[Federal Register Volume 65, Number 209 (Friday, October 27, 2000)]
[Proposed Rules]
[Pages 64392-64401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27705]


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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. 65, No. 209 / Friday, October 27, 2000 / 
Proposed Rules

[[Page 64392]]



DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 584

[Docket No. 2000-91]
RIN 1550-AB29


Savings and Loan Holding Companies Notice of Significant 
Transactions or Activities and OTS Review of Capital Adequacy

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to require 
certain savings and loan holding companies to notify OTS before 
engaging in or committing to engage in a limited set of debt 
transactions, transactions that reduce capital, some asset 
acquisitions, and other transactions. The proposal would generally 
exclude holding companies whose subsidiary savings associations' assets 
represent a small percent of consolidated assets and holding companies 
that would have consolidated tangible capital of ten percent or greater 
following the transaction.
    OTS also seeks comment on its proposal to codify its current 
practices for reviewing the capital adequacy of savings and loan 
holding companies and, when necessary, requiring additional capital on 
a case-by-case basis. This notice identifies certain key factors that 
OTS uses to evaluate the need for additional holding company capital.

DATES: Comments must be received on or before December 26, 2000.

ADDRESSES:
    Mail: Send comments to Manager, Dissemination Branch, Information 
Management and Services Division, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552, Attention Docket No. 2000-91.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, NW., from 9:00 a.m. to 4:00 p.m. on business 
days, Attention Docket No. 2000-91.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
7755, Attention Docket No. 2000-91; or (202) 906-6956 (if comments are 
over 25 pages).
    E-Mail: Send e-mails to ``<a href="/cdn-cgi/l/email-protection#d0ecb1f0b8a2b5b6ed" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>'', Attention 
Docket No. 2000-91, and include your name and telephone number.
    Public Inspection: Interested persons may inspect comments at the 
Public Reference Room, 1700 G St. NW., from 10 a.m. until 4 p.m. on 
Tuesdays and Thursdays or obtain comments and/or an index of comments 
by facsimile by telephoning the Public Reference Room at (202) 906-5900 
from 9 a.m. until 5 on business days. Comments and the related index 
will also be posted on the OTS Internet Site at ``www.ots.treas.gov''.

FOR FURTHER INFORMATION CONTACT: Kevin O'Connell, Senior Project 
Manager, (202) 906-5693, Supervision Policy; and Valerie J. Lithotomos, 
Counsel (Banking and Finance), (202) 906-6439, Regulations and 
Legislation Division, and Richard L. Little, Senior Counsel, (202) 906-
6447, Business Transactions Division, Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: The financial stability and health of a 
savings and loan holding company can have a direct impact on the 
financial condition of its subsidiary thrift. Savings and loan holding 
companies are frequently managed on a consolidated basis with their 
subsidiaries. Indeed, the benefits from such integration are key 
incentives for establishing holding companies. However, because of such 
integrated operations, problems in one entity in the corporate 
structure may affect other affiliated entities, including the thrift.
    Increasingly, savings associations are becoming parts of highly 
integrated corporate structures. Instead of being held as passive 
investments, thrifts are acquired as a key component of an overall 
strategy for providing comprehensive services. These affiliations often 
involve outsourcing of critical functions of the savings association 
and cross-marketing of products. As a result, many savings associations 
are subject to decisions that are made with regard to the best 
interests of the corporate structure, often with little consideration 
of any potential positive or negative impact on the thrift standing 
alone. This highlights the need for increased supervisory vigilance to 
ensure that actions by an affiliate do not pose a material risk to the 
safety, soundness, or stability of the subsidiary savings association.
    Actions by the savings and loan holding company, in particular, can 
affect the condition of its subsidiary thrift, especially where the 
parent organization undertakes significant new activities or has 
significant debt exposure. For example, the practice of double 
leveraging--where holding company debt is used to increase the capital 
of the subsidiary thrift--can generate the need for additional 
regulatory oversight at the savings and loan holding company level, 
especially when consolidated capital levels are low. In addition, a 
holding company that makes risky investments that generate less than 
anticipated returns or result in losses can exert undue pressure on the 
thrift to meet the demands of its other obligations. Similarly, a 
holding company that grows too fast may not have sufficient capital to 
support its operations and may, therefore, incur excessive debt or look 
to the thrift to fund its operations.
    To address these issues, OTS is proposing to require certain 
holding companies to notify OTS before engaging in certain described 
debt transactions, transactions that reduce capital, some asset 
acquisitions, and other transactions determined by OTS on a case-by-
case basis. This proposal is described in Section I. of this notice of 
proposed rulemaking (NPRM). OTS is also considering whether to codify 
its current practice for reviewing the capital adequacy of savings and 
loan holding companies and, when necessary, requiring additional 
capital on a case-by-case basis. OTS seeks comment on the factors it 
considers in determining the appropriate capital level. The capital 
considerations are described in Section II. of this NPRM.

[[Page 64393]]

