[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Rules and Regulations]
[Pages 23991-24007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10902]



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 Rules and Regulations
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  Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules 
and Regulations  

[[Page 23991]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 101

[Docket ID OCC-2018-0020]
RIN 1557-AE45


Covered Savings Associations

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

ACTION: Final rule.

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SUMMARY: The OCC is issuing a final rule to implement a new section of 
the Home Owners' Loan Act (HOLA). The Economic Growth, Regulatory 
Relief, and Consumer Protection Act (EGRRCPA) amended HOLA to add a new 
section that allows a Federal savings association with total 
consolidated assets equal to or less than $20 billion, as reported by 
the association to the Comptroller as of December 31, 2017, to elect to 
operate as a covered savings association. A covered savings association 
has the same rights and privileges as a national bank and is subject to 
the same duties, restrictions, penalties, liabilities, conditions, and 
limitations as a national bank. A covered savings association retains 
its Federal savings association charter and existing governance 
framework. The new section of HOLA requires the OCC to issue rules 
that, among other things, establish streamlined standards and 
procedures for elections to operate as covered savings associations and 
clarify requirements for the treatment of covered savings associations.

DATES: The final rule takes effect on July 1, 2019.

FOR FURTHER INFORMATION CONTACT: For additional information, contact 
Charlotte Bahin, Senior Advisor for Thrift Supervision, 202-649-6281, 
Lazaro Barreiro, Director for Governance and Operational Risk Policy, 
202-649-6550, Alison MacDonald, Special Counsel, 202-649-5490, Demetria 
H. Springs, Special Counsel, 202-649-5500, Chief Counsel's Office, for 
persons who are deaf or hearing impaired, TTY, 202-649-5597, Office of 
the Comptroller of the Currency, 400 7th Street SW, Washington, DC 
20219.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 18, 2018, the OCC published a proposed rule \1\ to 
implement section 206 of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act (EGRRCPA), Public Law 115-174, 132 Stat. 1310. 
Section 206 of EGRRCPA amended the Home Owners' Loan Act (HOLA) (12 
U.S.C. 1461 et seq.) to add a new section 5A (12 U.S.C. 1464a). Section 
5A allows a Federal savings association with total consolidated assets 
equal to or less than $20 billion, as reported by the association to 
the Comptroller as of December 31, 2017, to elect to operate as a 
covered savings association. A covered savings association has the same 
rights and privileges as a national bank that has its main office 
situated in the same location as the home office of the covered savings 
association. A covered savings association is subject to the same 
duties, restrictions, penalties, liabilities, conditions, and 
limitations that would apply to such a national bank. However, a 
covered savings association retains its Federal savings association 
charter and continues to be treated as a Federal savings association 
for purposes of governance, including procedures and requirements for 
incorporation, charters and bylaws (e.g., form, amendments), boards of 
directors (e.g., elections, term of service), shareholders (e.g., 
meetings, voting requirements, requirements for stakeholders such as 
mutual members), and distribution of dividends (e.g., payment, prior 
approval, and other restrictions). A covered savings association also 
is treated as a Federal savings association for purposes of 
consolidation, merger, dissolution, conversion (including conversion to 
a stock bank or another charter), conservatorship, and receivership, as 
well as for other purposes determined by OCC regulation. A covered 
savings association may continue to operate any branch or agency that 
the covered savings association operates on the date an election to 
operate as a covered savings association takes effect. A covered 
savings association will continue to be treated as a covered savings 
association even if its total consolidated assets exceed $20 billion 
after it makes an election.
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    \1\ Covered Savings Associations, 83 FR 47101 (September 18, 
2018) (Proposed Rule).
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II. Summary of General Comments

    The OCC received 16 comments in response to the notice of proposed 
rulemaking. The commenters included Federal savings associations, 
industry trade associations, an unincorporated association, a U.S. 
Senator, a law firm (on behalf of a client), and a grandfathered 
unitary savings and loan holding company.
    The comments generally supported the proposed rule implementing 
section 5A of HOLA. One commenter urged the OCC to focus on the 
underlying purpose of section 5A, which the commenter believes is to 
provide flexibility for Federal savings associations without imposing 
undue impediments. As explained in the preamble to the proposed rule, 
the OCC views section 5A of HOLA as a way to provide Federal savings 
associations with additional flexibility to adapt to new economic 
conditions and business environments without the cost and time involved 
in a change of charter.\2\ The OCC has considered various factors in 
implementing section 5A, including the importance of providing an 
effective regulatory framework for Federal savings associations seeking 
to make an election and ensuring that the institutions that make an 
election can continue to operate safely and soundly. The final rule 
balances these considerations. To that end, consistent with section 5A, 
the final rule provides a regulatory framework that ensures that 
covered savings associations that make an election are treated in the 
same manner as similarly located national banks except where 
differences are necessary or appropriate to permit covered savings 
associations to retain their existing charter and governance framework.
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    \2\ Proposed Rule at 47102.
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    Four commenters requested that the OCC work closely with other 
federal regulators to ensure consistency in the interpretation of 
section 5A. Several commenters specifically raised

[[Page 23992]]

questions regarding the treatment of savings and loan holding 
companies, including grandfathered unitary savings and loan holding 
companies. In addition, a number of commenters recommended that the OCC 
clarify that covered savings associations would not be required to be 
members of the Federal Reserve System, with some adding that membership 
should be voluntary. The Board of Governors of the Federal Reserve 
System (FRB) has primary responsibility for supervising savings and 
loan holding companies and administering Federal Reserve membership. 
The OCC will continue to consult with the FRB on interpretive issues 
regarding the application of section 5A to savings and loan holding 
companies and regarding issues related to membership. The OCC 
recommends that individuals or institutions with specific questions 
about membership or the treatment of holding companies of Federal 
savings associations that elect to operate as covered savings 
associations contact the FRB.
    Several other commenters were concerned about how covered savings 
associations would be treated within the Federal Home Loan Bank 
(FHLBank) system. Two commenters asserted that the FHLBanks rate 
institutions that meet the qualified thrift lender (QTL) test under 
HOLA higher than institutions that do not meet the QTL test. Another 
commenter requested that the OCC work with the FHLBanks to ensure that 
an election does not negatively impact membership privileges. The OCC 
understands that the Gramm-Leach-Bliley Act amended the Federal Home 
Loan Bank Act to eliminate certain provisions applicable only to non-
QTL compliant members.\3\ The OCC recommends that individuals or 
institutions with specific questions about the activities and 
authorities of the FHLBanks contact either the Federal Housing Finance 
Agency, which has primary responsibility for supervising the FHLBank 
system, or the appropriate FHLBank.
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    \3\ Section 604 of the Gramm-Leach-Bliley Act, Public Law 106-
102, 113 Stat. 1338.
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    As discussed more fully in subsequent sections of this preamble, 
the OCC has revised the final rule in response to issues raised by 
commenters. These revisions and explanations that address other 
comments received are described in the section-by-section description 
of the final rule.

III. Section-by-Section Description

    101.1 Authority and purposes. Section 101.1(a) of the proposed rule 
provided that the rule would be issued pursuant to sections 3, 4, 5, 
and 5A of HOLA (12 U.S.C. 1462a, 1463, 1464, and 1464a), section 5239A 
of the Revised Statutes (12 U.S.C. 93a), and section 312(b)(2)(B) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 5412(b)(2)(B)).
    Section 101.1(b) of the proposed rule described the purposes of the 
proposed rule. Those purposes were to establish standards and 
procedures for a Federal savings association's election to operate as a 
covered savings association, to clarify the requirements that apply to 
covered savings associations, and to establish standards and procedures 
for terminations of elections and for reelections.
    The OCC did not receive comment on this section of the proposed 
rule. The OCC adopts this section of the proposed rule without change.
    101.2 Definitions and computation of time. Section 101.2(a) of the 
proposed rule set out definitions for the final rule. Section 101.2(b) 
of the proposed rule provided that, for purposes of the rule, the OCC 
would compute time in the same manner as set forth in 12 CFR 5.12. 
Section 5.12 provides that, in computing a period of days, the OCC does 
not include the day of the act (in this case, the date the OCC receives 
a Federal savings association's notice of election or termination) from 
which the period begins to run. If the last day of the 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. 
The OCC did not receive comment on the definitions included in this 
section or the manner of computation of time. The OCC adopts this 
section as proposed, with one change. As discussed in more detail later 
in this preamble, because the final rule refers consistently to ``the 
OCC'' throughout, the final rule does not include a definition of the 
term ``appropriate OCC supervisory office.''
    101.3 Procedures. Section 101.3 of the proposed rule set out 
streamlined procedures and standards of review for a Federal savings 
association's election to operate as a covered savings association.
    Section 101.3(a)(1) of the proposed rule would have allowed a 
Federal savings association that had total consolidated assets of $20 
billion or less as of December 31, 2017, to make an election to operate 
as a covered savings association by submitting a notice to the 
appropriate OCC supervisory office. The OCC proposed to use the 
Consolidated Reports of Condition and Income (Call Reports) submitted 
for the quarter ending December 31, 2017, to determine if a Federal 
savings association met this threshold.
    The proposal provided that institutions that were not Federal 
savings associations as of December 31, 2017, would not be eligible to 
make an election to operate as covered savings associations. Therefore, 
under the proposed approach, an institution that was a credit union, 
state savings association, or state bank on December 31, 2017, but that 
later converted to a Federal savings association charter, would not be 
eligible to make an election to operate as a covered savings 
association. Similarly, a de novo Federal savings association chartered 
after December 31, 2017, would not be eligible to make an election. The 
proposal noted that a Federal savings association in stock form could 
convert directly to a national bank charter, but for institutions in 
mutual form, a national bank charter is not available without first 
converting to stock form. The OCC invited comment on whether the option 
to elect to operate as a covered savings association should be limited 
to institutions that were Federal savings associations on December 31, 
2017.
    One commenter supported the proposed approach, but four commenters 
expressed concern. Three were concerned about limiting the ability of 
state-chartered institutions and credit unions to make elections 
following a conversion to a Federal savings association charter. Two 
urged the OCC to allow state savings associations, savings banks, or 
cooperative banks that were in existence prior to December 31, 2017, to 
make an election following a conversion, and the third urged the OCC to 
support legislative efforts to eliminate the eligibility date. Another 
commenter argued that Congress did not intend to exclude de novo 
savings associations from eligibility.
    The OCC is adopting Sec.  101.3(a)(1) as proposed, with one 
technical change to ensure that the final rule consistently refers to 
``the OCC'' rather than to ``the appropriate OCC supervisory office.'' 
Section 5A of HOLA provides that ``a Federal savings association'' with 
total consolidated assets of $20 billion or less ``as reported by the 
association to the Comptroller as of December 31, 2017,'' may make an 
election to operate as a covered savings association. Based on this 
statutory language, the OCC believes that section 5A precludes 
institutions that were not Federal savings associations as of December 
31, 2017, from making an election. Although commenters identified

