[Federal Register Volume 83, Number 181 (Tuesday, September 18, 2018)]
[Proposed Rules]
[Pages 47101-47113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19955]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 83, No. 181 / Tuesday, September 18, 2018 / 
Proposed Rules

[[Page 47101]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 101

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


Covered Savings Associations

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

ACTION: Notice of proposed rulemaking.

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

DATES: Comments must be received on or before November 19, 2018.

ADDRESSES: You may submit comments to the OCC by any of the methods set 
forth below. Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal or email, if possible. Please use the title 
``Covered Savings Associations'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
    <bullet> Federal eRulemaking Portal--``Regulations.gov:'' Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0020'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments. Click on the ``Help'' tab on the Regulations.gov home page to 
get information on using Regulations.gov, including instructions for 
submitting public comments.
    <bullet> Email: <a href="/cdn-cgi/l/email-protection#d6a4b3b1a5f8b5b9bbbbb3b8a2a596b9b5b5f8a2a4b3b7a5f8b1b9a0"><span class="__cf_email__" data-cfemail="74061113075a171b1919111a0007341b17175a00061115075a131b02">[email protected]</span></a>.
    <bullet> Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
    <bullet> Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
    <bullet> Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0020'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments on 
the Regulations.gov website without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
    <bullet> Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0020'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
    <bullet> Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
    <bullet> Viewing Comments Personally: You may personally inspect 
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 649-6700 or, for 
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect comments.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 206 of the Economic Growth, Regulatory Relief, and Consumer 
Protection Act (EGRRCPA), Public Law 115-174, 132 Stat. 1310, amended 
the Home Owners' Loan Act (HOLA) (12 U.S.C. 1461 et seq.) to add a new 
section 5A (12 U.S.C. 1464a) that allows a Federal savings association 
with total consolidated assets of $20 billion or less, as of December 
31, 2017, to elect to operate as a covered savings association.
    A covered savings association has the same rights and privileges as 
a national bank that has its main office situated in the same location 
as the home office of the covered savings association. A covered 
savings association is subject to the same duties, restrictions, 
penalties, liabilities, conditions, and limitations that would apply to 
such a national bank. However, a covered savings association retains 
its Federal savings association charter and continues to be treated as 
a Federal savings association for purposes of governance, including for 
purposes of procedures and

[[Page 47102]]

requirements governing incorporation and organization, procedures and 
requirements governing charter and bylaws (e.g., form, amendments), 
board of director governance procedures and requirements (e.g., 
elections, term of service), shareholder governance procedures and 
requirements (e.g., meetings, voting requirements), and requirements 
governing distribution of dividends (e.g., payment, prior approval, and 
other restrictions). A covered savings association also is treated as a 
Federal savings association for purposes of consolidation, merger, 
dissolution, conversion (including conversion to a stock bank or 
another charter), conservatorship, and receivership, and for other 
purposes determined by OCC regulation. A covered savings association 
may continue to operate any branch or agency that the covered savings 
association operates on the date an election to operate as a covered 
savings association takes effect. A covered savings association will 
continue to be treated as a covered savings association even if its 
assets exceed $20 billion after it makes an election.\1\
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    \1\ 12 U.S.C. 1464a(g).
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    Section 5A of HOLA requires the OCC to issue rules to carry out 
that section. The OCC must issue rules that: (1) Establish streamlined 
standards and procedures that clearly identify required documentation 
and timelines for an election; (2) require a Federal savings 
association that makes an election to identify specific assets and 
subsidiaries held by the Federal savings association that do not 
conform to the requirements for national banks (``nonconforming assets 
and subsidiaries''); (3) establish a transition process for bringing 
the nonconforming assets and subsidiaries into conformance with the 
requirements for national banks and procedures for allowing a Federal 
savings association to submit an application to continue to hold 
nonconforming assets and subsidiaries after electing to operate as a 
covered savings association; (4) establish standards and procedures to 
allow a covered savings association to terminate an election after an 
appropriate period of time and to make a subsequent election after 
terminating an election; and (5) clarify requirements for the treatment 
of covered savings associations, including the provisions of law that 
apply to covered savings associations. Section 5A also gives the OCC 
the authority to issue rules as the Comptroller determines necessary in 
the interests of safety and soundness.
    The OCC views section 5A of HOLA as a way to provide Federal 
savings associations with additional flexibility to adapt to new 
economic conditions and business environments without the cost and time 
involved in changing their charters.\2\ This flexibility will allow 
Federal savings associations to better meet the needs of their 
communities.
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    \2\ See Testimony of Acting Comptroller of the Currency Keith A. 
Noreika before the Committee on Banking, Housing, and Urban Affairs, 
United States Senate, June 22, 2017, at 22.
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    For example, section 10(m) of HOLA requires a Federal savings 
association to maintain its status as a qualified thrift lender (QTL) 
by either holding a specified percentage of its assets in qualified 
thrift investments or qualifying as a domestic building and loan 
association as defined in the Internal Revenue Code.\3\ Further, prior 
to the enactment of section 5A of HOLA, a Federal savings association 
would have been required to convert to a bank charter to pursue a 
business strategy involving greater commercial or consumer lending if 
it would have exceeded the investment limits in HOLA. The OCC has heard 
for a number of years that Federal savings associations would like to 
engage in additional activities (for example, additional commercial or 
small business lending and consumer lending) to serve their 
communities, but they cannot increase lending in those areas because of 
the statutory lending limits and limitations imposed on the operating 
strategies of Federal savings associations that are required to comply 
with QTL. In 2015, the OCC reported this information in written 
testimony to Congress.\4\ The OCC noted that the charter conversion 
process can be time consuming and burdensome, particularly for smaller 
savings associations. At that time, Federal mutual savings associations 
faced an especially burdensome process, because they would have had to 
convert to the stock form of organization before converting to a 
national bank charter. As discussed in more detail later in this 
preamble, under the new section 5A of HOLA, a Federal savings 
association, whether in stock or mutual form, can adjust its business 
model without the additional burden and expense of changing charters.
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    \3\ 12 U.S.C. 1467a(m).
    \4\ See Written Statement of Toney Bland, Senior Deputy 
Comptroller for Midsize and Community Bank Supervision, Office of 
the Comptroller of the Currency, before the Committee on Banking, 
Housing and Urban Affairs, United States Senate, February 10, 2015, 
at 9-10.
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    As the supervisor of both national banks and Federal savings 
associations, the OCC is well-positioned to administer section 5A. OCC 
examination staff are familiar with the unique situations and business 
models of individual institutions and with national bank and Federal 
savings association laws.\5\
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    \5\ Id.
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    This proposed rule would implement section 5A in a manner that 
minimizes regulatory burden on Federal savings associations seeking to 
be treated as covered savings associations while ensuring that these 
Federal savings associations can continue to operate safely and 
soundly. The election process set out in the proposed rule is intended 
to be simple and streamlined. The proposed rule takes a similarly 
streamlined approach for the procedures and standards applicable to 
terminations of elections and to reelections.
    The OCC also is mindful of the need to permit all OCC-supervised 
institutions to engage in the same activities to the extent permitted 
by different statutory frameworks. The proposed rule does not confer 
rights or privileges on covered savings associations that would not be 
available to similarly located national banks, except as required by 
section 5A of HOLA or specifically set out in the proposed rule. Under 
the proposed rule, covered savings associations would be required to 
divest, conform, or discontinue nonconforming subsidiaries, assets, and 
activities, with appropriate lead-time, so that they do not operate, 
hold, or conduct subsidiaries, assets, or activities that would not be 
permissible for a national bank. Consistent with section 5A, the 
proposed rule would treat covered savings associations and national 
banks differently when necessary to allow a covered savings association 
to retain its Federal savings association charter and associated 
governance processes. To reduce unnecessary burden, the proposed rule 
also would allow covered savings associations to continue to use 
Federal savings association procedures rather than national bank 
procedures where the application of those procedures would not result 
in substantively different outcomes. For example, a covered savings 
association would be subject to the Federal savings association 
requirements for adjudicative proceedings under 12 CFR parts 108 and 
109 rather than the national bank requirements under 12 CFR part 19.

