[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Rules and Regulations]
[Pages 48950-49199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17581]



[[Page 48949]]

Vol. 76

Tuesday,

No. 153

August 9, 2011

Part II





Department of the Treasury





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Office of the Comptroller of the Currency





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12 CFR Parts 100, 108, 109, et al.





Office of Thrift Supervision Integration Pursuant to the Dodd-Frank 
Wall Street Reform and Consumer Protection Act; Interim Final Rule

  Federal Register / Vol. 76 , No. 153 / Tuesday, August 9, 2011 / 
Rules and Regulations  

[[Page 48950]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 100, 108, 109, 112, 116, 128, 133, 136, 141, 143, 144, 
145, 146, 150, 151, 152, 155, 157, 159, 160, 161, 162, 163, 164, 
165, 167, 168, 169, 170, 171, 172, 174, 190, 191, 192, 193, 194, 
195, 196, 197

[Docket ID OCC-2011-0016]
RIN 1557-AD47


Office of Thrift Supervision Integration Pursuant to the Dodd-
Frank Wall Street Reform and Consumer Protection Act

AGENCY: Office of the Comptroller of the Currency (OCC).

ACTION: Interim final rule with request for comment.

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SUMMARY: Pursuant to Title III of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, all functions of the Office of Thrift 
Supervision (OTS) relating to Federal savings associations and the 
rulemaking authority of the OTS relating to all savings associations 
are transferred to the Office of the Comptroller of the Currency (OCC) 
on July 21, 2011 (transfer date). In order to facilitate the OCC's 
enforcement and administration of former OTS rules and to make 
appropriate changes to these rules to reflect OCC supervision of 
Federal savings associations as of the transfer date, the OCC is 
republishing, with nomenclature and other technical changes, the OTS 
regulations currently found in Chapter V of Title 12 of the Code of 
Federal Regulations. The republished regulations will be recodified 
with the OCC's regulations in Chapter I at parts 100 through 197 
(Republished Regulations), effective on July 21, 2011. The Republished 
Regulations will supersede the OTS regulations in Chapter V for 
purposes of OCC supervision and regulation of Federal savings 
associations, and certain of the Republished Rules will supersede the 
OTS regulations in Chapter V for purposes of the FDIC's supervision of 
state savings associations. Chapter V of Title 12 of the Code of 
Federal Regulations will be vacated at a later date.

DATES: This interim final rule is effective July 21, 2011. Comments 
must be received on or before October 11, 2011.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
the Federal eRulemaking Portal or e-mail, if possible. Please use the 
title ``Republication of Regulations in Connection with Office of 
Thrift Supervision Integration Pursuant to the Dodd-Frank Wall Street 
Reform and Consumer Protection Act of 2010'' to facilitate the 
organization and distribution of the comments. You may submit comments 
by any of the following methods:
     Federal eRulemaking Portal--``regulations.gov'': Go to 
http://www.regulations.gov. Select ``Document Type'' of ``Rule,'' and 
in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-2011-0016'' and 
click ``Search.'' On ``View By Relevance'' tab at bottom of screen, in 
the ``Agency'' column, locate the Rule for OCC, in the ``Action'' 
column, click on ``Submit a Comment'' or ``Open Docket Folder'' to 
submit or view public comments and to view supporting and related 
materials for this rulemaking action.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting or viewing public comments, viewing other supporting and 
related materials, and viewing the docket after the close of the 
comment period.
     E-mail: [email protected].
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 2-3, Washington, DC 20219.
     Fax: (202) 874-5274.
     Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2011-0016'' in your comment. In general, OCC will enter 
all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, e-mail addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this interim final rule by any of the following methods:
     Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Public 
Submissions,'' in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2011-0016,'' and click ``Search.'' Comments will be listed under ``View 
By Relevance'' tab at bottom of screen.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT: Andra Shuster, Senior Counsel, or 
Heidi Thomas, Special Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090, Office of the Comptroller of the Currency, 
250 E Street, SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 21, 2010, President Barack Obama signed into law the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or 
Act).\1\ Title III of the Dodd-Frank Act transfers the powers, 
authorities, rights, and duties of the OTS to other Federal banking 
agencies, including the OCC, on July 21, 2011, the transfer date. The 
OTS is abolished 90 days thereafter.
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
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    Under Title III of the Dodd-Frank Act, the OCC will assume all 
functions of the OTS and the Director of the OTS relating to Federal 
savings associations.\2\ As a result, the OCC will have responsibility 
for the ongoing supervision, examination and regulation of Federal 
savings associations as of the transfer date. The Act also transfers to 
the OCC the rulemaking authority of the OTS relating to all savings 
associations, both state and Federal.\3\ The legislation

[[Page 48951]]

continues in effect all OTS orders, resolutions, determinations, 
agreements, regulations, interpretive rules, other interpretations, 
guidelines, procedures and other advisory materials in effect the day 
before the transfer date, and allows the OCC to enforce these materials 
with respect to Federal savings associations, until modified, 
terminated, set aside or superseded by the OCC, a court, or by 
operation of law.\4\
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    \2\ Dodd-Frank Act section 312(b)(2)(B)(i) (to be codified 12 
U.S.C. 5412(b)(2)(B)(i)). Title III transfers all supervisory 
functions of the OTS relating to state savings associations to the 
Federal Deposit Insurance Corporation (FDIC) and all functions 
relating to the supervision of any savings and loan holding company 
and non-depository institution subsidiaries of such holding 
companies, as well as rulemaking authority for savings and loan 
holding companies, to the Board of Governors of the Federal Reserve 
System (Board).
    \3\ Id. As discussed below, although this is the language in the 
Act, the FDIC has identified a number of independent bases for 
rulemaking authority for state savings associations. Where no such 
authority has been found, the FDIC will enforce applicable OCC 
regulations for state savings associations.
    \4\ Dodd-Frank Act, section 316(b) (to be codified at 12 U.S.C. 
5414(b)).
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    In an effort to ensure an orderly transfer of OTS regulations to 
the OCC as of the transfer date, the OCC has determined that it is 
appropriate to republish in 12 CFR Chapter I all OTS regulations from 
12 CFR Chapter V that we have the authority to promulgate and enforce, 
with appropriate nomenclature and other technical changes. The 
Republished Regulations will supersede the OTS regulations found in 
Chapter V for purposes of the OCC's supervision and regulation of 
Federal savings associations, and, where applicable, for purposes of 
the FDIC's supervision and regulation of state savings associations.

OCC Regulatory Actions To Integrate OTS Functions

    Since the adoption of the Dodd-Frank Act, the OCC, in collaboration 
with the OTS, has been reviewing its regulations, as well as those of 
the OTS, to determine what changes are needed to facilitate a smooth 
regulatory transition to OCC supervision of Federal savings 
associations. This review is being accomplished in several phases. On 
July 21, 2011, the OCC issued a final rule revising certain OCC rules 
that are central to internal agency functions and operations 
immediately upon the transfer of supervisory jurisdiction for Federal 
savings associations.\5\ This final rule amends the OCC's rules at 12 
CFR part 4 pertaining to its organization and functions, the 
availability of information from the OCC under the Freedom of 
Information Act, the release of non-public OCC information, and 
restrictions on the post-employment activities of senior examiners; and 
at 12 CFR part 8, pertaining to assessments. The final rule also amends 
12 CFR parts 5 and 28 to implement sections 603 and 335 of the Dodd-
Frank Act, respectively; and 12 CFR parts 5, 7, and 34, to implement 
sections 1044 through 1047 of the Act pertaining to preemption and 
visitorial powers.
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    \5\ See the Rules and Regulations section of the July 21, 2011 
issue of the Federal Register.
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    This interim final rule is the next step of our review of OCC and 
OTS regulations. As described in more detail below, this interim final 
rule republishes those OTS regulations that the OCC has the authority 
to promulgate and will enforce as of the transfer date.\6\
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    \6\ Pursuant to section 316(c)(2) of the Dodd-Frank Act, the OCC 
(along with the FDIC) published a notice in the Federal Register 
identifying those OTS regulations that are continued under the Act 
that each agency will enforce beginning on the transfer date. 76 FR 
39246 (July 6, 2011).
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    Subsequent to the transfer date, the OCC will consider more 
comprehensive substantive amendments, as necessary, to the Republished 
Regulations. For example, we may propose to repeal or combine 
provisions in cases where OCC and former OTS rules are substantively 
identical or substantially overlap. In addition, we may propose to 
repeal or modify OCC or former OTS rules where differences in 
regulatory approach are not required by statute or warranted by 
features unique to either the national bank or Federal savings 
association charter. This substantive review also will provide an 
opportunity for the OCC to ask for comments suggesting revisions to the 
rules for both national banks and Federal savings associations that 
would remove provisions that are ``outmoded, ineffective, insufficient, 
or excessively burdensome,'' consistent with the goals outlined in an 
executive order recently issued by the President.\7\
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    \7\ Executive Order 13563, ``Improving Regulation and Regulatory 
Review'' 76 FR 3821 (Jan. 21, 2011).
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II. Description of the Interim Final Rule

    As noted above, the interim final rule republishes those OTS 
regulations the OCC has the authority to promulgate and, along with the 
FDIC in the case of state savings associations, will enforce as of the 
transfer date. The OTS regulations are currently set out in Chapter V 
of Title 12 as parts 500 through 591. In order to reduce confusion and 
to assist the thrift industry, we have preserved where possible the 
OTS's numbering system by republishing these regulations with OCC part 
numbers that correspond to the former OTS rules, specifically, by 
changing the ``5'' to a ``1''. For example, 12 CFR part 545 is 
republished as 12 CFR part 145. We note, however, that there were a 
number of instances where the OTS numbering system has been modified 
because it deviated from standard CFR numbering conventions. Therefore, 
for example, former parts 563b through 563g are being republished as 
parts 192 through 197 (with corresponding cross-reference changes). 
This preamble contains a redesignation table indicating how the newly 
issued parts in Chapter I correspond to the former parts in Chapter V.
    We also have made nomenclature and other technical amendments to 
reflect OCC supervision of Federal savings associations and FDIC 
supervision of state savings associations, along with certain required 
Dodd-Frank Act changes. OTS regulations in Chapter V of Title 12 that 
will be unnecessary following the transfer date, or that are superseded 
by this rulemaking (or other rulemakings by the FDIC and the Board) or 
other provisions of the Dodd-Frank Act, will be repealed at a later 
date. We have added a new part 100 to clarify that the Republished 
Regulations supersede any rules applying to savings associations 
contained in Chapter V of Title 12.
    In addition, part 100 provides that the Comptroller may, for good 
cause and to the extent permitted by statute, waive the applicability 
of any provision of parts 100 through 197. This provision transfers to 
the Comptroller authority provided to the OTS Director by 12 CFR 
500.30(a).
    The OCC has worked closely with the OTS, FDIC and the Board to 
coordinate the republication of OTS rules. Although section 312 of the 
Dodd-Frank Act transfers all OTS rulemaking authority for all savings 
associations to the OCC, where the FDIC has identified an independent 
basis for its rulemaking authority over state savings associations 
(either due to other amendments made by the Dodd-Frank Act or based on 
other statutory authority) the FDIC will promulgate regulations for 
state savings associations. Therefore, not all of the Republished 
Regulations apply to state savings associations.\8\ The FDIC will 
publish a separate rulemaking amending its rules or republishing 
certain OTS rules under this authority.
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    \8\ The following regulations apply to state savings 
associations: certain provisions in part 160 (Lending and 
Investment), part 161 (Definitions), certain provisions in part 163 
(Savings Association Operations), part 169 (Proxies), part 190 
(Preemption of State Usury Laws), part 191 (Preemption of State Due-
on-Sale Laws), part 192 (Conversions from Mutual to Stock Form), and 
part 195 (Community Reinvestment).
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    We also have not republished those OTS rules relating exclusively 
to savings and loan holding companies (SLHCs), because the Dodd-Frank 
Act transferred the OTS's supervision and rulewriting authority for 
SLHCs to the Board.\9\ Where OTS rules addressed both savings 
associations and SLHCs, we have republished only those parts of the 
rule pertaining to savings associations.
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    \9\ See section 312 of the Dodd-Frank Act, (to be codified at 12 
U.S.C. 5412).

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[[Page 48952]]

    Similarly, under the Dodd-Frank Act, rulewriting authority for 
certain consumer rules is transferred to the Bureau of Consumer 
Financial Protection (Bureau). Therefore, although the OCC has the 
authority to enforce these rules for Federal savings associations and 
national banks with total assets of $10 billion or less, we have not 
republished these rules and they remain in Chapter V of the Code of 
Federal Regulations, until superseded by the Bureau.\10\
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    \10\ See section 1022 of the Dodd-Frank Act, (to be codified at 
12 U.S.C. 5512). These rules include 12 CFR parts 563, subpart D 
(S.A.F.E. Act), 571 subparts A through E and Sec.  571.82 in subpart 
I (Fair Credit Reporting) and 573 (Privacy).
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    We also note that, in addition to parts 100 through 197, certain 
rules contained in parts 1 through 41 will also take into consideration 
the OCC's supervision of Federal savings associations, such as part 4 
(regarding disclosure of information) and part 8 (regarding 
assessments).

A. General Nomenclature Changes

    The OCC has made certain nomenclature and other non-substantive 
changes consistently throughout the Republished Regulations to replace 
references to the OTS and its administrative structure with appropriate 
references to the OCC and, in the case of rules also applicable to 
state savings associations, the FDIC. Specifically, these changes are 
as follows:
     References to ``the OTS,'' ``Office,'' and ``Secretary'' 
have been changed to ``the OCC'' or ``FDIC'' or to ``the appropriate 
Federal banking agency'' (AFBA), as defined in 12 U.S.C. 1813(q) and as 
amended by the Dodd-Frank Act. Because some of the Republished 
Regulations apply to both Federal and state savings associations, the 
term ``AFBA'' is used where a provision applies to both types of 
institutions. We have added the definition of AFBA to part 161.
     References to ``the Director of the OTS'' or ``Director'' 
have been changed to ``Comptroller'' or ``Board of Directors of the 
FDIC'' or ``FDIC,'' as appropriate. We have added the definition of 
``Comptroller'' and ``OCC'' to part 161.
     In some cases, references to specific offices within the 
OTS have been removed and replaced with the names of the corresponding 
office within the OCC (for example, references to the OTS Office of 
Enforcement have been changed to reference the OCC's Enforcement and 
Compliance Division). However, some OTS rules include references to 
offices that do not correspond easily to the OCC's administrative 
structure. In those cases, the specific reference has been replaced 
with ``the OCC.'' Similar references have been made to the FDIC where 
appropriate. OCC and FDIC handbooks and other agency publications 
(which will be amended as appropriate after the transfer date), as well 
as OCC and FDIC Web sites will provide the specific filing 
locations.\11\
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    \11\ The OCC's Web site is found at www.occ.gov. The FDIC's Web 
site is found at www.fdic.gov.
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     In some cases, we have reduced the number of copies of 
filings to be submitted to the OCC.
     Some OTS regulations include agency addresses and contact 
information as well as addresses of third parties. Because office 
addresses frequently are subject to change as a result of moves and 
reassignments, the OCC generally has chosen not to include specific 
addresses in its regulations governing national banks, and has made 
similar changes in the Republished Regulations. Updated contact 
information for these entities will continue to be available on the 
OCC's Web site or in other agency publications, or by contacting the 
specified third parties.
     Cross-references in the Republished Rules have been 
changed to reference the new OCC CFR numbers in Chapter I. For example, 
a reference to 12 CFR 550.80 has been changed to reference the new 
section 12 CFR 150.80 in the Republished Regulations. Cross-references 
also have been updated to reference OCC rules, or relevant rules issued 
by the FDIC or the Board.

B. Specific Section Changes

    In addition to the changes described above, the OCC has made other 
notable changes to sections of the Republished Regulations to implement 
provisions of the Dodd-Frank Act or to delete obsolete references.\12\
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    \12\ We note that section 939A of the Dodd-Frank Act requires 
the Federal banking agencies to amend their rules to provide 
alternatives for references to external credit ratings in there 
regulations. OTS rules include such references related to lending 
and investment in part 560, and regulatory capital requirements in 
part 567. The OTS issued an ANPR addressing lending and investment 
on October 14, 2010. (75 FR 63107), and it joined the other Federal 
banking agencies in issuing an ANPR addressing the regulatory 
capital requirements on August 25, 2010 (75 FR 52283). We have not 
amended these references in the Republished Regulations as the OCC 
is currently drafting separate proposals to address section 939A. We 
anticipate that the final OCC rules addressing section 939A will 
make any necessary amendments to parts 160 and 167 of the 
Republished Regulations, incorporating comments received including 
those in response to the OTS ANPRs.
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     Deposit activities of savings associations--part 157. 
Section 627 of the Dodd-Frank Act removed the prohibition of paying 
interest on demand accounts from the HOLA. Section 157.14 provided that 
savings associations could pay interest only on savings accounts. 
Therefore, in order to implement the Dodd-Frank Act change, we have 
removed the word ``savings'' from this section.
     Preemption--parts 145, 150, 157, and 160. The OTS 
regulations at 12 CFR parts 545, 550, 557 and 560 include certain 
``occupation of the field'' statements on Federal preemption. Section 
1046 of the Dodd-Frank Act provides that the Home Owners' Loan Act 
(HOLA) does not occupy the field in any area of state law. Therefore, 
these occupation of the field statements in the OTS regulations have 
been removed from the Republished Regulations in Sec. Sec.  145.2, 
150.136, 157.11 and 160.2 by this interim final rule. In addition, the 
current OTS regulations do not accurately characterize the preemption 
standards applicable to Federal savings associations after the Dodd-
Frank Act. The Act changes the preemption standards applicable to 
Federal savings associations to conform to those applicable to national 
banks.\13\ The Act specifically provides that, as of the transfer date, 
determinations by a court or by the OCC under the HOLA with respect to 
Federal savings associations must be made in accordance with the laws 
and legal standards applicable to national banks regarding the 
application of state law.\14\ The OCC recently published a final rule 
hat implements this standard for Federal savings associations. To 
conform with the Dodd-Frank Act, this interim final rule adds 
references to the new preemption standards applicable to Federal 
savings associations in Sec. Sec.  157.11 and 160.2 of the Republished 
Regulations and removes a now obsolete cross-reference in Sec.  
160.110.
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    \13\ Dodd-Frank Act section 1046, 124 Stat. 2017 (to be codified 
at 12 U.S.C. 1465). In addition, the Act states that the provisions 
in section 1047(a) regarding visitorial powers shall apply to 
Federal savings associations and their subsidiaries to the same 
extent and in the same manner as if they were national banks or 
national bank subsidiaries. Dodd-Frank Act section 1047(b), 124 
Stat. 2018 (to be codified at 12 U.S.C. 1465).
    \14\ Id.
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     Historical references. We have removed a number of 
historical references contained in the OTS rules in Chapter V that are 
no longer relevant.
     Alternative Mortgage Transactions Parity Act (AMTPA). 
Section 1002 of the Dodd-Frank Act transfers rulemaking authority for 
the AMTPA to the Bureau. Therefore, we have not republished Sec.  
560.220, which implements AMTPA, as OCC rules.

[[Page 48953]]

     Regulations relating to transactions with affiliates, 
extensions of credit to insiders and tying arrangements. Section 
312(b)(2)(A) transfers all OTS rulemaking authority relating to 
transactions with affiliates, extensions of credit to insiders and 
tying arrangements to the Board. Therefore, we have not republished 
Sec. Sec.  563.36, 563.41 and 563.43, but rather refer Federal savings 
associations to the Board's regulations.
     Savings associations--Operations: In Sec.  
163.22(e)(1)(iv), we have removed the reference to the Board and FDIC, 
as 12 U.S.C. 1828(c) no longer requires the Federal banking agencies to 
seek competitive impact reports from the other Federal banking agencies 
before acting on a merger, consolidation, or assumption of liabilities. 
Instead, competitive impact reports are required only from the Attorney 
General. In addition, pursuant to the Dodd-Frank Act, savings 
associations that are part of a SLHC structure must now file a notice 
of a declaration of a dividend with the Board. We have amended Sec.  
163.143 to require that, in the case of cash dividends, Federal savings 
associations that are subsidiaries of a stock SLHC file an 
informational copy of that notice with the OCC at the same time it is 
filed with the Board. We note that under the regulation Federal savings 
associations that are subsidiaries of stock SLHCs must file notices of 
a declaration of a noncash dividend and other capital distributions 
with the OCC. In addition, pursuant to an amendment made to the HOLA by 
the Dodd-Frank Act,\15\ Federal savings associations that are 
subsidiaries of mutual SLHCs are required to provide a notice of a 
declaration of dividends to both the Board and the OCC. Our amendment 
to Sec.  163.143 accounts for this notice.
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    \15\ Dodd-Frank Act, section 625 (to be codified at 12 U.S.C. 
1467a(o)(11)).
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     Change in bank control. Part 574 of the OTS rules 
addressing change in control of savings associations referenced control 
as being ``more than 25%,'' however because the underlying statute (the 
Change in Bank Control Act, 12 U.S.C. 1817(j)) uses the phrase ``25% or 
more,'' we have replaced the former OTS phrase with the statutory 
language throughout part 174 in the Republished Regulations. We also 
have conformed Sec.  574.7(d)(3) to better track the statutory 
language. Additionally, throughout this rule, we have removed those 
sections that apply only to SLHCs, and have added provisions from 
former part 574 in place of cross-references where the cross-referenced 
provision is now contained in a Board regulation.
     References to Thrift Financial Report (TFR). Where there 
were references to the TFR in Chapter V of the OTS rules, we have added 
``Consolidated Reports of Condition or Income'' (Call Report) or 
``Thrift Financial Report,'' as appropriate'' to account for the phase 
out of the TFR.\16\
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    \16\ See the joint Paperwork Reduction Act Notice published by 
the OTS, OCC, FDIC and the Board proposing to phase out of the TFR. 
76 FR 39981 (July 7, 2011).
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     Remaining Fair Credit Reporting regulations. As noted 
above, under the Dodd-Frank Act, the Bureau assumes rulemaking 
authority for the majority of rules under the Fair Credit Reporting Act 
(FCRA). However, the OCC retains rulemaking authority for Sec.  571.83 
of subpart I and all of subpart J. All of the FCRA rules were 
originally published together in part 571 of the OTS rules and 
contained generally applicable provisions in subpart A. One such 
provision stated that examples given in the rules were not exclusive 
and that compliance with an example would constitute compliance with 
the rule. In part 171 of the Republished Regulations, we have included 
this provision to apply it to subpart J, which includes examples.

III. Notice and Comment

    This interim final rule is effective on July 21, 2011. Pursuant to 
the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice 
and comment are not required prior to the issuance of a final rule if 
an agency, for good cause, finds that ``notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.''
    Section 316(b) of the Dodd-Frank Act provides that all OTS 
regulations in effect the day before the transfer date shall continue 
in effect until modified, terminated, set aside, or superseded by the 
OCC. The interim final rule makes non-substantive, technical changes to 
the OTS regulations, such as renumbering, changing internal cross-
references, replacing appropriate nomenclature, and changing the 
address for filing applications and notices. The rule also makes a few 
changes to conform the rules for Federal savings associations to 
changes in the law affected by the Dodd-Frank Act. Because these 
regulations are nearly identical to the OTS's rules which savings 
associations are currently subject to, the new rules do not change or 
impose additional requirements that necessitate adjustments by these 
institutions. In addition, codifying former OTS regulations as OCC 
regulations with nomenclature changes and updated filing addresses will 
help reduce confusion in the industry. Moreover, the transferring rules 
in general were originally issued by the OTS following notice and 
comment rulemaking, as appropriate.
    Therefore, the OCC has concluded that advance notice and comment 
under the APA is unnecessary and not in the public interest.

IV. Effective Date

    This interim final rule is effective on July 21, 2011. A final rule 
may be published with an immediate effective date if an agency finds 
good cause and publishes such with the final rule.\17\ The purpose of a 
delayed effective date is to permit regulated entities to adjust their 
behavior before the final rule takes effect. As described above, the 
interim final rule makes non-substantive, technical changes, which will 
not require savings associations to adjust their behavior in a 
substantive manner. In addition, the interim final rule provides 
guidance regarding certain required Dodd-Frank Act changes. It is 
important to have these regulations in place on July 21, 2011, the 
transfer date, to facilitate a seamless transition when the OCC and the 
FDIC assume responsibility for supervising savings associations on that 
day and to inform the industry what rules will apply as of the transfer 
date. For these reasons, the OCC finds good cause to dispense with a 
delayed effective date.
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    \17\ 5 U.S.C. 553(d)(3).
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    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (12 U.S.C. 4802) requires, subject to certain 
exceptions, that regulations imposing additional reporting, disclosure, 
or other requirements on insured depository institutions take effect on 
the first day of the calendar quarter after publication of the final 
rule. As a general matter this interim final rule does not impose 
additional reporting, disclosure, or other requirements. However, to 
the extent that there are any additional reporting, disclosure, or 
other requirements, because they impose minimal burden on savings 
associations and because of the need to have final rules in place on he 
transfer date, the OCC finds good cause not to delay the effectiveness 
of these rules.

V. Request for Comments

    Although notice and comment are not required prior to the effective 
date of this interim final rule, the OCC invites comments on all 
aspects of the rule and will revise it if necessary or appropriate in 
light of the comments received.

[[Page 48954]]

VI. Regulatory Analysis

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (Pub. L. 96-354, Sept. 19, 1980) 
(RFA) applies only to rules for which an agency publishes a general 
notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). Pursuant to 
the APA at 5 U.S.C. 553(b)(B), general notice and an opportunity for 
public comment are not required prior to the issuance of a final rule 
when an agency, for good cause, finds that ``notice and public 
procedure thereon are impracticable, unnecessary, or contrary to the 
public interest.'' As discussed above, the OCC has determined for good 
cause that the APA does not require general notice and public comment 
on this interim final rule and, therefore, we are not publishing a 
general notice of proposed rulemaking. Thus, the RFA, pursuant 5 U.S.C. 
601(2), does not apply to this interim final rule.

Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. The 
OCC has determined that there is no Federal mandate imposed by this 
rulemaking that may result in the expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.

Paperwork Reduction Act

    The OCC may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    This rule contains information collection requirements under the 
Paperwork Reduction Act (PRA), which have been previously approved by 
OMB under the following OMB control numbers, and the PRA burden for 
which is unchanged by this rule: OMB Control Nos. 1550-0003; 1550-0005 
through 1550-0007; 1550-0011 through 1550-0020; 1550-0021, 1550-0025; 
1550-0030; 1550-0032; 1550-0035; 1550-0037; 1550-0041; 1550-0047; 1550-
0051; 1550-0053; 1550-0056; 1550-0060; 1550-0062; 1550-0066; 1550-0072; 
1550-0077 through 1550-0078; 1550-0081; 1550-0088; 1550-0092; 1550-0094 
through 1550-0095; 1550-0103 through 1550-0106; 1550-0109 through 1550-
0110; 1550-0112 through 1550-0113; 1550-0115; 1550-0117; 1557-0119; 
1550-0122; and 1550-0127. The information collection approved under OMB 
Control No. 1550-0059 will be amended through a non-substantive change. 
There are no new information collection requirements in this interim 
final rule.

VII. Redesignation Table

    The following redesignation table is provided for reader reference 
and shows the relationship of former section numbers within Chapter V 
to the new section numbers in Chapter I.

------------------------------------------------------------------------
 12 CFR Chapter V: Former part or section    12 CFR Chapter I: New part
                  numbers                        or section numbers
------------------------------------------------------------------------
Part 508..................................  Part 108
Part 509..................................  Part 109
Part 512..................................  Part 112
Part 516..................................  Part 116
Part 528..................................  Part 128
Section 528.1.............................  Section 128.1
Section 528.1a............................  Section 128.10
Section 528.2.............................  Section 128.2
Section 528.2a............................  Section 128.11
Section 528.3.............................  Section 128.3
Section 528.4.............................  Section 128.4
Section 528.5.............................  Section 128.5
Section 528.6.............................  Section 128.6
Section 528.7.............................  Section 128.7
Section 528.8.............................  Section 128.8
Section 528.9.............................  Section 128.9
Part 533..................................  Part 133
Part 536..................................  Part 136
Part 541..................................  Part 141
Part 543..................................  Part 143
Section 543.1.............................  Section 143.1
Section 543.2.............................  Section 143.2
Section 543.3.............................  Section 143.3
Section 543.5.............................  Section 143.4
Section 543.6.............................  Section 143.5
Section 543.7.............................  Section 143.6
Section 543.7-1...........................  Section 143.7
Section 543.8.............................  Section 143.8
Section 543.9.............................  Section 143.9
Section 543.10............................  Section 143.10
Section 543.11............................  Section 143.11
Section 543.11-1..........................  Section 143.12
Section 543.14............................  Section 143.14
Part 544..................................  Part 144
Part 545..................................  Part 145
Part 546..................................  Part 146
Part 550..................................  Part 150
Part 551..................................  Part 151
Part 552..................................  Part 152
Section 552.2-1...........................  Section 152.1
Section 552.2-2...........................  Section 152.2
Section 552.2-3...........................  Section 152.17
Section 552.2-6...........................  Section 152.18
Section 552.2-7...........................  Section 152.19
Section 552.3.............................  Section 152.3
Section 552.4.............................  Section 152.4
Section 552.5.............................  Section 152.5
Section 552.6.............................  Section 152.6
Section 552.6-1...........................  Section 152.7
Section 552.6-2...........................  Section 152.8
Section 552.6-3...........................  Section 152.9
Section 552.6-4...........................  None
Section 552.9.............................  None
Section 552.10............................  Section 152.10
Section 552.11............................  Section 152.11
Section 552.12............................  Section 152.12
Section 552.13............................  Section 152.13
Section 552.14............................  Section 152.14
Section 552.15............................  Section 152.15
Section 552.16............................  Section 152.16
Part 555..................................  Part 155
Part 557..................................  Part 157
Part 559..................................  Part 159
Part 560..................................  Part 160
Part 561..................................  Part 161
Part 562..................................  Part 162
Part 563..................................  Part 163
Part 563b.................................  Part 192
Part 563c.................................  Part 193
Part 563c, Subpart A......................  Part 193, Subpart A
Part 563c, Subpart B......................  Part 193, Subpart B
Section 563c.101..........................  Section 193.101
Section 563c.102..........................  Section 193.102 and new
                                             Appendix A
Part 563d.................................  Part 194
Section 563d.1............................  Section 194.1
Section 563d.2............................  Section 194.2
Section 563d.3b-6.........................  Section 194.3
Section 563d.210..........................  Section 194.210
Section 563d.801..........................  Section 194.801
Section 563d.802..........................  Section 194.802
Part 563e.................................  Part 195
Part 563f.................................  Part 196
Part 563g.................................  Part 197
Section 563g.1............................  Section 197.1
Section 563g.2............................  Section 197.2
Section 563g.3............................  Section 197.3
Section 563g.4............................  Section 197.4
Section 563g.5............................  Section 197.5
Section 563g.6............................  Section 197.6
Section 563g.7............................  Section 197.7
Section 563g.8............................  Section 197.8
Section 563g.9............................  Section 197.9
Section 563g.10...........................  Section 197.10
Section 563g.11...........................  Section 197.11
Section 563g.12...........................  Section 197.12
Section 563g.13...........................  Section 197.13
Section 563g.14...........................  Section 197.14
Section 563g.15...........................  Section 197.15
Section 563g.16...........................  Section 197.16
Section 563g.17...........................  Section 197.17
Section 563g.18...........................  Section 197.18
Section 563g.19...........................  Section 197.19
Section 563g.20...........................  Part 197, Appendix A
Section 563g.21...........................  Section 197.21
Part 564..................................  Part 164
Part 565..................................  Part 165
Part 567..................................  Part 167
Part 568..................................  Part 168
Part 569..................................  Part 169
Part 570..................................  Part 170
Part 571..................................  Part 171
Part 572..................................  Part 172
Part 574..................................  Part 174
Section 574.1.............................  Section 174.1
Section 574.2.............................  Section 174.2
Section 574.3.............................  Section 174.3
Section 574.4.............................  Section 174.4
Section 574.5.............................  Section 174.5
Section 574.6.............................  Section 174.6
Section 574.7.............................  Section 174.7
Section 574.8.............................  Section 174.8
Section 574.100...........................  Part 174, Appendix A
Part 590..................................  Part 190
Part 591..................................  Part 191
------------------------------------------------------------------------


[[Page 48955]]

List of Subjects

12 CFR Part 100

    Savings associations.

12 CFR Part 108

    Administrative practice and procedure, Crime, Savings associations.

12 CFR Part 109

    Administrative practice and procedure, Penalties.

12 CFR Part 112

    Administrative practice and procedure, Investigations.

12 CFR Part 116

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Savings associations.

12 CFR Part 128

    Advertising, Aged, Civil rights, Credit, Equal employment 
opportunity, Fair housing, Individuals with disabilities, Marital 
status discrimination, Mortgages, Religious discrimination, Reporting 
and recordkeeping requirements, Savings associations, Sex 
discrimination, Signs and symbols.

12 CFR Part 133

    Confidential business information, Freedom of information, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 136

    Consumer protection, Insurance, Reporting and recordkeeping 
requirements, Savings associations.

12 CFR Part 141

    Savings associations.

12 CFR Part 143

    Reporting and recordkeeping requirements; Savings associations.

12 CFR Part 144

    Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 145

    Consumer protection, Credit, Electronic funds transfers, 
Investments, Manufactured homes, Mortgages, Reporting and recordkeeping 
requirements, Savings associations.

12 CFR Part 146

    Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 150

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Savings associations, Trusts and trustees.

12 CFR Part 151

    Reporting and recordkeeping requirements, Savings associations, 
Securities, Trusts and trustees.

12 CFR Part 152

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 155

    Accounting, Consumer protection, Electronic funds transfers, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 157

    Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 159

    Reporting and recordkeeping requirements, Savings associations, 
Subsidiaries.

12 CFR Part 160

    Consumer protection, Investments, Manufactured homes, Mortgages, 
Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 161

    Administrative practice and procedure, Savings associations.

12 CFR Part 162

    Accounting, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 163

    Accounting, Administrative practice and procedure, Advertising, 
Conflict of interests, Crime, Currency, Investments, Mortgages, 
Reporting and recordkeeping requirements, Savings associations, 
Securities, Surety bonds.

12 CFR Part 164

    Appraisals, Mortgages, Reporting and recordkeeping requirements, 
Savings associations.

12 CFR Part 165

    Administrative practice and procedure, Savings associations.

12 CFR Part 167

    Capital, Reporting and recordkeeping requirements, Risk, Savings 
associations.

12 CFR Part 168

    Consumer protection, Privacy, Reporting and recordkeeping 
requirements, Savings associations, Security measures.

12 CFR Part 169

    Savings associations, Securities.

12 CFR Part 170

    Accounting, Administrative practice and procedure, Bank deposit 
insurance, Reporting and recordkeeping requirements, Safety and 
soundness, Savings associations.

12 CFR Part 171

    Consumer protection, Credit, Fair Credit Reporting Act, Privacy, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 172

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 174

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

12 CFR Part 190

    Banks, banking, Loan programs-housing and community development, 
Manufactured homes, Mortgages.

12 CFR Part 191

    Banks, banking, Loan programs-housing and community development, 
Mortgages.

12 CFR Part 192

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 193

    Accounting, Savings associations, Securities.

12 CFR Part 194

    Authority delegations (Government agencies), Reporting and 
recordkeeping requirements, Savings associations, Securities.

12 CFR Part 195

    Community development, Credit, Investments, Reporting and 
recordkeeping requirements, Savings associations.

12 CFR Part 196

    Antitrust, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 197

    Reporting and recordkeeping requirements, Savings associations, 
Securities.


0
For the reasons set forth in the preamble, Chapter I of Title 12 of the

[[Page 48956]]

Code of Federal Regulations is amended by adding parts 100, 108, 109, 
112, 116, 128, 133, 136, 141, 143, 144, 145, 146, 150, 151, 152, 155, 
157, 159, 160, 161, 162, 163, 164, 165, 167, 168, 169, 170, 171, 172, 
174, 190, 191, 192, 193, 194, 195, 196, 197, respectively, to read as 
follows:

PART 100--RULES APPLICABLE TO SAVINGS ASSOCIATIONS

    Authority: 12 U.S.C. 1462a, 1463, 5412(b)(2)(B), 5414(b)(2).


Sec.  100.1  Certain regulations superseded.

    Effective on July 21, 2011, section 312(b)(2)(B) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376 (2010)) (12 U.S.C. 5412(b)(2)(B)) transferred rulemaking 
authority of the Office of Thrift Supervision (OTS) relating to all 
savings associations, both state and Federal to the OCC. The 
regulations set forth in parts 100 through 197 of this Chapter I 
applying to Federal savings associations and state savings 
associations, as those terms are defined in section 3(b) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(b)), supersede corresponding 
regulations set forth in parts 500 through 591 of Chapter V of the Code 
of Federal Regulations that were applicable to such entities prior to 
July 21, 2011.


Sec.  100.2  Waiver authority.

    The Comptroller of the Currency may, for good cause and to the 
extent permitted by statute, waive the applicability of any provision 
of parts 100 through 197.

PART 108--REMOVALS, SUSPENSIONS, AND PROHIBITIONS WHERE A CRIME IS 
CHARGED OR PROVEN

Sec.
108.1 Scope.
108.2 Definitions.
108.3 Issuance of Notice or Order.
108.4 Contents and service of the Notice or Order.
108.5 Petition for hearing.
108.6 Initiation of hearing.
108.7 Conduct of hearings.
108.8 Default.
108.9 Rules of evidence.
108.10 Burden of persuasion.
108.11 Relevant considerations.
108.12 Proposed findings and conclusions and recommended decision.
108.13 Decision of the OCC.
108.14 Miscellaneous.

    Authority: 12 U.S.C. 1464, 1818, 5412(b)(2)(B).


Sec.  108.1  Scope.

    The rules in this part 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 Federal savings association, Federal savings 
association subsidiary, or affiliate service corporation, where such 
person has been suspended or removed from office or prohibited from 
further participation in the conduct of the affairs of one of the 
aforementioned entities by a Notice or Order served by the OCC upon the 
grounds set forth in section 8(g) of the Federal Deposit Insurance Act, 
(12 U.S.C. 1818(g)).


Sec.  108.2  Definitions.

    As used in this part--
    (a) The term OCC means the Office of the Comptroller of the 
Currency.
    (b) [Reserved]
    (c) The term Notice means a Notice of Suspension or Notice of 
Prohibition issued by the OCC pursuant to section 8(g) of the Federal 
Deposit Insurance Act.
    (d) The term Order means an Order of Removal or Order of 
Prohibition issued by the OCC pursuant to section 8(g) of the Federal 
Deposit Insurance Act.
    (e) The term association means a Federal savings association within 
the meaning of section 2(5) of the Home Owners' Loan Act of 1933, as 
amended, 12 U.S.C. 1462(5) (``HOLA''), Federal savings association 
subsidiary and an affiliate service corporation within the meaning of 
section 8(b)(8) of the Federal Deposit Insurance Act, as amended, 12 
U.S.C. 1818(b)(8) (``FDIA'').
    (f) The term subject individual means a person served with a Notice 
or Order.
    (g) The term petitioner means a subject individual who has filed a 
petition for informal hearing under this part.


Sec.  108.3  Issuance of Notice or Order.

    (a) The OCC 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 OCC, upon due deliberation, determines that 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 OCC.
    (b) The OCC 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 OCC, 
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.  108.4  Contents and service of the Notice or Order.

    (a) The Notice or Order shall set forth the basis and facts in 
support of the OCC's 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 OCC shall serve a copy of the Notice or Order upon the 
subject individual and the related association in the manner set forth 
in Sec.  109.11 of this chapter.
    (c) Upon receipt of the Notice or Order, the subject individual 
shall immediately comply with the requirements thereof.


Sec.  108.5  Petition for hearing.

    (a) To obtain a hearing, the subject individual must file two 
copies of a petition with the OCC 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.

[[Page 48957]]

Sec.  108.6  Initiation of hearing.

    (a) Within 10 days of the filing of a petition for hearing, the OCC 
shall notify the petitioner of the time and place fixed for hearing, 
and it shall designate one or more OCC 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.  
109.6 of this chapter.
    (d) A representative(s) of the OCC's Enforcement and Compliance 
Division also may attend the hearing and participate therein as a 
party.


Sec.  108.7  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.  109.5 of this chapter.
    (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 Enforcement and Compliance Division, 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 Enforcement and Compliance Division 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.  108.8  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.  108.7(d) or (f) of this part, 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 OCC.


Sec.  108.9  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.  108.10  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.  108.11  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 OCC 
will consider:
    (1) The nature and extent of the petitioner's participation in the 
affairs of the association;
    (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 OCC 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 OCC will not collaterally 
review such final judgment of conviction.


Sec.  108.12  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 and certify to the OCC 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.  108.13  Decision of the OCC.

    (a) Within 30 days after the recommended decision has been 
certified to the OCC, the OCC shall issue a final decision.
    (b) The OCC's final decision shall contain a statement of the basis 
therefor. The OCC 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.  109.38 of this 
chapter.
    (c) The OCC shall serve upon the petitioner and the representative 
of the Enforcement and Compliance Division a copy of the OCC's final 
decision and the related recommended decision.


Sec.  108.14  Miscellaneous.

    The provisions of Sec. Sec.  109.10, 109.11, and 109.12 of this 
chapter shall apply to proceedings under this part.

PART 109--RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY 
PROCEEDINGS

Subpart A--Uniform Rules of Practice and Procedure

Sec.

[[Page 48958]]

109.1 Scope.
109.2 Rules of construction.
109.3 Definitions.
109.4 Authority of the Comptroller.
109.5 Authority of the administrative law judge.
109.6 Appearance and practice in adjudicatory proceedings.
109.7 Good faith certification.
109.8 Conflicts of interest.
109.9 Ex parte communications.
109.10 Filing of papers.
109.11 Service of papers.
109.12 Construction of time limits.
109.13 Change of time limits.
109.14 Witness fees and expenses.
109.15 Opportunity for informal settlement.
109.16 OCC's right to conduct examination.
109.17 Collateral attacks on adjudicatory proceeding.
109.18 Commencement of proceeding and contents of notice.
109.19 Answer.
109.20 Amended pleadings.
109.21 Failure to appear.
109.22 Consolidation and severance of actions.
109.23 Motions.
109.24 Scope of document discovery.
109.25 Request for document discovery from parties.
109.26 Document subpoenas to nonparties.
109.27 Deposition of witness unavailable for hearing.
109.28 Interlocutory review.
109.29 Summary disposition.
109.30 Partial summary disposition.
109.31 Scheduling and prehearing conferences.
109.32 Prehearing submissions.
109.33 Public hearings.
109.34 Hearing subpoenas.
109.35 Conduct of hearings.
109.36 Evidence.
109.37 Post-hearing filings.
109.38 Recommended decision and filing of record.
109.39 Exceptions to recommended decision.
109.40 Review by the Comptroller.
109.41 Stays pending judicial review.
Subpart B--Local Rules
109.100 Scope.
109.101 Appointment of Office of Financial Institution Adjudication.
109.102 Discovery.
109.103 Civil money penalties.
109.104 Additional procedures.
Subpart C [Reserved]
Subpart D [Reserved]

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a, 
1468, 1817(j), 1818, 1820(k), 1829(e), 3349, 4717, 5412(b)(2)(B); 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 A--Uniform Rules of Practice and Procedure


Sec.  109.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure 
with regard to Federal savings associations 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 OCC should issue an 
order to approve or disapprove a person's proposed acquisition of an 
institution;
    (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 OCC is the appropriate agency.
    (e) Assessment of civil money penalties by the OCC against 
institutions, institution-affiliated parties, and certain other persons 
for which it is the appropriate 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 the 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 OCC, the terms of any conditions imposed in writing by the OCC 
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) This subpart also applies 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.
    (i) [Reserved]


Sec.  109.2  Rules of construction.

    For purposes of this subpart:
    (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.  109.3  Definitions.

    For purposes of this subpart, unless explicitly stated to the 
contrary:
    (a) Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    (b) Adjudicatory proceeding means a proceeding conducted pursuant 
to these rules and leading to the formulation of a final order other 
than a regulation.
    (c) Decisional employee means any member of the OCC'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 OCC or the administrative law judge, respectively, in preparing 
orders, recommended decisions, decisions, and other documents under the 
Uniform Rules.
    (d) Comptroller means the Comptroller of the Currency or his or her 
designee.

[[Page 48959]]

    (e) Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the OCC in an adjudicatory 
proceeding.
    (f) Final order means an order issued by the OCC 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.
    (g) Institution includes any Federal savings association as that 
term is defined in section 3(b) of the FDIA (12 U.S.C. 1813(b)).
    (h) 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)).
    (i) Local Rules means those rules found in subpart B of this part.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) Office of Financial Institution Adjudication (OFIA) means the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the OCC, the Board of 
Governors of the Federal Reserve Board, the Federal Deposit Insurance 
Corporation, and the National Credit Union Administration.
    (l) Party means the OCC and any person named as a party in any 
notice.
    (m) 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.
    (n) Respondent means any party other than the OCC.
    (o) Uniform Rules means those rules in subpart A of this part.
    (p) 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.  109.4  Authority of the Comptroller.

    The Comptroller 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.  109.5  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.  109.31 of this subpart;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the 
Comptroller 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 Comptroller 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.  109.6  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before the OCC 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 OCC 
if such attorney is not currently suspended or debarred from practice 
before the OCC.
    (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 OCC.
    (3) Notice of appearance. Any individual acting as counsel on 
behalf of a party, including the Comptroller, 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 (a)(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.  109.7  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.
    (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.

[[Page 48960]]

    (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.  109.8  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.  109.6(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.  109.9  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 OCC (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, the 
Comptroller, 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 Comptroller until the date that the Comptroller 
issues the final decision pursuant to Sec.  109.40(c) of this subpart:
    (1) No interested person outside the OCC shall make or knowingly 
cause to be made an ex parte communication to the Comptroller, the 
administrative law judge, or a decisional employee; and
    (2) The Comptroller, administrative law judge, or decisional 
employee shall not make or knowingly cause to be made to any interested 
person outside the OCC 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 
Comptroller 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 Comptroller 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 OCC 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.  109.40 of this subpart, 
except as witness or counsel in public proceedings.


Sec.  109.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Sec. Sec.  
109.25 and 109.26 of this subpart, shall be filed with the OFIA, except 
as otherwise provided.
    (b) Manner of filing. Unless otherwise specified by the Comptroller 
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 Comptroller 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.  109.7 of this subpart.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the OCC and of the 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 
Comptroller, 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.  109.11  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:

[[Page 48961]]

    (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.  109.10(c) of this 
subpart as to form.
    (c) By the Comptroller or the administrative law judge. (1) All 
papers required to be served by the Comptroller 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.  109.6 of this subpart, the Comptroller 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.  109.12  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 Comptroller 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 Comptroller or the administrative law judge in the case of filing, 
or by agreement among the parties in the case of service.


Sec.  109.13  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 Comptroller pursuant to Sec.  109.38 of 
this subpart, the Comptroller may grant extensions of the time limits 
for good cause shown. Extensions may be granted at the motion of a 
party or on the Comptroller's or the administrative law judge's own 
motion after notice and opportunity to respond is afforded all non-
moving parties.


Sec.  109.14  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 tendered in advance by the party requesting the subpoena, 
except that fees and mileage need not be tendered in advance where the 
OCC is the party requesting the subpoena. The OCC shall not be required 
to pay any fees to, or expenses of, any witness not subpoenaed by the 
OCC.


Sec.  109.15  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 OCC 
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

[[Page 48962]]

admissible as evidence in any proceeding.


Sec.  109.16  OCC's right to conduct examination.

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


Sec.  109.17  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.  109.18  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 Comptroller.
    (ii) The notice must be served by the Comptroller 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 
Comptroller.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the OCC's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the OCC 
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.  109.19  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 
Comptroller a recommended decision containing the findings and the 
relief sought in the notice. Any final order issued by the Comptroller 
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.  109.20  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 Comptroller 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.  109.21  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 Comptroller a recommended decision containing the findings and the 
relief sought in the notice.


Sec.  109.22  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:

[[Page 48963]]

    (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.  109.23  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 Comptroller.
    (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 
Comptroller, 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.  109.29 and 109.30 of this subpart.


Sec.  109.24  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.  109.102 of 
this part.
    (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.  109.25 of 
this subpart.
    (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.


Sec.  109.25  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 12 CFR 4.17 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.
    (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.  
109.23 of this subpart 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.  109.23 of this subpart 
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,

[[Page 48964]]

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.  109.23 of this subpart 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 
part, 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.  109.26  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.  109.24(d) of this subpart. 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.  109.25(d) of this 
subpart, 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.  109.27  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 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

[[Page 48965]]

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.  109.28  Interlocutory review.

    (a) General rule. The Comptroller may review a ruling of the 
administrative law judge prior to the certification of the record to 
the Comptroller only in accordance with the procedures set forth in 
this section and Sec.  109.23 of this subpart.
    (b) Scope of review. The Comptroller may exercise interlocutory 
review of a ruling of the administrative law judge if the Comptroller 
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.  109.23 of this 
subpart. Any party may file a response to a request for interlocutory 
review in accordance with Sec.  109.23(d) of this subpart. Upon the 
expiration of the time for filing all responses, the administrative law 
judge shall refer the matter to the Comptroller for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Comptroller under 
this section suspends or stays the proceeding unless otherwise ordered 
by the administrative law judge or the Comptroller.


Sec.  109.29  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Comptroller 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 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 Comptroller. 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.  109.30  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to

[[Page 48966]]

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.  109.31  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.  109.32  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.  109.33  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Comptroller, in the Comptroller's 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 Comptroller 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 Comptroller. The form of, and procedure for, 
these requests and replies are governed by Sec.  109.23 of this 
subpart. 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.  109.34  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 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.

[[Page 48967]]

    (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 Sec.  
109.26(c) of this subpart.


Sec.  109.35  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.  109.36  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 APA 
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 be 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 Comptroller 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 banking 
agency, as defined in section 3(q) of the FDIA (12 U.S.C. 1813(q)), 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 Comptroller.
    (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.  109.37  Post-hearing filings.

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

[[Page 48968]]

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.  109.38  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.  
109.37(b) of this subpart, the administrative law judge shall file with 
and certify to the Comptroller, 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 Comptroller for final determination the 
record of the proceeding, the administrative law judge shall furnish to 
the Comptroller 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.  109.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec.  109.38 of this subpart, a party may file with the Comptroller 
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 Comptroller 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.  109.40  Review by the Comptroller.

    (a) Notice of submission to the Comptroller. When the Comptroller 
determines that the record in the proceeding is complete, the 
Comptroller shall serve notice upon the parties that the proceeding has 
been submitted to the Comptroller for final decision.
    (b) Oral argument before the Comptroller. Upon the initiative of 
the Comptroller or on the written request of any party filed with the 
Comptroller within the time for filing exceptions, the Comptroller 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 Comptroller's final 
decision. Oral argument before the Comptroller must be on the record.
    (c) Comptroller's final decision. (1) Decisional employees may 
advise and assist the Comptroller in the consideration and disposition 
of the case. The final decision of the Comptroller will be based upon 
review of the entire record of the proceeding, except that the 
Comptroller 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 Comptroller 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 Comptroller 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 Comptroller shall be 
served upon each party to the proceeding, upon other persons required 
by statute, and, if directed by the Comptroller or required by statute, 
upon any appropriate state or Federal supervisory authority.


Sec.  109.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the OCC may not, unless specifically ordered by 
the Comptroller or a reviewing court, operate as a stay of any order 
issued by the Comptroller. The Comptroller 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.

Subpart B--Local Rules


Sec.  109.100  Scope.

    The rules and procedures in this subpart B shall apply to those 
proceedings covered by subpart A of this part. In addition, subpart A 
of this part and this subpart 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 
savings association or any other company; and

[[Page 48969]]

    (b) [Reserved]
    (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 Federal savings association or person subject to the 
jurisdiction of the OCC pursuant to section 12(i) of the Exchange Act 
(15 U.S.C. 78 l (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.  109.101  Appointment of Office of Financial Institution 
Adjudication.

    Unless otherwise directed by the OCC, all hearings under subpart A 
of this part and this subpart shall be conducted by administrative law 
judges under the direction of the Office of Financial Institution 
Adjudication.


Sec.  109.102  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.  109.11(d) of this part. 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.  109.27(d) 
of this part.


Sec.  109.103  Civil money penalties.

    (a) Assessment. In the event of consent, or if upon the record 
developed at the hearing the OCC finds that any of the grounds 
specified in the notice issued pursuant to Sec.  109.18 of this part 
have been established, the OCC 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 OCC or by 
a reviewing court.
    (b) Payment. (1) Civil penalties assessed pursuant to subpart A of 
this part and this subpart B are payable and to be collected within 60 
days after the issuance of the notice of assessment, unless the OCC 
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 OCC 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 OCC fixes a different time for 
payment. Notwithstanding the foregoing, the OCC 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) Checks in payment of civil penalties shall be made payable to 
the Treasurer of the United States and sent to the OCC. Upon receipt, 
the OCC shall forward the check to the Treasury of the United States.
    (c) Inflation adjustment. Under the Federal Civil Monetary 
Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), the 
OCC must adjust for inflation the civil money penalties in 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--            $2,200
                                 1st Tier.
12 U.S.C. 1464(v)(5)..........  Reports of Condition--            32,500
                                 2nd Tier.

[[Page 48970]]

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

Sec.  109.104  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.  109.39 of this part 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 OCC Hearing Clerk 
who receives adjudicatory filings; provided, however, that once the 
administrative law judge has certified the record to the Comptroller 
pursuant to Sec.  109.38 of this part, all motions must be filed with 
the Comptroller to the attention of the Hearing Clerk 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 Comptroller, other than motions for oral argument 
before the Comptroller, shall be allowed pursuant to the procedures at 
Sec.  109.23(d) of this part. No response is required for the 
Comptroller to make a determination on a motion for oral argument.
    (c) Authority of administrative law judge. In addition to the 
powers listed in Sec.  109.5 of this part, 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.  109.29 of this part and partial summary disposition at Sec.  
109.30 of this part in making determinations on such motions.
    (d) Notification of submission of proceeding to the Comptroller. 
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 OCC shall notify the parties within 
ten days of the submission of the proceeding to the Comptroller for 
final determination.
    (e) Extensions of time for final determination. The Comptroller 
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 OCC. Service of any document upon the OCC 
shall be made by filing with the Hearing Clerk, in addition to the 
individuals and/or offices designated by the OCC in its Notice issued 
pursuant to Sec.  109.18 of this part, or such other means reasonably 
suited to provide notice of the person and/or offices designated to 
receive filings.
    (g) Filings with the Comptroller. An additional copy of all 
materials required or permitted to be filed with or referred to the 
administrative law judge pursuant to subpart A and B of this part shall 
be filed with the Hearing Clerk. 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.  109.32 of this part. 
Materials required or permitted to be filed with or referred to the 
Comptroller pursuant to subparts A and B of this part shall be filed 
with the Comptroller, to the attention of the Hearing Clerk.
    (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 C [Reserved]

Subpart D [Reserved]

PART 112--RULES FOR INVESTIGATIVE PROCEEDINGS AND FORMAL 
EXAMINATION PROCEEDINGS

Sec.
112.1 Scope of part.
112.2 Definitions.
112.3 Confidentiality of proceedings.
112.4 Transcripts.
112.5 Rights of witnesses.
112.6 Obstruction of the proceedings.
112.7 Subpoenas.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467, 1467a, 1813, 
1817(j), 1818(n), 1820(c), 5412(b)(2)(B); 15 U.S.C. 78l.


Sec.  112.1  Scope of part.

    This part prescribes rules of practice and procedure applicable to 
the conduct of formal examination proceedings with respect to Federal 
savings associations and their affiliates under section 5(d)(1)(B) of 
the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or 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 part does not apply to 
adjudicatory proceedings as to which hearings are required by statute, 
the rules for which are contained in part 109 of this chapter.


Sec.  112.2  Definitions.

    As used in this part:
    (a) OCC means the Office of the Comptroller of the Currency;

[[Page 48971]]

    (b) [Reserved]
    (c) 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 savings associations and their 
affiliates conducted pursuant to section 5(d)(1)(B) of the HOLA, 
section 7(j)(15) of the FDIA, section 8(n) of the FDIA or section 10(c) 
of the FDIA; and
    (d) Designated representative means the person or persons empowered 
by the OCC to conduct an investigative proceeding or a formal 
examination proceeding.


Sec.  112.3  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the OCC, all investigative proceedings shall also 
be private. Unless otherwise ordered or permitted by the OCC, or 
required by law, and except as provided in Sec. Sec.  112.4 and 112.5, 
the entire record of any investigative proceeding or formal examination 
proceeding, including the resolution of the OCC or its delegate(s) 
authorizing 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.  112.4  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 OCC's Director for 
Enforcement and Compliance 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.  112.5  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 OCC resolution authorizing such proceeding. Copies of such 
resolution shall be furnished, for their retention, to such persons 
only with the written approval of the OCC.
    (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 OCC in 
accordance with the provisions of part 19 of this chapter 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 OCC, for good cause, may exclude a particular attorney from 
further participation in any investigation in which the OCC has found 
the attorney to have engaged in dilatory, obstructionist, egregious, 
contemptuous or contumacious conduct. The person conducting an 
investigation may report to the OCC instances of apparently dilatory, 
obstructionist, egregious, contemptuous or contumacious conduct on the 
part of an attorney. After due notice to the attorney, the OCC 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 OCC may permit 
or direct.


Sec.  112.6  Obstruction of the proceedings.

    The designated representative shall report to the Comptroller 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 OCC may take such action as 
the circumstances warrant, including the exclusion of counsel from 
further participation in such proceeding.


Sec.  112.7  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 Deputy Chief Counsel or his designee to quash or modify 
such subpoena, accompanying such application with a statement of the 
reasons therefor. The Deputy Chief 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 
Deputy

[[Page 48972]]

Chief 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 OCC by any of its designated representatives.

PART 116--APPLICATION PROCESSING PROCEDURES

Sec.
116.1 What does this part do?
116.5 Do the same procedures apply to all applications under this 
part?
116.10 How does the OCC compute time periods under this part?
Subpart A--Pre-Filing and Filing Procedures

Pre-Filing Procedures

116.15 Must I meet with the OCC before I file my application?
116.20 What information must I include in my draft business plan?

Filing Procedures

116.25 What type of application must I file?
116.30 What information must I provide with my application?
116.35 May I keep portions of my application confidential?
116.40 Where do I file my application?
116.45 What is the filing date of my application?
116.47 How do I amend or supplement my application?
Subpart B--Publication Requirements
116.50 Who must publish a public notice of an application?
116.55 What information must I include in my public notice?
116.60 When must I publish the public notice?
116.70 Where must I publish the public notice?
116.80 What language must I use in my publication?
Subpart C--Comment Procedures
116.100 What does this subpart do?
116.110 Who may submit a written comment?
116.120 What information should a comment include?
116.130 Where are comments filed?
116.140 How long is the comment period?
Subpart D--Meeting Procedures
116.160 What does this subpart do?
116.170 When will the OCC conduct a meeting on an application?
116.180 What procedures govern the conduct of the meeting?
116.185 Will the OCC approve or disapprove an application at a 
meeting?
116.190 Will a meeting affect application processing time frames?
Subpart E--OCC Review

Expedited Treatment

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

Standard Treatment

116.210 What will the OCC do after I file my application?
116.220 If the OCC requests additional information to complete my 
application, how will it process my application?
116.230 Will the OCC conduct an eligibility examination?
116.240 What may the OCC require me to do after my application is 
deemed complete?
116.250 Will the OCC require me to publish a new public notice?
116.260 May the OCC suspend processing of my application?
116.270 How long is the OCC review period?
116.280 How will I know if my application has been approved?
116.290 What will happen if the OCC does not approve or disapprove 
my application within two calendar years after the filing date?

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464, 2901 
et seq., 5412(b)(2)(B).


Sec.  116.1  What does this part do?

    (a) This part explains OCC procedures for processing applications, 
notices, or filings (applications) for Federal savings associations. 
Except as provided in paragraph (b) of this section, subparts A and E 
of this part apply whenever an OCC regulation requires any person (you) 
to file an application pertaining to a Federal savings association with 
the OCC. Subparts B, C, and D, however, only apply when an OCC 
regulation incorporates the procedures in the subpart or where 
otherwise required by the OCC.
    (b) This part 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 OCC or OTS 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 part 108 or 109 of this chapter, 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 OCC regulation specifically requires 
an application under this part.
    (4) An application filed under an OCC regulation that prescribes 
other application processing procedures and time frames for the 
approval of applications.
    (c) If an OCC regulation for a specific type of application 
prescribes some application processing procedures, or time frames, the 
OCC will apply this part to the extent necessary to process the 
application. For example, if an OCC regulation for a specific type of 
application does not identify time periods for the processing of an 
application, the time periods in this part apply.


Sec.  116.5  Do the same procedures apply to all applications under 
this part?

    The OCC processes applications under this part using two 
procedures, expedited treatment and standard treatment. To determine 
which treatment applies, you may use the following chart:

------------------------------------------------------------------------
                                      Then the OCC will  process your
             If . . .                     application under . . .
------------------------------------------------------------------------
(a) The applicable regulation      Standard treatment.
 does not specifically state that
 expedited treatment is available.
(b) [Reserved]                     .....................................

[[Page 48973]]

 
(c) Your composite rating is 3,    Standard treatment.
 4, or 5. The composite rating is
 the composite numeric rating
 that the OCC or the other
 Federal banking regulator
 assigned to you under the
 Uniform Financial Institutions
 Rating System \1\ 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    Standard treatment.
 Act (CRA) rating is Needs to
 Improve or Substantial
 Noncompliance. The CRA rating is
 the Community Reinvestment Act
 performance rating that the OCC
 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,
 Sec.   195.28 of this chapter.
(e) Your compliance rating is 3,   Standard treatment.
 4, or 5. The compliance rating
 is the numeric rating that the
 OCC or the other Federal banking
 regulator assigned to you under
 the OCC 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       Standard treatment.
 capital requirements under part
 167 of this chapter.
(g) The OCC or OTS has notified    Standard treatment.
 you that you are an association
 in troubled condition.
(h) Neither the OCC nor any other  Standard treatment.
 Federal banking regulator has
 assigned you a composite rating,
 a CRA rating or a compliance
 rating.
(i) You do not meet any of the     Expedited treatment.
 criteria listed in paragraphs
 (a) through (h) of this section.
------------------------------------------------------------------------
\1\ A savings association may obtain a copy of its composite rating from
  the appropriate Federal banking agency.

Sec.  116.10  How does the OCC compute time periods under this part?

    In computing time periods under this part, the OCC 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.

Subpart A--Pre-Filing and Filing Procedures

Pre-Filing Procedures


Sec.  116.15  Must I meet with the OCC 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 . . .
------------------------------------------------------------------------
(1) An application for permission to     You must meet with the OCC
 organize a de novo Federal savings       before filing your
 association.                             application. You must submit a
                                          draft business plan before
                                          this meeting.
(2) An application to convert an         You must meet with the OCC
 existing insured depository              before filing your
 institution (other than a state-         application. The OCC may
 chartered savings association or a       require you to submit a draft
 state-chartered savings bank) or a       business plan or other
 credit union to a Federal savings        relevant information before
 association.                             this meeting.
(3) An application to acquire control    The OCC may require you to meet
 of a Federal savings association.        with the OCC before filing
                                          your application and may
                                          require you to submit a draft
                                          business plan or other
                                          relevant information before
                                          this meeting.
------------------------------------------------------------------------

    (b) Contacting the OCC. (1) You must contact the appropriate OCC 
licensing office 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 OCC licensing office 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 OCC 
licensing office will also establish a schedule for any meeting and the 
submission of any information.
    (2) All other applicants are encouraged to contact the appropriate 
OCC licensing office 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.  116.20  What information must I include in my draft business 
plan?

    If you must submit a draft business plan under Sec.  116.15, your 
plan must:
    (a) Clearly and completely describe the 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 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.  163.555 of this 
chapter) of the 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 savings 
association will be met.

Filing Procedures


Sec.  116.25  What type of application must I file?

    (a) Expedited treatment. If you are eligible for expedited 
treatment under Sec.  116.5, you may file your application in the form 
of a notice that includes all information required by the applicable 
substantive regulation. If the OCC 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.  116.5, you must file your application following all 
applicable substantive

[[Page 48974]]

regulations and guidelines governing the filing of applications. If the 
OCC has a designated form for your application, you must file that 
form.
    (c) Waiver requests. If you want the OCC 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 OCC 
to evaluate your notice or application under applicable standards.


Sec.  116.30  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 any 
OCC office. You may also obtain forms and instructions on the OCC's web 
page at www.occ.gov.
    (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.  116.35  May I keep portions of my application confidential?

    (a) Confidentiality. The OCC makes submissions under this part 
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 OCC 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 4 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 OCC will not treat as confidential the portion of your 
application describing how you plan to meet your Community Reinvestment 
Act (CRA) objectives. The OCC 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) OCC determination on confidentiality. The OCC 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 54 of this chapter. The OCC will advise you before it makes 
information you designate as confidential available to the public.


Sec.  116.40  Where do I file my application?

    (a) OCC Office. (1) You must file the original application and the 
number of copies indicated on the applicable form to the attention of 
the Director for Licensing at the appropriate OCC licensing office 
listed in paragraph (a)(2) of this section or with the OCC licensing 
office at OCC headquarters. If the form does not indicate the number of 
copies you must file or if the OCC has not prescribed a form for your 
application, you must file the original application and two copies.
    (2) The addresses of appropriate OCC licensing offices and the 
states covered by each office are listed in 12 CFR 4.5.
    (b) Additional filings with OCC headquarters. (1) In addition to 
filing in the appropriate OCC licensing office, if your application 
involves a significant issue of law or policy or if an applicable 
regulation or form directs you to file with OCC headquarters, you must 
also file copies of your application at the OCC licensing office at 
headquarters. 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 the OCC has not prescribed a form for your application, 
you must file three copies.
    (2)(i) You may obtain a list of applications involving significant 
issues of law or policy at the OCC website at www.occ.gov or by 
contacting the OCC.
    (ii) The OCC reserves the right to identify significant issues of 
law or policy in a particular application. The OCC will advise you, in 
writing, if it makes this determination.


Sec.  116.45  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 OCC requires you to do so under 
Sec.  116.15.
    (2) You file your application and all required copies with the OCC, 
as described under Sec.  116.40.
    (i) If you are required to file with an OCC licensing office and 
with OCC headquarters, you have not filed with the OCC until you file 
with both offices.
    (ii) You have not filed with an OCC licensing office or with OCC 
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 an OCC 
licensing office or OCC headquarters, you have filed with that office 
on the next business day.
    (3) You pay the applicable fee. You have not paid the fee until you 
submit the fee to the appropriate OCC licensing office, or the OCC 
waives the fee. You may pay by check, money order, cashier's check or 
wire transfer payable to the OCC.
    (b) The OCC 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 OCC licensing office, the OCC determines that a significant 
issue of law or policy exists under Sec.  116.40(b)(2)(ii), the filing 
date of your application is the day you filed with the appropriate OCC 
licensing office. The 30-day review period under Sec. Sec.  116.200 or 
116.210 of this part will restart in its entirety when the OCC 
licensing office forwards the appropriate number of copies of your 
application to OCC headquarters.


Sec.  116.47  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 OCC office(s) 
along with the number of copies required under Sec.  116.40. Your 
amendment or supplemental information also must meet the caption and 
exhibit requirements at Sec.  116.30(b).

Subpart B--Publication Requirements


Sec.  116.50  Who must publish a public notice of an application?

    This subpart applies whenever an OCC regulation requires an 
applicant (``you'') to follow the public notice procedures in this 
subpart.


Sec.  116.55  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 OCC licensing office(s).

[[Page 48975]]

    (e) The address of the appropriate OCC offices 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 with the OCC, and are available for public 
inspection during regular business hours.
    (h) Any other information that the OCC requires you to publish.


Sec.  116.60  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.  116.70  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
           If you file . . .               following communities . . .
------------------------------------------------------------------------
(a) An application for permission to     The community in which your
 organize under Sec.   143.2 of this      home office is located.
 chapter, a Bank Merger Act application
 under Sec.   163.22(a) of this
 chapter, an application to convert to
 a Federal charter under Sec.   143.8
 or Sec.   152.18 of this chapter, or
 an application for a mutual to stock
 conversion under part 192 of this
 chapter * * *.
(b) An application to establish a        The community to be served by
 branch office under Sec.   145.95 of     the branch office.
 this chapter * * *.
(c) An application for the change of     The community in which the
 permanent location of a home or branch   existing office is located and
 office under Sec.   145.95 of this       the community to be served by
 chapter * * *.                           the new office.
(d) A change of control notice under     The community in which the home
 part 174 of this chapter * * *           office of the savings
                                          association whose stock is to
                                          be acquired is located and, if
                                          applicable, the community in
                                          which the home office of the
                                          acquiror's largest subsidiary
                                          savings association is
                                          located.
------------------------------------------------------------------------

Sec.  116.80  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 OCC determines that the primary 
language of a significant number of adult residents of the community is 
a language other than English, the OCC may require that you 
simultaneously publish additional notice(s) in the community in the 
appropriate language(s).

Subpart C--Comment Procedures


Sec.  116.100  What does this subpart do?

    This subpart contains the procedures governing the submission of 
public comments on certain types of applications or notices 
(``applications'') pending before the OCC. It applies whenever a 
regulation incorporates the procedures in this subpart, or where 
otherwise required by the OCC.


Sec.  116.110  Who may submit a written comment?

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


Sec.  116.120  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:
    (1) Address at least one of the reasons why the OCC 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.  
116.170 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.  116.130  Where are comments filed?

    A commenter must file with the appropriate OCC licensing office 
(see Sec.  116.40(a)(2)). The commenter must simultaneously send a copy 
of the comment to the applicant.


Sec.  116.140  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 OCC within 30 calendar 
days after the date of publication of the initial public notice.
    (b) Late-filed comments. The OCC may consider late-filed comments 
if the OCC determines that the comment will assist in the disposition 
of the application.

Subpart D--Meeting Procedures


Sec.  116.160  What does this subpart do?

    This subpart contains meeting procedures. It applies whenever a 
regulation incorporates the procedures in this subpart, or when 
otherwise required by the OCC.


Sec.  116.170  When will the OCC conduct a meeting on an application?

    (a) The OCC 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 OCC may limit the issues considered at the meeting to 
issues that the OCC decides are relevant or material.
    (b) The OCC 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 OCC decides to conduct a meeting, the OCC will invite 
the applicant and any commenters requesting a meeting and raising an 
issue that the OCC intends to consider at the meeting. The OCC may also 
invite other interested persons to attend. The OCC 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.  116.180  What procedures govern the conduct of the meeting?

    (a) The OCC 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.), the OCC Rules of Practice 
and Procedure in Adjudicatory Proceedings (12 CFR parts 19 and part

[[Page 48976]]

109) do not apply to meetings under this section.


Sec.  116.185  Will the OCC approve or disapprove an application at a 
meeting?

    The OCC will not approve or deny an application at a meeting under 
this subpart.


Sec.  116.190  Will a meeting affect application processing time 
frames?

    If the OCC 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 subpart E of this part. If the OCC suspends applicable application 
processing time frames, the time period will resume when the OCC 
determines that a record has been developed that sufficiently supports 
a determination on the issues considered at the meeting.

Subpart E--OCC Review

Expedited Treatment


Sec.  116.200  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 OCC, you may engage in the 
proposed activities upon the expiration of 30 days after the filing 
date of your notice, unless the OCC takes one of the following actions 
before the expiration of that time period:
    (a) The OCC 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 OCC takes one of the actions 
described in paragraphs (b) through (d) of this section before the 
expiration of that time period;
    (b) The OCC notifies you in writing that your notice is subject to 
standard treatment under this subpart. The OCC 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 OCC notifies you in writing that it is suspending the 
applicable time frames under Sec.  116.190; or
    (d) The OCC notifies you that it disapproves your notice.

Standard Treatment


Sec.  116.210   What will the OCC do after I file my application?

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

------------------------------------------------------------------------
            If the OCC . . .                        Then . . .
------------------------------------------------------------------------
(1) Notifies you, in writing, that your  The applicable review period
 application is complete * * *            will begin on the date that
                                          the OCC deems your application
                                          complete.
(2) Notifies you, in writing, that you   You must submit the required
 must submit additional information to    additional information under
 complete your application * * *.         Sec.   116.220.
(3) Notifies you, in writing, that your  The OCC 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.  116.25(b), and the OCC 
has not notified you that you must submit additional information under 
paragraph (a)(2) of this section, your request for waiver is granted.


Sec.  116.220   If the OCC 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.  
116.210(a)(1):

------------------------------------------------------------------------
 If, within 30 calendar days
 after the date of the OCC's   Then, the OCC 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 OCC deems
                               response that your    your application
                               application is        complete.
                               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 OCC. The OCC
                               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 OCC 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 OCC. The OCC
                               * *.                  will review your
                                                     response under the
                                                     procedures
                                                     described under
                                                     this section.

[[Page 48977]]

 
                              (ii) Notify you in    The OCC 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 OCC 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 OCC. The OCC
                               period, specifying    will review your
                               the number of days    response under the
                               for the respond       procedures
                               extension * * *.      described under
                                                     this section.
------------------------------------------------------------------------

    (b) The OCC may extend the 15-day period referenced in paragraph 
(a)(1) of this section by up to 15 calendar days, if the OCC requires 
the additional time to review your response. The OCC 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 OCC fails to act on it within 15 
calendar days after the filing of your response, unless the OCC extends 
the review period under paragraph (b). If the OCC extends the review 
period under paragraph (b), your request is granted if the OCC fails to 
act on it by the end of the extended review period.


Sec.  116.230   Will the OCC conduct an eligibility examination?

    (a) Eligibility examination. The OCC may notify you at any time 
before it deems your application complete that it will conduct an 
eligibility examination. If the OCC decides to conduct an eligibility 
examination, it will not deem your application complete until it 
concludes the examination.
    (b) Additional information. The OCC 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 OCC. The OCC will review your response under the procedures 
described in Sec.  116.220.


Sec.  116.240   What may the OCC 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 OCC may require you to provide additional information if 
the information is necessary to resolve or clarify the issues presented 
by your application.
    (b) The OCC 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 OCC 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.  116.220; and
    (2) Require you to publish a new public notice of your application 
under Sec.  116.250.


Sec.  116.250   Will the OCC require me to publish a new public notice?

    (a) If your application was subject to a publication requirement, 
the OCC may require you to publish a new public notice of your 
application if:
    (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 OCC determines that additional comment on these matters is 
appropriate because of the significance of the new information or 
circumstances.
    (b) The OCC 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 OCC after you publish the new 
public notice.


Sec.  116.260   May the OCC suspend processing of my application?

    (a) Suspension. The OCC may, at any time, indefinitely suspend 
processing of your application if:
    (1) The OCC, another governmental entity, or a self-regulatory 
trade or professional organization initiates an investigation, 
examination, or administrative proceeding that is relevant to the OCC'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 OCC will promptly notify you, in writing, if it 
suspends your application.


Sec.  116.270   How long is the OCC review period?

    (a) General. The applicable OCC review period is 60 calendar days 
after the date that your application is deemed complete, unless an 
applicable OCC 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 OCC may extend the review period for up to 
30 calendar days beyond the period described in paragraph (a) or (b) of 
this section. The OCC must notify you in writing of the extension and 
the duration of the extension. The OCC must issue the written extension 
before the end of the review period.
    (2) The OCC 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 
OCC must notify you in writing of the extension and the general reasons 
for the extension. The OCC 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. This section applies to notices filed 
under Sec.  174 of this chapter.

[[Page 48978]]

Sec.  116.280   How will I know if my application has been approved?

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


Sec.  116.290   What will happen if the OCC does not approve or 
disapprove my application within two calendar years after the filing 
date?

    If the OCC has not approved or denied your pending application 
within two calendar years after the filing date under Sec.  116.45, the 
OCC will notify you, in writing, that your application is deemed 
withdrawn unless the OCC determines that you are actively pursuing a 
final OCC determination on your application. You are not actively 
pursuing a final OCC determination if you have failed to timely take an 
action required under this part, including filing required additional 
information, or the OCC has suspended processing of your application 
under Sec.  116.260 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.

PART 128--NONDISCRIMINATION REQUIREMENTS

Sec.
128.1 Definitions.
128.2 Nondiscrimination in lending and other services.
128.3 Nondiscrimination in applications.
128.4 Nondiscriminatory advertising.
128.5 Equal Housing Lender Poster.
128.6 Loan application register.
128.7 Nondiscrimination in employment.
128.8 Complaints.
128.9 Guidelines relating to nondiscrimination in lending.
128.10 Supplementary guidelines.
128.11 Nondiscriminatory appraisal and underwriting.


    Authority: 12 U.S.C. 1464, 5412(b)(2)(B).

Sec.  128.1  Definitions.

    As used in this part 128--
    (a) 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).
    (b) Savings association. The term ``savings association'' means any 
Federal savings association as defined in 12 U.S.C. 1813(b)(2).
    (c) 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 Columbia, or the 
Commonwealth of Puerto Rico. The term includes an individual 
condominium unit, cooperative unit, or mobile or manufactured home.


Sec.  128.2   Nondiscrimination in lending and other services.

    (a) No 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 savings association shall consider without prejudice the 
combined income of joint applicants for a loan or other service.
    (c) No 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).
    Note to Sec.  128.2: See also, Sec.  128.9(b) and (c).


Sec.  128.3   Nondiscrimination in applications.

    (a) No 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.  128.2(c) of this 
part, 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 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.

    Note Sec.  128.3: See also, Sec.  128.9(a) through (d).

Sec.  128.4   Nondiscriminatory advertising.

    No 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 part 128. 
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] TR09AU11.000

Sec.  128.5   Equal Housing Lender Poster.

    (a) Each 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] TR09AU11.001

    We Do Business In Accordance With Federal Fair Lending Laws.

[[Page 48979]]

    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:
    [Insert contact information for appropriate Federal regulator]
    For processing under applicable 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:
    [Insert contact information for appropriate Federal regulator]


Sec.  128.6  Loan application register.

    Savings associations and other lenders required to file Home 
Mortgage Disclosure Act Loan Application Registers with the OCC 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.  128.7  Nondiscrimination in employment.

    (a) No 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 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 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 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.
    (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 savings 
association shall be deemed to be a violation of this part 128:
    (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) 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 seq.; and
    (6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS 
regulations at 8 CFR part 274a.


Sec.  128.8  Complaints.

    Complaints alleging violations of the Fair Housing Act by a 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 appropriate Federal regulator for processing under 
applicable regulations. Complaints regarding discrimination in 
employment by a savings association should be referred to the Equal 
Employment Opportunity Commission, Washington, DC 20506 and a copy, for 
information only, sent to the appropriate Federal regulator.


Sec.  128.9  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 OCC, the OCC has adopted, in part 128 of 
this chapter, 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 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 
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

[[Page 48980]]

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 favored 
method of loan underwriting 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 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;
    (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 128.2, 128.11, and 128.3 of 
this chapter 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). 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 parts 100 through 125, 
except that they shall use the Equal Housing Lender logo and poster 
prescribed by OCC regulations at 12 CFR 128.4 and 128.5 rather than the 
Equal Housing Opportunity logo and poster required by 24 CFR part 110.
    (d) Marketing practices. 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 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 OCC will systematically review marketing 
practices where evidence of discrimination in lending is discovered.


Sec.  128.10  Supplementary guidelines.

    The policy statement found at 12 CFR 128.9 supplements this part 
and should be read together with this part. Refer

[[Page 48981]]

also to the HUD Fair Housing regulations at 24 CFR parts 100 through 
125, Federal Reserve Regulation B at 12 CFR part 202, and Federal 
Reserve Regulation C at 12 CFR part 203.


Sec.  128.11  Nondiscriminatory appraisal and underwriting.

    (a) Appraisal. No savings association may use or rely upon an 
appraisal of a dwelling which the 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.
    (b) Underwriting. Each 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.

    Note to Sec.  128.11: See also, Sec.  128.9(b), (c)(6), and 
(c)(7).

PART 133--DISCLOSURE AND REPORTING OF CRA-RELATED AGREEMENTS

Sec.
133.1 Purpose and scope of this part.
133.2 Definition of covered agreement.
133.3 CRA communications.
133.4 Fulfillment of the CRA.
133.5 Related agreements considered a single agreement.
133.6 Disclosure of covered agreements.
133.7 Annual reports.
133.8 Release of information under FOIA.
133.9 Compliance provisions.
133.10 [Reserved]
133.11 Other definitions and rules of construction used in this 
part.


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1831y and 5412(b)(2)(B).

Sec.  133.1  Purpose and scope of this part.

    (a) General. This part 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 part. The provisions of this part apply to--
    (1) Federal savings associations and their subsidiaries;
    (2) [Reserved]
    (3) Affiliates of Federal savings associations; and
    (4) NGEPs that enter into covered agreements with any company 
listed in paragraphs (b)(1) and (b)(2) of this section.
    (c) Relation to Community Reinvestment Act. This part does not 
affect in any way the Community Reinvestment Act of 1977 (CRA) (12 
U.S.C. 2901 et seq.), the OCC's Community Reinvestment rule at 12 CFR 
part 195, or the OCC's interpretations or administration of the CRA or 
Community Reinvestment rule.
    (d) Examples. (1) The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.
    (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 part.


Sec.  133.2  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.  133.4 of this part.
    (5) The agreement is with a NGEP that has had a CRA communication 
as described in Sec.  133.3 of this part 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 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.

[[Page 48982]]

    (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.  133.3  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 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).
    (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 (b)(3)(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--

[[Page 48983]]

    (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 (b)(2) of this section and the appropriate 
representatives have knowledge of the communication as specified in 
paragraphs (b)(3) and (b)(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.  133.11(a) 
of this part.) 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 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.  133.6 and 133.7 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.  133.4  Fulfillment of the CRA.

    (a) List of factors that are in fulfillment of the CRA. Fulfillment 
of the CRA, for purposes of this part, 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

[[Page 48984]]

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 Sec.  
195.22 of this chapter, 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 Sec.  195.23 of this chapter;
    (iii) Delivering retail banking services, as described in Sec.  
195.24(d) of this chapter;
    (iv) Providing community development services, as described in 
Sec.  195.24(e) of this chapter;
    (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 Sec.  195.25(c) of this chapter;
    (vi) In the case of a small insured depository institution, any 
lending or other activity described in Sec.  195.26(a) of this chapter; 
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 Sec.  195.27(f) of this chapter.
    (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.  133.5  Related agreements considered a single agreement.

    The following rules must be applied in determining whether an 
agreement is a covered agreement under Sec.  133.2 of this part.
    (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.  133.6  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;
    (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 subpart B of part 4 of this chapter).
    (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 
Sec.  195.43 of this chapter.
    (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

[[Page 48985]]

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.  133.7  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 (e)(1)(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 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

[[Page 48986]]

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 
(e)(1)(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 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 
(e)(1)(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.  133.8  Release of information under FOIA.

    The OCC 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.), subpart B of part 4 of this chapter. 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.  133.9  Compliance provisions.

    (a) Willful failure to comply with disclosure and reporting 
obligations. (1)

[[Page 48987]]

If the OCC determines that a NGEP has willfully failed to comply in a 
material way with Sec. Sec.  133.6 or 133.7 of this part, the OCC will 
notify the NGEP in writing of that determination and provide the NGEP a 
period of 90 days (or such longer period as the OCC finds to be 
reasonable under the circumstances) to comply.
    (2) If the NGEP does not comply within the time period established 
by the OCC, 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) The OCC 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, the OCC 
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, the OCC will provide 
written notice and an opportunity to present information to the OCC 
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 the OCC under 
Sec. Sec.  133.6 or 133.7 of this part will not subject the reporting 
party to any penalty.
    (e) Enforcement of provisions in covered agreements. No provision 
of this part shall be construed as authorizing the OCC to enforce the 
provisions of any covered agreement.


Sec.  133.10  [Reserved]


Sec.  133.11  Other definitions and rules of construction used in this 
part.

    (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.  133.2, 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.  133.3 of this part.
    (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 Sec.  
195.43 of this chapter.
    (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 part, the term 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, 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), 
(i)(2)(ii), or (i)(2)(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.

PART 136--CONSUMER PROTECTION IN SALES OF INSURANCE

Sec.
136.10 Purpose and scope.
136.20 Definitions.

[[Page 48988]]

136.30 Prohibited practices.
136.40 What you must disclose.
136.50 Where insurance activities may take place.
136.60 Qualification and licensing requirements for insurance sales 
personnel.
Appendix A to Part 136--Consumer Grievance Process

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1831x, and 
5412(b)(2)(B).


Sec.  136.10  Purpose and scope.

    (a) General rule. This part 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 Federal savings association; or
    (2) Any other person that is engaged in such activities at an 
office of a Federal savings association or on behalf of a Federal 
savings association.
    (b) Application to operating subsidiaries. For purposes of Sec.  
159.3(h) of this chapter, an operating subsidiary is subject to this 
part only to the extent that it sells, solicits, advertises, or offers 
insurance products or annuities at an office of a Federal savings 
association or on behalf of a Federal savings association.


Sec.  136.20  Definitions.

    As used in this part:
    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 Federal Deposit Insurance Act (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 Federal savings association where 
retail deposits are accepted from the public.
    Subsidiary has the same meaning as in section 3(w)(4) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)).
    You means:
    (1) A Federal savings association, as defined in Sec.  141.11 of 
this chapter; 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 Federal savings association, or on behalf of a Federal 
savings association. For purposes of this definition, activities on 
behalf of a Federal savings association include activities where a 
person, whether at an office of the 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 savings association;
    (ii) The savings association refers a consumer to a seller of 
insurance products and annuities and the 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 
savings association.


Sec.  136.30  Prohibited practices.

    (a) Anticoercion and antitying 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 Federal 
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 Federal savings association or a subsidiary of a Federal 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 Federal savings association sell or offer for sale is 
not backed by the Federal government or a Federal 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 Federal savings association or subsidiary of a 
Federal 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 
savings association or subsidiary may not be conditioned on the 
purchase of an insurance product or annuity by the consumer from the 
savings association or a subsidiary of a 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.

[[Page 48989]]

Sec.  136.40  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 Federal savings association or an 
affiliate of a Federal 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 Federal savings association, or (if applicable) an affiliate 
of a Federal 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 Federal savings association 
may not condition an extension of credit on either:
    (1) The consumer's purchase of an insurance product or annuity from 
the 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 (15 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 FEDERAL 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 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 Federal savings association.


Sec.  136.50  Where insurance activities may take place.

    (a) General rule. A Federal savings association must, to the extent 
practicable:
    (1) Keep the area where the 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

[[Page 48990]]

    (3) Clearly delineate and distinguish those areas from the areas 
where the 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 Federal 
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.  136.60  Qualification and licensing requirements for insurance 
sales personnel.

    A Federal savings association may not permit any person to sell or 
offer for sale any insurance product or annuity in any part of the 
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 Part 136--Consumer Grievance Process

    Any consumer who believes that any Federal savings association 
or any other person selling, soliciting, advertising, or offering 
insurance products or annuities to the consumer at an office of the 
savings association or on behalf of the savings association has 
violated the requirements of this part should contact the Customer 
Assistance Group, Office of the Comptroller of the Currency, (800) 
613-6743, 1301 McKinney Street, Suite 3710, Houston, Texas 77010-
3031.

PART 141--DEFINITIONS FOR REGULATIONS AFFECTING FEDERAL SAVINGS 
ASSOCIATIONS

Sec.
141.1 When do the definitions in this part apply?
141.2 Act.
141.5 Commercial paper.
141.7 Corporate debt security.
141.8 Debit card.
141.10 Dwelling unit.
141.11 Federal savings association.
141.14 Home.
141.15 Improved nonresidential real estate.
141.16 Improved residential real estate.
141.18 Interim Federal savings association.
141.19 Interim state savings association.
141.20 Loans.
141.21 Nonresidential real estate.
141.22 [Reserved]
141.23 Residential real estate.
141.25 Single-family dwelling.
141.26 Surplus.
141.27 Unimproved real estate.
141.28 Withdrawal value of a savings account.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).


Sec.  141.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 161 apply 
throughout parts 100 through 199 of this chapter, unless another 
definition is specifically provided.


Sec.  141.2  Act.

    The term Act means the Home Owners' Loan Act of 1933, as amended.


Sec.  141.5  Commercial paper.

    The term commercial paper means any note, draft, or bill of 
exchange which arises out of a current transaction or the proceeds of 
which have been or are to be used for current transactions, and which 
has a maturity at the time of issuance of not exceeding nine months, 
exclusive of days of grace, or any renewal thereof the maturity of 
which is likewise limited.


Sec.  141.7  Corporate debt security.

    The term corporate debt security means a marketable obligation, 
evidencing the indebtedness of any corporation in the form of a bond, 
note and/or debenture which is commonly regarded as a debt security and 
is not predominantly speculative in nature. A security is marketable if 
it may be sold with reasonable promptness at a price which corresponds 
reasonably to its fair value.


Sec.  141.8  Debit card.

    The term debit card means a card that enables an accountholder to 
obtain access to a savings account for the purpose of making 
withdrawals or of transferring funds to a third party by non-
transferable order or authorization.


