers all or a pro rata portion of all contractual payments 
of the obligor on the reference exposure;
    (3) Gives the beneficiary a direct claim against the protection 
provider;
    (4) Is not unilaterally cancelable by the protection provider 
for reasons other than the breach of the contract by the 
beneficiary;
    (5) Is legally enforceable against the protection provider in a 
jurisdiction where the protection provider has sufficient assets 
against which a judgment may be attached and enforced;
    (6) Requires the protection provider to make payment to the 
beneficiary on the occurrence of a default (as defined in the 
guarantee) of the obligor on the reference exposure in a timely 
manner without the beneficiary first having to take legal actions to 
pursue the obligor for payment;
    (7) Does not increase the beneficiary's cost of credit 
protection on the guarantee in response to deterioration in the 
credit quality of the reference exposure; and
    (8) Is not provided by an affiliate of the State savings 
association, unless the affiliate is an insured depository 
institution, bank, securities broker or dealer, or insurance company 
that:
    (i) Does not control the State savings association; and
    (ii) Is subject to consolidated supervision and regulation 
comparable to that imposed on U.S. depository institutions, 
securities broker-dealers, or insurance companies (as the case may 
be).
    Eligible margin loan means an extension of credit where:
    (1) The extension of credit is collateralized exclusively by 
liquid and readily marketable debt or equity securities, gold, or 
conforming residential mortgages;
    (2) The collateral is marked to market daily, and the 
transaction is subject to daily margin maintenance requirements;
    (3) The extension of credit is conducted under an agreement that 
provides the State savings association the right to accelerate and 
terminate the extension of credit and to liquidate or set off 
collateral promptly upon an event of default (including upon an 
event of bankruptcy, insolvency, or similar proceeding) of the 
counterparty, provided that, in any such case, any exercise of 
rights under the agreement will not be stayed or avoided under 
applicable law in the relevant jurisdictions; \2\ and
---------------------------------------------------------------------------

    \2\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code 
(11 U.S.C. 555), qualified financial contracts under section 
11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)), or netting contracts between or among financial 
institutions under sections 401-407 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407) or the 
Federal Reserve Board's Regulation EE (12 CFR part 231).
---------------------------------------------------------------------------

    (4) The State savings association has conducted sufficient legal 
review to conclude with a well-founded basis (and maintains 
sufficient written documentation of that legal review) that the 
agreement meets the requirements of paragraph (3) of this definition 
and is legal, valid, binding, and enforceable under applicable law 
in the relevant jurisdictions.
    Eligible operational risk offsets means amounts, not to exceed 
expected operational loss, that:
    (1) Are generated by internal business practices to absorb 
highly predictable and reasonably stable operational losses, 
including reserves calculated consistent with GAAP; and
    (2) Are available to cover expected operational losses with a 
high degree of certainty over a one-year horizon.
    Eligible purchased wholesale exposure means a purchased 
wholesale exposure that:
    (1) The State savings association or securitization SPE 
purchased from an unaffiliated seller and did not directly or 
indirectly originate;
    (2) Was generated on an arm's-length basis between the seller 
and the obligor

[[Page 47778]]

(intercompany accounts receivable and receivables subject to contra-
accounts between firms that buy and sell to each other do not 
satisfy this criterion);
    (3) Provides the State savings association or securitization SPE 
with a claim on all proceeds from the exposure or a pro rata 
interest in the proceeds from the exposure;
    (4) Has an M of less than one year; and
    (5) When consolidated by obligor, does not represent a 
concentrated exposure relative to the portfolio of purchased 
wholesale exposures.
    Eligible securitization guarantor means:
    (1) A sovereign entity, the Bank for International Settlements, 
the International Monetary Fund, the European Central Bank, the 
European Commission, a Federal Home Loan Bank, Federal Agricultural 
Mortgage Corporation (Farmer Mac), a multilateral development bank, 
a depository institution, a bank holding company, a savings and loan 
holding company (as defined in 12 U.S.C. 1467a) provided all or 
substantially all of the holding company's activities are 
permissible for a financial holding company under 12 U.S.C. 1843(k), 
a foreign bank (as defined in Sec.  211.2 of the Federal Reserve 
Board's Regulation K (12 CFR 211.2)), or a securities firm;
    (2) Any other entity (other than a securitization SPE) that has 
issued and outstanding an unsecured long-term debt security without 
credit enhancement that has a long-term applicable external rating 
in one of the three highest investment-grade rating categories; or
    (3) Any other entity (other than a securitization SPE) that has 
a PD assigned by the State savings association that is lower than or 
equal to the PD associated with a long-term external rating in the 
third highest investment-grade rating category.
    Eligible servicer cash advance facility means a servicer cash 
advance facility in which:
    (1) The servicer is entitled to full reimbursement of advances, 
except that a servicer may be obligated to make non-reimbursable 
advances for a particular underlying exposure if any such advance is 
contractually limited to an insignificant amount of the outstanding 
principal balance of that exposure;
    (2) The servicer's right to reimbursement is senior in right of 
payment to all other claims on the cash flows from the underlying 
exposures of the securitization; and
    (3) The servicer has no legal obligation to, and does not, make 
advances to the securitization if the servicer concludes the 
advances are unlikely to be repaid.
    Equity derivative contract means an equity-linked swap, 
purchased equity-linked option, forward equity-linked contract, or 
any other instrument linked to equities that gives rise to similar 
counterparty credit risks.
    Equity exposure means:
    (1) A security or instrument (whether voting or non-voting) that 
represents a direct or indirect ownership interest in, and is a 
residual claim on, the assets and income of a company, unless:
    (i) The issuing company is consolidated with the State savings 
association under GAAP;
    (ii) The State savings association is required to deduct the 
ownership interest from tier 1 or tier 2 capital under this 
appendix;
    (iii) The ownership interest incorporates a payment or other 
similar obligation on the part of the issuing company (such as an 
obligation to make periodic payments); or
    (iv) The ownership interest is a securitization exposure;
    (2) A security or instrument that is mandatorily convertible 
into a security or instrument described in paragraph (1) of this 
definition;
    (3) An option or warrant that is exercisable for a security or 
instrument described in paragraph (1) of this definition; or
    (4) Any other security or instrument (other than a 
securitization exposure) to the extent the return on the security or 
instrument is based on the performance of a security or instrument 
described in paragraph (1) of this definition.
    Excess spread for a period means:
    (1) Gross finance charge collections and other income received 
by a securitization SPE (including market interchange fees) over a 
period minus interest paid to the holders of the securitization 
exposures, servicing fees, charge-offs, and other senior trust or 
similar expenses of the SPE over the period; divided by
    (2) The principal balance of the underlying exposures at the end 
of the period.
    Exchange rate derivative contract means a cross-currency 
interest rate swap, forward foreign-exchange contract, currency 
option purchased, or any other instrument linked to exchange rates 
that gives rise to similar counterparty credit risks.
    Excluded mortgage exposure means any one- to four-family 
residential pre-sold construction loan for a residence for which the 
purchase contract is cancelled that would receive a 100 percent risk 
weight under section 618(a)(2) of the Resolution Trust Corporation 
Refinancing, Restructuring, and Improvement Act and under 12 CFR 
390.461 (definition of ``qualifying residential construction loan'') 
and 12 CFR 390.466(a)(1)(iv).
    Expected credit loss (ECL) means:
    (1) For a wholesale exposure to a non-defaulted obligor or 
segment of non-defaulted retail exposures that is carried at fair 
value with gains and losses flowing through earnings or that is 
classified as held-for-sale and is carried at the lower of cost or 
fair value with losses flowing through earnings, zero.
    (2) For all other wholesale exposures to non-defaulted obligors 
or segments of non-defaulted retail exposures, the product of PD 
times LGD times EAD for the exposure or segment.
    (3) For a wholesale exposure to a defaulted obligor or segment 
of defaulted retail exposures, the State savings association's 
impairment estimate for allowance purposes for the exposure or 
segment.
    (4) Total ECL is the sum of expected credit losses for all 
wholesale and retail exposures other than exposures for which the 
State savings association has applied the double default treatment 
in section 34 of this appendix.
    Expected exposure (EE) means the expected value of the 
probability distribution of non-negative credit risk exposures to a 
counterparty at any specified future date before the maturity date 
of the longest term transaction in the netting set. Any negative 
market values in the probability distribution of market values to a 
counterparty at a specified future date are set to zero to convert 
the probability distribution of market values to the probability 
distribution of credit risk exposures.
    Expected operational loss (EOL) means the expected value of the 
distribution of potential aggregate operational losses, as generated 
by the State savings association's operational risk quantification 
system using a one-year horizon.
    Expected positive exposure (EPE) means the weighted average over 
time of expected (non-negative) exposures to a counterparty where 
the weights are the proportion of the time interval that an 
individual expected exposure represents. When calculating risk-based 
capital requirements, the average is taken over a one-year horizon.
    Exposure at default (EAD). (1) For the on-balance sheet 
component of a wholesale exposure or segment of retail exposures 
(other than an OTC derivative contract, or a repo-style transaction, 
or eligible margin loan for which the State savings association 
determines EAD under section 32 of this appendix), EAD means:
    (i) If the exposure or segment is a security classified as 
available-for-sale, the State savings associations carrying value 
(including net accrued but unpaid interest and fees) for the 
exposure or segment less any unrealized gains on the exposure or 
segment and plus any unrealized losses on the exposure or segment; 
or
    (ii) If the exposure or segment is not a security classified as 
available-for-sale, the State savings association's carrying value 
(including net accrued but unpaid interest and fees) for the 
exposure or segment.
    (2) For the off-balance sheet component of a wholesale exposure 
or segment of retail exposures (other than an OTC derivative 
contract, or a repo-style transaction or eligible margin loan for 
which the State savings association determines EAD under section 32 
of this appendix) in the form of a loan commitment, line of credit, 
trade-related letter of credit, or transaction-related contingency, 
EAD means the State savings association's best estimate of net 
additions to the outstanding amount owed the State savings 
association, including estimated future additional draws of 
principal and accrued but unpaid interest and fees, that are likely 
to occur over a one-year horizon assuming the wholesale exposure or 
the retail exposures in the segment were to go into default. This 
estimate of net additions must reflect what would be expected during 
economic downturn conditions. Trade-related letters of credit are 
short-term, self-liquidating instruments that are used to finance 
the movement of goods and are collateralized by the underlying 
goods. Transaction-related contingencies relate to a particular 
transaction and include, among other things, performance bonds and 
performance-based letters of credit.

[[Page 47779]]

    (3) For the off-balance sheet component of a wholesale exposure 
or segment of retail exposures (other than an OTC derivative 
contract, or a repo-style transaction or eligible margin loan for 
which the State savings association determines EAD under section 32 
of this appendix) in the form of anything other than a loan 
commitment, line of credit, trade-related letter of credit, or 
transaction-related contingency, EAD means the notional amount of 
the exposure or segment.
    (4) EAD for OTC derivative contracts is calculated as described 
in section 32 of this appendix. A State savings association also may 
determine EAD for repo-style transactions and eligible margin loans 
as described in section 32 of this appendix.
    (5) For wholesale or retail exposures in which only the drawn 
balance has been securitized, the State savings association must 
reflect its share of the exposures' undrawn balances in EAD. Undrawn 
balances of revolving exposures for which the drawn balances have 
been securitized must be allocated between the seller's and 
investors' interests on a pro rata basis, based on the proportions 
of the seller's and investors' shares of the securitized drawn 
balances.
    Exposure category means any of the wholesale, retail, 
securitization, or equity exposure categories.
    External operational loss event data means, with respect to a 
State savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss 
events occurring at organizations other than the State savings 
association.
    External rating means a credit rating that is assigned by an 
NRSRO to an exposure, provided:
    (1) The credit rating fully reflects the entire amount of credit 
risk with regard to all payments owed to the holder of the exposure. 
If a holder is owed principal and interest on an exposure, the 
credit rating must fully reflect the credit risk associated with 
timely repayment of principal and interest. If a holder is owed only 
principal on an exposure, the credit rating must fully reflect only 
the credit risk associated with timely repayment of principal; and
    (2) The credit rating is published in an accessible form and is 
or will be included in the transition matrices made publicly 
available by the NRSRO that summarize the historical performance of 
positions rated by the NRSRO.
    Financial collateral means collateral:
    (1) In the form of:
    (i) Cash on deposit with the State savings association 
(including cash held for the State savings association by a third-
party custodian or trustee);
    (ii) Gold bullion;
    (iii) Long-term debt securities that have an applicable external 
rating of one category below investment grade or higher;
    (iv) Short-term debt instruments that have an applicable 
external rating of at least investment grade;
    (v) Equity securities that are publicly traded;
    (vi) Convertible bonds that are publicly traded;
    (vii) Money market mutual fund shares and other mutual fund 
shares if a price for the shares is publicly quoted daily; or
    (viii) Conforming residential mortgages; and
    (2) In which the State savings association has a perfected, 
first priority security interest or, outside of the United States, 
the legal equivalent thereof (with the exception of cash on deposit 
and notwithstanding the prior security interest of any custodial 
agent).
    GAAP means generally accepted accounting principles as used in 
the United States.
    Gain-on-sale means an increase in the equity capital (as 
reported on Schedule SC of the Thrift Financial Report or in the 
Consolidated Reports of Condition or Income (``Call Report''), as 
applicable, of a State savings association that results from a 
securitization (other than an increase in equity capital that 
results from the State savings association's receipt of cash in 
connection with the securitization).
    Guarantee means a financial guarantee, letter of credit, 
insurance, or other similar financial instrument (other than a 
credit derivative) that allows one party (beneficiary) to transfer 
the credit risk of one or more specific exposures (reference 
exposure) to another party (protection provider). See also eligible 
guarantee.
    High volatility commercial real estate (HVCRE) exposure means a 
credit facility that finances or has financed the acquisition, 
development, or construction (ADC) of real property, unless the 
facility finances:
    (1) One- to four-family residential properties; or
    (2) Commercial real estate projects in which:
    (i) The loan-to-value ratio is less than or equal to the 
applicable maximum supervisory loan-to-value ratio in the FDIC's 
real estate lending standards at 12 CFR 390.264-390.265;
    (ii) The borrower has contributed capital to the project in the 
form of cash or unencumbered readily marketable assets (or has paid 
development expenses out-of-pocket) of at least 15 percent of the 
real estate's appraised ``as completed'' value; and
    (iii) The borrower contributed the amount of capital required by 
paragraph (2)(ii) of this definition before the State savings 
association advances funds under the credit facility, and the 
capital contributed by the borrower, or internally generated by the 
project, is contractually required to remain in the project 
throughout the life of the project. The life of a project concludes 
only when the credit facility is converted to permanent financing or 
is sold or paid in full. Permanent financing may be provided by the 
State savings association that provided the ADC facility as long as 
the permanent financing is subject to the State savings 
association's underwriting criteria for long-term mortgage loans.
    Inferred rating. A securitization exposure has an inferred 
rating equal to the external rating referenced in paragraph (2)(i) 
of this definition if:
    (1) The securitization exposure does not have an external 
rating; and
    (2) Another securitization exposure issued by the same issuer 
and secured by the same underlying exposures:
    (i) Has an external rating;
    (ii) Is subordinated in all respects to the unrated 
securitization exposure;
    (iii) Does not benefit from any credit enhancement that is not 
available to the unrated securitization exposure; and
    (iv) Has an effective remaining maturity that is equal to or 
longer than that of the unrated securitization exposure.
    Interest rate derivative contract means a single-currency 
interest rate swap, basis swap, forward rate agreement, purchased 
interest rate option, when-issued securities, or any other 
instrument linked to interest rates that gives rise to similar 
counterparty credit risks.
    Internal operational loss event data means, with respect to a 
State savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss 
events occurring at the State savings association.
    Investing State savings association means, with respect to a 
securitization, a State savings association that assumes the credit 
risk of a securitization exposure (other than an originating State 
savings association of the securitization). In the typical synthetic 
securitization, the investing State savings association sells credit 
protection on a pool of underlying exposures to the originating 
State savings association.
    Investment fund means a company:
    (1) All or substantially all of the assets of which are 
financial assets; and
    (2) That has no material liabilities.
    Investors' interest EAD means, with respect to a securitization, 
the EAD of the underlying exposures multiplied by the ratio of:
    (1) The total amount of securitization exposures issued by the 
securitization SPE to investors; divided by
    (2) The outstanding principal amount of underlying exposures.
    Loss given default (LGD) means:
    (1) For a wholesale exposure, the greatest of:
    (i) Zero;
    (ii) The State savings association's empirically based best 
estimate of the long-run default-weighted average economic loss, per 
dollar of EAD, the State savings association would expect to incur 
if the obligor (or a typical obligor in the loss severity grade 
assigned by the State savings association to the exposure) were to 
default within a one-year horizon over a mix of economic conditions, 
including economic downturn conditions; or
    (iii) The State savings association's empirically based best 
estimate of the economic loss, per dollar of EAD, the State savings 
association would expect to incur if the obligor (or a typical 
obligor in the loss severity grade assigned by the State savings 
association to the exposure) were to default within a one-year 
horizon during economic downturn conditions.
    (2) For a segment of retail exposures, the greatest of:
    (i) Zero;
    (ii) The State savings association's empirically based best 
estimate of the long-

[[Page 47780]]

run default-weighted average economic loss, per dollar of EAD, the 
State savings association would expect to incur if the exposures in 
the segment were to default within a one-year horizon over a mix of 
economic conditions, including economic downturn conditions; or
    (iii) The State savings association's empirically based best 
estimate of the economic loss, per dollar of EAD, the State savings 
association would expect to incur if the exposures in the segment 
were to default within a one-year horizon during economic downturn 
conditions.
    (3) The economic loss on an exposure in the event of default is 
all material credit-related losses on the exposure (including 
accrued but unpaid interest or fees, losses on the sale of 
collateral, direct workout costs, and an appropriate allocation of 
indirect workout costs). Where positive or negative cash flows on a 
wholesale exposure to a defaulted obligor or a defaulted retail 
exposure (including proceeds from the sale of collateral, workout 
costs, additional extensions of credit to facilitate repayment of 
the exposure, and draw-downs of unused credit lines) occur after the 
date of default, the economic loss must reflect the net present 
value of cash flows as of the default date using a discount rate 
appropriate to the risk of the defaulted exposure.
    Main index means the Standard & Poor's 500 Index, the FTSE All-
World Index, and any other index for which the State savings 
association can demonstrate to the satisfaction of the FDIC that the 
equities represented in the index have comparable liquidity, depth 
of market, and size of bid-ask spreads as equities in the Standard & 
Poor's 500 Index and FTSE All-World Index.
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the International Finance 
Corporation, the Inter-American Development Bank, the Asian 
Development Bank, the African Development Bank, the European Bank 
for Reconstruction and Development, the European Investment Bank, 
the European Investment Fund, the Nordic Investment Bank, the 
Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, and any other multilateral 
lending institution or regional development bank in which the U.S. 
government is a shareholder or contributing member or which the FDIC 
determines poses comparable credit risk.
    Nationally recognized statistical rating organization (NRSRO) 
means an entity registered with the SEC as a nationally recognized 
statistical rating organization under section 15E of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-7).
    Netting set means a group of transactions with a single 
counterparty that are subject to a qualifying master netting 
agreement or qualifying cross-product master netting agreement. For 
purposes of the internal models methodology in paragraph (d) of 
section 32 of this appendix, each transaction that is not subject to 
such a master netting agreement is its own netting set.
    Nth-to-default credit derivative means a credit derivative that 
provides credit protection only for the nth-defaulting reference 
exposure in a group of reference exposures.
    Obligor means the legal entity or natural person contractually 
obligated on a wholesale exposure, except that a State savings 
association may treat the following exposures as having separate 
obligors:
    (1) Exposures to the same legal entity or natural person 
denominated in different currencies;
    (2)(i) An income-producing real estate exposure for which all or 
substantially all of the repayment of the exposure is reliant on the 
cash flows of the real estate serving as collateral for the 
exposure; the State savings association, in economic substance, does 
not have recourse to the borrower beyond the real estate collateral; 
and no cross-default or cross-acceleration clauses are in place 
other than clauses obtained solely out of an abundance of caution; 
and
    (ii) Other credit exposures to the same legal entity or natural 
person; and
    (3) (i) A wholesale exposure authorized under section 364 of the 
U.S. Bankruptcy Code (11 U.S.C. 364) to a legal entity or natural 
person who is a debtor-in-possession for purposes of Chapter 11 of 
the Bankruptcy Code; and
    (ii) Other credit exposures to the same legal entity or natural 
person.
    Operational loss means a loss (excluding insurance or tax 
effects) resulting from an operational loss event. Operational loss 
includes all expenses associated with an operational loss event 
except for opportunity costs, forgone revenue, and costs related to 
risk management and control enhancements implemented to prevent 
future operational losses.
    Operational loss event means an event that results in loss and 
is associated with any of the following seven operational loss event 
type categories:
    (1) Internal fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act 
involving at least one internal party of a type intended to defraud, 
misappropriate property, or circumvent regulations, the law, or 
company policy, excluding diversity- and discrimination-type events.
    (2) External fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act by 
a third party of a type intended to defraud, misappropriate 
property, or circumvent the law. Retail credit card losses arising 
from non-contractual, third-party initiated fraud (for example, 
identity theft) are external fraud operational losses. All other 
third-party initiated credit losses are to be treated as credit risk 
losses.
    (3) Employment practices and workplace safety, which means the 
operational loss event type category that comprises operational 
losses resulting from an act inconsistent with employment, health, 
or safety laws or agreements, payment of personal injury claims, or 
payment arising from diversity- and discrimination-type events.
    (4) Clients, products, and business practices, which means the 
operational loss event type category that comprises operational 
losses resulting from the nature or design of a product or from an 
unintentional or negligent failure to meet a professional obligation 
to specific clients (including fiduciary and suitability 
requirements).
    (5) Damage to physical assets, which means the operational loss 
event type category that comprises operational losses resulting from 
the loss of or damage to physical assets from natural disaster or 
other events.
    (6) Business disruption and system failures, which means the 
operational loss event type category that comprises operational 
losses resulting from disruption of business or system failures.
    (7) Execution, delivery, and process management, which means the 
operational loss event type category that comprises operational 
losses resulting from failed transaction processing or process 
management or losses arising from relations with trade 
counterparties and vendors.
    Operational risk means the risk of loss resulting from 
inadequate or failed internal processes, people, and systems or from 
external events (including legal risk but excluding strategic and 
reputational risk).
    Operational risk exposure means the 99.9th percentile of the 
distribution of potential aggregate operational losses, as generated 
by the State savings association's operational risk quantification 
system over a one-year horizon (and not incorporating eligible 
operational risk offsets or qualifying operational risk mitigants).
    Originating State savings association, with respect to a 
securitization, means a State savings association that:
    (1) Directly or indirectly originated or securitized the 
underlying exposures included in the securitization; or
    (2) Serves as an ABCP program sponsor to the securitization.
    Other retail exposure means an exposure (other than a 
securitization exposure, an equity exposure, a residential mortgage 
exposure, an excluded mortgage exposure, a qualifying revolving 
exposure, or the residual value portion of a lease exposure) that is 
managed as part of a segment of exposures with homogeneous risk 
characteristics, not on an individual-exposure basis, and is either:
    (1) An exposure to an individual for non-business purposes; or
    (2) An exposure to an individual or company for business 
purposes if the State savings association's consolidated business 
credit exposure to the individual or company is $1 million or less.
    Over-the-counter (OTC) derivative contract means a derivative 
contract that is not traded on an exchange that requires the daily 
receipt and payment of cash-variation margin.
    Probability of default (PD) means:
    (1) For a wholesale exposure to a non-defaulted obligor, the 
State savings association's empirically based best estimate of the 
long-run average one-year default rate for the rating grade assigned 
by the State savings association to the obligor, capturing the 
average default experience for obligors in the rating grade over a 
mix of economic conditions (including economic downturn conditions) 
sufficient to provide a reasonable

[[Page 47781]]

estimate of the average one-year default rate over the economic 
cycle for the rating grade.
    (2) For a segment of non-defaulted retail exposures, the State 
savings association's empirically based best estimate of the long-
run average one-year default rate for the exposures in the segment, 
capturing the average default experience for exposures in the 
segment over a mix of economic conditions (including economic 
downturn conditions) sufficient to provide a reasonable estimate of 
the average one-year default rate over the economic cycle for the 
segment and adjusted upward as appropriate for segments for which 
seasoning effects are material. For purposes of this definition, a 
segment for which seasoning effects are material is a segment where 
there is a material relationship between the time since origination 
of exposures within the segment and the State savings association's 
best estimate of the long-run average one-year default rate for the 
exposures in the segment.
    (3) For a wholesale exposure to a defaulted obligor or segment 
of defaulted retail exposures, 100 percent.
    Protection amount (P) means, with respect to an exposure hedged 
by an eligible guarantee or eligible credit derivative, the 
effective notional amount of the guarantee or credit derivative, 
reduced to reflect any currency mismatch, maturity mismatch, or lack 
of restructuring coverage (as provided in section 33 of this 
appendix).
    Publicly traded means traded on:
    (1) Any exchange registered with the SEC as a national 
securities exchange under section 6 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a national securities 
regulatory authority; and
    (ii) Provides a liquid, two-way market for the instrument in 
question, meaning that there are enough independent bona fide offers 
to buy and sell so that a sales price reasonably related to the last 
sales price or current bona fide competitive bid and offer 
quotations can be determined promptly and a trade can be settled at 
such a price within five business days.
    Qualifying central counterparty means a counterparty (for 
example, a clearinghouse) that:
    (1) Facilitates trades between counterparties in one or more 
financial markets by either guaranteeing trades or novating 
contracts;
    (2) Requires all participants in its arrangements to be fully 
collateralized on a daily basis; and
    (3) The State savings association demonstrates to the 
satisfaction of the FDIC is in sound financial condition and is 
subject to effective oversight by a national supervisory authority.
    Qualifying cross-product master netting agreement means a 
qualifying master netting agreement that provides for termination 
and close-out netting across multiple types of financial 
transactions or qualifying master netting agreements in the event of 
a counterparty's default, provided that:
    (1) The underlying financial transactions are OTC derivative 
contracts, eligible margin loans, or repo-style transactions; and
    (2) The State savings association obtains a written legal 
opinion verifying the validity and enforceability of the agreement 
under applicable law of the relevant jurisdictions if the 
counterparty fails to perform upon an event of default, including 
upon an event of bankruptcy, insolvency, or similar proceeding.
    Qualifying master netting agreement means any written, legally 
enforceable bilateral agreement, provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default, including bankruptcy, insolvency, or similar proceeding, of 
the counterparty;
    (2) The agreement provides the State savings association the 
right to accelerate, terminate, and close-out on a net basis all 
transactions under the agreement and to liquidate or set off 
collateral promptly upon an event of default, including upon an 
event of bankruptcy, insolvency, or similar proceeding, of the 
counterparty, provided that, in any such case, any exercise of 
rights under the agreement will not be stayed or avoided under 
applicable law in the relevant jurisdictions;
    (3) The State savings association has conducted sufficient legal 
review to conclude with a well-founded basis (and maintains 
sufficient written documentation of that legal review) that:
    (i) The agreement meets the requirements of paragraph (2) of 
this definition; and
    (ii) In the event of a legal challenge (including one resulting 
from default or from bankruptcy, insolvency, or similar proceeding) 
the relevant court and administrative authorities would find the 
agreement to be legal, valid, binding, and enforceable under the law 
of the relevant jurisdictions;
    (4) The State savings association establishes and maintains 
procedures to monitor possible changes in relevant law and to ensure 
that the agreement continues to satisfy the requirements of this 
definition; and
    (5) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it would make otherwise under the agreement, or no 
payment at all, to a defaulter or the estate of a defaulter, even if 
the defaulter or the estate of the defaulter is a net creditor under 
the agreement).
    Qualifying revolving exposure (QRE) means an exposure (other 
than a securitization exposure or equity exposure) to an individual 
that is managed as part of a segment of exposures with homogeneous 
risk characteristics, not on an individual-exposure basis, and:
    (1) Is revolving (that is, the amount outstanding fluctuates, 
determined largely by the borrower's decision to borrow and repay, 
up to a pre-established maximum amount);
    (2) Is unsecured and unconditionally cancelable by the State 
savings association to the fullest extent permitted by Federal law; 
and
    (3) Has a maximum exposure amount (drawn plus undrawn) of up to 
$100,000.
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the State savings 
association acts as agent for a customer and indemnifies the 
customer against loss, provided that:
    (1) The transaction is based solely on liquid and readily 
marketable securities, cash, gold, or conforming residential 
mortgages;
    (2) The transaction is marked-to-market daily and subject to 
daily margin maintenance requirements;
    (3)(i) The transaction is a ``securities contract'' or 
``repurchase agreement'' under section 555 or 559, respectively, of 
the Bankruptcy Code (11 U.S.C. 555 or 559), a qualified financial 
contract under section 11(e)(8) of the Federal Deposit Insurance Act 
(12 U.S.C. 1821(e)(8)), or a netting contract between or among 
financial institutions under sections 401-407 of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407) 
or the Federal Reserve Board's Regulation EE (12 CFR part 231); or
    (ii) If the transaction does not meet the criteria set forth in 
paragraph (3)(i) of this definition, then either:
    (A) The transaction is executed under an agreement that provides 
the State savings association the right to accelerate, terminate, 
and close-out the transaction on a net basis and to liquidate or set 
off collateral promptly upon an event of default (including upon an 
event of bankruptcy, insolvency, or similar proceeding) of the 
counterparty, provided that, in any such case, any exercise of 
rights under the agreement will not be stayed or avoided under 
applicable law in the relevant jurisdictions; or
    (B) The transaction is:
    (1) Either overnight or unconditionally cancelable at any time 
by the State savings association; and
    (2) Executed under an agreement that provides the State savings 
association the right to accelerate, terminate, and close-out the 
transaction on a net basis and to liquidate or set off collateral 
promptly upon an event of counterparty default; and
    (4) The State savings association has conducted sufficient legal 
review to conclude with a well-founded basis (and maintains 
sufficient written documentation of that legal review) that the 
agreement meets the requirements of paragraph (3) of this definition 
and is legal, valid, binding, and enforceable under applicable law 
in the relevant jurisdictions.
    Residential mortgage exposure means an exposure (other than a 
securitization exposure, equity exposure, or excluded mortgage 
exposure) that is managed as part of a segment of exposures with 
homogeneous risk characteristics, not on an individual-exposure 
basis, and is:
    (1) An exposure that is primarily secured by a first or 
subsequent lien on one- to four-family residential property; or
    (2) An exposure with an original and outstanding amount of $1 
million or less that is primarily secured by a first or subsequent 
lien on residential property that is not one to four family.
    Retail exposure means a residential mortgage exposure, a 
qualifying revolving exposure, or another retail exposure.

[[Page 47782]]

    Retail exposure subcategory means the residential mortgage 
exposure, qualifying revolving exposure, or other retail exposure 
subcategory.
    Risk parameter means a variable used in determining risk-based 
capital requirements for wholesale and retail exposures, 
specifically probability of default (PD), loss given default (LGD), 
exposure at default (EAD), or effective maturity (M).
    Scenario analysis means a systematic process of obtaining expert 
opinions from business managers and risk management experts to 
derive reasoned assessments of the likelihood and loss impact of 
plausible high-severity operational losses. Scenario analysis may 
include the well-reasoned evaluation and use of external operational 
loss event data, adjusted as appropriate to ensure relevance to a 
State savings association's operational risk profile and control 
structure.
    SEC means the U.S. Securities and Exchange Commission.
    Securitization means a traditional securitization or a synthetic 
securitization.
    Securitization exposure means an on-balance sheet or off-balance 
sheet credit exposure that arises from a traditional or synthetic 
securitization (including credit-enhancing representations and 
warranties).
    Securitization special purpose entity (securitization SPE) means 
a corporation, trust, or other entity organized for the specific 
purpose of holding underlying exposures of a securitization, the 
activities of which are limited to those appropriate to accomplish 
this purpose, and the structure of which is intended to isolate the 
underlying exposures held by the entity from the credit risk of the 
seller of the underlying exposures to the entity.
    Senior securitization exposure means a securitization exposure 
that has a first priority claim on the cash flows from the 
underlying exposures. When determining whether a securitization 
exposure has a first priority claim on the cash flows from the 
underlying exposures, a State savings association is not required to 
consider amounts due under interest rate or currency derivative 
contracts, fees due, or other similar payments. Both the most senior 
commercial paper issued by an ABCP program and a liquidity facility 
that supports the ABCP program may be senior securitization 
exposures if the liquidity facility provider's right to 
reimbursement of the drawn amounts is senior to all claims on the 
cash flows from the underlying exposures except amounts due under 
interest rate or currency derivative contracts, fees due, or other 
similar payments.
    Servicer cash advance facility means a facility under which the 
servicer of the underlying exposures of a securitization may advance 
cash to ensure an uninterrupted flow of payments to investors in the 
securitization, including advances made to cover foreclosure costs 
or other expenses to facilitate the timely collection of the 
underlying exposures. See also eligible servicer cash advance 
facility.
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    Sovereign exposure means:
    (1) A direct exposure to a sovereign entity; or
    (2) An exposure directly and unconditionally backed by the full 
faith and credit of a sovereign entity.
    Subsidiary means, with respect to a company, a company 
controlled by that company.
    Synthetic securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more 
underlying exposures is transferred to one or more third parties 
through the use of one or more credit derivatives or guarantees 
(other than a guarantee that transfers only the credit risk of an 
individual retail exposure);
    (2) The credit risk associated with the underlying exposures has 
been separated into at least two tranches reflecting different 
levels of seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures; and
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities).
    Tier 1 capital is defined in Sec. Sec.  390.461-390.471, as 
modified in part II of this appendix.
    Tier 2 capital is defined in Sec. Sec.  390.461-390.471, as 
modified in part II of this appendix.
    Total qualifying capital means the sum of tier 1 capital and 
tier 2 capital, after all deductions required in this appendix.
    Total risk-weighted assets means:
    (1) The sum of:
    (i) Credit risk-weighted assets; and
    (ii) Risk-weighted assets for operational risk; minus
    (2) Excess eligible credit reserves not included in tier 2 
capital.
    Total wholesale and retail risk-weighted assets means the sum of 
risk-weighted assets for wholesale exposures to non-defaulted 
obligors and segments of non-defaulted retail exposures; risk-
weighted assets for wholesale exposures to defaulted obligors and 
segments of defaulted retail exposures; risk-weighted assets for 
assets not defined by an exposure category; and risk-weighted assets 
for non-material portfolios of exposures (all as determined in 
section 31 of this appendix) and risk-weighted assets for unsettled 
transactions (as determined in section 35 of this appendix) minus 
the amounts deducted from capital pursuant to Sec. Sec.  390.461-
390.471 (excluding those deductions reversed in section 12 of this 
appendix).
    Traditional securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more 
underlying exposures is transferred to one or more third parties 
other than through the use of credit derivatives or guarantees;
    (2) The credit risk associated with the underlying exposures has 
been separated into at least two tranches reflecting different 
levels of seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures;
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities);
    (5) The underlying exposures are not owned by an operating 
company;
    (6) The underlying exposures are not owned by a small business 
investment company described in section 302 of the Small Business 
Investment Act of 1958 (15 U.S.C. 682); and
    (7) The underlying exposures are not owned by a firm an 
investment in which is designed primarily to promote community 
welfare, including the welfare of low- and moderate-income 
communities or families, such as by providing services or jobs.
    (8) The FDIC may determine that a transaction in which the 
underlying exposures are owned by an investment firm that exercises 
substantially unfettered control over the size and composition of 
its assets, liabilities, and off-balance sheet exposures is not a 
traditional securitization based on the transaction's leverage, risk 
profile, or economic substance.
    (9) The FDIC may deem a transaction that meets the definition of 
a traditional securitization, notwithstanding paragraph (5), (6), or 
(7) of this definition, to be a traditional securitization based on 
the transaction's leverage, risk profile, or economic substance.
    Tranche means all securitization exposures associated with a 
securitization that have the same seniority level.
    Underlying exposures means one or more exposures that have been 
securitized in a securitization transaction.
    Unexpected operational loss (UOL) means the difference between 
the State savings association's operational risk exposure and the 
State savings association's expected operational loss.
    Unit of measure means the level (for example, organizational 
unit or operational loss event type) at which the State savings 
association's operational risk quantification system generates a 
separate distribution of potential operational losses.
    Value-at-Risk (VaR) means the estimate of the maximum amount 
that the value of one or more exposures could decline due to market 
price or rate movements during a fixed holding period within a 
stated confidence interval.
    Wholesale exposure means a credit exposure to a company, natural 
person, sovereign entity, or governmental entity (other than a 
securitization exposure, retail exposure, excluded mortgage 
exposure, or equity exposure). Examples of a wholesale exposure 
include:
    (1) A non-tranched guarantee issued by a State savings 
association on behalf of a company;
    (2) A repo-style transaction entered into by a State savings 
association with a company and any other transaction in which a 
State savings association posts collateral to a company and faces 
counterparty credit risk;

[[Page 47783]]

    (3) An exposure that a State savings association treats as a 
covered position under any applicable market risk rule for which 
there is a counterparty credit risk capital requirement;
    (4) A sale of corporate loans by a State savings association to 
a third party in which the State savings association retains full 
recourse;
    (5) An OTC derivative contract entered into by a State savings 
association with a company;
    (6) An exposure to an individual that is not managed by a State 
savings association as part of a segment of exposures with 
homogeneous risk characteristics; and
    (7) A commercial lease.
    Wholesale exposure subcategory means the HVCRE or non-HVCRE 
wholesale exposure subcategory.

Section 3. Minimum Risk-Based Capital Requirements

    (a) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each State savings association must 
meet a minimum ratio of:
    (1) Total qualifying capital to total risk-weighted assets of 
8.0 percent; and
    (2) Tier 1 capital to total risk-weighted assets of 4.0 percent.
    (b) Each State savings association must hold capital 
commensurate with the level and nature of all risks to which the 
State savings association is exposed.
    (c) When a State savings association subject to any applicable 
market risk rule calculates its risk-based capital requirements 
under this appendix, the State savings association must also refer 
to any applicable market risk rule for supplemental rules to 
calculate risk-based capital requirements adjusted for market risk.

Part II. Qualifying Capital

Section 11. Additional Deductions

    (a) General. A State savings association that uses this appendix 
must make the same deductions from its tier 1 capital and tier 2 
capital required in Sec. Sec.  390.461-390.471 except that:
    (1) A State savings association is not required to deduct 
certain equity investments and CEIOs (as provided in section 12 of 
this appendix); and
    (2) A State savings association also must make the deductions 
from capital required by paragraphs (b) and (c) of this section.
    (b) Deductions from tier 1 capital. A State savings association 
must deduct from tier 1 capital any gain-on-sale associated with a 
securitization exposure as provided in paragraph (a) of section 41 
and paragraphs (a)(1), (c), (g)(1), and (h)(1) of section 42 of this 
appendix.
    (c) Deductions from tier 1 and tier 2 capital. A State savings 
association must deduct the exposures specified in paragraphs (c)(1) 
through (c)(7) in this section 50 percent from tier 1 capital and 50 
percent from tier 2 capital. If the amount deductible from tier 2 
capital exceeds the State savings association's actual tier 2 
capital, however, the State savings association must deduct the 
excess from tier 1 capital.
    (1) Credit-enhancing interest-only strips (CEIOs). In accordance 
with paragraphs (a)(1) and (c) of section 42 of this appendix, any 
CEIO that does not constitute gain-on-sale.
    (2) Non-qualifying securitization exposures. In accordance with 
paragraphs (a)(4) and (c) of section 42 of this appendix, any 
securitization exposure that does not qualify for the Ratings-Based 
Approach, the Internal Assessment Approach, or the Supervisory 
Formula Approach under sections 43, 44, and 45 of this appendix, 
respectively.
    (3) Securitizations of non-IRB exposures. In accordance with 
paragraphs (c) and (g)(4) of section 42 of this appendix, certain 
exposures to a securitization any underlying exposure of which is 
not a wholesale exposure, retail exposure, securitization exposure, 
or equity exposure.
    (4) Low-rated securitization exposures. In accordance with 
section 43 and paragraph (c) of section 42 of this appendix, any 
securitization exposure that qualifies for and must be deducted 
under the Ratings-Based Approach.
    (5) High-risk securitization exposures subject to the 
Supervisory Formula Approach. In accordance with paragraphs (b) and 
(c) of section 45 of this appendix and paragraph (c) of section 42 
of this appendix, certain high-risk securitization exposures (or 
portions thereof) that qualify for the Supervisory Formula Approach.
    (6) Eligible credit reserves shortfall. In accordance with 
paragraph (a)(1) of section 13 of this appendix, any eligible credit 
reserves shortfall.
    (7) Certain failed capital markets transactions. In accordance 
with paragraph (e)(3) of section 35 of this appendix, the State 
savings association's exposure on certain failed capital markets 
transactions.

Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A State savings association is not 
required to make the deduction from capital for CEIOs in 12 CFR 
390.465(a)(2)(iii) and 390.471(e).
    (b) Deduction for certain equity investments. A State savings 
association is not required to deduct equity securities from capital 
under 12 CFR 390.465(c)(2)(ii). However, it must continue to deduct 
equity investments in real estate under that section. See 12 CFR 
390.461, which defines equity investments, including equity 
securities and equity investments in real estate.

Section 13. Eligible Credit Reserves

    (a) Comparison of eligible credit reserves to expected credit 
losses--(1) Shortfall of eligible credit reserves. If a State 
savings association's eligible credit reserves are less than the 
State savings association's total expected credit losses, the State 
savings association must deduct the shortfall amount 50 percent from 
tier 1 capital and 50 percent from tier 2 capital. If the amount 
deductible from tier 2 capital exceeds the State savings 
association's actual tier 2 capital, the State savings association 
must deduct the excess amount from tier 1 capital.
    (2) Excess eligible credit reserves. If a State savings 
association's eligible credit reserves exceed the State savings 
association's total expected credit losses, the State savings 
association may include the excess amount in tier 2 capital to the 
extent that the excess amount does not exceed 0.6 percent of the 
State savings association's credit-risk-weighted assets.
    (b) Treatment of allowance for loan and lease losses. Regardless 
of any provision in Sec. Sec.  390.461 through 390.471, the ALLL is 
included in tier 2 capital only to the extent provided in paragraph 
(a)(2) of this section and in section 24 of this appendix.

