Proposed Rules Federal Register Vol

67684

Proposed Rules Federal Register Vol. 85, No. 207

Monday, October 26, 2020

This section of the FEDERAL REGISTER • Agency website: https:// improve the ease of the public’s contains notices to the public of the proposed www.fdic.gov/regulations/laws/federal/. reference to them. Thus, as further issuance of rules and regulations. The Follow instructions for submitting detailed in this section, the FDIC purpose of these notices is to give interested comments on the agency website. proposes to rescind and remove from persons an opportunity to participate in the • FDIC Email: [email protected]. the CFR part 390, subpart O.1 Pursuant rule making prior to the adoption of the final rules. Include RIN 3064–AF37 on the subject to subpart O, the FDIC may, at any time, line of the message. limit a State savings association’s • Mail: Robert E. Feldman, Executive investment in their subordinate FEDERAL DEPOSIT INSURANCE Secretary, Attention: Comments/RIN organizations, or may limit or refuse to CORPORATION 3064–AF37, Federal Deposit Insurance permit any activities of any of these Corporation, 550 17th Street NW, entities for supervisory, legal, or safety 12 CFR Parts 362 and 390 Washington, DC 20429. and soundness reasons.2 • Hand Delivery/Courier: Comments Subpart O includes definitions related RIN 3064–AF37 may be hand-delivered to the guard to State savings association station at the rear of the 550 17th Street subsidiaries,3 a requirement for the Removal of Transferred OTS NW building (located on F Street) on parent State savings association and its Regulations Regarding Certain business days between 7 a.m. and 5 p.m. subsidiaries to maintain separate • Subordinate Organizations of State Federal eRulemaking Portal: http:// corporate identities,4 a prior notice Savings Associations www.regulations.gov. Follow the requirement for a State saving instructions for submitting comments. association seeking to establish or AGENCY: Federal Deposit Insurance Public Inspection: All comments acquire a new subsidiary or engage in Corporation. received will be posted without change new activities through an existing ACTION: Notice of proposed rulemaking to https://www.fdic.gov/regulations/ subsidiary,5 requirements related to the with request for public comment. laws/federal/, including any personal issuance of securities by a subsidiary,6 information provided. Paper copies of and requirements for the exercise of SUMMARY: In order to streamline Federal public comments may be ordered from salvage power by a State savings Deposit Insurance Corporation (FDIC) the FDIC Public Information Center, association.7 regulations, the FDIC proposes to 3501 North Fairfax Drive, Room E–1002. The FDIC has determined that the rescind and remove from the Code of Please include your name, affiliation, requirements for State savings Federal Regulations (CFR) regulations address, email address, and telephone association subordinate organizations entitled Subordinate Organizations that number(s) in your comment. All set forth in subpart O are substantially were transferred to the FDIC from the statements received, including similar to requirements of section 28 Office of Thrift Supervision (OTS) on attachments and other supporting and its implementing regulations, July 21, 2011, in connection with the materials, are part of the public record subpart C and subpart D of part 362 of implementation of Title III of the Dodd- and are subject to public disclosure. the FDIC’s Rules and Regulations, and Frank Wall Street Reform and Consumer You should submit only information section 37 of the FDI Act.8 Therefore, Protection Act (Dodd-Frank Act). The that you wish to make publicly the FDIC is proposing to remove subpart proposed rule would rescind and available. O and proposes to use part 362, subpart remove the transferred regulations Please note: All comments received C and subpart D, as applicable, to because the FDIC has determined that will be posted generally without change achieve substantially similar the requirements for State savings to https://www.fdic.gov/regulations/ supervisory results for State savings association subordinate organizations laws/federal/, including any personal associations and subsidiaries as could included therein are substantially information provided. similar to the requirements for State be obtained through the application of FOR FURTHER INFORMATION CONTACT: subpart O. savings associations and their Donald Hamm, Special Advisor, (202) subsidiaries set forth by certain sections 898–3528, [email protected]; or Shelli II. Background of the Federal Deposit Insurance Act Coffey, Review Examiner, (312) 382– A. The Dodd-Frank Act (FDI Act) and its implementing 7539, [email protected], Risk regulations. Therefore, the FDIC is Management and Applications, Division The Dodd-Frank Act, signed into law proposing to remove the transferred of Risk Management Supervision; on July 21, 2010, provided for a regulations and proposes to use certain Suzanne Dawley, Counsel, sudawley@ substantial reorganization of the substantially similar FDIC regulations, fdic.gov; or Karlyn J. Hunter, Counsel, regulation of State and Federal savings as applicable, to achieve substantially [email protected], Legal Division. associations and their holding similar supervisory results for State SUPPLEMENTARY INFORMATION: savings associations and their 1 12 CFR part 390, subpart O. subsidiaries as could be obtained I. Policy Objective 2 12 CFR part 390.250. through the application of the The policy objective of the proposed 3 12 CFR 390.251. transferred regulations. 4 12 CFR 390.252. rule is to simplify the FDIC’s regulations 5 DATES: Comments must be received on 12 CFR 390.253. by removing unnecessary regulations 6 or before November 25, 2020. 12 CFR 390.254. and realigning existing regulations in 7 12 CFR 390.255. ADDRESSES: You may submit comments order to improve the public’s 8 12 U.S.C. 1831e(a); 12 CFR part 362, subparts C by any of the following methods: understanding of the rules and to and D; 12 U.S.C. 1831n(a).