[[Page 23993]]

potentially undesirable policy implications of this approach, no 
commenter offered a legal argument that would allow the OCC to 
disregard the limits imposed by the statute.
    The OCC notes that de novo institutions, state savings 
associations, and state savings banks that are not in mutual form may 
apply for a national bank charter if they are seeking a Federal charter 
and want to exercise the powers of a national bank. This option would 
not be available to state savings associations or state savings banks 
that are in mutual form unless they first convert to stock form.
    The OCC also received comments on other aspects of Sec.  
101.3(a)(1). One commenter asked the OCC to clarify whether 
institutions that are not eligible to make an election can become 
eligible by merging into an eligible Federal savings association. Under 
section 5A of HOLA and the final rule, an institution that was a 
Federal savings association with total consolidated assets of $20 
billion or less as of December 31, 2017, is eligible to make an 
election, regardless of whether that institution later grows in asset 
size as a result of a merger with another institution or otherwise. If 
an institution that is not otherwise eligible to make an election 
merges into a Federal savings association that is eligible to make an 
election, and the eligible Federal savings association is the surviving 
charter, then that Federal savings association would not lose its 
eligibility to operate as a covered savings association because of the 
acquisition.
    Another commenter requested the OCC to clarify that a Federal 
savings association that meets the asset threshold as of December 31, 
2017, remains eligible to make an election or reelection even if it 
subsequently grows beyond the threshold. Neither section 5A of HOLA nor 
the final rule imposes an expiration date on a Federal savings 
association's eligibility to make an election, nor do they require that 
a Federal savings association maintain assets equal to or less than $20 
billion to retain its eligibility. This means that a Federal savings 
association that was in existence and met the asset threshold as of 
December 31, 2017, may make an election at any time after 
implementation of the final rule. The Federal savings association does 
not lose its eligibility even if it has grown beyond the $20 billion 
asset threshold at the time of its election. The OCC does not believe 
that it is necessary to include language to this effect in the rule. 
Instead, the OCC has added a paragraph (c) to Sec.  101.4 of the final 
rule to highlight the express language of section 5A(g) of HOLA. 
Section 5A(g) provides that a covered savings association may continue 
to operate as a covered savings association if, after the date of the 
election, the covered savings association has total consolidated assets 
greater than $20 billion.
    Section 101.3(a)(2) of the proposed rule would have required that a 
Federal savings association's notice of an election: Be signed by a 
duly authorized officer of the Federal savings association; identify 
each branch or agency that the Federal savings association will operate 
on the effective date of the election that has not been the subject of 
an application or notice under 12 CFR part 5; and identify and describe 
each nonconforming subsidiary, asset, or activity that the Federal 
savings association operates, holds, or conducts at the time it submits 
the notice, each of which must be divested, conformed, or discontinued 
pursuant to Sec.  101.5. The OCC received several comments regarding 
the contents of the notice.
    Four commenters requested that the OCC make clear that no 
shareholder or member vote would be required to make an election, with 
several commenters noting that boards of directors are responsible for 
business plans. As explained in the preamble of the proposed rule, the 
statute does not require that a Federal savings association obtain 
shareholder or member approval to make an election to operate as a 
covered savings association. For this reason, the OCC did not include 
any requirements for a shareholder or member vote in the proposed rule 
and will not include any such requirement in the final rule. 
Nevertheless, the election to operate as a covered savings association 
could have implications not only for the electing association but also 
for its savings and loan holding company, shareholders, or members. 
Therefore, each Federal savings association that makes an election 
should review its respective charter and bylaws, as well as any other 
applicable law, to determine whether an election to operate as a 
covered savings association will require shareholder or member approval 
or additional changes to the association's charter and bylaws.
    Two commenters asserted that the requirement to provide information 
relating to existing branches and agencies under Sec.  101.3(a)(2)(ii) 
is unduly burdensome. One commenter argued that the proposed regulatory 
text could be read to require Federal savings associations to submit 
information on a significant number of branches and agencies, not just 
newly established ones. The commenter noted that many branch 
applications or notices were submitted prior to the integration of 12 
CFR part 5. This commenter also noted that applications or notices are 
generally not required for a Federal savings association to establish 
an agency. The commenter believes such a requirement would be 
unnecessary, would require time and cost that do not serve a compelling 
supervisory or regulatory purpose, and would require a covered savings 
association to disclose more information than a Federal savings 
association or national bank would be required to disclose. This 
commenter recommended that the OCC either eliminate this requirement or 
further clarify its scope. Another commenter stated that the 
requirement to provide information on existing branches and agencies is 
unnecessary and burdensome, noting that it may be difficult to provide 
information on branches that have been operational for a number of 
years. This commenter suggested that all branches that are open or 
operational or that have received regulatory approval or non-objection 
should be presumed to be compliant and documentation should not be 
required. Neither commenter believes that the OCC has clearly indicated 
why it needs this information.
    The final rule does not require Federal savings associations to 
identify branches or agencies in a notice of an election. The OCC 
believes that it can obtain sufficient information about the branches 
and agencies of a prospective covered savings association by reviewing 
information the association submits on its nonconforming subsidiaries, 
assets, or activities.\4\ This information will allow the OCC to 
monitor covered savings associations for compliance with the final rule 
without imposing any additional burden that could be associated with 
submitting information identifying branches and agencies. After an 
election, a covered savings association seeking to establish new 
branches will be subject to the terms and conditions for the 
establishment of branches applicable to a similarly located national 
bank.\5\ A covered savings association seeking to establish new non-
branch offices (e.g., loan or deposit production offices) will also be 
subject to any terms and conditions (including limitations) on the 
operation of non-branch offices

[[Page 23994]]

applicable to a similarly located national bank.\6\
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    \4\ This would include information identifying activities 
conducted in an agency that would cause the agency to be defined as 
a branch under national bank law, as discussed later in this 
preamble.
    \5\ See, e.g., 12 U.S.C. 36 and 12 CFR 5.30.
    \6\ See, e.g., 12 CFR 7.1003, 7.1004, 7.1005, 7.4004 and 7.4005.
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    Section 101.3(a)(2)(iii) of the proposed rule would have required 
Federal savings associations to identify nonconforming subsidiaries, 
assets, and activities because these are the subsidiaries, assets, and 
activities the Federal savings association would need to divest, 
conform, or discontinue pursuant to section 5A(f)(3) of HOLA and Sec.  
101.5 of the rule after an election takes effect. The OCC solicited 
feedback on whether the final rule should specify metrics for 
determining the size or scope of a subsidiary, asset, or activity. The 
OCC did not receive any comments responding to this solicitation and is 
adopting this provision (which is designated as Sec.  101.3(a)(2)(ii) 
in the final rule) as proposed. The OCC did receive comments on the 
proposed treatment of nonconforming subsidiaries, assets, and 
activities. These comments are addressed in the discussion of Sec.  
101.5 later in this preamble.
    Section 101.3(b) of the proposed rule provided that a Federal 
savings association's election to operate as a covered savings 
association would automatically take effect 60 days after the OCC 
receives a notice from the Federal savings association, unless the OCC 
notifies the Federal savings association that it is not eligible in 
accordance with paragraph (c). The proposal also provided that the OCC 
could notify a Federal savings association that it is eligible to 
operate as a covered savings association before 60 days have elapsed. 
The OCC did not receive any comments on this provision of the proposal. 
The OCC is adopting Sec.  101.3(b) with one conforming change to 
reflect the elimination of Sec.  101.3(c) as discussed later in this 
preamble.
    Section 101.3(c) of the proposed rule would have permitted the OCC 
to notify a Federal savings association in writing that it is not 
eligible to make an election to operate as a covered savings 
association if the Federal savings association is not an ``eligible 
savings association'' as that term is defined in 12 CFR 5.3(g). Under 
the definition in 12 CFR 5.3(g), an eligible savings association is a 
Federal savings association that (1) is well capitalized as defined in 
12 CFR 6.4; (2) has a composite rating of 1 or 2 under the Uniform 
Financial Institutions Rating System (CAMELS); (3) has a Community 
Reinvestment Act (CRA) rating of ``outstanding'' or ``satisfactory,'' 
if applicable; (4) has a consumer compliance rating of 1 or 2 under the 
Uniform Interagency Consumer Compliance Rating System; and (5) is not 
subject to a cease and desist order, consent order, formal written 
agreement, or Prompt Corrective Action directive or, if subject to any 
such order, agreement, or directive, is informed in writing by the OCC 
that the savings association may be treated as an ``eligible savings 
association'' for purposes of 12 CFR part 5. Because the purposes of 12 
CFR part 5 and the purposes of the proposed rule were different, the 
proposed rule specified that a Federal savings association that is 
subject to a cease and desist order, consent order, formal written 
agreement, or Prompt Corrective Action directive would not be eligible 
to elect to operate as a covered savings association unless the OCC 
informed it in writing that it is eligible for purposes of part 101 
(that is, for purposes of the proposed rule).
    The preamble to the proposed rule noted that the concept of an 
``eligible savings association'' as described in 12 CFR 5.3(g) is well 
understood and relatively straightforward to apply. In the licensing 
context, an ``eligible savings association'' may receive expedited 
review of filings because it is generally the type of savings 
association that can operate safely and soundly. The preamble to the 
proposed rule explained that a Federal savings association that meets 
the definition of ``eligible savings association'' typically would not 
raise the types of concerns that would suggest it should not operate as 
a covered savings association.
    The OCC invited comment on whether there are standards other than 
those in the definition of ``eligible savings association'' in 12 CFR 
5.3(g) that would allow the OCC to determine, without imposing undue 
burden, whether a Federal savings association is eligible to operate as 
covered savings association. The OCC also invited comment on whether 
there are situations in which, or Federal savings associations for 
which, it would not be appropriate to use the definition of ``eligible 
savings association'' to make determinations about the eligibility of a 
Federal savings association to operate as a covered savings 
association. Additionally, the OCC invited comment on whether the rule 
should identify other factors for consideration when determining a 
Federal savings association's eligibility to operate as a covered 
savings association.
    Although one commenter supported the OCC's proposed approach, four 
commenters disagreed with the use of the ``eligible savings 
association'' criteria as the basis for eligibility, noting that the 
criteria are not expressly required by the statute. Some commenters 
also contended that these criteria would be inconsistent with the 
purpose of section 5A because they would add hurdles to making an 
election. The commenters also suggested that the OCC has the expertise 
to supervise a covered savings association following an election.
    The OCC agrees with the commenters who expressed concern with the 
proposed approach and is eliminating the ``eligible savings 
association'' criteria in the final rule. The OCC believes that 
elimination of these criteria is consistent with section 5A, which 
directs the OCC to establish ``streamlined standards and procedures . . 
. for an election.'' Removal of these criteria will increase the number 
of institutions that can elect to operate as covered savings 
associations. The OCC believes that it can use its existing supervisory 
and enforcement mechanisms, as appropriate, to address any concerns 
that may arise when an institution elects to operate as a covered 
savings association, regardless of the condition of the institution at 
the time of an election. In light of this change, the OCC is also 
changing the heading of Sec.  101.3 from ``Procedures and Standards of 
Review'' to ``Procedures.''
    The OCC also received several comments asking about the impact of a 
failure to meet the ``eligible savings association'' criteria on an 
ongoing basis after an election. Because the final rule eliminates 
these criteria, this is no longer an issue.
    Although the final rule, like the proposed rule, does not require 
the OCC to send written notice to a Federal savings association that 
becomes a covered savings association by operation of law 60 days after 
an election, the OCC would expect to send such notice as a matter of 
course. The notice would include a reminder that covered savings 
associations are subject to the same laws, regulations, and safety and 
soundness expectations as a similarly located national bank, including 
any appropriate enforcement action for failure to comply with 
applicable laws and regulations.
    101.4 Treatment of covered savings associations. Section 5A(c) of 
HOLA provides that a covered savings association has the same rights 
and privileges as a similarly located national bank and is subject to 
the same duties, restrictions, penalties, liabilities, conditions, and 
limitations that would apply to such a national bank. Section 5A(d) 
further provides that a covered savings association will be treated as 
a

[[Page 23995]]