I. Notice of Significant Transactions or Activities

    Currently, OTS does not analyze proposed major transactions by 
holding companies before the transactions occur, other than in 
connection with reviewing applications for a limited group of 
transactions.\1\ Moreover, there are few regulatory and statutory 
restrictions designed to reduce the risks posed to thrifts by such 
proposed transactions, other than capital distribution and various 
restrictions \2\ on transactions with affiliates.\3\
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    \1\ For example, when a company files an application to acquire 
an existing thrift or to charter a de novo thrift, OTS reviews the 
proposed business plan to ensure that the activities of the holding 
company (and its affiliates) will not have a negative impact on the 
subsidiary thrift. OTS has required some holding companies, as a 
condition to the approval of the application, to notify the agency 
before the holding company causes the subsidiary thrift to make any 
material changes in the subsidiary thrift's business plan. 
Conversely, however, when a holding company purchases a subsidiary, 
even if that entity is large, highly leveraged and engaging in high-
risk activities, no notice is required under current regulation.
    \2\ See 12 U.S.C. 1831o(d)(1)(B); 12 CFR part 563, subpart E. 
See also 12 U.S.C. 1467a(f).
    \3\ See 12 U.S.C. 1468; 12 U.S.C. 371c and 371c-1; 12 CFR 563.41 
and 563.42.
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    On several occasions, OTS has learned during an examination or 
through the news or other media that a holding company has engaged in 
or has committed to engage in major transactions or activities that may 
have a substantial negative effect on the subsidiary thrift. By that 
point, however, OTS's ability to require the holding company to reverse 
or modify the transaction to protect the safety and soundness of the 
thrift may be limited.
    To adequately monitor these types of transactions and to ensure 
that thrifts are adequately protected, OTS proposes to review 
significant holding company transactions and activities of certain 
holding companies before they occur in order to ensure that these 
transactions and activities do not pose a material risk to the 
financial safety, soundness, or stability of the subsidiary savings 
association. OTS notes that the Federal Reserve Board (FRB) does not 
have a similar review procedure. However, FRB requires bank holding 
companies to comply with detailed and static capital adequacy 
requirements \4\ which generally makes a similar review process 
unnecessary. Rather than impose an across-the-board capital 
requirement, OTS is proposing this review process for a limited group 
of savings and loan holding companies engaging in a limited group of 
activities in order to ensure the safety and soundness of subsidiary 
thrifts.
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    \4\ See 12 CFR part 225, Appendix A.
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    OTS bases this rulemaking on its extensive statutory authority over 
savings and loan holding companies under section 10 of the Home Owners' 
Loan Act (HOLA). OTS, for example, is authorized to issue such 
regulations or orders as are ``necessary and appropriate'' to 
administer and carry out section 10 of the HOLA,\5\ and also has 
general statutory authority to prescribe regulations necessary for 
carrying out all provisions of the HOLA.\6\
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    \5\ See e.g., 12 U.S.C. 1467a(g).
    \6\ 12 U.S.C. 1462a. See also 12 U.S.C. 1463(a)(2) and 12 U.S.C. 
1464(a). OTS notes that sections 10(g)(5) and 10 (p) of the HOLA 
expressly permit OTS to restrict the ability of savings and loan 
holding companies to continue to conduct certain activities. 12 
U.S.C. 1467a(g)(5) and (p). In this regard, the focus of the 
proposed rule and sections 10(g)(5) and 10 (p) are entirely 
different. The proposed notice is primarily preventive. It is 
designed to permit OTS to review proposed activities and to prevent 
a savings and loan holding company (or its affiliate) from 
undertaking new, risky activities. On the other hand, sections 10(g) 
and (p) are remedial. These statutes are designed to allow OTS to 
require corrective action when established, ongoing activities 
threaten the safety and soundness of a subsidiary thrift.
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    Accordingly, OTS is proposing to require that certain savings and 
loan holding companies notify OTS before engaging in several types of 
transactions, as more fully described below in the section-by-section 
summary. OTS seeks comment on all aspects of the proposal. OTS is 
particularly interested in whether the proposed notice procedure is the 
best way for OTS to obtain timely information regarding significant 
transactions and activities, while imposing the least possible 
regulatory burden.

Section-by-Section Analysis

Proposed Section 584.100--What Does This Subpart Do?

    The proposed rule would add a new subpart B, entitled Notice of 
Significant Activities or Transactions, to part 584. Proposed 
Sec. 584.100 states that subpart B requires certain savings and loan 
holding companies to notify OTS before engaging in or committing to 
engage in certain significant activities or transactions. Proposed 
Sec. 584.100 also sets out the definitions that apply to the new 
subpart.\7\
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    \7\ As a result of its placement in part 584, all of the 
definitions in 12 CFR part 583 (``e.g., subsidiary'') would also 
apply to the new subpart.
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Proposed Section 584.110--Must I File a Notice?

    The purpose of the proposed rule is to ensure that OTS has adequate 
notice and an opportunity to object when a savings and loan holding 
company is about to engage in an activity that could have a material 
negative effect on the subsidiary savings association. While it is 
often a relatively simple matter to identify problem holding companies 
and holding companies that control troubled thrifts, it is far more 
difficult to predict which holding companies may engage in transactions 
that could raise supervisory concerns for their subsidiary thrifts. To 
ensure that the regulation is properly focused, OTS will exempt two 
classes of holding companies because their activities are unlikely to 
materially affect the subsidiary thrift. Similarly, OTS will only 
require notices for those activities and transactions that are 
significant in nature and reasonably present a potential for an adverse 
impact on the thrift institution. These activities and transactions are 
described below in proposed Sec. 584.120.
    The proposed rule would require savings and loan holding companies 
whose proposed transactions meet the standards in proposed 
Sec. 584.120, to file a notice, with two exceptions. First, OTS would 
not require a holding company to file a notice if all of its subsidiary 
thrifts have consolidated assets that, when aggregated, represent less 
than 20 percent of the holding company's consolidated assets. This 
percentage indicates that all of the subsidiary thrifts constitute a 
small share of the holding company's overall business. In these 
structures, the regulated thrifts are not the primary line of business 
of the consolidated parent organization and, therefore, are less likely 
to be affected by the transactions covered by the proposal. OTS 
specifically requests comment on whether this percentage is 
appropriate. OTS also asks whether it should rely on other existing 
regulatory definitions, such as the definition of diversified savings 
and loan holding company,\8\ to describe situations where the thrift is 
not the primary line of business of the parent holding company.
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    \8\ A diversified savings and loan holding company is ``any 
savings and loan holding company whose subsidiary savings 
association and related activities under 12 U.S.C. 1467a(c)(2) 
represent on either an actual or pro forma basis, less than 50 
percent of its consolidated net worth at the close of its preceding 
fiscal year and of its consolidated net earnings for such fiscal 
year.'' 12 CFR 583.11 and 12 U.S.C. 1467a(a)(1)(F).
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    Second, a holding company would not be required to file a notice if 
it has a significant capital cushion. Where a holding company has a 
significant capital base, it is less likely that its transactions will 
present a significant risk to the subsidiary thrift. OTS

[[Page 64394]]

proposes to exclude those savings and loan holding companies that would 
have consolidated tangible capital of ten percent or greater following 
the proposed transaction. This exclusion is not intended, in any way, 
as a de facto capital requirement for savings and loan holding 
companies. Rather, the purpose of this proposed exclusion is solely to 
exclude the most financially sound holding companies from the notice 
requirement. OTS specifically requests comment on whether this 
percentage is appropriate.
    OTS specifically seeks comment on whether it is also appropriate to 
exempt holding companies that control only savings associations with 
limited operations (e.g., a subsidiary thrift that conducts only 
fiduciary operations under part 550 of OTS's regulations). If so, what 
types of thrifts should be exempted?
    Notwithstanding the two exceptions discussed above, an OTS Regional 
Director would have the authority to require any savings and loan 
holding company to file a notice if the Regional Director has concerns 
relating to the holding company's financial condition or the safety and 
soundness of its subsidiary thrift. The proposed rule would require the 
Regional Director to notify the holding company, in writing, of this 
determination.

Proposed Section 584.120--What Transactions or Activities Require a 
Notice?

