[Federal Register Volume 84, Number 79 (Wednesday, April 24, 2019)]
[Proposed Rules]
[Pages 17094-17102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08128]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3, 6, 34, 46, 160, 161, 163, and 167

[Docket ID OCC-2019-0004]
RIN 1557-AE50


Other Real Estate Owned and Technical Amendments

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

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The OCC is inviting comment on a proposed rule that would 
clarify and streamline its regulation on other real estate owned (OREO) 
for national banks and update the regulatory framework for OREO 
activities at Federal savings associations. The OCC is also proposing 
to remove outdated capital rules for national banks and Federal savings 
associations, which include provisions related to OREO, and make 
conforming edits to other rules that reference those capital rules.

DATES: Comments must be received by June 24, 2019.

ADDRESSES: You may submit comments to the OCC by any of the methods set 
forth below. Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal or email, if possible. Please use the title 
``Other Real Estate Owned and Technical Amendments'' 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 
www.regulations.gov. Enter ``Docket ID OCC-2019-0004'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Chief Counsel's Office, Attention: Comment 
Processing, Office of the Comptroller of the Currency, 400 7th Street 
SW, Suite 3E-218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2019-0004'' in your comment.
    In general, the OCC will enter all comments received into the 
docket and publish the comments on the Regulations.gov website without 
change, including any business or personal information that you provide 
such as name and address information, email 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 include 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 rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2019-0004'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
     Viewing Comments Personally: You may personally inspect 
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 649-6700 or, for 
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect comments.

FOR FURTHER INFORMATION CONTACT: 
    For revisions to Part 34, Subpart E (OREO): Charlotte Bahin, Senior 
Advisor for Thrift Supervision, (202) 649-6281; or, J. William Binkley, 
Attorney, Chief Counsel's Office, (202) 649-5500.
    For all revisions: Kevin Korzeniewski, Counsel, Chief Counsel's 
Office, (202) 649-5490; or for persons who are deaf or hearing 
impaired, TTY, (202) 649-5597.

SUPPLEMENTARY INFORMATION:

I. Background

    The OCC is proposing to update its regulatory framework for other 
real estate owned (OREO) by revising its rules to clarify and 
streamline the regulation for national banks and to apply the 
regulatory framework to OREO activities Federal savings associations 
for the reasons discussed below. The OCC's last significant revision to 
the national bank OREO rules occurred over twenty years ago.\1\ Since 
that time, the OCC has gained additional supervisory experience related 
to OREO, which it can apply to improve the OREO rules. In addition, the 
OCC now supervises Federal savings associations pursuant to the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act).\2\ Federal savings associations, unlike national banks, are not 
subject to statutory provisions governing OREO. However, capital 
regulations and handbooks issued by the Office of Thrift Supervision 
(OTS) generally established requirements and supervisory expectations 
for OREO activities. Following OCC and OTS integration, the OCC 
rescinded or superseded many of those documents, creating ambiguity 
with respect to OREO standards for Federal savings associations. The 
OCC is proposing a framework for Federal savings associations that 
generally is consistent with the OTS framework

[[Page 17095]]

described above. This framework is still followed by many savings 
associations and would offer flexibility consistent with provisions in 
the Home Owners' Loan Act (HOLA).
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    \1\ See 61 FR 11294 (March 20, 1996).
    \2\ See 12 U.S.C. 5412.
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    The OCC also is proposing to remove Appendices A and B to 12 CFR 
part 3 (risk-based capital guidelines for national banks) and 12 CFR 
part 167 (capital requirements for FSAs) and make conforming technical 
edits to other parts that reference those provisions. When the OCC 
revised Part 3 it superseded Appendices A and B to part 3 and part 167. 
However, because there was a transition period for part 3, the OCC 
retained those appendices at that time.\3\ Part 167 includes provisions 
relating to treatment of OREO held by Federal savings associations that 
is no longer in effect. The OCC is proposing to remove part 167 and 
related references to avoid any confusion with the OREO treatment 
proposed in this notice. Since Appendices A and B to part 3 include the 
corresponding capital provisions for national banks and are similarly 
outdated, the OCC proposes to rescind those appendices in this proposal 
as well.
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    \3\ See 78 FR 62018 (October 11, 2013).
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II. Statutory Authority for OREO

    Twelve U.S.C. 29 establishes a framework for when a national bank 
may hold real property. A national bank may hold real property for use 
in its business as premises, as mortgaged to it as security for a debt, 
in satisfaction of debts previously contracted (DPC),\4\ or as 
purchased at foreclosure to secure a related debt. The statute limits a 
national bank to a five-year holding period for real property, other 
than real property used as premises. However, the statute allows a 
national bank to seek approval from the Comptroller of the Currency to 
hold real property for up to five additional years. The OCC may approve 
this additional time if the bank has made a good faith attempt to 
dispose of the property within the initial five-year period or if 
disposal within the five-year period would be detrimental to the bank.
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    \4\ Generally, DPC property is property not mortgaged in 
connection with obtaining a loan, but instead used to satisfy a pre-
existing loan.
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    Twelve U.S.C. 1464 establishes requirements for the chartering and 
operation of Federal savings associations, including the power to make 
loans and investments. The authority for a Federal savings association 
to obtain real property in connection with satisfaction of a loan 
previously made, including at foreclosure, is an inherent power 
associated with making a loan secured by a mortgage on real property, 
which is permitted by 12 U.S.C. 1464(c)(1)(B) and (2)(B). In addition, 
12 U.S.C. 1464(c)(4)(B) authorizes Federal savings associations to 
invest in service corporations,\5\ which, by regulation, are permitted 
to engage in additional activities in connection with real property.\6\ 
Federal savings associations are not subject to a five-year statutory 
limit on the holding period for real property.
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    \5\ Under 12 U.S.C. 1464(c)(4)(B), a Federal savings association 
may invest in a service corporation if (i) the service corporation 
is organized in the state where the Federal savings association's 
home office is located; (ii) the corporation's stock is available 
for purchase only by other Federal and state savings associations 
having home offices in such state; and (iii) the Federal savings 
association's aggregate investments in service corporations do not 
exceed three percent (3%) of its assets, with amounts in excess of 
two percent (2%) of assets serving primarily community, inner city, 
and community development purposes. See also 12 CFR 5.59. If the 
service corporation is controlled by a Federal savings association, 
then the service corporation is a subsidiary of the association. See 
12 CFR 5.59(d)(5).
    \6\ These activities include acquiring real estate for 
development, leasing, or resale, and maintaining and managing real 
estate. See 12 CFR 5.59(f)(5).
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III. Proposed Regulation for OREO

