43088 Federal Register / Vol. 65, No. 134 / Wednesday, July 12, 2000 / Rules and Regulations

1The proposed repurchase provisions conform to

the FDIC’s treatment of stock repurchases by

converted institutions. See 12 CFR 333.4(d) (1999).

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563b and 575

[No. 2000–56]

RIN 1550–AB24

Repurchases of Stock by Recently

Converted Savings Associations,

Mutual Holding Company Dividend

Waivers, Gramm-Leach-Bliley Act

Changes

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Interim rule with request for

comment.

SUMMARY: The Office of Thrift

Supervision (OTS) is amending its

regulations governing repurchases of

stock of insured savings associations

and certain related provisions in the

mutual holding company regulations to

ease regulatory burden. OTS is also

amending its rules to implement

changes regarding waivers of dividends

for mutual holding companies, and to

incorporate certain changes resulting

from the passage of the Gramm-LeachBliley Act of 1999 (GLB Act).

DATES: This interim final rule is

effective July 12, 2000. Comments must

be received by October 10, 2000.

ADDRESSES: Send comments to Manager,

Dissemination Branch, Information

Management and Services Division,

Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552,

Attention Docket No. 2000–56. Handdeliver comments to the Guard’s Desk,

East Lobby Entrance, 1700 G Street,

NW., from 9 a.m. to 4 p.m. on business

days. Send facsimile transmissions to

FAX Number (202) 906–7755 or (202)

906–6956 (if the comment is over 25

pages). Send e-mails to

public.info@ots.treas.gov and include

your name and telephone number.

Interested persons may inspect

comments at the Public Reference

Room, 1700 G Street, NW., from 10 a.m.

until 4 p.m. on Tuesdays and

Thursdays.

FOR FURTHER INFORMATION CONTACT:

David A. Permut, Counsel (Banking and

Finance), (202) 906–7505, or Gary

Jeffers, Counsel (Banking and Finance),

(202) 906–6457, Business Transactions

Division, Chief Counsel’s Office; or

Timothy P. Leary, Counsel (Banking and

Finance), (202) 906–7170, Regulations

and Legislation Division, Chief

Counsel’s Office; or Mary Jo Johnson,

Project Manager (202) 906–5739,

Supervision Policy, Office of Thrift

Supervision, 1700 G Street, NW.,

Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

A. Stock Repurchases

Current OTS regulations require

savings associations to follow OTS rules

on stock repurchases for three years

following a conversion from mutual to

stock form. See 12 CFR 563b.3(g). In the

first year following the transaction, the

savings association cannot repurchase

any stock. In the second and third years,

the savings association may repurchase

up to five percent of its stock in any

twelve month period as long as the

repurchases do not cause the institution

to become undercapitalized, and certain

other conditions have been met. OTS

has also permitted repurchases in excess

of those limits where an institution has

established exceptional circumstances,

such as when the stock price has fallen

below the initial offering price. Because

OTS regulations also prohibit savings

association subsidiaries of mutual

holding companies (MHCs) from

repurchasing their stock for the first

three years following the association’s

stock offering (12 CFR 575.11(c)),

savings associations that have

reorganized into MHC form must

request a waiver from OTS regulations

to conduct a stock repurchase.

Numerous stock savings associations

and subsidiary holding companies of

MHCs have requested waivers for stock

repurchases in amounts that do not

conform to OTS limitations. OTS has

routinely granted the requested waivers.

OTS has decided the repurchase of

stock after the first year following

conversion or issuance in an MHC

minority stock offering should be a

business decision of the institution.

OTS believes that there are sufficient

means, such as business plan review

and approval, to ensure the safe and

sound regulation of converted savings

associations. Moreover, the current rule

is inconsistent with the treatment

accorded by other federal banking

agencies.

Therefore, OTS revises its regulations

to eliminate restrictions on stock

repurchases by converted savings

associations after the first year following

conversion. Where the institution has

established extraordinary

circumstances, a converted savings

association may repurchase its stock

during the first year after conversion,

provided the savings association files a

notice under amended § 563b.3(g)(3)

and OTS does not object to the planned

repurchase.1 OTS will work with the

FDIC to establish consistent practices

among the agencies regarding

implementation of this provision.