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules 67685

companies.9 Beginning July 21, 2011, is authorized to issue, modify, and will be used, and incorporated the transfer date established by section rescind regulations involving such requirements providing that securities 311 of the Dodd-Frank Act,10 the associations. issued by all subsidiaries state that they powers, duties, and functions formerly As noted, on July 14, 2011, operating are not covered by federal deposit performed by the OTS were divided pursuant to this authority, the FDIC’s insurance and may not be called or among the FDIC, as to State savings Board of Directors reissued and re- accelerated in the event of the savings associations, the Office of the designated certain transferring association’s insolvency.22 Section Comptroller of the Currency (OCC), as to regulations of the former OTS. These 559.13 replaced the application Federal savings associations, and the transferred OTS regulations were procedure for salvage investments, with Board of Governors of the Federal published as new FDIC regulations in a 30-day notice requirement.23 In the Reserve System (FRB), as to savings and the Federal Register on August 5, notice, a savings association must fully loan holding companies. Section 316(b) 2011.18 When it republished the document its additional investment in a of the Dodd-Frank Act 11 provides the transferred OTS regulations as new service corporation or a lower-tier entity manner of treatment of all orders, FDIC regulations, the FDIC specifically in a manner that demonstrates how its resolutions, determinations, regulations, noted that its staff would evaluate the action is consistent with safety and and advisory materials that had been transferred OTS rules and might later soundness and document the other issued, made, prescribed, or allowed to recommend incorporating the salvage alternatives that it considered.24 become effective by the OTS. The transferred OTS regulations into other The OTS added language to emphasize section provides that if such materials FDIC rules, amending them, or that investments made using salvage were in effect on the day before the rescinding them, as appropriate.19 power authority continue to be transfer date, they continue in effect and considered investments for purposes of are enforceable by or against the B. 12 CFR Part 559 the capital regulation.25 appropriate successor agency until they In 1996, the OTS adopted part 559, C. Part 390, Subpart O are modified, terminated, set aside, or entitled Subordinate Organizations, superseded in accordance with which updated and substantially 12 CFR part 559, as discussed above, applicable law by such successor streamlined its regulations and was transferred to the FDIC with agency, by any court of competent statements of policy concerning nominal changes. It is now found in the jurisdiction, or by operation of law. subsidiaries and other subordinate FDIC’s rules at subpart O, entitled Pursuant to section 316(c) of the organizations in which savings Subordinate Organizations.26 Subpart O Dodd-Frank Act,12 on June 14, 2011, the associations have ownership interests governs a range of requirements for FDIC’s Board of Directors approved a (including operating subsidiaries and subordinate organization of State ‘‘List of OTS Regulations to be Enforced service corporations) and equity savings associations, as further by the OCC and the FDIC Pursuant to investments (including pass-through discussed below. the Dodd-Frank Wall Street Reform and investments).20 Part 559 consolidated III. The Proposal Consumer Protection Act.’’ This list was all OTS regulations affecting thrift published by the FDIC and the OCC as subsidiaries in order to make it easier Section 316(b)(3) of the Dodd-Frank a Joint Notice in the Federal Register on for savings associations to find and use Act in pertinent part, provides that the July 6, 2011.13 these regulations. regulations of the former OTS, as they Although section 312(b)(2)(B)(i)(II) of The definitions in part 559 were apply to State savings associations, will the Dodd-Frank Act 14 granted the OCC derived in large part from existing OTS be enforceable by the FDIC until they rulemaking authority relating to both regulatory or statutory definitions.21 are modified, terminated, set aside, or State and Federal savings associations, Subpart B of part 559 was applicable to superseded in accordance with 27 nothing in the Dodd-Frank Act affected all savings associations. Section 559.10 applicable law. Consistent with the the FDIC’s existing authority to issue prescribed requirements for a savings FDIC’s stated intention to evaluate regulations under the Federal Deposit association and its subordinate transferred OTS regulations before Insurance Act (FDI Act) 15 and other organizations to establish and maintain taking action on them, the FDIC laws as the ‘‘appropriate Federal separate identities in order to reduce the conducted a careful review of subpart O banking agency’’ or under similar potential for customer confusion and to and related Federal statutes, regulation, statutory terminology. Section 312(c) of allow a court to hold the parent savings and statements of policy relevant to the Dodd-Frank Act 16 revised the association liable for the subordinate subordinate organizations of State definition of ‘‘appropriate Federal organization’s conduct or obligations. In savings associations. As discussed in banking agency’’ contained in section order to establish or acquire a new Part III of this Supplementary 3(q) of the FDI Act 17 to add State subsidiary or engage in new activities, Information section, the FDIC proposes savings associations to the list of entities savings associations were required to to rescind and remove subpart O in its for which the FDIC is designated as the follow the notice procedures set forth in entirety, because the provisions ‘‘appropriate Federal banking agency.’’ § 559.11. contained there are duplicative of As a result, when the FDIC is designated Part 559 addressed securities and substantially similar FDIC statutory or as the ‘‘appropriate Federal banking investments issues related to savings regulatory provisions, or guidance that agency’’ (or under similar terminology) associations as well. Section 559.12 produce the same supervisory result. for State savings associations, the FDIC included a replacement for an existing Section 28 of the FDI Act prohibits a OTS regulation that required a savings State savings association from engaging 9 Public Law 111–203, 124 Stat. 1376 (2010). association to notify the OTS before a 10 12 U.S.C. 5411. 22 subsidiary issues securities, regardless Id. at 66567. 11 12 U.S.C. 5414(b). 23 Id. 12 12 U.S.C. 5414(c). of the purpose for which the proceeds 24 Id. 13 76 FR 39246 (July 6, 2011). 25 Id. For example, a salvage investment in a 14 12 U.S.C. 5412(b)(2)(B)(i)(II). 18 76 FR 47652 (Aug. 5, 2011). nonincludable subsidiary would be deducted in 15 12 U.S.C. 1811 et seq. 19 Id. calculating the State savings association’s capital. 16 12 U.S.C. 5412(c)(1). 20 61 FR 66561, 66562 (Dec. 18, 1996). 26 12 CFR part 390, subpart O. 17 12 U.S.C. 1813(q). 21 Id at 66563. 27 12 U.S.C. 5414(b)(3).