A. Definitions (Sec.  34.81)

    This section would contain definitions used in the OREO regulation. 
This section would continue to use the existing definitions for other 
real estate owned (OREO); market value; and recorded investment amount 
in the revised regulation. The term OREO would continue to mean DPC 
real estate and former banking premises. The term market value would 
continue to mean the value of the property, as determined under the 
appraisal rule in 12 CFR part 34, subpart C. Recorded investment amount 
would continue to mean the recorded loan balance (for loans) or the net 
book value (for former banking premises).
    In addition, the proposal would continue to use the current 
definition of DPC real estate, but with minor revisions related to 
lease accounting described below. The definition of DPC real estate 
would continue to mean real estate acquired through any means in 
satisfaction of a debt previously contracted, consistent with the 
authorities described earlier in this preamble for national banks and 
Federal savings associations to obtain property in this manner. The 
existing definition of the term includes capitalized and operating 
leases, which are the two types of leases recognized under current 
accounting standards from the lessee's perspective. However, revised 
accounting standards requiring operating leases to be capitalized, 
among other provisions, are scheduled to be implemented in the near 
future.\7\ Therefore, the OCC proposes to revise the terminology in the 
current definition of DPC real estate to refer to leased real estate, 
rather than to refer specifically to capitalized and operating leases. 
The proposed definition would continue to cover all leases, but the 
revision will ensure the regulation will not become outdated after 
implementation of the new accounting standards.
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    \7\ See FASB ASU 2016-02, ``Leases (Topic 842)'' (February 
2016).
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    In addition, the proposal would revise the definition of former 
banking premises to include a reference to 12 CFR 7.1000(a)(2), which 
establishes categories of real estate that national banks and Federal 
savings associations are permitted to own for use in their banking 
activities. The revised definition would define former banking premises 
as real estate permitted under section 7.1000(a)(2) that is no longer 
used or contemplated to be used for the purposes permitted by that 
rule. The proposed revision should improve regulatory consistency by 
clarifying that both rules cover the same types of real estate for 
banking activities and eliminate confusion about whether the rules 
refer to different types of properties.

B. Holding Period (Sec.  34.82)

    This section would specify how long a national bank or a Federal 
saving association may hold OREO, provide the starting date for that 
holding period, and address additional related provisions affecting the 
holding period.
    The holding period for national banks under the current rule is the 
period required by 12 U.S.C. 29. The statute and the current rule 
provide for an initial five-year holding period, with up to an 
additional five years if approved by the OCC. The proposal would not 
change this holding period.
    The proposal also would establish an initial holding period for 
Federal savings associations of five years after commencement of the 
holding period to ensure the safe and sound management of OREO 
holdings. If the Federal savings association has not disposed of the 
OREO within the initial five-year holding period, the savings 
association may request OCC approval to continue to hold the real 
property as OREO for up to five additional years. These provisions are 
consistent with the rules that apply to national banks. The OCC's 
supervisory experience is that both types of institutions generally 
have or

[[Page 17096]]

