This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

32713

Vol. 61, No. 123

Tuesday, June 25, 1996

1 60 FR 66866 (December 27, 1995).

2 Interagency regulations are being reviewed

through the Federal Financial Institutions

Examination Counsel. 3 61 FR 1162 (January 17, 1996).

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 543, 544, 545, 552, 556,

563, and 575

[No. 96–49]

RIN 1550–AA87

Corporate Governance

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Notice of proposed rulemaking;

request for comment.

SUMMARY: The Office of Thrift

Supervision (OTS or Office) today is

proposing amendments to its corporate

governance regulations and policy

statements to update, reorganize and

substantially streamline them. This

proposal follows a detailed review of

each pertinent regulation and policy

statement in the Code of Federal

Regulations (CFR) to determine whether

it is necessary, imposes the least

possible burden consistent with safety

and soundness and is written in a clear

and straightforward manner. Today’s

proposal is being made pursuant to the

Regulatory Reinvention Initiative of the

Vice President’s National Performance

Review and section 303 of the Riegle

Community Development and

Regulatory Improvement Act of 1994.

DATES: Comments must be received on

or before August 26, 1996.

ADDRESSES: Send comments to Manager,

Dissemination Branch, Records

Management and Information Policy,

Office of Thrift Supervision, 1700 G

Street, NW., Washington, D.C. 20552,

Attention Docket No. 96–49. 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. Comments will

be available for inspection at 1700 G

Street, NW., from 9:00 P.M. until 4:00

P.M. on business days.

FOR FURTHER INFORMATION CONTACT:

David Permut, Counsel (Banking and

Finance), Business Transactions

Division, (202) 906–7505; or Mary Jo

Johnson, Project Manager, Supervision

Policy (202) 906–5739; or Valerie J.

Lithotomos, Counsel (Banking and

Finance), Regulations and Legislation

Division, (202) 906–6439, Chief

Counsel’s Office, 1700 G Street NW.,

Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background of the Proposal

II. Objectives

A. Reduce Compliance Costs by Removing

Unnecessary Regulations

B. Provide Maximum Corporate

Governance Flexibility for Savings

Associations

C. Provide Clear Regulatory Guidance for

Frequently Recurring Questions

D. Move the Charter and Model Bylaws

Into Application Processing Regulatory

Handbook

III. Historical Overview of Current Corporate

Governance Regulations

IV. Section-by-Section Analysis of the

Proposal

V. Proposed Disposition of Corporate

Governance Regulations

VI. Request for Comment

VII. Executive Order 12866

VIII. Regulatory Flexibility Act Analysis

IX. Unfunded Mandates Act of 1995

X. Paperwork Reduction Act

I. Background of the Proposal

In a comprehensive review of the

agency’s regulations in the spring of

1995, OTS identified numerous obsolete

or redundant regulations that could

quickly be repealed. On December 27,

1995, OTS published a final rule in the

Federal Register repealing eight percent

of its regulations.1 As part of its review,

OTS also identified several key areas in

its regulations for a more intensive,

systematic regulatory burden review.

Certain areas—lending and investment

authority, corporate governance,

subsidiaries and equity investments,

and conflicts of interest, corporate

opportunity and hazard insurance—

were chosen for intensive review

because they are vital to the thrift

industry, had not been developed on an

interagency basis,2 and had not been

substantially reviewed or amended in

recent years.

Earlier this year, OTS proposed a

comprehensive streamlining of its

lending and investment regulations.3

Proposals regarding subsidiaries and

equity investments and conflicts of

interest, corporate opportunity and

hazard insurance will be issued in the

near future.

Today’s proposal presents the results

of the review of the charter and bylaw

regulations (corporate governance). If

adopted in final form, today’s proposal

will reduce the number of charter and

bylaw regulations and policy statements

from 33 to 24, a reduction of 27 percent.

In addition, deletion of the charter and

model bylaws from the CFR will remove

13.5 pages of CFR text. This information

will be moved to the Application

Processing Regulatory Handbook

(Handbook).

This proposal was developed in

consultation with those who use the

regulations on a daily basis: OTS

regional staff and representatives of the

thrift industry. OTS sought specific

comments from the thrift industry

through a focus group composed of

representatives of seven savings

associations and an industry trade

association.

II. Objectives

The overarching goal of OTS’

reinvention initiative is to reduce

regulatory burden on savings

associations to the greatest extent

possible consistent with statutory

requirements and safety and soundness.

In the context of corporate governance,

we believe maximum burden reduction

can be achieved by pursuing four

specific objectives.

A. Reduce Compliance Costs by

Removing Unnecessary Regulations

The first objective of the OTS

proposal is to remove unnecessary,

duplicative or outdated regulations

affecting the corporate governance of

Federal thrift institutions. As described

in more detail in the Background

section below, the corporate governance

regulations have not been thoroughly

updated for many years. By eliminating

unnecessary regulations, OTS hopes to

reduce regulatory compliance costs.

Examples of regulations, or

subsections thereof, proposed to be

removed are § 544.2(b)(4) (Mutual

capital certificates), § 544.3 (Adoption of
32714 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

a new Federal charter by a Federal

savings association), § 544.5(b)(17)

(Emergency preparedness), § 544.8 (Old

and new charters), § 544.9 (Charter B

associations), § 552.1 (Definitions),

§ 552.2 (Corporate titles), § 552.2–5

(Conversion from Federal mutual to

Federal stock), § 552.4(b)(3) (Charter

amendments), § 552.6–2(a)

(Requirement that the President shall be

a director and CEO), and § 552.8

(Savings deposits). All of the above

regulations, or portions thereof, are

being removed because they are

redundant, outdated or unnecessary.

Several other sections will have

changes made to certain sentences or

phrases within the section, such as the

removal of the need for preliminary

OTS approval of proposed charter

amendments in §§ 544.1, Section 9;

552.3, Section 8; and 575.9, Section 8;

and elimination of the need for

certification by management of the

legality of proposed charter and bylaw

amendments in §§ 544.2(a)(2)(i),

544.5(c), 552.4(a)(2)(i), and 552.5(b)(1).

B. Provide Maximum Corporate

Governance Flexibility for Savings

Associations

OTS is committed to ensuring that

Federal savings associations operate

under state-of-the-art corporate

governance procedures. Wherever

possible, consistent with safety and

soundness and fairness to shareholders

and members, we are seeking to move

toward greater flexibility. Specific

amendments proposed to provide

greater flexibility include:

• Amending §§ 544.5(b)(1) and

552.6(a) to provide more flexibility for

the site of shareholder meetings.