Federal savings association for purposes of the governance of the 
savings association, as well as for purposes of consolidation, mergers, 
dissolution, conversion, conservatorship, and receivership. A covered 
savings association also will be treated as a Federal savings 
association for any other purposes the Comptroller identifies by 
regulation.
    Section 101.4(a)(1) of the proposed rule offered two alternative 
ways of explaining what it means for a covered savings association to 
have the rights and privileges of a similarly located national bank 
while being subject to the same duties, restrictions, penalties, 
liabilities, conditions, and limitations as a similarly located 
national bank. The first alternative (option A) would have required a 
covered savings association to comply with the same provisions of law 
that would apply to a similarly located national bank and would not 
have required the covered savings association to comply with the 
provisions of law that apply to Federal savings associations, except in 
specific areas. The second alternative (option B) focused on the 
activities that would be permissible for a covered savings association. 
It was modeled on the language used in the OCC's regulations on 
national bank and Federal savings association operating subsidiaries 
set out in 12 CFR 5.34(e) and 5.38(e). This alternative would have 
provided that a covered savings association may engage in any activity 
that is permissible for a national bank to engage in as part of, or 
incidental to, the business of banking, or explicitly authorized by 
statute for a national bank, subject to the same authorization, terms, 
and conditions that would apply to a similarly located national bank, 
as determined by the OCC. Both options would have been subject to 
specific categories of Federal savings association law that would apply 
to covered savings associations.
    The OCC invited comment on which of these alternatives would best 
clarify the requirements for the treatment of covered savings 
associations, including the provisions of law that would apply to 
covered savings associations. Five commenters supported option A, which 
they considered to be a broader and less definitive approach that would 
permit timely creativity and innovation by covered savings 
associations. They also noted that updating a list of applicable laws 
by regulatory action can take time and that guidance is of limited 
reliability.
    Two commenters supported option B, while two others appeared to 
support option B but were less definitive. One commenter believed 
option B would provide greater flexibility for the OCC, which the 
commenter argued would be preferable even if it would be less certain 
and would require more consultation with the OCC. Two commenters that 
supported option B would also support option A if it included a 
reservation of authority to allow the OCC to determine that a provision 
of national bank law does not apply to covered savings associations.
    The OCC is adopting option B to clarify the requirements for the 
treatment of covered savings associations. This option provides general 
guidance about the types of activities in which a covered savings 
association would be permitted to engage. Covered savings associations 
would be able to refer to OCC publications to find activities that are 
permissible for national banks and understand the authorization, terms, 
and conditions that apply to those activities.\7\ Option B is more 
narrowly tailored than option A, and it preserves the OCC's authority 
to determine that a particular provision of national bank law does not 
apply to covered savings associations.
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    \7\ Many of these documents and resources are available on 
OCC.gov. These documents do not constitute an exhaustive list of all 
activities permissible for national banks. Further, institutions are 
responsible for determining whether any changes to applicable laws 
or regulations impact the permissibility of an activity.
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    Section 101.4(a)(2) of the proposed rule set out specified areas in 
which a covered savings association would have continued to be treated 
as a Federal savings association. These included the categories 
specifically identified in the statute (governance of the covered 
savings association (including incorporation, bylaws, boards of 
directors, shareholders, and distribution of dividends), consolidation, 
merger, dissolution, conversion (including conversion to a stock bank 
or to another charter), conservatorship, and receivership). The 
proposed rule also identified three additional areas in which it would 
be appropriate to treat covered savings associations as Federal savings 
associations. These areas were: (1) Provisions that allow Federal 
mutual savings associations to conduct business as mutual institutions; 
(2) provisions that set out procedural and operational requirements for 
Federal savings associations but that do not result in substantively 
different outcomes for Federal savings associations and national banks; 
and (3) areas where there is a specific Federal savings association 
rule with no corresponding specific national bank rule, but the Federal 
savings association rule sets out requirements that are consistent with 
supervisory expectations for national banks or is substantially similar 
to an interagency rule. In the preamble to the proposed rule, the OCC 
provided several charts to illustrate the types of provisions that the 
OCC would expect to identify in guidance as provisions of law that 
apply to Federal savings associations.
    The OCC invited comment on whether particular provisions should be 
considered provisions of law that relate to governance (including 
incorporation, bylaws, boards of directors, shareholders, and 
distribution of dividends), consolidation, merger, dissolution, 
conversion (including conversion to a stock bank or to another 
charter), conservatorship, and receivership and whether there are other 
provisions of law that the OCC should identify. The OCC also invited 
comment on whether these provisions should be specifically identified 
in the rule rather than in guidance. The OCC received a number of 
comments on this section of the proposed rule.
    Five commenters requested clarification that covered savings 
associations would not be required to change their name to include the 
word ``National.'' National banks are required by statute to include 
the word ``National'' in their name.\8\ Although section 5A of HOLA 
provides flexibility for certain Federal savings associations to engage 
in activities permissible for national banks, these covered savings 
associations are not national banks and, as such, retain their Federal 
savings association charter. Because covered savings associations 
retain their Federal savings association charters, covered savings 
associations will not be required to change their names to include the 
word ``National.''
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 22; 12 U.S.C. 30.
---------------------------------------------------------------------------

    One commenter requested that the OCC clarify that the rules 
governing directors remain the same for Federal savings associations 
that elect to operate as covered savings associations, noting in 
particular that electing directors is a governance requirement. As 
discussed in the preamble to the proposed rule, section 5A of HOLA sets 
out specific categories of Federal savings association laws that will 
continue to apply to covered savings associations, including those 
governance provisions relating to boards of directors (e.g., elections, 
term of service). Accordingly, covered savings associations will 
continue to be required to comply with Federal savings association laws 
with respect to boards of directors and will not be subject to national 
bank laws with respect to

[[Page 23996]]

boards of directors. For example, covered savings associations will not 
be subject to the statutory citizenship and residence requirements that 
apply to directors of national banks.\9\
---------------------------------------------------------------------------

    \9\ 12 U.S.C. 72. The same principle would apply to other 
requirements specific to the directors of national banks. See, e.g., 
12 U.S.C. 71 (election of directors); 12 U.S.C. 76 (president as 
member of the board).
---------------------------------------------------------------------------

    Another commenter agreed that provisions of Federal savings 
association law that relate to members of a Federal mutual savings 
association should continue to apply to mutual covered savings 
associations. However, the commenter was concerned that the preamble's 
justification for this treatment could suggest that the rights of 
members of a Federal mutual savings association are the same as the 
rights of shareholders of a Federal stock savings association. The OCC 
does not intend to use this rule to change the rights of members of a 
Federal mutual savings association or equate those rights to the rights 
of shareholders of a Federal stock savings association. Rather, the OCC 
believes that the term ``shareholder,'' as it is used in the specific 
context of section 5A(d)(1) of HOLA and this rule, indicates that 
provisions of Federal savings association law that relate to governance 
by the Federal savings association's stakeholders--including 
shareholders and members--should continue to apply to stock and mutual 
covered savings associations, respectively. This includes provisions of 
Federal savings association law that describe the rights of members of 
Federal mutual savings associations. This interpretation of the term 
``shareholder'' is specific to section 5A of HOLA and is not intended 
to be applied outside that context. To clarify this interpretation, the 
OCC is adding ``members'' to the list of types of Federal savings 
association governance provisions that apply to covered savings 
associations in Sec.  101.4(a)(2)(i).
    One commenter supported two of the categories of Federal savings 
association law that the OCC proposed to apply to covered savings 
associations: (1) Operational and procedural requirements that do not 
create substantively different outcomes; and (2) certain requirements 
for which there is no corresponding national bank requirement. Another 
commenter supported the proposal's application of laws with particular 
relevance for Federal mutual savings associations, such as those 
regarding mutual capital certificates. These provisions of the proposed 
rule remain unchanged in the final rule. The OCC has updated Sec.  
101.4(a)(2)(xiii) of the final rule to expressly include the accounting 
and disclosure standards in 12 CFR part 162.
    Another commenter suggested that the OCC should preserve the 
differences between national banks and Federal savings associations 
unless section 5A expressly provides otherwise. The OCC does not 
believe this approach is consistent with the language of section 5A of 
HOLA, which provides that covered savings associations have the same 
rights and privileges and are subject to the same duties, restrictions, 
penalties, liabilities, conditions, and limitations as national banks 
except where section 5A or the OCC's rules specifically provide 
otherwise.
    Three commenters requested that the OCC clarify that the preemption 
standards for national banks and Federal savings associations are the 
same and would not change following an election. Another commenter 
requested that the OCC permit covered savings associations to rely on 
whichever law most supports the OCC's preemptive authority, expressing 
concern that covered savings associations would not benefit from any 
preemption determinations applicable only to Federal savings 
associations. The commenter also argued that Federal savings 
associations benefit from more expansive preemption of state law 
through established case law and authority reserved to the OCC, even 
following the changes to preemption made in the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act).
    The OCC agrees with commenters who stated that the preemption 
standards applicable to national banks and Federal savings associations 
are the same. Section 1046 of the Dodd-Frank Act added a new section 6 
to HOLA (12 U.S.C. 1465), which provides that Federal savings 
associations are subject to the same laws and legal standards as 
national banks regarding the preemption of state law. This amendment is 
codified in the OCC's regulations at 12 CFR 7.4010 and 34.6.
    Two commenters recommended that the OCC include a mechanism that 
would allow the agency to identify additional provisions of Federal 
savings association law applicable to covered savings associations. One 
of these commenters believes that this approach would provide the OCC 
with flexibility to tailor the applicable regulations and that 
publishing interpretive letters or updating relevant publications, with 
accompanying public notice, would provide sufficient clarity. Although 
the OCC agrees that this approach would provide additional flexibility, 
section 5A(d) of HOLA requires that the additional purposes for which a 
covered savings association is treated as a Federal savings association 
be ``determined by regulation of the Comptroller.'' If the OCC 
identifies additional categories of Federal savings association law 
that should be applicable to covered savings associations, the OCC will 
initiate a rulemaking to amend part 101.
    Several commenters requested that the OCC clarify that covered 
savings associations will not be subject to Federal savings association 
regulations on interest rate risk management procedures and asset 
classification, with two commenters asserting that these regulations do 
not fall within the governance category. In the preamble to the 
proposed rule, the OCC characterized the interest rate risk management 
provisions in 12 CFR 163.176 as governance provisions that apply to 
boards of directors because the provisions set out board 
responsibilities with respect to interest rate risk management. On 
further consideration, the OCC agrees that 12 CFR 163.176 should not be 
classified as a governance provision for purposes of section 5A of 
HOLA.\10\ Although 12 CFR 163.176 sets out requirements for the board 
of directors and management, it is more appropriately viewed as a duty 
that applies to a Federal savings association's activities. The 
interest rate risk management provisions reflect the unique risk 
profile of Federal savings associations, which historically often held 
balance sheet concentrations in longer-term assets. Because of these 
concentrations, Federal savings associations had to more closely 
monitor sensitivity to market risk. A covered savings association may 
be able to diversify its portfolio and therefore its interest rate risk 
exposure. The risk-based examination approach taken by the OCC includes 
supervision for interest rate risk. Further, all insured OCC-supervised 
institutions, including covered savings associations, other Federal 
savings associations, and national banks, continue to be subject to the 
operational and managerial standards under 12 CFR part 30, Appendix A, 
which specifically include standards for managing interest rate risk 
exposure. This approach will give the OCC the flexibility to tailor its 
supervision of a covered savings

[[Page 23997]]

association to risks associated with the business model of that covered 
savings association.
---------------------------------------------------------------------------

    \10\ This determination relates to the OCC's interpretation of 
the language of section 5A of HOLA and is not intended to change the 
meaning of the term ``governance'' for other purposes. For example, 
OCC examiners will continue to supervise Federal savings 
associations as set out in Comptroller's Handbook: Corporate and 
Risk Governance, Version 1.0, July 2016 at 77.
---------------------------------------------------------------------------

    The proposed rule did not specifically address asset classification 
regulations. The final rule does not subject covered savings 
associations to the asset classification regulations applicable solely 
to Federal savings associations, such as 12 CFR 160.160, as these 
regulations do not fall within the categories of Federal savings 
association laws that the final rule makes applicable to covered 
savings associations (e.g., it is not a governance provision or a 
merger provision, nor is it specifically designated in the final rule 
as a provision of Federal savings association law that applies to 
covered savings associations). In addition, covered savings 
associations and OCC examiners can use the standards under 12 CFR part 
30, appendix A, and the real estate lending standards under 12 CFR part 
34 applicable to national banks to identify, classify, and otherwise 
address problem assets as needed, consistent with safety and soundness.
    One commenter recommended that a November 1, 2000, Office of Thrift 
Supervision memorandum with supervisory and examiner guidance be 
supplemented and not superseded by national bank examination guidance. 
The OCC rescinded CEO Memo 153, ``Examinations of Mutual Savings 
Associations'' in 2012.\11\
---------------------------------------------------------------------------