II. Description of the Proposal

    101.1 Authority and purposes. Paragraph (a) of this section 
provides that the proposed rule is issued pursuant to sections 3, 4, 5, 
and 5A of

[[Page 47103]]

HOLA (12 U.S.C. 1462a, 1463, 1464, and 1464a), section 5239A of the 
Revised Statutes (12 U.S.C. 93a), and section 312(b)(2)(B) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5412(b)(2)(B)).
    Paragraph (b) of this section describes the purposes of the 
proposed rule. Those purposes are to establish standards and procedures 
for an election to operate as a covered savings association, to clarify 
the requirements that apply to covered savings associations, and to 
establish standards and procedures for terminations of elections and 
for reelections.
    101.2 Definitions and computation of time. Paragraph (a) of this 
section sets out definitions for the proposed rule.
    Paragraph (a)(1) of this section defines the term ``appropriate OCC 
supervisory office.'' As in 12 CFR 5.3(d), the appropriate OCC 
supervisory office is the OCC office responsible for supervision of a 
Federal savings association, as described in subpart A of 12 CFR part 
4. The definition is intended to help Federal savings associations 
identify the office that can assist them with issues related to an 
election, a request to terminate, or a reelection.
    Paragraph (a)(2) of this section defines the term ``covered savings 
association.'' This definition, consistent with the definition of the 
term in section 5A(a) of HOLA, refers to a Federal savings association 
that has made an election that is in effect in accordance with Sec.  
101.3(b) of the proposed rule.
    Paragraph (a)(3) of this section defines the term ``effective date 
of the election'' as the date on which a Federal savings association's 
election to operate as a covered savings association takes effect 
pursuant to Sec.  101.3(b) of the proposed rule.
    Paragraph (a)(4) of this section defines the term ``nonconforming 
subsidiary, asset, or activity.'' When this term is applied to a 
covered savings association, it means a subsidiary, asset, or activity 
that is not permissible for a covered savings association or, if 
permissible, is being operated, held, or conducted in a manner that 
exceeds the limit applicable to a covered savings association. When 
applied to a covered savings association, this term includes an 
investment in a subsidiary or other entity if that investment is not 
permissible for a covered savings association. When this term is 
applied to a Federal savings association that has terminated an 
election to operate as a covered savings association, it means a 
subsidiary, asset, or activity that is not permissible for a Federal 
savings association, or if permissible, is being operated, held, or 
conducted in a manner that exceeds the limit applicable to a Federal 
savings association. When applied to a Federal savings association that 
has terminated an election to operate as a covered savings association, 
this term includes an investment in a subsidiary or other entity if 
that investment is not permissible for a Federal savings association.
    Section 5A(f) of HOLA uses the term ``assets and subsidiaries.'' 
However, under section 5A(c)(2) of HOLA, a covered savings association 
would be subject to the same duties, restrictions, penalties, 
liabilities, conditions, and limitations that apply to a similarly 
located national bank. As a result, a covered savings association's 
activities would be limited in ways that a Federal savings 
association's activities would not. For example, under 12 U.S.C. 
1464(c)(4)(B) and 12 CFR 5.59, a Federal savings association can invest 
in a service corporation, but a national bank cannot. Some activities a 
Federal savings association may conduct in a service corporation (e.g., 
acquiring real estate for development) are not permissible for a 
national bank.\6\ Consistent with section 5A(c)(2) of HOLA, the 
proposed rule would require covered savings associations to cease those 
activities that would not be permissible for a national bank. As 
discussed below, the OCC proposes to establish the same transition 
process for discontinuing nonconforming activities as it does for 
divesting nonconforming assets and subsidiaries.
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    \6\ 12 CFR 5.59(f)(5).
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    Paragraph (a)(5) of this section defines ``similarly located 
national bank'' to mean, with respect to a covered savings association, 
a national bank that has its main office situated in the same location 
as the home office of the covered savings association. For purposes of 
the proposed rule, the location of a national bank's main office is the 
home state of the national bank. The location of a covered savings 
association's home office is the home state of the covered savings 
association.
    Paragraph (b) of this section provides that, for purposes of the 
proposed rule, the OCC will compute time in the same manner as set 
forth in 12 CFR 5.12. That section provides that, in computing a period 
of days, the OCC does not include the day of the act (in this case, the 
date the OCC receives a notice of election or termination) from which 
the period begins to run. If the last day of the time period is a 
Saturday, Sunday, or Federal holiday, the time period runs until the 
end of the next day that is not a Saturday, Sunday, or Federal holiday.
    101.3 Procedures and standard of review. Under section 5A(b) of 
HOLA, a Federal savings association with total consolidated assets of 
$20 billion or less as of December 31, 2017, may elect to operate as a 
covered savings association by submitting a notice to the Comptroller. 
The Federal savings association is deemed approved to operate as a 
covered savings association beginning 60 days after the Comptroller 
receives the notice, unless the Comptroller notifies the association 
that the association is not eligible.\7\ This section of the proposed 
rule establishes streamlined standards and procedures that identify 
required documentation and timelines for an election to operate as a 
covered savings association. The proposed rule would establish 
procedures that are as simple and straightforward as possible.
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    \7\ The proposed rule also would allow the OCC to notify a 
Federal savings association that it is eligible before the full 60-
day period has elapsed.
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    Section 101.3(a)(1) of the proposed rule allows a Federal savings 
association that had total consolidated assets of $20 billion or less 
as of December 31, 2017, to make an election to operate as a covered 
savings association by submitting a notice to the appropriate OCC 
supervisory office. The OCC proposes to use the Consolidated Reports of 
Condition and Income (Call Report) submitted for the quarter ending 
December 31, 2017, to determine if the Federal savings association 
meets this threshold. Because section 5A of HOLA contemplates that ``a 
Federal savings association'' with a certain amount of assets ``as of 
December 31, 2017,'' may make an election, under the proposed rule, 
institutions that were not Federal savings associations as of December 
31, 2017, are not eligible to operate as covered savings associations.
    Under this approach, an institution that was a credit union, state 
savings association, or state bank on December 31, 2017, but that later 
converted to a Federal savings association charter, would not be 
eligible to make an election under the proposed rule. Similarly, a de 
novo Federal savings association chartered after December 31, 2017, 
would not be eligible to make an election to operate as a covered 
savings association. A Federal savings association in stock form would 
retain the option to convert directly to a national bank charter, but 
for institutions in mutual form, such as credit unions, state savings 
associations, or state savings banks, a national bank charter is not 
available without first

[[Page 47104]]