In determining whether to object to a

proposed stock repurchase during the

first year following conversion, OTS

will consider how the extraordinary

circumstances, absent a repurchase, may

detrimentally affect an institution’s

financial condition, the business

purpose for the repurchase, and the

permissibility of the repurchase under

other applicable regulations. See

amended § 563b.3(g)(3).

OTS also is making corresponding

amendments to the mutual holding

company (MHC) regulations, and

amending the MHC regulations to

address MHC purchases of stock of

subsidiary savings associations or of

subsidiary holding companies.

B. Dividend Waivers for Mutual

Holding Companies

OTS regulation § 575.11(d) allows

MHCs to waive dividends subject to

certain restrictions. Under § 575.11(d),

MHCs file notice of their intent to waive

dividends and include a copy of a board

of directors resolution concluding that

the dividend waiver is consistent with

the board’s fiduciary duties. OTS will

not object to the notice if it determines

that the waiver would not be

detrimental to the safe and sound

operation of the savings association.

Waiving dividends saves the MHC

from corporate taxation on the

dividends and leaves capital at the

subsidiary savings association where, in

most cases, it can be deployed more

efficiently. MHCs have requested

clarification on whether the payment of

dividends and MHC waiver of

dividends will cause OTS to require

minority shareholder dilution if the

MHC subsequently determines to fully

convert to stock form. Minority

shareholder dilution would occur if

OTS required converting MHCs to

reduce the number of shares minority

shareholders receive when they

exchange their shares for shares in the

fully converted company that

correspond to the amount of waived

dividends. The reduction in shares for

minority shareholders reflects that they

previously received their dividends

while the MHC waived its dividends.

OTS has required some dilution in past

transactions, but only to the extent of

excess or special dividends paid by the

subsidiary holding company or savings

association to minority shareholders

Federal Register / Vol. 65, No. 134 / Wednesday, July 12, 2000 / Rules and Regulations 43089

2 12 U.S.C. 1467a(o)(5)(E).

3Those requirements include requiring the

depository institution controlled by the parent to be

well capitalized, well managed and hold at least a

satisfactory rating under the Community

Reinvestment Act.

4 In addition, both CDRIA and the APA permit an

agency to select an earlier effective date for ‘‘good

cause’’ published with the regulation. As noted

above, the OTS has determined that there is good

cause for publishing rule without notice and public

comment. For these same reasons, OTS finds good

cause to dispense with the delayed effective date

requirements under CDRIA and the APA.

and waived by the MHC. OTS has not

required shareholder dilution for

ordinary dividends.

OTS has reexamined this issue and

has determined to change its practice

with respect to waived dividends. OTS

will no longer require dilution for any

waived dividends in a subsequent

conversion to stock form. OTS believes

the belief that the minority shareholders

would experience dilution caused a

number of institutions to fully convert

to stock form, rather than remain in

MHC form. Instead, to prevent excessive

dividends OTS will rely on the business

plan filed with the reorganization

application and on existing restrictions

in OTS capital distribution regulations,

as well as the fiduciary duty of the

board of directors of the MHC to protect

the interests of the depositors. Today,

OTS amends the MHC regulation to

codify this policy.

C. Gramm-Leach-Bliley

Finally, the Gramm-Leach-Bliley Act

of 1999 (GLB Act) changed the activities

limitations for MHCs to mirror those

applicable to financial holding

companies.2 OTS is amending its

regulations to make the GLB Act

changes in this interim final rule. These

changes enhance the MHC as a more

suitable long-term alternative then full

conversion to stock form for mutual

savings associations contemplating such

a conversion. Before the GLB Act, MHCs

were limited to the activities and

investments available to multiple

savings and loan holding companies

and those permissible for bank holding

companies under the Bank Holding

Company Act and those available under

Section 10(o)(5) of the Home Owners?

