[Federal Register Volume 60, Number 43 (Monday, March 6, 1995)]
[Rules and Regulations]
[Pages 12103-12108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5315]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Rules 
and Regulations
[[Page 12103]]

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 543, 552, and 571

[No. 94-158]
RIN 1550-AA76


``De Novo'' Applications for a Federal Savings Association 
Charter

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Proposed rule.

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SUMMARY: The Office of Thrift Supervision (OTS or Office) is today 
proposing a regulation incorporating, with certain changes, its current 
statement of policy on ``de novo'' applications for a federal savings 
association charter (Policy Statement). The proposed changes are 
intended not only to make the Policy Statement into a regulation, but 
also to conform it with current law and to facilitate the application 
process by simplifying the regulatory scheme, thereby reducing the cost 
of compliance.
    The Federal Home Loan Bank Board (FHLBB), the OTS's predecessor 
agency, originally promulgated the Policy Statement to provide specific 
guidance on the content of de novo applications. Many provisions in the 
current Policy Statement have, however, become obsolete or redundant, 
or are otherwise unnecessary, as a result of changes in federal laws 
and regulations addressing capital adequacy, business plans, officer 
and director qualifications, insider conflicts of interest and 
transactions with affiliates. These revised statutes and regulations 
now adequately address many of the issues previously covered by the 
Policy Statement. Because the remaining revised OTS de novo provisions 
contain requirements, not merely guidance, the OTS believes that they 
should be recodified as a regulation.

DATES: Comments must be received on or before May 5, 1995.

ADDRESSES: Send comments to Director, Information Services Division, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, D.C. 
20552, Attention Docket No. 94-158. These submissions may be hand-
delivered to 1700 G Street, NW., 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. Submissions must be received by 5:00 P.M. on the day 
they are due in order to be considered by the OTS. Late-filed, 
misaddressed or misidentified submissions will not be considered in 
this rulemaking. Comments will be available for inspection at 1700 G 
Street, NW., from 1:00 P.M. until 4:00 P.M. on business days. Visitors 
will be escorted to and from the Public Reading Room at established 
intervals.

FOR FURTHER INFORMATION CONTACT: Gary Masters, Financial Analyst, 
Corporate Activities Division (202) 906-6729; Therese L. Monahan, 
Project Manager, Thrift Policy (202) 906-5740; or Valerie J. 
Lithotomos, Counsel (Banking and Finance), (202) 906-6439, 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 today proposes a new regulation to revise and update its 
treatment of de novo applications for federal savings association 
charters.
    The FHLBB originally promulgated the Policy Statement, which 
appears at section 571.6 of the OTS's rules,<SUP>1 to explain its 
policies relating to the approval of insurance applications for newly 
created, so-called de novo, institutions. At that time, the FHLBB was 
the operating head of the Federal Savings and Loan Insurance 
Corporation, the insurance fund for thrifts, and de novo applications 
included not only applications for permission to organize and requests 
for a federal charter, but also applications for insurance of 
accounts.<SUP>2 Sweeping statutory reforms in the past few years, 
particularly the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989<SUP>3 (FIRREA), and the Federal Deposit 
Insurance Corporation Improvement Act of 1991<SUP>4 (FDICIA), have 
effected significant changes in the structure of the agency and the 
scope of its mission. For example, under FIRREA, the OTS succeeded to 
the chartering and supervisory functions of the FHLBB, but the 
insurance function was transferred to the Federal Deposit Insurance 
Corporation (FDIC).

    \1\Unless otherwise indicated, all references to specific parts 
and sections in text will be to title 12 of the Code of Federal 
Regulations.
    \2\A bank or other depository institution that converts to a 
thrift charter is not a de novo association, as that term is defined 
under the current OTS Policy Statement. The definition excludes 
``any entity the business of which has been conducted previously 
under any charter or conducted in substantially the same form as is 
proposed to be conducted by the de novo association.'' See 12 CFR 
571.6(g). Thus, the provisions of the Policy Statement do not apply 
to such conversions. The requirements of the qualified thrift lender 
test do, however, apply. For purposes of the qualified thrift lender 
test, the term ``de novo association'' includes any newly chartered 
thrift (including a bank that converts to a thrift charter). This 
result is consistent with the intent and purpose of the qualified 
thrift lender test. See OTS Chief Counsel's Op., March 11, 1992.
    \3\Pub. L. No. 101-73, 103 Stat. 183 (1989).
    \4\Pub. L. No. 102-242, 105 Stat. 2236 (1991).
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    FIRREA and FDICIA have also rewritten much of the substantive law 
relevant to the OTS's de novo approval process. For instance, section 
32 of the Federal Deposit Insurance Act (FDIA), which was added by 
section 914 of FIRREA, requires officers and directors for a de novo to 
be approved by the OTS.<SUP>5 In addition, the OTS's regulations 
regarding transactions with affiliates and conflicts of interest have 
been substantially revised due to the incorporation, through section 11 
of the Home Owners' Loan Act (HOLA),<SUP>6 of the substance of sections 
23A, 23B, 22(g) and 22(h) of the Federal Reserve Act (FRA). Finally, 
the OTS's policy concerning net worth maintenance agreements also has 
changed; such agreements are no longer required in the context of de 
novo applications.