• Modifying §§ 544.5(b)(5) and

552.6(f)(1) to allow proxies to be

gathered telephonically or

electronically.

• Expanding the list of preapproved

charter amendments in §§ 544.2 and

552.4 to enable institutions to adopt

supermajority voting provisions, to

eliminate cumulative voting, and, for

mutuals to increase the maximum

permissible number of votes per

member to up to 1000.

• Replacing the current requirement

in §§ 544.2, 544.5(c)(2), 552.4 and

552.5(b) that institutions give OTS

advance notice of their intent to adopt

preapproved charter and bylaws

amendments with an after-the-fact

notice.

• Authorize associations to hold their

annual shareholders meeting 150 days

after the close of their fiscal year,

instead of the current 120 days

(§§ 544.5(b)(1) and 552.6(a)).

• Revising § 544.5(b)(16) to recognize

the ‘‘sitting’’ board of directors rather

than the ‘‘authorized’’ board of directors

when determining voting requirements

in certain instances.

• Exempt wholly-owned stock

associations from various requirements

such as staggered terms for members of

their boards of directors (§ 552.6–1(b)),

notice of shareholder meetings

(§ 552.6(b)), and compilation of

shareholder voting lists (§ 552.6(d)).

• Permit shareholder actions to be

taken by unanimous written consent in

lieu of a formal shareholders meeting

(§ 552.6(h)).

OTS is continuing to review the laws

of various states, and the corporate

governance approaches followed by the

other federal agencies that charter

depository institutions, for additional

innovative corporate governance ideas.

We welcome further suggestions from

commenters.

In particular, OTS requests comment

on whether there are aspects of the

corporate governance structure

applicable to national banks that would

be beneficial for Federal thrifts. The

corporate governance regulations

applicable to Federal thrifts tend to be

more detailed than those applicable to

national banks. To fill in the details,

national banks are permitted to elect to

follow the corporate governance laws of

the state where the bank’s home office

is located, the laws of the state where

the bank’s holding company is

chartered, Delaware law, or the Model

Business Corporation Act. The body of

law that a national bank elects to follow

applies only to the extent not

inconsistent with the corporate

governance provisions of the National

Bank Act and implementing regulations.

Federal savings associations may

benefit from the detail provided in

OTS’s corporate governance regulations.

Absence of detail in the area of

corporate governance can lead to

confusion, delay, and potential

shareholder litigation. Accordingly,

OTS’s objective has been to provide

savings associations with a

comprehensive set of clear, modern, and

flexible corporate governance rules.

Institutions may apply on a case-by-case

basis for permission to adopt nonstandard charter and bylaw provisions.

Nevertheless, savings associations

may benefit from the additional option

of following state law in lieu of OTS

corporate governance regulations—

except for those regulations that OTS

designated as vital to safety and

soundness or other fundamental policy

objectives. OTS requests comment on

whether this type of state law election

would offer benefits to savings

associations and, if so, a description of

those benefits.

C. Provide Clear Regulatory Guidance

for Frequently Recurring Questions

A third objective is to clarify certain

issues that frequently arise regarding the

corporate governance regulations. This

will reduce the number of instances

when institutions incur delay or

expense seeking clarification of

ambiguous or incomplete regulatory

language. Accordingly, OTS proposes to

amend:

• Section 544.5(b)(3) and (4) to

indicate what rules govern adjourned

shareholder meetings;

• Sections 544.5(b)(10) and 552.6–1(f)

to add a cross reference to a definition

indicating what constitutes ‘‘cause’’ for

removal of a director;

• Section 544.5(b)(6) to extend

privacy rights for confidential portions

of an institution’s books and records,

now provided for Federal stock

institutions at § 552.11(d), to Federal

mutual associations;

• Section 544.5(b)(13) to give

guidance on the procedures governing

when an institution substitutes a new

director nominee for a nominee that

dies or becomes incapacitated; and

• Section 552.6(d) to give guidance

on how stock held in the name of

fiduciaries should be reflected on voting

lists.

D. Move the Charters and Model Bylaws

Into Application Processing Regulation

Handbook

OTS is proposing to move the charters

for Federal stock and mutual savings

associations, found at §§ 544.1, 552.3

and 575.9, to the Handbook. We are also

proposing to move the model bylaws,

found in appendices to Parts 544 and

552, to the Handbook. The Office of the

Comptroller of the Currency (OCC) and

the National Credit Union

Administration (NCUA) follow a similar

practice.

Placing the savings association

charters and bylaws in the Handbook

may offer two advantages. First, by

eliminating nonessential items from the

regulations, the regulations may become

easier to use. Second, OTS would have

more flexibility to update and

modernize the charters and bylaws from

time to time, because notice and

comment rulemaking would not be

required to effect changes. We

recognize, however, that making

changes without notice and comment

rulemaking could also be viewed as a

disadvantage. Moreover, placing the

charters and bylaws in the Handbook

may make them less accessible.
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32715

4 12 U.S.C. 1461–1470.

5Section 5(a) of the HOLA, 12 U.S.C. 1464(a),

contains the statutory authority for the OTS to issue

charters for Federal thrift institutions.

6Pub. L. 97–320, 96 Stat. 1469, October 15, 1982.

7 48 FR 44174 (September 28, 1983).

8Part I–50 FR 38832 (September 13, 1985); Part

II–50 FR 52482 (December 24, 1985); and Part III

and IV–52 FR 25870 (July 9, 1987).

9For drafting purposes, the changes to the charter

have been designated as Alternative Two in the

regulatory text.

Accordingly, we request specific

comment on this proposed change.

III. Historical Overview of Current

Corporate Governance Regulations

Before 1982, the corporate governance

of Federal savings associations was

primarily concerned with Federal

mutual savings and loan associations,

the only type of corporate charter

available from the chartering authority,

the Federal Home Loan Bank Board

(FHLBB), predecessor to OTS. The

Home Owners’ Loan Act (HOLA) 4 only

permitted the chartering of Federal

mutual savings and loan associations.5

In 1982, Congress enacted the Garn-St

Germain Depository Institutions Act

(DIA),6 which broadened the types of

charters and organizational options

available to Federal savings

associations. The DIA authorized the

creation of new Federally chartered

stock institutions, either as Federal

savings banks or Federal savings and

loan associations, and permitted statechartered savings banks to convert to a

Federal charter without requiring them

to surrender their FDIC insurance in

favor of FSLIC insurance of accounts.

In response to the DIA, the FHLBB

amended its corporate governance

regulations (1983 Rulemaking) 7 to

create a single Federal mutual charter

and a single Federal stock charter. The

same basic charter was available both to

savings banks and to savings and loan

associations, with minor differences.

