66116 Federal Register / Vol. 65, No. 213 / Thursday, November 2, 2000 / Proposed Rules

1Federal savings associations that wish to adopt

a bylaw addressing director qualifications that does

not conform to the preapproved bylaw amendment

would continue to be required to obtain prior

approval from OTS.

2See Financial Institutions Supervisory Act of

1966, Pub. L. 89–695, 80 Stat. 1028, 1030–32, 1039–

40, 1049–50. Currently, section 8(e) of the Federal

Deposit Insurance Act (FDIA), provides for the

removal and prohibition of persons a banking

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 544 and 552

[No. 2000–93]

RIN 1550–AB39

Federal Savings Association Bylaws;

Integrity of Directors

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of Thrift

Supervision (OTS) is proposing to

change its regulations concerning

corporate governance to create a class of

preapproved optional bylaw provisions

that federally chartered savings

associations may adopt. The proposal

decreases regulatory burden on federal

savings associations by permitting them

to adopt certain bylaws expeditiously

without prior OTS review. In addition,

OTS is proposing the first preapproved

optional bylaw. If adopted by a savings

association, the bylaw would preclude

persons who, among other things, are

under indictment for or have been

convicted of certain crimes, or are

subject to a cease and desist order

entered by any of the banking agencies,

from being members of the association’s

board of directors. The proposed

preapproved bylaw is intended to

permit federal savings associations to

better protect their business from the

adverse effects that are likely to result

when the reputation of its board

members does not elicit the public’s

trust.

DATES: Your comments must be received

by January 2, 2001.

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. 2000–93.

Delivery: Hand deliver comments to

the Guard’s Desk, East Lobby Entrance,

1700 G Street, NW., from 9 a.m. to 4

p.m. on business days, Attention Docket

No. 2000–93.

Facsimiles: Send facsimile

transmissions to FAX Number (202)

906–7755, Attention Docket No. 2000–

93; or (202) 906–6956 (if comments are

over 25 pages).

E-Mail: Send e-mails to

‘‘public.info@ots.treas.gov’’, Attention

Docket No. 2000–93, 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:

Aaron B. Kahn, Special Counsel (202)

906–6263, Office of Thrift Supervision,

1700 G Street, NW., Washington, DC

20552.

SUPPLEMENTARY INFORMATION:

I. Proposed Regulation

OTS requires federal savings

associations to operate under bylaws

that meet certain regulatory

requirements and has drafted a set of

‘‘model’’ bylaws that would satisfy

those requirements. The text of this set

of model bylaws for federal savings

associations is located in the

Application Processing Handbook

(Handbook). Federal savings

associations may adopt this set of model

bylaws without prior notice to OTS,

provided that they notify OTS within 30

days after their adoption.

The current proposal is intended to

reduce regulatory burden on federal

savings associations that wish to

address other topics by providing

additional preapproved ‘‘optional’’

bylaws that federal savings associations

may adopt with a post-adoption notice

to OTS. Federal savings associations are

not required to adopt the optional

bylaws. The amendment simply reduces

the regulatory burden on federal savings

associations desiring to adopt the

specific provisions.

II. Proposed Bylaw

In addition to seeking comment on

the proposal to include preapproved

optional bylaws in the Handbook, OTS

also requests comment on the first

proposed preapproved bylaw. This

bylaw would provide standards for the

integrity of directors of federal savings

associations.

It is important that the directors of

savings associations be persons of good

character and integrity. They oversee

management and they have the ultimate

responsibility for the operations of the

savings association. In addition,

directors of savings associations are

expected to assist their institutions in

attracting and retaining business. Their

reputations in the community or

communities served by the savings

association reflect on the institution and

affect their ability to help the institution

attract and retain business. People must

be able to trust the institution that holds

their money. Moreover, people may be

wary of contracting with an institution

that they do not trust. Thus, a director

who has an exemplary reputation may

be a valuable asset to the association.

Conversely, a director whose reputation

is tainted, for example because a court

has found he or she personally profited

from a breach of his or her fiduciary

duties, may injure an institution just by

being a member of the board.