    The proposed rule would identify three categories of activities or 
transactions that would require the filing of a notice by a holding 
company described in proposed Sec. 584.110. These activities and 
transactions would include: the issuance, renewal or guarantee of a 
certain level of debt; any activity or transaction resulting in a 
substantial reduction of capital; and certain asset acquisitions. 
Subject to specified quantitative thresholds, OTS believes these three 
areas would identify any major change on a holding company's balance 
sheet--namely, acquisitions of assets, increases in liabilities, or 
reductions in capital--that could have a material negative impact on 
the thrift. In addition to these three areas, OTS Regional Directors 
would have the discretion to inform a holding company in writing that a 
transaction or activity would pose a risk to the financial safety, 
soundness, or stability of the thrift and require the holding company 
to file a notice.
    OTS proposes to require a notice if the holding company or any of 
its subsidiaries (other than the subsidiary thrift) will issue, renew 
or guarantee a certain level of debt.\9\ Debt will trigger the notice 
requirement only if two criteria are met. First, the debt, when 
combined with all other debt transactions conducted by the holding 
company or any of its subsidiaries (other than a subsidiary thrift) 
during the past twelve months, must increase the amount of the holding 
company's consolidated non-thrift liabilities by five percent or 
more.\10\ Second, the holding company's consolidated non-thrift 
liabilities after the debt transaction would have to equal 50 percent 
or more of the holding company's consolidated tangible capital.\11\
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    \9\ Debt of the subsidiary thrift includes debt of its 
consolidated subsidiaries.
    \10\ Consolidated non-thrift liabilities would be defined as the 
holding company's consolidated liabilities less the consolidated 
liabilities of the subsidiary savings associations.
    \11\ For the purposes of this rule, consolidated tangible 
capital would be defined as consolidated capital minus consolidated 
intangible assets and deferred policy acquisition costs.
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    The following example illustrates the application of these 
criteria. On October 1, 1999, a holding company's consolidated non-
thrift liabilities were $1.0 billion. The holding company plans to 
incur an additional $40 million in debt on September 30, 2000. On that 
date, the holding company projects that its consolidated non-thrift 
liabilities would increase to $1.06 billion. (This $60 million increase 
is made up of the $40 million in new debt issuance plus another $20 
million in liabilities accrued during the prior 12 months). As of 
September 30, 2000, the holding company's consolidated tangible capital 
would stand at $1.8 billion. This holding company would be required to 
file a notice with OTS because both of the following conditions are 
met:
    <bullet> With the new debt, the holding company's consolidated non-
thrift liabilities would have increased by more than five percent 
during the prior twelve-month period. Under this example, the holding 
company's consolidated non-thrift liabilities would increase six 
percent from $1.0 billion to $1.06 billion.
    <bullet> The holding company's consolidated non-thrift liabilities 
exceed 50 percent of its consolidated tangible capital. Under the 
example, the holding company's consolidated non-thrift liabilities 
would equal $1.06 billion on September 30, 2000. This amount exceeds 
$900 million (50 percent of $1.8 billion, the holding company's 
consolidated tangible capital).
    A notice is also required for certain asset acquisitions by the 
holding company or its subsidiary (other than a subsidiary thrift). 
Under the proposed rule, an acquisition of assets (other than cash, 
cash equivalents, and securities or other obligations unconditionally 
guaranteed by the United States Government) would require a notice if 
the amount of the transaction would exceed fifteen percent of the 
holding company's consolidated assets. In determining whether the 
fifteen percent threshold is met, the holding company must combine the 
proposed transaction with all other asset acquisitions conducted during 
the past twelve months.
    OTS also would require a notice if a holding company or its 
subsidiary (other than the subsidiary thrift) proposes to conduct any 
transaction, which when combined with all other transactions during the 
past twelve months, would reduce the ratio of the holding company's 
consolidated tangible capital to consolidated tangible assets \12\ by 
ten percent or more. For example, a projected change of this ratio from 
8 percent to 7.2 percent would trigger the notice requirement. To 
ensure adequate supervisory review, the proposed rule would require a 
holding company with negative consolidated tangible capital to file a 
notice, unless the Regional Director informs the holding company, in 
writing, that a notice is not required.
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    \12\ Consolidated tangible assets would be defined as the 
holding company's consolidated assets less its consolidated 
intangible assets and deferred policy acquisition costs.
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    OTS requests comment on the transactions and activities that would 
require notice. Specifically:
    <bullet> Has OTS appropriately identified the scope of proposed 
transactions and activities that may pose a material risk to the 
financial safety, soundness, or stability of the subsidiary savings 
association?
    <bullet> What additional transactions or activities should require 
a notice? For example, should OTS require a notice when a savings and 
loan holding company or its subsidiary enters a new line of business or 
divests a significant asset or line of business? If so, how should OTS 
define new lines of business and the appropriate thresholds that would 
trigger a notice?
    <bullet> Should all transactions by holding companies with negative 
consolidated tangible capital require a notice?
    <bullet> Are the applicable percentages or numerical thresholds 
appropriate?
    <bullet> In computing the thresholds under the proposed rule, a 
holding company must combine a proposed transaction with all other 
transactions within the three relevant categories (acquisitions of 
assets, increases in liabilities, and

[[Page 64395]]

reductions in capital) conducted during the prior twelve month period. 
Thus, once the threshold is met, the proposed rule would require a 
notice even though a proposed transaction itself is small. Should the 
rule exclude de minimus transactions? If so, what transactions should 
be considered de minimus?
    As noted above, OTS Regional Directors would have the discretion to 
require notices for other transactions or activities. In identifying 
significant transactions, OTS has relied upon quantified changes to the 
holding company's balance sheet. Some transactions with significant 
long-term consequences, however, may not have any immediate impact on 
the holding company's balance sheet. These transactions would include 
recourse transactions and certain guarantees. These transactions are 
examples of when the Regional Directors might exercise their 
discretionary authority to require notices.

Proposed Section 584.130--How Do I File My Notice?

    Under the proposed rule, a savings and loan holding company would 
be required to file a written notice with its OTS Regional Office at 
least 30 days before the earlier of engaging in or committing to engage 
in the transaction or activity. The holding company would be required 
to include the basis for the filing requirement, a description of the 
transaction or activity, the purpose of the transaction or activity, an 
analysis of the impact on consolidated earnings and consolidated 
capital, and an analysis of its impact on the subsidiary savings 
association. The holding company would also be required to identify the 
amount of the debt, capital reduction or asset acquisition, indicate 
the intended use of the funds or the reasons for the capital reduction 
or asset acquisition, and summarize the relevant terms of the 
transaction (including a description of any significant covenants or 
collateral requirements). OTS specifically requests comment on whether 
the information in the proposed notice is necessary and sufficient to 
enable OTS to accurately assess the transaction's impact on the 
subsidiary thrift.
    To minimize regulatory burden, the proposed rule would permit a 
holding company to file a schedule proposing transactions or activities 
over a specified period, not to exceed twelve months. If OTS approves 
the proposed schedule, the holding company would be permitted to engage 
in the proposed transactions or activities without filing another 
notice for that twelve month period. If there has been a material 
change in circumstances, the OTS Regional Director may advise the 
holding company, in writing, that it must file a new notice for 
scheduled activities or transactions. See proposed Sec. 584.150(c).
    A savings and loan holding company may also combine a notice with a 
related notice or application. To do so, the holding company must state 
that the related notice or application is intended to serve as a notice 
under proposed Sec. 584.120, and must submit the notice or application 
in a timely manner.