converting to stock form. The OCC invites comment on whether the option 
to elect to operate as a covered savings association should be limited 
to institutions that were Federal savings associations on December 31, 
2017.
    Paragraph (a)(1) of this section would require a Federal savings 
association to submit a notice to the appropriate OCC supervisory 
office. The appropriate OCC supervisory office has an established 
relationship with the Federal savings associations it supervises, and 
it is in regular quarterly contact with management of Federal savings 
associations. As a result, the supervisory office will be familiar with 
the condition and operations of a Federal savings association that 
submits a notice.
    The OCC encourages management of Federal savings associations to 
contact the appropriate OCC supervisory office to determine whether it 
would be useful to meet before submitting a notice under this section. 
The OCC believes such meetings can be beneficial to the management of 
Federal savings associations considering operating as covered savings 
associations, particularly Federal savings associations that may 
operate, hold, or conduct nonconforming subsidiaries, assets, or 
activities or that are operating under outstanding enforcement actions 
or matters requiring attention. These informal conversations could help 
address potential issues before a Federal savings association submits a 
notice.
    The proposed rule would require that a notice: Be signed by a duly 
authorized officer of the Federal savings association; identify each 
branch and agency that the Federal savings association will operate on 
the effective date of the election that has not been the subject of an 
application or notice under 12 CFR part 5; and identify and describe 
each nonconforming subsidiary, asset, or activity that the Federal 
savings association operates, holds, or conducts at the time it submits 
the notice, each of which must be divested, conformed, or discontinued 
pursuant to Sec.  101.5.
    The requirement for a signature of a duly authorized officer of the 
Federal savings association is intended to allow the Federal savings 
association to demonstrate that it has obtained any approval that may 
be required under its own internal procedures for making strategic 
decisions of this type.
    The proposed rule would require that the notice identify branches 
and agencies that the Federal savings association will operate on the 
date an election takes effect, and that have not been the subject of an 
application or notice under 12 CFR part 5, in order to determine which 
branches and agencies are eligible to be grandfathered pursuant to 
section 5A(e) of HOLA and Sec.  101.4(b) of the proposed rule. Federal 
savings associations are already required under 12 CFR part 5 to submit 
applications or notices to the OCC with respect to branches and 
agencies (for example, when establishing, acquiring, or relocating 
branches or establishing agencies). The proposed rule would only 
require a Federal savings association to identify branches or agencies 
for which the Federal savings association has not already submitted an 
application or notice. These are likely to be branches or agencies that 
are newly established at the time of an election under the proposed 
rule.
    The proposed rule would require Federal savings associations to 
identify nonconforming subsidiaries, assets, and activities because 
these are the subsidiaries, assets, and activities the Federal savings 
association would need to divest, conform, or discontinue pursuant to 
section 5A(f)(3) of HOLA and Sec.  101.5 of the proposed rule after an 
election takes effect. Consistent with section 5A(f)(2) of HOLA, the 
OCC would expect a Federal savings association to identify 
subsidiaries, assets, and activities operated, held, or conducted at 
the time it submits a notice of election. The OCC expects that the 
description of the subsidiaries, assets, and activities would specify 
whether an asset or activity is held or conducted by the Federal 
savings association itself or by a subsidiary. The description of these 
subsidiaries, assets, and activities should be sufficient to allow the 
OCC to understand the size of the subsidiaries or assets and the scope 
of the activities relative to the asset size or capital of the Federal 
savings association. However, given the possibility of fluctuations, 
the OCC understands that the value of a subsidiary, asset, or activity 
at any given point in time might not reflect its usual size or scope. 
The OCC invites comment on whether the proposed rule should specify 
metrics for determining the size or scope of a subsidiary, asset, or 
activity, and, if so, whether those metrics should reflect a specific 
point in time.
    Under Sec.  101.3(b) of the proposed rule, a Federal savings 
association's election to operate as a covered savings association 
would automatically take effect 60 days after the OCC receives a notice 
from the Federal savings association, unless the OCC notifies the 
Federal savings association that it is not eligible in accordance with 
paragraph (c). The OCC also could notify a Federal savings association 
that it is eligible to operate as a covered savings association before 
60 days have elapsed. The proposed rule does not include a provision 
for written notification if an election takes effect by operation of 
law, but the OCC would expect to provide such notification as a matter 
of course. The OCC expects that such a notification would state that a 
Federal savings association is subject to the covered savings 
association laws, as described in Sec.  101.4 of the proposed rule, 
once an election takes effect. Such a notification would have no impact 
on whether or when an election takes effect.
    Section 101.3(c) of the proposed rule permits the OCC to notify a 
Federal savings association in writing that it is not eligible to make 
an election to operate as a covered savings association if the Federal 
savings association is not an ``eligible savings association'' as that 
term is defined in 12 CFR 5.3(g). Under the definition in 12 CFR 
5.3(g), an eligible savings association is a Federal savings 
association that (1) is well capitalized as defined in 12 CFR 6.4; (2) 
has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (CAMELS); (3) has a Community Reinvestment 
Act (CRA) rating of ``outstanding'' or ``satisfactory,'' if applicable; 
(4) has a consumer compliance rating of 1 or 2 under the Uniform 
Interagency Consumer Compliance Rating System; and (5) is not subject 
to a cease and desist order, consent order, formal written agreement, 
or Prompt Corrective Action directive or, if subject to any such order, 
agreement, or directive, is informed in writing by the OCC that the 
savings association may be treated as an ``eligible savings 
association'' for purposes of 12 CFR part 5. Because the purposes of 12 
CFR part 5 and the purposes of the proposed rule are different, the 
proposed rule specifies that a Federal savings association that is 
subject to a cease and desist order, consent order, formal written 
agreement, or Prompt Corrective Act directive would not be eligible to 
elect to operate as a covered savings association unless the OCC 
informs it in writing that it is eligible for purposes of part 101 
(that is, for purposes of the proposed rule).
    The concept of an ``eligible savings association'' as described in 
12 CFR 5.3(g) is well understood and relatively straightforward to 
apply. In the licensing context, an ``eligible savings association'' 
may receive expedited review of filings because it is generally the 
type of savings association that can operate safely and soundly. In the 
context of the proposed rule, a Federal

[[Page 47105]]

savings association that meets the definition of ``eligible savings 
association'' typically does not raise the types of concerns that would 
suggest it should not operate as a covered savings association.
    The OCC invites comment on whether there are standards other than 
those in the definition of ``eligible savings association'' in 12 CFR 
5.3(g) that would allow the OCC to determine, without imposing undue 
burden, whether a Federal savings association is eligible to operate as 
covered savings association. The OCC also invites comment on whether 
there are situations in which, or Federal savings associations for 
which, it would not be appropriate to use the definition of ``eligible 
savings association'' to make determinations about the eligibility of a 
Federal savings association to operate as covered savings associations. 
Additionally, the OCC invites comment on whether the rule should 
identify other factors for consideration when determining a Federal 
savings association's eligibility to operate as a covered savings 
association.
    The proposed rule would not require a Federal savings association 
to amend its charter or bylaws or to obtain the approval of 
shareholders or members before submitting a notice to the OCC. The 
model Federal savings association charter allows a Federal savings 
association to pursue any lawful objectives of a Federal savings 
association chartered under section 5 of HOLA. Section 5A of HOLA 
permits covered savings associations to engage in activities that would 
be permissible for a national bank. Covered savings associations will 
continue to be Federal savings associations chartered under section 5 
of HOLA, as neither the proposed rule nor the statute requires a 
charter conversion.
    Nevertheless, management of a Federal savings association that is 
interested in submitting a notice to elect to operate as a covered 
savings association should review the Federal savings association's 
charter and bylaws, as well as any other applicable law, to determine 
whether an election will require shareholder or member approval or 
whether it should amend its charter or bylaws because the documents 
contain terms that are inconsistent with the rights and duties of a 
covered savings association.
    101.4 Treatment of covered savings associations. Section 5A(c) of 
HOLA provides that a covered savings association has the same rights 
and privileges as a national bank that has the main office of the 
national bank situated in the same location as the home office of the 
covered savings association and is subject to the same duties, 
restrictions, penalties, liabilities, conditions, and limitations that 
would apply to such a national bank. Section 5A(d) of HOLA also 
specifies that a covered savings association is treated as a Federal 
savings association for the purposes of governance of the covered 
savings association, including incorporation, bylaws, boards of 
directors, shareholders, and distribution of dividends, as well as for 
purposes of consolidation, merger, dissolution, conversion (including 
conversion to a stock bank or to another charter), conservatorship, and 
receivership. Section 5A(d)(3) gives the OCC the authority to identify 
by regulation other purposes for which a covered savings association 
will be treated as a Federal savings association. Within that general 
framework, section 5A(f)(5) of HOLA directs the OCC to clarify the 
requirements for the treatment of covered savings associations, 
including the provisions of law that apply to a covered savings 
association. Although, for many purposes, the regulations that apply to 
national banks are identical to the regulations that apply to Federal 
savings associations, there are provisions of Federal savings 
association law that are neither identical to national bank laws nor 
explicitly identified in section 5A(d) as purposes for which Federal 
savings association laws continue to apply to covered savings 
associations. For these provisions of law, the OCC seeks to clarify the 
legal framework that will apply while preserving the OCC's flexibility 
to address novel situations and unforeseen questions.
    The proposed rule offers two alternatives to explain what it means 
for a covered savings association to have the rights and privileges of 
a similarly located national bank while being subject to the same 
duties, restrictions, penalties, liabilities, conditions, and 
limitations as a similarly located national bank.
    The first alternative would require a covered savings association 
to comply with the same provisions of law that would apply to a 
similarly located national bank and would not require it to comply with 
the provisions of law that apply to Federal savings associations, 
except in specific areas identified in Sec.  101.4(a)(2) of the 
proposed rule, such as governance (including incorporation, bylaws, 
boards of directors, shareholders, and distribution of dividends), 
consolidation, merger, dissolution, conversion (including conversion to 
a stock bank or to another charter), conservatorship, and receivership. 
In these specific areas, the laws otherwise applicable to a Federal 
savings association will apply to a covered savings association.\8\
---------------------------------------------------------------------------

    \8\ For convenience, this preamble refers to these areas as 
``the Federal savings association categories.'' They are discussed 
in greater detail later in this preamble.
---------------------------------------------------------------------------