Part III. Qualification

Section 21. Qualification Process

    (a) Timing. (1) A State savings association that is described in 
paragraph (b)(1) of section 1 of this appendix must adopt a written 
implementation plan no later than six months after the later of 
April 1, 2008, or the date the State savings association meets a 
criterion in that section. The implementation plan must incorporate 
an explicit first floor period start date no later than 36 months 
after the later of April 1, 2008, or the date the State savings 
association meets at least one criterion under paragraph (b)(1) of 
section 1 of this appendix. The FDIC may extend the first floor 
period start date.
    (2) A State savings association that elects to be subject to 
this appendix under paragraph (b)(2) of section 1 of this appendix 
must adopt a written implementation plan.
    (b) Implementation plan. (1) The State savings association's 
implementation plan must address in detail how the State savings 
association complies, or plans to comply, with the qualification 
requirements in section 22 of this appendix. The State savings 
association also must maintain a comprehensive and sound planning 
and governance process to oversee the implementation efforts 
described in the plan. At a minimum, the plan must:
    (i) Comprehensively address the qualification requirements in 
section 22 of this appendix for the State savings association and 
each consolidated subsidiary (U.S. and foreign-based) of the State 
savings association with respect to all portfolios and exposures of 
the State savings association and each of its consolidated 
subsidiaries;
    (ii) Justify and support any proposed temporary or permanent 
exclusion of business lines, portfolios, or exposures from 
application of the advanced approaches in this appendix (which 
business lines, portfolios, and exposures must be, in the aggregate, 
immaterial to the State savings association);
    (iii) Include the State savings association's self-assessment 
of:
    (A) The State savings association's current status in meeting 
the qualification requirements in section 22 of this appendix; and
    (B) The consistency of the State savings association's current 
practices with the FDIC's supervisory guidance on the qualification 
requirements;
    (iv) Based on the State savings association's self-assessment, 
identify and describe the areas in which the State savings 
association proposes to undertake additional work to comply with the 
qualification requirements in section 22 of this appendix or to 
improve the consistency of the State

[[Page 47784]]

savings association's current practices with the FDIC's supervisory 
guidance on the qualification requirements (gap analysis);
    (v) Describe what specific actions the State savings association 
will take to address the areas identified in the gap analysis 
required by paragraph (b)(1)(iv) of this section;
    (vi) Identify objective, measurable milestones, including 
delivery dates and a date when the State savings association's 
implementation of the methodologies described in this appendix will 
be fully operational;
    (vii) Describe resources that have been budgeted and are 
available to implement the plan; and
    (viii) Receive approval of the State savings association's board 
of directors.
    (2) The State savings association must submit the implementation 
plan, together with a copy of the minutes of the board of directors' 
approval, to the FDIC at least 60 days before the State savings 
association proposes to begin its parallel run, unless the FDIC 
waives prior notice.
    (c) Parallel run. Before determining its risk-based capital 
requirements under this appendix and following adoption of the 
implementation plan, the State savings association must conduct a 
satisfactory parallel run. A satisfactory parallel run is a period 
of no less than four consecutive calendar quarters during which the 
State savings association complies with the qualification 
requirements in section 22 of this appendix to the satisfaction of 
the FDIC. During the parallel run, the State savings association 
must report to the FDIC on a calendar quarterly basis its risk-based 
capital ratios using Sec. Sec.  390.461 through 390.471 and the 
risk-based capital requirements described in this appendix. During 
this period, the State savings association is subject to Sec. Sec.  
390.461 through 390.471.
    (d) Approval to calculate risk-based capital requirements under 
this appendix. The FDIC will notify the State savings association of 
the date that the State savings association may begin its first 
floor period if the FDIC determines that:
    (1) The State savings association fully complies with all the 
qualification requirements in section 22 of this appendix;
    (2) The State savings association has conducted a satisfactory 
parallel run under paragraph (c) of this section; and
    (3) The State savings association has an adequate process to 
ensure ongoing compliance with the qualification requirements in 
section 22 of this appendix.
    (e) Transitional floor periods. Following a satisfactory 
parallel run, a State savings association is subject to three 
transitional floor periods.
    (1) Risk-based capital ratios during the transitional floor 
periods--(i) Tier 1 risk-based capital ratio. During a State savings 
association's transitional floor periods, the State savings 
association's tier 1 risk-based capital ratio is equal to the lower 
of:
    (A) The State savings association's floor-adjusted tier 1 risk-
based capital ratio; or
    (B) The State savings association's advanced approaches tier 1 
risk-based capital ratio.
    (ii) Total risk-based capital ratio. During a State savings 
association's transitional floor periods, the State savings 
association's total risk-based capital ratio is equal to the lower 
of:
    (A) The State savings association's floor-adjusted total risk-
based capital ratio; or
    (B) The State savings association's advanced approaches total 
risk-based capital ratio.
    (2) Floor-adjusted risk-based capital ratios. (i) A State 
savings association's floor-adjusted tier 1 risk-based capital ratio 
during a transitional floor period is equal to the State savings 
association's tier 1 capital as calculated under Sec. Sec.  390.461-
390.471, divided by the product of:
    (A) The State savings association's total risk-weighted assets 
as calculated under Sec. Sec.  390.461 through 390.471; and
    (B) The appropriate transitional floor percentage in Table 1.
    (ii) A State savings association's floor-adjusted total risk-
based capital ratio during a transitional floor period is equal to 
the sum of the State savings association's tier 1 and tier 2 capital 
as calculated under Sec. Sec.  390.461 through 390.471, divided by 
the product of:
    (A) The State savings association's total risk-weighted assets 
as calculated under Sec. Sec.  390.461 through 390.471; and
    (B) The appropriate transitional floor percentage in Table 1.
    (iii) A State savings association that meets the criteria in 
paragraph (b)(1) or (b)(2) of section 1 of this appendix as of April 
1, 2008, must use Sec. Sec.  390.461 through 390.471 during the 
parallel run and as the basis for its transitional floors.

                      Table 1--Transitional Floors
------------------------------------------------------------------------
                                                           Transitional
                Transitional floor period                      floor
                                                            percentage
------------------------------------------------------------------------
First floor period......................................              95
Second floor period.....................................              90
Third floor period......................................              85
------------------------------------------------------------------------

    (3) Advanced approaches risk-based capital ratios. (i) A State 
savings association's advanced approaches tier 1 risk-based capital 
ratio equals the State savings association's tier 1 risk-based 
capital ratio as calculated under this appendix (other than this 
section on transitional floor periods).
    (ii) A State savings association's advanced approaches total 
risk-based capital ratio equals the State savings association's 
total risk-based capital ratio as calculated under this appendix 
(other than this section on transitional floor periods).
    (4) Reporting. During the transitional floor periods, a State 
savings association must report to the FDIC on a calendar quarterly 
basis both floor-adjusted risk-based capital ratios and both 
advanced approaches risk-based capital ratios.
    (5) Exiting a transitional floor period. A State savings 
association may not exit a transitional floor period until the State 
savings association has spent a minimum of four consecutive calendar 
quarters in the period and the FDIC has determined that the State 
savings association may exit the floor period. The FDIC's 
determination will be based on an assessment of the State savings 
association's ongoing compliance with the qualification requirements 
in section 22 of this appendix.
    (6) Interagency study. After the end of the second transition 
year (2010), the Federal banking agencies will publish a study that 
evaluates the advanced approaches to determine if there are any 
material deficiencies. For any primary Federal supervisor to 
authorize any institution to exit the third transitional floor 
period, the study must determine that there are no such material 
deficiencies that cannot be addressed by then-existing tools, or, if 
such deficiencies are found, they are first remedied by changes to 
this appendix. Notwithstanding the preceding sentence, a primary 
Federal supervisor that disagrees with the finding of material 
deficiency may not authorize any institution under its jurisdiction 
to exit the third transitional floor period unless it provides a 
public report explaining its reasoning.

Section 22. Qualification Requirements

    (a) Process and systems requirements. (1) A State savings 
association must have a rigorous process for assessing its overall 
capital adequacy in relation to its risk profile and a comprehensive 
strategy for maintaining an appropriate level of capital.
    (2) The systems and processes used by a State savings 
association for risk-based capital purposes under this appendix must 
be consistent with the State savings association's internal risk 
management processes and management information reporting systems.
    (3) Each State savings association must have an appropriate 
infrastructure with risk measurement and management processes that 
meet the qualification requirements of this section and are 
appropriate given the State savings association's size and level of 
complexity. Regardless of whether the systems and models that 
generate the risk parameters necessary for calculating a State 
savings association's risk-based capital requirements are located at 
any affiliate of the State savings association, the State savings 
association itself must ensure that the risk parameters and 
reference data used to determine its risk-based capital requirements 
are representative of its own credit risk and operational risk 
exposures.
    (b) Risk rating and segmentation systems for wholesale and 
retail exposures. (1) A State savings association must have an 
internal risk rating and segmentation system that accurately and 
reliably differentiates among degrees of credit risk for the State 
savings association's wholesale and retail exposures.
    (2) For wholesale exposures:
    (i) A State savings association must have an internal risk 
rating system that accurately and reliably assigns each obligor to a 
single rating grade (reflecting the obligor's likelihood of 
default). A State savings association may elect, however, not to 
assign to a rating grade an obligor to whom the State savings 
association extends credit based solely on the financial strength of 
a guarantor, provided that all of the State savings association's 
exposures to the obligor are fully covered by eligible guarantees, 
the

[[Page 47785]]

State savings association applies the PD substitution approach in 
paragraph (c)(1) of section 33 of this appendix to all exposures to 
that obligor, and the State savings association immediately assigns 
the obligor to a rating grade if a guarantee can no longer be 
recognized under this appendix. The State savings association's 
wholesale obligor rating system must have at least seven discrete 
rating grades for non-defaulted obligors and at least one rating 
grade for defaulted obligors.
    (ii) Unless the State savings association has chosen to directly 
assign LGD estimates to each wholesale exposure, the State savings 
association must have an internal risk rating system that accurately 
and reliably assigns each wholesale exposure to a loss severity 
rating grade (reflecting the State savings association's estimate of 
the LGD of the exposure). A State savings association employing loss 
severity rating grades must have a sufficiently granular loss 
severity grading system to avoid grouping together exposures with 
widely ranging LGDs.
    (3) For retail exposures, a State savings association must have 
an internal system that groups retail exposures into the appropriate 
retail exposure subcategory, groups the retail exposures in each 
retail exposure subcategory into separate segments with homogeneous 
risk characteristics, and assigns accurate and reliable PD and LGD 
estimates for each segment on a consistent basis. The State savings 
association's system must identify and group in separate segments by 
subcategories exposures identified in paragraphs (c)(2)(ii) and 
(iii) of section 31 of this appendix.
    (4) The State savings association's internal risk rating policy 
for wholesale exposures must describe the State savings 
association's rating philosophy (that is, must describe how 
wholesale obligor rating assignments are affected by the State 
savings association's choice of the range of economic, business, and 
industry conditions that are considered in the obligor rating 
process).
    (5) The State savings association's internal risk rating system 
for wholesale exposures must provide for the review and update (as 
appropriate) of each obligor rating and (if applicable) each loss 
severity rating whenever the State savings association receives new 
material information, but no less frequently than annually. The 
State savings association's retail exposure segmentation system must 
provide for the review and update (as appropriate) of assignments of 
retail exposures to segments whenever the State savings association 
receives new material information, but generally no less frequently 
than quarterly.
    (c) Quantification of risk parameters for wholesale and retail 
exposures. (1) The State savings association must have a 
comprehensive risk parameter quantification process that produces 
accurate, timely, and reliable estimates of the risk parameters for 
the State savings association's wholesale and retail exposures.
    (2) Data used to estimate the risk parameters must be relevant 
to the State savings association's actual wholesale and retail 
exposures, and of sufficient quality to support the determination of 
risk-based capital requirements for the exposures.
    (3) The State savings association's risk parameter 
quantification process must produce appropriately conservative risk 
parameter estimates where the State savings association has limited 
relevant data, and any adjustments that are part of the 
quantification process must not result in a pattern of bias toward 
lower risk parameter estimates.
    (4) The State savings association's risk parameter estimation 
process should not rely on the possibility of U.S. government 
financial assistance, except for the financial assistance that the 
U.S. government has a legally binding commitment to provide.
    (5) Where the State savings association's quantifications of LGD 
directly or indirectly incorporate estimates of the effectiveness of 
its credit risk management practices in reducing its exposure to 
troubled obligors prior to default, the State savings association 
must support such estimates with empirical analysis showing that the 
estimates are consistent with its historical experience in dealing 
with such exposures during economic downturn conditions.
    (6) PD estimates for wholesale obligors and retail segments must 
be based on at least five years of default data. LGD estimates for 
wholesale exposures must be based on at least seven years of loss 
severity data, and LGD estimates for retail segments must be based 
on at least five years of loss severity data. EAD estimates for 
wholesale exposures must be based on at least seven years of 
exposure amount data, and EAD estimates for retail segments must be 
based on at least five years of exposure amount data.
    (7) Default, loss severity, and exposure amount data must 
include periods of economic downturn conditions, or the State 
savings association must adjust its estimates of risk parameters to 
compensate for the lack of data from periods of economic downturn 
conditions.
    (8) The State savings association's PD, LGD, and EAD estimates 
must be based on the definition of default in this appendix.
    (9) The State savings association must review and update (as 
appropriate) its risk parameters and its risk parameter 
quantification process at least annually.
    (10) The State savings association must at least annually 
conduct a comprehensive review and analysis of reference data to 
determine relevance of reference data to the State savings 
association's exposures, quality of reference data to support PD, 
LGD, and EAD estimates, and consistency of reference data to the 
definition of default contained in this appendix.
    (d) Counterparty credit risk model. A State savings association 
must obtain the prior written approval of the FDIC under section 32 
of this appendix to use the internal models methodology for 
counterparty credit risk.
    (e) Double default treatment. A State savings association must 
obtain the prior written approval of the FDIC under section 34 of 
this appendix to use the double default treatment.
    (f) Securitization exposures. A State savings association must 
obtain the prior written approval of the FDIC under section 44 of 
this appendix to use the Internal Assessment Approach for 
securitization exposures to ABCP programs.
    (g) Equity exposures model. A State savings association must 
obtain the prior written approval of the FDIC under section 53 of 
this appendix to use the Internal Models Approach for equity 
exposures.
    (h) Operational risk--(1) Operational risk management processes. 
A State savings association must:
    (i) Have an operational risk management function that:
    (A) Is independent of business line management; and
    (B) Is responsible for designing, implementing, and overseeing 
the State savings association's operational risk data and assessment 
systems, operational risk quantification systems, and related 
processes;
    (ii) Have and document a process (which must capture business 
environment and internal control factors affecting the State savings 
association's operational risk profile) to identify, measure, 
monitor, and control operational risk in State savings association 
products, activities, processes, and systems; and
    (iii) Report operational risk exposures, operational loss 
events, and other relevant operational risk information to business 
unit management, senior management, and the board of directors (or a 
designated committee of the board).
    (2) Operational risk data and assessment systems. A State 
savings association must have operational risk data and assessment 
systems that capture operational risks to which the State savings 
association is exposed. The State savings association's operational 
risk data and assessment systems must:
    (i) Be structured in a manner consistent with the State savings 
association's current business activities, risk profile, 
technological processes, and risk management processes; and
    (ii) Include credible, transparent, systematic, and verifiable 
processes that incorporate the following elements on an ongoing 
basis:
    (A) Internal operational loss event data. The State savings 
association must have a systematic process for capturing and using 
internal operational loss event data in its operational risk data 
and assessment systems.
    (1) The State savings association's operational risk data and 
assessment systems must include a historical observation period of 
at least five years for internal operational loss event data (or 
such shorter period approved by the FDIC to address transitional 
situations, such as integrating a new business line).
    (2) The State savings association must be able to map its 
internal operational loss event data into the seven operational loss 
event type categories.
    (3) The State savings association may refrain from collecting 
internal operational loss event data for individual operational 
losses below established dollar threshold amounts if the State 
savings association can demonstrate to the satisfaction of the FDIC 
that the thresholds are reasonable, do not exclude important 
internal operational loss event data, and permit the State savings 
association to capture substantially all the dollar value of the 
State savings association's operational losses.

[[Page 47786]]

    (B) External operational loss event data. The State savings 
association must have a systematic process for determining its 
methodologies for incorporating external operational loss event data 
into its operational risk data and assessment systems.
    (C) Scenario analysis. The State savings association must have a 
systematic process for determining its methodologies for 
incorporating scenario analysis into its operational risk data and 
assessment systems.
    (D) Business environment and internal control factors. The State 
savings association must incorporate business environment and 
internal control factors into its operational risk data and 
assessment systems. The State savings association must also 
periodically compare the results of its prior business environment 
and internal control factor assessments against its actual 
operational losses incurred in the intervening period.
    (3) Operational risk quantification systems. (i) The State 
savings association's operational risk quantification systems:
    (A) Must generate estimates of the State savings association's 
operational risk exposure using its operational risk data and 
assessment systems;
    (B) Must employ a unit of measure that is appropriate for the 
State savings association's range of business activities and the 
variety of operational loss events to which it is exposed, and that 
does not combine business activities or operational loss events with 
demonstrably different risk profiles within the same loss 
distribution;
    (C) Must include a credible, transparent, systematic, and 
verifiable approach for weighting each of the four elements, 
described in paragraph (h)(2)(ii) of this section, that a State 
savings association is required to incorporate into its operational 
risk data and assessment systems;
    (D) May use internal estimates of dependence among operational 
losses across and within units of measure if the State savings 
association can demonstrate to the satisfaction of the FDIC that its 
process for estimating dependence is sound, robust to a variety of 
scenarios, and implemented with integrity, and allows for the 
uncertainty surrounding the estimates. If the State savings 
association has not made such a demonstration, it must sum 
operational risk exposure estimates across units of measure to 
calculate its total operational risk exposure; and
    (E) Must be reviewed and updated (as appropriate) whenever the 
State savings association becomes aware of information that may have 
a material effect on the State savings association's estimate of 
operational risk exposure, but the review and update must occur no 
less frequently than annually.
    (ii) With the prior written approval of the FDIC, a State 
savings association may generate an estimate of its operational risk 
exposure using an alternative approach to that specified in 
paragraph (h)(3)(i) of this section. A State savings association 
proposing to use such an alternative operational risk quantification 
system must submit a proposal to the FDIC. In determining whether to 
approve a State savings association's proposal to use an alternative 
operational risk quantification system, the FDIC will consider the 
following principles:
    (A) Use of the alternative operational risk quantification 
system will be allowed only on an exception basis, considering the 
size, complexity, and risk profile of the State savings association;
    (B) The State savings association must demonstrate that its 
estimate of its operational risk exposure generated under the 
alternative operational risk quantification system is appropriate 
and can be supported empirically; and
    (C) A State savings association must not use an allocation of 
operational risk capital requirements that includes entities other 
than depository institutions or the benefits of diversification 
across entities.
    (i) Data management and maintenance. (1) A State savings 
association must have data management and maintenance systems that 
adequately support all aspects of its advanced systems and the 
timely and accurate reporting of risk-based capital requirements.
    (2) A State savings association must retain data using an 
electronic format that allows timely retrieval of data for analysis, 
validation, reporting, and disclosure purposes.
    (3) A State savings association must retain sufficient data 
elements related to key risk drivers to permit adequate monitoring, 
validation, and refinement of its advanced systems.
    (j) Control, oversight, and validation mechanisms. (1) The State 
savings association's senior management must ensure that all 
components of the State savings association's advanced systems 
function effectively and comply with the qualification requirements 
in this section.
    (2) The State savings association's board of directors (or a 
designated committee of the board) must at least annually review the 
effectiveness of, and approve, the State savings association's 
advanced systems.
    (3) A State savings association must have an effective system of 
controls and oversight that:
    (i) Ensures ongoing compliance with the qualification 
requirements in this section;
    (ii) Maintains the integrity, reliability, and accuracy of the 
State savings association's advanced systems; and
    (iii) Includes adequate governance and project management 
processes.
    (4) The State savings association must validate, on an ongoing 
basis, its advanced systems. The State savings association's 
validation process must be independent of the advanced systems' 
development, implementation, and operation, or the validation 
process must be subjected to an independent review of its adequacy 
and effectiveness. Validation must include:
    (i) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the advanced systems;
    (ii) An ongoing monitoring process that includes verification of 
processes and benchmarking; and
    (iii) An outcomes analysis process that includes back-testing.
    (5) The State savings association must have an internal audit 
function independent of business-line management that at least 
annually assesses the effectiveness of the controls supporting the 
State savings association's advanced systems and reports its 
findings to the State savings association's board of directors (or a 
committee thereof).
    (6) The State savings association must periodically stress test 
its advanced systems. The stress testing must include a 
consideration of how economic cycles, especially downturns, affect 
risk-based capital requirements (including migration across rating 
grades and segments and the credit risk mitigation benefits of 
double default treatment).
    (k) Documentation. The State savings association must adequately 
document all material aspects of its advanced systems.

Section 23. Ongoing Qualification

    (a) Changes to advanced systems. A State savings association 
must meet all the qualification requirements in section 22 of this 
appendix on an ongoing basis. A State savings association must 
notify the FDIC when the State savings association makes any change 
to an advanced system that would result in a material change in the 
State savings association's risk-weighted asset amount for an 
exposure type, or when the State savings association makes any 
significant change to its modeling assumptions.
    (b) Failure to comply with qualification requirements. (1) If 
the FDIC determines that a State savings association that uses this 
appendix and has conducted a satisfactory parallel run fails to 
comply with the qualification requirements in section 22 of this 
appendix, the FDIC will notify the State savings association in 
writing of the State savings association's failure to comply.
    (2) The State savings association must establish and submit a 
plan satisfactory to the FDIC to return to compliance with the 
qualification requirements.
    (3) In addition, if the FDIC determines that the State savings 
association's risk-based capital requirements are not commensurate 
with the State savings association's credit, market, operational, or 
other risks, the FDIC may require such a State savings association 
to calculate its risk-based capital requirements:
    (i) Under Sec. Sec.  390.461 through 390.471; or
    (ii) Under this appendix with any modifications provided by the 
FDIC.

Section 24. Merger and Acquisition Transitional Arrangements

    (a) Mergers and acquisitions of companies without advanced 
systems. If a State savings association merges with or acquires a 
company that does not calculate its risk-based capital requirements 
using advanced systems, the State savings association may use 
Sec. Sec.  390.461 through 390.471 to determine the risk-weighted 
asset amounts for, and deductions from capital associated with, the 
merged or acquired company's exposures for up to 24 months after the 
calendar quarter during which the merger or acquisition consummates. 
The FDIC may extend this transition period for up to an additional 
12 months. Within 90 days of consummating the merger or acquisition, 
the State savings

[[Page 47787]]

association must submit to the FDIC an implementation plan for using 
its advanced systems for the acquired company. During the period 
when Sec.  390.460 applies to the merged or acquired company, any 
ALLL associated with the merged or acquired company's exposures may 
be included in the State savings association's tier 2 capital up to 
1.25 percent of the acquired company's risk-weighted assets. All 
general allowances of the merged or acquired company must be 
excluded from the State savings association's eligible credit 
reserves. In addition, the risk-weighted assets of the merged or 
acquired company are not included in the State savings association's 
credit-risk-weighted assets but are included in total risk-weighted 
assets. If a State savings association relies on this paragraph, the 
State savings association must disclose publicly the amounts of 
risk-weighted assets and qualifying capital calculated under this 
appendix for the acquiring State savings association and under 
Sec. Sec.  390.461 through 390.471 for the acquired company.
    (b) Mergers and acquisitions of companies with advanced 
systems--(1) If a State savings association merges with or acquires 
a company that calculates its risk-based capital requirements using 
advanced systems, the State savings association may use the acquired 
company's advanced systems to determine the risk-weighted asset 
amounts for, and deductions from capital associated with, the merged 
or acquired company's exposures for up to 24 months after the 
calendar quarter during which the acquisition or merger consummates. 
The FDIC may extend this transition period for up to an additional 
12 months. Within 90 days of consummating the merger or acquisition, 
the State savings association must submit to the FDIC an 
implementation plan for using its advanced systems for the merged or 
acquired company.
    (2) If the acquiring State savings association is not subject to 
the advanced approaches in this appendix at the time of acquisition 
or merger, during the period when Sec. Sec.  390.461 through 390.471 
apply to the acquiring State savings association, the ALLL 
associated with the exposures of the merged or acquired company may 
not be directly included in tier 2 capital. Rather, any excess 
eligible credit reserves associated with the merged or acquired 
company's exposures may be included in the State savings 
association's tier 2 capital up to 0.6 percent of the credit-risk-
weighted assets associated with those exposures.

Part IV. Risk-Weighted Assets for General Credit Risk

Section 31. Mechanics for Calculating Total Wholesale and Retail 
Risk-Weighted Assets

    (a) Overview. A State savings association must calculate its 
total wholesale and retail risk-weighted asset amount in four 
distinct phases:
    (1) Phase 1--categorization of exposures;
    (2) Phase 2--assignment of wholesale obligors and exposures to 
rating grades and segmentation of retail exposures;
    (3) Phase 3--assignment of risk parameters to wholesale 
exposures and segments of retail exposures; and
    (4) Phase 4--calculation of risk-weighted asset amounts.
    (b) Phase 1--Categorization. The State savings association must 
determine which of its exposures are wholesale exposures, retail 
exposures, securitization exposures, or equity exposures. The State 
savings association must categorize each retail exposure as a 
residential mortgage exposure, a QRE, or an other retail exposure. 
The State savings association must identify which wholesale 
exposures are HVCRE exposures, sovereign exposures, OTC derivative 
contracts, repo-style transactions, eligible margin loans, eligible 
purchased wholesale exposures, unsettled transactions to which 
section 35 of this appendix applies, and eligible guarantees or 
eligible credit derivatives that are used as credit risk mitigants. 
The State savings association must identify any on-balance sheet 
asset that does not meet the definition of a wholesale, retail, 
equity, or securitization exposure, as well as any non-material 
portfolio of exposures described in paragraph (e)(4) of this 
section.
    (c) Phase 2--Assignment of wholesale obligors and exposures to 
rating grades and retail exposures to segments--(1) Assignment of 
wholesale obligors and exposures to rating grades.
    (i) The State savings association must assign each obligor of a 
wholesale exposure to a single obligor rating grade and must assign 
each wholesale exposure to which it does not directly assign an LGD 
estimate to a loss severity rating grade.
    (ii) The State savings association must identify which of its 
wholesale obligors are in default.
    (2) Segmentation of retail exposures. (i) The State savings 
association must group the retail exposures in each retail 
subcategory into segments that have homogeneous risk 
characteristics.
    (ii) The State savings association must identify which of its 
retail exposures are in default. The State savings association must 
segment defaulted retail exposures separately from non-defaulted 
retail exposures.
    (iii) If the State savings association determines the EAD for 
eligible margin loans using the approach in paragraph (b) of section 
32 of this appendix, the State savings association must identify 
which of its retail exposures are eligible margin loans for which 
the State savings association uses this EAD approach and must 
segment such eligible margin loans separately from other retail 
exposures.
    (3) Eligible purchased wholesale exposures. A State savings 
association may group its eligible purchased wholesale exposures 
into segments that have homogeneous risk characteristics. A State 
savings association must use the wholesale exposure formula in Table 
2 in this section to determine the risk-based capital requirement 
for each segment of eligible purchased wholesale exposures.
    (d) Phase 3--Assignment of risk parameters to wholesale 
exposures and segments of retail exposures--(1) Quantification 
process. Subject to the limitations in this paragraph (d), the State 
savings association must:
    (i) Associate a PD with each wholesale obligor rating grade;
    (ii) Associate an LGD with each wholesale loss severity rating 
grade or assign an LGD to each wholesale exposure;
    (iii) Assign an EAD and M to each wholesale exposure; and
    (iv) Assign a PD, LGD, and EAD to each segment of retail 
exposures.
    (2) Floor on PD assignment. The PD for each wholesale obligor or 
retail segment may not be less than 0.03 percent, except for 
exposures to or directly and unconditionally guaranteed by a 
sovereign entity, the Bank for International Settlements, the 
International Monetary Fund, the European Commission, the European 
Central Bank, or a multilateral development bank, to which the State 
savings association assigns a rating grade associated with a PD of 
less than 0.03 percent.
    (3) Floor on LGD estimation. The LGD for each segment of 
residential mortgage exposures (other than segments of residential 
mortgage exposures for which all or substantially all of the 
principal of each exposure is directly and unconditionally 
guaranteed by the full faith and credit of a sovereign entity) may 
not be less than 10 percent.
    (4) Eligible purchased wholesale exposures. A State savings 
association must assign a PD, LGD, EAD, and M to each segment of 
eligible purchased wholesale exposures. If the State savings 
association can estimate ECL (but not PD or LGD) for a segment of 
eligible purchased wholesale exposures, the State savings 
association must assume that the LGD of the segment equals 100 
percent and that the PD of the segment equals ECL divided by EAD. 
The estimated ECL must be calculated for the exposures without 
regard to any assumption of recourse or guarantees from the seller 
or other parties.
    (5) Credit risk mitigation--credit derivatives, guarantees, and 
collateral. (i) A State savings association may take into account 
the risk reducing effects of eligible guarantees and eligible credit 
derivatives in support of a wholesale exposure by applying the PD 
substitution or LGD adjustment treatment to the exposure as provided 
in section 33 of this appendix or, if applicable, applying double 
default treatment to the exposure as provided in section 34 of this 
appendix. A State savings association may decide separately for each 
wholesale exposure that qualifies for the double default treatment 
under section 34 of this appendix whether to apply the double 
default treatment or to use the PD substitution or LGD adjustment 
treatment without recognizing double default effects.
    (ii) A State savings association may take into account the risk 
reducing effects of guarantees and credit derivatives in support of 
retail exposures in a segment when quantifying the PD and LGD of the 
segment.
    (iii) Except as provided in paragraph (d)(6) of this section, a 
State savings association may take into account the risk reducing 
effects of collateral in support of a wholesale exposure when 
quantifying the LGD of the exposure and may take into account the 
risk reducing effects of collateral in support of retail exposures 
when quantifying the PD and LGD of the segment.
    (6) EAD for OTC derivative contracts, repo-style transactions, 
and eligible margin loans.

[[Page 47788]]

(i) A State savings association must calculate its EAD for an OTC 
derivative contract as provided in paragraphs (c) and (d) of section 
32 of this appendix. A State savings association may take into 
account the risk-reducing effects of financial collateral in support 
of a repo-style transaction or eligible margin loan and of any 
collateral in support of a repo-style transaction that is included 
in the State savings association's VaR-based measure under any 
applicable market risk rule through an adjustment to EAD as provided 
in paragraphs (b) and (d) of section 32 of this appendix. A State 
savings association that takes collateral into account through such 
an adjustment to EAD under section 32 of this appendix may not 
reflect such collateral in LGD.
    (ii) A State savings association may attribute an EAD of zero 
to:
    (A) Derivative contracts that are publicly traded on an exchange 
that requires the daily receipt and payment of cash-variation 
margin;
    (B) Derivative contracts and repo-style transactions that are 
outstanding with a qualifying central counterparty (but not for 
those transactions that a qualifying central counterparty has 
rejected); and
    (C) Credit risk exposures to a qualifying central counterparty 
in the form of clearing deposits and posted collateral that arise 
from transactions described in paragraph (d)(6)(ii)(B) of this 
section.
    (7) Effective maturity. An exposure's M must be no greater than 
five years and no less than one year, except that an exposure's M 
must be no less than one day if the exposure has an original 
maturity of less than one year and is not part of a State savings 
association's ongoing financing of the obligor. An exposure is not 
part of a State savings association's ongoing financing of the 
obligor if the State savings association:
    (i) Has a legal and practical ability not to renew or roll over 
the exposure in the event of credit deterioration of the obligor;
    (ii) Makes an independent credit decision at the inception of 
the exposure and at every renewal or roll over; and
    (iii) Has no substantial commercial incentive to continue its 
credit relationship with the obligor in the event of credit 
deterioration of the obligor.
    (e) Phase 4--Calculation of risk-weighted assets--(1) Non-
defaulted exposures. (i) A State savings association must calculate 
the dollar risk-based capital requirement for each of its wholesale 
exposures to a non-defaulted obligor (except eligible guarantees and 
eligible credit derivatives that hedge another wholesale exposure 
and exposures to which the State savings association applies the 
double default treatment in section 34 of this appendix) and 
segments of non-defaulted retail exposures by inserting the assigned 
risk parameters for the wholesale obligor and exposure or retail 
segment into the appropriate risk-based capital formula specified in 
Table 2 and multiplying the output of the formula (K) by the EAD of 
the exposure or segment. Alternatively, a State savings association 
may apply a 300 percent risk weight to the EAD of an eligible margin 
loan if the State savings association is not able to meet the 
agencies' requirements for estimation of PD and LGD for the margin 
loan.
[GRAPHIC] [TIFF OMITTED] TR05AU11.002


[[Page 47789]]


    (ii) The sum of all the dollar risk-based capital requirements 
for each wholesale exposure to a non-defaulted obligor and segment 
of non-defaulted retail exposures calculated in paragraph (e)(1)(i) 
of this section and in paragraph (e) of section 34 of this appendix 
equals the total dollar risk-based capital requirement for those 
exposures and segments.
    (iii) The aggregate risk-weighted asset amount for wholesale 
exposures to non-defaulted obligors and segments of non-defaulted 
retail exposures equals the total dollar risk-based capital 
requirement calculated in paragraph (e)(1)(ii) of this section 
multiplied by 12.5.
    (2) Wholesale exposures to defaulted obligors and segments of 
defaulted retail exposures. (i) The dollar risk-based capital 
requirement for each wholesale exposure to a defaulted obligor 
equals 0.08 multiplied by the EAD of the exposure.
    (ii) The dollar risk-based capital requirement for a segment of 
defaulted retail exposures equals 0.08 multiplied by the EAD of the 
segment.
    (iii) The sum of all the dollar risk-based capital requirements 
for each wholesale exposure to a defaulted obligor calculated in 
paragraph (e)(2)(i) of this section plus the dollar risk-based 
capital requirements for each segment of defaulted retail exposures 
calculated in paragraph (e)(2)(ii) of this section equals the total 
dollar risk-based capital requirement for those exposures and 
segments.
    (iv) The aggregate risk-weighted asset amount for wholesale 
exposures to defaulted obligors and segments of defaulted retail 
exposures equals the total dollar risk-based capital requirement 
calculated in paragraph (e)(2)(iii) of this section multiplied by 
12.5.
    (3) Assets not included in a defined exposure category. (i) A 
State savings association may assign a risk-weighted asset amount of 
zero to cash owned and held in all offices of the State savings 
association or in transit and for gold bullion held in the State 
savings association's own vaults, or held in another State savings 
association's vaults on an allocated basis, to the extent the gold 
bullion assets are offset by gold bullion liabilities.
    (ii) The risk-weighted asset amount for the residual value of a 
retail lease exposure equals such residual value.
    (iii) The risk-weighted asset amount for any other on-balance-
sheet asset that does not meet the definition of a wholesale, 
retail, securitization, or equity exposure equals the carrying value 
of the asset.
    (4) Non-material portfolios of exposures. The risk-weighted 
asset amount of a portfolio of exposures for which the State savings 
association has demonstrated to the FDIC's satisfaction that the 
portfolio (when combined with all other portfolios of exposures that 
the State savings association seeks to treat under this paragraph) 
is not material to the State savings association is the sum of the 
carrying values of on-balance sheet exposures plus the notional 
amounts of off-balance sheet exposures in the portfolio. For 
purposes of this paragraph (e)(4), the notional amount of an OTC 
derivative contract that is not a credit derivative is the EAD of 
the derivative as calculated in section 32 of this appendix.

Section 32. Counterparty Credit Risk of Repo-Style Transactions, 
Eligible Margin Loans, and OTC Derivative Contracts

    (a) In General. (1) This section describes two methodologies--a 
collateral haircut approach and an internal models methodology--that 
a State savings association may use instead of an LGD estimation 
methodology to recognize the benefits of financial collateral in 
mitigating the counterparty credit risk of repo-style transactions, 
eligible margin loans, collateralized OTC derivative contracts, and 
single product netting sets of such transactions and to recognize 
the benefits of any collateral in mitigating the counterparty credit 
risk of repo-style transactions that are included in a State savings 
association's VaR-based measure under any applicable market risk 
rule. A third methodology, the simple VaR methodology, is available 
for single product netting sets of repo-style transactions and 
eligible margin loans.
    (2) This section also describes the methodology for calculating 
EAD for an OTC derivative contract or a set of OTC derivative 
contracts subject to a qualifying master netting agreement. A State 
savings association also may use the internal models methodology to 
estimate EAD for qualifying cross-product master netting agreements.
    (3) A State savings association may only use the standard 
supervisory haircut approach with a minimum 10-business-day holding 
period to recognize in EAD the benefits of conforming residential 
mortgage collateral that secures repo-style transactions (other than 
repo-style transactions included in the State savings association's 
VaR-based measure under any applicable market risk rule), eligible 
margin loans, and OTC derivative contracts.
    (4) A State savings association may use any combination of the 
three methodologies for collateral recognition; however, it must use 
the same methodology for similar exposures.
    (b) EAD for eligible margin loans and repo-style transactions--
(1) General. A State savings association may recognize the credit 
risk mitigation benefits of financial collateral that secures an 
eligible margin loan, repo-style transaction, or single-product 
netting set of such transactions by factoring the collateral into 
its LGD estimates for the exposure. Alternatively, a State savings 
association may estimate an unsecured LGD for the exposure, as well 
as for any repo-style transaction that is included in the State 
savings association's VaR-based measure under any applicable market 
risk rule, and determine the EAD of the exposure using:
    (i) The collateral haircut approach described in paragraph 
(b)(2) of this section;
    (ii) For netting sets only, the simple VaR methodology described 
in paragraph (b)(3) of this section; or
    (iii) The internal models methodology described in paragraph (d) 
of this section.
    (2) Collateral haircut approach--(i) EAD equation. A State 
savings association may determine EAD for an eligible margin loan, 
repo-style transaction, or netting set by setting EAD equal to max 
{0, [([Sigma]E-[Sigma]C) + [Sigma](Es x Hs) + [Sigma](Efx x 
Hfx)]{time} , where:
    (A) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the State 
savings association has lent, sold subject to repurchase, or posted 
as collateral to the counterparty under the transaction (or netting 
set));
    (B) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the State 
savings association has borrowed, purchased subject to resale, or 
taken as collateral from the counterparty under the transaction (or 
netting set));
    (C) Es equals the absolute value of the net position in a given 
instrument or in gold (where the net position in a given instrument 
or in gold equals the sum of the current market values of the 
instrument or gold the State savings association has lent, sold 
subject to repurchase, or posted as collateral to the counterparty 
minus the sum of the current market values of that same instrument 
or gold the State savings association has borrowed, purchased 
subject to resale, or taken as collateral from the counterparty);
    (D) Hs equals the market price volatility haircut appropriate to 
the instrument or gold referenced in Es;
    (E) Efx equals the absolute value of the net position of 
instruments and cash in a currency that is different from the 
settlement currency (where the net position in a given currency 
equals the sum of the current market values of any instruments or 
cash in the currency the State savings association has lent, sold 
subject to repurchase, or posted as collateral to the counterparty 
minus the sum of the current market values of any instruments or 
cash in the currency the State savings association has borrowed, 
purchased subject to resale, or taken as collateral from the 
counterparty); and
    (F) Hfx equals the haircut appropriate to the mismatch between 
the currency referenced in Efx and the settlement currency.
    (ii) Standard supervisory haircuts. (A) Under the standard 
supervisory haircuts approach:
    (1) A State savings association must use the haircuts for market 
price volatility (Hs) in Table 3, as adjusted in certain 
circumstances as provided in paragraph (b)(2)(ii)(A)(3) and (4) of 
this section;

[[Page 47790]]



                       Table 3--Standard Supervisory Market Price Volatility Haircuts \3\
----------------------------------------------------------------------------------------------------------------
                                                                               Issuers exempt
  Applicable external rating grade category     Residual maturity for debt      from the  3
             for debt securities                        securities              basis point      Other issuers
                                                                                   floor
----------------------------------------------------------------------------------------------------------------
Two highest investment-grade rating           <= 1 year.....................            0.005               0.01
 categories for long-term ratings/highest     >1 year, <= 5 years...........             0.02               0.04
 investment-grade rating category for short-  > 5 years.....................             0.04               0.08
 term ratings.
Two lowest investment-grade rating            <= 1 year.....................             0.01               0.02
 categories for both short- and long-term     > 1 year, <= 5 years..........             0.03               0.06
 ratings.                                     > 5 years.....................             0.06               0.12
One rating category below investment grade..  All...........................             0.15               0.25
----------------------------------------------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold..........0.15....
Other publicly traded equities (including convertible bonds), confor0.25
 residential mortgages, and nonfinancial collateral.
Mutual funds...................................Highest haircut applicable to any security in
                                                         which the fund can invest.
Cash on deposit with the State savings association (including a certi0icate
 of deposit issued by the State savings association).
----------------------------------------------------------------------------------------------------------------

    (2) For currency mismatches, a State savings association must 
use a haircut for foreign exchange rate volatility (Hfx) of 8 
percent, as adjusted in certain circumstances as provided in 
paragraph (b)(2)(ii)(A)(3) and (4) of this section.
---------------------------------------------------------------------------

    \3\ The market price volatility haircuts in Table 3 are based on 
a ten-business-day holding period.
---------------------------------------------------------------------------

    (3) For repo-style transactions, a State savings association may 
multiply the supervisory haircuts provided in paragraphs 
(b)(2)(ii)(A)(1) and (2) of this section by the square root of \1/2\ 
(which equals 0.707107).
    (4) A State savings association must adjust the supervisory 
haircuts upward on the basis of a holding period longer than ten 
business days (for eligible margin loans) or five business days (for 
repo-style transactions) where and as appropriate to take into 
account the illiquidity of an instrument.
    (iii) Own internal estimates for haircuts. With the prior 
written approval of the FDIC, a State savings association may 
calculate haircuts (Hs and Hfx) using its own internal estimates of 
the volatilities of market prices and foreign exchange rates.
    (A) To receive FDIC approval to use its own internal estimates, 
a State savings association must satisfy the following minimum 
quantitative standards:
    (1) A State savings association must use a 99th percentile one-
tailed confidence interval.
    (2) The minimum holding period for a repo-style transaction is 
five business days and for an eligible margin loan is ten business 
days. When a State savings association calculates an own-estimates 
haircut on a TN-day holding period, which is different 
from the minimum holding period for the transaction type, the 
applicable haircut (HM) is calculated using the following 
square root of time formula:
[GRAPHIC] [TIFF OMITTED] TR05AU11.003

(i) TM equals 5 for repo-style transactions and 10 for 
eligible margin loans;
(ii) TN equals the holding period used by the State 
savings association to derive HN; and
(iii) HN equals the haircut based on the holding period 
TN.