This proposed bylaw would permit

federal savings associations to assure

themselves that those persons subject to

adverse actions concerning their

fiduciary integrity or compliance with

financial regulatory laws do not become

board members. The proposed optional

bylaw does not bar anyone from the

industry. Rather, the proposed rule and

optional bylaw would merely permit an

individual federal savings association to

set qualifications for board membership

for that institution. Federal savings

associations that adopt the preapproved

bylaw amendment would not have to

provide prior notice to OTS, but would

have to file notice of the adoption of the

bylaw within 30 days after adopting the

bylaw.1

Congress has repeatedly expressed

concerns about the character and

integrity of the people who control

savings associations. When it created

the federal savings and loan regulatory

system, Congress directed the federal

regulatory agency to give primary

consideration to the best practices then

existing in the savings and loan

industry. See 12 U.S.C. 1464(a), 48 Stat.

128, 132 (1933). One such practice was

that directors of savings associations

should be persons of good judgment and

character who have the respect and

confidence of the community served by

their respective institution. See Joseph

H. Sundheim, Law of Building and Loan

Associations, § 71 (3d ed.1933).

In 1966 Congress specifically

addressed the integrity issue. At that

time Congress gave the banking agencies

authority to remove officers and

directors of a savings association and

prohibit them from affiliating with the

institution in the future if the officer or

director had engaged in certain

conduct.2 Congress subsequently

Federal Register / Vol. 65, No. 213 / Thursday, November 2, 2000 / Proposed Rules 66117

agency finds to have committed certain acts

involving personal dishonesty or willful or

continuing disregard for the safety or soundness of

an insured depository institution and has either

received financial gain or other benefit, injured the

institution or prejudiced the interests of its

depositors. Similarly, section 19 of the FDIA

prohibits persons who have been convicted of any

criminal offense involving dishonesty or a breach

of trust from controlling or participating in the

conduct of the affairs of any insured depository

institutions without the prior consent of the Federal

Deposit Insurance Corporation. See also 12 U.S.C.

1818(g).

3See 12 U.S.C. 1818(e).

4 12 U.S.C. 1817(j)(7)(D).

5 12 U.S.C. 1467a(e)(1)(B), (e)(2).

6Section 914 of FIRREA (12 U.S.C. 1831i),

provided that the banking agencies should

disapprove a proposed director ‘‘if the competence,

experience, character, or integrity of the [proposed

director] indicates that it would not be in the best

interests of the depositors of the depository

institution or in the best interests of the public to

permit the individual to be [so] employed. * * *’’

In 1996, Congress changed the categories of

institutions subject to this requirement. See Section

2209 of the Economic Growth and Regulatory

Paperwork Reduction Act, P.L. 104–208, 110 Stat.

3009–409.

7See 12 CFR 543.3(d)(2) (2000).

broadened the scope of the prohibition

to prevent such persons from being

affiliated with other insured depository

institutions, including savings

associations.3

The fact that Congress found certain

conduct so egregious that it authorized

the debarment of perpetrators from the

industry does not demonstrate that it

believed everyone else was qualified to

sit on the boards of savings associations.

For example, Congress’ concerns

regarding the management of savings

associations is evident in: (i) The

Change in Bank Control Act,4 which

allows the applicable Federal banking

agency to disapprove a proposed

acquisition if, among other things, the

competence, experience and integrity of

any of the acquiror’s proposed

management personnel might jeopardize

the financial stability of the institution

or prejudice the interests of the

depositors of the institution; and (ii) the

holding company acquisition provisions

of the Home Owners’ Loan Act, which

require OTS in reviewing managerial

resources to consider the competence,

experience and integrity of directors of

an acquiror and the savings association

involved.5

Congress again recognized the need to

ensure integrity in the banking industry

when it enacted the Financial

Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA). In

FIRREA, Congress required certain

financial institutions to provide prior

notice to their federal regulator of any

new board members and authorized the

regulator to disapprove such a board

member if he or she lacked the requisite

character or integrity to advance the

interests of the depositors of the

institution.6

OTS has also been concerned with the

character of persons who would hold

director positions in savings

associations. Under OTS’s regulations

governing the chartering of federal

savings associations, the background of

the proposed directors of a new federal

association must reflect a history of

personal integrity.7

The proposed bylaw standards for

determining integrity of prospective

board members are derived in part from

the existing standards in § 563.39(b)(1)

for terminating savings association

officers for cause. Because that

provision deals with the integrity of

officials who are supervised by the

board of directors, the board members

should be held to at least a comparable

standard of integrity. The bylaw focuses

particularly on actions against an

individual predicated on serious

dishonesty, breach of fiduciary duty or

willful violation of financial regulatory

law.