Before the 1983 Rulemaking, Federallychartered thrifts had operated under a

plethora of charters, including Charter

S, Charter T, Charter B, Charter B

(Revised), Charter N, Charter N

(Revised), Charter L and Charter K

(Revised). Some Federal associations

continue to operate under those

charters. It is important to note that

today’s proposed rulemaking does not

require any institution to change its

current charter. After adoption of a final

regulation, institutions may retain their

existing charters or amend their charters

to conform to the new provisions.

In 1985, the FHLBB concluded that

with the new structural options

available to Federal savings

associations, a number of important

matters regarding the corporate

governance of those associations were

either not adequately addressed, not

covered in codified form or were

distributed in a piecemeal fashion

throughout the regulations. The FHLBB

conducted an extensive review of the

Model Business Corporation Act, the

corporate codes of Delaware, California,

New York and Florida, then presented

a proposal for updating the corporate

governance regulations. Because the

proposal was extensive, it was broken

into four parts,8 published over a two

year period, with comments sought on

all sections before a final regulation was

to be promulgated. Only one section,

however, the proposal on revisions to

Receiverships and Conservatorships,

was enacted in final form before the

priorities of the FHLBB and external

circumstances changed. The savings and

loan crisis had begun and the extensive

revisions to corporate governance were

set aside for future consideration.

In 1989, the FHLBB’s regulatory and

chartering authority was assumed by the

newly established OTS. A number of the

corporate governance issues were

ultimately addressed in the form of legal

opinions or approved amendments to

charters and bylaws. These changes,

however, were confined to considerably

more narrow subject areas than the

FHLBB proposal envisioned.

Thus, today’s proposal, if adopted in

final form, will be the first major update

of the corporate governance regulations

in over a decade.

IV. Section-by-Section Analysis of the

Proposal

A. Part 544—Charter and Bylaws

Section 544.1 Federal Mutual Charter

This section contains the required

charter for Federal mutual associations.

As indicated above, OTS proposes to

move this charter (as well as the charter

for stock associations and the model

bylaws for both) from the regulations to

the Handbook. Thus, OTS proposes to

amend § 544.1 to reference the

Handbook. OTS also proposes to update

the charter.

So that the reader can understand

what is being proposed, we have set

forth the changes proposed for the

charter in the regulatory text, and

discuss them below.9

Section 1. Corporate Title. Section 1

establishes the corporate title of the

Federal association. The words ‘‘hereby

chartered’’ will be removed as

unnecessary verbiage.

Section 6. Members. This section

identifies the association’s members and

describes their rights. OTS proposes to

streamline this section by moving the

third and fourth sentences to

introductory instructions in the

Handbook or, if the charter is retained

in § 544.1, to the introductory paragraph

of the regulation. These two sentences

instruct institutions that wish to adopt

the charter, but are currently operating

under old charters conferring

membership rights on borrowers, to

grandfather the membership rights of

their existing borrowers.

The sixth sentence of section 6,

dealing with proxies, will be removed

because it already appears in the

bylaws. The seventh and eighth

sentences, dealing with quorums, will

be moved to the bylaws because matters

regarding member meetings are more

fully addressed there.

Section 7. Directors. This section

provides that a Federal mutual

association may have from 5 to 15

directors. To further streamline the

charter, bracketed references to

‘‘trustees’’ will be removed, and a single

sentence will be added to the

introductory instructions indicating that

institutions may substitute the term

‘‘trustee’’ for the term ‘‘director’’ where

appropriate. Similar changes will be

made throughout the charter and the

model bylaws for mutual associations.

The third and fifth sentences

(providing that directors shall be

members of the association and

requiring staggered terms for directors)

will be moved to the bylaw section

dealing with directors. The fourth

sentence (regarding vacancies on the

board) will be moved to the bylaw

section on resignations, removals and

(newly added) vacancies. The last

sentence, in brackets, will also be

moved to the bylaw section on directors.

This sentence authorizes state savings

banks that convert to Federal mutual

associations to grandfather their existing

provisions for electing directors for a

limited period of time. OTS believes

each of these matters is more

appropriately addressed in the bylaws,

where related issues are already

addressed. Presenting related

requirements in a single place should

make the charter and bylaws more user

friendly.

Section 9. Amendment of charter.

Section 9 describes the procedures for

amending the association’s charter.

References to §§ 544.2 or 544.3 will be

removed as unnecessary verbiage.

Section 9 will also be revised to reflect

the fact that ‘‘preapproved’’ charter

amendments (§ 544.2) will now be truly

preapproved. Institutions will no longer

be required to submit these amendments

to OTS for ‘‘preliminary’’ approval. (See

discussion of § 544.2 below.)
32716 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

10An institution could still choose to issue MCCs

after § 544.2 is modified, provided the institution

makes any necessary amendments to its charter and

bylaws (which would no longer be preapproved)

and follows the procedures specified at 12 CFR

563.74. Paragraph (d) of § 563.74 will be amended

to reflect removal of the preapproved amendment

for MCCs.

11All subsequent paragraphs will be renumbered

accordingly. However, only those paragraphs being

substantively changed are discussed below.

12One example of a verification procedure is for

the institution receiving the proxy by facsimile to

compare the signature on the proxy to a signature

that the institution has on file.

Finally, the signature blocks of the

charter will be modified to include a

date to clarify when a charter is

effective.

Section 544.2 Charter Amendments

Paragraphs (a) and (b) describe the

filing requirements for amending

Federal mutual charters. OTS is

proposing to remove, from paragraphs

(a)(2)(i) and (ii), the requirement that

institutions certify that amendments

they propose are permissible under all

applicable laws. This certification is

unnecessary because the legality of a

proposed amendment is reviewed by

OTS staff as part of the application

process and its deletion will also reduce

regulatory burden. In addition,

paragraph (b) will be revised to indicate

that preapproved charter amendments

will no longer require advance

submissions to OTS. Instead,

preapproved amendments will be

deemed approved when adopted by the

institution and must simply be filed

with OTS within 30 days after adoption.

A new preapproved charter

amendment will be added to § 544.2

that authorizes Federal mutual

associations to amend their charters to

raise the cap on the maximum number

of votes any member can cast up to

1,000. Mutual charters generally

authorize depositors to cast one vote for

every $100 of deposits, subject to a cap

that has historically tracked the limit on

deposit insurance. Thus, 1,000 votes is

the standard cap under the current

mutual charter (§ 544.1). However,

many institutions operate under

charters adopted before the cap was

raised to 1,000. Making the 1,000 cap a

preapproved amendment will enable

institutions to update their cap without

filing an application and paying an

application fee. This is the most

frequently requested amendment for

Federal mutual associations.

