[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Rules and Regulations]
[Pages 8098-8104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28454]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 362 and 390

RIN 3064-AF37


Removal of Transferred OTS Regulations Regarding Certain 
Subordinate Organizations of State Savings Associations

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is adopting a 
final rule to rescind and remove rules from the Code of Federal 
Regulations (CFR) regulations titled Subordinate Organizations that 
were transferred to the FDIC from the Office of Thrift Supervision 
(OTS) on July 21, 2011, in connection with the implementation of Title 
III of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) regarding subordinate organizations of State savings 
associations because the FDIC has determined that the requirements for 
State savings association subordinate organizations included therein 
are substantially similar to the requirements for State savings 
associations and their subsidiaries set forth by certain sections of 
the Federal Deposit Insurance Act (FDI Act) and its implementing 
regulations.

DATES: The final rule is effective on March 5, 2021.

FOR FURTHER INFORMATION CONTACT: Donald Hamm, Special Advisor, (202) 
898-3528, <a href="/cdn-cgi/l/email-protection#ec88848d8181ac8a88858fc28b839a"><span class="__cf_email__" data-cfemail="593d31383434193f3d303a773e362f">[email protected]</span></a>; or Shelli Coffey, Review Examiner, (312) 382-
7539, <a href="/cdn-cgi/l/email-protection#ef9c8c8089898a96af898b868cc1888099"><span class="__cf_email__" data-cfemail="95e6f6faf3f3f0ecd5f3f1fcf6bbf2fae3">[email protected]</span></a>, Risk Management and Applications, Division of 
Risk Management Supervision; Suzanne Dawley, Counsel, 
<a href="/cdn-cgi/l/email-protection#e093958481978c8599a086848983ce878f96"><span class="__cf_email__" data-cfemail="1f6c6a7b7e68737a665f797b767c31787069">[email protected]</span></a>; or Karlyn J. Hunter, Counsel, <a href="/cdn-cgi/l/email-protection#8ee5e6fbe0faebfccee8eae7eda0e9e1f8"><span class="__cf_email__" data-cfemail="8ae1e2ffe4feeff8caeceee3e9a4ede5fc">[email protected]</span></a>, 
Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objective

    The policy objective of the final rule is to simplify the FDIC's 
regulations by removing unnecessary regulations and realigning existing 
regulations in order to improve the public's understanding of the rules 
and to improve the ease of the public's reference to them. Thus, as 
further detailed in this section, the FDIC is rescinding and removing 
from the CFR rules entitled Subordinate Organizations (12 CFR part 390, 
subpart O) applicable to State savings associations.\1\ Pursuant to 
subpart O, the FDIC may, at any time, limit a State savings 
association's investment in their subordinate organizations, or may 
limit or refuse to permit any activities of any of these entities for 
supervisory, legal, or safety and soundness reasons.\2\
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    \1\ 12 CFR part 390, subpart O.
    \2\ 12 CFR 390.250.
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    Subpart O includes definitions related to State savings association 
subsidiaries,\3\ a requirement for the parent State savings association 
and its subsidiaries to maintain separate corporate identities,\4\ a 
prior notice requirement for a State savings association seeking to 
establish or acquire a new subsidiary or engage in new activities 
through an existing subsidiary,\5\ requirements related to the issuance 
of securities by a subsidiary,\6\ and requirements for the exercise of 
salvage power by a State savings association.\7\
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    \3\ 12 CFR 390.251.
    \4\ 12 CFR 390.252.
    \5\ 12 CFR 390.253.
    \6\ 12 CFR 390.254.
    \7\ 12 CFR 390.255.
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    The FDIC has determined that the requirements for State savings 
association subordinate organizations set forth in subpart O are 
substantially similar to requirements of section 28 of the FDI Act and 
its implementing regulations, 12 CFR part 362 of the FDIC's Rules and 
Regulations; and section 37 of the FDI Act.\8\ Therefore, the FDIC is 
rescinding and removing subpart O and will apply part 362, subpart C 
and subpart D, as appropriate, to achieve substantially similar 
supervisory results for State savings associations and subsidiaries as 
have been obtained through the application of subpart O.
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    \8\ 12 U.S.C. 1831e(a); 12 CFR part 362, subparts C and D; 12 
U.S.C. 1831n(a).
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II. Background