    \5\See OTS Thrift Bulletin No. 45 (April 25, 1990).
    \6\12 U.S.C.A. 1468 (West Supp. 1994).
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    Although the Policy Statement has been amended over the years to 
integrate some of these changes in the law,<SUP>7 a thorough revision 
is now warranted to conform the OTS's de novo chartering policies with 
the totality of significant statutory and regulatory changes that have 
recently occurred. [[Page 12104]] The OTS, therefore, proposes to 
remove obsolete statutory references, eliminate redundancy, enhance 
where possible consistency with the policies of other federal banking 
agencies, clarify the OTS's most recent policy considerations, and 
generally provide for more flexible standards for processing 
applications for the establishment of de novo federal savings 
associations. The OTS also intends to recodify these provisions as part 
of its regulations on the incorporation of federal savings 
associations.

    \7\See 48 FR 51270 (November 7, 1983); 48 FR 54320 (December 2, 
1983); 54 FR 49411 (November 30, 1989).
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II. Statutory and Regulatory Requirements

A. Statutory Requirements

    The statutory chartering and insurance framework initially 
established by FIRREA provided that the FDIC could insure the accounts 
of a de novo federal savings association upon application by the 
savings association and upon receipt by the FDIC of a certificate 
issued by the Director of the OTS.<SUP>8 The OTS, as chartering 
authority for federal savings associations, was required to certify to 
the FDIC that it had considered certain factors, set forth at section 6 
of the Federal Deposit Insurance Act (FDIA), in granting a federal 
thrift charter. These factors included: (1) the financial history and 
condition of the association; (2) the adequacy of its capital 
structure; (3) its future earnings prospects; (4) the character and 
fitness of its proposed management; (5) the risk presented to the 
insurance fund; (6) the convenience and needs of the community to be 
served; and (7) whether the association's proposed corporate powers 
would be consistent with the purposes of the FDIA.<SUP>9

    \8\12 U.S.C.A. 1815(a)(2) (West 1989).
    \9\12 U.S.C.A. 1816 (West 1989).
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    FDICIA removed this certification requirement. Instead, a de novo 
federal savings association may obtain insurance of its accounts ``upon 
application and examination by the [FDIC] and approval by the [FDIC] 
Board of Directors * * *.''<SUP>10 In acting on the application for 
insurance, the FDIC Board is required to consider the statutory factors 
enumerated at section 6 of the FDIA and set forth above. FDICIA made no 
changes to the section 6 factors. The FDIC has issued a Statement of 
Policy Regarding Applications for Deposit Insurance (FDIC Policy 
Statement) which establishes the standards used by the FDIC in granting 
deposit insurance and provides guidelines for making applications for 
insured status.<SUP>11

    \10\12 U.S.C.A. 1815 (a)(1) (West Supp. 1994).
    \11\57 FR 12825 (April 13, 1992).
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    Although the OTS is no longer required to certify to the FDIC that 
it has considered the factors in section 6 of the FDIA, section 5(e) of 
the HOLA<SUP>12 requires the OTS to make findings that resemble the 
section 6 factors before granting a federal charter. Section 5(e) of 
the HOLA requires the OTS to determine: (1) the character of the 
organizers; (2) the need for the association in the community to be 
served; (3) the reasonable probability of the association's usefulness 
and success; and (4) whether the association can be established without 
undue injury to existing local thrift and home financing institutions. 
In addition, pursuant to the Community Reinvestment Act of 1977<SUP>13 
(CRA), the OTS must assess the new institution's proposed CRA statement 
and plans for meeting the credit needs of its community (including low- 
and moderate-income neighborhoods) and must take that assessment into 
account in determining whether to grant a charter.