OTS also proposes to remove from

§ 544.2 an obsolete preapproved

amendment authorizing institutions to

issue Mutual Capital Certificates

(MCCs). Institutions generally no longer

issue MCCs.10 Elimination of outdated

matter such as this should make the

regulations less confusing and easier to

use.

Paragraph 544.2(c) details the

procedures an institution must follow

when it wants OTS to reissue its charter

to reflect amendments to the charter.

The wording of this section will be

conformed to the wording of the

corresponding stock charter section at

§ 552.4(d). No substantive change will

result. Paragraph (c) is also being

amended to remove the delegation of

authority to the Chief Counsel to

execute reissued charters. This change

is being proposed as part of a continuing

effort to remove delegations from the

regulations. Delegated authority to

execute reissued charters will be

preserved via an internal OTS

document.

Section 544.3 Adoption of a New

Federal Charter by a Federal Savings

Association

This section details the procedures

that a Federal mutual savings and loan

association would use to amend its

charter to read in the form of a Federal

mutual savings bank, or vice versa. This

section has become obsolete. Today, the

charters for both types of institution are

identical, except for a possible

difference in corporate title. A simple

corporate title change can be used to

redesignate an institution as a ‘‘savings

bank’’ or ‘‘savings and loan

association.’’ Thus, § 544.3 is being

repealed. Corresponding changes will be

made to §§ 543.1(b) and 543.14.

Section 544.5 Federal Mutual Savings

Association Bylaws

This section describes the

requirements for the bylaws of a Federal

mutual association. A nonsubstantive

change will be made to paragraph (a) to

conform its language regarding

procedures for bylaw amendments to

similar language that appears later in

§ 544.5(b)(16).

Paragraph (b)(1) contains the annual

meeting requirements for Federal

mutual associations. This paragraph

will be amended to allow meetings not

only at the main office, but also at any

other convenient place the board of

directors may designate, and to permit

the association to hold its annual

meeting within 150 days of the end of

the association’s fiscal year. The current

requirement is 120 days. Both changes

will provide additional flexibility for

Federal mutual associations.

Paragraph (b)(2) addresses special

meetings of members. It provides, inter

alia, that the holders of ten percent or

more of a mutual association’s voting

capital may call a special meeting.

Institutions frequently ask for

clarification of the meaning of ‘‘voting

capital,’’ since the term is no longer

defined by the HOLA. OTS proposes to

clarify that voting capital means all

FDIC-insured deposits held by a savings

association.

Paragraphs (b) (3) and (4), which

discuss notice requirements for

meetings of members and the fixing of

the record date for determining what

members are entitled to vote,

respectively, will be amended to

indicate the circumstances under which

adjournment of a meeting of members

will require the issuance of new notices

and the fixing of a new record date.

These are also frequently asked

questions.

OTS is also proposing a new

paragraph (b)(5), to be titled ‘‘Member

Quorum.’’ 11 This paragraph will contain

certain quorum provisions currently

found in the charter (as discussed

above), as well as clarification of what

items of business may be considered at

a meeting held after adjournment. The

agency believes that quorum issues are

more appropriately addressed in the

bylaws, where other rules governing

member meetings already appear.

Current paragraph (b)(5), on voting by

proxy, will become (b)(6) and will be

amended to permit proxies to be given

telephonically or electronically as long

as the holder uses a procedure for

verifying the identity of the member.12

Telephonic and electronic proxies

enable institutions to gather proxies and

conduct corporate business more

rapidly and have become an accepted

part of corporate democracy. In

addition, in response to frequent

questions, OTS proposes to describe

voting procedures applicable to joint

accounts and accounts held by

fiduciaries on behalf of others.

Current paragraph (b)(6), which

references § 545.131 regarding

communication with other members,

will become (b)(7). In addition, the

paragraph will be amended to reflect the

relocation of § 545.131 to Part 544, and

will extend the privacy rights now

guaranteed to depositors of Federal

stock institutions (§ 552.11(d)) to the

depositors of Federal mutual

institutions. The privacy rights of the

members of mutual institutions will not

prevent the internal use of member

information by those institutions.

Current paragraph (b)(7), regarding

the number of directors, will become

(b)(8). In addition, the paragraph will be

amended to clarify that the bylaws must

specify the precise number of directors

(rather than a range). This number is
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32717

chosen by the institution within the

range specified in the charter and may

be changed by the institution from time

to time by amending its bylaws.

Paragraph (b)(8) will also contain three

provisions being moved from section

seven of the charter. One provision

requires that directors be members of

their association; a second provision

requires that directors serve staggered

terms; and a third provision permits

state savings banks that convert to

Federal mutual associations to

grandfather their method of electing

directors for a limited time.

Current paragraph (b)(9), which

addresses the duties of officers,

employees and agents and their

indemnification, will become (b)(10). In

addition, a sentence on the removal of

officers will be added to answer a

frequently asked question. The sentence

will state: ‘‘Any officer may be removed

by the board of directors with or

without cause, but such removal, other

than for cause, shall be without

prejudice to the contractual rights, if

any, of the person so removed.’’

Current paragraph (b)(10), on the

resignation or removal of directors, will

become (b)(11). A cross reference to the

definition of ‘‘cause,’’ which appears

elsewhere in the regulations, will be

added in response to a frequently asked

question concerning the circumstances

under which shareholders can remove

directors for ‘‘cause’’. Paragraph (b)(11)

will also be expanded to authorize

boards of directors to fill vacancies

under the current flexible rules that now

apply to stock associations.

Current paragraph (b)(13), discussing

procedures for nominating directors,

will become (b)(14) and will be

expanded to clarify the requirement that

the names of nominees be posted at

least 15 days before an election, under

certain circumstances. New language

will confirm that this requirement does

not apply to a nominee substituted as a

result of death or other incapacity of

another nominee. From time to time,

institutions have sought clarification on

this issue.

Current paragraph (b)(16), which sets

forth procedures for amending the

bylaws, will become (b)(17) and will be

amended to make it easier for a board

that fails to meet its quorum

requirement solely due to vacancies on

the board to amend its bylaws. The new

language will specify that, in the

absence of a quorum due solely to

vacancies, the affirmative vote of a

majority of the sitting board may amend

the bylaws.

Current paragraph (b)(17), on

miscellaneous topics, will become

(b)(18) and will be amended to remove

the reference to provisions regarding

‘‘emergency preparedness.’’ Emergency

preparedness provisions are no longer

part of the model bylaws.