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 67686 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules

as principal in any type of activity, or IV. Section-by-Section Analysis concert with one or more persons or companies, or together with members of in any activity in an amount, that is not A. Section 390.250—What does this his or her immediate family, owns, permissible for a Federal savings subpart cover? association unless the FDIC has controls, or holds with power to vote 10 determined the activity would pose no Section 390.250 sets forth the FDIC’s percent or more of the voting stock of significant risk to the Deposit Insurance general rulemaking and supervisory a company, or controls in any manner Fund (DIF); and the savings association authority under the FDI Act, its specific the election or appointment of a authority under section 18(m) of the is and continues to be in compliance majority of the company’s board of Federal Deposit Insurance Act 31 and 34 with the capital standards set forth in directors. For the purposes of State subpart O’s application to subordinate savings associations and their services section 5(t) of HOLA.28 The FDIC organizations of State savings companies, the FDIC proposes to apply proposes to use 12 CFR part 362, associations. Pursuant to this section, the § 362.2(e) control definition. Activities of Insured State Banks and the FDIC may, at any time, limit a State Pursuant to § 362.2(e), control means Insured Savings Associations, as savings association’s investment in any ‘‘the power to vote, directly or applicable, which provides a of its subordinate organizations, or may indirectly, 25 percent or more of any substantially similar process for an limit or refuse to permit any activities class of the voting securities of a insured State savings association, or its of any of these entities for supervisory, company, the ability to control in any subsidiary, to apply for prior consent legal, or safety and soundness reasons. manner the election of a majority of a from the FDIC to engage in certain For the purposes of subpart O, notices company’s directors or trustees, or the activities, that are not otherwise are applications for purposes of ability to exercise a controlling prohibited by federal or state law, while statutory and regulatory references to influence over the management and reaching substantially the same result as the term ‘‘applications.’’ Further, any policies of a company.’’ 35 This provided in subpart O without the conditions that the FDIC imposes in definition is consistent with the control burden of referring to a duplicative set approving any application are definition applicable to service of regulations. enforceable as a condition imposed in companies of Federal savings Subpart C of part 362 governs the writing by the FDIC in connection with associations which references the FRB’s the granting of a request by a State part 225, Regulation Y.36 activities of insured State savings savings association within the meaning The definition of equity investment in associations and implements section of section 8(b) or 8(i) of the FDI Act.32 § 362.2(g) is broader than the definition 28(a) of the FDI Act, which restricts and Part 362, which includes subparts C of ownership interest in 390.251, which prohibits insured state savings and D, is issued pursuant to several ‘‘means any equity interest in a business associations and their service FDIC authorities, including the FDIC’s organization, including stock, limited or corporations from engaging in activities general rulemaking authority pursuant general partnership interests, or shares and investments of a type that are not to section 9(a)(Tenth) and section 28 of in a limited liability company.’’ Equity permissible for a Federal savings the FDI Act, the FDIC’s statutory investment ‘‘means an ownership association and their service authority over the activities of State interest in any company; any corporations. savings associations and subsidiaries, membership interest that includes a Subpart D of part 362 governs that are substantially similar to the voting right in any company; any acquiring, establishing, or conducting authorizing statutes pursuant to which interest in real estate; any transaction new activities through a subsidiary by subpart O and § 390.250 were issued. which in substance falls into any of an insured State savings association, Therefore, the FDIC is proposing to these categories even though it may be and implements section 18(m) of the remove subpart O and proposes to use structured as some other form of part 362, subparts C and D, as FDI Act, which requires that prior business transaction; and includes an applicable, to achieve substantially equity security.’’ 37 Similarly, the notice be given to the FDIC when an similar supervisory results for State definition of subsidiary pursuant to insured savings association establishes savings associations and subsidiaries as § 362.2(r) is substantially similar to the or acquires a subsidiary or engages in could be obtained through subpart O. subsidiary definition in § 390.251. The any new activity in a subsidiary. In distinction is that § 362.2(r) defines a B. Section 390.251—Definitions doing so it applies the definitions of subsidiary as ‘‘any company that is § 362.2 unless otherwise indicated. The Section 390.251 is a definition section owned or controlled directly or phrase ‘‘activity permissible for a related to subordinate organizations. indirectly by one or more insured Federal savings association’’ means any Included in the definitions section are: depository institutions, rather than only activity authorized for a Federal savings Control, GAAP-consolidated subsidiary, by a State savings association.’’ association under any statute including lower-tier entity, ownership interest, In the 1996 preamble to part 559, the the Home Owners’ Loan Act (HOLA),29 subordinate organization, and, OTS stated that the subordinate as well as activities recognized as subsidiary. organization definition encompassed all permissible for a Federal savings The control definition is a cross- business organizations in which a association in regulations issued by the reference to the former OTS § 391.41 savings association has a direct or 33 OCC or in bulletins, orders or written definition, which provided that a indirect ownership interest except interpretations issued by the OCC, or by controlling shareholder is any person where that ownership interest has been the former OTS until modified, who, directly or indirectly, or acting in acquired through the use of the savings association’s pass-through investment terminated, set aside, or superseded by 31 30 12 U.S.C. 1828(m). authority.38 The OTS further explained the OCC. 32 12 U.S.C. 1818(b); 1818(i). 33 The FDIC rescinded control definition at 34 12 CFR 391.41 (2015). § 391.41 as part of its 2015 Filing Requirements and 35 Processing Procedures for Changes in Control with 12 CFR 362.2(e). 28 12 U.S.C. 1831e(a). 36 respect to State Nonmember Banks and State 12 CFR 5.59(d); 12 CFR part 225. 29 12 U.S.C. 1464 et seq. Savings Associations rulemaking. 80 FR 65889 (Oct. 37 12 CFR 362.2(g). 30 12 CFR 362.9(a). 28, 2015). 38 61 FR at 66563.