    \11\ See OCC Bulletin 2012-15, OTS Integration: Rescission of 
OTS Documents, Attachment A, available at https://www.occ.gov/news-issuances/bulletins/2012/2012-15a.pdf. See also OCC Bulletin 2014-
35, Mutual Federal Savings Associations: Characteristics and 
Supervisory Considerations, July 22, 2014, available at https://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-35.html.
---------------------------------------------------------------------------

    Six commenters requested clarification on how covered savings 
associations would be treated for purposes of the QTL requirements in 
HOLA and requested that the OCC's final rule expressly state that 
covered savings associations are not required to comply with QTL. One 
commenter added that compliance with QTL should not be required absent 
a safety and soundness concern.
    As discussed in the preamble to the proposed rule, unlike national 
banks, Federal savings associations \12\ are required to comply with 
the QTL test set forth in section 10(m) of HOLA, which requires a 
Federal savings association to qualify as a domestic building and loan 
association as defined in 26 U.S.C. 7701(a)(19) or to maintain a 
certain percentage of qualified thrift investments in the Federal 
savings association's portfolio.\13\ The preamble described the QTL 
test as a key difference between the rights and privileges of a savings 
association and a national bank. The OCC continues to believe that a 
covered savings association will not be able to exercise the rights and 
privileges conferred on it under section 5A while simultaneously being 
subject to the limitations of the QTL test.\14\
---------------------------------------------------------------------------

    \12\ The OCC acknowledges that some provisions of section 10(m) 
of HOLA apply to savings associations and other provisions apply to 
savings and loan holding companies. The discussion in this preamble 
focuses on the provisions of section 10(m) that apply to savings 
associations.
    \13\ 12 U.S.C. 1467a(m).
    \14\ As discussed later in this preamble, a similar analysis 
applies to the lending limitations imposed on Federal savings 
associations by section 5(c) of HOLA. Section 5(c) permits Federal 
savings associations to make residential real property and other 
housing related loans without limit, but consumer and commercial 
loans are subject to specific limitations established in the 
statute.
---------------------------------------------------------------------------

    Section 101.4(a) of the final rule provides that a covered savings 
association may engage in any activity that is permissible for a 
similarly located national bank to engage in, subject to the same 
authorization, terms, and conditions that would apply to a similarly 
located national bank. Lending and investment are activities that 
national banks are permitted to engage in as part of the business of 
banking.\15\ When making loans and investments, covered savings 
associations are subject to the same authorization, terms, and 
conditions that would apply to similarly located national banks. There 
are no authorizations, terms, or conditions that require national banks 
to maintain status as qualified thrift lenders. Furthermore, unlike 
governance, conservatorship, and receivership, lending and investment 
are not purposes for which section 5A(d) of HOLA or the final rule 
require that a covered savings association be treated as a Federal 
savings association. Accordingly, a covered savings association 
operating under section 5A is not subject to, among other things, the 
penalties in 12 U.S.C. 1467a(m)(3) for failing to meet the QTL test. 
The OCC believes this is consistent with both the language of Sec.  
101.4(a) of the final rule and the statutory mandate that covered 
savings associations exercise the rights and privileges of similarly 
located national banks. Requiring compliance with the QTL test would be 
inconsistent with and frustrate the purpose of allowing Federal savings 
associations to make an election. The OCC does not believe it is 
necessary to state explicitly in the final rule that the QTL test does 
not apply to a covered savings association.
---------------------------------------------------------------------------

    \15\ 12 U.S.C. 24 (Seventh); see also 12 U.S.C. 371.
---------------------------------------------------------------------------

    The OCC applies a similar analysis to section 5(c) of HOLA. Section 
5(c) sets out lending and investment restrictions that apply to Federal 
savings associations. These authorizations, terms, and conditions do 
not apply to the activities of national banks. Consequently, they do 
not apply to covered savings associations.
    The OCC also applies a similar analysis to public welfare and 
community development investments. One commenter argued that covered 
savings associations should be treated as Federal savings associations 
for purposes of public welfare and community development investments. 
Four commenters also suggested that the OCC consider grandfathering 
public welfare or community development projects existing at the time 
of an election. National banks are permitted to make public welfare 
investments, subject to specific authorization, terms, and conditions 
(namely, limits on the total amount of such investments). Covered 
savings associations also will be permitted to make public welfare 
investments, subject to the same authorization, terms, and conditions 
(including the limits on the total amount of such investments) as a 
national bank. Any public welfare or community development projects 
existing at the time of an election that would not comply with the 
authorizations, terms, and conditions applicable to a national bank 
will be subject to Sec.  101.5 of this final rule, which the OCC 
believes provides adequate time and flexibility for divestiture or 
conformance.
    In the preamble to the proposed rule, the OCC applied a similar 
analysis to the affiliate transaction restrictions in section 11(a) of 
HOLA. While two commenters agreed that covered savings associations 
should not be subject to the affiliate transaction rules specific to 
Federal savings associations, they requested that the OCC clarify this 
in the final rule. Affiliate transaction restrictions for savings 
associations are set out in section 11(a) of HOLA and 12 CFR 223.72. 
These provisions present potential complications that the QTL 
restrictions, community development restrictions, and lending and 
investment restrictions do not. The OCC will continue to consult with 
the FRB on interpretive issues regarding the application of these 
provisions to covered savings associations. The OCC recommends that 
individuals or institutions with specific questions about the 
application of these

[[Page 23998]]

provisions to covered savings associations contact the FRB.
    Several commenters requested that the OCC clarify in the final rule 
which merger provisions would apply when a covered savings association 
merges with another entity. One commenter asserted that the proposed 
rule could limit a covered savings association's ability to engage in 
certain interstate merger transactions if covered savings associations 
are treated as national banks for purposes of interstate merger laws. 
The commenter asked the OCC to confirm that covered savings 
associations are subject only to the merger provisions that apply to 
Federal savings associations and not to interstate or other provisions 
applicable to national banks. Several commenters noted that the 
proposal does not clarify how applicable branching laws and merger 
requirements will work together.
    National banks and Federal savings associations are subject to 
different laws regarding business combinations.\16\ For instance, 
national banks are subject to a specific statutory framework that sets 
out the authorization, terms, and conditions for merger and 
consolidation activities.\17\ There are fewer statutory requirements 
for the merger and consolidation activities of Federal savings 
associations.\18\ The OCC has detailed regulations to address the 
authority of national banks and Federal savings associations to engage 
in mergers and consolidations, including procedural requirements. Where 
consistent with underlying statutory authorities, the OCC has 
harmonized the regulations for business combination activities of 
national banks and Federal savings associations, respectively, although 
some differences remain.\19\ The regulations for business combination 
activities involving national banks and Federal savings associations 
are set forth in 12 CFR 5.33.
---------------------------------------------------------------------------

    \16\ The term ``business combination'' includes mergers and 
consolidations. See 12 CFR 5.33(d)(2).
    \17\ See, e.g., 12 U.S.C. 214a, 214b, 215, 215a, 215a-1, 215a-3, 
215b, 215c, 1828(c), and 1831u. Some of these provisions also apply 
to savings associations (e.g., 12 U.S.C. 1828(c)).
    \18\ See, e.g., 12 U.S.C. 1467a(s).
    \19\ Integration of National Banks and Federal Savings 
Association Regulations: Licensing Rules, 80 FR 28346, 28368 (May 
18, 2015).
---------------------------------------------------------------------------

    Section 5A of HOLA provides that a covered savings association 
shall be treated as a Federal savings association for purposes of 
consolidation and merger.\20\ In the preamble to the proposed rule, the 
OCC explained that where the business combination provisions in 12 CFR 
5.33 set out different requirements for Federal savings associations 
and national banks, the Federal savings association requirements would 
apply to a covered savings association.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 1464a(d)(2). Furthermore, by including a specific 
provision allowing branches in operation on the date an election is 
approved to continue to operate after an election, section 5A(e) 
suggests that, after an election, national bank branching 
requirements should apply.
---------------------------------------------------------------------------

    However, the OCC understands that merger provisions and branching 
provisions can intersect in certain situations, such as the interstate 
branch acquisition provisions covered by 12 U.S.C. 1831u. This can lead 
to additional complications because, under the final rule, covered 
savings associations may engage in any activity that is permissible for 
a similarly located national bank to engage in as part of, or 
incidental to, the business of banking, or explicitly authorized by 
statute for a national bank, subject to the same authorization, terms, 
and conditions that would apply to a similarly located national 
bank.\21\ Branching is such an activity. As a result, under the final 
rule, a covered savings association will be permitted to establish or 
retain new branches, or to close branches, subject to the 
authorization, terms, and conditions that apply to a similarly located 
national bank. This is true whether or not the branch is retained or 
closed as part of a merger. The OCC has concluded that, for purposes of 
section 5A of HOLA and the final rule, the provisions of law relating 
to retention of branches in mergers and those that establish interstate 
branching restrictions in the merger context should be considered 
branching requirements rather than merger requirements. For a covered 
savings association, this means that while the authority to engage in a 
proposed merger or consolidation transaction will be governed under the 
laws applicable to Federal savings associations, the ability to 
establish or retain branches will be subject to the same authorization, 
terms, and conditions that would apply to a similarly located national 
bank (including conditions on the establishment of interstate 
branches). Any other interpretation could permit covered savings 
associations to acquire, through a merger, new branches under terms or 
conditions that would not be permissible for a similarly located 
national bank to acquire. Allowing covered savings associations to 
engage in branching activities under terms or conditions that are not 
available for similarly located national banks would be counter to the 
language of section 5A of HOLA.
---------------------------------------------------------------------------

    \21\ Section 5A(c)(2) provides that covered savings associations 
are subject to the duties, restrictions, penalties, liabilities, 
conditions, and limitations that would apply to a similarly located 
national bank, except as provided in section 5A(d). Section 5A(d) 
does not include branching as a purpose for which a covered savings 
association will be treated as Federal savings association. 
Furthermore, by including a specific provision allowing branches in 
operation on the date an election is approved to continue to operate 
after an election, section 5A(e) suggests that, after an election, 
national bank branching requirements should apply. If covered 
savings associations were permitted to operate branches that 
national banks are not, section 5A(e) would be surplusage.
---------------------------------------------------------------------------

    Several commenters requested that the OCC clarify in the final rule 
that trust-only covered savings associations would not be required to 
maintain deposit insurance where similarly located trust-only national 
banks would not be subject to this requirement. The proposed rule did 
not explicitly address whether a trust-only covered savings association 
must have deposit insurance, although it did provide that a covered 
savings association would be required to comply with 12 CFR 5.20, which 
requires deposit insurance as a condition of obtaining a Federal 
savings association charter. The commenters argued that the requirement 
to have deposit insurance is a ``condition,'' ``limitation,'' and 
``restriction'' on a ``right'' or ``privilege'' and, therefore, should 
not apply to trust-only covered savings associations. One commenter 
noted that this disparity in the treatment of non-depository Federal 
savings associations and national banks should be eliminated absent a 
safety and soundness concern. One commenter argued that deposit 
insurance is a restriction, condition, and limitation similar to the 
QTL requirements, which the proposal makes inapplicable. The commenter 
believes that providing parity on deposit insurance requirements would 
advance the goal of uniform treatment. The commenter also believes that 
the OCC's authority to determine the laws applicable to covered savings 
associations is limited by the requirement that trust-only covered 
savings associations be treated the same as comparable national banks.
    Two commenters noted that the proposal lists 12 CFR 5.20 as a 
governance provision but argued that 12 CFR 5.20(e)(3), which addresses 
deposit insurance, is not properly viewed as a governance provision. 
These commenters requested that the OCC clarify that 12 CFR 5.20(e)(3) 
is not a governance provision and does not apply to trust-only covered 
savings associations. One commenter made several arguments in support 
of this view: (1) Governance provisions are the standards that govern 
incorporation and the relationship between a Federal savings 
association and its shareholders,