    The Dodd-Frank Act,\9\ signed into law on July 21, 2010, provided 
for a substantial reorganization of the regulation of State and Federal 
savings associations and their holding companies.\10\ Beginning July 
21, 2011, the transfer date established by section 311 of the Dodd-
Frank Act,\11\ the powers, duties, and functions formerly performed by 
the OTS were divided among the FDIC, as to State savings associations; 
the Office of the Comptroller of the Currency (OCC), as to Federal 
savings associations; and the Board of Governors of the Federal Reserve 
System (FRB), as to savings and loan holding companies. Section 316(b) 
of the Dodd-Frank Act \12\ provides the manner of treatment of all 
orders, resolutions, determinations, regulations, and advisory 
materials that had been issued, made, prescribed, or allowed to become 
effective by the OTS. The section provides that if such materials were 
in effect on the day before the transfer date, they continue in effect 
and are enforceable by or against the appropriate successor agency 
until they are modified, terminated, set aside, or superseded in 
accordance with applicable law by such successor agency, by any court 
of competent jurisdiction, or by operation of law.
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    \9\ 12 U.S.C. 5301 et seq.
    \10\ 12 U.S.C. 5411.
    \11\ Id.
    \12\ 12 U.S.C. 5414(b).
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    Pursuant to section 316(c) of the Dodd-Frank Act,\13\ on June 14, 
2011, the FDIC's Board of Directors approved a ``List of OTS 
Regulations to be Enforced by the OCC and the FDIC Pursuant to the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.'' This list 
was published by the FDIC and the OCC as a joint notice in the Federal 
Register on July 6, 2011.\14\
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    \13\ 12 U.S.C. 5414(c).
    \14\ 76 FR 39246 (July 6, 2011).
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    Although section 312(b)(2)(B)(i)(II) of the Dodd-Frank Act \15\ 
granted the OCC rulemaking authority relating to both State and Federal 
savings associations, nothing in the Dodd-Frank Act affected the FDIC's 
existing authority to issue regulations under the FDI Act \16\ and 
other laws as the ``appropriate Federal banking agency'' or under 
similar statutory terminology. Section 312(c) of the Dodd-Frank Act 
\17\ revised the definition of ``appropriate Federal banking agency'' 
contained in section 3(q) of the FDI Act \18\ to add State

[[Page 8099]]

savings associations to the list of entities for which the FDIC is 
designated as the ``appropriate Federal banking agency.'' As a result, 
when the FDIC is designated as the ``appropriate Federal banking 
agency'' (or under similar terminology) for State savings associations, 
the FDIC is authorized to issue, modify, and rescind regulations 
involving such associations.
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    \15\ 12 U.S.C. 5412(b)(2)(B)(i)(II).
    \16\ 12 U.S.C. 1811 et seq.
    \17\ 12 U.S.C. 5412(c)(1).
    \18\ 12 U.S.C. 1813(q).
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    As noted, on July 14, 2011, operating pursuant to this authority, 
the FDIC's Board of Directors reissued and re-designated certain 
transferring regulations of the former OTS. These transferred OTS 
regulations were published as new FDIC regulations in the Federal 
Register on August 5, 2011.\19\ When it republished the transferred OTS 
regulations as new FDIC regulations, the FDIC specifically noted that 
its staff would evaluate the transferred OTS rules and might later 
recommend incorporating the transferred OTS regulations into other FDIC 
rules, amending them, or rescinding them, as appropriate.\20\
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    \19\ 76 FR 47652 (Aug. 5, 2011).
    \20\ Id.
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    The final rule adopts, without change, the notice of proposed 
rulemaking (NPR) published in the Federal Register on October 26, 2020, 
which received no comments.