Paragraphs (c)(1) and (c)(2) discuss

the filing procedures for bylaw

amendments. OTS proposes to remove

the requirement that applications for

bylaw amendments contain

certifications that the proposed

amendments comport with all laws. As

noted above when discussing charter

amendments, the certification

requirement is unnecessary because the

legality of proposed amendments are

reviewed by OTS staff as part of the

application process and its deletion will

also reduce regulatory burden. In

addition, consistent with the proposal to

move the model bylaws out of the

regulations, paragraph (c)(1) will be

revised to indicate that the model

bylaws can be found in the Handbook

available from OTS. The current

appendix to part 544, which contains

the model bylaws, will be removed.

Paragraph (c)(2) will also be revised to

indicate that the model bylaws, if

adopted verbatim, are approved when

adopted and must simply be filed with

OTS within 30 days after adoption. This

change is proposed because OTS has

determined that over 90 percent of the

bylaws applications filed in recent years

are for standard provisions that do not

require agency review.

Paragraph (d), which addresses the

effective date of all other bylaw

amendments, will be amended to

comport with a similar provision for

Federal stock associations. The

provision is intended to clarify the

circumstances under which an

amendment may be rejected by OTS, by

cross referencing the current standards

which appear in paragraph (c)(1).

Section 544.8 References to Old and

New Charters; Rules Applicable to

Trustees of Federal Mutual Savings

Banks

OTS proposes to remove this section,

which indicates that trustees will be

treated as if they are directors for

purposes of the regulations. The same

point will be made in the introductory

instructions to the charter and model

bylaws. It does not need to be repeated

here.

Section 544.9 Obsolete Charter

Provision for Charter B Associations.

This section provides that institutions

that still operate under the old Charter

B are not bound by section 10 of that

charter. Section 10 of Charter B purports

to limit the authority of an institution to

invest in consumer loans and corporate

debt securities. OTS proposes to move

§ 544.9, which affects very few

institutions, from the regulations into

Handbook guidance.

Section 544.8 Communication

Between Members of a Federal Mutual

Savings Association (Proposed)

OTS proposes to move the rules

governing communications between

members of Federal mutual

associations, which now appear in

§ 545.131, to part 544. This is where

users of the regulations would most

likely look for guidance on such

matters. Accordingly, current § 545.131

will become new § 544.8.

Appendix to Part 544

As indicated above, OTS proposes to

eliminate the appendix to part 544,

which contains the model bylaws.

Instead, these bylaws will be moved to

the Handbook, with changes being made

to conform the model bylaws to the

amendments to the bylaws regulations

described above.

B. Part 552—Incorporation,

Organization, and Conversion of

Federal Stock Associations

Section 552.2 Corporate Title

OTS proposes to remove this section,

which merely reminds institutions that

§ 543.1 regarding corporate titles for

Federal associations applies to Federal

stock associations. There is no need for

this provision. Current § 543.1, as

currently written, clearly governs

corporate titles for all Federal

associations.

Section 552.2–5 Conversion From

Federal Mutual to Federal Stock Charter

This section authorizes Federal

mutual associations to convert to

Federal stock associations and provides

for issuance of a stock charter upon

completion of the conversion. These

matters are also covered, in greater

detail, by OTS conversion regulations.

OTS, therefore, proposes to remove this

section.

Section 552.3 Charters for Federal

Stock Associations

This section contains the required

charter for Federal stock associations.

For the reasons indicated above in the

discussion of § 544.1, OTS proposes to

move the stock charter out of the

regulations and into the Handbook.

Section 552.3 will thus be revised to

reference the charter as it appears in the

Handbook. OTS proposes to update the

Federal stock charter with the following

changes:

Section 2. Office. This section

describes the location of the home office

of the Federal stock association. The
32718 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

13Subsequent paragraphs will be renumbered

accordingly. However, only those paragraphs being

substantively changed are discussed below.

word ‘‘in’’ will be deleted and replaced

by the word ‘‘at.’’ This is a purely

technical amendment.

Section 5. Capital stock. Section 5

describes the rules governing the capital

stock of a Federal stock association,

including the types of stock it may

issue, the consideration to be paid, and

voting rights. Several changes are

proposed. First, the charter will be

amended to permit the issuance of ‘‘no

par’’ stock. The decision whether stock

should have a stated par value is a

matter of internal corporate governance

that raises no supervisory or safety and

soundness issues.

Second, the final sentence of the first

paragraph will be revised to reflect more

current accounting terminology. The

term ‘‘retained earnings’’ will be

substituted for ‘‘surplus,’’ and the

phrase ‘‘common stock or paid-in

capital accounts’’ will be substituted for

‘‘stated capital.’’

Third, the second paragraph will be

revised to clarify that Federal stock

associations may issue stock to officers,

directors, and controlling persons in

connection with its initial organization,

without a shareholder vote.

Fourth, the second sentence of the

third paragraph will be revised to clarify

that a Federal stock charter may be

amended to eliminate cumulative

voting.

Section 7. Directors. This section

specifies that the number of directors of

a stock association shall be fixed in the

bylaws and shall not be fewer than five

nor more than fifteen. However,

provision is made for the Director of

OTS to approve a larger or smaller board

of directors. OTS proposes a technical

amendment to this section that will

specify that approval of a larger or

smaller board can be given either by the

Director ‘‘or his or her delegate.’’

Section 8. Amendment of charter.

Section 8 describes the procedure for

amending an association’s charter. This

section is being revised to indicate that

preapproved charter amendments will

be effective once they have been

approved by the association’s board of

directors and shareholders, without any

need for ‘‘preliminary approval’’ or any

other form of approval from OTS. (See

discussion below of § 552.4.) In

addition, OTS proposes to elaborate on

the general rule that charter

amendments require approval by only a

majority of the votes eligible to be cast

at a shareholders’ meeting. Clarifying

language will be added indicating that

this general rule does not apply in those

instances where an association’s charter

specifies that a supermajority vote is

required. (See discussion of § 552.4

below.)

Finally, the signature blocks of the

charter will be modified to include a

date to clarify when a charter is

effective.

Section 552.4 Charter Amendments

Paragraphs (a) and (b) set forth the

filing requirements for amendments to

Federal stock charters. In paragraph (a),

OTS is proposing to make the same

changes regarding certification

requirements as discussed above in

connection with the corresponding

provisions for mutual associations

(§ 544.2(a)). Thus, stock associations

will no longer be required to certify that

proposed amendments comport with all

applicable laws.

Paragraph (b) sets forth a list of

preapproved charter amendments. OTS

proposes to add descriptive titles to

each of the preapproved amendments.