Proposed Section 584.140--On What Grounds Will OTS Disapprove or 
Condition the Proposed Activity or Transaction?

    Under the proposed rule, the OTS Regional Director could disapprove 
or condition a proposed transaction if a proposed transaction or 
activity would pose a material risk to the financial safety, soundness, 
or stability of the subsidiary thrift. In making this determination, 
the OTS Regional Director would consider, among other things, the 
following factors:
    <bullet> The extent to which the transaction or activity is funded 
by debt, and on what terms.
    <bullet> The effect of the transaction or activity on the cash flow 
and liquidity of the thrift.
    <bullet> The impact of the transaction or activity on the risk to 
the overall organization.
    <bullet> Whether the transaction or activity is self-sustaining or 
requires financial support from other business segments, especially the 
subsidiary savings association.
    <bullet> The projected effect of the transaction or activity on the 
capital and earnings of the consolidated entity.
    These factors are not exclusive. The OTS Regional Director may 
consider other factors deemed relevant and may impose appropriate 
conditions on the transaction. OTS requests comment on whether these 
factors are appropriate considerations in determining whether to 
disapprove or condition a notice, and whether additional factors should 
be added.

Proposed Section 584.150--When May I Engage in the Proposed Activity or 
Transaction?

    The savings and loan holding company (or its subsidiary) would be 
permitted to engage in the activity or transaction 30 days after OTS 
receives all required information, unless OTS notifies the holding 
company, in writing, that it has disapproved the notice. OTS would be 
permitted to extend the 30 day review period for an additional 30 days. 
The holding company (or its subsidiary) could engage in the proposed 
activity or transaction earlier if OTS notifies the holding company, in 
writing, that OTS does not intend to disapprove the notice.

II. OTS's Practice for Reviewing Capital Adequacy for Savings and 
Loan Holding Companies

    The level and composition of capital held by a company is an 
important measure of the company's overall financial health, as well as 
the health of its subsidiaries. For financial institutions, capital 
serves several purposes: it is available to bear risk and absorb 
unexpected losses; it protects the Federal Deposit Insurance 
Corporation's insurance fund; it provides a permanent source of revenue 
for the shareholders and funding for the institution; it provides a 
base for further growth; and it gives the shareholders assurance that 
the financial institution is managed in a safe and sound manner.
    Capital adequacy is one of the critical factors that Federal 
banking agencies consider in the regulation of financial institutions' 
holding companies. FRB, for example, has required bank holding 
companies to comply with specific capital adequacy guidelines since 
1983.\13\ While OTS has not established, and is not proposing to 
establish, capital guidelines applicable to all savings and loan 
holding companies, OTS reviews the financial resources of a savings and 
loan holding company, including capital adequacy, in the examination 
and supervisory processes. OTS also reviews the financial resources of 
prospective holding companies in evaluating holding company and other 
applications, and has the authority to require additional capital on a 
case-by-case basis.
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    \13\ These guidelines are at 12 CFR part 225, Appendix A.
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    Low levels of holding company capital can raise supervisory 
concerns in a number of ways. For example, in one situation, a highly 
leveraged holding company began to have severe cash flow problems 
during the real estate crisis in the early to mid-90s. As a result, 
creditors canceled lines of credit and the holding company came close 
to defaulting on its obligations. The holding company's cash flow needs 
caused the thrift to adopt riskier lending and aggressive pricing 
strategies to enable it to fund the holding company's operations 
through the payment of dividends and tax sharing payments. As a result, 
the thrift's asset quality and its financial condition deteriorated.

[[Page 64396]]

    In another situation, the holding company engaged in the practice 
of double leveraging to facilitate the subsidiary thrift's purchase of 
additional branches. The holding company sought to fund the branch 
acquisitions, in part, by issuing a substantial amount of new debt. As 
a result of the transaction, the holding company's capital 
significantly reduced both on a relative basis, due to the growth in 
assets, and on a tangible level, since the branch purchase resulted in 
goodwill. The sharply reduced level of tangible capital raised concerns 
about the holding company's ability to service the debt without making 
undue demands on the thrift. In this instance, however, OTS was able to 
address these concerns by conditioning the approval of the thrift's 
purchase on the holding company maintaining an agreed upon level of 
capital.
    OTS would have similar concerns if a holding company decided to 
quickly expand the scope of its business without a similar increase in 
its capital base. For example, a holding company that doubled in size 
while maintaining the same amount of capital would reduce its capital 
to assets ratio by 50%. With a smaller capital cushion, the holding 
company would have less flexibility to react to unexpected, adverse 
market conditions. A smaller capital cushion would also limit the 
holding company's ability to come to the aid of its subsidiary thrift, 
and if the holding company itself came under financial distress, would 
increase the chances it would pressure the thrift for financial 
resources.
    In the course of its supervisory monitoring and examination of 
savings and loan holding companies, OTS currently reviews the financial 
condition, including the capital adequacy, of holding companies. In 
cases like those discussed above, OTS may require the holding company 
to maintain a specified level of capital. This gives OTS an additional 
tool to safeguard thrifts without unduly restricting the business 
objectives of holding companies.
    OTS is considering whether it should adopt a rule codifying its 
current practice for reviewing capital adequacy, on a case-by-case 
basis, and, when necessary, requiring additional capital for savings 
and loan holding companies. Such a rule would also clarify the factors 
that OTS uses in reviewing a holding company's capital adequacy, would 
promote a better understanding of OTS's supervisory approach, and would 
help to ensure that capital principles are consistently applied in the 
holding company context.
    As noted above, OTS has extensive regulatory authority under the 
HOLA to regulate savings and loan holding companies. This authority 
includes its powers under section 10(g)(1) \14\ to issue such 
regulations necessary or appropriate to ensure compliance with and 
prevent evasions of section 10,\15\ and its general rulemaking 
authority under the HOLA.\16\
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    \14\ 12 U.S.C. 1467a(g)(1).
    \15\ 12 U.S.C. 1467a.
    \16\ 12 U.S.C. 1462a(b), 1463(a) and 1464.
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    While the factors OTS may consider in its review of capital will 
vary from case-to-case, the following factors are relevant, but not 
all-inclusive, in determining whether capital is adequate and if 
additional capital is necessary for a savings and loan holding company:

Debt

    <bullet> What is the ratio of holding company consolidated debt as 
a percentage of consolidated tangible capital? Is the level of debt 
generally rising? What investments or activities does the debt fund? 
Could the terms, conditions or covenants of the debt have an adverse 
effect on the thrift? What is the level of interest expense? Is the 
interest expense a significant percentage of recurring income? What 
debt ratings has the holding company received from nationally 
recognized credit rating organizations?