    (3) A State savings association must adjust holding periods 
upwards where and as appropriate to take into account the 
illiquidity of an instrument.
    (4) The historical observation period must be at least one year.
    (5) A State savings association must update its data sets and 
recompute haircuts no less frequently than quarterly and must also 
reassess data sets and haircuts whenever market prices change 
materially.
    (B) With respect to debt securities that have an applicable 
external rating of investment grade, a State savings association may 
calculate haircuts for categories of securities. For a category of 
securities, the State savings association must calculate the haircut 
on the basis of internal volatility estimates for securities in that 
category that are representative of the securities in that category 
that the State savings association has lent, sold subject to 
repurchase, posted as collateral, borrowed, purchased subject to 
resale, or taken as collateral. In determining relevant categories, 
the State savings association must at a minimum take into account:
    (1) The type of issuer of the security;
    (2) The applicable external rating of the security;
    (3) The maturity of the security; and
    (4) The interest rate sensitivity of the security.
    (C) With respect to debt securities that have an applicable 
external rating of below investment grade and equity securities, a 
State savings association must calculate a separate haircut for each 
individual security.
    (D) Where an exposure or collateral (whether in the form of cash 
or securities) is denominated in a currency that differs from the 
settlement currency, the State savings association must calculate a 
separate currency mismatch haircut for its net position in each 
mismatched currency based on estimated volatilities of foreign 
exchange rates between the mismatched currency and the settlement 
currency.
    (E) A State savings association's own estimates of market price 
and foreign exchange rate volatilities may not take into account the 
correlations among securities and foreign exchange rates on either 
the exposure or collateral side of a transaction (or netting set) or 
the correlations among securities and foreign exchange rates between 
the exposure and collateral sides of the transaction (or netting 
set).
    (3) Simple VaR methodology. With the prior written approval of 
the FDIC, a State savings association may estimate EAD for a netting 
set using a VaR model that meets the requirements in paragraph 
(b)(3)(iii) of this section. In such event, the State savings 
association must set EAD equal to max {0, [([Sigma]E-[Sigma]C) + 
PFE]{time} , where:

(i) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the State 
savings association has lent, sold subject to repurchase, or posted 
as collateral to the counterparty under the netting set);
(ii) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the State 
savings association has borrowed, purchased subject to resale, or 
taken as collateral from the counterparty under the netting set); 
and
(iii) PFE (potential future exposure) equals the State savings 
association's empirically based best estimate of the 99th 
percentile, one-tailed confidence interval for an increase in the 
value of ([Sigma]E-[Sigma]C) over a five-business-day holding period 
for repo-style transactions or over a ten-business-day holding 
period for eligible margin loans using a minimum one-year historical 
observation period of price data representing the instruments that 
the State savings association has lent, sold subject to repurchase, 
posted as collateral, borrowed, purchased subject to resale, or 
taken as collateral. The State savings association must validate its 
VaR model, including by establishing and

[[Page 47791]]

maintaining a rigorous and regular back-testing regime.

    (c) EAD for OTC derivative contracts. (1) A State savings 
association must determine the EAD for an OTC derivative contract 
that is not subject to a qualifying master netting agreement using 
the current exposure methodology in paragraph (c)(5) of this section 
or using the internal models methodology described in paragraph (d) 
of this section.
    (2) A State savings association must determine the EAD for 
multiple OTC derivative contracts that are subject to a qualifying 
master netting agreement using the current exposure methodology in 
paragraph (c)(6) of this section or using the internal models 
methodology described in paragraph (d) of this section.
    (3) Counterparty credit risk for credit derivatives. 
Notwithstanding the above, (i) a State savings association that 
purchases a credit derivative that is recognized under section 33 or 
34 of this appendix as a credit risk mitigant for an exposure that 
is not a covered position under any applicable market risk rule need 
not compute a separate counterparty credit risk capital requirement 
under this section so long as the State savings association does so 
consistently for all such credit derivatives and either includes all 
or excludes all such credit derivatives that are subject to a master 
netting agreement from any measure used to determine counterparty 
credit risk exposure to all relevant counterparties for risk-based 
capital purposes.
    (ii) A State savings association that is the protection provider 
in a credit derivative must treat the credit derivative as a 
wholesale exposure to the reference obligor and need not compute a 
counterparty credit risk capital requirement for the credit 
derivative under this section, so long as it does so consistently 
for all such credit derivatives and either includes all or excludes 
all such credit derivatives that are subject to a master netting 
agreement from any measure used to determine counterparty credit 
risk exposure to all relevant counterparties for risk-based capital 
purposes (unless the State savings association is treating the 
credit derivative as a covered position under any applicable market 
risk rule, in which case the State savings association must compute 
a supplemental counterparty credit risk capital requirement under 
this section).
    (4) Counterparty credit risk for equity derivatives. A State 
savings association must treat an equity derivative contract as an 
equity exposure and compute a risk-weighted asset amount for the 
equity derivative contract under part VI (unless the State savings 
association is treating the contract as a covered position under any 
applicable market risk rule). In addition, if the State savings 
association is treating the contract as a covered position under any 
applicable market risk rule and in certain other cases described in 
section 55 of this appendix, the State savings association must also 
calculate a risk-based capital requirement for the counterparty 
credit risk of an equity derivative contract under this subpart.
    (5) Single OTC derivative contract. Except as modified by 
paragraph (c)(7) of this section, the EAD for a single OTC 
derivative contract that is not subject to a qualifying master 
netting agreement is equal to the sum of the State savings 
association's current credit exposure and potential future credit 
exposure (PFE) on the derivative contract.
    (i) Current credit exposure. The current credit exposure for a 
single OTC derivative contract is the greater of the mark-to-market 
value of the derivative contract or zero.
    (ii) PFE. The PFE for a single OTC derivative contract, 
including an OTC derivative contract with a negative mark-to-market 
value, is calculated by multiplying the notional principal amount of 
the derivative contract by the appropriate conversion factor in 
Table 4. For purposes of calculating either the PFE under this 
paragraph or the gross PFE under paragraph (c)(6) of this section 
for exchange rate contracts and other similar contracts in which the 
notional principal amount is equivalent to the cash flows, notional 
principal amount is the net receipts to each party falling due on 
each value date in each currency. For any OTC derivative contract 
that does not fall within one of the specified categories in Table 
4, the PFE must be calculated using the ``other'' conversion 
factors. A State savings association must use an OTC derivative 
contract's effective notional principal amount (that is, its 
apparent or stated notional principal amount multiplied by any 
multiplier in the OTC derivative contract) rather than its apparent 
or stated notional principal amount in calculating PFE. PFE of the 
protection provider of a credit derivative is capped at the net 
present value of the amount of unpaid premiums.

                                           Table 4--Conversion Factor Matrix for OTC Derivative Contracts \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Foreign         Credit         Credit (non-                 Precious
                                                        Interest      exchange      (investment-    investment-grade                metals
               Remaining maturity \5\                     rate        rate and     grade reference      reference       Equity      (except      Other
                                                                        gold        obligor) \6\        obligor)                     gold)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less....................................         0.00          0.01               0.05              0.10        0.06        0.07        0.10
Over one to five years..............................         0.005         0.05               0.05              0.10        0.08        0.07        0.12
Over five years.....................................         0.015         0.075              0.05              0.10        0.10        0.08        0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (6) Multiple OTC derivative contracts subject to a qualifying 
master netting agreement. Except as modified by paragraph (c)(7) of 
this section, the EAD for multiple OTC derivative contracts subject 
to a qualifying master netting agreement is equal to the sum of the 
net current credit exposure and the adjusted sum of the PFE exposure 
for all OTC derivative contracts subject to the qualifying master 
netting agreement.
---------------------------------------------------------------------------

    \4\ For an OTC derivative contract with multiple exchanges of 
principal, the conversion factor is multiplied by the number of 
remaining payments in the derivative contract.
    \5\ For an OTC derivative contract that is structured such that 
on specified dates any outstanding exposure is settled and the terms 
are reset so that the market value of the contract is zero, the 
remaining maturity equals the time until the next reset date. For an 
interest rate derivative contract with a remaining maturity of 
greater than one year that meets these criteria, the minimum 
conversion factor is 0.005.
    \6\ A State savings association must use the column labeled 
``Credit (investment-grade reference obligor)'' for a credit 
derivative whose reference obligor has an outstanding unsecured 
long-term debt security without credit enhancement that has a long-
term applicable external rating of at least investment grade. A 
State savings association must use the column labeled ``Credit (non-
investment-grade reference obligor)'' for all other credit 
derivatives.
---------------------------------------------------------------------------

    (i) Net current credit exposure. The net current credit exposure 
is the greater of:
    (A) The net sum of all positive and negative mark-to-market 
values of the individual OTC derivative contracts subject to the 
qualifying master netting agreement; or
    (B) zero.
    (ii) Adjusted sum of the PFE. The adjusted sum of the PFE, Anet, 
is calculated as Anet = (0.4xAgross)+(0.6xNGRxAgross), where:

(A) Agross = the gross PFE (that is, the sum of the PFE amounts (as 
determined under paragraph (c)(5)(ii) of this section) for each 
individual OTC derivative contract subject to the qualifying master 
netting agreement); and
(B) NGR = the net to gross ratio (that is, the ratio of the net 
current credit exposure to the gross current credit exposure). In 
calculating the NGR, the gross current credit exposure equals the 
sum of the positive current credit exposures (as determined under 
paragraph (c)(5)(i) of this section) of all individual OTC 
derivative contracts subject to the qualifying master netting 
agreement.

    (7) Collateralized OTC derivative contracts. A State savings 
association may recognize the credit risk mitigation benefits of 
financial collateral that secures an OTC derivative contract or 
single-product netting set of OTC derivatives by factoring the 
collateral into its LGD estimates for the contract or netting set. 
Alternatively, a State savings association may recognize the credit 
risk mitigation benefits of financial collateral that secures such a 
contract or netting set that is marked to

[[Page 47792]]

market on a daily basis and subject to a daily margin maintenance 
requirement by estimating an unsecured LGD for the contract or 
netting set and adjusting the EAD calculated under paragraph (c)(5) 
or (c)(6) of this section using the collateral haircut approach in 
paragraph (b)(2) of this section. The State savings association must 
substitute the EAD calculated under paragraph (c)(5) or (c)(6) of 
this section for [Sigma]E in the equation in paragraph (b)(2)(i) of 
this section and must use a ten-business-day minimum holding period 
(TM= 10).
    (d) Internal models methodology. (1) With prior written approval 
from the FDIC, a State savings association may use the internal 
models methodology in this paragraph (d) to determine EAD for 
counterparty credit risk for OTC derivative contracts 
(collateralized or uncollateralized) and single-product netting sets 
thereof, for eligible margin loans and single-product netting sets 
thereof, and for repo-style transactions and single-product netting 
sets thereof. A State savings association that uses the internal 
models methodology for a particular transaction type (OTC derivative 
contracts, eligible margin loans, or repo-style transactions) must 
use the internal models methodology for all transactions of that 
transaction type. A State savings association may choose to use the 
internal models methodology for one or two of these three types of 
exposures and not the other types. A State savings association may 
also use the internal models methodology for OTC derivative 
contracts, eligible margin loans, and repo-style transactions 
subject to a qualifying cross-product netting agreement if:
    (i) The State savings association effectively integrates the 
risk mitigating effects of cross-product netting into its risk 
management and other information technology systems; and
    (ii) The State savings association obtains the prior written 
approval of the FDIC. A State savings association that uses the 
internal models methodology for a transaction type must receive 
approval from the FDIC to cease using the methodology for that 
transaction type or to make a material change to its internal model.
    (2) Under the internal models methodology, a State savings 
association uses an internal model to estimate the expected exposure 
(EE) for a netting set and then calculates EAD based on that EE.
    (i) The State savings association must use its internal model's 
probability distribution for changes in the market value of a 
netting set that are attributable to changes in market variables to 
determine EE.
    (ii) Under the internal models methodology, EAD = [alpha] x 
effective EPE, or, subject to FDIC approval as provided in paragraph 
(d)(7), a more conservative measure of EAD.
[GRAPHIC] [TIFF OMITTED] TR05AU11.004

(that is, effective EPE is the time-weighted average of effective EE 
where the weights are the proportion that an individual effective EE 
represents in a one-year time interval) where:

(1) Effective EEtk= max (Effective EEtk-1, 
EEtk) (that is, for a specific datetk, 
effective EE is the greater of EE at that date or the effective EE 
at the previous date); and
(2)tk represents the kth future time period in the model 
and there are n time periods represented in the model over the first 
year; and
(B) [alpha] = 1.4 except as provided in paragraph (d)(6), or when 
the FDIC has determined that the State savings association must set 
[alpha] higher based on the State savings association's specific 
characteristics of counterparty credit risk.

    (iii) A State savings association may include financial 
collateral currently posted by the counterparty as collateral (but 
may not include other forms of collateral) when calculating EE.
    (iv) If a State savings association hedges some or all of the 
counterparty credit risk associated with a netting set using an 
eligible credit derivative, the State savings association may take 
the reduction in exposure to the counterparty into account when 
estimating EE. If the State savings association recognizes this 
reduction in exposure to the counterparty in its estimate of EE, it 
must also use its internal model to estimate a separate EAD for the 
State savings association's exposure to the protection provider of 
the credit derivative.
    (3) To obtain the FDIC's approval to calculate the distributions 
of exposures upon which the EAD calculation is based, the State 
savings association must demonstrate to the satisfaction of the FDIC 
that it has been using for at least one year an internal model that 
broadly meets the following minimum standards, with which the State 
savings association must maintain compliance:
    (i) The model must have the systems capability to estimate the 
expected exposure to the counterparty on a daily basis (but is not 
expected to estimate or report expected exposure on a daily basis).
    (ii) The model must estimate expected exposure at enough future 
dates to reflect accurately all the future cash flows of contracts 
in the netting set.
    (iii) The model must account for the possible non-normality of 
the exposure distribution, where appropriate.
    (iv) The State savings association must measure, monitor, and 
control current counterparty exposure and the exposure to the 
counterparty over the whole life of all contracts in the netting 
set.
    (v) The State savings association must be able to measure and 
manage current exposures gross and net of collateral held, where 
appropriate. The State savings association must estimate expected 
exposures for OTC derivative contracts both with and without the 
effect of collateral agreements.
    (vi) The State savings association must have procedures to 
identify, monitor, and control specific wrong-way risk throughout 
the life of an exposure. Wrong-way risk in this context is the risk 
that future exposure to a counterparty will be high when the 
counterparty's probability of default is also high.
    (vii) The model must use current market data to compute current 
exposures. When estimating model parameters based on historical 
data, at least three years of historical data that cover a wide 
range of economic conditions must be used and must be updated 
quarterly or more frequently if market conditions warrant. The State 
savings association should consider using model parameters based on 
forward-looking measures, where appropriate.
    (viii) A State savings association must subject its internal 
model to an initial validation and annual model review process. The 
model review should consider whether the inputs and risk factors, as 
well as the model outputs, are appropriate.
    (4) Maturity. (i) If the remaining maturity of the exposure or 
the longest-dated contract in the netting set is greater than one 
year, the State savings association must set M for the exposure or 
netting set equal to the lower of five years or M(EPE),\7\ where:
---------------------------------------------------------------------------

    \7\ Alternatively, a State savings association that uses an 
internal model to calculate a one-sided credit valuation adjustment 
may use the effective credit duration estimated by the model as 
M(EPE) in place of the formula in paragraph (d)(4).
[GRAPHIC] [TIFF OMITTED] TR05AU11.005

    (B) dfk is the risk-free discount factor for future time period 
tk; and
    (C) [Delta]tk = tk- tk-1.
    (ii) If the remaining maturity of the exposure or the longest-
dated contract in the netting set is one year or less, the State 
savings association must set M for the exposure or netting set equal 
to one year, except as provided in paragraph (d)(7) of section 31 of 
this appendix.
    (5) Collateral agreements. A State savings association may 
capture the effect on EAD of a collateral agreement that requires 
receipt of collateral when exposure to the counterparty increases 
but may not capture the effect on EAD of a collateral agreement that 
requires receipt of collateral when counterparty credit quality 
deteriorates. For this purpose, a

[[Page 47793]]

collateral agreement means a legal contract that specifies the time 
when, and circumstances under which, the counterparty is required to 
pledge collateral to the State savings association for a single 
financial contract or for all financial contracts in a netting set 
and confers upon the State savings association a perfected, first 
priority security interest (notwithstanding the prior security 
interest of any custodial agent), or the legal equivalent thereof, 
in the collateral posted by the counterparty under the agreement. 
This security interest must provide the State savings association 
with a right to close out the financial positions and liquidate the 
collateral upon an event of default of, or failure to perform by, 
the counterparty under the collateral agreement. A contract would 
not satisfy this requirement if the State savings association's 
exercise of rights under the agreement may be stayed or avoided 
under applicable law in the relevant jurisdictions. Two methods are 
available to capture the effect of a collateral agreement:
    (i) With prior written approval from the FDIC, a State savings 
association may include the effect of a collateral agreement within 
its internal model used to calculate EAD. The State savings 
association may set EAD equal to the expected exposure at the end of 
the margin period of risk. The margin period of risk means, with 
respect to a netting set subject to a collateral agreement, the time 
period from the most recent exchange of collateral with a 
counterparty until the next required exchange of collateral plus the 
period of time required to sell and realize the proceeds of the 
least liquid collateral that can be delivered under the terms of the 
collateral agreement and, where applicable, the period of time 
required to re-hedge the resulting market risk, upon the default of 
the counterparty. The minimum margin period of risk is five business 
days for repo-style transactions and ten business days for other 
transactions when liquid financial collateral is posted under a 
daily margin maintenance requirement. This period should be extended 
to cover any additional time between margin calls; any potential 
closeout difficulties; any delays in selling collateral, 
particularly if the collateral is illiquid; and any impediments to 
prompt re-hedging of any market risk.
    (ii) A State savings association that can model EPE without 
collateral agreements but cannot achieve the higher level of 
modeling sophistication to model EPE with collateral agreements can 
set effective EPE for a collateralized netting set equal to the 
lesser of:
    (A) The threshold, defined as the exposure amount at which the 
counterparty is required to post collateral under the collateral 
agreement, if the threshold is positive, plus an add-on that 
reflects the potential increase in exposure of the netting set over 
the margin period of risk. The add-on is computed as the expected 
increase in the netting set's exposure beginning from current 
exposure of zero over the margin period of risk. The margin period 
of risk must be at least five business days for netting sets 
consisting only of repo-style transactions subject to daily re-
margining and daily marking-to-market, and ten business days for all 
other netting sets; or
    (B) Effective EPE without a collateral agreement.
    (6) Own estimate of alpha. With prior written approval of the 
FDIC, a State savings association may calculate alpha as the ratio 
of economic capital from a full simulation of counterparty exposure 
across counterparties that incorporates a joint simulation of market 
and credit risk factors (numerator) and economic capital based on 
EPE (denominator), subject to a floor of 1.2. For purposes of this 
calculation, economic capital is the unexpected losses for all 
counterparty credit risks measured at a 99.9 percent confidence 
level over a one-year horizon. To receive approval, the State 
savings association must meet the following minimum standards to the 
satisfaction of the FDIC:
    (i) The State savings association's own estimate of alpha must 
capture in the numerator the effects of:
    (A) The material sources of stochastic dependency of 
distributions of market values of transactions or portfolios of 
transactions across counterparties;
    (B) Volatilities and correlations of market risk factors used in 
the joint simulation, which must be related to the credit risk 
factor used in the simulation to reflect potential increases in 
volatility or correlation in an economic downturn, where 
appropriate; and
    (C) The granularity of exposures (that is, the effect of a 
concentration in the proportion of each counterparty's exposure that 
is driven by a particular risk factor).
    (ii) The State savings association must assess the potential 
model uncertainty in its estimates of alpha.
    (iii) The State savings association must calculate the numerator 
and denominator of alpha in a consistent fashion with respect to 
modeling methodology, parameter specifications, and portfolio 
composition.
    (iv) The State savings association must review and adjust as 
appropriate its estimates of the numerator and denominator of alpha 
on at least a quarterly basis and more frequently when the 
composition of the portfolio varies over time.
    (7) Other measures of counterparty exposure. With prior written 
approval of the FDIC, a State savings association may set EAD equal 
to a measure of counterparty credit risk exposure, such as peak EAD, 
that is more conservative than an alpha of 1.4 (or higher under the 
terms of paragraph (d)(2)(ii)(B) of this section) times EPE for 
every counterparty whose EAD will be measured under the alternative 
measure of counterparty exposure. The State savings association must 
demonstrate the conservatism of the measure of counterparty credit 
risk exposure used for EAD. For material portfolios of new OTC 
derivative products, the State savings association may assume that 
the current exposure methodology in paragraphs (c)(5) and (c)(6) of 
this section meets the conservatism requirement of this paragraph 
for a period not to exceed 180 days. For immaterial portfolios of 
OTC derivative contracts, the State savings association generally 
may assume that the current exposure methodology in paragraphs 
(c)(5) and (c)(6) of this section meets the conservatism requirement 
of this paragraph.

Section 33. Guarantees and Credit Derivatives: PD Substitution and 
LGD Adjustment Approaches

    (a) Scope. (1) This section applies to wholesale exposures for 
which:
    (i) Credit risk is fully covered by an eligible guarantee or 
eligible credit derivative; or
    (ii) Credit risk is covered on a pro rata basis (that is, on a 
basis in which the State savings association and the protection 
provider share losses proportionately) by an eligible guarantee or 
eligible credit derivative.
    (2) Wholesale exposures on which there is a tranching of credit 
risk (reflecting at least two different levels of seniority) are 
securitization exposures subject to the securitization framework in 
part V.
    (3) A State savings association may elect to recognize the 
credit risk mitigation benefits of an eligible guarantee or eligible 
credit derivative covering an exposure described in paragraph (a)(1) 
of this section by using the PD substitution approach or the LGD 
adjustment approach in paragraph (c) of this section or, if the 
transaction qualifies, using the double default treatment in section 
34 of this appendix. A State savings association's PD and LGD for 
the hedged exposure may not be lower than the PD and LGD floors 
described in paragraphs (d)(2) and (d)(3) of section 31 of this 
appendix.
    (4) If multiple eligible guarantees or eligible credit 
derivatives cover a single exposure described in paragraph (a)(1) of 
this section, a State savings association may treat the hedged 
exposure as multiple separate exposures each covered by a single 
eligible guarantee or eligible credit derivative and may calculate a 
separate risk-based capital requirement for each separate exposure 
as described in paragraph (a)(3) of this section.
    (5) If a single eligible guarantee or eligible credit derivative 
covers multiple hedged wholesale exposures described in paragraph 
(a)(1) of this section, a State savings association must treat each 
hedged exposure as covered by a separate eligible guarantee or 
eligible credit derivative and must calculate a separate risk-based 
capital requirement for each exposure as described in paragraph 
(a)(3) of this section.
    (6) A State savings association must use the same risk 
parameters for calculating ECL as it uses for calculating the risk-
based capital requirement for the exposure.
    (b) Rules of recognition. (1) A State savings association may 
only recognize the credit risk mitigation benefits of eligible 
guarantees and eligible credit derivatives.
    (2) A State savings association may only recognize the credit 
risk mitigation benefits of an eligible credit derivative to hedge 
an exposure that is different from the credit derivative's reference 
exposure used for determining the derivative's cash settlement 
value, deliverable obligation, or occurrence of a credit event if:
    (i) The reference exposure ranks pari passu (that is, equally) 
with or is junior to the hedged exposure; and
    (ii) The reference exposure and the hedged exposure are 
exposures to the same legal entity, and legally enforceable cross-
default or cross-acceleration clauses are in place to assure 
payments under the credit derivative are triggered when the obligor 
fails to pay under the terms of the hedged exposure.

[[Page 47794]]

    (c) Risk parameters for hedged exposures--(1) PD substitution 
approach--(i) Full coverage. If an eligible guarantee or eligible 
credit derivative meets the conditions in paragraphs (a) and (b) of 
this section and the protection amount (P) of the guarantee or 
credit derivative is greater than or equal to the EAD of the hedged 
exposure, a State savings association may recognize the guarantee or 
credit derivative in determining the State savings association's 
risk-based capital requirement for the hedged exposure by 
substituting the PD associated with the rating grade of the 
protection provider for the PD associated with the rating grade of 
the obligor in the risk-based capital formula applicable to the 
guarantee or credit derivative in Table 2 and using the appropriate 
LGD as described in paragraph (c)(1)(iii) of this section. If the 
State savings association determines that full substitution of the 
protection provider's PD leads to an inappropriate degree of risk 
mitigation, the State savings association may substitute a higher PD 
than that of the protection provider.
    (ii) Partial coverage. If an eligible guarantee or eligible 
credit derivative meets the conditions in paragraphs (a) and (b) of 
this section and the protection amount (P) of the guarantee or 
credit derivative is less than the EAD of the hedged exposure, the 
State savings association must treat the hedged exposure as two 
separate exposures (protected and unprotected) in order to recognize 
the credit risk mitigation benefit of the guarantee or credit 
derivative.
    (A) The State savings association must calculate its risk-based 
capital requirement for the protected exposure under section 31 of 
this appendix, where PD is the protection provider's PD, LGD is 
determined under paragraph (c)(1)(iii) of this section, and EAD is 
P. If the State savings association determines that full 
substitution leads to an inappropriate degree of risk mitigation, 
the State savings association may use a higher PD than that of the 
protection provider.
    (B) The State savings association must calculate its risk-based 
capital requirement for the unprotected exposure under section 31 of 
this appendix, where PD is the obligor's PD, LGD is the hedged 
exposure's LGD (not adjusted to reflect the guarantee or credit 
derivative), and EAD is the EAD of the original hedged exposure 
minus P.
    (C) The treatment in this paragraph (c)(1)(ii) is applicable 
when the credit risk of a wholesale exposure is covered on a partial 
pro rata basis or when an adjustment is made to the effective 
notional amount of the guarantee or credit derivative under 
paragraph (d), (e), or (f) of this section.
    (iii) LGD of hedged exposures. The LGD of a hedged exposure 
under the PD substitution approach is equal to:
    (A) The lower of the LGD of the hedged exposure (not adjusted to 
reflect the guarantee or credit derivative) and the LGD of the 
guarantee or credit derivative, if the guarantee or credit 
derivative provides the State savings association with the option to 
receive immediate payout upon triggering the protection; or
    (B) The LGD of the guarantee or credit derivative, if the 
guarantee or credit derivative does not provide the State savings 
association with the option to receive immediate payout upon 
triggering the protection.
    (2) LGD adjustment approach--(i) Full coverage. If an eligible 
guarantee or eligible credit derivative meets the conditions in 
paragraphs (a) and (b) of this section and the protection amount (P) 
of the guarantee or credit derivative is greater than or equal to 
the EAD of the hedged exposure, the State savings association's 
risk-based capital requirement for the hedged exposure is the 
greater of:
    (A) The risk-based capital requirement for the exposure as 
calculated under section 31 of this appendix, with the LGD of the 
exposure adjusted to reflect the guarantee or credit derivative; or
    (B) The risk-based capital requirement for a direct exposure to 
the protection provider as calculated under section 31 of this 
appendix, using the PD for the protection provider, the LGD for the 
guarantee or credit derivative, and an EAD equal to the EAD of the 
hedged exposure.
    (ii) Partial coverage. If an eligible guarantee or eligible 
credit derivative meets the conditions in paragraphs (a) and (b) of 
this section and the protection amount (P) of the guarantee or 
credit derivative is less than the EAD of the hedged exposure, the 
State savings association must treat the hedged exposure as two 
separate exposures (protected and unprotected) in order to recognize 
the credit risk mitigation benefit of the guarantee or credit 
derivative.
    (A) The State savings association's risk-based capital 
requirement for the protected exposure would be the greater of:
    (1) The risk-based capital requirement for the protected 
exposure as calculated under section 31 of this appendix, with the 
LGD of the exposure adjusted to reflect the guarantee or credit 
derivative and EAD set equal to P; or
    (2) The risk-based capital requirement for a direct exposure to 
the guarantor as calculated under section 31 of this appendix, using 
the PD for the protection provider, the LGD for the guarantee or 
credit derivative, and an EAD set equal to P.
    (B) The State savings association must calculate its risk-based 
capital requirement for the unprotected exposure under section 31 of 
this appendix, where PD is the obligor's PD, LGD is the hedged 
exposure's LGD (not adjusted to reflect the guarantee or credit 
derivative), and EAD is the EAD of the original hedged exposure 
minus P.
    (3) M of hedged exposures. The M of the hedged exposure is the 
same as the M of the exposure if it were unhedged.
    (d) Maturity mismatch. (1) A State savings association that 
recognizes an eligible guarantee or eligible credit derivative in 
determining its risk-based capital requirement for a hedged exposure 
must adjust the effective notional amount of the credit risk 
mitigant to reflect any maturity mismatch between the hedged 
exposure and the credit risk mitigant.
    (2) A maturity mismatch occurs when the residual maturity of a 
credit risk mitigant is less than that of the hedged exposure(s).
    (3) The residual maturity of a hedged exposure is the longest 
possible remaining time before the obligor is scheduled to fulfill 
its obligation on the exposure. If a credit risk mitigant has 
embedded options that may reduce its term, the State savings 
association (protection purchaser) must use the shortest possible 
residual maturity for the credit risk mitigant. If a call is at the 
discretion of the protection provider, the residual maturity of the 
credit risk mitigant is at the first call date. If the call is at 
the discretion of the State savings association (protection 
purchaser), but the terms of the arrangement at origination of the 
credit risk mitigant contain a positive incentive for the State 
savings association to call the transaction before contractual 
maturity, the remaining time to the first call date is the residual 
maturity of the credit risk mitigant. For example, where there is a 
step-up in cost in conjunction with a call feature or where the 
effective cost of protection increases over time even if credit 
quality remains the same or improves, the residual maturity of the 
credit risk mitigant will be the remaining time to the first call.
    (4) A credit risk mitigant with a maturity mismatch may be 
recognized only if its original maturity is greater than or equal to 
one year and its residual maturity is greater than three months.
    (5) When a maturity mismatch exists, the State savings 
association must apply the following adjustment to the effective 
notional amount of the credit risk mitigant: Pm = E x (t-0.25)/(T-
0.25), where:
    (i) Pm = effective notional amount of the credit risk mitigant, 
adjusted for maturity mismatch;
    (ii) E = effective notional amount of the credit risk mitigant;
    (iii) t = the lesser of T or the residual maturity of the credit 
risk mitigant, expressed in years; and
    (iv) T = the lesser of five or the residual maturity of the 
hedged exposure, expressed in years.
    (e) Credit derivatives without restructuring as a credit event. 
If a State savings association recognizes an eligible credit 
derivative that does not include as a credit event a restructuring 
of the hedged exposure involving forgiveness or postponement of 
principal, interest, or fees that results in a credit loss event 
(that is, a charge-off, specific provision, or other similar debit 
to the profit and loss account), the State savings association must 
apply the following adjustment to the effective notional amount of 
the credit derivative: Pr = Pm x 0.60, where:
    (1) Pr = effective notional amount of the credit risk mitigant, 
adjusted for lack of restructuring event (and maturity mismatch, if 
applicable); and
    (2) Pm = effective notional amount of the credit risk mitigant 
adjusted for maturity mismatch (if applicable).
    (f) Currency mismatch. (1) If a State savings association 
recognizes an eligible guarantee or eligible credit derivative that 
is denominated in a currency different from that in which the hedged 
exposure is denominated, the State savings association must apply 
the following formula to the effective notional amount of the 
guarantee or credit derivative: Pc = Pr x (1-HFX), where:
    (i) Pc = effective notional amount of the credit risk mitigant, 
adjusted for currency

[[Page 47795]]

mismatch (and maturity mismatch and lack of restructuring event, if 
applicable);
    (ii) Pr = effective notional amount of the credit risk mitigant 
(adjusted for maturity mismatch and lack of restructuring event, if 
applicable); and
    (iii) HFX= haircut appropriate for the currency 
mismatch between the credit risk mitigant and the hedged exposure.
    (2) A State savings association must set HFX equal to 
8 percent unless it qualifies for the use of and uses its own 
internal estimates of foreign exchange volatility based on a ten-
business-day holding period and daily marking-to-market and 
remargining. A State savings association qualifies for the use of 
its own internal estimates of foreign exchange volatility if it 
qualifies for:
    (i) The own-estimates haircuts in paragraph (b)(2)(iii) of 
section 32 of this appendix;
    (ii) The simple VaR methodology in paragraph (b)(3) of section 
32 of this appendix; or
    (iii) The internal models methodology in paragraph (d) of 
section 32 of this appendix.
    (3) A State savings association must adjust HFX 
calculated in paragraph (f)(2) of this section upward if the State 
savings association revalues the guarantee or credit derivative less 
frequently than once every ten business days using the square root 
of time formula provided in paragraph (b)(2)(iii)(A)(2) of section 
32 of this appendix.

Section 34. Guarantees and Credit Derivatives: Double Default 
Treatment

    (a) Eligibility and operational criteria for double default 
treatment. A State savings association may recognize the credit risk 
mitigation benefits of a guarantee or credit derivative covering an 
exposure described in paragraph (a)(1) of section 33 of this 
appendix by applying the double default treatment in this section if 
all the following criteria are satisfied.
    (1) The hedged exposure is fully covered or covered on a pro 
rata basis by:
    (i) An eligible guarantee issued by an eligible double default 
guarantor; or
    (ii) An eligible credit derivative that meets the requirements 
of paragraph (b)(2) of section 33 of this appendix and is issued by 
an eligible double default guarantor.
    (2) The guarantee or credit derivative is:
    (i) An uncollateralized guarantee or uncollateralized credit 
derivative (for example, a credit default swap) that provides 
protection with respect to a single reference obligor; or
    (ii) An nth-to-default credit derivative (subject to the 
requirements of paragraph (m) of section 42 of this appendix).
    (3) The hedged exposure is a wholesale exposure (other than a 
sovereign exposure).
    (4) The obligor of the hedged exposure is not:
    (i) An eligible double default guarantor or an affiliate of an 
eligible double default guarantor; or
    (ii) An affiliate of the guarantor.
    (5) The State savings association does not recognize any credit 
risk mitigation benefits of the guarantee or credit derivative for 
the hedged exposure other than through application of the double 
default treatment as provided in this section.
    (6) The State savings association has implemented a process 
(which has received the prior, written approval of the FDIC) to 
detect excessive correlation between the creditworthiness of the 
obligor of the hedged exposure and the protection provider. If 
excessive correlation is present, the State savings association may 
not use the double default treatment for the hedged exposure.
    (b) Full coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is at least equal to the EAD of the 
hedged exposure, the State savings association may determine its 
risk-weighted asset amount for the hedged exposure under paragraph 
(e) of this section.
    (c) Partial coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is less than the EAD of the hedged 
exposure, the State savings association must treat the hedged 
exposure as two separate exposures (protected and unprotected) in 
order to recognize double default treatment on the protected portion 
of the exposure.
    (1) For the protected exposure, the State savings association 
must set EAD equal to P and calculate its risk-weighted asset amount 
as provided in paragraph (e) of this section.
    (2) For the unprotected exposure, the State savings association 
must set EAD equal to the EAD of the original exposure minus P and 
then calculate its risk-weighted asset amount as provided in section 
31 of this appendix.
    (d) Mismatches. For any hedged exposure to which a State savings 
association applies double default treatment, the State savings 
association must make applicable adjustments to the protection 
amount as required in paragraphs (d), (e), and (f) of section 33 of 
this appendix.
    (e) The double default dollar risk-based capital requirement. 
The dollar risk-based capital requirement for a hedged exposure to 
which a State savings association has applied double default 
treatment is KDD multiplied by the EAD of the exposure. 
KDD is calculated according to the following formula: 
KDD= Kox (0.15 + 160 x PDg),

Where:

(1)
[GRAPHIC] [TIFF OMITTED] TR05AU11.006

(2) PDg = PD of the protection provider.
(3) PDo = PD of the obligor of the hedged exposure.
(4) LGDg = (i) The lower of the LGD of the hedged 
exposure (not adjusted to reflect the guarantee or credit 
derivative) and the LGD of the guarantee or credit derivative, if 
the guarantee or credit derivative provides the State savings 
association with the option to receive immediate payout on 
triggering the protection; or
(ii) The LGD of the guarantee or credit derivative, if the guarantee 
or credit derivative does not provide the State savings association 
with the option to receive immediate payout on triggering the 
protection.
(5) [rho]OS(asset value correlation of the obligor) is 
calculated according to the appropriate formula for (R) provided in 
Table 2 in section 31 of this appendix, with PD equal to 
PDo.
(6) b (maturity adjustment coefficient) is calculated according to 
the formula for b provided in Table 2 in section 31 of this 
appendix, with PD equal to the lesser of PDo and 
PDg.
(7) M (maturity) is the effective maturity of the guarantee or 
credit derivative, which may not be less than one year or greater 
than five years.

Section 35. Risk-Based Capital Requirement for Unsettled 
Transactions

    (a) Definitions. For purposes of this section:
    (1) Delivery-versus-payment (DvP) transaction means a securities 
or commodities transaction in which the buyer is obligated to make 
payment only if the seller has made delivery of the securities or 
commodities and the seller is obligated to deliver the securities or 
commodities only if the buyer has made payment.
    (2) Payment-versus-payment (PvP) transaction means a foreign 
exchange transaction in which each counterparty is obligated to make 
a final transfer of one or more currencies only if the other 
counterparty has made a final transfer of one or more currencies.
    (3) Normal settlement period. A transaction has a normal 
settlement period if the contractual settlement period for the 
transaction is equal to or less than the market standard for the 
instrument underlying the transaction and equal to or less than five 
business days.
    (4) Positive current exposure. The positive current exposure of 
a State savings association for a transaction is the difference 
between the transaction value at the agreed settlement price and the 
current market price of the transaction, if the difference results 
in a credit exposure of the State savings association to the 
counterparty.
    (b) Scope. This section applies to all transactions involving 
securities, foreign exchange instruments, and commodities that have 
a risk of delayed settlement or delivery. This section does not 
apply to:

[[Page 47796]]

    (1) Transactions accepted by a qualifying central counterparty 
that are subject to daily marking-to-market and daily receipt and 
payment of variation margin;
    (2) Repo-style transactions, including unsettled repo-style 
transactions (which are addressed in sections 31 and 32 of this 
appendix);
    (3) One-way cash payments on OTC derivative contracts (which are 
addressed in sections 31 and 32 of this appendix); or
    (4) Transactions with a contractual settlement period that is 
longer than the normal settlement period (which are treated as OTC 
derivative contracts and addressed in sections 31 and 32 of this 
appendix).
    (c) System-wide failures. In the case of a system-wide failure 
of a settlement or clearing system, the FDIC may waive risk-based 
capital requirements for unsettled and failed transactions until the 
situation is rectified.
    (d) Delivery-versus-payment (DvP) and payment-versus-payment 
(PvP) transactions. A State savings association must hold risk-based 
capital against any DvP or PvP transaction with a normal settlement 
period if the State savings association's counterparty has not made 
delivery or payment within five business days after the settlement 
date. The State savings association must determine its risk-weighted 
asset amount for such a transaction by multiplying the positive 
current exposure of the transaction for the State savings 
association by the appropriate risk weight in Table 5.

      Table 5--Risk Weights for Unsettled DvP and PvP Transactions
------------------------------------------------------------------------
                                                         Risk weight to
                                                          be applied to
 Number of business days after contractual  settlement  positive current
                         date                                exposure
                                                            (percent)
------------------------------------------------------------------------
From 5 to 15..........................................               100
From 16 to 30.........................................               625
From 31 to 45.........................................             937.5
46 or more............................................             1,250
------------------------------------------------------------------------

    (e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-
versus-payment) transactions. (1) A State savings association must 
hold risk-based capital against any non-DvP/non-PvP transaction with 
a normal settlement period if the State savings association has 
delivered cash, securities, commodities, or currencies to its 
counterparty but has not received its corresponding deliverables by 
the end of the same business day. The State savings association must 
continue to hold risk-based capital against the transaction until 
the State savings association has received its corresponding 
deliverables.
    (2) From the business day after the State savings association 
has made its delivery until five business days after the 
counterparty delivery is due, the State savings association must 
calculate its risk-based capital requirement for the transaction by 
treating the current market value of the deliverables owed to the 
State savings association as a wholesale exposure.
    (i) A State savings association may assign an obligor rating to 
a counterparty for which it is not otherwise required under this 
appendix to assign an obligor rating on the basis of the applicable 
external rating of any outstanding unsecured long-term debt security 
without credit enhancement issued by the counterparty.
    (ii) A State savings association may use a 45 percent LGD for 
the transaction rather than estimating LGD for the transaction 
provided the State savings association uses the 45 percent LGD for 
all transactions described in paragraphs (e)(1) and (e)(2) of this 
section.
    (iii) A State savings association may use a 100 percent risk 
weight for the transaction provided the State savings association 
uses this risk weight for all transactions described in paragraphs 
(e)(1) and (e)(2) of this section.
    (3) If the State savings association has not received its 
deliverables by the fifth business day after the counterparty 
delivery was due, the State savings association must deduct the 
current market value of the deliverables owed to the State savings 
association 50 percent from tier 1 capital and 50 percent from tier 
2 capital.
    (f) Total risk-weighted assets for unsettled transactions. Total 
risk-weighted assets for unsettled transactions is the sum of the 
risk-weighted asset amounts of all DvP, PvP, and non-DvP/non-PvP 
transactions.

Part V. Risk-Weighted Assets for Securitization Exposures

Section 41. Operational Criteria for Recognizing the Transfer of 
Risk

    (a) Operational criteria for traditional securitizations. A 
State savings association that transfers exposures it has originated 
or purchased to a securitization SPE or other third party in 
connection with a traditional securitization may exclude the 
exposures from the calculation of its risk-weighted assets only if 
each of the conditions in this paragraph (a) is satisfied. A State 
savings association that meets these conditions must hold risk-based 
capital against any securitization exposures it retains in 
connection with the securitization. A State savings association that 
fails to meet these conditions must hold risk-based capital against 
the transferred exposures as if they had not been securitized and 
must deduct from tier 1 capital any after-tax gain-on-sale resulting 
from the transaction. The conditions are:
    (1) The transfer is considered a sale under GAAP;
    (2) The State savings association has transferred to third 
parties credit risk associated with the underlying exposures; and
    (3) Any clean-up calls relating to the securitization are 
eligible clean-up calls.
    (b) Operational criteria for synthetic securitizations. For 
synthetic securitizations, a State savings association may recognize 
for risk-based capital purposes the use of a credit risk mitigant to 
hedge underlying exposures only if each of the conditions in this 
paragraph (b) is satisfied. A State savings association that fails 
to meet these conditions must hold risk-based capital against the 
underlying exposures as if they had not been synthetically 
securitized. The conditions are:
    (1) The credit risk mitigant is financial collateral, an 
eligible credit derivative from an eligible securitization guarantor 
or an eligible guarantee from an eligible securitization guarantor;
    (2) The State savings association transfers credit risk 
associated with the underlying exposures to third parties, and the 
terms and conditions in the credit risk mitigants employed do not 
include provisions that:
    (i) Allow for the termination of the credit protection due to 
deterioration in the credit quality of the underlying exposures;
    (ii) Require the State savings association to alter or replace 
the underlying exposures to improve the credit quality of the pool 
of underlying exposures;
    (iii) Increase the State savings association's cost of credit 
protection in response to deterioration in the credit quality of the 
underlying exposures;
    (iv) Increase the yield payable to parties other than the State 
savings association in response to a deterioration in the credit 
quality of the underlying exposures; or
    (v) Provide for increases in a retained first loss position or 
credit enhancement provided by the State savings association after 
the inception of the securitization;
    (3) The State savings association obtains a well-reasoned 
opinion from legal counsel that confirms the enforceability of the 
credit risk mitigant in all relevant jurisdictions; and
    (4) Any clean-up calls relating to the securitization are 
eligible clean-up calls.