obtain similar types of OREO. As with national banks, in deciding 
whether to grant the approval to hold OREO beyond the initial five-year 
holding period, the OCC would expect to consider, among other factors, 
the Federal savings association's current and prior efforts to dispose 
of the property and safety and soundness concerns related to an 
immediate disposition of the property. During the initial five-year 
holding period and any subsequent approved period, the Federal savings 
association would need to make reasonable efforts to dispose of the 
OREO. This provision is consistent with prior OTS expectations. This 
proposed framework also is consistent with the requirement previously 
applicable to Federal savings associations under 12 CFR part 167, which 
required savings associations to deduct from regulatory capital the 
value of OREO held for more than five years, or a longer period with 
OCC approval, as an equity investment. This provision created 
incentives for Federal savings associations to dispose of OREO within 
five years, or a longer period approved by the OCC, as the regulatory 
capital treatment for failure to dispose of the property generally 
would be more onerous than disposing of the property. The OCC believes 
that an initial five-year holding period is a sufficient amount of time 
to dispose of most OREO and the option to extend the holding period for 
an additional five years should be sufficient to address atypical 
properties or unusual real estate market conditions.
    Question 1: Should the OCC require national banks and Federal 
savings associations to make specific efforts to dispose of OREO within 
the specified timeframes? If so, what efforts should the OCC require?
    The proposal also would adopt for Federal savings associations the 
existing national bank provision describing the date the holding period 
for OREO begins. Generally, the holding period for DPC real estate 
would begin on the date the property is transferred to the national 
bank or Federal savings association (for example, after a judicial 
foreclosure or deed-in-lieu of foreclosure), which may be different 
than the date the institution must recognize the property as OREO for 
accounting and financial reporting purposes. The title transfer law of 
the state or other jurisdiction where the property is located would 
govern when the property is considered transferred to the national bank 
or Federal savings association. The holding period for former bank 
premises would begin when the national bank or Federal savings 
association ceases using a property as bank premises (whether outright 
or after relocating) or abandons a plan to use property held for future 
bank premises.
    The OCC is proposing a modification for OREO obtained by a Federal 
savings association prior to the effective date of this proposed rule. 
For this OREO, the holding period would begin on the rule's effective 
date to provide for a full initial five-year holding period. The OCC 
still would consider the entire time the OREO has been held by the 
Federal savings association in evaluating any request for an additional 
holding period beyond that initial five years. The OCC believes this 
accommodation would provide Federal savings associations with a 
reasonable timeframe to dispose of OREO held prior to the effective 
date of the rule, rather than calculating the holding period back to 
the initial transfer date.
    Question 2: Does the proposed adjustment to the calculation of the 
holding period for OREO obtained by a Federal savings association prior 
to the effective date of the rule provide an appropriate amount of time 
to dispose of the OREO consistent with the proposed rule?
    The OCC also proposes to clarify that when a national bank or 
Federal savings association obtains OREO from a merged or acquired 
institution, the relevant holding period would commence on the 
effective date of the merger or acquisition and would not include any 
time the OREO had been held by the acquired institution prior to the 
merger or acquisition. Similarly, when an institution converts to a 
national bank or Federal savings association, the relevant holding 
period would begin on the date of conversion. However, if the 
institution was already a national bank or Federal savings association 
immediately prior to the conversion, the holding period would not reset 
on the conversion date.\8\ The OCC believes this is appropriate because 
different OREO standards might apply to an institution before it 
becomes a national bank or Federal savings association, unless the 
institution is already covered by the OCC's OREO rule. The proposed 
revision also would apply to Federal savings associations the existing 
national bank regulation that the holding period for DPC real estate 
that is subject to a redemption period imposed under state law begins 
after the expiration of the redemption period.
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    \8\ For example, if a Federal savings association that had OREO 
with a holding period that began in January 2016, converted to a 
national bank in June 2019, the OCC would still consider the holding 
period for the OREO to have begun in January 2016, not June 2019.
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    The proposed revised section also would address an interpretive 
issue that arises when a national bank or Federal savings association 
enters into a transaction to dispose of OREO, but the real estate is 
conveyed back to the institution for a reason other than a subsequent 
purchase by the institution (for example, if there is a failure to 
complete the disposition or the disposition is validly rescinded or 
unwound). In those cases, the holding period would be tolled during the 
period of time the OREO property was not under the bank's or savings 
association's control. For example, if a third party purchases OREO 
from a national bank or Federal savings association but later legally 
rescinds the sale, the bank or savings association cannot start a new 
five-year holding period for the property. Instead, any previous 
holding period (including approved extensions) would be tolled between 
the time the bank or savings association sold and reacquired the real 
property. Similarly, in certain U.S. government mortgage loan programs 
a national bank or Federal savings association may be required to 
transfer a foreclosed property to a U.S. government entity, and that 
entity may later validly reject receipt of the property and return 
title to the bank or savings association. In that case, the national 
bank or Federal savings association could not start a new five-year 
holding period for the property but could toll any previous holding 
period (including approved extensions) during the time the government 
entity had possession of the property. However, if the national bank or 
Federal savings association re-acquires property that was previously 
OREO and had been disposed of consistent with this part, then the five-
year holding period would reset on that property. For example, if a 
bank originates a mortgage loan in connection with the sale of an OREO 
property that met the requirements for a valid disposition under part 
34, but later foreclose on that property due to missed mortgage 
payments, then the bank will obtain a new five-year holding period.
    Question 3: Are there ways the calculations for the start of the 
holding period and any subsequent tolling could be improved? Should the 
OCC establish a bright line for when a property is acquired, rather 
than rely on state transfer laws and redemption periods? For real 
property, should the OCC refer to accounting standards to determine 
when a property is transferred to OREO?

[[Page 17097]]

    Question 4: Should the OCC allow a national bank or Federal savings 
association to restart the holding period on OREO, even if the 
institution converts to a different charter also subject to part 34?