Sec.  141.10  Dwelling unit.

    The term dwelling unit means the unified combination of rooms 
designed for residential use by one family, other than a single-family 
dwelling.


Sec.  141.11  Federal savings association.

    The term Federal savings association means a Federal savings 
association or Federal savings bank chartered under section 5 of the 
Act.


Sec.  141.14  Home.

    The term home means real estate comprising a single-family 
dwelling(s) or a dwelling unit(s) for four or fewer families in the 
aggregate.


Sec.  141.15  Improved nonresidential real estate.

    The term improved nonresidential real estate means nonresidential 
real estate:
    (a) Containing a permanent structure(s) constituting at least 25 
percent of its value; or
    (b) Containing improvements which make it usable by a business or 
industrial enterprise; or
    (c) Used, or to be used within a reasonable time, for commercial 
farming, excluding hobby and vacation property.


Sec.  141.16  Improved residential real estate.

    The term improved residential real estate means residential real 
estate containing offsite or other improvements sufficient to make the 
property ready for primarily residential construction, and real estate 
in the process of being improved by a building or buildings to be 
constructed or in the process of construction for primarily residential 
use.


Sec.  141.18  Interim Federal savings association.

    The term interim Federal savings association means a Federal 
savings association chartered by the OCC or the OTS under section 5 of 
the Act to facilitate the acquisition of 100 percent of the voting 
shares of an existing Federal stock savings association or other 
insured stock savings association by a newly formed company or an 
existing savings and loan holding company or to facilitate any other 
transaction the OCC may approve.


Sec.  141.19  Interim state savings association.

    The term interim state savings association means a savings 
association, other than a Federal savings association, the accounts of 
which are insured by the FDIC to facilitate the acquisition of 100 
percent of the voting shares of an existing Federal stock savings 
association or other insured stock savings association by a newly 
formed company or an existing savings and loan holding company or to 
facilitate any other transaction the OCC may approve.


Sec.  141.20  Loans.

    The term loans means obligations and extensions or advances of 
credit; and any reference to a loan or investment includes an interest 
in such a loan or investment.


Sec.  141.21  Nonresidential real estate.

    The terms nonresidential real estate or nonresidential real 
property mean real estate that is not residential real estate, as that 
term is defined in Sec.  141.23 of this part.

[[Page 48991]]

Sec.  141.22  [Reserved]


Sec.  141.23  Residential real estate.

    The terms residential real estate or residential real property 
mean:
    (a) Homes (including a dwelling unit in a multi-family residential 
property such as a condominium or a cooperative);
    (b) Combinations of homes and business property (i.e., a home used 
in part for business);
    (c) Other real estate used for primarily residential purposes other 
than a home (but which may include homes);
    (d) Combinations of such real estate and business property 
involving only minor business use (i.e., where no more than 20 percent 
of the total appraised value of the real estate is attributable to the 
business use);
    (e) Farm residences and combinations of farm residences and 
commercial farm real estate;
    (f) Property to be improved by the construction of such structures; 
or
    (g) Leasehold interests in the above real estate.


Sec.  141.25  Single-family dwelling.

    The term single-family dwelling means a structure designed for 
residential use by one family, or a unit so designed, whose owner owns, 
directly or through a non-profit cooperative housing organization, an 
undivided interest in the underling real estate, including property 
owned in common with others which contributes to the use and enjoyment 
of the structure or unit.


Sec.  141.26  Surplus.

    The term surplus means undistributed earnings held as unallocated 
reserves for general corporate use.


Sec.  141.27  Unimproved real estate.

    The term unimproved real estate means real estate that will be 
improved, as defined in Sec.  141.15 or Sec.  141.16 of this part.


Sec.  141.28  Withdrawal value of a savings account.

    The term withdrawal value of a savings account means the amount 
invested in a savings account plus earnings credited thereto, less 
lawful deductions therefrom.

PART 143--FEDERAL MUTUAL SAVINGS ASSOCIATIONS--INCORPORATION, 
ORGANIZATION, AND CONVERSION

Sec.
143.1 Corporate title.

Organization

143.2 Application for permission to organize.
143.3 ``De novo'' applications for a Federal savings association 
charter.
143.4 Issuance of charter.
143.5 Completion of organization.
143.6 Limitations on transaction of business.
143.7 Federal savings association created in connection with an 
association in default or in danger of default.

Conversion

143.8 Conversion of depository institutions to Federal mutual 
charter.
143.9 Application for conversion to Federal mutual charter.
143.10 Organization after conversion.
143.11 Organization plan for governance during first years after 
issuance of Federal mutual savings bank charter.
143.12 Grandfathered authority.
143.14 Continuity of existence.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq., 5412(b)(2)(B).


Sec.  143.1  Corporate title.

    (a) General. A Federal savings association shall not adopt a title 
that misrepresents the nature of the institution or the services it 
offers.
    (b) Title change. Prior to changing its corporate title, an 
association must file with the appropriate OCC licensing office a 
written notice indicating the intended change. The OCC shall provide to 
the association a timely written acknowledgment stating when the notice 
was received. If, within 30 days of receipt of notice, the OCC does not 
notify the association of its objection on the grounds set forth in 
paragraph (a) of this section, the association may change its title by 
amending its charter in accordance with Sec.  144.2(b) or Sec.  152.4 
of this chapter and the amendment provisions of its charter, except 
that an association chartered as a Federal Savings and Loan Association 
may change its title to indicate that it is a Federal Savings Bank, and 
an association chartered as a Federal Savings Bank may change its title 
to indicate that it is a Federal Savings and Loan Association.

Organization


Sec.  143.2   Application for permission to organize.

    (a) General. Recommendations by employees of the OCC regarding 
applications for permission to organize a Federal savings association 
are privileged, confidential, and subject to part 4, subpart C of this 
chapter.
    (b) [Reserved]
    (c) [Reserved]
    (d) Public notice and inspection. (1) The applicant must publish a 
public notice of the application to organize in accordance with the 
procedures specified in subpart B of part 116 of this chapter.
    (2) Promptly after publication, the applicant(s) shall transmit 
copies of each notice and publisher's affidavit of publication in the 
same manner as the original filing.
    (3) The OCC shall give notice of the application to the state 
official who supervises savings associations in the state in which the 
new association is to be located.
    (4) Any person may inspect the application and all related 
communications at the address specified in 12 CFR 4.14(c) during 
regular business hours, unless such information is exempt from public 
disclosure.
    (e) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 116 of this chapter.
    (f) Meetings. The OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (g) Approval. (1) Factors that will be considered are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the 
association's usefulness and success;
    (iv) Whether the association can be established without undue 
injury to properly conducted existing local thrift and home financing 
institutions;
    (v) Whether the association will perform a role of providing credit 
for housing consistent with safe and sound operation of a Federal 
savings association; and
    (vi) Whether the factors set forth in Sec.  143.3 are met, in the 
case of an application that would result in the formation of a de novo 
association, as defined in Sec.  143.3(a).
    (2) Approvals of applications will be conditioned on the following:
    (i) Receipt by the OCC of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the Federal savings 
association will be insured by the Federal Deposit Insurance 
Corporation;
    (ii) A minimum amount of capital to be paid into the association's 
accounts prior to commencing business;
    (iii) The submission of a statement that--
    (A) The applicants have complied in all respects with the Act and 
these rules and regulations regarding organization of a Federal savings 
association;
    (B) The applicants have incurred no expense in forming the 
association

[[Page 48992]]

which is chargeable to it, and no such expense will be incurred;
    (C) No funds have been collected on account of the association 
before the OCC's approval;
    (D) An organization committee has been created (naming the 
committee and its officers);
    (E) The committee will organize the association and serve as 
temporary officers of the association until officers are elected by the 
association's board of directors under Sec.  143.5 of this part; and
    (F) No funds will be accepted for deposit by the association until 
organization has been completed; and
    (iv) The satisfaction of any other requirement the OCC may impose.
    (h) Alternative procedures for interim Federal savings 
associations. (1) Applications for permission to organize an interim 
Federal savings association are not subject to paragraphs (d), (e), (f) 
or (g)(2) of this section.
    (2) Approval of an application for permission to organize an 
interim Federal savings association shall be conditioned on approval by 
the OCC of an application to merge the interim Federal savings 
association and an existing insured stock association or on approval by 
the OCC of such other transaction which the interim was chartered to 
facilitate. In evaluating the application, the OCC will consider the 
purpose for which the association will be organized, the form of any 
proposed transactions involving the organizing association, the effect 
of the transactions on existing associations involved in the 
transactions, and the factors specified in Sec.  143.2(g)(1) to the 
extent relevant.


Sec.  143.3   ``De novo'' applications for a Federal savings 
association charter.

    (a) Definitions. For purposes of this section, the term ``de novo 
association'' means any Federal savings association chartered by the 
OTS prior to July 21, 2011 or by the OCC, the business of which has not 
been conducted previously under any charter or conducted in the 
previous three years in substantially the same form as is proposed by 
the de novo association. A ``de novo applicant'' means any person or 
persons who apply to establish a de novo association.
    (b) Minimum initial capitalization. (1) A de novo association must 
have at least two million dollars in initial capital stock (stock 
institutions) or initial pledged savings or cash (mutual institutions), 
except as provided in paragraph (b)(2) of this section. The minimum 
initial capitalization is the amount of proceeds net of all incurred 
and anticipated securities issuance expenses, organization expenses, 
pre-opening expenses, or any expenses paid (or funds advanced) by 
organizers that are to be reimbursed from the proceeds of a securities 
offering. In securities offerings for a de novo association, all 
securities of a particular class in the initial offering shall be sold 
at the same price.
    (2) On a case by case basis, the OCC may, for good cause, approve a 
de novo association that has less than two million dollars in initial 
capital or may require a de novo association to have more than two 
million dollars in initial capital.
    (c) Business and investment plans of de novo associations. (1) To 
assist the OCC in making the determinations required under section 5(e) 
of the Home Owners' Loan Act, a de novo applicant shall submit a 
business plan describing, for the first three years of operation of the 
de novo association, the major areas of operation, including:
    (i) Lending, leasing and investment activity, including plans for 
meeting Qualified Thrift Lender requirements;
    (ii) Deposit, savings and borrowing activity;
    (iii) Interest-rate risk management;
    (iv) Internal controls and procedures;
    (v) Plans for meeting the credit needs of the proposed de novo 
association's community (including low- and moderate-income 
neighborhoods);
    (vi) Projected statements of condition;
    (vii) Projected statements of operations; and
    (viii) Any other information requested by the OCC.
    (2) The business plan shall:
    (i) Provide for the continuation or succession of competent 
management subject to the approval of the OCC;
    (ii) Provide that any material change in, or deviation from, the 
business plan must receive the prior approval of the OCC;
    (iii) Demonstrate the de novo association's ability to maintain 
required minimum regulatory capital under 12 CFR parts 165 and 167 for 
the duration of the plan.
    (d) Composition of the board of directors. (1) A majority of a de 
novo association's board of directors must be representative of the 
state in which the savings association is located. The OCC generally 
will consider a director to be representative of the state if the 
director resides, works or maintains a place of business in the state 
in which the savings association is located. If the association is 
located in a Metropolitan Statistical Area (MSA), Primary Metropolitan 
Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area 
(CMSA) that incorporates portions of more than one state, a director 
will be considered representative of the association's state if he or 
she resides, works or maintains a place of business in the MSA, PMSA or 
CMSA in which the association is located.
    (2) The de novo association's board of directors must be 
diversified and composed of individuals with varied business and 
professional experience. In addition, except in the case of a de novo 
association that is wholly-owned by a holding company, no more than 
one-third of a board of directors may be in closely related businesses. 
The background of each director must reflect a history of 
responsibility and personal integrity, and must show a level of 
competence and experience sufficient to demonstrate that such 
individual has the ability to direct the policies of the association in 
a safe and sound manner. Where a de novo association is owned by a 
holding company that does not have substantial independent economic 
substance, the board of directors of the holding company must satisfy 
the foregoing standards.
    (e) Management Officials. Proposed stockholders of ten percent or 
more of the stock of a de novo association will be considered 
management officials of the association for the purpose of the OCC's 
evaluation of the character and qualifications of the management of the 
association. In connection with the OCC's consideration of an 
application for permission to organize and subsequent to issuance of a 
Federal savings association charter to the association by the OCC, any 
individual or group of individuals acting in concert under 12 CFR part 
174, who owns or proposes to acquire, directly or indirectly, ten 
percent or more of the stock of an association subject to this section, 
shall submit a Biographical and Financial Report, on forms prescribed 
by the OCC, to the appropriate OCC licensing office.
    (f) Supervisory transactions. This section does not apply to any 
application for a Federal savings association charter submitted in 
connection with a transfer or an acquisition of the business or 
accounts of a savings association if the OCC determines that such 
transfer or acquisition is instituted for supervisory purposes, or in 
connection with applications for Federal charters for interim de novo 
associations chartered for the purpose of facilitating mergers, holding 
company reorganizations, or similar transactions.


Sec.  143.4   Issuance of charter.

    Approval by the OCC of the organization of a Federal savings 
association or the conversion of an

[[Page 48993]]

insured association to Federal savings association form shall 
constitute issuance of a charter and shall be final, provided that the 
association complies with the procedures set out at Sec.  144.2(a) of 
this chapter. The charter shall conform with the requirements of Sec.  
144.1 of this chapter, the permissible provisions of Sec.  144.2, or 
other provisions specifically approved by the OCC.


Sec.  143.5   Completion of organization.

    (a)(1) Temporary officers. When the OCC approves an application for 
permission to organize a Federal savings association, the applicants 
shall constitute the organization committee and elect a chairperson, 
vice-chairperson, and a secretary, who shall act as the temporary 
officers of the association until their successors are duly elected and 
qualified. The temporary officers may effect compliance with any 
conditions prescribed by the OCC.
    (2) Organization meeting. Promptly upon receipt of a charter, the 
temporary officers shall call a meeting of the association's capital 
subscribers; notice of such meeting shall be mailed to each subscriber 
at least 5 days before the meeting day. Subscribers who have subscribed 
for a majority of the association's capital, present in person or by 
proxy, shall constitute a quorum. At such meeting, directors of the 
association shall be elected according to the association's charter and 
bylaws, and any other action permitted by such charter and bylaws may 
be taken; any such action shall be considered an acceptance by the 
association of such charter and of such bylaws, which shall be in the 
form provided in parts 144 and 152 of this chapter.
    (b) First meeting of directors. Upon election, the association's 
board of directors shall hold a meeting to elect officers of the 
association as provided by its charter and bylaws and to take any other 
action necessary to permit operation of the association in accordance 
with law, the association's charter and bylaws, and these rules and 
regulations. When such officers have been bonded under Sec.  163.190 of 
this chapter, they shall immediately collect the sums due on 
subscriptions to the association's capital.
    (c) Membership in Federal Home Loan Bank and insurance of accounts. 
When a Federal savings association's charter is issued it must promptly 
qualify as a member of a Federal Home Loan Bank and meet all 
requirements necessary to obtain insurance of its accounts by the 
Federal Deposit Insurance Corporation.
    (d) Failure to complete. Organization of a Federal savings 
association is completed when the organization meeting and the first 
meeting of its directors have been held, permanent officers have been 
bonded, the association holds the cash required to be paid on 
subscriptions to its capital, if required, Federal Home Loan Bank 
membership has been obtained and Federal Deposit Insurance Corporation 
insurance of accounts has been confirmed and any conditions imposed by 
the OTS prior to July 21, 2011 or by the OCC in connection with 
approval of the application have been met. If organization is not so 
completed within six months after issuance of a charter, or within such 
additional period granted for good cause, and in the case of an interim 
Federal savings association, if a merger, or other transaction 
facilitated by the existence of an interim association, has not been 
approved, the charter shall become void and all cash collected on 
subscriptions shall thereupon be returned.


Sec.  143.6   Limitations on transaction of business.

    No person may organize a Federal savings association, collect money 
from others for such purpose, or represent himself or herself as 
authorized to do so, and no Federal savings association shall transact 
any business prior to completion of its organization, except as 
provided in this part.


Sec.  143.7   Federal savings association created in connection with an 
association in default or in danger of default.

    The preceding sections of this part do not apply to a Federal 
savings association which is proposed by the Federal Deposit Insurance 
Corporation under section 11(c) of the Federal Deposit Insurance Act 
(12 U.S.C. 1821(c)) or section 21A of the Federal Home Loan Bank Act 
(12 U.S.C. 1441A), or is otherwise chartered by the OCC in connection 
with an association in default or in danger of default. Incorporation 
and organization of such associations are complete when the OCC so 
determines.

Conversion


Sec.  143.8   Conversion of depository institutions to Federal mutual 
charter.

    (a) With the approval of the OCC, any depository institution, as 
defined in Sec.  152.13 of this chapter, that is in mutual form, may 
convert into a Federal mutual savings association, provided that:
    (1) The depository institution, upon conversion, will have its 
deposits insured by the Federal Deposit Insurance Corporation;
    (2) The depository institution, in accomplishing the conversion, 
complies with all applicable state and Federal statutes and 
regulations, and OCC policies, and obtains all necessary regulatory and 
member approvals; and
    (3) The resulting Federal mutual association conforms, within the 
time prescribed by the OCC, to the requirements of section 5(c) of the 
Home Owners' Loan Act.
    (b) Recommendations regarding applications for issuance of Federal 
charters are privileged, confidential and subject to part 4, subpart C 
of this chapter.


Sec.  143.9   Application for conversion to Federal mutual charter.

    (a)(1) Filing. Any depository institution that proposes to convert 
to a Federal mutual association as provided in Sec.  143.8 must, after 
approval by its board of directors, file an application on forms 
obtained from the OCC with the appropriate licensing office. The 
applicant must submit any financial statements or other information the 
OCC may require.
    (2) Procedures. An application for conversion filed under this 
section is subject to the procedures for organization of a Federal 
mutual association at Sec.  143.2(d) through (f) of this chapter.
    (b) Plan of conversion. The applicant shall submit with its 
application a plan of conversion specifying the location of the home 
office and any branch offices to be maintained by the Federal savings 
association, and providing for:
    (1) Appropriate reserves and surplus for the Federal savings 
association;
    (2) Satisfaction in full or assumption by the Federal savings 
association of all creditor obligations of the applicant;
    (3) Issuance by the Federal savings association of savings accounts 
to current holders of withdrawable accounts in an amount equaling the 
value of such accounts; and
    (4) If applicable, issuance of additional savings accounts to 
current holders of nonwithdrawable capital stock of the applicant in an 
amount equaling the value of their nonwithdrawable capital stock, 
including the present value of any preference to which such holders are 
entitled.
    (c) Action on application. The OCC will consider such application 
and any information submitted with the application, and may approve the 
application in accordance with section 5(e) of the Home Owners' Loan 
Act and Sec.  143.2(g)(1). Converting depository

[[Page 48994]]

institutions that have been in existence less than three years will be 
subject to all approval criteria and other requirements applicable to 
de novo Federal associations. Approval of an application and issuance 
by the OCC of a charter will be subject to:
    (1) Compliance by the applicant with all conditions prescribed in 
the approval;
    (2) Receipt by the applicant of approval of the plan of conversion 
by such vote as may be required by the laws of the applicant's 
jurisdiction to consider such action;
    (3) In the case of a converting association the accounts of which 
are not insured by the Federal Deposit Insurance Corporation, receipt 
by the OCC of written confirmation from the Federal Deposit Insurance 
Corporation that the accounts of the converting association will be 
insured by the Federal Deposit Insurance Corporation; and
    (4) Receipt by the OCC of written confirmation from the appropriate 
Federal Home Loan Bank of approval of the converting institution's 
application for Federal Home Loan Bank membership, if the institution 
is not a member.


Sec.  143.10   Organization after conversion.

    Except as provided in Sec.  143.11, after a Federal charter is 
issued under Sec.  143.9 the association's members shall, after due 
notice, or upon a valid adjournment of a previous legal meeting, hold a 
meeting to elect directors and take all other action necessary fully to 
effect the conversion and operate the association in accordance with 
law and these rules and regulations. Immediately thereafter the board 
of directors shall meet, elect officers, and transact any other 
appropriate business.


Sec.  143.11   Organization plan for governance during first years 
after issuance of Federal mutual savings bank charter.

    (a) Organizational meeting. Except as provided in paragraph (c)(1) 
of this section, promptly upon receipt of a charter, the officers of a 
Federal mutual savings bank which, immediately prior to conversion, was 
a state chartered mutual savings bank, shall call a meeting of the 
members. Notice for, and conduct of, such meeting shall be in 
accordance with the bank's Federal charter and bylaws. Business to be 
conducted at the organizational meeting shall include the election of 
trustees (who may also be known as a board of directors) and any other 
matters permitted by the charter and bylaws. Any action taken at such 
meeting shall be deemed an acceptance of the charter and bylaws 
approved by the OTS prior to July 21, 2011 or by the OCC pursuant to 
Sec.  144.1 of this chapter.
    (b) First meeting of trustees. Upon election or appointment, the 
board of trustees shall hold a meeting to elect the officers of the 
bank in accordance with its Federal charter and bylaws, and to take 
other action necessary to permit the operation of the bank in 
accordance with the Home Owners' Loan Act of 1933, as amended, the 
bank's charter and bylaws, these rules and regulations, and orders of 
the OCC.
    (c) Plan for governance of association during first six years after 
issuance of Federal charter. (1)(i) An applicant for a Federal mutual 
savings bank charter may submit a plan which provides that each member 
of its governing board, i.e., board of trustees, managers, or 
directors, may continue to serve, provided that within two years of the 
issuance of a Federal charter at least one-fifth of the members of such 
board shall have been elected by vote, either in person or by proxy, of 
the bank's membership as provided in its Federal charter, that within 
three years of the issuance of its Federal charter at least two-fifths 
of the members of such board shall have been elected by such a 
membership vote, that within four years of the issuance of its Federal 
charter at least three-fifths of the members of such board shall have 
been elected by such a membership vote, that within five years of the 
issuance of its Federal charter at least four-fifths of the members of 
such board shall have been elected by such a membership vote, and that 
within six years of the issuance of its Federal charter all of the 
members of such board shall have been elected by such a membership 
vote.
    (ii) The plan:
    (A) Shall set forth the names of those persons who are being 
proposed for service on the applicant's governing board after 
conversion to a Federal charter,
    (B) Shall show how trustees not elected by the converted bank's 
membership will be appointed or otherwise selected, and
    (C) Shall provide that no trustees may be appointed or elected to 
terms of more than three years.
    (iii) The plan may provide that
    (A) After receipt of its Federal charter the bank will be organized 
by its existing governing board,
    (B) Within the first two years following receipt of its Federal 
charter, the bank's charter may be amended without a membership vote, 
provided any such amendment is first approved by a two-thirds vote of 
its board of trustees and is thereafter approved by the OCC, and
    (C) The bank's first annua1 membership meeting need not take place 
until two years after receipt of its Federal charter.
    (2) Except to the extent that the OTS prior to July 21, 2011 or by 
the OCC approves a plan under this paragraph (c) which is inconsistent 
with other provisions of this section, a Federal mutual savings bank 
shall in all respects comply with those other provisions.


Sec.  143.12  Grandfathered authority.

    (a) A Federal savings bank formerly chartered or designated as a 
mutual savings bank under state law may exercise any authority it was 
authorized to exercise as a mutual savings bank under state law at the 
time of its conversion from a state mutual savings bank to a Federal or 
other state charter. Except to the extent such authority may be 
exercised by Federal savings associations not enjoying grandfathered 
rights hereunder, such authority may be exercised only to the degree 
authorized under state law at the time of such conversion. Unless 
otherwise determined by the OTS prior to July 21, 2011 or by the OCC an 
association, in the exercise of grandfathered authority, may continue 
to follow applicable state laws and regulations in effect at the time 
of such conversion.
    (b) A Federal savings association that acquires, or has acquired, a 
Federal savings bank by merger or consolidation may itself exercise any 
grandfathered rights enjoyed by the disappearing institution, whether 
such rights were obtained directly through conversion or through merger 
or consolidation. The extent of the grandfathered rights of a Federal 
savings association that disappeared prior to the effective date of 
this section shall be determined exclusively pursuant to this section.
    (c) This section shall not be construed to prevent the exercise by 
a Federal savings association enjoying grandfathered rights hereunder 
of authority that is available under the applicable state law only upon 
the occurrence of specific preconditions, such as the attainment of a 
particular future date or specified level of regulatory capital, which 
have not occurred at the time of conversion from a state mutual savings 
bank, provided they occur thereafter.
    (d) This section shall not be construed to permit the exercise of 
any particular authority on a more liberal basis than is allowable 
under the most liberal construction of either state or Federal law or 
regulation.

[[Page 48995]]

Sec.  143.14  Continuity of existence.

    The corporate existence of an association converting under this 
part shall continue in its successor. Each savings or demand 
accountholder shall receive a savings account or accounts in the 
converted association equal in amount to the value of accounts held in 
the former association.

PART 144--FEDERAL MUTUAL SAVINGS ASSOCIATIONS--CHARTER AND BYLAWS

Sec.

Charter

144.1 Federal mutual charter.
144.2 Charter amendments.
144.4 Issuance of charter.

Bylaws

144.5 Federal mutual savings association bylaws.
144.6 Effect of subsequent charter or bylaw change.

Availability

144.7 In association offices.
144.8 Communication between members of a Federal mutual savings 
association.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq., 5412(b)(2)(B).

Charter


Sec.  144.1  Federal mutual charter.

    A Federal mutual savings association shall have a charter in the 
following form, which may include any of the additional provisions set 
forth in Sec.  144.2 of this part, if such provisions are specifically 
requested. A charter for a Federal mutual savings bank shall substitute 
the term ``savings bank'' for ``association.'' The term ``trustee'' may 
be substituted for the term ``director.'' Associations adopting this 
charter with existing borrower members must grandfather those borrower 
members who were members as of the date of issuance of the new charter 
by the OCC. Such borrowers shall have one vote for the period of time 
such borrowings are in existence.
Federal Mutual Charter
    Section 1. Corporate title. The full corporate title of the Federal 
savings association is --------.
    Section 2. Office. The home office shall be located in -------- 
[city, state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal mutual savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all the express, implied, and incidental powers conferred 
thereby and by all acts amendatory thereof and supplemental thereto, 
subject to the Constitution and laws of the United States as they are 
now in effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office of 
the Comptroller of the Currency (``OCC'').
    Section 5. Capital. The association may raise capital by accepting 
payments on savings and demand accounts and by any other means 
authorized by the OCC.
    Section 6. Members. All holders of the association's savings, 
demand, or other authorized accounts are members of the association. In 
the consideration of all questions requiring action by the members of 
the association, each holder of an account shall be permitted to cast 
one vote for each $100, or fraction thereof, of the withdrawal value of 
the member's account. No member, however, shall cast more than 1000 
votes. All accounts shall be nonassessable.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors shall not 
be fewer than five nor more than fifteen persons, as fixed in the 
association's bylaws, except that the number of directors may be 
decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the OCC.
    Section 8. Capital, surplus, and distribution of earnings. The 
association shall maintain for the purpose of meeting losses the amount 
of capital required by section 5 of the Home Owners' Loan Act and by 
regulations of the OCC. The association shall distribute net earnings 
on its accounts on such basis and in accordance with such terms and 
conditions as may from time to time be authorized by the OCC: Provided, 
That the association may establish minimum-balance requirements for 
accounts to be eligible for distribution of earnings.
    All holders of accounts of the association shall be entitled to 
equal distribution of assets, pro rata to the value of their accounts, 
in the event of voluntary or involuntary liquidation, dissolution, or 
winding up of the association. Moreover, in any such event, or in any 
other situation in which the priority of such accounts is in 
controversy, all such accounts shall, to the extent of their withdrawal 
value, be debts of the association having the same priority as the 
claims of general creditors of the association not having priority 
(other than any priority arising or resulting from consensual 
subordination) over other general creditors of the association.
    Section 9. Amendment of charter. Adoption of any preapproved 
charter amendment shall be effective after such preapproved amendment 
has been approved by the members at a legal meeting. Any other 
amendment, addition, change, or repeal of this charter must be approved 
by the OCC prior to approval by the members at a legal meeting, and 
shall be effective upon filing with the OCC in accordance with 
regulatory procedures.
Attest:----------------------------------------------------------------

Secretary of the Association

By:--------------------------------------------------------------------

President or Chief Executive Officer of the Association

Attest:----------------------------------------------------------------

Deputy Comptroller for Licensing

By:--------------------------------------------------------------------

Comptroller of the Currency

Effective Date:--------------------------------------------------------


Sec.  144.2  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal 
mutual savings association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment 
that states the text of such amendment;
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would: render more difficult or discourage a merger, 
proxy contest, the assumption of control by a mutual account holder of 
the association, or the removal of incumbent management; or involve a 
significant issue of law or policy; then, the association shall file 
the proposed amendment and obtain the prior approval of the OCC.
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of 
this section and is permissible under all applicable laws, rules and 
regulations, then the association shall submit the proposed amendment 
to the appropriate OCC licensing office, at least 30 days prior to the 
effective date of the proposed charter amendment.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter in adopting such amendment. 
This automatic approval does not apply if, prior to the expiration of 
such 30-day period, the OCC notifies the association that such 
amendment is rejected or that such amendment is deemed to be filed

[[Page 48996]]

under the provisions of paragraph (a)(2)(i) of this section. In 
addition, notwithstanding anything in paragraph (a) of this section to 
the contrary, the following charter amendments, including the adoption 
of the Federal mutual charter as set forth in Sec.  144.1 of this part, 
shall be effective and deemed approved at the time of adoption, if 
adopted without change and filed with the OCC, within 30 days after 
adoption, provided the association follows the requirements of its 
charter in adopting such amendments:
    (1) Purpose and powers. Add a second paragraph to section 4, as 
follows:
    Section 4. Purpose and powers. * * * The association shall have the 
express power: (i) To act as fiscal agent of the United States when 
designated for that purpose by the Secretary of the Treasury, under 
such regulations as the Secretary may prescribe, to perform all such 
reasonable duties as fiscal agent of the United States as may be 
required, and to act as agent for any other instrumentality of the 
United States when designated for that purpose by any such 
instrumentality; (ii) To sue and be sued, complain and defend in any 
court of law or equity; (iii) To have a corporate seal, affixed by 
imprint, facsimile or otherwise; (iv) To appoint officers and agents as 
its business shall require and allow them suitable compensation; (v) To 
adopt bylaws not inconsistent with the Constitution or laws of the 
United States and rules and regulations adopted thereunder and under 
this Charter; (vi) To raise capital, which shall be unlimited, by 
accepting payments on savings, demand, or other accounts, as are 
authorized by rules and regulations made by the OCC, and the holders of 
all such accounts or other accounts as shall, to such extent as may be 
provided by such rules and regulations, be members of the association 
and shall have such voting rights and such other rights as are thereby 
provided; (vii) To issue notes, bonds, debentures, or other 
obligations, or securities, provided by or under any provision of 
Federal statute as from time to time is in effect; (viii) To provide 
for redemption of insured accounts; (ix) To borrow money without 
limitation and pledge and otherwise encumber any of its assets to 
secure its debts; (x) To lend and otherwise invest its funds as 
authorized by statute and the rules and regulations of the OCC; (xi) To 
wind up and dissolve, merge, consolidate, convert, or reorganize; (xii) 
To purchase, hold, and convey real estate and personalty consistent 
with its objects, purposes, and powers; (xiii) To mortgage or lease any 
real estate and personalty and take such property by gift, devise, or 
bequest; and (xiv) To exercise all powers conferred by law. In addition 
to the foregoing powers expressly enumerated, this association shall 
have power to do all things reasonably incident to the accomplishment 
of its express objects and the performance of its express powers.
    (2) Title change. A Federal mutual savings association that has 
complied with Sec.  143.1(b) of this chapter may amend its charter by 
substituting a new corporate title in section 1.
    (3) Home office. A Federal mutual savings association may amend its 
charter by substituting a new home office in section 2, if it has 
complied with applicable requirements of Sec.  145.95 of this chapter.
    (4) Maximum number of votes. A Federal mutual savings association 
may amend its charter by substituting ---- votes per member in section 
6. [Fill in a number from 1 to 1000.]
    (c) Reissuance of charter. A Federal mutual savings association 
that has amended its charter may apply to have its charter, including 
the amendments, reissued by the OCC. Such request for reissuance should 
be filed at the appropriate OCC licensing office and contain signatures 
required under Sec.  144.1 of this part, together with such supporting 
documents as may be needed to demonstrate that the amendments were 
properly adopted.


Sec.  144.4  Issuance of charter.

    Issuance by the OCC of a charter to a Federal mutual savings 
association within the meaning of Sec.  143.4 of this chapter 
constitutes the incorporation of that association by the OCC.

Bylaws


Sec.  144.5  Federal mutual savings association bylaws.

    (a) General. A Federal mutual savings association shall operate 
under bylaws that contain provisions that comply with all requirements 
specified by the OCC in this section and that are not otherwise 
inconsistent with the provisions of this section, the association's 
charter, and all other applicable laws, rules, and regulations provided 
that, a bylaw provision inconsistent with the provisions of this 
section may be adopted with the approval of the OCC. Bylaws may be 
adopted, amended or repealed by a majority of the votes cast by the 
members at a legal meeting or a majority of the association's board of 
directors. The bylaws for a Federal mutual savings bank shall 
substitute the term ``savings bank'' for ``association''. The term 
``trustee'' may be substituted for the term ``director''.
    (b) The following requirements are applicable to Federal mutual 
savings associations:
    (1) Annual meetings of members. An association shall provide for 
and conduct an annual meeting of its members for the election of 
directors and at which any other business of the association may be 
conducted. Such meeting shall be held, as designated by its board of 
directors, at a location within the state that constitutes the 
principal place of business of the association, or at any other 
convenient place the board of directors may designate, and at a date 
and time within 150 days after the end of the association's fiscal 
year. At each annual meeting, the officers shall make a full report of 
the financial condition of the association and of its progress for the 
preceding year and shall outline a program for the succeeding year.
    (2) Special meetings of members. Procedures for calling any special 
meeting of the members and for conducting such a meeting shall be set 
forth in the bylaws. The subject matter of such special meeting must be 
established in the notice for such meeting. The board of directors of 
the association or the holders of 10 percent or more of the voting 
capital shall be entitled to call a special meeting. For purposes of 
this section, ``voting capital'' means FDIC-insured deposits as of the 
voting record date.
    (3) Notice of meeting of members. Notice specifying the date, time, 
and place of the annual or any special meeting and adequately 
describing any business to be conducted shall be published for two 
successive weeks immediately prior to the week in which such meeting 
shall convene in a newspaper of general circulation in the city or 
county in which the principal place of business of the association is 
located, or mailed postage prepaid at least 15 days and not more than 
45 days prior to the date on which such meeting shall convene to each 
of its members of record at the last address appearing on the books of 
the association. A similar notice shall be posted in a conspicuous 
place in each of the offices of the association during the 14 days 
immediately preceding the date on which such meeting shall convene. The 
bylaws may permit a member to waive in writing any right to receive 
personal delivery of the notice. When any meeting is adjourned for 30 
days or more, notice of the adjournment and reconvening of the meeting 
shall be given as in the case of the original meeting.

[[Page 48997]]

    (4) Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the bylaws shall provide for the fixing of a 
record date and a method for determining from the books of the 
association the members entitled to vote. Such date shall be not more 
than 60 days nor fewer than 10 days prior to the date on which the 
action, requiring such determination of members, is to be taken. The 
same determination shall apply to any adjourned meeting.
    (5) Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. At any adjourned meeting, any 
business may be transacted that might have been transacted at the 
meeting as originally called. Members present at a duly constituted 
meeting may continue to transact business until adjournment.
    (6) Voting by proxy. Procedures shall be established for voting at 
any annual or special meeting of the members by proxy pursuant to the 
rules and regulations of the OCC, including the placing of such proxies 
on file with the secretary of the association, for verification, prior 
to the convening of such meeting. Proxies may be given telephonically 
or electronically as long as the holder uses a procedure for verifying 
the identity of the member. All proxies with a term greater than eleven 
months or solicited at the expense of the association must run to the 
board of directors as a whole, or to a committee appointed by a 
majority of such board.
    (7) Communications between members. Provisions relating to 
communications between members shall be consistent with Sec.  144.8 of 
this part. No member, however, shall have the right to inspect or copy 
any portion of any books or records of a Federal mutual savings 
association containing:
    (i) A list of depositors in or borrowers from such association;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.
    (8) Number of directors, membership. The bylaws shall set forth a 
specific number of directors, not a range. The number of directors 
shall be not fewer than five nor more than fifteen, unless a higher or 
lower number has been authorized by the OCC. Each director of the 
association shall be a member of the association. Directors may be 
elected for periods of one to three years and until their successors 
are elected and qualified, but if a staggered board is chosen, 
provision shall be made for the election of approximately one-third or 
one-half of the board each year, as appropriate. State-chartered 
savings banks converting to Federal savings banks may include 
alternative provisions for the election and term of office of directors 
so long as such provisions are authorized by the OCC, and provide for 
compliance with the standard provisions of this section no later than 
six years after the conversion to a Federal savings association.
    (9) Meetings of the board. The board of directors shall determine 
the place, frequency, time, procedure for notice, which shall be at 
least 24 hours unless waived by the directors, and waiver of notice for 
all regular and special meetings. The meetings shall be under the 
direction of a chairman, appointed annually by the board; or in the 
absence of the chairman, the meetings shall be under the direction of 
the president. The board also may permit telephonic participation at 
meetings. The bylaws may provide for action to be taken without a 
meeting if unanimous written consent is obtained for such action. A 
majority of the authorized directors shall constitute a quorum for the 
transaction of business. The act of a majority of the directors present 
at any meeting at which there is a quorum shall be the act of the 
board.
    (10) Officers, employees and agents. (i) The bylaws shall contain 
provisions regarding the officers of the association, their functions, 
duties, and powers. The officers of the association shall consist of a 
president, one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected annually by the board of 
directors. Such other officers and assistant officers and agents as may 
be deemed necessary may be elected or appointed by the board of 
directors or chosen in such other manner as may be prescribed in the 
bylaws. Any two or more offices may be held by the same person, except 
the offices of president and secretary.
    (ii) All officers and agents of the association, as between 
themselves and the association, shall have such authority and perform 
such duties in the management of the association as may be provided in 
the bylaws, or as may be determined by resolution of the board of 
directors not inconsistent with the bylaws. In the absence of any such 
provision, officers shall have such powers and duties as generally 
pertain to their respective offices. Any officer may be removed by the 
board of directors with or without cause, but such removal, other than 
for cause, shall be without prejudice to the contractual rights, if 
any, of the person so removed.
    (iii) Any indemnification provision must provide that any 
indemnification is subject to applicable Federal law, rules, and 
regulations.
    (11) Vacancies, resignation or removal of directors. Members of the 
association shall elect directors by ballot: Provided, that in the 
event of a vacancy on the board, the board of directors may, by their 
affirmative vote, fill such vacancy, even if the remaining directors 
constitute less than a quorum. A director elected to fill a vacancy 
shall be elected to serve only until the next election of directors by 
the members. The bylaws shall set out the procedure for the resignation 
of a director, which shall be by written notice or by any other 
procedure established in the bylaws. Directors may be removed only for 
cause as defined in Sec.  163.39 of this chapter, by a vote of the 
holders of a majority of the shares then entitled to vote at an 
election of directors.
    (12) Powers of the board. The board of directors shall have the 
power:
    (i) By resolution, to appoint from among its members and remove an 
executive committee and one or more other committees, which 
committee[s] shall have and may exercise all the powers of the board 
between the meetings or the board; but no such committee shall have the 
authority of the board to amend the charter or bylaws, adopt a plan of 
merger, consolidation, dissolution, or provide for the disposition of 
all or substantially all the property and assets of the association. 
Such committee shall not operate to relieve the board, or any member 
thereof, of any responsibility imposed by law;
    (ii) To fix the compensation of directors, officers, and employees; 
and to remove any officer or employee at any time with or without 
cause;
    (iii) To exercise any and all of the powers of the association not 
expressly reserved by the charter to the members.
    (13) Nominations for directors. The bylaws shall provide that 
nominations for directors may be made at the annual meeting by any 
member and shall be voted upon, except, however, the bylaws may require 
that nominations by a member must be submitted to the secretary and 
then prominently posted in the principal place of business, at least 10 
days prior to the date of the

[[Page 48998]]

annual meeting. However, if such provision is made for prior submission 
of nominations by a member, then the bylaws must provide for a 
nominating committee, which, except in the case of a nominee 
substituted as a result of death or other incapacity, must submit 
nominations to the secretary and have such nominations similarly posted 
at least 15 days prior to the date of the annual meeting.
    (14) New business. The bylaws shall provide procedures for the 
introduction of new business at the annual meeting. Those provisions 
may require that such new business be stated in writing and filed with 
the secretary prior to the annual meeting at least 30 days prior to the 
date of the annual meeting.
    (15) Amendment. Bylaws may include any provision for their 
amendment that would be consistent with applicable law, rules, and 
regulations and adequately addresses its subject and purpose.
    (i) Amendments shall be effective:
    (A) After approval by a majority vote of the authorized board, or 
by a majority of the vote cast by the members of the association at a 
legal meeting; and
    (B) After receipt of any applicable regulatory approval.
    (ii) When an association fails to meet its quorum requirement, 
solely due to vacancies on the board, the bylaws may be amended by an 
affirmative vote of a majority of the sitting board.
    (16) Miscellaneous. The bylaws may also address the subject of age 
limitations for directors or officers as long as they are consistent 
with applicable Federal law, rules or regulations, and any other 
subjects necessary or appropriate for effective operation of the 
association.
    (c) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate OCC licensing office if 
it would:
    (A) Render more difficult or discourage a merger, proxy contest, 
the assumption of control by a mutual account holder of the 
association, or the removal of incumbent management;
    (B) Involve a significant issue of law or policy, including 
indemnification, conflicts of interest, and limitations on director or 
officer liability; or
    (C) Be inconsistent with the requirements of this section or with 
applicable laws, rules, regulations, or the association's charter.
    (ii) Applications submitted under paragraph (c)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
116, subparts A and E of this chapter.
    (iii) For purposes of this paragraph (c), bylaw provisions that 
adopt the language of the OCC's model or optional bylaws, if adopted 
without change, and filed with the OCC within 30 days after adoption, 
are effective upon adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (c)(1) or (c)(3) 
of this section, then the association shall submit the amendment to the 
appropriate OCC licensing office at least 30 days prior to the date the 
bylaw amendment is to be adopted by the association.
    (3) Corporate governance procedures. A Federal mutual association 
may elect to follow the corporate governance procedures of the laws of 
the state where the main office of the institution is located, provided 
that such procedures may be elected only to the extent not inconsistent 
with applicable Federal statutes, regulations, and safety and 
soundness, and such procedures are not of the type described in 
paragraph (c)(1) of this section. If this election is selected, a 
Federal mutual association shall designate in its bylaws the provision 
or provisions from the body of law selected for its corporate 
governance procedures, and shall file a copy of such bylaws, which are 
effective upon adoption, within 30 days after adoption. The submission 
shall indicate, where not obvious, why the bylaw provisions meet the 
requirements stated in paragraph (c)(1) of this section.
    (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(c)(2) of this section shall automatically be effective 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter and bylaws in adopting such 
amendment. This automatic effective date does not apply if, prior to 
the expiration of such 30-day period, the OCC notifies the association 
that such amendment is rejected or that such amendment requires an 
application to be filed pursuant to paragraph (c)(1) of this section.


Sec.  144.6  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal mutual savings association to engage in any 
transaction shall be determined only by the association's charter or 
bylaws then in effect.

Availability


Sec.  144.7  In association offices.

    A Federal mutual savings association shall make available to its 
members at all times in its offices a true copy of its charter and 
bylaws, including any amendments, and shall deliver such a copy to any 
member on request.


Sec.  144.8  Communication between members of a Federal mutual savings 
association.

    (a) Right of communication with other members. A member of a 
Federal mutual savings association has the right to communicate, as 
prescribed in paragraph (b) of this section, with other members of the 
Federal savings association regarding any matter related to the Federal 
savings association's affairs, except for ``improper'' communications, 
as defined in paragraph (c) of this section. The association may not 
defeat that right by redeeming a savings member's savings account in 
the Federal mutual savings association.
    (b) Member communication procedures. If a member of a Federal 
mutual savings association desires to communicate with other members, 
the following procedures shall be followed:
    (1) The member shall give the Federal mutual savings association a 
written request to communicate;
    (2) If the proposed communication is in connection with a meeting 
of the Federal savings association's members, the request shall be 
given at least thirty days before the annual meeting or 10 days before 
a special meeting;
    (3) The request shall contain--
    (i) The member's full name and address;
    (ii) The nature and extent of the member's interest in the Federal 
savings association at the time the information is given;
    (iii) A copy of the proposed communication; and
    (iv) If the communication is in connection with a meeting of the 
members, the date of the meeting;
    (4) The Federal savings association shall reply to the request 
within either--
    (i) Fourteen days;
    (ii) Ten days, if the communication is in connection with the 
annual meeting; or
    (iii) Three days, if the communication is in connection with a 
special meeting;
    (5) The reply shall provide either--
    (i) The number of the Federal savings association's members and the 
estimated reasonable cost to the Federal savings association of mailing 
to them the proposed communication; or
    (ii) Notification that the Federal savings association has 
determined not to mail the communication because it is ``improper'', as 
defined in paragraph (c) of this section;
    (6) After receiving the amount of the estimated costs of mailing 
and sufficient copies of the communication, the Federal savings 
association shall mail

[[Page 48999]]

the communication to all members, by a class of mail specified by the 
requesting member, either--
    (i) Within fourteen days;
    (ii) Within seven days, if the communication is in connection with 
the annual meeting;
    (iii) As soon as practicable before the meeting, if the 
communication is in connection with a special meeting; or
    (iv) On a later date specified by the member;
    (7) If the Federal savings association refuses to mail the proposed 
communication, it shall return the requesting member's materials 
together with a written statement of the specific reasons for refusal, 
and shall simultaneously send to the appropriate OCC licensing office 
two copies each of the requesting member's materials, the Federal 
savings association's written statement, and any other relevant 
material. The materials shall be sent within:
    (i) Fourteen days,
    (ii) Ten days if the communication is in connection with the annual 
meeting, or
    (iii) Three days, if the communication is in connection with a 
special meeting, after the Federal savings association receives the 
request for communication.
    (c) Improper communication. A communication is an ``improper 
communication'' if it contains material which:
    (1) At the time and in the light of the circumstances under which 
it is made:
    (i) Is false or misleading with respect to any material fact; or
    (ii) Omits a material fact necessary to make the statements therein 
not false or misleading, or necessary to correct a statement in an 
earlier communication on the same subject which has become false or 
misleading;
    (2) Relates to a personal claim or a personal grievance, or is 
solicitous of personal gain or business advantage by or on behalf of 
any party;
    (3) Relates to any matter, including a general economic, political, 
racial, religious, social, or similar cause, that is not significantly 
related to the business of the Federal savings association or is not 
within the control of the Federal savings association; or
    (4) Directly or indirectly and without expressed factual 
foundation:
    (i) Impugns character, integrity, or personal reputation,
    (ii) Makes charges concerning improper, illegal, or immoral 
conduct, or
    (iii) Makes statements impugning the stability and soundness of the 
Federal savings association.

PART 145--FEDERAL SAVINGS ASSOCIATIONS--OPERATIONS

Sec.
145.1 General authority.
145.2 [Reserved]
145.16 Public deposits, depositaries, and fiscal agents.
145.17 Funds transfer services.
145.91 Home office.
145.92 Branch offices.
145.93 Application and notice requirements for branch and home 
offices.
145.95 What processing procedures apply to my home or branch office 
application or notice?
145.96 Agency office.
145.101 Fiscal agency.
145.121 Indemnification of directors, officers and employees.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1828. 5412(b)(2)(B).


Sec.  145.1  General authority.

    A Federal savings association may exercise all authority granted it 
by the Home Owners' Loan Act of 1933 (``Act''), 12 U.S.C. 1464, as 
amended, and its charter and bylaws, whether or not implemented 
specifically by OCC regulations, subject to the limitations and 
interpretations contained in this part.


Sec.  145.2  [Reserved]


Sec.  145.16  Public deposits, depositaries, and fiscal agents.

    (a) Definitions. As used in this section--
    (1) Moneys includes monies and has the same meaning it has in 
applicable state law;
    (2) State law includes actions by a governmental body which has a 
charter adopted under the constitution of the state with provisions 
respecting deposits of public money of that body;
    (3) Surety means surety under real and/or personal suretyship, and 
includes guarantor; and
    (4) Terms in paragraph (b) of this section have the meanings they 
have under applicable state law.
    (b) Authority to act as surety for public deposits. (1) A Federal 
savings association that is a deposit association may give bond or 
security for deposit in it of public moneys or investment in it by a 
governmental unit if required to do so by state law, either as an 
alternative condition or otherwise, regardless of the amount required. 
Any bond or security may be given and any substitution or increase 
thereof may be made under this section at any time.
    (2) If state law requires as a condition of such deposit or 
investment that the Federal savings association or its bond or 
security, or any combination thereof, be surety for or with respect to 
other deposits or instruments, whether of that depositor or investor or 
of any other(s), and whether in the Federal savings association or in 
any other institution(s) having, when the investments or deposits were 
made, insurance by the Federal Deposit Insurance Corporation, the same 
shall become, or if the state law is self-executing shall be, such 
surety.
    (c) Depositaries and fiscal agents. Subject to regulation of the 
United States Treasury Department, a Federal savings association may 
serve as a depositary for Federal taxes, as a Treasury tax and loan 
depositary, or as a depositary of public money and fiscal agent of the 
Government or any other instrumentality thereof when designated for 
that purpose by such instrumentality and approved by the OCC, and may 
satisfy any requirement in connection therewith, including maintaining 
accounts described in Sec. Sec.  161.33, 161.52, 161.53, and 161.54 of 
this chapter; pledging collateral; and performing the services outlined 
in 31 CFR 202.3(b) or any section that supersedes or amends Sec.  
202.3(b).


Sec.  145.17  Funds transfer services.

    A Federal savings association is authorized to transfer, with or 
without fee, its customers' funds from any account (including a line of 
credit) of the customer at the Federal savings association or at 
another financial intermediary to third parties or other accounts of 
the customer on the customer's order or authorization by any mechanism 
or device, including cashier's checks, conforming with applicable laws 
and established commercial practices.


Sec.  145.91  Home office.

    (a) All operations of a Federal savings association (``you'') are 
subject to direction from the home office.
    (b) You must notify the appropriate OCC licensing office if the 
permanent address of your home office changes, unless you have 
submitted an application or notice regarding the change under 
Sec. Sec.  145.93 and 145.95 of this chapter.


Sec.  145.92  Branch offices.

    (a) Definition. A branch office of a Federal savings association 
(``you'') is any office other than your home office, agency office, 
administrative office, data processing office, or an electronic means 
or facility under part 155 of this chapter.
    (b) Branching. Subject to the application and notice requirements 
at Sec. Sec.  145.93 and 145.95 of this chapter, you may branch in any 
state or states of

[[Page 49000]]

the United States and its territories unless the location would 
violate:
    (1) Section 5(r) of the HOLA (12 U.S.C. 1464(r));
    (2) Section 10(e)(3) of the HOLA (12 U.S.C. 1467a(e)(3)); or
    (3) Section 13(k)(4) of the FDIA (12 U.S.C. 1823(k)(4)).
    (c) Preemption. This exercise of the OCC's authority is preemptive 
of any state law purporting to address the subject of branching by a 
Federal savings association.


Sec.  145.93  Application and notice requirements for branch and home 
offices.

    (a) Application and notice requirements. A Federal savings 
association (``you'') must file an application or notice with the 
appropriate OCC licensing office and receive approval or non-objection 
under Sec.  145.95 before you change the permanent location of, or 
establish a new, home or branch office, except as provided in this 
section.
    (b) Exceptions. You are not required to submit an application or 
notice and receive OCC approval or non-objection under Sec.  145.95 
under the following circumstances:
    (1) Drive-in or pedestrian offices. You may establish a drive-in or 
pedestrian office that is located within 500 feet of a public entrance 
to your existing home or branch office, provided the functions 
performed at the office are limited to functions that are ordinarily 
performed at a teller window.
    (2) Short-distance relocation. You may change the permanent 
location of an existing home or branch office to a site that is within 
the market area and short-distance location area of the existing home 
or branch office. The short-distance relocation area of an existing 
office is the area that is within:
    (i) A 1000-foot radius of an existing office that is within a 
Principal City in a Metropolitan Statistical Area (MSA) designated by 
the U.S. Department of Commerce;
    (ii) A one-mile radius of an existing office that is within an MSA, 
but is not within a Principal City; or
    (iii) A two-mile radius of an existing office that is not in an 
MSA.
    (3) Highly-rated Federal savings associations. You may change the 
permanent location of, or establish a new, branch or home office if you 
meet all of the following requirements:
    (i) You are eligible for expedited treatment under Sec.  116.5 of 
this chapter. For the purposes of that section, you must meet the 
capital requirements under part 167 of this chapter before and 
immediately after you change the location of your home or branch office 
or establish a new branch office.
    (ii) You published a notice of your intent to change the location 
of your home or branch office or establish a new branch office. To 
satisfy this publication requirement, you must follow the procedures in 
subpart B of part 116 of this chapter except that:
    (A) Under Sec.  116.55(d) and (e) of this chapter, your public 
notice must state that the public may submit comments to you and to the 
appropriate OCC licensing office, and must provide addresses for you 
and for the appropriate OCC licensing office where the public may 
submit comments;
    (B) Section 4.14(c) of this chapter, which addresses public 
inspections of filings with the OCC, does not apply; and
    (C) Under Sec.  116.60 of this chapter, you must publish the public 
notice at least 35 days before you take the proposed action. If you 
publish a public notice more than 12 months before you take the 
proposed action, the publication is invalid.
    (iii) If you intend to change the location of an existing office, 
you must post a notice of your intent in a prominent location in the 
existing office to be relocated. You must post the notice for 30 days 
from the date of publication of the initial public notice described in 
paragraph (b)(3)(ii) of this section.
    (iv)(A) No person files a comment opposing the proposed action 
within 30 days after the date of the publication of the proposed 
notice; or
    (B) A person files a comment opposing the proposed action and the 
OCC determines that the comment raises issues that are not relevant to 
the approval standards in Sec.  145.95(b) of this chapter or that OCC 
action in response to the comment is not required.
    (4) Re-designations of home and branch offices. You may re-
designate an existing branch office as a home office at the same time 
that you re-designate your existing home office as a branch office.
    (c) Section 5(m) of the HOLA. If you are incorporated under the 
laws of, organized in, or do business in the District of Columbia and 
you satisfy the requirements of paragraph (b) of this section, the 
Comptroller has approved your home or branch office changes under 
section 5(m) of the HOLA.
    (d) Maintenance of branch and home office following conversion, 
consolidation, purchase of bulk assets, merger, or purchase from 
receiver. An existing savings association that converts to a Federal 
savings association may maintain an existing office and a Federal 
savings association may maintain any office acquired through 
consolidation, purchase of bulk assets, merger or purchase from the 
receiver of an association, except to the extent that the approval of 
the conversion, consolidation, merger, or purchase specifies otherwise.
    (e) Prohibition. You may not file an application or notice (or 
utilize any exception described in paragraph (b) of this section) to 
establish a branch office, if you filed an application to merge or 
otherwise surrender your charter and the application has been pending 
for less than six months.


Sec.  145.95  What processing procedures apply to my home or branch 
office application or notice?

    (a) Processing procedures. Applications and notices under Sec.  
145.93 are subject to expedited or standard treatment under the 
application processing procedures at part 116 of this chapter.
    (1) Publication and posting requirements. (i) You must publish a 
public notice of your application or notice in accordance with the 
procedures in subpart B of part 116 of this chapter. Promptly after 
publication, you must transmit copies of the public notice and the 
publisher's affidavit to the appropriate OCC licensing office.
    (ii) If you propose to change the location of an existing office, 
you must also post a notice of the application in a prominent location 
in the office to be relocated. You must post the notice for 30 days 
from the date of publication of the initial public notice.
    (2) Comment procedures. Commenters may submit comments on your 
application or notice in accordance with the procedures in subpart C of 
part 116 of this chapter.
    (3) Meeting procedures. The OCC may arrange a meeting in accordance 
with the procedures in subpart D of part 116 of this chapter.
    (4) OCC Review. The OCC will process your application or notice in 
accordance with the procedures in subpart E of part 116 of this 
chapter. The applicable review period for applications filed under 
standard treatment is 30 days rather than the time period specified at 
Sec.  116.270(a) of this chapter.
    (b) Approval standards. (1) The OCC will approve an application (or 
not object to a notice), if your overall policies, condition, and 
operations afford no basis for supervisory objection.
    (i) You should meet or exceed minimum capital requirements under 
part 167 of this chapter and should be at least adequately capitalized 
as described in Sec.  165.4(b)(2) of this

[[Page 49001]]

chapter, before and immediately after the proposed action. If you are 
undercapitalized as described in Sec.  165.4(b)(3) of this chapter, the 
OCC will deny your application (or disapprove your notice), unless the 
proposed action is otherwise permitted under section 38(e)(4) of the 
FDIA.
    (ii) The OCC will evaluate your record of helping to meet the 
credit needs of your entire community, including low- and moderate-
income neighborhoods, under part 195 of this chapter. The OCC may:
    (A) Deny your application or disapprove your notice based upon this 
evaluation; or
    (B) Impose a condition to the approval of your application (or non-
objection to your notice) requiring you to improve specific practices 
and/or aspects of your performance under part 195 of this chapter. In 
most cases, a commitment to improve will not be sufficient to overcome 
a seriously deficient record.
    (iii) The OCC will review the application or notice under the 
National Environmental Policy Act (42 U.S.C. 3421 et seq.) and the 
National Historic Preservation Act (16 U.S.C. 470).
    (2) In reviewing your application and notice, the OCC may consider 
information available from any source, including any comments submitted 
by interested parties or views expressed by interested parties at 
meetings with the OCC.
    (3) The OCC may approve an amendment to your charter in connection 
with a home office relocation under this section.
    (c) Expiration of OCC approval. (1) You must open or relocate your 
office within twelve months of OCC approval of your application (or the 
date of OCC non-objection to your notice), unless the OCC prescribes 
another time period. The OCC may extend the time period if it 
determines that you are making a good-faith effort to promptly open or 
relocate the proposed office.
    (2) If you do not open or relocate the proposed office within this 
time period, you must comply with the application and notice 
requirements of this section before you may open or relocate the 
proposed office.


Sec.  145.96  Agency office.

    (a) General. A Federal savings association may establish or 
maintain an agency office to engage in one or more of the following 
activities:
    (1) Servicing, originating, or approving loans and contracts;
    (2) Managing or selling real estate owned by the Federal savings 
association; and
    (3) Conducting fiduciary activities or activities ancillary to the 
association's fiduciary business in compliance with subpart A of part 
150 of this chapter.
    (b) Additional services. A Federal savings association may request, 
and the OCC may approve, any service not listed in paragraph (a) of 
this section, except for payment on savings accounts.
    (c) Records. A Federal savings association must maintain records of 
all business it transacts at an agency office. It must maintain these 
records at the agency office, and must transmit copies to a home or 
branch office.


Sec.  145.101  Fiscal agency.

    A Federal savings association designated fiscal agent by the 
Secretary of the Treasury or with OCC approval by another 
instrumentality of the United States, shall, as such, perform such 
reasonable duties and exercise only such powers and privileges as the 
Secretary of the Treasury or such instrumentality may prescribe.


Sec.  145.121  Indemnification of directors, officers and employees.

    A Federal savings association shall indemnify its directors, 
officers, and employees in accordance with the following requirements:
    (a) Definitions and rules of construction. (1) Definitions for 
purposes of this section.
    (i) Action. The term ``action'' means any judicial or 
administrative proceeding, or threatened proceeding, whether civil, 
criminal, or otherwise, including any appeal or other proceeding for 
review;
    (ii) Court. The term ``court'' includes, without limitation, any 
court to which or in which any appeal or any proceeding for review is 
brought.
    (iii) Final judgment. The term ``final judgment'' means a judgment, 
decree, or order which is not appealable or as to which the period for 
appeal has expired with no appeal taken.
    (iv) Settlement. The term ``settlement'' includes entry of a 
judgment by consent or confession or a plea of guilty or nolo 
contendere.
    (2) References in this section to any individual or other person, 
including any association, shall include legal representatives, 
successors, and assigns thereof.
    (b) General. Subject to paragraphs (c) and (g) of this section, a 
Federal savings association shall indemnify any person against whom an 
action is brought or threatened because that person is or was a 
director, officer, or employee of the association, for:
    (1) Any amount for which that person becomes liable under a 
judgment if such action; and
    (2) Reasonable costs and expenses, including reasonable attorney's 
fees, actually paid or incurred by that person in defending or settling 
such action, or in enforcing his or her rights under this section if he 
or she attains a favorable judgment in such enforcement action.
    (c) Requirements. (1) Indemnification shall be made to such person 
under paragraph (b) of this section only if:
    (i) Final judgment on the merits is in his or her favor; or
    (ii) In case of:
    (A) Settlement,
    (B) Final judgment against him or her, or
    (C) Final judgment in his or her favor, other than on the merits, 
if a majority of the disinterested directors of the Federal savings 
association determine that he or she was acting in good faith within 
the scope of his or her employment or authority as he or she could 
reasonably have perceived it under the circumstances and for a purpose 
he or she could reasonably have believed under the circumstances was in 
the best interests of the savings association or its members.
    (2) However, no indemnification shall be made unless the 
association gives the OCC at least 60 days' notice of its intention to 
make such indemnification. Such notice shall state the facts on which 
the action arose, the terms of any settlement, and any disposition of 
the action by a court. Such notice, a copy thereof, and a certified 
copy of the resolution containing the required determination by the 
board of directors shall be sent to the association's supervisory 
office, which shall promptly acknowledge receipt thereof. The notice 
period shall run from the date of such receipt. No such indemnification 
shall be made if the OCC advises the association in writing, within 
such notice period, the OCC's objection thereto.
    (d) Insurance. A Federal savings association may obtain insurance 
to protect it and its directors, officers, and employees from potential 
losses arising from claims against any of them for alleged wrongful 
acts, or wrongful acts, committed in their capacity as directors, 
officers, or employees. However, no Federal savings association may 
obtain insurance which provides for payment of losses of any person 
incurred as a consequence of his or her willful or criminal misconduct.
    (e) Payment of expenses. If a majority of the directors of a 
Federal savings association concludes that, in connection with an 
action, any person ultimately may become entitled to indemnification 
under this section, the directors may authorize payment of

[[Page 49002]]

reasonable costs and expenses, including reasonable attorneys' fees, 
arising from the defense or settlement of such action. Nothing in this 
paragraph (e) shall prevent the directors of the savings association 
from imposing such conditions on a payment of expenses as they deem 
warranted and in the interests of the savings association. Before 
making advance payment of expenses under this paragraph (e), the 
savings association shall obtain an agreement that the savings 
association will be repaid if the person on whose behalf payment is 
made is later determined not to be entitled to such indemnification.
    (f) Exclusiveness of provisions. No Federal savings association 
shall indemnify any person referred to in paragraph (b) of this section 
or obtain insurance referred to in paragraph (d) of the section other 
than in accordance with this section. However, an association which has 
a bylaw in effect relating to indemnification of its personnel shall be 
governed solely by that bylaw, except that its authority to obtain 
insurance shall be governed by paragraph (d) of this section.
    (g) The indemnification provided for in paragraph (b) of this 
section is subject to and qualified by 12 U.S.C. 1821(k).

PART 146--FEDERAL MUTUAL SAVINGS ASSOCIATIONS--MERGER, DISSOLUTION, 
REORGANIZATION, AND CONVERSION

Sec.
146.1 Definitions.
146.2 Procedure; effective date.
146.3 Transfer of assets upon merger or consolidation.
146.4 Voluntary dissolution.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq. 5412(b)(2)(B).


Sec.  146.1  Definitions.

    The terms used in Sec. Sec.  146.2 and 146.3 shall have the same 
meaning as set forth in Sec. Sec.  152.13(b) and 163.22(g) of this 
chapter.


Sec.  146.2  Procedure; effective date.

    (a) A Federal mutual savings association may combine with any 
depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the 
requirements for Federal Home Loan Bank membership and insurance of 
accounts;
    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OCC to the requirements of sections 5(c) and 
10(m) of the Home Owners' Loan Act; and
    (4) The resulting institution shall be a mutually held savings 
association, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 192 of this chapter; or
    (iii) The transaction involves a transfer in the context of a 
mutual holding company reorganization under section 10(o) of the Home 
Owners' Loan Act.
    (b) Each Federal mutual savings association, by a two-thirds vote 
of its board of directors, shall approve a plan of combination 
evidenced by a combination agreement. The agreement shall state:
    (1) That the combination shall not be effective unless and until 
the combination receives any necessary approval from the OCC pursuant 
to Sec.  163.22 (a) or (c), or in the case of a transaction requiring a 
notice pursuant to Sec.  163.22(c), the notice has been filed, and the 
appropriate period of time has passed or the OCC has advised the 
parties that it will not disapprove the transaction;
    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the resulting institution's savings 
accounts will be issued;
    (8) If the Federal mutual savings association is the resulting 
institution, the number, names, residence addresses, and terms of 
directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (c) Prior written notification or notice to the appropriate OCC 
licensing office or prior written approval of the OCC, pursuant to 
Sec.  163.22 of this chapter, is required for every combination. In the 
case of applications and notices pursuant to 163.22 (a) or (c), the OCC 
shall apply the criteria set out in Sec.  163.22 of this chapter and 
shall impose any conditions it deems necessary or appropriate to ensure 
compliance with those criteria and the requirements of this chapter.
    (d) Where the resulting institution is a Federal mutual savings 
association, the OCC may approve a temporary increase in the number of 
directors of the resulting institution provided that the association 
submits a plan for bringing the board of directors into compliance with 
the requirements of Sec.  144.1 of this chapter within a reasonable 
period of time.
    (e) Notwithstanding any other provision of this part, the OCC may 
require that a plan of combination be submitted to the voting members 
of any of the mutual savings associations that are constituent 
institutions at a duly called meeting(s), and that the plan, to be 
effective, be approved by such voting members.
    (f) A conservator or receiver for a Federal mutual savings 
association may combine the association with another insured depository 
institution without submitting the plan to the association's board of 
directors or members for their approval.
    (g) If a plan of combination provides for a resulting Federal 
mutual savings association's name or location to be changed, its 
charter shall be amended accordingly. If the resulting institution is a 
Federal mutual savings association, the effective date of the 
combination shall be the date specified in the approval; if the 
resulting institution is not a Federal savings association, the 
effective date shall be that prescribed under applicable law. Approval 
of a merger automatically cancels the Federal charter of a Federal 
association that is a disappearing institution as of the effective date 
of merger, and the association shall, on that date, surrender its 
charter to the OCC.


Sec.  146.3  Transfer of assets upon merger or consolidation.

    On the effective date of a merger or consolidation in which the 
resulting institution is a Federal association, all assets and property 
of the disappearing institutions shall immediately, without any further 
act, become the property of the resulting institution to the same 
extent as they were the property of the disappearing institutions, and 
the resulting institution shall be a continuation of the entity which 
absorbed the disappearing institutions. All rights and obligations of 
the disappearing institutions shall remain unimpaired, and the 
resulting institution shall, on the effective date of the merger or 
consolidation, succeed to all those rights and obligations, subject to 
the Home Owners' Loan Act and other applicable statutes.

[[Page 49003]]

Sec.  146.4  Voluntary dissolution.

    (a) A Federal savings association's board of directors may propose 
a plan for dissolution of the association. The plan may provide for 
either:
    (1) Appointment of the Federal Deposit Insurance Corporation (under 
section 5 of the Act and section 11 of the Federal Deposit Insurance 
Act, as amended or section 21A of the Federal Home Loan Bank Act, as 
amended) as receiver for the purpose of liquidation;
    (2) Transfer of all the association's assets to another association 
or home-financing institution under Federal or state charter either for 
cash sufficient to pay all obligations of the association and retire 
all outstanding accounts or in exchange for that association's payment 
of all the association's outstanding obligations and issuance of share 
accounts or other evidence of interest to the association's members on 
a pro rata basis; or
    (3) Dissolution in a manner proposed by the directors which they 
consider best for all concerned.
    (b) The plan, and a statement of reasons for proposing dissolution 
and for proposing the plan, shall be submitted to the appropriate OCC 
licensing office for approval. The OCC will approve the plan if the OCC 
believes dissolution is advisable and the plan best for all concerned, 
but if the OCC considers the plan inadvisable, the OCC may either make 
recommendations to the association concerning the plan or disapprove 
it. When the plan is approved by the association's board of directors 
and by the OCC, it shall be submitted to the association's members at a 
duly called meeting and, when approved by a majority of votes cast at 
that meeting, shall become effective. After dissolution in accordance 
with the plan, a certificate evidencing dissolution, supported by such 
evidence as the may require, shall immediately be filed with the OCC. 
When the OCC receives such evidence satisfactory to the OCC, it will 
terminate the corporate existence of the dissolved association and the 
association's charter shall thereby be canceled. A Federal savings 
association is not required to obtain approval under this section where 
the Federal savings association transfers all of its assets and 
liabilities to a bank in a transaction that is subject to Sec.  
163.22(b) of this chapter.

PART 150--FIDUCIARY POWERS OF FEDERAL SAVINGS ASSOCIATIONS

Sec.
150.10 What regulations govern the fiduciary operations of Federal 
savings associations?
150.20 What are fiduciary powers?
150.30 What fiduciary capacities does this part cover?
150.40 When do I have investment discretion?
150.50 What is a fiduciary account?
150.60 What other definitions apply to this part?
Subpart A--Obtaining Fiduciary Powers
150.70 Must I obtain OCC approval or file a notice before I exercise 
fiduciary powers?
150.80 How do I obtain OCC approval?
150.90 What information must I include in my application?
150.100 What factors may the OCC consider in its review of my 
application?
150.110 [Reserved]
150.120 What action will the OCC take on my application?
150.125 How do I file the notice under Sec.  150.70(c)?
Subpart B--Exercising Fiduciary Powers
150.130 How may I conduct multi-state operations?
150.135 How do I determine which state's laws apply to my 
operations?
150.136 To what extent do state laws apply to my fiduciary 
operations?
150.140 Must I adopt and follow written policies and procedures in 
exercising fiduciary powers?

Fiduciary Personnel and Facilities

150.150 Who is responsible for the exercise of fiduciary powers?
150.160 What personnel and facilities may I use to perform fiduciary 
services?
150.170 May my other departments or affiliates use fiduciary 
personnel and facilities to perform other services?
150.180 May I perform fiduciary services for, or purchase fiduciary 
services from, another association or entity?
150.190 Must fiduciary officers and employees be bonded?

Review of a Fiduciary Account

150.200 Must I review a prospective account before I accept it?
150.210 Must I conduct another review of an account after I accept 
it?
150.220 Are any other account reviews required?

Custody and Control of Assets

150.230 Who must maintain custody or control of assets in a 
fiduciary account?
150.240 May I hold investments of a fiduciary account off-premises?
150.250 Must I keep fiduciary assets separate from other assets?

Investing Funds of a Fiduciary Account

150.260 How may I invest funds of a fiduciary account?

Funds Awaiting Investment or Distribution

150.290 What must I do with fiduciary funds awaiting investment or 
distribution?
150.300 Where may I deposit fiduciary funds awaiting investment or 
distribution?
150.310 What if the FDIC does not insure the deposits?
150.320 What is acceptable collateral for uninsured deposits?

Restrictions on Self Dealing

150.330 Are there investments in which I may not invest funds of a 
fiduciary account?
150.340 May I exercise rights to purchase additional stock or 
fractional shares of my stock or obligations or the stock or 
obligations of my affiliates?
150.350 May I lend, sell, or transfer assets of a fiduciary account 
if I have an interest in the transaction?
150.360 May I make a loan to a fiduciary account that is secured by 
an interest in the assets of the account?
150.370 May I sell assets or lend money between fiduciary accounts?

Compensation, Gifts, and Bequests

150.380 May I earn compensation for acting in a fiduciary capacity?
150.390 May my officer or employee retain compensation for acting as 
a co-fiduciary?
150.400 May my fiduciary officer or employee accept a gift or 
bequest?

Recordkeeping Requirements

150.410 What records must I keep?
150.420 How long must I keep these records?
150.430 Must I keep fiduciary records separate and distinct from 
other records?

Audit Requirements

150.440 When do I have to audit my fiduciary activities?
150.450 What standards govern the conduct of the audit?
150.460 Who may conduct an audit?
150.470 Who directs the conduct of the audit?
150.480 How do I report the results of the audit?
Subpart C--Depositing Securities With State Authorities
150.490 When must I deposit securities with state authorities?
150.500 How much must I deposit if I administer fiduciary assets in 
more than one state?
150.510 What must I do if state authorities refuse my deposit?
Subpart D--Terminating Fiduciary Activities Receivership or Liquidation
150.520 What happens if I am placed in receivership or voluntary 
liquidation?

Surrender of Fiduciary Powers

150.530 How do I surrender fiduciary powers?
150.540 When will the OCC terminate my fiduciary powers?
150.550 May I recover my deposit from state authorities?

Revocation of Fiduciary Powers

150.560 When may the OCC revoke my fiduciary powers?
150.570 What procedures govern the revocation?

[[Page 49004]]

Subpart E--Activities Exempt From This Part
150.580 When may I conduct fiduciary activities without obtaining 
OCC approval?
150.590 What standards must I observe when acting in exempt 
fiduciary capacities?
150.600 How may funds be invested when I act in an exempt fiduciary 
capacity?
150.610 What disclosures must I make when acting in exempt fiduciary 
capacities?
150.620 May I receive compensation for acting in exempt fiduciary 
capacities?

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).


Sec.  150.10  What regulations govern the fiduciary operations of 
Federal savings associations?

    A Federal savings association (``you'') must conduct its fiduciary 
operations in accordance with 12 U.S.C. 1464(n) and this part.


Sec.  150.20  What are fiduciary powers?

    Fiduciary powers are the authority that the OCC permits you to 
exercise under 12 U.S.C. 1464(n).


Sec.  150.30  What fiduciary capacities does this part cover?

    You are subject to this part if you act in a fiduciary capacity, 
except as described in subpart E of this part. You act in a fiduciary 
capacity when you act in any of the following capacities:
    (a) Trustee.
    (b) Executor.
    (c) Administrator.
    (d) Registrar of stocks and bonds.
    (e) Transfer agent.
    (f) Assignee.
    (g) Receiver.
    (h) Guardian or conservator of the estate of a minor, an 
incompetent person, an absent person, or a person over whose estate a 
court has taken jurisdiction, other than under bankruptcy or insolvency 
laws.
    (i) A fiduciary in a relationship established under a state law 
that is substantially similar to the Uniform Gifts to Minors Act or the 
Uniform Transfers to Minors Act as published by the American Law 
Institute.
    (j) Investment adviser, if you receive a fee for your investment 
advice.
    (k) Any capacity in which you have investment discretion on behalf 
of another.
    (l) Any other similar capacity that the OCC may authorize under 12 
U.S.C. 1464(n).


Sec.  150.40  When do I have investment discretion?

    (a) General. You have investment discretion when you have, 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 that account. It does not matter whether you have exercised this 
authority.
    (b) Delegations. You retain investment discretion if you delegate 
investment discretion to another. You also have investment discretion 
if you receive delegated authority to exercise investment discretion 
from another.


Sec.  150.50  What is a fiduciary account?

    A fiduciary account is an account that you administer acting in a 
fiduciary capacity.


Sec.  150.60  What other definitions apply to this part?

    Activities ancillary to your fiduciary business include 
advertising, marketing, or soliciting fiduciary business, contacting 
existing or potential customers, answering questions and providing 
information to customers related to their accounts, acting as liaison 
between you and your customer (for example, forwarding requests for 
distribution, changes in investment objectives, forms, or funds 
received from the customer), and inspecting or maintaining custody of 
fiduciary assets or holding title to real property. This list is 
illustrative and not comprehensive. Other activities may also be 
``ancillary activities'' for purposes of this definition.
    Affiliate has the same meaning as in 12 U.S.C. 221a(b). For 
purposes of this part, substitute the term ``Federal savings 
association'' for the term ``member bank'' whenever it appears in 12 
U.S.C. 221a(b).
    Applicable law means the law of a state or other jurisdiction 
governing your fiduciary relationships, any Federal law governing those 
relationships, the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the relationship.
    Fiduciary activities include accepting a fiduciary appointment, 
executing fiduciary-related documents, providing investment advice for 
a fee regarding fiduciary assets, or making discretionary decisions 
regarding investment or distribution of assets.
    Fiduciary officers and employees means the officers and employees 
of a Federal savings association to whom the board of directors or its 
designee has assigned functions involving the exercise of the 
association's fiduciary powers.

Subpart A--Obtaining Fiduciary Powers


Sec.  150.70  Must I obtain OCC approval or file a notice before I 
exercise fiduciary powers?

    You should refer to the following chart to determine if you must 
obtain OCC approval or file a notice with the OCC before you exercise 
fiduciary powers. This chart does not apply to activities that are 
exempt under subpart E of this part.

------------------------------------------------------------------------
       If you will conduct . . .                    Then . . .
------------------------------------------------------------------------
(a) Fiduciary activities for the first   You must obtain prior approval
 time and the OCC has not previously      from the OCC under Sec.  Sec.
 approved an application that you          150.80 through 150.120 before
 submitted under this part.               you conduct the activities
(b) Fiduciary activities that are        You must obtain prior approval
 materially different from the            from the OCC under Sec.  Sec.
 activities that the OCC has previously    150.80 through 150.120 before
 approved for you, including fiduciary    you conduct the activities
 activities that the OCC has previously
 approved for you that you have not
 exercised for at least five years.
(c) Fiduciary activities that are not    You must file a written notice
 materially different from the            described at Sec.   150.125 if
 activities that the OCC has previously   you commence the activities in
 approved for you.                        a new state. You do not need
                                          to file a written notice if
                                          you commence the activities at
                                          a new location in a state
                                          where you already conduct
                                          these activities.
(d) Activities that are ancillary to     You do not have to obtain prior
 your fiduciary business.                 OCC approval or file a notice
                                          with the OCC.
------------------------------------------------------------------------

Sec.  150.80  How do I obtain OCC approval?

    You must file an application under part 116, subparts A and E of 
this chapter.


Sec.  150.90  What information must I include in my application?

    You must describe the fiduciary powers that you or your affiliate 
will exercise. You must also include information necessary to enable 
the OCC to make the determinations described in Sec.  150.100.

[[Page 49005]]

Sec.  150.100  What factors may the OCC consider in its review of my 
application?

    The OCC may consider the following factors when reviewing your 
application:
    (a) Your financial condition.
    (b) Your capital and whether that capital is sufficient under the 
circumstances.
    (c) Your overall performance.
    (d) The fiduciary powers you propose to exercise.
    (e) Your proposed supervision of those powers.
    (f) The availability of legal counsel.
    (g) The needs of the community to be served.
    (h) Any other facts or circumstances that the OCC considers proper.


Sec.  150.110  [Reserved]


Sec.  150.120  What action will the OCC take on my application?

    The OCC may approve or deny your application. If your application 
is approved, the OCC may impose conditions to ensure that the 
requirements of this part are met.


Sec.  150.125  How do I file the notice under Sec.  150.70(c)?

    (a) If you are required to file a notice under Sec.  150.70(c), 
within ten days after you commence the fiduciary activities in a new 
state, you must file a written notice that identifies each new state in 
which you conduct or will conduct fiduciary activities, describe the 
fiduciary activities that you conduct or will conduct in each new 
state, and provide sufficient information supporting a conclusion that 
the activities are permissible in the state.
    (b) You must file the notice with the appropriate OCC licensing 
office.

Subpart B--Exercising Fiduciary Powers


Sec.  150.130  How may I conduct multi-state operations?

    (a) Conducting fiduciary activities in more than one state. You may 
conduct fiduciary activities in any state, subject to the application 
and notice requirements in subpart A of this part.
    (b) Serving customers in more than one state. When you conduct 
fiduciary activities in a state:
    (1) You may market your fiduciary services to, and act as a 
fiduciary for, customers located in any state, may act as a fiduciary 
for relationships that include property located in other states, and 
may act as a testamentary trustee for a testator located in other 
states.
    (2) You may establish or utilize an office in any state to perform 
activities that are ancillary to your fiduciary business.


Sec.  150.135  How do I determine which state's laws apply to my 
operations?

    (a) The state laws that apply to you by virtue of 12 U.S.C. 1464(n) 
are the laws of the states in which you conduct fiduciary activities. 
For each individual state, you may conduct fiduciary activities in the 
capacity of trustee, executor, administrator, guardian, or in any other 
fiduciary capacity the state permits for its state banks, trust 
companies, or other corporations that compete with Federal savings 
associations in the state.
    (b) For each fiduciary relationship, the state referred to in 12 
U.S.C. 1464(n) is the state in which you conduct fiduciary activities 
for that relationship.


Sec.  150.136  To what extent do state laws apply to my fiduciary 
operations?

    (a) Application of state law. To enhance safety and soundness and 
to enable Federal savings associations to conduct their fiduciary 
activities in accordance with the best practices of thrift institutions 
in the United States (by efficiently delivering fiduciary services to 
the public free from undue regulatory duplication and burden), the OCC 
intends to give Federal savings associations maximum flexibility to 
exercise their fiduciary powers in accordance with a uniform scheme of 
Federal regulation. Accordingly, Federal savings associations may 
exercise fiduciary powers as authorized under Federal law, including 
this part, without regard to state laws that purport to regulate or 
otherwise affect their fiduciary activities, except to the extent 
provided in 12 U.S.C. 1464(n) (state laws regarding scope of fiduciary 
powers, access to examination reports regarding trust activities, 
deposits of securities, oaths and affidavits, and capital) or in 
paragraph (c) of this section. For purposes of this section, ``state 
law'' includes any state statute, regulation, ruling, order, or 
judicial decision.
    (b) Illustrative examples. Examples of state laws that are 
preempted by the HOLA and this section include those regarding:
    (1) Registration and licensing;
    (2) Recordkeeping;
    (3) Advertising and marketing;
    (4) The ability of a Federal savings association conducting 
fiduciary activities to maintain an action or proceeding in state 
court; and
    (5) Fiduciary-related fees.
    (c) State laws that are not preempted. State laws of the following 
types are not preempted to the extent that they only incidentally 
affect the fiduciary operations of Federal savings associations or are 
otherwise consistent with the purposes of paragraph (a) of this 
section:
    (1) Contract and commercial law;
    (2) Real property law;
    (3) Tort law;
    (4) Criminal law;
    (5) Probate law; and
    (6) Any other law that the OCC, upon review, finds:
    (i) Furthers a vital state interest; and
    (ii) Either has only an incidental effect on fiduciary operations 
or is not otherwise contrary to the purposes expressed in paragraph (a) 
of this section.


Sec.  150.140  Must I adopt and follow written policies and procedures 
in exercising fiduciary powers?

    You must adopt and follow written policies and procedures adequate 
to maintain your fiduciary activities in compliance with applicable 
law. Among other relevant matters, the policies and procedures should 
address, where appropriate, the following areas:
    (a) Your brokerage placement practices.
    (b) Your methods for ensuring that your fiduciary officers and 
employees do not use material inside information in connection with any 
decision or recommendation to purchase or sell any security.
    (c) Your methods for preventing self-dealing and conflicts of 
interest.
    (d) Your selection and retention of legal counsel who is ready and 
available to advise you and your fiduciary officers and employees on 
fiduciary matters.
    (e) Your investment of funds held as fiduciary, including short-
term investments and the treatment of fiduciary funds awaiting 
investment or distribution.

Fiduciary Personnel and Facilities


Sec.  150.150  Who is responsible for the exercise of fiduciary powers?

    The exercise of your fiduciary powers must be managed by or under 
the direction of your board of directors. In discharging its 
responsibilities, the board may assign any function related to the 
exercise of fiduciary powers to any director, officer, employee, or 
committee of directors, officers, or employees.


Sec.  150.160  What personnel and facilities may I use to perform 
fiduciary services?

    You may use your qualified personnel and facilities or an 
affiliate's qualified personnel and facilities to perform services 
related to the exercise of fiduciary powers.

[[Page 49006]]

Sec.  150.170  May my other departments or affiliates use fiduciary 
personnel and facilities to perform other services?

    Your other departments or affiliates may use fiduciary officers, 
employees, and facilities to perform services unrelated to the exercise 
of fiduciary powers, to the extent not prohibited by applicable law.


Sec.  150.180  May I perform fiduciary services for, or purchase 
fiduciary services from, another association or entity?

    You may perform services related to the exercise of fiduciary 
powers for another association or other entity under a written 
agreement. You may also purchase services related to the exercise of 
fiduciary powers from another association or other entity under a 
written agreement.


Sec.  150.190  Must fiduciary officers and employees be bonded?

    You must obtain an adequate bond for all fiduciary officers and 
employees.

Review of a Fiduciary Account


Sec.  150.200  Must I review a prospective account before I accept it?

    Before accepting a prospective fiduciary account, you must review 
it to determine whether you can properly administer the account.


Sec.  150.210  Must I conduct another review of an account after I 
accept it?

    After you accept a fiduciary account for which you have investment 
discretion, you must conduct a prompt review of all assets of the 
account to evaluate whether they are appropriate, individually and 
collectively, for the account.


Sec.  150.220  Are any other account reviews required?

    At least once every calendar year, you must conduct a review of all 
assets of each fiduciary account for which you have investment 
discretion. In this review, you must evaluate whether the assets are 
appropriate, individually and collectively, for the account.

Custody and Control of Assets


Sec.  150.230  Who must maintain custody or control of assets in a 
fiduciary account?

    You must place assets of fiduciary accounts in the joint custody or 
control of not fewer than two fiduciary officers or employees 
designated for that purpose by the board of directors.


Sec.  150.240  May I hold investments of a fiduciary account off-
premises?

    You may hold the investments of a fiduciary account off-premises, 
if this practice is consistent with applicable law, and you maintain 
adequate safeguards and controls.


Sec.  150.250  Must I keep fiduciary assets separate from other assets?

    You must keep the assets of fiduciary accounts separate from your 
other assets. You must also keep the assets of each fiduciary account 
separate from all other accounts, or you must identify the investments 
as the property of a particular account, except as provided in Sec.  
150.260.

Investing Funds of a Fiduciary Account


Sec.  150.260  How may I invest funds of a fiduciary account?

    (a) General. You must invest funds of a fiduciary account in a 
manner consistent with applicable law.
    (b) Collective investment funds. (1) You may invest funds of a 
fiduciary account in a collective investment fund, including a 
collective investment fund that you have established. In establishing 
and administering such funds, you must comply with 12 CFR 9.18.
    (2) If you must file a document with the OCC under 12 CFR 9.18, the 
OCC may review such documents for compliance with this part and other 
laws and regulations.
    (3) ``Bank'' and ``national bank'' as used in 12 CFR 9.18 shall be 
deemed to include a Federal savings association.

Funds Awaiting Investment or Distribution


Sec.  150.290  What must I do with fiduciary funds awaiting investment 
or distribution?

    If you have investment discretion or discretion over distributions 
for a fiduciary account which contains funds awaiting investment or 
distribution, you must ensure that those funds do not remain uninvested 
and undistributed any longer than is reasonable for the proper 
management of the account and consistent with applicable law. You also 
must obtain a rate of return for those funds that is consistent with 
applicable law.


Sec.  150.300  Where may I deposit fiduciary funds awaiting investment 
or distribution?

    (a) Self deposits. You may deposit funds of a fiduciary account 
that are awaiting investment or distribution in your other departments, 
unless prohibited by applicable law.
    (b) Affiliate deposits. You may also deposit funds of a fiduciary 
account that are awaiting investment or distribution with an affiliated 
insured depository institution, unless prohibited by applicable law.


Sec.  150.310  What if the FDIC does not insure the deposits?

    If the FDIC does not insure the entire amount of a self deposit, 
you must set aside collateral as security. If the FDIC does not insure 
the entire amount of an affiliate deposit, you or your affiliate must 
set aside collateral as security. The market value of the collateral 
must at all times equal or exceed the amount of the uninsured fiduciary 
funds. You must place the collateral under the control of appropriate 
fiduciary officers and employees.


Sec.  150.320  What is acceptable collateral for uninsured deposits?

    Any of the following is acceptable collateral for self deposits or 
affiliate deposits under Sec.  150.310:
    (a) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest.
    (b) Readily marketable securities of the classes in which state-
chartered corporate fiduciaries are permitted to invest fiduciary funds 
under applicable state law.
    (c) Other readily marketable securities as the OCC may determine.
    (d) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law.
    (e) Any other assets that qualify under applicable state law as 
appropriate security for deposits of fiduciary funds.

Restrictions on Self Dealing


Sec.  150.330  Are there investments in which I may not invest funds of 
a fiduciary account?

    You may not invest funds of a fiduciary account for which you have 
investment discretion in the following assets, unless authorized by 
applicable law:
    (a) The stock or obligations of, or assets acquired from, you or 
any of your directors, officers, or employees.
    (b) The stock or obligations of, or assets acquired from, your 
affiliates or any of their directors, officers, or employees.
    (c) The stock or obligations of, or assets acquired from, other 
individuals or organizations if you have an interest in the individual 
or organization that might affect the exercise of your best judgment.


