[Federal Register Volume 63, Number 4 (Wednesday, January 7, 1998)]
[Proposed Rules]
[Pages 1044-1050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-205]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563, 563b

[No. 97-128]
RIN 1550-AA72


Capital Distributions

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing amendments 
to its capital distributions regulation. Today's rule updates, 
simplifies, and streamlines this regulation to reflect OTS's 
implementation of the system of prompt corrective action (PCA) 
established under the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (FDICIA). The proposal is also designed to conform OTS's 
capital distribution requirements to those of the other banking 
agencies.

DATES: Comments must be received on or before March 9, 1998.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records 
Management and Information Policy, Office of Thrift Supervision, 1700 G 
Street, N.W., Washington, DC 20552, Attention Docket No. 97-128. These 
submissions may be hand-delivered to 1700 G Street, N.W., from 9:00 
a.m. to 5:00 p.m. on business days; they may be sent by facsimile 
transmission to FAX Number (202) 906-7755; or they may be sent by e-
mail: <a href="/cdn-cgi/l/email-protection#abdbdec9c7c2c885c2c5cdc4ebc4dfd885dfd9cecad885ccc4dd"><span class="__cf_email__" data-cfemail="44343126282d276a2d2a222b042b30376a30362125376a232b32">[email protected]</span></a>. Those commenting by e-mail should 
include their name and telephone number. Comments will be available for 
inspection at 1700 G Street, N.W., from 9:00 a.m. until 4:00 p.m. on 
business days.

FOR FURTHER INFORMATION CONTACT: Edward J. O'Connell, III, Project 
Manager, (202) 906-5694; Robyn Dennis, Manager, (202) 906-5751, 
Supervision Policy; Evelyne Bonhomme, Counsel (Banking and Finance), 
(202) 906-7052; Karen Osterloh, Assistant Chief Counsel, (202) 906-
6639, Regulations and Legislation Division, Chief Counsel's Office, 
Office of Thrift Supervision, 1700 G Street NW., Washington, D.C. 
20552.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The OTS is proposing to update, simplify, and streamline its 
capital distributions regulation. This proposal follows a detailed 
review of the regulation to determine whether it should be revised, 
reduces burden consistent with statutory requirements, and is written 
in a clear, straightforward style. Today's proposal is made pursuant to 
the Regulatory Reinvention Initiative of the Vice President's National 
Performance Review and section 303 of the Community Development and 
Regulatory Improvement Act of 1994 (CDRIA). Consistent with section 
303, the proposed amendments would bring the OTS's capital 
distributions regulation into greater conformity with the requirements 
of the Office of the Comptroller of the Currency (OCC), the Federal 
Reserve Board (FRB), and the Federal Deposit Insurance Corporation 
(FDIC).
    The proposal reduces regulatory burden and compliance costs 
associated with some capital distributions. Under the existing rules, 
all savings associations must file a notice or an application for 
approval before making any capital distribution. Under the proposed 
rule, however, certain savings associations would not be required to 
file with the OTS. Specifically, for savings associations that would 
remain at least adequately capitalized following the capital 
distribution and meet other specified requirements, the OTS is 
proposing to eliminate any requirement

[[Page 1045]]

for notice or application for cash dividends below a specified amount. 
An application, however, would always be required for any capital 
distribution in excess of the specified amount. In addition, a notice 
or application would be required under other circumstances, such as 
where a distribution would reduce the amount of or retire common or 
preferred stock (including stock repurchases) or debt instruments 
included in capital.