III. The Proposed Rule

    On October 26, 2020, the FDIC published an NPR regarding the 
removal of part 390, subpart O (formerly OTS's 12 CFR part 559),\21\ 
which generally addresses subordinate organizations of State savings 
associations.\22\ The OTS adopted part 559, titled Subordinate 
Organizations, in 1996 to update and streamline its regulations and 
statements of policy concerning subsidiaries and other subordinate 
organizations in which savings associations have ownership interests 
(including operating subsidiaries and service corporations) and equity 
investments (including pass-through investments).\23\ Part 559 
consolidated all OTS regulations affecting thrift subsidiaries in order 
to make it easier for savings associations to find and use these 
regulations. The former OTS rule was transferred to the FDIC with only 
nominal changes and is found in the FDIC's rules at subpart O, entitled 
Subordinate Organizations.\24\
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    \21\ 12 CFR part 390, subpart O.
    \22\ 85 FR 67684 (Oct. 26, 2020).
    \23\ 61 FR 66561, 66562 (Dec. 18, 1996).
    \24\ 12 CFR part 390, subpart O.
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    The NPR proposed removing subpart O, because, after careful review 
and consideration, the FDIC believes it is duplicative of substantially 
similar FDIC statutory and regulatory provisions that produce the same 
supervisory result for an insured State savings association as subpart 
O.\25\
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    \25\ 85 FR 67684, 67686 (Oct. 26, 2020).
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    Section 28 of the FDI Act prohibits a State savings association 
from engaging as principal in any type of activity, or in any activity 
in an amount, that is not permissible for a Federal savings association 
unless the FDIC has determined the activity would pose no significant 
risk to the Deposit Insurance Fund (DIF); and the State savings 
association is, and continues to be, in compliance with the capital 
standards set forth in section 5(t) of the Home Owners Loan Act 
(HOLA).\26\ Pursuant to section 18(m) of the FDI Act, a State savings 
association must file a notice with the FDIC prior to establishing, 
acquiring or engaging in new activities of a subsidiary.\27\
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    \26\ 12 U.S.C. 1831e(a), referencing 12 U.S.C. 1463 et seq.
    \27\ 12 U.S.C. 1828(m).
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    The NPR proposed using 12 CFR part 362, Activities of Insured State 
Banks and Insured Savings Associations, to provide a substantially 
similar process for an insured State savings association, or its 
subsidiary, to apply for prior consent from the FDIC to engage in 
certain activities, that are not otherwise prohibited by Federal or 
State law, while reaching substantially the same result as provided in 
subpart O without the burden of referring to a duplicative set of 
regulations. Part 362, which includes subparts C and D, is issued 
pursuant to several FDIC authorities, including the FDIC's general 
rulemaking authority pursuant to section 9(a)(Tenth) and section 28 of 
the FDI Act, the FDIC's statutory authority over the activities of 
State savings associations and subsidiaries, that are substantially 
similar to the authorizing statutes pursuant to which subpart O was 
issued.
    Subpart C of part 362 governs the activities of insured State 
savings associations and implements section 28(a) of the FDI Act, which 
restricts and prohibits insured State savings associations and their 
service corporations from engaging in activities and investments of a 
type that are not permissible for a Federal savings association and 
their service corporations. Subpart D of part 362 governs acquiring, 
establishing, or conducting new activities through a subsidiary by an 
insured State savings association, and implements section 18(m) of the 
FDI Act, which requires that prior notice be given to the FDIC when an 
insured savings association establishes or acquires a subsidiary or 
engages in any new activity in a subsidiary. In doing so it applies the 
definitions of Sec.  362.2 unless otherwise indicated. The phrase 
``activity permissible for a Federal savings association'' means any 
activity authorized for a Federal savings association under any statute 
including HOLA,\28\ as well as activities recognized as permissible for 
a Federal savings association in regulations issued by the OCC or in 
bulletins, orders or written interpretations issued by the OCC, or by 
the former OTS until modified, terminated, set aside, or superseded by 
the OCC.\29\
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    \28\ 12 U.S.C. 1463 et seq.
    \29\ 12 CFR 362.9(a).
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    Rather than restate the rationale for the rescission and removal of 
each section of subpart O, the reader is referred to the fulsome 
explanations for the rescission and removal provided in the NPR,\30\ 
which the FDIC references here as the basis for finalizing the 
regulations as proposed. The regulations or statutes that the FDIC 
expects State savings associations and subsidiaries to refer to after 
the removal of subpart O are briefly discussed below.
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    \30\ 85 FR 67684 (Oct. 26, 2020).
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A. Section 390.251--Definitions

    Section 390.251 is a definition section related to subordinate 
organizations. Included in the definitions section are: Control, GAAP-
consolidated subsidiary, lower-tier entity, ownership interest, 
subordinate organization, and, subsidiary. The control definition is a 
cross-reference to the removed OTS Sec.  391.41 definition,\31\ which 
provided that a controlling shareholder is any person who, directly or 
indirectly, or acting in concert with one or more persons or companies, 
or together with members of his or her immediate family, owns, 
controls, or holds with power to vote 10 percent or more of the voting 
stock of a company, or controls in any manner the election or 
appointment of a majority of the company's board of directors.\32\ The 
FDIC proposed to apply the Sec.  362.2(e) control definition which is 
consistent with the control definition applicable to service companies 
of Federal savings associations which

[[Page 8100]]

references the FRB's 12 CFR part 225, Regulation Y.\33\
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    \31\ The FDIC rescinded the control definition at Sec.  391.41 
as part of its 2015 Filing Requirements and Processing Procedures 
for Changes in Control with respect to State Nonmember Banks and 
State Savings Associations rulemaking. 80 FR 65889 (Oct. 28, 2015).
    \32\ 12 CFR 391.41 (2015).
    \33\ 12 CFR 5.59(d); 12 CFR part 225; 12 CFR 362.2(e).
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    The definition of equity investment in Sec.  362.2(g) is broader 
than the definition of ownership interest in Sec.  390.251, which means 
any equity interest in a business organization, limited or general 
partnership interests, or shares in a limited liability company. 
Similarly, the definition of subsidiary pursuant to Sec.  362.2(r) is 
substantially similar to the subsidiary definition in Sec.  390.251. 
The distinction is that Sec.  362.2(r) defines a subsidiary as ``any 
company that is owned or controlled directly or indirectly by one or 
more insured depository institutions,'' rather than only by a State 
savings association. Therefore, the State savings associations would 
refer to those definitions in part 362 after subpart O was removed from 
the CFR.
    A separate definition for GAAP-consolidated subsidiary is 
unnecessary as State savings association reports and financial 
statements are required to be uniform and consistent with U.S. 
generally accepted accounting principles (GAAP) pursuant to section 37 
of the FDI Act and section 4(b) of HOLA.\34\ Further, the instructions 
to the Consolidated Reports of Condition and Income (Call Report) state 
that the regulatory reporting requirements applicable to the Call 
Report shall conform to GAAP as set forth in the Financial Accounting 
Standards Board's Accounting Standards Codification.\35\ Because State 
savings associations have existing statutory directives to use GAAP in 
reporting and financial statements, eliminating a substantially similar 
regulation regarding GAAP-consolidated subsidiaries likely would not 
affect the quality of State savings association reporting and financial 
statements.
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    \34\ 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2).
    \35\ Instructions for Preparation of Consolidated Reports of 
Condition and Income, Form FFIEC 031 and 041 https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_201906_i.pdf.
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B. Section 390.252--How must separate corporate entities be maintained?