Sec.  150.340  May I exercise rights to purchase additional stock or 
fractional shares of my stock or obligations or the stock or 
obligations of my affiliates?

    If the retention of investments in your stock or obligations or the 
stock or obligations of an affiliate in fiduciary accounts is 
consistent with applicable law, you may do either of the following:

[[Page 49007]]

    (a) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when these rights are offered pro 
rata to stockholders.
    (b) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or through the receipt of a 
stock dividend resulting in fractional share holdings.


Sec.  150.350  May I lend, sell, or transfer assets of a fiduciary 
account if I have an interest in the transaction?

    (a) General restriction. Except as provided in paragraph (b) of 
this section, you may not lend, sell, or otherwise transfer assets of a 
fiduciary account for which you have investment discretion to yourself 
or any of your directors, officers, or employees; to your affiliates or 
any of their directors, officers, or employees; or to other individuals 
or organizations with whom you have an interest that might affect the 
exercise of your best judgment.
    (b) Exceptions--(1) Funds for which you have investment discretion. 
You may lend, sell or otherwise transfer assets of a fiduciary account 
for which you have investment discretion to yourself or any of your 
directors, officers, or employees; to your affiliates or any of their 
directors, officers, or employees; or to other individuals or 
organizations with whom you have an interest that might affect the 
exercise of your best judgment, if you meet one of the following 
conditions:
    (i) The transaction is authorized by applicable law.
    (ii) Legal counsel advises you in writing that you have incurred, 
in your fiduciary capacity, a contingent or potential liability. Upon 
the sale or transfer of assets, you must reimburse the fiduciary 
account in cash in an amount equal to the greater of book or market 
value of the assets.
    (iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for 
defaulted fixed-income investments.
    (iv) The OCC requires you to do so.
    (2) Funds held as trustee. You may make loans of funds held in 
trust to any of your directors, officers, or employees if the funds are 
held in an employee benefit plan and the loan is made in accordance 
with the exemptions found at section 408 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1108).


Sec.  150.360  May I make a loan to a fiduciary account that is secured 
by an interest in the assets of the account?

    You may make a loan to a fiduciary account that is secured by an 
interest in the assets of the account, if the transaction is fair to 
the account and is not prohibited by applicable law.


Sec.  150.370  May I sell assets or lend money between fiduciary 
accounts?

    You may sell assets or lend money between fiduciary accounts, if 
the transaction is fair to both accounts and is not prohibited by 
applicable law.

Compensation, Gifts, and Bequests


Sec.  150.380  May I earn compensation for acting in a fiduciary 
capacity?

    If the amount of your compensation for acting in a fiduciary 
capacity is not set or governed by applicable law, you may charge a 
reasonable fee for your services.


Sec.  150.390  May my officer or employee retain compensation for 
acting as a co-fiduciary?

    You may not permit your officers or employees to retain any 
compensation for acting as a co-fiduciary with you in the 
administration of a fiduciary account, except with the specific 
approval of your board of directors.


Sec.  150.400  May my fiduciary officer or employee accept a gift or 
bequest?

    You may not permit any fiduciary officer or employee to accept a 
bequest or gift of fiduciary assets, unless the bequest or gift is 
directed or made by a relative of the officer or employee or is 
specifically approved by your board of directors.

Recordkeeping Requirements


Sec.  150.410  What records must I keep?

    You must keep adequate records for all fiduciary accounts. For 
example, you must keep documents on the establishment and termination 
of each fiduciary account.


Sec.  150.420  How long must I keep these records?

    You must keep fiduciary records for three years after the 
termination of the account or the termination of any litigation 
relating to the account, whichever is later.


Sec.  150.430  Must I keep fiduciary records separate and distinct from 
other records?

    You must keep fiduciary records separate and distinct from your 
other records.

Audit Requirements


Sec.  150.440  When do I have to audit my fiduciary activities?

    (a) Annual audit. If you do not use a continuous audit system 
described in paragraph (b) of this section, then you must arrange for a 
suitable audit of all significant fiduciary activities at least once 
during each calendar year.
    (b) Continuous audit. Instead of an annual audit, you may adopt a 
continuous audit system. Under a continuous audit system, you must 
arrange for a discrete audit of each significant fiduciary activity 
(i.e., on an activity-by-activity basis) at an interval commensurate 
with the nature and risk of that activity. Some fiduciary activities 
may receive audits at intervals greater or less than one year, as 
appropriate.


Sec.  150.450  What standards govern the conduct of the audit?

    Auditors must follow generally accepted standards for attestation 
engagements and other standards established by the OCC. An audit must 
ascertain whether your internal control policies and procedures provide 
reasonable assurance of three things:
    (a) You are administering fiduciary activities in accordance with 
applicable law.
    (b) You are properly safeguarding fiduciary assets.
    (c) You are accurately recording transactions in appropriate 
accounts in a timely manner.


Sec.  150.460  Who may conduct an audit?

    Internal auditors, external auditors, or other qualified persons 
who are responsible only to the board of directors, may conduct an 
audit.


Sec.  150.470  Who directs the conduct of the audit?

    Your fiduciary audit committee directs the conduct of the audit. 
Your fiduciary audit committee may consist of a committee of your 
directors or an audit committee of an affiliate. There are two 
restrictions on who may serve on the committee:
    (a) Your officers and officers of an affiliate who participate 
significantly in administering your fiduciary activities may not serve 
on the audit committee.
    (b) A majority of the members of the audit committee may not serve 
on any committee to which the board of directors has delegated power to 
manage and control your fiduciary activities.


Sec.  150.480  How do I report the results of the audit?

    (a) Annual audit. If you conduct an annual audit, you must note the 
results of the audit (including significant actions taken as a result 
of the audit) in the minutes of the board of directors.
    (b) Continuous audit. If you adopt a continuous audit system, you 
must note the results of all discrete audits conducted since the last 
audit report (including significant actions taken as a result of the 
audits) in the minutes of the board of directors at least once during 
each calendar year.

[[Page 49008]]

Subpart C--Depositing Securities With State Authorities


Sec.  150.490  When must I deposit securities with state authorities?

    You must deposit securities with a state's authorities or, if 
applicable, a Federal Home Loan Bank under Sec.  150.510, if you meet 
all of the following:
    (a) You are located in the state.
    (b) You act as a private or court-appointed trustee.
    (c) The law of the state requires corporations acting in a 
fiduciary capacity to deposit securities with state authorities for the 
protection of private or court trusts.


Sec.  150.500  How much must I deposit if I administer fiduciary assets 
in more than one state?

    If you administer fiduciary assets in more than one state, you must 
compute the amount of deposit required for each state on the basis of 
fiduciary assets that you administer primarily from offices located in 
that state.


Sec.  150.510  What must I do if state authorities refuse my deposit?

    If state authorities refuse to accept your deposit under Sec.  
150.490, you must deposit the securities with the Federal Home Loan 
Bank of which you are a member. The Federal Home Loan Bank will hold 
the securities for the protection of private or court trusts to the 
same extent as if the securities had been deposited with state 
authorities.

Subpart D--Terminating Fiduciary Activities Receivership or 
Liquidation


Sec.  150.520  What happens if I am placed in receivership or voluntary 
liquidation?

    If the OCC appoints a conservator or receiver, or if you place 
yourself in voluntary liquidation, the receiver, conservator, or 
liquidating agent must promptly close or transfer all fiduciary 
accounts to a substitute fiduciary, in accordance with OCC instructions 
and the orders of the court having jurisdiction.

Surrender of Fiduciary Powers


Sec.  150.530  How do I surrender fiduciary powers?

    If you want to surrender your fiduciary powers, you must file a 
certified copy of a resolution of your board of directors evidencing 
that intent. You must file the resolution with the appropriate OCC 
licensing office.


Sec.  150.540  When will the OCC terminate my fiduciary powers?

    If, after appropriate investigation, the OCC is satisfied that you 
have been discharged from all fiduciary duties, the appropriate OCC 
licensing office will issue a written notice indicating that you are no 
longer authorized to exercise fiduciary powers.


Sec.  150.550  May I recover my deposit from state authorities?

    Upon issuance of the OCC written notice under Sec.  150.540, you 
may recover any securities deposited with state authorities, or a 
Federal Home Loan Bank, under subpart C of this part.

Revocation of Fiduciary Powers


Sec.  150.560  When may the OCC revoke my fiduciary powers?

    The OCC may revoke your fiduciary powers if it determines that you 
have done any of the following:
    (a) Exercised those fiduciary powers unlawfully or unsoundly.
    (b) Failed to exercise those fiduciary powers for five consecutive 
years.
    (c) Otherwise failed to follow the requirements of this part.


Sec.  150.570  What procedures govern the revocation?

    The procedures for revocation of fiduciary powers are set forth in 
12 U.S.C. 1464(n)(10). The OCC will conduct the hearing required under 
12 U.S.C. 1464(n)(10)(B) under part 109 of this chapter.

Subpart E--Activities Exempt From This Part


Sec.  150.580  When may I conduct fiduciary activities without 
obtaining OCC approval?

    Subject to the requirements of this subpart E, you do not need OCC 
approval under subpart B if you conduct fiduciary activities in the 
following fiduciary capacities:
    (a) Trustee of a trust created or organized in the United States 
and forming part of a stock bonus, pension, or profit-sharing plan 
qualifying for specific tax treatment under section 401(d) of the 
Internal Revenue Code of 1954 (26 U.S.C. 401(d)).
    (b) Trustee or custodian of a Individual Retirement Account within 
the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 408(a)).


Sec.  150.590  What standards must I observe when acting in exempt 
fiduciary capacities?

    You must observe principles of sound fiduciary administration, 
including those related to recordkeeping and segregation of assets.


Sec.  150.600  How may funds be invested when I act in an exempt 
fiduciary capacity?

    If you act in an exempt fiduciary capacity under Sec.  150.580, the 
funds of the fiduciary account may be invested only in the following:
    (a) Your accounts, deposits, obligations, or securities.
    (b) Other assets as the customer may direct, provided you do not 
exercise any investment discretion and do not directly or indirectly 
provide any investment advice for the fiduciary account.


Sec.  150.610  What disclosures must I make when acting in exempt 
fiduciary capacities?

    (a) If you act in an exempt fiduciary capacity under Sec.  150.580 
and fiduciary investments are not limited to accounts or deposits 
insured by the FDIC, you must include the following language in bold 
type on the first page of any contract documents:
    (b) Funds invested pursuant to this agreement are not insured by 
the FDIC merely because the trustee or custodian is a Federal savings 
association the accounts of which are covered by such insurance. Only 
investments in the accounts of a Federal savings association are 
insured by the FDIC, subject to its rules and regulations.


Sec.  150.620  May I receive compensation for acting in exempt 
fiduciary capacities?

    You may receive reasonable compensation.

PART 151--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR 
SECURITIES TRANSACTIONS

Sec.
151.10 What does this part do?
151.20 Must I comply with this part?
151.30 What requirements apply to all transactions?
151.40 What definitions apply to this part?
Subpart A--Recordkeeping Requirements
151.50 What records must I maintain for securities transactions?
151.60 How must I maintain my records?
Subpart B--Content and Timing of Notice
151.70 What type of notice must I provide when I effect a securities 
transaction for a customer?
151.80 How do I provide a registered broker-dealer confirmation?
151.90 How do I provide a written notice?
151.100 What are the alternate notice requirements?
151.110 May I provide a notice electronically?
151.120 May I charge a fee for a notice?
Subpart C--Settlement of Securities Transactions
151.130 When must I settle a securities transaction?
Subpart D--Securities Trading Policies and Procedures
151.140 What policies and procedures must I maintain and follow for 
securities transactions?

[[Page 49009]]

151.150 How do my officers and employees file reports of personal 
securities trading transactions?

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).


Sec.  151.10  What does this part do?

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


Sec.  151.20  Must I comply with this part?

    (a) General. Except as provided under paragraph (b) of this 
section, you must comply with this part 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. You also must 
comply with 12 CFR part 150 when you effect such a transaction.
    (b) Exceptions--(1) Small number of transactions. You are not 
required to comply with Sec.  151.50(b) through (d) (recordkeeping) and 
Sec.  151.140(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.  151.50 (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 part 
when you conduct municipal securities transactions.
    (4) Foreign branches. You are not required to comply with this part 
when you conduct a transaction at your foreign branch.
    (5) Transactions by registered broker-dealers. You are not required 
to comply with this part 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.  151.30  What requirements apply to all transactions?

    You must effect all transactions, including transactions excepted 
under Sec.  151.20, 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.  151.40  What definitions apply to this part?

    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 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 any fund established 
under 12 CFR 150.260(b) or 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 the same as under 12 CFR 150.40(a).
    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:

[[Page 49010]]

    (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 other 
instrument the OCC determines does not constitute a security for 
purposes of this part.
    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.

Subpart A--Recordkeeping Requirements


Sec.  151.50  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 subpart B of this part.


Sec.  151.60  How must I maintain my records?

    (a) You may maintain the records required under Sec.  151.50 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 OCC 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 OCC examiners; and
    (iii) To reasonably ensure that any reproduction of a non-
electronic

[[Page 49011]]

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.

Subpart B--Content and Timing of Notice


Sec.  151.70  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.  151.80, or the written notice described at Sec.  
151.90. For certain types of transactions, you may elect to provide the 
alternate notices described in Sec.  151.100.


Sec.  151.80  How do I provide a registered broker-dealer confirmation?

    (a) If you elect to satisfy Sec.  151.70 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.  151.90  How do I provide a written notice?

    If you elect to satisfy Sec.  151.70 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 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.

[[Page 49012]]

 
(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.  151.100  What are the alternate notice requirements?

    You may elect to satisfy Sec.  151.70 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.
                                            151.80 or the written notice
                                          described in Sec.   151.90
                                          within a reasonable time after
                                          the customer's written
                                          request.
(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.   151.80 or the
                                          written notice described in
                                          Sec.   151.90 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.   151.80 or
 common or collective investment funds.   the written notice described
                                          in Sec.   151.90 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.
                                            151.80 or the written notice
                                          described in Sec.   151.90
                                          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.  151.110   May I provide a notice electronically?

    You may provide any written notice required under this subpart B 
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.

[[Page 49013]]

Sec.  151.120   May I charge a fee for a notice?

    You may not charge a fee for providing a notice required under this 
subpart B, except that you may charge a reasonable fee for the notices 
provided under Sec. Sec.  151.100(a), (d), and (e).

Subpart C--Settlement of Securities Transactions


Sec.  151.130   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.

Subpart D--Securities Trading Policies and Procedures


Sec.  151.140   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 reports described at 
Sec.  151.150, 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.  151.150   How do my officers and employees file reports of 
personal securities trading transactions?

    An officer or employee described in Sec.  151.140(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).

PART 152--FEDERAL STOCK ASSOCIATIONS--INCORPORATION, ORGANIZATION, 
AND CONVERSION

Sec.
152.1 Procedure for organization of Federal stock association.
152.2 Procedures for organization of interim Federal stock 
association.
152.3 Charters for Federal stock associations.
152.4 Charter amendments.
152.5 Bylaws.
152.6 Shareholders.
152.7 Board of directors.
152.8 Officers.
152.9 Certificates for shares and their transfer.
152.10 Annual reports to stockholders.
152.11 Books and records.
152.12 [Reserved]
152.13 Combinations involving Federal stock associations.
152.14 Dissenter and appraisal rights.
152.15 Supervisory combinations.
152.16 Effect of subsequent charter or bylaw change.
152.17 Federal stock association created in connection with an 
association in default or in danger of default.

[[Page 49014]]

152.18 Conversion from stock form depository institution to Federal 
stock association.
152.19 Conversion to National banking association or state bank.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 
5412(b)(2)(B).

Sec.  152.1   Procedure for organization of Federal stock association.

    (a) Application for permission to organize. Applications for 
permission to organize a Federal stock association are subject to this 
section and to Sec.  143.3 of this chapter. Recommendations by 
employees of the OCC regarding applications for permission to organize 
are privileged, confidential, and subject to Part 4, subpart C of this 
chapter. The processing of an application under this section shall be 
subject to the following procedures:
    (1) Publication. (i) The applicant shall publish a public notice of 
the application to organize in accordance with the procedures specified 
in subpart B of part 116 of this chapter.
    (ii) Promptly after publication of the public notice, the applicant 
shall transmit copies of the public notice and publisher's affidavit of 
publication to the appropriate OCC licensing office in the same manner 
as the original filing.
    (iii) Any person may inspect the application and all related 
communications at the offices specified in 12 CFR 4.14(c) during 
regular business hours, unless such information is exempt from public 
disclosure.
    (2) Notification to interested parties. The OCC shall give notice 
of the application to the state official who supervises savings 
associations in the state in which the new association is to be 
located.
    (3) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 116 of this chapter.
    (4) Meetings. The OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (b) Conditions of approval. The OCC will decide all applications 
for permission to organize a Federal stock association.
    (1) Factors that will be considered on all applications for 
permission to organize a Federal stock association are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the 
association's usefulness and success;
    (iv) Whether the association can be established without undue 
injury to properly conducted existing local thrift and home financing 
institutions; and
    (v) Whether the association will perform a role of providing credit 
for housing consistent with safe and sound operation of a Federal 
savings association.
    (2) [Reserved]
    (3) Approvals of applications will be conditioned on the following:
    (i) Receipt by the OCC of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the association will 
be insured by the Federal Deposit Insurance Corporation;
    (ii) The sale of a minimum amount of fully-paid capital stock of 
the association prior to commencing business;
    (iii) The submission of a statement that:
    (A) The applicants have incurred no expense in organization which 
is chargeable to the association, and that no such expense will be 
incurred, and
    (B) No funds will be accepted for deposit by the association until 
organization has been completed;
    (iv) Compliance with all applicable laws, rules, and regulations; 
and
    (v) The satisfaction of any other requirement or condition the OCC 
may impose.
    (c) Issuance of charter. Upon approval of an application, the OCC 
shall issue to the association a charter for a Federal stock savings 
association or for a Federal stock savings bank, as requested by the 
applicants, which shall be in the form provided in this part. Issuance 
of the charter shall be subject to the condition subsequent that the 
organization of the association is completed pursuant to this section.
    (d) Interim board of directors and officers. Upon approval of the 
application and the issuance of the charter, the applicants shall 
constitute the interim board of directors of the association until the 
board of directors of the association are elected by its stockholders 
at the organizational meeting required by paragraph (g) of this 
section, and the interim officers of the association shall be those 
persons set forth in the application for permission to organize.
    (e) Sale of capital stock. Upon the issuance of the charter, the 
association shall proceed to offer and sell its capital stock pursuant 
to the requirements of part 197 of this chapter.
    (f) Bank membership and insurance of accounts. Promptly upon the 
issuance of the charter, a Federal stock association must qualify as a 
member of the appropriate Federal Home Loan Bank and meet all 
requirements necessary to obtain insurance of accounts by the Federal 
Deposit Insurance Corporation.
    (g) Organizational meeting. Promptly upon the completion of the 
sale of its capital stock, the association shall provide notice, 
pursuant to Sec.  152.6(b), of a meeting of its stockholders to elect a 
board of directors. Immediately following such election, the directors 
shall meet to elect the officers of the association and to undertake 
any other action necessary under the charter or bylaws to complete 
corporate organization.
    (h) Completion of organization. Organization of a Federal stock 
association shall be deemed complete for the purposes of this part 
when:
    (1) The association has obtained Federal Home Loan Bank membership 
and insurance of its accounts from the Federal Deposit Insurance 
Corporation;
    (2) It has completed the sale of and received full payment for its 
capital stock;
    (3) It has complied with all requirements of part 197 of this 
chapter;
    (4) It has held its organizational meeting for the election of 
directors and all directors have been elected;
    (5) Its officers have been elected and bonded; and
    (6) It has met the requirements and conditions imposed by the OCC 
in connection with approval of the application.
    (i) Failure of completion. If organization of a Federal stock 
association is not completed within six months after approval of the 
application, or unless extended for an additional period for good cause 
shown, the charter shall become null and void and all subscriptions to 
capital stock shall be returned.


Sec.  152.2  Procedures for organization of interim Federal stock 
association.

    (a) Applications for permission to organize an interim Federal 
savings association are not subject to subparts B, C and D of part 116 
of this chapter or Sec.  152.1(b)(3) of this part.
    (b) Approval of an application for permission to organize an 
interim Federal stock association shall be conditioned upon approval by 
the OCC of an application to merge the interim Federal stock 
association, or upon approval by the OCC of another transaction which 
the interim was chartered to facilitate. Applications for permission to 
organize an interim Federal stock association shall be submitted in the 
same manner as the related filing(s). In evaluating the application, 
the OCC will consider the

[[Page 49015]]

purpose for which the association will be organized, the form of any 
proposed transactions involving the association, the effect of the 
transactions on existing associations involved in the transactions, and 
the factors specified in Sec.  152.1(b)(1) to the extent relevant.
    (c) If a merger or other transaction facilitated by the existence 
of the interim Federal stock association has not been approved within 
six months of the approval of the application for permission to 
organize, unless extended for good cause shown, the charter shall be 
void and all subscriptions for capital stock shall be returned.


Sec.  152.3  Charters for Federal stock associations.

    The charter of a Federal stock association shall be in the 
following form, except that an association that has converted from the 
mutual form pursuant to part 192 of this chapter shall include in its 
charter a section establishing a liquidation account as required by 
Sec.  192.3(c)(13) of this chapter. A charter for a Federal stock 
savings bank shall substitute the term ``savings bank'' for 
``association.'' Charters may also include any preapproved optional 
provision contained in Sec.  152.4 of this part.
    Federal Stock Charter
    Section 1. Corporate title. The full corporate title of the 
association is ----.
    Section 2. Office. The home office shall be located in ---- [city, 
state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all of the express, implied, and incidental powers 
conferred thereby and by all acts amendatory thereof and supplemental 
thereto, subject to the Constitution and laws of the United States as 
they are now in effect, or as they may hereafter be amended, and 
subject to all lawful and applicable rules, regulations, and orders of 
the Office of the Comptroller of the Currency (``OCC'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the association has the authority to issue is 
----, all of which shall be common stock of par [or if no par is 
specified then shares shall have a stated] value of ---- per share. The 
shares may be issued from time to time as authorized by the board of 
directors without the approval of its shareholders, except as otherwise 
provided in this Section 5 or to the extent that such approval is 
required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither 
promissory notes nor future services shall constitute payment or part 
payment for the issuance of shares of the association. The 
consideration for the shares shall be cash, tangible or intangible 
property (to the extent direct investment in such property would be 
permitted to the association), labor, or services actually performed 
for the association, or any combination of the foregoing. In the 
absence of actual fraud in the transaction, the value of such property, 
labor, or services, as determined by the board of directors of the 
association, shall be conclusive. Upon payment of such consideration, 
such shares shall be deemed to be fully paid and nonassessable. In the 
case of a stock dividend, that part of the retained earnings of the 
association that is transferred to common stock or paid-in capital 
accounts upon the issuance of shares as a stock dividend shall be 
deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association 
from the mutual to stock form of capitalization, no shares of capital 
stock (including shares issuable upon conversion, exchange, or exercise 
of other securities) shall be issued, directly or indirectly, to 
officers, directors, or controlling persons of the association other 
than as part of a general public offering or as qualifying shares to a 
director, unless the issuance or the plan under which they would be 
issued has been approved by a majority of the total votes eligible to 
be cast at a legal meeting.
    The holders of the common stock shall exclusively possess all 
voting power. Each holder of shares of common stock shall be entitled 
to one vote for each share held by such holder, except as to the 
cumulation of votes for the election of directors, unless the charter 
provides that there shall be no such cumulative voting. Subject to any 
provision for a liquidation account, in the event of any liquidation, 
dissolution, or winding up of the association, the holders of the 
common stock shall be entitled, after payment or provision for payment 
of all debts and liabilities of the association, to receive the 
remaining assets of the association available for distribution, in cash 
or in kind. Each share of common stock shall have the same relative 
rights as and be identical in all respects with all the other shares of 
common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
association shall not be entitled to preemptive rights with respect to 
any shares of the association which may be issued.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors, as stated 
in the association's bylaws, shall not be fewer than five nor more than 
fifteen except when a greater or lesser number is approved by the OCC.
    Section 8. Amendment of charter. Except as provided in Section 5, 
no amendment, addition, alteration, change or repeal of this charter 
shall be made, unless such is proposed by the board of directors of the 
association, approved by the shareholders by a majority of the votes 
eligible to be cast at a legal meeting, unless a higher vote is 
otherwise required, and approved or preapproved by the OCC.
Attest:----------------------------------------------------------------
Secretary of the Association
By:--------------------------------------------------------------------
President or Chief Executive Officer of the Association
Attest:----------------------------------------------------------------
Deputy Comptroller for Licensing
By:--------------------------------------------------------------------
Comptroller of the Currency
Effective Date:--------------------------------------------------------


Sec.  152.4  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal stock 
association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment 
that states the text of such amendment.
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
tender offer, or proxy contest, the assumption of control by a holder 
of a block of the association's stock, the removal of incumbent 
management, or involve a significant issue of law or policy, the 
association shall file the proposed amendment and shall obtain the 
prior approval of the OCC; and
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of 
this section and such amendment is permissible under all applicable 
laws, rules or regulations, then the association shall submit the 
proposed amendments to the appropriate OCC licensing office, at least 
30 days prior to the date the proposed charter amendment is to be 
mailed for consideration by the association's shareholders.

[[Page 49016]]

    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter in adopting such amendment, 
unless prior to the expiration of such 30-day period the OCC notifies 
the association that such amendment is rejected or that such amendment 
is deemed to be filed under the provisions of paragraph (a)(2)(i) of 
this section. In addition, the following charter amendments, including 
the adoption of the Federal stock charter as set forth in Sec.  152.3 
of this part, shall be approved at the time of adoption, if adopted 
without change and filed with the OCC within 30 days after adoption, 
provided the association follows the requirements of its charter in 
adopting such amendments:
    (1) Title change. A Federal stock association that has complied 
with Sec.  143.1(b) of this chapter may amend its charter by 
substituting a new corporate title in section 1.
    (2) Home office. A Federal savings association may amend its 
charter by substituting a new home office in section 2, if it has 
complied with applicable requirements of Sec.  145.95 of this chapter.
    (3) Number of shares of stock and par value. A Federal stock 
association may amend Section 5 of its charter to change the number of 
authorized shares of stock, the number of shares within each class of 
stock, and the par or stated value of such shares.
    (4) Capital stock. A Federal stock association may amend its 
charter by revising Section 5 to read as follows:
    Section 5. Capital stock. The total number of shares of all classes 
of capital stock that the association has the authority to issue is --
--, of which ---- shall be common stock of par [or if no par value is 
specified the stated] value of ---- per share and of which [list the 
number of each class of preferred and the par or if no par value is 
specified the stated value per share of each such class]. The shares 
may be issued from time to time as authorized by the board of directors 
without further approval of shareholders, except as otherwise provided 
in this Section 5 or to the extent that such approval is required by 
governing law, rule, or regulation. The consideration for the issuance 
of the shares shall be paid in full before their issuance and shall not 
be less than the par [or stated] value. Neither promissory notes nor 
future services shall constitute payment or part payment for the 
issuance of shares of the association. The consideration for the shares 
shall be cash, tangible or intangible property (to the extent direct 
investment in such property would be permitted), labor, or services 
actually performed for the association, or any combination of the 
foregoing. In the absence of actual fraud in the transaction, the value 
of such property, labor, or services, as determined by the board of 
directors of the association, shall be conclusive. Upon payment of such 
consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the association that is transferred to common 
stock or paid-in capital accounts upon the issuance of shares as a 
stock dividend shall be deemed to be the consideration for their 
issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association 
from the mutual to the stock form of capitalization, no shares of 
capital stock (including shares issuable upon conversion, exchange, or 
exercise of other securities) shall be issued, directly or indirectly, 
to officers, directors, or controlling persons of the association other 
than as part of a general public offering or as qualifying shares to a 
director, unless their issuance or the plan under which they would be 
issued has been approved by a majority of the total votes eligible to 
be cast at a legal meeting.
    Nothing contained in this Section 5 (or in any supplementary 
sections hereto) shall entitle the holders of any class of a series of 
capital stock to vote as a separate class or series or to more than one 
vote per share, except as to the cumulation of votes for the election 
of directors, unless the charter otherwise provides that there shall be 
no such cumulative voting: Provided, That this restriction on voting 
separately by class or series shall not apply:
    (i) To any provision which would authorize the holders of preferred 
stock, voting as a class or series, to elect some members of the board 
of directors, less than a majority thereof, in the event of default in 
the payment of dividends on any class or series of preferred stock;
    (ii) To any provision that would require the holders of preferred 
stock, voting as a class or series, to approve the merger or 
consolidation of the association with another corporation or the sale, 
lease, or conveyance (other than by mortgage or pledge) of properties 
or business in exchange for securities of a corporation other than the 
association if the preferred stock is exchanged for securities of such 
other corporation: Provided, That no provision may require such 
approval for transactions undertaken with the assistance or pursuant to 
the direction of the OCC or the Federal Deposit Insurance Corporation;
    (iii) To any amendment which would adversely change the specific 
terms of any class or series of capital stock as set forth in this 
Section 5 (or in any supplementary sections hereto), including any 
amendment which would create or enlarge any class or series ranking 
prior thereto in rights and preferences. An amendment which increases 
the number of authorized shares of any class or series of capital 
stock, or substitutes the surviving association in a merger or 
consolidation for the association, shall not be considered to be such 
an adverse change.
    A description of the different classes and series (if any) of the 
association's capital stock and a statement of the designations, and 
the relative rights, preferences, and limitations of the shares of each 
class of and series (if any) of capital stock are as follows:
    A. Common stock. Except as provided in this Section 5 (or in any 
supplementary sections thereto) the holders of the common stock shall 
exclusively possess all voting power. Each holder of shares of the 
common stock shall be entitled to one vote for each share held by each 
holder, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting.
    Whenever there shall have been paid, or declared and set aside for 
payment, to the holders of the outstanding shares of any class of stock 
having preference over the common stock as to the payment of dividends, 
the full amount of dividends and of sinking fund, retirement fund, or 
other retirement payments, if any, to which such holders are 
respectively entitled in preference to the common stock, then dividends 
may be paid on the common stock and on any class or series of stock 
entitled to participate therewith as to dividends out of any assets 
legally available for the payment of dividends.
    In the event of any liquidation, dissolution, or winding up of the 
association, the holders of the common stock (and the holders of any 
class or series of stock entitled to participate with the common stock 
in the distribution of assets) shall be entitled to receive, in cash or 
in kind, the assets of the association available for distribution 
remaining after: (i) Payment or provision for payment of the 
association's debts and liabilities; (ii) distributions or provision 
for distributions in settlement of its

[[Page 49017]]

liquidation account; and (iii) distributions or provision for 
distributions to holders of any class or series of stock having 
preference over the common stock in the liquidation, dissolution, or 
winding up of the association. Each share of common stock shall have 
the same relative rights as and be identical in all respects with all 
the other shares of common stock.
    B. Preferred stock. The association may provide in supplementary 
sections to its charter for one or more classes of preferred stock, 
which shall be separately identified. The shares of any class may be 
divided into and issued in series, with each series separately 
designated so as to distinguish the shares thereof from the shares of 
all other series and classes. The terms of each series shall be set 
forth in a supplementary section to the charter. All shares of the same 
class shall be identical except as to the following relative rights and 
preferences, as to which there may be variations between different 
series:
    (a) The distinctive serial designation and the number of shares 
constituting such series;
    (b) The dividend rate or the amount of dividends to be paid on the 
shares of such series, whether dividends shall be cumulative and, if 
so, from which date(s), the payment date(s) for dividends, and the 
participating or other special rights, if any, with respect to 
dividends;
    (c) The voting powers, full or limited, if any, of shares of such 
series;
    (d) Whether the shares of such series shall be redeemable and, if 
so, the price(s) at which, and the terms and conditions on which, such 
shares may be redeemed;
    (e) The amount(s) payable upon the shares of such series in the 
event of voluntary or involuntary liquidation, dissolution, or winding 
up of the association;
    (f) Whether the shares of such series shall be entitled to the 
benefit of a sinking or retirement fund to be applied to the purchase 
or redemption of such shares, and if so entitled, the amount of such 
fund and the manner of its application, including the price(s) at which 
such shares may be redeemed or purchased through the application of 
such fund;
    (g) Whether the shares of such series shall be convertible into, or 
exchangeable for, shares of any other class or classes of stock of the 
association and, if so, the conversion price(s) or the rate(s) of 
exchange, and the adjustments thereof, if any, at which such conversion 
or exchange may be made, and any other terms and conditions of such 
conversion or exchange.
    (h) The price or other consideration for which the shares of such 
series shall be issued; and
    (i) Whether the shares of such series which are redeemed or 
converted shall have the status of authorized but unissued shares of 
serial preferred stock and whether such shares may be reissued as 
shares of the same or any other series of serial preferred stock.
    Each share of each series of serial preferred stock shall have the 
same relative rights as and be identical in all respects with all the 
other shares of the same series.
    The board of directors shall have authority to divide, by the 
adoption of supplementary charter sections, any authorized class of 
preferred stock into series, and, within the limitations set forth in 
this section and the remainder of this charter, fix and determine the 
relative rights and preferences of the shares of any series so 
established.
    Prior to the issuance of any preferred shares of a series 
established by a supplementary charter section adopted by the board of 
directors, the association shall file with the OCC a dated copy of that 
supplementary section of this charter established and designating the 
series and fixing and determining the relative rights and preferences 
thereof.
    (5) Limitations on subsequent issuances. A Federal stock 
association may amend its charter to require shareholder approval of 
the issuance or reservation of common stock or securities convertible 
into common stock under circumstances which would require shareholder 
approval under the rules of the New York or American Stock Exchange if 
the shares were then listed on the New York or American Stock Exchange.
    (6) Cumulative voting. A Federal stock association may amend its 
charter by substituting the following sentence for the second sentence 
in the third paragraph of Section 5: ``Each holder of shares of common 
stock shall be entitled to one vote for each share held by such holder 
and there shall be no right to cumulate votes in an election of 
directors.''
    (7) [Reserved]
    (8) Anti-takeover provisions following mutual to stock conversion. 
Notwithstanding the law of the state in which the association is 
located, a Federal stock association may amend its charter by 
renumbering existing sections as appropriate and adding a new section 8 
as follows:
    Section 8. Certain Provisions Applicable for Five Years. 
Notwithstanding anything contained in the Association's charter or 
bylaws to the contrary, for a period of [specify number of years up to 
five] years from the date of completion of the conversion of the 
Association from mutual to stock form, the following provisions shall 
apply:
    A. Beneficial Ownership Limitation. No person shall directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of any class of an equity security of the association. 
This limitation shall not apply to a transaction in which the 
association forms a holding company without change in the respective 
beneficial ownership interests of its stockholders other than pursuant 
to the exercise of any dissenter and appraisal rights, the purchase of 
shares by underwriters in connection with a public offering, or the 
purchase of shares by a tax-qualified employee stock benefit plan which 
is exempt from the approval requirements under Sec.  174.3(c)(2)(i)(D) 
of the OCC's regulations.
    In the event shares are acquired in violation of this section 8, 
all shares beneficially owned by any person in excess of 10% shall be 
considered ``excess shares'' and shall not be counted as shares 
entitled to vote and shall not be voted by any person or counted as 
voting shares in connection with any matters submitted to the 
stockholders for a vote.
    For purposes of this section 8, the following definitions apply:
    (1) The term ``person'' includes an individual, a group acting in 
concert, a corporation, a partnership, an association, a joint stock 
company, a trust, an unincorporated organization or similar company, a 
syndicate or any other group formed for the purpose of acquiring, 
holding or disposing of the equity securities of the association.
    (2) The term ``offer'' includes every offer to buy or otherwise 
acquire, solicitation of an offer to sell, tender offer for, or request 
or invitation for tenders of, a security or interest in a security for 
value.
    (3) The term ``acquire'' includes every type of acquisition, 
whether effected by purchase, exchange, operation of law or otherwise.
    (4) The term ``acting in concert'' means (a) knowing participation 
in a joint activity or conscious parallel action towards a common goal 
whether or not pursuant to an express agreement, or (b) 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

[[Page 49018]]

arrangements, whether written or otherwise.
    B. Cumulative Voting Limitation. Stockholders shall not be 
permitted to cumulate their votes for election of directors.
    C. Call for Special Meetings. Special meetings of stockholders 
relating to changes in control of the association or amendments to its 
charter shall be called only upon direction of the board of directors.
    (c) Anti-takeover provisions. The OCC may grant approval to a 
charter amendment not listed in paragraph (b) of this section regarding 
the acquisition by any person or persons of its equity securities 
provided that the association shall file as part of its application for 
approval an opinion, acceptable to the OCC, of counsel independent from 
the association that the proposed charter provision would be permitted 
to be adopted by a corporation chartered by the state in which the 
principal office of the association is located. Any such provision must 
be consistent with applicable statutes, regulations, and OCC policies. 
Further, any such provision that would have the effect of rendering 
more difficult a change in control of the association and would require 
for any corporate action (other than the removal of directors) the 
affirmative vote of a larger percentage of shareholders than is 
required by this part, shall not be effective unless adopted by a 
percentage of shareholder vote at least equal to the highest percentage 
that would be required to take any action under such provision.
    (d) Reissuance of charter. A Federal stock association that has 
amended its charter may apply to have its charter, including the 
amendments, reissued by the OCC. Such requests for reissuance should be 
filed with the appropriate OCC licensing office, and contain signatures 
required under Sec.  152.3 of this part, together with such supporting 
documents as needed to demonstrate that the amendments were properly 
adopted.


Sec.  152.5  Bylaws.

    (a) General. At its first organizational meeting, the board of 
directors of a Federal stock association shall adopt a set of bylaws 
for the administration and regulation of its affairs. Bylaws may be 
adopted, amended or repealed by either a majority of the votes cast by 
the shareholders at a legal meeting or a majority of the board of 
directors. The bylaws shall contain sufficient provisions to govern the 
association in accordance with the requirements of Sec. Sec.  152.6, 
152.7, 152.8, and 152.9 of this part and shall not contain any 
provision that is inconsistent with those sections or with applicable 
laws, rules, regulations or the association's charter, except that a 
bylaw provision inconsistent with Sec. Sec.  152.6, 152.7, and 152.9, 
of this part may be adopted with the approval of the OCC.
    (b) Form of Filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the OCC for approval if it would:
    (A) Render more difficult or discourage a merger, tender offer, or 
proxy contest, the assumption of control by a holder of a large block 
of the association's stock, or the removal of incumbent management; or
    (B) Be inconsistent with Sec. Sec.  152.6, 152.7, 152.8, and 152.9 
of this part, with applicable laws, rules, regulations or the 
association's charter or involve a significant issue of law or policy, 
including indemnification, conflicts of interest, and limitations on 
director or officer liability.
    (ii) Applications submitted under paragraph (b)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
116, subparts A and E of this chapter.
    (iii) Bylaw provisions that adopt the language of the OCC's model 
or optional bylaws, if adopted without change, and filed with the OCC 
within 30 days after adoption, are effective upon adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (b)(1) or (b)(3) 
of this section and is permissible under all applicable laws, rules, or 
regulations, then the association shall submit the amendment to the OCC 
at least 30 days prior to the date the bylaw amendment is to be adopted 
by the association.
    (3) Corporate governance procedures. A Federal stock association 
may elect to follow the corporate governance procedures of: The laws of 
the state where the main office of the association is located; the laws 
of the state where the association's holding company, if any, is 
incorporated or chartered; Delaware General Corporation law; or The 
Model Business Corporation Act, provided that such procedures may be 
elected to the extent not inconsistent with applicable Federal statutes 
and regulations and safety and soundness, and such procedures are not 
of the type described in paragraph (b)(1) of this section. If this 
election is selected, a Federal stock association shall designate in 
its bylaws the provision or provisions from the body or bodies of law 
selected for its corporate governance procedures, and shall file a copy 
of such bylaws, which are effective upon adoption, within 30 days after 
adoption. The submission shall indicate, where not obvious, why the 
bylaw provisions meet the requirements stated in paragraph (b)(1) of 
this section.
    (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(b)(2) of this section shall automatically be effective 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter and bylaws in adopting such 
amendment, unless prior to the expiration of such 30-day period the OCC 
notifies the association that such amendment is rejected or that such 
amendment requires an application to be filed pursuant to paragraph 
(b)(1) of this section.
    (d) Effect of subsequent charter or bylaw change. Notwithstanding 
any subsequent change to its charter or bylaws, the authority of a 
Federal stock association to engage in any transaction shall be 
determined only by the association's charter or bylaws then in effect, 
unless otherwise provided by Federal law or regulation.


Sec.  152.6  Shareholders.

    (a) Shareholder meetings. A meeting of the shareholders of the 
association for the election of directors and for the transaction of 
any other business of the association shall be held annually within 150 
days after the end of the association's fiscal year. Unless otherwise 
provided in the association's charter, special meetings of the 
shareholders may be called by the board of directors or on the request 
of the holders of 10 percent or more of the shares entitled to vote at 
the meeting, or by such other persons as may be specified in the bylaws 
of the association. All annual and special meetings of shareholders 
shall be held at such place as the board of directors may determine in 
the state in which the association has its principal place of business, 
or at any other convenient place the board of directors may designate.
    (b) Notice of shareholder meetings. Written notice stating the 
place, day, and hour of the meeting and the purpose or purposes for 
which the meeting is called shall be delivered not fewer than 20 nor 
more than 50 days before the date of the meeting, either personally or 
by mail, by or at the direction of the chairman of the board, the 
president, the secretary, or the directors, or other persons calling 
the meeting, to each shareholder of record entitled to vote at such 
meeting. If mailed, such notice shall be deemed to be delivered when 
deposited in the mail, addressed to the shareholder at the address 
appearing on the stock transfer

[[Page 49019]]

books or records of the association as of the record date prescribed in 
paragraph (c) of this section, with postage thereon prepaid. When any 
shareholders' meeting, either annual or special, is adjourned for 30 
days or more, notice of the adjourned meeting shall be given as in the 
case of an original meeting. Notwithstanding anything in this section, 
however, a Federal stock association that is wholly owned shall not be 
subject to the shareholder notice requirement.
    (c) Fixing of record date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment thereof, or shareholders entitled to 
receive payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not less than 10 days prior to 
the date on which the particular action, requiring such determination 
of shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment thereof.
    (d) Voting lists. (1) At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for the shares of the association shall make a complete list of 
the stockholders of record entitled to vote at such meeting, or any 
adjournments thereof, arranged in alphabetical order, with the address 
and the number of shares held by each. This list of shareholders shall 
be kept on file at the home office of the association and shall be 
subject to inspection by any shareholder of record or the stockholder's 
agent during the entire time of the meeting. The original stock 
transfer book shall constitute prima facie evidence of the stockholders 
entitled to examine such list or transfer books or to vote at any 
meeting of stockholders. Notwithstanding anything in this section, 
however, a Federal stock association that is wholly owned shall not be 
subject to the voting list requirements.
    (2) In lieu of making the shareholders list available for 
inspection by any shareholders as provided in paragraph (d)(1) of this 
section, the board of directors may perform such acts as required by 
paragraphs (a) and (b) of Rule 14a-7 of the General Rules and 
Regulations under the Securities and Exchange Act of 1934 (17 CFR 
240.14a-7) as may be duly requested in writing, with respect to any 
matter which may be properly considered at a meeting of shareholders, 
by any shareholder who is entitled to vote on such matter and who shall 
defray the reasonable expenses to be incurred by the association in 
performance of the act or acts required.
    (e) Shareholder quorum. A majority of the outstanding shares of the 
association entitled to vote, represented in person or by proxy, shall 
constitute a quorum at a meeting of shareholders. The shareholders 
present at a duly organized meeting may continue to transact business 
until adjournment, notwithstanding the withdrawal of enough 
shareholders to leave less than a quorum. If a quorum is present, the 
affirmative vote of the majority of the shares represented at the 
meeting and entitled to vote on the subject matter shall be the act of 
the stockholders, unless the vote of a greater number of stockholders 
voting together or voting by classes is required by law or the charter. 
Directors, however, are elected by a plurality of the votes cast at an 
election of directors.
    (f) Shareholder voting--(1) Proxies. Unless otherwise provided in 
the association's charter, at all meetings of shareholders, a 
shareholder may vote in person or by proxy executed in writing by the 
shareholder or by a duly authorized attorney in fact. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the shareholder. A proxy may 
designate as holder a corporation, partnership or company as defined in 
part 174 of this chapter, or other person. Proxies solicited on behalf 
of the management shall be voted as directed by the shareholder or, in 
the absence of such direction, as determined by a majority of the board 
of directors. No proxy shall be valid more than eleven months from the 
date of its execution except for a proxy coupled with an interest.
    (2) Shares controlled by association. Neither treasury shares of 
its own stock held by the association nor shares held by another 
corporation, if a majority of the shares entitled to vote for the 
election of directors of such other corporation are held by the 
association, shall be voted at any meeting or counted in determining 
the total number of outstanding shares at any given time for purposes 
of any meeting.
    (g) Nominations and new business submitted by shareholders. 
Nominations for directors and new business submitted by shareholders 
shall be voted upon at the annual meeting if such nominations or new 
business are submitted in writing and delivered to the secretary of the 
association at least five days prior to the date of the annual meeting. 
Ballots bearing the names of all the persons nominated shall be 
provided for use at the annual meeting.
    (h) Informal action by stockholders. If the bylaws of the 
association so provide, any action required to be taken at a meeting of 
the stockholders, or any other action that may be taken at a meeting of 
the stockholders, may be taken without a meeting if consent in writing 
has been given by all the stockholders entitled to vote with respect to 
the subject matter.


Sec.  152.7  Board of directors.

    (a) General powers and duties. The business and affairs of the 
association shall be under the direction of its board of directors. The 
board of directors shall annually elect a chairman of the board from 
among its members and shall designate the chairman of the board, when 
present, to preside at its meeting. Directors need not be stockholders 
unless the bylaws so require.
    (b) Number and term. The bylaws shall set forth a specific number 
of directors, not a range. The number of directors shall be not fewer 
than five nor more than fifteen, unless a higher or lower number has 
been authorized by the OTS, prior to July 21, 2011 or the OCC. 
Directors shall be elected for a term of one to three years and until 
their successors are elected and qualified. If a staggered board is 
chosen, the directors shall be divided into two or three classes as 
nearly equal in number as possible and one class shall be elected by 
ballot annually. In the case of a converting or newly chartered 
association where all directors shall be elected at the first election 
of directors, if a staggered board is chosen, the terms shall be 
staggered in length from one to three years.
    (c) Regular meetings. A regular meeting of the board of directors 
shall be held immediately after, and at the same place as, the annual 
meeting of shareholders. The board of directors shall determine the 
place, frequency, time and procedure for notice of regular meetings.
    (d) Quorum. A majority of the number of directors shall constitute 
a quorum for the transaction of business at any meeting of the board of 
directors. The act of the majority of the directors present at a 
meeting at which a quorum is present shall be the act of the board of 
directors, unless a greater number is prescribed by regulation of the 
OCC.
    (e) Vacancies. Any vacancy occurring in the board of directors may 
be filled by the affirmative vote of a majority of

[[Page 49020]]

the remaining directors although less than a quorum of the board of 
directors. A director elected to fill a vacancy shall be elected to 
serve only until the next election of directors by the shareholders. 
Any directorship to be filled by reason of an increase in the number of 
directors may be filled by election by the board of directors for a 
term of office continuing only until the next election of directors by 
the shareholders.
    (f) Removal or resignation of directors. (1) At a meeting of 
shareholders called expressly for that purpose, any director may be 
removed only for cause, as defined in Sec.  163.39 of this chapter, by 
a vote of the holders of a majority of the shares then entitled to vote 
at an election of directors. Associations may provide for procedures 
regarding resignations in the bylaws.
    (2) If less than the entire board is to be removed, no one of the 
directors may be removed if the votes cast against the removal would be 
sufficient to elect a director if then cumulatively voted at an 
election of the class of directors of which such director is a part.
    (3) Whenever the holders of the shares of any class are entitled to 
elect one or more directors by the provisions of the charter or 
supplemental sections thereto, the provisions of this section shall 
apply, in respect to the removal of a director or directors so elected, 
to the vote of the holders of the outstanding shares of that class and 
not to the vote of the outstanding shares as a whole.
    (g) Executive and other committees. The board of directors, by 
resolution adopted by a majority of the full board, may designate from 
among its members an executive committee and one or more other 
committees each of which, to the extent provided in the resolution or 
bylaws of the association, shall have and may exercise all of the 
authority of the board of directors, except no committee shall have the 
authority of the board of directors with reference to: the declaration 
of dividends; the amendment of the charter or bylaws of the 
association; recommending to the stockholders a plan of merger, 
consolidation, or conversion; the sale, lease, or other disposition of 
all, or substantially all, of the property and assets of the 
association otherwise than in the usual and regular course of its 
business; a voluntary dissolution of the association; a revocation of 
any of the foregoing; or the approval of a transaction in which any 
member of the executive committee, directly or indirectly, has any 
material beneficial interest. The designation of any committee and the 
delegation of authority thereto shall not operate to relieve the board 
of directors, or any director, of any responsibility imposed by law or 
regulation.
    (h) Notice of special meetings. Written notice of at least 24 hours 
regarding any special meeting of the board of directors or of any 
committee designated thereby shall be given to each director in 
accordance with the bylaws, although such notice may be waived by the 
director. The attendance of a director at a meeting shall constitute a 
waiver of notice of such meeting, except where a director attends a 
meeting for the express purpose of objecting to the transaction of any 
business because the meeting is not lawfully called or convened. 
Neither the business to be transacted at, nor the purpose of, any 
meeting need be specified in the notice or waiver of notice of such 
meeting. The bylaws may provide for telephonic participation at a 
meeting.
    (i) Action without a meeting. Any action required or permitted to 
be taken by the board of directors at a meeting may be taken without a 
meeting if a consent in writing, setting forth the actions so taken, 
shall be signed by all of the directors.
    (j) Presumption of assent. A director of the association who is 
present at a meeting of the board of directors at which action on any 
association matter is taken shall be presumed to have assented to the 
action taken unless his or her dissent or abstention shall be entered 
in the minutes of the meeting or unless a written dissent to such 
action shall be filed with the person acting as the secretary of the 
meeting before the adjournment thereof or shall be forwarded by 
registered mail to the secretary of the association within five days 
after the date on which a copy of the minutes of the meeting is 
received. Such right to dissent shall not apply to a director who voted 
in favor of such action.
    (k) Age limitation on directors. A Federal association may provide 
a bylaw on age limitation for directors. Bylaws on age limitations must 
comply with all Federal laws, rules and regulations.


Sec.  152.8  Officers.

    (a) Positions. The officers of the association shall be a 
president, one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected by the board of directors. 
The board of directors may also designate the chairman of the board as 
an officer. The offices of the secretary and treasurer or comptroller 
may be held by the same person and the vice president may also be 
either the secretary or the treasurer or comptroller. The board of 
directors may designate one or more vice presidents as executive vice 
president or senior vice president. The board of directors may also 
elect or authorize the appointment of such other officers as the 
business of the association may require. The officers shall have such 
authority and perform such duties as the board of directors may from 
time to time authorize or determine. In the absence of action by the 
board of directors, the officers shall have such powers and duties as 
generally pertain to their respective offices.
    (b) Removal. Any officer may be removed by the board of directors 
whenever in its judgment the best interests of the association will be 
served thereby; but such removal, other than for cause, shall be 
without prejudice to the contractual rights, if any, of the person so 
removed. Employment contracts shall conform with Sec.  163.39 of this 
chapter.
    (c) Age limitation on officers. A Federal association may provide a 
bylaw on age limitation for officers. Bylaws on age limitations must 
comply with all Federal laws, rules, and regulations.


Sec.  152.9  Certificates for shares and their transfer.

    (a) Certificates for shares. Certificates representing shares of 
capital stock of the association shall be in such form as shall be 
determined by the board of directors and approved by the OCC. The 
certificates shall be signed by the chief executive officer or by any 
other officer of the association authorized by the board of directors, 
attested by the secretary or an assistant secretary, and sealed with 
the corporate seal or a facsimile thereof. The signatures of such 
officers upon a certificate may be facsimiles if the certificate is 
manually signed on behalf of a transfer agent or a registrar other than 
the association itself or one of its employees. Each certificate for 
shares of capital stock shall be consecutively numbered or otherwise 
identified. The name and address of the person to whom the shares are 
issued, with the number of shares and date of issue, shall be entered 
on the stock transfer books of the association. All certificates 
surrendered to the association for transfer shall be cancelled and no 
new certificate shall be issued until the former certificate for a like 
number of shares shall have been surrendered and cancelled, except that 
in the case of a lost or destroyed certificate a new certificate may be 
issued upon such terms and indemnity to the association as the board of 
directors may prescribe.

[[Page 49021]]

    (b) Transfer of shares. Transfer of shares of capital stock of the 
association shall be made only on its stock transfer books. Authority 
for such transfer shall be given only by the holder of record or by a 
legal representative, who shall furnish proper evidence of such 
authority, or by an attorney authorized by a duly executed power of 
attorney and filed with the association. The transfer shall be made 
only on surrender for cancellation of the certificate for the shares. 
The person in whose name shares of capital stock stand on the books of 
the association shall be deemed by the association to be the owner for 
all purposes.


Sec.  152.10  Annual reports to stockholders.

    A Federal stock association not wholly-owned by a holding company 
shall, within 130 days after the end of its fiscal year, mail to each 
of its stockholders entitled to vote at its annual meeting an annual 
report containing financial statements that satisfy the requirements of 
rule 14a-3 under the Securities Exchange Act of 1934. (17 CFR 240.14a-
3). Concurrently with such mailing a certification of such mailing 
signed by the chairman of the board, the president or a vice president 
of the association, together with copies of the report, shall be 
transmitted by the association to the OCC.


Sec.  152.11  Books and records.

    (a) Each Federal stock association shall keep correct and complete 
books and records of account; shall keep minutes of the proceedings of 
its stockholders, board of directors, and committees of directors; and 
shall keep at its home office or at the office of its transfer agent or 
registrar, a record of its stockholders, giving the names and addresses 
of all stockholders, and the number, class and series, if any, of the 
shares held by each.
    (b)(1) Any stockholder or group of stockholders of a Federal stock 
association, holding of record the number of voting shares of such 
association specified below, upon making written demand stating a 
proper purpose, shall have the right to examine, in person or by agent 
or attorney, at any reasonable time or times, nonconfidential portions 
of its books and records of account, minutes and record of stockholders 
and to make extracts therefrom. Such right of examination is limited to 
a stockholder or group of stockholders holding of record:
    (i) Voting shares having a cost of not less than $100,000 or 
constituting not less than one percent of the total outstanding voting 
shares, provided in either case such stockholder or group of 
stockholders have held of record such voting shares for a period of at 
least six months before making such written demand, or
    (ii) Not less than five percent of the total outstanding voting 
shares.
    (2) No stockholder or group of stockholders of a Federal stock 
association shall have any other right under this section or common law 
to examine its books and records of account, minutes and record of 
stockholders, except as provided in its bylaws with respect to 
inspection of a list of stockholders.
    (c) The right to examination authorized by paragraph (b) of this 
section and the right to inspect the list of stockholders provided by a 
Federal stock association's bylaws may be denied to any stockholder or 
group of stockholders upon the refusal of any such stockholder or group 
of stockholders to furnish such association, its transfer agent or 
registrar an affidavit that such examination or inspection is not 
desired for any purpose which is in the interest of a business or 
object other than the business of the association, that such 
stockholder has not within the five years preceding the date of the 
affidavit sold or offered for sale, and does not now intend to sell or 
offer for sale, any list of stockholders of the association or of any 
other corporation, and that such stockholder has not within said five-
year period aided or abetted any other person in procuring any list of 
stockholders for purposes of selling or offering for sale such list.
    (d) Notwithstanding any provision of this section or common law, no 
stockholder or group of stockholders shall have the right to obtain, 
inspect or copy any portion of any books or records of a Federal stock 
association containing:
    (1) A list of depositors in or borrowers from such association;
    (2) Their addresses;
    (3) Individual deposit or loan balances or records; or
    (4) Any data from which such information could be reasonably 
constructed.


Sec.  152.12  [Reserved]


Sec.  152.13  Combinations involving Federal stock associations.

    (a) Scope and authority. Federal stock associations may enter into 
combinations only in accordance with the provisions of this section, 
section 18(c) of the Federal Deposit Insurance Act, sections 5(d)(3)(A) 
and 10(s) of the Home Owners' Loan Act, and Sec.  163.22 of this part.
    (b) Definitions. The following definitions apply to Sec. Sec.  
152.13 and 152.14 of this part:
    (1) Combination. A merger or consolidation with another depository 
institution, or an acquisition of all or substantially all of the 
assets or assumption of all or substantially all of the liabilities of 
a depository institution by another depository institution. Combine 
means to be a constituent institution in a combination.
    (2) Consolidation. Fusion of two or more depository institutions 
into a newly-created depository institution.
    (3) Constituent institution. Resulting, disappearing, acquiring, or 
transferring depository institution in a combination.
    (4) Depository institution means any commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, 
a cooperative bank, an industrial bank or a credit union, chartered in 
the United States and having its principal office located in the United 
States.
    (5) Disappearing institution. A depository institution whose 
corporate existence does not continue after a combination.
    (6) Merger. Uniting two or more depository institutions by the 
transfer of all property rights and franchises to the resulting 
depository institution, which retains its corporate identity.
    (7) Mutual savings association. Any savings association organized 
in a form not requiring non-withdrawable stock under Federal or state 
law.
    (8) Resulting institution. The depository institution whose 
corporate existence continues after a combination.
    (9) Savings association has the same meaning as defined in Sec.  
161.43 of this chapter.
    (10) State. Includes the District of Columbia, Commonwealth of 
Puerto Rico, and states, territories, and possessions of the United 
States.
    (11) Stock association. Any savings association organized in a form 
requiring non-withdrawable stock.
    (c) Forms of combination. A Federal stock association may combine 
with any depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the 
requirements for Federal Home Loan Bank membership and insurance of 
accounts;
    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OCC to the

[[Page 49022]]

requirements of sections 5(c) and 10(m) of the Home Owners' Loan Act; 
and
    (4) If any constituent savings association is a mutual savings 
association, the resulting institution shall be mutually held, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 192 of this chapter;
    (iii) The transaction involves an interim Federal stock association 
or an interim state stock savings association; or
    (iv) The transaction involves a transfer in the context of a mutual 
holding company reorganization under section 10(o) of the Home Owners' 
Loan Act.
    (d) Combinations. Prior written notification to, notice to, or 
prior written approval of, the OCC pursuant to Sec.  163.22 of this 
chapter is required for every combination. In the case of applications 
and notices pursuant to Sec.  163.22 (a) or (c), the OCC shall apply 
the criteria set out in Sec.  163.22 of this chapter and shall impose 
any conditions it deems necessary or appropriate to ensure compliance 
with those criteria and the requirements of this chapter.
    (e) Approval of the board of directors. Before filing a notice or 
application for any combination involving a Federal stock association, 
the combination shall be approved:
    (1) By a two-thirds vote of the entire board of each constituent 
Federal savings association; and
    (2) As required by other applicable Federal or state law, for other 
constituent institutions.
    (f) Combination agreement. All terms, conditions, agreements or 
understandings, or other provisions with respect to a combination 
involving a Federal savings association shall be set forth fully in a 
written combination agreement. The combination agreement shall state:
    (1) That the combination shall not be effective unless and until:
    (i) The combination receives any necessary approval from the OCC 
pursuant to Sec.  163.22 (a) or (c);
    (ii) In the case of a transaction requiring a notification pursuant 
to Sec.  163.22(b), notification has been provided to the OCC; or
    (iii) In the case of a transaction requiring a notice pursuant to 
Sec.  163.22(c), the notice has been filed, and the appropriate period 
of time has passed or the OCC has advised the parties that it will not 
disapprove the transaction;
    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the savings accounts of the resulting 
institution shall be issued;
    (8) If a Federal association is the resulting institution, the 
number, names, residence addresses, and terms of directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (g) [Reserved]
    (h) Approval by stockholders--(1) General rule. Except as otherwise 
provided in this section, an affirmative vote of two-thirds of the 
outstanding voting stock of any constituent Federal savings association 
shall be required for approval of the combination agreement. If any 
class of shares is entitled to vote as a class pursuant to Sec.  152.4 
of this part, an affirmative vote of a majority of the shares of each 
voting class and two-thirds of the total voting shares shall be 
required. The required vote shall be taken at a meeting of the savings 
association.
    (2) General exception. Stockholders of the resulting Federal stock 
association need not authorize a combination agreement if:
    (i) It does not involve an interim Federal savings association or 
an interim state savings association;
    (ii) The association's charter is not changed;
    (iii) Each share of stock outstanding immediately prior to the 
effective date of the combination is to be an identical outstanding 
share or a treasury share of the resulting Federal stock association 
after such effective date; and
    (iv) Either:
    (A) No shares of voting stock of the resulting Federal stock 
association and no securities convertible into such stock are to be 
issued or delivered under the plan of combination, or
    (B) The authorized unissued shares or the treasury shares of voting 
stock of the resulting Federal stock association to be issued or 
delivered under the plan of combination, plus those initially issuable 
upon conversion of any securities to be issued or delivered under such 
plan, do not exceed 15% of the total shares of voting stock of such 
association outstanding immediately prior to the effective date of the 
combination.
    (3) Exceptions for certain combinations involving an interim 
association. Stockholders of a Federal stock association need not 
authorize by a two-thirds affirmative vote combinations involving an 
interim Federal savings association or interim state savings 
association when the resulting Federal stock association is acquired 
pursuant to regulations of the Board of Governors of the Federal 
Reserve System. In those cases, an affirmative vote of 50 percent of 
the shares of the outstanding voting stock of the Federal stock 
association plus one affirmative vote shall be required. If any class 
of shares is entitled to vote as a class pursuant to Sec.  152.4 of 
this part, an affirmative vote of 50 percent of the shares of each 
voting class plus one affirmative vote shall be required. The required 
votes shall be taken at a meeting of the association.
    (i) Disclosure. The OCC may require, in connection with a 
combination under this section, such disclosure of information as the 
OCC deems necessary or desirable for the protection of investors in any 
of the constituent associations.
    (j) Articles of combination. (1) Following stockholder approval of 
any combination in which a Federal savings association is the resulting 
institution, articles of combination shall be executed in duplicate by 
each constituent institution, by its chief executive officer or 
executive vice president and by its secretary or an assistant 
secretary, and verified by one of the officers of each institution 
signing such articles, and shall set forth:
    (i) The plan of combination;
    (ii) The number of shares outstanding in each depository 
institution; and
    (iii) The number of shares in each depository institution voted for 
and against such plan.
    (2) Both sets of articles of combination shall be filed with the 
OCC. If the OCC determines that such articles conform to the 
requirements of this section, the OCC shall endorse the articles and 
return one set to the resulting institution.
    (k) Effective date. No combination under this section shall be 
effective until receipt of any approvals required by the OCC. The 
effective date of a combination in which the resulting institution is a 
Federal stock association shall be the date of consummation of the 
transaction or such other later date specified on the endorsement of 
the articles of combination by the OCC. If a disappearing institution 
combining under this section is a Federal stock

[[Page 49023]]

association, its charter shall be deemed to be cancelled as of the 
effective date of the combination and such charter must be surrendered 
to the OCC as soon as practicable after the effective date.
    (l) Mergers and consolidations: transfer of assets and liabilities 
to the resulting institution. Upon the effective date of a merger or 
consolidation under this section, if the resulting institution is a 
Federal savings association, all assets and property (real, personal 
and mixed, tangible and intangible, choses in action, rights, and 
credits) then owned by each constituent institution or which would 
inure to any of them, shall, immediately by operation of law and 
without any conveyance, transfer, or further action, become the 
property of the resulting Federal savings association. The resulting 
Federal savings association shall be deemed to be a continuation of the 
entity of each constituent institution, the rights and obligations of 
which shall succeed to such rights and obligations and the duties and 
liabilities connected therewith, subject to the Home Owners' Loan Act 
and other applicable statutes.


Sec.  152.14  Dissenter and appraisal rights.

    (a) Right to demand payment of fair or appraised value. Except as 
provided in paragraph (b) of this section, any stockholder of a stock 
association combining in accordance with Sec.  152.13 of this part 
shall have the right to demand payment of the fair or appraised value 
of his stock: Provided, That such stockholder has not voted in favor of 
the combination and complies with the provisions of paragraph (c) of 
this section.
    (b) Exceptions. No stockholder required to accept only qualified 
consideration for his or her stock shall have the right under this 
section to demand payment of the stock's fair or appraised value, if 
such stock was listed on a national securities exchange or quoted on 
the National Association of Securities Dealers' Automated Quotation 
System (``NASDAQ'') on the date of the meeting at which the combination 
was acted upon or stockholder action is not required for a combination 
made pursuant to Sec.  152.13(h)(2) of this part. ``Qualified 
consideration'' means cash, shares of stock of any association or 
corporation which at the effective date of the combination will be 
listed on a national securities exchange or quoted on NASDAQ, or any 
combination of such shares of stock and cash.
    (c) Procedure--(1) Notice. Each constituent Federal stock 
association shall notify all stockholders entitled to rights under this 
section, not less than twenty days prior to the meeting at which the 
combination agreement is to be submitted for stockholder approval, of 
the right to demand payment of appraised value of shares, and shall 
include in such notice a copy of this section. Such written notice 
shall be mailed to stockholders of record and may be part of 
management's proxy solicitation for such meeting.
    (2) Demand for appraisal and payment. Each stockholder electing to 
make a demand under this section shall deliver to the Federal stock 
association, before voting on the combination, a writing identifying 
himself or herself and stating his or her intention thereby to demand 
appraisal of and payment for his or her shares. Such demand must be in 
addition to and separate from any proxy or vote against the combination 
by the stockholder.
    (3) Notification of effective date and written offer. (i) Within 
ten days after the effective date of the combination, the resulting 
association shall:
    (A) Give written notice by mail to stockholders of constituent 
Federal stock associations who have complied with the provisions of 
paragraph (c)(2) of this section and have not voted in favor of the 
combination, of the effective date of the combination;
    (B) Make a written offer to each stockholder to pay for dissenting 
shares at a specified price deemed by the resulting association to be 
the fair value thereof; and
    (C) Inform them that, within sixty days of such date, the 
respective requirements of paragraphs (c)(5) and (c)(6) of this section 
(set out in the notice) must be satisfied.
    (ii) The notice and offer shall be accompanied by a balance sheet 
and statement of income of the association the shares of which the 
dissenting stockholder holds, for a fiscal year ending not more than 
sixteen months before the date of notice and offer, together with the 
latest available interim financial statements.
    (4) Acceptance of offer. If within sixty days of the effective date 
of the combination the fair value is agreed upon between the resulting 
association and any stockholder who has complied with the provisions of 
paragraph (c)(2) of this section, payment therefore shall be made 
within ninety days of the effective date of the combination.
    (5) Petition to be filed if offer not accepted. If within sixty 
days of the effective date of the combination the resulting association 
and any stockholder who has complied with the provisions of paragraph 
(c)(2) of this section do not agree as to the fair value, then any such 
stockholder may file a petition with the OCC, with a copy by registered 
or certified mail to the resulting association, demanding a 
determination of the fair market value of the stock of all such 
stockholders. A stockholder entitled to file a petition under this 
section who fails to file such petition within sixty days of the 
effective date of the combination shall be deemed to have accepted the 
terms offered under the combination.
    (6) Stock certificates to be noted. Within sixty days of the 
effective date of the combination, each stockholder demanding appraisal 
and payment under this section shall submit to the transfer agent his 
certificates of stock for notation thereon that an appraisal and 
payment have been demanded with respect to such stock and that 
appraisal proceedings are pending. Any stockholder who fails to submit 
his or her stock certificates for such notation shall no longer be 
entitled to appraisal rights under this section and shall be deemed to 
have accepted the terms offered under the combination.
    (7) Withdrawal of demand. Notwithstanding the foregoing, at any 
time within sixty days after the effective date of the combination, any 
stockholder shall have the right to withdraw his or her demand for 
appraisal and to accept the terms offered upon the combination.
    (8) Valuation and payment. The Comptroller shall, as he or she may 
elect, either appoint one or more independent persons or direct 
appropriate staff of the OCC to appraise the shares to determine their 
fair market value, as of the effective date of the combination, 
exclusive of any element of value arising from the accomplishment or 
expectation of the combination. Appropriate staff of the OCC shall 
review and provide an opinion on appraisals prepared by independent 
persons as to the suitability of the appraisal methodology and the 
adequacy of the analysis and supportive data. The Comptroller after 
consideration of the appraisal report and the advice of the appropriate 
staff shall, if he or she concurs in the valuation of the shares, 
direct payment by the resulting association of the appraised fair 
market value of the shares, upon surrender of the certificates 
representing such stock. Payment shall be made, together with interest 
from the effective date of the combination, at a rate deemed equitable 
by the Comptroller.
    (9) Costs and expenses. The costs and expenses of any proceeding 
under this section may be apportioned and assessed by the Comptroller 
as he or she may deem equitable against all or some

[[Page 49024]]

of the parties. In making this determination the Comptroller shall 
consider whether any party has acted arbitrarily, vexatiously, or not 
in good faith in respect to the rights provided by this section.
    (10) Voting and distribution. Any stockholder who has demanded 
appraisal rights as provided in paragraph (c)(2) of this section shall 
thereafter neither be entitled to vote such stock for any purpose nor 
be entitled to the payment of dividends or other distributions on the 
stock (except dividends or other distribution payable to, or a vote to 
be taken by stockholders of record at a date which is on or prior to, 
the effective date of the combination): Provided, That if any 
stockholder becomes unentitled to appraisal and payment of appraised 
value with respect to such stock and accepts or is deemed to have 
accepted the terms offered upon the combination, such stockholder shall 
thereupon be entitled to vote and receive the distributions described 
above.
    (11) Status. Shares of the resulting association into which shares 
of the stockholders demanding appraisal rights would have been 
converted or exchanged, had they assented to the combination, shall 
have the status of authorized and unissued shares of the resulting 
association.


Sec.  152.15  Supervisory combinations.

    Notwithstanding the foregoing provisions of this part, the 
Comptroller may waive or deem inapplicable any provision of Sec.  
152.13 or Sec.  152.14 of this part if he or she determines that 
grounds exist, or may imminently exist, for appointment of a 
conservator or receiver for an association under subsection 5(d) of the 
Home Owners' Loan Act.


Sec.  152.16  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal stock association to engage in any transaction 
shall be determined only by the association's charter or bylaws then in 
effect.


Sec.  152.17  Federal stock association created in connection with an 
association in default or in danger of default.

    Sections 152.1 and 152.2 of this part do not apply to a Federal 
stock association which is proposed by the Federal Deposit Insurance 
Corporation, or the Resolution Trust Corporation under section 5(p) of 
the Home Owner's Loan Act of 1933, section 11(c) of the Federal Deposit 
Insurance Act, or section 21A of the Federal Home Loan Bank Act, or is 
otherwise chartered by the OCC in connection with an association in 
default or in danger of default. Incorporation and organization of such 
associations are complete when and under such conditions as the OCC so 
determines.


Sec.  152.18  Conversion from stock form depository institution to 
Federal stock association.

    (a) With the approval of the OCC, any stock depository institution 
that is, or is eligible to become, a member of a Federal Home Loan 
Bank, may convert to a Federal stock association, provided that the 
depository institution, at the time of the conversion, has deposits 
insured by the Federal Deposit Insurance Corporation, and provided 
further, that the depository institution, in accomplishing the 
conversion, complies with all applicable statutes and regulations, 
including, without limitation, section 5(d) of the Federal Deposit 
Insurance Act. The resulting Federal stock association must conform 
within the time prescribed by the OCC to the requirements of section 
5(c) of the Home Owners' Loan Act. For purposes of this section, the 
term ``depository institution'' shall have the meaning set forth at 12 
CFR 152.13(b). An application for conversion filed under this section 
is subject to the procedures for organization of a Federal stock 
organization at Sec.  152.1.
    (b) Any and all of the assets and other property (whether real, 
personal, mixed, tangible or intangible, including choses in action, 
rights, and credits) of the former stock form depository institution 
become assets and property of the Federal stock association when the 
conversion occurs. Similarly, any and all of the obligations and debts 
of or claims against the former stock form depository institution 
become obligations and debts of and claims against the Federal stock 
association when the conversion occurs. In effect, the Federal stock 
association is the same as the former stock form depository institution 
with respect to any and all assets, property, claims and debts of or 
claims against the former stock form depository institution.


Sec.  152.19  Conversion to National banking association or state bank.

    A Federal stock association may convert to a national banking 
association or a state bank after filing a notification or application, 
as appropriate, with the appropriate OCC licensing office in accordance 
with the applicable provisions of Sec.  163.22(b) of this chapter.

PART 155--ELECTRONIC OPERATIONS

Sec.
155.100 What does this part do?
155.200 How may I use or participate with others to use electronic 
means and facilities?
155.210 What precautions must I take?
155.300 Must I inform the OCC before I use electronic means or 
facilities?
155.310 How do I notify the OCC?


    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

Sec.  155.100  What does this part do?

    This part describes how a Federal savings association may provide 
products and services through electronic means and facilities.


Sec.  155.200  How may I use or participate with others to use 
electronic means and facilities?

    (a) General. A Federal savings association (``you'') may use, or 
participate with others to use, electronic means or facilities to 
perform any function, or provide any product or service, as part of an 
authorized activity. Electronic means or facilities include, but are 
not limited to, automated teller machines, automated loan machines, 
personal computers, the Internet, the World Wide Web, telephones, and 
other similar electronic devices.
    (b) Other. To optimize the use of your resources, you may market 
and sell, or participate with others to market and sell, electronic 
capacities and by-products to third-parties, if you acquired or 
developed these capacities and by-products in good faith as part of 
providing financial services.


Sec.  155.210  What precautions must I take?

    If you use electronic means and facilities under this subpart, your 
management must:
    (a) Identify, assess, and mitigate potential risks and establish 
prudent internal controls; and
    (b) Implement security measures designed to ensure secure 
operations. Such measures must be adequate to:
    (1) Prevent unauthorized access to your records and your customers' 
records;
    (2) Prevent financial fraud through the use of electronic means or 
facilities; and
    (3) Comply with applicable security devices requirements of part 
168 of this chapter.


Sec.  155.300  Must I inform the OCC before I use electronic means or 
facilities?

    (a) General. You are not required to inform the OCC before you use 
electronic means or facilities, except as

[[Page 49025]]

provided in paragraphs (b) and (c) of this section. However, you are 
encouraged to consult with the OCC 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.  155.310 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 OCC 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.  155.310  How do I notify the OCC?

    You must file a written notice with your OCC supervisory office at 
least 30 days before you establish a transactional Web site. The notice 
must do three things:
    (a) Describe the transactional web site.
    (b) Indicate the date the transactional web site will become 
operational.
    (c) List a contact familiar with the deployment, operation, and 
security of the transactional web site.

PART 157--DEPOSITS

Sec.
157.1 What does this part do?
157.10 What authorities govern the issuance of deposit accounts by a 
Federal savings association?
157.11 To what extent does Federal law preempt state laws?
157.12 [Reserved]
157.13 [Reserved]
157.14 What interest rate may I pay on accounts?
157.15 Who owns a deposit account?
157.20 What records should I maintain on deposit activities?


    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

Sec.  157.1  What does this part do?

    This part applies to the deposit activities of Federal savings 
associations.


Sec.  157.10  What authorities govern the issuance of deposit accounts 
by Federal savings associations?

    A Federal savings association (``you'') may raise funds through 
accounts and may issue evidence of accounts under section 5(b)(1) of 
the HOLA (12 U.S.C. 1464(b)(1)), your charter, and this part. 
Additionally, 12 CFR parts 204 and 230 apply to your deposit 
activities.


Sec.  157.11  To what extent does Federal law preempt deposit-related 
state laws?

    State law applies to the deposit activities of Federal savings 
associations and their subsidiaries to the same extent and in the same 
manner that those laws apply to national banks and their subsidiaries.


Sec.  157.12  [Reserved]


Sec.  157.13  [Reserved]


Sec.  157.14  What interest rate may I pay on accounts?

    (a) You may pay interest at any rate or anticipated rate of return 
on accounts, either in deposit or in share form, as provided in your 
charter and the account's terms.
    (b) You may pay fixed or variable rates. If you pay a variable 
rate, you must base it on a schedule, index, or formula that you 
specify in the account's terms.


Sec.  157.15  Who owns a deposit account?

    You may treat the holder of record as the account owner, even if 
you receive contrary notice, until you transfer the account on your 
records.


Sec.  157.20  What records should I maintain on deposit activities?

    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.

PART 159--SUBORDINATE ORGANIZATIONS

Sec.
159.1 What does this part cover?
159.2 Definitions.
159.3 What are the characteristics of, and what requirements apply 
to, subordinate organizations of Federal savings associations?
159.4 What activities are preapproved for service corporations?
159.5 How much may a Federal savings association invest in service 
corporations or lower-tier entities?
159.10 How must separate corporate identities be maintained?
159.11 What notices are required to establish or acquire a new 
subsidiary or engage in new activities through an existing 
subsidiary?
159.12 How may a subsidiary of a Federal savings association issue 
securities?
159.13 How may a Federal savings association exercise its salvage 
power in connection with its service corporation or lower-tier 
entities?


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828, 
5412(b)(2)(B).

Sec.  159.1  What does this part cover?

    (a) The OCC is issuing this part 159 pursuant to its general 
rulemaking and supervisory authority under the Home Owners' Loan Act, 
12 U.S.C. 1462 et seq., and its specific authority under section 18(m) 
of the Federal Deposit Insurance Act, 12 U.S.C. 1828(m). This part 159 
applies to subordinate organizations of Federal savings associations. 
The OCC may, at any time, limit a Federal 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 part are applications for purposes of 
statutory and regulatory references to ``applications.'' Any conditions 
that the OCC imposes in approving any application are enforceable as a 
condition imposed in writing by the OCC in connection with the granting 
of a request by a Federal savings association within the meaning of 12 
U.S.C. 1818(b) or 1818(i).


Sec.  159.2  Definitions.

    For purposes of this part:
    Control has the same meaning as in part 174 of this chapter.
    GAAP-consolidated subsidiary means an entity in which a Federal 
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 the savings association 
has a majority ownership interest.
    Lower-tier entity includes any company in which an operating 
subsidiary or a service corporation has a direct or indirect ownership 
interest.
    Operating subsidiary means any entity that satisfies all of the 
requirements for an operating subsidiary set forth in Sec.  159.3 of 
this part and that is designated by the parent Federal savings 
association as an operating subsidiary pursuant to Sec.  159.3 of this 
part. More than 50% of the voting shares of an operating subsidiary 
must be owned, directly or indirectly, by a Federal savings association 
and no other person or entity may exercise effective operating control. 
An operating subsidiary may only engage in activities

[[Page 49026]]

permissible for a Federal savings association.
    Ownership interest means any equity interest in a business 
organization, including stock, limited or general partnership 
interests, or shares in a limited liability company.
    Service corporation means any entity that satisfies all of the 
requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and 
Sec.  159.3 of this part and that is designated by the investing 
Federal savings association as a service corporation pursuant to Sec.  
159.3 of this part. A service corporation must be organized under the 
laws of the state where the Federal savings association's home office 
is located, may only be owned by savings associations with home offices 
in that state, and may engage in the activities identified in 
Sec. Sec.  159.3(e)(2) and 159.4 of this part.
    Subordinate organization means any corporation, partnership, 
business trust, association, joint venture, pool, syndicate, or other 
similar business organization in which a Federal savings association 
has a direct or indirect ownership interest, unless that ownership 
interest qualifies as a pass-through investment pursuant to Sec.  
160.32 of this chapter and is so designated by the investing savings 
association.
    Subsidiary means any subordinate organization directly or 
indirectly controlled by a Federal savings association.


Sec.  159.3  What are the characteristics of, and what requirements 
apply to, subordinate organizations of Federal savings associations?

    A Federal savings association (``you'') that meets the requirements 
of this section, as detailed in the following chart, may establish, or 
obtain an interest in an operating subsidiary or a service corporation. 
For ease of reference, this section cross-references other regulations 
in this chapter affecting operating subsidiaries and service 
corporations. You should refer to those regulations for the details of 
how they apply. The chart also discusses the regulations that may apply 
to lower-tier entities in which you have an indirect ownership interest 
through your operating subsidiary or service corporation. The chart 
follows:

------------------------------------------------------------------------
                              Operating subsidiary   Service corporation
------------------------------------------------------------------------
(a) How may a Federal         (1) You must file a   (2) You must file a
 savings association           notice, with the      notice, with the
 (``you'') establish an        appropriate OCC       appropriate OCC
 operating subsidiary or a     licensing office,     licensing office,
 service corporation?          satisfying Sec.       satisfying Sec.
                               159.11. Any finance   159.11. Depending
                               subsidiary that       upon your condition
                               existed on January    and the activities
                               1, 1997 is deemed     in which the
                               an operating          service corporation
                               subsidiary without    will engage, Sec.
                               further action on     159.3(e)(2) may
                               your part.            require you to file
                                                     an application.
(b) Who may be an owner?      (1) Anyone may have   (2) Only Federal or
                               an ownership          state chartered
                               interest in an        savings
                               operating             associations with
                               subsidiary.           home offices in the
                                                     state where you
                                                     have your home
                                                     office may have an
                                                     ownership interest
                                                     in any service
                                                     corporation in
                                                     which you invest.
(c) What ownership            (1) You must own,     (2) You are not
 requirements apply?           directly or           required to have
                               indirectly, more      any particular
                               than 50% of the       percentage
                               voting shares of      ownership interest
                               the operating         and need not have
                               subsidiary. No one    control of the
                               else may exercise     service
                               effective operating   corporation.
                               control.
(d) What geographic           (1) An operating      (2) A service
 restrictions apply?           subsidiary may be     corporation must be
                               organized in any      organized in the
                               geographic            state where your
                               location.             home office is
                                                     located.
(e) What activities are       (1) After you have    (2)(i) If you are
 permissible?                  notified the OCC in   eligible for
                               accordance with       expedited treatment
                               Sec.   159.11, an     under Sec.   116.5
                               operating             of this chapter,
                               subsidiary may        and notify the OCC
                               engage in any         as required by Sec.
                               activity that you       159.11, your
                               may conduct           service corporation
                               directly. You may     may engage in the
                               hold another          preapproved
                               insured depository    activities listed
                               institution as an     in Sec.   159.4.
                               operating             You may request OCC
                               subsidiary.           approval for your
                                                     service corporation
                                                     to engage in any
                                                     other activity
                                                     reasonably related
                                                     to the activities
                                                     of financial
                                                     institutions by
                                                     filing an
                                                     application in
                                                     accordance with
                                                     standard treatment
                                                     processing
                                                     procedures at part
                                                     116, subparts A and
                                                     E of this chapter.
                                                    (ii) If you are
                                                     subject to standard
                                                     treatment under
                                                     Sec.   116.5 of
                                                     this chapter, and
                                                     notify the OCC as
                                                     required by Sec.
                                                     159.11, your
                                                     service corporation
                                                     may engage in any
                                                     activity that you
                                                     may conduct
                                                     directly except
                                                     taking deposits.
                                                     You may request OCC
                                                     approval for your
                                                     service corporation
                                                     to engage in any
                                                     other activity
                                                     reasonably related
                                                     to the activities
                                                     of financial
                                                     institutions,
                                                     including the
                                                     activities set
                                                     forth in Sec.
                                                     159.4(b)-(j), by
                                                     filing an
                                                     application in
                                                     accordance with
                                                     standard treatment
                                                     processing
                                                     procedures at part
                                                     116, subparts A and
                                                     E of this chapter.

[[Page 49027]]

 
(f) May the operating         (1)(i) An operating   (2) A service
 subsidiary or service         subsidiary may        corporation may
 corporation invest in lower-  itself hold an        invest in all types
 tier entities?                operating             of lower-tier
                               subsidiary. Part      entities as long as
                               159 applies equally   the lower-tier
                               to a lower-tier       entity is engaged
                               operating             solely in
                               subsidiary. In        activities that are
                               applying the          permissible for a
                               regulations in this   service
                               part, the investing   corporation. All of
                               operating             the requirements of
                               subsidiary should     this part apply to
                               substitute            such entities
                               ``investing           except for
                               operating             paragraphs (b)(2)
                               subsidiary''          and (d)(2) of this
                               wherever the part     section.
                               uses ``you'' or
                               ``savings
                               association.''
                              (ii) An operating
                               subsidiary may also
                               invest in other
                               types of lower-tier
                               entities. These
                               entities must
                               comply with all of
                               the requirements of
                               this part 159 that
                               apply to service
                               corporations except
                               for paragraphs
                               (b)(2) and (d)(2)
                               of this section.
(g) How much may a Federal    (1) There are no      (2) Section 159.5
 savings association invest?   limits on the         limits your
                               amount you may        aggregate
                               invest in your        investments in
                               operating             service
                               subsidiaries,         corporations and
                               either separately     indicates when your
                               or in the             investments (both
                               aggregate.            debt and equity) in
                                                     lower-tier entities
                                                     must be aggregated
                                                     with your
                                                     investments in
                                                     service
                                                     corporations.
(h) Do Federal statutes and   (1) Unless otherwise  (2)(i) If the
 regulations that apply to     specifically          Federal statute or
 the savings association       provided by           regulation
 apply?                        statute,              specifically refers
                               regulation, or OCC    to ``service
                               policy, all Federal   corporation,'' it
                               statutes and          applies to all
                               regulations apply     service
                               to operating          corporations, even
                               subsidiaries in the   if you do not
                               same manner as they   control the service
                               apply to you. You     corporation or it
                               and your operating    is not a GAAP-
                               subsidiary are        consolidated
                               generally             subsidiary.
                               consolidated and     (ii) If the Federal
                               treated as a unit     statute or
                               for statutory and     regulation refers
                               regulatory            to ``subsidiary,''
                               purposes.             it applies only to
                                                     service
                                                     corporations that
                                                     you directly or
                                                     indirectly control.
(i) Do the investment limits  (1) Your assets and   (2) Your service
 that apply to Federal         those of your         corporation's
 savings associations (HOLA    operating             assets are not
 section 5(c) and part 160     subsidiary are        subject to the same
 of this chapter) apply?       aggregated when       investment
                               calculating           limitations that
                               investment            apply to you. The
                               limitations.          investment
                                                     activities of your
                                                     service corporation
                                                     are governed by
                                                     paragraph (e)(2) of
                                                     this section and
                                                     Sec.   159.4.
(j) How does the capital      (1) Your assets and   (2) The capital
 regulation (part 167 of       those of your         treatment of a
 this chapter) apply?          operating             service corporation
                               subsidiary are        depends upon
                               consolidated for      whether it is an
                               all capital           includable
                               purposes.             subsidiary. That
                                                     determination is
                                                     based upon factors
                                                     set forth in part
                                                     167 of this
                                                     chapter, including
                                                     your percentage
                                                     ownership of the
                                                     service corporation
                                                     and the activities
                                                     in which the
                                                     service corporation
                                                     engages. Both debt
                                                     and equity
                                                     investments in
                                                     service
                                                     corporations that
                                                     are GAAP-
                                                     consolidated
                                                     subsidiaries are
                                                     considered
                                                     investments in
                                                     subsidiaries for
                                                     purposes of the
                                                     capital regulation,
                                                     regardless of the
                                                     authority under
                                                     which they are
                                                     made.
(k) How does the loans-to-    (1) The LTOB          (2) The LTOB
 one-borrower (LTOB)           regulation does not   regulation does not
 regulation (Sec.   160.93     apply to loans from   apply to loans from
 of this chapter) apply?       you to your           you to your service
                               operating             corporation or from
                               subsidiary or loans   your service
                               from your operating   corporation to you.
                               subsidiary to you.    However, Sec.
                               Other loans made by   159.5 imposes
                               your operating        restrictions on the
                               subsidiary are        amount of loans you
                               aggregated with       may make to certain
                               your loans for LTOB   service
                               purposes.             corporations. Loans
                                                     made by a service
                                                     corporation that
                                                     you control to
                                                     entities other than
                                                     you or your
                                                     subordinate
                                                     organizations are
                                                     aggregated with
                                                     your loans for LTOB
                                                     purposes.