II. Background

    In 1990, the OTS adopted a capital distributions regulation, 12 CFR 
563.134.<SUP>1</SUP> This regulation was designed to apply a uniform 
regulatory approach to all capital distributions made by savings 
associations, including dividends, stock repurchases, and cash-out 
mergers. The rule established a ``tiered'' approach, which permitted a 
savings association to make distributions based on its level of 
capitalization. Savings associations that met fully phased-in capital 
requirements had greater flexibility to make capital distributions than 
other savings associations. All savings associations were required to 
provide notice to the OTS, or to apply for approval, before making any 
capital distribution. When the OTS adopted this rule, the thrift 
industry was generally undercapitalized and thrifts were under pressure 
to increase capital to meet rapidly rising standards. The regulation 
was intended to restrict capital distributions by savings associations 
that did not meet the capital requirements imposed in the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989.
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    \1\ 55 FR 17185 (July 2, 1990).
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    In September 1992, the OTS promulgated its Prompt Corrective Action 
Final Rule (PCA Rule).<SUP>2</SUP> The PCA Rule implemented section 131 
of FDICIA, which created a system of supervisory actions indexed to 
capital levels.<SUP>3</SUP> Well-capitalized and adequately capitalized 
insured depository institutions are generally not subject to PCA 
restrictions.<SUP>4</SUP> However, undercapitalized, significantly 
undercapitalized, and critically undercapitalized categories are 
subject to increasing levels of supervisory restrictions. Under the PCA 
Rule, OTS uses the ratio of total capital to risk-weighted assets, the 
ratio of core capital to risk-weighted assets, and the ratio of core 
capital to total average assets (the leverage ratio) to determine a 
thrift's PCA category.<SUP>5</SUP>
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    \2\ 57 FR 44866 (September 29, 1992).
    \3\ Section 131 of FDICIA added a new section 38 to the Federal 
Deposit Insurance Act. The provision is codified at 12 U.S.C. 1831o. 
The OTS's implementing regulations appear at 12 CFR Part 565 (1997).
    \4\ Under certain circumstances, an institution may be 
reclassified to a lower capital category or treated as if it were in 
a lower capital category. See 12 CFR 565.4(c) (1997).
    \5\ Core capital, which is defined in Part 567 of the OTS's 
regulations, is the thrift capital measure comparable to Tier 1 
capital for banks. 12 CFR Part 567 (1997).
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    The PCA statute prohibits an insured depository institution from 
making a capital distribution if, after making the distribution, the 
institution would be undercapitalized. 12 U.S.C. 1831o(d)(1). In the 
preamble to the 1992 PCA rule, the OTS stated ``that the permissibility 
of capital distributions will be determined by the [PCA] regulations. A 
savings association permitted to make a capital distribution under the 
[PCA] regulations may do so if the amount and type of distribution 
would be permitted under [the capital distribution regulation, 
Sec. 563.134].'' <SUP>6</SUP> The OTS also indicated that it would 
review its capital distributions regulation and consider making 
amendments that may be necessary based on the PCA statute.<SUP>7</SUP>
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    \6\ See 57 FR at 44868, fn.4.
    \7\ Id.
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    In December 1994, the OTS proposed to revise its capital 
distributions regulation to reflect the PCA rule and make other 
changes.<SUP>8</SUP> After reconsidering the issues underlying the 1994 
proposal, the OTS has decided to make further revisions to the capital 
distributions rules. Accordingly, in a separate document, published in 
today's Federal Register, the OTS has withdrawn its 1994 proposal in 
favor of today's proposed revisions.
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    \8\ See 59 FR 62356 (December 5, 1994).
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III. Summary of Proposed Rule

    Today's proposal updates, simplifies, and streamlines the OTS 
capital distributions rule in light of the OTS implementation of the 
PCA requirements. Today's proposal makes changes designed to conform 
the OTS capital distributions regulation to the rules of the other 
banking agencies.
    The proposed rule would add a new subpart E to part 563 to govern 
capital distributions by savings associations. The new subpart utilizes 
plain language drafting techniques consistent with National Performance 
Review instructions and new guidance in the Federal Register Document 
Drafting Handbook (January 1997 edition). The primary goal of plain 
language drafting is to make regulations easier for users to 
understand. The OTS intends to use plain language drafting in other 
regulatory projects to the extent possible. The provisions of the 
proposed new subpart are discussed below.

Proposed Sec. 563.140--What Does This Subpart Cover?

    Section 563.140 of the proposed rule describes the scope of the 
regulation. New subpart E would apply to all capital distributions made 
by savings associations. Because the application of the capital 
distributions rule to operating subsidiaries raises a variety of 
questions, the OTS specifically requests comment on this issue.

Proposed Sec. 563.141--What Is a Capital Distribution?