C. Disposition of OREO (Sec.  34.83)

    This section would specify methods for national banks and Federal 
savings associations to dispose of OREO. Generally, the proposal would 
retain the existing disposal methods for national banks and allow 
Federal savings associations to dispose of OREO using those same 
methods. These methods include: (i) Selling the property outright or 
over a period of time; (ii) using DPC real estate as bank premises or 
affiliate premises; or (iii) entering into subleases of OREO leases. 
Writing OREO (whether owned or leased) down to zero for accounting 
purposes is not a valid disposition under the existing rules and would 
not be a valid disposition under the proposed revisions.
    To provide for additional flexibility to dispose of OREO, the OCC 
also proposes to add a new paragraph (a)(5) that would allow the 
disposition of OREO in other ways approved by the OCC consistent with 
safe and sound banking practices. For example, the OCC previously has 
approved national banks and Federal savings associations to dispose of 
OREO in certain circumstances by donating or escheating OREO or by 
negotiating early terminations of OREO leases.
    The proposal would recognize that, unlike a national bank, a 
Federal savings association also may transfer OREO to a service 
corporation. Under HOLA and 12 CFR 5.59, a Federal savings association 
may invest in a service corporation, which may engage in the same 
activities as its parent Federal savings association under the same 
terms and conditions. A service corporation also may engage in 
additional activities not permitted at a Federal savings association, 
including certain real estate related services such as holding property 
as an investment in real estate.\9\ In addition, 12 CFR 5.59(i) permits 
a Federal savings association to make a contribution to a service 
corporation in the exercise of the association's salvage powers.\10\ 
Consistent with HOLA and 12 CFR 5.59, the proposal would allow a 
Federal savings association, through a service corporation, to hold 
OREO property as an investment or for longer than 10 years. However, 
under current statutory and regulatory capital requirements, a Federal 
savings association must deconsolidate, and deduct any investments in, 
a subsidiary engaged in activities not permissible for a national bank, 
including holding property as an investment in real estate.\11\
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    \9\ See 12 U.S.C. 1464(c)(4)(B) and 12 CFR 5.59.
    \10\ 12 CFR 5.59(i) provides that a Federal savings association 
may exercise its salvage power to make a contribution or a loan . . 
. to a service corporation (``salvage investment'') that exceeds the 
maximum amount otherwise permitted under law or regulation.'' The 
Federal savings association must demonstrate that: (i) The salvage 
investment protects the association's interest in the service 
corporation; (ii) the salvage investment is consistent with safety 
and soundness; and (iii) the association considered alternatives to 
the salvage investment but determined the alternatives would not 
satisfy (i) and (ii).
    \11\ 12 U.S.C. 1464(t)(5) and 12 CFR 3.22(a)(8). Holding 
property as an investment in real estate is not authorized for a 
national bank under 12 U.S.C. 29.
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    Finally, the proposed revised section would retain the requirement 
that a national bank must make a diligent and ongoing effort to dispose 
of OREO and maintain documentation of those efforts. The proposal also 
would apply these provisions to Federal savings associations. 
Compliance with the requirement to document the national bank's or 
Federal savings association's diligence when attempting to dispose of 
OREO is an important consideration if the national bank or Federal 
savings association requests an extension to hold OREO beyond the 
initial five-year holding period. The proposed requirement that a 
Federal savings association make diligent efforts to dispose of OREO 
and maintain relevant documentation is consistent with both prior OTS 
expectations that savings associations develop salvage plans that 
included provisions for disposition of OREO and the existing 
requirement that Federal savings associations maintain documentation of 
appraisals of OREO.\12\
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    \12\ 12 CFR 160.172.
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    Question 5: Should the proposed rule include additional disposition 
methods for OREO held by national banks and Federal savings 
associations? Are there ways the proposed methods could be improved or 
clarified? For owned, rather than leased, real estate, should the OCC 
defer to accounting standards to determine when a property is sold 
(that is, based on whether the transfer qualifies for sales treatment 
under accounting standards)?

D. Appraisal Requirements (Sec.  34.85)

    This section would specify the appraisal requirements applicable to 
OREO. The proposal would carry over the existing requirements for 
appraisals of OREO for national banks and apply those same requirements 
to Federal savings associations. Generally, this section requires an 
appraisal consistent with 12 CFR part 34, subpart C when property is 
obtained as OREO followed by periodic monitoring thereafter. In 
addition, the proposed section would continue to include existing 
exceptions from the appraisal requirements. For example, an appraisal 
would not be required if there is still a valid appraisal that was 
created in a transaction involving the property, as described in Sec.  
34.85(b). Because the requirements for appraisals of OREO held by 
Federal savings associations would be set out in the proposed rule, the 
OCC also is proposing to repeal 12 CFR 160.172, which currently 
includes comparable appraisal standards for OREO held by Federal 
savings associations.

E. OREO Expenditures and Notification (Sec.  34.86)

    This section would contain provisions related to permissible 
expenditures on OREO. The proposal would codify various interpretations 
regarding other permissible expenses related to OREO for national banks 
and Federal savings associations in new paragraphs (a) and (b). 
Paragraph (a) would allow national banks and Federal savings 
associations to pay any normal operating expenses relating to the OREO 
property, such as taxes, insurance, utilities, and maintenance, and 
condominium association fees, to the extent those fees are reasonable 
and consistent with safe and sound banking practices. This proposed 
addition is consistent with a provision in existing paragraph (b)(1), 
prior interpretations issued by the OCC for national banks, and prior 
OTS expectations concerning payment of taxes, insurance, and similar 
expenses on OREO by Federal savings associations.\13\
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    \13\ See Comptroller's Handbook on ``Other Real Estate Owned'' 
(August 2018). For Federal savings associations, this provision was 
included in the OTS Examination Handbook, Section 251, ``Real Estate 
Owned and Repossessed Assets'' (December 2010), which has since been 
rescinded by the OCC.
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    Paragraph (b) would allow national banks and Federal savings 
associations to pay expenses for the operation of a business associated 
with the OREO property, if: (i) Payment of the expenses reduces the 
shortfall between the current value of the property and the national 
bank or Federal savings association's investment in the property; and 
(ii) the expenses are consistent with safe and sound banking practices. 
For example, if a national bank or Federal savings association obtains 
an OREO property that includes a functioning hotel and resort, the 
national bank or Federal savings association may be able to minimize 
its loss on the defaulted loan by continuing to pay business