[[Page 49028]]

 
(l) How do the transactions   (1) Board rules       (2) Board rules
 with affiliates (TWA)         explain how TWA       explain how TWA
 regulations of the Board of   applies. Generally,   applies. Generally,
 Governors of the Federal      an operating          a service
 Reserve System (Board)        subsidiary is not     corporation is not
 apply?                        an affiliate,         an affiliate,
                               unless it is a        unless it is a
                               depository            depository
                               institution; is       institution; is
                               directly controlled   directly controlled
                               by another            by another
                               affiliate of the      affiliate of the
                               savings association   savings association
                               or by shareholders    or by shareholders
                               that control the      that control the
                               savings               savings
                               association; or is    association; or is
                               an employee stock     an employee stock
                               option plan, trust,   option plan, trust,
                               or similar            or similar
                               organization that     organization that
                               exists for the        exists for the
                               benefit of            benefit of
                               shareholders,         shareholders,
                               partners, members,    partners, members,
                               or employees of the   or employees of the
                               savings association   savings association
                               or an affiliate. A    or an affiliate. If
                               non-affiliate         a savings
                               operating             association
                               subsidiary is         directly or
                               treated as a part     indirectly controls
                               of the savings        a service
                               association and its   corporation and the
                               transactions with     service corporation
                               affiliates of the     is not otherwise an
                               savings association   affiliate under
                               are aggregated with   Board rules, the
                               those of the          service corporation
                               savings association   is treated as a
                                                     part of the savings
                                                     association and its
                                                     transactions with
                                                     affiliates of the
                                                     savings association
                                                     are aggregated with
                                                     those of the
                                                     savings
                                                     association.
(m) How does the Qualified    (1) Under 12 U.S.C.   (2) Under 12 U.S.C.
 Thrift Lender (QTL) (12       1467a(m)(5), you      1467a(m)(5), you
 U.S.C. 1467a(m)) test         may determine         may determine
 apply?                        whether to            whether to
                               consolidate the       consolidate the
                               assets of a           assets of a
                               particular            particular service
                               operating             corporation for
                               subsidiary for        purposes of
                               purposes of           calculating your
                               calculating your      qualified thrift
                               qualified thrift      investments. If a
                               investments. If the   service
                               operating             corporation's
                               subsidiary's assets   assets are not
                               are not               consolidated with
                               consolidated with     yours for that
                               yours for that        purpose, your
                               purpose, your         investment in the
                               investment in the     service corporation
                               operating             will be considered
                               subsidiary will be    in calculating your
                               considered in         qualified thrift
                               calculating your      investments.
                               qualified thrift
                               investments.
(n) Does state law apply?     (1) State law         (2) State law
                               applies to            applies to service
                               operating             corporations
                               subsidiaries          regardless of
                               regardless of         whether it applies
                               whether it applies    to you.
                               to you.
(o) May the OCC conduct       (1) An operating      (2) A service
 examinations?                 subsidiary is         corporation is
                               subject to            subject to
                               examination by the    examination by the
                               OCC.                  OCC.
(p) What must be done to      (1) Before            (2) Before
 redesignate an operating      redesignating an      redesignating a
 subsidiary as a service       operating             service corporation
 corporation or a service      subsidiary as a       as an operating
 corporation as an operating   service               subsidiary, you
 subsidiary?                   corporation, you      should consult with
                               should consult with   the OCC licensing
                               the OCC licensing     office in the
                               office in the         district in which
                               district in which     your home office is
                               your home office is   located. You must
                               located. You must     maintain adequate
                               maintain adequate     internal records,
                               internal records,     available for
                               available for         examination by the
                               examination by the    OCC, demonstrating
                               OCC, demonstrating    that the
                               that the              redesignated
                               redesignated          operating
                               service corporation   subsidiary meets
                               meets all of the      all of the
                               applicable            applicable
                               requirements of       requirements of
                               this part and that    this part and that
                               your board of         your board of
                               directors has         directors has
                               approved the          approved the
                               redesignation.        redesignation.
(q) What are the              (1) If an operating   (2) If a service
 consequences of failing to    subsidiary, or any    corporation, or any
 comply with the               lower-tier entity     lower-tier entity
 requirements of this part?    in which the          in which the
                               operating             service corporation
                               subsidiary invests    invests pursuant to
                               pursuant to           paragraph (f)(2) of
                               paragraph (f)(1) of   this section, fails
                               this section fails    to meet any of the
                               to meet any of the    requirements of
                               requirements of       this section, you
                               this section, you     must notify the
                               must notify the       appropriate OCC
                               appropriate OCC       licensing office.
                               licensing office.     Unless otherwise
                               Unless otherwise      advised by the OCC,
                               advised by the OCC,   if the company
                               if the company        cannot comply
                               cannot comply         within 90 days with
                               within 90 days with   all of the
                               all of the            requirements for
                               requirements for      either an operating
                               either an operating   subsidiary or a
                               subsidiary or a       service corporation
                               service corporation   under this section,
                               under this section,   or any other
                               or any other          investment
                               investment            authorized by 12
                               authorized by 12      U.S.C. 1464(c) or
                               U.S.C. 1464(c) or     part 160 of this
                               part 160 of this      chapter, you must
                               chapter, you must     promptly dispose of
                               promptly dispose of   your investment.
                               your investment.
------------------------------------------------------------------------

Sec.  159.4  What activities are preapproved for service corporations?

    This section sets forth the activities that have been preapproved 
for service corporations. Section 159.3(e)(2) of this part sets forth 
the procedures for engaging in a broader scope of activities on a case-
by-case basis. You should read these two sections together to determine 
whether you must file a notice with the OCC under Sec.  159.11 of this 
part, or whether you must file an application under part 116 of this 
chapter and receive prior written OCC approval for your service 
corporation to engage in a particular activity. The notice or 
application should be filed with the appropriate OCC licensing office. 
To the extent permitted by Sec.  159.3(e)(2) of this part, a service 
corporation may engage in the following activities:
    (a) Any activity that all Federal savings associations may conduct 
directly, except taking deposits.
    (b) Business and professional services. The following services are 
preapproved for service corporations only when they are limited to 
financial documents or financial clients or are generally finance-
related:
    (1) Accounting or internal audit;
    (2) Advertising, marketing research and other marketing;
    (3) Clerical;
    (4) Consulting;
    (5) Courier;
    (6) Data processing;
    (7) Data storage facilities operation and related services;

[[Page 49029]]

    (8) Office supplies, furniture, and equipment purchasing and 
distribution;
    (9) Personnel benefit program development or administration;
    (10) Printing and selling forms that require Magnetic Ink Character 
Recognition (MICR) encoding;
    (11) Relocation of personnel;
    (12) Research studies and surveys;
    (13) Software development and systems integration; and
    (14) Remote service unit operation, leasing, ownership or 
establishment.
    (c) Credit-related activities.
    (1) Abstracting;
    (2) Acquiring and leasing personal property;
    (3) Appraising;
    (4) Collection agency;
    (5) Credit analysis;
    (6) Check or credit card guaranty and verification;
    (7) Escrow agent or trustee (under deeds of trust, including 
executing and deliverance of conveyances, reconveyances and transfers 
of title); and
    (8) Loan inspection.
    (d) Consumer services.
    (1) Financial advice or consulting;
    (2) Foreign currency exchange;
    (3) Home ownership counseling;
    (4) Income tax return preparation;
    (5) Postal services;
    (6) Stored value instrument sales;
    (7) Welfare benefit distribution;
    (8) Check printing and related services; and
    (9) Remote service unit operation, leasing, ownership, or 
establishment.
    (e) Real estate related services.
    (1) Acquiring real estate for prompt development or subdivision, 
for construction of improvements, for resale or leasing to others for 
such construction, or for use as manufactured home sites, in accordance 
with a prudent program of property development;
    (2) Acquiring improved real estate or manufactured homes to be held 
for rental or resale, for remodeling, renovating, or demolishing and 
rebuilding for sale or rental, or to be used for offices and related 
facilities of a stockholder of the service corporation;
    (3) Maintaining and managing real estate; and
    (4) Real estate brokerage for property owned by a savings 
association that owns capital stock of the service corporation, the 
service corporation, or a lower-tier entity in which the service 
corporation invests.
    (f) Securities activities, liquidity management, and coins.
    (1) Execution of transactions in securities on an agency or 
riskless principal basis solely upon the order and for the account of 
customers or the provision of investment advice. The service 
corporation must register with the Securities and Exchange Commission 
and state securities regulators, as required by applicable Federal and 
state law and regulations;
    (2) Liquidity management;
    (3) Issuing notes, bonds, debentures, or other obligations or 
securities;
    (4) Purchase or sale of coins issued by the U.S. Treasury.
    (g) Investments. (1) Tax-exempt bonds used to finance residential 
real property for family units;
    (2) Tax-exempt obligations of public housing agencies used to 
finance housing projects with rental assistance subsidies;
    (3) Small business investment companies and new markets venture 
capital companies licensed by the U.S. Small Business Administration;
    (4) Rural business investment companies; and
    (5) Investing in savings accounts of an investing thrift.
    (h) Community development and charitable activities:
    (1) Investments in governmentally insured, guaranteed, subsidized 
or otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments designed primarily to promote the public welfare, 
including the welfare of low- and moderate-income communities or 
families (such as providing housing, services, or jobs);
    (3) Investments in low-income housing tax credit and new markets 
tax credit projects and entities authorized by statute (e.g., community 
development financial institutions) to promote community, inner city, 
and community development purposes; and
    (4) Establishing a corporation that is recognized by the Internal 
Revenue Service as organized for charitable purposes under 26 U.S.C. 
501(c)(3) of the Internal Revenue Code and making a reasonable 
contribution to capitalize it, provided that the corporation engages 
exclusively in activities designed to promote the well-being of 
communities in which the owners of the service corporation operate.
    (i) Activities conducted on behalf of a customer on an other than 
``as principal'' basis.
    (j) Activities reasonably incident to those listed in paragraphs 
(a) through (i) of this section if the service corporation engages in 
those activities.


Sec.  159.5  How much may a Federal savings association invest in 
service corporations or lower-tier entities?

    The amount that a Federal savings association (``you'') may invest 
in a service corporation or any lower-tier entity depends upon several 
factors. These include your total assets, your capital, the purpose of 
the investment, and your ownership interest in the service corporation 
or entity.
    (a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% 
of your assets in the capital stock, obligations, and other securities 
of service corporations. Any investment you make under this paragraph 
that would cause your investment, in the aggregate, to exceed 2% of 
your assets must serve primarily community, inner city, or community 
development purposes. You must designate the investments serving those 
purposes, which include:
    (1) Investments in governmentally insured, guaranteed, subsidized 
or otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments for the preservation or revitalization of either 
urban or rural communities;
    (3) Investments designed to meet the community development needs 
of, and primarily benefit, low- and moderate-income communities; or
    (4) Other community, inner city, or community development-related 
investments approved by the OTS or the OCC.
    (b) In addition to the amounts you may invest under paragraph (a) 
of this section, and to the extent that you have authority under other 
provisions of section 5(c) of the HOLA and part 160 of this chapter, 
and available capacity within any applicable investment limits, you may 
make loans to any service corporation and any lower-tier entity, 
subject to the following conditions:
    (1) You and your GAAP-consolidated subsidiaries may, in the 
aggregate, make loans of up to 15% of your total capital, as described 
in part 167 of this chapter to each subordinate organization that does 
not qualify as a GAAP-consolidated subsidiary. All loans made under 
this paragraph (b)(1) may not, in the aggregate, exceed 50% of your 
total capital, as described in part 167 of this chapter.
    (2) The OCC may limit the amount of loans to a GAAP-consolidated 
subsidiary, or may adjust the limits set forth in paragraph (b)(1) of 
this section where safety and soundness considerations warrant such 
action.
    (c) For purposes of this section, the terms ``loans'' and 
``obligations'' include all loans and other debt instruments (except 
accounts payable incurred in the ordinary course of business and paid 
within 60 days) and all guarantees or take-out commitments of such 
loans or debt instruments.

[[Page 49030]]

Sec.  159.10  How must separate corporate identities be maintained?

    (a) Each Federal 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 savings association has guaranteed a loan to 
the subordinate organization, all borrowings by the subordinate 
organization indicate that the parent is not liable.
    (b) OCC regulations that apply both to Federal savings associations 
and subordinate organizations shall not be construed as requiring a 
savings association and its subordinate organizations to operate as a 
single entity.


Sec.  159.11  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 Federal savings association (``you'') must file a notice 
(``Notice'') under part 116, subpart A of this chapter at least 30 days 
before establishing or acquiring a subsidiary or engaging in new 
activities in a subsidiary. The Notice should be filed with the 
appropriate OCC licensing office and must contain all of the 
information the Federal Deposit Insurance Corporation (FDIC) requires 
under 12 CFR 362.15. Providing the OCC with a copy of the notice you 
file with the FDIC will satisfy this requirement. If the OCC 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 OCC's prior written approval under the standard treatment 
processing procedures at part 116, subpart A and E of this chapter 
before establishing or acquiring the subsidiary or engaging in new 
activities in the subsidiary.


Sec.  159.12  How may a subsidiary of a Federal savings association 
issue securities?

    (a) A subsidiary may issue, either directly or through a third 
party intermediary, any securities that its parent Federal 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 appropriate OCC licensing 
office in accordance with Sec.  159.11 of this part 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 OCC notifies you within 30 days that the notice 
presents supervisory concerns or raises significant issues of law or 
policy, you must receive the OCC'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 OCC. 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 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.  159.13  How may a Federal savings association exercise its 
salvage power in connection with its service corporation or lower-tier 
entities?

    (a) In accordance with this section, a Federal 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 your 
service corporation or lower-tier entity (``salvage investment'') that 
exceeds the maximum amount otherwise permitted under law or regulation. 
You must notify the appropriate OCC licensing office at least 30 days 
before making such a salvage investment. This notice must demonstrate 
that:
    (1) The salvage investment protects your interest in the service 
corporation or 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 (a)(2) of this section.
    (b) If the OCC 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 OCC's prior written approval under 
the standard treatment processing procedures at part 116, subparts A 
and E of this chapter before making a salvage investment.
    (c) If your service corporation or 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 part 
167 of this chapter.

PART 160--LENDING AND INVESTMENT

Sec.
160.1 General.
160.2 Applicability of law.
160.3 Definitions.
160.30 General lending and investment powers of Federal savings 
associations.
160.31 Election regarding categorization of loans or investments and 
related calculations.
160.32 Pass-through investments.
160.33 Late charges.
160.34 Prepayments.
160.35 Adjustments to home loans.
160.36 De minimis investments.
160.37 Real estate for office and related facilities.
160.40 Commercial paper and corporate debt securities.
160.41 Leasing.
160.42 State and local government obligations.
160.43 Foreign assistance investments.

[[Page 49031]]

160.50 Letters of credit and other independent undertakings--
authority.
160.60 Suretyship and guaranty.
160.93 Lending limitations.
160.100 Real estate lending standards; purpose and scope.
160.101 Real estate lending standards.
160.110 Most favored lender usury preemption.
160.120 Letters of credit and other independent undertakings to pay 
against documents.
160.121 Investment in state housing corporations.
160.130 Prohibition on loan procurement fees.
160.160 Asset classification.
160.170 Records for lending transactions.
160.172 Re-evaluation of real estate owned.
160.210 [Reserved]
160.220 [Reserved]


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 
1828, 3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.

Sec.  160.1  General.

    (a) Authority and scope. This part is being issued by the OCC under 
its general rulemaking and supervisory authority under the Home Owners' 
Loan Act (HOLA), 12 U.S.C. 1462 et seq.
    (b) General lending standards. Each savings association is expected 
to conduct its lending and investment activities prudently. Each 
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 association should adequately monitor the 
condition of its portfolio and the adequacy of any collateral securing 
its loans.


Sec.  160.2  Applicability of law.

    State law applies to the lending activities of Federal savings 
associations and their subsidiaries to the same extent and in the same 
manner that those laws apply to national banks and their subsidiaries.


Sec.  160.3  Definitions.

    For purposes of this part and any determination under 12 U.S.C. 
1467a(m):
    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 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, for purposes of this part, is a loan for which 
the 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 Federal 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 Federal 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.  160.30  General lending and investment powers of Federal savings 
associations.

    Pursuant to section 5(c) of the Home Owners' Loan Act (``HOLA''), 
12 U.S.C. 1464(c), a Federal savings association may make, invest in, 
purchase, sell, participate in, or otherwise deal in (including 
brokerage or warehousing) all loans and investments allowed under 
section 5(c) of the HOLA including, without limitation, the following 
loans, extensions of credit, and investments, subject to the 
limitations indicated and any such terms, conditions, or limitations as 
may be prescribed from time to time by the OCC by policy directive, 
order, or regulation:

                   Lending and Investment Powers Chart
------------------------------------------------------------------------
                                                    Statutory investment
                                                         limitations
                                    Statutory         (Endnotes contain
          Category              authorization \1\        applicable
                                                         regulatory
                                                        limitations)
------------------------------------------------------------------------
Bankers' bank stock.........  5(c)(4)(E)..........  Same terms as
                                                     applicable to
                                                     national banks.
Business development credit   5(c)(4)(A)..........  The lesser of .5% of
 corporations.                                       total outstanding
                                                     loans or $250,000.
Commercial loans............  5(c)(2)(A)..........  20% of total assets,
                                                     provided that
                                                     amounts in excess
                                                     of 10% of total
                                                     assets may be used
                                                     only for small
                                                     business loans.
Commercial paper and          5(c)(2)(D)..........  Up to 35% of total
 corporate debt securities.                          assets.2 3
Community development loans   5(c)(3)(A)..........  5% of total assets,
 and equity investments.                             provided equity
                                                     investments do not
                                                     exceed 2% of total
                                                     assets.\4\

[[Page 49032]]

 
Construction loans without    5(c)(3)(C)..........  In the aggregate,
 security.                                           the greater of
                                                     total capital or 5%
                                                     of total assets.
Consumer loans..............  5(c)(2)(D)..........  Up to 35% of total
                                                     assets.2 5
Credit card loans or loans    5(c)(1)(T)..........  None.\6\
 made through credit card
 accounts.
Deposits in insured           5(c)(1)(G)..........  None.\6\
 depository institutions.
Education loans.............  5(c)(1)(U)..........  None.\6\
Federal government and        5(c)(1)(C),           None.\6\
 government-sponsored          5(c)(1)(D),
 enterprise securities and     5(c)(1)(E),
 instruments.                  5(c)(1)(F).
Finance leasing.............  5(c)(1)(B),           Based on purpose and
                               5(c)(2)(A),           property
                               5(c)(2)(B),           financed.\7\
                               5(c)(2)(D).
Foreign assistance            5(c)(4)(C)..........  1% of total
 investments.                                        assets.\8\
General leasing.............  5(c)(2)(C)..........  10% of assets.\7\
Home improvement loans......  5(c)(1)(J)..........  None.\6\
Home (residential) loans \9\  5(c)(1)(B)..........  None.6 10
HUD-insured or guaranteed     5(c)(1)(O)..........  None.\6\
 investments.
Insured loans...............  5(c)(1)(I),           None.\6\
                               5(c)(1)(K).
Liquidity investments.......  5(c)(1)(M)..........  None.\6\
Loans secured by deposit      5(c)(1)(A)..........  None.6 11
 accounts.
Loans to financial            5(c)(1)(L)..........  None.6 12
 institutions, brokers, and
 dealers.
Manufactured home loans.....  5(c)(1)(J)..........  None.6 13
Mortgage-backed securities..  5(c)(1)(R)..........  None.\6\
National Housing Partnership  5(c)(1)(N)..........  None.\6\
 Corporation and related
 partnerships and joint
 ventures.
New markets venture capital   5(c)(4)(F)..........  5% of total capital.
 companies.
Nonconforming loans.........  5(c)(3)(B)..........  5% of total assets.
Nonresidential real property  5(c)(2)(B)..........  400% of total
 loans.                                              capital.\14\
Open-end management           5(c)(1)(Q)..........  None.\6\
 investment companies \15\.
Rural business investment     7 U.S.C. 2009cc-9...  Five percent of
 companies.                                          total capital.
Service corporations........  5(c)(4)(B)..........  3% of total assets,
                                                     as long as any
                                                     amounts in excess
                                                     of 2% of total
                                                     assets further
                                                     community, inner
                                                     city, or community
                                                     development
                                                     purposes.\16\
Small business investment     15 U.S.C. 682(b)(2).  5% of total capital.
 companies.
Small business-related        5(c)(1)(S)..........  None.\6\
 securities.
State and local government    5(c)(1)(H)..........  None for general
 obligations.                                        obligations. Per
                                                     issuer limitation
                                                     of 10% of capital
                                                     for other
                                                     obligations.6 17
State housing corporations..  5(c)(1)(P)..........  None.6 18
Transaction account loans,    5(c)(1)(A)..........  None.6 19
 including overdrafts.
------------------------------------------------------------------------
Endnotes
\1\ All references are to section 5 of the Home Owners' Loan Act (12
  U.S.C. 1464) unless otherwise indicated.
\2\ For purposes of determining a Federal savings association's
  percentage of assets limitation, investment in commercial paper and
  corporate debt securities must be aggregated with the Federal savings
  association's investment in consumer loans.
\3\ A Federal savings association may invest in commercial paper and
  corporate debt securities, which includes corporate debt securities
  convertible into stock, subject to the provisions of Sec.   160.40 of
  this part. Amounts in excess of 30% of assets, in the aggregate, may
  be invested only in obligations purchased by the association directly
  from the original obligor and for which no finder's or referral fees
  have been paid.
\4\ The 2% of assets limitation is a sublimit for investments within the
  overall 5% of assets limitation on community development loans and
  investments. The qualitative standards for such loans and investments
  are set forth in HOLA section 5(c)(3)(A) (formerly 5(c)(3)(B)), as
  explained in an opinion of the Office of Thrift Supervision Chief
  Counsel dated May 10, 1995.
\5\ Amounts in excess of 30% of assets, in the aggregate, may be
  invested only in loans made by the association directly to the
  original obligor and for which no finder's or referral fees have been
  paid. A Federal savings association may include loans to dealers in
  consumer goods to finance inventory and floor planning in the total
  investment made under this section.
\6\ While there is no statutory limit on certain categories of loans and
  investments, including credit card loans, home improvement loans,
  education loans, and deposit account loans, the OCC may establish an
  individual limit on such loans or investments if the association's
  concentration in such loans or investments presents a safety and
  soundness concern.
\7\ A Federal savings association may engage in leasing activities
  subject to the provisions of Sec.   160.41 of this part.
\8\ This 1% of assets limitation applies to the aggregate outstanding
  investments made under the Foreign Assistance Act and in the capital
  of the Inter-American Savings and Loan Bank. Such investments may be
  made subject to the provisions of Sec.   160.43 of this part.
\9\ A home (or residential) loan includes loans secured by one-to-four
  family dwellings, multi-family residential property, and loans secured
  by a unit or units of a condominium or housing cooperative.
\10\ A Federal savings association may make home loans subject to the
  provisions of Sec.  Sec.   160.33, 160.34, and 160.35 of this part.
\11\ Loans secured by savings accounts and other time deposits may be
  made without limitation, provided the Federal savings association
  obtains a lien on, or a pledge of, such accounts. Such loans may not
  exceed the withdrawable amount of the account.
\12\ A Federal savings association may only invest in these loans if
  they are secured by obligations of, or by obligations fully guaranteed
  as to principal and interest by, the United States or any of its
  agencies or instrumentalities, the borrower is a financial institution
  insured by the Federal Deposit Insurance Corporation or is a broker or
  dealer registered with the Securities and Exchange Commission, and the
  market value of the securities for each loan at least equals the
  amount of the loan at the time it is made.
\13\ If the wheels and axles of the manufactured home have been removed
  and it is permanently affixed to a foundation, a loan secured by a
  combination of a manufactured home and developed residential lot on
  which it sits may be treated as a home loan.

[[Page 49033]]

 
\14\ Without regard to any limitations of this part, a Federal savings
  association may make or invest in the fully insured or guaranteed
  portion of nonresidential real estate loans insured or guaranteed by
  the Economic Development Administration, the Farmers Home
  Administration, or the Small Business Administration. Unguaranteed
  portions of guaranteed loans must be aggregated with uninsured loans
  when determining an association's compliance with the 400% of capital
  limitation for other real estate loans.
\15\ This authority is limited to investments in open-end management
  investment companies that are registered with the Securities and
  Exchange Commission under the Investment Company Act of 1940. The
  portfolio of the investment company must be restricted by the
  company's investment policy (changeable only if authorized by
  shareholder vote) solely to investments that a Federal savings
  association may, without limitation as to percentage of assets, invest
  in, sell, redeem, hold, or otherwise deal in. Separate and apart from
  this authority, a Federal savings association may make pass-through
  investments to the extent authorized by Sec.   160.32 of this part.
\16\ A Federal savings association may invest in service corporations
  subject to the provisions of part 159 of this chapter.
\17\ This category includes obligations issued by any state, territory,
  or possession of the United States or political subdivision thereof
  (including any agency, corporation, or instrumentality of a state or
  political subdivision), subject to Sec.   160.42 of this part.
\18\ A Federal savings association may invest in state housing
  corporations subject to the provisions of Sec.   160.121 of this part.
\19\ Payments on accounts in excess of the account balance (overdrafts)
  on commercial deposit or transaction accounts shall be considered
  commercial loans for purposes of determining the association's
  percentage of assets limitation.

Sec.  160.31  Election regarding categorization of loans or investments 
and related calculations.

    (a) If a loan or other investment is authorized under more than one 
section of the HOLA, as amended, or this part, a Federal savings 
association may designate under which section the loan or investment 
has been made. Such a loan or investment may be apportioned among 
appropriate categories, and may be moved, in whole or part, from one 
category to another. A loan commitment shall be counted as an 
investment and included in total assets of a Federal savings 
association for purposes of calculating compliance with HOLA section 
5(c)'s investment limitations only to the extent that funds have been 
advanced and not repaid pursuant to the commitment.
    (b) Loans or portions of loans sold to a third party shall be 
included in the calculation of a percentage-of-assets or percentage-of-
capital investment limitation only to the extent they are sold with 
recourse.
    (c) A Federal savings association may make a loan secured by an 
assignment of loans to the extent that it could, under applicable law 
and regulations, make or purchase the underlying assigned loans.


Sec.  160.32  Pass-through investments.

    (a) A Federal savings association (``you'') may make pass-through 
investments. A pass-through investment occurs when you invest in an 
entity (``company'') that engages only in activities that you may 
conduct directly and the investment meets the requirements of this 
section. If an investment is authorized under both this section and 
some other provision of law, you may designate under which authority or 
authorities the investment is made. When making a pass-through 
investment, you must comply with all the statutes and regulations that 
would apply if you were engaging in the activity directly. For example, 
your proportionate share of the company's assets will be aggregated 
with the assets you hold directly in calculating investment limits 
(e.g., no more than 400% of total capital may be invested in 
nonresidential real property loans).
    (b) You may make a pass-through investment without prior notice to 
the OCC if all of the following conditions are met:
    (1) You do not invest more than 15% of your total capital in one 
company;
    (2) The book value of your aggregate pass-through investments does 
not exceed 50% of your total capital after making the investment;
    (3) Your investment would not give you direct or indirect control 
of the company;
    (4) Your liability is limited to the amount of your investment; and
    (5) The company falls into one of the following categories:
    (i) A limited partnership;
    (ii) An open-end mutual fund;
    (iii) A closed-end investment trust;
    (iv) A limited liability company; or
    (v) An entity in which you are investing primarily to use the 
company's services (e.g., data processing).
    (c) If you want to make other pass-through investments, you must 
provide the OCC with 30 days' advance notice. If within that 30-day 
period the OCC notifies you that an investment presents supervisory, 
legal, or safety and soundness concerns, you must apply for and receive 
the OCC's prior written approval under the standard treatment 
processing procedures at part 116, subparts A and E of this chapter 
before making the investment. Notices under this section are deemed to 
be applications for purposes of statutory and regulatory references to 
``applications.'' Any conditions that the OCC imposes on any pass-
through investment shall be enforceable as a condition imposed in 
writing by the OCC in connection with the granting of a request by a 
Federal savings association within the meaning of 12 U.S.C. 1818(b) or 
1818(i).


Sec.  160.33  Late charges.

    A Federal savings association may include in a home loan contract a 
provision authorizing the imposition of a late charge with respect to 
the payment of any delinquent periodic payment. With respect to any 
loan made after July 31, 1976, on the security of a home occupied or to 
be occupied by the borrower, no late charge, regardless of form, shall 
be assessed or collected by a Federal savings association, unless any 
billing, coupon, or notice the Federal savings association may provide 
regarding installment payments due on the loan discloses the date after 
which the charge may be assessed. A Federal savings association may not 
impose a late charge more than one time for late payment of the same 
installment, and any installment payment made by the borrower shall be 
applied to the longest outstanding installment due. A Federal savings 
association shall not assess a late charge as to any payment received 
by it within fifteen days after the due date of such payment. No form 
of such late charge permitted by this paragraph shall be considered as 
interest to the Federal savings association and the Federal savings 
association shall not deduct late charges from the regular periodic 
installment payments on the loan, but must collect them as such from 
the borrower.


Sec.  160.34  Prepayments.

    Any prepayment on a real estate loan must be applied directly to 
reduce the principal balance on the loan unless the loan contract or 
the borrower specifies otherwise. Subject to the terms of the loan 
contract, a Federal savings association may impose a fee for any 
prepayment of a loan.


Sec.  160.35  Adjustments to home loans.

    (a) For any home loan secured by borrower-occupied property, or 
property to be occupied by the borrower, adjustments to the interest 
rate, payment, balance, or term to maturity must comply with the 
limitations of this section and the disclosure and notice requirements 
of 560.210 until superseding regulations are issued by the Consumer 
Financial Protection Bureau.

[[Page 49034]]

    (b) Adjustments to the interest rate shall correspond directly to 
the movement of an index satisfying the requirements of paragraph (d) 
of this section. A Federal savings association also may increase the 
interest rate pursuant to a formula or schedule that specifies the 
amount of the increase, the time at which it may be made, and which is 
set forth in the loan contract. A Federal savings association may 
decrease the interest rate at any time.
    (c) Adjustments to the payment and the loan balance that do not 
reflect an interest-rate adjustment may be made if:
    (1) The adjustments reflect a change in an index that may be used 
pursuant to paragraph (d) of this section;
    (2) In the case of a payment adjustment, the adjustment reflects a 
change in the loan balance or is made pursuant to a formula, or to a 
schedule specifying the percentage or dollar change in the payment as 
set forth in the loan contract; or
    (3) In the case of an open-end line-of-credit loan, the adjustment 
reflects an advance taken by the borrower under the line-of-credit and 
is permitted by the loan contract.
    (d)(1) Any index used must be readily available and independently 
verifiable. If set forth in the loan contract, an association may use 
any combination of indices, a moving average of index values, or more 
than one index during the term of a loan.
    (2) Except as provided in paragraph (d)(3) of this section, any 
index used must be a national or regional index.
    (3) A Federal savings association may use an index not satisfying 
the requirements of paragraph (d)(2) of this section 30 days after 
filing a notice unless, within that 30-day period, the OCC has notified 
the association that the notice presents supervisory concerns or raises 
significant issues of law or policy. If the OCC notifies the 
association of such concerns or issues, the Federal savings association 
may not use such an index unless it applies for and receives the OCC's 
prior written approval under the standard treatment processing 
procedures at part 116, subparts A and E of this chapter.


Sec.  160.36  De minimis investments.

    A Federal savings association may invest in the aggregate up to the 
greater of 1% of its total capital or $250,000 in community development 
investments of the type permitted for a national bank under 12 CFR part 
24.


Sec.  160.37  Real estate for office and related facilities.

    A Federal savings association may invest in real estate (improved 
or unimproved) to be used for office and related facilities of the 
association, or for such office and related facilities and for rental 
or sale, if such investment is made and maintained under a prudent 
program of property acquisition to meet the Federal savings 
association's present needs or its reasonable future needs for office 
and related facilities. A Federal savings association may not make an 
investment that would cause the outstanding book value of all such 
investments (including investments under Sec.  159.4(e)(2) of this 
chapter) to exceed its total capital.


Sec.  160.40  Commercial paper and corporate debt securities.

    Pursuant to HOLA section 5(c)(2)(D), a Federal savings association 
may invest in, sell, or hold commercial paper and corporate debt 
securities subject to the provisions of this section.
    (a) Limitations. (1) Commercial paper must be:
    (i) As of the date of purchase, rated in either one of the two 
highest categories by at least two nationally recognized investment 
ratings services as shown by the most recently published rating made of 
such investments; or
    (ii) If unrated, guaranteed by a company having outstanding paper 
that is rated as provided in paragraph (a)(1)(i) of this section.
    (2) Corporate debt securities must be:
    (i) Securities that may be sold with reasonable promptness at a 
price that corresponds reasonably to their fair value; and
    (ii) Rated in one of the four highest categories as to the portion 
of the security in which the association is investing by a nationally 
recognized investment ratings service at its most recently published 
rating before the date of purchase of the security.
    (3) A Federal savings association's total investment in the 
commercial paper and corporate debt securities of any one issuer, or 
issued by any one person or entity affiliated with such issuer, 
together with other loans, shall not exceed the general lending 
limitations contained in Sec.  160.93(c) of this part.
    (4) Investments in corporate debt securities convertible into stock 
are subject to the following additional limitations:
    (i) The purchase of securities convertible into stock at the option 
of the issuer is prohibited;
    (ii) At the time of purchase, the cost of such securities must be 
written down to an amount that represents the investment value of the 
securities considered independently of the conversion feature; and
    (iii) Federal savings associations are prohibited from exercising 
the conversion feature.
    (5) A Federal savings association shall maintain information in its 
files adequate to demonstrate that it has exercised prudent judgment in 
making investments under this section.
    (b) Notwithstanding the limitations contained in this section, the 
OCC may permit investment in corporate debt securities of another 
savings association in connection with the purchase or sale of a branch 
office or in connection with a supervisory merger or acquisition.
    (c) Underwriting. Before committing to acquire any investment 
security, a Federal savings association must determine whether the 
investment is safe and sound and suitable for the association. The 
Federal savings association must consider, as appropriate, the interest 
rate, credit, liquidity, price, transaction, and other risks associated 
with the investment activity. The Federal savings association must also 
determine that the issuer has adequate resources and the willingness to 
provide for all required payments on its obligations in a timely 
manner.


Sec.  160.41  Leasing.

    (a) Permissible activities. Subject to the limitations of this 
section, a Federal savings association may engage in leasing 
activities. These activities include becoming the legal or beneficial 
owner of tangible personal property or real property for the purpose of 
leasing such property, obtaining an assignment of a lessor's interest 
in a lease of such property, and incurring obligations incidental to 
its position as the legal or beneficial owner and lessor of the leased 
property.
    (b) Definitions. For the purposes of this section:
    (1) The term net lease means a lease under which the Federal 
savings association will not, directly or indirectly, provide or be 
obligated to provide for:
    (i) The servicing, repair or maintenance of the leased property 
during the lease term;
    (ii) The purchasing of parts and accessories for the leased 
property, except that improvements and additions to the leased property 
may be leased to the lessee upon its request in accordance with the 
full-payout requirements of paragraph (c)(2)(i) of this section;
    (iii) The loan of replacement or substitute property while the 
leased property is being serviced;
    (iv) The purchasing of insurance for the lessee, except where the 
lessee has failed to discharge a contractual

[[Page 49035]]

obligation to purchase or maintain insurance; or
    (v) The renewal of any license, registration, or filing for the 
property unless such action by the Federal savings association is 
necessary to protect its interest as an owner or financier of the 
property.
    (2) The term full-payout lease means a lease transaction in which 
any unguaranteed portion of the estimated residual value relied on by 
the association to yield the return of its full investment in the 
leased property, plus the estimated cost of financing the property over 
the term of the lease, does not exceed 25% of the original cost of the 
property to the lessor. In general, a lease will qualify as a full-
payout lease if the scheduled payments provide at least 75% of the 
principal and interest payments that a lessor would receive if the 
finance lease were structured as a market-rate loan.
    (3) The term realization of investment means that a Federal savings 
association that enters into a lease financing transaction must 
reasonably expect to realize the return of its full investment in the 
leased property, plus the estimated cost of financing the property over 
the term of the lease from:
    (i) Rentals;
    (ii) Estimated tax benefits, if any; and
    (iii) The estimated residual value of the property at the 
expiration of the term of the lease.
    (c) Finance leasing--(1) Investment limits. A Federal savings 
association may exercise its authority under HOLA sections 5(c)(1)(B) 
(residential real estate loans), 5(c)(2)(A) (commercial, business, 
corporate or agricultural loans), 5(c)(2)(B) (nonresidential real 
estate loans), and 5(c)(2)(D) (consumer loans) by conducting leasing 
activities that are the functional equivalent of loans made under those 
HOLA sections. These activities are commonly referred to as financing 
leases. Such financing leases are subject to the same investment limits 
that apply to loans made under those sections. For example, a financing 
lease of tangible personal property made to a natural person for 
personal, family or household purposes is subject to all limitations 
applicable to the amount of a Federal savings association's investment 
in consumer loans. A financing lease made for commercial, corporate, 
business, or agricultural purposes is subject to all limitations 
applicable to the amount of a Federal savings association's investment 
in commercial loans. A financing lease of residential or nonresidential 
real property is subject to all limitations applicable to the amount of 
a Federal savings association's investment in these types of real 
estate loans.
    (2) Functional equivalent of lending. To qualify as the functional 
equivalent of a loan:
    (i) The lease must be a net, full-payout lease representing a non-
cancelable obligation of the lessee, notwithstanding the possible early 
termination of the lease;
    (ii) The portion of the estimated residual value of the property 
relied upon by the lessor to satisfy the requirements of a full-payout 
lease must be reasonable in light of the nature of the leased property 
and all relevant circumstances so that realization of the lessor's full 
investment plus the cost of financing the property depends primarily on 
the creditworthiness of the lessee, and not on the residual market 
value of the leased property; and
    (iii) At the termination of a financing lease, either by expiration 
or default, property acquired must be liquidated or released on a net 
basis as soon as practicable. Any property held in anticipation of re-
leasing must be reevaluated and recorded at the lower of fair market 
value or book value.
    (d) General leasing. Pursuant to section 5(c)(2)(C) of the HOLA, a 
Federal savings association may invest in tangible personal property, 
including vehicles, manufactured homes, machinery, equipment, or 
furniture, for the purpose of leasing that property. In contrast to 
financing leases, lease investments made under this authority need not 
be the functional equivalent of loans.
    (e) Leasing salvage powers. If, in good faith, a Federal savings 
association believes that there has been an unanticipated change in 
conditions that threatens its financial position by significantly 
increasing its exposure to loss, it may:
    (1) As the owner and lessor, take reasonable and appropriate action 
to salvage or protect the value of the property or its interest arising 
under the lease;
    (2) As the assignee of a lessor's interest in a lease, become the 
owner and lessor of the leased property pursuant to its contractual 
right, or take any reasonable and appropriate action to salvage or 
protect the value of the property or its interest arising under the 
lease; or
    (3) Include any provisions in a lease, or make any additional 
agreements, to protect its financial position or investment in the 
circumstances set forth in paragraphs (e)(1) and (e)(2) of this 
section.


Sec.  160.42  State and local government obligations.

    (a) What limitations apply? Pursuant to HOLA section 5(c)(1)(H), a 
Federal savings association (``you'') may invest in obligations issued 
by any state, territory, possession, or political subdivision thereof 
(``governmental entity''), subject to appropriate underwriting and the 
following conditions:

----------------------------------------------------------------------------------------------------------------
                                            Aggregate limitation                   Per-issuer limitation
----------------------------------------------------------------------------------------------------------------
(1) General obligations..........  None..................................  None.
(2) Other obligations of a         None..................................  10% of total capital.
 governmental entity ( e.g.,
 revenue bonds) that hold one of
 the four highest investment
 grade ratings by a nationally
 recognized rating agency or that
 are nonrated but of investment
 quality.
(3) Obligations of a governmental  As approved by the OCC................  10% of total capital.
 entity that do not qualify under
 any other paragraph but are
 approved by the OCC.
----------------------------------------------------------------------------------------------------------------

    (b) What is a political subdivision? Political subdivision means a 
county, city, town, or other municipal corporation, a public authority, 
or a publicly-owned entity that is an instrumentality of a state or a 
municipal corporation.
    (c) What is a general obligation of a state or political 
subdivision? A general obligation is an obligation that is guaranteed 
by the full faith and credit of a state or political subdivision that 
has the power to tax. Indirect payments, such as through a special 
fund, may qualify as general obligations if a state or political 
subdivision with taxing authority has unconditionally agreed to provide 
funds to cover payments.
    (d) What is appropriate underwriting for this type of investment? 
In the case of a security rated in one of the four highest investment 
grades by a nationally recognized rating agency, your assessment of the 
obligor's credit quality may be based, in part, on reliable rating 
agency estimates of the obligor's performance. For all other

[[Page 49036]]

securities, you must perform your own detailed analysis of credit 
quality. In doing so, you must consider, as appropriate, the interest 
rate, credit, liquidity, price, transaction, and other risks associated 
with the investment activity and determine that such investment is 
appropriate for your institution. You must also determine that the 
obligor has adequate resources and willingness to provide for all 
required payments on its obligations in a timely manner.


Sec.  160.43  Foreign assistance investments.

    Pursuant to HOLA section 5(c)(4)(C), a Federal savings association 
may make foreign assistance investments in an aggregate amount not to 
exceed one percent of its assets, subject to the following conditions:
    (a) For any investment made under the Foreign Assistance Act, the 
loan agreement shall specify what constitutes an event of default, and 
provide that upon default in payment of principal or interest under 
such agreement, the entire amount of outstanding indebtedness 
thereunder shall become immediately due and payable, at the lender's 
option. Additionally, the contract of guarantee shall cover 100% of any 
loss of investment thereunder, except for any portion of the loan 
arising out of fraud or misrepresentation for which the party seeking 
payment is responsible, and provide that the guarantor shall pay for 
any such loss in U.S. dollars within a specified reasonable time after 
the date of application for payment.
    (b) To make any investments in the share capital and capital 
reserve of the Inter-American Savings and Loan Bank, a Federal savings 
association must be adequately capitalized and have adequate allowances 
for loan and lease losses. The Federal savings association's aggregate 
investment in such capital or capital reserve, including the amount of 
any obligations undertaken to provide said Bank with reserve capital in 
the future (call-able capital), must not, as a result of such 
investment, exceed the lesser of one-quarter of 1% of its assets or 
$100,000.


Sec.  160.50  Letters of credit and other independent undertakings--
authority.

    A Federal savings association may issue letters of credit and may 
issue such other independent undertakings as are approved by the OCC, 
subject to the restrictions in Sec.  160.120.


Sec.  160.60  Suretyship and guaranty.

    Pursuant to section 5(b)(2) of the HOLA, a Federal savings 
association may enter into a repayable suretyship or guaranty 
agreement, subject to the conditions in this section.
    (a) What is a suretyship or guaranty agreement? Under a suretyship, 
a Federal savings association is bound with its principal to pay or 
perform an obligation to a third person. Under a guaranty agreement, a 
Federal savings association agrees to satisfy the obligation of the 
principal only if the principal fails to pay or perform.
    (b) What requirements apply to suretyship and guaranty agreements 
under this section? A Federal savings association may enter into a 
suretyship or guaranty agreement under this section, subject to each of 
the following requirements:
    (1) The Federal savings association must limit its obligations 
under the agreement to a fixed dollar amount and a specified duration.
    (2) The Federal savings association's performance under the 
agreement must create an authorized loan or other investment.
    (3) The Federal savings association must treat its obligation under 
the agreement as a loan to the principal for purposes of Sec. Sec.  
160.93 and 163.43 of this chapter.
    (4) The Federal savings association must take and maintain a 
perfected security interest in collateral sufficient to cover its total 
obligation under the agreement.
    (c) What collateral is sufficient? (1) The Federal savings 
association must take and maintain a perfected security interest in 
real estate or marketable securities equal to at least 110 percent of 
its obligation under the agreement, except as provided in paragraph 
(c)(2) of this section.
    (i) If the collateral is real estate, the Federal savings 
association must establish the value by a signed appraisal or 
evaluation in accordance with part 164 of this chapter. In determining 
the value of the collateral, the Federal savings association must 
factor in the value of any existing senior mortgages, liens or other 
encumbrances on the property, except those held by the principal to the 
suretyship or guaranty agreement.
    (ii) If the collateral is marketable securities, the Federal 
savings association must be authorized to invest in that security taken 
as collateral. The Federal savings association must ensure that the 
value of the security is 110 percent of the obligation at all times 
during the term of agreement.
    (2) The Federal savings association may take and maintain a 
perfected security interest in collateral which is at all times equal 
to at least 100 percent of its obligation, if the collateral is:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guarantied by the United States or its 
agencies as to principal and interest; or
    (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
that are eligible for rediscount or purchase by a Federal Reserve Bank.


Sec.  160.93   Lending limitations.

    (a) Scope. This section applies to all loans and extensions of 
credit to third parties made by a savings association and its 
subsidiaries. This section does not apply to loans made by a savings 
association or a GAAP-consolidated subsidiary to subordinate 
organizations or affiliates of the savings association. The terms 
subsidiary, GAAP-consolidated subsidiary, and subordinate organization 
have the same meanings as specified in Sec.  159.2 of this chapter. The 
term affiliate has the same meaning as specified in 12 CFR 563.41 until 
superseded by regulations of the Board of Governors of the Federal 
Reserve System regarding transactions with affiliates.
    (b) Definitions. In applying these lending limitations, savings 
associations shall apply the definitions and interpretations 
promulgated by the OCC consistent with 12 U.S.C. 84. See 12 CFR part 
32. In applying these definitions, pursuant to 12 U.S.C. 1464, savings 
associations shall use the terms savings association, savings 
associations, and savings association's in place of the terms national 
bank and bank, banks, and bank's, respectively. For purposes of this 
section:
    (1) The term one borrower has the same meaning as the term person 
set forth at 12 CFR part 32. It also includes, in addition to the 
definition cited therein, a financial institution as defined at Sec.  
161.19 of this chapter.
    (2) The term company means a corporation, partnership, business 
trust, association, or similar organization and, unless specifically 
excluded, the term company includes a savings association and a bank.
    (3) Contractual commitment to advance funds has the meaning set 
forth in 12 CFR part 32.
    (4) Loans and extensions of credit has the meaning set forth in 12 
CFR part 32, and includes investments in commercial paper and corporate 
debt securities. The appropriate Federal banking agency expressly 
reserves its authority to deem other arrangements that are, in 
substance, loans and extensions of credit to be encompassed by this 
term.
    (5) The term loans as used in the phrase Loans to one borrower to 
finance

[[Page 49037]]

the sale of real property acquired in satisfaction of debts previously 
contracted for in good faith does not include an association's taking 
of a purchase money mortgage note from the purchaser provided that:
    (i) No new funds are advanced by the association to the borrower; 
and
    (ii) The association is not placed in a more detrimental position 
as a result of the sale.
    (6) [Reserved]
    (7) Readily marketable collateral has the meaning set forth in 12 
CFR part 32.
    (8) Residential housing units has the same meaning as the term 
residential real estate set forth in Sec.  141.23 of this chapter. The 
term to develop includes the various phases necessary to produce 
housing units as an end product, to include: Acquisition, development 
and construction; development and construction; construction; 
rehabilitation; or conversion. The term domestic includes units within 
the fifty states, the District of Columbia, Puerto Rico, the Virgin 
Islands, Guam, and the Pacific Islands.
    (9) Single family dwelling unit has the meaning set forth in Sec.  
141.25 of this chapter.
    (10) A standby letter of credit has the meaning set forth in 12 CFR 
part 32.
    (11) Unimpaired capital and unimpaired surplus means--
    (i) A savings association's core capital and supplementary capital 
included in its total capital under part 167 of this chapter; plus
    (ii) The balance of a savings association's allowance for loan and 
lease losses not included in supplementary capital under part 167 of 
this chapter; plus
    (iii) The amount of a savings association's loans to, investments 
in, and advances to subsidiaries not included in calculating core 
capital under part 167 of this chapter.
    (c) General limitation. Section 5200 of the Revised Statutes (12 
U.S.C. 84) shall apply to savings associations in the same manner and 
to the same extent as it applies to national banks. This statutory 
provision and lending limit regulations and interpretations promulgated 
by the OCC pursuant to a rulemaking conducted in accordance with the 
provisions of the Administrative Procedure Act, 5 U.S.C. 553 et seq. 
(including the regulations appearing at 12 CFR part 32) shall apply to 
savings associations in the same manner and to the same extent as these 
provisions apply to national banks:
    (1) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and not fully 
secured, as determined in the same manner as determined under 12 U.S.C. 
84(a)(2), by collateral having a market value at least equal to the 
amount of the loan or the extension of credit shall not exceed 15 
percent of the unimpaired capital and unimpaired surplus of the 
association.
    (2) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and fully secured 
by readily marketable collateral having a market value, as determined 
by reliable and continuously available price quotations, at least equal 
to the amount of the funds outstanding shall not exceed 10 per centum 
of the unimpaired capital and unimpaired surplus of the association. 
This limitation shall be separate from and in addition to the 
limitation contained in paragraph (c)(1) of this section.
    (d) Exceptions to the general limitation--(1) $500,000 exception. 
If a savings association's aggregate lending limitation calculated 
under paragraphs (c)(1) and (c)(2) of this section is less than 
$500,000, notwithstanding this aggregate limitation in paragraphs 
(c)(1) and (c)(2) of this section, such savings association may have 
total loans and extensions of credit, for any purpose, to one borrower 
outstanding at one time not to exceed $500,000.
    (2) Statutory exceptions. The exceptions to the lending limits set 
forth in 12 U.S.C. 84 and 12 CFR part 32 are applicable to savings 
associations in the same manner and to the extent as they apply to 
national banks.
    (3) Loans to develop domestic residential housing units. Subject to 
paragraph (d)(4) of this section, a savings association may make loans 
to one borrower to develop domestic residential housing units, not to 
exceed the lesser of $30,000,000 or 30 percent of the savings 
association's unimpaired capital and unimpaired surplus, including all 
amounts loaned under the authority of the General Limitation set forth 
under paragraphs (c)(1) and (c)(2) of this section, provided that:
    (i) The final purchase price of each single family dwelling unit 
the development of which is financed under this paragraph (d)(3) does 
not exceed $500,000;
    (ii) The savings association is, and continues to be, in compliance 
with its capital requirements under part 167 of this chapter.
    (iii) The appropriate Federal banking agency permits, subject to 
conditions it may impose, the savings association to use the higher 
limit set forth under this paragraph (d)(3). A savings association that 
meets the requirements of paragraphs (d)(3)(i), (ii), (iv) and (v) of 
this section and that meets the requirements for ``expedited 
treatment'' under Sec.  116.5 of this chapter may use the higher limit 
set forth under this paragraph (d)(3) if the savings association has 
filed a notice with the appropriate Federal banking agency that it 
intends to use the higher limit at least 30 days prior to the proposed 
use. A savings association that meets the requirements of paragraphs 
(d)(3)(i), (ii), (iv), and (v) of this section and that meets the 
requirements for ``standard treatment'' under Sec.  116.5 of this 
chapter may use the higher limit set forth under this paragraph (d)(3) 
if the savings association has filed an application with the 
appropriate Federal banking agency and the agency has approved the use 
the higher limit;
    (iv) Loans made under this paragraph (d)(3) to all borrowers do 
not, in aggregate, exceed 150 percent of the savings association's 
unimpaired capital and unimpaired surplus; and
    (v) Such loans comply with the applicable loan-to-value 
requirements that apply to Federal savings associations.
    (4) The authority of a savings association to make a loan or 
extension of credit under the exception in paragraph (d)(3) of this 
section ceases immediately upon the association's failure to comply 
with any one of the requirements set forth in paragraph (d)(3) of this 
section or any condition(s) set forth in an order issued by the 
appropriate Federal banking agency under paragraph (d)(3)(iii) of this 
section.
    (5) Notwithstanding the limit set forth in paragraphs (c)(1) and 
(c)(2) of this section, a savings association may invest up to 10 
percent of unimpaired capital and unimpaired surplus in the obligations 
of one issuer evidenced by:
    (i) Commercial paper rated, as of the date of purchase, as shown by 
the most recently published rating by at least two nationally 
recognized investment rating services in the highest category; or
    (ii) Corporate debt securities that may be sold with reasonable 
promptness at a price that corresponds reasonably to their fair value, 
and that are rated in one of the two highest categories by a nationally 
recognized investment rating service in its most recently published 
ratings before the date of purchase of the security.
    (e) Loans to finance the sale of REO. A savings association's loans 
to one borrower to finance the sale of real property acquired in 
satisfaction of debts previously contracted for in good faith shall 
not, when aggregated with all other loans to such borrower, exceed the

[[Page 49038]]

General Limitation in paragraph (c)(1) of this section.
    (f) Calculating compliance and recordkeeping. (1) The amount of an 
association's unimpaired capital and unimpaired surplus pursuant to 
paragraph (b)(11) of this section shall be calculated as of the 
association's most recent periodic report required to be filed with the 
appropriate Federal banking agency prior to the date of granting or 
purchasing the loan or otherwise creating the obligation to repay 
funds, unless the association knows, or has reason to know, based on 
transactions or events actually completed, that such level has changed 
significantly, upward or downward, subsequent to filing of such report.
    (2) If a savings association or subsidiary thereof makes a loan or 
extension of credit to any one borrower, as defined in paragraph (b)(1) 
of this section, in an amount that, when added to the total balances of 
all outstanding loans owed to such association and its subsidiary by 
such borrower, exceeds the greater of $500,000 or 5 percent of 
unimpaired capital and unimpaired surplus, the records of such 
association or its subsidiary with respect to such loan shall include 
documentation showing that such loan was made within the limitations of 
paragraphs (c) and (d) of this section; for the purpose of such 
documentation such association or subsidiary may require, and may 
accept in good faith, a certification by the borrower identifying the 
persons, entities, and interests described in the definition of one 
borrower in paragraph (b)(1) of this section.
    (g) [Reserved]
    (h) More stringent restrictions for Federal savings associations. 
The Comptroller may impose more stringent restrictions on a Federal 
savings association's loans to one borrower if the Comptroller 
determines that such restrictions are necessary to protect the safety 
and soundness of the savings association.

Appendix to Sec.  160.93--Interpretations

Section 160.93-100 Interrelation of General Limitation With 
Exception for Loans To Develop Domestic Residential Housing Units

    1. The Sec.  160.93(d)(3) exception for loans to one person to 
develop domestic residential housing units is characterized in the 
regulation as an ``alternative'' limit. This exceptional $30,000,000 
or 30 percent limitation does not operate in addition to the 15 
percent General Limitation or the 10 percent additional amount an 
association may loan to one borrower secured by readily marketable 
collateral, but serves as the uppermost limitation on a savings 
association's lending to any one person once an association employs 
this exception.
    Example: Savings Associations A's lending limitation as 
calculated under the 15 percent General Limitation is $800, 0. If 
Association A lends Y $800,000 for commercial purposes, Association 
A cannot lend Y an additional $1,600,000, or 30 percent of capital 
and surplus, to develop residential housing units under the 
paragraph (d)(3) exception. The (d)(3) exception operates as the 
uppermost limitation on all lending to one borrower (for 
associations that may employ this exception) and includes any 
amounts loaned to the same borrower under the General Limitation. 
Association A, therefore, may lend only an additional $800,000 to Y, 
provided the paragraph (d)(3) prerequisites have been met. The 
amount loaned under the authority of the General Limitation 
($800,000), when added to the amount loaned under the exception 
($800,000), yields a sum that does not exceed the 30 percent 
uppermost limitation ($1,600,000).
    2. This result does not change even if the facts are altered to 
assume that some or all of the $800,000 amount of lending 
permissible under the General Limitation's 15 percent basket is not 
used, or is devoted to the development of domestic residential 
housing units.
    In other words, using the above example, if Association A lends 
Y $400,000 for commercial purposes and $300,000 for residential 
purposes--both of which would be permitted under the Association's 
$800,000 General Limitation--Association A's remaining permissible 
lending to Y would be: First, an additional $100,000 under the 
General Limitation, and then another $800,000 to develop domestic 
residential housing units if the Association meets the paragraph 
(d)(3) prerequisites. (The latter is $800,000 because in no event 
may the total lending to Y exceed 30 percent of unimpaired capital 
and unimpaired surplus). If Association A did not lend Y the 
remaining $100,000 permissible under the General Limitation, its 
permissible loans to develop domestic residential housing units 
under paragraph (d)(3) would be $900,000 instead of $800,000 (the 
total loans to Y would still equal $1,600,000).
    3. In short, under the paragraph (d)(3) exception, the 30 
percent or $30,000,000 limit will always operate as the uppermost 
limitation, unless of course the association does not avail itself 
of the exception and merely relies upon its General Limitation.

Section 160.93-101 Interrelationship Between the General Limitation 
and the 150 Percent Aggregate Limit on Loans to all Borrowers To 
Develop Domestic Residential Housing Units

    1. Numerous questions have been received regarding the 
allocation of loans between the different lending limit ``baskets,'' 
i.e., the 15 percent General Limitation basket and the 30 percent 
Residential Development basket. In general, the inquiries concern 
the manner in which an association may ``move'' a loan from the 
General Limitation basket to the Residential Development basket. The 
following example is intended to provide guidance:
    Example: Association A's General Limitation under section 
5(u)(1) is $15 million. In January, Association A makes a $10 
million loan to Borrower to develop domestic residential housing 
units. At the time the loan was made, Association A had not received 
approval under an order issued by the appropriate Federal banking 
agency to avail itself of the residential development exception to 
lending limits. Therefore, the $10 million loan is made under 
Association A's General Limitation.
    2. In June, Association A receives authorization to lend under 
the Residential Development exception. In July, Association A lends 
$3 million to Borrower to develop domestic residential housing 
units. In August, Borrower seeks an additional $12 million 
commercial loan from Association A. Association A cannot make the 
loan to Borrower, however, because it already has an outstanding $10 
million loan to Borrower that counts against Association A's General 
Limitation of $15 million. Thus, Association A may lend only up to 
an additional $5 million to Borrower under the General Limitation.
    3. However, Association A may be able to reallocate the $10 
million loan it made to Borrower in January to its Residential 
Development basket provided that: (1) Association A has obtained 
authority under an order issued by the appropriate Federal banking 
agency to avail itself of the additional lending authority for 
residential development and maintains compliance with all 
prerequisites to such lending authority; (2) the original $10 
million loan made in January constitutes a loan to develop domestic 
residential housing units as defined; and (3) the housing unit(s) 
constructed with the funds from the January loan remain in a stage 
of ``development'' at the time Association A reallocates the loan to 
the domestic residential housing basket. The project must be in a 
stage of acquisition, development, construction, rehabilitation, or 
conversion in order for the loan to be reallocated.
    4. If Association A is able to reallocate the $10 million loan 
made to Borrower in January to its Residential Development basket, 
it may make the $12 million commercial loan requested by Borrower in 
August. Once the January loan is reallocated to the Residential 
Development basket, however, the $10 million loan counts towards 
Association's 150 percent aggregate limitation on loans to all 
borrowers under the residential development basket (section 
5(u)(2)(A)(ii)(IV)).
    5. If Association A reallocates the January loan to its domestic 
residential housing basket and makes an additional $12 million 
commercial loan to Borrower, Association A's totals under the 
respective limitations would be: $12 million under the General 
Limitation; and $13 million under the Residential Development 
limitation. The full $13 million residential development loan counts 
toward Association A's aggregate 150 percent limitation.


Sec.  160.100   Real estate lending standards; purpose and scope.

    This section, and Sec.  160.101 of this subpart, issued pursuant to 
section 304 of the Federal Deposit Insurance

[[Page 49039]]

Corporation Improvement Act of 1991, 12 U.S.C. 1828(o), prescribe 
standards for real estate lending to be used by Federal savings 
associations and all their includable subsidiaries, as defined in 12 
CFR 167.1, over which the savings associations exercise control, in 
adopting internal real estate lending policies.


Sec.  160.101   Real estate lending standards.

    (a) Each Federal 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 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 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 savings association's 
real estate portfolio; and
    (iv) Documentation, approval, and reporting requirements to monitor 
compliance with the savings association's real estate lending policies.
    (c) Each Federal 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 bank and thrift 
supervisory agencies.

Appendix to Sec.  160.101--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 (FDIC); 12 CFR part 208, subpart C 
(Board); 12 CFR part 34, subpart D and 12 CFR 160.100-160.101 (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 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.

[[Page 49040]]

     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).
     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,\1\ and other                             80
     nonresidential...................................
    1- to 4-family residential........................                85
Improved property.....................................                85
Owner-occupied 1- to 4-family and home equity.........            ( \2\)
------------------------------------------------------------------------
\1\ Multifamily construction includes condominiums and cooperatives.
\2\ 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.\2\ 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.
---------------------------------------------------------------------------

    \2\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in Appendix A to 12 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 savings associations, the term ``total capital'' as 
described in part 167 of this chapter.
---------------------------------------------------------------------------

    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

[[Page 49041]]

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 
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.  160.110  Most favored lender usury preemption for all savings 
associations.

    (a) Definition. The term ``interest'' as used in 12 U.S.C. 1463(g) 
includes any payment compensating a creditor or prospective creditor 
for an extension of credit, making available of a line of credit, or 
any default or breach by a borrower of a condition upon which credit 
was extended. It includes, among other things, the following fees 
connected with credit extension or availability: numerical periodic 
rates, late fees, not sufficient funds (NSF) fees, overlimit fees, 
annual fees, cash advance fees, and membership fees. It does not 
ordinarily include appraisal fees, premiums and commissions 
attributable to insurance guaranteeing repayment of any extension of 
credit, finders' fees, fees for document preparation or notarization, 
or fees incurred to obtain credit reports.
    (b) Authority. A savings association located in a state may charge 
interest at

[[Page 49042]]

the maximum rate permitted to any state-chartered or licensed lending 
institution by the law of that state. If state law permits different 
interest charges on specified classes of loans, a Federal savings 
association making such loans is subject only to the provisions of 
state law relating to that class of loans that are material to the 
determination of the permitted interest. For example, a Federal savings 
association may lawfully charge the highest rate permitted to be 
charged by a state-licensed small loan company, without being so 
licensed, but subject to state law limitations on the size of loans 
made by small loan companies. State supervisors determine the degree to 
which state-chartered savings associations must comply with state laws 
other than those imposing restrictions on interest, as defined in 
paragraph (a) of this section.
    (c) Effect on state definitions of interest. The Federal definition 
of the term ``interest'' in paragraph (a) of this section does not 
change how interest is defined by the individual states (nor how the 
state definition of interest is used) solely for purposes of state law. 
For example, if late fees are not ``interest'' under state law where a 
savings association is located but state law permits its most favored 
lender to charge late fees, then a savings association located in that 
state may charge late fees to its intrastate customers. The savings 
association may also charge late fees to its interstate customers 
because the fees are interest under the Federal definition of interest 
and an allowable charge under state law where the savings association 
is located. However, the late fees would not be treated as interest for 
purposes of evaluating compliance with state usury limitations because 
state law excludes late fees when calculating the maximum interest that 
lending institutions may charge under those limitations.


Sec.  160.120  Letters of credit and other independent undertakings to 
pay against documents.

    (a) General authority. A Federal 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 OCC 
(approved undertaking).\1\ Under such letters of credit and approved 
undertakings, the 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 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.); 
the Uniform Customs and Practice for Documentary Credits 
(International Chamber of Commerce (ICC) Publication No. 500) 
(available from ICC Publishing, Inc.; 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); and 
the Uniform Rules for Bank-to-Bank Reimbursements Under Documentary 
Credits (ICC Publication No. 525) (available from ICC Publishing, 
Inc.).
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, Federal savings associations that 
issue letters of credit or approved undertakings should not be exposed 
to undue risk. At a minimum, 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;
    (iii) The letter of credit or approved undertaking should:
    (A) Be limited in duration; or
    (B) Permit the savings association to terminate the letter of 
credit or approved undertaking, either on a periodic basis (consistent 
with the 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 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 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 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 
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 savings association should ensure 
that market fluctuations that affect the value of the item will not 
cause the 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 savings association to 
make any necessary credit assessment prior to renewal;
    (iii) In the event that a savings association issues an undertaking 
for its own account, the underlying transaction for which it is issued 
must be within the savings association's authority and comply with any 
safety and soundness requirements applicable to that transaction.
    (3) Operational expertise. The savings association should possess 
operational expertise that is commensurate with the sophistication of 
its letter of credit or independent undertaking activities.
    (4) Documentation. The 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.  160.121  Investment in state housing corporations.

    (a) Any Federal 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 Federal 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 savings association 
has its

[[Page 49043]]

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 OCC. The 
aggregate outstanding direct investment in obligations under paragraph 
(b) of this section shall not exceed the amount of the savings 
association's total capital.
    (c) Each state housing corporation in which a 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 OCC such information 
as the OCC may consider to be necessary to ensure that investments are 
properly made under this section.


Sec.  160.130  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 Federal 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 savings association or a subsidiary 
of the savings association.


Sec.  160.160  Asset classification.

    (a)(1) Each 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 OCC.
    (2) In connection with the examination of a savings association or 
its affiliates, OCC examiners may identify problem assets and classify 
them, if appropriate. The association must recognize such examiner 
classifications in its subsequent reports to the OCC.
    (b) Based on the evaluation and classification of its assets, each 
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.  160.170  Records for lending transactions.

    In establishing and maintaining its records pursuant to Sec.  
163.170 of this chapter, each Federal savings association and service 
corporation 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.  160.172  Re-evaluation of real estate owned.

    A Federal savings association shall appraise each parcel of real 
estate owned at the earlier of in-substance foreclosure or at the time 
of the 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 part 164 of 
this chapter. The Comptroller 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 part. A dated, signed copy of 
each report of appraisal made pursuant to any provisions of this part 
shall be retained in the savings association's records.

Subpart C--[Reserved]


Sec.  160.210  [Reserved]


Sec.  160.220  [Reserved]

PART 161--DEFINITIONS FOR REGULATIONS AFFECTING ALL SAVINGS 
ASSOCIATIONS

Sec.
161.1 When do the definitions in this part apply?
161.2 Account.
161.3 Accountholder.
161.4 Affiliate.
161.5 Affiliated person.
161.6 Audit period.
161.7 Appropriate Federal banking agency.
161.8 [Reserved]
161.9 Certificate account.
161.10 Comptroller
161.12 Consumer credit.
161.14 Controlling person.
161.15 Corporation.
161.16 Demand accounts.
161.18 Director.
161.19 Financial institution.
161.24 Immediate family.
161.26 Land loan.
161.27 Low-rent housing.
161.28 Money Market Deposit Accounts.
161.29 Negotiable Order of Withdrawal Accounts.
161.30 Nonresidential construction loan.
161.31 Nonwithdrawable account.
161.33 Note account.
161.34 OCC.
161.35 Officer.
161.37 Parent company; subsidiary.
161.38 Political subdivision.
161.39 Principal office.
161.40 Public unit.
161.41 [Reserved]
161.42 Savings account.
161.43 Savings association.
161.44 Security.
161.45 Service corporation.
161.50 State.
161.51 Subordinated debt security.
161.52 Tax and loan account.
161.53 United States Treasury General Account.
161.54 United States Treasury Time Deposit Open Account.
161.55 With recourse.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 
5412(b)(2)(B).


Sec.  161.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 141 apply 
throughout parts 100-199 of this chapter, unless another definition is 
specifically provided.


Sec.  161.2  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 savings association.


Sec.  161.3  Accountholder.

    The term accountholder means the holder of an account or accounts 
in a 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 savings association.


Sec.  161.4  Affiliate.

    The term affiliate of a savings association, unless otherwise 
defined, means any corporation, business trust, association, or other 
similar organization:
    (a) Of which a 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

[[Page 49044]]

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 savings 
association who own or control either a majority of the shares of such 
savings association or more than 50 per centum of the number of shares 
voted for the election of directors of such savings association at the 
preceding election, or by trustees for the benefit of the shareholders 
of any such savings association; or
    (c) Of which a majority of its directors, trustees, or other 
persons exercising similar functions are directors of any one savings 
association.


Sec.  161.5  Affiliated person.

    The term affiliated person of a 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 savings 
association or a corporation or organization through which the 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.  161.6  Audit period.

    The audit period of a 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.  163.170 of this 
chapter.


Sec.  161.7  Appropriate Federal banking agency.

    The term appropriate Federal banking agency means appropriate 
Federal banking agency as that term is defined in 12 U.S.C. 1813(q).


Sec.  161.8  [Reserved]


Sec.  161.9  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.  161.10  Comptroller.

    The term Comptroller means the Comptroller of the Currency.


Sec.  161.12  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 
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 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.  161.14  Controlling person.

    The term controlling person of a 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 savings association; or 
controls in any manner the election or appointment of a majority of the 
directors of such savings association. However, a director of a savings 
association will not be deemed to be a controlling person of such 
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 entire board and if its authority is revocable by such a 
majority.


Sec.  161.15  Corporation.

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


Sec.  161.16  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 savings association and that are permitted to 
be issued by statute, regulation, or otherwise and are payable on 
demand.


Sec.  161.18  Director.

    (a) 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.
    (b) [Reserved]


Sec.  161.19  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.  161.24  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;

[[Page 49045]]

    (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.  161.26  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.  161.27  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.  161.28  Money Market Deposit Accounts.

    (a) Money Market Deposit Accounts (MMDAs) offered by Federal 
savings associations in accordance with 12 U.S.C. 1464(b)(1) and by 
state-chartered 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 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 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 savings 
association to the savings association itself, or to a third party.
    (ii) 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 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 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 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 savings association the 
depository 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 savings association 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) Federal savings associations may offer MMDAs to any depositor, 
and state-chartered savings associations may offer MMDAs to any 
depositor not inconsistent with applicable state law.


Sec.  161.29  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 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.  161.30  Nonresidential construction loan.

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


Sec.  161.31  Nonwithdrawable account.

    The term nonwithdrawable account means an account which by the 
terms of the contract of the accountholder with the 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 
savings association have been fully liquidated and paid upon the 
winding up of the savings association is referred to as a 
nonwithdrawable account.


Sec.  161.33  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.  161.34  OCC.

    The term OCC means Office of the Comptroller of the Currency.


Sec.  161.35  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 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.  161.37  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 any service corporation owned in whole or in 
part by a savings association, or a subsidiary of such service 
corporation.


Sec.  161.38  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

[[Page 49046]]

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.  161.39  Principal office.

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


Sec.  161.40  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.  161.41  [Reserved]


Sec.  161.42  Savings account.

    The term savings account means any withdrawable account, except a 
demand account as defined in Sec.  161.16 of this chapter, a tax and 
loan account, a note account, a United States Treasury general account, 
or a United States Treasury time deposit-open account.


Sec.  161.43  Savings association.

    The term savings association means a 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 Federal savings 
association or Federal savings bank, chartered under section 5 of the 
Act, or 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 and the Comptroller jointly determine to be 
operating substantially in the same manner as a savings association.


Sec.  161.44  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.  161.45  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 under part 159 of this chapter.


Sec.  161.50  State.

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


Sec.  161.51  Subordinated debt security.

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


Sec.  161.52  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.  161.53  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.  161.54  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.  161.55  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 savings association.
    (b) The term with recourse does not include loans or interests 
therein where the agreement of sale provides for the 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 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 part 167 of this chapter.

PART 162--REGULATORY REPORTING STANDARDS

Sec.
162.1 Regulatory reporting requirements.
162.2 Regulatory reports.
162.4 Audit of Federal savings associations.

    Authority: 12 U.S.C. 1463, 5412(b)(2)(B).


Sec.  162.1  Regulatory reporting requirements.

    (a) Authority and scope. This part is issued by the Office of the 
Comptroller of the Currency (OCC) pursuant to section 4(b) and 4(c) of 
the Home Owners' Loan Act (HOLA) (12 U.S.C. 1463(b) and 1463(c)). It 
applies to all Federal savings associations regulated by the OCC.

[[Page 49047]]

    (b) Records and reports--general--(1) Records. Each 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 OCC 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 OCC, at a location acceptable to the OCC.
    (2) Reports. For purposes of examination by and regulatory reports 
to the OCC and compliance with this chapter, all savings associations 
shall use such forms and follow such regulatory reporting requirements 
as the OCC may require by regulation or otherwise.


Sec.  162.2  Regulatory reports.

    (a) Definition and scope. This section applies to all regulatory 
reports, as defined herein. A regulatory report is any report that the 
OCC prepares, or is submitted to, or is used by the OCC, to determine 
compliance with its rules and regulations, and to evaluate the safe and 
sound condition and operation of savings associations. The Report of 
Examination is an example of a regulatory report. 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, guidance contained in OCC regulations, 
bulletins, and 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 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 OCC 
regulations, bulletins, examination handbooks and instructions to 
regulatory reports. Such safety and soundness requirements shall be no 
less stringent than those applied by the Comptroller of the Currency 
for national banks; and
    (iii) Incorporate additional safety and soundness requirements more 
stringent than GAAP, as the Comptroller 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 OCC pursuant to the Securities 
and Exchange Act of 1934 or parts 192, 194, or 197 of this chapter.
    (3) Compliance. When the OCC determines that a 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 OCC.


Sec.  162.4  Audit of savings associations.

    (a) General. The OCC may require, at any time, an independent audit 
of the financial statements of, or the application of procedures agreed 
upon by the OCC to a savings association or affiliate (as defined by 12 
CFR 563.41, or upon issuance of superseding regulations by the Board of 
Governors of the Federal Reserve System, such superseding regulations) 
by qualified independent public accountants when needed for any safety 
and soundness reason identified by the OCC.
    (b) Audits required for safety and soundness purposes. The OCC 
requires an independent audit for safety and soundness purposes if a 
savings association has received a composite rating of 3, 4 or 5, as 
defined at Sec.  116.5(c) of this chapter.
    (c) Procedures. (1) When the OCC requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
Comptroller shall determine whether the audit was conducted and filed 
in a manner satisfactory to the OCC.
    (2) The Comptroller may waive the independent audit requirement 
described at paragraph (b)(1) of this section, if the Comptroller 
determines that an audit would not provide further information on 
safety and soundness issues relevant to the examination rating.
    (3) When the OCC requires the application of procedures agreed upon 
for safety and soundness purposes, the Comptroller shall identify the 
procedures to be performed. The Comptroller shall also determine 
whether the agreed upon procedures were conducted and filed in a manner 
satisfactory to the OCC.
    (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 savings association's or 
holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the OCC 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 OCC.
    (e) Voluntary audits. When a savings association or affiliate (as 
defined by 12 CFR 563.41, or upon issuance of superseding regulations 
by the Board of Governors of the Federal Reserve System, such 
superseding regulations) obtains an independent audit voluntarily, it 
must be performed by an independent public accountant who satisfies the 
requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this 
section.

PART 163--SAVINGS ASSOCIATIONS--OPERATIONS

Subpart A--Accounts
Sec.
163.1 Chartering documents.
163.4 [Reserved]
163.5 Securities: Statement of non-insurance.
Subpart B--Operation and Structure
163.22 Merger, consolidation, purchase or sale of assets, or 
assumption of liabilities.
163.27 Advertising.
163.33 Directors, officers, and employees.
163.36 Tying restriction exception.
163.39 Employment contracts.
163.41 Transactions with affiliates.
163.43 Loans by savings associations to their executive officers, 
directors and principal shareholders.
163.47 Pension plans.
Subpart C--Securities and Borrowings
163.74 Mutual capital certificates.
163.76 Offers and sales of securities at an office of a Federal 
savings association.
163.80 Borrowing limitations.

[[Page 49048]]

163.81 Inclusion of subordinated debt securities and mandatorily 
redeemable preferred stock as supplementary capital.
Subpart D--[Reserved]
Subpart E--Capital Distributions
163.140 What does this subpart cover?
163.141 What is a capital distribution?
163.142 What other definitions apply to this subpart?
163.143 Must I file with the OCC?
163.144 How do I file with the OCC?
163.145 May I combine my notice or application with other notices or 
applications?
163.146 Will the OCC permit my capital distribution?
Subpart F--Financial Management Policies
163.161 Management and financial policies.
163.170 Examinations and audits; appraisals; establishment and 
maintenance of records.
163.171 [Reserved]
163.172 Financial derivatives.
163.176 Interest-rate-risk-management procedures.
163.177 Procedures for monitoring Bank Secrecy Act (BSA) compliance.
Subpart G--Reporting and Bonding
163.180 Suspicious Activity Reports and other reports and 
statements.
163.190 Bonds for directors, officers, employees, and agents; form 
of and amount of bonds.
163.191 Bonds for agents.
163.200 Conflicts of interest.
163.201 Corporate opportunity.
Subpart H--Notice of Change of Director or Senior Executive Officer
163.550 What does this subpart do?
163.555 What definitions apply to this subpart?
163.560 Who must give prior notice?
163.565 What procedures govern the filing of my notice?
163.570 What information must I include in my notice?
163.575 What procedures govern OCC review of my notice for 
completeness?
163.580 What standards and procedures will govern OCC review of the 
substance of my notice?
163.585 When may a proposed director or senior executive officer 
begin service?
163.590 When will the OCC waive the prior notice requirement?


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1817, 1820, 
1828, 1831o, 3806, 5101 et seq., 5412(b)(2)(B); 31 U.S.C. 5318; 42 
U.S.C. 4106.

Subpart A--Accounts


Sec.  163.1  Chartering documents.

    (a) Submission for approval. Any de novo Federal savings 
association prior to commencing operations shall file its charter and 
bylaws with the OCC for approval, together with a certification that 
such charter and bylaws are permissible under all applicable laws, 
rules and regulations.
    (b) Availability of chartering documents. Each Federal 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 savings association, and shall upon request deliver 
to any accountholders a copy of such charter and bylaws or amendments 
thereto.


Sec.  163.4  [Reserved]


Sec.  163.5  Securities: Statement of non-insurance.

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

Subpart B--Operation and Structure


Sec.  163.22  Merger, consolidation, purchase or sale of assets, or 
assumption of liabilities.

    (a) No Federal savings association may, without application to and 
approval by the OCC:
    (1) Combine with any insured depository institution, if the 
acquiring or resulting institution is to be a Federal savings 
association; or
    (2) Assume liability to pay any deposit made in, any insured 
depository institution.
    (b)(1) No Federal savings association may, without notifying the 
OCC, as provided in paragraph (h)(1) of this section:
    (i) Combine with another insured depository institution where a 
Federal savings association is not the resulting institution; or
    (ii) In the case of a savings association that meets the conditions 
for expedited treatment under Sec.  116.5 of this chapter, convert, 
directly or indirectly, to a national or state bank.
    (2) A Federal savings association that does not meet the conditions 
for expedited treatment under Sec.  116.5 of this chapter may not, 
directly or indirectly, convert to a national or state bank without 
prior application to and approval of the OCC, as provided in paragraph 
(h)(2)(ii) of this section.
    (c) No Federal savings association may make any transfer (excluding 
transfers subject to paragraphs (a) or (b) of this section) without 
notice or application to the OCC, 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 OCC shall 
take into account the following:
    (i) The capital level of any resulting Federal 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 Federal 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 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 Federal 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 Federal 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

[[Page 49049]]

paid by the disappearing 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 Federal savings 
association. The filing should describe and justify the duties and 
responsibilities and any compensation paid to any advisory board of the 
resulting Federal 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 savings 
association. Advisory board fees that are in excess of 115 percent of 
the director fees paid by the disappearing Federal 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 Federal savings associations with assets greater than 
$10,000,000 or $50 per meeting attended for disappearing Federal 
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 OCC 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 savings association business in any part of the 
United States; or
    (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 OCC 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 OCC.
    (4) Applications filed under paragraph (a) of this section must be 
processed in accordance with the time frames set forth in Sec. Sec.  
116.210 through 116.290 of this chapter, provided that the period for 
review may be extended only if the OCC 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 OCC 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 subpart B of part 116 of this 
chapter. 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 subpart C of part 116 of this chapter. The 
public comment period is 30 calendar days after the date of publication 
of the initial public notice. However, if the OCC 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 OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (iv) The OCC will request the Attorney General to provide reports 
on the competitive impacts involved in the transaction.
    (v) The OCC 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.  163.22, certain 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 Federal savings association. The notice 
must allow affected accountholders at least 30 days to consider whether 
to retain their accounts in the transferring Federal savings 
association. The following savings associations must provide the 
notices:
    (i) A Federal 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 Federal savings association transferring account 
liabilities to a stock form depository institution.
    (f) Automatic approvals by the OCC. Applications filed pursuant to 
paragraph (a) of this section shall be deemed to be approved 
automatically by the OCC 30 calendar days after the OCC sends written 
notice to the applicant that the application is complete, unless:
    (1) The acquiring Federal savings association does not meet the 
criteria for expedited treatment under Sec.  116.5 of this chapter;
    (2) The OCC recommends the imposition of non-standard conditions 
prior to approving the application;
    (3) The OCC suspends the applicable processing time frames under 
Sec.  116.190 of this chapter;
    (4) The OCC raises objections to the transaction;
    (5) The resulting Federal 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 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 Federal 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 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 Federal savings association would be one of the 2 
largest

[[Page 49050]]

depository institutions competing in the relevant geographic area where 
before the transaction there were 12 or more depository institutions, 
the resulting 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 caused by the transaction would be 50 or more;
    (9) In a transaction involving potential competition, the OCC 
determines that the acquiring Federal savings association is one of 
three or fewer potential entrants into the relevant geographic area;
    (10) The acquiring Federal savings association has assets of $1 
billion or more and proposes to acquire assets of $1 billion or more;
    (11) The Federal savings association that will be the resulting 
savings association in the transaction has a composite Community 
Reinvestment Act rating of less than satisfactory and the deficiencies 
have not been resolved to the satisfaction of the OCC;
    (12) The transaction involves any supervisory or assistance 
agreement with the OCC, Office of Thrift Supervision, the Resolution 
Trust Corporation, or the Federal Deposit Insurance Corporation;
    (13) The transaction is part of a conversion under part 192 of this 
chapter;
    (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 section shall have the 
same meaning as set forth in Sec.  152.13(b) of this chapter.
    (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 OCC may consider commuting patterns, newspaper and other 
advertising activities, or other factors as the OCC deems relevant.
    (h) Special requirements and procedures for transactions under 
paragraphs (b) and (c) of this section--(1) Certain transactions with 
no surviving Federal savings association. (i) The OCC must be notified 
of any transaction under paragraph (b)(1) of this section. Such 
notification must be submitted to the OCC 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 OCC 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 Federal savings association submitting the 
notification maintains a liquidation account established pursuant to 
part 192 of this chapter, 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 OCC's receipt 
of the notification, a new notification must be submitted to the OCC.
    (2) Other transfer transactions--(i) Expedited treatment. A notice 
in conformity with Sec.  116.25(a) of this chapter may be submitted to 
the OCC under Sec.  116.40 of this chapter for any transaction under 
paragraph (c) of this section, provided all constituent Federal savings 
associations meet the conditions for expedited treatment under Sec.  
116.5 of this chapter. Notices submitted under this paragraph must be 
deemed approved automatically by the OCC 30 days after receipt, unless 
the OCC advises the applicant in writing prior to the expiration of 
such period that the proposed transaction may not be consummated 
without the OCC'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.  
116.25(b) of this chapter and paragraph (d) of this section must be 
submitted to the OCC under Sec.  116.40 by each Federal savings 
association participating in a transaction under paragraph (b)(2) or 
(c) of this section, where any constituent savings association does not 
meet the conditions for expedited treatment under Sec.  116.5 of this 
chapter. Applications under this paragraph must be processed in 
accordance with the procedures in part 116, subparts A and E of this 
chapter.


Sec.  163.27  Advertising.

    No Federal 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.  163.33  Directors, officers, and employees.

    (a) Directors--(1) Requirements. The composition of the board of 
directors of a Federal 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 savings association or of any subsidiary 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.  163.36  Tying restriction exception.

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


Sec.  163.39  Employment contracts.

    (a) General. A Federal 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 an 
association's board of directors. An 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

[[Page 49051]]

an employment contract would be an unsafe or unsound practice if such 
contract could lead to material financial loss or damage to the 
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 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 Federal savings association's board of directors may 
terminate the officer or employee's employment at any time, but any 
termination by the 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 association's 
affairs by a notice served under section 8(e)(3) or (g)(1) of the 
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)), the 
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 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 (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 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 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 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 
Comptroller or his or her designee.
    (5) All obligations under the contract shall be terminated, except 
to the extent determined that continuation of the contract is necessary 
for the continued operation of the association;
    (i) By the Comptroller, or his or her designee, at the time the 
Federal Deposit Insurance Corporation enters into an agreement to 
provide assistance to or on behalf of the association under the 
authority contained in 13(c) of the Federal Deposit Insurance Act; or
    (ii)(A) By the Comptroller or his or her designee, at the time the 
Comptroller, or his or her designee approves a supervisory merger to 
resolve problems related to operation of the association or when the 
association is determined by the Comptroller to be in an unsafe or 
unsound condition.
    (B) Any rights of the parties that have already vested, however, 
shall not be affected by such action.


Sec.  163.41  Transactions with affiliates.

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


Sec.  163.43  Loans by savings associations to their executive 
officers, directors and principal shareholders.

    For applicable rules, see Regulation O of the Board of Governors of 
the Federal Reserve System.


Sec.  163.47  Pension plans.

    (a) General. No Federal savings association or service corporation 
thereof 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 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 OCC at least 60 days prior to the 
proposed termination date.
    (e) Records. Each Federal savings association or service 
corporation 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.

Subpart C--Securities and Borrowings


Sec.  163.74  Mutual capital certificates.

    (a) General. No savings association that is in the mutual form 
shall issue mutual capital certificates pursuant to this section or 
amend the terms of such certificates unless it has obtained written 
approval of the appropriate

[[Page 49052]]

Federal banking agency. No approval shall be granted unless the 
proposed issuance of the mutual capital certificates and the form and 
manner of filing of the application are in accordance with the 
provisions of this section.
    (b) Eligibility Requirements. The appropriate Federal banking 
agency will consider and process an application for approval of the 
issuance of mutual capital certificates pursuant to this section only 
if the issuance is authorized by applicable law and regulation and is 
not inconsistent with any provision of the applicant's charter, 
constitution or bylaws.
    (c) Application form; supporting information. An application for 
approval of the issuance of mutual capital certificates pursuant to 
this section shall be in the form prescribed by the appropriate Federal 
banking agency. Such application and instructions may be obtained from 
the appropriate Federal banking agency. Information and exhibits shall 
be furnished in support of the application in accordance with such 
instructions, setting forth all of the terms and provisions relating to 
the proposed issue and showing that all of the requirements of this 
section have been or will be met.
    (d) Charter amendment. No application for approval of the issuance 
of mutual capital certificates pursuant to this section may be filed 
unless the amendment to the mutual association's charter, constitution 
or bylaws or other actions conferring such authority shall have been 
approved pursuant to the procedures and requirements set forth in the 
mutual association's charter, constitution or bylaws, or as may 
otherwise be required by applicable law.
    (e) Filing requirements. The application for issuance of mutual 
capital certificates shall be publicly filed with the appropriate 
Federal banking agency.
    (f) Supervisory objection. No application or approval of the 
issuance of mutual capital certificates pursuant to this section shall 
be approved if, in the opinion of the appropriate Federal banking 
agency, the policies, condition, or operation of the applicant afford a 
basis for supervisory objection to the application.
    (g) Limitation on offering period. Following the date of the 
approval of the application by the appropriate Federal banking agency, 
the association shall have an offering period of not more than one year 
in which to complete the sale of the mutual capital certificates issued 
pursuant to this section. The appropriate Federal banking agency may in 
its discretion extend such offering period if a written request showing 
good cause for such extension is filed with it not later than 30 days 
before the expiration of such offering period or any extension thereof.
    (h) Reports. Within 30 days after completion of the sale of mutual 
capital certificates issued pursuant to this section, the association 
shall transmit to the appropriate Federal banking agency a written 
report stating the total dollar amount of securities sold, and the 
amount of net proceeds received by the association, and within 90 days 
it shall transmit a written report stating the number of purchasers.
    (i) Requirements as to mutual capital certificates--(1) Form of 
certificate. Each mutual capital certificate and any governing 
agreement evidencing a mutual capital certificate issued by an 
association pursuant to this section:
    (i) Shall bear on its face, in bold-face type, the following 
legend: ``This security is not a savings account or a deposit and it is 
not insured by the United States or any agency or fund of the United 
States''; and
    (ii) Shall clearly state that the certificate is subject to the 
requirements of Sec.  163.74(i)(2).
    (2) Legal requirements. Mutual capital certificates issued pursuant 
to this section shall:
    (i) Be subordinate to all claims against the association having the 
same priority as savings accounts, savings certificates, debt 
obligations or any higher priority;
    (ii) Not be eligible for use as collateral for any loan made by the 
issuing association;
    (iii) Constitute a claim in liquidation not exceeding the face 
value plus accrued dividends of the certificates, on the general 
reserves, surplus and undivided profits of the association remaining 
after the payment in full of all savings accounts, savings certificates 
and debt obligations;
    (iv) Be entitled to the payment of dividends, which may be fixed, 
variable, participating, or cumulative, or any combination thereof, 
only if, when and as declared by the association's board of directors 
out of funds legally available for that purpose, provided that no 
dividend may be declared or paid without the approval of the 
appropriate Federal banking agency if such payment would cause the 
association to fail to meet its regulatory capital requirements under 
part 167 of this chapter if a Federal savings association or 12 CFR 
part 390, subpart Z if a state savings association, and provided 
further that no dividend may be paid if such payment would constitute a 
violation of 12 U.S.C. 1828(b);
    (v) Not be redeemable, except: where the dollar weighted average 
term of each issue of mutual capital certificates to be redeemed is 
seven years or more and redemption is to be made pursuant to a 
redemption schedule; in the event of a merger, consolidation or 
reorganization approved by the appropriate Federal banking agency; or 
where the funds for redemption are raised by the issuance of mutual 
capital certificates approved pursuant to this section, or in 
conjunction with the issuance of capital stock pursuant to part 192 of 
this chapter: Provided, that mandatory redemption shall not be 
required; that mutual capital certificates shall not be redeemable on 
the demand or at the option of the holder; and that mutual capital 
certificates shall not receive, benefit from, be credited with or 
otherwise be entitled to or due payments in or for redemption if such 
payments would cause the association to fail to meet its regulatory 
capital requirements under part 167 of this chapter if a Federal 
savings association or 12 CFR part 390, subpart Z if a state savings 
association; And Provided further, for the purposes of this paragraph 
(i)(2)(v), the ``dollar weighted average term'' of an issue of mutual 
capital certificates shall be the sum of the products calculated for 
each year that the mutual capital certificates in the issue have been 
redeemed or are scheduled to be redeemed. Each product shall be 
calculated by multiplying the number of years of each mutual capital 
certificate of a given term by a fraction, the numerator of which shall 
be the total dollar amount of each mutual capital certificate in the 
issue with the same term and the denominator of which shall be the 
total dollar amount of mutual capital certificates in the entire issue;
    (vi) Not have preemptive rights;
    (vii) Not have voting rights, except that an association may 
provide for voting rights if:
    (A) The savings association fails to pay dividends for a minimum of 
three consecutive dividend periods, and then the holders of the class 
or classes of mutual capital certificates granted such voting rights, 
and voting as a single class, with one vote for each outstanding 
certificate, may elect by a majority vote a maximum of one-third of the 
association's board of directors, the directors so elected to serve 
until the next annual meeting of the association succeeding the payment 
of all current and past dividends;
    (B) Any merger, consolidation, or reorganization (except in a 
supervisory case) is sought to be authorized, where the issuing 
association is not the

[[Page 49053]]

survivor, provided that the regulatory capital of the resulting 
association available for payment of any class of mutual capital 
certificate on liquidation is less than the regulatory capital 
available for such class prior to the merger, consolidation, or 
reorganization;
    (C) Action is sought to be authorized which would create any class 
of mutual capital certificates having a preference or priority over an 
outstanding class or classes of mutual capital certificates;
    (D) Any action is sought to be authorized which would adversely 
change the specific terms of any class of mutual capital certificates;
    (E) Action is sought to be authorized which would increase the 
number of a class of mutual capital certificates, or the number of a 
class of mutual capital certificates ranking prior to or on parity with 
another class of mutual capital certificates; or
    (F) Action is sought which would authorize the issuance of an 
additional class or classes of mutual capital certificates without the 
association having met specific financial standards;
    (viii) Not constitute an obligation of the association and shall 
confer no rights which would give rise to any claim of or action for 
default;
    (ix) Not be convertible into any account, security, or interest, 
except that mutual capital certificates may be surrendered in exchange 
for preferred stock issued in connection with the conversion of the 
issuing savings association to the stock form pursuant to part 192 of 
this chapter, provided that the preferred stock shall have 
substantially the same voting rights, designations, preferences and 
relative, participating optional, or other special rights, and 
qualifications, limitations, and restrictions, as the mutual capital 
certificates exchanged for the preferred stock.
    (x) Provide for charging of losses after the exhaustion of all 
other items in the regulatory capital account.