[[Page 23999]]

members, and management, not the laws implicating substantive areas of 
banking or savings association powers, authorities, and activities; (2) 
unlike deposit insurance, the other governance provisions identified in 
the proposal are analogous to state corporate governance laws; (3) 
unlike other identified governance provisions, deposit insurance is not 
included in the OCC's model charter or bylaws; (4) deposit insurance is 
not analogous to the other examples of governance provisions identified 
in the statute or the proposal; and (5) it would be simpler for a 
trust-only covered savings association to drop its deposit insurance 
than to comply with new governance requirements.
    One commenter articulated the burdens associated with being 
required to maintain deposit insurance as a trust-only entity, 
including (1) the requirement to have a minimum of $500,000 in insured 
deposits to retain deposit insurance; (2) the requirement to have 99% 
of deposits be trust funds to qualify for the trust-only savings and 
loan holding company exclusion; \22\ (3) and the costs associated with 
seeking trust-only carve outs from laws that apply to ``insured 
depository institutions.'' \23\ One commenter addressed the OCC's 
enforcement, receivership, and conservatorship authority over an 
uninsured trust-only covered savings association, arguing that section 
5A provides the OCC with the full array of such authority. The 
commenter argued that the OCC's enforcement authorities in section 8 of 
the Federal Deposit Insurance Act (FDIA) are clearly ``restrictions, 
penalties, liabilities, conditions, and limitations'' and, therefore, 
should apply to uninsured covered savings associations in the same way 
as they apply to uninsured national banks. The commenter also 
recommended that the OCC rely on its authority to issue rules that 
clarify the provisions of law applicable to covered savings 
associations and in the interest of safety and soundness to provide 
that uninsured covered savings associations would be subject to section 
8. The commenter argued that the OCC's authority to issue rules ``in 
the interest of safety and soundness'' provide the agency with 
sufficient authority to issue regulations for appointing conservators 
and receivers of uninsured covered savings associations. The commenter 
cited the OCC's rule for receiverships of uninsured national banks as a 
model.
---------------------------------------------------------------------------

    \22\ The commenter noted that the FRB permitted the company to 
exclude the $500,000 deposit from its 99% calculation in the course 
of approving the commenter's application to deregister as a savings 
and loan holding company.
    \23\ The commenter believes that this phrase is often used as a 
proxy to indicate that an institution is engaged in all commercial 
banking activities.
---------------------------------------------------------------------------

    For the reasons that follow, the OCC concludes that HOLA requires 
all savings associations, whether they elect to operate as covered 
savings associations or not, to have deposit insurance. The OCC bases 
this determination on the language of HOLA rather than a determination 
that 12 CFR 5.20(e)(3) is a governance provision. Under the HOLA 
definition of ``savings association,'' all Federal savings 
associations, including those that engage only in trust activities and 
those that elect to operate as covered savings associations, are 
required to have deposit insurance.\24\ Under section 5A of HOLA and 
Sec. Sec.  101.2(a)(2) and 101.3(a)(1) of the final rule, only Federal 
savings associations are eligible to elect to operate as covered 
savings associations. An election to operate as a covered savings 
association does not change a Federal savings association's charter, 
its status as a savings association, or its stock or mutual form. 
Because only Federal savings associations can elect to operate as 
covered savings associations, and because all Federal savings 
associations are required to have deposit insurance, a Federal savings 
association must have deposit insurance in order to elect to operate as 
a covered savings association. The OCC does not believe that the 
``rights and privileges'' or ``duties, restrictions, penalties, 
liabilities, conditions, and limitations'' language in section 5A is 
sufficient to overcome the requirement that a covered savings 
association be a Federal savings association. Therefore, because a 
trust-only covered savings association still retains its Federal 
savings association form and charter, HOLA's definitional deposit 
insurance requirement continues to apply after an election and a trust-
only covered savings association must continue to maintain deposit 
insurance.
---------------------------------------------------------------------------

    \24\ Section 2(2) of HOLA (12 U.S.C. 1462(2)) defines a 
``savings association'' as ``a savings association, as defined in 
section 3 of the Federal Deposit Insurance Act [12 U.S.C. 1813], the 
deposits of which are insured by the Corporation.'' Furthermore, 
section 5(d) of HOLA, which gives the OCC enforcement authority over 
Federal savings associations, defines ``savings association'' for 
purposes of that subsection as ``any savings association or former 
savings association that retains deposits insured by the 
Corporation, notwithstanding termination of its status as an 
institution insured by the Corporation.'' Because Federal savings 
associations are a type of savings association, these requirements 
also apply to Federal savings associations.
---------------------------------------------------------------------------

    The language of section 5A of HOLA supports the conclusion that 
covered savings associations must continue to maintain deposit 
insurance after making an election. Section 5A states that a covered 
savings association shall be treated as a Federal savings association 
for purposes of ``conservatorship'' and ``receivership.'' \25\ The 
existing conservatorship and receivership framework for Federal savings 
associations (including trust-only institutions) only covers insured 
Federal savings associations, and HOLA contemplates ``only the Federal 
Deposit Insurance Corporation as receiver for a savings association for 
the purpose of liquidation or winding up the affairs of such savings 
association.'' \26\ Moreover, the plain language of section 5A prevents 
the OCC from applying the national bank conservatorship and 
receivership rules (including those that cover uninsured trust-only 
national banks) to covered savings associations. For these reasons, the 
final rule does not include a new receivership and conservatorship 
framework for trust-only covered savings associations.
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 1464a(d)(2).
    \26\ 12 U.S.C. 1464(d)(2)(E)(ii).
---------------------------------------------------------------------------

    Six commenters requested that the OCC allow covered savings 
associations to continue to engage in any activities and retain any 
investments grandfathered under section 5(i)(4) of HOLA. That provision 
of HOLA (1) allows any Federal savings bank chartered as such prior to 
October 15, 1982, to continue to make any investment or engage in any 
activity not otherwise authorized under section 5 of HOLA, to the 
degree it was permitted to do so as a Federal savings bank prior to 
October 15, 1982; and (2) allows any Federal savings bank in existence 
on August 9, 1989, and formerly organized as a mutual savings bank 
under State law to continue to make any investment or engage in any 
activity not otherwise authorized under section 5 of HOLA, to the 
degree it was authorized to do so as a mutual savings bank under State 
law. Four commenters stated that eliminating this authority would 
disproportionately impact institutions with grandfathered equity 
powers, with three adding that forcing divestiture may have unintended 
consequences. One commenter requested that the OCC consider a more 
flexible approach by reviewing long-term investment portfolios on a 
case-by-case basis. The commenter noted that these activities were 
reaffirmed as safe and sound in 1991 in section 24 of the FDIA and that 
many associations use the authority for long-term investing, not active 
trading. One commenter asserted that there is no indication that 
Congress intended to repeal section 5(i)(4) and that OCC

[[Page 24000]]

should not interpret section 5A to eliminate this authority.
    The OCC agrees that a Federal savings association engaged in 
activities or retaining investments grandfathered under section 5(i)(4) 
of HOLA should continue to be permitted to engage in those activities 
and retain those investments if the association elects to be treated as 
a covered savings association. The volume of these activities and the 
amount of these investments are capped by the language of section 
5(i)(4) of HOLA, and those limits would continue to apply after an 
election. The OCC has, on at least one prior occasion, permitted a 
state bank with activities and investments permitted by the state to 
continue to engage in those activities and retain those investments 
after converting to a national bank. Section 101.4(a)(2) of the final 
rule provides that covered savings associations can continue to engage 
in the specific, limited types of grandfathered nonconforming 
activities and investments permitted under section 5(i)(4) of HOLA.
    Several commenters argued that covered savings associations should 
not be precluded from operating or investing in service corporations 
that engage only in activities permissible for national banks. One 
commenter argued that allowing covered savings associations to operate 
new and existing service corporations that engage only in national bank 
permissible activities is critical to achieving the full exercise of 
the election. Another commenter argued that if a service corporation's 
activities are permissible for both FSAs and national banks, CSAs 
should not be required to re-characterize the investment to rely on 
national bank authority or to change documentation to reflect that 
authority. The commenter believes that this would be inconsistent with 
a streamlined process and would result in material burden. A third 
commenter recommends that the OCC not require a change in legal form 
for any subsidiary, asset, or activity that is permissible for a 
national bank, unless the OCC can demonstrate that a material adverse 
financial effect would be imminent following the election.
    Other commenters asked whether a service corporation would 
automatically become an operating subsidiary or whether this would be 
an unnecessary governance change. One commenter believes that service 
corporations should be allowed to continue their operations following 
an election.
    Under the final rule, covered savings associations are not 
permitted to retain nonconforming subsidiaries, assets, or activities. 
A nonconforming subsidiary, asset, or activity includes an investment 
in a subsidiary or other entity that is not permissible for a covered 
savings association. Federal savings associations have authority to 
invest in service corporations under section 5 of HOLA.\27\ National 
banks do not have express statutory authority to invest in service 
corporations. Consequently, a covered savings association may not 
retain an existing service corporation or establish and invest in a new 
service corporation.
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 1464(c)(4)(B).
---------------------------------------------------------------------------

    A Federal savings association that elects to operate as a covered 
savings association would be required to comply with Sec.  101.5 of the 
final rule by divesting or conforming any investment in a service 
corporation within the timeframe set out in Sec.  101.5. The covered 
savings association could do so simply by divesting any investment in a 
service corporation. The covered savings association could also choose 
to conform the investment by redesignating the service corporation as 
an operating subsidiary, because national banks are permitted to have 
operating subsidiaries.
    An operating subsidiary of a covered savings association is only 
permitted to engage in the activities permissible for the covered 
savings association to engage in directly (i.e., those permissible for 
a national bank). A covered savings association that chooses to 
redesignate a service corporation as an operating subsidiary must 
ensure that the operating subsidiary is only engaged in such 
permissible activities--in other words, it must discontinue any 
nonconforming activities.
    The OCC did not receive comment on Sec.  101.4(b) of the proposed 
rule, which would have implemented section 5A(e) of HOLA by providing 
that a covered savings association may continue to operate any branch 
or agency that the covered savings association operated on the 
effective date of the election. The OCC adopts this provision of the 
proposed rule without change.
    As discussed in the preamble to the proposed rule, a covered 
savings association seeking to establish a de novo branch or to 
relocate or close an existing branch would be subject to the 
authorization, terms, and conditions that govern the establishment or 
closing of a national bank branch. Furthermore, if a branch of a 
covered savings association engages in activities that are included in 
the definition of a branch under the national bank branching 
regulation, 12 CFR 5.30, that branch may continue to operate subject to 
the same authorization, terms, and conditions as a similarly located 
branch of a similarly located national bank. If an agency of a covered 
savings association engages in activities that would qualify the agency 
as a branch under the national bank branching regulation, 12 CFR 5.30, 
those activities would be considered nonconforming activities, and the 
covered savings association would be required to discontinue or conform 
the activities or submit an application and obtain OCC approval under 
12 CFR 5.30 to establish the agency as a branch.\28\ If a covered 
savings association wishes to establish a new branch, it would be 
required to do so under the rules for national bank branches in 12 CFR 
5.30. The OCC believes this approach best allows covered savings 
associations to continue to operate the branches and agencies they 
operated on the date on which an election was approved but subject to 
the same authorization, terms, and conditions that would apply to a 
similarly located national bank.
---------------------------------------------------------------------------