Loan Act. This change will give MHCs

parity with financial holding

companies, which have the ability to

create financial supermarkets—banking,

brokerage and insurance—all offered

under one holding company that meets

certain requirements.3 OTS is amending

§ 575.11(a) to reflect this change.

D. Related Rulemaking

Elsewhere in today?s Federal

Register, OTS is publishing a related

proposed regulation governing mutual

savings association, mutual holding

company reorganizations, and

conversions to stock form.

Notice and Comment, Effective Date,

and Request for Comment

Section 553 of the Administrative

Procedure Act (APA) permits an agency

to issue rules without prior notice and

comment if the agency, for good cause,

finds that notice and comment are

impracticable, unnecessary, or contrary

to the public interest and explains its

finding when it publishes the rule. 5

U.S.C. 553(b)(B).

OTS has concluded that it may issue

an interim final rule revising the stock

repurchase provisions. The current rule

is inconsistent with the treatment

accorded by other federal banking

agencies, not required for the safe and

sound regulation of converted savings

associations, significantly restricts the

ability of institution?s managers to make

appropriate business decisions and,

thus, unnecessarily limits the ability of

savings associations to repurchase stock

following a conversion. As a result, the

retention of these restrictions would, in

the absence of an interim final rule,

continue to negatively impact the

operations of thrifts and their holding

companies. Accordingly, OTS

concludes that public notice and

comment on these changes are

unnecessary and contrary to the public

interest.

Notice and public comment also are

not required for the interim rule on

dividend waivers and shareholder

dilution. As noted above, OTS’s current

policy on shareholder dilution may

have inappropriately: (1) Encouraged

some institutions in MHC structures to

fully convert to stock form; (2)

discouraged MHCs from taking full

advantage of corporate tax advantages

from dividend waivers; and (3)

prevented MHCs from exercising their

business judgment in deploying capital

at the most appropriate level within the

corporate structure. These regulatory

disincentives would continue to hamper

effective decision-making by MHCs in

the absence of an effective interim final

rule. As a result, OTS concludes that

notice and public comment are

inappropriate and contrary to public

interest.

Similarly, OTS does not believe that

public notice and comment are required

for the technical change regarding MHC

activities. The interim rule merely

updates OTS regulations to correctly

cite new statutory authority expanding

the activities authorized for MHCs.

Notice and comment procedures for this

change are impractical and contrary to

the public interest because such

procedures could delay implementation

of this new expanded authority for

MHCs.

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRIA), 12

U.S.C. 4802, requires that new OTS

regulations and amendments to existing

regulations take effect on the first day of

a calendar quarter which begins on or

after the date on which the regulations

are published. This delayed effective

date provision, however, does not apply

unless the rule imposes additional

reporting, disclosures, or other new

requirements on insured depository

institution. As a related matter, section

553(d) of the APA states that

publication of a rule shall be made not

less than 30 days before its effective

date. 5 U.S.C. 553(d). This APA

provision does not apply if the rule

grants or recognizes an exemption or

relieves a restriction. OTS believes

neither CDRIA nor the APA precludes

the publication of this rule with an

immediate effective date. As noted

above, this rule makes only burden

reducing, clarifying and technical

conforming amendments to OTS rules

and relieves current restrictions on

repurchases.4

OTS invites comments on this interim

final rule during the 60-day period that

runs concurrently with its request for

comment on companion proposed

regulation published elsewhere in

today’s Federal Register.

Regulatory Flexibility Act Analysis

An initial regulatory flexibility

analysis under the Regulatory

Flexibility Act (RFA) is required when

an agency must publish a general notice

of proposed rulemaking. 5 U.S.C. 603.

As noted previously, OTS has

determined that it is not necessary to

publish a notice of proposed rulemaking

for this interim final rule. Accordingly,

the RFA does not require an initial

regulatory flexibility analysis.

Nonetheless, OTS has considered the

likely impact of the rule on small

entities and believes that the rule will

not have a significant impact on a

substantial number of small entities.