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules 67687

the term was adopted primarily in order C. Section 390.252—How must separate principal in an activity, to continue the to avoid potential confusion arising corporate entities be maintained? activity or retain the investment without from the use of the term subsidiary both Section 390.252 requires State savings seeking the FDIC’s consent, provided as a generic term for a business associations and their subordinate the State savings association and the organization in which a savings organizations to operate in a manner service corporation, if applicable, association has an ownership interest that demonstrates to the public that they continue to meet the conditions and and as a more specific term used to are separate corporate entities because restrictions of approval if the insured describe a narrower category of of concerns that a failure to maintain state savings association and any companies in which the savings separate corporate existences could applicable service corporation meet the 46 association’s ownership interest is potentially result in a court, for requirements of § 362.4(c)(2). significant enough to give it direct or equitable reasons, holding the savings The provisions of § 362.4(c)(2) that are 39 indirect control. The OTS also added association liable for the obligations of duplicative of § 390.251 require that an to part 559 lower-tier entity, which the subordinate organization.43 This eligible subsidiary: (1) Meet applicable includes all business organizations in requires that State savings associations statutory or regulatory capital which an operating subsidiary, service and their subordinate organizations requirements and have sufficient corporation, or other subordinate must independently meet in order to operating capital for normal obligations organization has an ownership interest, meet this requirement. The that are reasonably foreseeable for a such as second-tier service corporations requirements provide that each State business of its size and character; (2) be or service corporation subsidiaries. The savings association and subordinate physically separate and distinct in its distinctions in these two definitions do organization: (1) Avoid intermingling operations from the operations of the not appear to enhance the quality of their business transactions, accounts state-chartered depository institution; State savings association supervision and records; (2) observe separate (3) maintain separate accounting and from the perspective of the State savings corporate procedures; (3) be adequately other business records; (4) observe association or the FDIC, as supervisor; financed as separate entities based on separate business entity formalities; (5) therefore, the FDIC proposes to rescind the character and size of their respective conduct business pursuant to and remove these definitions. Likewise, businesses; (4) each independently hold independent policies and procedures the OCC rescinded and removed these out itself to the public as separate designed to inform customers and definitions in the 2015 rule integrating enterprise; and that (5) indicate that the prospective customers of the subsidiary licensing rules of national banks and State savings association is not liable for that the subsidiary is a separate Federal savings associations.40 any borrowings by the subordinate organization from the state-chartered Lastly, the FDIC believes that a organization, unless the parent State depository institution; and (6) that the separate definition for GAAP- savings association has guaranteed a state-chartered depository institution is consolidated subsidiary is unnecessary loan to the subordinate organization.44 not responsible for, and does not as State savings association reports and The core eligibility requirements in guarantee, the obligations of the financial statements are required to be § 362.4(c) describe corporate subsidiary.47 uniform and consistent with U.S. separateness in the context of the state- State savings associations and service generally accepted accounting chartered depository institution- corporations that qualify as eligible principles (GAAP) pursuant to section subsidiary. The eligible subsidiary depository institutions and eligible 37 of the FDI Act and section 4(b) of the requirements in 362.4(c)(2)—which are subsidiaries pursuant to § 362.4(c) Homeowners Owners Loan Act more detailed than eligible subsidiary maintain separate corporate identities, (HOLA).41 Further, the instructions to requirements of 390.252—are designed which should sufficiently insulate State the Consolidated Reports of Condition specifically for the bank/subsidiary savings associations from the liabilities and Income (Call Report) state that the relationship, and provide for separation of subsidiaries. For this reason, the FDIC regulatory reporting requirements between the state-chartered depository proposes to remove and rescind applicable to the Call Report shall institution and its subsidiary to lessen § 390.252 as duplicative.48 conform to GAAP as set forth in the the possibility of piercing the corporate D. Section 390.253—What notices are Financial Accounting Standards Board’s veil; deduction of the state-chartered 42 required to establish or acquire a new Accounting Standards Codification. depository institution investment in the subsidiary or engage in new activities Because State savings associations have subsidiary to segregate the capital through a subsidiary? existing statutory directives to use supporting the state-chartered GAAP in reporting and financial depository institution from the capital Pursuant to § 390.253, a State savings statements, eliminating a substantially supporting the subsidiary; and association must file a notice with the similar regulation regarding GAAP- limitations on the state-chartered FDIC prior to establishing, acquiring or consolidated subsidiaries likely would depository institution’s investment in engaging in new activities of a not affect the quality of State savings the subsidiary and on transactions with subsidiary as required under section association reporting and financial the subsidiary to ensure transactions are 18(m) of the FDI Act.49 This section statements. arms-length.45 The eligible subsidiary provides that such a notice must contain For these reasons, the FDIC proposes requirements are also incorporated into all of the information required under to rescind § 390.251 in its entirety. § 362.13. Section 362.13 permits a State § 362.15, is subject to FDIC objection, savings association that previously filed and must be filed at least 30 days prior 39 Id. an application, and obtained the FDIC’s 40 80 FR 28414, May 18, 2015. Regulations consent to engage in an activity or to 46 12 CFR 362.13. pertaining to operating subsidiaries of Federal acquire or retain an investment in a 47 Section 362.4(c)(2)(vii) corresponds to savings associations and service corporations are service corporation engaging as §§ 390.252(a)(4) and (5). found at 12 CFR 5.38 and 5.59, respectively. 48 The OCC retained separate corporate identity 41 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2). provisions for service corporation in its 2015 final 42 Instructions for Preparation of Consolidated 43 61 FR at 66567. rule integrating licensing rules of national banks Reports of Condition and Income, Form FFIEC 031 44 12 CFR 390.252(a). and Federal savings associations. 80 FR 28467, May and 041 https://www.ffiec.gov/pdf/FFIEC_forms/ 45 12 CFR 362.4(c). See FIL–97–97. September 23, 18, 2015. 12 CFR 5.59(e)(8). FFIEC031_FFIEC041_201906_i.pdf. 1997. 49 12 CFR 390.253. See 12 U.S.C 1828(m)(1).