    The first alternative would provide a framework for a covered 
savings association to understand the provisions of law that apply to 
it: That is, national bank provisions will apply, except where 
specifically set out in the proposed rule, and Federal savings 
association laws will not apply, except where specifically set out in 
the proposed rule. However, there may be circumstances where it would 
not be appropriate to apply a provision of national bank law to a 
covered savings association. Under the first alternative, unless that 
provision of national bank law is included in one of the Federal 
savings association categories, the OCC may not have the flexibility to 
decline to apply it to a covered savings association without amending 
the rule. The OCC invites comment on whether there are situations in 
which the first alternative would inappropriately apply provisions of 
national bank law to a covered savings association. The OCC also 
invites comment on whether the first alternative, if adopted, should 
include a reservation of authority to allow the OCC to determine that a 
particular provision of national bank law should not apply to covered 
savings associations. Would the framework of this alternative give 
covered savings associations and other interested persons sufficient 
notice of the provisions of law that do and do not apply to covered 
savings associations? Would the latitude provided to the OCC under a 
reservation of authority make this first alternative more workable?
    The second alternative focuses on the activities that would be 
permissible for a covered savings association. It is based on the 
requirements for operating subsidiaries of national banks set out in 12 
CFR 5.34(e). This alternative would provide that a covered savings 
association may engage in any activity that is permissible for a 
national bank to engage in as part of, or incidental to, the business 
of banking, or explicitly authorized by statute for a national bank, 
subject to the same authorization, terms, and conditions that would 
apply to a similarly located national bank, as determined by the OCC 
for purposes of the proposed rule. Like the first alternative, this 
second alternative would be subject to an exception for

[[Page 47106]]

provisions of law in the Federal savings association categories.
    The second alternative provides general guidance about the types of 
activities in which a covered savings association would be permitted to 
engage. Covered savings associations would be able to refer to OCC 
publications such as ``Activities Permissible for National Banks and 
Federal Savings Associations, Cumulative'' \9\ to find activities that 
are permissible for national banks. The OCC's permissible activities 
document includes links to OCC advisory letters, interpretive letters, 
bulletins, and other resources that would help covered savings 
associations understand the authorization, terms, and conditions that 
apply to these permissible activities.
---------------------------------------------------------------------------

    \9\ October 2017, available at https://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-other-activities-permissible-october-2017.pdf.
---------------------------------------------------------------------------

    The second alternative is more narrowly tailored than the first 
alternative, and it preserves the OCC's authority to determine that a 
particular provision of national bank law does not apply to covered 
savings associations. However, it may be difficult for a covered 
savings association to determine whether a particular provision of law 
is considered an ``authorization,'' ``term,'' or ``condition'' that 
applies to a covered savings association if that provision is not 
otherwise discussed in an OCC publication.
    The OCC invites comment on which of these alternatives would best 
clarify the requirements for the treatment of covered savings 
associations, including the provisions of law that apply to covered 
savings associations. Are there provisions of law that would not be 
clearly addressed by these alternatives? Are there situations in which 
these alternatives would not lead to an appropriate result?
    Because section 5A(c) provides covered savings associations with 
the same rights and privileges as a similarly located national bank, 
subject to the same duties, restrictions, penalties, liabilities, 
conditions, and limitations that would apply to a similarly located 
national bank, both alternatives would allow a covered savings 
association to engage in activities to the same extent as a national 
bank. Except as provided in the proposed rule, a covered savings 
association would be permitted to engage in the same activities as a 
national bank, subject to the restrictions that would apply to a 
national bank rather than the restrictions that would apply to a 
Federal savings association.
    Unlike national banks, Federal savings associations are required to 
comply with the QTL test,\10\ which limits the majority of their 
activities and asset mix to those with a housing focus.\11\ The QTL 
test is a defining distinction between the rights and privileges of a 
savings association and a national bank.\12\ Following an election 
under section 5A, while it retains its charter, a covered savings 
association has all the same rights and privileges of, and is subject 
to the same duties, restrictions, penalties, liabilities, conditions, 
and limitations that would apply to, a similarly located national 
bank.\13\ Although section 5A provides that a covered savings 
association continues to be treated as a Federal savings association 
for certain enumerated areas and purposes such as governance and 
distribution of dividends, none of these enumerated areas or purposes 
relate to the QTL test, the other limitations in section 5(c), or the 
lending restrictions of section 11(a). A covered savings association 
cannot logically exercise the rights and privileges conferred on it 
under section 5A (and have the activities and asset mix permitted to a 
national bank) while simultaneously being subject to the limitations of 
the QTL test, section 5(c), or section 11(a) lending restrictions. 
Accordingly, a covered savings association under section 5A is not 
subject to, among other things, the QTL test and the restrictions in 12 
U.S.C. 1467a(m)(3)(B) for failing to meet the QTL test.
---------------------------------------------------------------------------

    \10\ 12 U.S.C. 1467a(m).
    \11\ 12 U.S.C. 1467a(m)(3)(B).
    \12\ See, generally, Statement of Ellen Seidman, Director, 
Office of Thrift Supervision, before the Committee on Banking, 
Housing, and Urban Affairs, United States Senate, February 24, 1999. 
Other differences are, for example, a bar under section 11(a) of 
HOLA that prevents Federal savings associations from making loans to 
affiliates not engaged in activities permissible for a bank holding 
company under section 4(c) of the Bank Holding Company Act and other 
constraints on the amount of commercial lending.
    \13\ 12 U.S.C. 1464a(c).
---------------------------------------------------------------------------

    A similar analysis applies to the limits on aggregate amounts of 
loans secured by liens on nonresidential real property,\14\ additional 
restrictions on loans to a single borrower,\15\ other borrowing 
limitations,\16\ and certain affiliate transaction requirements.\17\ 
Because national banks are not subject to the duties, restrictions, 
penalties, liabilities, or conditions described in these provisions 
(and the proposed rule does not require covered savings associations to 
continue to comply with these provisions, as described later in this 
preamble), covered savings associations would not be subject to these 
provisions.
---------------------------------------------------------------------------

    \14\ 12 U.S.C. 1464(c)(2)(B).
    \15\ 12 U.S.C. 1464(u) and 12 CFR part 32.
    \16\ 12 CFR 163.80.
    \17\ 12 U.S.C. 1468(a) and 12 CFR 223.72.
---------------------------------------------------------------------------

    In order to clarify the provisions of law that apply to covered 
savings associations, the OCC also must identify the purposes for which 
a covered savings association will be treated as a Federal savings 
association. Section 5A of HOLA sets out specific categories of 
activities where Federal savings association laws apply. Those 
categories are governance of the covered savings association (including 
incorporation, bylaws, boards of directors, shareholders, and 
distribution of dividends), consolidation, merger, dissolution, 
conversion (including conversion to a stock bank or to another 
charter), conservatorship, and receivership. The OCC can exercise its 
interpretive authority to determine which Federal savings association 
laws fall into each of those categories. The chart below shows examples 
of Federal savings association laws with which the OCC proposes to 
require covered savings associations to comply because these examples 
fall into the categories specifically created by section 5A. The OCC 
proposes that the statutory category for provisions relating to 
``shareholders'' be construed to include provisions relating to the 
members of Federal mutual savings associations.

------------------------------------------------------------------------
              Statutory category                    Provision of law
------------------------------------------------------------------------
Incorporation................................  12 CFR 5.20. This section
                                                sets out requirements
                                                for organizing a
                                                national bank or Federal
                                                savings association,
                                                including for
                                                establishment as a legal
                                                entity. Although many
                                                aspects of this section
                                                are identical for
                                                national banks and
                                                Federal savings
                                                associations, where
                                                there are differences,
                                                the Federal savings
                                                association requirements
                                                would apply to a covered
                                                savings association.
Bylaws.......................................  12 CFR 5.21. This section
                                                sets out the
                                                requirements for Federal
                                                mutual savings
                                                associations when
                                                adopting or amending the
                                                charters or bylaws.