Sec.  163.76  Offers and sales of securities at an office of a Federal 
savings association.

    (a) A Federal saving association may not offer or sell debt or 
equity securities issued by the association or an affiliate of the 
association at an office of the association; except that equity 
securities issued by the association or an affiliate in connection with 
the association's conversion from the mutual to stock form of 
organization in a conversion approved pursuant to part 192 of this 
chapter may be offered and sold at the association's offices: Provided, 
That:
    (1) The OCC does not object on supervisory grounds to the offer and 
sale of the securities at the offices of the association;
    (2) No commissions, bonuses, or comparable payments are paid to any 
employee of the savings association or its affiliates or to any other 
person in connection with the sale of securities at an office of a 
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 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 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 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
    (8) The 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 
Federal savings associations shall be subject to Sec.  197.10 of this 
chapter.
    (c) Offers and sales of securities of a savings association or its 
affiliates in any office of the 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 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 
Office of the Comptroller of the Currency].
    I further certify that, before purchasing the [description of 
security being offered] of [name of issuer, name of 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 an association 
means any premises used by the association that are identified to the 
public through advertising or signage using the association's name, 
trade name, or logo.


Sec.  163.80   Borrowing limitations.

    (a) General. Except as the appropriate Federal banking agency 
otherwise may permit by advice in writing, a savings association may 
borrow only in accordance with the provisions of this section.
    (b) Amount of borrowing. A savings association may borrow up to the 
amount authorized by the laws under which the savings association 
operates.
    (c) Security. An association may give security for borrowings 
subject to any requirements imposed by the appropriate Federal banking 
agency or the FDIC regarding notice of default on borrowings and any 
FDIC right of first refusal to purchase collateral.
    (d) Required statement for all securities evidencing outside 
borrowings. Each security shall bear on its face, in a prominent place, 
the following legend:
    This security is not a savings account or a deposit and it is not 
insured by the United States or any agency or fund of the United 
States.
    (e) Filing requirements for outside borrowings with maturities in 
excess of one year. (1) Unless the savings association meets its 
capital requirement under part 167 of this chapter if a Federal savings 
association or 12 CFR part 390, subpart Z if a state savings 
association, it shall, at least ten business days prior to issuance, 
file a notice of intent to issue securities evidencing such borrowings 
with the

[[Page 49054]]

appropriate OCC licensing office if a Federal savings association, or 
with the appropriate regional director of the FDIC if a state savings 
association. Such notice shall contain a summary of the items of the 
security, including:
    (i) Principal amount of the securities;
    (ii) Anticipated interest rate range and price range at which the 
securities are to be sold;
    (iii) Minimum denomination;
    (iv) Stated and average effective maturity;
    (v) Mandatory and optional prepayment provisions;
    (vi) Description, amount, and maintenance of collateral if any;
    (vii) Trustee provisions if any;
    (viii) Events of default and remedies of default;
    (ix) Any provisions which restrict, conditionally or otherwise, the 
operations of the association.
    (2) The appropriate Federal banking agency shall have 10 business 
days after receipt of such filing to object to the issuance of such 
securities. The appropriate Federal banking agency shall object if the 
terms or covenants of the proposed issue place unreasonable burdens on, 
or control over, the operations of the association. If no objection is 
taken, the savings association shall have 120 calendar days within 
which to issue such securities.
    (f) Note accounts. For purposes of this section, note accounts are 
not borrowings.


Sec.  163.81   Inclusion of subordinated debt securities and 
mandatorily redeemable preferred stock as supplementary capital.

    (a) Scope. A Federal 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 part 167 of this chapter. If a 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 Federal savings 
association must file an application or notice under 12 CFR part 116, 
subpart A seeking the OCC's approval of, or non-objection to, the 
inclusion of covered securities in supplementary capital. The 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 OCC approves the application or does 
not object to the notice.
    (2) A savings association must also comply with the securities 
offering rules at 12 CFR part 197 by filing an offering circular for a 
proposed issuance of covered securities, unless the offering qualifies 
for an exemption under that part.
    (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 savings 
association that have the same priority as savings accounts or a higher 
priority;
    (C) State that the security is not secured by the savings 
association's assets or the assets of any affiliate of the savings 
association. An affiliate means any person or company which controls, 
is controlled by, or is under common control with the savings 
association;
    (D) State that the security is not eligible collateral for a loan 
by the 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 savings association may prepay the 
obligation; and
    (G) State or refer to a document stating that the savings 
association must obtain OCC's approval before the voluntary 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 savings association is 
undercapitalized, significantly undercapitalized, or critically 
undercapitalized as described in Sec.  165.4(b) of this chapter, fails 
to meet the regulatory capital requirements at 12 CFR part 167, or 
would fail to meet any of these standards following the payment.
    (ii) A Federal savings association must include such additional 
statements as the OCC 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 Federal 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 Federal 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 12 CFR 197.4) 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 
savings association or an affiliate of the savings association (as 
defined in subsection (c)(1)(i)(C) of this section) and for collective 
enforcement of the security holders' rights and remedies.
    (ii) A Federal 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 
savings association must have an indenture that meets the requirements 
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 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) Review by the OCC. (1) The OCC will review notices and 
applications under 12 CFR part 116, subpart E.
    (2) In reviewing notices and applications under this section, the 
OCC will consider whether:
    (i) The issuance of the covered securities is authorized under

[[Page 49055]]

applicable laws and regulations and is consistent with the savings 
association's charter and bylaws.
    (ii) The savings association is at least adequately capitalized 
under Sec.  165.4(b) of this chapter and meets the regulatory capital 
requirements at part 167 of this chapter.
    (iii) The 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 OCC has no objection to the issuance based on the savings 
association's overall policies, condition, and operations.
    (3) The OCC's approval or non-objection is conditioned upon no 
material changes to the information disclosed in the application or 
notice submitted to the OCC. The OCC may impose such additional 
requirements or conditions as it may deem necessary to protect 
purchasers, the savings association, the OCC, or the Deposit Insurance 
Fund.
    (e) Amendments. If a Federal savings association amends the covered 
securities or related documents following the completion of the OCC's 
review, it must obtain the OCC's approval or non-objection under this 
section before it may include the amended securities in supplementary 
capital.
    (f) Sale of covered securities. The Federal savings association 
must complete the sale of covered securities within one year after the 
OCC's approval or non-objection under this section. A savings 
association may request an extension of the offering period by filing a 
written request with the OCC. The 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 Federal savings association must file the following 
information with the OCC within 30 days after the savings association 
completes the sale of covered securities includable as supplementary 
capital. If the 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 
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 savings association complied with all applicable laws and 
regulations in connection with the offering, issuance, and sale of the 
securities.

Subpart D--[Reserved]

Subpart E--Capital Distributions


Sec.  163.140   What does this subpart cover?

    This subpart applies to all capital distributions by a Federal 
savings association (``you'').


Sec.  163.141   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 Federal mutual 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 OCC 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 part 167 of this chapter, 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 association or to shareholders of its holding company to 
acquire ownership in that 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.  165.4(b)(1) of 
this chapter, following the distribution; and
    (e) Any transaction that the OCC determines, by order or 
regulation, to be in substance a distribution of capital.


Sec.  163.142   What other definitions apply to this subpart?

    The following definitions apply to this subpart:
    Affiliate means an affiliate, as defined under Sec.  563.41(b) 
until superseded by regulations of the Board of Governors of the 
Federal Reserve System regarding transactions with affiliates.
    Capital means total capital, as computed under part 167 of this 
chapter.
    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.  163.143  Must I file with the OCC?

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

------------------------------------------------------------------------
                  If:                               Then you:
------------------------------------------------------------------------
(1) You are not eligible for expedited   Must file an application with
 treatment under Sec.   116.5 of this     the OCC.
 chapter.
(2) The total amount of all of your      Must file an application with
 capital distributions (including the     the OCC.
 proposed 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            Must file an application with
 adequately capitalized, as set forth     the OCC.
 in Sec.   165.4(b)(2) of this chapter,
 following the distribution.

[[Page 49056]]

 
(4) Your proposed capital distribution   Must file an application with
 would violate a prohibition contained    the OCC.
 in any applicable statute, regulation,
 or agreement between you and the OCC
 or the OTS, or violate a condition
 imposed on you in an application or
 notice approved by the OCC or the OTS.
------------------------------------------------------------------------

    (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,   Must file a notice with the
 as set forth under Sec.   165.4(b)(1),   OCC.
 following the distribution.
(2) Your proposed capital distribution   Must file a notice with the
 would reduce the amount of or retire     OCC.
 any part of your common or preferred
 stock or retire any part of debt
 instruments such as notes or
 debentures included in capital under
 part 167 of this chapter (other than
 regular payments required under a debt
 instrument approved under Sec.
 163.81).
(3) You are a subsidiary of a savings    Except as provided in (d), you
 and loan holding company,.               must file a notice with the
                                          OCC.
------------------------------------------------------------------------

    (c) No prior notice required.

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

    (d) Informational copy of notice required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
If you are a subsidiary of a stock       Then you do not file a notice
 savings and loan holding company that    under (b)(3) but you must
 is filing a notice with the Board of     provide an informational copy
 Governors of the Federal Reserve         to the OCC of the notice filed
 System (Board) for a cash divided        with the Board, at the same
 pursuant to 12 U.S.C. 1467a(f) and       time it is filed with the
 neither an application under (a), nor    Board.
 a notice under (b)(1) or (b)(2) is
 required,
------------------------------------------------------------------------

Sec.  163.144  How do I file with the OCC?

    (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.  163.146.
    (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.  163.145  May I combine my notice or application with other 
notices or applications?

    You may combine the notice or application required under Sec.  
163.143 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 this chapter. 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 this subpart; and
    (b) Submit the notice or application in a timely manner.


Sec.  163.146  Will the OCC permit my capital distribution?

    The OCC will review your notice or application under the review 
procedures in 12 CFR part 116, subpart E, except that the OCC will not 
act on informational copies of the notice submitted to the OCC pursuant 
to Sec.  163.143(d). The OCC may disapprove your notice or deny your 
application filed under Sec.  163.143, in whole or in part, if it makes 
any of the following determinations.
    (a) You will be undercapitalized, significantly undercapitalized, 
or critically undercapitalized as set forth in Sec.  165.4(b) of this 
chapter, following the capital distribution. If so, the OCC 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 OCC 
or the OTS, or a condition imposed on you in an application or notice 
approved by the OCC or the OTS. If so, the OCC will determine whether 
it may permit your capital distribution notwithstanding the prohibition 
or condition.

Subpart F--Financial Management Policies


Sec.  163.161  Management and financial policies.

    (a)(1) For the protection of depositors and other savings 
associations, each Federal savings association and each service 
corporation 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 savings associations. In 
implementing this section, the OCC will consider that service 
corporations may be authorized to engage in activities that involve a

[[Page 49057]]

higher degree of risk than activities permitted to savings 
associations.
    (2) As part of meeting its requirements under paragraph (a)(1) of 
this section, each Federal savings association and service corporation 
must maintain sufficient liquidity to ensure its safe and sound 
operation.
    (b) Compensation to officers, directors, and employees of each 
Federal savings association and its service corporations shall not be 
in excess of that which is reasonable and commensurate with their 
duties and responsibilities. Former officers, directors, and employees 
of savings association or its service corporation who regularly perform 
services therefore under consulting contracts are employees thereof for 
purposes of this paragraph (b).


Sec.  163.170  Examinations and audits; appraisals; establishment and 
maintenance of records.

    (a) Examinations and audits. Each Federal savings association and 
affiliate thereof shall be examined periodically, and may be examined 
at any time, by the OCC, with appraisals when deemed advisable, in 
accordance with general policies from time to time established by the 
OCC. The costs, as computed by the OCC, of any examinations made by it, 
including office analysis, overhead, per diem, travel expense, other 
supervision by the OCC, and other indirect costs, shall be paid by the 
savings associations examined, except that in the case of service 
corporations of Federal savings associations the cost of examinations, 
as determined by the OCC, shall be paid by the service corporations. 
Payments shall be made in accordance with a schedule of annual 
assessments based upon each savings association's total assets and of 
rates for examiner time in amounts determined by the OCC.
    (b) Appraisals. (1) Unless otherwise ordered by the OCC, appraisal 
of real estate by the OCC in connection with any examination or audit 
of a savings association, affiliate, or service corporation shall be 
made by an appraiser, or by appraisers, selected by the OCC. The cost 
of such appraisal shall promptly be paid by such savings association, 
affiliate, or service corporation direct to such appraiser or 
appraisers upon receipt by the savings association, affiliate, or 
service corporation of a statement of such cost as approved by the OCC. 
A copy of the report of each appraisal made by the OCC pursuant to any 
of the foregoing provisions of this section shall be furnished to the 
savings association, affiliate, or service corporation, 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 OCC.
    (2) The OCC may obtain at any time, at its expense, such appraisals 
of any of the assets, including the security therefore, of a savings 
association, affiliate, or service corporation as the OCC deems 
appropriate.
    (c) Establishment and maintenance of records. To enable the OCC to 
examine Federal savings associations and affiliates and audit savings 
associations, affiliates, and service corporations pursuant to the 
provisions of paragraph (a) of this section, each savings association, 
affiliate, and service corporation 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 savings association, 
affiliate, or service corporation 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 Federal 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 OCC.
    (e) Use of data processing services for maintenance of records. A 
Federal savings association which determines to maintain any of its 
records by means of data processing services shall so notify the OCC 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 savings association 
pursuant to which data processing services are to be performed for such 
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.  163.171  [Reserved]


Sec.  163.172  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) If you are a Federal savings association, you may engage in a 
transaction involving a financial derivative if you are authorized to 
invest in the assets underlying the financial derivative, the 
transaction is safe and sound, and you otherwise meet the requirements 
in this section.
    (2) [Reserved]
    (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 applicable guidance issued by the OCC 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 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

[[Page 49058]]

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 applicable 
guidance issued by the OCC 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.  163.176  Interest-rate-risk-management procedures.

    Federal savings associations shall take the following actions:
    (a) The board of directors or a committee thereof shall review the 
savings association's interest-rate-risk exposure and devise a policy 
for the savings association's management of that risk.
    (b) The board of directors shall formally adopt a policy for the 
management of interest-rate risk. The management of the savings 
association shall establish guidelines and procedures to ensure that 
the board's policy is successfully implemented.
    (c) The management of the savings association shall periodically 
report to the board of directors regarding implementation of the 
savings association's policy for interest-rate-risk management and 
shall make that information available upon request to the OCC.
    (d) The 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.  163.177  Procedures for monitoring Bank Secrecy Act (BSA) 
compliance.

    (a) Purpose. The purpose of this regulation is to require savings 
associations (as defined by Sec.  161.43 of this chapter) 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 
Chapter X.
    (b) Establishment of a BSA compliance program--(1) Program 
requirement. Each 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 Chapter X. The compliance program must be written, 
approved by the savings association's board of directors, and reflected 
in the minutes of the savings association.
    (2) Customer identification program. Each savings association is 
subject to the requirements of 31 U.S.C. 5318(l) and the implementing 
regulation jointly promulgated by the OCC and the Department of the 
Treasury at 31 CFR 1020.220, 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.

Subpart G--Reporting and Bonding


Sec.  163.180  Suspicious Activity Reports and other reports and 
statements.

    (a) Periodic reports. Each savings association and service 
corporation thereof shall make such periodic or other reports of its 
affairs in such manner and on such forms as the appropriate Federal 
banking agency may prescribe. The appropriate Federal banking agency 
may provide that reports filed by savings associations or service 
corporations to meet the requirements of other regulations also satisfy 
requirements imposed under this section.
    (b) False or misleading statements or omissions. No savings 
association or director, officer, agent, employee, affiliated person, 
or other person participating in the conduct of the affairs of such 
association nor any person filing or seeking approval of any 
application shall knowingly:
    (1) Make any written or oral statement to the appropriate Federal 
banking agency or to an agent, representative or employee of the 
appropriate Federal banking agency 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 appropriate 
Federal banking agency or
    (2) Make any such statement or omission to a person or organization 
auditing a 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 
association.
    (c) Notifications of loss and reports of increase in deductible 
amount of bond. A savings association maintaining bond coverage as 
required by Sec.  163.190 of this part 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 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.
    (3) SARs required. A savings association or service corporation 
shall file a SAR with the appropriate Federal law enforcement agencies 
and the Department of the Treasury on the form prescribed by the 
appropriate Federal banking agency and 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 savings 
association or service corporation detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, 
committed or attempted against the savings association or service 
corporation or involving a transaction or transactions conducted 
through the savings association or service corporation, where the 
savings

[[Page 49059]]

association or service corporation 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 savings association or service corporation 
detects any known or suspected Federal criminal violation, or pattern 
of criminal violations, committed or attempted against the savings 
association or service corporation or involving a transaction or 
transactions conducted through the savings association or service 
corporation and involving or aggregating $5,000 or more in funds or 
other assets, where the savings association or service corporation 
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 savings association or service 
corporation detects any known or suspected Federal criminal violation, 
or pattern of criminal violations, committed or attempted against the 
savings association or service corporation or involving a transaction 
or transactions conducted through the savings association or service 
corporation and involving or aggregating $25,000 or more in funds or 
other assets, where the savings association or service corporation 
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 savings association or service corporation and involving 
or aggregating $5,000 or more in funds or other assets, if the savings 
association or service corporation 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) Service corporations. When a service corporation is required to 
file a SAR under paragraph (d)(3) of this section, either the service 
corporation or a savings association that wholly or partially owns the 
service corporation may file the SAR.
    (5) Time for reporting. A savings association or service 
corporation 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 savings association 
or service corporation 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 savings association or service corporation shall 
immediately notify, by telephone, an appropriate law enforcement 
authority and the appropriate Federal banking agency in addition to 
filing a timely SAR.
    (6) Reports to state and local authorities. A savings association 
or service corporation is encouraged to file a copy of the SAR with 
state and local law enforcement agencies where appropriate.
    (7) Exception. A savings association or service corporation 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 savings association or service 
corporation 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 savings 
association or service corporation as such, and shall be deemed to have 
been filed with the SAR. A savings association or service corporation 
shall make all supporting documentation available to appropriate law 
enforcement agencies upon request. A savings association or service 
corporation shall make all supporting documentation available to the 
appropriate Federal banking agency, FinCEN, or any Federal, state, or 
local law enforcement agency, or any Federal regulatory authority that 
examines the savings association or service corporation for compliance 
with the Bank Secrecy Act, or any state regulatory authority 
administering a state law that requires the savings association or 
service corporation to comply with the Bank Secrecy Act or otherwise 
authorizes the state authority to ensure that the institution complies 
with the Bank Secrecy Act, upon request.
    (9) Notification to board of directors--(i) Generally. Whenever a 
savings association (or a service corporation in which the savings 
association has an ownership interest) files a SAR pursuant to this 
paragraph (d), the management of the savings association or service 
corporation 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 savings 
association or service corporation files a SAR pursuant to this 
paragraph (d) and the suspect is a director or executive officer, the 
savings association or service corporation may not notify the suspect, 
pursuant to 31 U.S.C. 5318(g)(2), but

[[Page 49060]]

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 savings association or 
service corporation, its directors, officers, employees, agents, or 
other institution-affiliated parties to supervisory action.
    (11) Obtaining SARs. A savings association or service corporation 
may obtain SARs and the instructions from the appropriate Federal 
banking agency.
    (12) Confidentiality of SARs. A SAR, and any information that would 
reveal the existence of a SAR, are confidential, and shall not be 
disclosed except as authorized in this paragraph (d)(12).
    (i) Prohibition on disclosure by savings associations or service 
corporations. (A) General rule. No savings association or service 
corporation, and no director, officer, employee, or agent of a savings 
association or service corporation, shall disclose a SAR or any 
information that would reveal the existence of a SAR. Any savings 
association or service corporation, and any director, officer, 
employee, or agent of any savings association or service corporation 
that is subpoenaed or otherwise requested to disclose a SAR, or any 
information that would reveal the existence of a SAR, shall decline to 
produce the SAR or such information, citing this section and 31 U.S.C. 
5318(g)(2)(A)(i), and shall notify the following of any such request 
and the response thereto:
    (A) Director, Litigation Division, Office of the Comptroller of the 
Currency or the appropriate FDIC region, as appropriate and
    (B) The Financial Crimes Enforcement Network (FinCEN).
    (ii) Rules of construction. Provided that no person involved in any 
reported suspicious transaction is notified that the transaction has 
been reported, paragraph (d)(1) of this section shall not be construed 
as prohibiting:
    (A) The disclosure by a savings association or service corporation, 
or any director, officer, employee or agent of a savings association or 
service corporation of:
    (1) A SAR, or any information that would reveal the existence of a 
SAR, to FinCEN or the appropriate Federal banking agency or any 
Federal, state, or local law enforcement agency; or any Federal 
regulatory authority that examines the savings association or service 
corporation for compliance with the Bank Secrecy Act, or any state 
regulatory authority administering a state law that requires compliance 
with the Bank Secrecy Act or otherwise authorizes the state authority 
to ensure that the institution complies with the Bank Secrecy Act; or
    (2) The underlying facts, transactions, and documents upon which a 
SAR is based, including, but not limited to, disclosures:
    (i) To another financial institution, or any director, officer, 
employee or agent of a financial institution, for the preparation of a 
joint SAR; or
    (ii) In connection with certain employment references or 
termination notices, to the full extent authorized in 31 U.S.C. 
5318(g)(2)(B); or
    (B) The sharing by a savings association or service corporation, or 
any director, officer, employee, or agent of a savings association or 
service corporation, of a SAR, or any information that would reveal the 
existence of a SAR, within the corporate organizational structure of 
the savings association or service corporation, for purposes consistent 
with Title II of the Bank Secrecy Act as determined by regulation or in 
guidance.
    (iii) Prohibition on disclosure by the appropriate Federal banking 
agency. The appropriate Federal banking agency will not, and no 
officer, employee or agent of appropriate Federal banking agency shall 
disclose a SAR, or any information that would reveal the existence of a 
SAR, except as necessary to fulfill official duties consistent with 
Title II of the Bank Secrecy Act. For purposes of this section, 
``official duties'' shall not include the disclosure of a SAR, or any 
information that would reveal the existence of a SAR, in response to a 
request for use in a private legal proceeding or in response to a 
request for disclosure of non-public information under 12 CFR 4.33 or 
12 CFR part 309, as appropriate.
    (iv) Limitation on liability. A savings association or service 
corporation and any director, officer, employee or agent of a savings 
association or service corporation that makes a voluntary disclosure of 
any possible violation of law or regulation to a government agency or 
makes a disclosure pursuant to this section or any other authority, 
including a disclosure made jointly with another institution, shall be 
protected from liability for any such disclosure, or for failure to 
provide notice of such disclosure to any person identified in the 
disclosure, or both, to the full extent provided by 31 U.S.C. 
5318(g)(3).
    (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 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 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 and Income, as appropriate, 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.  163.190  Bonds for directors, officers, employees, and agents; 
form of and amount of bonds.

    (a) Each Federal 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 savings association.
    (b) The amount of coverage to be required for each Federal 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 Federal 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 association's 
board of directors, additional coverage is warranted.
    (d) The board of directors of each Federal savings association 
shall formally approve the association's bond

[[Page 49061]]

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 association's bond coverage at least annually to assess the 
continuing adequacy of coverage.


Sec.  163.191  Bonds for agents.

    In lieu of the bond provided in Sec.  163.190 of this part in the 
case of agents appointed by a Federal 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 savings association at least monthly, and 
provided such bond is approved by the board of directors of the savings 
association. No bond need be obtained for any agent that is a financial 
institution insured by the Federal Deposit Insurance Corporation.


Sec.  163.200  Conflicts of interest.

    If you are a director, officer, or employee of a Federal savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a Federal 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 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.  163.201  Corporate opportunity.

    (a) If you are a director or officer of a Federal savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a Federal savings association, you 
must not take advantage of corporate opportunities belonging to the 
savings association.
    (b) A corporate opportunity belongs to a Federal savings 
association if:
    (1) The opportunity is within the corporate powers of the savings 
association or a subsidiary of the savings association; and
    (2) The opportunity is of present or potential practical advantage 
to the savings association, either directly or through its subsidiary.
    (c) The OCC will not deem you to have taken advantage of a 
corporate opportunity belonging to the Federal savings association if a 
disinterested and independent majority of the 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.

Subpart H--Notice of Change of Director or Senior Executive Officer


Sec.  163.550  What does this subpart do?

    This subpart implements 12 U.S.C. 1831i, which requires certain 
Federal savings associations to notify the OCC before appointing or 
employing directors and senior executive officers.


Sec.  163.555  What definitions apply to this subpart?

    The following definitions apply to this subpart:
    Director means an individual who serves on the board of directors 
of a Federal 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 OCC or the OTS 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 OCC or the OTS 
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 Federal savings association that has a composite rating of 4 
or 5, as composite rating is defined in Sec.  116.5(c) of this chapter;
    (2) A Federal 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 savings association, 
unless otherwise informed in writing by the OCC; or
    (3) A Federal savings association that is informed in writing by 
the OCC that it is in troubled condition based on information available 
to the OCC.


Sec.  163.560  Who must give prior notice?

    (a) Federal savings association. Except as provided under Sec.  
163.590, you must notify your OCC supervisory office 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 you are a Federal 
savings association and at least one of the following circumstances 
apply:
    (1) You do not comply with all minimum capital requirements under 
part 167 of this chapter;
    (2) Are in troubled condition; or
    (3) The OCC has notified you, in connection with its review of a 
capital restoration plan required under section 38 of the Federal 
Deposit Insurance Act or part 165 of this chapter or otherwise, that a 
notice is required under this subpart.
    (b) Notice by individual. If you are an individual seeking election 
to the board of directors of a Federal 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.  
163.590(b).


Sec.  163.565  What procedures govern the filing of my notice?

    The procedures found in part 116, subpart A of this chapter govern 
the filing of your notice under Sec.  163.560.


Sec.  163.570  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

[[Page 49062]]

Interagency Biographical and Financial Report which are available from 
the OCC;
    (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 OCC or the Office of Thrift Supervision 
under 12 U.S.C. 1831i; and
    (3) Such other information required by the OCC.
    (b) Modification of content requirements. The OCC may require or 
accept other information in place of the content requirements in 
paragraph (a) of this section.


Sec.  163.575  What procedures govern OCC review of my notice for 
completeness?

    The OCC will first review your notice to determine whether it is 
complete.
    (a) If your notice is complete, the OCC will notify you in writing 
of the date that the OCC received the complete notice.
    (b) If your notice is not complete, the OCC 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 OCC suspend processing of the notice. If you fail to act within the 
specified time period, the OCC may treat the notice as abandoned or may 
review the application based on the information provided.


Sec.  163.580  What standards and procedures will govern OCC review of 
the substance of my notice?

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


Sec.  163.585  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 OCC receives all required 
information, unless:
    (1) The OCC notifies you that it has disapproved the notice; or
    (2) The OCC extends the 30-day period for an additional period not 
to exceed 60 days. If the OCC 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 OCC notifies you that it has disapproved the notice during 
the extended period.
    (b) Notwithstanding paragraph (a) of this section, a proposed 
director or senior executive officer may begin service after the OCC 
notifies you, in writing, of its intention not to disapprove the 
notice.


Sec.  163.590  When will the OCC waive the prior notice requirement?

    (a) Waiver request. (1) An individual may serve as a director or 
senior executive officer before filing a notice under this subpart if 
the OCC issues a written finding that:
    (i) Delay would threaten the safety or soundness of the 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 OCC grants a waiver, you must file a notice under this 
subpart within the time period specified by the OCC.
    (b) Automatic waiver. An individual may serve as a director before 
filing a notice under this subpart, if the individual was not nominated 
by management and the individual submits a notice under this subpart 
within seven days after election as a director.
    (c) Subsequent OCC action. The OCC may disapprove a notice within 
30 days after the OCC 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.

PART 164--APPRAISALS

Sec.
164.1 Purpose, and scope.
164.2 Definitions.
164.3 Appraisals required; transactions requiring a state certified 
or licensed appraiser.
164.4 Minimum appraisal standards.
164.5 Appraiser independence.
164.6 Professional association membership; competency.
164.7 Enforcement.
164.8 Appraisal policies and practices of Federal savings 
associations and subsidiaries.


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828(m), 3331 et 
seq, 5412(b)(2)(B).


Sec.  164.1  Purpose and scope.

    (a) [Reserved]
    (b) Purpose and scope. (1) 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. 3331 et seq. 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 part implements the requirements 
of title XI and applies to all Federally related transactions entered 
into by institutions regulated by the OCC (``regulated institutions'').
    (2) This part: (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 OCC.


Sec.  164.2  Definitions.

    (a) 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.
    (b) Appraisal Foundation means the Appraisal Foundation established 
on November 30, 1987, as a not-for-profit corporation under the laws of 
Illinois.
    (c) Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institution Examination Council.
    (d) 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.
    (e) 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.
    (f) Federally related transaction means any real estate-related 
financial

[[Page 49063]]

transaction entered into on or after August 9, 1990, that:
    (1) Any regulated institution engages in or contracts for; and
    (2) Requires the services of an appraiser.
    (g) 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.
    (h) 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.
    (i) 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.
    (j) 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 OCC may, from time to time, 
impose additional qualification criteria for certified appraisers 
performing appraisals in connection with Federally related transactions 
within its jurisdiction.
    (k) 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 OCC may, from time to time, impose additional 
qualification criteria for licensed appraisers performing appraisals in 
connection with Federally related transactions within its jurisdiction.
    (l) Tract development means a project of five units or more that is 
constructed or is to be constructed as a single development.
    (m) Transaction value means:
    (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.  164.3  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 OCC 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 OCC 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), (a)(5) or (a)(7) of this section, the institution shall obtain 
an appropriate evaluation of real property collateral that is 
consistent with safe and sound banking practices.

[[Page 49064]]

    (c) Appraisals to address safety and soundness concerns. The OCC 
reserves the right to require an appraisal under this part 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.


Sec.  164.4  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 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 part; and
    (e) Be performed by state licensed or certified appraisers in 
accordance with requirements set forth in this part.


Sec.  164.5  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 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 part and is otherwise acceptable.


Sec.  164.6  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.  164.7  Enforcement.

    Institutions and institution-affiliated parties, including staff 
appraisers and fee appraisers, who violate this part 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.  164.8  Appraisal policies and practices of Federal savings 
associations and subsidiaries.

    (a) Introduction. The soundness of a Federal savings association's 
mortgage loans and real estate investments, and those of its service 
corporation(s), 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.  163.170 
of this chapter.
    (b) Definition. For purposes of this section, management means: the 
directors and officers of a Federal savings association, or service 
corporation of such savings association, as those terms are defined in 
Sec. Sec.  161.18 and 161.35 of this chapter 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 
Federal savings associations may rely to make

[[Page 49065]]

lending decisions. To achieve these results:
    (1) Management shall develop written appraisal policies, subject to 
formal adoption by the 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 part 164.
    (2) Management shall develop and adopt guidelines and institute 
procedures pertaining to the hiring of appraisers to perform appraisal 
services for the savings association consistent with the requirements 
of this part 164. 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 Sec.  164.6
    (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 savings association's appraisal policies and 
procedures; and (ii) the reasonableness of the value estimates 
reported.
    (d) Exemptions. The requirements of Sec.  164.4(b) through (d) 
shall not apply with respect to appraisals on nonresidential properties 
prepared on form reports approved by the OCC and completed in 
accordance with the applicable instructional booklet.

PART 165--PROMPT CORRECTIVE ACTION

Sec.
165.1 Authority, purpose, scope, other supervisory authority, and 
disclosure of capital categories.
165.2 Definitions.
165.3 Notice of capital category.
165.4 Capital measures and capital category definitions.
165.5 Capital restoration plans.
165.6 Mandatory and discretionary supervisory actions under section 
38.
165.7 Directives to take prompt corrective action.
165.8 Procedures for reclassifying a Federal savings association 
based on criteria other than capital.
165.9 Order to dismiss a director or senior executive officer.
165.10 Enforcement of directives.

    Authority: 12 U.S.C. 1831o, 5412(b)(2)(B).


Sec.  165.1  Authority, purpose, scope, other supervisory authority, 
and disclosure of capital categories.

    (a) Authority. This part is issued by the OCC pursuant to section 
38 (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 part is to 
define, for Federal 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 part 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 part implements the provisions of section 38 of the 
FDI Act as they apply to Federal savings associations. Certain of these 
provisions also apply to officers, directors and employees of Federal 
savings associations. Other provisions apply to any company that 
controls a Federal savings association and to the affiliates of a 
Federal savings association.
    (d) Other supervisory authority. Neither section 38 nor this part 
in any way limits the authority of the OCC 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 part may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the OCC, 
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 Federal 
savings association under this part within a particular capital 
category is for purposes of implementing and applying the provisions of 
section 38. Unless permitted by the OCC or otherwise required by law, 
no Federal savings association may state in any advertisement or 
promotional material its capital category under this subpart or that 
the OCC or any other Federal banking agency has assigned the Federal 
savings association to a particular category.


Sec.  165.2  Definitions.

    For purposes of this part, except as modified in this section or 
unless the context otherwise requires, the terms used in this part 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 part 167 of this 
chapter.
    (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 Federal 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 Federal savings association.
    (e) Risk-weighted assets means total risk-weighted assets, as 
calculated in accordance with part 167 of this chapter.
    (f) Tangible equity means the amount of a Federal savings 
association's core capital as computed in part 167 of this chapter plus 
the amount of its outstanding cumulative perpetual preferred stock 
(including related surplus), minus intangible assets as

[[Page 49066]]

defined in Sec.  167.1 of this chapter, except mortgage servicing 
assets to the extent they are includable under Sec.  167.12. 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 
part 167 of this chapter.
    (h) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk-weighted assets, as calculated in accordance with part 
167 of this chapter.
    (i) Total assets, for purposes of Sec.  165.4(b)(5), means adjusted 
total assets as calculated in accordance with part 167 of this chapter, 
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 part 167 of 
this chapter.


Sec.  165.3  Notice of capital category.

    (a) Effective date of determination of capital category. A Federal 
savings association shall be deemed to be within a given capital 
category for purposes of section 38 of the FDI Act and this part as of 
the date the 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 Federal 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 Consolidated Report of Condition (Call Report) or Thrift 
Financial Report (TFR), as appropriate, is required to be filed with 
the OCC;
    (2) A final report of examination is delivered to the savings 
association; or
    (3) Written notice is provided by the OCC to the savings 
association of its capital category for purposes of section 38 of the 
FDI Act and this part or that the savings association's capital 
category has changed as provided in paragraph (c) of this section or 
Sec.  165.4(c).
    (c) Adjustments to reported capital levels and category--(1) Notice 
of adjustment by Federal savings association. A Federal savings 
association shall provide the OCC with written notice that an 
adjustment to the 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 savings association to 
be placed in a lower capital category from the category assigned to the 
savings association for purposes of section 38 and this part on the 
basis of the savings association's most recent Call Report or TFR, as 
appropriate, or report of examination.
    (2) Determination by the OCC to change capital category. After 
receiving notice pursuant to paragraph (c)(1) of this section, the OCC 
shall determine whether to change the capital category of the Federal 
savings association and shall notify the savings association of the OCC 
determination.


Sec.  165.4  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this part, 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 part, a 
Federal savings association shall be deemed to be:
    (1) Well capitalized if the 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 the OCC or 
OTS 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)(A)(ii)), 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 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 savings 
association is assigned a composite rating of 1, as composite rating is 
defined in Sec.  116.5(c) of this chapter; and
    (iv) Does not meet the definition of a well capitalized savings 
association.
    (3) Undercapitalized if the 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 
savings association is assigned a composite rating of 1, as composite 
rating is defined in Sec.  116.5(c) of this chapter.
    (4) Significantly undercapitalized if the 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 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 OCC may reclassify a well capitalized Federal savings 
association as adequately capitalized and may require an adequately 
capitalized or undercapitalized Federal savings association to comply 
with certain mandatory or discretionary supervisory actions as if the 
savings association were in the next lower capital category (except 
that the OCC may not reclassify a significantly undercapitalized 
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 OCC has determined, after 
notice and opportunity for hearing pursuant to Sec.  165.8(a) of this 
part, that the savings association is in an unsafe or unsound 
condition; or
    (2) Unsafe or unsound practice. The OCC has determined, after 
notice and an opportunity for hearing pursuant to Sec.  165.8(a) of 
this part, that the 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, or an equivalent rating under a 
comparable rating system adopted by the OCC; 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 savings association has been notified in 
writing.


Sec.  165.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A Federal savings 
association shall file a written capital restoration plan with the OCC 
within 45 days of the

[[Page 49067]]

date that the savings association receives notice or is deemed to have 
notice that the savings association is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, unless the OCC 
notifies the savings association in writing that the plan is to be 
filed within a different period. An adequately capitalized savings 
association that has been required pursuant to Sec.  165.4(c) to comply 
with supervisory actions as if the 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 Federal savings association that has already 
submitted and is operating under a capital restoration plan approved 
under section 38 and this part 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.  165.4(c) 
unless the OCC notifies the savings association that it must submit a 
new or revised capital plan. A savings association that is notified 
that it must submit a new or revised capital restoration plan shall 
file the plan in writing with the OCC within 45 days of receiving such 
notice, unless the OCC notifies the 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 Call Report or TFR, as appropriate, 
unless the OCC 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 Federal savings association that is required 
to submit a capital restoration plan as the result of a 
reclassification of the savings association pursuant to Sec.  165.4(c) 
of this part shall include a description of the steps the 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 savings association.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this part, the OCC shall 
provide written notice to the Federal savings association of whether 
the plan has been approved. The OCC 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 OCC, the Federal savings association shall submit a 
revised capital restoration plan, when directed to do so, within the 
time specified by the OCC. Upon receiving notice that its capital 
restoration plan has not been approved, any undercapitalized savings 
association (as defined in Sec.  165.4(b)(3) of this part) shall be 
subject to all of the provisions of section 38 and this part applicable 
to significantly undercapitalized institutions. These provisions shall 
be applicable until such time as a new or revised capital restoration 
plan submitted by the savings association has been approved by the OCC.
    (e) Failure to submit a capital restoration plan. A Federal savings 
association that is undercapitalized (as defined in Sec.  165.4(b)(3) 
of this part) 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 part applicable to significantly undercapitalized 
institutions.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized Federal 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 part applicable to 
significantly undercapitalized institutions.
    (g) Amendment of capital plan. A Federal savings association that 
has filed an approved capital restoration plan may, after prior written 
notice to and approval by the OCC, amend the plan to reflect a change 
in circumstance. Until such time as a proposed amendment has been 
approved, the savings association shall implement the capital 
restoration plan as approved prior to the proposed amendment.
    (h) Notice to FDIC. Within 45 days of the effective date of OCC 
approval of a capital restoration plan, or any amendment to a capital 
restoration plan, the OCC shall provide a copy of the plan or amendment 
to the FDIC.
    (i) Performance guarantee by companies that control a savings 
association--(1) Limitation on liability--(i) Amount limitation. The 
aggregate liability under the guarantee provided under section 38 and 
this part for all companies that control a specific Federal savings 
association that is required to submit a capital restoration plan under 
this part shall be limited to the lesser of:
    (A) An amount equal to 5.0 percent of the savings association's 
total assets at the time the savings association was notified or deemed 
to have notice that the savings association was undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures 
of the savings association to the levels required for the savings 
association to be classified as adequately capitalized, as those 
capital measures and levels are defined at the time that the savings 
association initially fails to comply with a capital restoration plan 
under this part.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this part shall expire after the OCC notifies the 
Federal 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 savings association after expiration of the first 
guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
Federal savings association shall be jointly and severally liable for 
the guarantee for such savings association as required under section 38 
and this part, and the OCC 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 Federal 
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 savings association shall, upon 
submission of the plan, be subject to the provisions of section 38 and 
this part that are applicable to savings associations that have not 
submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a Federal 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 savings association shall be subject to the provisions of 
section 38 and this part that are applicable to savings associations 
that have failed in a material respect to implement a capital 
restoration plan.


Sec.  165.6  Mandatory and discretionary supervisory actions under 
section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
Federal savings associations. All Federal savings

[[Page 49068]]

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 Federal savings 
associations. Immediately upon receiving notice or being deemed to have 
notice, as provided in Sec.  165.3 or Sec.  165.5 of this part, that 
the Federal savings association is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the 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 OCC monitor the condition of the savings 
association (section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this part (section 38(e)(2));
    (iv) Restricting the growth of the 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 Federal 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.  
165.3 or Sec.  165.5 of this part, that the Federal savings association 
is significantly undercapitalized, or critically undercapitalized, or 
that the savings association is subject to the provisions applicable to 
institutions that are significantly undercapitalized because the 
savings association failed to submit or implement in any material 
respect an acceptable capital restoration plan, the 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 
Federal 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.  165.3 of this part, that the Federal 
savings association is critically undercapitalized, the savings 
association shall become subject to the provisions of section 38 of the 
FDI Act:
    (i) Restricting the activities of the savings association (section 
38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the savings 
association (section 38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OCC discretion to take in connection 
with: A Federal 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 savings 
association; or a company that controls such savings association, the 
OCC shall follow the procedures for issuing directives under Sec. Sec.  
165.7 and 165.9 of this part unless otherwise provided in section 38 or 
this part.


Sec.  165.7  Directives to take prompt corrective action.

    (a) Notice of intent to issue a directive--(1) In general. The OCC 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized Federal savings association or, where 
appropriate, any company that controls the savings association, prior 
written notice of the OCC's intention to issue a directive requiring 
such savings association or company to take actions or to follow 
proscriptions described in section 38 that are within the OCC'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 savings 
association shall have such time to respond to a proposed directive as 
provided by the OCC under paragraph (c) of this section.
    (2) Immediate issuance of final directive. If the OCC finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the OCC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue a directive requiring a Federal savings 
association or any company that controls a Federal savings association 
immediately to take actions or to follow proscriptions described in 
section 38 that are within the OCC'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 savings association or company that is subject to 
such an immediately effective directive may submit a written appeal of 
the directive to the OCC. Such an appeal must be received by the OCC 
within 14 calendar days of the issuance of the directive, unless the 
OCC permits a longer period. The OCC 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 OCC, 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 Federal savings association's capital 
measures and capital levels;
    (2) A description of the restrictions, prohibitions or affirmative 
actions that the OCC 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 Federal savings association or company 
subject to the directive may file with the OCC a written response to 
the notice.
    (c) Response to notice--(1) Time for response. A Federal 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 OCC. The 
date shall be at least 14 calendar days from the date of the notice 
unless the OCC determines that a shorter period is appropriate in light 
of the financial condition of the savings association or other relevant 
circumstances.
    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the OCC 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 
savings association or company regarding the proposed directive.
    (d) OCC consideration of response. After considering the response, 
the OCC may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the savings 
association or company; or
    (3) Seek additional information or clarification of the response 
from the savings association or company, or any other relevant source.
    (e) Failure to file response. Failure by a Federal savings 
association or company to file with the OCC, within the specified time 
period, a written response to a proposed directive shall constitute a 
waiver of the opportunity to

[[Page 49069]]

respond and shall constitute consent to the issuance of the directive.
    (f) Request for modification or rescission of directive. Any 
Federal savings association or company that is subject to a directive 
under this part may, upon a change in circumstances, request in writing 
that the OCC reconsider the terms of the directive, and may propose 
that the directive be rescinded or modified. Unless otherwise ordered 
by the OCC, the directive shall continue in place while such request is 
pending before the OCC.


Sec.  165.8   Procedures for reclassifying a Federal 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.  165.4(c) of this 
part, the OCC may reclassify a well capitalized Federal 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 OCC determines that the savings association is in an unsafe 
or unsound condition; or
    (2) The OCC deems the 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.  165.4(c)(1), the OCC shall issue and serve on the Federal 
savings association a written notice of the OCC's intention to 
reclassify the savings association.
    (2) Contents of notice. A notice of intention to reclassify a 
Federal savings association based on unsafe or unsound condition shall 
include:
    (i) A statement of the savings association's capital measures and 
capital levels and the category to which the savings association would 
be reclassified;
    (ii) The reasons for reclassification of the savings association;
    (iii) The date by which the savings association subject to the 
notice of reclassification may file with the OCC 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 OCC determines that a shorter period is appropriate in light 
of the financial condition of the savings association or other relevant 
circumstances.
    (3) Response to notice of proposed reclassification. A Federal 
savings association may file a written response to a notice of proposed 
reclassification within the time period set by the OCC. The response 
should include:
    (i) An explanation of why the 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 
savings association or company regarding the reclassification.
    (4) Failure to file response. Failure by a Federal savings 
association to file, within the specified time period, a written 
response with the OCC 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 OCC or its designee under this section. If the Federal 
savings association desires to present oral testimony or witnesses at 
the hearing, the 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 OCC shall issue an 
order directing an informal hearing to commence no later than 30 days 
after receipt of the request, unless the OCC allows further time at the 
request of the Federal savings association. The hearing shall be held 
in Washington, DC or at such other place as may be designated by the 
OCC, before a presiding officer(s) designated by the OCC to conduct the 
hearing.
    (7) Hearing procedures. (i) The Federal savings association shall 
have the right to introduce relevant written materials and to present 
oral argument at the hearing. The savings association may introduce 
oral testimony and present witnesses only if expressly authorized by 
the OCC 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 parts 19 or 109 
of this chapter apply to an informal hearing under this section unless 
the OCC orders that such procedures shall apply.
    (ii) The informal hearing shall be recorded and a transcript 
furnished to the 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 OCC 
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 OCC will decide whether to reclassify the 
Federal savings association and notify the savings association of the 
OCC's decision.
    (b) Request for rescission of reclassification. Any Federal savings 
association that has been reclassified under this section, may, upon a 
change in circumstances, request in writing that the OCC 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 OCC, the 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 OCC.


Sec.  165.9   Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the OCC issues and serves a directive 
on a Federal savings association pursuant to section 165.7 requiring 
the savings association to dismiss any director or senior executive 
officer under section 38(f)(2)(F)(ii) of the FDI Act, the OCC shall 
also serve a copy of the directive, or the relevant portions of the 
directive where appropriate, upon the person to be dismissed.

[[Page 49070]]

    (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 OCC 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 OCC 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 OCC, 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 Federal savings association to dismiss from 
office any director or senior executive officer, the OCC 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 OCC, before a presiding officer(s) 
designated by the OCC 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 OCC 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 
parts 19 or 109 of this chapter apply to an informal hearing under this 
section unless the OCC 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 Federal savings association would materially strengthen the savings 
association's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the 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 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 OCC 
concerning the Respondent's request for reinstatement with the Federal 
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 OCC shall grant or deny the request 
for reinstatement and notify the Respondent of the OCC's decision. If 
the OCC denies the request for reinstatement, the OCC shall set forth 
in the notification the reasons for the OCC's action.


Sec.  165.10  Enforcement of directives.

    (a) Judicial remedies. Whenever a Federal savings association or 
company that controls a Federal savings association fails to comply 
with a directive issued under section 38, the OCC 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 OCC may assess a 
civil money penalty against any Federal savings association or company 
that controls a Federal 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 
Federal savings association to implement a capital restoration plan 
required under section 38, or this part, or the failure of a company 
having control of a Federal 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 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 OCC may seek enforcement 
of the provisions of section 38 or this part through any other judicial 
or administrative proceeding authorized by law.

PART 167--CAPITAL

Sec.
Subpart A--Scope
167.0 Scope.
Subpart B--Regulatory Capital Requirements
167.1 Definitions.
167.2 Minimum regulatory capital requirement.
167.3 Individual minimum capital requirements.
167.4 Capital directives.
167.5 Components of capital.
167.6 Risk-based capital credit risk-weight categories.
167.8 Leverage ratio.
167.9 Tangible capital requirement.
167.10 Consequences of failure to meet capital requirements.
167.11 Reservation of authority.
167.12 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.
167.14-167.19 [Reserved]
Appendixes A-B to Part 167 [Reserved]
Appendix C to Part 167--Risk-Based Capital Requirements--Internal-
Ratings-Based and Advanced Measurement Approaches

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 
(note), 5412(b)(2)(B).

[[Page 49071]]

Subpart A--Scope


Sec.  167.0   Scope.

    (a) This part prescribes the minimum regulatory capital 
requirements for Federal savings associations. Subpart B of this part 
applies to all Federal savings associations, except as described in 
paragraph (b) of this section.
    (b)(1) A Federal savings association that uses Appendix C of this 
part 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) Subpart B of this part does not apply to the computation of 
risk-based capital requirements by a Federal savings association that 
uses Appendix C of this part. However, these savings associations:
    (i) Must compute the components of capital under Sec.  167.5, 
subject to the modifications in sections 11 and 12 of Appendix C of 
this part.
    (ii) Must meet the leverage ratio requirement at Sec. Sec.  
167.2(a)(2) and 167.8 with tier 1 capital, as computed under sections 
11 and 12 of Appendix C of this part.
    (iii) Must meet the tangible capital requirement described at 
Sec. Sec.  167.2(a)(3) and 167.9.
    (iv) Are subject to Sec. Sec.  167.3 (individual minimum capital 
requirement), 167.4 (capital directives); and 167.10 (consequences of 
failure to meet capital requirements).
    (v) Are subject to the reservations of authority at Sec.  167.11, 
which supplement the reservations of authority at section 1 of Appendix 
C of this part.
    (c) [Reserved]

Subpart B--Regulatory Capital Requirements


Sec.  167.1   Definitions.

    For the purposes of this subpart:
    Adjusted total assets. The term adjusted total assets means:
    (1) A Federal savings association's total assets as that term is 
defined in this section;
    (2) Plus the prorated assets of any includable subsidiary in which 
the savings association has a minority ownership interest that is not 
consolidated under GAAP;
    (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 savings 
association has a minority interest; and
    (iii) Investments in any subsidiary subject to consolidation under 
paragraph (2)(ii) of this definition.
    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 Federal 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 Federal 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-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 Federal savings association to credit risk 
directly or indirectly associated with the transferred assets that 
exceeds its pro rata share of the savings association's claim on the 
assets whether through subordination provisions or other credit 
enhancement techniques.
    (2) The OCC 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 OCC 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 Federal 
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

[[Page 49072]]

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 Federal 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 savings 
association (third-party asset) and the risk assumed by the savings 
association exceeds the pro rata share of the savings association's 
interest in the third-party asset. If a savings association has no 
claim on the third-party asset, then the 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 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 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 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 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 of 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 Federal savings association. (1) The term eligible Federal 
savings association means a Federal savings association with respect to 
which the Comptroller of the Currency has determined, on the basis of 
information available at the time, that:
    (i) The savings association's management appears to be competent;
    (ii) The 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 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) Federal savings associations, for purposes of this paragraph, 
will be deemed to be eligible unless the Comptroller makes a 
determination otherwise or notifies the savings association of its 
intent to conduct either an informal or formal examination to determine 
eligibility and provides written notification thereof to the 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 GAAP.
    (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 GAAP 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 Federal savings association holds an interest in real property under 
GAAP.
    (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.  
167.6(a)(1)(vi) of this part, or the stock of Federal Home Loan Banks 
or Federal Reserve Banks.
    (3) For purposes of this part, the term equity investments in real 
property does not include interests in real property that are primarily 
used or intended to be

[[Page 49073]]

used by the 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 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 OCC.
    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 OCC, 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 Federal 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 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 savings association prior to May 1, 
1989; or
    (5) A subsidiary of any savings association existing as a 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 GAAP. 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 forward deposits 
accepted; and any other instrument that, in the opinion of the OCC, 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 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:
    (1) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (2) 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

[[Page 49074]]

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 Federal 
savings association that, at the time of its acquisition, merger, 
purchase of assets or other business combination with or by another 
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 savings association has a minority interest) 
multiplied by the Federal 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 160.101. 
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 Federal 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.  167.6(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 Federal 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 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 Federal 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 thrift must retain sufficient undisbursed loan 
funds throughout the construction period to ensure project completion;

[[Page 49075]]

    (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 association must 
immediately recategorize the loan at a 100 percent risk-weight and must 
accurately report the loan in the association's next quarterly 
Consolidated Reports of Condition and Income (Call Report) or Thrift 
Financial Report (TFR), as appropriate;
    (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 OCC retains the discretion to determine that 
any loans not meeting sound lending principles must be placed in a 
higher risk-weight category. The OCC 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 Federal 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 Federal savings association has not held such 
instruments for more than five years or a longer period approved by the 
OCC.
    Recourse. The term recourse means a Federal 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 
GAAP) that exceeds a pro rata share of that savings association's claim 
on the asset. If a 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 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 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 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 savings 
association's pro rata share of losses from the transferred assets;
    (7) Clean-up calls on assets the 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 savings 
association are not recourse arrangements; and
    (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 
GAAP) of financial assets, whether through a securitization or 
otherwise; and
    (ii) Exposes a Federal savings association to credit risk directly 
or indirectly associated with the transferred asset that exceeds a pro 
rata share of that 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 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

[[Page 49076]]

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.  167.6 of this part.
    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 Federal savings association directly or indirectly holds an 
ownership interest and the assets of which are consolidated with those 
of the Federal savings association for purposes of reporting under 
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 association has not held the interest for more than five 
years or a longer period approved by the OCC.
---------------------------------------------------------------------------

    \1\ The OCC reserves the right to review a Federal savings 
association's investment in a subsidiary on a case-by-case basis. If 
the OCC 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 savings association.
---------------------------------------------------------------------------

    Tier 1 capital. The term Tier 1 capital means core capital as 
computed in accordance with Sec.  167.5(a) of this part.
    Tier 2 capital. The term Tier 2 capital means supplementary capital 
as computed in accordance with Sec.  167.5 of this part.
    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 OCC in accordance with GAAP.
    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 
Federal 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 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.
    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.  167.2  Minimum regulatory capital requirement.

    (a) To meet its regulatory capital requirement a Federal savings 
association must satisfy each of the following capital standards:
    (1) Risk-based capital requirement. (i) A Federal savings 
association's minimum risk-based capital requirement shall be an amount 
equal to 8% of its risk-weighted assets as measured under Sec.  167.6 
of this part.
    (ii) A Federal 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.  167.5 of this part.
    (2) Leverage ratio requirement. (i) A Federal savings association's 
minimum leverage ratio requirement shall be the amount set forth in 
Sec.  167.8 of this part.
    (ii) A Federal savings association must satisfy this requirement 
with core capital as defined in Sec.  167.5(a) of this part.
    (3) Tangible capital requirement. (i) A Federal savings 
association's minimum tangible capital requirement shall be the amount 
set forth in Sec.  167.9 of this part.
    (ii) A Federal savings association must satisfy this requirement 
with tangible capital as defined in Sec.  167.9 of this part in an 
amount not less than 1.5% of its adjusted total assets.
    (b) [Reserved]
    (c) Federal savings associations are expected to maintain 
compliance with all of these standards at all times.


Sec.  167.3  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 Federal 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 savings 
association under this part.
    (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

[[Page 49077]]

requirement required under this part may be appropriate for individual 
savings associations. Increased individual minimum capital requirements 
may be established upon a determination that the 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 Federal savings association receiving special supervisory 
attention;
    (2) A Federal savings association that has or is expected to have 
losses resulting in capital inadequacy;
    (3) A Federal 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 Federal savings association that has poor liquidity or cash 
flow;
    (5) A Federal 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 OCC regulations 
or other guidance;
    (6) A Federal savings association that may be adversely affected by 
the activities or condition of its holding company, affiliate(s), 
subsidiaries, or other persons or savings associations with which it 
has significant business relationships, including concentrations of 
credit;
    (7) A Federal 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 Federal savings association that has inadequate underwriting 
policies, standards, or procedures for its loans and investments; or
    (9) A Federal savings association that has a record of operational 
losses that exceeds the average of other, similarly situated 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 Federal 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 savings association;
    (2) The exigency of those circumstances or potential problems;
    (3) The overall condition, management strength, and future 
prospects of the savings association and, if applicable, its holding 
company, subsidiaries, and affiliates;
    (4) The savings association's liquidity, capital and other 
indicators of financial stability, particularly as compared with those 
of similarly situated savings associations; and
    (5) The policies and practices of the 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 OCC determines that a 
minimum capital requirement is necessary or appropriate for a 
particular Federal savings association, it shall notify the 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 savings 
association.
    (2) Response. (i) The response shall include any information that 
the Federal savings association wants the OCC to consider in deciding 
whether to establish or to amend an individual minimum capital 
requirement for the savings association, what the individual capital 
requirement should be, and, if applicable, what compliance schedule is 
appropriate for achieving the required capital level. The response of 
the savings association must be in writing and must be delivered to the 
OCC within 30 days after the date on which the notification was 
received. The OCC may extend the time period for good cause. The time 
period for response by the insured savings association may be shortened 
for good cause:
    (A) When, in the opinion of the OCC, the condition of the savings 
association so requires, and the OCC informs the savings association of 
the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the OCC 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 OCC, may constitute a waiver of any 
objections to the proposed individual minimum capital requirement or to 
the schedule for complying with it, unless the OCC has provided an 
extension of the response period for good cause.
    (3) Decision. After expiration of the response period, the OCC 
shall decide whether or not the OCC believes the proposed individual 
minimum capital requirement should be established for the Federal 
savings association, or whether that proposed requirement should be 
adopted in modified form, based on a review of the savings 
association's response and other relevant information. The OCC's 
decision shall address comments received within the response period 
from the savings association and shall state the level of capital 
required, the schedule for compliance with this requirement, and any 
specific remedial action the savings association could take to 
eliminate the need for continued applicability of the individual 
minimum capital requirement. The OCC shall provide the savings 
association with a written decision on the individual minimum capital 
requirement, addressing the substantive comments made by the savings 
association and setting forth the decision and the basis for that 
decision. Upon receipt of this decision by the savings association, the 
individual minimum capital requirement becomes effective and binding 
upon the 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.  167.4 of this part.
    (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 savings association's capital adequacy or 
its ability to reach its required minimum capital level by the 
specified date, the OCC may amend the individual minimum capital 
requirement or the savings association's schedule for such compliance. 
The OCC may decline to consider a savings association's request for 
such changes that are not based on a significant change in 
circumstances or that are

[[Page 49078]]

repetitive or frivolous. Pending the OCC's reexamination of the 
original decision, that original decision and any compliance schedule 
established thereunder shall continue in full force and effect.


Sec.  167.4  Capital directives.

    (a) Issuance of a Capital Directive--(1) Purpose. (i) In addition 
to any other action authorized by law, the OCC may issue a capital 
directive to a Federal 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 Federal 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 part, 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 Federal savings 
association to:
    (A) Achieve its minimum capital requirement by a specified date;
    (B) Adhere to the compliance schedule for achieving its individual 
minimum capital requirement;
    (C) Submit and adhere to a capital plan acceptable to the OCC 
describing the means and a time schedule by which the savings 
association shall reach its required capital level;
    (D) Take other action, including but not limited to, reducing the 
savings association's assets or its rate of liability growth, or 
imposing restrictions on the savings association's payment of 
dividends, in order to cause the savings association to reach its 
required capital level;
    (E) Take any action authorized under Sec.  167.10(e); or
    (F) Take a combination of any of these actions.
    (ii) 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.
    (2) Notice of intent to issue capital directive. The OCC will 
determine whether to initiate the process of issuing a capital 
directive. The OCC will notify a Federal savings association in writing 
by registered mail of its intention to issue a capital directive. 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 Federal 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 savings association wishes the OCC to 
consider in deciding whether to issue a capital directive. The response 
must be in writing and be delivered within 30 days after the receipt of 
the notices. Such response must be filed in accordance with Sec. Sec.  
116.30 and 116.40 of this chapter. In its discretion, the OCC may 
extend the time period for the response for good cause. The OCC may, 
for good cause, shorten the 30-day time period for response by the 
insured savings association:
    (A) When, in the opinion of the OCC, the condition of the savings 
association so requires, and the OCC informs the savings association of 
the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the OCC 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 OCC, may constitute a waiver of 
any objections to the capital directive unless the OCC grants an 
extension of the time period for good cause.
    (4) Decision. After the closing date of the Federal savings 
association's response period, or upon receipt of the savings 
association's response, if earlier, the OCC shall consider the savings 
association's response and may seek additional information or 
clarification of the response. Thereafter, the OCC 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.
    (5) Service and effectiveness. (i) Upon issuance, a capital 
directive will be served upon the Federal 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 savings association, unless the OCC 
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 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 OCC.
    (6) Change in circumstances. Upon a change in circumstances, a 
Federal savings association may submit a request to the OCC to 
reconsider the terms of the capital directive or consider changes in 
the savings association's capital plan issued under a directive for the 
savings association to achieve its minimum capital requirement. If the 
OCC believes such a change is warranted, the OCC may modify the 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 OCC --
    (1) May consider a Federal savings association's progress in 
adhering to any capital plan required under this section whenever such 
savings association or any affiliate of such savings association 
(including any company which controls such savings association) seeks 
approval for any proposal that would have the effect of diverting 
earnings, diminishing capital, or otherwise impeding such 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 OCC determines that the proposal would adversely 
affect the ability of the savings association on a current or pro forma 
basis to satisfy its capital requirement.


Sec.  167.5  Components of capital.

    (a) Core Capital. (1) The following elements,\2\ less the amount of 
any deductions pursuant to paragraph (a)(2) of this section, comprise a 
Federal savings association's core capital:
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    \2\ Stock issues where the dividend is reset periodically based 
on current market conditions and the 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; 
\3\
---------------------------------------------------------------------------

    \3\ Stock issued by subsidiaries that may not be counted by the 
parent savings association on the Call Report or TFR, as 
appropriate, likewise shall not be considered in calculating 
capital. For example, preferred stock issued by a Federal savings 
association or a subsidiary that is, in effect, collateralized by 
assets of the 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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[[Page 49079]]

    (iii) Minority interests in the equity accounts of the subsidiaries 
that are fully consolidated.
    (iv) Nonwithdrawable accounts and pledged deposits of mutual 
savings associations (excluding any treasury shares held by the savings 
association) meeting the criteria of regulations and memoranda of the 
OCC 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;
    (v) [Reserved]
    (2) Deductions from core capital. (i) Intangible assets, as defined 
in Sec.  167.1 of this part, are deducted from assets and capital in 
computing core capital, except as otherwise provided by Sec.  167.12 of 
this part.
    (ii) Servicing assets that are not includable in core capital 
pursuant to Sec.  167.12 of this part 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.  167.12 of this part 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 
savings association has a minority ownership interest) are deducted 
from assets and, thus core capital except as provided in paragraphs 
(a)(2)(v) and (a)(2)(vi) of this section.
    (v) If a Federal 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 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 savings association 
as of April 12, 1989. Next the savings association must deduct from 
assets and, thus, core capital, the savings association's investments 
in and extensions of credit to the subsidiary on the date as of which 
the savings association's capital is being determined.
    (vi) If a Federal savings association holds a subsidiary (either 
directly or through a subsidiary) that is itself a domestic depository 
institution, the OCC 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 savings association than the amount that would be 
required if the parent savings association's investment were deducted 
pursuant to paragraphs (a)(2)(iv) and (a)(2)(v) of this section, 
consolidate the assets and liabilities of that subsidiary with those of 
the parent savings association in calculating the capital adequacy of 
the parent savings association, regardless of whether the subsidiary 
would otherwise be an includable subsidiary as defined in Sec.  167.1 
of this part.
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec.  167.12 of this part are deducted from assets and 
capital in computing core capital.
    (b) Supplementary Capital. Supplementary capital counts towards a 
Federal savings association's total capital up to a maximum of 100% of 
the savings association's core capital. The following elements comprise 
a Federal savings association's supplementary capital:
    (1) Permanent Capital Instruments. (i) Cumulative perpetual 
preferred stock and other perpetual preferred stock \4\ issued pursuant 
to regulations and memoranda of the OCC;
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    \4\ Other public disclosure requirements continue to apply--for 
example, Federal securities law and regulatory reporting 
requirements.
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    (ii) Mutual capital certificates issued pursuant to regulations and 
memoranda of the OCC;
    (iii) Nonwithdrawable accounts and pledged deposits (excluding any 
treasury shares held by the savings association) meeting the criteria 
of 12 CFR 161.42 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 OCC; and
    (v) Mandatory convertible subordinated debt (capital notes) issued 
pursuant to regulations and memoranda of the OCC.
    (2) Maturing Capital Instruments. (i) Subordinated debt issued 
pursuant to regulations and memoranda of the OCC;
    (ii) Intermediate-term preferred stock issued pursuant to 
regulations and memoranda of the OCC and any related surplus:
    (iii) Mandatory convertible subordinated debt (commitment notes) 
issued pursuant to regulations and memoranda of the OCC; 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--(i) 
[Reserved]
    (ii) A Federal savings association issuing maturing capital 
instruments after November 7, 1989, may choose, subject to paragraph 
(b)(3)(ii)(C) of this section, to include such instruments pursuant to 
either paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) 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).\5\
---------------------------------------------------------------------------

    \5\ Capital instruments may be redeemed prior to maturity and 
without the prior approval of the OCC, 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 OCC 
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 Federal savings association selects either paragraph 
(b)(3)(ii)(A) or (b)(3)(ii)(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 issuances. Only when such 
issuances have all been repaid and the savings association has no 
balance of such issuances outstanding may the savings association elect 
the other option.
    (4) Allowance for loan and lease losses. Allowance for loan and 
lease losses established under regulations and memoranda of the OCC to 
a maximum of 1.25 percent of risk-weighted assets.\6\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (5) Unrealized gains on equity securities. Up to 45 percent of 
unrealized gains on available-for-sale equity securities with readily

[[Page 49080]]

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 OCC may disallow such 
inclusion in the calculation of supplementary capital if the OCC 
determines that the equity securities are not prudently valued.
    (c) Total capital. (1) A Federal 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.  167.6  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.  167.5 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 
Federal savings association or in transit. Any foreign currency held by 
a Federal 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 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 savings association 
must maintain a positive margin of collateral on the claim on a daily 
basis, taking into account any change in a 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.
    (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 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) [Reserved]
    (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,

[[Page 49081]]

Federal funds sold, loans to other depository institutions, including 
overdrafts and term Federal funds, holdings of the 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 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; \7\
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

    (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 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 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.  
167.1 of this part.
    (iv) 100 percent Risk Weight (Category 4). All assets not specified 
above or deducted from calculations of capital pursuant to Sec.  167.5 
of this part, 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.  
167.12 of this part;
    (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.  167.5 of this part;
    (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 OCC determines have the same risk 
characteristics as foreclosed real estate by the 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 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 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 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 
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

[[Page 49082]]

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 savings 
association has lent as agent. If the customer is not indemnified 
against loss by the savings association, the transaction is excluded 
from the risk-based capital calculation. When a savings association 
lends its own securities, the transaction is treated as a loan. When a 
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 savings association's 
customer can issue short-term debt obligations in its own name, but for 
which the savings association has a legally binding commitment to 
either:
    (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 savings association and the 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 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 Federal 
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 \8\ by a credit conversion factor. Federal 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: \9\
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    \8\ 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.
    \9\ 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.

[[Page 49083]]



------------------------------------------------------------------------
                                        Interest rate   Foreign exchange
         Remaining maturity               contracts      rate 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 
Federal 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 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 Federal 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 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 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 savings association maintains in its files documentation 
adequate to support the netting of an off-balance sheet rate 
contract.\10\
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    \10\ By netting individual off-balance sheet rate contracts for 
the purpose of calculating its credit equivalent amount, a Federal 
savings association represents that documentation adequate to 
support the netting of an off-balance sheet rate contract is in the 
savings association's files and available for inspection by the OCC. 
Upon determination by the OCC that a Federal 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 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 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 Federal 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 Federal 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 savings association is not required to hold 
duplicative risk-based capital under this part against the overlapping 
position. Instead, the 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 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 Federal 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 Federal 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.  167.12(e)(2) of this part, a

[[Page 49084]]

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 savings association and was 
not transferred.
    (ii) Other residual interests. A 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 savings association and was not 
transferred.
    (iii) Residual interests and other recourse obligations. Where a 
Federal 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 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) through (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 Federal 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
------------------------------------------------------------------------
                                                            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
------------------------------------------------------------------------
                                                            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 
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 grade below investment grade or better or a short term 
position as investment grade. If the NRSROs assign different ratings to 
the position, the 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 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 
savings association must satisfy the OCC 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 Federal savings association may calculate the risk-
weighted asset amount for eligible position described in paragraph 
(b)(4)(ii) of this section based on the savings association's 
determination of the credit rating of the position. To risk-weight the 
asset, the 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
------------------------------------------------------------------------
                                                            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 the one of the three alternative standards 
described in paragraph (b)(4)(ii)(A), (B), or (C) below 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 savings association. Before it may rely on an 
internal credit risk rating system, the saving association must 
demonstrate to the OCC's satisfaction that the system is adequate. 
Adequate internal credit risk rating systems typically:
    (1) Are an integral part of the savings association's risk 
management system that explicitly incorporates the full range of risks 
arising from the savings association's participation in securitization 
activities;

[[Page 49085]]

    (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 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 savings association may apply 
the rating category applicable to the option that corresponds to the 
savings association's position.
    (2) To rely on a program rating, the savings association must 
demonstrate to the OCC's satisfaction that the credit risk rating 
assigned to the program meets the same standards generally used by 
NRSROs for rating traded positions. The savings association must also 
demonstrate to the OCC's satisfaction that the criteria underlying the 
assignments for the program are satisfied by the particular position.
    (3) If a Federal savings association participates in a 
securitization sponsored by another party, the OCC may authorize the 
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 
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 savings association must 
demonstrate to the OCC'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 Federal savings association means a savings 
association that:
    (1) Is well capitalized as defined in Sec.  165.4 of this chapter 
without applying the capital treatment described in this paragraph 
(b)(5); or
    (2) Is adequately capitalized as defined in Sec.  165.4 of this 
chapter without applying the capital treatment described in this 
paragraph (b)(5) and has received written permission from the OCC 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 GAAP, 
a qualified Federal savings association may elect to include only the 
amount of its recourse in its risk-weighted assets. To qualify for this 
election, the savings association must establish and maintain a reserve 
under GAAP sufficient to meet the reasonable estimated liability of the 
savings association under the recourse obligation.
    (iii) Aggregate amount of recourse. The total outstanding amount of 
recourse retained by a qualified Federal savings association with 
respect to transfers of small business loans and leases of personal 
property and included in the risk-weighted assets of the 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.  167.5(c).
    (iv) Federal savings association that ceases to be a qualified 
Federal savings association or that exceeds aggregate limits. If a 
Federal savings association ceases to be a qualified savings 
association or exceeds the aggregate limit described in paragraph 
(b)(5)(iii) of this section, the 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 savings 
association and did not exceed the limit.
    (v) Prompt corrective action not affected. (A) A Federal 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 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 Federal 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 Federal 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 Federal savings association conveys a risk participation 
in a direct credit substitute, the 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 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 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 Federal savings association acquires a risk participation 
in a direct

[[Page 49086]]

credit substitute, the 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 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 Federal savings association holds a direct credit 
substitute in the form of a syndication where each 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 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 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 Federal 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 savings association's 
position, the risk-based capital requirement is limited to the savings 
association's contractual exposure less any recourse liability account 
established in accordance with GAAP. This limitation does not apply 
when a Federal 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 Federal 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 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 savings association's 
balance sheet, the 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 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 Federal 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 GAAP, the face amount of the 
recourse obligation or direct credit substitute is deducted for capital 
under Sec. Sec.  167.5(a)(2) and 167.9(c). All other recourse 
obligations and direct credit substitutes retained or assumed by a 
Federal savings association on the obligations of an entity in which 
the savings association has an equity investment are risk-weighted in 
accordance with this paragraph (b).


Sec.  167.8  Leverage ratio.

    (a) The minimum leverage capital requirement for a Federal savings 
association assigned a composite rating of 1, as defined in Sec.  116.3 
of this chapter, shall consist of a ratio of core capital to adjusted 
total assets of 3 percent. These generally are strong 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 Federal 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 Federal savings association. In all cases, Federal 
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.  167.9  Tangible capital requirement.

    (a) Federal 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 Federal 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.  167.5 of this part; and
    (4) Minority interests in the equity accounts of fully consolidated 
subsidiaries.
    (c) Deductions from tangible capital. In calculating tangible 
capital, a Federal savings association must deduct from assets, and, 
thus, from capital:
    (1) Intangible assets (as defined in Sec.  167.1) except for 
mortgage servicing assets to the extent they are includable in tangible 
capital under Sec.  167.12, and credit enhancing interest-only strips 
and deferred tax assets not includable in tangible capital under Sec.  
167.12.
    (2) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the savings 
association has a minority ownership interest), except as provided in 
paragraphs (c)(3) and (c)(4) of this section.
    (3) If a Federal savings association has any investments (both debt 
and equity) in one or more subsidiary(ies) 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 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 savings association. 
Next, the savings association must deduct from assets and, thus, 
tangible capital the savings association's investments in and 
extensions of credit to the subsidiary on the date as of which the 
savings association's capital is being determined.
    (4) If a savings association holds a subsidiary (either directly or 
through a subsidiary) that is itself a domestic depository institution 
the OCC may, in

[[Page 49087]]

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 savings association than the amount that would be required if 
the parent savings association's investment were deducted pursuant to 
paragraphs (c)(2) and (c)(3) of this section, consolidate the assets 
and liabilities of that subsidiary with those of the parent savings 
association in calculating the capital adequacy of the parent savings 
association, regardless of whether the subsidiary would otherwise be an 
includable subsidiary as defined in Sec.  167.1 of this part.


Sec.  167.10  Consequences of failure to meet capital requirements.

    (a) Capital plans. (1) [Reserved]
    (2) The OCC shall require any Federal savings association not in 
compliance with capital standards to submit a capital plan that:
    (i) Addresses the savings association's need for increased capital;
    (ii) Describes the manner in which the savings association will 
increase capital so as to achieve compliance with capital standards;
    (iii) Specifies types and levels of activities in which the 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 Comptroller.
    (3) To be acceptable to the Comptroller under this section, a plan 
must, in addition to satisfying all of the requirements set forth in 
paragraphs (a)(2)(i) through (a)(2)(v) of this section, contain a 
certification that while the plan is under review by the OCC, the 
savings association will not, without the prior written approval of the 
OCC:
    (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 OCC in supervisory 
guidance for Federal savings associations not meeting capital 
standards.
    (4) If the plan submitted to the Comptroller under paragraph (a)(2) 
of this section is not approved by the Comptroller, the 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 Comptroller's disapproval of the 
plan; and
    (ii) It must comply with any other restrictions or limitations set 
forth in the written notice of the Comptroller's disapproval of the 
plan.
    (b) The Comptroller shall:
    (1) Prohibit any asset growth by any Federal savings association 
not in compliance with capital standards, except as provided in 
paragraph (d) of this section; and
    (2) Require any Federal savings association not in compliance with 
capital standards to comply with a capital directive issued by the 
Comptroller which may include the restrictions contained in paragraph 
(e) of this section and any other restrictions the Comptroller 
determines appropriate.
    (c) A Federal 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 OCC. Such request 
must include a capital plan that satisfies the requirements of 
paragraph (a)(2) of this section.
    (d) The Comptroller may permit any Federal 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 
savings association's deposit liabilities, if:
    (1) The savings association obtains the Comptroller'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;
    (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 savings association's ratio of core capital to total assets 
is not less than the ratio existing on January 1, 1991.
    (e) If a Federal savings association fails to meet the risk-based 
capital requirement, the leverage ratio requirement, or the tangible 
capital requirement established under this part, the Comptroller may, 
through enforcement proceedings or otherwise, require such 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 supervision staff of the 
OCC 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 Comptroller may deem 
necessary or appropriate for the safety and soundness of the savings 
association, or depositors or investors in the savings association.
    (f) The Comptroller shall treat as an unsafe and unsound practice 
any material failure by a Federal 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 
part.


Sec.  167.11  Reservation of authority.

    (a) Transactions for purposes of evasion. The Comptroller 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 part.
    (b) Average versus period-end figures. The OCC reserves the right 
to require a Federal savings association to compute its capital ratios 
on the basis of average, rather than period-end, assets when the OCC 
determines appropriate to carry out the purposes of this part.
    (c)(1) Reservation of authority. Notwithstanding the definitions of 
core and supplementary capital in Sec.  167.5 of this part, the OCC 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 Federal 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 part or for 
any other purposes. Similarly, the OCC may find that a

[[Page 49088]]

particular asset or core or supplementary capital component has 
characteristics or terms that diminish its contribution to a Federal 
savings association's ability to absorb losses, and the OCC may require 
the discounting or deduction of such asset or component from the 
computation of core, supplementary, or total capital.
    (2) Notwithstanding Sec.  167.6 of this part, the OCC 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 savings association. The OCC may require the 
savings association to apply another risk-weight, credit equivalent 
amount, or credit conversion factor that the OCC deems appropriate.
    (3) The OCC may find that the capital treatment for an exposure to 
a transaction not subject to consolidation on the savings association's 
balance sheet does not appropriately reflect the risks imposed on the 
savings association. Accordingly, the OCC may require the savings 
association to treat the transaction as if it were consolidated on the 
savings association's balance sheet. The OCC 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 OCC deems appropriate.
    (4) If this part does not specifically assign a risk weight, credit 
equivalent amount, or credit conversion factor, the OCC may assign any 
risk weight, credit equivalent amount, or credit conversion factor that 
it deems appropriate. In making this determination, the OCC 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 OCC will notify the savings association of the 
determination and solicit a response from the savings association. 
After review of the response by the savings association, the OCC shall 
issue a final supervisory decision regarding the determination made 
under paragraph (c) of this section.


Sec.  167.12  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 Federal 
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.  167.1 of this part, 
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 OCC reserves the authority to require 
any Federal savings association to perform an 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 OCC. 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 
association in conducting its internal analysis. The 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 part (but not for financial statement purposes), purchased 
credit card relationships and servicing assets must be valued at the 
lesser of:
    (1) 90 percent of their fair value determined in accordance with 
paragraph (c) of this section; or
    (2) 100 percent of their remaining unamortized book value 
determined in accordance with the instructions for the Call Report or 
TFR, as appropriate.
    (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 Federal 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.

[[Page 49089]]

    (ii) A Federal 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. An 
association holding purchased mortgage servicing rights in separately 
capitalized, nonincludable subsidiaries may submit an application for 
approval by the OCC 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 
OCC determines that:
    (i) The thrift and subsidiary are not conducting activities on an 
arm's length basis; or
    (ii) The exemption is not consistent with the association's safe 
and sound operation.
    (2) Applicable requirements. If the OCC determines to grant or to 
permit the continuation of an exemption under paragraph (h)(1) of this 
section, the association receiving the exemption must ensure the 
following:
    (i) The association's investments in, and extensions of credit to, 
the subsidiary are deducted from capital when calculating capital under 
this part;
    (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 thrifts; and
    (iii) Any contracts entered into by the subsidiary include a 
written disclosure indicating that the subsidiary is not a bank or 
Federal savings association; the subsidiary is an organization separate 
and apart from any bank or Federal savings association; and the 
obligations of the subsidiary are not backed or guaranteed by any bank 
or Federal savings association and are not insured by the FDIC.
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this part (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 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 part. 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 Federal 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.


Sec.  167.14-167.19  [Reserved]

Appendixes A-B to Part 167 [Reserved]

Appendix C to Part 167--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

[[Page 49090]]

    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 Federal savings associations 
using Federal savings association-specific internal risk measurement 
and management processes for calculating risk-based capital 
requirements;
    (2) Methodologies for such Federal savings associations to 
calculate their risk-based capital requirements; and
    (3) Public disclosure requirements for such Federal savings 
associations.
    (b) Applicability. (1) This appendix applies to a Federal 
savings association that:
    (i) Has consolidated assets, as reported on the most recent 
year-end Consolidated Reports of Condition and Income (Call Report) 
or Thrift Financial Report (TFR), as appropriate, 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 part 167, appendix C, 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 Federal savings association may elect to use this 
appendix to calculate its risk-based capital requirements.
    (3) A Federal savings association that is subject to this 
appendix must use this appendix unless the OCC determines in writing 
that application of this appendix is not appropriate in light of the 
savings association's asset size, level of complexity, risk profile, 
or scope of operations. In making a determination under this 
paragraph, the OCC will apply notice and response procedures in the 
same manner and to the same extent as the notice and response 
procedures in Sec.  167.3(d).
    (c) Reservation of authority--(1) Additional capital in the 
aggregate. The OCC may require a Federal savings association to hold 
an amount of capital greater than otherwise required under this 
appendix if the OCC determines that the savings association's risk-
based capital requirement under this appendix is not commensurate 
with the savings association's credit, market, operational, or other 
risks. In making a determination under this paragraph, the OCC will 
apply notice and response procedures in the same manner and to the 
same extent as the notice and response procedures in Sec.  167.3(d).
    (2) Specific risk-weighted asset amounts. (i) If the OCC 
determines that the risk-weighted asset amount calculated under this 
appendix by the savings association for one or more exposures is not 
commensurate with the risks associated with those exposures, the OCC 
may require the savings association to assign a different risk-
weighted 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 OCC.
    (ii) If the OCC determines that the risk-weighted asset amount 
for operational risk produced by the savings association under this 
appendix is not commensurate with the operational risks of the 
savings association, the OCC may require the 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 savings association's operational risk 
management processes, data and assessment systems, or quantification 
systems, all as specified by the OCC.
    (3) Regulatory capital treatment of unconsolidated entities. The 
OCC may find that the capital treatment for an exposure to a 
transaction not subject to consolidation on the savings 
association's balance sheet does not appropriately reflect the risks 
imposed on the savings association. Accordingly, the OCC may require 
the savings association to treat the transaction as if it were 
consolidated on the savings association's balance sheet. The OCC 
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 OCC deems appropriate.
    (4) Other supervisory authority. Nothing in this appendix limits 
the authority of the OCC 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 Federal savings association may choose not to 
apply a provision of this appendix to one or more exposures, 
provided that:
    (1) The savings association can demonstrate on an ongoing basis 
to the satisfaction of the OCC 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 savings association appropriately manages the risk of 
each such exposure;
    (3) The savings association notifies the OCC in writing prior to 
applying this principle to each such exposure; and
    (4) The exposures to which the savings association applies this 
principle are not, in the aggregate, material to the savings 
association.

Section 2. Definitions

    Advanced internal ratings-based (IRB) systems means a Federal 
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 Federal 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 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

[[Page 49091]]

    (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 
Federal 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 Federal 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 Federal 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 Federal savings association's operational risk 
profile that reflect a current and forward-looking assessment of the 
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 Federal savings association, 
determined in accordance with GAAP.
    Clean-up call means a contractual provision that permits an 
originating Federal 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 Federal 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 
Federal 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.
    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 Federal 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 Federal 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 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 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 savings association may elect to use the definition of default 
that is used in that jurisdiction, provided that the savings 
association has obtained prior approval from the OCC to use the 
definition of default in that jurisdiction.
    (iii) A retail exposure in default remains in default until the 
savings association has reasonable assurance of repayment and 
performance for all contractual principal and interest payments on 
the exposure.
    (2) Wholesale. (i) A Federal savings association's wholesale 
obligor is in default if:
    (A) The savings association determines that the obligor is 
unlikely to pay its credit obligations to the savings association in 
full, without recourse by the savings association to actions such as 
realizing collateral (if held); or

[[Page 49092]]

    (B) The obligor is past due more than 90 days on any material 
credit obligation(s) to the 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 savings 
association has reasonable assurance of repayment and performance 
for all contractual principal and interest payments on all exposures 
of the 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 Federal 
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 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 savings association) in the exposure's national jurisdiction (or 
subdivision of such jurisdiction selected by the 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 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 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 
Federal 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.
    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 OCC, 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 
savings association records net payments received on the swap as net 
income, the 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 Federal 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 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 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

[[Page 49093]]

    (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 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 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 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 savings association, 
unless the affiliate is an insured depository institution, bank, 
securities broker or dealer, or insurance company that:
    (i) Does not control the 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 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
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    \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).
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    (4) The 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 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 (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 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 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 Federal savings 
association under GAAP;
    (ii) The 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

[[Page 49094]]

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 
167.1 (definition of ``qualifying residential construction loan'') 
and 12 CFR 167.6(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 Federal 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 
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 Federal 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 Federal 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 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 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 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 savings association's best estimate of net additions 
to the outstanding amount owed the 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.
    (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 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 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 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 
Federal savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss 
events occurring at organizations other than the 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 Federal savings association 
(including cash held for the 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 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 RC of the Call Report or Schedule SC of the 
TFR, as appropriate) of a Federal savings association that results 
from a securitization (other than an increase in equity capital that 
results from the Federal 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

[[Page 49095]]

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 OCC's real 
estate lending standards at 12 CFR 160.100-160.101;
    (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 Federal 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 
savings association that provided the ADC facility as long as the 
permanent financing is subject to the 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 
Federal savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss 
events occurring at the savings association.
    Investing Federal savings association means, with respect to a 
securitization, a Federal savings association that assumes the 
credit risk of a securitization exposure (other than an originating 
savings association of the securitization). In the typical synthetic 
securitization, the investing savings association sells credit 
protection on a pool of underlying exposures to the originating 
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 savings association's empirically based best estimate 
of the long-run default-weighted average economic loss, per dollar 
of EAD, the savings association would expect to incur if the obligor 
(or a typical obligor in the loss severity grade assigned by the 
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 savings association's empirically based best estimate 
of the economic loss, per dollar of EAD, the savings association 
would expect to incur if the obligor (or a typical obligor in the 
loss severity grade assigned by the 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 savings association's empirically based best estimate 
of the long-run default-weighted average economic loss, per dollar 
of EAD, the 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 savings association's empirically based best estimate 
of the economic loss, per dollar of EAD, the 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 Federal savings 
association can demonstrate to the satisfaction of the OCC 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 OCC 
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 Federal 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 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

[[Page 49096]]

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 Federal 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 Federal savings association, with respect to a 
securitization, means a 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 Federal 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 
Federal savings association's empirically based best estimate of the 
long-run average one-year default rate for the rating grade assigned 
by the 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 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 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 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 Federal savings association demonstrates to the 
satisfaction of the OCC 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 Federal 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 Federal 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 Federal 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

[[Page 49097]]

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 Federal 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 Federal 
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 Federal 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 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 savings association; and
    (2) Executed under an agreement that provides the 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 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 an other retail exposure.
    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 
Federal 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 Federal 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 subpart B of part 167, as modified 
in part II of this appendix.
    Tier 2 capital is defined in subpart B of part 167, as modified 
in part II of this appendix.