Capital

    <bullet> How much consolidated tangible capital does the holding 
company have as a percentage of consolidated tangible assets? What are 
the overall quality and composition of the holding company's capital? 
Does the holding company rely on hybrid instruments that possess debt 
characteristics? Does the holding company have the ability to raise new 
equity capital or generate capital internally?

Cash Flow and Earnings

    <bullet> Does the holding company have sufficient cash flow? To 
what extent does the holding company rely on dividends from the thrift 
to service the holding company's debt or fulfill other holding company 
obligations? What sources of liquidity, other than the thrift, does the 
holding company have? What are the quality and quantity of such 
sources?
    <bullet> What are the quality and level of the holding company's 
earnings? Does the holding company rely on non-recurring sources of 
earnings? How does the volatility of earnings affect pro forma business 
plan projections? Has the holding company stress tested its 
projections?

Overall Risk Profile

    <bullet> How significant is the thrift in the holding company's 
corporate structure? What risks do the holding company's activities and 
assets present? What significant risk does the thrift face? Has the 
holding company influenced the thrift to engage in riskier activities? 
Does the holding company have off-balance sheet contracts or activities 
that result in a high degree of risk exposure? What level of inter-
company transactions do the holding company and other affiliates have 
with the thrift? What is the quality of management and risk management 
systems? Is the overall financial condition of the holding company 
deteriorating, stable, or improving?
    OTS specifically requests comment on whether the listed factors are 
relevant to OTS's review of capital adequacy. OTS also solicits comment 
on whether other factors would be relevant to OTS's review.
    OTS has not decided whether it will promulgate a final rule 
addressing holding company capital in connection with this rulemaking 
or whether it will use the comments provided as the basis for a future 
proposal. However, as part of today's proposal, it is OTS's intent to 
describe its current approach to holding company capital, in sufficient 
detail, to support a final rule codifying the practice.
    OTS intends to use different procedures for requiring additional 
capital, depending on the circumstances. For example, in the 
application process, OTS may condition the approval of an application 
on a holding company maintaining a certain capital level. In other 
instances, OTS would notify a savings and loan holding company of a 
determination that additional capital may be appropriate. The notice 
would include such information as the amount of capital needed, a 
proposed schedule for compliance, and the specific reasons why OTS 
believes that additional capital is necessary or appropriate. OTS would 
also provide the savings and loan holding company with an opportunity 
to respond and to provide additional information for OTS to consider in 
establishing the capital standard. OTS requests specific comment on 
whether these procedures would be appropriate.

III. Request for Comments

    In addition to the specific request for comment in the preamble, 
OTS invites comment on all aspects of the Notice of Proposed 
Rulemaking.

[[Page 64397]]

IV. Plain Language Requirement

    Section 722 of the Gramm-Leach-Bliley (GLB) Act (12 U.S.C. 4809) 
requires federal banking agencies to use ``plain language'' in all 
proposed and final rules published after January 1, 2000. We invite 
your comments on how to make this proposed rule easier to understand. 
For example:
    (1) Have we organized the material to suit your needs?
    (2) Are the requirements in the rule clearly stated?
    (3) Does the rule contain technical language or jargon that isn't 
clear?
    (4) Would a different format (grouping and order of sections, use 
of headings, paragraphing) make the rule easier to understand?
    (5) Would more (but shorter) sections be better?
    (6) What else could we do to make the rule easier to understand?

V. Executive Order 12866

    The Director of OTS has determined that this proposed rule does not 
constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866. OTS intends to exempt a substantial percentage 
of savings and loan holding companies from the notice requirement and 
would require a notice for a limited number of transactions. 
Nevertheless, OTS acknowledges that the rule would impose costs on 
savings and loan holding companies that are required to file a notice 
requirement. Therefore, OTS invites the thrift industry to provide any 
cost estimates and related data that it thinks would be useful to OTS 
in evaluating the overall costs of the rule.

VI. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act of 1980 \17\ requires federal 
agencies to prepare an initial regulatory flexibility analysis (IRFA) 
with a proposed rule, or certify that the proposed rule would not have 
a significant economic impact on a substantial number of small 
entities. OTS cannot, at this time, determine whether this proposed 
rule would have a significant economic impact on a substantial number 
of small entities. Therefore, OTS includes the following IRFA.
---------------------------------------------------------------------------

    \17\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    A description of the reasons why OTS is considering the proposed 
rule, a statement of the objectives of the proposal, and the legal 
basis for the proposed rule are contained in the supplementary material 
above.

A. Small Entities to Which the Proposed Rule Would Apply

1. Background.
    The proposed rule would apply to savings and loan holding companies 
and subsidiaries of savings and loan holding companies (other than 
savings association subsidiaries). A savings and loan holding company 
would be required to file a notice before it or its non-thrift 
subsidiary may engage in specified activities. While a subsidiary of a 
savings and loan holding company would not be required to file a 
notice, OTS could, by disapproving a notice, prevent the subsidiary 
from engaging in certain proposed actions.\18\
---------------------------------------------------------------------------

    \18\ OTS is also considering issuing a final rule for reviewing 
the capital adequacy of savings and loan holding companies and, when 
necessary, requiring additional capital. Since these requirements 
will be imposed on a case-by-case basis and since this rule would 
merely codify current practices, OTS does not anticipate that this 
aspect of the rule will have a significant impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    The proposed rule would apply to savings and loan holding companies 
and their subsidiaries, regardless of size. The rule, however, includes 
a significant exemption that would substantially limit its application 
to small businesses. This exception is discussed below.
    OTS analysis of savings and loan holding companies and their non-
thrift subsidiaries is complicated by the fact that these entities may 
engage in a wide range of activities. The Small Business Administration 
(SBA) applies different size standards for various industries in order 
to determine whether a particular business is small.\19\ OTS has 
reviewed the activities of its holding companies to determine if there 
is a prevailing standard that it may apply in this rulemaking.
---------------------------------------------------------------------------

    \19\ See 65 FR 30836 (May 15, 2000), to be codified at 13 CFR 
121.201.
---------------------------------------------------------------------------

    Based on data for publicly traded holding companies,\20\ OTS 
estimates that the primary asset of approximately 78.2 percent of all 
holding companies is the thrift. These holding companies would likely 
fall within one of two SBA size standards: (1) The size standard for 
offices of bank holding companies and offices of other holding 
companies (annual receipts of less than $5 million); \21\ or (2) The 
size standard for depository credit intermediation (less than $100 
million in assets). An additional 13.8 percent of savings and loan 
holding companies are engaged in financial management activities 
(insurance, brokerage, or real estate development). The prevailing SBA 
size standard for these companies is less than $5 million in annual 
receipts.\22\ The remaining holding companies engage in a variety of 
diverse commercial activities for which no consistent size standard is 
evident. Accordingly, OTS has analyzed its available data by applying 
two size standards--the $5 million in annual receipts and the $100 
million in assets size standards.\23\
---------------------------------------------------------------------------