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 67688 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules

to the establishment or acquisition of a records generated through each or similar document concerning such subsidiary or commencement of a new securities issuance in the ordinary issuance, and make such records activity through a subsidiary. The notice course of business, including a copy of available for examination by the requirements of § 362.15 are any prospectus, offering circular, or OCC.’’ 58 substantially similar to the transferred similar document concerning such State savings association subsidiaries OTS notice requirement in § 390.253. issuance, and make such records are permitted to issue securities For this reason, the FDIC proposes to available for examination by the FDIC.55 pursuant to section 28 of the FDI Act rescind and remove § 390.253 because it Such records must include, but are not because the operating subsidiaries and is duplicative. limited to: (1) The amount of assets or service corporations of Federal savings liabilities (including any guarantees associations are permitted to issue Federal Savings Association Notice made with respect to the securities securities, subject to regulatory Requirement in § 362.15 issuance) that have been transferred or limitations. State savings associations Section 363(7) of the Dodd-Frank Act made available to the subsidiary; the and subsidiaries are reminded that amended section 18(m) of the FDI Act percentage that such amount represents subsidiary issuances, like other to change notification requirements for of the current book value of assets on an permissible activities, are subject to the insured savings associations as a result unconsolidated basis; and the current same restrictions or conditions imposed of the transfer of the powers, duties, and book value of all such assets of the on the Federal savings association and functions formerly performed by the subsidiary; (2) the terms of any must be conducted in the same manner OTS that were divided among the FDIC, guarantee(s) issued by the State savings in which an operating subsidiary or as to State savings associations, and the association or any third party; (3) a service corporation is authorized to Office of the Comptroller of the description of the securities the issue such securities. Currency (OCC), as to Federal savings subsidiary issued; (4) the net proceeds Accordingly, a State savings associations.50 After the Dodd-Frank from the issuance of securities (or the association subsidiary should not state Act amendment of section 18(m) of the pro rata portion of the net proceeds from or imply that the securities it issues are FDI Act, Federal savings associations securities issued through a jointly covered by Federal deposit insurance, or are no longer required to provide notice owned subsidiary); the gross proceeds of issue any security the payment, to the FDIC prior to the establishment, the securities issuance; and the market maturity, or redemption of which may or acquisition, of a subsidiary, or prior value of assets collateralizing the be accelerated upon the condition that to commencement of a new activity in securities issuance (any assets of the the controlling State savings association a subsidiary controlled by a federal subsidiary, including any guarantees of is insolvent or has been placed into savings association.51 State savings its securities issuance made); (5) the receivership, and for as long as any banks must continue to notify the FDIC interest or dividend rates and yields, or securities are outstanding, the at least 30 days prior to establishing or the range thereof, and the frequency of controlling State savings association acquiring a subsidiary or prior to payments on the subsidiary’s securities; must maintain all records generated commencement of a new activity (6) the minimum denomination of the through each securities issuance in the through a State savings association- subsidiary’s securities; and (7) where ordinary course of business, including controlled subsidiary pursuant to the subsidiary marketed or intends to but not limited to a copy of the section 18(m).52 To reflect the market the securities.56 prospectus, offering circular, or similar amendment, the FDIC proposes to The OCC retained certain of these document concerning such issuance, remove the references to Federal savings requirements for operating subsidiaries and make such records available for association notice requirements and service corporations of Federal examination by the FDIC. For these remaining in § 362.15 as part of the savings associations in the 2015 final reasons, the FDIC proposes to remove proposal.53 rule integrating licensing rules of and rescind § 390.254. national banks and Federal savings F. Section 390.255—How may a State E. Section 390.254—How may a associations.57 Pursuant to OCC savings association exercise its salvage subsidiary of a State savings association regulations, neither an operating power in connection with a service issue securities? subsidiary nor a service corporation corporation or lower-tier entities? Section 390.254 permits a State ‘‘shall state or imply that the securities savings association subsidiary to issue, it issues are covered by Federal deposit Section 390.255 generally permits a either directly or through a third party insurance,’’ or ‘‘issue any security the State savings association to notify the intermediary, any securities that its payment, maturity, or redemption of FDIC at least 30 days before making a parent State savings association is which may be accelerated upon the contribution or a loan (including a permitted to issue. The subsidiary must condition that the controlling Federal guarantee of a loan made by any other not state or imply that the securities it savings association is insolvent or has person) to a lower-tier entity (salvage issues are covered by federal deposit been placed into receivership, and for as investment) that exceeds the maximum insurance, nor may it issue any security long as any securities are outstanding, amount otherwise permitted under law the payment, maturity, or redemption of the controlling Federal savings or regulation to exercise its power to which may be accelerated upon the association must maintain all records salvage the underlying asset (typically, condition that State savings association generated through each securities an outstanding loan). Without the is insolvent or is placed into issuance in the ordinary course of salvage power provision, the maximum receivership.54 The State savings business, including but not limited to a amount a State savings association association, for as long as any securities copy of the prospectus, offering circular, would be permitted would be related are outstanding, must maintain all the loans to one borrower limit (LTOB 55 12 CFR 390.254(c). Limit), which is equivalent to the 56 Id. 50 Public Law 111–203, 124 Stat 1376 (2010). applicable state’s legal lending limit. 57 80 FR 28414, May 18, 2015. Regulations 51 The salvage power doctrine was a 12 U.S.C. 1828(m). pertaining to issuance of securities of operating 52 Id. subsidiaries and service corporations of Federal long-held position of the OTS and its 53 12 CFR 362.15. savings associations are found at 12 CFR 5.38(e)(7) 54 12 CFR 390.254(a). and 5.59(e)(9), respectively. 58 12 CFR 5.38(e)(7); 12 CFR 5.59(e)(9).