    \28\ There is overlap between the activities that a Federal 
savings association may undertake in an agency and the activities 
that a national bank may undertake in an entity that is not a 
branch. See 12 CFR 5.30, 5.31, and part 7.
---------------------------------------------------------------------------

    As noted earlier in this preamble, the final rule adds a new Sec.  
101.4(c) to reflect the language of section 5A(g) of HOLA.
    The proposed rule provided that the Federal savings associations 
regulations applicable to the issuance of subordinated debt and 
mandatorily redeemable preferred stock for inclusion in tier 2 capital 
would apply to covered savings associations. Title 12 CFR 5.56(a) 
provides that Federal savings associations must comply with the 
requirements of 12 CFR 163.80 (Borrowing limitations) when issuing 
subordinated debt or mandatorily redeemable preferred stock that is not 
included in tier 2 capital. The OCC has revised the final rule to 
clarify that Sec.  163.80 applies to covered savings associations when 
the covered savings association's issuance of subordinated debt or 
mandatorily redeemable preferred stock is not included in tier 2 
capital.
    For the convenience of readers, the following chart summarizes the 
provisions of law discussed in this preamble and the preamble to the 
proposed rule and their applicability to covered savings associations. 
It includes provisions in the categories specifically listed in the 
statute (governance (including incorporation, bylaws, boards of 
directors, shareholders and members, and distribution of dividends), 
consolidation, merger, dissolution, conversion (including conversion to 
a stock bank or to another

[[Page 24001]]

charter), conservatorship, and receivership). It also includes: (1) 
Provisions that allow Federal mutual savings associations to conduct 
business as mutual institutions; (2) provisions that set out procedural 
and operational requirements for Federal savings associations but that 
do not result in substantively different outcomes for Federal savings 
associations and national banks; and (3) areas where there is a 
specific Federal savings association rule with no corresponding 
specific national bank rule, but the Federal savings association rule 
sets out requirements that are consistent with supervisory expectations 
for national banks or is substantially similar to an interagency rule. 
This chart is not an exhaustive list of the statutes and regulations 
that apply to covered savings associations. In addition, the provisions 
of law included in the chart may change, whether as a result of 
amendments to a statute or future OCC rulemaking. For example, if the 
OCC later issues a rule integrating the national bank and Federal 
savings association rules for adjudicative procedures, the references 
in this chart to parts 19, 108, and 109 may no longer be accurate.

------------------------------------------------------------------------
                                       Applicability to covered savings
          Provision of law                       associations
------------------------------------------------------------------------
       Selected Statutory Provisions Applicable to National Banks
------------------------------------------------------------------------
12 U.S.C. 24 (Eleventh) and 12 CFR    Applies.
 part 24. These sections permit
 national banks to make public
 welfare investments, subject to
 certain limitations.
12 U.S.C. 22 and 30. These sections   Does not apply.
 require national banks to have the
 word ``National'' in their names.
12 U.S.C. 71. This section sets out   Does not apply.
 standards for the election of
 directors of national banks.
12 U.S.C. 72. This section sets out   Does not apply.
 citizenship and residency
 requirements for directors of
 national banks.
12 U.S.C. 76. This section requires   Does not apply.
 the president of a national bank to
 be a member of the board of
 directors of the national bank.
------------------------------------------------------------------------
Selected Statutory Provisions Applicable to Federal Savings Associations
------------------------------------------------------------------------
12 U.S.C. 1462(2). This paragraph     Applies.
 defines a ``savings association.''
 The OCC interprets this definition
 to require deposit insurance.
12 U.S.C. 1464(c). This subsection    Does not apply.
 establishes limitations on the
 lending and investment authority of
 Federal savings associations,
 including the authority to make
 community development investments.
12 U.S.C. 1464(d) and 1821(c). These  Applies.
 statutes set forth the authorities
 for the appointment of a
 conservator or receiver for Federal
 savings associations.
12 U.S.C. 1464(i)(4) and 12 CFR part  Applies.
 143. These provide: (1) That
 Federal savings banks chartered
 prior to October 15, 1982, may
 continue to make any investment or
 engage in any activity not
 otherwise authorized under section
 5 of HOLA to the degree they were
 permitted to do so as a Federal
 savings bank prior to October 15,
 1982; and (2) that any Federal
 savings bank in existence on August
 9, 1989, and formerly organized as
 a mutual savings bank under State
 law to continue to make any
 investment or engage in any
 activity not otherwise authorized
 under section 5 of HOLA, to the
 degree it was authorized to do so
 as a mutual savings bank under
 State law.
12 U.S.C. 1467a(m). This subsection   Does not apply.
 sets out the qualified thrift
 lender test.
------------------------------------------------------------------------
      Selected Governance Regulations Applicable to Federal Savings
                              Associations
------------------------------------------------------------------------
12 CFR 5.21. This section sets out    Applies.
 the requirements for Federal mutual
 savings associations when adopting
 or amending the charters or bylaws.
12 CFR 5.22. This section sets out    Applies.
 the requirements for Federal stock
 savings associations when adopting
 or amending the charters or bylaws.
12 CFR 145.121. This section          Applies.
 requires Federal savings
 associations to indemnify
 directors, officers, and employees.
12 CFR 160.130. This section          Applies.
 prohibits directors and officers
 from receiving loan procurement
 fees.
12 CFR 163.33. This section sets out  Applies.
 requirements for the composition of
 the board of directors of a Federal
 savings association.
12 CFR 163.47. This section sets out  Applies.
 requirements for employee pension
 plans of Federal savings
 associations, which may be amended
 or terminated by the board of
 directors.
12 CFR 163.172(c), (d), and (e).      Applies.
 These provisions establish
 requirements for directors and
 management of Federal savings
 associations to oversee and keep
 records pertaining to derivatives
 transactions.
12 CFR 163.200. This section sets     Applies.
 expectations for the directors,
 officers, and employees of Federal
 savings associations, particularly
 as it relates to conflicts of
 interest.
12 CFR 163.201. This section sets     Applies.
 expectations for the directors and
 officers of Federal savings
 associations, particularly as it
 relates to corporate opportunity.
------------------------------------------------------------------------
    Selected Merger, Consolidation, Conversation, Reorganization, and
    Subsidiary Regulations Applicable to Federal Savings Associations
------------------------------------------------------------------------
12 CFR 5.25. This section sets out    Applies.
 requirements for conversion from a
 national bank or Federal savings
 association to a state bank or
 state savings association. Although
 many aspects of this section are
 identical for national banks and
 Federal savings associations, where
 there are differences, the Federal
 savings association requirements
 would apply to a covered savings
 association.
12 CFR 5.33. This section sets out    Applies.
 requirements for business
 combinations involving a national
 bank or Federal savings
 association, including mergers.
 Although many aspects of this
 section are identical for national
 banks and Federal savings
 associations, where there are
 differences, the Federal savings
 association requirements would
 apply to a covered savings
 association.
12 CFR 5.34, 5.35, and 5.39. These    Applies.
 sections set out requirements for
 the formation of operating
 subsidiaries, bank service
 companies, and financial
 subsidiaries, respectively, by
 national banks.
12 CFR 5.36. This section addresses   Applies.
 other equity investments by
 national banks.

[[Page 24002]]

 
12 CFR 5.48. This section sets out    Applies.
 requirements for voluntary
 liquidation of a national bank or
 Federal savings association.
 Although many aspects of this
 section are identical for national
 banks and Federal savings
 associations, where there are
 differences, the Federal savings
 association requirements would
 apply to a covered savings
 association.
12 CFR 5.59. This section addresses   Does not apply.
 Federal savings association service
 corporations.
12 CFR part 192. This part sets out   Applies.
 requirements for savings
 associations converting from mutual
 to stock form.
------------------------------------------------------------------------
    Selected Capital Distributions and Subordinated Debt Regulations
------------------------------------------------------------------------
12 CFR 5.45. This section             Applies.
 establishes requirements for
 increases in permanent capital for
 Federal stock savings associations.
12 CFR 5.46. This section             Does not apply.
 establishes requirements for
 changes in permanent capital of
 national banks.
12 CFR 5.47. This section             Does not apply.
 establishes requirements for
 subordinated debt issued by
 national banks.
12 CFR 5.55. This section sets out    Applies.
 requirements for capital
 distributions by Federal savings
 associations, including
 distributions of dividends. The
 entire section would apply to a
 covered savings association.
12 CFR 5.56. This section             Applies.
 establishes requirements for
 inclusion of subordinated debt
 securities and mandatorily
 redeemable preferred stock of
 Federal savings associations as
 supplementary capital \29\.
12 CFR 163.76. This section           Applies.
 addresses offers and sales of
 securities at an office of a
 Federal savings association.
------------------------------------------------------------------------
 Selected Regulations Applicable to the Operations of National Banks and
                      Federal Savings Associations
------------------------------------------------------------------------
12 CFR part 12. This part             Does not apply.
 establishes requirements relating
 to recordkeeping and confirmation
 for securities transactions by
 national banks.
12 CFR part 19. This part             Does not apply.
 establishes requirements for
 adjudicative and investigative
 proceedings that involve national
 banks.
12 CFR part 21, subpart A. This       Does not apply.
 subpart establishes security
 procedures for national banks.
12 CFR parts 108 and 109. These       Applies.
 parts establish requirements for
 adjudicative proceedings that
 involve Federal savings
 associations.
12 CFR part 112. This part            Applies.
 establishes requirements for
 investigative proceedings involving
 Federal savings associations.
12 CFR part 128. This part sets out   Applies.
 nondiscrimination requirements for
 Federal savings associations.
12 CFR part 151. This part            Applies.
 establishes recordkeeping and
 confirmation requirements for
 securities transactions involving
 Federal savings associations.
12 CFR 160.30. This section           Does not apply.
 implements the statutory lending
 and investment limits applicable to
 the operations of a Federal savings
 association, including community
 development investments.
12 CFR 160.36. This section permits   Does not apply.
 de minimis community development
 investments for Federal savings
 associations.
12 CFR 160.160. This section sets     Does not apply.
 out asset classification
 requirements applicable to Federal
 savings associations.
12 CFR part 162. This part            Applies.
 implements a provision of HOLA that
 requires Federal savings
 associations to use generally
 accepted accounting principles.
12 CFR 163.27. This section           Applies.
 prohibits inaccurate or
 misrepresentative advertising.
12 CFR 163.76. This section           Applies.
 addresses offers and sales of
 securities at an office of a
 Federal savings association.
12 CFR 163.170(c). This provision     Applies.
 sets out expectations for
 maintenance of records.
12 CFR part 168. This part            Applies.
 establishes security procedures for
 Federal savings associations.
12 CFR 163.176. This section          Does not apply.
 establishes requirements for
 Federal savings associations
 related to interest rate risk
 management.
------------------------------------------------------------------------
 Selected Regulations Applicable to Federal Mutual Savings Associations
------------------------------------------------------------------------
12 CFR 5.21. This section sets out    Applies.
 the requirements for Federal mutual
 savings associations when adopting
 or amending the charters or bylaws.
12 CFR part 144. This part sets out   Applies.
 rules for communications between
 members of Federal mutual savings
 associations. The national bank
 laws relating to shareholder
 communications do not adequately
 address the unique needs and rights
 of Federal mutual savings
 association members.
12 CFR 163.74. This section           Applies.
 establishes requirements for mutual
 capital certificates.
12 CFR part 169. This part sets out   Applies.
 rules for proxies in the mutual
 context. The national bank laws
 relating to proxies do not
 adequately address the unique needs
 and rights of Federal mutual
 savings association members.
------------------------------------------------------------------------

    101.5 Nonconforming subsidiaries, assets, and activities. Section 
101.5 of the proposed rule established a transition process for 
bringing nonconforming subsidiaries, assets, and activities into 
conformance with the requirements for national banks.
---------------------------------------------------------------------------