Section 42. Risk-Based Capital Requirement for Securitization 
Exposures

    (a) Hierarchy of approaches. Except as provided elsewhere in 
this section:
    (1) A State savings association must deduct from tier 1 capital 
any after-tax gain-on-sale resulting from a securitization and must 
deduct from total capital in accordance with paragraph (c) of this 
section the portion of any CEIO that does not constitute gain-on-
sale.
    (2) If a securitization exposure does not require deduction 
under paragraph (a)(1) of this section and qualifies for the 
Ratings-Based Approach in section 43 of this appendix, a State 
savings association must apply the Ratings-Based Approach to the 
exposure.
    (3) If a securitization exposure does not require deduction 
under paragraph (a)(1) of this section and does not qualify for the 
Ratings-Based Approach, the State savings association may either 
apply the Internal Assessment Approach in section 44 of this 
appendix to the exposure (if the State savings association, the 
exposure, and the relevant ABCP program qualify for the Internal 
Assessment Approach) or the Supervisory Formula Approach in section 
45 of this appendix to the exposure (if the State savings 
association and the exposure qualify for the Supervisory Formula 
Approach).
    (4) If a securitization exposure does not require deduction 
under paragraph (a)(1) of this section and does not qualify for the 
Ratings-Based Approach, the Internal Assessment Approach, or the 
Supervisory Formula Approach, the State savings association must 
deduct the exposure from total capital in accordance with paragraph 
(c) of this section.

[[Page 47797]]

    (5) If a securitization exposure is an OTC derivative contract 
(other than a credit derivative) that has a first priority claim on 
the cash flows from the underlying exposures (notwithstanding 
amounts due under interest rate or currency derivative contracts, 
fees due, or other similar payments), with approval of the FDIC, a 
State savings association may choose to set the risk-weighted asset 
amount of the exposure equal to the amount of the exposure as 
determined in paragraph (e) of this section rather than apply the 
hierarchy of approaches described in paragraphs (a)(1) through (4) 
of this section.
    (b) Total risk-weighted assets for securitization exposures. A 
State savings association's total risk-weighted assets for 
securitization exposures is equal to the sum of its risk-weighted 
assets calculated using the Ratings-Based Approach in section 43 of 
this appendix, the Internal Assessment Approach in section 44 of 
this appendix, and the Supervisory Formula Approach in section 45 of 
this appendix, and its risk-weighted assets amount for early 
amortization provisions calculated in section 47 of this appendix.
    (c) Deductions. (1) If a State savings association must deduct a 
securitization exposure from total capital, the State savings 
association must take the deduction 50 percent from tier 1 capital 
and 50 percent from tier 2 capital. If the amount deductible from 
tier 2 capital exceeds the State savings association's tier 2 
capital, the State savings association must deduct the excess from 
tier 1 capital.
    (2) A State savings association may calculate any deduction from 
tier 1 capital and tier 2 capital for a securitization exposure net 
of any deferred tax liabilities associated with the securitization 
exposure.
    (d) Maximum risk-based capital requirement. Regardless of any 
other provisions of this subpart, unless one or more underlying 
exposures does not meet the definition of a wholesale, retail, 
securitization, or equity exposure, the total risk-based capital 
requirement for all securitization exposures held by a single State 
savings association associated with a single securitization 
(including any risk-based capital requirements that relate to an 
early amortization provision of the securitization but excluding any 
risk-based capital requirements that relate to the State savings 
association's gain-on-sale or CEIOs associated with the 
securitization) may not exceed the sum of:
    (1) The State savings association's total risk-based capital 
requirement for the underlying exposures as if the State savings 
association directly held the underlying exposures; and
    (2) The total ECL of the underlying exposures.
    (e) Amount of a securitization exposure. (1) The amount of an 
on-balance sheet securitization exposure that is not a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is:
    (i) The State savings association's carrying value minus any 
unrealized gains and plus any unrealized losses on the exposure, if 
the exposure is a security classified as available-for-sale; or
    (ii) The State savings association's carrying value, if the 
exposure is not a security classified as available-for-sale.
    (2) The amount of an off-balance sheet securitization exposure 
that is not an OTC derivative contract (other than a credit 
derivative) is the notional amount of the exposure. For an off-
balance-sheet securitization exposure to an ABCP program, such as a 
liquidity facility, the notional amount may be reduced to the 
maximum potential amount that the State savings association could be 
required to fund given the ABCP program's current underlying assets 
(calculated without regard to the current credit quality of those 
assets).
    (3) The amount of a securitization exposure that is a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is the EAD of the exposure as calculated 
in section 32 of this appendix.
    (f) Overlapping exposures. If a State savings association has 
multiple securitization exposures that provide duplicative coverage 
of the underlying exposures of a securitization (such as when a 
State savings association provides a program-wide credit enhancement 
and multiple pool-specific liquidity facilities to an ABCP program), 
the State savings association is not required to hold duplicative 
risk-based capital against the overlapping position. Instead, the 
State savings association may apply to the overlapping position the 
applicable risk-based capital treatment that results in the highest 
risk-based capital requirement.
    (g) Securitizations of non-IRB exposures. If a State savings 
association has a securitization exposure where any underlying 
exposure is not a wholesale exposure, retail exposure, 
securitization exposure, or equity exposure, the State savings 
association must:
    (1) If the State savings association is an originating State 
savings association, deduct from tier 1 capital any after-tax gain-
on-sale resulting from the securitization and deduct from total 
capital in accordance with paragraph (c) of this section the portion 
of any CEIO that does not constitute gain-on-sale;
    (2) If the securitization exposure does not require deduction 
under paragraph (g)(1), apply the RBA in section 43 of this appendix 
to the securitization exposure if the exposure qualifies for the 
RBA;
    (3) If the securitization exposure does not require deduction 
under paragraph (g)(1) and does not qualify for the RBA, apply the 
IAA in section 44 of this appendix to the exposure (if the State 
savings association, the exposure, and the relevant ABCP program 
qualify for the IAA); and
    (4) If the securitization exposure does not require deduction 
under paragraph (g)(1) and does not qualify for the RBA or the IAA, 
deduct the exposure from total capital in accordance with paragraph 
(c) of this section.
    (h) Implicit support. If a State savings association provides 
support to a securitization in excess of the State savings 
association's contractual obligation to provide credit support to 
the securitization (implicit support):
    (1) The State savings association must hold regulatory capital 
against all of the underlying exposures associated with the 
securitization as if the exposures had not been securitized and must 
deduct from tier 1 capital any after-tax gain-on-sale resulting from 
the securitization; and
    (2) The State savings association must disclose publicly:
    (i) That it has provided implicit support to the securitization; 
and
    (ii) The regulatory capital impact to the State savings 
association of providing such implicit support.
    (i) Eligible servicer cash advance facilities. Regardless of any 
other provisions of this part, a State savings association is not 
required to hold risk-based capital against the undrawn portion of 
an eligible servicer cash advance facility.
    (j) Interest-only mortgage-backed securities. Regardless of any 
other provisions of this part, the risk weight for a non-credit-
enhancing interest-only mortgage-backed security may not be less 
than 100 percent.
    (k) Small-business loans and leases on personal property 
transferred with recourse. (1) Regardless of any other provisions of 
this part, a State savings association that has transferred small-
business loans and leases on personal property (small-business 
obligations) with recourse must include in risk-weighted assets only 
the contractual amount of retained recourse if all the following 
conditions are met:
    (i) The transaction is a sale under GAAP.
    (ii) The State savings association establishes and maintains, 
pursuant to GAAP, a non-capital reserve sufficient to meet the State 
savings association's reasonably estimated liability under the 
recourse arrangement.
    (iii) The loans and leases are to businesses that meet the 
criteria for a small-business concern established by the Small 
Business Administration under section 3(a) of the Small Business Act 
(15 U.S.C. 632).
    (iv) The State savings association is well capitalized, as 
defined in the FDIC's prompt corrective action regulation at Subpart 
Y of Part 390. For purposes of determining whether a State savings 
association is well capitalized for purposes of this paragraph, the 
State savings association's capital ratios must be calculated 
without regard to the capital treatment for transfers of small-
business obligations with recourse specified in paragraph (k)(1) of 
this section.
    (2) The total outstanding amount of recourse retained by a State 
savings association on transfers of small-business obligations 
receiving the capital treatment specified in paragraph (k)(1) of 
this section cannot exceed 15 percent of the State savings 
association's total qualifying capital.
    (3) If a State savings association ceases to be well capitalized 
or exceeds the 15 percent capital limitation, the preferential 
capital treatment specified in paragraph (k)(1) of this section will 
continue to apply to any transfers of small-business obligations 
with recourse that occurred during the time that the State savings 
association was well capitalized and did not exceed the capital 
limit.

[[Page 47798]]

    (4) The risk-based capital ratios of the State savings 
association must be calculated without regard to the capital 
treatment for transfers of small-business obligations with recourse 
specified in paragraph (k)(1) of this section as provided in 12 CFR 
390.466(b)(5)(v).
    (l) Nth-to-default credit derivatives--(1) First-to-default 
credit derivatives--(i) Protection purchaser. A State savings 
association that obtains credit protection on a group of underlying 
exposures through a first-to-default credit derivative must 
determine its risk-based capital requirement for the underlying 
exposures as if the State savings association synthetically 
securitized the underlying exposure with the lowest risk-based 
capital requirement and had obtained no credit risk mitigant on the 
other underlying exposures.
    (ii) Protection provider. A State savings association that 
provides credit protection on a group of underlying exposures 
through a first-to-default credit derivative must determine its 
risk-weighted asset amount for the derivative by applying the RBA in 
section 43 of this appendix (if the derivative qualifies for the 
RBA) or, if the derivative does not qualify for the RBA, by setting 
its risk-weighted asset amount for the derivative equal to the 
product of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the 
individual underlying exposures, up to a maximum of 100 percent.
    (2) Second-or-subsequent-to-default credit derivatives--(i) 
Protection purchaser. (A) A State savings association that obtains 
credit protection on a group of underlying exposures through a nth-
to-default credit derivative (other than a first-to-default credit 
derivative) may recognize the credit risk mitigation benefits of the 
derivative only if:
    (1) The State savings association also has obtained credit 
protection on the same underlying exposures in the form of first-
through-(n-1)-to-default credit derivatives; or
    (2) If n-1 of the underlying exposures have already defaulted.
    (B) If a State savings association satisfies the requirements of 
paragraph (m)(2)(i)(A) of this section, the State savings 
association must determine its risk-based capital requirement for 
the underlying exposures as if the State savings association had 
only synthetically securitized the underlying exposure with the nth-
lowest risk-based capital requirement and had obtained no credit 
risk mitigant on the other underlying exposures.
    (ii) Protection provider. A State savings association that 
provides credit protection on a group of underlying exposures 
through a nth-to-default credit derivative (other than a first-to-
default credit derivative) must determine its risk-weighted asset 
amount for the derivative by applying the RBA in section 43 of this 
appendix (if the derivative qualifies for the RBA) or, if the 
derivative does not qualify for the RBA, by setting its risk-
weighted asset amount for the derivative equal to the product of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the 
individual underlying exposures (excluding the n-1 underlying 
exposures with the lowest risk-based capital requirements), up to a 
maximum of 100 percent.

Section 43. Ratings-Based Approach (RBA)

    (a) Eligibility requirements for use of the RBA--(1) Originating 
State savings association. An originating State savings association 
must use the RBA to calculate its risk-based capital requirement for 
a securitization exposure if the exposure has two or more external 
ratings or inferred ratings (and may not use the RBA if the exposure 
has fewer than two external ratings or inferred ratings).
    (2) Investing State savings association. An investing State 
savings association must use the RBA to calculate its risk-based 
capital requirement for a securitization exposure if the exposure 
has one or more external or inferred ratings (and may not use the 
RBA if the exposure has no external or inferred rating).
    (b) Ratings-based approach. (1) A State savings association must 
determine the risk-weighted asset amount for a securitization 
exposure by multiplying the amount of the exposure (as defined in 
paragraph (e) of section 42 of this appendix) by the appropriate 
risk weight provided in Table 6 and Table 7.
    (2) A State savings association must apply the risk weights in 
Table 6 when the securitization exposure's applicable external or 
applicable inferred rating represents a long-term credit rating, and 
must apply the risk weights in Table 7 when the securitization 
exposure's applicable external or applicable inferred rating 
represents a short-term credit rating.
    (i) A State savings association must apply the risk weights in 
column 1 of Table 6 or Table 7 to the securitization exposure if:
    (A) N (as calculated under paragraph (e)(6) of section 45 of 
this appendix) is six or more (for purposes of this section only, if 
the notional number of underlying exposures is 25 or more or if all 
of the underlying exposures are retail exposures, a State savings 
association may assume that N is six or more unless the State 
savings association knows or has reason to know that N is less than 
six); and
    (B) The securitization exposure is a senior securitization 
exposure.
    (ii) A State savings association must apply the risk weights in 
column 3 of Table 6 or Table 7 to the securitization exposure if N 
is less than six, regardless of the seniority of the securitization 
exposure.
    (iii) Otherwise, a State savings association must apply the risk 
weights in column 2 of Table 6 or Table 7.

                         Table 6--Long-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                              Column 1           Column 2           Column 3
                                                        --------------------------------------------------------
                                                          Risk weights for   Risk weights for
  Applicable external or inferred rating (Illustrative         senior           non-senior      Risk weights for
                    rating example)                        securitization     securitization     securitization
                                                          exposures backed   exposures backed   exposures backed
                                                         by granular pools  by granular pools   by non-granular
                                                             (percent)          (percent)       pools (percent)
----------------------------------------------------------------------------------------------------------------
Highest investment grade (for example, AAA)............                 7                 12                 20
Second highest investment grade (for example, AA)......                 8                 15                 25
Third-highest investment grade--positive designation                   10                 18                 35
 (for example, A+).....................................
Third-highest investment grade (for example, A)........                12                 20
Third-highest investment grade--negative designation                   20                 35
 (for example, A-).....................................
                                                        --------------------------------------------------------
Lowest investment grade--positive designation (for                     35                 50                 50
 example, BBB+)........................................
Lowest investment grade (for example, BBB).............                60                 75                 75
                                                        --------------------------------------------------------
Lowest investment grade--negative designation (for
 example, BBB-)........................................                            100
One category below investment grade--positive
 designation (for example, BB+)........................                            250
One category below investment grade (for example, BB)..                            425
One category below investment grade--negative
 designation (for example, BB-)........................                            650
More than one category below investment grade..........         Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------


[[Page 47799]]


                        Table 7--Short-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                              Column 1           Column 2           Column 3
                                                        --------------------------------------------------------
                                                          Risk weights for   Risk weights for
  Applicable external or inferred rating (Illustrative         senior           non-senior      Risk weights for
                    rating example)                        securitization     securitization     securitization
                                                          exposures backed   exposures backed   exposures backed
                                                         by granular pools  by granular pools   by non-granular
                                                             (percent)          (percent)       pools (percent)
----------------------------------------------------------------------------------------------------------------
Highest investment grade (for example, A1).............                 7                 12                 20
Second highest investment grade (for example, A2)......                12                 20                 35
Third highest investment grade (for example, A3).......                60                 75                 75
                                                        --------------------------------------------------------
All other ratings......................................         Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------

Section 44. Internal Assessment Approach (IAA)

    (a) Eligibility requirements. A State savings association may 
apply the IAA to calculate the risk-weighted asset amount for a 
securitization exposure that the State savings association has to an 
ABCP program (such as a liquidity facility or credit enhancement) if 
the State savings association, the ABCP program, and the exposure 
qualify for use of the IAA.
    (1) State savings association qualification criteria. A State 
savings association qualifies for use of the IAA if the State 
savings association has received the prior written approval of the 
FDIC. To receive such approval, the State savings association must 
demonstrate to the FDIC's satisfaction that the State savings 
association's internal assessment process meets the following 
criteria:
    (i) The State savings association's internal credit assessments 
of securitization exposures must be based on publicly available 
rating criteria used by an NRSRO.
    (ii) The State savings association's internal credit assessments 
of securitization exposures used for risk-based capital purposes 
must be consistent with those used in the State savings 
association's internal risk management process, management 
information reporting systems, and capital adequacy assessment 
process.
    (iii) The State savings association's internal credit assessment 
process must have sufficient granularity to identify gradations of 
risk. Each of the State savings association's internal credit 
assessment categories must correspond to an external rating of an 
NRSRO.
    (iv) The State savings association's internal credit assessment 
process, particularly the stress test factors for determining credit 
enhancement requirements, must be at least as conservative as the 
most conservative of the publicly available rating criteria of the 
NRSROs that have provided external ratings to the commercial paper 
issued by the ABCP program.
    (A) Where the commercial paper issued by an ABCP program has an 
external rating from two or more NRSROs and the different NRSROs' 
benchmark stress factors require different levels of credit 
enhancement to achieve the same external rating equivalent, the 
State savings association must apply the NRSRO stress factor that 
requires the highest level of credit enhancement.
    (B) If any NRSRO that provides an external rating to the ABCP 
program's commercial paper changes its methodology (including stress 
factors), the State savings association must evaluate whether to 
revise its internal assessment process.
    (v) The State savings association must have an effective system 
of controls and oversight that ensures compliance with these 
operational requirements and maintains the integrity and accuracy of 
the internal credit assessments. The State savings association must 
have an internal audit function independent from the ABCP program 
business line and internal credit assessment process that assesses 
at least annually whether the controls over the internal credit 
assessment process function as intended.
    (vi) The State savings association must review and update each 
internal credit assessment whenever new material information is 
available, but no less frequently than annually.
    (vii) The State savings association must validate its internal 
credit assessment process on an ongoing basis and at least annually.
    (2) ABCP-program qualification criteria. An ABCP program 
qualifies for use of the IAA if all commercial paper issued by the 
ABCP program has an external rating.
    (3) Exposure qualification criteria. A securitization exposure 
qualifies for use of the IAA if the exposure meets the following 
criteria:
    (i) The State savings association initially rated the exposure 
at least the equivalent of investment grade.
    (ii) The ABCP program has robust credit and investment 
guidelines (that is, underwriting standards) for the exposures 
underlying the securitization exposure.
    (iii) The ABCP program performs a detailed credit analysis of 
the sellers of the exposures underlying the securitization exposure.
    (iv) The ABCP program's underwriting policy for the exposures 
underlying the securitization exposure establishes minimum asset 
eligibility criteria that include the prohibition of the purchase of 
assets that are significantly past due or of assets that are 
defaulted (that is, assets that have been charged off or written 
down by the seller prior to being placed into the ABCP program or 
assets that would be charged off or written down under the program's 
governing contracts), as well as limitations on concentration to 
individual obligors or geographic areas and the tenor of the assets 
to be purchased.
    (v) The aggregate estimate of loss on the exposures underlying 
the securitization exposure considers all sources of potential risk, 
such as credit and dilution risk.
    (vi) Where relevant, the ABCP program incorporates structural 
features into each purchase of exposures underlying the 
securitization exposure to mitigate potential credit deterioration 
of the underlying exposures. Such features may include wind-down 
triggers specific to a pool of underlying exposures.
    (b) Mechanics. A State savings association that elects to use 
the IAA to calculate the risk-based capital requirement for any 
securitization exposure must use the IAA to calculate the risk-based 
capital requirements for all securitization exposures that qualify 
for the IAA approach. Under the IAA, a State savings association 
must map its internal assessment of such a securitization exposure 
to an equivalent external rating from an NRSRO. Under the IAA, a 
State savings association must determine the risk-weighted asset 
amount for such a securitization exposure by multiplying the amount 
of the exposure (as defined in paragraph (e) of section 42 of this 
appendix) by the appropriate risk weight in Table 6 and Table 7 in 
paragraph (b) of section 43 of this appendix.

Section 45. Supervisory Formula Approach (SFA)

    (a) Eligibility requirements. A State savings association may 
use the SFA to determine its risk-based capital requirement for a 
securitization exposure only if the State savings association can 
calculate on an ongoing basis each of the SFA parameters in 
paragraph (e) of this section.
    (b) Mechanics. Under the SFA, a securitization exposure incurs a 
deduction from total capital (as described in paragraph (c) of 
section 42 of this appendix) and/or an SFA risk-based capital 
requirement, as determined in paragraph (c) of this section. The 
risk-weighted asset amount for the securitization exposure equals 
the SFA risk-based capital requirement for the exposure multiplied 
by 12.5.
    (c) The SFA risk-based capital requirement. (1) If 
KIRB is greater than or

[[Page 47800]]

equal to L + T, the entire exposure must be deducted from total 
capital.
    (2) If KIRB is less than or equal to L, the 
exposure's SFA risk-based capital requirement is UE multiplied by TP 
multiplied by the greater of:
    (i) 0.0056 * T; or
    (ii) S[L + T] - S[L].
    (3) If KIRB is greater than L and less than L + T, 
the State savings association must deduct from total capital an 
amount equal to UE *TP * (KIRB- L), and the exposure's 
SFA risk-based capital requirement is UE multiplied by TP multiplied 
by the greater of:
    (i) 0.0056 * (T - (KIRB- L)); or
    (ii) S[L + T] - S[KIRB].
    (d) The supervisory formula:
    [GRAPHIC] [TIFF OMITTED] TR05AU11.007
    
    (11) In these expressions, [beta][Y; a, b] refers to the 
cumulative beta distribution with parameters a and b evaluated at Y. 
In the case where N = 1 and EWALGD = 100 percent, S[Y] in formula 
(1) must be calculated with K[Y] set equal to the product of 
KIRB and Y, and d set equal to 1 - KIRB.
    (e) SFA parameters--(1) Amount of the underlying exposures (UE). 
UE is the EAD of any underlying exposures that are wholesale and 
retail exposures (including the amount of any funded spread 
accounts, cash collateral accounts, and other similar funded credit 
enhancements) plus the amount of any underlying exposures that are 
securitization exposures (as defined in paragraph (e) of section 42 
of this appendix) plus the adjusted carrying value of any underlying 
exposures that are equity exposures (as defined in paragraph (b) of 
section 51 of this appendix).
    (2) Tranche percentage (TP). TP is the ratio of the amount of 
the State savings association's securitization exposure to the 
amount of the tranche that contains the securitization exposure.
    (3) Capital requirement on underlying exposures (KIRB). (i) 
KIRB is the ratio of:
    (A) The sum of the risk-based capital requirements for the 
underlying exposures plus the expected credit losses of the 
underlying exposures (as determined under this appendix as if the 
underlying exposures were directly held by the State savings 
association); to
    (B) UE.
    (ii) The calculation of KIRB must reflect the effects 
of any credit risk mitigant applied to the underlying exposures 
(either to an individual underlying exposure, to a group of 
underlying exposures, or to the entire pool of underlying 
exposures).
    (iii) All assets related to the securitization are treated as 
underlying exposures, including assets in a reserve account (such as 
a cash collateral account).
    (4) Credit enhancement level (L). (i) L is the ratio of:
    (A) The amount of all securitization exposures subordinated to 
the tranche that contains the State savings association's 
securitization exposure; to
    (B) UE.
    (ii) A State savings association must determine L before 
considering the effects of any tranche-specific credit enhancements.
    (iii) Any gain-on-sale or CEIO associated with the 
securitization may not be included in L.
    (iv) Any reserve account funded by accumulated cash flows from 
the underlying exposures that is subordinated to the tranche that 
contains the State savings association's securitization exposure may 
be included in the numerator and denominator of L to the extent cash 
has accumulated in the account. Unfunded reserve accounts (that is, 
reserve accounts that are to be funded from future cash flows from 
the underlying exposures) may not be included in the calculation of 
L.
    (v) In some cases, the purchase price of receivables will 
reflect a discount that provides credit enhancement (for example, 
first loss protection) for all or certain tranches of the 
securitization. When this arises, L should be calculated inclusive 
of this discount if the discount provides credit enhancement for the 
securitization exposure.
    (5) Thickness of tranche (T). T is the ratio of:
    (i) The amount of the tranche that contains the State savings 
association's securitization exposure; to
    (ii) UE.
    (6) Effective number of exposures (N). (i) Unless the State 
savings association elects to use the formula provided in paragraph 
(f) of this section,

[[Page 47801]]

[GRAPHIC] [TIFF OMITTED] TR05AU11.008


where EADi represents the EAD associated with the ith 
instrument in the pool of underlying exposures.

    (ii) Multiple exposures to one obligor must be treated as a 
single underlying exposure.
    (iii) In the case of a re-securitization (that is, a 
securitization in which some or all of the underlying exposures are 
themselves securitization exposures), the State savings association 
must treat each underlying exposure as a single underlying exposure 
and must not look through to the originally securitized underlying 
exposures.
    (7) Exposure-weighted average loss given default (EWALGD). 
EWALGD is calculated as:
[GRAPHIC] [TIFF OMITTED] TR05AU11.009


where LGDi represents the average LGD associated with all 
exposures to the ith obligor. In the case of a re-securitization, an 
LGD of 100 percent must be assumed for the underlying exposures that 
are themselves securitization exposures.

    (f) Simplified method for computing N and EWALGD. (1) If all 
underlying exposures of a securitization are retail exposures, a 
State savings association may apply the SFA using the following 
simplifications:
    (i) h = 0; and
    (ii) v = 0.
    (2) Under the conditions in paragraphs (f)(3) and (f)(4) of this 
section, a State savings association may employ a simplified method 
for calculating N and EWALGD.
    (3) If C1is no more than 0.03, a State savings 
association may set EWALGD = 0.50 if none of the underlying 
exposures is a securitization exposure or EWALGD = 1 if one or more 
of the underlying exposures is a securitization exposure, and may 
set N equal to the following amount:
[GRAPHIC] [TIFF OMITTED] TR05AU11.010


Where:

(i) Cm is the ratio of the sum of the amounts of the `m' 
largest underlying exposures to UE; and
(ii) The level of m is to be selected by the State savings 
association.
(4) Alternatively, if only C1 is available and 
C1 is no more than 0.03, the State savings association 
may set EWALGD = 0.50 if none of the underlying exposures is a 
securitization exposure or EWALGD = 1 if one or more of the 
underlying exposures is a securitization exposure and may set N = 1/
C1.

Section 46. Recognition of Credit Risk Mitigants for Securitization 
Exposures

    (a) General. An originating State savings association that has 
obtained a credit risk mitigant to hedge its securitization exposure 
to a synthetic or traditional securitization that satisfies the 
operational criteria in section 41 of this appendix may recognize 
the credit risk mitigant, but only as provided in this section. An 
investing State savings association that has obtained a credit risk 
mitigant to hedge a securitization exposure may recognize the credit 
risk mitigant, but only as provided in this section. A State savings 
association that has used the RBA in section 43 of this appendix or 
the IAA in section 44 of this appendix to calculate its risk-based 
capital requirement for a securitization exposure whose external or 
inferred rating (or equivalent internal rating under the IAA) 
reflects the benefits of a credit risk mitigant provided to the 
associated securitization or that supports some or all of the 
underlying exposures may not use the credit risk mitigation rules in 
this section to further reduce its risk-based capital requirement 
for the exposure to reflect that credit risk mitigant.
    (b) Collateral--(1) Rules of recognition. A State savings 
association may recognize financial collateral in determining the 
State savings association's risk-based capital requirement for a 
securitization exposure (other than a repo-style transaction, an 
eligible margin loan, or an OTC derivative contract for which the 
State savings association has reflected collateral in its 
determination of exposure amount under section 32 of this appendix) 
as follows. The State savings association's risk-based capital 
requirement for the collateralized securitization exposure is equal 
to the risk-based capital requirement for the securitization 
exposure as calculated under the RBA in section 43 of this appendix 
or under the SFA in section 45 of this appendix multiplied by the 
ratio of adjusted exposure amount (SE*) to original exposure amount 
(SE),

where:

(i) SE* = max {0, [SE--C x (1-Hs-Hfx)]{time} ;
(ii) SE = the amount of the securitization exposure calculated under 
paragraph (e) of section 42 of this appendix;
(iii) C = the current market value of the collateral;
(iv) Hs = the haircut appropriate to the collateral type; and
(v) Hfx = the haircut appropriate for any currency mismatch between 
the collateral and the exposure.

    (2) Mixed collateral. Where the collateral is a basket of 
different asset types or a basket of assets denominated in different 
currencies, the haircut on the basket will be
[GRAPHIC] [TIFF OMITTED] TR05AU11.011

where ai is the current market value of the asset in the 
basket divided by the current market value of all assets in the 
basket and Hi is the haircut applicable to that asset.
    (3) Standard supervisory haircuts. Unless a State savings 
association qualifies for use of and uses own-estimates haircuts in 
paragraph (b)(4) of this section:
    (i) A State savings association must use the collateral type 
haircuts (Hs) in Table 3;
    (ii) A State savings association must use a currency mismatch 
haircut (Hfx) of 8 percent if the exposure and the collateral are 
denominated in different currencies;
    (iii) A State savings association must multiply the supervisory 
haircuts obtained in paragraphs (b)(3)(i) and (ii) by the square 
root of 6.5 (which equals 2.549510); and
    (iv) A State savings association must adjust the supervisory 
haircuts upward on the basis of a holding period longer than 65 
business days where and as appropriate to take into account the 
illiquidity of the collateral.
    (4) Own estimates for haircuts. With the prior written approval 
of the FDIC, a State savings association may calculate haircuts 
using its own internal estimates of market price volatility and 
foreign exchange volatility, subject to paragraph (b)(2)(iii) of 
section 32 of this appendix. The minimum holding period (TM) for 
securitization exposures is 65 business days.
    (c) Guarantees and credit derivatives--(1) Limitations on 
recognition. A State savings association may only recognize an 
eligible guarantee or eligible credit derivative provided by an 
eligible securitization guarantor in determining the State savings 
association's risk-based capital requirement for a securitization 
exposure.
    (2) ECL for securitization exposures. When a State savings 
association recognizes an eligible guarantee or eligible credit 
derivative provided by an eligible securitization guarantor in 
determining the State savings association's risk-based capital 
requirement for a securitization exposure, the State savings 
association must also:
    (i) Calculate ECL for the protected portion of the exposure 
using the same risk parameters that it uses for calculating the 
risk-weighted asset amount of the exposure as described in paragraph 
(c)(3) of this section; and
    (ii) Add the exposure's ECL to the State savings association's 
total ECL.
    (3) Rules of recognition. A State savings association may 
recognize an eligible guarantee or eligible credit derivative 
provided by an eligible securitization guarantor in determining the 
State savings association's risk-based capital requirement for the 
securitization exposure as follows:
    (i) Full coverage. If the protection amount of the eligible 
guarantee or eligible credit derivative equals or exceeds the amount 
of the securitization exposure, the State savings

[[Page 47802]]

association may set the risk-weighted asset amount for the 
securitization exposure equal to the risk-weighted asset amount for 
a direct exposure to the eligible securitization guarantor (as 
determined in the wholesale risk weight function described in 
section 31 of this appendix), using the State savings association's 
PD for the guarantor, the State savings association's LGD for the 
guarantee or credit derivative, and an EAD equal to the amount of 
the securitization exposure (as determined in paragraph (e) of 
section 42 of this appendix).
    (ii) Partial coverage. If the protection amount of the eligible 
guarantee or eligible credit derivative is less than the amount of 
the securitization exposure, the State savings association may set 
the risk-weighted asset amount for the securitization exposure equal 
to the sum of:
    (A) Covered portion. The risk-weighted asset amount for a direct 
exposure to the eligible securitization guarantor (as determined in 
the wholesale risk weight function described in section 31 of this 
appendix), using the State savings association's PD for the 
guarantor, the State savings association's LGD for the guarantee or 
credit derivative, and an EAD equal to the protection amount of the 
credit risk mitigant; and
    (B) Uncovered portion. (1) 1.0 minus the ratio of the protection 
amount of the eligible guarantee or eligible credit derivative to 
the amount of the securitization exposure); multiplied by
    (2) The risk-weighted asset amount for the securitization 
exposure without the credit risk mitigant (as determined in sections 
42 through 45 of this appendix).
    (4) Mismatches. The State savings association must make 
applicable adjustments to the protection amount as required in 
paragraphs (d), (e), and (f) of section 33 of this appendix for any 
hedged securitization exposure and any more senior securitization 
exposure that benefits from the hedge. In the context of a synthetic 
securitization, when an eligible guarantee or eligible credit 
derivative covers multiple hedged exposures that have different 
residual maturities, the State savings association must use the 
longest residual maturity of any of the hedged exposures as the 
residual maturity of all the hedged exposures.

Section 47. Risk-Based Capital Requirement for Early Amortization 
Provisions

    (a) General. (1) An originating State savings association must 
hold risk-based capital against the sum of the originating State 
savings association's interest and the investors' interest in a 
securitization that:
    (i) Includes one or more underlying exposures in which the 
borrower is permitted to vary the drawn amount within an agreed 
limit under a line of credit; and
    (ii) Contains an early amortization provision.
    (2) For securitizations described in paragraph (a)(1) of this 
section, an originating State savings association must calculate the 
risk-based capital requirement for the originating State savings 
association's interest under sections 42 through 45 of this 
appendix, and the risk-based capital requirement for the investors' 
interest under paragraph (b) of this section.
    (b) Risk-weighted asset amount for investors' interest. The 
originating State savings association's risk-weighted asset amount 
for the investors' interest in the securitization is equal to the 
product of the following 5 quantities:
    (1) The investors' interest EAD;
    (2) The appropriate conversion factor in paragraph (c) of this 
section;
    (3) KIRB (as defined in paragraph (e)(3) of section 
45 of this appendix);
    (4) 12.5; and
    (5) The proportion of the underlying exposures in which the 
borrower is permitted to vary the drawn amount within an agreed 
limit under a line of credit.
    (c) Conversion factor. (1)(i) Except as provided in paragraph 
(c)(2) of this section, to calculate the appropriate conversion 
factor, a State savings association must use Table 8 for a 
securitization that contains a controlled early amortization 
provision and must use Table 9 for a securitization that contains a 
non-controlled early amortization provision. In circumstances where 
a securitization contains a mix of retail and nonretail exposures or 
a mix of committed and uncommitted exposures, a State savings 
association may take a pro rata approach to determining the 
conversion factor for the securitization's early amortization 
provision. If a pro rata approach is not feasible, a State savings 
association must treat the mixed securitization as a securitization 
of nonretail exposures if a single underlying exposure is a 
nonretail exposure and must treat the mixed securitization as a 
securitization of committed exposures if a single underlying 
exposure is a committed exposure.
    (ii) To find the appropriate conversion factor in the tables, a 
State savings association must divide the three-month average 
annualized excess spread of the securitization by the excess spread 
trapping point in the securitization structure. In securitizations 
that do not require excess spread to be trapped, or that specify 
trapping points based primarily on performance measures other than 
the three-month average annualized excess spread, the excess spread 
trapping point is 4.5 percent.

                                Table 8--Controlled Early Amortization Provisions
----------------------------------------------------------------------------------------------------------------
                                                           Uncommitted                         Committed
----------------------------------------------------------------------------------------------------------------
Retail Credit Lines......................  Three-month average annualized excess       90% CF.
                                            spread Conversion Factor (CF).
                                           133.33% of trapping point or more, 0% CF..
                                           less than 133.33% to 100% of trapping
                                            point, 1% CF.
                                           less than 100% to 75% of trapping point,
                                            2% CF.
                                           less than 75% to 50% of trapping point,
                                            10% CF.
                                           less than 50% to 25% of trapping point,
                                            20% CF.
                                           less than 25% of trapping point, 40% CF...
Non-retail Credit Lines..................  90% CF....................................  90% CF.
----------------------------------------------------------------------------------------------------------------


                              Table 9--Non-Controlled Early Amortization Provisions
----------------------------------------------------------------------------------------------------------------
                                                           Uncommitted                         Committed
----------------------------------------------------------------------------------------------------------------
Retail Credit Lines......................  Three-month average annualized excess       100% CF.
                                            spread Conversion Factor (CF).
                                           133.33% of trapping point or more, 0% CF..
                                           less than 133.33% to 100% of trapping
                                            point, 5% CF.
                                           less than 100% to 75% of trapping point,
                                            15% CF.
                                           less than 75% to 50% of trapping point,
                                            50% CF.
                                           less than 50% of trapping point, 100% CF..
Non-retail Credit Lines..................  100% CF...................................  100% CF.
----------------------------------------------------------------------------------------------------------------

    (2) For a securitization for which all or substantially all of 
the underlying exposures are residential mortgage exposures, a State 
savings association may calculate the appropriate conversion factor 
using paragraph (c)(1) of this section or may use a conversion 
factor of 10 percent. If the State savings association chooses to 
use a conversion factor of 10 percent, it must use that conversion 
factor for all securitizations for which all or substantially all of 
the

[[Page 47803]]

underlying exposures are residential mortgage exposures.

Part VI. Risk-Weighted Assets for Equity Exposures

Section 51. Introduction and Exposure Measurement

    (a) General. To calculate its risk-weighted asset amounts for 
equity exposures that are not equity exposures to investment funds, 
a State savings association may apply either the Simple Risk Weight 
Approach (SRWA) in section 52 of this appendix or, if it qualifies 
to do so, the Internal Models Approach (IMA) in section 53 of this 
appendix. A State savings association must use the look-through 
approaches in section 54 of this appendix to calculate its risk-
weighted asset amounts for equity exposures to investment funds.
    (b) Adjusted carrying value. For purposes of this part, the 
adjusted carrying value of an equity exposure is:
    (1) For the on-balance sheet component of an equity exposure, 
the State savings association's carrying value of the exposure 
reduced by any unrealized gains on the exposure that are reflected 
in such carrying value but excluded from the State savings 
association's tier 1 and tier 2 capital; and
    (2) For the off-balance sheet component of an equity exposure, 
the effective notional principal amount of the exposure, the size of 
which is equivalent to a hypothetical on-balance sheet position in 
the underlying equity instrument that would evidence the same change 
in fair value (measured in dollars) for a given small change in the 
price of the underlying equity instrument, minus the adjusted 
carrying value of the on-balance sheet component of the exposure as 
calculated in paragraph (b)(1) of this section. For unfunded equity 
commitments that are unconditional, the effective notional principal 
amount is the notional amount of the commitment. For unfunded equity 
commitments that are conditional, the effective notional principal 
amount is the State savings association's best estimate of the 
amount that would be funded under economic downturn conditions.

Section 52. Simple Risk Weight Approach (SRWA)

    (a) General. Under the SRWA, a State savings association's 
aggregate risk-weighted asset amount for its equity exposures is 
equal to the sum of the risk-weighted asset amounts for each of the 
State savings association's individual equity exposures (other than 
equity exposures to an investment fund) as determined in this 
section and the risk-weighted asset amounts for each of the State 
savings association's individual equity exposures to an investment 
fund as determined in section 54 of this appendix.
    (b) SRWA computation for individual equity exposures. A State 
savings association must determine the risk-weighted asset amount 
for an individual equity exposure (other than an equity exposure to 
an investment fund) by multiplying the adjusted carrying value of 
the equity exposure or the effective portion and ineffective portion 
of a hedge pair (as defined in paragraph (c) of this section) by the 
lowest applicable risk weight in this paragraph (b).
    (1) 0 percent risk weight equity exposures. An equity exposure 
to an entity whose credit exposures are exempt from the 0.03 percent 
PD floor in paragraph (d)(2) of section 31 of this appendix is 
assigned a 0 percent risk weight.
    (2) 20 percent risk weight equity exposures. An equity exposure 
to a Federal Home Loan Bank or Farmer Mac is assigned a 20 percent 
risk weight.
    (3) 100 percent risk weight equity exposures. The following 
equity exposures are assigned a 100 percent risk weight:
    (i) An equity exposure that is designed primarily to promote 
community welfare, including the welfare of low- and moderate-income 
communities or families, such as by providing services or jobs, 
excluding equity exposures to an unconsolidated small business 
investment company and equity exposures held through a consolidated 
small business investment company described in section 302 of the 
Small Business Investment Act of 1958 (15 U.S.C. 682).
    (ii) Effective portion of hedge pairs. The effective portion of 
a hedge pair.
    (iii) Non-significant equity exposures. Equity exposures, 
excluding exposures to an investment firm that would meet the 
definition of a traditional securitization were it not for the 
FDIC's application of paragraph (8) of that definition and has 
greater than immaterial leverage, to the extent that the aggregate 
adjusted carrying value of the exposures does not exceed 10 percent 
of the State savings association's tier 1 capital plus tier 2 
capital.
    (A) To compute the aggregate adjusted carrying value of a State 
savings association's equity exposures for purposes of this 
paragraph (b)(3)(iii), the State savings association may exclude 
equity exposures described in paragraphs (b)(1), (b)(2), (b)(3)(i), 
and (b)(3)(ii) of this section, the equity exposure in a hedge pair 
with the smaller adjusted carrying value, and a proportion of each 
equity exposure to an investment fund equal to the proportion of the 
assets of the investment fund that are not equity exposures or that 
meet the criterion of paragraph (b)(3)(i) of this section. If a 
State savings association does not know the actual holdings of the 
investment fund, the State savings association may calculate the 
proportion of the assets of the fund that are not equity exposures 
based on the terms of the prospectus, partnership agreement, or 
similar contract that defines the fund's permissible investments. If 
the sum of the investment limits for all exposure classes within the 
fund exceeds 100 percent, the State savings association must assume 
for purposes of this paragraph (b)(3)(iii) that the investment fund 
invests to the maximum extent possible in equity exposures.
    (B) When determining which of a State savings association's 
equity exposures qualify for a 100 percent risk weight under this 
paragraph, a State savings association first must include equity 
exposures to unconsolidated small business investment companies or 
held through consolidated small business investment companies 
described in section 302 of the Small Business Investment Act of 
1958 (15 U.S.C. 682), then must include publicly traded equity 
exposures (including those held indirectly through investment 
funds), and then must include non-publicly traded equity exposures 
(including those held indirectly through investment funds).
    (4) 300 percent risk weight equity exposures. A publicly traded 
equity exposure (other than an equity exposure described in 
paragraph (b)(6) of this section and including the ineffective 
portion of a hedge pair) is assigned a 300 percent risk weight.
    (5) 400 percent risk weight equity exposures. An equity exposure 
(other than an equity exposure described in paragraph (b)(6) of this 
section) that is not publicly traded is assigned a 400 percent risk 
weight.
    (6) 600 percent risk weight equity exposures. An equity exposure 
to an investment firm that:
    (i) Would meet the definition of a traditional securitization 
were it not for the FDIC's application of paragraph (8) of that 
definition; and
    (ii) Has greater than immaterial leverage is assigned a 600 
percent risk weight.
    (c) Hedge transactions --(1) Hedge pair. A hedge pair is two 
equity exposures that form an effective hedge so long as each equity 
exposure is publicly traded or has a return that is primarily based 
on a publicly traded equity exposure.
    (2) Effective hedge. Two equity exposures form an effective 
hedge if the exposures either have the same remaining maturity or 
each has a remaining maturity of at least three months; the hedge 
relationship is formally documented in a prospective manner (that 
is, before the State savings association acquires at least one of 
the equity exposures); the documentation specifies the measure of 
effectiveness (E) the State savings association will use for the 
hedge relationship throughout the life of the transaction; and the 
hedge relationship has an E greater than or equal to 0.8. A State 
savings association must measure E at least quarterly and must use 
one of three alternative measures of E:
    (i) Under the dollar-offset method of measuring effectiveness, 
the State savings association must determine the ratio of value 
change (RVC). The RVC is the ratio of the cumulative sum of the 
periodic changes in value of one equity exposure to the cumulative 
sum of the periodic changes in the value of the other equity 
exposure. If RVC is positive, the hedge is not effective and E 
equals 0. If RVC is negative and greater than or equal to -1 (that 
is, between zero and -1), then E equals the absolute value of RVC. 
If RVC is negative and less than -1, then E equals 2 plus RVC.
    (ii) Under the variability-reduction method of measuring 
effectiveness:

[[Page 47804]]

[GRAPHIC] [TIFF OMITTED] TR05AU11.012

    (A) Xt = At- Bt;
    (B) At = the value at time t of one exposure in a 
hedge pair; and
    (C) Bt = the value at time t of the other exposure in 
a hedge pair.
    (iii) Under the regression method of measuring effectiveness, E 
equals the coefficient of determination of a regression in which the 
change in value of one exposure in a hedge pair is the dependent 
variable and the change in value of the other exposure in a hedge 
pair is the independent variable. However, if the estimated 
regression coefficient is positive, then the value of E is zero.
    (3) The effective portion of a hedge pair is E multiplied by the 
greater of the adjusted carrying values of the equity exposures 
forming a hedge pair.
    (4) The ineffective portion of a hedge pair is (1-E) multiplied 
by the greater of the adjusted carrying values of the equity 
exposures forming a hedge pair.