    The core eligibility requirements in Sec.  362.4(c) describe 
corporate separateness in the context of the State-chartered depository 
institution-subsidiary. The eligible subsidiary requirements in Sec.  
362.4(c)(2)--which are more detailed than eligible subsidiary 
requirements of Sec.  390.252--are designed specifically for the bank/
subsidiary relationship, and provide for separation between the State-
chartered depository institution and its subsidiary to lessen the 
possibility of piercing the corporate veil; deduction of the State-
chartered depository institution investment in the subsidiary to 
segregate the capital supporting the State-chartered depository 
institution from the capital supporting the subsidiary; and limitations 
on the State-chartered depository institution's investment in the 
subsidiary and on transactions with the subsidiary to ensure 
transactions are arms-length.\36\ The eligible subsidiary requirements 
are also incorporated into Sec.  362.13. Section 362.13 permits a State 
savings association that previously filed an application, and obtained 
the FDIC's consent to engage in an activity or to acquire or retain an 
investment in a service corporation engaging as principal in an 
activity, to continue the activity or retain the investment without 
seeking the FDIC's consent, provided the State savings association and 
the service corporation, if applicable, continue to meet the conditions 
and restrictions of approval if the insured State savings association 
and any applicable service corporation meet the requirements of Sec.  
362.4(c)(2).\37\
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    \36\ 12 CFR 362.4(c). See FIL-97-97. September 23, 1997.
    \37\ 12 CFR 362.13.
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    The provisions of Sec.  362.4(c)(2) that are duplicative of Sec.  
390.252 require that an eligible subsidiary: (1) Meet applicable 
statutory or regulatory capital requirements and have sufficient 
operating capital for normal obligations that are reasonably 
foreseeable for a business of its size and character; (2) be physically 
separate and distinct in its operations from the operations of the 
state-chartered depository institution; (3) maintain separate 
accounting and other business records; (4) observe separate business 
entity formalities; (5) conduct business pursuant to independent 
policies and procedures designed to inform customers and prospective 
customers of the subsidiary that the subsidiary is a separate 
organization from the State-chartered depository institution; and (6) 
that the State-chartered depository institution is not responsible for, 
and does not guarantee, the obligations of the subsidiary.\38\
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    \38\ Section 362.4(c)(2)(vii) corresponds to Sec.  390.252(a)(4) 
and (5).
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    State savings associations and service corporations that qualify as 
eligible depository institutions and eligible subsidiaries pursuant to 
Sec.  362.4(c) maintain separate corporate identities, which should 
sufficiently insulate State savings associations from the liabilities 
of subsidiaries.

C. Section 390.253--What notices are required to establish or acquire a 
new subsidiary or engage in new activities through a subsidiary?

    This section provides that such a notice must contain all of the 
information required under Sec.  362.15, is subject to FDIC objection, 
and must be filed at least 30 days prior to the establishment or 
acquisition of a subsidiary or commencement of a new activity through a 
subsidiary. The notice requirements of Sec.  362.15 are substantially 
similar to the transferred OTS notice requirement in Sec.  390.253.
    The proposal included a technical amendment to remove references to 
Federal savings association notice requirements in Sec.  362.15. 
Section 18(m) of the FDI Act, as amended by section 363(7) of the Dodd-
Frank Act,\39\ no longer requires Federal savings associations to 
provide notice to the FDIC prior to the establishment, or acquisition, 
of a subsidiary, or prior to commencement of a new activity in a 
subsidiary controlled by a Federal savings association.\40\ State 
savings associations must continue to notify the FDIC at least 30 days 
prior to establishing or acquiring a subsidiary or prior to 
commencement of a new activity through a State savings association-
controlled subsidiary pursuant to section 18(m) and Sec.  362.15, as 
described in the NPR.\41\
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    \39\ Public Law 111-203, 124 Stat 1376 (2010).
    \40\ 12 U.S.C. 1828(m).
    \41\ 85 FR 67684, 67687 (Oct. 26, 2020).
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D. Section 390.254--How may a subsidiary of a State savings association 
issue securities?

    State savings association subsidiaries are permitted to issue 
securities pursuant to section 28 of the FDI Act because the operating 
subsidiaries and service corporations of Federal savings associations 
are permitted to issue securities, subject to regulatory limitations. 
State savings associations and their subsidiaries are reminded that 
subsidiary issuances, like other permissible activities, are subject to 
the same restrictions or conditions imposed on the Federal savings 
association and must be conducted in the same manner in which an 
operating subsidiary or service corporation is authorized to issue such 
securities.\42\
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    \42\ 85 FR 67684, 67688 (Oct. 26, 2020).
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    Accordingly, a State savings association subsidiary should not 
state or imply that the securities it issues are covered by Federal 
deposit insurance, or issue any security the payment, maturity, or 
redemption of which may be accelerated upon the condition that

[[Page 8101]]

the controlling State savings association is insolvent or has been 
placed into receivership, and for as long as any securities are 
outstanding, the controlling State savings association must maintain 
all records generated through each securities issuance in the ordinary 
course of business, including but not limited to a copy of the 
prospectus, offering circular, or similar document concerning such 
issuance, and make such records available for examination by the 
FDIC.\43\
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    \43\ Id.
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E. Section 390.255--How may a State savings association exercise its 
salvage power in connection with a service corporation or lower-tier 
entities?