[[Page 49098]]

    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 subpart B of part 167 
(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 OCC 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 OCC 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 Federal savings association's operational risk exposure and the 
savings association's expected operational loss.
    Unit of measure means the level (for example, organizational 
unit or operational loss event type) at which the Federal 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 Federal savings 
association on behalf of a company;
    (2) A repo-style transaction entered into by a Federal savings 
association with a company and any other transaction in which a 
savings association posts collateral to a company and faces 
counterparty credit risk;
    (3) An exposure that a Federal 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 Federal savings association 
to a third party in which the savings association retains full 
recourse;
    (5) An OTC derivative contract entered into by a Federal savings 
association with a company;
    (6) An exposure to an individual that is not managed by a 
Federal 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 Federal 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 Federal savings association must hold capital 
commensurate with the level and nature of all risks to which the 
savings association is exposed.
    (c) When a Federal savings association subject to any applicable 
market risk rule calculates its risk-based capital requirements 
under this appendix, the 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 Federal savings association that uses this 
appendix must make the same deductions from its tier 1 capital and 
tier 2 capital required in subpart B of part 167, except that:
    (1) A Federal savings association is not required to deduct 
certain equity investments and CEIOs (as provided in section 12 of 
this appendix); and
    (2) A Federal 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 Federal 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 Federal 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 Federal savings association's actual tier 2 
capital, however, the Federal 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

[[Page 49099]]

savings association's exposure on certain failed capital markets 
transactions.

Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A Federal savings association is not 
required to make the deduction from capital for CEIOs in 12 CFR 
167.5(a)(2)(iii) and 167.12(e).
    (b) Deduction for certain equity investments. A Federal savings 
association is not required to deduct equity securities from capital 
under 12 CFR 167.5(c)(2)(ii). However, it must continue to deduct 
equity investments in real estate under that section. See 12 CFR 
167.1, 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 Federal 
savings association's eligible credit reserves are less than the 
savings association's total expected credit losses, the 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 savings association's actual tier 2 
capital, the savings association must deduct the excess amount from 
tier 1 capital.
    (2) Excess eligible credit reserves. If a Federal savings 
association's eligible credit reserves exceed the savings 
association's total expected credit losses, the 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 savings 
association's credit-risk-weighted assets.
    (b) Treatment of allowance for loan and lease losses. Regardless 
of any provision in subpart B of part 167, 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 Federal 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 Federal 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 savings 
association meets at least one criterion under paragraph (b)(1) of 
section 1 of this appendix. The OCC may extend the first floor 
period start date.
    (2) A Federal 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 savings association's 
implementation plan must address in detail how the savings 
association complies, or plans to comply, with the qualification 
requirements in section 22 of this appendix. The 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 savings association and each 
consolidated subsidiary (U.S. and foreign-based) of the savings 
association with respect to all portfolios and exposures of the 
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 savings association);
    (iii) Include the savings association's self-assessment of:
    (A) The savings association's current status in meeting the 
qualification requirements in section 22 of this appendix; and
    (B) The consistency of the savings association's current 
practices with the OCC's supervisory guidance on the qualification 
requirements;
    (iv) Based on the savings association's self-assessment, 
identify and describe the areas in which the 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 savings association's current 
practices with the OCC's supervisory guidance on the qualification 
requirements (gap analysis);
    (v) Describe what specific actions the Federal 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 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 savings association's board of 
directors.
    (2) The savings association must submit the implementation plan, 
together with a copy of the minutes of the board of directors' 
approval, to the OCC at least 60 days before the savings association 
proposes to begin its parallel run, unless the OCC waives prior 
notice.
    (c) Parallel run. Before determining its risk-based capital 
requirements under this appendix and following adoption of the 
implementation plan, the 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 
savings association complies with the qualification requirements in 
section 22 of this appendix to the satisfaction of the OCC. During 
the parallel run, the savings association must report to the OCC on 
a calendar quarterly basis its risk-based capital ratios using 
subpart B of part 167 and the risk-based capital requirements 
described in this appendix. During this period, the savings 
association is subject to subpart B of part 167.
    (d) Approval to calculate risk-based capital requirements under 
this appendix. The OCC will notify the savings association of the 
date that the savings association may begin its first floor period 
if the OCC determines that:
    (1) The savings association fully complies with all the 
qualification requirements in section 22 of this appendix;
    (2) The savings association has conducted a satisfactory 
parallel run under paragraph (c) of this section; and
    (3) The 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 Federal 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 Federal 
savings association's transitional floor periods, the savings 
association's tier 1 risk-based capital ratio is equal to the lower 
of:
    (A) The savings association's floor-adjusted tier 1 risk-based 
capital ratio; or
    (B) The savings association's advanced approaches tier 1 risk-
based capital ratio.
    (ii) Total risk-based capital ratio. During a savings 
association's transitional floor periods, the savings association's 
total risk-based capital ratio is equal to the lower of:
    (A) The savings association's floor-adjusted total risk-based 
capital ratio; or
    (B) The savings association's advanced approaches total risk-
based capital ratio.
    (2) Floor-adjusted risk-based capital ratios. (i) A Federal 
savings association's floor-adjusted tier 1 risk-based capital ratio 
during a transitional floor period is equal to the savings 
association's tier 1 capital as calculated under subpart B of part 
167, divided by the product of:
    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 167; and
    (B) The appropriate transitional floor percentage in Table 1.
    (ii) A Federal savings association's floor-adjusted total risk-
based capital ratio during a transitional floor period is equal to 
the sum of the savings association's tier 1 and tier 2 capital as 
calculated under subpart B of part 167, divided by the product of:
    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 167; and
    (B) The appropriate transitional floor percentage in Table 1.
    (iii) A Federal 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 subpart B of part 167 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 per

[[Page 49100]]

 
Second floor period.....................................          90 per
Third floor period......................................          85 per
------------------------------------------------------------------------

    (3) Advanced approaches risk-based capital ratios. (i) A Federal 
savings association's advanced approaches tier 1 risk-based capital 
ratio equals the savings association's tier 1 risk-based capital 
ratio as calculated under this appendix (other than this section on 
transitional floor periods).
    (ii) A Federal savings association's advanced approaches total 
risk-based capital ratio equals the 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 Federal 
savings association must report to the OCC 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 Federal savings 
association may not exit a transitional floor period until the 
savings association has spent a minimum of four consecutive calendar 
quarters in the period and the OCC has determined that the savings 
association may exit the floor period. The OCC's determination will 
be based on an assessment of the 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 Federal 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 Federal savings 
association for risk-based capital purposes under this appendix must 
be consistent with the savings association's internal risk 
management processes and management information reporting systems.
    (3) Each Federal 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 savings association's size and level of 
complexity. Regardless of whether the systems and models that 
generate the risk parameters necessary for calculating a Federal 
savings association's risk-based capital requirements are located at 
any affiliate of the savings association, the 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 Federal savings association must have an 
internal risk rating and segmentation system that accurately and 
reliably differentiates among degrees of credit risk for the savings 
association's wholesale and retail exposures.
    (2) For wholesale exposures:
    (i) A Federal 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 Federal savings association may elect, however, not to 
assign to a rating grade an obligor to whom the savings association 
extends credit based solely on the financial strength of a 
guarantor, provided that all of the savings association's exposures 
to the obligor are fully covered by eligible guarantees, the 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 savings association immediately assigns the obligor to a rating 
grade if a guarantee can no longer be recognized under this 
appendix. The 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 savings association has chosen to directly 
assign LGD estimates to each wholesale exposure, the 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 savings association's estimate of the 
LGD of the exposure). A Federal 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 Federal 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 
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 savings association's internal risk rating policy for 
wholesale exposures must describe the savings association's rating 
philosophy (that is, must describe how wholesale obligor rating 
assignments are affected by the savings association's choice of the 
range of economic, business, and industry conditions that are 
considered in the obligor rating process).
    (5) The 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 savings association receives new 
material information, but no less frequently than annually. The 
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 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 Federal savings association must have a 
comprehensive risk parameter quantification process that produces 
accurate, timely, and reliable estimates of the risk parameters for 
the savings association's wholesale and retail exposures.
    (2) Data used to estimate the risk parameters must be relevant 
to the 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 savings association's risk parameter quantification 
process must produce appropriately conservative risk parameter 
estimates where the 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 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 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 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 savings 
association must adjust its estimates

[[Page 49101]]

of risk parameters to compensate for the lack of data from periods 
of economic downturn conditions.
    (8) The savings association's PD, LGD, and EAD estimates must be 
based on the definition of default in this appendix.
    (9) The savings association must review and update (as 
appropriate) its risk parameters and its risk parameter 
quantification process at least annually.
    (10) The savings association must at least annually conduct a 
comprehensive review and analysis of reference data to determine 
relevance of reference data to the 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 Federal savings 
association must obtain the prior written approval of the OCC under 
section 32 of this appendix to use the internal models methodology 
for counterparty credit risk.
    (e) Double default treatment. A Federal savings association must 
obtain the prior written approval of the OCC under section 34 of 
this appendix to use the double default treatment.
    (f) Securitization exposures. A Federal savings association must 
obtain the prior written approval of the OCC under section 44 of 
this appendix to use the Internal Assessment Approach for 
securitization exposures to ABCP programs.
    (g) Equity exposures model. A Federal savings association must 
obtain the prior written approval of the OCC under section 53 of 
this appendix to use the Internal Models Approach for equity 
exposures.
    (h) Operational risk--(1) Operational risk management processes. 
A Federal 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 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 savings 
association's operational risk profile) to identify, measure, 
monitor, and control operational risk in 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 Federal 
savings association must have operational risk data and assessment 
systems that capture operational risks to which the savings 
association is exposed. The savings association's operational risk 
data and assessment systems must:
    (i) Be structured in a manner consistent with the 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 Federal 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 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 OCC to address transitional 
situations, such as integrating a new business line).
    (2) The Federal savings association must be able to map its 
internal operational loss event data into the seven operational loss 
event type categories.
    (3) The savings association may refrain from collecting internal 
operational loss event data for individual operational losses below 
established dollar threshold amounts if the savings association can 
demonstrate to the satisfaction of the OCC that the thresholds are 
reasonable, do not exclude important internal operational loss event 
data, and permit the savings association to capture substantially 
all the dollar value of the savings association's operational 
losses.
    (B) External operational loss event data. The Federal 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 Federal 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 
Federal savings association must incorporate business environment 
and internal control factors into its operational risk data and 
assessment systems. The Federal 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 Federal 
savings association's operational risk quantification systems:
    (A) Must generate estimates of the 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 
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 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 savings association 
can demonstrate to the satisfaction of the OCC 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 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 
savings association becomes aware of information that may have a 
material effect on the 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 OCC, a Federal 
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 savings association proposing 
to use such an alternative operational risk quantification system 
must submit a proposal to the OCC. In determining whether to approve 
a savings association's proposal to use an alternative operational 
risk quantification system, the OCC 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 savings association;
    (B) The 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 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 Federal 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 Federal savings association must retain data using an 
electronic format that allows timely retrieval of data for analysis, 
validation, reporting, and disclosure purposes.
    (3) A Federal 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 
Federal savings association's senior management must ensure that all 
components of the savings association's advanced systems function 
effectively and comply with the qualification requirements in this 
section.

[[Page 49102]]

    (2) The savings association's board of directors (or a 
designated committee of the board) must at least annually review the 
effectiveness of, and approve, the savings association's advanced 
systems.
    (3) A 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 
savings association's advanced systems; and
    (iii) Includes adequate governance and project management 
processes.
    (4) The Federal savings association must validate, on an ongoing 
basis, its advanced systems. The 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 Federal 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 
savings association's advanced systems and reports its findings to 
the savings association's board of directors (or a committee 
thereof).
    (6) The Federal 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 Federal savings association must 
adequately document all material aspects of its advanced systems.

Section 23. Ongoing Qualification

    (a) Changes to advanced systems. A Federal savings association 
must meet all the qualification requirements in section 22 of this 
appendix on an ongoing basis. A savings association must notify the 
OCC when the savings association makes any change to an advanced 
system that would result in a material change in the savings 
association's risk-weighted asset amount for an exposure type, or 
when the savings association makes any significant change to its 
modeling assumptions.
    (b) Failure to comply with qualification requirements. (1) If 
the OCC determines that a Federal 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 OCC will notify the savings association in writing of 
the savings association's failure to comply.
    (2) The Federal savings association must establish and submit a 
plan satisfactory to the OCC to return to compliance with the 
qualification requirements.
    (3) In addition, if the OCC determines that the savings 
association's risk-based capital requirements are not commensurate 
with the savings association's credit, market, operational, or other 
risks, the OCC may require such a savings association to calculate 
its risk-based capital requirements:
    (i) Under subpart B of part 167; or
    (ii) Under this appendix with any modifications provided by the 
OCC.

Section 24. Merger and Acquisition Transitional Arrangements

    (a) Mergers and acquisitions of companies without advanced 
systems. If a Federal savings association merges with or acquires a 
company that does not calculate its risk-based capital requirements 
using advanced systems, the savings association may use subpart B of 
part 167 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 OCC may 
extend this transition period for up to an additional 12 months. 
Within 90 days of consummating the merger or acquisition, the 
savings association must submit to the OCC an implementation plan 
for using its advanced systems for the acquired company. During the 
period when subpart A of this part applies to the merged or acquired 
company, any ALLL associated with the merged or acquired company's 
exposures may be included in the 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 savings association's eligible credit 
reserves. In addition, the risk-weighted assets of the merged or 
acquired company are not included in the savings association's 
credit-risk-weighted assets but are included in total risk-weighted 
assets. If a savings association relies on this paragraph, the 
savings association must disclose publicly the amounts of risk-
weighted assets and qualifying capital calculated under this 
appendix for the acquiring savings association and under subpart B 
of part 167 for the acquired company.
    (b) Mergers and acquisitions of companies with advanced 
systems--(1) If a Federal savings association merges with or 
acquires a company that calculates its risk-based capital 
requirements using advanced systems, the 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 OCC may extend this transition period for up to an 
additional 12 months. Within 90 days of consummating the merger or 
acquisition, the savings association must submit to the OCC an 
implementation plan for using its advanced systems for the merged or 
acquired company.
    (2) If the acquiring Federal savings association is not subject 
to the advanced approaches in this appendix at the time of 
acquisition or merger, during the period when subpart B of part 167 
apply to the acquiring 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 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 Federal 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 Federal savings association 
must determine which of its exposures are wholesale exposures, 
retail exposures, securitization exposures, or equity exposures. The 
savings association must categorize each retail exposure as a 
residential mortgage exposure, a QRE, or an other retail exposure. 
The 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 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 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 savings association must identify which of its 
wholesale obligors are in default.
    (2) Segmentation of retail exposures. (i) The savings 
association must group the retail exposures in each retail 
subcategory into segments that have homogeneous risk 
characteristics.
    (ii) The savings association must identify which of its retail 
exposures are in default. The savings association must segment 
defaulted retail exposures separately from non-defaulted retail 
exposures.

[[Page 49103]]

    (iii) If the savings association determines the EAD for eligible 
margin loans using the approach in paragraph (b) of section 32 of 
this appendix, the savings association must identify which of its 
retail exposures are eligible margin loans for which the savings 
association uses this EAD approach and must segment such eligible 
margin loans separately from other retail exposures.
    (3) Eligible purchased wholesale exposures. A Federal savings 
association may group its eligible purchased wholesale exposures 
into segments that have homogeneous risk characteristics. A Federal 
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 
Federal 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 
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 Federal savings 
association must assign a PD, LGD, EAD, and M to each segment of 
eligible purchased wholesale exposures. If the savings association 
can estimate ECL (but not PD or LGD) for a segment of eligible 
purchased wholesale exposures, the 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 Federal 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 Federal 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 Federal 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 
Federal 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. (i) A Federal 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 Federal 
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 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 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 Federal 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 Federal savings 
association's ongoing financing of the obligor. An exposure is not 
part of a Federal savings association's ongoing financing of the 
obligor if the 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 Federal 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 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 Federal 
savings association may apply a 300 percent risk weight to the EAD 
of an eligible margin loan if the savings association is not able to 
meet the agencies' requirements for estimation of PD and LGD for the 
margin loan.

[[Page 49104]]

[GRAPHIC] [TIFF OMITTED] TR09AU11.002

    (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 
Federal savings association may assign a risk-weighted asset amount 
of zero to cash owned and held in all offices of the savings 
association or in transit and for gold bullion held in the savings 
association's own vaults, or held in another 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 Federal 
savings association has demonstrated to the OCC's satisfaction that 
the portfolio (when combined with all other portfolios of exposures 
that the savings association seeks to treat under this paragraph) is 
not material to the 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 Federal 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,

[[Page 49105]]

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 Federal 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 
Federal savings association also may use the internal models 
methodology to estimate EAD for qualifying cross-product master 
netting agreements.
    (3) A Federal 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 savings association's VaR-
based measure under any applicable market risk rule), eligible 
margin loans, and OTC derivative contracts.
    (4) A Federal 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 Federal 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 savings 
association may estimate an unsecured LGD for the exposure, as well 
as for any repo-style transaction that is included in the 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 Federal 
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 Federal 
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 Federal 
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 Federal 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 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 Federal 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 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 Federal 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;

                       Table 3--Standard Supervisory Market Price Volatility Haircuts \1\
----------------------------------------------------------------------------------------------------------------
                                                                             Issuers exempt
   Applicable external rating grade        Residual maturity for debt       from the 3 basis     Other issuers
     category for debt securities                  securities                  point floor
----------------------------------------------------------------------------------------------------------------
Two highest investment-grade rating    <= 1 year.........................               0.005               0.01
 categories for long-term ratings/     >1 year, <= 5 years...............               0.02                0.04
 highest investment-grade rating       > 5 years.........................               0.04                0.08
 category for short-term ratings.
Two lowest investment-grade rating     <= 1 year.........................               0.01                0.02
 categories for both short- and long-  > 1 year, <= 5 years..............               0.03                0.06
 term ratings.                         > 5 years.........................               0.06                0.12
One rating category below investment   All...............................               0.15                0.25
 grade.
                                      --------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold......0.15.....
Other publicly traded equities (including convertible bonds), co0.25ming
 residential mortgages, and nonfinancial collateral.
Mutual funds.............................Highest haircut applicable to any security in which
                                                         the fund can invest.
Cash on deposit with the Federal savings association (including a 0
 certificate of deposit issued by the savings association).
----------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 3 are based on a ten-business-day holding period.

    (2) For currency mismatches, a Federal 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) For repo-style transactions, a Federal 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 Federal 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 OCC, a Federal 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 the OCC's approval to use its own internal 
estimates, a Federal savings association must satisfy the following 
minimum quantitative standards:
    (1) A Federal savings association must use a 99th percentile 
one-tailed confidence interval.

[[Page 49106]]

    (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 Federal 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] TR09AU11.003

(i) TM equals 5 for repo-style transactions and 10 for 
eligible margin loans;
(ii) TN equals the holding period used by the savings 
association to derive HN; and
(iii) HN equals the haircut based on the holding period 
TN.
    (3) A Federal 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 Federal 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 Federal savings association 
may calculate haircuts for categories of securities. For a category 
of securities, the 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 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 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 
Federal 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 Federal 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 Federal 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 OCC, a Federal 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 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 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 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 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 savings association has lent, sold subject to 
repurchase, posted as collateral, borrowed, purchased subject to 
resale, or taken as collateral. The savings association must 
validate its VaR model, including by establishing and maintaining a 
rigorous and regular back-testing regime.
    (c) EAD for OTC derivative contracts. (1) A Federal 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 Federal 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 Federal 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 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 Federal 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 savings association is treating the credit 
derivative as a covered position under any applicable market risk 
rule, in which case the savings association must compute a 
supplemental counterparty credit risk capital requirement under this 
section).
    (4) Counterparty credit risk for equity derivatives. A Federal 
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 savings 
association is treating the contract as a covered position under any 
applicable market risk rule). In addition, if the 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 savings association must also 
calculate a risk-based capital requirement for the counterparty 
credit risk of an equity derivative contract under this part.
    (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 Federal 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 Federal 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.

[[Page 49107]]



                                            Table 4--Conversion Factor Matrix for OTC Derivative Contracts\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Credit       Credit (non-
                                                              Foreign      (investment-     investment-                      Precious
         Remaining maturity \2\            Interest rate   exchange rate       grade           grade          Equity      metals (except       Other
                                                             and gold        reference       reference                         gold)
                                                                           obligor) \3\      obligor)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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.
\3\ A Federal 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 savings association must use the column labeled ``Credit (non-investment-grade reference obligor)'' for all other credit
  derivatives.

    (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.
    (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 = (0.4 x Agross)+(0.6 x NGR x Agross), 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 Federal 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 Federal savings association may recognize the 
credit risk mitigation benefits of financial collateral that secures 
such a contract or netting set that is marked to 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 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 OCC, a Federal 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 Federal 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 Federal 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 Federal 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 savings association effectively integrates the risk 
mitigating effects of cross-product netting into its risk management 
and other information technology systems; and
    (ii) The savings association obtains the prior written approval 
of the OCC. A savings association that uses the internal models 
methodology for a transaction type must receive approval from the 
OCC 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 Federal 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 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 the OCC's approval as provided in 
paragraph (d)(7), a more conservative measure of EAD.
[GRAPHIC] [TIFF OMITTED] TR09AU11.004

(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 OCC has determined that the Federal savings association 
must set [alpha] higher based on the savings association's specific 
characteristics of counterparty credit risk.
    (iii) A Federal 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 Federal savings association hedges some or all of the 
counterparty credit risk associated with a netting set using an 
eligible credit derivative, the savings association may take the 
reduction in exposure to the counterparty into account when 
estimating EE. If the 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 savings 
association's exposure to the protection provider of the credit 
derivative.
    (3) To obtain the OCC's approval to calculate the distributions 
of exposures upon which the EAD calculation is based, the Federal 
savings association must demonstrate to the satisfaction of the OCC 
that it has been using for at least one year an internal model that 
broadly meets the following minimum standards, with which the 
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

[[Page 49108]]

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 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 savings association must be able to measure and manage 
current exposures gross and net of collateral held, where 
appropriate. The savings association must estimate expected 
exposures for OTC derivative contracts both with and without the 
effect of collateral agreements.
    (vi) The 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 
savings association should consider using model parameters based on 
forward-looking measures, where appropriate.
    (viii) A 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 Federal savings association must set M for the exposure or 
netting set equal to the lower of five years or M(EPE) \3\ where:
---------------------------------------------------------------------------

    \3\ Alternatively, a Federal 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] TR09AU11.005

(B) dfk is the risk-free discount factor for future time period tk; 
and
(C) [Delta] t k = t k - t k - 1.

    (ii) If the remaining maturity of the exposure or the longest-
dated contract in the netting set is one year or less, the 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 Federal 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 collateral agreement means a legal 
contract that specifies the time when, and circumstances under 
which, the counterparty is required to pledge collateral to the 
savings association for a single financial contract or for all 
financial contracts in a netting set and confers upon the 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 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 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 OCC, a savings 
association may include the effect of a collateral agreement within 
its internal model used to calculate EAD. The 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 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 
OCC, a Federal 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 savings 
association must meet the following minimum standards to the 
satisfaction of the OCC:
    (i) The 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 savings association must assess the potential model 
uncertainty in its estimates of alpha.
    (iii) The savings association must calculate the numerator and 
denominator of alpha in a consistent fashion with respect to 
modeling methodology, parameter specifications, and portfolio 
composition.

[[Page 49109]]

    (iv) The 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 OCC, a Federal 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 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 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 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 Federal 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 Federal 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 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 Federal 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 Federal 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 Federal 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 Federal savings association may 
only recognize the credit risk mitigation benefits of eligible 
guarantees and eligible credit derivatives.
    (2) A Federal 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.
    (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 Federal savings association may recognize the guarantee 
or credit derivative in determining the 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 savings association 
determines that full substitution of the protection provider's PD 
leads to an inappropriate degree of risk mitigation, the 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 
Federal 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 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 savings association determines that full substitution 
leads to an inappropriate degree of risk mitigation, the savings 
association may use a higher PD than that of the protection 
provider.
    (B) The 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 Federal 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 Federal 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 Federal 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 
Federal 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 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

[[Page 49110]]

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 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 Federal 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 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 savings association (protection purchaser), 
but the terms of the arrangement at origination of the credit risk 
mitigant contain a positive incentive for the 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 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 Federal 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 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 Federal 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 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 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 Federal 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 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 Federal savings association must adjust HFX 
calculated in paragraph (f)(2) of this section upward if the 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 Federal 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 Federal 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 Federal savings association has implemented a process 
(which has received the prior, written approval of the OCC) to 
detect excessive correlation between the creditworthiness of the 
obligor of the hedged exposure and the protection provider. If 
excessive correlation is present, the 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 Federal 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 Federal 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 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 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 Federal 
savings association applies double default treatment, the savings 
association must make applicable adjustments to the protection 
amount as

[[Page 49111]]

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 Federal 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 = Ko x (0.15 + 160 x PDg),

    Where:
    (1)
    [GRAPHIC] [TIFF OMITTED] TR09AU11.006
    
    (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 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 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 Federal 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 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:
    (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 OCC 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 Federal savings association must hold risk-
based capital against any DvP or PvP transaction with a normal 
settlement period if the savings association's counterparty has not 
made delivery or payment within five business days after the 
settlement date. The savings association must determine its risk-
weighted asset amount for such a transaction by multiplying the 
positive current exposure of the transaction for the 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
                          date                                current
                                                             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 Federal savings association must 
hold risk-based capital against any non-DvP/non-PvP transaction with 
a normal settlement period if the 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 savings association must continue to hold 
risk-based capital against the transaction until the savings 
association has received its corresponding deliverables.
    (2) From the business day after the savings association has made 
its delivery until five business days after the counterparty 
delivery is due, the savings association must calculate its risk-
based capital requirement for the transaction by treating the 
current market value of the deliverables owed to the savings 
association as a wholesale exposure.
    (i) A 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 savings association may use a 45 percent LGD for the 
transaction rather than estimating LGD for the transaction provided 
the savings association uses the 45 percent LGD for all transactions 
described in paragraphs (e)(1) and (e)(2) of this section.
    (iii) A savings association may use a 100 percent risk weight 
for the transaction provided the savings association uses this risk 
weight for all transactions described in paragraphs (e)(1) and 
(e)(2) of this section.
    (3) If the savings association has not received its deliverables 
by the fifth business day after the counterparty delivery was due, 
the savings association must deduct the current market value of the 
deliverables owed to the 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 
Federal 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 savings 
association that meets these conditions must hold risk-based capital 
against any

[[Page 49112]]

securitization exposures it retains in connection with the 
securitization. A 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 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 Federal 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 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 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 savings association to alter or replace the 
underlying exposures to improve the credit quality of the pool of 
underlying exposures;
    (iii) Increase the 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 
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 savings association after the 
inception of the securitization;
    (3) The 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 Federal 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 Federal 
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 Federal savings association may either 
apply the Internal Assessment Approach in section 44 of this 
appendix to the exposure (if the 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 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 Federal savings association must 
deduct the exposure from total capital in accordance with paragraph 
(c) of this section.
    (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 OCC, a 
Federal 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 
Federal 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 Federal savings association must deduct 
a securitization exposure from total capital, the 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 savings association's tier 2 capital, the 
savings association must deduct the excess from tier 1 capital.
    (2) A Federal 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 part, 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 
Federal 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 savings 
association's gain-on-sale or CEIOs associated with the 
securitization) may not exceed the sum of:
    (1) The savings association's total risk-based capital 
requirement for the underlying exposures as if the 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 Federal 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 Federal 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 Federal 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 Federal savings association has 
multiple securitization exposures that provide duplicative coverage 
of the underlying exposures of a securitization (such as when a 
savings association provides a program-wide credit enhancement and 
multiple pool-specific liquidity facilities to an ABCP program), the 
savings association is not required to hold duplicative risk-based 
capital against the overlapping position. Instead, the 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 Federal savings 
association has a securitization exposure where any underlying 
exposure is not a wholesale exposure, retail exposure, 
securitization exposure, or equity exposure, the savings association 
must:
    (1) If the Federal savings association is an originating savings 
association, deduct from tier 1 capital any after-tax gain-on-sale 
resulting from the securitization and deduct

[[Page 49113]]

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 Federal 
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 Federal savings association provides 
support to a securitization in excess of the savings association's 
contractual obligation to provide credit support to the 
securitization (implicit support):
    (1) The 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 savings association must disclose publicly:
    (i) That it has provided implicit support to the securitization; 
and
    (ii) The regulatory capital impact to the savings association of 
providing such implicit support.
    (i) Eligible servicer cash advance facilities. Regardless of any 
other provisions of this part, a Federal 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 appendix, a Federal 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 savings association establishes and maintains, pursuant 
to GAAP, a non-capital reserve sufficient to meet the 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 savings association is well capitalized, as defined in 
the OCC's prompt corrective action regulation at 12 CFR part 165. 
For purposes of determining whether a savings association is well 
capitalized for purposes of this paragraph, the 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 
Federal 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 savings 
association's total qualifying capital.
    (3) If a Federal 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 
savings association was well capitalized and did not exceed the 
capital limit.
    (4) The risk-based capital ratios of the 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 
167.6(b)(5)(v).
    (l) Nth-to-default credit derivatives--(1) First-to-default 
credit derivatives--(i) Protection purchaser. A Federal 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 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 Federal 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 Federal 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 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 savings association satisfies the requirements of 
paragraph (m)(2)(i)(A) of this section, the savings association must 
determine its risk-based capital requirement for the underlying 
exposures as if the 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 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 
Federal savings association. An originating Federal 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 Federal savings association. An investing Federal 
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 Federal 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 Federal 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 Federal 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 Federal savings 
association may assume that N is six

[[Page 49114]]

or more unless the 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 Federal 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 Federal 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
                              ------------------------------------------------------------
    Applicable external or      Risk weights for    Risk weights for    Risk weights for    Applicable external
       inferred rating               senior            non-senior        securitization      or inferred rating
(illustrative rating example)    securitization      securitization     exposures backed    (illustrative rating
                                exposures backed    exposures backed     by non-granular          example)
                                by granular pools   by granular pools         pools
----------------------------------------------------------------------------------------------------------------
Highest investment grade (for                  7%                 12%                 20%
 example, AAA).
Second highest investment                      8%                 15%                 25%
 grade (for example, AA).
Third-highest investment                      10%                 18%                 35%
 grade--positive designation
 (for example, A+).
Third-highest investment                      12%                 20%
 grade (for example, A).
Third-highest investment                      20%                 35%
 grade--negative designation
 (for example, A-).
                                                  ----------------------------------------
Lowest investment grade--                     35%                    50%
 positive designation (for
 example, BBB+).
                                                  ----------------------------------------
Lowest investment grade (for                  60%                    75%                   .....................
 example, BBB).
                              ------------------------------------------------------------
Lowest investment grade--                                 100%
 negative designation (for
 example, BBB-).
                              ------------------------------------------------------------
One category below investment                             250%
 grade--positive designation
 (for example, BB+).
                              ------------------------------------------------------------
One category below investment                             425%
 grade (for example, BB).
                              ------------------------------------------------------------
One category below investment                             650%
 grade--negative designation
 (for example, BB-).
                              ------------------------------------------------------------
More than one category below            Deduction from tier 1 and tier 2 capital.
 investment grade.
----------------------------------------------------------------------------------------------------------------


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

Section 44. Internal Assessment Approach (IAA)

    (a) Eligibility requirements. A Federal savings association may 
apply the IAA to calculate the risk-weighted asset amount for a 
securitization exposure that the savings association has to an ABCP 
program (such as a liquidity facility or credit enhancement) if the 
savings association, the ABCP program, and the exposure qualify for 
use of the IAA.
    (1) Federal savings association qualification criteria. A 
Federal savings association qualifies for use of the IAA if the 
savings association has received the prior written approval of the 
OCC. To receive such approval, the savings association must 
demonstrate to the OCC's satisfaction that the savings association's 
internal assessment process meets the following criteria:
    (i) The savings association's internal credit assessments of 
securitization exposures must be based on publicly available rating 
criteria used by an NRSRO.
    (ii) The savings association's internal credit assessments of 
securitization exposures used for risk-based capital purposes must 
be consistent with those used in the savings association's internal 
risk management process, management information reporting systems, 
and capital adequacy assessment process.
    (iii) The savings association's internal credit assessment 
process must have sufficient granularity to identify gradations of 
risk. Each of the savings association's internal credit assessment 
categories must correspond to an external rating of an NRSRO.
    (iv) The 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

[[Page 49115]]

different levels of credit enhancement to achieve the same external 
rating equivalent, the 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 savings association must evaluate whether to revise 
its internal assessment process.
    (v) The Federal 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 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 Federal savings association must review and update each 
internal credit assessment whenever new material information is 
available, but no less frequently than annually.
    (vii) The Federal 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 Federal 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 Federal 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 savings association must map 
its internal assessment of such a securitization exposure to an 
equivalent external rating from an NRSRO. Under the IAA, a 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 Federal savings association may 
use the SFA to determine its risk-based capital requirement for a 
securitization exposure only if the 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 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 Federal 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:

[[Page 49116]]

[GRAPHIC] [TIFF OMITTED] TR09AU11.007

    (1) 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.
    (2) [Reserved]
    (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 Federal savings association's securitization exposure to the 
amount of the tranche that contains the securitization exposure.
    (3) Capital requirement on underlying exposures (KIRB). (i) 
KIRBis 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 Federal 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 Federal savings association's 
securitization exposure; to
    (B) UE.
    (ii) A Federal 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 Federal 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 Federal savings 
association's securitization exposure; to
    (ii) UE.
    (6) Effective number of exposures (N). (i) Unless the Federal 
savings association elects to use the formula provided in paragraph 
(f) of this section,
[GRAPHIC] [TIFF OMITTED] TR09AU11.008

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 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] TR09AU11.009


[[Page 49117]]


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 
Federal 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 Federal savings association may employ a simplified 
method for calculating N and EWALGD.
    (3) If C1 is no more than 0.03, a Federal 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] TR09AU11.010


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 Federal savings 
association.

    (4) Alternatively, if only C1 is available and 
C1 is no more than 0.03, the Federal 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 Federal 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 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 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 Federal savings 
association may recognize financial collateral in determining the 
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 
savings association has reflected collateral in its determination of 
exposure amount under section 32 of this appendix) as follows. The 
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] TR09AU11.011


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 Federal savings 
association qualifies for use of and uses own-estimates haircuts in 
paragraph (b)(4) of this section:
    (i) A savings association must use the collateral type haircuts 
(Hs) in Table 3;
    (ii) A 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 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 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 OCC, a Federal 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 Federal savings association may only recognize an 
eligible guarantee or eligible credit derivative provided by an 
eligible securitization guarantor in determining the savings 
association's risk-based capital requirement for a securitization 
exposure.
    (2) ECL for securitization exposures. When a Federal savings 
association recognizes an eligible guarantee or eligible credit 
derivative provided by an eligible securitization guarantor in 
determining the savings association's risk-based capital requirement 
for a securitization exposure, the 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 Federal savings association's 
total ECL.
    (3) Rules of recognition. A Federal savings association may 
recognize an eligible guarantee or eligible credit derivative 
provided by an eligible securitization guarantor in determining the 
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 Federal savings 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 savings association's PD for the guarantor, the 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 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 Federal savings association's PD for the 
guarantor, the savings association's LGD for the guarantee

[[Page 49118]]

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 
42-45 of this appendix).
    (4) Mismatches. The Federal 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 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 Federal savings association must 
hold risk-based capital against the sum of the originating 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 Federal savings association must calculate 
the risk-based capital requirement for the originating savings 
association's interest under sections 42-45 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 Federal 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 Federal 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 Federal 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 Federal 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 
Federal 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              90% CF
                                  annualized excess
                                  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             100% CF
                                  annualized excess
                                  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 
Federal 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 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 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 Federal 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 Federal 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 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

[[Page 49119]]

from the 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 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 Federal 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 
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 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 Federal 
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 OCC'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 
savings association's tier 1 capital plus tier 2 capital.
    (A) To compute the aggregate adjusted carrying value of a 
Federal savings association's equity exposures for purposes of this 
paragraph (b)(3)(iii), the 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 savings 
association does not know the actual holdings of the investment 
fund, the 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 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 Federal savings association's 
equity exposures qualify for a 100 percent risk weight under this 
paragraph, a 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 OCC'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 Federal savings association acquires at least one of 
the equity exposures); the documentation specifies the measure of 
effectiveness (E) the Federal 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 Federal 
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 Federal 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:
[GRAPHIC] [TIFF OMITTED] TR09AU11.012

(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

[[Page 49120]]

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 Federal 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 Federal 
savings association must receive prior written approval from the 
OCC. To receive such approval, the savings association must 
demonstrate to the OCC's satisfaction that the savings association 
meets the following criteria:
    (1) The 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 savings association's modeled equity exposures; and
    (iii) Adequately capture both general market risk and 
idiosyncratic risk.
    (2) The 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 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 savings association's 
model and benchmarking exercise must be sufficient to provide 
confidence in the accuracy and robustness of the savings 
association's estimates.
    (4) The savings association's model and benchmarking process 
must incorporate data that are relevant in representing the risk 
profile of the 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 savings 
association's modeled equity exposures. In addition, the savings 
association's benchmarking exercise must be based on daily market 
prices for the benchmark portfolio. If the savings association's 
model uses a scenario methodology, the savings association must 
demonstrate that the model produces a conservative estimate of 
potential losses on the savings association's modeled equity 
exposures over a relevant long-term market cycle. If the savings 
association employs risk factor models, the savings association must 
demonstrate through empirical analysis the appropriateness of the 
risk factors used.
    (5) The 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 savings association's 
modeled equity exposures and that the savings association has made 
appropriate adjustments for differences. The savings association 
must derive any proxies for its modeled equity exposures and 
benchmark portfolio using historical market data that are relevant 
to the 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 savings 
association's modeled equity exposures.
    (c) Risk-weighted assets calculation for a Federal savings 
association modeling publicly traded and non-publicly traded equity 
exposures. If a Federal savings association models publicly traded 
and non-publicly traded equity exposures, the 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 savings 
association's equity exposures (other than equity exposures 
referenced in paragraph (c)(1) of this section) generated by the 
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 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 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 Federal savings 
association using the IMA only for publicly traded equity exposures. 
If a Federal savings association models only publicly traded equity 
exposures, the 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 Federal savings 
association's equity exposures (other than equity exposures 
referenced in paragraph (d)(1) of this section) generated by the 
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 Federal 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 Federal 
savings association must determine the risk-weighted asset amount of 
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 Federal savings association does not use the Full 
Look-Through Approach, the 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 Federal savings association 
that is able to

[[Page 49121]]

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 savings 
association) may either:
    (1) Set the risk-weighted asset amount of the Federal 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 savings 
association; and
    (ii) The savings association's proportional ownership share of 
the fund; or
    (2) Include the savings association's proportional ownership 
share of each exposure held by the fund in the savings association's 
IMA.
    (c) Simple Modified Look-Through Approach. Under this approach, 
the risk-weighted asset amount for a Federal 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  (percent)                   Exposure class
------------------------------------------------------------------------
0........................  Sovereign exposures with a long-term
                            applicable external rating in the highest
                            investment-grade rating category and
                            sovereign exposures of the United States.
20.......................  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.......................  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......................  Exposures with a long-term or short-term
                            applicable external rating in the lowest
                            investment-grade rating category.
200......................  Exposures with a long-term applicable
                            external rating one rating category below
                            investment grade.
300......................  Publicly traded equity exposures.
400......................  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....................  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 Federal 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 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 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 Federal savings association must 
use the highest applicable risk weight. A Federal 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 Federal 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 Federal 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 Federal 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 Federal 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 Federal 
savings association may adjust its estimate of operational risk 
exposure to reflect qualifying operational risk mitigants if:
    (1) The savings association's operational risk quantification 
system is able to generate an estimate of the savings association's 
operational risk exposure (which does not incorporate qualifying 
operational risk mitigants) and an estimate of the savings 
association's operational risk exposure adjusted to incorporate 
qualifying operational risk mitigants; and
    (2) The savings association's methodology for incorporating the 
effects of insurance, if the 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 OCC has given prior written approval. In evaluating an

[[Page 49122]]

operational risk mitigant other than insurance, the OCC 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 Federal savings association does not qualify to use or 
does not have qualifying operational risk mitigants, the 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 Federal savings association qualifies to use 
operational risk mitigants and has qualifying operational risk 
mitigants, the savings association's dollar risk-based capital 
requirement for operational risk is the greater of:
    (1) The Federal 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 Federal savings association's operational risk exposure; 
and
    (ii) Eligible operational risk offsets (if any).
    (c) The Federal savings association's risk-weighted asset amount 
for operational risk equals the 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 Federal 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).\4\
---------------------------------------------------------------------------

    \4\ Other public disclosure requirements continue to apply--for 
example, Federal securities law and regulatory reporting 
requirements.
---------------------------------------------------------------------------

    (b) A Federal 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 Federal 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-
11.11 below. If a significant change occurs, such that the most 
recent reported amounts are no longer reflective of the 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 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 savings 
association's public Web site.\5\ The 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.
---------------------------------------------------------------------------

    \5\ Alternatively, a Federal 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 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 Federal 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 savings association must attest that the 
disclosures required by this appendix meet the requirements of this 
appendix.
    (3) If a Federal 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 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
------------------------------------------------------------------------
                                               (a) The name of the top
                                               corporate entity in the
          Qualitative Disclosures            group to which the appendix
                                                       applies.
------------------------------------------------------------------------
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 \6\ 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.
------------------------------------------------------------------------

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

    \6\ Entities include securities, insurance and other financial 
subsidiaries, commercial subsidiaries (where permitted), and 
significant minority equity investments in insurance, financial and 
commercial entities.

                      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; \7\ 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.\8\

[[Page 49123]]

 
                                             (e) Total eligible capital.
------------------------------------------------------------------------

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

    \7\ 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.
    \8\ 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.
    \9\ Risk-weighted assets determined under any applicable market 
risk rule are to be disclosed only for the approaches used.
    \10\ Total risk-weighted assets should also be disclosed.

                      Table 11.3--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures....................  (a) A summary discussion of
                                              the Federal 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: \9\
                                                 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: \10\
                                                 For the top
                                                 consolidated group; and
                                                 For each DI
                                                 subsidiary.
------------------------------------------------------------------------


[[Page 49124]]

General qualitative disclosure requirement

    For each separate risk area described in tables 11.4 through 
11.11, the Federal savings association must describe its risk 
management objectives and policies, including:
     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 \11\--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 Federal 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,\12\ 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.\13\
                                             (c) Geographic \14\
                                              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; \15\
                                                 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.\16\
                                             (h) Reconciliation of
                                              changes in the allowance
                                              for loan and lease
                                              losses.\17\
------------------------------------------------------------------------

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

    \11\ Table 4 does not include equity exposures.
    \12\ For example, FASB Interpretations 39 and 41.
    \13\ For example, savings associations could apply a breakdown 
similar to that used for accounting purposes.
    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.
    \14\ Geographical areas may comprise individual countries, 
groups of countries, or regions within countries.
    \15\ A Federal savings association is encouraged also to provide 
an analysis of the aging of past-due loans.
    \16\ The portion of general allowance that is not allocated to a 
geographical area should be disclosed separately.
    \17\ 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 Federal 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.

[[Page 49125]]



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.\18\
 Quantitative disclosures: risk assessment.  (c) For wholesale
                                              exposures, present the
                                              following information
                                              across a sufficient number
                                              of PD grades (including
                                              default) to allow for a
                                              meaningful differentiation
                                              of credit risk: \19\
                                              Total EAD; \20\
                                              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: historical        (d) Actual losses in the
 results.                                     preceding 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 Federal
                                              savings association
                                              experienced higher than
                                              average default rates,
                                              loss rates or EADs.
                                             (e) Federal savings
                                              association's estimates
                                              compared against actual
                                              outcomes over a longer
                                              period.\21\ 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.\22\ Where
                                              appropriate, the 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.\23\
------------------------------------------------------------------------

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

    \18\ 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 Federal 
savings association should disclose any significant differences in 
approach to estimating these variables within each category/
subcategories.
    \19\ 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 Federal 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.
    \20\ Outstanding loans and EAD on undrawn commitments can be 
presented on a combined basis for these disclosures.
    \21\ 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 Federal savings association sufficient time to build up a longer 
run of data that will make these disclosures meaningful.
    \22\ This regulation is not prescriptive about the period used 
for this assessment. Upon implementation, it might be expected that 
a Federal savings association would provide these disclosures for as 
long a run of data as possible--for example, if a 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.
    \23\ A Federal 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 savings association should also provide explanations 
for such differences.

[[Page 49126]]



   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 Federal
                                              savings association would
                                              have to provide if the
                                              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.\24\ 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 Federal 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.\25\
                                             (c) Notional amount of
                                              purchased and sold credit
                                              derivatives, segregated
                                              between use for the
                                              Federal 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 Federal savings
                                              association has received
                                              supervisory approval to
                                              estimate alpha.
------------------------------------------------------------------------

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

    \24\ 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.
    \25\ 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 26 27 28
------------------------------------------------------------------------
 
------------------------------------------------------------------------
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 Federal 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
                                             Federal 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.
------------------------------------------------------------------------

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

    \26\ At a minimum, a Federal 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, Federal savings 
associations are encouraged to give further information about 
mitigants that have not been recognized for that purpose.
    \27\ 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.
    \28\ Counterparty credit risk-related exposures disclosed 
pursuant to Table 11.6 should be excluded from the credit risk 
mitigation disclosures in Table 11.7.

[[Page 49127]]



                       Table 11.8--Securitization
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement
                                              with respect to
                                              securitization (including
                                              synthetics), including a
                                              discussion of:
                                              The Federal
                                              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 savings
                                              association to other
                                              entities;
                                              The roles played
                                              by the Federal savings
                                              association in the
                                              securitization process
                                              \29\ and an indication of
                                              the extent of the savings
                                              association's involvement
                                              in each of them; and
                                              The regulatory
                                              capital approaches (for
                                              example, RBA, IAA and SFA)
                                              that the Federal savings
                                              association follows for
                                              its securitization
                                              activities.
                                             (b) Summary of the Federal
                                              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
                                              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 Federal savings
                                              association in
                                              securitizations that meet
                                              the operational criteria
                                              in section 41 of this
                                              appendix (broken down into
                                              traditional/synthetic), by
                                              underlying exposure
                                              type.30 31 32
                                             (e) For exposures
                                              securitized by the Federal
                                              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 Federal savings
                                              association during the
                                              current period \33\ 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 Federal 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.
------------------------------------------------------------------------

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

    \29\ For example: originator, investor, servicer, provider of 
credit enhancement, sponsor of ABCP facility, liquidity provider, or 
swap provider.
    \30\ Underlying exposure types may include, for example, one- to 
four-family residential loans, home equity lines, credit card 
receivables, and auto loans.
    \31\ Securitization transactions in which the originating 
Federal savings association does not retain any securitization 
exposure should be shown separately but need only be reported for 
the year of inception.
    \32\ Where relevant, a Federal 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 Federal savings association securitization activities.
    \33\ For example, charge-offs/allowances (if the assets remain 
on the 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 Federal
                                              savings association's
                                              measurement approach.
                                             (c) A description of the
                                              use of insurance for the
                                              purpose of mitigating
                                              operational risk.
------------------------------------------------------------------------


[[Page 49128]]


          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)
                                              \34\
                                              Total latent
                                              revaluation gains (losses)
                                              \35\
                                              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
                                              Federal 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.\36\
------------------------------------------------------------------------

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

    \34\ Unrealized gains (losses) recognized in the balance sheet 
but not through earnings.
    \35\ Unrealized gains (losses) not recognized either in the 
balance sheet or through earnings.
    \36\ 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.

       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 Federal 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 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 Federal 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 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 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 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 savings association is the sponsor of the ABCP program,
    (B) Prior to the implementation date, the savings association 
consolidated the VIE onto its balance sheet under GAAP and excluded 
the VIE's assets from the savings association's risk-weighted 
assets, and
    (C) The 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 Federal 
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 Federal 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 
Federal savings association

[[Page 49129]]

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 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 Federal 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 
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 168--SECURITY PROCEDURES

Sec.
168.1 Authority, purpose, and scope.
168.2 Designation of security officer.
168.3 Security program.
168.4 Report.
168.5 Protection of customer information.


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 
1881-1884, 5412(b)(2)(B); 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 
and 6805(b)(1).


Sec.  168.1  Authority, purpose, and scope.

    (a) This part is issued under section 3 of the Bank Protection Act 
of 1968 (12 U.S.C 1882), sections 501 and 505(b)(1) of the Gramm-Leach-
Bliley Act (15 U.S.C. 6801 and 6805(b)(1)), and sections 621 and 628 of 
the Fair Credit Reporting Act (15 U.S.C. 1681s and 1681w). This part is 
applicable to Federal savings associations. It requires each Federal 
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 
168.5 of this part is applicable to Federal savings associations and 
their subsidiaries (except brokers, dealers, persons providing 
insurance, investment companies, and investment advisers). Section 
168.5 of this part 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 Federal savings association's 
board of directors to comply with this regulation and ensure that a 
written security program for the association's main office and branches 
is developed and implemented.


Sec.  168.2  Designation of security officer.

    Within 30 days after the effective date of insurance of accounts, 
the board of directors of each Federal 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 association's offices.


Sec.  168.3  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 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 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 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.  168.4  Report.

    The security officer for each Federal savings association shall 
report at least annually to the association's board of directors on the 
implementation, administration, and effectiveness of the security 
program.


Sec.  168.5  Protection of customer information.

    Federal 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 
part 170 of this chapter. Supplement A to appendix B to part 170 of 
this chapter provides interpretive guidance.

PART 169--PROXIES

Sec.
169.1 Definitions.
169.2 Form of proxies.
169.3 Holders of proxies.
169.4 Proxy soliciting material.


    Authority: Section 2, 48 Stat. 128, as amended (12 U.S.C. 1462); 
section 3, as added by section 301, 103 Stat. 278 (12 U.S.C. 1462a); 
section 4, as added by section 301, 103 Stat. 280 (12 U.S.C. 1463), 
5412(b)(2)(B).

Sec.  169.1  Definitions.

    As used in this part:
    (a) Security holder. (1) The term security holder means any person 
having the right to vote in the affairs of a savings association by 
virtue of:
    (i) Ownership of any security of the association or
    (ii) Any indebtedness to the association.

[[Page 49130]]

    (2) For purposes of this part, the term security holder shall 
include any account holder having the right to vote in the affairs of a 
mutual savings association.
    (b) Person. The term person includes, in addition to natural 
persons, corporations, partnerships, pension funds, profit-sharing 
funds, trusts, and any other group of associated persons of whatever 
nature.
    (c) Proxy. The term proxy includes every form of authorization by 
which a person is, or may be deemed to be, designated to act for the 
security holder in the exercise of his or her voting rights in the 
affairs of a savings association. Such an authorization may take the 
form of failure to dissent or object.
    (d) Solicit; solicitation. (1) The terms solicit and solicitation 
refer to:
    (i) Any request for a proxy whether or not accompanied by or 
included in a form of proxy;
    (ii) Any request to execute, not execute, or revoke a proxy; or
    (iii) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding, or revocation of a proxy.
    (2) The terms do not apply, however, to the furnishing of a form of 
proxy to a security holder upon the request of such security holder or 
to the performance by any person of ministerial acts on behalf of a 
person soliciting a proxy.


Sec.  169.2  Form of proxies.

    Every form of proxy shall conform to the following requirements:
    (a) The proxy shall be revocable at will by the person giving it. 
The power to revoke may not be conditioned on any event or occurrence 
or be otherwise limited; except that, in the case of a proxy relating 
to capital stock if such proxy is coupled with an interest, states such 
fact on its face, and is valid under the laws of the state in which it 
is to be exercised, such proxy may be made irrevocable to the extent 
permitted by such state law.
    (b) The proxy may not be part of any other document or instrument 
(such as an account card).
    (c) The proxy shall be clearly labeled ``Revocable Proxy'' in 
boldface type (at least as large as 18 point).


Sec.  169.3  Holders of proxies.

    No proxy of a mutual savings association with a term greater than 
eleven months or solicited at the expense of the association may 
designate as holder anyone other than the board of directors [trustees] 
as a whole, or a committee appointed by a majority of such board.


Sec.  169.4  Proxy soliciting material.

    No solicitation of a proxy shall be made by means of any statement, 
form of proxy, notice of meeting, or other communication, written or 
oral, which:
    (a) Solicits any undated or postdated proxy;
    (b) Solicits any proxy that provides that it shall be deemed to be 
dated as of any date subsequent to the date on which it is signed by 
the security holder; or
    (c)(1) Contains any statement that is false or misleading with 
respect to any material fact, or
    (2) Omits to state any material fact:
    (i) Necessary in order to make the statements therein not false or 
misleading or
    (ii) Necessary to correct any statement in any earlier 
communication with respect to the solicitation of a proxy for the same 
meeting or subject matter that has subsequently become false or 
misleading.

PART 170--SAFETY AND SOUNDNESS GUIDELINES AND COMPLIANCE PROCEDURES

Sec.
170.1 Authority, purpose, scope and preservation of existing 
authority.
170.2 Determination and notification of failure to meet safety and 
soundness standards and request for compliance plan.
170.3 Filing of safety and soundness compliance plan.
170.4 Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
170.5 Enforcement of orders.

Appendix A to Part 170--Interagency Guidelines Establishing Standards 
for Safety and Soundness

Appendix B to Part 170--Interagency Guidelines Establishing Information 
Security Standards


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 
1881-1884, 5412(b)(2)(B); 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 
and 6805(b)(1).

Sec.  170.1  Authority, purpose, scope and preservation of existing 
authority.

    (a) Authority. This part and the Guidelines in Appendices A and B 
to this part are issued by the OCC 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 part 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 OCC to 
establish safety and soundness standards. Pursuant to section 39, a 
Federal savings association may be required to submit a compliance 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 Federal savings association fails to 
submit an acceptable compliance plan or fails in any material respect 
to implement an accepted plan. This part 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 part. 
Interagency Guidelines Establishing Information Security Standards are 
set forth in appendix B to this part.
    (c) Scope. This part and the Interagency Guidelines Establishing 
Standards for Safety and Soundness as set forth at appendix A to this 
part and the Interagency Guidelines Establishing Information Security 
Standards at appendix B to this part implement the provisions of 
section 39 of the FDI Act as they apply to Federal savings 
associations.
    (d) Preservation of existing authority. Neither section 39 of the 
FDI Act nor this part in any way limits the authority of the OCC 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 part 
may be taken independently of, in conjunction with, or in addition to 
any other enforcement action available to the OCC.


Sec.  170.2  Determination and notification of failure to meet safety 
and soundness standards and request for compliance plan.

    (a) Determination. The OCC may, based upon an examination, 
inspection, or any other information that becomes available to the OCC, 
determine that a Federal savings association has failed to satisfy the 
safety and soundness standards contained in the Interagency

[[Page 49131]]

Guidelines Establishing Standards for Safety and Soundness as set forth 
in appendix A to this part or the Interagency Guidelines Establishing 
Information Security Standards as set forth in appendix B to this part.
    (b) Request for compliance plan. If the OCC determines that a 
Federal savings association has failed to meet a safety and soundness 
standard pursuant to paragraph (a) of this section, the OCC may request 
by letter or through a report of examination, the submission of a 
compliance plan. The 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 OCC.


Sec.  170.3  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan-- (1) In general. A Federal 
savings association shall file a written safety and soundness 
compliance plan with the OCC within 30 days of receiving a request for 
a compliance plan pursuant to Sec.  170.2(b), unless the OCC notifies 
the savings association in writing that the plan is to be filed within 
a different period.
    (2) Other plans. If a 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 OCC, 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 Federal 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 OCC shall provide written notice to the Federal savings 
association of whether the plan has been approved or seek additional 
information from the savings association regarding the plan. The OCC 
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 Federal 
savings association fails to submit an acceptable plan within the time 
specified by the OCC or fails in any material respect to implement a 
compliance plan, then the OCC shall, by order, require the 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 OCC may be required to take certain actions if the 
savings association commenced operations or experienced a change in 
control within the previous 24-month period, or the savings association 
experienced extraordinary growth during the previous 18-month period.
    (e) Amendment of compliance plan. A Federal savings association 
that has filed an approved compliance plan may, after prior written 
notice to and approval by the OCC, amend the plan to reflect a change 
in circumstance. Until such time as a proposed amendment has been 
approved, the savings association shall implement the compliance plan 
as previously approved.


Sec.  170.4  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 OCC shall 
provide a Federal savings association prior written notice of the OCC's 
intention to issue an order requiring the 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 savings 
association shall have such time to respond to a proposed order as 
provided by the OCC under paragraph (c) of this section.
    (2) Immediate issuance of final order. If the OCC finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the OCC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a 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 savings association that is subject to such an 
immediately effective order may submit a written appeal of the order to 
the OCC. Such an appeal must be received by the OCC within 14 calendar 
days of the issuance of the order, unless the OCC permits a longer 
period. The OCC 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 OCC, 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 Federal savings 
association;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the OCC 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
    (4) The date by which the savings association subject to the order 
may file with the OCC a written response to the notice.
    (c) Response to notice-- (1) Time for response. A Federal savings 
association may file a written response to a notice of intent to issue 
an order within the time period set by the OCC. Such a response must be 
received by the OCC within 14 calendar days from the date of the notice 
unless the OCC determines that a different period is appropriate in 
light of the safety and soundness of the savings association or other 
relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the OCC 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 
savings association regarding the proposed order.
    (d) The OCC's consideration of response. After considering the 
response, the OCC may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the Federal 
savings association; or
    (3) Seek additional information or clarification of the response 
from the savings association, or any other relevant source.
    (e) Failure to file response. Failure by a Federal savings 
association to file with the OCC, 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 Federal 
savings association that is subject to an order under this subpart may, 
upon a change in circumstances, request in writing that the OCC 
reconsider the terms of the order, and may propose that the order be 
rescinded or modified. Unless otherwise ordered by the OCC, the order

[[Page 49132]]

shall continue in place while such request is pending before the OCC.


Sec.  170.5  Enforcement of orders.

    (a) Judicial remedies. Whenever a Federal savings association fails 
to comply with an order issued under section 39 of the FDI Act, the OCC 
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 OCC may assess a civil money penalty against any Federal 
savings association that violates or otherwise fails to comply with any 
final order issued under section 39 and against any 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 OCC 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 Part 170--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 national banks and part 170 
for Federal savings associations; for the Board of Governors of the 
Federal Reserve System, these regulations appear at 12 CFR part 263; 
and for the Federal Deposit Insurance Corporation, these regulations 
appear at 12 CFR part 308 subpart R for state nonmember banks and 
part 390, subpart B for state savings associations.
---------------------------------------------------------------------------

    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.

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(c).\3\
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    \3\ In applying these definitions for Federal savings 
associations, pursuant to 12 U.S.C. 1464, Federal savings 
associations shall use the terms ``Federal savings association'' and 
``insured Federal 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(d).\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 (l ).\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:

[[Page 49133]]

    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.

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 Part 170--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 sections 
621 and 628 of the Fair Credit Reporting Act (15 U.S.C. 1681s and 
1681w).
    A. Scope. The Guidelines apply to customer information 
maintained by or on behalf of entities over which the OCC has 
authority. For purposes of this appendix, these entities are Federal 
savings associations whose deposits are FDIC-insured and any 
subsidiaries of such 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 the OCC's authority to address 
unsafe or unsound practices, violations of law, unsafe or unsound 
conditions, or other

[[Page 49134]]

practices. The OCC may take action under section 39 and these 
Guidelines independently of, in conjunction with, or in addition to, 
any other enforcement action available to the OCC.
    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 Federal 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 of your customers as defined in Sec.  
573.3(h) or any superseding regulation issued by the Consumer 
Financial Protection Bureau.
    d. Customer information means any record containing nonpublic 
personal information, as defined in Sec.  573.3(n) or any 
superseding regulation issued by the Consumer Financial Protection 
Bureau, 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 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

[[Page 49135]]

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 A to Appendix B to Part 170--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 was originally 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), and the Office of Thrift Supervision (OTS).
    \2\ 12 CFR part 30, app. B and 12 CFR part 170, app. B (OCC); 12 
CFR part 208, app. D-2 and part 225, app. F (Board); and 12 CFR part 
364, app. B (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\
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    \3\ See Security Guidelines, III.B.
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    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:
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    \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\
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    \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, III.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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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.
    \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.

[[Page 49136]]

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.
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    \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; OTS 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;
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    \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 12 CFR 163.180 (Federal 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; OTS 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 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

[[Page 49137]]

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.

PART 171--FAIR CREDIT REPORTING

Sec.
Subparts A-H [Reserved]
Subpart I--Duties of Users of Consumer Reports Regarding Records 
Disposal
171.80-170.82 [Reserved]
171.83 Disposal of consumer information.
Subpart J--Identity Theft Red Flags
171.90 Duties regarding the detection, prevention, and mitigation of 
identity theft.
171.91 Duties of card issuers regarding changes of address.
171.92 Examples.
Appendices A-I to Part 171 [Reserved]
Appendix J to Part 171--Interagency Guidelines on Identity Theft 
Detection, Prevention, and Mitigation


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 
1881-1884, and 5412(b)(2)(B); 15 U.S.C. 1681b, 1681m, 1681s, 1681s-
2, 1681s-3, 1681t, and 1681w; 15 U.S.C. 6801 and 6805; Section 214 
Pub. L. 108-159, 117 Stat. 1952.

Subparts A-H [Reserved]

Subpart I--Duties of Users of Consumer Reports Regarding Records 
Disposal


Sec. Sec.  171.80-170.82  [Reserved]


Sec.  171.83  Disposal of consumer information.

    (a) Scope. This section applies to Federal savings associations 
whose deposits are insured by the Federal Deposit Insurance Corporation 
and Federal savings association operating subsidiaries in accordance 
with Sec.  159.3(h)(1) of this chapter (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, 
as set forth in appendix B to part 170, 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.

Subpart J--Identity Theft Red Flags


Sec.  171.90  Duties regarding the detection, prevention, and 
mitigation of identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor that is a Federal savings association whose deposits are 
insured by the Federal Deposit Insurance Corporation or, in accordance 
with Sec.  159.3(h)(1) of this chapter, a Federal savings association 
operating subsidiary that is not functionally regulated within the 
meaning of section 5(c)(5) of the Bank Holding Company Act of 1956, as 
amended (12 U.S.C. 1844(c)(5)).
    (b) Definitions. For purposes of this section and appendix J, 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 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:

[[Page 49138]]

    (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 
appendix J of this part and include in its Program those guidelines 
that are appropriate.


Sec.  171.91  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 Federal savings association whose deposits 
are insured by the Federal Deposit Insurance Corporation or, in 
accordance with Sec.  159.3(h)(1) of this chapter, a Federal savings 
association operating subsidiary that is not functionally regulated 
within the meaning of section 5(c)(5) of the Bank Holding Company Act 
of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (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.  171.90 of this part.
    (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.


Sec.  171.92  Examples.

    The examples in Appendix J and Supplement A to Appendix J are not 
exclusive. Compliance with an example, to the extent applicable, 
constitutes compliance with this subpart. Examples in a paragraph 
illustrate only the issue described in the paragraph and do not 
illustrate any other issue that may arise in this subpart.

Appendices A-I to Part 171 [Reserved]

Appendix J to Part 171--Interagency Guidelines on Identity Theft 
Detection, Prevention, and Mitigation

    Section 171.90 of this part requires each financial institution 
and creditor that offers or maintains one or more covered accounts, 
as defined in Sec.  171.90(b)(3) of this part, 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.  171.90 of this part.

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 J.
    (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

[[Page 49139]]

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 1020.220); and
    (b) Authenticating customers, monitoring transactions, and 
verifying the validity of 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 website. 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.  171.90 of this 
part; 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.  
171.90 of this part.
    (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 J

    In addition to incorporating Red Flags from the sources 
recommended in section II.b. of the Guidelines in Appendix J of this 
part, 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, as defined in Sec.  171.82(b) of this part.
    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:

[[Page 49140]]

    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:
    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.

PART 172--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
172.1 Authority, purpose, and scope.
172.2 Definitions.
172.3 Requirement to purchase flood insurance where available.
172.4 Exemptions.
172.5 Escrow requirement.
172.6 Required use of standard flood hazard determination form.
172.7 Forced placement of flood insurance.
172.8 Determination fees.
172.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
172.10 Notice of servicer's identity.

Appendix A to Part 172--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 1462a, 1463, 1464; 42 U.S.C. 4012a, 4104a, 
4104b, 4106, 4128, and 5412(b)(2)(B).

Sec.  172.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462, 
1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
    (b) Purpose. The purpose of this part 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 part, except for Sec. Sec.  172.6 and 172.8, 
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 172.6 and 
172.8 of this part apply to loans secured by buildings or mobile homes, 
regardless of location.


Sec.  172.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Federal savings association means, for purposes of this part, a 
Federal savings association as that term is defined in 12 U.S.C. 
1813(b)(2) and any subsidiaries or service corporations 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 part, 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.

[[Page 49141]]

    (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.  172.3  Requirement to purchase flood insurance where available.

    (a) In general. A Federal 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 Federal 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 part.


Sec.  172.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  172.3 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.  172.5  Escrow requirement.

    If a Federal 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 
savings association shall also require the escrow of all premiums and 
fees for any flood insurance required under Sec.  172.3. The savings 
association, or a servicer acting on behalf of the 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 savings 
association, or a servicer acting on behalf of the savings association, 
shall pay the amount owed to the insurance provider from the escrow 
account by the date when such premiums are due.


Sec.  172.6  Required use of standard flood hazard determination form.

    (a) Use of form. A Federal 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 Federal 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 Federal 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 savings 
association owns the loan.


Sec.  172.7  Forced placement of flood insurance.

    If a Federal savings association, or a servicer acting on behalf of 
the 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.  172.3, then the 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.  172.3, for the remaining term of the 
loan. If the borrower fails to obtain flood insurance within 45 days 
after notification, then the savings association or its servicer shall 
purchase insurance on the borrower's behalf. The savings association or 
its servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance.


Sec.  172.8  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 Federal savings association, or a servicer acting on behalf 
of the 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.  172.7.
    (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.  172.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a Federal 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 
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));

[[Page 49142]]

    (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 Federal 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 savings 
association provides notice to the borrower and in any event no later 
than the savings association provides other similar notices to the 
servicer concerning hazard insurance and taxes. Notice to the servicer 
may be made electronically or may take the form of a copy of the notice 
to the borrower.
    (d) Record of receipt. The Federal savings association shall retain 
a record of the receipt of the notices by the borrower and the servicer 
for the period of time the 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 Federal 
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 savings association shall 
retain a record of the written assurance from the seller or lessor for 
the period of time the savings association owns the loan.
    (f) Use of prescribed form of notice. A Federal 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 part 
within a reasonable time before the completion of the transaction. The 
notice presented in appendix A to this part satisfies the borrower 
notice requirements of the Act.


Sec.  172.10  Notice of servicer's identity.

    (a) Notice requirement. When a Federal 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 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 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 Federal 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 A to Part 172--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:
    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.
    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%).
    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.
    ---- 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.
    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.
    ---- 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.

PART 174--ACQUISITION OF CONTROL OF FEDERAL SAVINGS ASSOCIATIONS

Sec.
174.1 Scope of part.
174.2 Definitions.
174.3 Acquisition of control of Federal savings associations.
174.4 Control.
174.5 Certifications of ownership.
174.6 Procedural requirements.
174.7 Determination by the OCC.
174.8 [Reserved]
Appendix A to Part 174--Rebuttal of control agreement.

    Authority: 12 U.S.C. 1817(j).


Sec.  174.1  Scope of part.

    The purpose of this part 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 Federal savings 
associations that are organized in stock form.


Sec.  174.2  Definitions.

    As used in this part and in the forms under this part, the 
following definitions apply, unless the context otherwise requires:
    (a) Acquire when used in connection with the acquisition of stock 
of a 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

[[Page 49143]]

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.
    (b) Acquiror means a person or company.
    (c) 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 benefit 
plan as defined in Sec.  192.25 of this chapter 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.
    (d) Affiliate means any person or company which controls, is 
controlled by or is under common control with a person, savings 
association or company.
    (e) [Reserved]
    (f) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-
stock company or similar organization, as defined in paragraph (r) of 
this section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, the Office of the Comptroller of the Currency (OCC), or 
any Federal Home Loan Bank;
    (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; or
    (iii) An instrumentality of the United States or any state; or
    (3) A savings and loan holding company registered under section 
10(b) of the Home Owners' Loan Act (Holding Company Act).
    (g) 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.
    (h) Comptroller means the Comptroller of the Currency.
    (i) [Reserved]
    (j) 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.
    (k) 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 savings association or a company, 
whether or not incorporated.
    (l) [Reserved]
    (m) Person means an individual or a group of individuals acting in 
concert who do not constitute a ``company'' as defined in paragraph (f) 
of this section.
    (n) 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.
    (o) [Reserved]
    (p) Savings Association means a Federal savings and loan 
association or a Federal savings bank chartered under section 5 of the 
Home Owners' Loan Act (HOLA), a 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 Federal Deposit Insurance Corporation, and any 
corporation (other than a bank) the deposits of which are insured by 
the Federal Deposit Insurance Corporation that the OCC and the Federal 
Deposit Insurance Corporation jointly determine to be operating in 
substantially the same manner as a savings association.
    (q) [Reserved]
    (r) Similar organization for purposes of paragraph (f) of 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.
    (s) Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    (t) Uninsured institution means any financial institution the 
deposits of which are not insured by the Federal Deposit Insurance 
Corporation.
    (u)(1) Voting stock means 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 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 paragraph (u)(1) of this section, 
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 paragraphs (u)(1) and (u)(2) of 
this

[[Page 49144]]

section, ``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 (u)(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.  174.3  Acquisition of control of Federal 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 10(e)(4) of the HOLA), shall 
acquire control, as defined in Sec.  174.4 (a) and (b) of this part, of 
a Federal savings association until written notice has been provided to 
the appropriate OCC licensing office and the OCC indicates in writing 
its intent not to disapprove the proposed acquisition or 60 days (or 
such period of time as the OCC may specify if the review period has 
been extended under Sec.  174.6(c)(3) of this part) have passed since 
receipt of a notice deemed sufficient under Sec.  174.6(c)(2). 
Notwithstanding the forgoing, acquisitions by persons or companies by 
means of a merger with an interim association are not subject to this 
part, but shall be subject to approval under Sec.  163.22, and either 
Sec.  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 Federal 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 Federal 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 OCC 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 
OCC 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 OCC finds such extension is warranted and would not be 
detrimental to the public interest;
    (C) Control of a Federal 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.  174.7 of this part, or any predecessor provision, has been 
received: Provided, That such acquisition is consistent with any 
conditions imposed in connection with such non-disapproval and with the 
representations made by the acquiror in its notice; and
    (E) Acquisitions of less than 25 percent (25%) of a class of stock 
by a tax-qualified employee stock benefit plan as defined in Sec.  
192.25.
    (ii) Transactions for which approval is required under the HOLA;
    (iii) Transactions for which approval is required under part 146 or 
Sec.  152.13 and Sec.  163.22 of this chapter;
    (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 Federal 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 savings association continuously 
since acquiring control in compliance with the Control Act (or the 
Repealed Control Act) and the OCC's 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) Acquisitions of stock of a de novo Federal savings association 
in connection with the organization of such association: Provided, That 
the OCC has considered the financial and managerial resources of the 
acquiror in granting the association its Federal savings association 
charter; and additional acquisitions of stock of such association, and 
further provided, that the acquisitions are consistent with any 
conditions imposed in connection with the approval of the association's 
charter and with representations made by the acquiror in its 
application for a Federal savings association charter, and that the OCC 
has no supervisory objection to the acquiror's additional acquisitions.
    (3) An acquiror that would be considered to be in control of a 
Federal savings association pursuant to Sec.  174.4 of this part on 
December 26, 1985, shall not be subject to this Sec.  174.3 unless the 
acquiror acquires additional stock of the 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 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 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.  174.3: Provided, That the timing of the transaction was not 
within the control of the acquiror.
    (i) Control of a savings association acquired through bona fide 
gift;
    (ii) Control of a savings association acquired through liquidation 
of a loan contracted in good faith where the loan

[[Page 49145]]

was not made in the ordinary course of business of the lender;
    (iii) Control of a 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.  174.4 (a) or (b) as a 
result of actions by third parties that are not within the control of 
the acquiror;
    (v) Control of a savings association acquired through testate or 
intestate succession: Provided, That the acquiror transmits written 
notification of the acquisition to the OCC within 60 days of the 
acquisition and provides such additional information as the OCC 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 OCC within 90 days of acquisition of control;
    (ii) The acquiror shall not take any action to direct the 
management or policies of the savings association or which are designed 
to effect a change in the business plan of the savings association 
other than voting on matters that may be presented to stockholders by 
management of the savings association until the OCC has acted favorably 
upon the acquiror's notice or rebuttal, and the OCC may require that 
the acquiror take such steps as the OCC deems necessary to insure that 
control is not exercised; and
    (iii) If the OCC 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 
savings association under Sec.  174.4 of this part, within one year or 
such shorter period of time and in the manner that the OCC may order.


Sec.  174.4  Control.

    (a) Conclusive control. (1) An acquiror shall be deemed to have 
acquired control of a Federal savings association 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 
savings association;
    (ii) Acquires irrevocable proxies representing 25 percent or more 
of any class of voting stock of the savings association; or
    (iii) Acquires any combination of voting stock and irrevocable 
proxies representing 25 percent or more of any class of voting stock of 
a savings association.
    (iv) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) A person or company shall be deemed to control a savings 
association if the OCC determines that such person has the power to 
direct the management or policies of the savings association.
    (b) Rebuttable control determinations. (1) An acquiror shall be 
determined, subject to rebuttal, to have acquired control of a Federal 
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 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 
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 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 proxies, representing 25 
percent or more of any class of voting stock of a savings association, 
excluding such proxies held in connection with a solicitation by, or in 
opposition to, a solicitation on behalf of management of the 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 savings association's board of 
directors, including nominees or representatives of the acquiror 
currently serving on such board;
    (ii) Cause the savings association's stockholders to approve the 
acquisition or corporate reorganization of the savings association; or
    (iii) Exert a continuing influence on a material aspect of the 
business operations of the 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 Federal savings association.
    (2) The acquiror would hold 25 percent or more of the total 
stockholders' equity of the Federal savings association.
    (3) The acquiror would hold more than 35 percent of the combined 
debt securities and stockholders' equity of the Federal savings 
association.
    (4) The acquiror is party to any agreement:
    (i) Pursuant to which the acquiror possesses a material economic 
stake in the Federal savings association resulting from a profit-
sharing arrangement, use of common names, facilities or personnel, or 
the provision of essential services to the savings association; or
    (ii) That enables the acquiror to influence a material aspect of 
the management or policies of the Federal savings association, other 
than agreements to which the 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 OCC's approval to acquire the savings 
association, the agreement prohibits transactions between the acquiror 
and the savings association and their respective affiliates without 
approval by the OCC during the pendency of the notice process, and the 
agreement contains no material forfeiture provisions applicable to the 
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 Federal savings association's voting stock or to vote 
25 percent or more of a class of the 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 Federal 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 Federal 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 Federal savings association.
    (d) Rebuttable presumptions of concerted action. An acquiror will 
be

[[Page 49146]]

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 Federal 
savings association, if
    (i) Both the company and the person own stock in the savings 
association,
    (ii) The company provides credit to the person to purchase the 
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 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 the 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 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 
Sec.  192.2(a)(39) 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.
    (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 appropriate OCC licensing office 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 Federal 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 
appropriate OCC licensing office an executed agreement materially 
conforming to the agreement set forth at Appendix A to this part. 
Unless agreed to by the OCC 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 OCC, 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 OCC 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 Appendix A to this part, with 
any modifications deemed necessary by the OCC.
    (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 appropriate OCC 
licensing office 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 OCC, 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 savings association, including agreements relating to 
voting, acquisition or disposition of the Federal 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 OCC's 
regulations at 12 CFR 163.180(b), and would be considered a 
``presumptive disqualifier'' under 12 CFR 174.7(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 OCC and this 
part, as well as any additional relevant information as the OCC may 
require by written request to the acquiror. Within 20 calendar days 
after proper filing of a rebuttal submission, the OCC 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 OCC, the OCC shall notify the acquiror in writing as to whether the 
rebuttal is thereby deemed to be sufficient. If the OCC fails to notify 
an acquiror within such time, the rebuttal shall be deemed to be 
accepted. The OCC 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 Federal savings association's 
management or policies, the acquiror may seek to qualify for a safe 
harbor with respect to its ownership of stock of the savings 
association.
    (1) In order to qualify for the safe harbor, an acquiror must 
submit a certification to the appropriate OCC licensing office 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.  174.4(f) of 
the regulations of the Office of the Comptroller of the Currency 
(``OCC'') with respect to [name of savings association] and hereby 
certifies to the OCC the following:
    The undersigned is not in control of [name of savings association] 
under Sec.  174.4(a);

[[Page 49147]]

    The undersigned is not subject to any control factor as enumerated 
in Sec.  174.4(c) with respect to the [name of savings association];
    The undersigned will not solicit proxies relating to the voting 
stock of [name of savings association];
    Before any change in status occurs that would bring the undersigned 
within the scope of Sec.  174.4(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 savings 
association] for the purpose or effect of changing or influencing the 
control of [name of 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 the appropriate OCC licensing office 
in accordance with Sec. Sec.  116.30 and 116.40 of this chapter.


Sec.  174.5  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 Federal savings association or additional stock above 10 
percent of the stock of a savings association occurring after December 
26, 1985, an acquiror shall file with the OCC 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 savings association]. The undersigned is not 
in control of such association, as defined in 12 CFR 174.4(a), and is 
not subject to a rebuttable determination of control under Sec.  
174.4(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 notice under the Change 
in Bank Control Act, 12 U.S.C. 1817(j), or filing and obtaining 
acceptance by the Office of the Comptroller of the Currency 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:
    (i) The OCC has issued a notice of non-disapproval of the 
acquisition of the savings association; or
    (ii) The acquiror has filed a materially complete notice pursuant 
to Sec.  174.3 of this part.
    (b) Privacy. All certifications filed under this Sec.  174.5 shall 
be for the information of the OCC in connection with its examination 
functions and shall be provided confidential treatment by the OCC.


Sec.  174.6  Procedural requirements.

    (a) Form of notice. A notice required by Sec.  174.3 of this part 
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.
    (1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) [Reserved]
    (5) [Reserved]
    (6) Notice Form 1393, parts A and B. This form shall be used for 
all notices filed under Sec.  174.3(b) of this part regarding the 
acquisition of control of a Federal 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 OCC 
licensing office. 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 OCC 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.  
174.6(c)(5), a notice filed pursuant to Sec.  174.3(b) shall not be 
deemed sufficient unless it includes all of the information required by 
the form prescribed by the OCC and this part, 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 OCC 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 
Federal savings association's voting stock. Where a notice pertains to 
a lesser amount of stock, the OCC 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 OCC's non-
disapproval thereof. Failure by an acquiror to respond completely to a 
written request by the OCC 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 an issuance of a notice of disapproval of a notice or 
rejection of a rebuttal.
    (2) The period for the OCC's review of any proposed acquisition 
will commence upon receipt by the OCC of a notice deemed sufficient 
under paragraph (c)(1) of this section. The OCC 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 notice sufficient; or
    (iii) Is materially deficient and will not be processed. The OCC 
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 OCC as to whether the notice is thereby deemed 
to be sufficient. If the OCC fails to so notify an acquiror within such 
time, the 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 OCC 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 OCC'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 OCC, 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 OCC's review of a notice deemed to be 
sufficient also may be extended by the OCC for up to an additional 30 
days.
    (ii) The period for the OCC's review of a notice may be further 
extended not

[[Page 49148]]

to exceed two additional times for not more than 45 days each time if--
    (A) The OCC determines that any acquiring party has not furnished 
all the information required under this part;
    (B) In the OCC's judgment, any material information submitted is 
substantially inaccurate;
    (C) The OCC 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 OCC 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 OCC may waive any requirements of this paragraph (c) 
determined to be unnecessary by the OCC, 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.  174.3(b) of this chapter, in accordance with the 
procedures in subpart B of part 116 of this chapter. Promptly after 
publication, the acquiror must transmit copies of the public notice and 
the publisher's affidavit to the OCC.
    (2) The acquiror must provide a copy of the public notice to the 
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 OCC will notify the persons whose requests for 
announcements, as described in 12 CFR part 195, appendix B, have been 
received in time for the notification. The OCC 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 subpart C of part 116 of 
this chapter.
    (f) Disclosure. (1) Any notice, other filings, public comment, or 
portion thereof, made pursuant to this part 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 part 4 of this chapter. Submitters 
should provide confidential and non-confidential versions of their 
filings, as described in Sec.  174.6(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 OCC pursuant to this part may 
request that the OCC 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 OCC 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 OCC receives a request for the information 
under the Freedom of Information Act, the OCC 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 OCC, 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 
OCC;
    (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 OCC, and, if so, whether and how disclosure of the 
information would tend to impede the availability of similar 
information to the OCC;
    (viii) The extent, if any, to which portions of the substantiation 
of the request for confidential treatment should be afforded 
confidential treatment;

[[Page 49149]]

    (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 part for purposes of commenting on 
a pending submission may prominently label such request: ``Request for 
Disclosure of Filing(s) Made Under part 174/Priority Treatment 
Requested.''
    (g) Supervisory cases. The provisions of paragraphs (d), (e) and 
(f) of this section may be waived by the OCC in connection with a 
transaction approved by the OCC for supervisory reasons.
    (h) [Reserved]
    (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.  163.22 of this chapter to the extent applicable, except as 
provided in paragraph (a) of this section.
    (j) Additional procedures for acquisitions of recently converted 
savings associations. Notices and rebuttals involving acquisitions of 
the stock of a recently converted savings association under Sec.  
192.3(i)(3) of this chapter shall also address the criteria for 
approval set forth at Sec.  192.3(i)(5) of this chapter.


Sec.  174.7  Determination by the OCC.

    (a) (1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (b) [Reserved]
    (c) [Reserved]
    (d) Notice criteria. In making its determination whether to 
disapprove a notice, the OCC may disapprove any proposed acquisition, 
if the OCC 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 any acquiring person or company or 
the future prospects of the institution is such as might jeopardize the 
financial stability of the association or prejudice the interests of 
the depositors of the 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 association, the 
OCC, or the public to permit such person to control the association;
    (5) The acquiring person fails or refuses to furnish information 
requested by the OCC; or
    (6) The OCC 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.  174.6(c), or extension thereof, the OCC 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 of 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 Savings and Loan 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
    (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 OCC, the Federal Deposit Insurance Corporation, the 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 OCC or 
any predecessor agency (or its delegate) in connection with a notice or 
other filing under this part 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 a notice or 
other filing;
    (vi) Acquisition and retention at the time of submission of a 
notice, of stock in the savings association by the acquiror in 
violation of Sec.  174.3 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:

[[Page 49150]]

    (i) Liability for amounts of debt which, in the opinion of the OCC, 
create excessive risks of default and pressure on the 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.  174.8  [Reserved]

Appendix A to Part 174--Rebuttal of Control Agreement

Agreement

Rebuttal of Rebuttable Determination of Control Under Part 174

I. WHEREAS

    A. [ ] is the owner of [ ] shares (the ``Shares'') of the [ ] 
stock (the ``Stock'') of [name and address of association], which 
Shares represent [ ] percent of a class of ``voting stock'' of [ ] 
as defined under the Acquisition of Control Regulations 
(``Regulations'') of the Office of the Comptroller of the Currency 
(``OCC''), 12 CFR part 174 (``Voting Stock'');
    B. [ ] is a ``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 
exceed 10 percent of a class of Voting Stock but will be less than 
25 percent of a 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 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 less than 25 percent of any class of 
Voting Stock of a 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 OCC has determined, and hereby agrees, to act favorably 
on the Rebuttal, and in consideration of such a determination and 
agreement by the OCC to act favorably on the Rebuttal, [ ] and any 
other existing, resulting or successor entities of [ ] agree with 
the OCC 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 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 association and any holding company 
thereof]'s board of directors or as president or chief executive 
officer of [insert name of 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 association and any holding company 
thereof] for the board of directors of [insert name of 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 OCC 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 or any Notice filed under the Control Act shall 
be cleared in accordance with applicable 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 a favorable determination 
with respect to either an amended rebuttal, approval of an 
Application under the Holding Company Act, or clearance of a Notice 
under the Control Act in accordance with applicable 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 clearance 
of the Notice or approval of the Application, in accordance with 
applicable 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 Notice or Application, 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

[[Page 49151]]

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 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 savings 
association participates in a violation of the Control Act and the 
Regulations thereunder, and any regulation or order issued by the 
OCC.
    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], as 
appropriate 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 OCC.
    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 OCC.
    V. This Agreement shall terminate upon (i) clearance by the OCC 
of [ ]'s Notice under the Control Act to acquire [ ], and 
consummation of the transaction as described in such 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 OCC as in effect at that 
time.
    VI. IN WITNESS THEREOF, the parties thereto have executed this 
Agreement by their duly authorized officer.
-----------------------------------------------------------------------

[Acquiror]

Office of the Comptroller of the Currency

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

By:--------------------------------------------------------------------

PART 190--PREEMPTION OF STATE USURY LAWS

Sec.
190.1 Authority, purpose, and scope.
190.2 Definitions.
190.3 Operation.
190.4 Federally-related residential manufactured housing loans--
consumer protection provisions.
190.100 Status of Interpretations issued under Public Law 96-161.
190.101 State criminal usury statutes.

    Authority: 12 U.S.C. 1735f-7a, 5412(b)(2)(B).


Sec.  190.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 
501 of the Depository Institutions Deregulation and Monetary Control 
Act of 1980, Public Law 96-221, 94 Stat. 161.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state interest-rate ceilings applicable to Federally-related 
residential mortgage loans is to ensure that the availability of such 
loans is not impeded in states having restrictive interest limitations. 
This part applies to loans, mortgages, credit sales, and advances, 
secured by first liens on residential real property, stock in 
residential cooperative housing corporations, or residential 
manufactured homes as defined in Sec.  190.2 of this part.


Sec.  190.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Loans mean any loans, mortgages, credit sales, or advances.
    (b) Federally-related loans include any loan:
    (1) Made by any lender whose deposits or accounts are insured by 
any agency of the Federal government;
    (2) Made by any lender regulated by any agency of the Federal 
government;
    (3) Made by any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act;
    (4) Made in whole or in part by the Secretary of Housing and Urban 
Development; insured, guaranteed, supplemented, or assisted in any way 
by the Secretary or any officer or agency of the Federal government, or 
made under or in connection with a housing or urban development program 
administered by the Secretary, or a housing or related program 
administered by any other such officer or agency;
    (5) Eligible for purchase by the Federal National Mortgage 
Association, the Government National Mortgage Association, or the 
Federal Home Loan Mortgage Corporation, or made by any financial 
institution from which the loan could be purchased by the Federal Home 
Loan Mortgage Corporation; or
    (6) Made in whole or in part by any entity which:
    (i) Regularly extends, or arranges for the extension of, credit 
payable by agreement in more than four installments or for which the 
payment of a finance charge is or may be required; and
    (ii) Makes or invests in residential real property loans, including 
loans secured by first liens on residential manufactured homes that 
aggregate more than $1,000,000 per year; except that the latter 
requirement shall not apply to such an entity selling residential 
manufactured homes and providing financing for such sales through loans 
or credit sales secured by first liens on residential manufactured 
homes, if the entity has an arrangement to sell such loans or credit 
sales in whole or in part, or where such loans or credit sales are sold 
in whole or in part, to a lender or other institution otherwise 
included in this section.
    (c) Loans which are secured by first liens on real estate means 
loans on the security of any instrument (whether a mortgage, deed of 
trust, or land contract) which makes the interest in real estate 
(whether in fee, or in a leasehold or subleasehold extending, or 
renewable, automatically or at the option of the holder or the lender, 
for a period of at least 5 years beyond the maturity of the loan) 
specific security for the payment of the obligation secured by the 
instrument: Provided, That the instrument is of such a nature that, in 
the event of default, the real estate described in the instrument could 
be subjected to the satisfaction of the obligation with the same 
priority as a first mortgage of a first deed of trust in the 
jurisdiction where the real estate is located.
    (d) Loans secured by first liens on stock in a residential 
cooperative housing corporation means loans on the security of:
    (1) A first security interest in stock or a membership certificate 
issued to a tenant stockholder or resident member by a cooperative 
housing organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (e) Loans secured by first liens on residential manufactured homes 
means a loan made pursuant to an agreement by which the party extending 
the credit acquires a security interest in the residential manufactured 
home which will have priority over any conflicting security interest.
    (f) Residential real property means real estate improved or to be 
improved by a structure or structures designed primarily for dwelling, 
as opposed to commercial use.
    (g) Residential manufactured home shall mean a manufactured home as 
defined in the National Manufactured Home Construction and Safety

[[Page 49152]]

Standards Act, 42 U.S.C. 5402(6), which is or will be used as a 
residence.
    (h) State means the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territories of the Pacific Islands, the 
Northern Mariana Islands, and the Virgin Islands, except as provided in 
section 501(a)(2)(B) of the Depository Institutions Deregulation and 
Monetary Control Act of 1980, Public Law 96-221, 94 Stat. 161.