    Section 563.141 would define the term ``capital distribution'' to 
reflect the PCA statutory definition at 12 U.S.C. 1831o(b)(2)(B). The 
proposed rule defines a capital distribution, in part, as a 
distribution of cash or other property to a savings association's 
owners, made on account of their ownership.<SUP>9</SUP> As provided in 
the statute, the proposed definition excludes dividends consisting only 
of a savings association's shares or rights to purchase 
shares.<SUP>10</SUP>
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    \9\ A distribution made by a Subchapter S corporation, as 
defined in 26 U.S.C. 1361, to its owners, including a distribution 
intended to cover a shareholder's personal tax liability for the 
shareholder's proportionate share of the taxable income of the 
institution, is considered to be a capital distribution under this 
rule.
    \10\ 12 U.S.C. 1831o(b)(2)(B)(i)(I).
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    The statute also excludes from the definition of capital 
distribution any amount paid on deposits of a mutual or cooperative 
institution that the OTS determines is not a distribution for the 
purposes of 12 U.S.C. 1831o.<SUP>11</SUP> In accordance with section 
1831o(b)(2)(B)(i)(II), the OTS has determined that payments that a 
mutual savings association is required to make under the terms of a 
deposit instrument generally are not considered to be capital 
distributions.<SUP>12</SUP> Accordingly, these payments are not subject 
to the capital distributions rule unless either the OTS or FDIC finds 
that the payment is, in substance, a distribution of capital. See 
proposed Sec. 563.141(d), discussed below.
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    \11\ 12 U.S.C. 1831o(b)(2)(B)(i)(II). The OTS recently revised 
its regulations governing the payment of interest or earnings on 
deposits. See 62 FR 54759 (October 22, 1997) (final rule) and 62 FR 
15626 (April 2, 1997) (proposed rule).
    \12\ Although payments to accountholders may, under certain 
circumstances, be capital distributions under the regulation, any 
treatment of mutual accountholders as ``owners'' under the capital 
distributions regulation should not be construed as having any 
effect on the concept of ``ownership'' of a mutual association under 
any other statute or regulation.
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    Consistent with the statutory definition, the proposed regulatory

[[Page 1046]]

definition includes a savings association's payment to repurchase, 
redeem, retire, or otherwise acquire any of its shares or other 
ownership interests. In addition, payments to repurchase, redeem, or 
otherwise acquire debt instruments included in total capital, and any 
extension of credit to finance an affiliate's acquisition of those 
shares or interests would be capital distributions under the proposed 
rule.<SUP>13</SUP>
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    \13\ Under this provision, payments from a savings association 
to an employee stock option plan (ESOP) trust to make payments on a 
loan previously contracted by the ESOP to purchase shares of the 
savings association's stock are not considered to be capital 
distributions. Rather, such payments would be treated as 
compensation by the savings association to its employees.
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    Consistent with section 1831o(b)(2)(B)(iii), proposed 
Sec. 563.141(d) states that a capital distribution includes any 
transaction the OTS or the FDIC determines to be in substance a 
distribution of capital. The OTS may make such determinations by order 
or by regulation. Pursuant to the authority granted under section 
1831o(b)(2)(B)(iii), the proposal would add one provision to the 
definition of capital distribution not specifically addressed in the 
statutory definition. Any direct or indirect payment of cash or other 
property to owners or affiliates made in connection with a corporate 
restructuring would be a capital distribution under this provision. The 
proposed rule would apply to any corporate restructuring, including, 
for example, cash-out mergers and internal reorganizations. Capital 
distributions would also include payment to shareholders of an 
association or shareholders of a holding company by an acquiring 
association to acquire ownership of the association, other than a 
distribution of shares. The OTS believes that such payments are in 
substance a distribution of capital. This provision is based on the 
existing OTS definition of capital distribution at 
Sec. 563.134(a)(1)(iv).
    In contrast, the OTS does not propose to retain existing 
Sec. 563.134(a)(1)(iii), which states that a capital distribution 
includes other distributions charged against the capital accounts of an 
association. The OTS believes that this provision would be redundant 
since the distributions it captures would generally be covered under 
the proposed definition of capital distribution.<SUP>14</SUP> The OTS 
specifically solicits comments on whether existing 
Sec. 563.134(a)(1)(iii) should be added to the final rule.
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    \14\ See proposed Sec. 563.141(a)-(c).
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Proposed Sec. 563.142--What Other Definitions Apply to This Subpart?