[[Page 47107]]

 
Bylaws.......................................  12 CFR 5.22. This section
                                                sets out the
                                                requirements for stock
                                                Federal savings
                                                associations when
                                                adopting or amending the
                                                charters or bylaws.
Board of directors; bylaws...................  12 CFR 145.121. This
                                                section requires Federal
                                                savings associations to
                                                indemnify directors,
                                                officers, and employees.
Board of directors...........................  12 CFR 163.33. This
                                                section sets out
                                                requirements for the
                                                composition of the board
                                                of directors of a
                                                Federal savings
                                                association.
Board of directors...........................  12 CFR 163.47. This
                                                section sets out
                                                requirements for
                                                employee pension plans
                                                of Federal savings
                                                associations, which may
                                                be amended or terminated
                                                by the board of
                                                directors.
Board of directors...........................  12 CFR 163.200. This
                                                section sets
                                                expectations for the
                                                directors, officers, and
                                                employees of Federal
                                                savings associations,
                                                particularly as it
                                                relates to conflicts of
                                                interest.
Board of directors...........................  12 CFR 163.201. This
                                                section sets
                                                expectations for the
                                                directors and officers
                                                of Federal savings
                                                associations,
                                                particularly as it
                                                relates to corporate
                                                opportunity.
Board of directors...........................  12 CFR 163.172(c), (d),
                                                and (e). These
                                                provisions establish
                                                requirements for
                                                directors and management
                                                of Federal savings
                                                associations to oversee
                                                and keep records
                                                pertaining to
                                                derivatives
                                                transactions.
Board of directors...........................  12 CFR 163.176. This
                                                section requires the
                                                boards of directors of
                                                Federal savings
                                                associations to
                                                participate in interest
                                                rate risk management.
Board of directors...........................  12 CFR 160.130. This
                                                section prohibits
                                                directors and officers
                                                from receiving loan
                                                procurement fees.
Shareholders (members).......................  12 CFR part 144. This
                                                part sets out rules for
                                                communications between
                                                members of Federal
                                                mutual savings
                                                associations. The
                                                national bank laws
                                                relating to shareholder
                                                communications do not
                                                adequately address the
                                                unique needs and rights
                                                of Federal mutual
                                                savings association
                                                members.
Shareholders (members).......................  12 CFR part 169. This
                                                part sets out rules for
                                                proxies in the mutual
                                                context. The national
                                                bank laws relating to
                                                proxies do not
                                                adequately address the
                                                unique needs and rights
                                                of Federal mutual
                                                savings association
                                                members.
Distribution of dividends....................  12 CFR 5.55. This section
                                                sets out requirements
                                                for capital
                                                distributions by Federal
                                                savings associations,
                                                including distributions
                                                of dividends. The entire
                                                section would apply to a
                                                covered savings
                                                association.
Consolidation................................  12 CFR 5.33. This section
                                                sets out requirements
                                                for business
                                                combinations involving a
                                                national bank or Federal
                                                savings association,
                                                including consolidation.
                                                Although many aspects of
                                                this section are
                                                identical for national
                                                banks and Federal
                                                savings associations,
                                                where there are
                                                differences, the Federal
                                                savings association
                                                requirements would apply
                                                to a covered savings
                                                association.
Merger.......................................  12 CFR 5.33. This section
                                                sets out requirements
                                                for business
                                                combinations involving a
                                                national bank or Federal
                                                savings association,
                                                including mergers.
                                                Although many aspects of
                                                this section are
                                                identical for national
                                                banks and Federal
                                                savings associations,
                                                where there are
                                                differences, the Federal
                                                savings association
                                                requirements would apply
                                                to a covered savings
                                                association.
Dissolution..................................  12 CFR 5.48. This section
                                                sets out requirements
                                                for voluntary
                                                liquidation of a
                                                national bank or Federal
                                                savings association.
                                                Although many aspects of
                                                this section are
                                                identical for national
                                                banks and Federal
                                                savings associations,
                                                where there are
                                                differences, the Federal
                                                savings association
                                                requirements would apply
                                                to a covered savings
                                                association.
Conversion...................................  12 CFR 5.25. This section
                                                sets out requirements
                                                for conversion from a
                                                national bank or Federal
                                                savings association to a
                                                state bank or state
                                                savings association.
                                                Although many aspects of
                                                this section are
                                                identical for national
                                                banks and Federal
                                                savings associations,
                                                where there are
                                                differences, the Federal
                                                savings association
                                                requirements would apply
                                                to a covered savings
                                                association.
Conversion...................................  12 CFR part 192. This
                                                part sets out
                                                requirements for savings
                                                associations converting
                                                from mutual to stock
                                                form.
Conservatorship..............................  12 U.S.C. 1464(d) and
                                                1821(c). The statutes
                                                set forth the
                                                authorities for the
                                                appointment of a
                                                conservator for Federal
                                                savings associations.
Receivership.................................  12 U.S.C. 1464(d) and
                                                1821(c). The statutes
                                                set forth the
                                                authorities for the
                                                appointment of a
                                                receiver for Federal
                                                savings associations.
------------------------------------------------------------------------

    These are the types of provisions that the OCC would expect to 
identify in guidance as governance-related provisions but would not 
expect to include in the text of the rule. The OCC invites comment on 
whether the particular provisions identified earlier in this preamble 
should be considered provisions of law that relate to governance 
(including incorporation, bylaws, boards of directors, shareholders, 
and distribution of dividends), consolidation, merger, dissolution, 
conversion (including conversion to a stock bank or to another 
charter), conservatorship, and receivership and whether there are other 
provisions of law that the OCC should identify. The OCC also invites 
comment on whether these provisions should be specifically identified 
in the rule rather than in guidance.
    Under section 5A(d)(3) of HOLA, the OCC also has the discretion to 
identify, by rule, additional areas where Federal savings association 
laws apply to covered savings associations. There are three categories 
of laws for which this treatment would be appropriate. The first 
category consists of laws that allow Federal mutual savings 
associations to conduct business as mutual institutions. For example, 
12 CFR 163.74 sets out rules for mutual capital certificates. There is 
no comparable provision for national banks. Likewise, 12 CFR 163.76 
prohibits a Federal savings association from selling equity securities 
in its offices, unless the sale involves stock sold to convert the 
savings association from the mutual to stock form. Sale of conversion 
stock in offices can promote a widespread distribution of conversion 
stock as required by the stock conversion regulations (see 12 CFR part 
192) and help facilitate the success of a stock conversion. Because a 
similar rule does not exist for national banks, under the proposed 
rule, the requirements of 12 CFR 163.76 will continue to apply to the 
operations of a covered savings association in the event the savings 
association seeks to convert from the mutual to stock form of 
organization. The OCC proposes to continue to apply these types of 
Federal savings association requirements to covered savings 
associations.
    The second area consists of rules that set out procedural and 
operational requirements for Federal savings associations but that do 
not result in

[[Page 47108]]

substantively different outcomes for Federal savings associations and 
national banks. The OCC proposes to apply Federal savings association 
rules that set forth procedural and operational requirements to covered 
savings associations, because Federal savings associations have already 
developed the policies, procedures, and expertise to comply with the 
Federal savings association procedures.
    The following chart sets out rules that set forth procedural and 
operational requirements:

------------------------------------------------------------------------
    Applicable Federal savings      Comparable national bank rule (does
   association rule (applies to         not apply to covered savings
  covered savings associations)                associations)
------------------------------------------------------------------------
12 CFR parts 108 and 109,          12 CFR part 19.
 adjudicative proceedings.
12 CFR part 112, investigative     12 CFR part 19.
 proceedings.
12 CFR part 151, recordkeeping     12 CFR part 12.
 and confirmation for securities
 transactions.
12 CFR 5.56, inclusion of          12 CFR 5.47.
 subordinated debt securities and
 mandatorily redeemable preferred
 stock of Federal savings
 associations as supplementary
 capital.
12 CFR 5.45, increases in          12 CFR 5.56.
 permanent capital.
12 CFR part 168, security          12 CFR part 21, subpart A.
 procedures.
------------------------------------------------------------------------

    Finally, the OCC proposes to apply Federal savings association 
provisions where there is a specific Federal savings association rule 
with no corresponding specific national bank rule, but the Federal 
savings association rule sets out requirements that are consistent with 
supervisory expectations for national banks or is substantially similar 
to an interagency rule. For example, 12 CFR part 162 implements a 
statutory requirement in HOLA that requires Federal savings 
associations to use generally accepted accounting principles. Pursuant 
to the Federal Deposit Insurance Act at 12 U.S.C. 1831m and its 
implementing regulation at 12 CFR 363, all insured depository 
institutions are required to use generally accepted accounting 
principles. Similarly, 12 CFR 163.170(c) sets out expectations for 
maintenance of records with which the OCC also would expect a national 
bank to comply as a matter of course. The proposed rule also would 
treat covered savings associations as Federal savings associations for 
purposes of 12 CFR part 128, which sets out nondiscrimination 
requirements, and 12 CFR 163.27, which prohibits inaccurate or 
misrepresentative advertising.
    The OCC invites comment on whether any of the provisions of Federal 
savings association law proposed earlier in this preamble to be 
applicable to covered savings associations should not apply to covered 
savings associations. The OCC also invites comment on whether the OCC 
should exercise its discretion under section 5A(d)(3) of HOLA to 
identify in this rule additional areas in which Federal savings 
association laws, rather than national bank laws, should apply to 
covered savings associations.
    The OCC recognizes that the areas described earlier in this 
preamble may not be the only areas where it would be appropriate to 
apply provisions of Federal savings association laws to covered savings 
associations. Novel and unforeseen situations may arise in which it 
would be appropriate to apply a provision of Federal savings 
association law not identified earlier in this preamble to a covered 
savings association. The OCC solicits comment on whether it would be 
helpful to include a mechanism in this rule that would allow the OCC, 
in the future, to identify additional provisions of Federal savings 
association law that apply to covered savings associations, without 
amending this rule. Such a mechanism might consist of publishing an 
interpretive letter or updating a particular OCC publication.
    In areas not specifically described earlier in this preamble, the 
proposed rule contemplates that national bank laws would apply to a 
covered savings association. For example, a covered savings association 
seeking to establish a de novo branch or close an existing branch would 
be subject to the statutes and regulations that govern the 
establishment or closing of a national bank branch.\18\ Similarly, the 
requirement for employment agreements is not an area identified earlier 
in this preamble, so the Federal savings association rules in 12 CFR 
163.39 would not apply.
---------------------------------------------------------------------------