    \12\12 U.S.C.A. 1464(e) (West Supp. 1994).
    \13\Community Reinvestment Act of 1977, Pub. L. No. 95-128, tit. 
8, sec. 802, 91 Stat. 1147 (codified at 12 U.S.C. 2901, et seq. 
(1980)).
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B. Current OTS Policy Statement

    Minimum Capitalization Requirement and Business and Investment 
Plans. The current OTS Policy Statement sets the minimum level of 
capitalization for de novo institutions at $3 million, with a provision 
that the Office will consider approving a de novo applicant having at 
least $2 million if certain criteria are met. Among those criteria are 
that the applicant would be located in, and intended to serve, an area 
with a population not exceeding 50,000, and that the applicant will be 
community-oriented.
    The current OTS Policy Statement provides that the Office must 
consider certain factors in order for an applicant to obtain insurance 
of accounts by the FDIC. Among the factors to be considered are the 
association's future earnings prospects, the general character and 
fitness of the association's management, and the convenience and needs 
of the community to be served. The Office may grant a new charter only 
if, among other things, in the judgment of the Director a necessity 
exists for such association in the community to be served.
    Policies Pertaining to Management Officials. The current OTS Policy 
Statement requires controlling shareholders to personally agree to 
maintain the association's required regulatory capital for a minimum of 
five years. It also contains provisions requiring the filing of a plan 
to identify areas where conflicts of interest and abuse of corporate 
opportunity may occur.
    Standard Approval Conditions. Currently, standard conditions on 
application approvals are not listed in the policy statement. Standard 
conditions, however, are imposed for all approvals of de novo 
applications and are contained in the OTS's Applications Processing 
Handbook.

III. Description of Proposed Revisions

A. Deletion of Obsolete Statutory References and Deletion of Certain 
Duplicative Factors

    The proposal would delete obsolete statutory references. Current 
Sec. 571.6(b) contains language requiring that the OTS certify to the 
FDIC that it has considered the factors listed under section 5(a)(2) of 
the FDIA.<SUP>14 Since FDICIA eliminated this certification requirement 
from the statute, we propose a parallel deletion from the rule. These 
pre-FDICIA certification requirements are also contained in 
Secs. 543.2(g)(2) and 552.2-1(b)(2), which address the organization of 
federal mutual and federal stock institutions, respectively. We 
similarly propose to delete these sections in their entirety.

    \14\12 U.S.C.A. 1815(a)(2) (West 1989).
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    The proposal would also delete current section 571.6(b)(2), which 
contains language regarding certain factors considered in evaluating 
applications to organize a federal savings association. Among others, 
these factors require the agency to consider whether there is a 
reasonable probability of the association's usefulness and success, and 
whether, in the judgment of the Director of the OTS, a necessity exists 
for the association in the community to be served. These factors are 
duplicative of the factors that already appear in sections 543.2(g)(1) 
and 552.2-1(b)(1).

B. Other Proposed Revisions

    Minimum Capitalization and Business Plan Requirements. The proposal 
revises the minimum capitalization and business plan requirements for 
de novo applicants. When the Policy Statement was first adopted, since 
de novo applicants did not have a proven ``track record'' or a 
supervisory history, the FHLBB believed it was appropriate to set a 
minimum level of capitalization for de novo associations. In addition, 
the FHLBB [[Page 12105]] believed that de novo associations, as new 
companies, presented risks not associated with other institutions. 
These minimum capitalization requirements were intended to ensure that 
a de novo institution commenced operations in a safe and sound manner 
and to protect the insurance fund. To the same end, the FHLBB also 
required submission of detailed information on the institution's 
business plan for its first few years of operation, including 
descriptions of proposed management, management policies, investment 
policies and operations.
    Minimum capitalization and business plan requirements remain 
appropriate safeguards because of the absence, in the case of a de 
novo, of any operating or supervisory history. However, those 
requirements would be revised by today's proposal.
    Under the proposal, the standard minimum capitalization requirement 
would be decreased from $3 million to $2 million. The OTS could impose 
a higher or lower capital requirement on a case-by-case basis. The 
proposal would conform the minimum capitalization requirement to that 
of the insuring agency, the FDIC,<SUP>15 while providing flexibility 
and information vital to the OTS in making its statutorily required 
determinations. It also would streamline the de novo application 
process and reduce the financial burden on applicants wishing to 
organize federal de novo institutions.