Section 53. Internal Models Approach (IMA)

    (a) General. A State savings association may calculate its risk-
weighted asset amount for equity exposures using the IMA by modeling 
publicly traded and non-publicly traded equity exposures (in 
accordance with paragraph (c) of this section) or by modeling only 
publicly traded equity exposures (in accordance with paragraph (d) 
of this section).
    (b) Qualifying criteria. To qualify to use the IMA to calculate 
risk-based capital requirements for equity exposures, a State 
savings association must receive prior written approval from the 
FDIC. To receive such approval, the State savings association must 
demonstrate to the FDIC's satisfaction that the State savings 
association meets the following criteria:
    (1) The State savings association must have one or more models 
that:
    (i) Assess the potential decline in value of its modeled equity 
exposures;
    (ii) Are commensurate with the size, complexity, and composition 
of the State savings association's modeled equity exposures; and
    (iii) Adequately capture both general market risk and 
idiosyncratic risk.
    (2) The State savings association's model must produce an 
estimate of potential losses for its modeled equity exposures that 
is no less than the estimate of potential losses produced by a VaR 
methodology employing a 99.0 percent, one-tailed confidence interval 
of the distribution of quarterly returns for a benchmark portfolio 
of equity exposures comparable to the State savings association's 
modeled equity exposures using a long-term sample period.
    (3) The number of risk factors and exposures in the sample and 
the data period used for quantification in the State savings 
association's model and benchmarking exercise must be sufficient to 
provide confidence in the accuracy and robustness of the State 
savings association's estimates.
    (4) The State savings association's model and benchmarking 
process must incorporate data that are relevant in representing the 
risk profile of the State savings association's modeled equity 
exposures, and must include data from at least one equity market 
cycle containing adverse market movements relevant to the risk 
profile of the State savings association's modeled equity exposures. 
In addition, the State savings association's benchmarking exercise 
must be based on daily market prices for the benchmark portfolio. If 
the State savings association's model uses a scenario methodology, 
the State savings association must demonstrate that the model 
produces a conservative estimate of potential losses on the State 
savings association's modeled equity exposures over a relevant long-
term market cycle. If the State savings association employs risk 
factor models, the State savings association must demonstrate 
through empirical analysis the appropriateness of the risk factors 
used.
    (5) The State savings association must be able to demonstrate, 
using theoretical arguments and empirical evidence, that any proxies 
used in the modeling process are comparable to the State savings 
association's modeled equity exposures and that the State savings 
association has made appropriate adjustments for differences. The 
State savings association must derive any proxies for its modeled 
equity exposures and benchmark portfolio using historical market 
data that are relevant to the State savings association's modeled 
equity exposures and benchmark portfolio (or, where not, must use 
appropriately adjusted data), and such proxies must be robust 
estimates of the risk of the State savings association's modeled 
equity exposures.
    (c) Risk-weighted assets calculation for a State savings 
association modeling publicly traded and non-publicly traded equity 
exposures. If a State savings association models publicly traded and 
non-publicly traded equity exposures, the State savings 
association's aggregate risk-weighted asset amount for its equity 
exposures is equal to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight 
under paragraphs (b)(1) through (b)(3)(i) of section 52 (as 
determined under section 52 of this appendix) and each equity 
exposure to an investment fund (as determined under section 54 of 
this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the State savings 
association's equity exposures (other than equity exposures 
referenced in paragraph (c)(1) of this section) generated by the 
State savings association's internal equity exposure model 
multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying 
value of the State savings association's publicly traded equity 
exposures that do not belong to a hedge pair, do not qualify for a 0 
percent, 20 percent, or 100 percent risk weight under paragraphs 
(b)(1) through (b)(3)(i) of section 52 of this appendix, and are not 
equity exposures to an investment fund;
    (B) 200 percent multiplied by the aggregate ineffective portion 
of all hedge pairs; and
    (C) 300 percent multiplied by the aggregate adjusted carrying 
value of the State savings association's equity exposures that are 
not publicly traded, do not qualify for a 0 percent, 20 percent, or 
100 percent risk weight under paragraphs (b)(1) through (b)(3)(i) of 
section 52 of this appendix, and are not equity exposures to an 
investment fund.
    (d) Risk-weighted assets calculation for a State savings 
association using the IMA only for publicly traded equity exposures. 
If a State savings association models only publicly traded equity 
exposures, the State savings association's aggregate risk-weighted 
asset amount for its equity exposures is equal to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight 
under paragraphs (b)(1) through (b)(3)(i) of section 52 (as 
determined under section 52 of this appendix), each equity exposure 
that qualifies for a 400 percent risk weight under paragraph (b)(5) 
of section 52 or a 600 percent risk weight under paragraph (b)(6) of 
section 52 (as determined under section 52 of this appendix), and 
each equity exposure to an investment fund (as determined under 
section 54 of this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the State savings 
association's equity exposures (other than equity exposures 
referenced in paragraph (d)(1) of this section) generated by the 
State savings association's internal equity exposure model 
multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying 
value of the State savings association's publicly traded equity 
exposures that do not belong to a hedge pair, do not qualify for a 0 
percent, 20 percent, or 100 percent risk weight under paragraphs 
(b)(1) through (b)(3)(i) of section 52 of this appendix, and are not 
equity exposures to an investment fund; and
    (B) 200 percent multiplied by the aggregate ineffective portion 
of all hedge pairs.

Section 54. Equity Exposures to Investment Funds

    (a) Available approaches. (1) Unless the exposure meets the 
requirements for a community development equity exposure in 
paragraph (b)(3)(i) of section 52 of this appendix, a State savings 
association must determine the risk-weighted asset amount of

[[Page 47805]]

an equity exposure to an investment fund under the Full Look-Through 
Approach in paragraph (b) of this section, the Simple Modified Look-
Through Approach in paragraph (c) of this section, the Alternative 
Modified Look-Through Approach in paragraph (d) of this section, or, 
if the investment fund qualifies for the Money Market Fund Approach, 
the Money Market Fund Approach in paragraph (e) of this section.
    (2) The risk-weighted asset amount of an equity exposure to an 
investment fund that meets the requirements for a community 
development equity exposure in paragraph (b)(3)(i) of section 52 of 
this appendix is its adjusted carrying value.
    (3) If an equity exposure to an investment fund is part of a 
hedge pair and the State savings association does not use the Full 
Look-Through Approach, the State savings association may use the 
ineffective portion of the hedge pair as determined under paragraph 
(c) of section 52 of this appendix as the adjusted carrying value 
for the equity exposure to the investment fund. The risk-weighted 
asset amount of the effective portion of the hedge pair is equal to 
its adjusted carrying value.
    (b) Full Look-Through Approach. A State savings association that 
is able to calculate a risk-weighted asset amount for its 
proportional ownership share of each exposure held by the investment 
fund (as calculated under this appendix as if the proportional 
ownership share of each exposure were held directly by the State 
savings association) may either:
    (1) Set the risk-weighted asset amount of the State savings 
association's exposure to the fund equal to the product of:
    (i) The aggregate risk-weighted asset amounts of the exposures 
held by the fund as if they were held directly by the State savings 
association; and
    (ii) The State savings association's proportional ownership 
share of the fund; or
    (2) Include the State savings association's proportional 
ownership share of each exposure held by the fund in the State 
savings association's IMA.
    (c) Simple Modified Look-Through Approach. Under this approach, 
the risk-weighted asset amount for a State savings association's 
equity exposure to an investment fund equals the adjusted carrying 
value of the equity exposure multiplied by the highest risk weight 
in Table 10 that applies to any exposure the fund is permitted to 
hold under its prospectus, partnership agreement, or similar 
contract that defines the fund's permissible investments (excluding 
derivative contracts that are used for hedging rather than 
speculative purposes and that do not constitute a material portion 
of the fund's exposures).

   Table 10--Modified Look-Through Approaches for Equity Exposures to
                            Investment Funds
------------------------------------------------------------------------
         Risk weight                         Exposure class
------------------------------------------------------------------------
0 percent....................  Sovereign exposures with a long-term
                                applicable external rating in the
                                highest investment-grade rating category
                                and sovereign exposures of the United
                                States.
20 percent...................  Non-sovereign exposures with a long-term
                                applicable external rating in the
                                highest or second-highest investment-
                                grade rating category; exposures with a
                                short-term applicable external rating in
                                the highest investment-grade rating
                                category; and exposures to, or
                                guaranteed by, depository institutions,
                                foreign banks (as defined in 12 CFR
                                211.2), or securities firms subject to
                                consolidated supervision and regulation
                                comparable to that imposed on U.S.
                                securities broker-dealers that are repo-
                                style transactions or bankers'
                                acceptances.
50 percent...................  Exposures with a long-term applicable
                                external rating in the third-highest
                                investment-grade rating category or a
                                short-term applicable external rating in
                                the second-highest investment-grade
                                rating category.
100 percent..................  Exposures with a long-term or short-term
                                applicable external rating in the lowest
                                investment-grade rating category.
200 percent..................  Exposures with a long-term applicable
                                external rating one rating category
                                below investment grade.
300 percent..................  Publicly traded equity exposures.
400 percent..................  Non-publicly traded equity exposures;
                                exposures with a long-term applicable
                                external rating two rating categories or
                                more below investment grade; and
                                exposures without an external rating
                                (excluding publicly traded equity
                                exposures).
1,250 percent................  OTC derivative contracts and exposures
                                that must be deducted from regulatory
                                capital or receive a risk weight greater
                                than 400 percent under this appendix.
------------------------------------------------------------------------

    (d) Alternative Modified Look-Through Approach. Under this 
approach, a State savings association may assign the adjusted 
carrying value of an equity exposure to an investment fund on a pro 
rata basis to different risk weight categories in Table 10 based on 
the investment limits in the fund's prospectus, partnership 
agreement, or similar contract that defines the fund's permissible 
investments. The risk-weighted asset amount for the State savings 
association's equity exposure to the investment fund equals the sum 
of each portion of the adjusted carrying value assigned to an 
exposure class multiplied by the applicable risk weight. If the sum 
of the investment limits for exposure classes within the fund 
exceeds 100 percent, the State savings association must assume that 
the fund invests to the maximum extent permitted under its 
investment limits in the exposure class with the highest risk weight 
under Table 10, and continues to make investments in order of the 
exposure class with the next highest risk weight under Table 10 
until the maximum total investment level is reached. If more than 
one exposure class applies to an exposure, the State savings 
association must use the highest applicable risk weight. A State 
savings association may exclude derivative contracts held by the 
fund that are used for hedging rather than for speculative purposes 
and do not constitute a material portion of the fund's exposures.
    (e) Money Market Fund Approach. The risk-weighted asset amount 
for a State savings association's equity exposure to an investment 
fund that is a money market fund subject to 17 CFR 270.2a-7 and that 
has an applicable external rating in the highest investment-grade 
rating category equals the adjusted carrying value of the equity 
exposure multiplied by 7 percent.

Section 55. Equity Derivative Contracts

    Under the IMA, in addition to holding risk-based capital against 
an equity derivative contract under this part, a State savings 
association must hold risk-based capital against the counterparty 
credit risk in the equity derivative contract by also treating the 
equity derivative contract as a wholesale exposure and computing a 
supplemental risk-weighted asset amount for the contract under part 
IV. Under the SRWA, a State savings association may choose not to 
hold risk-based capital against the counterparty credit risk of 
equity derivative contracts, as long as it does so for all such 
contracts. Where the equity derivative contracts are subject to a 
qualified master netting agreement, a State savings association 
using the SRWA must either include all or exclude all of the 
contracts from any measure used to determine counterparty credit 
risk exposure.

Part VII. Risk-Weighted Assets for Operational Risk

Section 61. Qualification Requirements for Incorporation of 
Operational Risk Mitigants

    (a) Qualification to use operational risk mitigants. A State 
savings association may adjust its estimate of operational risk 
exposure to reflect qualifying operational risk mitigants if:
    (1) The State savings association's operational risk 
quantification system is able to generate an estimate of the State 
savings association's operational risk exposure (which does not 
incorporate qualifying operational risk mitigants) and an estimate 
of the State savings association's operational risk exposure 
adjusted to incorporate qualifying operational risk mitigants; and

[[Page 47806]]

    (2) The State savings association's methodology for 
incorporating the effects of insurance, if the State savings 
association uses insurance as an operational risk mitigant, captures 
through appropriate discounts to the amount of risk mitigation:
    (i) The residual term of the policy, where less than one year;
    (ii) The cancellation terms of the policy, where less than one 
year;
    (iii) The policy's timeliness of payment;
    (iv) The uncertainty of payment by the provider of the policy; 
and
    (v) Mismatches in coverage between the policy and the hedged 
operational loss event.
    (b) Qualifying operational risk mitigants. Qualifying 
operational risk mitigants are:
    (1) Insurance that:
    (i) Is provided by an unaffiliated company that has a claims 
payment ability that is rated in one of the three highest rating 
categories by a NRSRO;
    (ii) Has an initial term of at least one year and a residual 
term of more than 90 days;
    (iii) Has a minimum notice period for cancellation by the 
provider of 90 days;
    (iv) Has no exclusions or limitations based upon regulatory 
action or for the receiver or liquidator of a failed depository 
institution; and
    (v) Is explicitly mapped to a potential operational loss event; 
and
    (2) Operational risk mitigants other than insurance for which 
the FDIC has given prior written approval. In evaluating an 
operational risk mitigant other than insurance, the FDIC will 
consider whether the operational risk mitigant covers potential 
operational losses in a manner equivalent to holding regulatory 
capital.

Section 62. Mechanics of Risk-Weighted Asset Calculation

    (a) If a State savings association does not qualify to use or 
does not have qualifying operational risk mitigants, the State 
savings association's dollar risk-based capital requirement for 
operational risk is its operational risk exposure minus eligible 
operational risk offsets (if any).
    (b) If a State savings association qualifies to use operational 
risk mitigants and has qualifying operational risk mitigants, the 
State savings association's dollar risk-based capital requirement 
for operational risk is the greater of:
    (1) The State savings association's operational risk exposure 
adjusted for qualifying operational risk mitigants minus eligible 
operational risk offsets (if any); or
    (2) 0.8 multiplied by the difference between:
    (i) The State savings association's operational risk exposure; 
and
    (ii) Eligible operational risk offsets (if any).
    (c) The State savings association's risk-weighted asset amount 
for operational risk equals the State savings association's dollar 
risk-based capital requirement for operational risk determined under 
paragraph (a) or (b) of this section multiplied by 12.5.

Part VIII. Disclosure

Section 71. Disclosure Requirements

    (a) Each State savings association must publicly disclose each 
quarter its total and tier 1 risk-based capital ratios and their 
components (that is, tier 1 capital, tier 2 capital, total 
qualifying capital, and total risk-weighted assets).\8\
---------------------------------------------------------------------------

    \8\ Other public disclosure requirements continue to apply--for 
example, Federal securities law and regulatory reporting 
requirements.
---------------------------------------------------------------------------

    (b) A State savings association must comply with paragraph (c) 
of section 71 of this appendix unless it is a consolidated 
subsidiary of a depository institution or bank holding company that 
is subject to these requirements.
    (c)(1) Each consolidated State savings association described in 
paragraph (b) of this section that is not a subsidiary of a non-U.S. 
banking organization that is subject to comparable public disclosure 
requirements in its home jurisdiction and has successfully completed 
its parallel run must provide timely public disclosures each 
calendar quarter of the information in tables 11.1 through 11.11 of 
this appendix. If a significant change occurs, such that the most 
recent reported amounts are no longer reflective of the State 
savings association's capital adequacy and risk profile, then a 
brief discussion of this change and its likely impact must be 
provided as soon as practicable thereafter. Qualitative disclosures 
that typically do not change each quarter (for example, a general 
summary of the State savings association's risk management 
objectives and policies, reporting system, and definitions) may be 
disclosed annually, provided any significant changes to these are 
disclosed in the interim. Management is encouraged to provide all of 
the disclosures required by this appendix in one place on the State 
savings association's public Web site.\9\ The State savings 
association must make these disclosures publicly available for each 
of the last three years (twelve quarters) or such shorter period 
since it began its first floor period.
---------------------------------------------------------------------------

    \9\ Alternatively, a State savings association may provide the 
disclosures in more than one place, as some of them may be included 
in public financial reports (for example, in Management's Discussion 
and Analysis included in SEC filings) or other regulatory reports. 
The State savings association must provide a summary table on its 
public Web site that specifically indicates where all the 
disclosures may be found (for example, regulatory report schedules, 
page numbers in annual reports).
---------------------------------------------------------------------------

    (2) Each State savings association is required to have a formal 
disclosure policy approved by the board of directors that addresses 
its approach for determining the disclosures it makes. The policy 
must address the associated internal controls and disclosure 
controls and procedures. The board of directors and senior 
management are responsible for establishing and maintaining an 
effective internal control structure over financial reporting, 
including the disclosures required by this appendix, and must ensure 
that appropriate review of the disclosures takes place. One or more 
senior officers of the State savings association must attest that 
the disclosures required by this appendix meet the requirements of 
this appendix.
    (3) If a State savings association believes that disclosure of 
specific commercial or financial information would prejudice 
seriously its position by making public information that is either 
proprietary or confidential in nature, the State savings association 
need not disclose those specific items, but must disclose more 
general information about the subject matter of the requirement, 
together with the fact that, and the reason why, the specific items 
of information have not been disclosed.

                    Table 11.1--Scope of Application
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The name of the top corporate
                                     entity in the group to which the
                                     appendix applies.
                                    (b) An outline of differences in the
                                     basis of consolidation for
                                     accounting and regulatory purposes,
                                     with a brief description of the
                                     entities \10\ within the group that
                                     are fully consolidated; that are
                                     deconsolidated and deducted; for
                                     which the regulatory capital
                                     requirement is deducted; and that
                                     are neither consolidated nor
                                     deducted (for example, where the
                                     investment is risk-weighted).
                                    (c) Any restrictions, or other major
                                     impediments, on transfer of funds
                                     or regulatory capital within the
                                     group.
Quantitative Disclosures..........  (d) The aggregate amount of surplus
                                     capital of insurance subsidiaries
                                     (whether deducted or subjected to
                                     an alternative method) included in
                                     the regulatory capital of the
                                     consolidated group.
                                    (e) The aggregate amount by which
                                     actual regulatory capital is less
                                     than the minimum regulatory capital
                                     requirement in all subsidiaries
                                     with regulatory capital
                                     requirements and the name(s) of the
                                     subsidiaries with such
                                     deficiencies.
------------------------------------------------------------------------

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

    \10\ Entities include securities, insurance and other financial 
subsidiaries, commercial subsidiaries (where permitted), and 
significant minority equity investments in insurance, financial and 
commercial entities.

[[Page 47807]]



                      Table 11.2--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) Summary information on the terms
                                     and conditions of the main features
                                     of all capital instruments,
                                     especially in the case of
                                     innovative, complex or hybrid
                                     capital instruments.
Quantitative Disclosures..........  (b) The amount of tier 1 capital,
                                     with separate disclosure of:
                                       Common stock/surplus;
                                       Retained earnings;
                                       Minority interests in the
                                    equity of subsidiaries;
                                       Regulatory calculation
                                    differences deducted from tier 1
                                    capital; \11\ and
                                       Other amounts deducted
                                    from tier 1 capital, including
                                    goodwill and certain intangibles.
                                    (c) The total amount of tier 2
                                     capital.
                                    (d) Other deductions from
                                     capital.\12\
                                    (e) Total eligible capital.
------------------------------------------------------------------------

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

    \11\ Representing 50 percent of the amount, if any, by which 
total expected credit losses as calculated within the IRB approach 
exceed eligible credit reserves, which must be deducted from tier 1 
capital.
    \12\ Including 50 percent of the amount, if any, by which total 
expected credit losses as calculated within the IRB approach exceed 
eligible credit reserves, which must be deducted from tier 2 
capital.

 
                      Table 11.3--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) A summary discussion of the
                                     State savings association's
                                     approach to assessing the adequacy
                                     of its capital to support current
                                     and future activities.
Quantitative Disclosures..........  (b) Risk-weighted assets for credit
                                     risk from:
                                       Wholesale exposures;
                                       Residential mortgage
                                    exposures;
                                       Qualifying revolving
                                    exposures;
                                       Other retail exposures;
                                       Securitization exposures;
                                       Equity exposures;
                                       Equity exposures subject
                                    to the simple risk weight approach;
                                    and
                                       Equity exposures subject
                                    to the internal models approach.
                                    (c) Risk-weighted assets for market
                                     risk as calculated under any
                                     applicable market risk rule: \13\
                                       Standardized approach for
                                    specific risk; and
                                       Internal models approach
                                    for specific risk.
                                    (d) Risk-weighted assets for
                                     operational risk.
                                    (e) Total and tier 1 risk-based
                                     capital ratios: \14\
                                       For the top consolidated
                                    group; and
                                       For each DI subsidiary.
------------------------------------------------------------------------

General Qualitative Disclosure Requirement

    For each separate risk area described in tables 11.4 through 
11.11, the State savings association must describe its risk 
management objectives and policies, including:
---------------------------------------------------------------------------

    \13\ Risk-weighted assets determined under any applicable market 
risk rule are to be disclosed only for the approaches used.
    \14\ Total risk-weighted assets should also be disclosed.
    \15\ Table 4 does not include equity exposures.
    \16\ For example, FASB Interpretations 39 and 41.
    \17\ For example, State savings associations could apply a 
breakdown similar to that used for accounting purposes.
    \18\ Geographical areas may comprise individual countries, 
groups of countries, or regions within countries.
    \19\ A State savings association is encouraged also to provide 
an analysis of the aging of past-due loans.
---------------------------------------------------------------------------

     Strategies and processes;
     The structure and organization of the relevant risk 
management function;
     The scope and nature of risk reporting and/or 
measurement systems;
     Policies for hedging and/or mitigating risk and 
strategies and processes for monitoring the continuing effectiveness 
of hedges/mitigants.

            Table 11.4 \15\--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to credit risk (excluding
                                     counterparty credit risk disclosed
                                     in accordance with Table 11.6),
                                     including:
                                       Definitions of past due
                                    and impaired (for accounting
                                    purposes);
                                       Description of approaches
                                    followed for allowances, including
                                    statistical methods used where
                                    applicable; and
                                       Discussion of the State
                                    savings association's credit risk
                                    management policy.
Quantitative Disclosures..........  (b) Total credit risk exposures and
                                     average credit risk exposures,
                                     after accounting offsets in
                                     accordance with GAAP,\16\ and
                                     without taking into account the
                                     effects of credit risk mitigation
                                     techniques (for example, collateral
                                     and netting), over the period
                                     broken down by major types of
                                     credit exposure.\17\
                                    (c) Geographic \18\ distribution of
                                     exposures, broken down in
                                     significant areas by major types of
                                     credit exposure.
                                    (d) Industry or counterparty type
                                     distribution of exposures, broken
                                     down by major types of credit
                                     exposure.
                                    (e) Remaining contractual maturity
                                     breakdown (for example, one year or
                                     less) of the whole portfolio,
                                     broken down by major types of
                                     credit exposure.
                                    (f) By major industry or
                                     counterparty type:
                                       Amount of impaired loans;
                                       Amount of past due loans;
                                    \19\

[[Page 47808]]

 
                                       Allowances; and
                                       Charge-offs during the
                                    period.
                                    (g) Amount of impaired loans and, if
                                     available, the amount of past due
                                     loans broken down by significant
                                     geographic areas including, if
                                     practical, the amounts of
                                     allowances related to each
                                     geographical area.\20\
                                    (h) Reconciliation of changes in the
                                     allowance for loan and lease
                                     losses.\21\
------------------------------------------------------------------------

    Such a breakdown might, for instance, be (a) loans, off-balance 
sheet commitments, and other non-derivative off-balance sheet 
exposures, (b) debt securities, and (c) OTC derivatives.
---------------------------------------------------------------------------

    \20\ The portion of general allowance that is not allocated to a 
geographical area should be disclosed separately.
    \21\ The reconciliation should include the following: a 
description of the allowance; the opening balance of the allowance; 
charge-offs taken against the allowance during the period; amounts 
provided (or reversed) for estimated probable loan losses during the 
period; any other adjustments (for example, exchange rate 
differences, business combinations, acquisitions and disposals of 
subsidiaries), including transfers between allowances; and the 
closing balance of the allowance. Charge-offs and recoveries that 
have been recorded directly to the income statement should be 
disclosed separately.
---------------------------------------------------------------------------

    A State savings association might choose to define the 
geographical areas based on the way the company's portfolio is 
geographically managed. The criteria used to allocate the loans to 
geographical areas must be specified.



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

    \22\ This disclosure does not require a detailed description of 
the model in full--it should provide the reader with a broad 
overview of the model approach, describing definitions of the 
variables and methods for estimating and validating those variables 
set out in the quantitative risk disclosures below. This should be 
done for each of the four category/subcategories. The State savings 
association should disclose any significant differences in approach 
to estimating these variables within each category/subcategories.
    \23\ The PD, LGD and EAD disclosures in Table 11.5(c) should 
reflect the effects of collateral, qualifying master netting 
agreements, eligible guarantees and eligible credit derivatives as 
defined in part I. Disclosure of each PD grade should include the 
exposure-weighted average PD for each grade. Where a State savings 
association aggregates PD grades for the purposes of disclosure, 
this should be a representative breakdown of the distribution of PD 
grades used for regulatory capital purposes.
    \24\ Outstanding loans and EAD on undrawn commitments can be 
presented on a combined basis for these disclosures.
    \25\ These disclosures are a way of further informing the reader 
about the reliability of the information provided in the 
``quantitative disclosures: risk assessment'' over the long run. The 
disclosures are requirements from year-end 2010; in the meantime, 
early adoption is encouraged. The phased implementation is to allow 
a State savings association sufficient time to build up a longer run 
of data that will make these disclosures meaningful.

Table 11.5--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-
                         Based Capital Formulas
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 Qualitative Disclosures            (a) Explanation and review of the:
                                       Structure of internal
                                    rating systems and relation between
                                    internal and external ratings;
                                       Use of risk parameter
                                    estimates other than for regulatory
                                    capital purposes;
                                       Process for managing and
                                    recognizing credit risk mitigation
                                    (see table 11.7); and
                                       Control mechanisms for
                                    the rating system, including
                                    discussion of independence,
                                    accountability, and rating systems
                                    review.
                                    (b) Description of the internal
                                     ratings process, provided
                                     separately for the following:
                                       Wholesale category;
                                       Retail subcategories;
                                       Residential mortgage
                                    exposures;
                                       Qualifying revolving
                                    exposures; and
                                       Other retail exposures.
                                      For each category and subcategory
                                    the description should include:
                                       The types of exposure
                                    included in the category/
                                    subcategories; and
                                       The definitions, methods
                                    and data for estimation and
                                    validation of PD, LGD, and EAD,
                                    including assumptions employed in
                                    the derivation of these
                                    variables.\22\
 Quantitative Disclosures: Risk     (c) For wholesale exposures, present
 assessment.                         the following information across a
                                     sufficient number of PD grades
                                     (including default) to allow for a
                                     meaningful differentiation of
                                     credit risk: \23\
                                       Total EAD; \24\
                                       Exposure-weighted average
                                    LGD (percentage);
                                       Exposure-weighted average
                                    risk weight; and
                                       Amount of undrawn
                                    commitments and exposure-weighted
                                    average EAD for wholesale exposures.
                                    For each retail subcategory, present
                                     the disclosures outlined above
                                     across a sufficient number of
                                     segments to allow for a meaningful
                                     differentiation of credit risk.
Quantitative Disclosures:           (d) Actual losses in the preceding
 Historical results.                 period for each category and
                                     subcategory and how this differs
                                     from past experience. A discussion
                                     of the factors that impacted the
                                     loss experience in the preceding
                                     period--for example, has the State
                                     savings association experienced
                                     higher than average default rates,
                                     loss rates or EADs.
                                    (e) State savings association's
                                     estimates compared against actual
                                     outcomes over a longer period.\25\
                                     At a minimum, this should include
                                     information on estimates of losses
                                     against actual losses in the
                                     wholesale category and each retail
                                     subcategory over a period
                                     sufficient to allow for a
                                     meaningful assessment of the
                                     performance of the internal rating
                                     processes for each category/
                                     subcategory.\26\ Where appropriate,
                                     the State savings association
                                     should further decompose this to
                                     provide analysis of PD, LGD, and
                                     EAD outcomes against estimates
                                     provided in the quantitative risk
                                     assessment disclosures above.\27\
------------------------------------------------------------------------

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

    \26\ This regulation is not prescriptive about the period used 
for this assessment. Upon implementation, it might be expected that 
a State savings association would provide these disclosures for as 
long a run of data as possible--for example, if a State savings 
association has 10 years of data, it might choose to disclose the 
average default rates for each PD grade over that 10-year period. 
Annual amounts need not be disclosed.
    \27\ A State savings association should provide this further 
decomposition where it will allow users greater insight into the 
reliability of the estimates provided in the ``quantitative 
disclosures: risk assessment.'' In particular, it should provide 
this information where there are material differences between its 
estimates of PD, LGD or EAD compared to actual outcomes over the 
long run. The State savings association should also provide 
explanations for such differences.

[[Page 47809]]



   Table 11.6--General Disclosure for Counterparty Credit Risk of OTC
Derivative Contracts, Repo-Style Transactions, and Eligible Margin Loans
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to OTC derivatives, eligible margin
                                     loans, and repo-style transactions,
                                     including:
                                       Discussion of methodology
                                    used to assign economic capital and
                                    credit limits for counterparty
                                    credit exposures;
                                       Discussion of policies
                                    for securing collateral, valuing and
                                    managing collateral, and
                                    establishing credit reserves;
                                       Discussion of the primary
                                    types of collateral taken;
                                       Discussion of policies
                                    with respect to wrong-way risk
                                    exposures; and
                                       Discussion of the impact
                                    of the amount of collateral the
                                    State savings association would have
                                    to provide if the State savings
                                    association were to receive a credit
                                    rating downgrade.
Quantitative Disclosures..........  (b) Gross positive fair value of
                                     contracts, netting benefits, netted
                                     current credit exposure, collateral
                                     held (including type, for example,
                                     cash, government securities), and
                                     net unsecured credit exposure.\28\
                                     Also report measures for EAD used
                                     for regulatory capital for these
                                     transactions, the notional value of
                                     credit derivative hedges purchased
                                     for counterparty credit risk
                                     protection, and, for State savings
                                     associations not using the internal
                                     models methodology in section 32(d)
                                     of this appendix, the distribution
                                     of current credit exposure by types
                                     of credit exposure.\29\
                                    (c) Notional amount of purchased and
                                     sold credit derivatives, segregated
                                     between use for the State savings
                                     association's own credit portfolio
                                     and for its intermediation
                                     activities, including the
                                     distribution of the credit
                                     derivative products used, broken
                                     down further by protection bought
                                     and sold within each product group.
                                    (d) The estimate of alpha if the
                                     State savings association has
                                     received supervisory approval to
                                     estimate alpha.
------------------------------------------------------------------------

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

    \28\ Net unsecured credit exposure is the credit exposure after 
considering the benefits from legally enforceable netting agreements 
and collateral arrangements, without taking into account haircuts 
for price volatility, liquidity, etc.
    \29\ This may include interest rate derivative contracts, 
foreign exchange derivative contracts, equity derivative contracts, 
credit derivatives, commodity or other derivative contracts, repo-
style transactions, and eligible margin loans.

            Table 11.7--Credit Risk Mitigation \30\ \31\ \32\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........    (a) The general qualitative
                                    disclosure requirement with respect
                                    to credit risk mitigation including:
                                     Policies and processes for,
                                     and an indication of the extent to
                                     which the State savings association
                                     uses, on- and off-balance sheet
                                     netting;
                                       Policies and processes
                                    for collateral valuation and
                                    management;
                                       A description of the main
                                    types of collateral taken by the
                                    State savings association;
                                       The main types of
                                    guarantors/credit derivative
                                    counterparties and their
                                    creditworthiness; and
                                       Information about (market
                                    or credit) risk concentrations
                                    within the mitigation taken.
Quantitative Disclosures..........  (b) For each separately disclosed
                                     portfolio, the total exposure
                                     (after, where applicable, on-or off-
                                     balance sheet netting) that is
                                     covered by guarantees/credit
                                     derivatives.
------------------------------------------------------------------------

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

    \30\ At a minimum, a State savings association must provide the 
disclosures in Table 11.7 in relation to credit risk mitigation that 
has been recognized for the purposes of reducing capital 
requirements under this appendix. Where relevant, State savings 
associations are encouraged to give further information about 
mitigants that have not been recognized for that purpose.
    \31\ Credit derivatives that are treated, for the purposes of 
this appendix, as synthetic securitization exposures should be 
excluded from the credit risk mitigation disclosures and included 
within those relating to securitization.
    \32\ Counterparty credit risk-related exposures disclosed 
pursuant to Table 11.6 should be excluded from the credit risk 
mitigation disclosures in Table 11.7.
    \33\ For example: originator, investor, servicer, provider of 
credit enhancement, sponsor of asset backed commercial paper 
facility, liquidity provider, or swap provider.

                       Table 11.8--Securitization
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to securitization (including
                                     synthetics), including a discussion
                                     of:
                                       The State savings
                                    association's objectives relating to
                                    securitization activity, including
                                    the extent to which these activities
                                    transfer credit risk of the
                                    underlying exposures away from the
                                    State savings association to other
                                    entities;
                                       The roles played by the
                                    State savings association in the
                                    securitization process \33\ and an
                                    indication of the extent of the
                                    State savings association's
                                    involvement in each of them; and
                                       The regulatory capital
                                    approaches (for example, RBA, IAA
                                    and SFA) that the State savings
                                    association follows for its
                                    securitization activities.
                                    (b) Summary of the State savings
                                     association's accounting policies
                                     for securitization activities,
                                     including:
                                       Whether the transactions
                                    are treated as sales or financings;
                                       Recognition of gain-on-
                                    sale;
                                       Key assumptions for
                                    valuing retained interests,
                                    including any significant changes
                                    since the last reporting period and
                                    the impact of such changes; and

[[Page 47810]]

 
                                       Treatment of synthetic
                                    securitizations.
                                    (c) Names of NRSROs used for
                                     securitizations and the types of
                                     securitization exposure for which
                                     each agency is used.
Quantitative Disclosures..........  (d) The total outstanding exposures
                                     securitized by the State savings
                                     association in securitizations that
                                     meet the operational criteria in
                                     section 41 of this appendix (broken
                                     down into traditional/synthetic),
                                     by underlying exposure type.\34\
                                     \35\ \36\
                                    (e) For exposures securitized by the
                                     State savings association in
                                     securitizations that meet the
                                     operational criteria in Section 41
                                     of this appendix:
                                       Amount of securitized
                                    assets that are impaired/past due;
                                    and
                                       Losses recognized by the
                                    State savings association during the
                                    current period \37\ broken down by
                                    exposure type.
                                    (f) Aggregate amount of
                                     securitization exposures broken
                                     down by underlying exposure type.
                                    (g) Aggregate amount of
                                     securitization exposures and the
                                     associated IRB capital requirements
                                     for these exposures broken down
                                     into a meaningful number of risk
                                     weight bands. Exposures that have
                                     been deducted from capital should
                                     be disclosed separately by type of
                                     underlying asset.
                                    (h) For securitizations subject to
                                     the early amortization treatment,
                                     the following items by underlying
                                     asset type for securitized
                                     facilities:
                                       The aggregate drawn
                                    exposures attributed to the seller's
                                    and investors' interests; and
                                       The aggregate IRB capital
                                    charges incurred by the State
                                    savings association against the
                                    investors' shares of drawn balances
                                    and undrawn lines.
                                    (i) Summary of current year's
                                     securitization activity, including
                                     the amount of exposures securitized
                                     (by exposure type), and recognized
                                     gain or loss on sale by asset type.
------------------------------------------------------------------------

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

    \34\ Underlying exposure types may include, for example, one- to 
four-family residential loans, home equity lines, credit card 
receivables, and auto loans.
    \35\ Securitization transactions in which the originating State 
savings association does not retain any securitization exposure 
should be shown separately but need only be reported for the year of 
inception.
    \36\ Where relevant, a State savings association is encouraged 
to differentiate between exposures resulting from activities in 
which they act only as sponsors, and exposures that result from all 
other State savings association securitization activities.
    \37\ For example, charge-offs/allowances (if the assets remain 
on the State savings association's balance sheet) or write-downs of 
I/O strips and other residual interests.

                      Table 11.9--Operational Risk
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement for
                                     operational risk.
                                    (b) Description of the AMA,
                                     including a discussion of relevant
                                     internal and external factors
                                     considered in the State savings
                                     association's measurement approach.
                                    (c) A description of the use of
                                     insurance for the purpose of
                                     mitigating operational risk.
------------------------------------------------------------------------


          Table 11.10--Equities Not Subject to Market Risk Rule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement with respect
                                     to equity risk, including:
                                       Differentiation between
                                    holdings on which capital gains are
                                    expected and those held for other
                                    objectives, including for
                                    relationship and strategic reasons;
                                    and
                                       Discussion of important
                                    policies covering the valuation of
                                    and accounting for equity holdings
                                    in the banking book. This includes
                                    the accounting techniques and
                                    valuation methodologies used,
                                    including key assumptions and
                                    practices affecting valuation as
                                    well as significant changes in these
                                    practices.
Quantitative Disclosures..........  (b) Value disclosed in the balance
                                     sheet of investments, as well as
                                     the fair value of those
                                     investments; for quoted securities,
                                     a comparison to publicly-quoted
                                     share values where the share price
                                     is materially different from fair
                                     value.
                                    (c) The types and nature of
                                     investments, including the amount
                                     that is:
                                       Publicly traded; and
                                       Non-publicly traded.
                                    (d) The cumulative realized gains
                                     (losses) arising from sales and
                                     liquidations in the reporting
                                     period.
                                    (e)  Total unrealized gains
                                     (losses) \38\
                                       Total latent revaluation
                                    gains (losses) \39\
                                       Any amounts of the above
                                    included in tier 1 and/or tier 2
                                    capital.
                                    (f) Capital requirements broken down
                                     by appropriate equity groupings,
                                     consistent with the State savings
                                     association's methodology, as well
                                     as the aggregate amounts and the
                                     type of equity investments subject
                                     to any supervisory transition
                                     regarding regulatory capital
                                     requirements.\40\
------------------------------------------------------------------------

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

    \38\ Unrealized gains (losses) recognized in the balance sheet 
but not through earnings.
    \39\ Unrealized gains (losses) not recognized either in the 
balance sheet or through earnings.
    \40\ This disclosure should include a breakdown of equities that 
are subject to the 0 percent, 20 percent, 100 percent, 300 percent, 
400 percent, and 600 percent risk weights, as applicable.