    In the NPR, staff proposed that State savings associations apply to 
the FDIC for prior approval pursuant to Sec.  362.11 before making a 
contribution or a loan to a lower-tier entity (salvage investment) that 
exceeds the maximum amount otherwise permitted under law or regulation 
to exercise its power to salvage the underlying asset to be consistent 
with State law. The applicant would be required to provide evidence 
that the State approved any exception over the loans to one borrower 
(LTOB) limit.\44\
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    \44\ LTOB limits are established by state law of each chartering 
authority, and LTOB Limits are not consistent from state to state. 
Some states allow waivers or modifications, while others do not. 
Part 362 does not authorize any insured State savings association to 
make investments or conduct activities that are not authorized or 
that are prohibited by either Federal or State law. 12 CFR 362.9(c).
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    As discussed in the NPR, these FDIC statutory and regulatory 
provisions provide a substantially similar process for an insured State 
savings association, or its subsidiary, to apply for prior consent from 
the FDIC to engage in certain activities, that are not otherwise 
prohibited by Federal or State law, while reaching substantially the 
same result as provided in subpart O without the burden of referring to 
a duplicative set of regulations.\45\ The NPR concluded the application 
of these FDIC statutory and regulatory provisions provide substantially 
similar results for the FDIC to achieve substantially similar 
supervisory results for State savings associations and subsidiaries as 
would be obtained through subpart O.\46\
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    \45\ 85 FR 67684, 67686 (Oct. 26, 2020).
    \46\ Id.
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IV. Comments

    The FDIC issued the NPR with a 30-day comment period, which closed 
on November 25, 2020.\47\ The FDIC received no comments on the NPR. 
Consequently, the proposed rule is adopted as final without change, and 
part 390, subpart O, will be rescinded in its entirety.
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    \47\ 85 FR 67684 (Oct. 26, 2020).
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V. The Final Rule

    The final rule rescinds and removes subpart O and amends Sec.  
362.15 to remove references to Federal savings associations made 
unnecessary because of the amendment of Section 18(m) of the FDI Act, 
as amended by section 363(7) of the Dodd-Frank Act which no longer 
requires Federal savings associations to provide notice to the FDIC 
prior to the establishment, or acquisition, of a subsidiary, or prior 
to commencement of a new activity in a subsidiary controlled by a 
Federal savings association.\48\
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    \48\ Public Law 111-203, 124 Stat. 1376 (2010); 12 U.S.C. 
1828(m).
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    As discussed in the NPR, the FDIC statutory and regulatory 
provisions applicable to State savings associations and their 
subsidiaries provide a substantially similar process for an insured 
State savings association, or its subsidiary, to apply for prior 
consent from the FDIC to engage in certain activities, that are not 
otherwise prohibited by Federal or State law, while reaching 
substantially the same result as provided in subpart O without the 
burden of referring to a duplicative set of regulations.\49\ Under the 
final rule, the application of part 362, which implements section 28 
and section 18(m) of the FDI Act, provides State savings associations 
with substantially similar procedures for notices and applications 
related to State savings association subsidiaries and investments. 
Further, section 37 of the FDI Act and section 4(b) of HOLA already 
require that State savings association reports and financial statements 
are uniform and consistent with U.S. generally accepted accounting 
principles (GAAP).\50\ By applying these FDIC statutory and regulatory 
provisions to State savings associations and subsidiaries, the FDIC 
will achieve substantially similar supervisory results for State 
savings associations and subsidiaries under the final rule as would be 
obtained through subpart O.\51\
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    \49\ Section 28 (12 U.S.C. 1831e(a)), section 18(m) (12 U.S.C. 
1828(m)), and section 37 (12 U.S.C. 1831n(a)) of the FDI Act, and 
section 4(b) of the Home Owners Loan Act (12 U.S.C. 1463(b)), govern 
the activities of State savings associations and subsidiaries.
    \50\ 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2).
    \51\ 85 FR 67684 (Oct. 26, 2020).
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VI. Expected Effects