    \18\ See the discussion of section 5A(e) of HOLA later in this 
preamble, which allows a covered savings association to continue to 
operate branches it operated on the date its election is approved.
---------------------------------------------------------------------------

    The proposed rule also would require a covered savings association 
to comply with national bank law with respect to subsidiaries. Section 
5A(f)(2) of HOLA directs the OCC to issue rules that require Federal 
savings associations making an election to identify ``specific assets 
and subsidiaries'' that do not conform to the requirements for assets 
and subsidiaries of a national bank. Section 5A(f)(3) requires that the 
OCC's rules establish a transition process for bringing these assets 
and subsidiaries into conformance with the requirements for a national 
bank. This suggests that Congress may have intended to prohibit covered 
savings associations from retaining assets or subsidiaries, such as 
service corporations, in which a national bank would not be authorized 
to hold, operate, or invest. Consequently, the proposed rule would 
require a covered savings association to comply with national bank laws 
for purposes of forming new subsidiaries. Under Sec.  101.4(a)(1) of 
the proposed rule, 12 CFR 5.34, 5.35, and 5.39, which respectively set 
out requirements for the formation of operating subsidiaries, bank 
service companies, and financial subsidiaries by national banks, would 
apply to covered savings associations. Similarly, 12 CFR 5.36, which 
addresses other equity investments by national banks, would apply to 
covered savings associations. Because 12 CFR 5.59, addressing Federal 
savings association service corporations, is not listed in Sec.  
101.4(a)(2) as a provision of Federal savings association law that 
continues to apply to covered savings associations, 12 CFR 5.59 would 
not apply.
    Service corporations of Federal savings associations have been 
authorized to engage in a range of activities. Some of those activities 
are permissible for a national bank and some are not. Under the 
proposed rule, both subsidiaries and those activities conducted in a 
subsidiary that are impermissible for a national bank would be 
impermissible for a covered savings association. However, the OCC 
recognizes that a prohibition on operating a service corporation could 
have a significant effect on a covered savings association. The OCC 
invites comment on whether the rule should allow covered savings 
associations to continue to operate a service corporation, and under 
what conditions, if the service corporation is engaged

[[Page 47109]]

only in activities that would be permissible for a national bank.
    The proposed rule would not apply section 5(i)(4) of HOLA to 
covered savings associations. Section 5(i)(4) of HOLA provides that 
Federal savings banks chartered prior to October 15, 1982, may continue 
to make any investment or engage in any activity not otherwise 
authorized under section 5 to the degree they were permitted to do so 
as a Federal savings bank prior to October 15, 1982.\19\ In addition, 
any Federal savings bank in existence on August 9, 1989, that had been 
formerly organized as a mutual savings bank under State law may 
continue to make any investment or engage in any activity to the degree 
it was authorized to do so as a mutual savings bank under State law. 
Some of these investments and activities, although permissible for 
certain Federal savings associations, would not be permissible for a 
national bank. The proposed rule would not apply section 5(i)(4) of 
HOLA (or the implementing regulations at 12 CFR part 143) to a covered 
savings association, meaning that a Federal savings association with 
investments and activities grandfathered under that section would be 
required to divest any of those investments and discontinue any of 
those activities that would not be permissible for a national bank.
---------------------------------------------------------------------------

    \19\ These institutions also receive grandfathered treatment 
under section 18(m) of the Federal Deposit Insurance Act (12 U.S.C. 
1828(m)).
---------------------------------------------------------------------------

    The proposed rule would require a covered savings association to 
comply with the national bank public welfare investment limits rather 
than the Federal savings association community development limits. 
National banks are subject to a public welfare investment limit of 15 
percent of their capital and surplus, consistent with 12 U.S.C. 24 
(Eleventh) and 12 CFR part 24. The community development investment 
limits for Federal savings associations are set out in 12 CFR 160.36 
(less than or equal to the greater of 1 percent of the association's 
capital or $250,000); section 5(c)(3)(A) of HOLA (12 U.S.C. 
1464(c)(3)(A)) and 12 CFR 160.30, as interpreted by the Office of 
Thrift Supervision's May 10, 1995, Letter Regarding Community 
Development investments (aggregate community development loans and 
equity investments may not exceed 5 percent of the association's total 
assets, and, within that limitation, the association's aggregate equity 
investments may not exceed 2 percent of its total assets); and 12 CFR 
5.59 (allowing the association to invest up to 3 percent of its assets 
in service corporations but providing that any amount exceeding 2 
percent must serve ``primarily community, inner-city, or community 
development purposes''). If a Federal savings association uses all or a 
portion of the investment limits permitted under the three legal 
authorities, it is possible that its aggregate community development 
investments would exceed the investment limits for national banks. As a 
result, applying national bank limitations to covered savings 
associations for purposes of public welfare and community development 
investments could require a Federal savings association that elects to 
operate as a covered savings association to divest some of its 
community development investments.\20\ Divesting community development 
investments could have a negative impact on a covered savings 
association's community, and divestment may make it more difficult for 
the covered savings association to meet its requirements under the CRA. 
Given these potential consequences, the OCC invites comment on whether 
covered savings associations should be treated as Federal savings 
associations for purposes of public welfare and community development 
investments.
---------------------------------------------------------------------------

    \20\ For example, a national bank with total consolidated assets 
of $250 million would be subject to a public welfare investment 
limit of $4,500,000 (15 percent of its capital and surplus if 
capital is 12 percent). A Federal savings association of the same 
size would be permitted to invest $300,000 under 12 CFR 160.63, 
$5,000,000 under 12 CFR 160.30, and $2,500,000 under 12 CFR 5.59, 
for a total of $12,300,000. If that Federal savings association 
elected to become a covered savings association, it would be 
required to divest $7,800,000 of its community development 
investments to comply with the public welfare investment limit for 
national banks.
---------------------------------------------------------------------------

    Paragraph (b) of Sec.  101.4 of the proposed rule provides that a 
covered savings association may continue to operate any branch or 
agency that the covered savings association operated on the effective 
date of the election. This provision implements section 5A(e) of HOLA.
    Section 5A(g) of HOLA provides that a covered savings association 
can continue to operate as a covered savings association, even if its 
total consolidated assets grow to more than $20 billion. Although this 
principle is not explicitly set out in the proposed rule, the OCC would 
apply it when supervising covered savings associations.
    101.5 Nonconforming subsidiaries, assets, and activities. This 
section establishes a transition process for bringing nonconforming 
subsidiaries, assets, and activities into conformance with the 
requirements for national banks.
    Paragraph (a) of Sec.  101.5 would require a covered savings 
association to divest, conform, or discontinue nonconforming 
subsidiaries, assets, and activities at the earliest time that prudent 
judgment dictates but not later than two years after the effective date 
of an election. This requirement is consistent with paragraphs (2) and 
(3) of section 5A(f) of HOLA, which set out an expectation that covered 
savings associations will bring assets and subsidiaries that do not 
conform to the requirements for national banks into conformance with 
the requirements for national banks.
    In keeping with the goal of maintaining a level playing field among 
OCC-supervised institutions, the proposed rule would require a covered 
savings association to divest, conform, or discontinue nonconforming 
subsidiaries, assets, and activities at the earliest time prudent 
judgment dictates. Recognizing that circumstances may occasionally 
dictate that immediate divestment, conformance, or discontinuance is 
not prudent, the proposed rule would provide up to two years for such 
action. The two-year period for divesting, conforming, or discontinuing 
nonconforming subsidiaries, assets, and activities is the same period 
that the OCC would generally allow for a Federal savings association 
converting to a national bank. This period should, in most cases, 
provide a covered savings association with sufficient lead-time to 
minimize potential undue financial harm from divesting, conforming, or 
discontinuing nonconforming subsidiaries, assets, and activities. This 
period also is intended to be short enough to ensure that covered 
savings associations are not allowed to gain an advantage by holding or 
operating assets or subsidiaries or conducting activities that would 
not be permissible for a national bank. The OCC invites comment on 
whether a different period, such as the more general ``reasonable 
time'' standard set out in the conversion rules at 12 CFR 5.24, should 
apply.
    Paragraph (a) of this section also provides that the OCC may 
require a covered savings association to submit a plan to divest, 
conform, or discontinue a nonconforming subsidiary, asset, or activity. 
Such a plan would assist OCC supervisory staff in assessing compliance 
with the proposed rule.
    Paragraph (b) of this section would allow the OCC to grant a 
covered savings association extensions of not more than two years each 
up to a maximum of eight years if the OCC determines that: (1) The 
covered savings association has made a good faith effort to divest, 
conform, or discontinue the