    \15\See FDIC Policy Statement, 57 FR 12822 (April 13, 1992).
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    In securities offerings for a de novo institution, the OTS proposes 
that all securities of a particular class in the initial offering be 
sold at the same price. The minimum initial capitalization is the 
amount of proceeds net of all incurred and anticipated securities 
issuance expenses, organization expenses, pre-opening expenses, or any 
expenses paid (or funds advanced) by organizers that are to be 
reimbursed from the proceeds of the securities offering.
    The business plan provisions have been revised to consolidate 
certain provisions, to bring the requirements up-to-date, and to delete 
obsolete statutory references. The proposal clarifies the required 
elements of the business plan, including descriptions of lending, 
leasing and investment activity, plans for meeting the qualified thrift 
lender requirements, deposit, savings and borrowing activity, 
compliance with the CRA, continuation or succession of competent 
management, and information on the proposed institution's ability to 
maintain required minimum regulatory capital levels.

C. Policies Pertaining to Management Officials

    Capital Maintenance Requirements. The proposal would delete the 
current capital maintenance requirements in order to conform to the 
current OTS policy. Current Sec. 571.6(d)(4) requires controlling 
shareholders to agree to maintain a de novo association's required 
regulatory capital level for a minimum of five years. Controlling 
shareholders are also prohibited from pledging more than 50% of their 
stock to secure borrowed funds to finance their stock purchase for a 
period of three years.<SUP>16 Under the proposal, the provisions 
requiring controlling shareholders to execute capital maintenance 
agreements have been deleted and replaced by a new provision that 
requires a certification by legal counsel that the establishment of the 
de novo institution has been consummated in accordance with the 
provisions of all applicable laws and regulations, the application, and 
the Office's order. These changes will streamline the application 
process, conform the process to current OTS rules and policy and will 
reduce the burden on organizers of a federal de novo institution.

    \16\See 12 CFR 571.6(d)(3)(iii).
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    Since 1991, it has been the OTS's policy generally not to require 
prospectively the execution of capital maintenance agreements by 
controlling shareholders of a de novo institution. Under the Prompt 
Corrective Action provisions of section 38 of FDICIA,<SUP>17 which were 
enacted in 1991, and as implemented by OTS regulations,<SUP>18 the OTS 
may not approve a capital restoration plan for any ``undercapitalized'' 
institution unless each company that controls the institution 
guarantees the institution's compliance with the plan until it has been 
adequately capitalized for four consecutive quarters and unless each 
such company provides adequate assurances of performance of the plan. 
Thus, sufficient statutory and regulatory protections currently exist 
to assure that savings associations maintain adequate capital and to 
deal with capital deficiencies promptly and thoroughly.

    \17\12 U.S.C.A. 1831o(e)(2)(C) (West Supp. 1994).
    \18\12 CFR 565.5.
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    Conflicts of Interest and Usurpation of Corporate Opportunity. The 
proposal would delete provisions requiring the organizers of a de novo 
to file a plan identifying areas where conflicts of interest and abuse 
of corporate opportunity may occur and describing specific policies and 
actions that the association will institute to avoid that abuse. 
Existing statutory and regulatory requirements obviate the need for 
this information in the application process. For instance, section 
571.9, the OTS's ``Corporate Opportunity Statement of Policy,'' makes 
clear that directors, officers and other persons having the power to 
direct the management of a savings association stand in a fiduciary 
relationship to the association and its accountholders or shareholders 
that requires them to avoid conflicts of interest and self-dealing.
    The Corporate Opportunity Statement of Policy prohibits usurpation 
of corporate opportunities by insiders, if taking advantage of a 
business opportunity would breach their fiduciary obligations. The 
purpose of the Corporate Opportunity Statement of Policy, which was 
intended ``to codify existing common law fiduciary principles,''<SUP>19 
is to protect savings associations from managers and controlling 
parties who might divert beneficial business opportunities from their 
savings associations to themselves or their affiliates in violation of 
applicable fiduciary rules.<SUP>20