    Proposed Sec. 563.142 sets forth other definitions that apply to 
capital distributions. Significant definitions are highlighted below.
    To implement the proposed definition of capital distribution at 
Sec. 563.141(b) and (c), which includes certain payments to affiliates, 
the proposed rule would add a definition of affiliate. Under the 
proposed rule, an affiliate would be any company that controls, is 
controlled by, or is under common control with, another company. The 
terms ``control'' and ``company'' would have the meaning given to those 
terms in 12 U.S.C. 1841(a)(2) and (b) respectively.
    The proposed rule would also add a definition of retained net 
income. This definition would be introduced in connection with a new 
provision requiring an application whenever a proposed capital 
distribution exceeds a specified amount. As discussed below, an 
application is required whenever the total amount of a capital 
distribution exceeds a prescribed limit based on net income for the 
year to date plus retained net income for the preceding two 
years.<SUP>15</SUP>
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    \15\ See proposed Sec. 563.143(a)(2).
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    Proposed Sec. 563.142 would retain the current regulation's 
definitions of capital, net income, and shares with minor 
modifications.<SUP>16</SUP> Moreover, the proposed rule would eliminate 
definitions related to capital tier thresholds.<SUP>17</SUP> These 
thresholds have become obsolete as the thrift industry raised its 
capital to required levels and the phase-in of capital requirements was 
completed on December 30, 1992.
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    \16\ See existing 12 CFR 563.134(a)(2), (5) and (6) (1997).
    \17\ See existing 12 CFR 563.134(a)(3), (4), (7), (8), (9) and 
(10) (1997).
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Proposed Sec. 563.143--Must I File With the OTS?

    The current rule requires all savings associations to file either a 
notice or an application with the OTS before making a capital 
distribution. Today's proposal would allow savings associations to make 
certain capital distributions without filing a notice or application 
under certain circumstances. For savings associations that would remain 
at least adequately capitalized following the capital distribution and 
that meet other specified requirements, the OTS is proposing to 
eliminate any requirement for notice or application for cash dividends 
below specified amounts.
    Section 563.143(a) would describe when a savings association must 
file an application. Under this proposed provision, a savings 
association must file an application if the association is not eligible 
for expedited treatment under OTS's Application Processing Regulation 
at 12 CFR 516.3(a), or if the capital distribution exceeds specified 
amounts.
    Under Sec. 516.3(a), a savings association is eligible for 
expedited treatment if it: (1) has a composite rating of 1 or 2 under 
the Uniform Financial Institutions Rating System (UFIRS), as revised by 
the Federal Financial Institutions Examination Council;<SUP>18</SUP> 
(2) has a CRA rating of satisfactory or better; (3) has a Compliance 
rating of 1 or 2; (4) is meeting all of its capital requirements under 
part 567; and (5) has not been notified by supervisory personnel that 
it is a problem association or a savings association in troubled 
condition. Under existing Sec. 563.134(b)(5), the OTS may notify an 
association that it is ``in need of more than normal supervision,'' and 
subject it to more rigorous capital distribution requirements. For 
example, such an association may be required to file an application for 
prior approval of a distribution, rather than a notice of the 
distribution. The phrase ``in need of more than normal supervision,'' 
however, is not defined in existing Sec. 563.134 nor used elsewhere in 
OTS regulations. The proposed rule would retain similar OTS discretion 
on this point by requiring an application from any institution that 
does not meet the requirements for expedited treatment (including the 
problem association or troubled condition restrictions).<SUP>19</SUP>
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    \18\ 61 FR 67021, 67024-67029 (December 19, 1996). The OTS 
issued a final rule making conforming changes to its regulations 
that cross-reference the UFIRS. 62 FR 3779, 3780 (January 27, 1997).
    \19\ See proposed Secs. 563.143(a)(1).
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    A savings association must also file an application with the OTS if 
the amount of the capital distribution exceeds a specified amount. 
Under proposed Sec. 563.143(a)(2), an application would be required if 
the total amount of all capital distributions, including the proposed 
capital distribution, for the applicable calendar year would exceed an 
amount equal to the savings association's net income for that year to 
date plus the savings association's retained net income for the 
preceding two years. Thus, without prior application to the OTS, only 
undistributed net income for the prior two years may be distributed in 
addition to the current year's undistributed net income. This proposed 
restriction is similar to