    \20\ OTS used financial data for 404 publicly traded thrift 
holding companies as a statistical sample for revenue, assets, and 
capital for all thrift holding companies.
    \21\ 65 FR at 30858 (NAICS Codes 551111 and 551112). Entities 
that fall within this category are primarily engaged in holding the 
securities (or other equity interests) of companies and enterprises 
for the purpose of owning a controlling interest or influencing the 
management decisions of these firms. These companies do not 
administer, oversee, and manage other establishments of the company 
or enterprise whose securities they hold. Entities that hold the 
securities of a depository institution and operate the entity are 
classified at NAICS Industry Group 5221, Depository Credit 
Intermediation. 65 FR at 30856. These businesses are subject to a 
$100 million in assets limitation.
    \22\ NAICS Subsector 523--Financial Investments and Related 
Activities and Subsector 524--Insurance Carriers and Related 
Activities. 65 FR at 30856. The size standard for direct property 
and casualty insurance carriers, however, is based on the number of 
employees.
    \23\ OTS has established these definitions of small savings and 
loan holding companies for the sole purpose of this Regulatory 
Flexibility Act Analysis, after consultation with the Small Business 
Administration's Office of Advocacy.
---------------------------------------------------------------------------

2. Analysis
    Based on March 31, 2000 data, OTS calculates that there are 
approximately 959 savings and loan holding companies. The 959 holding 
companies are aligned in approximately 531 holding company structures 
for the purposes of this analysis. A thrift may be directly or 
indirectly controlled by more than one holding company. A holding 
company structure, as used in this preamble, includes all holding 
companies within the same family of companies.
    As of March 31, 2000, OTS estimates that approximately 16.6 percent 
or 88 of the 531 OTS regulated holding company structures were small 
under the asset-based definition (i.e., these holding company 
structures hold assets of less than $100 million.) About 150 of the 
thrift holding company structures (28.2 percent) are small businesses 
using the revenue-based definition.
    As noted above, OTS has proposed an exemption that would 
substantially limit the rule's application to small businesses. Under 
the proposed rule, OTS would exempt a holding company from the notice 
requirement if it will have consolidated tangible capital of 10 percent 
or greater after the proposed transaction. OTS estimates that this 
proposed exemption would exempt 81.3

[[Page 64398]]

percent of small holding companies under the asset-based definition, 
and 70.5 percent of small holding companies using the revenue-based 
definition. Based on these percentages, OTS estimates that from 16 to 
44 small holding company structures may be subject to the proposed 
rule.\24\
---------------------------------------------------------------------------

    \24\ The tangible capital exception would exempt a much smaller 
percentage of large holding companies from the notice requirement. 
For example, only 20 percent of the thrift holding companies holding 
over $2 billion in assets would be exempt under the proposed 
tangible capital criteria. Similarly, 17.2 percent of thrift holding 
companies with revenues of $100 million or more would be exempt 
under this exception.
    There is a second exception for savings and loan holding 
companies whose subsidiary thrifts represent less than 20 percent of 
the consolidated assets. However, OTS estimates that this exemption 
should not significantly reduce the number of small holding 
companies that are subject to this rule. As noted above, OTS 
estimates that the primary asset of approximately 78.2 percent of 
all holding companies is the thrift itself.
---------------------------------------------------------------------------

    The following tables estimate the number of thrift holding 
companies at various asset and revenue levels and illustrates the 
impact of the proposed tangible capital exemption at various revenue 
and asset levels.\25\ The proposed exemption more favorably affects 
smaller holding companies. Regardless of whether the asset size test or 
revenue test is used, a greater proportion of smaller holding companies 
are exempt than larger holding companies.
---------------------------------------------------------------------------

    \25\ As noted above, OTS used a statistical sample of publicly 
traded thrift holding companies to obtain information for all thrift 
holding companies. The percentages of exempt holding companies 
listed in the tables are the actual percentages derived from this 
sample. The number of exempt holding companies was derived by 
multiplying these percentages by the 531 thrift holding company 
structures. The numbers in the ``Number Exempt'' column were rounded 
to the nearest whole number.

----------------------------------------------------------------------------------------------------------------
                                                                            Percent of                 Percent
                         Asset size                              Number       total      No. exempt     exempt
----------------------------------------------------------------------------------------------------------------
Less than $100mm............................................           88         16.6           72         81.3
$100mm-$250mm...............................................          142         26.8           90         63.3
$250mm-$500mm...............................................          114         21.4           45         39.8
$500mm-$2b..................................................          127         23.9           39         30.5
Greater than $2b............................................           60         11.3           12         20.0
                                                             ---------------------------------------------------
      Total.................................................          531        100.0          258         48.6
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                            Percent of                 Percent
                        1999 revenue                             Number       total      No. exempt     exempt
----------------------------------------------------------------------------------------------------------------
Under $5mm..................................................          150         28.2          106         70.5
$5mm-$10mm..................................................          138         25.9           63         45.6
$10mm-$50mm.................................................          158         29.7           60         38.1
$50mm-$100mm................................................           47          8.8            9         20.0
Greater than $100mm.........................................           39          7.4            7         17.2
                                                             ---------------------------------------------------
      Total.................................................          531        100.0          244         48.6
----------------------------------------------------------------------------------------------------------------

    OTS does not know how many non-thrift subsidiaries are held by 
small thrift holding companies, how frequently small thrift holding 
companies and their subsidiaries will engage in transactions subject to 
the proposed rule, or how often OTS will object to a proposed 
transaction because the activity will pose a material risk to the 
financial safety, soundness, or stability of a subsidiary savings 
association. Accordingly, OTS specifically seeks comments on these and 
any other issues.