Sec.  190.3  Operation.

    (a) The provisions of the constitution or law of any state 
expressly limiting the rate or amount of interest, discount points, 
finance charges, or other charges which may be charged, taken, 
received, or reserved shall not apply to any Federally-related loan:
    (1) Made after March 31, 1980; and
    (2) Secured by a first lien on:
    (i) Residential real property;
    (ii) Stock in a residential cooperative housing corporation when 
the loan is used to finance the acquisition of such stock; or
    (iii) A residential manufactured home: Provided, That the loan so 
secured contains the consumer safeguards required by Sec.  190.4 of 
this part;
    (b) The provisions of paragraph (a) of this section shall apply to 
loans made in any state on or before the date (after April 1, 1980 and 
prior to April l, 1983) on which the state adopts a law or certifies 
that the voters of such state have voted in favor of any law, 
constitutional or otherwise, which states explicitly and by its terms 
that such state does not want the provisions of paragraph (a) of this 
section to apply with respect to loans made in such state, except 
that--
    (1) The provisions of paragraph (a) of this section shall apply to 
any loan which is made after such date pursuant to a commitment 
therefore which was entered into during the period beginning on April 
1, 1980, and ending on the date the state takes such action;
    (2) The provisions of paragraph (a) of this section shall apply to 
any rollover of a loan which loan was made, or committed to be made, 
during the period beginning on April 1, 1980, and ending on the date 
the state takes such action, if the mortgage document or loan note 
provided that the interest rate to the original borrower could be 
changed through the use of such a rollover; and
    (3) At any time after the date of adoption of these regulations, 
any state may adopt a provision of law placing limitations on discount 
points or such other charges on any loan described in this part.
    (c) Nothing in this section preempts limitations in state laws on 
prepayment charges, attorneys' fees, late charges or other provisions 
designed to protect borrowers.


Sec.  190.4  Federally-related residential manufactured housing loans--
consumer protection provisions.

    (a) Definitions. As used in this section:
    (1) Prepayment. A ``prepayment'' occurs upon--
    (i) Refinancing or consolidation of the indebtedness;
    (ii) Actual prepayment of the indebtedness by the debtor, whether 
voluntarily or following acceleration of the payment obligation by the 
creditor; or
    (iii) The entry of a judgment for the indebtedness in favor of the 
creditor.
    (2) Actuarial method. The term actuarial method means the method of 
allocating payments made on a debt between the outstanding balance of 
the obligation and the finance charge pursuant to which a payment is 
applied first to the accumulated finance charge and any remainder is 
subtracted from, or any deficiency is added to, the outstanding balance 
of the obligation.
    (3) Precomputed Finance Charge. The term precomputed finance charge 
means interest or a time/price differential as computed by the add-on 
or discount method. Precomputed finance charges do not include loan 
fees, points, finder's fees, or similar charges.
    (4) Creditor. The term creditor means any entity covered by this 
part, including those which regularly extend or arrange for the 
extension of credit and assignees that are creditors under section 
501(a)(1)(C)(v) of the Depository Institutions Deregulation and 
Monetary Control Act of 1980.
    (b) General. (1) The provisions of the constitution or the laws of 
any state expressly limiting the rate or amount of interest, discount 
points, finance charges, or other charges which may be charged, taken, 
received, or reserved shall not apply to any loan, mortgage, credit 
sale, or advance which is secured by a first lien on a residential 
mobile home if a creditor covered by this part complies with the 
consumer protection regulations of this section.
    (2) Relation to state law. (i) In making loans or credit sales 
subject to this section, creditors shall comply with state and Federal 
law in accordance with the following:
    (A) State law regulating matters not covered by this section. When 
state law regulating matters not covered by this section is otherwise 
applicable to a loan or credit sale subject to this section, creditors 
shall comply with such state law provisions.
    (B) State law regulating matters covered by this section. Creditors 
need comply only with the provisions of this section, unless the OCC 
determines that an otherwise applicable state law regulating matters 
covered by this section provides greater protection to consumers. Such 
determinations shall be published in the Federal Register and shall 
operate prospectively.
    (ii) Any interested party may petition the OCC for a determination 
that state law requirements are more protective of consumers than the 
provisions of this section. Petitions shall include:
    (A) A copy of the state law to be considered;
    (B) Copies of any relevant judicial, regulatory, or administrative 
interpretations of the state law; and
    (C) An opinion or memorandum from the state Attorney General or 
other appropriate state official having primary enforcement 
responsibilities for the subject state law provision, indicating how 
the state law to be considered offers greater protection to consumers 
than the OCC's regulation.
    (c) Refund of precomputed finance charge. In the event the entire 
indebtedness is prepaid, the unearned portion of the precomputed 
finance charge shall be refunded to the debtor. This refund shall be in 
an amount not less than the amount which would be refunded if the 
unearned precomputed finance charge were calculated in accordance with 
the actuarial method, except that the debtor shall not be entitled to a 
refund which, is less than one dollar. The unearned portion of the 
precomputed finance charge is, at the option of the creditor, either:
    (1) That portion of the precomputed finance charge which is 
allocable to all unexpired payment periods as originally scheduled, or 
if deferred, as deferred. A payment period shall be deemed unexpired if 
prepayment is made within 15 days after the payment period's scheduled 
due date. The unearned precomputed finance charge is the total of that 
which would have been earned for each such period had the loan not been 
precomputed, by applying to unpaid balances of principal, according to 
the actuarial method, an annual percentage rate based on those charges 
which are considered precomputed finance charges in this section, 
assuming that all payments were made as originally scheduled, or as 
deferred, if deferred. The creditor, at its option, may round this 
annual percentage rate to the nearest one-quarter of one percent; or
    (2) The total precomputed finance charge less the earned 
precomputed finance charge. The earned

[[Page 49153]]

precomputed finance charge shall be determined by applying an annual 
percentage rate based on the total precomputed finance charge (as that 
term is defined in this section), under the actuarial method, to the 
unpaid balances for the actual time those balances were unpaid up to 
the date of prepayment. If a late charge or deferral fee has been 
collected, it shall be treated as a payment.
    (d) Prepayment penalties. A debtor may prepay in full or in part 
the unpaid balance of the loan at any time without penalty. The right 
to prepay shall be disclosed in the loan contract in type larger than 
that used for the body of the document.
    (e) Balloon payments-- (1) Federal savings associations. Federal 
savings association creditors may enter into agreements with debtors 
which provide for non-amortized and partially-amortized loans on 
residential manufactured homes, and such loans shall be governed by the 
provisions of this section and 12 CFR 560.220 until superseding 
regulations are issued by the Consumer Financial Protection Bureau 
regarding the Alternative Mortgage Transactions Parity Act.
    (2) Other creditors. All other creditors may enter into agreements 
with debtors which provide for non-amortized and partially-amortized 
loans on residential manufactured homes to the extent authorized by 
applicable Federal or state law or regulation.
    (f) Late charges. (1) No late charge may be assessed, imposed, or 
collected unless provided for by written contract between the creditor 
and debtor.
    (2) To the extent that applicable state law does not provide for a 
longer period of time, no late charge may be collected on an 
installment which is paid in full on or before the 15th day after its 
scheduled or deferred due date even though an earlier maturing 
installment or a late charge on an earlier installment may not have 
been paid in full. For purposes of assessing late charges, payments 
received are deemed to be applied first to current installments.
    (3) A late charge may be imposed only once on an installment; 
however, no such charge may be collected for a late installment which 
has been deferred.
    (4) To the extent that applicable state law does not provide for a 
lower charge or a longer grace period, a late charge on any installment 
not paid in full on or before the 15th day after its scheduled or 
deferred due date may not exceed five percent of the unpaid amount of 
the installment.
    (5) If, at any time after imposition of a late charge, the lender 
provides the borrower with written notice regarding amounts claimed to 
be due but unpaid, the notice shall separately state the total of all 
late charges claimed.
    (6) Interest after the final scheduled maturity date may not exceed 
the maximum rate otherwise allowable under state law for such 
contracts, and if such interest is charged, no separate late charge may 
be made on the final scheduled installment.
    (g) Deferral fees. (1) With respect to mobile home credit 
transactions containing precomputed finance charges, agreements 
providing for deferral of all or part of one or more installments shall 
be in writing, signed by the parties, and
    (i) Provide, to the extent that applicable state law does not 
provide for a lower charge, for a charge not exceeding one percent of 
each installment or part thereof for each month from the date when such 
installment was due to the date when it is agreed to become payable and 
proportionately for a part of each month, counting each day as 1/30th 
of a month;
    (ii) Incorporate by reference the transaction to which the deferral 
applied;
    (iii) Disclose each installment or part thereof in the amount to be 
deferred, the date or dates originally payable, and the date or dates 
agreed to become payable: and
    (iv) Set forth the fact of the deferral charge, the dollar amount 
of the charge for each installment to be deferred, and the total dollar 
amount to be paid by the debtor for the privilege of deferring payment.
    (2) No term of a writing executed by the debtor shall constitute 
authority for a creditor unilaterally to grant a deferral with respect 
to which a charge is to be imposed or collected.
    (3) The deferral period is that period of time in which no payment 
is required or made by reason of the deferral.
    (4) Payments received with respect to deferred installments shall 
be deemed to be applied first to deferred installments.
    (5) A charge may not be collected for the deferral of an 
installment or any part thereof if, with respect to that installment, a 
refinancing or consolidation agreement is concluded by the parties, or 
a late charge has been imposed or collected, unless such late charge is 
refunded to the borrower or credited to the deferral charge.
    (h) Notice before repossession, foreclosure, or acceleration. (1) 
Except in the case of abandonment or other extreme circumstances, no 
action to repossess or foreclose, or to accelerate payment of the 
entire outstanding balance of the obligation, may be taken against the 
debtor until 30 days after the creditor sends the debtor a notice of 
default in the form set forth in paragraph (h)(2) of this section. Such 
notice shall be sent by registered or certified mail with return 
receipt requested. In the case of default on payments, the sum stated 
in the notice may only include payments in default and applicable late 
or deferral charges. If the debtor cures the default within 30 days of 
the postmark of the notice and subsequently defaults a second time, the 
creditor shall again give notice as described in this paragraph (h)(1). 
The debtor is not entitled to notice of default more than twice in any 
one-year period.
    (2) The notice in the following form shall state the nature of the 
default, the action the debtor must take to cure the default, the 
creditor's intended actions upon failure of the debtor to cure the 
default, and the debtor's right to redeem under state law.
    To:
    Date: , 20
    Notice of Default and Right To Cure Default
    Name, address, and telephone number of creditor
    Account number, if any
    Brief identification of credit transaction
    You are now in default on this credit transaction. You have a right 
to correct this default within 30 days from the postmarked date of this 
notice.
    If you correct the default, you may continue with the contract as 
though you did not default. Your default consists of:
    Describe default alleged
    Cure of default: Within 30 days from the postmarked date of this 
notice, you may cure your default by (describe the acts necessary for 
cure, including, if applicable, the amount of payment required, 
including itemized delinquency or deferral charges).
    Creditor's rights: If you do not correct your default in the time 
allowed, we may exercise our rights against you under the law by 
(describe action creditor intends to take).
    If you have any questions, write (the creditor) at the above 
address or call (creditor's designated employee) at (telephone number) 
between the hours of and on (state days of week).
    If this default was caused by your failure to make a payment or 
payments, and you want to pay by mail, please send a check or money 
order; do not send cash.


Sec.  190.100  Status of Interpretations issued under Public Law 96-
161.

    The OCC continues to adhere to the views expressed in the formal

[[Page 49154]]

Interpretations issued under the authority of section 105(c) of Public 
Law 96-161, 93 Stat. 1233 (1979). These interpretations, which relate 
to the temporary preemption of state interest ceilings contained in 
Public Law 96-161, may be found at 45 FR 2840 (Jan. 15, 1980); 45 FR 
6165 (Jan. 25, 1980); 45 FR 8000 (Feb. 6, 1980); 45 FR 15921 (Mar. 12, 
1980).


Sec.  190.101  State criminal usury statutes.

    (a) Section 501 provides that ``the provisions of the constitution 
or laws of any state expressly limiting the rate or amount of interest, 
discount points, finance charges, or other charges shall not apply to 
any'' Federally-related loan secured by a first lien on residential 
real property, a residential manufactured home, or all the stock 
allocated to a dwelling unit in a residential housing cooperative. 12 
U.S.C. 1735f-7 note (Supp. IV 1980). The question has arisen as to 
whether the Federal statute preempts a state law which deems it a 
criminal offense to charge interest at a rate in excess of that 
specified in the state law.
    (b) Section 501 preempts all state laws which expressly limit the 
rate or amount of interest chargeable on a Federally-related 
residential first mortgage. It does not matter whether the statute in 
question imposes criminal or civil sanctions; section 501, by its 
terms, preempts ``any'' state law which imposes a ceiling on interest 
rates. The wording of the Federal statute clearly expresses an intent 
to displace all direct state law restraints on interest. Any state law 
that conflicts with this Congressional purpose must yield.

PART 191--PREEMPTION OF STATE DUE-ON-SALE LAWS

Sec.
191.1 Authority, purpose, and scope.
191.2 Definitions.
191.3 Loans originated by Federal savings associations.
191.4 Loans originated by lenders other than Federal savings 
associations.
191.5 Limitation on exercise of due-on-sale clauses.
191.6 Interpretations.

    Authority: 12 U.S.C. 1464, 1701j-3, and 5412(b)(2)(B).


Sec.  191.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 
5 of the Home Owners' Loan Act of 1933, as amended, and under section 
341 of the Garn-St Germain Depository Institutions Act of 1982, Public 
Law 97-320, 96 Stat. 1469, 1505-1507.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state prohibitions on the exercise of due-on-sale clauses by all 
lenders, whether Federally- or state-chartered, is to reaffirm the 
authority of Federal savings associations to enforce due-on-sale 
clauses, and to confer on other lenders generally comparable authority 
with respect to the exercise of such clauses. This part applies to all 
real property loans, and all lenders making such loans, as those terms 
are defined in Sec.  191.2 of this part.


Sec.  191.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Assumed includes transfers of real property subject to a real 
property loan by assumptions, installment land sales contracts, 
wraparound loans, contracts for deed, transfers subject to the mortgage 
or similar lien, and other like transfers. ``Completed credit 
application'' has the same meaning as completed application for credit 
as provided in Sec.  202.2(f) of this title.
    (b) Due-on-sale clause means a contract provision which authorizes 
the lender, at its option, to declare immediately due and payable sums 
secured by the lender's security instrument upon a sale of transfer of 
all or any part of the real property securing the loan without the 
lender's prior written consent. For purposes of this definition, a sale 
or transfer means the conveyance of real property of any right, title 
or interest therein, whether legal or equitable, whether voluntary or 
involuntary, by outright sale, deed, installment sale contract, land 
contract, contract for deed, leasehold interest with a term greater 
than three years, lease-option contract or any other method of 
conveyance of real property interests.
    (c) Federal savings association has the same meaning as provided in 
Sec.  141.11 of this chapter.
    (d) Federal credit union means a credit union chartered under the 
Federal Credit Union Act.
    (e) Home has the same meaning as provided in Sec.  141.14 of this 
chapter.
    (f) Savings association has the same meaning as provided in Sec.  
161.43 of this chapter.
    (g) Lender means a person or government agency making a real 
property loan, including without limitation, individuals, Federal 
savings associations, state-chartered savings associations, national 
banks, state-chartered banks and state-chartered mutual savings banks, 
Federal credit unions, state-chartered credit unions, mortgage banks, 
insurance companies and finance companies which make real property 
loans, manufactured-home retailers who extend credit, agencies of the 
Federal government, any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act, and any assignee or transferee, in 
whole or part, of any such persons or agencies.
    (h) Loan secured by a lien on real property means a loan on the 
security of any instrument (whether a mortgage, deed or trust, or land 
contract) which makes the interest in real property (whether in fee, or 
in a leasehold or subleasehold) specific security for the payment of 
the obligation secured by the instrument.
    (i) Loan secured by a lien on stock in a residential cooperative 
housing corporation means a loan on the security of:
    (1) A security interest in stock or a membership certificate issued 
to a tenant stockholder or resident member by a cooperative housing 
organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (j) Loan secured by a lien on a residential manufactured home, 
whether real or personal property, means a loan made pursuant to an 
agreement by which the party extending the credit acquires a security 
interest in the residential manufactured home.
    (k) Loan originated by a Federal savings association or other 
lender means any loan for which the lender makes the first advance of 
credit thereunder, Provided, That such lender then held a beneficial 
interest in the loan, whether as to the whole loan or a portion 
thereof, and whether or not the loan is later held by or transferred to 
another lender.
    (l) Real property loan means any loan, mortgage, advance or credit 
sale secured by a lien on real property, the stock or membership 
certificate allocated to a dwelling unit in a cooperative housing 
corporation, or a residential manufactured home, whether real or 
personal property.
    (m) Residential manufactured home has the same meaning as provided 
in Sec.  190.2(g) of this chapter.
    (n) Reverse mortgage means an instrument that provides for one or 
more payments to a homeowner based on accumulated equity. The lender 
may make payment directly, through the purchase of an annuity through 
an insurance company, or in any other manner. The loan may be due 
either on a specific date or when a specified event

[[Page 49155]]

occurs, such as the sale of the property or the death of the borrower.
    (o) State means the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, the 
Northern Mariana Islands, the Virgin Islands, and American Samoa.
    (p)(1) A window-period loan means a real property loan, not 
originated by a Federal savings association, which was made or assumed 
during a window-period created by state law and subject to that law, 
which loan was recorded, at the time of origination or assumption, 
before October 15, 1982, or within 60 days thereafter (December 14, 
1982).
    (2) The window-period begins on:
    (i) The date a state adopted a law (by means of a constitutional 
provision or statute) prohibiting the unrestricted exercise of due-on-
sale clauses upon outright transfers of property securing loans subject 
to the state law creating the window-period, or the effective date of a 
constitutional or statutory provision so adopted, whichever is later; 
or
    (ii) The date on which the highest court of the state rendered a 
decision prohibiting such unrestricted exercise (or if the highest 
court has not so decided, the date on which the next highest appellate 
court rendered a decision resulting in a final judgment which applies 
statewide), and ends on the earlier of the date such state law 
prohibition terminated under state law or October 15, 1982.
    (3) Categories of state law which create window-periods by 
prohibiting the unrestricted exercise of due-on-sale clauses upon 
outright transfers of property securing loans subject to such state law 
restrictions include laws or judicial decisions which permit the lender 
to exercise its option under a due-on-sale clause only where:
    (i) The lender's security interest or the likelihood of repayment 
is impaired; or
    (ii) The lender is required to accept an assumption of the existing 
loan without an interest-rate change or with an interest-rate change 
below the market interest rate currently being offered by the lender on 
similar loans secured by similar property at the time of the transfer.


Sec.  191.3  Loans originated by Federal savings associations.

    (a) With regard to any real property loan originated or to be 
originated by a Federal savings association, as a matter of contract 
between it and the borrower, a Federal savings association continues to 
have the power to include a due-on-sale clause in its loan instrument.
    (b) Except as otherwise provided in Sec.  191.5 of this part with 
respect to any such loan made on the security of a home occupied or to 
be occupied by the borrower, exercise by any lender of a due-on-sale 
clause in a loan originated by a Federal savings association shall be 
exclusively governed by the terms of the loan contract, and all rights 
and remedies of the lender and borrower shall at all times be fixed and 
governed by that contract.


Sec.  191.4  Loans originated by lenders other than Federal savings 
associations.

    (a) With regard to any real property loan originated by a lender 
other than a Federal savings association, as a matter of contract 
between it and the borrower, the lender has the power to include a due 
on sale clause in its loan instrument.
    (b) Except as otherwise provided in paragraph (c) of this section 
and Sec.  191.5 of this part, the exercise of due-on-sale clauses in 
loans originated by lenders other than Federal savings associations 
shall be governed exclusively by the terms of the loan contract, and 
all rights and remedies of the lender and the borrower shall be fixed 
and governed by that contract.
    (c)(1) In the case of a window-period loan, the provisions of 
paragraph (b) of this section shall apply only in the case of a sale or 
transfer of the property subject to the real property loan and only if 
such sale or transfer occurs on or after October 15, 1985: Provided, 
That:
    (i) With respect to real property loans originated in a state by 
lenders other than national banks, Federal savings associations, and 
Federal credit unions, a state may otherwise regulate such contracts by 
state law enacted prior to October 16, 1985, in which case paragraph 
(b) of this section shall apply only if such state law so provides; and
    (ii) With respect to real property loans originated by national 
banks and Federal credit unions, the OCC or the National Credit Union 
Administration Board, respectively, may otherwise regulate such 
contracts by regulations promulgated prior to October 16, 1985, in 
which case paragraph (b) of this section shall apply only if such 
regulation so provides.
    (2) A lender may not exercise its options pursuant to a due-on-sale 
clause contained in a window-period loan in the case of a sale or 
transfer of property securing such loan where the sale or transfer 
occurred prior to October 15, 1982.
    (d)(1) Prior to the sale or transfer of property securing a window-
period loan subject to the provisions of paragraph (c) of this section.
    (i) Any lender in the business of making real property loans may 
require any successor or transferee of the borrower to supply credit 
information customarily required by the lender in connection with 
credit applications, to complete its customary credit application, and 
to meet customary credit standards applied by such lender, at the date 
of sale or transfer, to the lender's similar loans secured by similar 
property.
    (ii) Any lender not in the business of making loans may require any 
successor or transferee of the borrower to meet credit standards 
customarily applied by other similarly situated lenders or sellers in 
the geographic market within which the transaction occurs, for similar 
loans secured by similar property, prior to the lender's consent to the 
transfer.
    (2) The lender may exercise a due-on-sale clause in a window-period 
loan if:
    (i) The successor or transferee of the borrower fails to meet the 
lender's credit standards as set forth in paragraphs (b)(1)(i) and 
(b)(1)(ii) of this section; or
    (ii) Upon transfer of the security property and not later than 
fifteen days after written request by the lender, the successor or 
transferee of the borrower fails to provide information requested by 
the lender pursuant to paragraph (d)(1)(i) or (d)(1)(ii) of this 
section, to determine whether such successor or transferee of the 
borrower meets the lender's customary credit standards.
    (3) The lender shall, within thirty days of receipt of a completed 
credit application and any other related information provided by the 
successor or transferee of the borrower, determine whether such 
successor or transferee meets the customary credit standards of the 
lender and provide written notice to the successor or transferee of its 
decision, and the reasons in the event of a disapproval. Failure of the 
lender to provide such notice shall preclude the lender from exercise 
of its due-on-sale clause upon the sale or transfer of the property 
securing the loan.
    (4) The lender's right to exercise a due-on-sale clause pursuant to 
this paragraph (d)(4) is in addition to any other rights afforded the 
lender by state law regulating window-period loans with regard to the 
exercise of due-on-sale clauses and loan assumptions.


Sec.  191.5  Limitation on exercise of due-on-sale clauses.

    (a) General. Except as provided in Sec.  191.4(c) and (d)(4) of 
this part, due-on-sale practices of Federal savings associations and 
other lenders shall be governed exclusively by the OCC's regulations, 
in preemption of and without regard to any limitations

[[Page 49156]]

imposed by state law on either their inclusion or exercise including, 
without limitation, state law prohibitions against restraints on 
alienation, prohibitions against penalties and forfeitures, equitable 
restrictions and state law dealing with equitable transfers.
    (b) Specific limitations. With respect to any loan on the security 
of a home occupied or to be occupied by the borrower,
    (1) A lender shall not (except with regard to a reverse mortgage) 
exercise its option pursuant to a due-on-sale clause upon:
    (i) The creation of a lien or other encumbrance subordinate to the 
lender's security instrument which does not relate to a transfer of 
rights of occupancy in the property: Provided, That such lien or 
encumbrance is not created pursuant to a contract for deed;
    (ii) The creation of a purchase-money security interest for 
household appliances;
    (iii) A transfer by devise, descent, or operation of law on the 
death of a joint tenant or tenant by the entirety;
    (iv) The granting of a leasehold interest which has a term of three 
years or less and which does not contain an option to purchase (that 
is, either a lease of more than three years or a lease with an option 
to purchase will allow the exercise of a due-on-sale clause);
    (v) A transfer, in which the transferee is a person who occupies or 
will occupy the property, which is:
    (A) A transfer to a relative resulting from the death of the 
borrower;
    (B) A transfer where the spouse or child(ren) becomes an owner of 
the property; or
    (C) A transfer resulting from a decree of dissolution of marriage, 
legal separation agreement, or from an incidental property settlement 
agreement by which the spouse becomes an owner of the property; or
    (vi) A transfer into an inter vivos trust in which the borrower is 
and remains the beneficiary and occupant of the property, unless, as a 
condition precedent to such transfer, the borrower refuses to provide 
the lender with reasonable means acceptable to the lender by which the 
lender will be assured of timely notice of any subsequent transfer of 
the beneficial interest or change in occupancy.
    (2) A lender shall not impose a prepayment penalty or equivalent 
fee when the lender or party acting on behalf of the lender.
    (i) Declares by written notice that the loan is due pursuant to a 
due-on-sale clause or
    (ii) Commences a judicial or nonjudicial foreclosure proceeding to 
enforce a due-on-sale clause or to seek payment in full as a result of 
invoking such clause.
    (3) A lender shall not impose a prepayment penalty or equivalent 
fee when the lender or party acting on behalf of the lender fails to 
approve within 30 days the completed credit application of a qualified 
transferee of the security property to assume the loan in accordance 
with the terms of the loan, and thereafter the borrower transfers the 
security property to such transferee and prepays the loan in full 
within 120 days after receipt by the lender of the completed credit 
application. For purposes of this paragraph (b)(3), a qualified 
transferee is a person who qualifies for the loan under the lender's 
applicable underwriting standards and who occupies or will occupy the 
security property.
    (4) A lender waives its option to exercise a due-on-sale clause as 
to a specific transfer if, before the transfer, the lender and the 
existing borrower's prospective successor in interest agree in writing 
that the successor in interest will be obligated under the terms of the 
loan and that interest on sums secured by the lender's security 
interest will be payable at a rate the lender shall request. Upon such 
agreement and resultant waiver, a lender shall release the existing 
borrower from all obligations under the loan instruments, and the 
lender is deemed to have made a new loan to the existing borrower's 
successor in interest. The waiver and release apply to all loans 
secured by homes occupied by borrowers made by a Federal savings 
association after July 31, 1976, and to all loans secured by homes 
occupied by borrowers made by other lenders after the effective date of 
this regulation.
    (5) Nothing in paragraph (b)(1) of this section shall be construed 
to restrict a lender's right to enforce a due-on-sale clause upon the 
subsequent occurrence of any event which disqualifies a transfer for a 
previously-applicable exception under that paragraph (b)(1).
    (c) Policy considerations. Paragraph (b) of this section does not 
prohibit a lender from requiring, as a condition to an assumption, 
continued maintenance of mortgage insurance by the existing borrower's 
successor in interest, whether by endorsement of the existing policy or 
by entrance into a new contract of insurance.


Sec.  191.6  Interpretations.

    The OCC periodically will publish Interpretations under section 341 
of the Garn-St Germain Depository Institutions Act of 1982, Public Law 
97-320, 96 Stat. 1469, 1505-1507, in the Federal Register in response 
to written requests sent to the OCC.

PART 192--CONVERSIONS FROM MUTUAL TO STOCK FORM

Sec.
192.5 What does this part do?
192.10 May I form a holding company as part of my conversion?
192.15 May I form a charitable organization as part of my 
conversion?
192.20 May I acquire another insured stock depository institution as 
part of my conversion?
192.25 What definitions apply to this part?
Subpart A--Standard Conversions

Prior to Conversion

192.100 What must I do before a conversion?
192.105 What information must I include in my business plan?
192.110 Who must review my business plan?
192.115 How will the appropriate Federal banking agency review my 
business plan?
192.120 May I discuss my plans to convert with others?

Plan of Conversion

192.125 Must my board of directors adopt a plan of conversion?
192.130 What must I include in my plan of conversion?
192.135 How do I notify my members that my board of directors 
approved a plan of conversion?
192.140 May I amend my plan of conversion?

Filing Requirements

192.150 What must I include in my application for conversion?
192.155 How do I file my application for conversion?
192.160 May I keep portions of my application for conversion 
confidential?
192.165 How do I amend my application for conversion?

Notice of Filing of Application and Comment Process

192.180 How do I notify the public that I filed an application for 
conversion?
192.185 How may a person comment on my application for conversion?

Appropriate Federal Banking Agency Review of the Application for 
Conversion

192.200 What actions may the appropriate Federal banking agency take 
on my application?
192.205 May a court review the appropriate Federal banking agency's 
final action on my conversion?

Vote by Members

192.225 Must I submit the plan of conversion to my members for 
approval?
192.230 Who is eligible to vote?
192.235 How must I notify my members of the meeting?

[[Page 49157]]

192.240 What must I submit to the appropriate Federal banking agency 
after the members' meeting?

Proxy Solicitation

192.250 Who must comply with these proxy solicitation provisions?
192.255 What must the form of proxy include?
192.260 May I use previously executed proxies?
192.265 How may I use proxies executed under this part?
192.270 What must I include in my proxy statement?
192.275 Filing How do I file revised proxy materials?
192.280 Must I mail a member's proxy solicitation material?
192.285 What solicitations are prohibited?
192.290 What will the appropriate Federal banking agency do if a 
solicitation violates these prohibitions?
192.295 Will the appropriate Federal banking agency require me to 
re-solicit proxies?

Offering Circular

192.300 What must happen before the appropriate Federal banking 
agency declares my offering circular effective?
192.305 When may I distribute the offering circular?
192.310 When must I file a post-effective amendment to the offering 
circular?

Offers and Sales of Stock

192.320 Who has priority to purchase my conversion shares?
192.325 When may I offer to sell my conversion shares?
192.330 How do I price my conversion shares?
192.335 How do I sell my conversion shares?
192.340 What sales practices are prohibited?
192.345 How may a subscriber pay for my conversion shares?
192.350 Must I pay interest on payments for conversion shares?
192.355 What subscription rights must I give to each eligible 
account holder and each supplemental eligible account holder?
192.360 Are my officers, directors, and their associates eligible 
account holders?
192.365 May other voting members purchase conversion shares in the 
conversion?
192.370 Does the appropriate Federal banking agency limit the 
aggregate purchases by officers, directors, and their associates?
192.375 How do I allocate my conversion shares if my shares are 
oversubscribed?
192.380 May my employee stock ownership plan purchase conversion 
shares?
192.385 May I impose any purchase limitations?
192.390 Must I provide a purchase preference to persons in my local 
community?
192.395 What other conditions apply when I offer conversion shares 
in a community offering, a public offering, or both?

Completion of the Offering

192.400 When must I complete the sale of my stock?
192.405 How do I extend the offering period?

Completion of the Conversion

192.420 When must I complete my conversion?
192.425 Who may terminate the conversion?
192.430 What happens to my old charter?
192.435 What happens to my corporate existence after conversion?
192.440 What voting rights must I provide to stockholders after the 
conversion?
192.445 What must I provide my savings account holders?

Liquidation Account

192.450 What is a liquidation account?
192.455 What is the initial balance of the liquidation account?
192.460 How do I determine the initial balances of liquidation sub-
accounts?
192.465 Do account holders retain any voting rights based on their 
liquidation sub-accounts?
192.470 Must I adjust liquidation sub-accounts?
192.475 What is a liquidation?
192.480 Does the liquidation account affect my net worth?
192.485 What provision must I include in my new Federal charter?

Post-Conversion

192.500 What management stock benefit plans may I implement?
192.505 May my directors, officers, and their associates freely 
trade shares?
192.510 May I repurchase shares after conversion?
192.515 What information must I provide to the appropriate Federal 
banking agency before I repurchase my shares?
192.520 May I declare or pay dividends after I convert?
192.525 Who may acquire my shares after I convert?
192.530 What other requirements apply after I convert?

Contributions to Charitable Organizations

192.550 May I donate conversion shares or conversion proceeds to a 
charitable organization?
192.555 How do my members approve a charitable contribution?
192.560 How much may I contribute to a charitable organization?
192.565 What must the charitable organization include in its 
organizational documents?
192.570 How do I address conflicts of interest involving my 
directors?
192.575 What other requirements apply to charitable organizations?
Subpart B--Voluntary Supervisory Conversions
192.600 What does this subpart do?
192.605 How may I conduct a voluntary supervisory conversion?
192.610 Do my members have rights in a voluntary supervisory 
conversion?

Eligibility

192.625 When is a savings association eligible for a voluntary 
supervisory conversion?
192.630 When is a state-chartered savings bank eligible for a 
voluntary supervisory conversion?

Plan of Supervisory Conversion

192.650 What must I include in my plan of voluntary supervisory 
conversion?

Voluntary Supervisory Conversion Application

192.660 What must I include in my voluntary supervisory conversion 
application?

Appropriate Federal banking agency review of the Voluntary Supervisory 
Conversion Application

192.670 Will the appropriate Federal banking agency approve my 
voluntary supervisory conversion application?
192.675 What conditions will the appropriate Federal banking agency 
impose on an approval?

Offers and Sales of Stock

192.680 How do I sell my shares?

Post-Conversion

192.690 Who may not acquire additional shares after the voluntary 
supervisory conversion?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901, 
5412(b)(2)(B); 15 U.S.C. 78c, 78l, 78m, 78n, 78w.


Sec.  192.5  What does this part do?

    (a) General. This part governs how a savings association (``you'') 
may convert from the mutual to the stock form of ownership. Subpart A 
of this part governs standard mutual-to-stock conversions. Subpart B of 
this part governs voluntary supervisory mutual-to-stock conversions. 
This part supersedes all inconsistent charter and bylaw provisions of 
Federal savings associations converting to stock form.
    (b) Prescribed forms. You must use the forms prescribed under this 
part and provide such information as the appropriate Federal banking 
agency may require under the forms by regulation or otherwise. The 
forms required under this part include: Form AC (Application for 
Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); 
and Form OF (Order Form). Forms are available on the OCC's web site at 
http://www.occ.gov.
    (c) Waivers. The appropriate Federal banking agency may waive any 
requirement of this part or a provision in any prescribed form. To 
obtain a waiver, you must file a written request with the appropriate 
Federal banking agency that:
    (1) Specifies the requirement(s) or provision(s) you want the 
appropriate Federal banking agency to waive;

[[Page 49158]]

    (2) Demonstrates that the waiver is equitable; is not detrimental 
to you, your account holders, or other savings associations; and is not 
contrary to the public interest; and
    (3) Includes an opinion of counsel demonstrating that applicable 
law does not conflict with the requirement or provision.


Sec.  192.10  May I form a holding company as part of my conversion.

    You may convert to the stock form of ownership as part of a 
transaction where you organize a holding company to acquire all of your 
shares upon their issuance. In such a transaction, your holding company 
will offer rights to purchase its shares instead of your shares. 
Regulations of the Board of Governors of the Federal Reserve System 
address holding company application requirements.


Sec.  192.15  May I form a charitable organization as part of my 
conversion?

    When you convert to the stock form, you may form a charitable 
organization. Your contributions to the charitable organization are 
governed by the requirements of Sec. Sec.  192.550 through 192.575.


Sec.  192.20  May I acquire another insured stock depository 
institution as part of my conversion?

    When you convert to stock form, you may acquire for cash or stock 
another insured depository institution that is already in the stock 
form of ownership.


Sec.  192.25  What definitions apply to this part?.

    The following definitions apply to this part and the forms 
prescribed under this part:
    Acting in concert has the same meaning as in Sec.  174.2(c) of this 
chapter. The rebuttable presumptions of Sec.  174.4(d) of this chapter, 
other than Sec. Sec.  174.4(d)(1) and (d)(2) of this chapter, apply to 
the share purchase limitations at Sec. Sec.  192.355 through 192.395.
    Affiliate of, or a person affiliated with, a specified person is a 
person that directly or indirectly, through one or more intermediaries, 
controls, is controlled by, or is under common control with the 
specified person.
    Associate of a person is:
    (1) A corporation or organization (other than you or your majority-
owned subsidiaries), if the person is a senior officer or partner, or 
beneficially owns, directly or indirectly, 10 percent or more of any 
class of equity securities of the corporation or organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Sec. Sec.  192.370, 192.380, 
192.385, 192.390, 192.395 and 192.505, a person who has a substantial 
beneficial interest in your tax-qualified or non-tax-qualified employee 
stock benefit plan, or who is a trustee or a fiduciary of the plan, is 
not an associate of the plan. For the purposes of Sec.  192.370, your 
tax-qualified employee stock benefit plan is not an associate of a 
person.
    (3) Any person who is related by blood or marriage to such person 
and:
    (i) Who lives in the same home as the person; or
    (ii) Who is your director or senior officer, or a director or 
senior officer of your holding company or your subsidiary.
    Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.
    Control (including controlling, controlled by, and under common 
control with ) means the direct or indirect power to direct or exercise 
a controlling influence over the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise as described in part 174 of this chapter.
    Eligibility record date is the date for determining eligible 
account holders. The eligibility record date must be at least one year 
before the date your board of directors adopts the plan of conversion.
    Eligible account holders are any persons holding qualifying 
deposits on the eligibility record date.
    IRS is the Internal Revenue Service.
    Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which you have a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in your Community Reinvestment Act 
assessment area; and
    (4) Any other area or category you set out in your plan of 
conversion, as approved by the appropriate Federal banking agency.
    Offer, offer to sell, or offer for sale is an attempt or offer to 
dispose of, or a solicitation of an offer to buy, a security or 
interest in a security for value. Preliminary negotiations or 
agreements with an underwriter, or among underwriters who are or will 
be in privity of contract with you, are not offers, offers to sell, or 
offers for sale.
    Person is an individual, a corporation, a partnership, an 
association, a joint-stock company, a limited liability company, a 
trust, an unincorporated organization, or a government or political 
subdivision of a government.
    Proxy soliciting material includes a proxy statement, form of 
proxy, or other written or oral communication regarding the conversion.
    Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. Your plan of conversion may 
provide that only savings accounts with total deposit balances of $50 
or more will qualify.
    Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by the appropriate Federal banking agency is 
not a sale.
    Savings account is any withdrawable account as defined in Sec.  
161.42 of this chapter, including a demand account as defined in Sec.  
161.16 of this chapter.
    Solicitation and solicit is a request for a proxy, whether or not 
accompanied by or included in a form of proxy; a request to execute, 
not execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause your members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec.  192.355;
    (2) Tax-qualified employee stock ownership plans under Sec.  
192.380;
    (3) Supplemental eligible account holders under Sec.  192.355; and
    (4) Other voting members under Sec.  192.365.
    Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before the 
appropriate Federal banking agency approves your conversion and will 
only occur if such agency has not approved your conversion within 15 
months after the eligibility record date.
    Supplemental eligible account holders are any persons, except your 
officers, directors, and their associates,

[[Page 49159]]

holding qualifying deposits on the supplemental eligibility record 
date.
    Tax-qualified employee stock benefit plan is any defined benefit 
plan or defined contribution plan, such as an employee stock ownership 
plan, stock bonus plan, profit-sharing plan, or other plan, and a 
related trust, that is qualified under section 401 of the Internal 
Revenue Code (26 U.S.C. 401).
    Underwriter is any person who purchases any securities from you 
with a view to distributing the securities, offers or sells securities 
for you in connection with the securities' distribution, or 
participates or has a direct or indirect participation in the direct or 
indirect underwriting of any such undertaking. Underwriter does not 
include a person whose interest is limited to a usual and customary 
distributor's or seller's commission from an underwriter or dealer.

Subpart A--Standard Conversions

Prior to Conversion


Sec.  192.100  What must I do before a conversion?

    (a) Your board, or a subcommittee of your board, must meet with the 
appropriate Federal banking agency before you pass your plan of 
conversion. The meeting may occur at the appropriate Federal banking 
agency or your offices at your option. At that meeting you must provide 
the appropriate Federal banking agency with a written strategic plan 
that outlines the objectives of the proposed conversion and the 
intended use of the conversion proceeds.
    (b) You should also consult with the appropriate Federal banking 
agency before you file your application for conversion. The appropriate 
Federal banking agency will discuss the information that you must 
include in the application for conversion, general issues that you may 
confront in the conversion process, and any other pertinent issues.


Sec.  192.105  What information must I include in my business plan?

    (a) Prior to filing an application for conversion, you must adopt a 
business plan reflecting your intended plans for deployment of the 
proposed conversion proceeds. Your business plan is required, under 
Sec.  192.150, to be included in your conversion application. At a 
minimum, your business plan must address:
    (1) Your projected operations and activities for three years 
following the conversion. You must describe how you will deploy the 
conversion proceeds at the converted savings association (and holding 
company, if applicable), what opportunities are available to reasonably 
achieve your planned deployment of conversion proceeds in your proposed 
market areas, and how your deployment will provide a reasonable return 
on investment commensurate with investment risk, investor expectations, 
and industry norms, by the final year of the business plan. You must 
include three years of projected financial statements. The business 
plan must provide that the converted savings association must retain at 
least 50 percent of the net conversion proceeds. The appropriate 
Federal banking agency may require that a larger percentage of proceeds 
remain in the institution.
    (2) Your plan for deploying conversion proceeds to meet credit and 
lending needs in your proposed market areas. The appropriate Federal 
banking agencies strongly discourage business plans that provide for a 
substantial investment in mortgage securities or other securities, 
except as an interim measure to facilitate orderly, prudent deployment 
of proceeds during the three years following the conversion, or as part 
of a properly managed leverage strategy.
    (3) The risks associated with your plan for deployment of 
conversion proceeds, and the effect of this plan on management 
resources, staffing, and facilities.
    (4) The expertise of your management and board of directors, or 
that you have planned for adequate staffing and controls to prudently 
manage the growth, expansion, new investment, and other operations and 
activities proposed in your business plan.
    (b) You may not project returns of capital or special dividends in 
any part of the business plan. A newly converted company may not plan 
on stock repurchases in the first year of the business plan.


Sec.  192.110  Who must review my business plan?

    (a) Your chief executive officer and members of the board of 
directors must review, and at least two-thirds of your board of 
directors must approve, the business plan.
    (b) Your chief executive officer and at least two-thirds of the 
board of directors must certify that the business plan accurately 
reflects the intended plans for deployment of conversion proceeds, and 
that any new initiatives reflected in the business plan are reasonably 
achievable. You must submit these certifications with your business 
plan, as part of your conversion application under Sec.  192.150.


Sec.  192.115  How will the appropriate Federal banking agency review 
my business plan?

    (a) The appropriate Federal banking agency will review your 
business plan to determine that it demonstrates a safe and sound 
deployment of conversion proceeds, as part of its review of your 
conversion application. In making its determination, the appropriate 
Federal banking agency will consider how you have addressed the 
applicable factors of Sec.  192.105. No single factor will be 
determinative.
    (b) If you are a Federal savings association, you must file your 
business plan with the appropriate OCC licensing office. If you are a 
state savings association, you must file your business plan with the 
appropriate FDIC region. The appropriate Federal banking agency may 
request additional information, if necessary, to support its 
determination under paragraph (a) of this section. You must file your 
business plan as a confidential exhibit to the Form AC.
    (c) If the appropriate Federal banking agency approves your 
application for conversion and you complete your conversion, you must 
operate within the parameters of your business plan. You must obtain 
the prior written approval of the appropriate Federal banking agency 
for any material deviations from your business plan.


Sec.  192.120  May I discuss my plans to convert with others?

    (a) You may discuss information about your conversion with 
individuals that you authorize to prepare documents for your 
conversion.
    (b) Except as permitted under paragraph (a) of this section, you 
must keep all information about your conversion confidential until your 
board of directors adopts your plan of conversion.
    (c) If you violate this section, the appropriate Federal banking 
agency may require you to take remedial action. For example, the 
appropriate Federal banking agency may require you to take any or all 
of the following actions:
    (1) Publicly announce that you are considering a conversion;
    (2) Set an eligibility record date acceptable to the appropriate 
Federal banking agency;
    (3) Limit the subscription rights of any person who violates or 
aids a violation of this section; or
    (4) Take any other action to assure that your conversion is fair 
and equitable.

[[Page 49160]]

Plan of Conversion


Sec.  192.125  Must my board of directors adopt a plan of conversion?

    Prior to filing an application for conversion, your board of 
directors must adopt a plan of conversion that conforms to Sec. Sec.  
192.320 through 192.485 and 192.505. Your board of directors must adopt 
the plan by at least a two-thirds vote. Your plan of conversion is 
required, under Sec.  192.150, to be included in your conversion 
application.


Sec.  192.130  What must I include in my plan of conversion?

    You must include the information included in Sec. Sec.  192.320 
through 192.485 and 192.505 in your plan of conversion. The appropriate 
Federal banking agency may require you to delete or revise any 
provision in your plan of conversion if it determines the provision is 
inequitable; is detrimental to you, your account holders, or other 
savings associations; or is contrary to public interest.


Sec.  192.135  How do I notify my members that my board of directors 
approved a plan of conversion?

    (a) Notice. You must promptly notify your members that your board 
of directors adopted a plan of conversion and that a copy of the plan 
is available for the members' inspection in your home office and in 
your branch offices. You must mail a letter to each member or publish a 
notice in the local newspaper in every local community where you have 
an office. You may also issue a press release. The appropriate Federal 
banking agency may require broader publication, if necessary, to ensure 
adequate notice to your members.
    (b) Contents of notice. You may include any of the following 
statements and descriptions in your letter, notice, or press release.
    (1) Your board of directors adopted a proposed plan to convert from 
a mutual to a stock savings institution.
    (2) You will send your members a proxy statement with detailed 
information on the proposed conversion before you convene a members' 
meeting to vote on the conversion.
    (3) Your members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (4) You will not vote existing proxies to approve or disapprove the 
conversion. You will solicit new proxies for voting on the proposed 
conversion.
    (5) The appropriate Federal banking agency, and in the case of a 
state-chartered savings association, the appropriate state regulator, 
must approve the conversion before the conversion will be effective. 
Your members will have an opportunity to file written comments, 
including objections and materials supporting the objections, with the 
appropriate Federal banking agency.
    (6) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of your 
conversion before the appropriate Federal banking agency will approve 
the conversion. The ruling or opinion must indicate the conversion will 
be a tax-free reorganization.
    (7) The appropriate Federal banking agency, and in the case of a 
state-chartered savings association, the appropriate state regulator, 
might not approve the conversion, and the IRS or a tax expert might not 
issue a favorable tax ruling or tax opinion.
    (8) Savings account holders will continue to hold accounts in the 
converted savings association with the same dollar amounts, rates of 
return, and general terms as existing deposits. FDIC will continue to 
insure the accounts.
    (9) Your conversion will not affect borrowers' loans, including the 
amount, rate, maturity, security, and other contractual terms.
    (10) Your business of accepting deposits and making loans will 
continue without interruption.
    (11) Your current management and staff will continue to conduct 
current services for depositors and borrowers under current policies 
and in existing offices.
    (12) You may continue to be a member of the Federal Home Loan Bank 
System.
    (13) You may substantively amend your proposed plan of conversion 
before the members' meeting.
    (14) You may terminate the proposed conversion.
    (15) After the appropriate Federal banking agency, and in the case 
of a state-chartered savings association, the appropriate state 
regulator, approves the proposed conversion, you will send proxy 
materials providing additional information. After you send proxy 
materials, members may telephone or write to you with additional 
questions.
    (16) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase 
your shares.
    (17) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase your shares.
    (18) A brief description of how voting members may participate in 
the conversion.
    (19) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (20) A brief description of the proposed plan of conversion.
    (21) The par value (if any) and approximate number of shares you 
will issue and sell in the conversion.
    (c) Other requirements. (1) You may not solicit proxies, provide 
financial statements, describe the benefits of conversion, or estimate 
the value of your shares upon conversion in the letter, notice, or 
press release.
    (2) If you respond to inquiries about the conversion, you may 
address only the matters listed in paragraph (b) of this section.


Sec.  192.140  May I amend my plan of conversion?

    You may amend your plan of conversion before you solicit proxies. 
After you solicit proxies, you may amend your plan of conversion only 
if the appropriate Federal banking agency concurs.

Filing Requirements


Sec.  192.150  What must I include in my application for conversion?

    (a) Your application for conversion must include all of the 
following information.
    (1) Your plan of conversion.
    (2) Pricing materials meeting the requirements of Sec.  192.200(b).
    (3) Proxy soliciting materials under Sec.  192.270, including:
    (i) A preliminary proxy statement with signed financial statements;
    (ii) A form of proxy meeting the requirements of Sec.  192.255; and
    (iii) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions, radio or television 
scripts that you plan to use or furnish to your members, and a legal 
opinion indicating that any marketing materials comply with all 
applicable securities laws.
    (4) An offering circular described in Sec.  192.300.
    (5) The documents and information required by Form AC. You may 
obtain Form AC from the appropriate Federal banking agency.
    (6) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (7) Your business plan, submitted as a separately bound, 
confidential exhibit. See Sec.  192.160.

[[Page 49161]]

    (8) Any additional information that the appropriate Federal banking 
agency requests.
    (b) The appropriate Federal banking agency will not accept for 
filing, and will return, any application for conversion that is 
improperly executed, materially deficient, substantially incomplete, or 
that provides for unreasonable conversion expenses.


Sec.  192.155  How do I file my application for conversion?

    If you are a Federal savings association, you must file an original 
and at least one conformed copy of Form AC with the appropriate OCC 
licensing office. If you are a state savings association, you must file 
all copies of your application with the appropriate FDIC region.


Sec.  192.160  May I keep portions of my application for conversion 
confidential?

    (a) The appropriate Federal banking agency makes all filings under 
this part available to the public, but may keep portions of your 
application for conversion confidential under paragraph (b) of this 
section.
    (b) You may request that the appropriate Federal banking agency 
keep portions of your application confidential. To do so, you must 
separately bind and clearly designate as ``confidential'' any portion 
of your application for conversion that you deem confidential. You must 
provide a written statement specifying the grounds supporting your 
request for confidentiality. The appropriate Federal banking agency 
will not treat as confidential the portion of your application 
describing how you plan to meet your Community Reinvestment Act (CRA) 
objectives. The CRA portion of your application may not incorporate by 
reference information contained in the confidential portion of your 
application.
    (c) The appropriate Federal banking agency will determine whether 
confidential information must be made available to the public under 5 
U.S.C. 552 and part 4 of this chapter or 12 CFR 309. The appropriate 
Federal banking agency will advise you before it makes information you 
designated as ``confidential'' available to the public.


Sec.  192.165  How do I amend my application for conversion?

    To amend your application for conversion, you must:
    (a) File an amendment with an appropriate facing sheet;
    (b) Number each amendment consecutively;
    (c) Respond to all issues raised by the appropriate Federal banking 
agency; and
    (d) Demonstrate that the amendment conforms to all applicable 
regulations.

Notice of Filing of Application and Comment Process


Sec.  192.180  How do I notify the public that I filed an application 
for conversion?

    (a) You must publish a public notice of the application in 
accordance with the procedures in subpart B of part 116 of this 
chapter. You must simultaneously prominently post the notice in your 
home office and all branch offices.
    (b) Promptly after publication, you must file any public notice and 
an affidavit of publication from each publisher. If you are a Federal 
savings association, you must file the affidavit and two copies of any 
public notice with the appropriate OCC licensing office. If you are a 
state savings association, you must file all copies with the 
appropriate FDIC region.
    (c) If the appropriate Federal banking agency does not accept your 
application for conversion under Sec.  192.200 and requires you to file 
a new application, you must publish and post a new notice and allow an 
additional 30 days for comment.


Sec.  192.185  How may a person comment on my application for 
conversion?

    Commenters may submit comments on your application in accordance 
with the procedures in subpart C of part 116 of this chapter. A 
commenter must file the original and one copy of any comments with the 
appropriate OCC licensing office for Federal savings association 
applications and with the appropriate FDIC region for state savings 
association applications.

Agency Review of the Application for Conversion


Sec.  192.200  What actions may the appropriate Federal banking agency 
take on my application?

    (a) The appropriate Federal banking agency may approve your 
application for conversion only if:
    (1) Your conversion complies with this part;
    (2) You will meet your regulatory capital requirements under part 
167 of this chapter after the conversion; and
    (3) Your conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (b) The appropriate Federal banking agency will review the 
appraisal required by Sec.  192.150(a)(2) in determining whether to 
approve your application. The appropriate Federal banking agency will 
review the appraisal under the following requirements.
    (1) Independent persons experienced and expert in corporate 
appraisal, and acceptable to the appropriate Federal banking agency, 
must prepare the appraisal report.
    (2) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if you ensure that the appraiser is separate from the 
underwriter or selling agent affiliate and the underwriter or selling 
agent affiliate does not make recommendations or affect the appraisal.
    (3) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.
    (4) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (5) If the appraisal is based on a capitalization of your pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (6) If the appraisal is based on a comparison of your shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (7) The appropriate Federal banking agency may decline to process 
the application for conversion and deem it materially deficient or 
substantially incomplete if the initial appraisal report is materially 
deficient or substantially incomplete.
    (8) You may not represent or imply that the appropriate Federal 
banking agency approved the appraisal.
    (c) The appropriate Federal banking agency will review your 
compliance record under part 195 of this chapter and your business plan 
to determine how you will serve the convenience and needs of your 
communities after the conversion.
    (1) Based on this review, the appropriate Federal banking agency 
may approve your application, deny your application, or approve your 
application on the condition that you will improve your CRA performance 
or that you will address the particular credit or lending needs of the 
communities that you will serve.

[[Page 49162]]

    (2) The appropriate Federal banking agency may deny your 
application if your business plan does not demonstrate that your 
proposed use of conversion proceeds will help you to meet the credit 
and lending needs of the communities that you will serve.
    (d) The appropriate Federal banking agency may request that you 
amend your application if further explanation is necessary, material is 
missing, or material must be corrected.
    (e) The appropriate Federal banking agency will deny your 
application if the application does not meet the requirements of this 
subpart, unless The appropriate Federal banking agency waives the 
requirement under Sec.  192.5(c).


Sec.  192.205  May a court review the appropriate Federal banking 
agency's final action on my conversion?

    (a) Any person aggrieved by the appropriate Federal banking 
agency's final action on your application for conversion may ask the 
court of appeals of the United States for the circuit in which the 
principal office or residence of such person is located, or the U.S. 
Court of Appeals for the District of Columbia Circuit, to review the 
action under 12 U.S.C. 1464(i)(2)(B).
    (b) To obtain court review of the action, this statute requires the 
aggrieved person to file a written petition requesting that the court 
modify, terminate, or set aside the final appropriate Federal banking 
agency action. The aggrieved person must file the petition with the 
court within the later of 30 days after the appropriate Federal agency 
publishes notice of its final action in the Federal Register or 30 days 
after you mail the proxy statement to your members under Sec.  192.235.

Vote by Members


Sec.  192.225  Must I submit the plan of conversion to my members for 
approval?

    (a) After the appropriate Federal banking agency approves your plan 
of conversion, you must submit your plan of conversion to your members 
for approval. You must obtain this approval at a meeting of your 
members, which may be a special or annual meeting, unless you are a 
state-chartered savings association and state law requires you to 
obtain approval at an annual meeting.
    (b) Your members must approve your plan of conversion by a majority 
of the total outstanding votes, unless you are a state-chartered 
savings association and state law prescribes a higher percentage.
    (c) Your members may vote in person or by proxy.
    (d) You may notify eligible account holders or supplemental 
eligible account holders who are not voting members of your proposed 
conversion. You may include only the information in Sec.  192.135 in 
your notice.


Sec.  192.230  Who is eligible to vote?

    You determine members' eligibility to vote by setting a voting 
record date. You must set a voting record date that is not more than 60 
days nor less than 20 days before your meeting, unless you are a state-
chartered savings association and state law requires a different voting 
record date.


Sec.  192.235  How must I notify my members of the meeting?

    (a) You must notify your members of the meeting to consider your 
conversion by sending the members a proxy statement cleared by the 
appropriate Federal banking agency.
    (b) You must notify your members 20 to 45 days before your meeting, 
unless you are a state-chartered savings association and state law 
requires a different notice period.
    (c) You must also notify each beneficial holder of an account held 
in a fiduciary capacity:
    (1) If you are a Federal savings association, and the name of the 
beneficial holder is disclosed on your records; or
    (2) If you are a state-chartered association and the beneficial 
holder possesses voting rights under state law.


Sec.  192.240  What must I submit after the members' meeting?

    (a) Promptly after the members' meeting, you must file all of the 
following information with the appropriate OCC licensing office if you 
are a Federal savings association, and with the appropriate FDIC region 
if you are a state savings association.
    (1) A certified copy of each adopted resolution on the conversion.
    (2) The total votes eligible to be cast.
    (3) The total votes represented in person or by proxy.
    (4) The total votes cast in favor of and against each matter.
    (5) The percentage of votes necessary to approve each matter.
    (6) An opinion of counsel that you conducted the members' meeting 
in compliance with all applicable state or Federal laws and 
regulations.
    (b) Promptly after completion of the conversion, you must submit an 
opinion of counsel that you complied with all laws applicable to the 
conversion.

Proxy Solicitation


Sec.  192.250  Who must comply with these proxy solicitation 
provisions?

    (a) You must comply with these proxy solicitation provisions when 
you provide proxy solicitation material to members for the meeting to 
vote on your plan of conversion.
    (b) Your members must comply with these proxy solicitation 
provisions when they provide proxy solicitation materials to members 
for the meeting to vote on your conversion, pursuant to Sec.  192.280, 
except where:
    (1) The member solicits 50 people or fewer and does not solicit 
proxies on your behalf; or
    (2) The member solicits proxies through newspaper advertisements 
after your board of directors adopts the plan of conversion. Any 
newspaper advertisements may include only the following information:
    (i) Your name;
    (ii) The reason for the advertisement;
    (iii) The proposal or proposals to be voted upon;
    (iv) Where a member may obtain a copy of the proxy solicitation 
material; and
    (v) A request for your members to vote at the meeting.


Sec.  192.255  What must the form of proxy include?

    The form of proxy must include all of the following:
    (a) A statement in bold face type stating that management is 
soliciting the proxy.
    (b) Blank spaces where the member must date and sign the proxy.
    (c) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. You must include any 
proposed charitable contribution as an item to be voted on separately.
    (d) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (e) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (f) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (g) The date, time, and the place of the meeting, when available.
    (h) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (i) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (j) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.


Sec.  192.260  May I use previously executed proxies?

    You may not use previously executed proxies for the plan of 
conversion vote.

[[Page 49163]]

If members consider your plan of conversion at an annual meeting, you 
may vote proxies obtained through other proxy solicitations only on 
matters not related to your plan of conversion.


Sec.  192.265  How may I use proxies executed under this part?

    You may vote a proxy obtained under this part on matters that are 
incidental to the conduct of the meeting. You may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on your plan of conversion.


Sec.  192.270  What must I include in my proxy statement?

    (a) Content requirements. You must prepare your proxy statement in 
compliance with this part and Form PS.
    (b) Other requirements. (1) The appropriate Federal banking agency 
will review your proxy solicitation material when it reviews the 
application for conversion and will clear the proxy solicitation 
material.
    (2) You must provide a cleared written proxy statement to your 
members before or at the same time you provide any other soliciting 
material. You must mail cleared proxy solicitation material to your 
members within ten days after the appropriate Federal banking agency 
clears the solicitation.


Sec.  192.275  How do I file revised proxy materials?

    (a) You must file revised proxy materials as an amendment to your 
application for conversion. See Sec.  192.155 for where to file.
    (b) To revise your proxy solicitation materials, you must file:
    (1) Seven copies of your revised proxy materials as required by 
Form PS;
    (2) Seven copies of your revised form of proxy, if applicable; and
    (3) Seven copies of any additional proxy solicitation material 
subject to Sec.  192.270.
    (c) You must mark four of the seven required copies to clearly 
indicate changes from the prior filing.
    (d) You must file seven definitive copies of all proxy solicitation 
material, in the form in which you furnish the material to your 
members. You must file no later than the date that you send or give the 
proxy solicitation material to your members. You must indicate the date 
that you will release the materials.
    (e) Unless the appropriate Federal banking agency requests you to 
do so, you do not have to file copies of replies to inquiries from your 
members or copies of communications that merely request members to sign 
and return proxy forms.


Sec.  192.280  Must I mail a member's proxy solicitation material?

    (a) You must mail the member's cleared proxy solicitation material 
if:
    (1) Your board of directors adopted a plan of conversion;
    (2) A member requests in writing that you mail the proxy 
solicitation material;
    (3) The appropriate Federal banking agency has cleared the member's 
proxy solicitation; and
    (4) The member agrees to defray your reasonable expenses.
    (b) As soon as practicable after you receive a request under 
paragraph (a) of this section, you must mail or otherwise furnish the 
following information to the member:
    (1) The approximate number of members that you solicited or will 
solicit, or the approximate number of members of any group of account 
holders that the member designates; and
    (2) The estimated cost of mailing the proxy solicitation material 
for the member.
    (c) You must mail cleared proxy solicitation material to the 
designated members promptly after the member furnishes the materials, 
envelopes (or other containers), and postage (or payment for postage) 
to you.
    (d) You are not responsible for the content of a member's proxy 
solicitation material.
    (e) A member may furnish other members its own proxy solicitation 
material, cleared by the appropriate Federal banking agency, subject to 
the rules in this section.


Sec.  192.285  What solicitations. are prohibited?

    (a) False or misleading statements. (1) No one may use proxy 
solicitation material for the members' meeting if the material contains 
any statement which, considering the time and the circumstances of the 
statement:
    (i) Is false or misleading with respect to any material fact;
    (ii) Omits any material fact that is necessary to make the 
statements not false or misleading; or
    (iii) Omits any material fact that is necessary to correct a 
statement in an earlier communication that has become false or 
misleading.
    (2) No one may represent or imply that the appropriate Federal 
banking agency determined that the proxy solicitation material is 
accurate, complete, not false or not misleading, or passed upon the 
merits of or approved any proposal.
    (b) Other prohibited solicitations. No person may solicit:
    (1) An undated or post-dated proxy;
    (2) A proxy that states it will be dated after the date it is 
signed by a member;
    (3) A proxy that is not revocable at will by the member; or
    (4) A proxy that is part of another document or instrument.


Sec.  192.290  What will the appropriate Federal banking agency do if a 
solicitation violates these prohibitions?

    (a) If a solicitation violates Sec.  192.285, the appropriate 
Federal banking agency may require remedial measures, including:
    (1) Correction of the violation by a retraction and a new 
solicitation;
    (2) Rescheduling the members' meeting; or
    (3) Any other actions necessary to ensure a fair vote.
    (b) The appropriate Federal banking agency may also bring an 
enforcement action against the violator.


Sec.  192.295  Will the appropriate Federal banking agency require me 
to re-solicit proxies?

    If you amend your application for conversion, the appropriate 
Federal banking agency may require you to re-solicit proxies for your 
members' meeting as a condition of approval of the amendment.

Offering Circular


Sec.  192.300  What must happen before the appropriate Federal banking 
agency declares my offering circular effective?

    (a) You must prepare and file your offering circular with the 
Securities and Corporate Practices Division of the OCC if you are a 
Federal savings association and with the appropriate FDIC region if you 
are a state savings association, in compliance with this part and Form 
OC and, where applicable, part 197 of this chapter. File your offering 
circular in accordance with the procedures in section 192.155.
    (b) You must condition your stock offering upon member approval of 
your plan of conversion.
    (c) The appropriate Federal banking agency will review the Form OC 
and may comment on the included disclosures and financial statements.
    (d) You must file any revised offering circular, final offering 
circular, and any post-effective amendment to the final offering 
circular in accordance with the procedures in section 192.155.
    (e) The appropriate Federal banking agency will not approve the 
adequacy or accuracy of the offering circular or the disclosures.
    (f) After you satisfactorily address the appropriate Federal 
banking agency's concerns, you must request the

[[Page 49164]]

appropriate Federal banking agency to declare your Form OC effective 
for a time period. The time period may not exceed the maximum time 
period for the completion of the sale of all of your shares under Sec.  
192.400.


Sec.  192.305  When may I distribute the offering circular?

    (a) You may distribute a preliminary offering circular at the same 
time as or after you mail the proxy statement to your members.
    (b) You may not distribute an offering circular until the 
appropriate Federal banking agency declares it effective. You must 
distribute the offering circular in accordance with this part.
    (c) You must distribute your offering circular to persons listed in 
your plan of conversion within 10 days after the appropriate Federal 
banking agency declares it effective.


Sec.  192.310  When must I file a post-effective amendment to the 
offering circular?

    (a) You must file a post-effective amendment to the offering 
circular with the appropriate Federal banking agency when a material 
event or change of circumstance occurs.
    (b) After the appropriate Federal banking agency declares the post-
effective amendment effective, you must immediately deliver the 
amendment to each person who subscribed for or ordered shares in the 
offering.
    (c) Your post-effective amendment must indicate that each person 
may increase, decrease, or rescind their subscription or order.
    (d) The post-effective offering period must remain open no less 
than 10 days nor more than 20 days, unless the appropriate Federal 
banking agency approves a longer rescission period.

Offers and Sales of Stock


Sec.  192.320  Who has priority to purchase my conversion shares?

    You must offer to sell your shares in the following order:
    (a) Eligible account holders.
    (b) Tax-qualified employee stock ownership plans.
    (c) Supplemental eligible account holders.
    (d) Other voting members who have subscription rights.
    (e) Your community, your community and the general public, or the 
general public.


Sec.  192.325  When may I offer to sell my conversion shares?

    (a) You may offer to sell your conversion shares after the 
appropriate Federal banking agency approves your conversion, clears 
your proxy statement, and declares your offering circular effective.
    (b) The offer may commence at the same time you start the proxy 
solicitation of your members.


Sec.  192.330  How do I price my conversion shares?

    (a) You must sell your conversion shares at a uniform price per 
share and at a total price that is equal to the estimated pro forma 
market value of your shares after you convert.
    (b) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in your offering circular.
    (c) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in your offering circular.
    (d) If the appropriate Federal banking agency permits, you may 
increase the maximum price of conversion shares sold. The maximum 
price, as adjusted, must be no more than 15 percent above the maximum 
price computed under paragraph (b) of this section.
    (e) The maximum price must be between $5 and $50 per share.
    (f) You must include the estimated price in any preliminary 
offering circular.


Sec.  192.335  How do I sell my conversion shares?

    (a) You must distribute order forms to all eligible account 
holders, supplemental eligible account holders, and other voting 
members to enable them to subscribe for the conversion shares they are 
permitted under the plan of conversion. You may either send the order 
forms with your offering circular or after you distribute your offering 
circular.
    (b) You may sell your conversion shares in a community offering, a 
public offering, or both. You may begin the community offering, the 
public offering, or both at any time during the subscription offering 
or upon conclusion of the subscription offering.
    (c) You may pay underwriting commissions (including underwriting 
discounts). The appropriate Federal banking agency may object to the 
payment of unreasonable commissions. You may reimburse an underwriter 
for accountable expenses in a subscription offering if the public 
offering is limited. If no public offering occurs, you may pay an 
underwriter a consulting fee. The appropriate Federal banking agency 
may object to the payment of unreasonable consulting fees.
    (d) If you conduct the community offering, the public offering, or 
both at the same time as the subscription offering, you must fill all 
subscription orders first.
    (e) You must prepare your order form in compliance with this part 
and Form OF.


Sec.  192.340  What sales practices are prohibited?

    (a) In connection with offers, sales, or purchases of conversion 
shares under this part, you and your directors, officers, agents, or 
employees may not:
    (1) Employ any device, scheme, or artifice to defraud;
    (2) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or
    (3) Engage in any act, transaction, practice, or course of business 
that operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (b) During your conversion, no person may:
    (1) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
your conversion shares or the underlying securities to the account of 
another;
    (2) Make any offer, or any announcement of an offer, to purchase 
any of your conversion shares from anyone but you; or
    (3) Knowingly acquire more than the maximum purchase allowable 
under your plan of conversion.
    (c) The restrictions in paragraphs (b)(1) and (b)(2) of this 
section do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (1) An underwriter or a selling group, acting on your behalf, that 
makes the offer with a view toward public resale; or
    (2) One or more of your tax-qualified employee stock ownership 
plans so long as the plan or plans do not beneficially own more than 25 
percent of any class of your equity securities in the aggregate.
    (d) If any person is found to have violated the restrictions in 
paragraphs (b)(1) and (b)(2) of this section, they may face prosecution 
or other legal action.


Sec.  192.345  How may a subscriber pay for my conversion shares?

    (a) A subscriber may purchase conversion shares with cash, by a 
withdrawal from a savings account, or a withdrawal from a certificate 
of deposit. If a subscriber purchases shares by a withdrawal from a 
certificate of deposit, you may not assess a penalty for the 
withdrawal.

[[Page 49165]]

    (b) You may not extend credit to any person to purchase your 
conversion shares.


Sec.  192.350  Must I pay interest on payments for conversion shares?

    (a) You must pay interest from the date you receive a payment for 
conversion shares until the date you complete or terminate the 
conversion. You must pay interest at no less than your passbook rate 
for amounts paid in cash, check, or money order.
    (b) If a subscriber withdraws money from a savings account to 
purchase conversion shares, you must pay interest on the payment until 
you complete or terminate the conversion as if the withdrawn amount 
remained in the account.
    (c) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, you may cancel the certificate 
and pay interest at no less than your passbook rate on any remaining 
balance.


Sec.  192.355  What subscription rights must I give to each eligible 
account holder and each supplemental eligible account holder?

    (a) You must give each eligible account holder subscription rights 
to purchase conversion shares in an amount equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering or the public offering under Sec.  192.395;
    (2) One-tenth of one percent of the total stock offering; or
    (3) Fifteen times the following number: The total number of 
conversion shares that you will issue, multiplied by the following 
fraction. The numerator is the total qualifying deposit of the eligible 
account holder. The denominator is the total qualifying deposits of all 
eligible account holders. You must round down the product of this 
multiplied fraction to the next whole number.
    (b) You must give subscription rights to purchase shares to each 
supplemental eligible account holder in the same amount as described in 
paragraph (a) of this section, except that you must compute the 
fraction described in paragraph (a)(3) of this section as follows: The 
numerator is the total qualifying deposit of the supplemental eligible 
account holder. The denominator is the total qualifying deposits of all 
supplemental eligible account holders.


Sec.  192.360  Are my officers, directors, and their associates 
eligible account holders?

    Your officers, directors, and their associates may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, you must subordinate 
subscription rights for these deposits to subscription rights exercised 
by other eligible account holders.


Sec.  192.365  May other voting members purchase conversion shares in 
the conversion?

    (a) You must give rights to purchase your conversion shares in the 
conversion to voting members who are neither eligible account holders 
nor supplemental eligible account holders. You must allocate rights to 
each voting member that are equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering and the public offering under Sec.  192.395; or
    (2) One-tenth of one percent of the total stock offering.
    (b) You must subordinate the voting members' rights to the rights 
of eligible account holders, tax-qualified employee stock ownership 
plans, and supplemental eligible account holders.


Sec.  192.370  Does the appropriate Federal banking agency limit the 
aggregate purchases by officers, directors, and their associates?

    (a) When you convert, your officers, directors, and their 
associates may not purchase, in the aggregate, more than the following 
percentage of your total stock offering:

------------------------------------------------------------------------
                                                   Officer and director
                Institution size                   purchases  (percent)
------------------------------------------------------------------------
$50,000,000 or less............................                       35
$50,000,001-100,000,000........................                       34
$100,000,001-150,000,000.......................                       33
$150,000,001-200,000,000.......................                       32
$200,000,001-250,000,000.......................                       31
$250,000,001-300,000,000.......................                       30
$300,000,001-350,000,000.......................                       29
$350,000,001-400,000,000.......................                       28
$400,000,001-450,000,000.......................                       27
$450,000,001-500,000,000.......................                       26
Over $500,000,000..............................                       25
------------------------------------------------------------------------

    (b) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are 
attributable to your officers, directors, and their associates.


Sec.  192.375  How do I allocate my conversion shares if my shares are 
oversubscribed?

    (a) If your conversion shares are oversubscribed by your eligible 
account holders, you must allocate shares among the eligible account 
holders so that each, to the extent possible, may purchase 100 shares.
    (b) If your conversion shares are oversubscribed by your 
supplemental eligible account holders, you must allocate shares among 
the supplemental eligible account holders so that each, to the extent 
possible, may purchase 100 shares.
    (c) If a person is an eligible account holder and a supplemental 
eligible account holder, you must include the eligible account holder's 
allocation in determining the number of conversion shares that you may 
allocate to the person as a supplemental eligible account holder.
    (d) For conversion shares that you do not allocate under paragraphs 
(a) and (b) of this section, you must allocate the shares among the 
eligible or supplemental eligible account holders equitably, based on 
the amounts of qualifying deposits. You must describe this method of 
allocation in your plan of conversion.
    (e) If shares remain after you have allocated shares as provided in 
paragraphs (a) and (b) of this section, and if your voting members 
oversubscribe, you must allocate your conversion shares among those 
members equitably. You must describe

[[Page 49166]]

the method of allocation in your plan of conversion.


Sec.  192.380  May my employee stock ownership plan purchase conversion 
shares?

    (a) Your tax-qualified employee stock ownership plan may purchase 
up to 10 percent of the total offering of your conversion shares.
    (b) If the appropriate Federal banking agency approves a revised 
stock valuation range as described in Sec.  192.330(e), and the final 
conversion stock valuation range exceeds the former maximum stock 
offering range, you may allocate conversion shares to your tax-
qualified employee stock ownership plan, up to the 10 percent limit in 
paragraph (a) of this section.
    (c) If your tax-qualified employee stock ownership plan is not able 
to or chooses not to purchase stock in the offering, it may, with prior 
appropriate Federal banking agency approval and appropriate disclosure 
in your offering circular, purchase stock in the open market, or 
purchase authorized but unissued conversion shares.
    (d) You may include stock contributed to a charitable organization 
in the conversion in the calculation of the total offering of 
conversion shares under paragraphs (a) and (b) of this section, unless 
the appropriate Federal banking agency objects on supervisory grounds.


Sec.  192.385  May I impose any purchase limitations?

    (a) You may limit the number of shares that any person, group of 
associated persons, or persons otherwise acting in concert, may 
subscribe to up to five percent of the total stock sold.
    (b) If you set a limit of five percent under paragraph (a) of this 
section, you may modify that limit with appropriate Federal banking 
agency approval to provide that any person, group of associated 
persons, or persons otherwise acting in concert subscribing for five 
percent, may purchase between five and ten percent as long as the 
aggregate amount that the subscribers purchase does not exceed 10 
percent of the total stock offering.
    (c) You may require persons exercising subscription rights to 
purchase a minimum number of conversion shares. The minimum number of 
shares must equal the lesser of the number of shares obtained by a $500 
subscription or 25 shares.
    (d) In setting purchase limitations under this section, you may not 
aggregate conversion shares attributed to a person in your tax-
qualified employee stock ownership plan with shares purchased directly 
by, or otherwise attributable to, that person.


Sec.  192.390  Must I provide a purchase preference to persons in my 
local community?

    (a) In your subscription offering, you may give a purchase 
preference to eligible account holders, supplemental eligible account 
holders, and voting members residing in your local community.
    (b) In your community offering, you must give a purchase preference 
to natural persons residing in your local community.


Sec.  192.395  What other conditions apply when I offer conversion 
shares in a community offering, a public offering, or both?

    (a) You must offer and sell your stock to achieve a widespread 
distribution of the stock.
    (b) If you offer shares in a community offering, a public offering, 
or both, you must first fill orders for your stock up to a maximum of 
two percent of the conversion stock on a basis that will promote a 
widespread distribution of stock. You must allocate any remaining 
shares on an equal number of shares per order basis until you fill all 
orders.

Completion of the Offering


Sec.  192.400  When must I complete the sale of my stock?

    You must complete all sales of your stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under Sec.  192.405.


Sec.  192.405  How do I extend the offering period?

    (a) You must request, in writing, an extension of any offering 
period.
    (b) The appropriate Federal banking agency may grant extensions of 
time to sell your shares. The appropriate Federal banking agency will 
not grant any single extension of more than 90 days.
    (c) If the appropriate Federal banking agency grants your request 
for an extension of time, you must provide a post-effective amendment 
to the offering circular under Sec.  192.310 to each person who 
subscribed for or ordered stock. Your amendment must indicate that the 
appropriate Federal banking agency extended the offering period and 
that each person who subscribed for or ordered stock may increase, 
decrease, or rescind their subscription or order within the time 
remaining in the extension period.

Completion of the Conversion


Sec.  192.420  When must I complete my conversion?

    (a) In your plan of conversion, you must set a date by which the 
conversion must be completed. This date must not be more than 24 months 
from the date that your members approve the plan of conversion. The 
date, once set, may not be extended by you or by the appropriate 
Federal banking agency. You must terminate the conversion if it is not 
completed by that date.
    (b) Your conversion is complete on the date that you accept the 
offers for your stock.


Sec.  192.425  Who may terminate the conversion?

    (a) Your members may terminate the conversion by failing to approve 
the conversion at your members' meeting.
    (b) You may terminate the conversion before your members' meeting.
    (c) You may terminate the conversion after the members' meeting 
only if the appropriate Federal banking agency concurs.


Sec.  192.430  What happens to my old charter?

    (a) If you are a Federally chartered mutual savings association or 
savings bank, and you convert to a Federally chartered stock savings 
association or savings bank, you must apply to the OCC to amend your 
charter and bylaws consistent with part 152 of this chapter, as part of 
your application for conversion. You may only include OCC pre-approved 
anti-takeover provisions in your amended charter and bylaws. See 12 CFR 
152.4(b)(8).
    (b) If you are a Federally chartered mutual savings association or 
savings bank and you convert to a state-chartered stock savings 
association under this part, you must surrender your charter to the OCC 
for cancellation promptly after the state issues your charter. You must 
promptly file a copy of your new state stock charter with the FDIC.
    (c) If you are a state-chartered mutual savings association or 
savings bank, and you convert to a Federally chartered stock savings 
association or savings bank, you must apply to the OCC for a new 
charter and bylaws consistent with part 152 of this chapter. You may 
only include OCC pre-approved anti-takeover provisions in your charter 
and bylaws. See 12 CFR 152.4(b)(8).
    (d) Your new or amended charter must require you to establish and 
maintain a liquidation account for eligible and supplemental eligible 
account holders under Sec.  192.450.

[[Page 49167]]

Sec.  192.435  What happens to my corporate existence after conversion?

    Your corporate existence will continue following your conversion, 
unless you convert to a state-chartered stock savings association and 
state law prescribes otherwise.


Sec.  192.440  What voting rights must I provide to stockholders after 
the conversion?

    You must provide your stockholders with exclusive voting rights, 
except as provided in Sec.  192.445(c).


Sec.  192.445  What must I provide my savings account holders?

    (a) You must provide each savings account holder, without payment, 
a withdrawable savings account or accounts in the same amount and under 
the same terms and conditions as their accounts before your conversion.
    (b) You must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec.  192.450.
    (c) If you are a state-chartered savings association and state law 
requires you to provide voting rights to savings account holders or 
borrowers, your charter must:
    (1) Limit these voting rights to the minimum required by state law; 
and
    (2) Require you to solicit proxies from the savings account holders 
and borrowers in the same manner that you solicit proxies from your 
stockholders.

Liquidation Account


Sec.  192.450  What is a liquidation account?

    (a) A liquidation account represents the potential interest of 
eligible account holders and supplemental eligible account holders in 
your net worth at the time of conversion. You must maintain a sub-
account to reflect the interest of each account holder.
    (b) Before you may provide a liquidation distribution to common 
stockholders, you must give a liquidation distribution to those 
eligible account holders and supplemental eligible account holders who 
hold savings accounts from the time of conversion until liquidation.
    (c) You may not record the liquidation account in your financial 
statements. You must disclose the liquidation account in the footnotes 
to your financial statements.


Sec.  192.455  What is the initial balance of the liquidation account?

    The initial balance of the liquidation account is your net worth in 
the statement of financial condition included in the final offering 
circular.


Sec.  192.460  How do I determine the initial balances of liquidation 
sub-accounts?

    (a)(1) You determine the initial sub-account balance for a savings 
account held by an eligible account holder by multiplying the initial 
balance of the liquidation account by the following fraction: The 
numerator is the qualifying deposit in the savings account expressed in 
dollars on the eligibility record date. The denominator is total 
qualifying deposits of all eligible account holders on that date.
    (2) You determine the initial sub-account balance for a savings 
account held by a supplemental eligible account holder by multiplying 
the initial balance of the liquidation account by the following 
fraction: The numerator is the qualifying deposit in the savings 
account expressed in dollars on the supplemental eligibility record 
date. The denominator is total qualifying deposits of all supplemental 
eligible account holders on that date.
    (3) If an account holder holds a savings account on the eligibility 
record date and a separate savings account on the supplemental 
eligibility record date, you must compute separate sub-accounts for the 
qualifying deposits in the savings account on each record date.
    (b) You may not increase the initial sub-account balances. You must 
decrease the initial balance under Sec.  192.470 as depositors reduce 
or close their accounts.


Sec.  192.465  Do account holders retain any voting rights based on 
their liquidation sub-accounts?

    Eligible account holders or supplemental eligible account holders 
do not retain any voting rights based on their liquidation sub-
accounts.


Sec.  192.470  Must I adjust liquidation sub-accounts?

    (a)(1) You must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of 
business on any annual closing date, which for purposes of this section 
is your fiscal year end, after the relevant eligibility record dates is 
less than:
    (i) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (ii) The qualifying deposits in the account holder's savings 
account on the relevant eligibility record date.
    (2) The reduction must be proportionate to the reduction in the 
deposit balance.
    (b) If you reduce the balance of a liquidation sub-account, you may 
not subsequently increase it if the deposit balance increases.
    (c) You are not required to adjust the liquidation account and sub-
account balances at each annual closing date if you maintain sufficient 
records to make the computations if a liquidation subsequently occurs.
    (d) You must maintain the liquidation sub-account for each account 
holder as long as the account holder maintains an account with the same 
social security number.
    (e) If there is a complete liquidation, you must provide each 
account holder with a liquidation distribution in the amount of the 
sub-account balance.


Sec.  192.475  What is a liquidation?

    (a) A liquidation is a sale of your assets and settlement of your 
liabilities with the intent to cease operations and close. Upon 
liquidation, you must return your charter to the governmental agency 
that issued it. The government agency must cancel your charter.
    (b) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If you are 
involved in such a transaction, the surviving institution must assume 
the liquidation account.


Sec.  192.480  Does the liquidation account affect my net worth?

    The liquidation account does not affect your net worth.


Sec.  192.485  What provision must I include in my new Federal charter?

    If you convert to Federal stock form, you must include the 
following provision in your new charter: ``Liquidation Account. Under 
appropriate Federal banking agency regulations, the association must 
establish and maintain a liquidation account for the benefit of its 
savings account holders as of ----------. If the association undergoes 
a complete liquidation, it must comply with appropriate Federal banking 
agency regulations with respect to the amount and priorities on 
liquidation of each of the savings account holder's interests in the 
liquidation account. A savings account holder's interest in the 
liquidation account does not entitle the savings account holder to any 
voting rights.''

Post-Conversion


Sec.  192.500.  What management stock benefit plans may I implement?

    (a) During the 12 months after your conversion, you may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan

[[Page 49168]]

(collectively, ESOP), and a management recognition plan (MRP), provided 
you meet all of the following requirements.
    (1) You disclose the plans in your proxy statement and offering 
circular and indicate in your offering circular that there will be a 
separate shareholder vote on the Option Plan and the MRP at least six 
months after the conversion. No shareholder vote is required to 
implement the ESOP. Your ESOP must be tax-qualified.
    (2) Your Option Plan does not encompass more than ten percent of 
the number of shares that you issued in the conversion.
    (3)(i) Your ESOP and MRP do not encompass, in the aggregate, more 
than ten percent of the number of shares that you issued in the 
conversion. If you have tangible capital of ten percent or more 
following the conversion, the appropriate Federal banking agency may 
permit your ESOP and MRP to encompass, in the aggregate, up to 12 
percent of the number of shares issued in the conversion; and
    (ii) Your MRP does not encompass more than three percent of the 
number of shares that you issued in the conversion. If you have 
tangible capital of ten percent or more after the conversion, the 
appropriate Federal banking agency may permit your MRP to encompass up 
to four percent of the number of shares that you issued in the 
conversion.
    (4) No individual receives more than 25 percent of the shares under 
any plan.
    (5) Your directors who are not your officers do not receive more 
than five percent of the shares of your MRP or Option Plan 
individually, or 30 percent of any such plan in the aggregate.
    (6) Your shareholders approve each of the Option Plan and the MRP 
by a majority of the total votes eligible to be cast at a duly called 
meeting before you establish or implement the plan. You may not hold 
this meeting until six months after your conversion.
    (7) When you distribute proxies or related material to shareholders 
in connection with the vote on a plan, you state that the plan complies 
with the appropriate Federal banking agency's regulations and that the 
appropriate Federal banking agency does not endorse or approve the plan 
in any way. You may not make any written or oral representations to the 
contrary.
    (8) You do not grant stock options at less than the market price at 
the time of grant.
    (9) You do not fund the Option Plan or the MRP at the time of the 
conversion.
    (10) Your plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.
    (11) Your plan permits accelerated vesting only for disability or 
death, or if you undergo a change of control.
    (12) Your plan provides that your executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized (as defined in Sec.  165.4 of this 
chapter), is subject to appropriate Federal banking agency enforcement 
action, or receives a capital directive under Sec.  165.7 of this 
chapter.
    (13) You file a copy of the proposed Option Plan or MRP with the 
appropriate Federal banking agency and certify to such agency that the 
plan approved by the shareholders is the same plan that you filed with, 
and disclosed in, the proxy materials distributed to shareholders in 
connection with the vote on the plan.
    (14) You file the plan and the certification with the appropriate 
Federal banking agency within five calendar days after your 
shareholders approve the plan.
    (b) You may provide dividend equivalent rights or dividend 
adjustment rights to allow for stock splits or other adjustments to 
your stock in your ESOP, MRP, and Option Plan.
    (c) The restrictions in paragraph (a) of this section do not apply 
to plans implemented more than 12 months after the conversion, provided 
that materials pertaining to any shareholder vote regarding such plans 
are not distributed within the 12 months after the conversion. If a 
plan adopted in conformity with paragraph (a) of this section is 
amended more than 12 months following your conversion, your 
shareholders must ratify any material deviations to the requirements in 
paragraph (a).


Sec.  192.505  May my directors, officers, and their associates freely 
trade shares?

    (a) Directors and officers who purchase conversion shares may not 
sell the shares for one year after the date of purchase, except that in 
the event of the death of the officer or director, the successor in 
interest may sell the shares.
    (b) You must include notice of the restriction described in 
paragraph (a) of this section on each certificate of stock that a 
director or officer purchases during the conversion or receives in 
connection with a stock dividend, stock split, or otherwise with 
respect to such restricted shares.
    (c) You must instruct your stock transfer agent about the transfer 
restrictions in this section.
    (d) For three years after you convert, your officers, directors, 
and their associates may purchase your stock only from a broker or 
dealer registered with the Securities and Exchange Commission. However, 
your officers, directors, and their associates may engage in a 
negotiated transaction involving more than one percent of your 
outstanding stock, and may purchase stock through any of your 
management or employee stock benefit plans.


Sec.  192.510  May I repurchase shares after conversion?

    (a) You may not repurchase your shares in the first year after the 
conversion except:
    (1) In extraordinary circumstances, you may make open market 
repurchases of up to five percent of your outstanding stock in the 
first year after the conversion if you file a notice under Sec.  
192.515(a) and the appropriate Federal banking agency does not 
disapprove your repurchase. The appropriate Federal banking agency will 
not approve such repurchases unless the repurchase meets the standards 
in Sec.  192.515(c), and the repurchase is consistent with paragraph 
(c) of this section.
    (2) You may repurchase qualifying shares of a director or conduct 
an appropriate Federal banking agency- approved repurchase pursuant to 
an offer made to all shareholders of your association.
    (3) Repurchases to fund management recognition plans that have been 
ratified by shareholders do not count toward the repurchase limitations 
in this section. Repurchases in the first year to fund such plans 
require prior written notification to the appropriate Federal banking 
agency.
    (4) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.
    (b) After the first year, you may repurchase your shares, subject 
to all other applicable regulatory and supervisory restrictions and 
paragraph (c) of this section.
    (c) All stock repurchases are subject to the following 
restrictions.
    (1) You may not repurchase your shares if the repurchase will 
reduce your regulatory capital below the amount required for your 
liquidation account under Sec.  192.450. You must comply with the 
capital distribution requirements at part 163, subpart E of this 
chapter.
    (2) The restrictions on share repurchases apply to a charitable 
organization under Sec.  192.550. You must aggregate purchases of 
shares by the charitable organization with your repurchases.

[[Page 49169]]

Sec.  192.515  What information must I provide to the appropriate 
Federal banking agency before I repurchase my shares?