This interim rule eliminates restrictions,

imposes no new requirements, and

makes only burden reducing, clarifying,

and technical conforming amendments

to OTS current regulations.

43090 Federal Register / Vol. 65, No. 134 / Wednesday, July 12, 2000 / Rules and Regulations

Paperwork Reduction Act

OTS invites comments on all of the

following issues:

(1) Whether the information

collections contained in this proposal

are necessary for the proper

performance of OTS? functions,

including whether the information has

practical utility.

(2) The accuracy of OTS? estimate of

the burden of the information

collections.

(3) Ways to enhance the quality,

utility, and clarity of the information to

be collected.

(4) Ways to minimize the burden of

the information collection of

respondents, including through the use

of automated collection techniques or

other forms of information technology.

(5) Estimates of capital and start-up

costs of operation, maintenance and

purchases of services to provide

information.

Respondents/recordkeepers are not

required to respond to these collections

of information unless they display a

currently valid OMB control number.

OTS has submitted the collections of

information requirements contained in

this proposal to the Office of

Management and Budget for review in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C.

3507(d)). Send comments on the

collections of information to the Office

of Management and Budget, Paperwork

Reduction Act Project (conversion

information collection requirement:

1550–0014 or the mutual holding

company information collection

requirement: 1550–0072) Washington,

DC 20503, with copies to the

Regulations and Legislation Division

(1550–0014 or 1550–0072), Chief

Counsel’s Office, Office of Thrift

Supervisions, 1700 G Street, NW.,

Washington, DC 20552.

The collections of information

requirements in this rule are in parts

563b and 575. OTS requires this

information for the proper supervision

of savings associations that convert from

mutual to stock form under OTS

regulations and mutual holding

company activities. The likely

respondents/recordkeepers are Federal

savings associations or mutual holding

companies.

OMB Control Number: 1550–0014.

Estimated average annual burden

hours per respondent/recordkeeper: 510

hours.

Estimated number of respondents/

recordkeepers: 16 per year.

Estimated total annual reporting and

recordkeeping burden: 8,160 hours.

Start up costs to respondents/

recordkeepers: N/A.

OMB Control Number: 1550–0072.

Estimated average annual burden

hours per respondent/recordkeeper: 263

hours.

Estimated number of respondents/

recordkeepers: 16 per year

Estimated total annual reporting and

recordkeeping burdenhours: 4,874

hours.

Start up costs to respondents/

recordkeepers: N/A.

Executive Order 12866

OTS has determined that this interim

final rule is not a significant regulatory

action under Executive Order 12866.

Unfunded Mandates Reform Act

Analysis

The Unfunded Mandates Reform Act

of 1995 (UMA), Pub. L. 104–4, applies

only when an agency is required to

issue a general notice of proposed

rulemaking or a final rule for which a

general notice of proposed rulemaking

was published. 2 U.S.C. 1532. As noted

previously, OTS has determined, for

good cause, that this interim final rule

should take immediate effect and,

therefore, that a notice of proposed

rulemaking is not required.

Accordingly, OTS has concluded that

the UMA does not require an unfunded

mandates analysis of this interim final

rule.

Moreover, OTS finds that this interim

rule will not result in expenditure by

state, local, and tribal governments, or

by the private sector, of more than $100

million in any one year. Rather, the rule

eliminates restrictions, imposes no new

requirements, and makes only burden

reducing, clarifying, and technical

conforming amendments to OTS

regulations. Accordingly, OTS has not

prepared a budgetary impact statement

or specifically addressed the regulatory

alternatives considered.

List of Subjects

12 CFR Part 563b

Reporting and recordkeeping

requirements, Savings associations,

Securities.

12 CFR Part 575

Administrative practice and

procedure, Capital, Holding companies,

Reporting and recordkeeping

requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift

Supervision amends title 12, Chapter V,

Code of Federal Regulations as set forth

below:

PART 563b—CONVERSIONS FROM

MUTUAL TO STOCK FORM

1.The authority citation for part 563b

continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1467a, 2901; 15 U.S.C. 78c,78l,

78m,78n,78w.