[[Page 47811]]



       Table 11.11--Interest Rate Risk for Non-trading Activities
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...........  (a) The general qualitative
                                     disclosure requirement, including
                                     the nature of interest rate risk
                                     for non-trading activities and key
                                     assumptions, including assumptions
                                     regarding loan prepayments and
                                     behavior of non-maturity deposits,
                                     and frequency of measurement of
                                     interest rate risk for non-trading
                                     activities.
Quantitative Disclosures..........  (b) The increase (decline) in
                                     earnings or economic value (or
                                     relevant measure used by
                                     management) for upward and downward
                                     rate shocks according to
                                     management's method for measuring
                                     interest rate risk for non-trading
                                     activities, broken down by currency
                                     (as appropriate).
------------------------------------------------------------------------

Part IX--Transition Provisions

Section 81. Optional Transition Provisions Related to the 
Implementation of Consolidation Requirements Under FAS 167

    (a) Scope, applicability, and purpose. This section 81 provides 
optional transition provisions for a State savings association that 
is required for financial and regulatory reporting purposes, as a 
result of its implementation of Statement of Financial Accounting 
Standards No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 
167), to consolidate certain variable interest entities (VIEs) as 
defined under GAAP. These transition provisions apply through the 
end of the fourth quarter following the date of a State savings 
association's implementation of FAS 167 (implementation date).
    (b) Exclusion period.
    (1) Exclusion of risk-weighted assets for the first and second 
quarters. For the first two quarters after the implementation date 
(exclusion period), including for the two calendar quarter-end 
regulatory report dates within those quarters, a State savings 
association may exclude from risk-weighted assets:
    (i) Subject to the limitations in paragraph (d) of section 81, 
assets held by a VIE, provided that the following conditions are 
met:
    (A) The VIE existed prior to the implementation date,
    (B) The State savings association did not consolidate the VIE on 
its balance sheet for calendar quarter-end regulatory report dates 
prior to the implementation date,
    (C) The State savings association must consolidate the VIE on 
its balance sheet beginning as of the implementation date as a 
result of its implementation of FAS 167, and
    (D) The State savings association excludes all assets held by 
VIEs described in paragraphs (b)(1)(i)(A) through (C) of this 
section 81; and
    (ii) Subject to the limitations in paragraph (d) of this section 
81, assets held by a VIE that is a consolidated ABCP program, 
provided that the following conditions are met:
    (A) The State savings association is the sponsor of the ABCP 
program,
    (B) Prior to the implementation date, the State savings 
association consolidated the VIE onto its balance sheet under GAAP 
and excluded the VIE's assets from the State savings association's 
risk-weighted assets, and
    (C) The State savings association chooses to exclude all assets 
held by ABCP program VIEs described in paragraphs (b)(1)(ii)(A) and 
(B) of this section 81.
    (2) Risk-weighted assets during exclusion period. During the 
exclusion period, including for the two calendar quarter-end 
regulatory report dates within the exclusion period, a State savings 
association adopting the optional provisions in paragraph (b) of 
this section must calculate risk-weighted assets for its contractual 
exposures to the VIEs referenced in paragraph (b)(1) of this section 
81 on the implementation date and include this calculated amount in 
risk-weighted assets. Such contractual exposures may include direct-
credit substitutes, recourse obligations, residual interests, 
liquidity facilities, and loans.
    (3) Inclusion of ALLL in tier 2 capital for the first and second 
quarters. During the exclusion period, including for the two 
calendar quarter-end regulatory report dates within the exclusion 
period, a State savings association that excludes VIE assets from 
risk-weighted assets pursuant to paragraph (b)(1) of this section 81 
may include in tier 2 capital the full amount of the ALLL calculated 
as of the implementation date that is attributable to the assets it 
excludes pursuant to paragraph (b)(1) of this section 81 (inclusion 
amount). The amount of ALLL includable in tier 2 capital in 
accordance with this paragraph shall not be subject to the 
limitations set forth in section 13(A)(2) and 13(b) of this 
Appendix.
    (c) Phase-in period.
    (1) Exclusion amount. For purposes of this paragraph (c), 
exclusion amount is defined as the amount of risk-weighted assets 
excluded in paragraph (b)(1) of this section as of the 
implementation date.
    (2) Risk-weighted assets for the third and fourth quarters. A 
State savings association that excludes assets of consolidated VIEs 
from risk-weighted assets pursuant to paragraph (b)(1) of this 
section may, for the third and fourth quarters after the 
implementation date (phase-in period), including for the two 
calendar quarter-end regulatory report dates within those quarters, 
exclude from risk-weighted assets 50 percent of the exclusion 
amount, provided that the State savings association may not include 
in risk-weighted assets pursuant to this paragraph an amount less 
than the aggregate risk-weighted assets calculated pursuant to 
paragraph (b)(2) of this section 81.
    (3) Inclusion of ALLL in tier 2 capital for the third and fourth 
quarters. A State savings association that excludes assets of 
consolidated VIEs from risk-weighted assets pursuant to paragraph 
(c)(2) of this section may, for the phase-in period, include in tier 
2 capital 50 percent of the inclusion amount it included in tier 2 
capital, during the exclusion period, notwithstanding the limit on 
including ALLL in tier 2 capital in section 13(a)(2) and 13(b) of 
this Appendix.
    (d) Implicit recourse limitation. Notwithstanding any other 
provision in this section 81, assets held by a VIE to which the 
State savings association has provided recourse through credit 
enhancement beyond any contractual obligation to support assets it 
has sold may not be excluded from risk-weighted assets.*

PART 391--FORMER OFFICE OF THRIFT SUPERVISION REGULATIONS

Subpart A--Security Procedures
Sec.
391.1 Authority, purpose, and scope.
391.2 Designation of security officer.
391.3 Security program.
391.4 Report.
391.5 Protection of customer information.
Subpart B--Safety and Soundness Guidelines and Compliance Procedures
391.10 Authority, purpose, scope, and preservation of existing 
authority.
391.11 Determination and notification of failure to meet safety and 
soundness standards and request for compliance plan.
391.12 Filing of safety and soundness compliance plan.
391.13 Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
391.14 Enforcement of orders. Appendix A to Subpart B of Part 391--
Interagency Guidelines Establishing Standards for Safety and 
Soundness Appendix B to Subpart B of Part 391--Interagency 
Guidelines Establishing Information Security Standards
Subpart C--Fair Credit Reporting
391.20 Examples.
391.21 Disposal of consumer information.
391.22 Duties regarding the detection, prevention, and mitigation of 
identity theft.
391.23 Duties of card issuers regarding changes of address. Appendix 
to Subpart C of Part 391--Interagency Guidelines on Identity Theft 
Detection, Prevention, and Mitigation
Subpart D--Loans in Areas Having Special Flood Hazards
391.30 Authority, purpose, and scope.
391.31 Definitions.
391.32 Requirement to purchase flood insurance where available.
391.33 Exemptions.
391.34 Escrow requirement.
391.35 Required use of standard flood hazard determination form.
391.36 Forced placement of flood insurance.
391.37 Determination fees.

[[Page 47812]]

391.38 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
391.39 Notice of servicer's identity. Appendix to Subpart D of Part 
391--Sample Form of Notice of Special Flood Hazards and Availability 
of Federal Disaster Relief Assistance
Subpart E--Acquisition of Control of State Savings Associations


391.40   Scope of subpart.

391.41 Definitions.
391.42 Acquisition of control of State savings associations.
391.43 Control.
391.44 Certifications of ownership.
391.45 Procedural requirements.
391.46 Determination by the FDIC. 391.47
391.47 [Reserved]
391.48 Rebuttal of control agreement.

    Authority: 12 U.S.C. 1819 (Tenth).
    Subpart A also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 
1831p-1; 1881-1884; 15 U.S.C. 1681w; 15 U.S.C. 6801; 6805.
    Subpart B also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 
1831p-1; 1881-1884; 15 U.S.C.1681w; 15 U.S.C. 6801; 6805.
    Subpart C also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 
1831p-1; and 1881-1884; 15 U.S.C. 1681m; 1681w.
    Subpart D also issued under 12 U.S.C. 1462; 1462a; 1463; 1464; 
42 U.S.C. 4012a; 4104a; 4104b; 4106; 4128.
    Subpart E also issued under 12 U.S.C. 1467a; 1468; 1817; 1831i.

Subpart A--Security Procedures


Sec.  391.1  Authority, purpose, and scope.

    (a) This subpart is issued by the Federal Deposit Insurance 
Corporation (FDIC) under section 3 of the Bank Protection Act of 1968 
(12 U.S.C 1828), and sections 501 and 505(b)(1) of the Gramm-Leach-
Bliley Act (15 U.S.C. 6801 and 6805(b)(1)), and section 628 of the Fair 
Credit Reporting Act (15 U.S.C. 1681w). This subpart is applicable to 
State savings associations. It requires each State savings association 
to adopt appropriate security procedures to discourage robberies, 
burglaries, and larcenies and to assist in the identification and 
prosecution of persons who commit such acts. Section 391.5 is 
applicable to State savings associations and their subsidiaries (except 
brokers, dealers, persons providing insurance, investment companies, 
and investment advisers). Section 391.5 requires covered institutions 
to establish and implement appropriate administrative, technical, and 
physical safeguards to protect the security, confidentiality, and 
integrity of customer information.
    (b) It is the responsibility of a State savings association's board 
of directors to comply with this regulation and ensure that a written 
security program for the State savings association's main office and 
branches is developed and implemented.


Sec.  391.2  Designation of security officer.

    Within 30 days after the effective date of insurance of accounts, 
the board of directors of each State savings association shall 
designate a security officer who shall have the authority, subject to 
the approval of the board of directors, to develop, within a reasonable 
time but no later than 180 days, and to administer a written security 
program for each of the State savings association's offices.


Sec.  391.3  Security program.

    (a) Contents of security program. The security program shall:
    (1) Establish procedures for opening and closing for business and 
for the safekeeping of all currency, negotiable securities, and similar 
valuables at all times;
    (2) Establish procedures that will assist in identifying persons 
committing crimes against the State savings association and that will 
preserve evidence that may aid in their identification and prosecution. 
Such procedures may include, but are not limited to:
    (i) Maintaining a camera that records activity in the office;
    (ii) Using identification devices, such as prerecorded serial-
numbered bills, or chemical and electronic devices; and
    (iii) Retaining a record of any robbery, burglary, or larceny 
committed against the State savings association;
    (3) Provide for initial and periodic training of officers and 
employees in their responsibilities under the security program and in 
proper employee conduct during and after a burglary, robbery, or 
larceny; and
    (4) Provide for selecting, testing, operating and maintaining 
appropriate security devices, as specified in paragraph (b) of this 
section.
    (b) Security devices. Each State savings association shall have, at 
a minimum, the following security devices:
    (1) A means of protecting cash and other liquid assets, such as a 
vault, safe, or other secure space;
    (2) A lighting system for illuminating, during the hours of 
darkness, the area around the vault, if the vault is visible from 
outside the office;
    (3) Tamper-resistant locks on exterior doors and exterior windows 
that may be opened;
    (4) An alarm system or other appropriate device for promptly 
notifying the nearest responsible law enforcement officers of an 
attempted or perpetrated robbery or burglary; and
    (5) Such other devices as the security officer determines to be 
appropriate, taking into consideration:
    (i) The incidence of crimes against financial institutions in the 
area;
    (ii) The amount of currency and other valuables exposed to robbery, 
burglary, or larceny;
    (iii) The distance of the office from the nearest responsible law 
enforcement officers;
    (iv) The cost of the security devices;
    (v) Other security measures in effect at the office; and
    (vi) The physical characteristics of the structure of the office 
and its surroundings.


Sec.  391.4  Report.

    The security officer for each State savings association shall 
report at least annually to the State savings association's board of 
directors on the implementation, administration, and effectiveness of 
the security program.


Sec.  391.5  Protection of customer information.

    State savings associations and their subsidiaries (except brokers, 
dealers, persons providing insurance, investment companies, and 
investment advisers) must comply with the Interagency Guidelines 
Establishing Information Security Standards set forth in appendix B to 
subpart B. Supplement A to appendix B to subpart B provides 
interpretive guidance.

Subpart B--Safety and Soundness Guidelines and Compliance 
Procedures


Sec.  391.10  Authority, purpose, scope, and preservation of existing 
authority.

    (a) Authority. This subpart and the Guidelines in Appendices A and 
B to this subpart are issued by the FDIC under section 39 (section 39) 
of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1) as 
added by section 132 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 (FDICIA) (Pub. L. 102-242, 105 Stat. 2236 
(1991)), and as amended by section 956 of the Housing and Community 
Development Act of 1992 (Pub. L. 102-550, 106 Stat. 3895 (1992)), and 
as amended by section 318 of the Community Development Banking Act of 
1994 (Pub. L. 103-325, 108 Stat. 2160 (1994)). Appendix B to this 
subpart is further issued under sections 501(b) and 505 of the Gramm-
Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338 (1999)).
    (b) Purpose. Section 39 of the FDI Act requires the FDIC to 
establish safety and soundness standards. Pursuant to section 39, a 
State savings association may be required to submit a compliance

[[Page 47813]]

plan if it is not in compliance with a safety and soundness standard 
established by guideline under section 39(a) or (b). An enforceable 
order under section 8 of the FDI Act may be issued if, after being 
notified that it is in violation of a safety and soundness standard 
prescribed under section 39, the State savings association fails to 
submit an acceptable compliance plan or fails in any material respect 
to implement an accepted plan. This subpart establishes procedures for 
submission and review of safety and soundness compliance plans and for 
issuance and review of orders pursuant to section 39. Interagency 
Guidelines Establishing Standards for Safety and Soundness pursuant to 
section 39 of the FDI Act are set forth in Appendix A to this subpart. 
Interagency Guidelines Establishing Information Security Standards are 
set forth in appendix B to this subpart.
    (c) Scope. This subpart and the Interagency Guidelines Establishing 
Standards for Safety and Soundness as set forth at appendix A to this 
subpart and the Interagency Guidelines Establishing Information 
Security Standards at appendix B to this subpart implement the 
provisions of section 39 of the FDI Act as they apply to State savings 
associations.
    (d) Preservation of existing authority. Neither section 39 of the 
FDI Act nor this subpart in any way limits the authority of the FDIC 
under any other provision of law to take supervisory actions to address 
unsafe or unsound practices, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 39 and this 
subpart may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the FDIC.


Sec.  391.11  Determination and notification of failure to meet safety 
and soundness standards and request for compliance plan.

    (a) Determination. The FDIC may, based upon an examination, 
inspection, or any other information that becomes available to the 
FDIC, determine that a State savings association has failed to satisfy 
the safety and soundness standards contained in the Interagency 
Guidelines Establishing Standards for Safety and Soundness as set forth 
in appendix A to this subpart or the Interagency Guidelines 
Establishing Information Security Standards as set forth in appendix B 
to this subpart.
    (b) Request for compliance plan. If the FDIC determines that a 
State savings association has failed to meet a safety and soundness 
standard pursuant to paragraph (a) of this section, the FDIC may 
request by letter or through a report of examination, the submission of 
a compliance plan. The State savings association shall be deemed to 
have notice of the request three days after mailing or delivery of the 
letter or report of examination by the FDIC.


Sec.  391.12  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A State 
savings association shall file a written safety and soundness 
compliance plan with the FDIC within 30 days of receiving a request for 
a compliance plan pursuant to Sec.  391.11(b), unless the FDIC notifies 
the State savings association in writing that the plan is to be filed 
within a different period.
    (2) Other plans. If a State savings association is obligated to 
file, or is currently operating under, a capital restoration plan 
submitted pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a 
cease-and-desist order entered into pursuant to section 8 of the FDI 
Act, a formal or informal agreement, or a response to a report of 
examination, it may, with the permission of the FDIC, submit a 
compliance plan under this section as part of that plan, order, 
agreement, or response, subject to the deadline provided in paragraph 
(a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the State savings association will take to 
correct the deficiency and the time within which those steps will be 
taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the FDIC shall provide written notice to the State savings 
association of whether the plan has been approved or seek additional 
information from the State savings association regarding the plan. The 
FDIC may extend the time within which notice regarding approval of a 
plan will be provided.
    (d) Failure to submit or implement a compliance plan. If a State 
savings association fails to submit an acceptable plan within the time 
specified by the FDIC or fails in any material respect to implement a 
compliance plan, then the FDIC shall, by order, require the State 
savings association to correct the deficiency and may take further 
actions provided in section 39(e)(2)(B) of the FDI Act. Pursuant to 
section 39(e)(3), the FDIC may be required to take certain actions if 
the State savings association commenced operations or experienced a 
change in control within the previous 24-month period, or the State 
savings association experienced extraordinary growth during the 
previous 18-month period.
    (e) Amendment of compliance plan. A State savings association that 
has filed an approved compliance plan may, after prior written notice 
to and approval by the FDIC, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been 
approved, the State savings association shall implement the compliance 
plan as previously approved.


Sec.  391.13  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.

    (a) Notice of intent to issue order-- (1) In general. The FDIC 
shall provide a State savings association prior written notice of the 
FDIC's intention to issue an order requiring the State savings 
association to correct a safety and soundness deficiency or to take or 
refrain from taking other actions pursuant to section 39 of the FDI 
Act. The State savings association shall have such time to respond to a 
proposed order as provided by the FDIC under paragraph (c) of this 
section.
    (2) Immediate issuance of final order. If the FDIC finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the FDIC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a State savings 
association immediately to take actions to correct a safety and 
soundness deficiency or to take or refrain from taking other actions 
pursuant to section 39. A State savings association that is subject to 
such an immediately effective order may submit a written appeal of the 
order to the FDIC. Such an appeal must be received by the FDIC within 
14 calendar days of the issuance of the order, unless the FDIC permits 
a longer period. The FDIC shall consider any such appeal, if filed in a 
timely manner, within 60 days of receiving the appeal. During such 
period of review, the order shall remain in effect unless the FDIC, in 
its sole discretion, stays the effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the State savings 
association;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the FDIC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required 
action; and

[[Page 47814]]

    (4) The date by which the State savings association subject to the 
order may file with the FDIC a written response to the notice.
    (c) Response to notice-- (1) Time for response. A State savings 
association may file a written response to a notice of intent to issue 
an order within the time period set by the FDIC. Such a response must 
be received by the FDIC within 14 calendar days from the date of the 
notice unless the FDIC determines that a different period is 
appropriate in light of the safety and soundness of the State savings 
association or other relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the FDIC is not an 
appropriate exercise of discretion under section 39 of the FDI Act;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
State savings association regarding the proposed order.
    (d) The FDIC's consideration of response. After considering the 
response, the FDIC may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the State 
savings association; or
    (3) Seek additional information or clarification of the response 
from the State savings association, or any other relevant source.
    (e) Failure to file response. Failure by a State savings 
association to file with the FDIC, within the specified time period, a 
written response to a proposed order shall constitute a waiver of the 
opportunity to respond and shall constitute consent to the issuance of 
the order.
    (f) Request for modification or rescission of order. Any State 
savings association that is subject to an order under this subpart may, 
upon a change in circumstances, request in writing that the FDIC 
reconsider the terms of the order, and may propose that the order be 
rescinded or modified. Unless otherwise ordered by the FDIC, the order 
shall continue in place while such request is pending before the FDIC.


Sec.  391.14  Enforcement of orders.

    (a) Judicial remedies. Whenever a State savings association fails 
to comply with an order issued under section 39 of the FDI Act, the 
FDIC may seek enforcement of the order in the appropriate United States 
district court pursuant to section 8(i)(1) of the FDI Act.
    (b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the FDIC may assess a civil money penalty against any State 
savings association that violates or otherwise fails to comply with any 
final order issued under section 39 and against any State savings 
association-affiliated party who participates in such violation or 
noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the FDIC may seek 
enforcement of the provisions of section 39 of the FDI Act or this part 
through any other judicial or administrative proceeding authorized by 
law.

Appendix A to Subpart B of Part 391--Interagency Guidelines 
Establishing Standards for Safety and Soundness

I. Introduction
    A. Preservation of existing authority.
    B. Definitions.
II. Operational and Managerial Standards
    A. Internal controls and information systems.
    B. Internal audit system.
    C. Loan documentation.
    D. Credit underwriting.
    E. Interest rate exposure.
    F. Asset growth.
    G. Asset quality.
    H. Earnings.
    I. Compensation, fees and benefits.
III. Prohibition on Compensation That Constitutes an Unsafe and 
Unsound Practice
    A. Excessive compensation.
    B. Compensation leading to material financial loss.

I. Introduction

    i. Section 39 of the Federal Deposit Insurance Act \1\ (FDI Act) 
requires each Federal banking agency (collectively, the agencies) to 
establish certain safety and soundness standards by regulation or by 
guideline for all insured depository institutions. Under section 39, 
the agencies must establish three types of standards: (1) 
Operational and managerial standards; (2) compensation standards; 
and (3) such standards relating to asset quality, earnings, and 
stock valuation as they determine to be appropriate.
---------------------------------------------------------------------------

    \1\ Section 39 of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1) was added by section 132 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA), Public Law 102-242, 
105 Stat. 2236 (1991), and amended by section 956 of the Housing and 
Community Development Act of 1992, Public Law 102-550, 106 Stat. 
3895 (1992) and section 318 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Public Law 103-325, 108 Stat. 
2160 (1994).
---------------------------------------------------------------------------

    ii. Section 39(a) requires the agencies to establish operational 
and managerial standards relating to: (1) Internal controls, 
information systems and internal audit systems, in accordance with 
section 36 of the FDI Act (12 U.S.C. 1831m); (2) loan documentation; 
(3) credit underwriting; (4) interest rate exposure; (5) asset 
growth; and (6) compensation, fees, and benefits, in accordance with 
subsection (c) of section 39. Section 39(b) requires the agencies to 
establish standards relating to asset quality, earnings, and stock 
valuation that the agencies determine to be appropriate.
    iii. Section 39(c) requires the agencies to establish standards 
prohibiting as an unsafe and unsound practice any compensatory 
arrangement that would provide any executive officer, employee, 
director, or principal shareholder of the institution with excessive 
compensation, fees or benefits and any compensatory arrangement that 
could lead to material financial loss to an institution. Section 
39(c) also requires that the agencies establish standards that 
specify when compensation is excessive.
    iv. If an agency determines that an institution fails to meet 
any standard established by guideline under subsection (a) or (b) of 
section 39, the agency may require the institution to submit to the 
agency an acceptable plan to achieve compliance with the standard. 
In the event that an institution fails to submit an acceptable plan 
within the time allowed by the agency or fails in any material 
respect to implement an accepted plan, the agency must, by order, 
require the institution to correct the deficiency. The agency may, 
and in some cases must, take other supervisory actions until the 
deficiency has been corrected.
    v. The agencies have adopted amendments to their rules and 
regulations to establish deadlines for submission and review of 
compliance plans.\2\
---------------------------------------------------------------------------

    \2\ For the Office of the Comptroller of the Currency, these 
regulations appear at 12 CFR part 30; for the Board of Governors of 
the Federal Reserve System, these regulations appear at 12 CFR part 
263; for the Federal Deposit Insurance Corporation, these 
regulations appear at 12 CFR part 308, subpart R, and subpart B of 
part 391.
---------------------------------------------------------------------------

    vi. The following Guidelines set out the safety and soundness 
standards that the agencies use to identify and address problems at 
insured depository institutions before capital becomes impaired. The 
agencies believe that the standards adopted in these Guidelines 
serve this end without dictating how institutions must be managed 
and operated. These standards are designed to identify potential 
safety and soundness concerns and ensure that action is taken to 
address those concerns before they pose a risk to the Deposit 
Insurance Fund.

A. Preservation of Existing Authority

    Neither section 39 nor these Guidelines in any way limits the 
authority of the agencies to address unsafe or unsound practices, 
violations of law, unsafe or unsound conditions, or other practices. 
Action under section 39 and these Guidelines may be taken 
independently of, in conjunction with, or in addition to any other 
enforcement action available to the agencies. Nothing in these 
Guidelines limits the authority of the FDIC pursuant to section 
38(i)(2)(F) of the FDI Act (12 U.S.C. 1831(o)) and Part 325 of Title 
12 of the Code of Federal Regulations.

[[Page 47815]]

B. Definitions

    1. In general. For purposes of these Guidelines, except as 
modified in the Guidelines or unless the context otherwise requires, 
the terms used have the same meanings as set forth in sections 3 and 
39 of the FDI Act (12 U.S.C. 1813 and 1831p-1).
    2. Board of directors, in the case of a state-licensed insured 
branch of a foreign bank and in the case of a federal branch of a 
foreign bank, means the managing official in charge of the insured 
foreign branch.
    3. Compensation means all direct and indirect payments or 
benefits, both cash and non-cash, granted to or for the benefit of 
any executive officer, employee, director, or principal shareholder, 
including but not limited to payments or benefits derived from an 
employment contract, compensation or benefit agreement, fee 
arrangement, perquisite, stock option plan, postemployment benefit, 
or other compensatory arrangement.
    4. Director shall have the meaning described in 12 CFR 
215.2(d).\3\
---------------------------------------------------------------------------

    \3\ In applying these definitions for State savings 
associations, State savings associations shall use the terms ``State 
savings association'' and ``insured State savings association'' in 
place of the terms ``member bank'' and ``insured bank''.
---------------------------------------------------------------------------

    5. Executive officer shall have the meaning described in 12 CFR 
215.2(e).\4\
---------------------------------------------------------------------------

    \4\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

    6. Principal shareholder shall have the meaning described in 12 
CFR 215.2(m).\5\
---------------------------------------------------------------------------

    \5\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

II. Operational and Managerial Standards

    A. Internal controls and information systems. An institution 
should have internal controls and information systems that are 
appropriate to the size of the institution and the nature, scope and 
risk of its activities and that provide for:
    1. An organizational structure that establishes clear lines of 
authority and responsibility for monitoring adherence to established 
policies;
    2. Effective risk assessment;
    3. Timely and accurate financial, operational and regulatory 
reports;
    4. Adequate procedures to safeguard and manage assets; and
    5. Compliance with applicable laws and regulations.
    B. Internal audit system. An institution should have an internal 
audit system that is appropriate to the size of the institution and 
the nature and scope of its activities and that provides for:
    1. Adequate monitoring of the system of internal controls 
through an internal audit function. For an institution whose size, 
complexity or scope of operations does not warrant a full scale 
internal audit function, a system of independent reviews of key 
internal controls may be used;
    2. Independence and objectivity;
    3. Qualified persons;
    4. Adequate testing and review of information systems;
    5. Adequate documentation of tests and findings and any 
corrective actions;
    6. Verification and review of management actions to address 
material weaknesses; and
    7. Review by the institution's audit committee or board of 
directors of the effectiveness of the internal audit systems.
    C. Loan documentation. An institution should establish and 
maintain loan documentation practices that:
    1. Enable the institution to make an informed lending decision 
and to assess risk, as necessary, on an ongoing basis;
    2. Identify the purpose of a loan and the source of repayment, 
and assess the ability of the borrower to repay the indebtedness in 
a timely manner;
    3. Ensure that any claim against a borrower is legally 
enforceable;
    4. Demonstrate appropriate administration and monitoring of a 
loan; and
    5. Take account of the size and complexity of a loan.
    D. Credit underwriting. An institution should establish and 
maintain prudent credit underwriting practices that:
    1. Are commensurate with the types of loans the institution will 
make and consider the terms and conditions under which they will be 
made;
    2. Consider the nature of the markets in which loans will be 
made;
    3. Provide for consideration, prior to credit commitment, of the 
borrower's overall financial condition and resources, the financial 
responsibility of any guarantor, the nature and value of any 
underlying collateral, and the borrower's character and willingness 
to repay as agreed;
    4. Establish a system of independent, ongoing credit review and 
appropriate communication to management and to the board of 
directors;
    5. Take adequate account of concentration of credit risk; and
    6. Are appropriate to the size of the institution and the nature 
and scope of its activities.
    E. Interest rate exposure. An institution should:
    1. Manage interest rate risk in a manner that is appropriate to 
the size of the institution and the complexity of its assets and 
liabilities; and
    2. Provide for periodic reporting to management and the board of 
directors regarding interest rate risk with adequate information for 
management and the board of directors to assess the level of risk.
    F. Asset growth. An institution's asset growth should be prudent 
and consider:
    1. The source, volatility and use of the funds that support 
asset growth;
    2. Any increase in credit risk or interest rate risk as a result 
of growth; and
    3. The effect of growth on the institution's capital.
    G. Asset quality. An insured depository institution should 
establish and maintain a system that is commensurate with the 
institution's size and the nature and scope of its operations to 
identify problem assets and prevent deterioration in those assets. 
The institution should:
    1. Conduct periodic asset quality reviews to identify problem 
assets;
    2. Estimate the inherent losses in those assets and establish 
reserves that are sufficient to absorb estimated losses;
    3. Compare problem asset totals to capital;
    4. Take appropriate corrective action to resolve problem assets;
    5. Consider the size and potential risks of material asset 
concentrations; and
    6. Provide periodic asset reports with adequate information for 
management and the board of directors to assess the level of asset 
risk.
    H. Earnings. An insured depository institution should establish 
and maintain a system that is commensurate with the institution's 
size and the nature and scope of its operations to evaluate and 
monitor earnings and ensure that earnings are sufficient to maintain 
adequate capital and reserves. The institution should:
    1. Compare recent earnings trends relative to equity, assets, or 
other commonly used benchmarks to the institution's historical 
results and those of its peers;
    2. Evaluate the adequacy of earnings given the size, complexity, 
and risk profile of the institution's assets and operations;
    3. Assess the source, volatility, and sustainability of 
earnings, including the effect of nonrecurring or extraordinary 
income or expense;
    4. Take steps to ensure that earnings are sufficient to maintain 
adequate capital and reserves after considering the institution's 
asset quality and growth rate; and
    5. Provide periodic earnings reports with adequate information 
for management and the board of directors to assess earnings 
performance.
    I. Compensation, fees and benefits. An institution should 
maintain safeguards to prevent the payment of compensation, fees, 
and benefits that are excessive or that could lead to material 
financial loss to the institution.

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
Practice

A. Excessive Compensation

    Excessive compensation is prohibited as an unsafe and unsound 
practice. Compensation shall be considered excessive when amounts 
paid are unreasonable or disproportionate to the services performed 
by an executive officer, employee, director, or principal 
shareholder, considering the following:
    1. The combined value of all cash and non-cash benefits provided 
to the individual;
    2. The compensation history of the individual and other 
individuals with comparable expertise at the institution;
    3. The financial condition of the institution;
    4. Comparable compensation practices at comparable institutions, 
based upon such factors as asset size, geographic location, and the 
complexity of the loan portfolio or other assets;
    5. For postemployment benefits, the projected total cost and 
benefit to the institution;
    6. Any connection between the individual and any fraudulent act 
or omission, breach of trust or fiduciary duty, or insider abuse 
with regard to the institution; and
    7. Any other factors the agencies determines to be relevant.

[[Page 47816]]

B. Compensation Leading to Material Financial Loss

    Compensation that could lead to material financial loss to an 
institution is prohibited as an unsafe and unsound practice.

Appendix B to Subpart B of Part 391--Interagency Guidelines 
Establishing Information Security Standards

Table of Contents

I. Introduction
    A. Scope
    B. Preservation of Existing Authority
    C. Definitions
II. Standards for Safeguarding Customer Information
    A. Information Security Program
    B. Objectives
III. Development and Implementation of Customer Information Security 
Program
    A. Involve the Board of Directors
    B. Assess Risk
    C. Manage and Control Risk
    D. Oversee Service Provider Arrangements
    E. Adjust the Program
    F. Report to the Board
    G. Implement the Standards

I. Introduction

    The Interagency Guidelines Establishing Information Security 
Standards (Guidelines) set forth standards pursuant to section 39(a) 
of the Federal Deposit Insurance Act (12 U.S.C. 1831p-1), and 
sections 501 and 505(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 
6801 and 6805(b)). These Guidelines address standards for developing 
and implementing administrative, technical, and physical safeguards 
to protect the security, confidentiality, and integrity of customer 
information. These Guidelines also address standards with respect to 
the proper disposal of consumer information, pursuant to section 628 
of the Fair Credit Reporting Act (15 U.S.C. 1681w).
    A. Scope. The Guidelines apply to customer information 
maintained by or on behalf of entities over which FDIC has 
authority. For purposes of this appendix, these entities are State 
savings associations whose deposits are FDIC-insured and any 
subsidiaries of such State savings associations, except brokers, 
dealers, persons providing insurance, investment companies, and 
investment advisers. This appendix refers to such entities as 
``you''. These Guidelines also apply to the proper disposal of 
consumer information by or on behalf of such entities.
    B. Preservation of Existing Authority. Neither section 39 nor 
these Guidelines in any way limit FDIC's authority to address unsafe 
or unsound practices, violations of law, unsafe or unsound 
conditions, or other practices. FDIC may take action under section 
39 and these Guidelines independently of, in conjunction with, or in 
addition to, any other enforcement action available to FDIC.
    C. Definitions. 1. Except as modified in the Guidelines, or 
unless the context otherwise requires, the terms used in these 
Guidelines have the same meanings as set forth in sections 3 and 39 
of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
    2. For purposes of the Guidelines, the following definitions 
apply:
    a. Consumer information means any record about an individual, 
whether in paper, electronic, or other form, that is a consumer 
report or is derived from a consumer report and that is maintained 
or otherwise possessed by you or on your behalf for a business 
purpose. Consumer information also means a compilation of such 
records. The term does not include any record that does not identify 
an individual.
    i. Examples. (1) Consumer information includes:
    (A) A consumer report that a State savings association obtains;
    (B) Information from a consumer report that you obtain from your 
affiliate after the consumer has been given a notice and has elected 
not to opt out of that sharing;
    (C) Information from a consumer report that you obtain about an 
individual who applies for but does not receive a loan, including 
any loan sought by an individual for a business purpose;
    (D) Information from a consumer report that you obtain about an 
individual who guarantees a loan (including a loan to a business 
entity); or
    (E) Information from a consumer report that you obtain about an 
employee or prospective employee.
    (2) Consumer information does not include:
    (A) Aggregate information, such as the mean credit score, 
derived from a group of consumer reports; or
    (B) Blind data, such as payment history on accounts that are not 
personally identifiable, that may be used for developing credit 
scoring models or for other purposes.
    b. Consumer report has the same meaning as set forth in the Fair 
Credit Reporting Act, 15 U.S.C. 1681a(d).
    c. Customer means any consumer who has a customer relationship 
with you.
    d. Customer information means any record containing nonpublic 
personal information about a customer, whether in paper, electronic, 
or other form, that you maintain or that is maintained on your 
behalf.
    e. Customer information systems means any methods used to 
access, collect, store, use, transmit, protect, or dispose of 
customer information.
    f. Service provider means any person or entity that maintains, 
processes, or otherwise is permitted access to customer information 
or consumer information, through its provision of services directly 
to you.

II. Standards for Information Security

    A. Information Security Program. You shall implement a 
comprehensive written information security program that includes 
administrative, technical, and physical safeguards appropriate to 
your size and complexity and the nature and scope of your 
activities. While all parts of your organization are not required to 
implement a uniform set of policies, all elements of your 
information security program must be coordinated.
    B. Objectives. Your information security program shall be 
designed to:
    1. Ensure the security and confidentiality of customer 
information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information;
    3. Protect against unauthorized access to or use of such 
information that could result in substantial harm or inconvenience 
to any customer; and
    4. Ensure the proper disposal of customer information and 
consumer information.

III. Development and Implementation of Information Security Program

    A. Involve the Board of Directors. Your board of directors or an 
appropriate committee of the board shall:
    1. Approve your written information security program; and
    2. Oversee the development, implementation, and maintenance of 
your information security program, including assigning specific 
responsibility for its implementation and reviewing reports from 
management.
    B. Assess Risk. You shall:
    1. Identify reasonably foreseeable internal and external threats 
that could result in unauthorized disclosure, misuse, alteration, or 
destruction of customer information or customer information systems.
    2. Assess the likelihood and potential damage of these threats, 
taking into consideration the sensitivity of customer information.
    3. Assess the sufficiency of policies, procedures, customer 
information systems, and other arrangements in place to control 
risks.
    C. Manage and Control Risk. You shall:
    1. Design your information security program to control the 
identified risks, commensurate with the sensitivity of the 
information as well as the complexity and scope of your activities. 
You must consider whether the following security measures are 
appropriate for you and, if so, adopt those measures you conclude 
are appropriate:
    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing 
customer information to unauthorized individuals who may seek to 
obtain this information through fraudulent means.
    b. Access restrictions at physical locations containing customer 
information, such as buildings, computer facilities, and records 
storage facilities to permit access only to authorized individuals;
    c. Encryption of electronic customer information, including 
while in transit or in storage on networks or systems to which 
unauthorized individuals may have access;
    d. Procedures designed to ensure that customer information 
system modifications are consistent with your information security 
program;
    e. Dual control procedures, segregation of duties, and employee 
background checks for employees with responsibilities for or access 
to customer information;
    f. Monitoring systems and procedures to detect actual and 
attempted attacks on or intrusions into customer information 
systems;
    g. Response programs that specify actions for you to take when 
you suspect or detect

[[Page 47817]]

that unauthorized individuals have gained access to customer 
information systems, including appropriate reports to regulatory and 
law enforcement agencies; and
    h. Measures to protect against destruction, loss, or damage of 
customer information due to potential environmental hazards, such as 
fire and water damage or technological failures.
    2. Train staff to implement your information security program.
    3. Regularly test the key controls, systems and procedures of 
the information security program. The frequency and nature of such 
tests should be determined by your risk assessment. Tests should be 
conducted or reviewed by independent third parties or staff 
independent of those that develop or maintain the security programs.
    4. Develop, implement, and maintain, as part of your information 
security program, appropriate measures to properly dispose of 
customer information and consumer information in accordance with 
each of the requirements in this paragraph III.
    D. Oversee Service Provider Arrangements. You shall:
    1. Exercise appropriate due diligence in selecting your service 
providers;
    2. Require your service providers by contract to implement 
appropriate measures designed to meet the objectives of these 
Guidelines; and
    3. Where indicated by your risk assessment, monitor your service 
providers to confirm that they have satisfied their obligations as 
required by paragraph D.2. As part of this monitoring, you should 
review audits, summaries of test results, or other equivalent 
evaluations of your service providers.
    E. Adjust the Program. You shall monitor, evaluate, and adjust, 
as appropriate, the information security program in light of any 
relevant changes in technology, the sensitivity of your customer 
information, internal or external threats to information, and your 
own changing business arrangements, such as mergers and 
acquisitions, alliances and joint ventures, outsourcing 
arrangements, and changes to customer information systems.
    F. Report to the Board. You shall report to your board or an 
appropriate committee of the board at least annually. This report 
should describe the overall status of the information security 
program and your compliance with these Guidelines. The reports 
should discuss material matters related to your program, addressing 
issues such as: risk assessment; risk management and control 
decisions; service provider arrangements; results of testing; 
security breaches or violations and management's responses; and 
recommendations for changes in the information security program.
    G. Implement the Standards. 1. Effective date. You must 
implement an information security program pursuant to these 
Guidelines by July 1, 2001.
    2. Two-year grandfathering of agreements with service providers. 
Until July 1, 2003, a contract that you have entered into with a 
service provider to perform services for you or functions on your 
behalf satisfies the provisions of paragraph III.D., even if the 
contract does not include a requirement that the servicer maintain 
the security and confidentiality of customer information, as long as 
you entered into the contract on or before March 5, 2001.
    3. Effective date for measures relating to the disposal of 
consumer information. You must satisfy these Guidelines with respect 
to the proper disposal of consumer information by July 1, 2005.
    4. Exception for existing agreements with service providers 
relating to the disposal of consumer information. Notwithstanding 
the requirement in paragraph III.G.3., your contracts with service 
providers that have access to consumer information and that may 
dispose of consumer information, entered into before July 1, 2005, 
must comply with the provisions of the Guidelines relating to the 
proper disposal of consumer information by July 1, 2006.

Supplement to Appendix B of Part 391--Interagency Guidance on Response 
Programs for Unauthorized Access to Customer Information and Customer 
Notice

I. Background

    This Guidance \1\ interprets section 501(b) of the Gramm-Leach-
Bliley Act (``GLBA'') and the Interagency Guidelines Establishing 
Information Security Standards (the ``Security Guidelines'') \2\ and 
describes response programs, including customer notification 
procedures, that a financial institution should develop and 
implement to address unauthorized access to or use of customer 
information that could result in substantial harm or inconvenience 
to a customer. The scope of, and definitions of terms used in, this 
Guidance are identical to those of the Security Guidelines. For 
example, the term ``customer information'' is the same term used in 
the Security Guidelines, and means any record containing nonpublic 
personal information about a customer, whether in paper, electronic, 
or other form, maintained by or on behalf of the institution.
---------------------------------------------------------------------------

    \1\ This Guidance is being jointly issued by the Board of 
Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of the Comptroller of 
the Currency (OCC).
    \2\ 12 CFR part 30, app. B (OCC); 12 CFR part 208, app. D-2 and 
part 225, app. F (Board); 12 CFR part 364, app. A and app. B of 
Subpart B of Part 391 (FDIC). The ``Interagency Guidelines 
Establishing Information Security Standards'' were formerly known as 
``The Interagency Guidelines Establishing Standards for Safeguarding 
Customer Information.''
---------------------------------------------------------------------------

A. Interagency Security Guidelines

    Section 501(b) of the GLBA required the Agencies to establish 
appropriate standards for financial institutions subject to their 
jurisdiction that include administrative, technical, and physical 
safeguards, to protect the security and confidentiality of customer 
information.
    Accordingly, the Agencies issued Security Guidelines requiring 
every financial institution to have an information security program 
designed to:
    1. Ensure the security and confidentiality of customer 
information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information; and
    3. Protect against unauthorized access to or use of such 
information that could result in substantial harm or inconvenience 
to any customer.

B. Risk Assessment and Controls

    1. The Security Guidelines direct every financial institution to 
assess the following risks, among others, when developing its 
information security program:
    a. Reasonably foreseeable internal and external threats that 
could result in unauthorized disclosure, misuse, alteration, or 
destruction of customer information or customer information systems;
    b. The likelihood and potential damage of threats, taking into 
consideration the sensitivity of customer information; and
    c. The sufficiency of policies, procedures, customer information 
systems, and other arrangements in place to control risks.\3\
---------------------------------------------------------------------------

    \3\ See Security Guidelines, III.B.
---------------------------------------------------------------------------

    2. Following the assessment of these risks, the Security 
Guidelines require a financial institution to design a program to 
address the identified risks. The particular security measures an 
institution should adopt will depend upon the risks presented by the 
complexity and scope of its business. At a minimum, the financial 
institution is required to consider the specific security measures 
enumerated in the Security Guidelines,\4\ and adopt those that are 
appropriate for the institution, including:
---------------------------------------------------------------------------

    \4\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing 
customer information to unauthorized individuals who may seek to 
obtain this information through fraudulent means;
    b. Background checks for employees with responsibilities for 
access to customer information; and
    c. Response programs that specify actions to be taken when the 
financial institution suspects or detects that unauthorized 
individuals have gained access to customer information systems, 
including appropriate reports to regulatory and law enforcement 
agencies.\5\
---------------------------------------------------------------------------

    \5\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

C. Service Providers

    The Security Guidelines direct every financial institution to 
require its service providers by contract to implement appropriate 
measures designed to protect against unauthorized access to or use 
of customer information that could result in substantial harm or 
inconvenience to any customer.\6\
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    \6\ See Security Guidelines, II.B. and III.D. Further, the 
Agencies note that, in addition to contractual obligations to a 
financial institution, a service provider may be required to 
implement its own comprehensive information security program in 
accordance with the Safeguards Rule promulgated by the Federal Trade 
Commission (``FTC''), 16 CFR part 314.