    As of June 30, 2020, the FDIC supervised 3,270 depository 
institutions, of which 35 (1.1 percent) are State savings 
associations.\52\ The final rule would affect regulations that govern 
State savings associations. As explained in the NPR, the final rule 
would remove Sec. Sec.  390.250, 390.251, 390.252, 390.253, 390.254, 
and 390.255 of part 390, subpart O, because most of its provisions are 
duplicative of, or substantially similar to the requirements of section 
28 of the FDI Act and its implementing regulations, 12 CFR part 362 of 
the FDIC's Rules and Regulations; and section 37 of the FDI Act. 
Additionally, the final rule amends Sec.  362.15 to remove the 
references to Federal savings association notice requirements because 
Federal savings associations are no longer required to provide notice 
to the FDIC prior to the establishment, or acquisition, of a 
subsidiary, or prior to commencement of a new activity in a subsidiary 
controlled by a Federal savings association.\53\ The FDIC does not 
believe that the final rule will have substantive effects on State 
savings associations. By removing duplicative or unnecessary 
regulations the FDIC believes that the final rule will benefit State 
savings associations by clarifying regulations and improving the ease 
of references.
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    \52\ Call Report data, September 30, 2020.
    \53\ 12 U.S.C. 1828(m).
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VII. Alternatives

    The FDIC considered alternatives to the final rule but believes 
that the amendments represent the most appropriate option for covered 
institutions. As discussed previously, the Dodd-Frank Act transferred 
certain powers, duties, and functions formerly performed by the OTS to 
the FDIC. The FDIC's Board reissued and redesignated certain 
transferred regulations from the OTS, but noted that it would evaluate 
them and might later incorporate them into other FDIC regulations, 
amend them, or rescind them, as appropriate. The FDIC has evaluated the 
existing regulations relating to certain subordinate organizations of 
State savings associations. The FDIC considered the alternative of 
retaining the current regulations, but did not choose to do so because 
it would be needlessly complex and confusing for its supervised 
institutions to continue to have substantively similar regulations 
regarding subordinate organizations of State savings associations 
located in different locations within the CFR. The FDIC believes it 
would be unnecessarily burdensome for FDIC-supervised institutions to 
refer to these separate sets of regulations, and, therefore, is 
rescinding and removing subpart O and

[[Page 8102]]

making a technical amendment to Sec.  362.15 to remove references to 
Federal savings associations to streamline the FDIC's regulations.

VIII. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), the FDIC may not conduct or sponsor, and the respondent 
is not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The final rule rescinds and removes from part 390, 
subpart O, and makes a technical amendment to Sec.  362.15 to remove 
references to Federal savings associations to streamline the FDIC's 
regulations. The final rule will not create any new or revise any 
existing collections of information under the PRA. Therefore, no 
information collection request will be submitted to the OMB for review.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), requires that, in connection 
with a final rule, an agency prepare a final regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities.\54\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities, 
and publishes its certification and a short explanatory statement in 
the Federal Register together with the rule. The Small Business 
Administration (SBA) has defined ``small entities'' to include banking 
organizations with total assets of less than or equal to $600 
million.\55\ Generally, the FDIC considers a significant effect to be a 
quantified effect in excess of 5 percent of total annual salaries and 
benefits per institution, or 2.5 percent of total non-interest 
expenses. The FDIC believes that effects in excess of these thresholds 
typically represent significant effects for FDIC-supervised 
institutions. For the reasons provided below, the FDIC certifies that 
the rule will not have a significant economic impact on a substantial 
number of small banking organizations.
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    \54\ 5 U.S.C. 601, et seq.
    \55\ The SBA defines a ``small banking organization'' as one 
having $600 million or less in assets, where an organization's 
``assets are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, by 84 FR 34261, effective August 19, 2019). 
``SBA counts the receipts, employees, or other measure of size of 
the concern whose size is at issue and all of its domestic and 
foreign affiliates.'' See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
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    As of June 30, 2020, the FDIC supervised 3,270 insured depository 
institutions, of which 2,548 are considered small banking organizations 
for the purposes of RFA. The rule primarily affects regulations that 
govern State savings associations.\56\ There are 33 State savings 
associations considered to be small banking organizations for the 
purposes of the RFA.\57\
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    \56\ FDIC Call Report, June 30, 2020.
    \57\ Id.
---------------------------------------------------------------------------