The titles will correspond to the titles to

similar preapproved charter provisions

for Federal mutual associations.

Paragraph (b) will also be revised to

indicate that preapproved charter

amendments are approved when

adopted and must simply be filed with

OTS within 30 days after adoption.

Paragraph (b)(3), which contains a

preapproved amendment for institutions

that wish to change from a Federal stock

savings and loan association charter to

a Federal stock savings bank charter,

will be removed for the same reasons

described above with regard to § 544.3.13

Current paragraph (b)(4), which

permits changes to the authorized

number of shares and the par or stated

value of such shares, will become (b)(3).

Additional nonsubstantive changes will

be made to clarify the language of this

provision.

Current paragraph (b)(5), which

permits institutions to modify section 5

of the charter so as to authorize the

issuance of preferred stock, will become

(b)(4) and will include the same changes

to section 5 of the charter as were

discussed above. In addition, the

reference to the Resolution Trust

Corporation will be deleted, because

that agency no longer exists.

A new preapproved charter

amendment will be added, as new

paragraph (b)(6), to authorize

institutions to prohibit cumulative

voting for directors. The standard

charter for Federal stock associations

provides for cumulative voting for

directors. Federal associations

frequently apply to amend their charters

to prohibit cumulative voting, and OTS

routinely approves these applications.

Adding this provision to the list of

preapproved amendments will save

associations that wish to make this

change the time and expense of an

application.

Paragraph (c) states OTS policy on

antitakeover provisions in charter

amendments. OTS proposes to expand

this provision to state the two basic

standards OTS uses when reviewing

proposed antitakeover amendments.

First, the proposed amendment must be

consistent with applicable statutes,

regulations and OTS policies. Second,

such amendments must be adopted by

a percentage of the shareholder vote at

least equal to the highest percentage that

would be required to take any action

under the antitakeover provision. These

are not new standards; OTS already

employs them when reviewing

antitakeover amendments. Stating these

standards in the regulations will enable

institutions to present applications that

conform to OTS requirements, thereby

saving them time and expense.

Section 552.5 Bylaws

This section presents the

requirements for the bylaws of a Federal

stock association. A technical

amendment will be made to paragraph

(a) to confirm that shareholder votes to

approve bylaw amendments must occur

‘‘at a legal meeting’’ of shareholders.

Paragraph (b) discusses the

application and notice procedures

applicable to bylaw amendments. This

paragraph will be amended to remove

the requirement that associations certify

that bylaw amendments comport with

applicable law. Revisions will also be

made to indicate that the model bylaws,

if adopted verbatim, are approved when

adopted and must simply be filed with

OTS within 30 days after adoption.

Paragraph (b) will also indicate that the

model bylaws are in the Handbook and

are available from any Regional Office.

OTS proposes to add a new paragraph

(d) confirming that the authority of a

Federal stock association to engage in

any transaction is determined by the

association’s charter and bylaws in

effect at the time of the transaction.

Subsequent amendments do not

retroactively affect this determination. A

similar regulatory provision is already

in effect for Federal mutual associations

(§ 544.6).

Section 552.6 Shareholders

This section contains certain

corporate governance requirements

regarding shareholder meetings.

Paragraph (a), which contains rules

regarding the time and place of

shareholder meetings, will be amended

in two respects. First, the requirement
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32719

that shareholders meetings be held in

the state of an association’s principal

place of business is being removed.

Instead, associations will be able to hold

shareholder meetings at any convenient

place the board of directors designates.

Second, the time frame within which an

association must hold its annual

shareholders meeting will be extended

from 120 to 150 days of the end of the

association’s fiscal year. These are the

same changes being proposed for

Federal mutual associations

(§ 544.5(b)(1)).

Paragraph (b) states the notice

requirements for shareholder meetings.

This paragraph will be amended to

waive the shareholder notice

requirements for wholly-owned

institutions.

Paragraph (d)(1), which addresses

access to shareholder lists, will be

revised to clarify that shareholder lists

are available only to shareholders ‘‘of

record’’ and their agents, and that the

lists must contain the names of

beneficial owners that are furnished to

the association under the rules of the

Securities and Exchange Commission.

In addition, the paragraph will be

amended to waive its application to

wholly-owned institutions.

Paragraph (e), regarding shareholder

quorum requirements, will be amended

to confirm that, whenever a quorum is

present, the affirmative vote of the

majority of shares entitled to vote at a

shareholders meeting shall constitute an

act of the shareholders, absent a

supermajority voting requirement.

Paragraph (f), which addresses

proxies, will be amended in the same

manner as the Federal mutual bylaws at

§ 544.5(b)(6) to allow proxies to be

gathered electronically or

telephonically. In addition, in response

to frequent questions, paragraph (f) will

be expanded to describe voting

procedures applicable to stock held by

fiduciaries on behalf of others and stock

held jointly.

A new paragraph (h) will also be

added confirming that, if an

association’s bylaws so provide,

shareholder action may be taken by

unanimous written consent in lieu of a

shareholder meeting. At times, this may

allow associations to obtain shareholder

approval more rapidly and with less

expense.

Section 552.6–1 Board of Directors

This section addresses corporate

governance matters involving directors.

Paragraph (a) will be amended to

provide that Directors need not be

stockholders unless the bylaws so

require.

Paragraph (b) sets forth the number

and term of directors. This paragraph

will be amended to clarify that the

bylaws of a Federal stock association

must specify an exact number of

positions on an association’s board of

directors, not simply a range. The

number is selected by the institution

within a range prescribed in the charter.

OTS also proposes to amend paragraph

(b) to exempt wholly-owned stock

associations from the requirement that

their directors be elected to staggered

terms.

Paragraph (c), regarding regular

meetings of the board, will be expanded

to confirm that the board of directors

has authority to determine the place,

frequency, time, and notice procedures

for its meetings. These matters need not

be specified in the bylaws.

Paragraph (e), which covers director

vacancies, will be amended to clarify

that a director appointed to fill a

vacancy may serve ‘‘only’’ until the next

election of directors. This is not a

substantive change. The word ‘‘only’’ is

being added for emphasis and clarity.

Paragraph (f), concerning removal of

directors, will be retitled ‘‘Resignation

or removal of directors’’ to conform to

the title for the same provision for

Federal mutual associations. In

addition, the paragraph will be

amended to confirm, as is already the

case, that shareholders may remove a

director in the midst of his or her term

‘‘only’’ for cause. A cross reference to

the existing regulatory definition of

‘‘cause’’ will also be added to answer a

frequently asked question.