[[Page 17098]]

expenses to operate the hotel and resort, such as staff wages, 
inventory, management fees, and licensing fees, while the OREO is being 
prepared for sale. The OCC has previously addressed these types of 
expenses for national banks consistent with safe and sound banking 
practices, and this provision would extend the permission to Federal 
savings associations.\14\
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    \14\ See Comptroller's Handbook on ``Other Real Estate Owned'' 
(August 2018).
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    Under the current rule, a national bank is permitted to make 
advances to complete an OREO development or improvement project 
(referred to as ``additional expenditures''). Paragraph (c) would 
continue the existing requirements for additional expenditures on OREO 
for a national bank and apply the same requirements to a Federal 
savings association. A national bank or Federal savings association 
could make additional expenditures only if: (i) The expenditures are 
reasonably calculated to reduce the shortfall between the current value 
of the property and the bank's investment in the property; (ii) the 
expenditures are not made for purposes of speculation in real estate; 
and (iii) the expenditures are consistent with safe and sound banking 
practices. These proposed requirements are consistent with prior OTS 
expectations, which addressed a Federal savings association's 
reasonable capital expenditures to reduce the loss on OREO obtained by 
the savings association.\15\
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    \15\ Id. For Federal savings associations, this provision was 
included in the OTS Examination Handbook, Section 251, ``Real Estate 
Owned and Repossessed Assets'' (December 2010), which has since been 
rescinded by the OCC.
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    In addition, paragraph (d) would update the requirements for prior 
notification for significant additional expenditures on OREO for 
national banks and extend the provision to Federal savings 
associations. Currently, under 12 CFR 34.86(b), a national bank must 
notify the OCC at least 30 days before making additional expenditures 
if the amount of the expenditures and recorded investment in the OREO 
exceeds ten percent of the national bank's capital and surplus, which 
generally is based on regulatory capital calculated under 12 CFR part 
3. Federal savings associations, in turn, were subject to supervisory 
review of any expenditures on OREO in excess of their lending limits, 
which are calculated based on a formula that incorporates a percentage 
of capital and surplus.\16\ While based on different calculations, the 
supervisory review for Federal savings associations had a similar 
purpose as the required OCC notification for national banks, namely, to 
ensure that institutions did not expend an excessive amount of funds to 
complete or renovate OREO. The OCC proposes to update and streamline 
the notification provision by requiring prior notification only when 
the proposed additional expenditures and recorded investment in an 
individual OREO property exceeds 10 percent of the institution's total 
equity capital based on the institution's most recent Consolidated 
Reports of Condition and Income (Call Report). The OCC believes using a 
measure based on total equity capital for this purpose, rather than a 
measure tied to 12 CFR part 3 regulatory capital or lending limits, 
allows for a less burdensome and more transparent calculation, while 
not impairing the OCC's supervisory review of institutions that propose 
making significant additional expenditures on OREO.
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    \16\ This provision was reflected in the OTS lending limits at 
12 CFR 560.93 and included in the OTS Examination Handbook, Section 
211, ``Loans to One Borrower'' (December 2007)., The OCC has 
superseded the rule and rescinded the guidance.
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    A comparison of capital and surplus and total equity capital for 
national banks supports this approach.\17\ Based on information from 
the June 30, 2018 Call Report, the measures of regulatory capital and 
total equity capital are numerically comparable, and identical in some 
cases, for many national banks that hold OREO. Under the proposed 
measure, national banks with significant loan loss reserves or 
excessive losses recorded in accumulated other comprehensive income 
would generally have a lower limit for notification compared with the 
existing measure. The OCC believes this result is appropriate, as those 
losses may indicate national banks with a higher risk profile for which 
notification of significant OREO expenditures is most relevant. 
National banks holding assets that are deducted under the regulatory 
capital rule, such as mortgage servicing assets or investments in other 
financial institutions, would generally have a higher limit for 
notification under the proposed measure.
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    \17\ The OCC did not review these measures for Federal savings 
associations because Federal savings associations currently are not 
subject to either the existing limit or proposed notification 
provision for improvements to OREO.
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    Question 6: Is the proposed allowance for payment of operating and 
business expenses related to OREO, subject to the proposed safety and 
soundness standards, reasonable? Are there other common OREO expenses 
the OCC should consider specifically including in the regulation?
    Question 7: Should the proposed threshold for notification be based 
on a measure other than total equity capital? Should the proposed 
threshold be higher or lower?

F. Additional Provisions

    The OCC proposes to rescind existing 12 CFR 34.87, which requires 
national banks to account for OREO consistent with the instructions for 
the Call Report, because it is now redundant to statutory requirements. 
Historically, there have been differences between regulatory accounting 
principles and generally accepted accounting principles (GAAP). 
However, currently, national banks and Federal savings associations 
must follow GAAP when accounting for transactions involving OREO.\18\ 
Therefore, codifying this requirement in the OREO rule is unnecessary. 
Guidance on the application of GAAP for OREO transactions can be found 
in the instructions for the Call Report and the OCC's Bank Accounting 
Advisory Series.\19\ However, the OCC notes that, although the 
accounting standard generally establishes a bright line for when a bank 
must report a property as OREO for financial reporting purposes (i.e., 
when a judge completes a judicial foreclosure), section 34.82(b) does 
not establish a bright line for when property is originally transferred 
to a bank. As a result, the date on which reporting requirements begin 
for OREO under the accounting standard may be different than the date 
that the holding period commences under 34.82(b), as described above in 
Section III.B. We also note that writing off a property or lease 
classified as OREO for accounting purposes does not eliminate the need 
to comply with the requirements of this subpart, including the 
requirement for appraisals and disposition of the property or lease 
under one of the allowed methods.
---------------------------------------------------------------------------

    \18\ See 12 U.S.C. 1831n(a)(2).
    \19\ Bank Accounting Advisory Series (August 2018), available 
at: https://www.occ.gov/publications/publications-by-type/other-publications-reports/baas.pdf.
---------------------------------------------------------------------------