    \29\ 12 CFR 5.56(a) provides that Federal savings associations 
must comply with the requirements of 12 CFR 163.80 (Borrowing 
limitations) when issuing subordinated debt or mandatorily 
redeemable preferred stock that is not included in tier 2 capital. 
Section 163.80 applies to covered savings associations for purposes 
of Sec.  5.56 (i.e., when the covered savings association's issuance 
of subordinated debt or mandatorily redeemable preferred stock is 
not included in tier 2 capital).
---------------------------------------------------------------------------

    Section 101.5(a) of the proposed rule would have required a covered 
savings association to divest, conform, or discontinue nonconforming 
subsidiaries, assets, and activities at the earliest time that prudent 
judgment dictates but not later than two years after the effective date 
of an election. Paragraph (a) also would have provided that the OCC may 
require a covered savings association to submit a plan to divest, 
conform, or discontinue a nonconforming subsidiary, asset, or activity, 
to assist OCC supervisory staff in assessing compliance with the 
proposed rule. Section 101.5(b) of the proposed rule would have allowed 
the OCC to grant a covered savings association extensions of not more 
than two years each up to a maximum of eight years if the OCC 
determined that: (1) The covered savings association has

[[Page 24003]]

made a good faith effort to divest, conform, or discontinue the 
nonconforming subsidiaries, assets, or activities; (2) divestiture, 
conformance, or discontinuance would have a material adverse financial 
effect on the covered savings association; and (3) retention or 
continuation of the nonconforming subsidiaries, assets, or activities 
is consistent with the safe and sound operation of the covered savings 
association. This paragraph was intended to provide the OCC with 
flexibility when a covered savings association, despite its best 
efforts, is unable to divest or conform assets or subsidiaries or 
discontinue activities within the two-year period.
    Several commenters generally addressed the timeframes for 
divestiture, conformance, and discontinuance. One commenter believed 
that the initial two-year period is reasonable and the ability to seek 
extensions provides sufficient flexibility for complex investments or 
depressed market conditions. Another commenter recommended a 
``reasonable time'' standard for divesture to account for extraordinary 
circumstances. This commenter noted that service corporation 
investments in real estate may require longer divestiture periods and 
that these are not always comparable to other real estate owned (OREO). 
A third commenter suggested that a timeframe committed to supervisory 
discretion would be preferable to a specific regulatory deadline.
    One commenter asserted that there may be situations where a covered 
savings association should be allowed to continue a long-standing 
nonconforming activity. One commenter believes that the statute 
requires the OCC to establish conditions under which a covered savings 
association can retain nonconforming subsidiaries, assets, and 
activities in perpetuity. The commenter believes that retention should 
be subject to review at election and periodically thereafter but that 
retention should be presumed permissible.
    The OCC adopts the proposed Sec.  101.5(a) and (b) without change. 
The OCC believes that the standard in the final rule provides 
sufficient flexibility to address extraordinary circumstances while 
emphasizing the OCC's expectation that, in the normal course of events, 
nonconforming subsidiaries, assets, or activities will be divested, 
conformed, or discontinued as soon as prudent judgment dictates. The 
OCC is not persuaded that a responsibly managed service corporation 
investment in real estate is materially different from real estate held 
by a national bank, a Federal savings association, or an operating 
subsidiary, such that more than 10 years would be required to fully 
divest. Commenters did not clarify what standard the OCC should use to 
determine when a service corporation investment in real estate would 
need to be divested. Furthermore, for the reasons explained earlier in 
this preamble, the final rule requires that covered savings 
associations either divest their service corporations or conform their 
service corporations by redesignating them as operating subsidiaries. 
Any real estate activities in the operating subsidiaries would need to 
be activities permissible for a covered savings association operating 
subsidiary. Without additional detail about the specific types of 
situations in which additional time might be needed, the OCC declines 
to extend the 10-year limitation in the final rule.
    The OCC does not agree that section 5A of HOLA creates a 
presumption that nonconforming subsidiaries, assets, and activities are 
permissible. On the contrary, the statute requires covered savings 
associations to bring nonconforming assets and subsidiaries into 
conformance with the requirements for national banks and provides only 
a mechanism for covered savings associations to apply to the OCC to 
hold nonconforming assets or subsidiaries after an election. The 
statute does not require the OCC to grant permission to hold or 
continue nonconforming assets or subsidiaries indefinitely. 
Consequently, the final rule permits covered savings associations to 
request permission to hold or continue nonconforming subsidiaries, 
assets, and activities for additional two-year periods, up to a total 
of 8 years, if they are unable to divest, conform, or discontinue 
within two years as otherwise required.
    The timeframes in the rule should, in most cases, provide a covered 
savings association with sufficient lead-time to minimize potential 
undue financial harm from divesting, conforming, or discontinuing 
nonconforming subsidiaries, assets, and activities. This period also is 
short enough to ensure that covered savings associations are not 
allowed to gain an advantage by holding or operating assets or 
subsidiaries or conducting activities that would not be permissible for 
a national bank. Additionally, the timeframe is generally consistent 
with the timeframe that the OCC provides for Federal savings 
associations to divest nonconforming subsidiaries and assets and 
discontinue nonconforming activities when they convert to national 
banks.
    Proposed Sec.  101.5(c) provided that Federal savings association 
law would continue to apply to nonconforming subsidiaries, assets, and 
activities during the period before the covered savings association 
divests, conforms, or discontinues the subsidiary, asset, or activity. 
The OCC did not receive any comments on this provision and adopts it 
with one clarifying change. The final rule specifies that the 
provisions of Federal savings association law that continue to apply 
before divesting, conforming, or discontinuing a subsidiary, asset, or 
activity include any amendments to those provisions of law. This change 
is intended to ensure that covered savings associations are not subject 
to outdated Federal savings association requirements if Federal savings 
association laws change between the time the covered savings 
association makes an election and the time it divests, conforms, or 
discontinues a nonconforming subsidiary, asset, or activity.
    101.6 Termination. This section of the proposed rule would have 
established standards and procedures to allow a covered savings 
association to terminate an election after an appropriate period. The 
OCC would generally view an appropriate period to be relatively soon 
after an election takes effect (for example, 60 or 90 days). However, 
the OCC might determine that a longer period is appropriate where there 
is evidence that a covered savings association is attempting to use a 
termination to evade the requirements or purposes of section 5A of 
HOLA, such as the requirement to divest, conform, or discontinue 
nonconforming subsidiaries, assets, and activities.
    The OCC did not receive any comments on this section and is 
adopting Sec.  101.6 of the proposed rule with one technical change to 
ensure that the final rule refers consistently to ``the OCC'' rather 
than to ``the appropriate OCC supervisory office.''
    101.7 Reelection. This section of the proposed rule would have 
allowed a covered savings association to make a subsequent election 
after terminating an election. Under the proposed rule, a Federal 
savings association that wishes to make a subsequent election after 
terminating a previous election would have been subject to the same 
requirements as a Federal savings association making an election for 
the first time. However, a Federal savings association that previously 
made and terminated an election to operate as a covered savings 
association would have been required to wait five years after the 
termination before making a subsequent election.

[[Page 24004]]

    The OCC did not receive any comments on this section and is 
adopting Sec.  101.7 of the proposed rule without change.
    101.8 Evasion. This section of the proposed rule would have 
provided that the OCC may disapprove a notice of election, termination, 
or reelection if the OCC has reasonable cause to believe the notice is 
made for the purpose of evading Sec.  101.5 of the proposed rule, 
including as that section applies to a termination. For example, the 
OCC might disapprove a covered savings association's notice of 
termination if it determined the covered savings association was 
attempting to terminate to take unfair advantage of an overlap between 
the period to divest, conform, or discontinue nonconforming 
subsidiaries, assets, and activities provided for an election and the 
period to divest, conform, or discontinue nonconforming subsidiaries, 
assets, and activities provided for a termination.
    The final rule provides that the OCC may disapprove a notice of 
election, termination, or reelection if the OCC determines that notice 
is made for the purpose of evading Sec.  101.5. This change clarifies 
that the OCC's determination that a notice is made for purposes of 
evasion is subject to review under the standards set out in 5 U.S.C. 
706(2).

IV. Regulatory Analysis

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a final rule, to prepare a Final 
Regulatory Flexibility Analysis describing the impact of the rule on 
small entities (defined by the Small Business Administration (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 rule would not have a significant economic impact on a 
substantial number of small entities. The OCC supervises approximately 
886 small entities, of which 258 are Federal savings associations.\30\ 
Because the rule does not contain any new recordkeeping, reporting, or 
compliance requirements, we anticipate that it will not impose costs on 
OCC-supervised institutions unless they elect to operate as a covered 
savings association.\31\ Therefore, the OCC certifies that the final 
rule would not have a significant economic impact on a substantial 
number of OCC-supervised small entities.
---------------------------------------------------------------------------

    \30\ We base our estimate of the number of small entities on the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $550 million and $38.5 million, 
respectively. Consistent with the General Principles of Affiliation 
13 CFR 121.103(a), we count the assets of affiliated financial 
institutions when determining if we should classify an OCC-
supervised institution a small entity. We use December 31, 2017, to 
determine size because a ``financial institution's assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See footnote 8 of the 
U.S. Small Business Administration's Table of Size Standards.
    \31\ We believe that costs associated with electing to be 
treated as a covered savings association will be minimal and that 
Federal savings associations will only choose to be treated as a 
covered savings associations if the benefits outweigh the costs.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act of 1995

    The OCC has analyzed the final rule under the factors set forth in 
the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532. Under this 
analysis, the OCC considers whether the Federal mandates imposed by the 
rule may result in an expenditure of $100 million or more by state, 
local, and tribal governments, or by the private sector, in any one 
year (adjusted annually for inflation). The rule does not impose new 
mandates. Therefore, the OCC concludes that the rule will not result in 
an expenditure of $100 million or more annually by state, local, and 
tribal governments, or by the private sector. Accordingly, the OCC has 
not prepared a written statement to accompany this rule.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., 
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 final rule to OMB 
for review, as requested by OMB in its notice of action regarding the 
OCC's submission at the proposed rule stage. The OCC received two 
comments regarding the information collection.
    Two commenters stated that submitting information relating to 
existing branches and agencies is unduly burdensome. One commenter 
argued that the rule could be interpreted to require Federal savings 
associations to submit information on a significant number of branches 
and agencies, not just newly established ones. The commenter noted that 
many branch applications or notices were submitted prior to the 
integration of 12 CFR part 5. The commenter also stated that 
applications or notices are generally not required for a Federal 
savings association to establish an agency. The commenter believes the 
requirement would be unnecessary, would require time and cost that do 
not serve a compelling supervisory or regulatory purpose, and would 
require a covered savings association to disclose more information than 
a Federal savings association or national bank would be required to 
provide. The commenter recommended that this requirement be eliminated 
or that its scope be clarified. The second commenter stated that the 
requirement to provide information on existing branches and agencies is 
unnecessary and burdensome, noting that it may be difficult to provide 
information on branches that have been operational for a number of 
years. The commenter suggested that all branches that are open or 
operational or that have received regulatory approval or non-objection 
should be presumed to be compliant and documentation should not be 
required. Neither commenter believes that the OCC has clearly indicated 
why it needs this information. As noted earlier in this preamble, the 
final rule does not require Federal savings associations to identify 
branches or agencies in a notice of an election. The OCC believes that 
it can obtain sufficient information about the branches and agencies of 
a prospective covered savings association by reviewing information the 
association submits on its nonconforming subsidiaries, assets, or 
activities. This information will allow the OCC to monitor covered 
savings associations for compliance with the final rule without 
imposing any additional burden that could be associated with submitting 
information identifying branches and agencies. The OCC has changed the 
information collection so that it no longer includes a requirement to 
submit information identifying branches and agencies.
    Under the information collection, a Federal savings association 
seeking to operate as a covered savings association would be required 
under Sec.  101.3(a) to submit a notice making an election to the OCC 
that: (1) Is signed by a duly authorized officer of the Federal savings 
association; and (2) identifies and describes any nonconforming 
subsidiaries, assets, or activities that the Federal savings 
association operates, holds, or conducts at the time its submits its 
notice.
    Under Sec.  101.5(a), the OCC may require a covered savings 
association to submit a plan to divest, conform, or discontinue a 
nonconforming subsidiary, asset, or activity.
    A covered savings association may submit a notice to terminate its 
election

[[Page 24005]]

to operate as a covered savings association under Sec.  101.6 using 
similar procedures to those for an election. In addition, after a 
period of five years, a Federal savings association that has terminated 
its election to operate as a covered savings association may submit a 
notice under Sec.  101.7 to reelect using the same procedures used for 
its original election.
    Title: Covered Savings Association Notice.
    OMB Control No.: 1557-0341.
    Frequency of Response: On occasion.
    Affected Public: Businesses or other for-profit organizations.
    Election, Termination, Reelection:

Estimated Number of Respondents: 295
Estimated Burden per Respondent: 1 hour
Estimated Total Annual Burden: 295 hours

    Plan to Divest:

Estimated Number of Respondents: 25
Estimated Burden per Respondent: 2 hours
Estimated Total Annual Burden: 50 hours.