[[Page 47110]]

nonconforming subsidiaries, assets, or activities; (2) divestiture, 
conformance, or discontinuance would have a material adverse financial 
effect on the covered savings association; and (3) retention or 
continuation of the nonconforming subsidiaries, assets, or activities 
is consistent with the safe and sound operation of the covered savings 
association. This paragraph is intended to provide the OCC with 
flexibility where a covered savings association, despite its best 
efforts, is unable to divest or conform assets or discontinue 
activities within the two-year period. For example, in cases where a 
covered savings association has a service corporation that owns 
nonconforming real estate in a market experiencing a significant and 
prolonged lack of demand, the OCC could grant an extension to allow 
market conditions to improve rather than requiring the covered savings 
association to sell the real estate within two years and take a loss on 
the property, provided the standards set forth in paragraph (b) are 
satisfied. The proposed rule limits the number of extensions to ensure 
that a covered savings association cannot retain or continue a 
nonconforming subsidiary, asset, or activity for more than 10 years 
past the effective date of an election. The 10-year period in the 
proposed rule is consistent with the 10-year limitation on possession 
of OREO by national banks under 12 U.S.C. 29. The limitation is 
intended to ensure that covered savings associations do not have the 
ability to retain or continue indefinitely subsidiaries, assets, or 
activities that would not be permissible for a national bank.
    The OCC invites comment on whether there are any situations in 
which it would be appropriate for a covered savings association to 
retain a nonconforming subsidiary or asset or continue a nonconforming 
activity for longer than 10 years. What characteristics do these 
subsidiaries, assets, or activities have that would make it appropriate 
for them to be treated differently than other nonconforming 
subsidiaries, assets, or activities (for example, would conforming 
result in particularly severe adverse consequences)? If the rule 
permits a subsidiary, asset, or activity to be retained or continued 
for longer than 10 years, should the OCC limit the ability of a covered 
savings association to expand the subsidiary, asset, or activity?
    Paragraph (c) of this section of the proposed rule provides that 
Federal savings association law would continue to apply to 
nonconforming subsidiaries, assets, and activities during the period 
before the covered savings association divests, conforms, or 
discontinues the subsidiary, asset, or activity. This provision is 
intended to clarify the treatment of nonconforming subsidiaries, 
assets, and activities during the transition period.
    101.6 Termination. This section would establish standards and 
procedures to allow a covered savings association to terminate an 
election after an appropriate period of time.
    Under Sec.  101.6(a) of the proposed rule, a covered savings 
association may request to terminate an election after an appropriate 
period of time, as determined by the OCC. The OCC would generally view 
an appropriate period of time to be relatively soon after an election 
takes effect (for example, 60 or 90 days). However, the OCC might 
determine that a longer period of time is appropriate where there is 
evidence that a covered savings association is attempting to use a 
termination to evade the requirements or purposes of section 5A of 
HOLA, such as the requirement to divest, conform, or discontinue 
nonconforming subsidiaries, assets, and activities.
    Paragraph (b) of this section establishes procedures for 
terminating an election that are intended to be the mirror image of the 
procedures for making an election, with some exceptions noted below. As 
with an election, a covered savings association that wishes to 
terminate an election would be required to notify the OCC of the 
termination in writing. The notice would need to be signed by a duly 
authorized officer. A covered savings association would also be 
required to provide the OCC with a list of nonconforming subsidiaries, 
assets, and activities--that is, subsidiaries, assets, and activities 
(e.g., investments in excess of HOLA limits) that would not be 
permissible for a Federal savings association. The same effective date 
timelines and requirements would apply to a request for termination as 
apply to a notice of election. The OCC could notify a covered savings 
association that it is not eligible to terminate an election if the 
covered savings association is not an ``eligible savings association'' 
within the meaning of 12 CFR 5.3(g).
    A savings association terminating an election would have the same 
period of time after submitting a notice of termination to divest, 
conform, or discontinue nonconforming subsidiaries, assets and 
activities. Generally, this period of time would not exceed two years, 
but a savings association could request extensions of this time in the 
manner described in Sec.  101.5 of the proposed rule. A Federal savings 
association that has terminated its election would not be permitted to 
retain or continue any subsidiaries, assets, or activities that would 
be permissible for a national bank but not for a Federal savings 
association. This includes lending activities that would cause the 
savings association to violate the QTL test.
    Unlike an election, a covered savings association wishing to 
terminate an election would not be required to identify branches or 
agencies in operation at the time of termination.
    Paragraph (c) of this section specifies that, once a termination 
takes effect, a Federal savings association is subject to the same 
provisions of law that apply to other Federal savings associations that 
are not covered savings associations.
    101.7 Reelection. This section allows a covered savings association 
to make a subsequent election after terminating an election.
    Under the proposed rule, a Federal savings association that wishes 
to make a subsequent election after terminating a previous election 
would be subject to the same requirements as a Federal savings 
association making an election for the first time.
    However, a Federal savings association that previously made and 
terminated an election to operate as a covered savings association 
would be required to wait five years after the termination before 
making a subsequent election. The purpose of this cooling-off period is 
to prevent institutions from taking advantage of a potential overlap 
between transition periods for divesting nonconforming subsidiaries and 
assets and discontinuing nonconforming assets. Under the proposed rule, 
the OCC has the authority to waive the five-year period for good cause.
    101.8 Evasion. This section of the proposed rule provides that the 
OCC may disapprove a notice of election, termination, or reelection if 
the OCC has reasonable cause to believe the notice is made for the 
purpose of evading Sec.  101.5 of the proposed rule, including as that 
section applies to a termination. For example, the OCC might disapprove 
a covered savings association's notice of termination if it determined 
the covered savings association was attempting to terminate to take 
unfair advantage of an overlap between the period to divest, conform, 
or discontinue nonconforming subsidiaries, assets, and activities 
provided for an election and the period to divest, conform, or 
discontinue nonconforming subsidiaries, assets, and activities provided 
for a termination.

[[Page 47111]]

III. Request for Comments

    The OCC encourages comment on any aspect of this proposal and 
especially on those issues noted in this preamble.