The wording of the proposed optional

bylaw dealing with directors’ integrity is

as follows:

A person is not qualified to serve as a

director if he or she: (1) Is under indictment

for, or has ever been convicted of, a criminal

offense involving dishonesty or breach of

trust and the penalty for such offense could

be imprisonment for more than one year, or

(2) is a person against whom a banking

agency has, within the past ten years, issued

a cease and desist order for conduct

involving dishonesty or breach of trust and

that order is final and not subject to appeal,

or (3) has been found either by a regulatory

agency whose decision is final and not

subject to appeal or by a court to have (i)

breached a fiduciary duty involving personal

profit or (ii) committed a willful violation of

any law, rule or regulation governing

banking, securities, commodities or

insurance, or any final cease and desist order

issued by a banking, securities, commodities

or insurance regulatory agency.

OTS welcomes comment on those

standards, and also requests comments

on whether (and, if so, why) the bylaw

should also prevent persons covered by

the bylaw from nominating anyone for

board membership.

III. Plain Language Statement

OTS invites your comments on how

to make this proposed rule easier to

understand. Do we clearly state the

requirements in the rule? If not, how

could the rule be more clearly stated?

IV. Regulatory Flexibility Act

Pursuant to section 605(b) of the

Regulatory Flexibility Act, OTS certifies

that this proposal will not have a

significant impact on a substantial

number of small entities. The proposal

reduces regulatory burden on federal

savings associations, including small

federal savings associations, by

permitting them to adopt certain bylaws

without providing prior notice to OTS.

The proposal does not require any

savings association to modify its bylaws

and all federal savings associations

currently can request permission to

adopt such bylaws, if they choose to do

so. Accordingly, a regulatory flexibility

analysis is not required.

V. Executive Order 12286

The Director of OTS has determined

that this proposal does not constitute a

‘‘significant regulatory action’’ for

purposes of Executive Order 12866.

VI. Unfunded Mandates Reform Act of

1995

OTS has determined that this

proposed rule will not result in

expenditures by state, local and tribal

governments, or by the private sector, of

$100 million or more in any one year.

Therefore, OTS has not prepared a

budgetary impact statement or

specifically addressed the regulatory

alternatives considered. The proposal

simply reduces regulatory burden on

federal savings associations by

permitting them to adopt certain bylaws

without having to first request

permission from OTS.

List of Subjects

12 CFR Part 544

Reporting and recordkeeping

requirements, Savings associations.

12 CFR Part 552

Reporting and recordkeeping

requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift

Supervision proposes to amend title 12,

chapter V, of the Code of Federal

Regulations as set forth below:

PART 544—CHARTER AND BYLAWS

1. The authority citation for part 544

continues to read as follows:

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

1464, 1467a, 2901 et seq.

2. Section 544.5 is amended by

revising paragraph (c)(1)(iii) to read as

follows:

§ 544.5 Federal mutual savings

association bylaws.

* * * * *

(c) * * *

(1) * * *

(iii) For purposes of this paragraph

(c), bylaw provisions that adopt the

66118 Federal Register / Vol. 65, No. 213 / Thursday, November 2, 2000 / Proposed Rules

1 In 1997, OTS added three new subparts to part

516. 62 FR 64138 (Dec. 4, 1997). These new

subparts were also drafted using ‘‘plain language’’

drafting techniques. OTS is proposing to redraft the

remainder of part 516 consistent with section 722

of Gramm-Leach-Bliley Act (the G–L–B Act or Act)

which requires OTS to use ‘‘plain language’’ in all

proposed and final rules published after January 1,

2000.

language of the model or optional

bylaws in OTS’s Application Processing

Handbook, if adopted without change,

and filed with OTS within 30 days after

adoption, are effective upon adoption.

* * * * *

PART 552—INCORPORATION,

ORGANIZATION, AND CONVERSION

OF FEDERAL STOCK ASSOCIATIONS

3. The authority citation for part 552

continues to read as follows:

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

1464, 1467a.