    Total Annual Burden: 345 hours

    In addition, the OCC will file a nonmaterial change to amend its 
Licensing Manual Collection (OMB Control No. 1557-0014) to increase the 
respondent count to reflect additional filings from Federal savings 
associations.
    Comments continue to be 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.

Riegle Community Development and Regulatory Improvement Act of 1994

    Section 302(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994, 12 U.S.C. 4802(a), (RCDRIA) requires that the 
OCC, in determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, section 302(b) of RCDRIA, 12 
U.S.C. 4802(b), requires new regulations and amendments to regulations 
that impose additional reporting, disclosure, or other new requirements 
on insured depository institutions generally to take effect on the 
first day of a calendar quarter that begins on or after the date on 
which the regulations are published in final form. The OCC has 
considered the administrative burdens and benefits of the rule in 
determining the effective date and administrative compliance 
requirements for this rule. The final rule will be effective no earlier 
than the first day of the calendar quarter following 30 days from the 
date on which the final rule is published in the Federal Register.

Congressional Review Act

    Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the 
Office of Information and Regulatory Affairs designated this rule as 
not a ``major rule,'' as defined by 5 U.S.C. 804(2).

List of Subjects in 12 CFR Part 101

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

0
For the reasons set forth in the preamble, and under the authority of 
12 U.S.C. 93a and 5412(b)(2)(B), chapter I of title 12 of the Code of 
Federal Regulations is amended by adding part 101 to read as follows:

PART 101--COVERED SAVINGS ASSOCIATIONS

Secs.
101.1 Authority and purposes.
101.2 Definitions and computation of time.
101.3 Procedures.
101.4 Treatment of covered savings associations.
101.5 Nonconforming subsidiaries, assets, and activities.
101.6 Termination.
101.7 Reelection.
101.8 Evasion.

    Authority:  12 U.S.C. 93a, 1462a, 1463, 1464, 1464a, and 
5412(b)(2)(B).


Sec.  101.1   Authority and purposes.

    (a) Authority. This part is issued pursuant to sections 3, 4, 5, 
and 5A of the Home Owners' Loan Act (HOLA) (12 U.S.C. 1462a, 1463, 
1464, and 1464a), section 5239A of the Revised Statutes (12 U.S.C. 
93a), and section 312(b)(2)(B) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (12 U.S.C. 5412(b)(2)(B)).
    (b) Purposes. This part establishes standards and procedures for a 
Federal savings association to elect to operate as a covered savings 
association pursuant to section 5A of the HOLA and clarifies the 
requirements for the treatment of covered savings associations. It also 
establishes standards and procedures to terminate an election and to 
reelect to operate as a covered savings association.


Sec.  101.2  Definitions and computation of time.

    (a) Definitions. As used in this part:
    (1) Covered savings association means a Federal savings association 
that has made an election that is in effect in accordance with Sec.  
101.3(b).
    (2) Effective date of the election means, with respect to a Federal 
savings association, the date on which the Federal savings 
association's election to operate as a covered savings association 
takes effect pursuant to Sec.  101.3(b).
    (3) Nonconforming subsidiary, asset, or activity. (i) With respect 
to a covered savings association:
    (A) Means any subsidiary, asset, or activity that is not 
permissible for a covered savings association or, if permissible, is 
being operated, held, or conducted in a manner that exceeds the limit 
applicable to a covered savings association; and
    (B) Includes an investment in a subsidiary or other entity that is 
not permissible for a covered savings association; and
    (ii) With respect to a Federal savings association that has 
terminated an election to operate as a covered savings association:
    (A) Means any subsidiary, asset, or activity that is not 
permissible for a Federal savings association or, if permissible, is 
being operated, held, or conducted in a manner that exceeds the limit 
applicable to a Federal savings association; and
    (B) Includes an investment in a subsidiary or other entity that is 
not permissible for a Federal savings association.
    (4) Similarly located national bank means, with respect to a 
covered savings association, a national bank that has its main office 
situated in the same location as the home office of the covered savings 
association.
    (b) Computation of time. The OCC will compute a period of days for 
purposes of this part in accordance with 12 CFR 5.12.

[[Page 24006]]

Sec.  101.3   Procedures.

    (a) Notice--(1) Submission. A Federal savings association that had 
total consolidated assets of $20 billion or less as of December 31, 
2017, as reported on the Federal savings association's Consolidated 
Reports of Condition and Income for December 31, 2017, may make an 
election to operate as a covered savings association by submitting a 
notice to the OCC.
    (2) Contents. The notice shall:
    (i) Be signed by a duly authorized officer of the Federal savings 
association; and
    (ii) Identify and describe each nonconforming subsidiary, asset, or 
activity that the Federal savings association operates, holds, or 
conducts at the time it submits the notice, each of which must be 
divested, conformed, or discontinued pursuant to Sec.  101.5.
    (b) Effective date of the election--(1) In general. An election to 
operate as a covered savings association shall take effect on the date 
that is 60 days after the date on which the OCC receives the notice 
submitted under paragraph (a) of this section.
    (2) Earlier notice. Notwithstanding paragraph (b)(1) of this 
section, the OCC may notify a Federal savings association in writing 
prior to the expiration of 60 days that it is eligible to make an 
election, and the election shall take effect on the date the OCC so 
notifies the Federal savings association.


Sec.  101.4   Treatment of covered savings associations.

    (a) In general--(1) National bank activities. Except as provided in 
this section, a covered savings association may engage in any activity 
that is permissible for a similarly located national bank to engage in 
as part of, or incidental to, the business of banking, or explicitly 
authorized by statute for a national bank, subject to the same 
authorization, terms, and conditions that would apply to a similarly 
located national bank, as determined by the OCC for purposes of this 
part.
    (2) Treatment as a Federal savings association. A covered savings 
association shall continue to comply with the provisions of law that 
apply to Federal savings associations for purposes of:
    (i) Governance (including incorporation, bylaws, boards of 
directors, shareholders, members, and distribution of dividends);
    (ii) Consolidation, merger, dissolution, conversion (including 
conversion to a stock bank or to another charter), conservatorship, and 
receivership;
    (iii) Provisions of law applicable only to Federal mutual savings 
associations;
    (iv) Offers and sales of securities at an office of a Federal 
savings association;
    (v) Savings bank activities authorized by section 5(i)(4) of HOLA;
    (vi) Issuance of subordinated debt securities and mandatorily 
redeemable preferred stock;
    (vii) Increases in permanent capital of a Federal stock savings 
association;
    (viii) Rules of practice and procedure in adjudicatory proceedings;
    (ix) Rules for investigative proceedings and formal examination 
proceedings;
    (x) Removals, suspensions, and prohibitions where a crime is 
charged or proven;
    (xi) Security procedures;
    (xii) Maintenance of records and recordkeeping and confirmation 
requirements for securities transactions;
    (xiii) Accounting and disclosure standards;
    (xiv) Nondiscrimination; and
    (xv) Advertising.
    (b) Existing branches. A covered savings association may continue 
to operate any branch or agency that the covered savings association 
operated on the effective date of the election.
    (c) Assets greater than $20 billion. A covered savings association 
may continue to operate as a covered savings association if, after the 
effective date of the election, it has total consolidated assets 
greater than $20 billion.


Sec.  101.5   Nonconforming subsidiaries, assets, and activities.

    (a) Divestiture, conformance, or discontinuation. A covered savings 
association shall divest, conform, or discontinue a nonconforming 
subsidiary, asset, or activity at the earliest time that prudent 
judgment dictates but not later than two years after the effective date 
of the election. The OCC may require a covered savings association to 
submit a plan to divest, conform, or discontinue a nonconforming 
subsidiary, asset, or activity.
    (b) Extension. The OCC may grant a covered savings association 
extensions of not more than two years each up to a maximum of eight 
years if the OCC determines that:
    (1) The covered savings association has made a good faith effort to 
divest, conform, or discontinue the nonconforming subsidiary, asset, or 
activity;
    (2) Divestiture, conformance, or discontinuation would have a 
material adverse financial effect on the covered savings association; 
and
    (3) Retention or continuation of the nonconforming subsidiary, 
asset, or activity is consistent with the safe and sound operation of 
the covered savings association.
    (c) Applicable law. Until a covered savings association divests, 
conforms, or discontinues a nonconforming subsidiary, asset, or 
activity, the nonconforming subsidiary, asset, or activity shall 
continue to be subject to the same provisions of law that applied to 
the nonconforming subsidiary, asset, or activity on the day before the 
effective date of the election, including any amendments to those 
provisions of law.


Sec.  101.6   Termination.

    (a) Termination. A covered savings association may terminate its 
election to operate as a covered savings association, after an 
appropriate period of time as determined by the OCC, by submitting a 
notice to the OCC.
    (b) Procedures. A covered savings association wishing to terminate 
its election shall comply with, and shall be subject to, the provisions 
of Sec. Sec.  101.2, 101.3, and 101.5, except that:
    (1) The provisions of Sec. Sec.  101.3 and 101.5 shall be applied 
by substituting ``covered savings association'' for ``Federal savings 
association'' and ``Federal savings association'' for ``covered savings 
association'' each place those terms appear in those sections;
    (2) Section 101.3(a)(1) shall not apply; and
    (3) Sections 101.3 and 101.5 shall be applied by substituting 
``effective date of the termination'' for ``effective date of the 
election.''
    (c) Applicable law. On and after the effective date of the 
termination, a Federal savings association that has terminated its 
election to operate as a covered savings association shall be subject 
to the same provisions of law as a Federal savings association that has 
not made an election under this part.


Sec.  101.7   Reelection.

    (a) Reelection. A Federal savings association that has terminated 
its election to operate as a covered savings association may submit a 
notice to reelect to operate as a covered savings association, if at 
least five years have elapsed since the effective date of the 
termination. Upon determining that good cause exists, the OCC may 
permit a Federal savings association to reelect to operate as a covered 
savings association prior to the expiration of the five-year period.
    (b) Procedures and treatment. A Federal savings association 
reelecting to operate as a covered savings association shall comply 
with, and shall be subject

[[Page 24007]]

to, the provisions of this part as if it were making an election for 
the first time.


Sec.  101.8   Evasion.

    The OCC may disapprove any notice submitted pursuant to this part 
if the OCC determines that the notice is made for the purpose of 
evading Sec.  101.5, including as that section applies to a covered 
savings association terminating an election.

    Dated: May 20, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019-10902 Filed 5-23-19; 8:45 am]
 BILLING CODE 4810-33-P