    (a) To repurchase stock in the first year following conversion, 
other than repurchases under Sec.  192.510(a)(3) or (a)(4), you must 
file a written notice with the appropriate OCC licensing office if you 
are a Federal savings association and with the appropriate FDIC region 
if you are a state savings association. You must provide the following 
information:
    (1) Your proposed repurchase program;
    (2) The effect of the repurchases on your regulatory capital; and
    (3) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (b) You must file your notice with the appropriate OCC licensing 
office if you are a Federal savings association and with the 
appropriate regional director of the FDIC if you are a state savings 
association at least ten days before you begin your repurchase program.
    (c) You may not repurchase your shares if the appropriate Federal 
banking agency objects to your repurchase program. The appropriate 
Federal banking agency will not object to your repurchase program if:
    (1) Your repurchase program will not adversely affect your 
financial condition;
    (2) You submit sufficient information to evaluate your proposed 
repurchases;
    (3) You demonstrate extraordinary circumstances and a compelling 
and valid business purpose for the share repurchases; and
    (4) Your repurchase program would not be contrary to other 
applicable regulations.


Sec.  192.520  May I declare or pay dividends after I convert?

    You may declare or pay a dividend on your shares after you convert 
if:
    (a) The dividend will not reduce your regulatory capital below the 
amount required for your liquidation account under Sec.  192.450;
    (b) You comply with all capital requirements under part 167 of this 
chapter after you declare or pay dividends;
    (c) You comply with the capital distribution requirements under 
part 163, subpart E, of this chapter; and
    (d) You do not return any capital, other than ordinary dividends, 
to purchasers during the term of the business plan submitted with the 
conversion.


Sec.  192.525  Who may acquire my shares after I convert?

    (a) For three years after you convert, no person may, directly or 
indirectly, acquire or offer to acquire the beneficial ownership of 
more than ten percent of any class of your equity securities without 
the appropriate Federal banking agency's prior written approval. If a 
person violates this prohibition, you may not permit the person to vote 
shares in excess of ten percent, and may not count the shares in excess 
of ten percent in any shareholder vote.
    (b) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of your stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Sec. Sec.  174.4(a) and (b) of this chapter. The 
appropriate Federal banking agency will presume that a person has 
acquired shares if the acquiror entered into a binding written 
agreement for the transfer of shares. For purposes of this section, an 
offer is made when it is communicated. An offer does not include non-
binding expressions of understanding or letters of intent regarding the 
terms of a potential acquisition.
    (c) Notwithstanding the restrictions in this section:
    (1) Paragraphs (a) and (b) of this section do not apply to any 
offer with a view toward public resale made exclusively to you, to the 
underwriters, or to a selling group acting on your behalf.
    (2) Unless the appropriate Federal banking agency objects in 
writing, any person may offer or announce an offer to acquire up to one 
percent of any class of shares. In computing the one percent limit, the 
person must include all of his or her acquisitions of the same class of 
shares during the prior 12 months.
    (3) A corporation whose ownership is, or will be, substantially the 
same as your ownership may acquire or offer to acquire more than ten 
percent of your common stock, if it makes the offer or acquisition more 
than one year after you convert.
    (4) One or more of your tax-qualified employee stock benefit plans 
may acquire your shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of your shares in the aggregate.
    (5) An acquiror does not have to file a separate application to 
obtain the appropriate Federal banking agency's approval under 
paragraph (a) of this section, if the acquiror files an application 
under part 174 of this chapter that specifically addresses the criteria 
listed under paragraph (d) of this section and you do not oppose the 
proposed acquisition.
    (d) The appropriate Federal banking agency may deny an application 
under paragraph (a) of this section if the proposed acquisition:
    (1) Is contrary to the purposes of this part;
    (2) Is manipulative or deceptive;
    (3) Subverts the fairness of the conversion;
    (4) Is likely to injure you;
    (5) Is inconsistent with your plan to meet the credit and lending 
needs of your proposed market area;
    (6) Otherwise violates laws or regulations; or
    (7) Does not prudently deploy your conversion proceeds.


Sec.  192.530  What other requirements apply after I convert?

    After you convert, you must:
    (a) Promptly register your shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). You may not deregister the 
shares for three years.
    (b) Encourage and assist a market maker to establish and to 
maintain a market for your shares. A market maker for a security is a 
dealer who:
    (1) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (2) Furnishes bona fide competitive bid and offer quotations for 
the security on request; or
    (3) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (c) Use your best efforts to list your shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (d) File all post-conversion reports that the appropriate Federal 
banking agency requires.

Contributions to Charitable Organizations


Sec.  192.550  May I donate conversion shares or conversion proceeds to 
a charitable organization?

    You may contribute some of your conversion shares or proceeds to a 
charitable organization if:
    (a) Your plan of conversion provides for the proposed contribution;
    (b) Your members approve the proposed contribution; and
    (c) The IRS either has approved, or approves within two years after 
formation, the charitable organization as

[[Page 49170]]

a tax-exempt charitable organization under the Internal Revenue Code.


Sec.  192.555  How do my members approve a charitable contribution?

    At the meeting to consider your conversion, your members must 
separately approve by at least a majority of the total eligible votes, 
a contribution of conversion shares or proceeds. If you are in mutual 
holding company form and adding a charitable contribution as part of a 
second step stock conversion, you must also have your minority 
shareholders separately approve the charitable contribution by a 
majority of their total eligible votes.


Sec.  192.560  How much may I contribute to a charitable organization?

    You may contribute a reasonable amount of conversion shares or 
proceeds to a charitable organization, if your contribution will not 
exceed limits for charitable deductions under the Internal Revenue Code 
and the appropriate Federal banking agency does not object on 
supervisory grounds. If you are a well-capitalized savings association, 
the appropriate Federal banking agency generally will not object if you 
contribute an aggregate amount of eight percent or less of the 
conversion shares or proceeds.


Sec.  192.565  What must the charitable organization include in its 
organizational documents?

    The charitable organization's charter (or trust agreement) and gift 
instrument must provide that:
    (a) The charitable organization's primary purpose is to serve and 
make grants in your local community;
    (b) As long as the charitable organization controls shares, it must 
vote those shares in the same ratio as all other shares voted on each 
proposal considered by your shareholders;
    (c) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from your local 
community. This director may not be your officer, director, or 
employee, or your affiliate's officer, director, or employee, and 
should have experience with local community charitable organizations 
and grant making; and
    (d) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from your board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of your organization.


Sec.  192.570  How do I address conflicts of interest involving my 
directors?

    (a) A person who is your director, officer, or employee, or a 
person who has the power to direct your management or policies, or 
otherwise owes a fiduciary duty to you (for example, holding company 
directors) and who will serve as an officer, director, or employee of 
the charitable organization, is subject to Sec.  163.200 of this 
chapter. See Form AC (Exhibit 9) for further information on operating 
plans and conflict of interest plans.
    (b) Before your board of directors may adopt a plan of conversion 
that includes a charitable organization, you must identify your 
directors that will serve on the charitable organization's board. These 
directors may not participate in your board's discussions concerning 
contributions to the charitable organization, and may not vote on the 
matter.


Sec.  192.575  What other requirements apply to charitable 
organizations?

    (a) The charitable organization's charter (or trust agreement) and 
the gift instrument for the contribution must provide that:
    (1) The appropriate Federal banking agency may examine the 
charitable organization at the charitable organization's expense;
    (2) The charitable organization must comply with all supervisory 
directives that the appropriate Federal banking agency imposes;
    (3) The charitable organization must annually provide the 
appropriate Federal banking agency with a copy of the annual report 
that the charitable organization submitted to the IRS;
    (4) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (5) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.
    (b) You must include the following legend in the stock certificates 
of shares that you contribute to the charitable organization or that 
the charitable organization otherwise acquires: ``The board of 
directors must consider the shares that this stock certificate 
represents as voted in the same ratio as all other shares voted on each 
proposal considered by the shareholders, as long as the shares are 
controlled by the charitable organization.''
    (c) As long as the charitable organization controls shares, you 
must consider those shares as voted in the same ratio as all of the 
shares voted on each proposal considered by your shareholders.
    (d) After you complete your stock offering, you must submit copies 
of the following documents to the appropriate OCC licensing office in 
accordance with part 192.155, or if you are a state savings 
association, with the appropriate FDIC region: the charitable 
organization's charter and bylaws (or trust agreement), operating plan 
(within six months after your stock offering), conflict of interest 
policy, and the gift instrument for your contributions of either stock 
or cash to the charitable organization.

Subpart B--Voluntary Supervisory Conversions


Sec.  192.600  What does this subpart do?

    (a) You must comply with this subpart to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under sections 5(i)(1), (i)(2), and (p) of the 
Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(i)(1), (i)(2), and (p).
    (b) Subpart A of this part also applies to a voluntary supervisory 
conversion, unless a requirement is clearly inapplicable.


Sec.  192.605  How may I conduct a voluntary supervisory conversion?

    (a) You may sell your shares or the shares of a holding company to 
the public under the requirements of subpart A of this part.
    (b) You may convert to stock form by merging into an interim 
Federal-or state-chartered stock association.
    (c) You may sell your shares directly to an acquiror, who may be a 
person, company, depository institution, or depository institution 
holding company.
    (d) You may merge or consolidate with an existing or newly created 
depository institution. The merger or consolidation must be authorized 
by, and is subject to, other applicable laws and regulations.


Sec.  192.610  Do my members have rights in a voluntary supervisory 
conversion?

    Your members do not have the right to approve or participate in a 
voluntary supervisory conversion, and will not have any legal or 
beneficial ownership interests in the converted association, unless the 
appropriate Federal banking agency provides otherwise. Your members may 
have interests in a liquidation account, if one is established.

[[Page 49171]]

Eligibility


Sec.  192.625  When is a savings association eligible for a voluntary 
supervisory conversion?

    (a) If you are an insured savings association, you may be eligible 
to convert under this subpart if:
    (1) You are significantly undercapitalized (or you are 
undercapitalized and a standard conversion that would make you 
adequately capitalized is not feasible) and you will be a viable entity 
following the conversion;
    (2) Severe financial conditions threaten your stability and a 
conversion is likely to improve your financial condition;
    (3) FDIC will assist you under section 13 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823; or
    (4) You are in receivership and a conversion will assist you.
    (b) You will be a viable entity following the conversion if you 
satisfy all of the following:
    (1) You will be adequately capitalized as a result of the 
conversion;
    (2) You, your proposed conversion, and your acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in your best interest, and the best interest 
of the Deposit Insurance Fund and the public; and
    (4) The transaction will not injure or be detrimental to you, the 
Deposit Insurance Fund, or the public interest.


Sec.  192.630  When is a state-chartered savings bank eligible for a 
voluntary supervisory conversion.

    If you are a state-chartered savings bank you may be eligible to 
convert to a Federal stock savings bank under this subpart if:
    (a) FDIC certifies under section 5(o)(2)(C) of the HOLA that severe 
financial conditions threaten your stability and that the voluntary 
supervisory conversion is likely to improve your financial condition; 
or
    (b) You meet the following conditions:
    (1) Your liabilities exceed your assets, as calculated under 
generally accepted accounting principles, assuming you are a going 
concern; and
    (2) You will issue a sufficient amount of permanent capital stock 
to meet your applicable FDIC capital requirement immediately upon 
completion of the conversion, or FDIC determines that you will achieve 
an acceptable capital level within an acceptable time period.

Plan of Supervisory Conversion


Sec.  192.650  What must I include in my plan of voluntary supervisory 
conversion?

    A majority of your board of directors must adopt a plan of 
voluntary supervisory conversion. You must include all of the following 
information in your plan of voluntary supervisory conversion.
    (a) Your name and address.
    (b) The name, address, date and place of birth, and social security 
number of each proposed purchaser of conversion shares and a 
description of that purchaser's relationship to you.
    (c) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that you will issue.
    (d) The number and percentage of shares that each investor will 
purchase.
    (e) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (f) A description of any liquidation account.
    (g) Certified copies of all resolutions of your board of directors 
relating to the conversion.

Voluntary Supervisory Conversion Application


Sec.  192.660  What must I include in my voluntary supervisory 
conversion application?

    You must include all of the following information and documents in 
a voluntary supervisory conversion application to the appropriate OCC 
licensing office if you are a Federal savings association and to the 
appropriate FDIC region if you are a state savings association under 
this subpart:
    (a) Eligibility. (1) Evidence establishing that you meet the 
eligibility requirements under Sec. Sec.  192.625 or 192.630.
    (2) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (3) An opinion of independent counsel indicating that applicable 
state law authorizes the voluntary supervisory conversion, if you are a 
state-chartered savings association converting to state stock form.
    (b) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with Sec.  192.650.
    (c) Business plan. A business plan that complies with Sec.  
192.105, when required by the appropriate Federal banking agency.
    (d) Financial data. (1) Your most recent audited financial 
statements and Consolidated Reports of Condition and Income or Thrift 
Financial Report, as appropriate. You must explain how your current 
capital levels make you eligible to engage in a voluntary supervisory 
conversion under Sec. Sec.  192.625 or 192.630.
    (2) A description of your estimated conversion expenses.
    (3) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to the appropriate Federal 
banking agency and the non-cash asset must meet all other appropriate 
Federal banking agency policy guidelines.
    (4) Pro forma financial statements that reflect the effects of the 
transaction. You must identify your tangible, core, and risk-based 
capital levels and show the adjustments necessary to compute the 
capital levels. You must prepare your pro forma statements in 
conformance with the appropriate Federal banking agency regulations and 
policy.
    (e) Proposed documents. (1) Your proposed charter and bylaws.
    (2) Your proposed stock certificate form.
    (f) Agreements. (1) A copy of any agreements between you and 
proposed purchasers.
    (2) A copy and description of all existing and proposed employment 
contracts. You must describe the term, salary, and severance provisions 
of the contract, the identity and background of the officer or employee 
to be employed, and the amount of any conversion shares to be purchased 
by the officer or employee or his or her affiliates or associates.
    (g) Related applications. (1) All filings required under the 
securities offering rules of parts 192 and 197 of this chapter.
    (2) Any required Control Act notice, rebuttal submission under part 
174 of this chapter, or copies of any Holding Company Act Applications, 
including prior-conduct certifications under Regulatory Bulletin 20.
    (3) A subordinated debt application, if applicable.
    (4) Applications for permission to organize a stock association and 
for approval of a merger, if applicable, and a copy of any application 
for Federal Home Loan Bank membership or FDIC insurance of accounts, if 
applicable.
    (5) A statement describing any other applications required under 
Federal or state banking laws for all transactions related to your 
conversion, copies of all dispositive documents issued by regulatory 
authorities relating to the applications, and, if requested by the

[[Page 49172]]

appropriate Federal banking agency, copies of the applications and 
related documents.
    (h) Waiver request. A description of any of the features of your 
application that do not conform to the requirements of this subpart, 
including any request for waiver of these requirements.

Appropriate Federal Banking Agency Review of the Voluntary Supervisory 
Conversion Application


Sec.  192.670  Will the appropriate Federal banking agency approve my 
voluntary supervisory conversion application?

    The appropriate Federal banking agency will generally approve your 
application to engage in a voluntary supervisory conversion unless it 
determines:
    (a) You do not meet the eligibility requirements for a voluntary 
supervisory conversion under Sec. Sec.  192.625 or 192.630 or because 
the proceeds from the sale of your conversion stock, less the expenses 
of the conversion, would be insufficient to satisfy any applicable 
viability requirement;
    (b) The transaction is detrimental to or would cause potential 
injury to you or the Deposit Insurance Fund or is contrary to the 
public interest;
    (c) You or your acquiror, or the controlling parties or directors 
and officers of you or your acquiror, have engaged in unsafe or unsound 
practices in connection with the voluntary supervisory conversion; or
    (d) You fail to justify an employment contract incidental to the 
conversion, or the employment contract will be an unsafe or unsound 
practice or represent a sale of control. In a voluntary supervisory 
conversion, the appropriate Federal banking agency generally will not 
approve employment contracts of more than one year for your existing 
management.


Sec.  192.675  What conditions will the appropriate Federal banking 
agency impose on an approval?

    (a) The appropriate Federal banking agency will condition approval 
of a voluntary supervisory conversion application on all of the 
following.
    (1) You must complete the conversion stock sale within three months 
after the appropriate Federal banking agency approves your application. 
The appropriate Federal banking agency may grant an extension for good 
cause.
    (2) You must comply with all filing requirements of parts 192 and 
197 of this chapter.
    (3) You must submit an opinion of independent legal counsel 
indicating that the sale of your shares complies with all applicable 
state securities law requirements.
    (4) You must comply with all applicable laws, rules, and 
regulations.
    (5) You must satisfy any other requirements or conditions the 
appropriate Federal banking agency may impose.
    (b) The appropriate Federal banking agency may condition approval 
of a voluntary supervisory conversion application on either of the 
following:
    (1) You must satisfy any conditions and restrictions the 
appropriate Federal banking agency imposes to prevent unsafe or unsound 
practices, to protect the Deposit Insurance Fund and the public 
interest, and to prevent potential injury or detriment to you before 
and after the conversion. The appropriate Federal banking agency may 
impose these conditions and restrictions on you (before and after the 
conversion) or, as appropriate, your acquiror, controlling parties, or 
your directors and officers; or
    (2) You must infuse a larger amount of capital, if necessary, for 
safety and soundness reasons.

Offers and Sales of Stock


Sec.  192.680  How do I sell my shares?

    If you convert under this subpart, you must offer and sell your 
shares under part 197 of this chapter.

Post-Conversion


Sec.  192.690  Who may not acquire additional shares after the 
voluntary supervisory conversion?

    For three years after the completion of a voluntary supervisory 
conversion, neither you nor your controlling shareholder(s) may acquire 
shares from minority shareholders without the appropriate Federal 
banking agency's prior approval.

PART 193--ACCOUNTING REQUIREMENTS

Subpart A--Form and Content of Financial Statements

Sec.
193.1 Form and content of financial statements.
193.2 Definitions.
193.3 Qualification of public accountant.
193.4 Condensed financial information [Parent only].
Subpart B [Reserved]
Subpart C--Financial Statement Presentation
193.101 Application of this subpart.
193.102 Financial statement presentation.
Appendix A to Part 193--Financial Statement Line Items

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78m, 78n, 78w.

Subpart A--Form and Content of Financial Statements


Sec.  193.1  Form and content of financial statements.

    (a) This subpart A states the requirements as to form and content 
of financial statements included by a Federal savings association in 
the following documents. However, the OCC'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 
connection with a conversion under part 192 of this chapter.
    (2) Any offering circular or nonpublic offering materials required 
to be used in connection with an offer or sale of securities under part 
197 of this chapter.
    (3) Any filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., made pursuant to the requirements of part 194 of this 
chapter.
    (b) Except as otherwise provided by the OCC 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 subpart C of this part;
    (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 210.1-210.4, 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.  193.2  Definitions.

    (a) Registrant. The term ``registrant'' means an applicant, a 
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 association's and its other subsidiaries' investments in 
and advances to the subsidiary exceed 10 percent of the total assets of 
the

[[Page 49173]]

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 association exceeds 10 
percent of its total common shares outstanding at the date the 
combination is initiated); or
    (2) The 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 association 
and its subsidiaries consolidated as of the end of the most recently 
completed fiscal year; or
    (3) The 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 association and its 
subsidiaries consolidated for the most recently completed fiscal year.

    Note to paragraph (b): For purposes of making the prescribed 
income test the following guidance should be applied:
    1. 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 association and its subsidiaries 
consolidated for purposes of the computation.
    2. If income of the 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.


    Note to Sec.  193.2: See also 17 CFR 210.1-02.

Sec.  193.3  Qualification of public accountant.

    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.

    Note to Sec.  193.3: See also 17 CFR 210.2-01.

Sec.  193.4  Condensed financial information [Parent only].

    (a) The information prescribed by Schedule III pursuant to section 
IV of Appendix A to this part 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 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 association for each of the last three years by 
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 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 Appendix 
A to this part) and minority interest (See item I (21) in Appendix A to 
this part) shall be deducted in computing net assets for purposes of 
this test.

Subpart B [Reserved]

Subpart C--Financial Statement Presentation


Sec.  193.101  Application of this subpart.

    This subpart contains rules pertaining to the form and content of 
financial statements included as part of:
    (a) A conversion application under 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 Sec.  163.74 and debt 
securities under Sec.  163.80 and Sec.  163.81 of this chapter.


Sec.  193.102  Financial statement presentation.

    Federal savings associations shall comply with Appendix A to this 
part, which specifies the various line items that should appear on the 
face of the financial statements governed by this subpart C and 
additional disclosures that should be included with the financial 
statements in related notes.

Appendix A to Part 193--Financial Statement Line Items

I. Balance Sheet

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.

[[Page 49174]]

    (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 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 association or any of its subsidiaries to 
directors, executive officers, or principal holders of equity 
securities (17 CFR 210.1-02) of the 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 collectability 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
    (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 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 an association may require at its option written 
notice of intended withdrawal not less than 14 days in advance.

[[Page 49175]]

    (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 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 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 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 
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.

[[Page 49176]]

    (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

    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 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 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 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 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 
association, or group of associations, exceed 10 percent of the 
assets of the consolidated association at the end of the most recent 
period being reported upon.)
    (a) Amounts and descriptions of discounts and premiums related 
to recording the 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 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 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 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:

[[Page 49177]]



                               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
----------------------------------------------------------------------------------------------------------------
\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.

    (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:

              Guarantees of Securities of Other Issuers \1\
------------------------------------------------------------------------
 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 \2\      is filed
      filed
------------------------------------------------------------------------
 
------------------------------------------------------------------------


              Guarantees of Securities of Other Issuers \1\
------------------------------------------------------------------------
                                                         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 \3\      interest,
 person for which      securities                        sinking fund or
   statement is        guaranteed                          redemption
      filed                                              provisions, or
                                                           payment of
                                                          dividends \4\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 \1\ 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.
\2\ Indicate any amounts included in column C which are included also in
  column D or E.
\3\ 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.
\4\ Only a brief statement as to any such defaults need be made.

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

Condensed Financial Information

    [Parent only]
    [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 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 a 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 association's long-term obligations, 
mandatory dividend, or redemption requirements of redeemable stocks, 
and guarantees of the 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 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 
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.

PART 194--SECURITIES OF FEDERAL SAVINGS ASSOCIATIONS

Sec.
Subpart A--Regulations
194.1 Requirements under certain sections of the Securities Exchange 
Act of 1934.
194.2 [Reserved]
194.3 Liability for certain statements by Federal savings 
associations.
194.210 Form and content of financial statements.
Subpart B--Interpretations
194.801 Application of this subpart.
194.802 Description of business.


[[Page 49178]]


    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78l, 78m, 78w, 78d-1.

Subpart A--Regulations


Sec.  194.1  Requirements under certain sections of the Securities 
Exchange Act of 1934.

    In respect to any securities issued by Federal 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''); and 
sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002 (codified at 15 U.S.C. 7241, 7242, 7243, 7244, 7261, 
7262, 7264, and 7265) are vested in the OCC. 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 Federal savings associations, 
except as otherwise provided in this part. The term ``Securities and 
Exchange Commission'' or ``Commission'' as used in those rules and 
regulations shall, with respect to securities issued by Federal savings 
associations, be deemed to refer to the OCC unless the context 
otherwise requires. All filings with respect to securities issued by 
Federal savings associations required by those rules and regulations to 
be made with the Commission shall be made with the OCC's Securities and 
Corporate Practices Division. Except to the extent otherwise 
specifically provided by the OCC in the application fee schedule 
published in the Thrift Bulletin pursuant to 12 CFR part 102, all 
filing fees specified by the Commission's rules shall be paid to the 
OCC. If, after the OCC reviews a Form 10-K, Form 10-Q, Schedule 13D or 
Schedule 13G and determines that the filing is materially deficient 
such that the OCC requires that an amendment be filed to correct the 
deficiency, then, upon the filing of the amendment to the Form 10-K, 
Form 10-Q, Schedule 13D or Schedule 13G, as the case may be, the filer 
shall pay an additional filing fee to the OCC, in the amount specified 
by the OCC.


Sec.  194.2  [Reserved]


Sec.  194.3  Liability for certain statements by Federal 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 part 192 of this chapter; in a registration statement 
filed with the OCC under the Act on Form 10 (17 CFR 249.210); in part I 
of a quarterly report filed with the OCC on Form 10-Q (17 CFR 
249.308a); in an annual report to shareholders meeting the requirements 
of Sec.  194.1 of this part, 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:
    (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 part 197 of this chapter or pursuant 
to section 12 (b) or (g) of the Act, or in a proxy statement or 
offering circular filed with the OCC under part 192 of this chapter if 
such statements are reaffirmed in a registration statement under the 
Act on Form 10, filed with the OCC within 180 days of the Federal 
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 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 disclosed in a document filed with the OCC 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 part 192 of this chapter 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), (c)(2), or (c)(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.  194.210  Form and content of financial statements.

    The financial statements required to be contained in filings with 
the OCC 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.  193.1 
of this chapter.

Subpart B--Interpretations


Sec.  194.801  Application of this subpart.

    This subpart contains interpretations pertaining to the 
requirements of the

[[Page 49179]]

Act and the rules and regulations thereunder as applied to Federal 
savings associations by the OCC.


Sec.  194.802  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 part 192 of this 
chapter.
    (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 
stock Federal savings association. 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).''

PART 195--COMMUNITY REINVESTMENT

Sec.
Subpart A--General
195.11 Authority, purposes, and scope.
195.12 Definitions.
Subpart B--Standards for Assessing Performance
195.21 Performance tests, standards, and ratings, in general.
195.22 Lending test.
195.23 Investment test.
195.24 Service test.
195.25 Community development test for wholesale or limited purpose 
savings associations.
195.26 Small savings association performance standards.
195.27 Strategic plan.
195.28 Assigned ratings.
195.29 Effect of CRA performance on applications.
Subpart C--Records, Reporting, and Disclosure Requirements
195.41 Assessment area delineation.
195.42 Data collection, reporting, and disclosure.
195.43 Content and availability of public file.
195.44 Public notice by savings associations.
195.45 Publication of planned examination schedule.
Appendix A to Part 195--Ratings
Appendix B to Part 195--CRA Notice

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1814, 1816, 1828(c), 
2901 through 2908, 5412(b)(2)(B).

Subpart A--General


Sec.  195.11  Authority, purposes, and scope.

    (a) Authority. This part is issued under the Community Reinvestment 
Act of 1977 (CRA), as amended (12 U.S.C. 2901 et seq.); section 5, as 
amended, and sections 3, and 4, as added, of the Home Owners' Loan Act 
of 1933 (12 U.S.C. 1462a, 1463, and 1464); and sections 4, 6, and 
18(c), as amended of the Federal Deposit Insurance Act (12 U.S.C. 1814, 
1816, 1828(c)).
    (b) Purposes. In enacting the CRA, the Congress required each 
appropriate Federal financial supervisory agency to assess an 
institution's record of helping to meet the credit needs of the local 
communities in which the institution is chartered, consistent with the 
safe and sound operation of the institution, and to take this record 
into account in the agency's evaluation of an application for a deposit 
facility by the institution. This part is intended to carry out the 
purposes of the CRA by:
    (1) Establishing the framework and criteria by which the 
appropriate Federal banking agency assesses a savings association's 
record of helping to meet the credit needs of its entire community, 
including low- and moderate-income neighborhoods, consistent with the 
safe and sound operation of the savings association; and
    (2) Providing that the appropriate Federal banking agency takes 
that record into account in considering certain applications.
    (c) Scope-- (1) General. This part applies to all savings 
associations except as provided in paragraph (c)(2) of this section.
    (2) Certain special purpose savings associations. This part does 
not apply to special purpose savings associations that do not perform 
commercial or retail banking services by granting credit to the public 
in the ordinary course of business, other than as incident to their 
specialized operations. These associations include banker's banks, as 
defined in 12 U.S.C. 24 (Seventh), and associations that engage only in 
one or more of the following activities: Providing cash management 
controlled disbursement services or serving as correspondent 
associations, trust companies, or clearing agents.


Sec.  195.12  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company 
is under common control with another company if both companies are 
directly or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in 
accordance with Sec.  195.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
savings association at which deposits are received, cash dispersed, or 
money lent.
    (e) [Reserved]
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less;
    (4) Activities that revitalize or stabilize--
    (i) Low- or moderate-income geographies;
    (ii) Designated disaster areas; or
    (iii) Distressed or underserved, nonmetropolitan middle-income 
geographies designated by the appropriate Federal banking agency based 
on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, 
including needs of

[[Page 49180]]

low- and moderate-income individuals; or
    (5) Loans, investments, and services that--
    (i) Support, enable or facilitate projects or activities that meet 
the ``eligible uses'' criteria described in Section 2301(c) of the 
Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 
122 Stat. 2654, as amended, and are conducted in designated target 
areas identified in plans approved by the United States Department of 
Housing and Urban Development in accordance with the Neighborhood 
Stabilization Program (NSP);
    (ii) Are provided no later than two years after the last date funds 
appropriated for the NSP are required to be spent by grantees; and
    (iii) Benefit low-, moderate-, and middle-income individuals and 
geographies in the savings association's assessment area(s) or areas 
outside the savings association's assessment area(s) provided the 
savings association has adequately addressed the community development 
needs of its assessment area(s).
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose savings 
association:
    (i) Has not been reported or collected by the savings association 
or an affiliate for consideration in the savings association's 
assessment as a home mortgage, small business, small farm, or consumer 
loan, unless it is a multifamily dwelling loan (as described in 
appendix A to part 203 of this title); and
    (ii) Benefits the savings association's assessment area(s) or a 
broader statewide or regional area that includes the savings 
association's assessment area(s).
    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the savings 
association's retail banking services under Sec.  195.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec.  226.2 of 
this title;
    (3) Home equity loan, which is a consumer loan secured by a 
residence of the borrower;
    (4) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (5) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a ``home improvement loan,'' ``home 
purchase loan,'' or a ``refinancing'' as defined in Sec.  203.2 of this 
title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income or a median family income that is 
less than 50 percent in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income or 
a median family income that is at least 50 and less than 80 percent in 
the case of a geography.
    (3) Middle-income, which means an individual income that is at 
least 80 percent and less than 120 percent of the area median income or 
a median family income that is at least 80 and less than 120 percent in 
the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income or a median family income 
that is 120 percent or more in the case of a geography.
    (n) Limited purpose savings association means a savings association 
that offers only a narrow product line (such as credit card or motor 
vehicle loans) to a regional or broader market and for which a 
designation as a limited purpose savings association is in effect, in 
accordance with Sec.  195.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (q) Metropolitan division means a metropolitan division as defined 
by the Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.
    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small savings association --(1) Definition. Small savings 
association means a savings association that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1.122 
billion. Intermediate small savings association means a small savings 
association with assets of at least $280 million as of December 31 of 
both of the prior two calendar years and less than $1.122 billion as of 
December 31 of either of the prior two calendar years.
    (2) Adjustment . The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OCC based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Thrift Financial Report (TFR) or Consolidated Reports of Condition and 
Income (Call Report), as appropriate.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the TFR or 
Call Report, as appropriate.
    (x) Wholesale savings association means a savings association that 
is not in the business of extending home mortgage, small business, 
small farm, or consumer loans to retail customers, and for which a 
designation as a wholesale savings association is in effect, in 
accordance with Sec.  195.25(b).

[[Page 49181]]

Subpart B--Standards for Assessing Performance


Sec.  195.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The appropriate Federal 
banking agency assesses the CRA performance of a savings association in 
an examination as follows:
    (1) Lending, investment, and service tests. The appropriate Federal 
banking agency applies the lending, investment, and service tests, as 
provided in Sec. Sec.  195.22 through 195.24, in evaluating the 
performance of a savings association, except as provided in paragraphs 
(a)(2), (a)(3), and (a)(4) of this section.
    (2) Community development test for wholesale or limited purpose 
savings associations. The appropriate Federal banking agency applies 
the community development test for a wholesale or limited purpose 
savings association, as provided in Sec.  195.25, except as provided in 
paragraph (a)(4) of this section.
    (3) Small savings association performance standards. The 
appropriate Federal banking agency applies the small savings 
association performance standards as provided in Sec.  195.26 in 
evaluating the performance of a small savings association or a savings 
association that was a small savings association during the prior 
calendar year, unless the savings association elects to be assessed as 
provided in paragraphs (a)(1), (a)(2), or (a)(4) of this section. The 
savings association may elect to be assessed as provided in paragraph 
(a)(1) of this section only if it collects and reports the data 
required for other savings associations under Sec.  195.42.
    (4) Strategic plan. The appropriate Federal banking agency 
evaluates the performance of a savings association under a strategic 
plan if the savings association submits, and the appropriate Federal 
banking agency approves, a strategic plan as provided in Sec.  195.27.
    (b) Performance context. The appropriate Federal banking agency 
applies the tests and standards in paragraph (a) of this section and 
also considers whether to approve a proposed strategic plan in the 
context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a savings association's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the savings association's assessment area(s) 
maintained by the savings association or obtained from community 
organizations, state, local, and tribal governments, economic 
development agencies, or other sources;
    (3) The savings association's product offerings and business 
strategy as determined from data provided by the savings association;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the savings association, the economic climate 
(national, regional, and local), safety and soundness limitations, and 
any other factors that significantly affect the savings association's 
ability to provide lending, investments, or services in its assessment 
area(s);
    (5) The savings association's past performance and the performance 
of similarly situated lenders;
    (6) The savings association's public file, as described in Sec.  
195.43, and any written comments about the savings association's CRA 
performance submitted to the savings association or the appropriate 
Federal banking agency; and
    (7) Any other information deemed relevant by the appropriate 
Federal banking agency.
    (c) Assigned ratings. The appropriate Federal banking agency 
assigns to a savings association one of the following four ratings 
pursuant to Sec.  195.28 and Appendix A of this part: ``outstanding''; 
``satisfactory''; ``needs to improve''; or ``substantial 
noncompliance,'' as provided in 12 U.S.C. 2906(b)(2). The rating 
assigned by the appropriate Federal banking agency reflects the savings 
association's record of helping to meet the credit needs of its entire 
community, including low- and moderate-income neighborhoods, consistent 
with the safe and sound operation of the savings association.
    (d) Safe and sound operations. This part and the CRA do not require 
a savings association to make loans or investments or to provide 
services that are inconsistent with safe and sound operations. To the 
contrary, the appropriate Federal banking agency anticipates savings 
associations can meet the standards of this part with safe and sound 
loans, investments, and services on which the savings associations 
expect to make a profit. Savings associations are permitted and 
encouraged to develop and apply flexible underwriting standards for 
loans that benefit low- or moderate-income geographies or individuals, 
only if consistent with safe and sound operations.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a savings association 
under this part, the appropriate Federal banking agency considers, as a 
factor, low-cost education loans originated by the savings association 
to borrowers, particularly in its assessment area(s), who have an 
individual income that is less than 50 percent of the area median 
income. For purposes of this paragraph, ``low-cost education loans'' 
means any education loan, as defined in section 140(a)(7) of the Truth 
in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state 
or local education loan program), originated by the savings association 
for a student at an ``institution of higher education,'' as that term 
is generally defined in sections 101 and 102 of the Higher Education 
Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations 
published by the U.S. Department of Education, with interest rates and 
fees no greater than those of comparable education loans offered 
directly by the U.S. Department of Education. Such rates and fees are 
specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 
1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-
owned savings association under this part, the appropriate Federal 
banking agency considers as a factor capital investment, loan 
participation, and other ventures undertaken by the savings association 
in cooperation with minority- and women-owned financial institutions 
and low-income credit unions. Such activities must help meet the credit 
needs of local communities in which the minority- and women-owned 
financial institutions and low-income credit unions are chartered. To 
be considered, such activities need not also benefit the savings 
association's assessment area(s) or the broader statewide or regional 
area that includes the savings association's assessment area(s).


Sec.  195.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) through its lending activities by considering a 
savings association's home mortgage, small business, small farm, and 
community development lending. If consumer lending constitutes a 
substantial majority of a savings association's business, the 
appropriate Federal banking agency will evaluate the savings 
association's consumer lending

[[Page 49182]]

in one or more of the following categories: motor vehicle, credit card, 
home equity, other secured, and other unsecured loans. In addition, at 
a savings association's option, the appropriate Federal banking agency 
will evaluate one or more categories of consumer lending, if the 
savings association has collected and maintained, as required in Sec.  
195.42(c)(1), the data for each category that the savings association 
elects to have the appropriate Federal banking agency evaluate.
    (2) The appropriate Federal banking agency considers originations 
and purchases of loans. The appropriate Federal banking agency will 
also consider any other loan data the savings association may choose to 
provide, including data on loans outstanding, commitments and letters 
of credit.
    (3) A savings association may ask the appropriate Federal banking 
agency to consider loans originated or purchased by consortia in which 
the savings association participates or by third parties in which the 
savings association has invested only if the loans meet the definition 
of community development loans and only in accordance with paragraph 
(d) of this section. The appropriate Federal banking agency will not 
consider these loans under any criterion of the lending test except the 
community development lending criterion.
    (b) Performance criteria. The appropriate Federal banking agency 
evaluates a savings association's lending performance pursuant to the 
following criteria:
    (1) Lending activity. The number and amount of the savings 
association's home mortgage, small business, small farm, and consumer 
loans, if applicable, in the savings association's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
savings association's home mortgage, small business, small farm, and 
consumer loans, if applicable, based on the loan location, including:
    (i) The proportion of the savings association's lending in the 
savings association's assessment area(s);
    (ii) The dispersion of lending in the savings association's 
assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the savings association's assessment 
area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
savings association's assessment area(s), of the savings association's 
home mortgage, small business, small farm, and consumer loans, if 
applicable, based on borrower characteristics, including the number and 
amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, 
and upper-income individuals;
    (4) Community development lending. The savings association's 
community development lending, including the number and amount of 
community development loans, and their complexity and innovativeness; 
and
    (5) Innovative or flexible lending practices. The savings 
association's use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies.
    (c) Affiliate lending. (1) At a savings association's option, the 
appropriate Federal banking agency will consider loans by an affiliate 
of the savings association, if the savings association provides data on 
the affiliate's loans pursuant to Sec.  195.42.
    (2) The appropriate Federal banking agency considers affiliate 
lending subject to the following constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a savings association elects to have the appropriate 
Federal banking agency consider loans within a particular lending 
category made by one or more of the savings association's affiliates in 
a particular assessment area, the savings association shall elect to 
have the appropriate Federal banking agency consider, in accordance 
with paragraph (c)(1) of this section, all the loans within that 
lending category in that particular assessment area made by all of the 
savings association's affiliates.
    (3) The appropriate Federal banking agency does not consider 
affiliate lending in assessing a savings association's performance 
under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the savings 
association participates or by a third party in which the savings 
association has invested:
    (1) Will be considered, at the savings association's option, if the 
savings association reports the data pertaining to these loans under 
Sec.  195.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; 
or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The appropriate Federal banking 
agency rates a savings association's lending performance as provided in 
Appendix A of this part.


Sec.  195.23  Investment test.

    (a) Scope of test. The investment test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) through qualified investments that benefit its 
assessment area(s) or a broader statewide or regional area that 
includes the savings association's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a savings association's option, the 
appropriate Federal banking agency will consider, in its assessment of 
a savings association's investment performance, a qualified investment 
made by an affiliate of the savings association, if the qualified 
investment is not claimed by any other institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the savings 
association that is located in a predominantly minority neighborhood to 
a minority depository institution or women's depository institution (as 
these terms are defined in 12 U.S.C. 2907(b)) will be considered as a 
qualified investment.
    (e) Performance criteria. The appropriate Federal banking agency 
evaluates the investment performance of a savings association pursuant 
to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The appropriate Federal banking 
agency rates a savings association's investment

[[Page 49183]]

performance as provided in Appendix A of this part.


Sec.  195.24  Service test.

    (a) Scope of test. The service test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) by analyzing both the availability and effectiveness 
of a savings association's systems for delivering retail banking 
services and the extent and innovativeness of its community development 
services.
    (b) Area(s) benefitted. Community development services must benefit 
a savings association's assessment area(s) or a broader statewide or 
regional area that includes the savings association's assessment 
area(s).
    (c) Affiliate service. At a savings association's option, the 
appropriate Federal banking agency will consider, in its assessment of 
a savings association's service performance, a community development 
service provided by an affiliate of the savings association, if the 
community development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The appropriate 
Federal banking agency evaluates the availability and effectiveness of 
a savings association's systems for delivering retail banking services, 
pursuant to the following criteria:
    (1) The current distribution of the savings association's branches 
among low-, moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the savings 
association's branches, the savings association's record of opening and 
closing branches, particularly branches located in low- or moderate-
income geographies or primarily serving low- or moderate-income 
individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the savings association, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs) in low- and moderate-income geographies and to 
low- and moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The 
appropriate Federal banking agency evaluates community development 
services pursuant to the following criteria:
    (1) The extent to which the savings association provides community 
development services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The appropriate Federal banking 
agency rates a savings association's service performance as provided in 
Appendix A of this part.


Sec.  195.25  Community development test for wholesale or limited 
purpose savings associations.

    (a) Scope of test. The appropriate Federal banking agency assesses 
a wholesale or limited purpose savings association's record of helping 
to meet the credit needs of its assessment area(s) under the community 
development test through its community development lending, qualified 
investments, or community development services.
    (b) Designation as a wholesale or limited purpose savings 
association. In order to receive a designation as a wholesale or 
limited purpose savings association, a savings association shall file a 
request, in writing, with the appropriate Federal banking agency, at 
least three months prior to the proposed effective date of the 
designation. If the appropriate Federal banking agency approves the 
designation, it remains in effect until the savings association 
requests revocation of the designation or until one year after the 
appropriate Federal banking agency notifies the savings association 
that the appropriate Federal banking agency has revoked the designation 
on its own initiative.
    (c) Performance criteria. The appropriate Federal banking agency 
evaluates the community development performance of a wholesale or 
limited purpose savings association pursuant to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development 
loan data provided by the savings association, such as data on loans 
outstanding, commitments, and letters of credit), qualified 
investments, or community development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The savings association's responsiveness to credit and 
community development needs.
    (d) Indirect activities. At a savings association's option, the 
appropriate Federal banking agency will consider in its community 
development performance assessment:
    (1) Qualified investments or community development services 
provided by an affiliate of the savings association, if the investments 
or services are not claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and 
third parties, subject to the requirements and limitations in Sec.  
195.22(c) and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The appropriate Federal banking agency considers all qualified 
investments, community development loans, and community development 
services that benefit areas within the savings association's assessment 
area(s) or a broader statewide or regional area that includes the 
savings association's assessment area(s).
    (2) Benefit outside assessment area(s). The appropriate Federal 
banking agency considers the qualified investments, community 
development loans, and community development services that benefit 
areas outside the savings association's assessment area(s), if the 
savings association has adequately addressed the needs of its 
assessment area(s).
    (f) Community development performance rating. The appropriate 
Federal banking agency rates a savings association's community 
development performance as provided in Appendix A of this part.


Sec.  195.26  Small savings association performance standards.

    (a) Performance criteria--(1) Small savings associations that are 
not intermediate small savings associations. The appropriate Federal 
banking agency evaluates the record of a small savings association that 
is not, or that was not during the prior calendar year, an intermediate 
small savings association, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraph (b) 
of this section.
    (2) Intermediate small savings associations. The appropriate 
Federal banking agency evaluates the record of a small savings 
association that is, or that was during the prior calendar year, an 
intermediate small savings association, of helping to meet the credit 
needs of its assessment area(s) pursuant to the criteria set forth in 
paragraphs (b) and (c) of this section.
    (b) Lending test. A small savings association's lending performance 
is evaluated pursuant to the following criteria:

[[Page 49184]]

    (1) The savings association's loan-to-deposit ratio, adjusted for 
seasonal variation, and, as appropriate, other lending-related 
activities, such as loan originations for sale to the secondary 
markets, community development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the savings association's assessment 
area(s);
    (3) The savings association's record of lending to and, as 
appropriate, engaging in other lending-related activities for borrowers 
of different income levels and businesses and farms of different sizes;
    (4) The geographic distribution of the savings association's loans; 
and
    (5) The savings association's record of taking action, if 
warranted, in response to written complaints about its performance in 
helping to meet credit needs in its assessment area(s).
    (c) Community development test. An intermediate small savings 
association's community development performance also is evaluated 
pursuant to the following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the savings association provides community 
development services; and
    (4) The savings association's responsiveness through such 
activities to community development lending, investment, and services 
needs.
    (d) Small savings association performance rating. The appropriate 
Federal banking agency rates the performance of a savings association 
evaluated under this section as provided in Appendix A of this part.


Sec.  195.27  Strategic plan.

    (a) Alternative election. The appropriate Federal banking agency 
will assess a savings association's record of helping to meet the 
credit needs of its assessment area(s) under a strategic plan if:
    (1) The savings association has submitted the plan to the 
appropriate Federal banking agency as provided for in this section;
    (2) The appropriate Federal banking agency has approved the plan;
    (3) The plan is in effect; and
    (4) The savings association has been operating under an approved 
plan for at least one year.
    (b) Data reporting. The appropriate Federal banking agency's 
approval of a plan does not affect the savings association's 
obligation, if any, to report data as required by


Sec.  195.42.  

    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the appropriate Federal banking agency 
will evaluate the savings association's performance.
    (2) Multiple assessment areas. A savings association with more than 
one assessment area may prepare a single plan for all of its assessment 
areas or one or more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the appropriate Federal banking agency for approval, a savings 
association shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the savings association has developed a plan, formally 
solicit public comment on the plan for at least 30 days by publishing 
notice in at least one newspaper of general circulation in each 
assessment area covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of 
the savings association in any assessment area covered by the plan and 
provide copies of the plan upon request for a reasonable fee to cover 
copying and mailing, if applicable.
    (e) Submission of plan. The savings association shall submit its 
plan to the appropriate Federal banking agency at least three months 
prior to the proposed effective date of the plan. The savings 
association shall also submit with its plan a description of its 
informal efforts to seek suggestions from members of the public, any 
written public comment received, and, if the plan was revised in light 
of the comment received, the initial plan as released for public 
comment.
    (f) Plan content--(1) Measurable goals. (i) A savings association 
shall specify in its plan measurable goals for helping to meet the 
credit needs of each assessment area covered by the plan, particularly 
the needs of low- and moderate-income geographies and low- and 
moderate-income individuals, through lending, investment, and services, 
as appropriate.
    (ii) A savings association shall address in its plan all three 
performance categories and, unless the savings association has been 
designated as a wholesale or limited purpose savings association, shall 
emphasize lending and lending-related activities. Nevertheless, a 
different emphasis, including a focus on one or more performance 
categories, may be appropriate if responsive to the characteristics and 
credit needs of its assessment area(s), considering public comment and 
the savings association's capacity and constraints, product offerings, 
and business strategy.
    (2) Confidential information. A savings association may submit 
additional information to the appropriate Federal banking agency on a 
confidential basis, but the goals stated in the plan must be 
sufficiently specific to enable the public and the appropriate Federal 
banking agency to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A savings association shall 
specify in its plan measurable goals that constitute ``satisfactory'' 
performance. A plan may specify measurable goals that constitute 
``outstanding'' performance. If a savings association submits, and the 
appropriate Federal banking agency approves, both ``satisfactory'' and 
``outstanding'' performance goals, the appropriate Federal banking 
agency will consider the savings association eligible for an 
``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A savings 
association may elect in its plan that, if the savings association 
fails to meet substantially its plan goals for a satisfactory rating, 
the appropriate Federal banking agency will evaluate the savings 
association's performance under the lending, investment, and service 
tests, the community development test, or the small savings association 
performance standards, as appropriate.
    (g) Plan approval--(1) Timing. The appropriate Federal banking 
agency will act upon a plan within 60 calendar days after it receives 
the complete plan and other material required under paragraph (e) of 
this section. If the appropriate Federal banking agency fails to act 
within this time period, the plan shall be deemed approved unless the 
appropriate Federal banking agency extends the review period for good 
cause.
    (2) Public participation. In evaluating the plan's goals, the 
appropriate Federal banking agency considers the public's involvement 
in formulating the plan, written public comment on the plan,

[[Page 49185]]

and any response by the savings association to public comment on the 
plan.
    (3) Criteria for evaluating plan. The appropriate Federal banking 
agency evaluates a plan's measurable goals using the following 
criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related 
activities, including, as appropriate, the distribution of loans among 
different geographies, businesses and farms of different sizes, and 
individuals of different income levels, the extent of community 
development lending, and the use of innovative or flexible lending 
practices to address credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the savings association's qualified investments; and
    (iii) The availability and effectiveness of the savings 
association's systems for delivering retail banking services and the 
extent and innovativeness of the savings association's community 
development services.
    (h) Plan amendment. During the term of a plan, a savings 
association may request the appropriate Federal banking agency to 
approve an amendment to the plan on grounds that there has been a 
material change in circumstances. The savings association shall develop 
an amendment to a previously approved plan in accordance with the 
public participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The appropriate Federal banking agency 
approves the goals and assesses performance under a plan as provided 
for in Appendix A of this part.


Sec.  195.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the appropriate Federal banking agency assigns to a savings 
association a rating of ``outstanding,'' ``satisfactory,'' ``needs to 
improve,'' or ``substantial noncompliance'' based on the savings 
association's performance under the lending, investment and service 
tests, the community development test, the small savings association 
performance standards, or an approved strategic plan, as applicable.
    (b) Lending, investment, and service tests. The appropriate Federal 
banking agency assigns a rating for a savings association assessed 
under the lending, investment, and service tests in accordance with the 
following principles:
    (1) A savings association that receives an ``outstanding'' rating 
on the lending test receives an assigned rating of at least 
``satisfactory'';
    (2) A savings association that receives an ``outstanding'' rating 
on both the service test and the investment test and a rating of at 
least ``high satisfactory'' on the lending test receives an assigned 
rating of ``outstanding''; and
    (3) No savings association may receive an assigned rating of 
``satisfactory'' or higher unless it receives a rating of at least 
``low satisfactory'' on the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The appropriate Federal banking agency's evaluation of a 
savings association's CRA performance is adversely affected by evidence 
of discriminatory or other illegal credit practices in any geography by 
the savings association or in any assessment area by any affiliate 
whose loans have been considered as part of the savings association's 
lending performance. In connection with any type of lending activity 
described in Sec.  195.22(a), evidence of discriminatory or other 
credit practices that violate an applicable law, rule, or regulation 
includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the savings association's assigned 
rating, the appropriate Federal banking agency considers the nature, 
extent, and strength of the evidence of the practices; the policies and 
procedures that the savings association (or affiliate, as applicable) 
has in place to prevent the practices; any corrective action that the 
savings association (or affiliate, as applicable) has taken or has 
committed to take, including voluntary corrective action resulting from 
self-assessment; and any other relevant information.


Sec.  195.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the appropriate Federal 
banking agency takes into account the record of performance under the 
CRA of each applicant savings association, and for applications under 
section 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of 
each proposed subsidiary savings association, in considering an 
application for:
    (1) The establishment of a domestic branch or other facility that 
would be authorized to take deposits;
    (2) The relocation of the main office or a branch;
    (3) The merger or consolidation with or the acquisition of the 
assets or assumption of the liabilities of an insured depository 
institution requiring appropriate Federal banking agency approval under 
the Bank Merger Act (12 U.S.C. 1828(c));
    (4) A Federal thrift charter; and
    (5) Acquisitions subject to section 10(e) of the Home Owners' Loan 
Act (12 U.S.C. 1467a(e)).
    (b) Charter application. An applicant for a Federal thrift charter 
shall submit with its application a description of how it will meet its 
CRA objectives. The appropriate Federal banking agency takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The appropriate Federal banking agency 
takes into account any views expressed by interested parties that are 
submitted in accordance with the applicable comment procedures in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A savings 
association's record of performance may be the basis for denying or 
conditioning approval of an application listed in paragraph (a) of this 
section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.

Subpart C--Records, Reporting, and Disclosure Requirements


Sec.  195.41   Assessment area delineation.

    (a) In general. A savings association shall delineate one or more 
assessment areas within which the appropriate Federal banking agency 
evaluates the savings association's record of helping to meet the 
credit needs of its community. The appropriate Federal banking agency 
does not evaluate the savings association's delineation of its 
assessment area(s) as a separate performance criterion, but the 
appropriate Federal banking agency reviews the delineation for 
compliance with the requirements of this section.

[[Page 49186]]

    (b) Geographic area(s) for wholesale or limited purpose savings 
associations. The assessment area(s) for a wholesale or limited purpose 
savings association must consist generally of one or more MSAs or 
metropolitan divisions (using the MSA or metropolitan division 
boundaries that were in effect as of January 1 of the calendar year in 
which the delineation is made) or one or more contiguous political 
subdivisions, such as counties, cities, or towns, in which the savings 
association has its main office, branches, and deposit-taking ATMs.
    (c) Geographic area(s) for other savings associations. The 
assessment area(s) for a savings association other than a wholesale or 
limited purpose savings association must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the savings association has 
its main office, its branches, and its deposit-taking ATMs, as well as 
the surrounding geographies in which the savings association has 
originated or purchased a substantial portion of its loans (including 
home mortgage loans, small business and small farm loans, and any other 
loans the savings association chooses, such as those consumer loans on 
which the savings association elects to have its performance assessed).
    (d) Adjustments to geographic area(s). A savings association may 
adjust the boundaries of its assessment area(s) to include only the 
portion of a political subdivision that it reasonably can be expected 
to serve. An adjustment is particularly appropriate in the case of an 
assessment area that otherwise would be extremely large, of unusual 
configuration, or divided by significant geographic barriers.
    (e) Limitations on the delineation of an assessment area. Each 
savings association's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income 
geographies, taking into account the savings association's size and 
financial condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a savings association serves a geographic area that extends 
substantially beyond a state boundary, the savings association shall 
delineate separate assessment areas for the areas in each state. If a 
savings association serves a geographic area that extends substantially 
beyond an MSA boundary, the savings association shall delineate 
separate assessment areas for the areas inside and outside the MSA.
    (f) Savings associations serving military personnel. 
Notwithstanding the requirements of this section, a savings association 
whose business predominantly consists of serving the needs of military 
personnel or their dependents who are not located within a defined 
geographic area may delineate its entire deposit customer base as its 
assessment area.
    (g) Use of assessment area(s). The appropriate Federal banking 
agency uses the assessment area(s) delineated by a savings association 
in its evaluation of the savings association's CRA performance unless 
the appropriate Federal banking agency determines that the assessment 
area(s) do not comply with the requirements of this section.


Sec.  195.42   Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
savings association, except a small savings association, shall collect, 
and maintain in machine readable form (as prescribed by the appropriate 
Federal banking agency) until the completion of its next CRA 
examination, the following data for each small business or small farm 
loan originated or purchased by the savings association:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A savings 
association, except a small savings association or a savings 
association that was a small savings association during the prior 
calendar year, shall report annually by March 1 to the appropriate 
Federal banking agency in machine readable form (as prescribed by the 
agency) the following data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the savings association originated or purchased a small business 
or small farm loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the savings association 
considered in making its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or 
purchased; and
    (3) Home mortgage loans. If the savings association is subject to 
reporting under part 203 of this title, the location of each home 
mortgage loan application, origination, or purchase outside the MSAs in 
which the savings association has a home or branch office (or outside 
any MSA) in accordance with the requirements of part 203 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
savings association may collect and maintain in machine readable form 
(as prescribed by the appropriate Federal banking agency) data for 
consumer loans originated or purchased by the savings association for 
consideration under the lending test. A savings association may 
maintain data for one or more of the following categories of consumer 
loans: Motor vehicle, credit card, home equity, other secured, and 
other unsecured. If the savings association maintains data for loans in 
a certain category, it shall maintain data for all loans originated or 
purchased within that category. The savings association shall maintain 
data separately for each category, including for each loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the savings 
association considered in making its credit decision.
    (2) Other loan data. At its option, a savings association may 
provide other information concerning its lending performance, including 
additional loan distribution data.
    (d) Data on affiliate lending. A savings association that elects to 
have the appropriate Federal banking agency consider loans by an 
affiliate, for purposes of the lending or community development test or 
an approved strategic plan, shall collect, maintain, and report for 
those loans the data that

[[Page 49187]]

the savings association would have collected, maintained, and reported 
pursuant to paragraphs (a), (b), and (c) of this section had the loans 
been originated or purchased by the savings association. For home 
mortgage loans, the savings association shall also be prepared to 
identify the home mortgage loans reported under part 203 of this title 
by the affiliate.
    (e) Data on lending by a consortium or a third-party. A savings 
association that elects to have the appropriate Federal banking agency 
consider community development loans by a consortium or third party, 
for purposes of the lending or community development tests or an 
approved strategic plan, shall report for those loans the data that the 
savings association would have reported under paragraph (b)(2) of this 
section had the loans been originated or purchased by the savings 
association.
    (f) Small savings associations electing evaluation under the 
lending, investment, and service tests. A savings association that 
qualifies for evaluation under the small savings association 
performance standards but elects evaluation under the lending, 
investment, and service tests shall collect, maintain, and report the 
data required for other savings associations pursuant to paragraphs (a) 
and (b) of this section.
    (g) Assessment area data. A savings association, except a small 
savings association or a savings association that was a small savings 
association during the prior calendar year, shall collect and report to 
the appropriate Federal banking agency by March 1 of each year a list 
for each assessment area showing the geographies within the area.
    (h) CRA Disclosure Statement. The appropriate Federal banking 
agency prepares annually for each savings association that reports data 
pursuant to this section a CRA Disclosure Statement that contains, on a 
state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the 
savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the savings 
association reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the 
savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 
or more but less than 20 percent, 20 or more but less than 30 percent, 
30 or more but less than 40 percent, 40 or more but less than 50 
percent, 50 or more but less than 60 percent, 60 or more but less than 
70 percent, 70 or more but less than 80 percent, 80 or more but less 
than 90 percent, 90 or more but less than 100 percent, 100 or more but 
less than 110 percent, 110 or more but less than 120 percent, and 120 
percent or more;
    (ii) A list grouping each geography in the county or assessment 
area according to whether the median income in the geography relative 
to the area median income is less than 10 percent, 10 or more but less 
than 20 percent, 20 or more but less than 30 percent, 30 or more but 
less than 40 percent, 40 or more but less than 50 percent, 50 or more 
but less than 60 percent, 60 or more but less than 70 percent, 70 or 
more but less than 80 percent, 80 or more but less than 90 percent, 90 
or more but less than 100 percent, 100 or more but less than 110 
percent, 110 or more but less than 120 percent, and 120 percent or 
more;
    (iii) A list showing each geography in which the savings 
association reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the savings association 
and the number and amount of small business and small farm loans 
located outside the assessment area(s) reported by the savings 
association; and
    (4) The number and amount of community development loans reported 
as originated or purchased.
    (i) Aggregate disclosure statements. The appropriate Federal 
banking agency, in conjunction with the Board of Governors of the 
Federal Reserve System and the Federal Deposit Insurance Corporation or 
the OCC, as appropriate, prepares annually, for each MSA or 
metropolitan division (including an MSA or metropolitan division that 
crosses a state boundary) and the nonmetropolitan portion of each 
state, an aggregate disclosure statement of small business and small 
farm lending by all institutions subject to reporting under this part 
or parts 25, 228, or 345 of this title. These disclosure statements 
indicate, for each geography, the number and amount of all small 
business and small farm loans originated or purchased by reporting 
institutions, except that the appropriate Federal banking agency may 
adjust the form of the disclosure if necessary, because of special 
circumstances, to protect the privacy of a borrower or the competitive 
position of an institution.
    (j) Central data depositories. The appropriate Federal banking 
agency makes the aggregate disclosure statements, described in 
paragraph (i) of this section, and the individual savings association 
CRA Disclosure Statements, described in paragraph (h) of this section, 
available to the public at central data depositories. The appropriate 
Federal banking agency publishes a list of the depositories at which 
the statements are available.


Sec.  195.43   Content and availability of public file.

    (a) Information available to the public. A savings association 
shall maintain a public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the savings association's performance in helping to meet community 
credit needs, and any response to the comments by the savings 
association, if neither the comments nor the responses contain 
statements that reflect adversely on the good name or reputation of any 
persons other than the savings association or publication of which 
would violate specific provisions of law;
    (2) A copy of the public section of the savings association's most 
recent CRA Performance Evaluation prepared by the appropriate Federal 
banking agency. The savings association shall place this copy in the 
public file within 30 business days after its receipt from the 
appropriate Federal banking agency;
    (3) A list of the savings association's branches, their street 
addresses, and geographies;
    (4) A list of branches opened or closed by the savings association 
during the current year and each of the prior two calendar years, their 
street addresses, and geographies;

[[Page 49188]]

    (5) A list of services (including hours of operation, available 
loan and deposit products, and transaction fees) generally offered at 
the savings association's branches and descriptions of material 
differences in the availability or cost of services at particular 
branches, if any. At its option, a savings association may include 
information regarding the availability of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the savings association, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs);
    (6) A map of each assessment area showing the boundaries of the 
area and identifying the geographies contained within the area, either 
on the map or in a separate list; and
    (7) Any other information the savings association chooses.
    (b) Additional information available to the public--(1) Savings 
associations other than small savings associations. A savings 
association, except a small savings association or a savings 
association that was a small savings association during the prior 
calendar year, shall include in its public file the following 
information pertaining to the savings association and its affiliates, 
if applicable, for each of the prior two calendar years:
    (i) If the savings association has elected to have one or more 
categories of its consumer loans considered under the lending test, for 
each of these categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the savings association's assessment area(s) and 
outside the savings association's assessment area(s); and
    (ii) The savings association's CRA Disclosure Statement. The 
savings association shall place the statement in the public file within 
three business days of its receipt from the appropriate Federal banking 
agency.
    (2) Savings associations required to report Home Mortgage 
Disclosure Act (HMDA) data. A savings association required to report 
home mortgage loan data pursuant to part 203 of this title shall 
include in its public file a copy of the HMDA Disclosure Statement 
provided by the Federal Financial Institutions Examination Council 
pertaining to the savings association for each of the prior two 
calendar years. In addition, a savings association that elected to have 
the appropriate Federal banking agency consider the mortgage lending of 
an affiliate for any of these years shall include in its public file 
the affiliate's HMDA Disclosure Statement for those years. The savings 
association shall place the statement(s) in the public file within 
three business days after its receipt.
    (3) Small savings associations. A small savings association or a 
savings association that was a small savings association during the 
prior calendar year shall include in its public file:
    (i) The savings association's loan-to-deposit ratio for each 
quarter of the prior calendar year and, at its option, additional data 
on its loan-to-deposit ratio; and
    (ii) The information required for other savings associations by 
paragraph (b)(1) of this section, if the savings association has 
elected to be evaluated under the lending, investment, and service 
tests.
    (4) Savings associations with strategic plans. A savings 
association that has been approved to be assessed under a strategic 
plan shall include in its public file a copy of that plan. A savings 
association need not include information submitted to the appropriate 
Federal banking agency on a confidential basis in conjunction with the 
plan.
    (5) Savings associations with less than satisfactory ratings. A 
savings association that received a less than satisfactory rating 
during its most recent examination shall include in its public file a 
description of its current efforts to improve its performance in 
helping to meet the credit needs of its entire community. The savings 
association shall update the description quarterly.
    (c) Location of public information. A savings association shall 
make available to the public for inspection upon request and at no cost 
the information required in this section as follows:
    (1) At the main office and, if an interstate savings association, 
at one branch office in each state, all information in the public file; 
and
    (2) At each branch:
    (i) A copy of the public section of the savings association's most 
recent CRA Performance Evaluation and a list of services provided by 
the branch; and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a savings association shall provide 
copies, either on paper or in another form acceptable to the person 
making the request, of the information in its public file. The savings 
association may charge a reasonable fee not to exceed the cost of 
copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a 
savings association shall ensure that the information required by this 
section is current as of April 1 of each year.


Sec.  195.44  Public notice by savings associations.

    A savings association shall provide in the public lobby of its main 
office and each of its branches the appropriate public notice set forth 
in Appendix B of this part. Only a branch of a savings association 
having more than one assessment area shall include the bracketed 
material in the notice for branch offices. Only a savings association 
that is an affiliate of a holding company shall include the last two 
sentences of the notices.


Sec.  195.45  Publication of planned examination schedule.

    The appropriate Federal banking agency publishes at least 30 days 
in advance of the beginning of each calendar quarter a list of savings 
associations scheduled for CRA examinations in that quarter.

Appendix A to Part 195--Ratings

    (a) Ratings in general. (1) In assigning a rating, the 
appropriate Federal banking agency evaluates a savings association's 
performance under the applicable performance criteria in this part, 
in accordance with Sec. Sec.  195.21 and 195.28. This includes 
consideration of low-cost education loans provided to low-income 
borrowers and activities in cooperation with minority- or women-
owned financial institutions and low-income credit unions, as well 
as adjustments on the basis of evidence of discriminatory or other 
illegal credit practices.
    (2) A savings association's performance need not fit each aspect 
of a particular rating profile in order to receive that rating, and 
exceptionally strong performance with respect to some aspects may 
compensate for weak performance in others. The savings association's 
overall performance, however, must be consistent with safe and sound 
banking practices and generally with the appropriate rating profile 
as follows.
    (b) Savings associations evaluated under the lending, 
investment, and service tests--(1) Lending performance rating. The 
appropriate Federal banking agency assigns each savings 
association's lending performance one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association's lending performance ``outstanding'' if, in 
general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);

[[Page 49189]]

    (B) A substantial majority of its loans are made in its 
assessment area(s);
    (C) An excellent geographic distribution of loans in its 
assessment area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the savings association;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Extensive use of innovative or flexible lending practices in 
a safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a savings association's lending performance ``high 
satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the savings association;
    (E) A good record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a savings association's lending performance ``low 
satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) An adequate percentage of its loans are made in its 
assessment area(s);
    (C) An adequate geographic distribution of loans in its 
assessment area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the savings association;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It has made an adequate level of community development 
loans.
    (iv) Needs to improve. The appropriate Federal banking agency 
rates a savings association's lending performance ``needs to 
improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the savings association;
    (E) A poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Little use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a savings association's lending performance as being in 
``substantial noncompliance'' if, in general, it demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A very small percentage of its loans are made in its 
assessment area(s);
    (C) A very poor geographic distribution of loans, particularly 
to low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the savings association;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) No use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The appropriate Federal 
banking agency assigns each savings association's investment 
performance one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association's investment performance ``outstanding'' if, in 
general, it demonstrates:
    (A) An excellent level of qualified investments, particularly 
those that are not routinely provided by private investors, often in 
a leadership position;
    (B) Extensive use of innovative or complex qualified 
investments; and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a savings association's investment performance ``high 
satisfactory'' if, in general, it demonstrates:
    (A) A significant level of qualified investments, particularly 
those that are not routinely provided by private investors, 
occasionally in a leadership position;
    (B) Significant use of innovative or complex qualified 
investments; and
    (C) Good responsiveness to credit and community development 
needs.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a savings association's investment performance ``low 
satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly 
those that are not routinely provided by private investors, although 
rarely in a leadership position;
    (B) Occasional use of innovative or complex qualified 
investments; and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The appropriate Federal banking agency 
rates a savings association's investment performance ``needs to 
improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those 
that are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development 
needs.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a savings association's investment performance as being 
in ``substantial noncompliance'' if, in general, it demonstrates:
    (A) Few, if any, qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The appropriate Federal banking 
agency assigns each savings association's service performance one of 
the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association's service performance ``outstanding'' if, in

[[Page 49190]]

general, the savings association demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has improved the accessibility of its delivery 
systems, particularly in low- or moderate-income geographies or to 
low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
are tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a savings association's service performance ``high 
satisfactory'' if, in general, the savings association demonstrates:
    (A) Its service delivery systems are accessible to geographies 
and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has not adversely affected the accessibility of 
its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a savings association's service performance ``low 
satisfactory'' if, in general, the savings association demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has generally not adversely affected the 
accessibility of its delivery systems, particularly in low- and 
moderate-income geographies and to low- and moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides an adequate level of community development 
services.
    (iv) Needs to improve. The appropriate Federal banking agency 
rates a savings association's service performance ``needs to 
improve'' if, in general, the savings association demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has adversely affected the accessibility of its 
delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides a limited level of community development 
services.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a savings association's service performance as being in 
``substantial noncompliance'' if, in general, the savings 
association demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to significant portions of its assessment area(s), particularly to 
low- or moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has significantly adversely affected the 
accessibility of its delivery systems, particularly in low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that significantly inconveniences its assessment 
area(s), particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose savings associations. The 
appropriate Federal banking agency assigns each wholesale or limited 
purpose savings association's community development performance one 
of the four following ratings.
    (1) Outstanding. The appropriate Federal banking agency rates a 
wholesale or limited purpose savings association's community 
development performance ``outstanding'' if, in general, it 
demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified 
investments, community development loans, or community development 
services; and
    (iii) Excellent responsiveness to credit and community 
development needs in its assessment area(s).
    (2) Satisfactory. The appropriate Federal banking agency rates a 
wholesale or limited purpose savings association's community 
development performance ``satisfactory'' if, in general, it 
demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified 
investments, community development loans, or community development 
services; and
    (iii) Adequate responsiveness to credit and community 
development needs in its assessment area(s).
    (3) Needs to improve. The appropriate Federal banking agency 
rates a wholesale or limited purpose savings association's community 
development performance as ``needs to improve'' if, in general, it 
demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development 
needs in its assessment area(s).
    (4) Substantial noncompliance. The appropriate Federal banking 
agency rates a wholesale or limited purpose savings association's 
community development performance in ``substantial noncompliance'' 
if, in general, it demonstrates:
    (i) Few, if any, community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community 
development needs in its assessment area(s).
    (d) Savings associations evaluated under the small savings 
association performance standard.--(1) Lending test ratings. (i) 
Eligibility for a satisfactory lending test rating. The appropriate 
Federal banking agency rates a small savings association's lending 
performance ``satisfactory'' if, in general, the savings association 
demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the savings association's size, financial 
condition, the credit needs of its assessment area(s), and taking 
into account, as appropriate, other lending-related activities such 
as loan originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the savings association's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the savings 
association's performance in helping to meet the credit needs of its 
assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
savings association's assessment area(s).

[[Page 49191]]

    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small savings association that meets each of the standards for a 
``satisfactory'' rating under this paragraph and exceeds some or all 
of those standards may warrant consideration for a lending test 
rating of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small savings association may also receive a lending test rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standard 
for a ``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
savings associations--(i) Eligibility for a satisfactory community 
development test rating. The appropriate Federal banking agency 
rates an intermediate small savings association's community 
development performance ``satisfactory'' if the savings association 
demonstrates adequate responsiveness to the community development 
needs of its assessment area(s) through community development loans, 
qualified investments, and community development services. The 
adequacy of the savings association's response will depend on its 
capacity for such community development activities, its assessment 
area's need for such community development activities, and the 
availability of such opportunities for community development in the 
savings association's assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The appropriate Federal banking agency rates an intermediate 
small savings association's community development performance 
``outstanding'' if the savings association demonstrates excellent 
responsiveness to community development needs in its assessment 
area(s) through community development loans, qualified investments, 
and community development services, as appropriate, considering the 
savings association's capacity and the need and availability of such 
opportunities for community development in the savings association's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small savings association may also receive a community 
development test rating of ``needs to improve'' or ``substantial 
noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small savings association may receive an 
assigned overall rating of ``satisfactory'' unless it receives a 
rating of at least ``satisfactory'' on both the lending test and the 
community development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small savings association that receives an 
``outstanding'' rating on one test and at least ``satisfactory'' on 
the other test may receive an assigned overall rating of 
``outstanding.''
    (B) A small savings association that is not an intermediate 
small savings association that meets each of the standards for a 
``satisfactory'' rating under the lending test and exceeds some or 
all of those standards may warrant consideration for an overall 
rating of ``outstanding.'' In assessing whether a savings 
association's performance is ``outstanding,'' the appropriate 
Federal banking agency considers the extent to which the savings 
association exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other 
services and delivery systems that enhance credit availability in 
its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small savings association may also receive a rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standards 
for a ``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory 
goals. The appropriate Federal banking agency approves as 
``satisfactory'' measurable goals that adequately help to meet the 
credit needs of the savings association's assessment area(s).
    (2) Outstanding goals. If the plan identifies a separate group 
of measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the appropriate Federal banking agency will 
approve those goals as ``outstanding.''
    (3) Rating. The appropriate Federal banking agency assesses the 
performance of a savings association operating under an approved 
plan to determine if the savings association has met its plan goals:
    (i) If the savings association substantially achieves its plan 
goals for a satisfactory rating, the appropriate Federal banking 
agency will rate the savings association's performance under the 
plan as ``satisfactory.''
    (ii) If the savings association exceeds its plan goals for a 
satisfactory rating and substantially achieves its plan goals for an 
outstanding rating, the appropriate Federal banking agency will rate 
the savings association's performance under the plan as 
``outstanding.''
    (iii) If the savings association fails to meet substantially its 
plan goals for a satisfactory rating, the appropriate Federal 
banking agency will rate the savings association as either ``needs 
to improve'' or ``substantial noncompliance,'' depending on the 
extent to which it falls short of its plan goals, unless the savings 
association elected in its plan to be rated otherwise, as provided 
in Sec.  195.27(f)(4).

Appendix B to Part 195--CRA Notice

    (a) Notice for main offices and, if an interstate savings 
association, one branch office in each state.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office 
of the Comptroller of the Currency (OCC) or Federal Deposit 
Insurance Corporation (FDIC)] evaluates our record of helping to 
meet the credit needs of this community consistent with safe and 
sound operations. The [OCC or FDIC] also takes this record into 
account when deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance 
Evaluation, prepared by the [OCC or FDIC]; and comments received 
from the public relating to our performance in helping to meet 
community credit needs, as well as our responses to those comments. 
You may review this information today.
    At least 30 days before the beginning of each quarter, the [OCC 
or FDIC] publishes a nationwide list of the savings associations 
that are scheduled for CRA examination in that quarter. This list is 
available from the [OCC Deputy Comptroller (address) or FDIC 
appropriate regional director (address)]. You may send written 
comments about our performance in helping to meet community credit 
needs to (name and address of official at savings association) and 
the [OCC Deputy Comptroller (address) or FDIC appropriate regional 
director (address)]. Your letter, together with any response by us, 
will be considered by the [OCC or FDIC] in evaluating our CRA 
performance and may be made public.
    You may ask to look at any comments received by the [OCC Deputy 
Comptroller or FDIC appropriate regional director]. You may also 
request from the [OCC Deputy Comptroller or FDIC appropriate 
regional director] an announcement of our applications covered by 
the CRA filed with the [OCC or FDIC]. We are an affiliate of (name 
of holding company), a savings and loan holding company. You may 
request from the (title of responsible official), Federal Reserve 
Bank of -------- (address) an announcement of applications covered 
by the CRA filed by savings and loan holding companies.
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office 
of the Comptroller of the Currency (OCC) or Federal Deposit 
Insurance Corporation (FDIC)] evaluates our record of helping to 
meet the credit needs of this community consistent with safe and 
sound operations. The [OCC or FDIC] also takes this record into 
account when deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA evaluation, prepared by the [OCC or 
FDIC] and a list of services provided at this branch. You may also 
have access to the following additional information, which we will 
make available to you at this branch within five calendar days after 
you make a request to us: (1) A map showing the assessment area 
containing this branch, which is the area in which the [OCC or FDIC] 
evaluates our CRA performance in this community; (2) information 
about our branches in this assessment area; (3) a list of services 
we provide at those locations; (4) data on our lending performance 
in this assessment area;

[[Page 49192]]

and (5) copies of all written comments received by us that 
specifically relate to our CRA performance in this assessment area, 
and any responses we have made to those comments. If we are 
operating under an approved strategic plan, you may also have access 
to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire savings association is available at (name of office 
located in state), located at (address).]
    At least 30 days before the beginning of each quarter, the [OCC 
or FDIC] publishes a nationwide list of the savings associations 
that are scheduled for CRA examination in that quarter. This list is 
available from the [OCC Deputy Comptroller (address) or FDIC 
appropriate regional office (address)]. You may send written 
comments about our performance in helping to meet community credit 
needs to (name and address of official at savings association) and 
the [OCC or FDIC]. Your letter, together with any response by us, 
will be considered by the [OCC or FDIC] in evaluating our CRA 
performance and may be made public.
    You may ask to look at any comments received by the [OCC Deputy 
Comptroller or FDIC appropriate regional director]. You may also 
request an announcement of our applications covered by the CRA filed 
with the [OCC Deputy Comptroller or FDIC appropriate regional 
director]. We are an affiliate of (name of holding company), a 
savings and loan holding company. You may request from the (title of 
responsible official), Federal Reserve Bank of -------- (address) an 
announcement of applications covered by the CRA filed by savings and 
loan holding companies.

PART 196--MANAGEMENT OFFICIAL INTERLOCKS

Sec.
196.1 Authority, purpose, and scope.
196.2 Definitions.
196.3 Prohibitions.
196.4 Interlocking relationships permitted by statute.
196.5 Small market share exemption.
196.6 General exemption.
196.7 Change in circumstances.
196.8 Enforcement.
196.9 Interlocking relationships permitted pursuant to Federal 
Deposit Insurance Act.

    Authority: 12 U.S.C. 3201-3208; 5412(b)(2)(B).


Sec.  196.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the provisions of 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 part 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 Federal 
savings associations and their affiliates.


Sec.  196.2  Definitions.

    For purposes of this part, 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 savings 
association based on common ownership does not exist if the OCC 
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 OCC 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.
    (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 savings and loan 
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.  
163.555 of this chapter;
    (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

[[Page 49193]]

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 OCC 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 OCC will determine, after giving the affected 
persons an opportunity to respond, whether a person is a representative 
or nominee.
    (o) Savings association means:
    (1) Any Federal savings association (as defined in section 3(b)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2));
    (2) [Reserved]; 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 and the Comptroller of the Currency jointly 
determine to be operating in substantially the same manner as a Federal 
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.  196.3  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 OCC 
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 OCC will announce the revised thresholds 
by publishing a final rule without notice and comment in the Federal 
Register.


Sec.  196.4  Interlocking relationships permitted by statute.

    The prohibitions of Sec.  196.3 do not apply in the case of any one 
or more of the following organizations or to a subsidiary thereof:
    (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 OCC 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 OCC.
    (3) The OCC 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 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 savings 
association, or any subsidiary of such savings association, by a single 
management official of the savings and loan holding company which 
purchased the stock issued in connection with

[[Page 49194]]

such qualified stock issuance, and shall apply only when the OCC has 
determined that such service is consistent with the purposes of the 
Interlocks Act and the Home Owners' Loan Act.


Sec.  196.5  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec.  
196.3 is permissible, if:
    (1) The interlock is not prohibited by Sec.  196.3(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.  196.6  General exemption.

    (a) Exemption. The OCC may by agency order exempt an interlock from 
the prohibitions in Sec.  196.3 if it 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 the OCC for an exemption under part 116, 
subpart E, of this chapter.
    (b) Presumptions. In reviewing an application for an exemption 
under this section, the OCC 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 has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in Sec.  
163.555 of this chapter.
    (c) Duration. Unless a shorter expiration period is provided in the 
OCC 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 OCC 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 OCC in writing.


Sec.  196.7  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 OCC may shorten this period under 
appropriate circumstances.


Sec.  196.8  Enforcement.

    Except as provided in this section, the OCC administers and 
enforces the Interlocks Act with respect to savings associations and 
their 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 
part. If an affiliate of a savings association is subject to the 
primary regulation of another Federal depository organization 
supervisory agency, then the OCC does not administer and enforce the 
Interlocks Act with respect to that affiliate.


Sec.  196.9  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)).

PART 197--SECURITIES OFFERINGS

Sec.
197.1 Definitions.
197.2 Offering circular requirement.
197.3 Exemptions.
197.4 Non-public offering.
197.5 Filing and signature requirements.
197.6 Effective date.
197.7 Form, content, and accounting.
197.8 Use of the offering circular.
197.9 Escrow requirement.
197.10 Unsafe or unsound practices.
197.11 Withdrawal or abandonment.
197.12 Securities sale report.
197.13 Public disclosure and confidential treatment.
197.14 Waiver.
197.15 Requests for interpretive advice or waiver.
197.16 Delayed or continuous offering and sale of securities.
197.17 Sales of securities at an office of a savings association.
197.18 Current and periodic reports.
197.19 Approval of the security.
197.21 Filing of copies of offering circulars in certain exempt 
offerings.
Appendix A to Part 197--Form for Securities Sale Report

    Authority: 12 U.S.C. 1462a, 1463, 1464 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78l, 78m, 78n, 78p, 78w.


Sec.  197.1  Definitions.

    (a) For purposes of this part, 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 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 savings association 
which allows such persons to reinvest dividends or interest paid to 
them on securities issued by the 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

[[Page 49195]]

during business hours, 9 a.m. to 5 p.m. Eastern Standard Time, by the 
OCC. 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 savings association which issues or proposes to 
issue any security.
    (8) Offer; Sale or sell. For purposes of this part, 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 Sec.  192.25 of this chapter, and 
includes a savings association.
    (10) Purchase and buy mean the same as in Sec.  192.25 of this 
chapter.
    (11) Savings association means a Federal savings association and 
includes a Federally-chartered savings association in organization 
under this chapter, which is granted conditional approval of insurance 
of accounts by the Federal Deposit Insurance Corporation (FDIC). In 
addition, for purposes of Sec.  197.2 of this part, savings association 
includes any underwriter participating in the distribution of 
securities of a 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 FDIC.
    (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 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 part but defined in another part of 
this chapter, when used in this part, shall have the meanings given in 
such other part, unless the context otherwise requires.
    (c) When used in the rules, regulations, or forms of the Commission 
referred to in this part, the term Commission shall be deemed to refer 
to the OCC, the term registrant shall be deemed to refer to an issuer 
defined in this part, and the term registration statement or prospectus 
shall be deemed to refer to an offering circular filed under this part, 
unless the context otherwise requires.


Sec.  197.2  Offering circular requirement.

    (a) General. No 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

[[Page 49196]]

which includes the information required by this part and which has been 
filed and declared effective pursuant to this part; or
    (2) An exemption is available under this part.
    (b) Communications not deemed an offer. The following 
communications shall not be deemed an offer under this section:
    (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 OCC.
    (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 part;
    (2) The preliminary offering circular includes the information 
required by this part, 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 OCC is 
furnished to the purchaser prior to, or simultaneously with, the sale 
of any such security.


Sec.  197.3  Exemptions.

    The offering circular requirement of Sec.  197.2 of this part 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 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 to part 192 of this chapter, except for a 
supervisory conversion undertaken pursuant to subpart C of part 192 of 
this chapter;
    (d) In a non-public offering which satisfies the requirements of 
Sec.  197.4 of this part;
    (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 savings association.


Sec.  197.4  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.  197.3(b) and 197.3(d) 
of this part. However, an issuer shall not be deemed to be not in 
compliance with the provisions of this section 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 section 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 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 section, the issuer, shall file with 
the OCC's Securities and Corporate Practices Division, a report 
describing the results of the sale of securities as required by Sec.  
197.12(b) of this part.
    (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.  197.1(a)(14) of this part, 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 OCC pursuant to Sec.  197.2 of this part, 
but instead are being sold in reliance upon the exemption from the 
offering circular requirement provided for by this section; and
    (3) Placement of a legend on the certificate, or other document 
evidencing the securities, indicating

[[Page 49197]]

that the securities have not been offered by an offering circular filed 
with, and declared effective by, the OCC and that due care should be 
taken to ensure that the seller of the securities is not an underwriter 
within the meaning of Sec.  197.1(a)(14) of this part.


Sec.  197.5  Filing and signature requirements.

    (a) Procedures. An offering circular, amendment, notice, report, or 
other document required by this part shall, unless otherwise indicated, 
be filed in accordance with the requirements of Sec. Sec.  192.115(a), 
192.150(a)(6), 192.155, 192.180(b), and Form AC, General Instruction B, 
of this chapter.
    (b) Number of copies. (1) Unless otherwise required, any filing 
under this part shall include four copies of the document, one manually 
signed copy with exhibits and three conformed copies with exhibits, to 
be filed as follows:
    (i) For a de novo savings association, with the appropriate 
District Counsel office; and
    (ii) For an existing savings association, with the OCC's Securities 
and Corporate Practices Division.
    (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, four copies of the offering circular used 
shall be filed with the OCC, as described in (b)(1).
    (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 4 copies have been filed with the OCC in the 
manner required.
    (c) Signature. (1) Any offering circular, amendment, or consent 
filed with the OCC pursuant to this part 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 part shall be signed 
by a person authorized to do so.
    (3) At least one copy of every document filed pursuant to this part 
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.  197.6  Effective date.

    (a) Except as provided for in paragraph (d) of this section, an 
offering circular filed by a savings association shall be deemed to be 
automatically declared effective by the OCC on the twentieth day after 
filing or on such earlier date as the OCC 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 section 
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 section.
    (e) An amendment filed after the effective date of the offering 
circular shall become effective on such date as the OCC may determine.
    (f) If it appears to the OCC 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 OCC may pursue any remedy 
it is authorized to pursue under section 5(d) of the Home Owners' Loan 
Act of 1933, as amended (12 U.S.C. 1464(d)) or 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.  197.7  Form, content, and accounting.

    (a) Form and content. Any offering circular or amendment filed 
pursuant to this part shall:
    (1) Be filed under cover of Form OC, which is under part 192 of 
this chapter;
    (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;
    (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 OCC'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 part 192 of this chapter;
    (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.  197.18 of this 
part, 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 part 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.  
197.1(a)(8) of this part, 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 permission to organize as submitted to the OCC for 
Federally-chartered associations, or a copy of the application for 
insurance of accounts as submitted to the FDIC for state-chartered 
associations; and
    (10) In addition to the information expressly required to be 
included by this section, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in light of the circumstances

[[Page 49198]]

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 A of part 193 of this chapter.


Sec.  197.8  Use of the offering circular.

    (a) An offering circular or amendment declared effective by the OCC 
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.  197.5(b)(3) of this part 
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 part, shall be used until an 
amendment reflecting such event or change in fact has been filed with, 
and declared effective by, the OCC.


Sec.  197.9  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 OCC 
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.  197.10  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 savings association.
    (b) Violations of this section shall constitute an unsafe or 
unsound practice within the meaning of section (3)(a) of the Home 
Owners' Loan Act of 1933, as amended, 12 U.S.C. 1462a(a), and section 8 
of the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1818.
    (c) Nothing in this section 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.  197.11  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 OCC, 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 OCC for a period of nine months and has not become effective, the 
OCC 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 part 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 OCC, but will be marked ``Declared abandoned by the 
OCC on (date).''


Sec.  197.12  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.  197.2 of this part or the application of the proceeds therefrom, 
the issuer shall file with the OCC, 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 
appendix A to this part 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;
    (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.  
197.4 of this part, the issuer shall file with the OCC 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 appendix A to 
this part, 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.  197.13  Public disclosure and confidential treatment.

    (a) Any offering circular, amendment, exhibit, notice, or report 
filed pursuant to this part 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 part 4 of this chapter.
    (b) Any requests for confidential treatment of information in a 
document required to be filed under this part shall be made as required 
under Commission Rule 24b-2 (17 CFR 240.24b-2) under the Exchange Act.


Sec.  197.14  Waiver.

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

[[Page 49199]]

part shall be void, unless approved by the OCC.


Sec.  197.15  Requests for interpretive advice or waiver.

    Any requests to the OCC for interpretive advice or a waiver with 
respect to any provision of this part shall satisfy the following 
requirements:
    (a) A copy of the request, including any attachments, shall be 
filed consistent with the procedures in Sec.  197.5 of this part;
    (b) The provisions of this part 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.  197.16  Delayed or continuous offering and sale of securities.

    Any offer or sale of securities under Sec.  197.2 of this part 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 OCC's regulatory capital requirements during the time the offering 
is made.


Sec.  197.17  Sales of securities at an office of a savings 
association.

    Sales of securities of a savings association or its affiliates at 
an office of a savings association may only be made in accordance with 
the provisions of 12 CFR 197.76.


Sec.  197.18  Current and periodic reports.

    (a) Each savings association which files an offering circular which 
becomes effective pursuant to this part, after such effective date, 
shall file with the OCC 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 
section shall be automatically suspended if and so long as any issue of 
securities of the savings association is registered pursuant to section 
12 of the Exchange Act (15 U.S.C. 78l). The duty to file under this 
section 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.  197.19  Approval of the security.

    Any securities of a savings association which are not exempt under 
this part and are offered or sold pursuant to an offering circular 
which becomes effective under this part, are deemed to be approved as 
to form and terms for purposes of Sec.  197.3 of this chapter.


Sec.  197.21  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.  197.2 by reason of Sec.  197.3(e) or Sec.  197.4 
of this part shall be mailed to the OCC, in the manner described in 
Sec.  197.5, 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 OCC and shall not be deemed to be ``filed'' with 
the OCC pursuant to Sec.  197.2 of this part. The mailing to the OCC of 
such offering circular, or similar document, shall not be a pre-
condition of the applicable exemption from the offering circular 
requirements of Sec.  197.2 of this part.

Appendix A to Part 197--Form for Securities Sale Report

Office of the Comptroller of the Currency

[Form G-12]

Securities Sale Report Pursuant to Sec.  197.12

OCC 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, including one copy manually 
signed, as required under 12 CFR 197.5.

Attention

    Intentional misstatements or omissions of fact constitute 
violations of Federal law (see 18 U.S.C. 1001 and 12 CFR 
197.180(b)).


    Dated: July 7, 2011.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2011-17581 Filed 7-21-11; 4:15 am]
BILLING CODE 4810-33-P