B. Requirements of the Proposed Rule

    As described more fully in the supplementary information section, 
the proposed rule would require savings and loan holding companies to 
notify OTS before they (or their subsidiaries, other than savings 
association subsidiaries) engage in certain types of activities. OTS 
may object to the proposed transaction if certain prerequisites are 
met.
    The primary economic impact of this proposed rule is the additional 
expenses that holding companies may incur to prepare and submit 
notices. In addition to these expenses, when OTS objects to a proposed 
transaction or activity, there may be the additional expenses 
associated with seeking reconsideration of the OTS determination and 
with abandoning and not pursuing a proposed transaction.
    To minimize the potential burdens of the proposed notice 
requirement, this proposed rule would:
    <bullet> Exempt certain holding companies whose activities do not 
present a significant risk to a subsidiary thrift. Under the proposed 
rule, a notice is not required where the parent holding company would 
have a substantial capital cushion.
    <bullet> Apply only to certain types of transactions that meet 
specific criteria established to identify those transactions that may 
pose a possible threat to the safety, soundness, or stability of the 
thrift.
    <bullet> Minimize the filing burden by prescribing the content of 
the notice, permitting notices to include schedules of proposed 
transactions or activities for up to twelve months, and permitting 
consolidated filings with related applications.
    <bullet> Minimize regulatory burden by providing an expeditious 
review period. Generally, the period is 30 days.
    <bullet> Permit OTS to disapprove a transaction only under limited 
circumstances. Specifically, OTS may object only if it finds that the 
proposed transaction or activity would pose a material risk to the 
financial safety, soundness, or stability of the thrift.
    OTS does not have a practicable or reliable basis for quantifying 
the costs of this proposed rule. While OTS does not believe that the 
rule would be burdensome, OTS cannot predict the economic impact on 
savings and loan holding companies (or their subsidiaries that are non-
thrift subsidiaries) of the proposed rule. Rather than merely guess at 
the regulatory burden of the proposed rule, OTS solicits comment on 
potential burdens and on ways to minimize the burdens.

[[Page 64399]]

C. Significant Alternatives

    Consistent with the purposes of this rulemaking, OTS has exercised 
its discretion to minimize the burden of this proposed rule on small 
entities. Although OTS could exempt small savings and loan holding 
companies from the notice requirement, OTS does not believe that this 
action is appropriate. The purpose of the notice is to ensure that 
holding companies and their subsidiaries do not engage in transactions 
that could pose a material risk to the financial safety, soundness, or 
stability of the subsidiary thrift. There is no rationale for exempting 
thrifts from this regulatory protection merely because they are 
affiliated with small holding companies.
    OTS, however, has attempted to ensure that holding companies, 
including small holding companies, are not unduly burdened by the 
notice requirements. Specifically, the proposal recognizes that 
transactions involving a holding company with a substantial capital 
cushion are less likely to present a significant risk to the subsidiary 
thrift. By exempting savings and loan holding companies that will have 
consolidated tangible capital of ten percent or greater, OTS excludes 
70.5 percent to 81.3 percent of small thrift holding companies from the 
coverage of this rule.
    OTS considered reducing the tangible capital threshold to minimize 
the impact on small thrift holding companies. Using the asset-based 
definition of small holding company, OTS data indicates that reducing 
the tangible capital threshold to 9 percent would increase the 
percentage of exempted small companies from 81.3 percent to 86.4 
percent. Reducing the tangible capital threshold to 8 percent would 
increase the percentage of exempted small holding companies to 87.9 
percent.
    Using the revenue-based definition of small holding company, OTS 
data indicates that reducing the tangible capital threshold to 9 
percent would increase the percentage of exempt small companies from 
70.5 percent to 80.4 percent. Reducing the threshold to 8 percent would 
further increase the percentage exempted to 88.4 percent. In this 
preamble, OTS specifically seeks comment whether a tangible capital 
threshold of less than 10 percent, however, would be sufficient to 
protect the subsidiary thrift.
    In addition to this alternative, the supplementary material 
solicits comment on a number of alternatives that could reduce 
regulatory burden on holding companies, including small holding 
companies. These include, but are not limited to, the following 
questions:
    <bullet> Should OTS consider a different threshold to describe 
situations where a thrift is not the primary line of business of the 
parent holding company?
    <bullet> Should OTS exempt holding companies that control savings 
associations with limited operations (e.g., a subsidiary thrift that 
conducts only fiduciary operations)?
    <bullet> Should OTS redefine the types of transactions and 
activities that are subject to a notice?
    OTS requests comment on whether these or other alternatives would 
reduce the burdens and whether any exceptions for small institutions 
would be appropriate. Also, OTS welcomes comment on the appropriateness 
of its approach, and on any other alternatives that would satisfy the 
objectives of this proposal.

D. Other Matters

    The proposed rule does not appear to duplicate or overlap with any 
other rules or requirements. However, it is possible that a transaction 
within the scope of this proposed rule may be related to another 
transaction for which an application or notice is required under 
another regulation or statute. For example, a holding company may 
propose to incur additional debt in connection with its acquisition of 
a new branch office for its subsidiary savings association. Under these 
circumstances, the savings association would be required to file a 
related branch notice or application. To the extent that related notice 
or applications may exist, the proposed rule permits the holding 
company to combine the notice with any related notice or application.
    OTS generally seeks comment on any Federal statutes or rules that 
may duplicate, overlap, or conflict with the proposal.

VII. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. OTS has determined that the 
proposed rule will not result in expenditures by state, local, or 
tribal governments or by the private sector of $100 million or more. 
Accordingly, this rulemaking is not subject to section 202 of the 
Unfunded Mandates Act and the OTS has not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

VIII. Paperwork Reduction Act

    OTS invites comment on:
    (1) Whether the collection of information contained in this notice 
of proposed rulemaking are necessary for the proper performance of 
OTS's functions, including whether the information has practical 
utility;
    (2) The accuracy of the estimate of the burden of the proposed 
information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collection on 
respondents, including the use of automated collection techniques or 
other forms of information technology;
    (5) Estimates of capital or start-up costs and costs of operation, 
minutes, and purchase of services to provide information.
    Respondents are not required to respond to this collection of 
information unless it displays a currently valid Office of Management 
and Budget (OMB) control number.
    The collection of information requirements contained in this notice 
of proposed rulemaking have been submitted to the OMB in accordance 
with the Paperwork Reduction Act of 1995, 44 U.S.C. 3507. OTS will use 
any comments received to develop its new burden estimates. Comments on 
the collection of information should be sent to the Dissemination 
Branch (1550), Office of Thrift Supervision, 1700 G Street, NW., 
Washington DC 20552, with a copy to the office of Management and 
Budget, Paperwork Reduction Project (1550), Washington, DC 20503.
    The collection of information requirements in this proposed rule is 
found in 12 CFR 584.110 through 584.130. OTS requires this information 
for the proper supervision of activities and transactions by savings 
and loan holding companies. The likely respondents are savings and loan 
holding companies.
    Estimated number of respondents: 190.
    Estimated average annual burden hours per respondent: 5.
    Estimated total annual disclosure and recordkeeping burden: 950.

[[Page 64400]]

List of Subjects in 12 CFR Part 584

    Administrative practice and procedure, Holding companies, Reporting 
and recordkeeping requirements, Savings associations, Securities.