    \19\39 FR 6696 (February 22, 1974).
    \20\See also OTS's Statement Concerning the Responsibilities of 
Directors and Officers of Insured Depository Institutions (November 
16, 1992).
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    Concerns relating to the avoidance of conflicts of interest and 
usurpation of corporate opportunity are addressed not only through the 
Corporate Opportunity Statement of Policy, but also by the statutory 
requirements governing transactions between savings associations and 
their affiliates and insiders. Transactions with affiliates and insider 
transactions at savings associations have become subject to the 
comprehensive statutory and regulatory framework that applies to banks 
under sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve 
Act<SUP>21 (FRA). These sections of the FRA were made applicable to 
savings associations by provisions of FIRREA and by FDICIA. The OTS has 
substantially revised its regulations<SUP>22 to implement the statutory 
restrictions of sections 23A, 23B, 22(g) and 22(h) of the FRA.

    \21\12 U.S.C.A. 371c, 371c-1, 375 and 375b (West 1989 and Supp. 
1994). See also 12 U.S.C.A. 1468 (West Supp. 1994).
    \22\See 12 CFR 563.41, 563.42 and 563.43.
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    The current statutory and regulatory structure thus eliminates the 
need for a separate statement of these restrictions in rules governing 
the organization of de novo institutions. Therefore, the proposed 
regulation deletes the requirements for the filing of plans for 
[[Page 12106]] avoidance of conflicts of interest and usurpations of 
corporate opportunity.
    Standard Approval Conditions. The proposed rule revises and 
codifies the standard approval conditions for de novo institutions. The 
OTS has generally imposed approval conditions in order to ensure 
compliance with its substantive regulations, to address unique 
supervisory concerns, and to impose subsequent oversight by the OTS 
regional offices. However, a number of these standard conditions, such 
as those imposing specific controls on insider and affiliate 
transactions, have become redundant or obsolete. For example, a 
previously imposed standard condition required the submission of 
extensive background material by controlling shareholders, directors 
and officers both prior to and after consummation of the transaction. 
Current statutory and policy requirements already adequately address 
this issue and a standard condition is not necessary.<SUP>23 However, 
the proposal retains a requirement that provides for the collection of 
information on the performance of management, which gives the OTS an 
additional supervisory tool for institutions without proven track 
records.

    \23\Section 32 of the FDIA, which was added by FIRREA, requires 
certain savings associations and thrift holding companies to notify 
the OTS and provide it with relevant information prior to adding or 
replacing directors or hiring senior executive officers if, among 
other things, the association has been chartered for less than two 
years. See 12 U.S.C.A. 1831i (West 1989); 58 FR 45421 (August 30, 
1993) (OTS final rule implementing section 32); OTS Thrift Bulletin 
No. 45 (April 25, 1990).
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    Recodification of Requirements. Under the proposed amendment, the 
requirements for creation of a de novo institution will be moved from 
part 571, Statement of Policy, to part 543, Incorporation, 
Organization, and Conversion of Federal Mutual Associations, and 
incorporated into part 552, Incorporation, Organization, and Conversion 
of Federal Stock Associations, by cross-reference to part 543. This 
recodification will make these provisions easier to locate, as they 
will be grouped with other federal savings association regulations 
rather than with policies affecting all savings associations. 
Recodifying these provisions as regulations should also minimize any 
confusion about their status as requirements, rather than only 
guidance.

IV. Request for Comment

    The OTS requests comments from interested parties on all aspects of 
this proposal. In addition, the OTS is specifically soliciting comment 
on whether or not there should be a deletion or revision of the current 
section 571.6(c), which contains requirements regarding the composition 
of the board of directors. This section was added in 1984.<SUP>24 It 
specifically provides, among other things, that a majority of the board 
of directors must be representative of the state in which the 
association is located, and that it must be diversified and composed of 
individuals with varied business and professional experience. The FDIC 
Policy Statement<SUP>25 and that of the Office of the Comptroller of 
the Currency (OCC) have similar requirements. The OCC Policy Statement 
states that local directors encourage ``community support.''<SUP>26 The 
OTS is requesting comment on whether the explicit requirements for a 
board of directors with diverse backgrounds and ties to the de novo's 
home state continue to serve a useful purpose. The OTS also is 
requesting comment on the factors currently in its Policy Statement 
that are to be considered in judging whether the board of directors 
meets these requirements.