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules 67689

predecessor, the Federal Home Loan consistent with State law. The applicant substantive effects for State savings Bank Board (FHLBB),59 that a Federal would be required to provide evidence associations or their subordinate savings association has inherent or that the State approved any exception organizations. implied authority to take whatever steps over the LTOB limit.64 Section 390.251 is a definition section may be necessary to salvage an For these reasons, the FDIC proposes related to subordinate organizations. As investment.60 When integrating the OTS to remove and rescind § 390.255. previously discussed, the FDIC believes that the definitions of subsidiary and regulations for Federal savings IV. Expected Effects associations, the OCC adopted the GAAP-consolidated subsidiary are position that a Federal savings As of June 30, 2020, the FDIC substantially similar to and redundant association has inherent or implied supervised 3,270 depository to other statutory and regulatory authority to use salvage power,61 as well institutions, of which 35 (1.1 percent) requirements to which State savings as the position that the LTOB Limit is are State savings associations.65 The associations are already subject. As not a specific legal prohibition with proposed rule primarily would affect previously discussed, State savings respect to the salvage powers doctrine.62 regulations that govern State savings associations are already subject to a Because a State savings association associations. As previously discussed, definition of control in part 362.2(e), a derives its powers, including salvage the proposed rule, if adopted, would definition that is narrower, however, power, from its respective State rescind part 390, subpart O because than the one in § 390.251. Therefore, chartering banking agency, there may be most of its elements are duplicative of, rescission of § 390.251 could benefit lack of uniformity among State LTOB or substantially similar to the State savings associations by narrowing Limits (or legal lending limit).63 For requirements of section 28 of the the scope of investments in subordinate these reasons, staff proposes that State Federal Deposit Insurance Act (FDI Act) organizations that may be subject to savings associations apply to the FDIC and its implementing regulations, limitation for supervisory, legal, or for prior approval pursuant to § 362.11 subparts C and D of part 362 of the safety and soundness reasons asserted before making a contribution or a loan FDIC’s Rules and Regulations, and by the FDIC. Rescission of the definition to a lower-tier entity (salvage section 37 of the FDI Act. of control in § 390.251 could further investment) that exceeds the maximum Additionally, the proposed rule benefit State savings associations by amount otherwise permitted under law would amend certain sections of part creating parity with the control or regulation to exercise its power to 362 to remove the references to Federal definition applicable to service salvage the underlying asset to be savings association notice requirements companies of Federal savings because Federal savings associations are associations which references the FRB’s 59 A July 1941 legal opinion provided that savings no longer required to provide notice to part 225, Regulation Y.68 As previously associations had ‘‘an inherent power and a positive the FDIC prior to the establishment, or discussed, State savings associations are duty’’ to salvage an investment to protect the FSLIC acquisition, of a subsidiary, or prior to insurance fund. FHLBB Op. G.C. B–50, Salvage already subject to a definition of equity Operations, July 1, 1941. commencement of a new activity in a investment in § 362.2(g), a definition 60 Salvage powers permit Federal savings subsidiary controlled by a Federal that is broader, however, than the one association to take whatever steps necessary to savings association.66 The FDIC does in § 390.251. Therefore, rescission of salvage an investment, provided the steps taken are not believe that the proposed rule will § 390.251 is unlikely to pose additional integral parts of a reasonable and bona fide salvage have substantive effects on State savings plan and do not contravene a specific legal costs for State savings associations prohibition. Comptrollers Handbook, Other Real associations. because they are already subject to Estate Owned, Version 1.1, August 2018 p. 18. Section 390.250 sets forth the FDIC’s regulations with a substantively similar 61 See 12 CFR 5.59(i). (Federal savings association general rulemaking and supervisory and broader defined scope of permitted to exercise its salvage powers to make a authority under the FDI Act, its specific salvage investment to a service corporation investments in subordinate authority under section 18(m) of the organizations. Finally, the proposed investment); see also, Comptroller’s Handbook, 67 Other Real Estate Owned (Federal savings Federal Deposit Insurance Act and rescission of § 390.251 would remove association’s salvage powers are derived from 12 subpart O’s application to subordinate definitions of lower-tier entity and CFR 160.30, General Lending and Investment organizations of State savings second-tier service corporations or Powers, and permit the acquisition, holding, and associations. As previously discussed, operation of OREO and the expenditure of service corporation subsidiaries for additional funds in regard to OREO), https:// State savings associations are subject to which there is no corollary in FDIC www.occ.treas.gov/publications-and-resources/ part 362, subparts C and D, which has regulations. However, as previously publications/comptrollers-handbook/files/other- the same statutory basis as § 390.350. real-estate-owned/index-other-real-estate- discussed, the FDIC does not believe owned.html, last visited 7/9/2020. Therefore, the FDIC believes that the that the existence of these defined terms 62 National banks and savings associations are practical application of part 362, enhance the quality of State savings subject to 12 CFR part 32, Lending Limits, but see subparts C and D, generally achieves the association supervision. Therefore, the also Comptroller’s Handbook OREO (‘‘(Note: The same outcomes for State savings FDIC believes that rescission of these lending limit is not considered to be a specific legal associations as does subpart O. prohibition within the meaning of the salvage definitions is unlikely to have any powers doctrine.)’’). Therefore, the FDIC believes that the substantive effects on State savings 63 See 2007 WL 7112410, OTS RB 37–21, proposed rescission of § 390.250, if associations. Examination Handbook, Asset Quality, Section 211, enacted, is unlikely to have any Section 390.252 requires State savings LOANS TO ONE BORROWER, December 13, 2007. associations and their subordinate Rescinded by OCC Bulletin 2012–19, dated June 29, 64 2012. (‘‘[s]tate-chartered savings associations have LTOB Limits are established by state law of organizations to operate in a manner similar authority under state law.’’) See also, 1975 each chartering authority, and LTOB Limits are not that demonstrates to the public that they consistent from state to state. Some states allow WL 171273, Office of Thrift Supervision, August 7, are separate corporate entities because 1975 (‘‘[i]n the case of a state-chartered institution, waivers or modifications, while others do not. Part the application must be accompanied by an opinion 362 does not authorize any insured State savings of concerns that a failure to maintain of counsel that the action proposed is within the association to make investments or conduct separate corporate existences could institution’s power.’’) and 1975 WL 171331, Office activities that are not authorized or that are potentially result in a court, for prohibited by either Federal or State law. 12 CFR of Thrift Supervision, December 19, 1975 equitable reasons, holding the savings (‘‘[w]hether a state chartered association possesses 362.9(c). similar salvage powers, [to a Federal savings 65 Call Report data, June 30, 2020. association liable for the obligations of association is] . . . governed by the laws of the 66 12 U.S.C. 1828(m). chartering jurisdiction.’’). 67 12 U.S.C. 1828(m). 68 12 CFR 5.59(d); 12 CFR part 225.