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[[Page 47818]]

II. Response Program

    Millions of Americans, throughout the country, have been victims 
of identity theft.\7\ Identity thieves misuse personal information 
they obtain from a number of sources, including financial 
institutions, to perpetrate identity theft. Therefore, financial 
institutions should take preventative measures to safeguard customer 
information against attempts to gain unauthorized access to the 
information. For example, financial institutions should place access 
controls on customer information systems and conduct background 
checks for employees who are authorized to access customer 
information.\8\ However, every financial institution should also 
develop and implement a risk-based response program to address 
incidents of unauthorized access to customer information in customer 
information systems \9\ that occur nonetheless. A response program 
should be a key part of an institution's information security 
program.\10\ The program should be appropriate to the size and 
complexity of the institution and the nature and scope of its 
activities.
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    \7\ The FTC estimates that nearly 10 million Americans 
discovered they were victims of some form of identity theft in 2002. 
See The Federal Trade Commission, Identity Theft Survey Report, 
(September 2003), available at http://www.ftc.gov/os/2003/09/synovatereport.pdf.
    \8\ Institutions should also conduct background checks of 
employees to ensure that the institution does not violate 12 U.S.C. 
1829, which prohibits an institution from hiring an individual 
convicted of certain criminal offenses or who is subject to a 
prohibition order under 12 U.S.C. 1818(e)(6).
    \9\ Under the Guidelines, an institution's customer information 
systems consist of all of the methods used to access, collect, 
store, use, transmit, protect, or dispose of customer information, 
including the systems maintained by its service providers. See 
Security Guidelines, I.C.2.d (I.C.2.c for FDIC).
    \10\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002 available at http://www.ffiec.gov/ffiecinfobase/html_pages/infosec_book_frame.htm. 
Federal Reserve SR 97-32, Sound Practice Guidance for Information 
Security for Networks, Dec. 4, 1997; OCC Bulletin 2000-14, 
``Infrastructure Threats--Intrusion Risks'' (May 15, 2000), for 
additional guidance on preventing, detecting, and responding to 
intrusions into financial institution computer systems.
---------------------------------------------------------------------------

    In addition, each institution should be able to address 
incidents of unauthorized access to customer information in customer 
information systems maintained by its domestic and foreign service 
providers. Therefore, consistent with the obligations in the 
Guidelines that relate to these arrangements, and with existing 
guidance on this topic issued by the Agencies,\11\ an institution's 
contract with its service provider should require the service 
provider to take appropriate actions to address incidents of 
unauthorized access to the financial institution's customer 
information, including notification to the institution as soon as 
possible of any such incident, to enable the institution to 
expeditiously implement its response program.
---------------------------------------------------------------------------

    \11\ See Federal Reserve SR Ltr. 00-04, Outsourcing of 
Information and Transaction Processing, Feb. 9, 2000; OCC Bulletin 
2001-47, ``Third-Party Relationships Risk Management Principles,'' 
Nov. 1, 2001; FDIC FIL 68-99, Risk Assessment Tools and Practices 
for Information System Security, July 7, 1999; Thrift Bulletin 82a, 
Third Party Arrangements, Sept. 1, 2004.
---------------------------------------------------------------------------

A. Components of a Response Program

    1. At a minimum, an institution's response program should 
contain procedures for the following:
    a. Assessing the nature and scope of an incident, and 
identifying what customer information systems and types of customer 
information have been accessed or misused;
    b. Notifying its primary Federal regulator as soon as possible 
when the institution becomes aware of an incident involving 
unauthorized access to or use of sensitive customer information, as 
defined below;
    c. Consistent with the Agencies' Suspicious Activity Report 
(``SAR'') regulations,\12\ notifying appropriate law enforcement 
authorities, in addition to filing a timely SAR in situations 
involving Federal criminal violations requiring immediate attention, 
such as when a reportable violation is ongoing;
---------------------------------------------------------------------------

    \12\ An institution's obligation to file a SAR is set out in the 
Agencies' SAR regulations and Agency guidance. See 12 CFR 21.11 
(national banks, Federal branches and agencies); 12 CFR 208.62 
(State member banks); 12 CFR 211.5(k) (Edge and agreement 
corporations); 12 CFR 211.24(f) (uninsured State branches and 
agencies of foreign banks); 12 CFR 225.4(f) (bank holding companies 
and their nonbank subsidiaries); 12 CFR part 353 (State non-member 
banks); and 390.355 (State savings associations). National banks 
must file SARs in connection with computer intrusions and other 
computer crimes. See OCC Bulletin 2000-14, ``Infrastructure 
Threats--Intrusion Risks'' (May 15, 2000); Advisory Letter 97-9, 
``Reporting Computer Related Crimes'' (November 19, 1997) (general 
guidance still applicable though instructions for new SAR form 
published in 65 FR 1229, 1230 (January 7, 2000)). See also Federal 
Reserve SR 01-11, Identity Theft and Pretext Calling, Apr. 26, 2001; 
SR 97-28, Guidance Concerning Reporting of Computer Related Crimes 
by Financial Institutions, Nov. 6, 1997; FDIC FIL 48-2000, 
Suspicious Activity Reports, July 14, 2000; FIL 47-97, Preparation 
of Suspicious Activity Reports, May 6, 1997; CEO Memorandum 139, 
Identity Theft and Pretext Calling, May 4, 2001; CEO Memorandum 126, 
New Suspicious Activity Report Form, July 5, 2000.
---------------------------------------------------------------------------

    d. Taking appropriate steps to contain and control the incident 
to prevent further unauthorized access to or use of customer 
information, for example, by monitoring, freezing, or closing 
affected accounts, while preserving records and other evidence;\13\ 
and
---------------------------------------------------------------------------

    \13\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002, pp. 68-74.
---------------------------------------------------------------------------

    e. Notifying customers when warranted.
    2. Where an incident of unauthorized access to customer 
information involves customer information systems maintained by an 
institution's service providers, it is the responsibility of the 
financial institution to notify the institution's customers and 
regulator. However, an institution may authorize or contract with 
its service provider to notify the institution's customers or 
regulator on its behalf.

III. Customer Notice

    Financial institutions have an affirmative duty to protect their 
customers' information against unauthorized access or use. Notifying 
customers of a security incident involving the unauthorized access 
or use of the customer's information in accordance with the standard 
set forth below is a key part of that duty. Timely notification of 
customers is important to manage an institution's reputation risk. 
Effective notice also may reduce an institution's legal risk, assist 
in maintaining good customer relations, and enable the institution's 
customers to take steps to protect themselves against the 
consequences of identity theft. When customer notification is 
warranted, an institution may not forgo notifying its customers of 
an incident because the institution believes that it may be 
potentially embarrassed or inconvenienced by doing so.

A. Standard for Providing Notice

    When a financial institution becomes aware of an incident of 
unauthorized access to sensitive customer information, the 
institution should conduct a reasonable investigation to promptly 
determine the likelihood that the information has been or will be 
misused. If the institution determines that misuse of its 
information about a customer has occurred or is reasonably possible, 
it should notify the affected customer as soon as possible. Customer 
notice may be delayed if an appropriate law enforcement agency 
determines that notification will interfere with a criminal 
investigation and provides the institution with a written request 
for the delay. However, the institution should notify its customers 
as soon as notification will no longer interfere with the 
investigation.

1. Sensitive Customer Information

    Under the Guidelines, an institution must protect against 
unauthorized access to or use of customer information that could 
result in substantial harm or inconvenience to any customer. 
Substantial harm or inconvenience is most likely to result from 
improper access to sensitive customer information because this type 
of information is most likely to be misused, as in the commission of 
identity theft. For purposes of this Guidance, sensitive customer 
information means a customer's name, address, or telephone number, 
in conjunction with the customer's social security number, driver's 
license number, account number, credit or debit card number, or a 
personal identification number or password that would permit access 
to the customer's account. Sensitive customer information also 
includes any combination of components of customer information that 
would allow someone to log onto or access the customer's account, 
such as user name and password or password and account number.

2. Affected Customers

    If a financial institution, based upon its investigation, can 
determine from its logs or other data precisely which customers' 
information has been improperly accessed, it may limit notification 
to those customers with regard to whom the institution determines 
that misuse of their information has occurred or is reasonably 
possible. However, there may be situations where the institution 
determines that a group of files has been accessed improperly, but 
is unable

[[Page 47819]]

to identify which specific customers' information has been accessed. 
If the circumstances of the unauthorized access lead the institution 
to determine that misuse of the information is reasonably possible, 
it should notify all customers in the group.

B. Content of Customer Notice

    1. Customer notice should be given in a clear and conspicuous 
manner. The notice should describe the incident in general terms and 
the type of customer information that was the subject of 
unauthorized access or use. It also should generally describe what 
the institution has done to protect the customers' information from 
further unauthorized access. In addition, it should include a 
telephone number that customers can call for further information and 
assistance.\14\ The notice also should remind customers of the need 
to remain vigilant over the next twelve to twenty-four months, and 
to promptly report incidents of suspected identity theft to the 
institution. The notice should include the following additional 
items, when appropriate:
---------------------------------------------------------------------------

    \14\ The institution should, therefore, ensure that it has 
reasonable policies and procedures in place, including trained 
personnel, to respond appropriately to customer inquiries and 
requests for assistance.
---------------------------------------------------------------------------

    a. A recommendation that the customer review account statements 
and immediately report any suspicious activity to the institution;
    b. A description of fraud alerts and an explanation of how the 
customer may place a fraud alert in the customer's consumer reports 
to put the customer's creditors on notice that the customer may be a 
victim of fraud;
    c. A recommendation that the customer periodically obtain credit 
reports from each nationwide credit reporting agency and have 
information relating to fraudulent transactions deleted;
    d. An explanation of how the customer may obtain a credit report 
free of charge; and
    e. Information about the availability of the FTC's online 
guidance regarding steps a consumer can take to protect against 
identity theft. The notice should encourage the customer to report 
any incidents of identity theft to the FTC, and should provide the 
FTC's Web site address and toll-free telephone number that customers 
may use to obtain the identity theft guidance and report suspected 
incidents of identity theft.\15\
---------------------------------------------------------------------------

    \15\ Currently, the FTC Web site for the ID Theft brochure and 
the FTC Hotline phone number are http://www.consumer.gov/idtheft and 
1-877-IDTHEFT. The institution may also refer customers to any 
materials developed pursuant to section 151(b) of the FACT Act 
(educational materials developed by the FTC to teach the public how 
to prevent identity theft).
---------------------------------------------------------------------------

    2. The Agencies encourage financial institutions to notify the 
nationwide consumer reporting agencies prior to sending notices to a 
large number of customers that include contact information for the 
reporting agencies.

C. Delivery of Customer Notice

    Customer notice should be delivered in any manner designed to 
ensure that a customer can reasonably be expected to receive it. For 
example, the institution may choose to contact all customers 
affected by telephone or by mail, or by electronic mail for those 
customers for whom it has a valid e-mail address and who have agreed 
to receive communications electronically.

Subpart C--Fair Credit Reporting


Sec.  391.20  Examples.

    The examples in this subpart are not exclusive. Compliance with an 
example, to the extent applicable, constitutes compliance with this 
subpart. Examples in a section illustrate only the issue described in 
the section and do not illustrate any other issue that may arise in 
this subpart.


Sec.  391.21  Disposal of consumer information.

    (a) Scope. This section applies to State savings associations whose 
deposits are insured by the Federal Deposit Insurance Corporation 
(defined as ``you'').
    (b) In general. You must properly dispose of any consumer 
information that you maintain or otherwise possess in accordance with 
the Interagency Guidelines Establishing Information Security Standards, 
to the extent that you are covered by the scope of the Guidelines.
    (c) Rule of construction. Nothing in this section shall be 
construed to:
    (1) Require you to maintain or destroy any record pertaining to a 
consumer that is not imposed under any other law; or
    (2) Alter or affect any requirement imposed under any other 
provision of law to maintain or destroy such a record.


Sec.  391.22  Duties regarding the detection, prevention, and 
mitigation of identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor that is a State savings association whose deposits are insured 
by the Federal Deposit Insurance Corporation.
    (b) Definitions. For purposes of this section and the appendix to 
subpart C of part 391, the following definitions apply:
    (1) Account means a continuing relationship established by a person 
with a financial institution or creditor to obtain a product or service 
for personal, family, household or business purposes. Account includes:
    (i) An extension of credit, such as the purchase of property or 
services involving a deferred payment; and
    (ii) A deposit account.
    (2) The term board of directors includes:
    (i) In the case of a branch or agency of a foreign bank, the 
managing official in charge of the branch or agency; and
    (ii) In the case of any other creditor that does not have a board 
of directors, a designated employee at the level of senior management.
    (3) Covered account means:
    (i) An account that a financial institution or creditor offers or 
maintains, primarily for personal, family, or household purposes, that 
involves or is designed to permit multiple payments or transactions, 
such as a credit card account, mortgage loan, automobile loan, margin 
account, cell phone account, utility account, checking account, or 
savings account; and
    (ii) Any other account that the financial institution or creditor 
offers or maintains for which there is a reasonably foreseeable risk to 
customers or to the safety and soundness of the financial institution 
or creditor from identity theft, including financial, operational, 
compliance, reputation, or litigation risks.
    (4) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (5) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5), and 
includes lenders such as banks, finance companies, automobile dealers, 
mortgage brokers, utility companies, and telecommunications companies.
    (6) Customer means a person that has a covered account with a 
financial institution or creditor.
    (7) Financial institution has the same meaning as in 15 U.S.C. 
1681a(t).
    (8) Identity theft has the same meaning as in 16 CFR 603.2(a).
    (9) Red Flag means a pattern, practice, or specific activity that 
indicates the possible existence of identity theft.
    (10) Service provider means a person that provides a service 
directly to the financial institution or creditor.
    (c) Periodic identification of covered accounts. Each financial 
institution or creditor must periodically determine whether it offers 
or maintains covered accounts. As a part of this determination, a 
financial institution or creditor must conduct a risk assessment to 
determine whether it offers or maintains covered accounts described in 
paragraph (b)(3)(ii) of this section, taking into consideration:
    (1) The methods it provides to open its accounts;
    (2) The methods it provides to access its accounts; and
    (3) Its previous experiences with identity theft.
    (d) Establishment of an Identity Theft Prevention Program --(1) 
Program requirement. Each financial institution or creditor that offers 
or maintains one or more covered accounts must develop and implement a 
written Identity Theft

[[Page 47820]]

Prevention Program (Program) that is designed to detect, prevent, and 
mitigate identity theft in connection with the opening of a covered 
account or any existing covered account. The Program must be 
appropriate to the size and complexity of the financial institution or 
creditor and the nature and scope of its activities.
    (2) Elements of the Program. The Program must include reasonable 
policies and procedures to:
    (i) Identify relevant Red Flags for the covered accounts that the 
financial institution or creditor offers or maintains, and incorporate 
those Red Flags into its Program;
    (ii) Detect Red Flags that have been incorporated into the Program 
of the financial institution or creditor;
    (iii) Respond appropriately to any Red Flags that are detected 
pursuant to paragraph (d)(2)(ii) of this section to prevent and 
mitigate identity theft; and
    (iv) Ensure the Program (including the Red Flags determined to be 
relevant) is updated periodically, to reflect changes in risks to 
customers and to the safety and soundness of the financial institution 
or creditor from identity theft.
    (e) Administration of the Program. Each financial institution or 
creditor that is required to implement a Program must provide for the 
continued administration of the Program and must:
    (1) Obtain approval of the initial written Program from either its 
board of directors or an appropriate committee of the board of 
directors;
    (2) Involve the board of directors, an appropriate committee 
thereof, or a designated employee at the level of senior management in 
the oversight, development, implementation and administration of the 
Program;
    (3) Train staff, as necessary, to effectively implement the 
Program; and
    (4) Exercise appropriate and effective oversight of service 
provider arrangements.
    (f) Guidelines. Each financial institution or creditor that is 
required to implement a Program must consider the guidelines in the 
appendix to this subpart and include in its Program those guidelines 
that are appropriate.


Sec.  391.23  Duties of card issuers regarding changes of address.

    (a) Scope. This section applies to an issuer of a debit or credit 
card (card issuer) that is a State savings association whose deposits 
are insured by the Federal Deposit Insurance Corporation.
    (b) Definitions. For purposes of this section:
    (1) Cardholder means a consumer who has been issued a credit or 
debit card.
    (2) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.
    (c) Address validation requirements. A card issuer must establish 
and implement reasonable policies and procedures to assess the validity 
of a change of address if it receives notification of a change of 
address for a consumer's debit or credit card account and, within a 
short period of time afterwards (during at least the first 30 days 
after it receives such notification), the card issuer receives a 
request for an additional or replacement card for the same account. 
Under these circumstances, the card issuer may not issue an additional 
or replacement card, until, in accordance with its reasonable policies 
and procedures and for the purpose of assessing the validity of the 
change of address, the card issuer:
    (1)(i) Notifies the cardholder of the request:
    (A) At the cardholder's former address; or
    (B) By any other means of communication that the card issuer and 
the cardholder have previously agreed to use; and
    (ii) Provides to the cardholder a reasonable means of promptly 
reporting incorrect address changes; or
    (2) Otherwise assesses the validity of the change of address in 
accordance with the policies and procedures the card issuer has 
established pursuant to Sec.  391.22.
    (d) Alternative timing of address validation. A card issuer may 
satisfy the requirements of paragraph (c) of this section if it 
validates an address pursuant to the methods in paragraph (c)(1) or 
(c)(2) of this section when it receives an address change notification, 
before it receives a request for an additional or replacement card.
    (e) Form of notice. Any written or electronic notice that the card 
issuer provides under this paragraph must be clear and conspicuous and 
provided separately from its regular correspondence with the 
cardholder.

Appendix to Subpart C of Part 391--Interagency Guidelines on Identity 
Theft Detection, Prevention, and Mitigation

    Section 391.22 requires each financial institution and creditor 
that offers or maintains one or more covered accounts, as defined in 
Sec.  391.22(b)(3), to develop and provide for the continued 
administration of a written Program to detect, prevent, and mitigate 
identity theft in connection with the opening of a covered account 
or any existing covered account. These guidelines are intended to 
assist financial institutions and creditors in the formulation and 
maintenance of a Program that satisfies the requirements of Sec.  
391.22.

I. The Program

    In designing its Program, a financial institution or creditor 
may incorporate, as appropriate, its existing policies, procedures, 
and other arrangements that control reasonably foreseeable risks to 
customers or to the safety and soundness of the financial 
institution or creditor from identity theft.

II. Identifying Relevant Red Flags

    (a) Risk Factors. A financial institution or creditor should 
consider the following factors in identifying relevant Red Flags for 
covered accounts, as appropriate:
    (1) The types of covered accounts it offers or maintains;
    (2) The methods it provides to open its covered accounts;
    (3) The methods it provides to access its covered accounts; and
    (4) Its previous experiences with identity theft.
    (b) Sources of Red Flags. Financial institutions and creditors 
should incorporate relevant Red Flags from sources such as:
    (1) Incidents of identity theft that the financial institution 
or creditor has experienced;
    (2) Methods of identity theft that the financial institution or 
creditor has identified that reflect changes in identity theft 
risks; and
    (3) Applicable supervisory guidance.
    (c) Categories of Red Flags. The Program should include relevant 
Red Flags from the following categories, as appropriate. Examples of 
Red Flags from each of these categories are appended as Supplement A 
to this Appendix.
    (1) Alerts, notifications, or other warnings received from 
consumer reporting agencies or service providers, such as fraud 
detection services;
    (2) The presentation of suspicious documents;
    (3) The presentation of suspicious personal identifying 
information, such as a suspicious address change;
    (4) The unusual use of, or other suspicious activity related to, 
a covered account; and
    (5) Notice from customers, victims of identity theft, law 
enforcement authorities, or other persons regarding possible 
identity theft in connection with covered accounts held by the 
financial institution or creditor.

III. Detecting Red Flags

    The Program's policies and procedures should address the 
detection of Red Flags in connection with the opening of covered 
accounts and existing covered accounts, such as by:
    (a) Obtaining identifying information about, and verifying the 
identity of, a person opening a covered account, for example, using 
the policies and procedures regarding identification and 
verification set forth in the Customer Identification Program rules 
implementing 31 U.S.C. 5318(l) (31 CFR 103.121); and
    (b) Authenticating customers, monitoring transactions, and 
verifying the validity of

[[Page 47821]]

change of address requests, in the case of existing covered 
accounts.

IV. Preventing and Mitigating Identity Theft

    The Program's policies and procedures should provide for 
appropriate responses to the Red Flags the financial institution or 
creditor has detected that are commensurate with the degree of risk 
posed. In determining an appropriate response, a financial 
institution or creditor should consider aggravating factors that may 
heighten the risk of identity theft, such as a data security 
incident that results in unauthorized access to a customer's account 
records held by the financial institution, creditor, or third party, 
or notice that a customer has provided information related to a 
covered account held by the financial institution or creditor to 
someone fraudulently claiming to represent the financial institution 
or creditor or to a fraudulent Web site. Appropriate responses may 
include the following:
    (a) Monitoring a covered account for evidence of identity theft;
    (b) Contacting the customer;
    (c) Changing any passwords, security codes, or other security 
devices that permit access to a covered account;
    (d) Reopening a covered account with a new account number;
    (e) Not opening a new covered account;
    (f) Closing an existing covered account;
    (g) Not attempting to collect on a covered account or not 
selling a covered account to a debt collector;
    (h) Notifying law enforcement; or
    (i) Determining that no response is warranted under the 
particular circumstances.

V. Updating the Program

    Financial institutions and creditors should update the Program 
(including the Red Flags determined to be relevant) periodically, to 
reflect changes in risks to customers or to the safety and soundness 
of the financial institution or creditor from identity theft, based 
on factors such as:
    (a) The experiences of the financial institution or creditor 
with identity theft;
    (b) Changes in methods of identity theft;
    (c) Changes in methods to detect, prevent, and mitigate identity 
theft;
    (d) Changes in the types of accounts that the financial 
institution or creditor offers or maintains; and
    (e) Changes in the business arrangements of the financial 
institution or creditor, including mergers, acquisitions, alliances, 
joint ventures, and service provider arrangements.

VI. Methods for Administering the Program

    (a) Oversight of Program. Oversight by the board of directors, 
an appropriate committee of the board, or a designated employee at 
the level of senior management should include:
    (1) Assigning specific responsibility for the Program's 
implementation;
    (2) Reviewing reports prepared by staff regarding compliance by 
the financial institution or creditor with Sec.  391.22; and
    (3) Approving material changes to the Program as necessary to 
address changing identity theft risks.
    (b) Reports. (1) In general. Staff of the financial institution 
or creditor responsible for development, implementation, and 
administration of its Program should report to the board of 
directors, an appropriate committee of the board, or a designated 
employee at the level of senior management, at least annually, on 
compliance by the financial institution or creditor with Sec.  
391.22.
    (2) Contents of report. The report should address material 
matters related to the Program and evaluate issues such as: The 
effectiveness of the policies and procedures of the financial 
institution or creditor in addressing the risk of identity theft in 
connection with the opening of covered accounts and with respect to 
existing covered accounts; service provider arrangements; 
significant incidents involving identity theft and management's 
response; and recommendations for material changes to the Program.
    (c) Oversight of service provider arrangements. Whenever a 
financial institution or creditor engages a service provider to 
perform an activity in connection with one or more covered accounts 
the financial institution or creditor should take steps to ensure 
that the activity of the service provider is conducted in accordance 
with reasonable policies and procedures designed to detect, prevent, 
and mitigate the risk of identity theft. For example, a financial 
institution or creditor could require the service provider by 
contract to have policies and procedures to detect relevant Red 
Flags that may arise in the performance of the service provider's 
activities, and either report the Red Flags to the financial 
institution or creditor, or to take appropriate steps to prevent or 
mitigate identity theft.

VII. Other Applicable Legal Requirements

    Financial institutions and creditors should be mindful of other 
related legal requirements that may be applicable, such as:
    (a) For financial institutions and creditors that are subject to 
31 U.S.C. 5318(g), filing a Suspicious Activity Report in accordance 
with applicable law and regulation;
    (b) Implementing any requirements under 15 U.S.C. 1681c-1(h) 
regarding the circumstances under which credit may be extended when 
the financial institution or creditor detects a fraud or active duty 
alert;
    (c) Implementing any requirements for furnishers of information 
to consumer reporting agencies under 15 U.S.C. 1681s-2, for example, 
to correct or update inaccurate or incomplete information, and to 
not report information that the furnisher has reasonable cause to 
believe is inaccurate; and
    (d) Complying with the prohibitions in 15 U.S.C. 1681m on the 
sale, transfer, and placement for collection of certain debts 
resulting from identity theft.

Supplement A to Appendix to Subpart C of Part 391

    In addition to incorporating Red Flags from the sources 
recommended in section II.b. of the Guidelines in this Appendix, 
each financial institution or creditor may consider incorporating 
into its Program, whether singly or in combination, Red Flags from 
the following illustrative examples in connection with covered 
accounts:

Alerts, Notifications or Warnings from a Consumer Reporting Agency

    1. A fraud or active duty alert is included with a consumer 
report.
    2. A consumer reporting agency provides a notice of credit 
freeze in response to a request for a consumer report.
    3. A consumer reporting agency provides a notice of address 
discrepancy;
    4. A consumer report indicates a pattern of activity that is 
inconsistent with the history and usual pattern of activity of an 
applicant or customer, such as:
    a. A recent and significant increase in the volume of inquiries;
    b. An unusual number of recently established credit 
relationships;
    c. A material change in the use of credit, especially with 
respect to recently established credit relationships; or
    d. An account that was closed for cause or identified for abuse 
of account privileges by a financial institution or creditor.

Suspicious Documents

    5. Documents provided for identification appear to have been 
altered or forged.
    6. The photograph or physical description on the identification 
is not consistent with the appearance of the applicant or customer 
presenting the identification.
    7. Other information on the identification is not consistent 
with information provided by the person opening a new covered 
account or customer presenting the identification.
    8. Other information on the identification is not consistent 
with readily accessible information that is on file with the 
financial institution or creditor, such as a signature card or a 
recent check.
    9. An application appears to have been altered or forged, or 
gives the appearance of having been destroyed and reassembled.

Suspicious Personal Identifying Information

    10. Personal identifying information provided is inconsistent 
when compared against external information sources used by the 
financial institution or creditor. For example:
    a. The address does not match any address in the consumer 
report; or
    b. The Social Security Number (SSN) has not been issued, or is 
listed on the Social Security Administration's Death Master File.
    11. Personal identifying information provided by the customer is 
not consistent with other personal identifying information provided 
by the customer. For example, there is a lack of correlation between 
the SSN range and date of birth.
    12. Personal identifying information provided is associated with 
known fraudulent activity as indicated by internal or third-party 
sources used by the financial institution or creditor. For example:
    a. The address on an application is the same as the address 
provided on a fraudulent application; or
    b. The phone number on an application is the same as the number 
provided on a fraudulent application.
    13. Personal identifying information provided is of a type 
commonly associated with fraudulent activity as indicated by 
internal or third-party sources used by the financial institution or 
creditor. For example:

[[Page 47822]]

    a. The address on an application is fictitious, a mail drop, or 
a prison; or
    b. The phone number is invalid, or is associated with a pager or 
answering service.
    14. The SSN provided is the same as that submitted by other 
persons opening an account or other customers.
    15. The address or telephone number provided is the same as or 
similar to the address or telephone number submitted by an unusually 
large number of other persons opening accounts or by other 
customers.
    16. The person opening the covered account or the customer fails 
to provide all required personal identifying information on an 
application or in response to notification that the application is 
incomplete.
    17. Personal identifying information provided is not consistent 
with personal identifying information that is on file with the 
financial institution or creditor.
    18. For financial institutions and creditors that use challenge 
questions, the person opening the covered account or the customer 
cannot provide authenticating information beyond that which 
generally would be available from a wallet or consumer report.

Unusual Use of, or Suspicious Activity Related to, the Covered 
Account

    19. Shortly following the notice of a change of address for a 
covered account, the institution or creditor receives a request for 
a new, additional, or replacement card or a cell phone, or for the 
addition of authorized users on the account.
    20. A new revolving credit account is used in a manner commonly 
associated with known patterns of fraud. For example:
    a. The majority of available credit is used for cash advances or 
merchandise that is easily convertible to cash (e.g., electronics 
equipment or jewelry); or
    b. The customer fails to make the first payment or makes an 
initial payment but no subsequent payments.
    21. A covered account is used in a manner that is not consistent 
with established patterns of activity on the account. There is, for 
example:
    a. Nonpayment when there is no history of late or missed 
payments;
    b. A material increase in the use of available credit;
    c. A material change in purchasing or spending patterns;
    d. A material change in electronic fund transfer patterns in 
connection with a deposit account; or
    e. A material change in telephone call patterns in connection 
with a cellular phone account.
    22. A covered account that has been inactive for a reasonably 
lengthy period of time is used (taking into consideration the type 
of account, the expected pattern of usage and other relevant 
factors).
    23. Mail sent to the customer is returned repeatedly as 
undeliverable although transactions continue to be conducted in 
connection with the customer's covered account.
    24. The financial institution or creditor is notified that the 
customer is not receiving paper account statements.
    25. The financial institution or creditor is notified of 
unauthorized charges or transactions in connection with a customer's 
covered account.

Notice from Customers, Victims of Identity Theft, Law Enforcement 
Authorities, or Other Persons Regarding Possible Identity Theft in 
Connection With Covered Accounts Held by the Financial Institution 
or Creditor

    26. The financial institution or creditor is notified by a 
customer, a victim of identity theft, a law enforcement authority, 
or any other person that it has opened a fraudulent account for a 
person engaged in identity theft.

Subpart D--Loans in Areas Having Special Flood Hazards


Sec.  391.30  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1462, 
1462a, 1463, 1464, 1819 (Tenth) and 42 U.S.C. 4012a, 4104a, 4104b, 
4106, 4128.

    (b) Purpose. The purpose of this subpart is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This subpart, except for Sec. Sec.  391.35 and 391.37, 
applies to loans secured by buildings or mobile homes located or to be 
located in areas determined by the Director of the Federal Emergency 
Management Agency to have special flood hazards. Sections 391.35 and 
391.37 apply to loans secured by buildings or mobile homes, regardless 
of location.


Sec.  391.31  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) State savings association means, for purposes of this subpart, 
a State savings association as that term is defined in 12 U.S.C. 
1813(b)(3) and any subsidiaries thereof.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this subpart, the term mobile home means a 
mobile home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (2) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    (k) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director of FEMA.
    (l) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.


Sec.  391.32  Requirement to purchase flood insurance where available.

    (a) In general. A State savings association shall not make, 
increase, extend, or renew any designated loan unless the building or 
mobile home and any personal property securing the loan is covered by 
flood insurance for the term of the loan. The amount of insurance must 
be at least equal to the lesser of the outstanding principal balance of 
the designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the overall value of the property securing 
the designated loan minus the value of the land on which the property 
is located.
    (b) Table funded loans. A State savings association that acquires a 
loan from a mortgage broker or other entity through table funding shall 
be considered to be making a loan for the purposes of this subpart.

[[Page 47823]]

Sec.  391.33  Exemptions.

    The flood insurance requirement prescribed by Sec.  391.32 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less.


Sec.  391.34  Escrow requirement.

    If a State savings association requires the escrow of taxes, 
insurance premiums, fees, or any other charges for a loan secured by 
residential improved real estate or a mobile home that is made, 
increased, extended, or renewed on or after October 1, 1996, the State 
savings association shall also require the escrow of all premiums and 
fees for any flood insurance required under Sec.  391.32. The State 
savings association, or a servicer acting on behalf of the State 
savings association, shall deposit the flood insurance premiums on 
behalf of the borrower in an escrow account. This escrow account will 
be subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Director of FEMA or other 
provider of flood insurance that premiums are due, the State savings 
association, or a servicer acting on behalf of the State savings 
association, shall pay the amount owed to the insurance provider from 
the escrow account by the date when such premiums are due.


Sec.  391.35  Required use of standard flood hazard determination form.

    (a) Use of form. A State savings association shall use the standard 
flood hazard determination form developed by the Director of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard 
area in which flood insurance is available under the Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A State savings association may obtain the 
standard flood hazard determination form from FEMA, P.O. Box 2012, 
Jessup, MD 20794-2012.
    (b) Retention of form. A State savings association shall retain a 
copy of the completed standard flood hazard determination form, in 
either hard copy or electronic form, for the period of time the State 
savings association owns the loan.


Sec.  391.36  Forced placement of flood insurance.

    If a State savings association, or a servicer acting on behalf of 
the State savings association, determines at any time during the term 
of a designated loan that the building or mobile home and any personal 
property securing the designated loan is not covered by flood insurance 
or is covered by flood insurance in an amount less than the amount 
required under Sec.  391.32, then the State savings association or its 
servicer shall notify the borrower that the borrower should obtain 
flood insurance, at the borrower's expense, in an amount at least equal 
to the amount required under Sec.  391.32, for the remaining term of 
the loan. If the borrower fails to obtain flood insurance within 45 
days after notification, then the State savings association or its 
servicer shall purchase insurance on the borrower's behalf. The State 
savings association or its servicer may charge the borrower for the 
cost of premiums and fees incurred in purchasing the insurance.


Sec.  391.37  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any State savings association, or a servicer acting on behalf of 
the State savings association, may charge a reasonable fee for 
determining whether the building or mobile home securing the loan is 
located or will be located in a special flood hazard area. A 
determination fee may also include, but is not limited to, a fee for 
life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Director of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under Sec.  391.36.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  391.38  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a State savings association makes, 
increases, extends, or renews a loan secured by a building or a mobile 
home located or to be located in a special flood hazard area, the State 
savings association shall mail or deliver a written notice to the 
borrower and to the servicer in all cases whether or not flood 
insurance is available under the Act for the collateral securing the 
loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The State savings association shall provide 
the notice required by paragraph (a) of this section to the borrower 
within a reasonable time before the completion of the transaction, and 
to the servicer as promptly as practicable after the State savings 
association provides notice to the borrower and in any event no later 
than the State savings association provides other similar notices to 
the servicer concerning hazard insurance and taxes. Notice to the 
servicer may be made

[[Page 47824]]

electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The State savings association shall retain a 
record of the receipt of the notices by the borrower and the servicer 
for the period of time the State savings association owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a State savings 
association may obtain satisfactory written assurance from a seller or 
lessor that, within a reasonable time before the completion of the sale 
or lease transaction, the seller or lessor has provided such notice to 
the purchaser or lessee. The State savings association shall retain a 
record of the written assurance from the seller or lessor for the 
period of time the State savings association owns the loan.
    (f) Use of prescribed form of notice. A State savings association 
will be considered to be in compliance with the requirement for notice 
to the borrower of this section by providing written notice to the 
borrower containing the language presented in appendix A to this 
subpart within a reasonable time before the completion of the 
transaction. The notice presented in appendix A to this subpart 
satisfies the borrower notice requirements of the Act.


Sec.  391.39  Notice of servicer's identity.

    (a) Notice requirement. When a State savings association makes, 
increases, extends, renews, sells, or transfers a loan secured by a 
building or mobile home located or to be located in a special flood 
hazard area, the State savings association shall notify the Director of 
FEMA (or the Director's designee) in writing of the identity of the 
servicer of the loan. The Director of FEMA has designated the insurance 
provider to receive the State savings association's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Director of FEMA's 
designee.
    (b) Transfer of servicing rights. The State savings association 
shall notify the Director of FEMA (or the Director's designee) of any 
change in the servicer of a loan described in paragraph (a) of this 
section within 60 days after the effective date of the change. This 
notice may be provided electronically if electronic transmission is 
satisfactory to the Director of FEMA's designee. Upon any change in the 
servicing of a loan described in paragraph (a) of this section, the 
duty to provide notice under this paragraph (b) shall transfer to the 
transferee servicer.

Appendix to Subpart D of Part 391--Sample Form of Notice of Special 
Flood Hazards and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    (a) The building or mobile home securing the loan for which you 
have applied is or will be located in an area with special flood 
hazards.
    (b) The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: ----. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    (c) Federal law allows a lender and borrower jointly to request 
the Director of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    (d) The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy 
either directly through the NFIP or through an insurance company 
that participates in the NFIP. Flood insurance also may be available 
from private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) The outstanding principal balance of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
    (e) Flood insurance coverage under the NFIP is limited to the 
overall value of the property securing the loan minus the value of 
the land on which the property is located.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    (f) Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally-declared flood 
disaster.

Subpart E--Acquisition of Control of State Savings Associations


Sec.  391.40  Scope of subpart.

    The purpose of this subpart is to implement the provisions of the 
Change in Bank Control Act, 12 U.S.C. 1817 (j) (``Control Act''), 
relating to acquisitions and changes in control of State savings 
associations that are organized in stock form.


Sec.  391.41  Definitions.

    As used in this subpart and in the forms under this subpart, the 
following definitions apply, unless the context otherwise requires:
    Acquire when used in connection with the acquisition of stock of a 
State savings association means obtaining ownership, control, power to 
vote, or sole power of disposition of stock, directly or indirectly or 
through one or more transactions or subsidiaries, through purchase, 
assignment, transfer, exchange, succession, or other means, including:
    (1) An increase in percentage ownership resulting from a 
redemption, repurchase, reverse stock split or a similar transaction 
involving other securities of the same class, and
    (2) The acquisition of stock by a group of persons and/or companies 
acting in concert which shall be deemed to occur upon formation of such 
group: Provided, That an investment advisor shall not be deemed to 
acquire the voting stock of its advisee if the advisor:
    (i) Votes the stock only upon instruction from the beneficial 
owner, and
    (ii) Does not provide the beneficial owner with advice concerning 
the voting of such stock.
    Acquiror means a person or company.
    Acting in concert means: (1) Knowing participation in a joint 
activity or interdependent conscious parallel action towards a common 
goal whether or not pursuant to an express agreement, or
    (2) A combination or pooling of voting or other interests in the 
securities of an issuer for a common purpose pursuant to any contract, 
understanding, relationship, agreement or other arrangement, whether 
written or otherwise.
    (3) A person or company which acts in concert with another person 
or company (``other party'') shall also be deemed to be acting in 
concert with any person or company who is also acting in concert with 
that other party, except that any tax-qualified employee stock

[[Page 47825]]

benefit plan as defined in 12 CFR 192.25 will not be deemed to be 
acting in concert with its trustee or a person who serves in a similar 
capacity solely for the purpose of determining whether stock held by 
the trustee and stock held by the plan will be aggregated.
    Affiliate means any person or company which controls, is controlled 
by or is under common control with a person, State savings association, 
or company.
    Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-
stock company or similar organization, as defined in the definition of 
similar organization in this section; but a company does not include:
    (1) The FDIC or any Federal Home Loan Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State;
    (ii) An officer of the United States or any State in his or her 
official capacity;
    (iii) An instrumentality of the United States or any State; or
    (iv) A savings and loan holding company registered under section 
10(b) of the Home Owners' Loan Act.
    Controlling shareholder means any person who directly or indirectly 
or acting in concert with one or more persons or companies, or together 
with members of his or her immediate family, owns, controls, or holds 
with power to vote 10 percent or more of the voting stock of a company 
or controls in any manner the election or appointment of a majority of 
the company's board of directors.
    Immediate family means a person's spouse, father, mother, children, 
brothers, sisters and grandchildren; the father, mother, brothers, and 
sisters of the person's spouse; and the spouse of the person's child, 
brother or sister.
    Management official means any president, chief executive officer, 
chief operating officer, vice president, director, partner, or trustee, 
or any other person who performs or has a representative or nominee 
performing similar policymaking functions, including executive officers 
of principal business units or divisions or subsidiaries who perform 
policymaking functions, for a State savings association or a company, 
whether or not incorporated.
    Person means an individual or a group of individuals acting in 
concert who do not constitute a company as defined in this section.
    Repealed Control Act means the Change in Savings and Loan Control 
Act, 12 U.S.C. 1730(q), as in effect immediately prior to its repeal by 
the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989.
    State savings association means a state-chartered savings 
association, building and loan, savings and loan or homestead 
association or a cooperative bank (other than a cooperative bank 
described in 12 U.S.C. 1813(a)(2)) the deposits of which are insured by 
the FDIC, and any corporation (other than a bank) the deposits of which 
are insured by the FDIC that the FDIC determines to be operating in 
substantially the same manner as a State savings association.
    Similar organization for purposes company as defined in this 
section means a combination of parties with the potential for or 
practical likelihood of continuing rather than temporary existence, 
where the parties thereto have knowingly and voluntarily associated for 
a common purpose pursuant to identifiable and binding relationships 
which govern the parties with respect to either:
    (1) The transferability and voting of any stock or other indicia of 
participation in another entity, or
    (2) Achievement of a common or shared objective, such as to 
collectively manage or control another entity.
    Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    Uninsured institution means any financial institution the deposits 
of which are not insured by the FDIC.
    Voting stock means:
    (1) Common or preferred stock, general or limited partnership 
shares or interests, or similar interests if the shares or interests, 
by statute, charter or in any manner, entitle the holder:
    (i) To vote for or to select directors, trustees, or partners (or 
persons exercising similar functions of the issuing State savings 
association or company); or
    (ii) To vote or to direct the conduct of the operations or other 
significant policies of the issuer.
    (2) Notwithstanding anything in this definition, preferred stock, 
limited partnership shares or interests, or similar interests are not 
voting stock if:
    (i) Voting rights associated with the stock, shares or interests 
are limited solely to the type customarily provided by statute with 
regard to matters that would significantly and adversely affect the 
rights or preference of the stock, security or other interest, such as 
the issuance of additional amounts or classes of senior securities, the 
modification of the terms of the stock, security or interest, the 
dissolution of the issuer, or the payment of dividends by the issuer 
when preferred dividends are in arrears;
    (ii) The stock, shares or interests represent an essentially 
passive investment or financing device and do not otherwise provide the 
holder with control over the issuer; and
    (iii) The stock, shares or interests do not at the time entitle the 
holder, by statute, charter, or otherwise, to select or to vote for the 
selection of directors, trustees, or partners (or persons exercising 
similar functions) of the issuer;
    (3) Notwithstanding anything in this definition, voting stock shall 
be deemed to include stock and other securities that, upon transfer or 
otherwise, are convertible into voting stock or exercisable to acquire 
voting stock where the holder of the stock, convertible security or 
right to acquire voting stock has the preponderant economic risk in the 
underlying voting stock. Securities immediately convertible into voting 
stock at the option of the holder without payment of additional 
consideration shall be deemed to constitute the voting stock into which 
they are convertible; other convertible securities and rights to 
acquire voting stock shall not be deemed to vest the holder with the 
preponderant economic risk in the underlying voting stock if the holder 
has paid less than 50 percent of the consideration required to directly 
acquire the voting stock and has no other economic interest in the 
underlying voting stock. For purposes of calculating the percentage of 
voting stock held by a particular acquiror, stock or other securities 
convertible into voting stock or exercisable to acquire voting stock 
which are deemed voting stock under this paragraph (3) shall be 
included in calculating the amount of voting stock held by the acquiror 
and the total amount of stock outstanding only to the extent of the 
voting stock obtainable by such acquiror by such conversion or exercise 
of rights.


Sec.  391.42  Acquisition of control of State savings associations.