    As previously discussed, the rule rescinds part 390, subpart O, 
because most of its elements are duplicative of, or substantially 
similar to the requirements of section 28 of the FDI Act and its 
implementing regulations, 12 CFR part 362 of the FDIC's Rules and 
Regulations; and section 37 of the FDI Act.
    Additionally, the rule would amend certain sections of part 362 to 
remove the references to Federal savings association notice 
requirements because Federal savings associations are no longer 
required to provide notice to the FDIC prior to the establishment, or 
acquisition, of a subsidiary, or prior to commencement of a new 
activity in a subsidiary controlled by a Federal savings 
association.\58\ The FDIC does not believe that the rule will have 
substantive effects on small State savings associations.
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    \58\ 12 U.S.C. 1828(m).
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    Section 390.250 sets forth the FDIC's general rulemaking and 
supervisory authority under the FDI Act, its specific authority under 
section 18(m) of the FDI Act \59\ and subpart O's application to 
subordinate organizations of State savings associations. As previously 
discussed, State savings associations are subject to part 362, subparts 
C and D, which has the same statutory basis as Sec.  390.350. 
Therefore, the FDIC believes that the practical application of part 
362, subparts C and D, generally achieves the same outcomes for State 
savings associations as does subpart O. Therefore, the FDIC believes 
that the rescission of Sec.  390.250 is unlikely to have any 
substantive effects for small State savings associations or their 
subordinate organizations.
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    \59\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    Section 390.251 is a definition section related to subordinate 
organizations. As previously discussed, the FDIC believes that the 
definitions of subsidiary and GAAP-consolidated subsidiary are 
substantially similar to and redundant to other statutory and 
regulatory requirements to which State savings associations are already 
subject. As previously discussed, State savings associations are 
already subject to a definition of control in Sec.  362.2(e), a 
definition that is narrower, however, than the one in Sec.  390.251. 
Therefore, the rescission of Sec.  390.251 could benefit State savings 
associations by narrowing the scope of investments in subordinate 
organizations that may be subject to limitation for supervisory, legal, 
or safety and soundness reasons asserted by the FDIC. The rescission of 
the definition of control in Sec.  390.251 could further benefit State 
savings associations by creating parity with the control definition 
applicable to service companies of Federal savings associations which 
references the FRB's 12 CFR part 225, Regulation Y.\60\ As previously 
discussed, State savings associations are already subject to a 
definition of equity investment in Sec.  362.2(g), a definition that is 
broader, however, than the one in Sec.  390.251. Therefore, the 
rescission of Sec.  390.251 is unlikely to pose additional costs for 
State savings associations because they are already subject to 
regulations with a substantively similar and broader defined scope of 
investments in subordinate organizations. Finally, the rescission of 
Sec.  390.251 would remove definitions of lower-tier entity and second-
tier service corporations or service corporation subsidiaries for which 
there is no corollary in FDIC regulations. However, as previously 
discussed, the FDIC does not believe that the existence of these 
defined terms enhance the quality of State savings association 
supervision. Therefore, the FDIC believes that the rescission of these 
definitions is unlikely to have any substantive effects on small State 
savings associations.
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    \60\ 12 CFR 5.59(d); 12 CFR part 225.
---------------------------------------------------------------------------

    Section 390.252 requires State savings associations and their 
subordinate organizations to operate in a manner that demonstrates to 
the public that they are separate corporate entities because of 
concerns that a failure to maintain separate corporate existences could 
potentially result in a court, for equitable reasons, holding the 
savings association liable for the obligations of the subordinate 
organization.\61\ As discussed previously, FDIC-supervised depository 
institutions, including State savings associations and their 
subsidiaries, are covered by Sec. Sec.  362.4(c) and 362.13, which are 
substantively similar to or broader than the

[[Page 8103]]

obligations in Sec.  390.252. Therefore, the FDIC believes that the 
rescission of Sec.  390.252 is unlikely to have any substantive effect 
on small State savings associations or their subsidiaries.
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    \61\ 61 FR 66561, 66567 (Dec. 18, 1996).
---------------------------------------------------------------------------

    Section 390.253 establishes notification requirements for State 
savings associations prior to their establishing, acquiring or engaging 
in new activities of a subsidiary as required under section 18(m) of 
the FDI Act.\62\ As discussed previously, State savings associations 
are already subject to substantively similar requirements in Sec.  
362.15. Therefore, the FDIC believes that the rescission of Sec.  
390.253 is unlikely to pose any substantive effects on small State 
savings associations.
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    \62\ 12 CFR 390.253. See 12 U.S.C. 1828(m)(1).
---------------------------------------------------------------------------

    Section 362.15 established notification requirements for State and 
Federal savings associations prior to their establishing or acquiring a 
subsidiary, or conducting any new activity through a subsidiary. As 
discussed previously, after the Dodd Frank Act amendment of section 
18(m) of the FDI Act, Federal savings associations are no longer 
required to provide notice to the FDIC prior to the establishment, or 
acquisition, of a subsidiary, or prior to the commencement of a new 
activity in a subsidiary controlled by a Federal savings 
association.\63\ Therefore, the FDIC believes that the rescission of 
references to Federal savings associations from Sec.  362.15 is 
unlikely to have any substantive effect on small insured depository 
institutions in that it is simply consistent with existing law.
---------------------------------------------------------------------------

    \63\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    Section 390.254 permits a State savings association subsidiary to 
issue, either directly or through a third party intermediary, any 
securities that its parent State savings association is permitted to 
issue. As discussed previously, although there is no corollary 
regulation for FDIC-supervised depository institutions, State savings 
association subsidiaries are permitted to issue securities pursuant to 
section 28 of the FDI Act because the operating subsidiaries and 
service corporations of Federal savings associations are permitted to 
issue securities, subject to regulatory limitations. Therefore, the 
FDIC believes that the rescission of Sec.  390.254, if adopted, is 
unlikely to have any substantive effect on small State savings 
associations or their subsidiaries.
    Section 390.255 generally permits a State savings association to 
notify the FDIC at least 30 days before making a contribution or a loan 
(including a guarantee of a loan made by any other person) to a lower-
tier entity (salvage investment) that exceeds the maximum amount 
otherwise permitted under law or regulation to exercise its power to 
salvage the underlying asset (typically, an outstanding loan).\64\ As 
discussed previously, State savings associations are currently subject 
to Sec.  362.11 which requires State savings associations to seek prior 
approval from the FDIC before making a contribution or a loan to a 
lower-tier entity (salvage investment) that exceeds the maximum amount 
otherwise permitted under law or regulation to exercise its power to 
salvage the underlying asset to be consistent with State law. 
Therefore, the FDIC believes that the rescission of Sec.  390.255 is 
unlikely to substantively affect small State savings associations.
---------------------------------------------------------------------------