IV. Proposed Technical Amendments

    As described above, the OCC also is proposing to remove Appendices 
A and B to 12 CFR part 3 (risk-based capital guidelines for national 
banks) and 12 CFR part 167 (capital requirements for FSAs) and make 
conforming technical edits to other parts, as part 167 is outdated and 
includes OREO provisions that conflict with the provisions described in 
this proposal. The OCC did not immediately rescind those rules due to 
an extended transition period to the new capital rule for certain 
provisions. The proposed rule also makes

[[Page 17099]]

conforming technical changes to portions of the OCC's rules that refer 
to Appendices A and B to 12 CFR part 3 or to 12 CFR part 167. 
Specifically, the OCC would make conforming edits to 12 CFR 3.1, 6.1, 
6.2, Appendix A to Subpart D of part 34, 46.6, 160.100, Appendix A to 
160.101, 161.55, 163.74, and 163.80. This proposed rule does not impact 
the legal status of any reference to the superseded capital rules in 
outstanding compliance and enforcement orders, agreements, and 
memoranda of understanding entered into by the OCC and a national bank 
or Federal savings association, as those references became references 
to 12 CFR part 3 when the revised capital rule became effective.

V. Regulatory Analyses

A. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995,\20\ the OCC may not 
conduct or sponsor, and a person is not required to respond to, an 
information collection unless the information collection displays a 
valid OMB control number. The OCC has submitted the information 
collection requirements imposed by this proposal to OMB for review. 
However, the proposal will not result in a change in burden. While the 
respondent count will increase with the addition of Federal savings 
associations, we estimate fewer notices from national banks due to a 
decrease in charters since the last review, resulting in no change in 
burden.
---------------------------------------------------------------------------

    \20\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    Section 34.86(d) updates the requirements for prior notification 
for significant additional expenditures on OREO for national banks and 
extends the provision to Federal savings associations. Currently, a 
national bank must notify the OCC at least 30 days before making 
additional expenditures if the amount of the expenditures and recorded 
investment in the OREO exceeds ten percent of its capital and surplus, 
based on regulatory capital calculated under 12 CFR part 3. Federal 
savings associations are subject to supervisory review of any 
expenditures on OREO in excess of their lending limits, which are 
calculated based on a formula that incorporates a percentage of capital 
and surplus.
    The proposal updates and streamlines the notification provision by 
requiring prior notification only when the proposed additional 
expenditures and recorded investment in an individual OREO property 
exceeds 10 percent of the institution's total equity capital based on 
its most recent Call Report. National banks with significant loan loss 
reserves or excessive losses recorded in accumulated other 
comprehensive income will generally have a reduced limit for 
notification. National banks holding assets that are deducted under the 
regulatory capital rule, will generally have an increase limit for 
notification under the proposal.
    Title: Real Estate Lending and Appraisals.
    OMB Control No.: 1557-0190.
    Frequency of Response: On occasion.
    Affected Public: Businesses or other for-profit organizations.
    Estimated Number of Respondents: 6.
    Estimated Burden per Respondent: 5 hours.
    Estimated Total Annual Burden: 30 hours.
    Comments are invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the functions of the OCC, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimates of the burden of the 
collections of information;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the collections on respondents, 
including through the use of automated collection techniques or other 
forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

B. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act \21\ requires an agency, in 
connection with a proposed rule, to prepare an Initial Regulatory 
Flexibility Analysis describing the impact of the rule on small 
entities (defined by the SBA for purposes of the RFA to include 
commercial banks and savings institutions with total assets of $550 
million or less and trust companies with total revenue of $38.5 million 
or less) or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
As of December 31, 2017, the OCC supervised 886 small entities. The 
proposed rule would apply to all entities supervised by the OCC, and 
therefore would affect a substantial number of small entities. The 
economic impact on each small Federal savings association is estimated 
to be approximately $1,872, which is not significant based on 5% of 
total annual salaries or 2.5% of other noninterest income. The economic 
impact on each small national bank is estimated to be de minimis. 
Therefore, the OCC certifies the proposed rule would not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \21\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

C. OCC Unfunded Mandates Reform Act of 1995

    The OCC analyzed the proposed rule under the factors set forth in 
the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under 
this analysis, the OCC considered whether the proposed rule includes 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 (adjusted for inflation). The OCC 
estimates that the total cost of the proposed rule is $583,000. 
Therefore, the OCC has determined that this proposed rule would not 
result in expenditures by State, local, and Tribal governments, or the 
private sector, of $100 million or more in any one year. Accordingly, 
the OCC has not prepared a written statement to accompany this 
proposal.

D. Riegle Community Development and Regulatory Improvement Act of 1994

    This rulemaking would not impose additional reporting, disclosure, 
or other requirements on an insured depository institution. Therefore, 
section 302(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 does not apply to this rulemaking.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Reporting and recordkeeping requirements, Risk.

12 CFR Part 6

    National banks.

12 CFR Part 34

    Appraisal, Appraiser, Banks, Banking, Consumer protection, Credit, 
Mortgages, National banks, Reporting and recordkeeping requirements, 
Savings associations, Truth in lending.

12 CFR Part 46

    Banks, Banking, Capital, Disclosures, National banks, Reporting and 
recordkeeping requirements, Risk, Stress test.

12 CFR Part 160

    Consumer protection, Investments, Manufactured homes, Mortgages, 
Reporting and recordkeeping

[[Page 17100]]

requirements, Savings associations, Securities.

12 CFR Part 161

    Administrative practice and procedure, Savings associations.

12 CFR Part 163

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

12 CFR Part 167

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

    For the reasons set out in the preamble, the OCC proposes to revise 
the following parts as follows:

PART 3--CAPITAL ADEQUACY STANDARDS

0
1. The authority citation for part 3 continues to read as follows:

    Authority:  12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).