    (a) [Reserved]
    (b) Acquisition by a person or company. Unless a transaction is 
exempt from prior notice under paragraph (d) of this section, no person 
or company (other than certain persons affiliated with a savings and 
loan holding company who are subject to Sec.  10(e)(4) of the Home 
Owners' Loan Act), shall acquire control, as defined in Sec.  391.43 
(a) and (b), of a State savings association until written notice has 
been provided to the FDIC and (1) the FDIC indicates in writing its 
intent not to

[[Page 47826]]

disapprove the proposed acquisition or (2) 60 days (or such period of 
time as the FDIC may specify if the review period has been extended 
under Sec.  391.45(c)(3)) have passed since receipt of a notice deemed 
sufficient under Sec.  391.45(c)(2). Notwithstanding the forgoing, 
acquisitions by persons or companies by means of a merger with an 
interim association are not subject to this subpart, but shall be 
subject to approval under Sec.  390.332, and either 12 CFR 152.13 or 
applicable state law.
    (c) Exempt transactions. (1) [Reserved]
    (2) The following transactions are exempt from the notice 
requirements of paragraph (b) of this section:
    (i)(A) Control of a State savings association acquired by a bank 
holding company that is registered under and subject to, the Bank 
Holding Company Act of 1956, or any company controlled by such bank 
holding company;
    (B) Control of a State savings association acquired solely as a 
result of a pledge or hypothecation of stock to secure a loan 
contracted for in good faith or the liquidation of a loan contracted 
for in good faith, in either case where such loan was made in the 
ordinary course of the business of the lender: Provided, further, That 
acquisition of control pursuant to such pledge, hypothecation or 
liquidation is reported to the FDIC within 30 days, and Provided, 
further, That the acquiror shall not retain such control for more than 
one year from the date on which such control was acquired; however, the 
FDIC may, upon application by an acquiror, extend such one-year period 
from year to year, for an additional period of time not exceeding three 
years, if the FDIC finds such extension is warranted and would not be 
detrimental to the public interest;
    (C) Control of a State savings association acquired through a 
percentage increase in stock ownership following a pro rata stock 
dividend or stock split, if the proportional interests of the 
recipients remain substantially the same;
    (D) Acquisition of additional stock after a non-disapproval under 
Sec.  391.46, or any predecessor provision, has been received: 
Provided, That such acquisition is consistent with any conditions 
imposed in connection with such approval and with the representations 
made by the acquirer in its application;
    (E) Acquisitions of up to twenty-five percent (25%) of a class of 
stock by a tax-qualified employee stock benefit plan as defined in 12 
CFR 192.25; and
    (ii) Transactions for which approval is required under the Home 
Owners' Loan Act;
    (iii) Transactions for which approval is required under 12 CFR 
152.13 and 390.332;
    (iv) Transactions for which a change of control notice must be 
submitted to the Board of Governors of the Federal Reserve System 
pursuant to the Change in Bank Control Act, 12 U.S.C. 1817(j);
    (v) Acquisition of additional stock of a State savings association 
by any person who:
    (A) Has held power to vote 25 percent or more of any class of 
voting stock in such association continuously since March 9, 1979; or
    (B) Has maintained control of the State savings association 
continuously since acquiring control in compliance with the Control Act 
(or the Repealed Control Act) and the regulations thereunder then in 
effect: Provided, That such acquisition is consistent with any 
conditions imposed in connection with such acquisition of control and 
with the representations made by the acquiror in its notice; and
    (vi) [Reserved]
    (3) An acquiror that would be considered to be in control of a 
State savings association pursuant to Sec.  391.43 on December 26, 
1985, shall not be subject to this Sec.  391.42 unless the acquiror 
acquires additional stock of the State savings association or obtains a 
control factor with respect to such association after December 26, 
1985: Provided, That an acquiror shall not be deemed to have acquired 
control of a State savings association on the basis of actions taken 
prior to December 26, 1985, or on the basis of actions taken after 
December 26, 1985, if such actions are pursuant to and consistent with 
a materially complete application under the Holding Company Act or 
notice under the Repealed Control Act filed prior to December 26, 1985, 
if such acquisition is made pursuant to an application approved under 
the Holding Company Act or a notice under the Repealed Control Act that 
was not disapproved.
    (d) Transactions exempt from prior approval or notice. (1) Subject 
to the conditions set forth in paragraph (d)(2) of this section, the 
following transactions are exempt from prior approval and prior notice 
under Sec.  391.42: Provided, That the timing of the transaction was 
not within the control of the acquiror.
    (i) Control of a State savings association acquired through bona 
fide gift;
    (ii) Control of a State savings association acquired through 
liquidation of a loan contracted in good faith where the loan was not 
made in the ordinary course of business of the lender;
    (iii) Control of a State savings association acquired through a 
percentage increase in ownership following a stock split or redemption 
that was not pro rata;
    (iv) Control determined pursuant to Sec.  391.43 (a) or (b) as a 
result of actions by third parties that are not within the control of 
the acquiror;
    (v) Control of a State savings association acquired through testate 
or intestate succession: Provided, That the acquiror transmits written 
notification of the acquisition to the FDIC within 60 days of the 
acquisition and provides such additional information as the FDIC may 
specifically request.
    (2) The exemptions provided by paragraphs (d)(1)(i) through 
(d)(1)(iv) of this section are subject to the following conditions:
    (i) The acquiror shall file a notice or rebuttal, as appropriate, 
with the FDIC within 90 days of acquisition of control;
    (ii) The acquiror shall not take any action to direct the 
management or policies of the State savings association or which are 
designed to effect a change in the business plan of the State savings 
association other than voting on matters that may be presented to 
stockholders by management of the State savings association until the 
FDIC has acted favorably upon the acquiror's notice or rebuttal, and 
the FDIC may require that the acquiror take such steps as the FDIC 
deems necessary to insure that control is not exercised; and
    (iii) If the FDIC disapproves the acquiror's notice or rebuttal, 
the acquiror shall divest such portion of the stock held by the 
acquiror so as to cause the acquiror not to be determined to be in 
control of the State savings association under Sec.  391.43, within one 
year or such shorter period of time and in the manner that the FDIC may 
order.


Sec.  391.43  Control.

    (a) Conclusive control. (1) An acquiror shall be deemed to have 
acquired control of a State savings association, other than a savings 
and loan holding company, if the acquiror directly or indirectly, 
through one or more subsidiaries or transactions or acting in concert 
with one or more persons or companies:
    (i) Acquires 25 percent or more of any class of voting stock of the 
State savings association; or
    (ii) Acquires irrevocable proxies representing 25 percent or more 
of any class of voting stock of the State savings association; or

[[Page 47827]]

    (iii) Acquires any combination of voting stock and irrevocable 
proxies representing 25 percent or more of any class of voting stock of 
a State savings association; or
    (iv) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) A person or company shall be deemed to control a State savings 
association if the FDIC determines that such person has the power to 
direct the management or policies of the State savings association.
    (b) Rebuttable control determinations. (1) An acquiror shall be 
determined, subject to rebuttal, to have acquired control of a State 
savings association, if the acquiror directly or indirectly, or through 
one or more subsidiaries or transactions or acting in concert with one 
or more persons or companies:
    (i) Acquires more than 10 percent of any class of voting stock of 
the State savings association and is subject to any control factor, as 
defined in paragraph (c) of this section;
    (ii) Acquires 25 percent or more of any class of stock of the State 
savings association and is subject to any control factor, as defined in 
paragraph (c) of this section.
    (2) An acquiror shall be determined, subject to rebuttal, to have 
acquired control of a State savings association, if the acquiror 
directly or indirectly, or through one or more subsidiaries or 
transactions or acting in concert with one or more persons or 
companies, holds any combination of voting stock and revocable and/or 
irrevocable proxies, representing 25 percent or more of any class of 
voting stock of a State savings association, excluding such proxies 
held in connection with a solicitation by, or in opposition to, a 
solicitation on behalf of management of the State savings association, 
but including a solicitation in connection with an election of 
directors, and such proxies would enable the acquiror to:
    (i) Elect one-third or more of the State savings association's 
board of directors, including nominees or representatives of the 
acquiror currently serving on such board;
    (ii) Cause the State savings association's stockholders to approve 
the acquisition or corporate reorganization of the State savings 
association; or
    (iii) Exert a continuing influence on a material aspect of the 
business operations of the State savings association.
    (c) Control factors. For purposes of paragraph (b)(1) of this 
section, the following constitute control factors. References to the 
acquiror include actions taken directly or indirectly, or through one 
or more subsidiaries or transactions or acting in concert with one or 
more persons or companies:
    (1) The acquiror would be one of the two largest holders of any 
class of voting stock of the State savings association.
    (2) The acquiror would hold 25 percent or more of the total 
stockholders' equity of the State savings association.
    (3) The acquiror would hold more than 35 percent of the combined 
debt securities and stockholders' equity of the State savings 
association.
    (4) The acquiror is party to any agreement:
    (i) Pursuant to which the acquiror possesses a material economic 
stake in the State savings association resulting from a profit-sharing 
arrangement, use of common names, facilities or personnel, or the 
provision of essential services to the State savings association; or
    (ii) That enables the acquiror to influence a material aspect of 
the management or policies of the State savings association, other than 
agreements to which the State savings association is a party where the 
restrictions are customary under the circumstances and in the case of 
an acquisition agreement, which apply only during the period when the 
acquiror is seeking the FDIC's approval to acquire the State savings 
association, the agreement prohibits transactions between the acquiror 
and the State savings association and their respective affiliates 
without approval by the appropriate Regional Director during the 
pendency of the notice process, and the agreement contains no material 
forfeiture provisions applicable to the State savings association in 
the event the acquisition is not approved or not approved by a 
specified date.
    (5) The acquiror would have the ability, other than through the 
holding of revocable proxies, to direct the votes of 25 percent or more 
of a class of the State savings association's voting stock or to vote 
25 percent or more of a class of the State savings association's voting 
stock in the future upon the occurrence of a future event.
    (6) The acquiror would have the power to direct the disposition of 
25 percent or more of a class of the State savings association's voting 
stock in a manner other than a widely dispersed or public offering.
    (7) The acquiror and/or the acquiror's representatives or nominees 
would constitute more than one member of the State savings 
association's board of directors.
    (8) The acquiror or a nominee or management official of the 
acquiror would serve as the chairman of the board of directors, 
chairman of the executive committee, chief executive officer, chief 
operating officer, chief financial officer or in any position with 
similar policymaking authority in the State savings association.
    (d) Rebuttable presumptions of concerted action. An acquiror will 
be presumed to be acting in concert with the following persons and 
companies:
    (1) A company will be presumed to be acting in concert with a 
controlling shareholder, partner, trustee or management official of 
such company with respect to the acquisition of stock of a State 
savings association, if
    (i) Both the company and the person own stock in the State savings 
association,
    (ii) The company provides credit to the person to purchase the 
State savings association's stock, or
    (iii) The company pledges its assets or otherwise is instrumental 
in obtaining financing for the person to acquire stock of the State 
savings association;
    (2) A person will be presumed to be acting in concert with members 
of the person's immediate family;
    (3) Persons will be presumed to be acting in concert with each 
other where
    (i) Both own stock in a State savings association and both are also 
management officials, controlling shareholders, partners, or trustees 
of another company, or
    (ii) One person provides credit to another person or is 
instrumental in obtaining financing for another person to purchase 
stock of the State savings association;
    (4) A company controlling or controlled by another company and 
companies under common control will be presumed to be acting in 
concert;
    (5) Persons or companies will be presumed to be acting in concert 
where they constitute a group under the beneficial ownership reporting 
rules under section 13 or the proxy rules under section 14 of the 
Securities Exchange Act of 1934, promulgated by the Securities and 
Exchange Commission.
    (6) A person or company will be presumed to be acting in concert 
with any trust for which such person or company serves as trustee, 
except that a tax-qualified employee stock benefit plan as defined in 
12 CFR 192.25 shall not be presumed to be acting in concert with its 
trustee or person acting in a similar fiduciary capacity solely for the 
purposes of determining whether to combine the holdings of a plan and 
its trustee or fiduciary.

[[Page 47828]]

    (7) Persons or companies will be presumed to be acting in concert 
with each other and with any other person or company with which they 
also are presumed to act in concert.
    (e) Procedures for rebuttal--(1) Rebuttal of control determination. 
An acquiror attempting to rebut a determination of control that would 
arise under paragraph (b) of this section shall file a submission with 
the FDIC setting forth the facts and circumstances which support the 
acquiror's contention that no control relationship would exist if the 
acquiror acquires stock or obtains a control factor with respect to a 
State savings association. The rebuttal must be filed and accepted in 
accordance with this section before the acquiror acquires such stock or 
control factor.
    (i) An acquiror seeking to rebut the determination of control 
arising under paragraph (b)(1) of this section shall submit to the FDIC 
an executed agreement materially conforming to the agreement set forth 
at Sec.  391.48. Unless agreed to by the FDIC in writing, no other 
agreement or filing shall be deemed to rebut the determination of 
control arising under paragraph (b)(1) of this section. If accepted by 
the FDIC the acquiror shall furnish a copy of the executed agreement to 
the association to which the rebuttal pertains.
    (ii) An acquiror seeking to rebut the determination of control with 
respect to holding of proxies arising under paragraph (b)(2) of this 
section shall be subject to the requirements of paragraph (e)(1) of 
this section, except that in the case of a rebuttal of the presumption 
of control arising under paragraph (b)(2) of this section, the FDIC may 
require the acquiror to furnish information in response to a specific 
request for information and depending upon the particular facts and 
circumstances, to provide an executed rebuttal agreement materially 
conforming to the agreement set forth at Sec.  391.48, with any 
modifications deemed necessary by the FDIC.
    (2) Presumptions of concerted action. An acquiror attempting to 
rebut the presumption of concerted action arising under paragraph (d) 
of this section shall file a submission with the FDIC setting forth 
facts and circumstances which clearly and convincingly demonstrate the 
acquiror's contention that no action in concert exists. Such a 
statement must be accompanied by an affidavit, in form and content 
satisfactory to the FDIC, executed by each person or company presumed 
to be acting in concert, stating that such person or company does not 
and shall not, without having made necessary filings and obtained 
approval or clearance thereof under the Holding Company Act or the 
Control Act, as applicable, have any agreements or understandings, 
written or tacit, with respect to the exercise of control, directly or 
indirectly, over the management or policies of the State savings 
association, including agreements relating to voting, acquisition or 
disposition of the State savings association's stock. The affidavit 
shall also recite that the signatory is aware that the filing of a 
false affidavit may subject the person or company to criminal 
sanctions, would constitute a violation of the FDIC's regulations at 
Sec.  390.355(b) and would be considered a ``presumptive disqualifier'' 
under 12 CFR 391.46(g)(1)(v).
    (3) Determination. A rebuttal filed pursuant to paragraph (e) of 
this section shall not be deemed sufficient unless it includes all the 
information, agreements, and affidavits required by the FDIC and this 
subpart, as well as any additional relevant information as the FDIC may 
require by written request to the acquiror. Within 20 calendar days 
after proper filing of a rebuttal submission, the FDIC will provide 
written notification of its determination to accept or reject the 
submission; request additional information in connection with the 
submission; or return the submission to the acquiror as materially 
deficient. Within 15 calendar days after proper filing of any 
additional information furnished in response to a specific request by 
the FDIC, the FDIC shall notify the acquiror in writing as to whether 
the rebuttal is thereby deemed to be sufficient. If the FDIC fails to 
notify an acquiror within such time, the rebuttal shall be deemed to be 
accepted. The FDIC may reject any rebuttal which is inconsistent with 
facts and circumstances known to it or where the rebuttal does not 
clearly and convincingly refute the rebuttable determination of control 
or presumption of action in concert, and may determine to reject a 
submission solely on such bases.
    (f) Safe harbor. Notwithstanding any other provision of this 
section, where an acquiror has no intention to participate in or to 
seek to exercise control over a State savings association's management 
or policies, the acquiror may seek to qualify for a safe harbor with 
respect to its ownership of stock of a State savings association.
    (1) In order to qualify for the safe harbor, an acquiror must 
submit a certification to the FDIC that shall be signed by the acquiror 
or an authorized representative thereof and shall read as follows:

    The undersigned makes this submission pursuant to Sec.  
391.43(f) with respect to [name of State savings association] and 
hereby certifies to the FDIC the following:
    The undersigned is not in control of [name of State savings 
association] under Sec.  391.43(a);
    The undersigned is not subject to any control factor as 
enumerated in Sec.  391.43(c) with respect to the [name of State 
savings association];
    The undersigned will not solicit proxies relating to the voting 
stock of [name of State savings association];
    Before any change in status occurs that would bring the 
undersigned within the scope of Sec.  391.43(a) or (b), the 
undersigned will file and obtain approval of a rebuttal, or non-
disapproval of a notice, or holding company application, as 
appropriate.
    The undersigned has not acquired stock of [name of State savings 
association] for the purpose or effect of changing or influencing 
the control of [name of State savings association] or in connection 
with or as a participant in any transaction having such purpose or 
effect.

    (2) An acquiror claiming safe-harbor status may vote freely and 
dissent with respect to its own stock. Certifications provided for in 
this paragraph must be filed with FDIC in accordance with Sec. Sec.  
390.106 and 390.108.


Sec.  391.44  Certifications of ownership.

    (a) Acquisition of stock. (1) Upon the acquisition of beneficial 
ownership that exceeds, in the aggregate, 10 percent of any class of 
stock of a State savings association or additional stock above 10 
percent of the stock of a State savings association occurring after 
December 26, 1985, an acquiror shall file with the FDIC a certification 
as described in this section.
    (2) The certification filed pursuant to this section shall be 
signed by the acquiror or an authorized representative thereof and 
shall read as follows:
    The undersigned is the beneficial owner of 10 percent or more of a 
class of stock of [name of State savings association]. The undersigned 
is not in control of such association, as defined in 12 CFR 391.43(a), 
and is not subject to a rebuttable determination of control under Sec.  
391.43(b), and will take no action that would result in a determination 
of control or a rebuttable determination of control without first 
filing and obtaining approval of an application under the Savings and 
Loan Holding Company Act, 12 U.S.C. 1467a, or a notice under the Change 
in Bank Control Act, 12 U.S.C. 1817(j), or filing and obtaining 
acceptance by the FDIC of a rebuttal of the rebuttable determination of 
control.
    (3) Notwithstanding anything contained in this paragraph (a), an 
acquiror is not required to file a certification if--

[[Page 47829]]

    (i) The FDIC has issued a notice of non-disapproval of the 
acquisition of the State savings association; or
    (ii) The acquiror has filed a materially complete notice pursuant 
to Sec.  391.42.
    (b) Privacy. All certifications filed under this Sec.  391.44 shall 
be for the information of the FDIC in connection with its examination 
functions and shall be provided confidential treatment by the FDIC.


Sec.  391.45  Procedural requirements.

    (a) Form of application or notice. A notice required by Sec.  
391.42 shall be filed on the form indicated below. An acquiror may 
request confidential treatment of portions of a notice only by 
complying with the requirements of paragraph (f) of this section.
    (a)(1) through (5) [Reserved]
    (6) Notice Form 1393, parts A and B. This form shall be used for 
all notices filed under Sec.  391.42(b) regarding the acquisition of 
control of a State savings association by any person or persons not 
constituting a company.
    (b) Filing requirements--(1) Notices and rebuttals. (i) Complete 
copies including exhibits and all other pertinent documents of notices, 
and rebuttal submissions shall be filed with the appropriate Regional 
Director in the region in which the State savings association or 
associations involved in the transaction have their home office or 
offices. Unsigned copies shall be conformed. Each copy shall include a 
summary of the proposed transaction.
    (ii) Any person or company may amend a notice or rebuttal 
submission, or file additional information, upon request of the FDIC 
or, in the case of the party filing a notice or rebuttal, upon such 
party's own initiative.
    (2) [Reserved]
    (c) Sufficiency and waiver. (1) Except as provided in Sec.  
391.45(c)(5), a notice filed pursuant to Sec.  391.42(b) shall not be 
deemed sufficient unless it includes all of the information required by 
the form prescribed by the FDIC and this section, including a complete 
description of the acquiror's proposed plan for acquisition of control 
whether pursuant to one or more transactions, and any additional 
relevant information as the FDIC may require by written request to the 
acquiror. Unless a notice specifically indicates otherwise, the notice 
shall be considered to pertain to acquisition of 100 percent of a State 
savings association's voting stock. Where a notice pertains to a lesser 
amount of stock, the FDIC may condition its non-disapproval to apply 
only to such amount, in which case additional acquisitions may be made 
only by amendment to the acquiror's notice and the FDIC's approval or 
non-disapproval thereof. Failure by an applicant to respond completely 
to a written request by the FDIC for additional information within 30 
calendar days of the date of such request may be deemed to constitute 
withdrawal of the notice or rebuttal filing or may be treated as 
grounds for issuance of a notice of disapproval of a notice or 
rejection of a rebuttal.
    (2) The period for the FDIC's review of any proposed acquisition 
will commence upon receipt by the FDIC of a notice deemed sufficient 
under paragraph (c)(1) of this section. The FDIC shall notify an 
acquiror in writing within 30 calendar days after proper filing of a 
notice as to whether the notice--
    (i) Is sufficient;
    (ii) Is insufficient, and what additional information is requested 
in order to render the application or notice sufficient; or
    (iii) Is materially deficient and will not be processed. The FDIC 
shall also notify an acquiror in writing within 15 calendar days after 
proper filing of any additional information furnished in response to a 
specific request by the FDIC as to whether the notice is thereby deemed 
to be sufficient. If the FDIC fails to so notify an acquiror within 
such time, the application or notice shall be deemed to be sufficient 
as of the expiration of the applicable period.
    (3) After additional information has been requested and supplied, 
the FDIC may request additional information only with respect to 
matters derived from or prompted by information already furnished, or 
information of a material nature that was not reasonably available from 
the acquiror, was concealed, or pertains to developments subsequent to 
the time of the FDIC's initial request for additional information. With 
regard to information of a material nature that was not reasonably 
available from the acquiror or was concealed at the time a notice was 
deemed to be sufficient or which pertains to developments subsequent to 
the time a notice was deemed to be sufficient, the FDIC, at its option, 
may request such additional information as it considers necessary, or 
may deem the notice not to be sufficient until such additional 
information is furnished and cause the review period to commence again 
in its entirety upon receipt of such additional information.
    (i) The 60-day period for the FDIC's review of a notice deemed to 
be sufficient also may be extended by the FDIC for up to an additional 
30 days.
    (ii) The period for the FDIC's review of a notice may be further 
extended not to exceed two additional times for not more than 45 days 
each time if--
    (A) The FDIC determines that any acquiring party has not furnished 
all the information required under this subpart;
    (B) In the FDIC's judgment, any material information submitted is 
substantially inaccurate;
    (C) The FDIC has been unable to complete an investigation of each 
acquiror because of any delay caused by, or the inadequate cooperation 
of, such acquiror; or
    (D) The FDIC determines that additional time is needed to 
investigate and determine that no acquiring party has a record of 
failing to comply with the requirements of subchapter II of chapter 53 
of title 31 of the United States Code.
    (4) [Reserved]
    (5) The FDIC may waive any requirements of this paragraph (c) 
determined to be unnecessary by the FDIC, upon its own initiative, upon 
the written request of an acquiring person, or in a supervisory case.
    (d) Public notice. (1) The acquiror must publish a public notice of 
a notice under Sec.  391.42(b), in accordance with the procedures in 
Sec. Sec.  390.111 through 390.115. Promptly after publication, the 
acquiror must transmit copies of the public notice and the publisher's 
affidavit to FDIC.
    (2) The acquiror must provide a copy of the public notice to the 
State savings association whose stock is sought to be acquired, and may 
provide a copy of the public notice to any other person who may have an 
interest in the notice.
    (3) The FDIC will notify the appropriate state supervisor and will 
notify persons whose requests for announcements, as described in 12 CFR 
163e, Appendix B, have been received in time for the notification. The 
FDIC may also notify any other persons who may have an interest in the 
notice.
    (e) Submission of comments. Commenters may submit comments on the 
notice in accordance with the procedures in Sec. Sec.  390.116 through 
390.120.
    (f) Disclosure. (1) Any notice, other filings, public comment, or 
portion thereof, made pursuant to this subpart for which confidential 
treatment is not requested in accordance with this paragraph (f), shall 
be immediately available to the public and not subject to the 
procedures set forth herein. Public disclosure shall be made of other 
portions of a notice, other filing or public comment in accordance with 
paragraph (f)(2) of this section, the provisions of the Freedom of 
Information Act (5 U.S.C. 552a) and parts 309 and 310. Applicants and 
other

[[Page 47830]]

submitters should provide confidential and non-confidential versions of 
their filings, as described in Sec.  391.45(f)(2) and (3) in order to 
facilitate this process.
    (2) Any person who submits any information or causes or permits any 
information to be submitted to the FDIC pursuant to this subpart may 
request that the FDIC afford confidential treatment under the Freedom 
of Information Act to such information for reasons of personal privacy 
or business confidentiality, which shall include such information that 
would be deemed to result in the commencement of a tender offer under 
Sec.  240.14d-2 of title 17 of the Code of Federal Regulations, or for 
any other reason permitted by Federal law. Such request for 
confidentiality must be made and justified in accordance with paragraph 
(f)(5) of this section at the time of filing, and must, to the extent 
practicable, identify with specificity the information for which 
confidential treatment may be available and not merely indicate 
portions of documents or entire documents in which such information is 
contained. Failure to specifically identify information for which 
confidential treatment is requested, failure to specifically justify 
the bases upon which confidentiality is claimed in accordance with 
paragraph (f)(5) of this section, or overbroad and indiscriminate 
claims for confidential treatment, may be bases for denial of the 
request. In addition, the filing party should take all steps reasonably 
necessary to ensure, as nearly as practicable, that at the time the 
information is first received by the FDIC it is supplied segregated 
from information for which confidential treatment is not being 
requested, it is appropriately marked as confidential, and it is 
accompanied by a written request for confidential treatment which 
identifies with specificity the information as to which confidential 
treatment is requested. Any such request must be substantiated in 
accordance with paragraph (f)(5) of this section.
    (3) All documents which contain information for which a request for 
confidential treatment is made or the appropriate segregable portions 
thereof shall be marked by the person submitting the records with a 
prominent stamp, typed legend, or other suitable form of notice on each 
page or segregable portion of each page, stating ``Confidential 
Treatment Requested by [name].'' If such marking is impracticable under 
the circumstances, a cover sheet prominently marked ``Confidential 
Treatment Requested by [name]'' should be securely attached to each 
group of records submitted for which confidential treatment is 
requested. Each of the records transmitted in this manner should be 
individually marked with an identifying number and code so that they 
are separately identifiable.
    (4) A determination as to the validity of any request for 
confidential treatment may be made when a request for disclosure of the 
information under the Freedom of Information Act is received, or at any 
time prior thereto. If the FDIC receives a request for the information 
under the Freedom of Information Act, FDIC will advise the filing party 
before it discloses material for which confidential treatment has been 
requested.
    (5) Substantiation of a request for confidential treatment shall 
consist of a statement setting forth, to the extent appropriate or 
necessary for the determination of the request for confidential 
treatment, the following information regarding the request:
    (i) The reasons, concisely stated and referring to specific 
exemptive provisions of the Freedom of Information Act, why the 
information should be withheld from access under the Freedom of 
Information Act;
    (ii) The applicability of any specific statutory or regulatory 
provisions which govern or may govern the treatment of the information;
    (iii) The existence and applicability of any prior determination by 
the FDIC, other Federal agencies, or a court, concerning confidential 
treatment of the information;
    (iv) The adverse consequences to a business enterprise, financial 
or otherwise, that would result from disclosure of confidential 
commercial or financial information, including any adverse effect on 
the business' competitive position;
    (v) The measures taken by the business to protect the 
confidentiality of the commercial or financial information in question 
and of similar information, prior to, and after, its submission to the 
FDIC;
    (vi) The ease or difficulty of a competitor's obtaining or 
compiling the commercial or financial information;
    (vii) Whether commercial or financial information was voluntarily 
submitted to the FDIC, and, if so, whether and how disclosure of the 
information would tend to impede the availability of similar 
information to the FDIC;
    (viii) The extent, if any, to which portions of the substantiation 
of the request for confidential treatment should be afforded 
confidential treatment;
    (ix) The amount of time after the consummation of the proposed 
acquisition for which the information should remain confidential and a 
justification thereof;
    (x) Such additional facts and such legal and other authorities as 
the requesting person may consider appropriate.
    (6) Any person requesting access to a notice, other filing, or 
public comment made pursuant to this subpart for purposes of commenting 
on a pending submission may prominently label such request: ``Request 
for Disclosure of Filing(s) Made Under Subpart E of Part 391/Priority 
Treatment Requested.''
    (g) Supervisory cases. The provisions of paragraphs (d), (e), and 
(f) of this section may be waived by the FDIC in connection with a 
transaction approved by the FDIC for supervisory reasons.
    (h) Notification of State supervisor. Upon receiving a notice 
relating to an acquisition of control of a State savings association, 
the FDIC shall forward a copy of the notice to the appropriate state 
savings and loan association supervisory agency, and shall allow 30 
days within which the views and recommendations of such state 
supervisory agency may be submitted. The FDIC shall give due 
consideration to the views and recommendations of such state agency in 
determining whether to disapprove any proposed acquisition. 
Notwithstanding the provisions of this paragraph (h), if the FDIC 
determines that it must act immediately upon any notice of a proposed 
acquisition in order to prevent the default of the association involved 
in the proposed acquisition, the FDIC may dispense with the requirement 
of this paragraph (h) or, if a copy of the notice is forwarded to the 
state supervisory agency, the FDIC may request that the views and 
recommendations of such state supervisory agency be submitted 
immediately in any form or by any means acceptable to the FDIC.
    (i) Additional procedures for acquisitions involving mergers. 
Acquisitions of control involving mergers (including mergers with an 
interim association) shall also be subject to the procedures set forth 
in Sec.  390.332 to the extent applicable, except as provided in 
paragraph (a) of this section.
    (j) Additional procedures for acquisitions of recently converted 
State savings associations. Notices and rebuttals involving 
acquisitions of the stock of a recently converted State savings 
association under 12 CFR 192.3(i)(3) shall also address the criteria

[[Page 47831]]

for approval set forth at 12 CFR 192.3(i)(5).


Sec.  391.46  Determination by the FDIC.

    (a) through (c) [Reserved]
    (d) Notice criteria. In making its determination whether to 
disapprove a notice, the FDIC may disapprove any proposed acquisition, 
if the FDIC determines that:
    (1) The proposed acquisition of control would result in a monopoly 
or would be in furtherance of any combination or conspiracy to 
monopolize or to attempt to monopolize the banking business in any part 
of the United States;
    (2) The effect of the proposed acquisition of control in any 
section of the country may be substantially to lessen competition or to 
tend to create a monopoly or the proposed acquisition of control would 
in any other manner be in restraint of trade, and the anticompetitive 
effects of the proposed acquisition of control are not clearly 
outweighed in the public interest by the probable effect of the 
transaction in meeting the convenience and needs of the community to be 
served;
    (3) The financial condition of the acquiring person is such as 
might jeopardize the financial stability of the association or 
prejudice the interests of the depositors of the State savings 
association;
    (4) The competence, experience, or integrity of the acquiring 
person or any of the proposed management personnel indicates that it 
would not be in the interests of the depositors of the State savings 
association, the FDIC, or the public to permit such person to control 
the State savings association;
    (5) The acquiring person fails or refuses to furnish information 
requested by the FDIC; or
    (6) The FDIC determines that the proposed acquisition would have an 
adverse effect on the Deposit Insurance Fund.
    (e) Failure to disapprove a notice. If, upon expiration of the 60-
day review period of any notice deemed to be sufficient filed pursuant 
to Sec.  391.45(c), or extension thereof, the FDIC has failed to 
disapprove such notice, the proposed acquisition may take place: 
Provided, That it is consummated within one year and in accordance with 
the terms and representations in the notice and that there is no 
material change in circumstances prior to the acquisition.
    (f) [Reserved]
    (g) Presumptive disqualifiers --(1) Integrity factors. The 
following factors shall give rise to a rebuttable presumption that an 
acquiror may fail to satisfy the integrity test of paragraph (d)(4) of 
this section:
    (i) During the 10-year period immediately preceding filing the 
notice, criminal, civil or administrative judgments, consents or 
orders, and any indictments, formal investigations, examinations, or 
civil or administrative proceedings (excluding routine or customary 
audits, inspections and investigations) that terminated in any 
agreements, undertakings, consents or orders, issued against, entered 
into by, or involving the acquiror or affiliates of the acquiror by any 
federal or state court, any department, agency, or commission of the 
U.S. Government, any state or municipality, any Federal Home Loan Bank, 
any self-regulatory trade or professional organization, or any foreign 
government or governmental entity, which involve:
    (A) Fraud, moral turpitude, dishonesty, breach of trust or 
fiduciary duties, organized crime or racketeering;
    (B) Violation of securities or commodities laws or regulations;
    (C) Violation of depository institution laws or regulations;
    (D) Violation of housing authority laws or regulations; or
    (E) Violation of the rules, regulations, codes of conduct or ethics 
of a self-regulatory trade or professional organization;
    (ii) Denial, or withdrawal after receipt of formal or informal 
notice of an intent to deny, by the acquiror or affiliates of the 
acquiror, of
    (A) Any application relating to the organization of a financial 
institution,
    (B) An application to acquire any financial institution or holding 
company thereof under the Holding Company Act or the Bank Holding 
Company Act or otherwise,
    (C) A notice relating to a change in control of any of the 
foregoing under the Control Act or the Repealed Control Act; or
    (D) An application or notice under a state holding company or 
change in control statute;
    (iii) The acquiror or affiliates of the acquiror were placed in 
receivership or conservatorship during the preceding 10 years, or any 
management official of the acquiror was a management official or 
director (other than an official or director serving at the request of 
the FDIC, the former Resolution Trust Corporation, or the former 
Federal Savings and Loan Insurance Corporation) or controlling 
shareholder of a company or savings association that was placed into 
receivership, conservatorship, or a management consignment program, or 
was liquidated during his or her tenure or control or within two years 
thereafter;
    (iv) Felony conviction of the acquiror, an affiliate of the 
acquiror or a management official of the acquiror or an affiliate of 
the acquiror;
    (v) Knowingly making any written or oral statement to the FDIC or 
any predecessor agency (or its delegate) in connection with a notice or 
other filing under this subpart that is false or misleading with 
respect to a material fact or omits to state a material fact with 
respect to information furnished or requested in connection with such 
notice or other filing;
    (vi) Acquisition and retention at the time of submission of a 
notice, of stock in the State savings association by the acquiror in 
violation of Sec.  391.42 or its predecessor sections.
    (2) Financial factors. The following shall give rise to a 
rebuttable presumption that an acquiror may fail to satisfy the 
financial condition test of paragraph (d)(3) of this section:
    (i) Liability for amounts of debt which, in the opinion of the 
FDIC, create excessive risks of default and pressure on the State 
savings association to be acquired; or
    (ii) Failure to furnish a business plan or furnishing a business 
plan projecting activities which are inconsistent with economical home 
financing.


Sec.  391.47  [Reserved]


Sec.  391.48  Rebuttal of control agreement.

    Agreement

Rebuttal of Rebuttable Determination Of Control Under Subpart A
I. WHEREAS
    A. [ ] is the owner of [ ] shares (the ``Shares'') of the [ ] stock 
(the ``Stock'') of [name and address of State savings association], 
which Shares represent [ ] percent of a class of ``voting stock'' of [ 
] as defined under the Acquisition of Control Regulations 
(``Regulations'') of the FDIC, Subpart A of Part 391 (``Voting 
Stock'');
    B. [ ] is a ``State savings association'' within the meaning of the 
Regulations;
    C. [ ] seeks to acquire additional shares of stock of [ ] 
(``Additional Shares''), such that [ ]'s ownership thereof will 
represent 10 percent or more of a class of Voting Stock but will not 
represent 25 percent or more of any class of Voting Stock of [ ]; [and/
or] [ ] seeks to [ ], which would constitute the acquisition of a 
``control factor'' as defined in the Regulations (``Control Factor'');
    D. [ ] does not seek to acquire the [Additional Shares or Control 
Factor] for the purpose or effect of changing the

[[Page 47832]]

control of [ ] or in connection with or as a participant in any 
transaction having such purpose or effect;
    E. The Regulations require a company or a person who intends to 
hold 10 percent or more but not 25 percent or more of any class of 
Voting Stock of a State savings association or holding company thereof 
and that also would possess any of the Control Factors specified in the 
Regulations, to file and obtain clearance of a notice (``Notice'') 
under the Change in Control Act (``Control Act''), 12 U.S.C. 1817(j), 
prior to acquiring such amount of stock and a Control Factor unless the 
rebuttable determination of control has been rebutted.
    F. Under the Regulations, [ ] would be determined to be in control, 
subject to rebuttal, of [ ] upon acquisition of the [Additional Shares 
or Control Factor];
    G. [ ] has no intention to manage or control, directly or 
indirectly, [ ];
    H. [ ] has filed on [ ], a written statement seeking to rebut the 
determination of control, attached hereto and incorporated by reference 
herein, (this submission referred to as the ``Rebuttal'');
    I. In order to rebut the rebuttable determination of contro1, [ ] 
agrees to offer this Agreement as evidence that the acquisition of the 
[Additional Shares or Control Factor] as proposed would not constitute 
an acquisition of control under the Regulations.
    II. The FDIC has determined, and hereby agrees, to act favorably on 
the Rebuttal, and in consideration of such a determination and 
agreement by the FDIC to act favorably on the Rebuttal, [ ] and any 
other existing, resulting or successor entities of [ ] agree with the 
FDIC that:
    A. Unless [ ] shall have filed a Notice under the Control Act, or 
an Application under the Holding Company Act, as appropriate, and shall 
have obtained clearance of the Notice in accordance with the 
Regulations, [ ] will not, except as expressly permitted otherwise 
herein or pursuant to an amendment to this Rebuttal Agreement:
    1. Seek or accept representation of more than one member of the 
board of directors of [insert name of State savings association and any 
holding company thereof];
    2. Have or seek to have any representative serve as the chairman of 
the board of directors, or chairman of an executive or similar 
committee of [insert name of State savings association and any holding 
company thereof]'s board of directors or as president or chief 
executive officer of [insert name of State savings association and any 
holding company thereof];
    3. Engage in any intercompany transaction with [ ] or [ ]'s 
affiliates;
    4. Propose a director in opposition to nominees proposed by the 
management of [insert name of State savings association and any holding 
company thereof] for the board of directors of [insert name of State 
savings association and any holding company thereof] other than as 
permitted in paragraph A-1;
    5. Solicit proxies or participate in any solicitation of proxies 
with respect to any matter presented to the stockholders [ ] other than 
in support of, or in opposition to, a solicitation conducted on behalf 
of management of [ ];
    6. Do any of the following, except as necessary solely in 
connection with [ ]'s performance of duties as a member of [ ]'s board 
of directors:
    (a) Influence or attempt to influence in any respect the loan and 
credit decisions or policies of [ ], the pricing of services, any 
personnel decisions, the location of any offices, branching, the hours 
of operation or similar activities of [ ];
    (b) Influence or attempt to influence the dividend policies and 
practices of [ ] or any decisions or policies of [ ] as to the offering 
or exchange of any securities;
    (c) Seek to amend, or otherwise take action to change, the bylaws, 
articles of incorporation, or charter of [ ];
    (d) Exercise, or attempt to exercise, directly or indirectly, 
control or a controlling influence over the management, policies or 
business operations of [ ]; or
    (e) Seek or accept access to any non-public information concerning 
[ ].
    B. [ ] is not a party to any agreement with [ ].
    C. [ ]shall not assist, aid or abet any of [ ]'s affiliates or 
associates that are not parties to this Agreement to act, or act in 
concert with any person or company, in a manner which is inconsistent 
with the terms hereof or which constitutes an attempt to evade the 
requirements of this Agreement.
    D. Any amendment to this Agreement shall only be proposed in 
connection with an amended rebuttal filed by [ ] with the FDIC for its 
determination;
    E. Prior to acquisition of any shares of ``Voting Stock'' of [ ] as 
defined in the Regulations in excess of the Additional Shares, any 
required filing will be made by [ ] under the Control Act or the 
Holding Company Act and either approval of the acquisition under the 
Holding Company Act shall be obtained or any Notice filed under the 
Control Act shall be cleared in accordance with the Regulations;
    F. At any time during which 10 percent or more of any class of 
Voting Stock of [ ] is owned or controlled by [ ], no action which is 
inconsistent with the provisions of this Agreement shall be taken by [ 
] until [ ] files and either obtains from the FDIC a favorable 
determination with respect to either an amended rebuttal or clearance 
of a Notice under the Control Act, in accordance with the Regulations;
    G. Where any amended rebuttal filed by[ ] is denied or disapproved, 
[ ] shall take no action which is inconsistent with the terms of this 
Agreement, except after either (1) reducing the amount of shares of 
Voting Stock of [ ] owned or controlled by [ ] to an amount under 10 
percent of a class of Voting Stock, or immediately ceasing any other 
actions that give rise to a conclusive or rebuttable determination of 
control under the Regulations; or (2) filing a Notice under the Control 
Act, or an Application under the Holding Company Act, as appropriate, 
and either obtaining approval of the Application or clearance of the 
Notice, in accordance with the Regulations;
    H. Where any Notice filed by [ ] is disapproved, [ ] shall take no 
action which is inconsistent with the terms of this Agreement, except 
after reducing the amount of shares of Voting Stock of [ ] owned or 
controlled by [ ] to an amount under 10 percent of any class of Voting 
Stock, or immediately ceasing any other actions that give rise to a 
conclusive or rebuttable determination of control under the 
Regulations;
    I. Should circumstances beyond [ ]'s control result in [ ] being 
placed in a position to direct the management or policies of [ ], then 
[ ] shall either (1) promptly file a Notice under the Control Act or an 
Application under the Holding Company Act, as appropriate, and take no 
affirmative steps to enlarge that control pending either a final 
determination with respect to the Application or Notice, or (2) 
promptly reduce the amount of shares of [ ] Voting Stock owned or 
controlled by [ ] to an amount under 10 percent of any class of Voting 
Stock or immediately cease any actions that give rise to a conclusive 
or rebuttable determination of control under the Regulations;
    J. By entering into this Agreement and by offering it for reliance 
in reaching a decision on the request to rebut the presumption of 
control under the Regulations, as long as 10 percent or more of any 
class of Voting Stock of [ ] is owned or controlled, directly or 
indirectly, by [ ], and [ ] possesses any Control Factor as defined in 
the Regulations, [ ] will submit to the jurisdiction of the 
Regulations, including (1) the filing of an amended rebuttal or Notice 
for any proposed

[[Page 47833]]

action which is prohibited by this Agreement, and (2) the provisions 
relating to a penalty for any person who willfully violates or with 
reckless disregard for the safety or soundness of a State savings 
association participates in a violation of the Control Act and the 
Regulations thereunder, and any regulation or order issued by the FDIC.
    K. Any violation of this Agreement shall be deemed to be a 
violation of the [Control Act or Holding Company Act] and the 
Regulations, and shall be subject to such remedies and procedures as 
are provided in the [Control Act or Holding Company Act] and the 
Regulations for a violation thereunder and in addition shall be subject 
to any such additional remedies and procedures as are provided under 
any other applicable statutes or regulations for a violation, willful 
or otherwise, of any agreement entered into with the FDIC.
    III. This Agreement may be executed in one or more counterparts, 
each of which shall be deemed an original but all of which counterparts 
collectively shall constitute one instrument representing the Agreement 
among the parties thereto. It shall not be necessary that any one 
counterpart be signed by all of the parties hereto as long as each of 
the parties has signed at least one counterpart.
    IV. This Agreement shall be interpreted in a manner consistent with 
the provisions of the Rules and Regulations of the FDIC.
    V. This Agreement shall terminate upon (i) clearance by the FDIC of 
[ ]'s Notice under the Control Act to acquire [ ], and consummation of 
the transaction as described in Notice, (ii) in the disposition by [ ] 
of a sufficient number of shares of [ ], or (iii) the taking of such 
other action that thereafter [ ] is not in control and would not be 
determined to be in control of [ ] under the Control Act or the 
Regulations of the FDIC as in effect at that time.
    VI. In Witness Thereof, the parties thereto have executed this 
Agreement by their duly authorized officer.------


[Acquiror]


Federal Deposit Insurance Corporation.

Date:------------------------------------------------------------------

By:--------------------------------------------------------------------


    Dated at Washington, DC, this 14th day of June 2011.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011-18276 Filed 7-22-11; 4:15 pm]
BILLING CODE 6714-01-P