    \64\ Without the salvage power provision, the maximum amount a 
State savings association would be permitted would be related the 
LTOB limit, which is equivalent to the applicable state's legal 
lending limit.
---------------------------------------------------------------------------

    By removing duplicative or unnecessary regulations, the FDIC 
believes that the rule will benefit small State savings associations by 
clarifying regulations and improving the ease of references.

C. The Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' rule. 
If a rule is deemed a major rule by the OMB, the Congressional Review 
Act generally provides that the rule may not take effect until at least 
60 days following its publication.
    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in: (A) 
An annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.
    The OMB has determined that the final rule is not a major rule for 
purposes of the Congressional Review Act and the FDIC will submit the 
final rule and other appropriate reports to Congress and the Government 
Accountability Office for review.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \65\ requires each 
Federal banking agency to use plain language in all of its proposed and 
final rules published after January 1, 2000. As a Federal banking 
agency subject to the provisions of this section, the FDIC has sought 
to present the final rule in a simple and straightforward manner and 
did not receive any comments on the use of plain language.
---------------------------------------------------------------------------

    \65\ Public Law 106-102, 113 Stat. 1338, 1471 (codified at 12 
U.S.C. 4809).
---------------------------------------------------------------------------

E. The Economic Growth and Regulatory Paperwork Reduction Act

    Under section 2222 of the Economic Growth and Regulatory Paperwork 
Reduction Act of 1996 (EGRPRA), the FDIC is required to review all of 
its regulations, at least once every 10 years, in order to identify any 
outdated or otherwise unnecessary regulations imposed on insured 
institutions.\66\ The FDIC, along with the other Federal banking 
agencies, submitted a Joint Report to Congress on March 21, 2017, 
(EGRPRA Report) discussing how the review was conducted, what has been 
done to date to address regulatory burdens, and further measures that 
will be taken to address issues that were identified. As noted in the 
EGRPRA Report, the FDIC is continuing to streamline and clarify its 
regulations through the OTS rule integration process. By removing 
outdated or unnecessary regulations, such as subpart O, this final rule 
complements other actions the FDIC has taken, separately and with the 
other Federal banking agencies, to further the EGRPRA mandate.
---------------------------------------------------------------------------

    \66\ Public Law 104-208, 110 Stat. 3009 (1996).
---------------------------------------------------------------------------

F. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA), in determining the effective date 
and administrative compliance requirements for new regulations that 
impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must 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 
requires new regulations and amendments to

[[Page 8104]]

regulations that impose additional reporting, disclosures, or other new 
requirements on IDIs 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.
    Because the final rule does not impose additional reporting, 
disclosure, or other requirements on IDIs, section 302 of RCDRIA does 
not apply.

List of Subjects

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, Banking, 
Investments, Reporting and recordkeeping requirements.

12 CFR Part 390

    Administrative practice and procedure, Advertising, Aged, Civil 
rights, Conflict of interests, Credit, Crime, Equal employment 
opportunity, Fair housing, Government employees, Individuals with 
disabilities, Reporting and recordkeeping requirements, Savings 
associations.

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation amends 12 CFR parts 362 and 390 as follows:

PART 362--ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS 
ASSOCIATIONS

0
1. The authority citation for part 362 continues to read as follows:

    Authority: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j), 
1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l).


0
2. Revise Sec.  362.15 to read as follows:


Sec.  362.15  Acquiring or establishing a subsidiary; conducting new 
activities through a subsidiary.

    No state insured savings association may establish or acquire a 
subsidiary, or conduct any new activity through a subsidiary, unless it 
files a notice in compliance with Sec.  303.142(c) of this chapter at 
least 30 days prior to establishment of the subsidiary or commencement 
of the activity and the FDIC does not object to the notice. This 
section does not apply to any state savings association that acquired 
its principal assets from a Federal savings bank that was chartered 
prior to October 15, 1982, as a savings bank under state law.

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

0
3. The authority citation for part 390 continues to read as follows:

    Authority:  12 U.S.C. 1819.
    Subpart Q also issued under 12 U.S.C. 1462; 1462a; 1463; 1464.
    Subpart W also issued under 12 U.S.C. 1462a; 1463; 1464; 15 
U.S.C. 78c; 78l; 78m; 78n; 78p; 78w.

Subpart O--[Removed and Reserved]

0
4. Remove and reserve subpart O, consisting of Sec. Sec.  390.250 
through 390.255.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on December 15, 2020.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2020-28454 Filed 2-2-21; 8:45 am]
BILLING CODE 6714-01-P


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