VerDate Sep<11>2014 19:43 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 67690 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules

the subordinate organization.69 As regulatory limitations. Therefore, the continue to refer to these separate sets discussed previously, FDIC-supervised FDIC believes that the proposed of regulations, and is therefore depository institutions, including State rescission of § 390.254, if adopted, is proposing to amend and rescind them. savings associations and their unlikely to have any substantive effect VI. Request for Comments subsidiaries, are covered by §§ 362.4(c) on State savings associations or their and 362.13, which are substantively subsidiaries. The FDIC invites comments on all similar to or broader than the Section 390.255 generally permits a aspects of this proposed rulemaking, obligations in § 390.252. Therefore, the State savings association to notify the and specifically requests comments on FDIC believes that the proposed FDIC at least 30 days before making a the following: rescission of § 390.252, if adopted, is contribution or a loan (including a 1. What impact, if any, do you foresee unlikely to have any substantive effect guarantee of a loan made by any other in the FDIC’s proposal to rescind on State savings associations or their person) to a lower-tier entity (salvage Subpart O? Please substantiate your subsidiaries. investment) that exceeds the maximum response. Section 390.253 establishes amount otherwise permitted under law Written comments must be received notification requirements for State or regulation to exercise its power to by the FDIC no later than November 25, savings associations prior to their salvage the underlying asset (typically, 2020. establishing, acquiring or engaging in an outstanding loan).72 As discussed VII. Regulatory Analysis and Procedure new activities of a subsidiary as previously, State savings associations required under section 18(m) of the FDI are currently subject to § 362.11 which A. The Paperwork Reduction Act Act.70 As discussed previously, State requires State savings associations to In accordance with the requirements savings associations are already subject seek prior approval from the FDIC of the Paperwork Reduction Act of 1995 to substantively similar requirements in before making a contribution or a loan (PRA), the FDIC may not conduct or § 362.15. Therefore, the FDIC believes to a lower-tier entity (salvage sponsor, and the respondent is not that the proposed rescission of investment) that exceeds the maximum required to respond to, an information § 390.253, if adopted, is unlikely to pose amount otherwise permitted under law collection unless it displays a currently any substantive effects on State savings or regulation to exercise its power to valid Office of Management and Budget associations. salvage the underlying asset to be (OMB) control number. The proposed Section 362.15 established consistent with State law. Therefore, the rule would rescind and remove from notification requirements for State and FDIC believes that the proposed FDIC regulations subpart O. The Federal savings associations prior to rescission of § 390.255, if adopted, is proposed rule will not create any new their establishing or acquiring a unlikely to substantively affect State or revise any existing collections of subsidiary, or conducting any new savings associations. information under the PRA. Therefore, activity through a subsidiary. As By removing duplicative or no information collection request will discussed previously, after the Dodd- unnecessary regulations the FDIC be submitted to the OMB for review. Frank Act amendment of section 18(m) believes that the proposed rule will of the FDI Act, Federal savings benefit State savings associations by B. The Regulatory Flexibility Act associations are no longer required to clarifying regulations and improving the The Regulatory Flexibility Act (RFA), provide notice to the FDIC prior to the ease of references. requires that, in connection with a notice of proposed rulemaking, an establishment, or acquisition, of a V. Alternatives subsidiary, or prior to the agency prepare and make available for commencement of a new activity in a The FDIC has considered alternatives public comment an initial regulatory subsidiary controlled by a federal to the rule but believes that the flexibility analysis that describes the savings association.71 Therefore, the amendments represent the most impact of the proposed rule on small FDIC believes that the proposed appropriate option for covered entities.73 However, a regulatory rescission of references to Federal institutions. As discussed previously, flexibility analysis is not required if the savings associations from § 362.15 is the Dodd-Frank Act transferred certain agency certifies that the rule will not unlikely to have any substantive effect powers, duties, and functions formerly have a significant economic impact on on insured depository institutions in performed by the OTS to the FDIC. The a substantial number of small entities, that it is simply consistent with existing FDIC’s Board reissued and redesignated and publishes its certification and a law. certain transferred regulations from the short explanatory statement in the Section 390.254 permits a State OTS, but noted that it would evaluate Federal Register together with the rule. savings association subsidiary to issue, them and might later incorporate them The Small Business Administration either directly or through a third party into other FDIC regulations, amend (SBA) has defined ‘‘small entities’’ to intermediary, any securities that its them, or rescind them, as appropriate. include banking organizations with total parent State savings association is The FDIC has evaluated the existing assets of less than or equal to $600 permitted to issue. As discussed regulations relating to certain million.74 Generally, the FDIC considers previously, although there is no subordinate organizations of State corollary regulation for FDIC-supervised savings associations. The FDIC 73 5 U.S.C. 601, et seq. considered the status quo alternative of 74 The SBA defines a small banking organization depository institutions, State savings as having $600 million or less in assets, where an association subsidiaries are permitted to retaining the current regulations, but organization’s ‘‘assets are determined by averaging issue securities pursuant to section 28 of did not choose to do so. The FDIC the assets reported on its four quarterly financial the FDI Act because the operating believes it would be unnecessary for statements for the preceding year.’’ See 13 CFR FDIC-supervised institutions to 121.201 (as amended, by 84 FR 34261, effective subsidiaries and service corporations of August 19, 2019). ‘‘SBA counts the receipts, Federal savings associations are employees, or other measure of size of the concern permitted to issue securities, subject to 72 Without the salvage power provision, the whose size is at issue and all of its domestic and maximum amount a State savings association foreign affiliates.’’ See 13 CFR 121.103. Following would be permitted would be related the loans to these regulations, the FDIC uses a covered entity’s 69 61 FR 66567. one borrower limit (LTOB Limit), which is affiliated and acquired assets, averaged over the 70 12 CFR 390.253. See 12 U.S.C 1828(m)(1). equivalent to the applicable state’s legal lending preceding four quarters, to determine whether the 71 12 U.S.C. 1828(m). limit. covered entity is ‘‘small’’ for the purposes of RFA.