2. Section 563b.3 is amended by

revising paragraphs (g)(1) and (g)(3) to

read as follows:

§ 563b.3 General principles for

conversions.

* * * * *

(g) * * *

(1) No converted savings association

may, for a period of one year from the

date of the completion of the

conversion, repurchase any of its capital

stock from any person, except that this

restriction shall not apply to:

(i) A repurchase, on a pro rata basis,

pursuant to an offer approved by OTS

and made to all shareholders of such

association;

(ii) A repurchase of qualifying shares

of a director; or

(iii) A repurchase approved by OTS

under paragraph (g)(3) of this section.

* * * * *

(3) A savings association that is

subject to paragraph (g)(1) of this section

may not repurchase its capital stock

within one year following its conversion

to stock form, except that open market

stock repurchases of up to five percent

of its outstanding capital stock may

occur during the first year after the

conversion where extraordinary

circumstances exist. The savings

association must establish compelling

and valid business purposes for the

repurchases, to the satisfaction of the

OTS. The savings association must file

a notice with the Regional Director, with

a copy to the Office of Examination and

Supervision, at least ten days before

commencement of the proposed

repurchase. The notice must describe

the proposed repurchase program and

the effects of the proposed repurchases

on the savings association’s regulatory

capital. OTS will not object to the

proposed repurchase program if:

(i) The repurchase does not adversely

affect the savings association’s financial

condition;

(ii) The savings association submits

sufficient information to evaluate the

repurchase program;

(iii) The savings association

demonstrates extraordinary

circumstances and a compelling and

valid business purpose for the

repurchase program consistent with the

savings association’s business plan; or

Federal Register / Vol. 65, No. 134 / Wednesday, July 12, 2000 / Rules and Regulations 43091

(iv) The repurchase program would

not be contrary to other applicable

regulations.

* * * * *

PART 575—MUTUAL HOLDING

COMPANIES

3. The authority citation for part 575

continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1467a, 1828, 2901.

4. Section 575.11 is amended by:

a. Removing, in paragraph (a) the

phrase ‘‘12 U.S.C. 1467a(c)(2)(A) or

(c)(2)(C)–(c)(2)(G)’’, and by adding in

lieu thereof the phrase ‘‘;12 U.S.C.

1467a(c)(2) or (c)(9)(A)(ii)’’;

b. Redesignating, in paragraph (c), the

introductory text as paragraph (c)(1)

introductory text, and paragraphs (c)(1),

(c)(2) and (c)(3), as (c)(1)(ii), (c)(1)(iii)

and (c)(1)(iv), respectively;

c. Removing, in newly designated

paragraph (c)(1) introductory text the

word ‘‘shall’’, and by adding in lieu

thereof the word ‘‘may’’; by removing

the phrase ‘‘three years’’, and by adding

in lieu thereof the phrase ‘‘one year’’;

d. Adding, in newly designated

paragraph (c)(1), a new paragraph

(c)(1)(i);

e. Removing, in newly designated

paragraph (c)(1)(iv) the phrase ‘‘but not’’

and by adding in lieu thereof the word

‘‘or’’;

f. Adding a new paragraph (c)(2); and

g. Adding a new paragraph (d)(3).

The additions and revisions read as

follows:

§ 575.11 Operating restrictions.

* * * * *

(c)(1) * * *

(i) Is in compliance with § 563b3(g)(1)

of this chapter;

* * * * *

(2) No mutual holding company may

purchase shares of its subsidiary savings

association or subsidiary holding

company within one year after a stock

issuance, except if the purchase

complies with § 563b.3(g)(1) of this

chapter. For purposes of this subsection,

the reference in § 563b.3(g)(3) of this

chapter to five percent refers to minority

shareholders.

* * * * *

(d)* * *

(3) The OTS will not consider waived

dividends in determining an

appropriate exchange ratio in the event

of a full conversion to stock form.

* * * * *

Dated: June 20, 2000.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 00–16346 Filed 7–11–00; 8:45 am]

BILLING CODE 6720–01–P