[[Page 1047]]

limitations imposed upon banks and should promote interagency 
regulatory conformity consistent with section 303 of CDRIA. It is based 
on the requirement currently imposed upon national banks under 12 
U.S.C. 60 and OCC regulations at 12 CFR 5.64.<SUP>20</SUP> FRB 
regulations at 12 CFR 208.19(b) impose a similar requirement on state 
member banks.
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    \20\ Under 12 U.S.C. 60 and 12 CFR 5.64(1997), a national bank 
may not declare a dividend if the total amount of all dividends 
(common and preferred), including the proposed dividend, declared by 
the national bank in any calendar year exceeds the total of the 
national bank's retained net income of that year to date, combined 
with its retained net income of the preceding two years, unless the 
dividend is approved by the OCC.
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    Proposed Sec. 563.143(b) describes when a savings association must 
file a notice of a capital distribution. This proposed section would 
apply whenever an application is not otherwise required under 
Sec. 563.143(a). A savings association would be required to file a 
notice if it meets any one of four criteria.
    First, a notice would be required if the savings association would 
not be at least adequately capitalized following the distribution. This 
requirement ensures that a savings association will not violate the PCA 
provision prohibiting a savings association from declaring any dividend 
or making any other capital distribution if, following the 
distribution, the institution would be undercapitalized.<SUP>21</SUP>
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    \21\ 12 U.S.C. 1831o(d)(1)(A).
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    The second criterion is similar to restrictions imposed on upon 
banks and should promote interagency regulatory conformity consistent 
with section 303 of CDRIA. Section 563.143(b)(2) is based on section 
18(i) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1828(i)). 
Under this statute, no insured state nonmember bank may, without the 
FDIC's prior consent, reduce the amount, or retire any part of its 
common or preferred capital stock, or retire any part of its capital 
notes and debentures.<SUP>22</SUP> Section 563.143(b)(2) would place a 
comparable restraint on savings associations by requiring a notice 
where a capital distribution would reduce the amount of, or retire any 
part of the savings association's common or preferred stock, or retire 
any part of debt instruments such as notes or debentures included in 
capital under part 567. Under the proposed rule, the reduction of the 
amount of stock would include the repurchase of outstanding stock as 
treasury stock. The OTS specifically requests comment on whether a 
savings association should be required to file a notice for such stock 
repurchases.
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    \22\ A similar, but not identical, provision applies to national 
banks. See 12 U.S.C. 56 and 59.
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    Proposed Sec. 563.143 would include a limited exception to the 
FDIA-based requirement. If a notice or application is not otherwise 
required under Sec. 563.143(a) and (b), a savings association would not 
be required to file if the savings association is making a regular 
payment under a debt instrument approved by the OTS under 12 CFR 
563.81.
    Under the third criterion, a savings association would be required 
to file a notice if the proposed distribution violates a prohibition 
contained in any applicable statute, regulation, or agreement between 
the savings association and the OTS (or the FDIC), or a condition 
imposed on the savings association in an OTS-approved application or 
notice.
    Finally, under Sec. 563.143(b)(4), a savings association that is a 
subsidiary of a savings and loan holding company would be required to 
file a notice, unless an application is otherwise required. This 
provision implements 12 U.S.C. 1467a(f), which requires such savings 
associations to notify OTS at least 30 days before the proposed 
declaration of any dividend.
    If neither the savings association nor the proposed capital 
distribution meet any of the criteria listed in Sec. 563.143(a) or (b), 
the savings association is not required to file a notice or an 
application before making a distribution. See proposed Sec. 563.143(c).

Proposed Sec. 563.144--How Do I File With the OTS?

    Proposed Sec. 563.144 contains the requirements governing the 
filing of capital distribution notices or applications with the OTS. 
Under this proposed section, an application or notice must be in 
narrative form, include all relevant information concerning the 
proposed capital distribution, including the amount, timing, and type 
of distribution, and demonstrate compliance with Sec. 563.146, which 
addresses the criteria for OTS disapproval of notices and denial of 
applications. In addition, an application must demonstrate compliance 
with OTS approval standards at Sec. 516.3(b)(2). See proposed 
Sec. 563.144(a).
    Current Sec. 563.134(c) permits savings associations to seek 
approval or provide notice by submitting schedules of proposed capital 
distributions. Proposed Sec. 563.144(b) would permit a savings 
association to file schedules of capital distributions it proposes to 
make over a period not to exceed 12 months.
    All notices and applications must be filed at least 30 days before 
the proposed declaration of dividend or approval of the proposed 
capital distribution by the savings association's board of directors. 
See proposed Sec. 563.144(c). All notices and applications would be 
processed under 12 CFR Secs. 516.1 through 516.3.

Proposed Sec. 563.145--May I Combine My Notice or Application With 
Other Notices or Applications?