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 E:\FR\FM\26OCP1.SGM 26OCP1 Federal Register / Vol. 85, No. 207 / Monday, October 26, 2020 / Proposed Rules 67691

a significant effect to be a quantified FDIC might make the proposal easier to ■ 2. Revise § 362.15 to read as follows: effect in excess of 5 percent of total understand. annual salaries and benefits per § 362.15 Acquiring or establishing a D. The Economic Growth and institution, or 2.5 percent of total non- subsidiary; conducting new activities Regulatory Paperwork Reduction Act through a subsidiary. interest expenses. The FDIC believes that effects in excess of these thresholds Under section 2222 of the Economic No State insured savings association typically represent significant effects for Growth and Regulatory Paperwork may establish or acquire a subsidiary, or FDIC-supervised institutions. For the Reduction Act of 1996 (EGRPRA), the conduct any new activity through a reasons provided below, the FDIC FDIC is required to review all of its subsidiary, unless it files a notice in certifies that the proposed rule, if regulations, at least once every 10 years, compliance with § 303.142(c) of this in order to identify any outdated or adopted in final form, would not have chapter at least 30 days prior to otherwise unnecessary regulations a significant economic impact on a establishment of the subsidiary or imposed on insured institutions.78 The substantial number of small banking commencement of the activity and the organizations. Accordingly, a regulatory FDIC, along with the other federal banking agencies, submitted a Joint FDIC does not object to the notice. This flexibility analysis is not required. requirement does not apply to any State As of June 30, 2020, the FDIC Report to Congress on March 21, 2017, savings association that acquired its supervised 3,270 insured depository (EGRPRA Report) discussing how the institutions, of which 2,548 are review was conducted, what has been principal assets from a Federal savings considered small banking organizations done to date to address regulatory bank that was chartered prior to October for the purposes of RFA. The proposed burden, and further measures that will 15, 1982, as a savings bank under State rule primarily affects regulations that be taken to address issues that were law. govern State savings associations.75 identified. As noted in the EGRPRA PART 390—REGULATIONS There are 33 State savings associations Report, the FDIC is continuing to considered to be small banking streamline and clarify its regulations TRANSFERRED FROM THE OFFICE OF organizations for the purposes of the through the OTS rule integration THRIFT SUPERVISION 76 process. By removing outdated or RFA. ■ As explained previously, the unnecessary regulations, such as 3. The authority citation for part 390 proposed rule would remove §§ 390.250 subpart O, this proposal complements is revised to read as follows: through 390.255 of subpart O because other actions the FDIC has taken, Authority: 12 U.S.C. 1819. these sections are unnecessary or separately and with the other federal Subpart F also issued under 5 U.S.C. 552; redundant of existing federal banking banking agencies, to further the 559; 12 U.S.C. 2901 et seq. laws or regulations that prescribe EGRPRA mandate. Subpart G also issued under 12 U.S.C. 2810 requirements subsidiaries of State List of Subjects et seq., 2901 et seq.; 15 U.S.C. 1691; 42 U.S.C. savings associations. Because these 1981, 1982, 3601–3619. regulations are redundant to existing 12 CFR Part 362 Subpart Q also issued under 12 U.S.C. regulations, rescinding them would not Administrative practice and 1462; 1462a; 1463; 1464. have any substantive effects on small procedure, Authority delegations Subpart W also issued under 12 U.S.C. FDIC-supervised institutions. (Government agencies), Bank deposit 1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m; Based on the information above, the insurance, Banks, banking, Investments, 78n; 78p; 78w. FDIC certifies that the proposed rule Reporting and recordkeeping Subpart Y also issued under 12 U.S.C. would not have a significant economic requirements. 1831o. impact on a substantial number of small entities. 12 CFR Part 390 Subpart O—[Removed and Reserved] 2. The FDIC invites comments on all Administrative practice and aspects of the supporting information procedure, Advertising, Aged, Civil ■ 4. Remove and reserve subpart O, provided in this RFA section. In rights, Conflict of interests, Credit, consisting of §§ 390.250 through particular, would this rule have any Crime, Equal employment opportunity, 390.255. significant effects on small entities that Fair housing, Government employees, Federal Deposit Insurance Corporation. the FDIC has not identified? Individuals with disabilities, Reporting By order of the Board of Directors. and recordkeeping requirements, C. Plain Language Savings associations. Dated at Washington, DC, on October 20, Section 722 of the Gramm-Leach- 2020. Bliley Act 77 requires each Federal Authority and Issuance James P. Sheesley, banking agency to use plain language in For the reasons stated in the Assistant Executive Secretary. all of its proposed and final rules preamble, the Federal Deposit Insurance [FR Doc. 2020–23525 Filed 10–21–20; 4:15 pm] published after January 1, 2000. As a Corporation proposes to amend 12 CFR BILLING CODE 6714–01–P federal banking agency subject to the parts 362 and 390 as follows: provisions of this section, the FDIC has sought to present the proposed rule to PART 362—ACTIVITIES OF INSURED rescind subpart O in a simple and STATE BANKS AND INSURED straightforward manner. SAVINGS ASSOCIATIONS 3. The FDIC invites comments on ■ 1. The authority citation for part 362 whether the proposal is clearly stated continues to read as follows: and effectively organized, and how the Authority: 12 U.S.C. 1816, 1818, 75 FDIC Call Report, June 30, 2020. 1819(a)(Tenth), 1828(j), 1828(m), 1828a, 76 Id. 1831a, 1831e, 1831w, 1843(l). 77 Public Law 106–102, 113 Stat. 1338, 1471 (codified at 12 U.S.C. 4809). 78 Public Law 104–208, 110 Stat. 3009 (1996).

VerDate Sep<11>2014 17:11 Oct 23, 2020 Jkt 253001 PO 00000 Frm 00008 Fmt 4702 Sfmt 9990 E:\FR\FM\26OCP1.SGM 26OCP1