Paragraph (k), on age limitations for

directors, will be revised to indicate that

any age limitation provision must

conform to applicable Federal law,

rules, or regulations, such as the Age

Discrimination in Employment Act.

Section 552.6–2 Officers

This section addresses corporate

governance matters involving officers.

Paragraph (a) will be amended to

remove the requirement that the

president always be a director and that

either the president or the chair of the

board of directors always be the chief

executive officer.

In paragraph (b), which addresses

removal of officers, the cross reference

to OTS employment contract regulation

will be updated.

Paragraph (c), on age limitations for

officers, will be revised to indicate that

any age limitation on service by officers

must conform to applicable Federal law,

rules, or regulations, such as the Age

Discrimination in Employment Act.

Section 552.8 Savings Deposits

This section contains instructions to

Federal stock associations regarding the

types of savings deposits they may

accept, preservation of those accounts

when a former mutual association

adopts a stock charter, rights of account

holders in the event of liquidation, and

forms of certificates to use for accounts.

OTS proposes to remove this section

from the regulations. The provisions of

this section are either self evident or

covered by other statutes and

regulations and general contract law.

Under the conversion regulations, all

converting mutual institutions are

required to notify their accountholders

that all the rights they enjoyed as

accountholders, except voting and

ownership of the institution, carry over

to the converting association.

Section 552.11 Books and Records

This section describes a Federal stock

association’s obligations with respect to

books and records. Paragraph (b) will be

amended to make clear that

shareholders’ inspection rights extend

only to nonconfidential portions of an

institution’s books and records.

Appendix to Part 552

As indicated above, OTS proposes to

move the model bylaws for Federal

stock associations, which currently

appear in the appendix to Part 552, into

the Handbook. Changes will be made to

conform the model bylaws to the

amendments to the bylaws regulations

described above. In addition, OTS

proposes to modify the model bylaws to

indicate that procedures other than

Robert’s Rules of Order may be used for

shareholder meetings, as long as the

board of directors adopts alternative

written procedures.

C. Part 575—Mutual Savings and Loan

Holding Companies

Section 575.9 Charters and Bylaws for

Mutual Holding Companies and Their

Savings Association Subsidiaries

This section describes the required

charter and bylaws for Federal mutual

holding companies. Paragraph (a)(1)

contains the prescribed charter. This

paragraph will be amended to indicate

that the charter will appear in the

Handbook and will be available from

any Regional Office. In addition, the

following changes will be made to the

charter:

Section 1. Corporate Title. Section 1

contains the corporate title of the

Federal mutual holding company. The

words ‘‘hereby chartered’’ will be

deleted as unnecessary verbiage.
32720 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

Section 5. Members. This section

identifies the mutual holding company’s

members and defines their rights. The

sixth, seventh, and eighth sentences of

this section, addressing proxies and

quorums, will be removed because these

matters either are covered or will be

covered (once today’s amendments are

made) by the bylaw requirements

applicable to mutual holding

companies. As a result of this change,

proxy and quorum issues will be

addressed in a single place in the

corporate documents of mutual holding

companies.

Section 6. Directors. This section

provides that a Federal mutual holding

company may have from 5 to 15

directors. In addition to technical

changes made to conform the wording

of this section to the corresponding

section of the charter for Federal mutual

associations, OTS also proposes to

remove the requirement that directors

be members of the association and the

requirement that the terms of directors

be staggered.

Section 8. Amendment of charter.

Section 8 describes the procedures for

amending the mutual holding

company’s charter. These procedures

will be streamlined to indicate that

preapproved charter amendments are

effective once approved by members of

the mutual holding company. Other

amendments will continue to require

advance OTS approval.

Paragraph (a)(2) of § 575.9 provides

that mutual holding companies may

adopt the same preapproved charter

amendments as are specified for mutual

savings associations, subject to certain

specified exclusions. Paragraph (a)(2)

will be updated to conform to the

changes being proposed for the list of

preapproved charter amendments for

mutual associations.

Paragraph (a)(4) specifies that Federal

mutual holding companies shall be

subject to the same rules regarding

bylaws as apply to Federal mutual

associations, with certain exceptions.

This paragraph will be amended to

indicate that the model bylaws may be

found in the Handbook, available from

OTS Regional Offices.

A technical amendment will be made

to paragraph (a)(5), which requires

mutual holding companies to make their

charter and bylaws available to

members. The cross reference to

§ 545.131 will be changed to reflect the

proposed movement of this section to

Part 544.

D. Miscellaneous Technical Changes

Section 543.1(b) Title Change

This section prescribes the rules for

corporate titles for Federal savings

associations. This section will be

amended to delete cross references to

sections being removed by this

proposal.

Section 543.14 Continuity of Existence

This section, which confirms that the

corporate existence of converting

associations continues, notwithstanding

the conversion, will be amended to

delete a cross reference to a section

being removed by this proposal.

Section 556.1 Directors

This section, which describes OTS

policy on the number of directors

necessary for a quorum and the

directors’ power to fill vacancies, will

be removed because both subjects are

thoroughly covered by the bylaws

regulations.

Section 556.17 Effect of Loan

Participation on Status of Borrowing

Members

This section provides guidance

regarding various issues that arise when

determining the identity of the

borrowing members of a Federal mutual

savings association. For example, this

section indicates that sale of a whole

loan by a savings association to a third

party terminates the borrower’s

membership rights in the association.

OTS proposes to move this policy

statement from the regulations into

Handbook guidance.

V. Proposed Disposition of Corporate

Governance Regulations

The following chart displays the

changes being proposed for OTS’s

corporate governance regulations.

Original provision Comment

§ 543.1(b) .............................................................................. Amended to delete references.

§ 543.14 ................................................................................. Amended to delete references.

§ 544.1 ................................................................................... Amended and moved to Handbook.

§ 544.1, Section 6 ................................................................. Moved portion to § 544.5 for clarification.

§ 544.1, Section 7 ................................................................. Moved portion to § 544.5 for clarification.

§ 544.1, Section 9 ................................................................. Removed need for preliminary approval.

§ 544.2(a)(2) .......................................................................... Eliminated need for management certification.

§ 544.2(b) .............................................................................. Eliminated need for prior notice requirement.

§ 544.2(b)(4) .......................................................................... Removed existing paragraph and added new preapproved amendment.

§ 544.2(c) .............................................................................. Removed delegation.

§ 544.3 ................................................................................... Removed.

§ 544.5(a) .............................................................................. Revised for clarification.

§ 544.5(b) (1) and (2) ............................................................ Amended for flexibility; changed annual meeting date.

§ 544.5(b) (3) and (4) ............................................................ Adjournment provisions added.