    Accordingly, the Office of Thrift Supervision hereby proposes to 
amend part 584, chapter V, title 12, Code of Federal Regulations as set 
forth below:

PART 584--REGULATED ACTIVITIES

    1. The authority citation for part 584 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468.

    2. A heading for a new subpart A is added preceding Sec. 584.1 to 
read as follows:

Subpart A--Regulated Activities

    3. A new subpart B is added to read as follows:
Subpart B--Notice of Significant Transactions or Activities
Sec.
584.100   What does this subpart do?
584.110   Must I file a notice?
584.120   What transactions or activities require a notice?
584.130   How do I file my notice?
584.140   On what grounds will OTS disapprove the proposed activity 
or transaction?
584.150   When may I engage in the proposed activity or transaction?

Subpart B--Notice of Significant Transactions or Activities


Sec. 584.100  What does this subpart do?

    (a) This subpart requires certain savings and loan holding 
companies (``you'') to notify OTS before engaging in or committing to 
engage in significant transactions or activities.
    (b)(1) As used in this subpart B:
    (i) Consolidated non-thrift liabilities means your consolidated 
liabilities less the consolidated liabilities of your subsidiary 
savings association(s).
    (ii) Consolidated tangible assets means your consolidated assets 
less your consolidated intangible assets and deferred policy 
acquisition costs.
    (iii) Consolidated tangible capital means your consolidated capital 
less your consolidated intangible assets and deferred policy 
acquisition costs.
    (iv) Subsidiary savings association means the subsidiary savings 
association itself and its consolidated subsidiaries.
    (2) In applying the definitions in this paragraph (b), you must 
compute assets, intangible assets, liabilities, and capital consistent 
with generally accepted accounting principles.


Sec. 584.110  Must I file a notice?

    (a) General. You must file a notice before you may engage in or 
commit to engage in transactions described under Sec. 584.120, unless 
one or more of the following applies:
    (1) Your subsidiary savings association(s) has consolidated assets 
that, when aggregated, represent less than 20 percent of your 
consolidated assets; or
    (2) You will have consolidated tangible capital of 10 percent or 
greater following the transaction.
    (b) Required by Region. You must file a notice before you engage in 
or commit to engage in a transaction or activity if your Regional 
Director informs you, in writing, that OTS has concerns relating to 
your financial condition, or the safety and soundness of your 
subsidiary savings association. The Regional Director will identify, in 
writing, the types of transactions and activities that will require you 
to file a notice. These transactions may include, but are not limited 
to, the transactions and activities described in Sec. 584.120.


Sec. 584.120  What transactions or activities require a notice?

    (a) Unless you are excepted under Sec. 584.110(a), you must file a 
notice before you engage in or commit to engage in any transaction or 
activity described in the following chart. In determining the 
thresholds in the chart, you must combine the proposed transaction with 
all other transactions within the three relevant categories 
(acquisitions of assets, increases in liabilities, and decreases in 
capital) conducted during the prior twelve months.

------------------------------------------------------------------------
   You must file a notice if you or your
     subsidiary (other than a savings       And the proposed transaction
          association) will . . .                    will . . .
------------------------------------------------------------------------
(1) Issue, renew, or guarantee debt . . .   Increase the amount of your
                                             consolidated non-thrift
                                             liabilities by five percent
                                             or more. You are not
                                             required to file a notice
                                             for debt, however, if your
                                             consolidated non-thrift
                                             liabilities will be less
                                             than 50 percent of your
                                             consolidated tangible
                                             capital after the proposed
                                             debt transaction.
------------------------------------------------------------------------
(2) Acquire assets (other than cash, cash   Exceed an amount equal to
 equivalents, and securities or other        fifteen percent of your
 obligations unconditionally guaranteed by   consolidated assets.
 the United States Government) . . .
------------------------------------------------------------------------
(3) Engage in any transaction . . .         Reduce the ratio of your
                                             consolidated tangible
                                             capital to consolidated
                                             tangible assets by ten
                                             percent or more. If your
                                             consolidated tangible
                                             capital is less than zero,
                                             you must file a notice
                                             unless your Regional
                                             Director informs you, in
                                             writing, that a notice is
                                             not required.
------------------------------------------------------------------------

    (b) Other transactions or activities. You must file a notice if 
your OTS Regional Director informs you, in writing, that a transaction 
or activity may pose a risk to the financial safety, soundness, or 
stability of the subsidiary savings association and will require a 
notice.


Sec. 584.130  How do I file my notice?

    (a) Regional Office. You must file a written notice with the 
applicable OTS Regional Office at the address listed in Sec. 516.1 of 
this chapter, at least 30 days before the earlier of engaging in or 
committing to engage in a transaction or activity.
    (b) Content. You must include the following information in your 
written notice:
    (1) The basis for the filing requirement.
    (2) A description of the transaction or activity, its purpose, and 
an analysis of its impact on the savings association. You must identify 
the amount of the debt, capital reduction, or asset acquisition, 
indicate the intended use of the funds or reason for capital reduction 
or asset acquisition and an analysis of the impact on consolidated 
earnings and consolidated capital, and summarize the relevant terms of 
the transaction, including a description of any significant covenants 
or collateral requirements.

[[Page 64401]]

    (c) Schedules. You may include a schedule proposing transactions or 
activities over a specified period, not to exceed 12 months.
    (d) Combining notice. You may combine your notice with related 
notices or applications. If you submit a combined filing, you must:
    (1) State that the related notice or application is intended to 
serve as a notice or application under this subpart; and
    (2) Submit the notice or application in a timely manner.


Sec. 584.140  On what grounds will OTS disapprove or condition the 
proposed activity or transaction?

    The OTS Regional Director will disapprove or condition your notice 
if the proposed transaction or activity will pose a material risk to 
the financial safety, soundness, or stability of your subsidiary 
savings association.


Sec. 584.150  When may I engage in the proposed activity or 
transaction?

    (a) You or your subsidiary may engage in the proposed transaction 
or activity 30 days after OTS receives all required information, unless 
OTS informs you, in writing, of one of the following:
    (1) OTS disapproves the notice.
    (2) OTS extends the 30-day review period for an additional period 
not to exceed 30 days. You or your subsidiary may engage in the 
proposed transaction or activity when the extended period expires, 
unless OTS informs you, in writing, that it disapproves the notice.
    (b) In addition, you or your subsidiary may engage in the proposed 
transaction or activity after OTS notifies you, in writing, that it 
does not intend to disapprove the notice.
    (c) Notwithstanding paragraphs (a) and (b) of this section, you may 
not engage in a proposed transaction or activity if:
    (1) Your notice included a schedule of proposed transactions or 
activities under Sec. 584.130(c); and
    (2) The OTS Regional Director determines that there has been a 
material change of circumstances, and informs you, in writing, that you 
must file a new notice under this subpart.

    Dated: October 23, 2000.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 00-27705 Filed 10-26-00; 8:45 am]
BILLING CODE 6720-01-P


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