    \24\49 FR 41243 (October 22, 1984).
    \25\57 FR 12825 (April 13, 1992).
    \26\12 CFR 5.20(d)(3)(iv)(B).
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V. Executive Order 12866

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

VI. Paperwork Reduction Act

    The reporting requirements contained in this proposed rule have 
been submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3504(h)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Paperwork Reduction Project 
(1550), Washington, D.C. 20503, with copies to the Office of Thrift 
Supervision, 1700 G Street, NW., Washington, D.C. 20552.
    The reporting requirements in this proposed rule are found in 12 
CFR 543.3. The information is needed by the OTS to reduce the risk of 
loss to newly-chartered institutions and the Savings Association 
Insurance Fund.

Estimated number of respondents: 10
Estimated average burden per respondent: 110 hours
Estimated annual frequency of responses: 1
Estimated total annual reporting burden: 1100 hours

VII. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. The proposal 
does not impose additional burdens or requirements upon a small entity 
that files an application to become a de novo institution.

List of Subjects

12 CFR Part 543

    Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 552

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 571

    Accounting, Conflicts of interest, Investments, Reporting and 
recordkeeping requirements, Savings associations.

    Accordingly, the Director, Office of Thrift Supervision, hereby 
proposes to amend parts 543, 552, and 571, chapter V, title 12 of the 
Code of Federal Regulations, as set forth below:

SUBCHAPTER C--REGULATIONS FOR FEDERAL SAVINGS ASSOCIATIONS

PART 543--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL 
MUTUAL ASSOCIATIONS

    1. The authority citation for part 543 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq.


Sec. 543.2   [Amended]

    2. Section 543.2 is amended by removing and reserving paragraph 
(g)(2).
    3. A new Sec. 543.3 is added to read as follows:


Sec. 543.3   ``De Novo'' applications for a Federal savings association 
charter.