Sec.  3.1   [Amended]

0
2. Section 3.1 is amended by removing and reserving paragraph 
(f)(1)(ii) and removing paragraphs (f)(1)(ii)(A), (f)(1)(ii)(B), 
(f)(1)(ii)(C), and footnotes 1 and 2.

Appendix A to Part 3 [Removed]

0
3. Remove Appendix A to part 3.

Appendix B to Part 3 [Removed]

0
4. Remove Appendix B to part 3.

PART 6--PROMPT CORRECTIVE ACTION

0
5. The authority citation for part 6 continues to read as follows:

    Authority:  12 U.S.C. 93a, 1831o, 5412(b)(2)(B).


Sec.  6.1   [Amended]

0
6. Section 6.1 is amended by removing and reserving paragraph (f)(1), 
and removing paragraphs (f)(1)(i) and (f)(1)(ii).


Sec.  6.2   [Amended]

0
7. Section 6.2 is amended by removing footnotes 30, 31, 32, 33, 34, and 
35.

PART 34--REAL ESTATE LENDING AND APPRAISALS

0
8. The authority citation for part 34 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1462a, 1463, 
1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 
5412(b)(2)(B) and 15 U.S.C. 1639h.

Subpart D--Real Estate Lending Standards

Appendix A to Subpart D of Part 34 [Amended]

0
9. Footnote 2 of Appendix A to Subpart D of part 34 is amended to read 
as follows:
* * * * *
    \2\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in Appendix A to 12 CFR part 
208. For insured state non-member banks, ``total capital'' refers to 
that term described in table I of Appendix A to 12 CFR part 325. For 
national banks and Federal savings associations, the term ``total 
capital'' is defined at 12 CFR 3.2.
* * * * *

Subpart E--Other Real Estate Owned

0
10. Section 34.81 is amended by:
0
a. Removing the paragraph designations for paragraphs (a) through (f);
0
b. Removing the definition of capital and surplus; and
0
c. Revising the definitions of debts previously contracted (DPC) real 
estate and former banking premises.
    The revisions read as set forth below.


Sec.  34.81  Definitions.

* * * * *
    Debts previously contracted (DPC) real estate means real estate 
(including leases) acquired by a national bank or Federal savings 
association through any means in full or partial satisfaction of a debt 
previously contracted.
* * * * *
    Former banking premises means real estate permissible under Sec.  
7.1000(a)(2) of this chapter that is no longer used or contemplated to 
be used for the purposes permitted in that section.
* * * * *
0
11. Section 34.82 is amended by:
0
a. Revising paragraphs (a) and (b); and
0
b. Adding paragraphs (d) and (e).
    The revisions and additions read as set forth below.


Sec.  34.82  Holding Period.

    (a) Holding period for OREO. (1) National bank. A national bank 
shall dispose of OREO at the earliest time that prudent judgment 
dictates, but not later than the end of the holding period (or an 
extension thereof) permitted by 12 U.S.C. 29.
    (2) Federal savings association. A Federal savings association may 
hold OREO for not more than five years after commencement of the 
holding period. On the request of a Federal savings association, the 
OCC may extend the holding period for not more than an additional five 
years.
    (b) Commencement of holding period. The holding period begins on 
the date that:
    (1) Ownership of the property is originally transferred to a 
national bank or Federal savings association, including as a result of 
a merger with or acquisition of another organization holding OREO;
    (2) A national bank or Federal savings association completes 
relocation from former banking premises to new banking premises or 
ceases to use the former banking premises without relocating; or
    (3) A national bank or Federal savings association decides not to 
use real estate acquired for future banking expansion; or
    (4) An institution converts to a national bank or Federal savings 
association, unless the institution was a national bank or Federal 
savings association immediately prior to the conversion.
    (5) Is the effective date of the final rule, for OREO obtained by a 
Federal savings association prior to that date.
* * * * *
    (d) Effect of failed disposition. If a national bank or Federal 
savings association disposes of OREO, but the real estate subsequently 
is conveyed back to the institution within five years as a result of a 
valid rescission or invalidation of the original disposition, then the 
holding period will be tolled for the period during which the real 
estate was not in possession of the national bank or Federal savings 
association.
    (e) Re-acquisition of former OREO. If a national bank or Federal 
savings association reacquires a property that had been OREO and was 
disposed of consistent with Sec.  34.83, the holding period will reset.
0
12. Section 34.83 is amended by:
0
a. Revising the section heading;
0
b. Revising paragraphs (a) introductory text, (a)(3) introductory text, 
(a)(3)(i)(B), (a)(3)(ii);
0
c. Revising paragraph (a)(4) by removing ``.'' at the end of the 
paragraph and adding ``; or'' in its place;
0
d. Adding paragraph (a)(5);
0
e. Redesignating paragraph (b) as paragraph (c);
0
f. Adding new paragraph (b); and
0
g. Adding in paragraph (c) the words ``or Federal savings association'' 
after ``national bank'' in the first sentence.
    The revisions and additions read as set forth below.

[[Page 17101]]

Sec.  34.83  Disposition of OREO.