IV. Regulatory Analysis

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a proposed rule, to prepare an 
Initial Regulatory Flexibility Analysis describing the impact of the 
rule on small entities (defined by the Small Business Administration 
(SBA) for purposes of the RFA to include commercial banks and savings 
institutions with total assets of $550 million or less and trust 
companies with total revenue of $38.5 million or less) or to certify 
that the proposed rule would not have a significant economic impact on 
a substantial number of small entities. The OCC currently supervises 
approximately 886 small entities, of which 258 are Federal savings 
associations.\21\ Because the proposed rule does not contain any new 
recordkeeping, reporting, or compliance requirements, we anticipate 
that it will not impose costs on OCC-supervised institutions unless 
they elect to operate as a covered savings association.\22\ Therefore, 
the OCC certifies that the proposed rule, if implemented, would not 
have a significant economic impact on a substantial number of OCC-
supervised small entities.
---------------------------------------------------------------------------

    \21\ We base our estimate of the number of small entities on the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $550 million and $38.5 million, 
respectively. Consistent with the General Principles of Affiliation 
13 CFR 121.103(a), we count the assets of affiliated financial 
institutions when determining if we should classify an OCC-
supervised institution a small entity. We use December 31, 2017, to 
determine size because a ``financial institution's assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See footnote 8 of the 
U.S. Small Business Administration's Table of Size Standards.
    \22\ We believe that costs associated with electing to be 
treated as a covered savings association will be minimal and that 
Federal savings associations will only choose to be treated as a 
covered savings associations if the benefits outweigh the costs.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act of 1995

    Consistent with the UMRA, our review considers whether the mandates 
imposed by the proposed rule may result in an expenditure of $100 
million or more by state, local, and tribal governments, or by the 
private sector, in any one year. The proposed rule does not impose new 
mandates. Therefore, we conclude that the proposed rule will not result 
in an expenditure of $100 million or more annually by state, local, and 
tribal governments, or by the private sector.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995,\23\ the OCC may not 
conduct or sponsor, and a person is not required to respond to, an 
information collection unless the information collection displays a 
valid OMB control number. The OCC has submitted the information 
collection requirements imposed by this proposed rule to OMB for 
review.
---------------------------------------------------------------------------

    \23\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    A Federal savings association seeking to operate as a covered 
savings association would be required under Sec.  101.3(a) to submit a 
notice making an election to the appropriate OCC supervisory office 
that: (1) Is signed by a duly authorized officer of the Federal savings 
association; (2) identifies the branches and agencies that will be in 
operation on the effective date of the election that have not been the 
subject of an application or notice under 12 CFR part 5; and (3) 
identifies and describes any nonconforming subsidiaries, assets, or 
activities that the Federal savings association holds, operates, or 
conducts at the time its submits its notice.
    Under Sec.  101.5(a), the OCC may require a covered savings 
association to submit a plan to divest, conform, or discontinue a 
nonconforming subsidiary, asset, or activity.
    A covered savings association may submit a notice to terminate its 
election to operate as a covered savings association under Sec.  101.6 
using similar procedures to those for an election. In addition, after a 
period of five years, a Federal savings association that has terminated 
its election to operate as a covered savings association may submit a 
notice under Sec.  101.7 to reelect using the same procedures used for 
its original election.
    Title: Covered Savings Association Notice.
    OMB Control No.: To be assigned by OMB.
    Frequency of Response: On occasion.
    Affected Public: Businesses or other for-profit organizations.
    Election, Termination, Reelection:
    Estimated Number of Respondents: 295.
    Estimated Burden per Respondent: 2 hours.
    Estimated Total Annual Burden: 590 hours.
    Plan to Divest:
    Estimated Number of Respondents: 25.
    Estimated Burden per Respondent: 2 hours.
    Estimated Total Annual Burden: 50 hours.
    Total Annual Burden: 640 hours.
    In addition, the OCC will file a nonmaterial change at the final 
rule stage to amend its Licensing Manual Collection (OMB Control No. 
1557-0014) to increase the respondent count to reflect additional 
filings from Federal savings associations.
    Comments are invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the functions of the OCC, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimates of the burden of the 
collections of information;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the collections on respondents, 
including through the use of automated collection techniques or other 
forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
Riegle Community Development and Regulatory Improvement Act of 1994
    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (CDRI Act),\24\ in determining the 
effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on insured depository institutions, the OCC will consider, 
consistent with the principles of safety and soundness and the public 
interest: (1) Any administrative burdens that the proposed rule would 
place on depository institutions, including small depository 
institutions and customers of depository institutions, and (2) the 
benefits of the proposed rule. The OCC requests comment on any 
administrative burdens that the proposed rule would place on depository 
institutions, including small depository institutions, and their 
customers, and the benefits of the proposed rule that the OCC should 
consider in determining the effective date and administrative 
compliance requirements for a final rule.
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 4802(a).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 101

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

[[Page 47112]]

Authority and Issuance

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

PART 101--COVERED SAVINGS ASSOCIATIONS

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

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


Sec.  101.1  Authority and purposes.

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


Sec.  101.2  Definitions and computation of time.

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


Sec.  101.3  Procedures and standard of review.

    (a) Notice--(1) Submission. A Federal savings association that had 
total consolidated assets of $20 billion or less as of December 31, 
2017, as reported on the Federal savings association's Consolidated 
Reports of Condition and Income for December 31, 2017, may make an 
election to operate as a covered savings association by submitting a 
notice to the appropriate OCC supervisory office.
    (2) Contents. The notice shall:
    (i) Be signed by a duly authorized officer of the Federal savings 
association;
    (ii) Identify each branch or agency that the Federal savings 
association operates or will operate on the effective date of the 
election that has not been the subject of an application or notice 
under 12 CFR part 5; and
    (iii) Identify and describe each nonconforming subsidiary, asset, 
or activity that the Federal savings association operates, holds, or 
conducts at the time it submits the notice, each of which must be 
divested, conformed, or discontinued pursuant to Sec.  101.5.
    (b) Effective date of the election--(1) In general. An election to 
operate as a covered savings association shall take effect on the date 
that is 60 days after the date on which the OCC receives the notice 
submitted under paragraph (a) of this section, unless the OCC notifies 
the Federal savings association that it is not eligible in accordance 
with paragraph (c) of this section.
    (2) Earlier notice. Notwithstanding paragraph (b)(1) of this 
section, the OCC may notify a Federal savings association in writing 
prior to the expiration of 60 days that it is eligible to make an 
election, and the election shall take effect on the date the OCC so 
notifies the Federal savings association.
    (c) Federal savings association not eligible. Prior to the 
expiration of 60 days after the date on which the OCC receives the 
notice submitted under paragraph (a) of this section, the OCC may 
notify a Federal savings association in writing that it is not eligible 
to make an election to operate as a covered savings association 
pursuant to this part if the Federal savings association is not an 
eligible savings association as that term is defined in 12 CFR 5.3(g). 
If the Federal savings association is subject to a cease and desist 
order, consent order, formal written agreement, or Prompt Corrective 
Action directive, the Federal savings association is not eligible to 
make an election to operate as a covered savings association unless the 
OCC informs the Federal savings association in writing that it may be 
treated as an eligible savings association for purposes of this part.


Sec.  101.4  Treatment of covered savings associations.

    (a) In general--
    [OPTION A: (1) Treatment as a national bank. Except as provided in 
this section, a covered savings association shall comply with the same 
provisions of law that would apply to a similarly located national bank 
and shall not be required to comply with the provisions of law that 
apply to Federal savings associations.]
    [OPTION B: (1) National bank activities. Except as provided in this 
section, a covered savings association may engage in any activity that 
is permissible for a similarly located national bank to engage in as 
part of, or incidental to, the business of banking, or explicitly 
authorized by statute for a national bank, subject to the same 
authorization, terms, and conditions that would apply to a similarly 
located national bank, as determined by the OCC for purposes of this 
part.]
    (2) Treatment as a Federal savings association. A covered savings 
association shall continue to comply with the provisions of law that 
apply to Federal savings associations for purposes of:

[[Page 47113]]

    (i) Governance (including incorporation, bylaws, boards of 
directors, shareholders, and distribution of dividends);
    (ii) Consolidation, merger, dissolution, conversion (including 
conversion to a stock bank or to another charter), conservatorship, and 
receivership;
    (iii) Provisions of law applicable only to Federal mutual savings 
associations;
    (iv) Offers and sales of securities at an office of a Federal 
savings association;
    (v) Inclusion of subordinated debt securities and mandatorily 
redeemable preferred stock as Federal savings association supplementary 
(tier 2) capital;
    (vi) Increases in permanent capital of a Federal stock savings 
association;
    (vii) Rules of practice and procedure in adjudicatory proceedings;
    (viii) Rules for investigative proceedings and formal examination 
proceedings;
    (ix) Removals, suspensions, and prohibitions where a crime is 
charged or proven;
    (x) Security procedures;
    (xi) Maintenance of records and recordkeeping and confirmation 
requirements for securities transactions;
    (xii) Nondiscrimination; and
    (xiii) Advertising.
    (b) Existing branches. A covered savings association may continue 
to operate any branch or agency that the covered savings association 
operated on the effective date of the election.


Sec.  101.5  Nonconforming subsidiaries, assets, and activities.

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


Sec.  101.6   Termination.

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


Sec.  101.7  Reelection.

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


Sec.  101.8  Evasion.

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

    Dated: September 10, 2018.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2018-19955 Filed 9-17-18; 8:45 am]
 BILLING CODE 4810-33-P


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