    Consistent with the current regulation, the proposed rule would 
allow a savings association to combine a capital distribution notice or 
application with any related notice or application filed with the OTS 
under any regulation. To combine notices, the association must state 
that the related notice or application is intended to serve as a notice 
or application under the capital distributions regulation. 
Additionally, the savings association must submit the combined notice 
or application in a timely manner.

Proposed Sec. 563.146--Will the OTS Permit My Capital Distribution?

    Section 563.146 would state that the OTS may disapprove a notice or 
deny an application submitted under Sec. 563.143 under three 
circumstances. First, Sec. 563.146(a) would state that the OTS may 
disapprove a notice or deny an application if, following the 
distribution, the savings association would be undercapitalized. This 
provision reflects the PCA prohibition at 12 U.S.C. 1831o(d)(1)(B). If 
the savings association would be undercapitalized, the OTS would 
determine whether the capital distribution falls within the limited 
statutory exception permitting the OTS, in consultation with the FDIC, 
to approve an undercapitalized institution's repurchase, redemption, 
retirement or acquisition of shares or ownership interests. To be 
exempted, the distribution must be made in connection with the issuance 
of additional shares in at least an equivalent amount, and must reduce 
the institution's financial obligations or otherwise improve its 
financial condition. 12 U.S.C. 1831o(d)(1)(B).
    Second, under proposed Sec. 563.146(b) the OTS may disapprove a 
notice or deny an application where the OTS determines that the 
proposed capital distribution raises safety or soundness concerns. The 
OTS will consider the amount of the capital distribution in determining 
whether the distribution raises safety and soundness concerns. Under 
today's proposal, a savings association would not be required to file a 
notice or application for a cash distribution if, in addition to 
satisfying other regulatory requirements, the total

[[Page 1048]]

amount of all distributions (including the proposed distributions) for 
the applicable calendar year does not exceed net income for that year 
to date plus the retained net income for the preceding two years. The 
OTS may permit a capital distribution in excess of this standard upon 
application, but may deny an application for such a distribution if it 
raises safety and soundness concerns.
    Finally, Sec. 563.146(c) would retain the existing provision that a 
savings association may not make a distribution that violates a 
prohibition contained in any statute, regulation, or agreement between 
the savings association and the OTS or the FDIC or condition imposed on 
the savings association in an OTS-approved application or 
notice.<SUP>23</SUP> If there is such a violation, the OTS would 
determine whether it may and should permit the capital distribution 
notwithstanding the prohibition.
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    \23\ See current 12 CFR 563.134(b)(6) (1997).
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Miscellaneous

    The current regulation at 12 CFR 563.134(e)(2) and (3) addresses 
the effect of the capital distributions rule on more stringent and less 
stringent provisions or conditions imposed in written agreements 
between a savings association and the OTS, or imposed on a savings 
association in an OTS-approved application or notice. The OTS believes 
that these provisions would have a limited application, and has not 
included them in the proposed rule. The OTS specifically requests 
comments on whether these provisions should be retained in the final 
rule.
    The proposed rule includes appropriate revisions modifying cross 
citations to existing Sec. 563.134.

IV. Executive Order 12866

    The Director of the OTS has determined that this proposed 
regulation does not constitute a ``significant regulatory action'' for 
purposes of Executive Order 12866.

V. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS 
certifies that this proposed regulation will not have a significant 
economic impact on a substantial number of small entities. The proposal 
merely conforms the capital distributions regulation to standards 
already in place for all institutions as a result of PCA and makes 
other revisions designed to lower paperwork and other burdens on 
savings associations.

VI. 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. As 
discussed in the preamble, the proposal merely conforms the capital 
distributions regulation to standards already in place for all 
institutions as a result of PCA and makes other revisions designed to 
lower paperwork and other burdens on savings associations. Accordingly, 
this rulemaking is not subject to section 202 of the Unfunded Mandates 
Act.