    (a) Disposition. A national bank or Federal savings association may 
dispose of OREO in the following ways:
* * * * *
    (3) With respect to a lease:
    (i) By obtaining an assignment or a coterminous sublease. If a 
national bank or Federal savings association enters into a sublease 
that is not coterminous, the period during which the master lease must 
be divested will be suspended for the duration of the sublease, and 
will begin running again upon termination of the sublease. A national 
bank or Federal savings association holding a lease as OREO may enter 
into an extension of the lease that would exceed the holding period 
referred to in Sec.  34.82 if the extension meets the following 
criteria:
    (A) * * *
    (B) The national bank or Federal savings association, prior to 
entering into the extension, has a firm commitment from a prospective 
subtenant to sublease the property; and
* * * * *
    (ii) Should the OCC determine that a national bank or Federal 
savings association has entered into a lease, extension of a lease, or 
a sublease for the purpose of real estate speculation, the OCC will 
take appropriate measures to address the violation, which may include 
requiring the bank or savings association to take immediate steps to 
divest the lease or sublease; and
* * * * *
    (5) By any other method approved by the OCC.
    (b) Additional method for Federal savings associations. A Federal 
savings association also may transfer OREO to a service corporation. A 
service corporation may hold real property transferred to it:
    (1) As OREO, subject to the requirements otherwise applicable to 
the Federal savings association under this Subpart E; or
    (2) As an investment in real estate under Sec.  5.59.
* * * * *


Sec.  34.85   [Amended]

0
13. Section 34.85 is amended by:
0
a. Adding the words ``or Federal savings association'' after ``national 
bank'', wherever it appears; and
0
b. Adding the words ``or savings association'' after ``the bank'', 
wherever it appears.
0
14. Revise Sec.  34.86 including the section heading to read as 
follows:


Sec.  34.86  OREO expenditures and notification.

    (a) Operating expenditures. A national bank or Federal savings 
association may pay operating expenses on OREO, including taxes, 
insurance, utilities, and maintenance, that are reasonable and 
consistent with safe and sound banking practices.
    (b) Business expenditures. A national bank or Federal savings 
association may pay expenses for OREO that includes the operation of a 
business, provided the expenses are:
    (1) Reasonably calculated to reduce any shortfall between the 
property's market value and the recorded investment amount; and
    (2) Consistent with safe and sound banking practices.
    (c) Additional expenditures. For OREO that is a development or 
improvement project, a national bank or Federal savings association may 
make advances to complete the project if the advances are:
    (1) Reasonably calculated to reduce any shortfall between the 
property's market value and the recorded investment amount;
    (2) Not made for the purpose of speculation in real estate; and
    (3) Consistent with safe and sound banking practices.
    (d) Notification procedures for additional expenditures.
    (1) A national bank or Federal savings association shall notify the 
appropriate supervisory office at least 30 days before implementing a 
development or improvement plan for OREO when the sum of the plan's 
estimated cost and the bank's or savings association's current recorded 
investment amount (including any unpaid prior liens on the property) 
exceeds 10 percent of the bank's or savings association's total equity 
capital on its most recent report of condition. A national bank or 
Federal savings association need notify the OCC under this paragraph 
(d)(1) only once.
    (2) The required notification must demonstrate that the additional 
expenditure is consistent with the conditions and limitations in 
paragraph (c) of this section.
    (3) Unless informed otherwise, the national bank or Federal savings 
association may implement the proposed plan on the thirty-first day (or 
sooner, if notified by the OCC) following receipt by the OCC of the 
notification, subject to any conditions imposed by the OCC.


Sec.  34.87   [Removed]

0
15. Remove Sec.  34.87.

PART 46--ANNUAL STRESS TEST

0
16. The authority citation for part 46 continues to read as follows:

    Authority:  12 U.S.C. 93a; 1463(a)(2); 5365(i)(2); and 
5412(b)(2)(B).


Sec.  46.6   [Amended]

0
17. Section 46.6 paragraph (a)(2) is amended by removing the words ``or 
part 167, as applicable,'' after ``12 CFR part 3'' in the first 
sentence.

PART 160--LENDING AND INVESTMENT

0
18. The authority for part 160 continues to read as follows:

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


Sec.  160.100   [Amended]

0
19. Section 160.100 is amended by removing ``or 167.1, as 
applicable,''.

Appendix A to Sec.  160.101 [Amended]

0
20. Footnote 2 of the Appendix to Section 160.101 is amended to read as 
follows:
* * * * *
    \2\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in Appendix A to 12 CFR part 
208. For insured state non-member banks, ``total capital'' refers to 
that term described in table I of Appendix A to 12 CFR part 325. For 
national banks and Federal savings associations, the term ``total 
capital'' is defined at 12 CFR 3.2.
* * * * *


Sec.  160.172   [Removed]

0
21. Remove Sec.  160.172.

PART 161--DEFINITIONS FOR REGULATIONS AFFECTING ALL SAVINGS 
ASSOCIATIONS

0
22. The authority for part 161 continues to read as follows:

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


Sec.  161.55   [Amended]

0
23. Section 161.55 paragraph (c) is amended by removing the words ``or 
part 167, as applicable'' after ``12 CFR part 3''.

PART 163--SAVINGS ASSOCIATIONS--OPERATIONS

0
24. The authority for part 163 continues to read as follows:

    Authority:  12 U.S.C. 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.


Sec.  163.74   [Amended]

0
25. Section 163.74 is amended:

[[Page 17102]]

0
a. Removing in paragraph (i)(2)(iv), the wording ``or part 167, as 
applicable,'' after ``12 CFR part 3''; and;
0
b. Removing in the first sentence of paragraph (i)(2)(v) the wording 
``or part 167, as applicable,'' after ``12 CFR part 3''.


Sec.  163.80   [Amended]

0
26. In Sec.  163.80 amend the first sentence of paragraph (e)(1) by 
removing the wording ``or part 167, as applicable''.

PART 167 [Removed]

0
27. Remove part 167.

    Dated: April 17, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019-08128 Filed 4-23-19; 8:45 am]
 BILLING CODE 4810-33-P