4. Section 552.5 is amended by

revising paragraph (b)(1)(iii) to read as

follows:

§ 552.5 Bylaws.

* * * * *

(b) * * *

(1) * * *

(iii) Bylaw provisions that adopt the

language of the model or optional

bylaws in OTS’s Application Processing

Handbook, if adopted without change,

and filed with OTS within 30 days after

adoption, are effective upon adoption.

* * * * *

Dated: October 25, 2000.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 00–27841 Filed 11–1–00; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 516, 517, 543, 544, 545,

550, 552, 555, 559, 560, 562, 563, 563b,

563f, 565, 567, 574, 575, 584

[No. 2000–94]

RIN 1550–AB14

Application Processing

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: As part of its ongoing effort to

review and streamline its regulations,

the Office of Thrift Supervision (OTS)

proposes to revise its application

processing guidelines and procedures.

The proposed changes would update the

rules to reflect existing practices and

procedures; provide more predictable

procedures for applicants; and provide

greater flexibility to OTS in processing

applications. OTS has also applied

‘‘plain language’’ drafting techniques,

which should make the application

processing rules easier to understand.

DATES: Comments must be received on

or before January 2, 2001.

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. 2000–94.

Delivery: Hand deliver comments to the

Guard’s Desk, East Lobby Entrance,

1700 G Street NW., from 9 a.m. to 4

p.m. on business days, Attention

Docket No. 2000–94.

Facsimiles: Send facsimile

transmissions to FAX Number (202)

906–7755, Attention Docket No.

2000–94; or (202) 906–6956 (if

comments are over 25 pages).

E-Mail: Send e-mails to

‘‘public.info@ots.treas.gov’’, Attention

Docket No. 2000–94, 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:

Lane Langford, Regulatory Analyst,

Office of Examination and

Supervision, (202) 906–7027;

Celeste Anderson, Program Analyst,

Compliance Policy & Specialty

Examinations, (202) 906–7990;

Robyn Dennis, Manager, (202) 906–5751

and Josephine Battle, Program Analyst

Trainee, (202) 906–6870, Supervision

Policy Division;

John P. Harootunian, Senior Counsel for

Special Transactions, Business

Transactions Division, (202) 906–

6415; and

Koko Ives, Counsel (Banking and

Finance) Regulations and Legislation

Division, Office of Chief Counsel,

Office of Thrift Supervision, 1700 G

Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

OTS application processing

guidelines and procedures are found in

12 CFR part 516. In today’s proposed

rulemaking, OTS proposes to revise

these rules to update the rules to reflect

existing practices and procedures; to

provide more predictable procedures for

applicants; and to provide greater

flexibility to OTS in processing

applications. OTS has also applied

‘‘plain language’’ drafting techniques.1

The intent of today’s proposed

rulemaking is to improve the clarity and

the efficiency of the OTS application

processing procedures. These

improvements will make the rules easier

for applicants to understand. That is,

applicants will know what to expect

from OTS and what OTS expects from

applicants in processing an application.

The applicants should also benefit from

a more expeditious review and

processing of applications.

Most changes in today’s proposed

rulemaking clarify existing procedures.

OTS has, for example, presented current

information in user-friendly charts;

explained how it computes time

periods; and explained how an

applicant may determine whether an

application should be filed with the

Region and Headquarters. OTS would

also add a new proposed provision

permitting an applicant to designate

portions of an application as

confidential to reflect current policy.

In addition, OTS proposes to remove

some technical requirements from the

existing regulations and incorporate this

information into individual application

forms. OTS is currently revising its

forms and application-processing

handbook to reflect these changes. This

regulation will not be issued in its final

form until those forms and handbooks

are in place.

OTS proposes only a few substantive

changes to the existing rules. These

include new provisions: addressing prefiling procedures for complex

applications in order to expedite

processing of these applications,

permitting OTS to extend certain

processing time frames, and allowing

OTS to deem certain long-pending

applications to have been withdrawn.

OTS believes that these changes will

provide greater efficiency and flexibility

in the processing of applications. The

section-by-section analysis below

specifically discusses all of the

proposed changes.

II. Section-by-Section Analysis

Today’s proposal would replace

existing §§ 516.1, 516.2, and 516.3 with

two new subparts to part 516. Revised

subpart A would prescribe pre-filing

and filing procedures. New subpart E