VII. Paperwork Reduction Act

    OTS invites comment on:
    (1) Whether the proposed information collection contained in this 
proposal is necessary for the proper performance of OTS's functions, 
including whether the information has practical utility;
    (2) The accuracy of OTS's 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 through the use of automated collection 
techniques or other forms of information technology; and
    (5) Estimates of capital and start-up costs of operation, 
maintenance and purchases of services to provide information.
    Respondents/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.
    The collection of information requirements contained in this 
proposal have been submitted to the Office of Management and Budget for 
review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Paperwork Reduction 
Project (1550-0059), Washington, D.C. 20503, with copies to the 
Regulations and Legislation Division (1550-0059), Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, N.W., Washington, 
D.C. 20552.
    The collection of information requirements in this proposed rule 
are found in 12 CFR 563.143-563.146. OTS requires this information for 
the proper supervision of capital distributions by Federal savings 
associations. The likely respondents/recordkeepers are Federal savings 
associations.
    Estimated average annual burden hours per respondent/recordkeeper: 
4.
    Estimated number of respondents: 688.
    Estimated total annual reporting and recordkeeping burden: 2752.
    Start up costs to respondents: none.

List of Subjects

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Investments, Reporting 
and recordkeeping requirements, Savings associations, Securities, 
Security bonds.

12 CFR Part 563b

    Reporting and recordkeeping requirements, Savings associations, 
Securities.
    Accordingly, the Office of Thrift Supervision hereby proposes to 
amend chapter V, title 12 of the Code of Federal Regulations as set 
forth below.

PART 563--OPERATIONS

    1. The authority citation for part 563 continues to read as 
follows:

    Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
1817, 1820, 1828, 3806; 42 U.S.C. 4106.

Sec. 563.134  [Removed]

    2. Section 563.134 is removed.
    3. Subpart E is revised to read as follows:

Subpart E--Capital Distributions

Sec.

563.140  What does this subpart cover?
563.141  What is a capital distribution?
563.142  What other definitions apply to this subpart?
563.143  Must I file with the OTS?
563.144  How do I file with the OTS?
563.145  May I combine my notice or application with other notices 
or applications?
563.146  Will the OTS permit my capital distribution?

[[Page 1049]]

Subpart E--Capital Distributions


Sec. 563.140  What does this subpart cover?

    This subpart applies to all capital distributions made by a savings 
association (``you'').


Sec. 563.141  What is a capital distribution?

    A capital distribution is:
    (a) A distribution of cash or other property to your owners made on 
account of their ownership, but excludes:
    (1) Any dividend consisting only of your shares or rights to 
purchase your shares; or
    (2) If you are a mutual savings association, any payment that you 
are required to make under the terms of a deposit instrument and any 
other amount paid on deposits that the OTS determines is not a 
distribution for the purposes of this section.
    (b) Your payment to repurchase, redeem, retire or otherwise acquire 
any of your shares or other ownership interests, any payment to 
repurchase, redeem, retire, or otherwise acquire debt instruments 
included in your total capital under Sec. 567.5 of this chapter, and 
any extension of credit to finance an affiliate's acquisition of your 
shares or interests.
    (c) Any direct or indirect payment of cash or other property to 
owners or affiliates made in connection with a corporate restructuring. 
This includes a payment to shareholders of an association or 
shareholders of a holding company by an acquiring association to 
acquire ownership of the association, other than a distribution of 
shares.
    (d) Any transaction that the OTS or the Corporation determines, by 
order or regulation, to be in substance a distribution of capital.


Sec. 563.142  What other definitions apply to this subpart?

    The following definitions apply to this subpart:
    Affiliate means any company that controls, is controlled by, or is 
under common control with another company. The terms ``control'' and 
``company'' have the meaning given to those terms in 12 U.S.C. 
1841(a)(2) and (b) respectively.
    Capital means total capital as defined under Sec. 567.5(c) of this 
chapter.
    Net income means your net income computed in accordance with 
generally accepted accounting principles.
    Retained net income means your net income for a specified period 
less total capital distributions declared in that period.
    Shares means common and preferred stock, and any options, warrants, 
or other rights for the acquisition of such stock. The term ``share'' 
also includes convertible securities upon their conversion into common 
or preferred stock. The term does not include convertible debt 
securities prior to their conversion into common or preferred stock or 
other securities that are not equity securities at the time of a 
capital distribution.


Sec. 563.143  Must I file with the OTS?

    Whether and what you must file with the OTS depends on whether you 
and your proposed capital distribution fall within certain criteria.
    (a) Application required.