    (a) Definitions. For purposes of this section, the terms ``de novo 
association'' and ``de novo applicant'' mean any savings and loan 
association, savings association, or savings bank that has submitted to 
the Office an application for permission to organize a Federal savings 
association, the business of which has not been conducted previously 
under any charter or conducted in substantially the same form as is 
proposed to be conducted by the de novo association for a period of 
three years.
    (b) Minimum initial capitalization. (1) A de novo association must 
have not [[Page 12107]] less than two million dollars in initial 
capital stock (stock institutions) or initial pledged savings or cash 
(mutual institutions), except as provided in paragraph (b)(2) of this 
section. The minimum initial capitalization is the amount of proceeds 
net of all incurred and anticipated securities issuance expenses, 
organization expenses, pre-opening expenses, or any expenses paid (or 
funds advanced) by organizers that are to be reimbursed from the 
proceeds of a securities offering. In securities offerings for a de 
novo institution, all securities of a particular class in the initial 
offering shall be sold at the same price.
    (2) On a case by case basis, the Director may, for good cause, 
approve a de novo applicant that has less than two million dollars in 
initial capital or may require an applicant to have more than two 
million dollars in initial capital.
    (c) Business and investment plans of newly-chartered associations. 
(1) In order for the Office to make the determinations required under 
section 5(e) of the Home Owners' Loan Act, a de novo applicant for a 
Federal charter shall submit a business plan describing, for the first 
three years of operation, the major areas of operation, including, but 
not limited to:
    (i) Lending, leasing and investment activity, including plans for 
meeting Qualified Thrift Lender requirements within the timeframes 
established in 12 CFR 563.50(d);
    (ii) Deposit, savings and borrowing activity;
    (iii) Interest-rate risk management;
    (iv) Internal controls and procedures;
    (v) A Community Reinvestment Act statement, pursuant to 12 CFR part 
563e, and plans for meeting the credit needs of the proposed de novo's 
community (including low- and moderate- income neighborhoods);
    (vi) Projected statement of condition; and
    (vii) Projected statement of operations.
    (2) The business plan shall provide for the continuation or 
succession of competent management subject to the approval of the 
Regional Director, and shall further provide that any material change 
in, or deviation from, the business plan must receive the prior 
approval of the Regional Director. The business plan shall demonstrate 
the proposed institution's ability to maintain required minimum 
regulatory capital under 12 CFR parts 565 and 567 for the duration of 
the plan.
    (d) Composition of the board of directors. (1) A majority of a de 
novo association's board of directors must be representative of the 
state in which the savings association is located. The Office generally 
will consider a director to be representative of the state if such 
director resides, works or maintains a place of business in the state 
in which the savings association is located. If the association is 
located in a Metropolitan Statistical Area (MSA), Primary Metropolitan 
Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area 
(CMSA) that incorporates portions of more than one state, a director 
will be considered representative of the association's state if he or 
she resides, works or maintains a place of business in the MSA, PMSA or 
CMSA in which the association is located.
    (2) The de novo association's board of directors must be 
diversified and composed of individuals with varied business and 
professional experience. In addition, except in the case of a de novo 
association that is wholly-owned by a holding company, no more than 
one-third of a board of directors may be in closely related businesses. 
The background of each director must reflect a history of 
responsibility and personal integrity, and must show a level of 
competence and experience sufficient to demonstrate that such 
individual has the ability to direct the policies of the association in 
a safe and sound manner. Where a de novo association is owned by a 
holding company that does not have substantial independent economic 
substance, the foregoing standards will be applied to the holding 
company.
    (e) Management Officials. (1) Proposed stockholders of ten percent 
or more of the stock of a de novo association will be considered 
management officials of the association for the purpose of the Office's 
evaluation of the character and qualifications of the management of the 
association. In connection with the Office's consideration of an 
application for permission to organize and subsequent to issuance of a 
Federal savings association charter to the association by the Office, 
any individual or group of individuals acting in concert, who owns or 
proposes to acquire, directly or indirectly, ten percent or more of the 
stock of an association subject to this section, shall submit a 
Biographical and Financial Report to the Regional Director.
    (2) Each new director of a de novo institution shall sign an ``Oath 
of Director for Savings Associations.'' The original of the document, 
executed, shall be submitted to the Regional Director.
    (f) Standard conditions. The following are standard conditions that 
are imposed in any Office approval order relating to a de novo 
application:
    (1) The de novo institution must receive all required regulatory 
approvals prior to the establishment of the de novo institution, with 
copies of all such approvals supplied to the appropriate Regional 
Office.
    (2) The de novo institution must represent that there have been no 
substantial changes with respect to the de novo institution as 
disclosed in the information currently before the Office, including but 
not limited to changes in directors, shareholders, or in the business 
plan. The de novo institution must also represent that no additional 
information that would have a materially adverse bearing on any feature 
of the application has been brought to the attention of the applicant.
    (3) The de novo institution shall provide for employment of senior 
executive officers who shall be charged with the full administrative 
and managerial responsibilities of the de novo institution under 
policies established by its board of directors. The performance of such 
individuals will be periodically reviewed and their continued 
employment will be subject to approval by the appropriate Regional 
Director, or his designee, for a period of three years.
    (4) If applicable, the de novo institution shall submit to the 
appropriate Regional Office a list of stockholders of the de novo 
institution, and holders of any stock options and/or warrants, 
including each individual stockholder's name, address, amount of stock 
purchased, and principals of companies owning stock in the de novo 
institution, total purchase price, and any affiliation between 
stockholders.
    (5) No later than 10 calendar days from the date of the 
consummation of the establishment or acquisition of the de novo 
institution, the de novo institution shall file, with the appropriate 
Regional Office, a certification by legal counsel stating the effective 
date(s) of its insurance and its opening, the exact number of shares of 
stock, if applicable, of the de novo institution, and that the 
establishment (or acquisition, if appropriate) of the de novo 
institution has been consummated in accordance with the provisions of 
all applicable laws and regulations, the application, and the Office's 
order.
    (g) Supervisory transactions. This section does not apply to any 
application for a Federal savings association charter submitted in 
connection with a transfer or an acquisition of the business or 
accounts of a savings association if the Office determines that such 
transfer or acquisition is instituted for supervisory purposes, or in 
connection with [[Page 12108]] applications for Federal charters for 
interim de novo associations chartered for the purpose of facilitating 
mergers or holding company reorganizations.

PART 552--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL 
STOCK ASSOCIATIONS

    4. The authority citation for part 552 continues to read as 
follows:

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


Sec. 552.2-1  [Amended]

    5. Section 552.2-1 is amended by adding the phrase ``and 
Sec. 543.3'' after the phrase ``of 543.2'' in paragraph (a), and by 
removing and reserving paragraph (b)(2).
SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS

PART 571--STATEMENTS OF POLICY

    6. The authority citation for part 571 continues to read as 
follows:

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.


Sec. 571.6  [Removed]

    7. Section 571.6 is removed.

    Dated: August 25, 1994.

    By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 95-5315 Filed 3-3-95; 8:45 am]
BILLING CODE 6720-01-P