----------------------------------------------------------------------------------------------------------------
                                If:                                                   Then you:                 
----------------------------------------------------------------------------------------------------------------
(1) You are not eligible for expedited treatment under Sec.          Must file an application with the OTS.     
 516.3(a) of this chapter.                                                                                      
----------------------------------------------------------------------------------------------------------------
(2) The total amount of all of your capital distributions            Must file an application with the OTS.     
 (including the proposed capital distribution) for the applicable                                               
 calendar year exceeds your net income for that year to date plus                                               
 your retained net income for the preceding two years.                                                          
----------------------------------------------------------------------------------------------------------------

    (b) Notice required.

----------------------------------------------------------------------------------------------------------------
 If you are not required to file an application under paragraph (a)                                             
                       of this section, but:                                          Then you:                 
----------------------------------------------------------------------------------------------------------------
(1) You will not be at least adequately capitalized, as set forth    Must file a notice with the OTS.           
 in Sec.  565.4(b)(2) of this chapter.                                                                          
----------------------------------------------------------------------------------------------------------------
(2) Your proposed capital distribution would reduce the amount of    Must file a notice with the OTS.           
 or retire any part of your common or preferred stock or retire any                                             
 part of debt instruments such as notes or debentures included in                                               
 capital under part 567 of this chapter (other than regular                                                     
 payments required under a debt instrument approved under Sec.                                                  
 563.181).                                                                                                      
----------------------------------------------------------------------------------------------------------------
(3) Your proposed capital distribution would violate a prohibition   Must file a notice with the OTS.           
 contained in any applicable statute, regulation, or agreement                                                  
 between you and the OTS (or the Corporation, or violate a                                                      
 condition imposed on you in an OTS-approved application or notice.                                             
----------------------------------------------------------------------------------------------------------------
(4) You are a subsidiary of a savings and loan holding company.      Must file a notice with the OTS.           
----------------------------------------------------------------------------------------------------------------

    (c) No prior notice required.

----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
If neither you nor your proposed capital distribution meet any of    Then you do not need to file a notice or an
 the criteria listed in paragraphs (a) and (b) of this section.       application with the OTS before making a  
                                                                      capital distribution.                     
----------------------------------------------------------------------------------------------------------------


[[Page 1050]]

Sec. 563.144  How do I file with the OTS?

    (a) Contents. Your notice or application must:
    (1) Be in narrative form.
    (2) Include all relevant information concerning the proposed 
capital distribution, including the amount, timing, and type of 
distribution.
    (3) Demonstrate compliance with Sec. 563.146. If you have filed an 
application, your application must also demonstrate compliance with the 
standards of Sec. 516.3(b)(2) of this chapter.
    (b) Schedules. Your notice or application may include a schedule 
proposing capital distributions over a specified period, not to exceed 
12 months.
    (c) Timing. You must file your notice or application at least 30 
days before the proposed declaration of dividend or approval of the 
proposed capital distribution by your board of directors.


Sec. 563.145  May I combine my notice or application with other notices 
or applications?

    Yes. You may combine the notice or application required under 
Sec. 563.143 with any related notice or application filed with the OTS 
under any provision of this chapter, if:
    (a) You state that the related notice or application is intended to 
serve as a notice or application under this subpart; and
    (b) You submit the notice or application in a timely manner.


Sec. 563.146  Will the OTS permit my capital distribution?

    The OTS may disapprove your notice or deny your application filed 
under Sec. 563.143, if the OTS makes any of the following 
determinations.
    (a) You will be undercapitalized, significantly undercapitalized, 
or critically undercapitalized as set forth in Sec. 565.4(b) of this 
chapter, following the capital distribution. If so, the OTS will 
determine if your capital distribution is permitted under 12 U.S.C. 
1831o(d)(1)(B).
    (b) Your proposed capital distribution raises safety or soundness 
concerns.
    (c) Your proposed capital distribution violates a prohibition 
contained in any statute, regulation, agreement between you and the OTS 
(or the Corporation), or a condition imposed on you in an OTS-approved 
application or notice. If so, the OTS will determine whether it may 
permit your capital distribution notwithstanding the prohibition or 
condition.

PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM

    4. The authority citation for part 563b continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 
U.S.C. 78c, 78l, 78m, 78n, 78w.


Sec. 563b.3  [Amended]

    5. Section 563b.3(g)(2) is amended by removing the phrase 
``Sec. 563.134'', and by adding in lieu thereof the phrase 
``Secs. 563.140-563.146''.

    Dated: December 12, 1997.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-205 Filed 1-6-98; 8:45 am]
BILLING CODE 6720-01-P


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