§ 544.5(b) (5) through (17) .................................................... Redesignated (b) (6) to (18)

§ 544.5(b)(6) .......................................................................... Amended to add privacy rights.

§ 544.5(b)(10) ........................................................................ Amended to add guidance on vacancies.

§ 544.5(b)(13) ........................................................................ Amended to add guidance on nominee substitution.

§ 544.5(b)(16) ........................................................................ Revised for clarification.

§ 544.5(b)(17) ........................................................................ Removed.

§ 544.5(c) .............................................................................. Eliminated need for management certification.

§ 544.5(c)(1) .......................................................................... Eliminated need for prior notice requirement.

§ 544.5(d) .............................................................................. Reduced filing requirement.

§ 544.8 ................................................................................... Removed.

§ 544.9 ................................................................................... Removed.

Part 544 Appendix ................................................................ Conformed to proposed changes and moved to Handbook.

§ 545.131 ............................................................................... Moved to Part 544.

§ 552.1 ................................................................................... Removed.

§ 552.2 ................................................................................... Removed.

§ 552.2–5 ............................................................................... Removed.

§ 552.3 ................................................................................... Amended and moved to Handbook.
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32721

Original provision Comment

§ 552.3 Section 8 .................................................................. Removed need for preliminary approval.

§ 552.4(a)(2) .......................................................................... Eliminated need for management certification.

§ 552.4(b) .............................................................................. Eliminated need for prior notice requirement.

§ 552.4(b)(3) .......................................................................... Removed.

§ 552.4(b) (4) through (6) ...................................................... Redesignated (b) (3) to (5).

New § 552.4(b)(6) ................................................................. Add new preapproved amendment.

§ 552.4(c) .............................................................................. Amended for clarification.

§ 552.5(b) .............................................................................. Eliminated need for management certification.

§ 552.5(b)(1)(ii) ...................................................................... Eliminated need for prior notice requirement.

§ 552.5(c) .............................................................................. Reduced filing requirement.

§ 552.6(a) .............................................................................. Amended for flexibility; changed annual meeting date.

§ 552.6(b) .............................................................................. Amended shareholder meeting requirements.

§ 552.6(d) .............................................................................. Amended to add guidance on voting lists.

§ 552.6(e) .............................................................................. Amended to add guidance on certain voting requirements.

§ 552.6(f)(1) ........................................................................... Amended for flexibility.

New § 552.6(f)(4) .................................................................. Added section on shares held by others.

New § 552.6(h) ...................................................................... Added section on informal action.

§ 552.6–1(a) .......................................................................... Amended for flexibility.

§ 552.6–1(b) .......................................................................... Removed necessity for staggered board of directors if wholly owned. Also amended to specify number of directors.

§ 552.6–1(f) ........................................................................... Amended to clarify where ‘‘cause’’ is defined.

§ 552.6–1(k) .......................................................................... Amended to add guidance.

§ 552.6–2(a) .......................................................................... Amended to remove provision requiring president to be a director.

§ 552.8 ................................................................................... Removed.

Part 552 Appendix ................................................................ Conformed to proposed changes and moved to Handbook.

§ 556.1 ................................................................................... Removed.

§ 556.17 ................................................................................. Moved to Handbook.

§ 563.74(d) ............................................................................ Amended to conform to earlier change.

§ 575.9 ................................................................................... Amended and moved to Handbook.

§ 575.9 Section 8 .................................................................. Removed need for preliminary approval.

VI. Request for Comment

OTS invites comment on all aspects of

the proposal. Specific areas that OTS

requests for comments are as follows:

—Whether to move the charters and

model bylaws from the regulations to

OTS’s Handbook.

—Whether OTS should exempt

associations that are wholly-owned

from the requirement that the board of

directors be elected in staggered

elections; also whether a staggered

board of directors should be required

if the association is not wholly

owned.

—Whether OTS should adopt a practice

similar to the OCC of permitting

institutions to elect to adopt, en bloc,

the corporate governance procedures

authorized by any of the following:

the laws of the state where the main

office of the bank is located, the laws

of the state where the bank’s holding

company, if any, is located, Delaware

General Corporation Law, or The

Model Business Corporation Act. As

indicated above, any such election

would likely be subject to certain

exclusions, as is the case for national

banks, for Federal laws considered

vital to safety and soundness or other

important policy objectives.

Commenters supporting the election

option are asked to specify how the

option would benefit savings

associations.

VII. Executive Order 12866

The Director of OTS has determined

that this proposed rule does not

constitute a ‘‘significant regulatory

action’’ for the purposes of Executive

Order 12866.

VIII. Regulatory Flexibility Act

Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, OTS certifies

that this proposal will not have a

significant economic impact on a

substantial number of small entities.

The proposal does not impose any

additional burdens or requirements

upon small entities and lowers several

paperwork and other burdens on all

savings associations.

IX. 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.

As discussed in the preamble, this

proposed rule reduces regulatory

burden and updates, reorganizes and

substantially streamlines corporate

governance regulations and policy

statements. OTS has determined that the

proposed rule will not result in

expenditures by state, local, or tribal

governments or by the private sector of

$100 million or more. Accordingly, this

rulemaking is not subject to section 202

of the Unfunded Mandates Act.

OTS has determined that the

requirements of this proposed rule will

not result in expenditures by State,

local, and tribal governments, or by the

private sector, of more than $100

million in any one year. Accordingly, a

budgetary impact statement is not

required under section 202 of the

Unfunded Mandates Act of 1995.

X. Paperwork Reduction Act

This proposed regulation changes the

timing of the submission of a notice to

OTS when an institution proposes to

amend its charter or bylaws with OTS

preapproved amendments. Currently,

this notice is required before the

institution adopts the amendment.

Under the proposal, the institution will

file the notice after adopting the

preapproved amendment. The reporting

burden for this notice remains

unchanged.

Comments are invited on (i) whether

the existing approved collections of
32722 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

information (OMB Control Nos. 1550–

0017 and 1550–0018) are necessary for

the proper performance of the functions

of the agency, including whether the

information shall have practical utility,

(ii) the accuracy of the estimate of the

burden of the collection of information,

(iii) ways to enhance the quality of the

information collected, (iv) ways to

minimize the burden of the collection of

information on respondents, including

the use of automated collection

techniques or other forms of information

technology.

List of Subjects

12 CFR Parts 543 and 544

Reporting and recordkeeping

requirements, Savings associations.

12 CFR Part 545

Accounting, Consumer protection,

Credit, Electronic Funds transfers,

Investments, Manufactured homes,

Mortgages, Reporting and recordkeeping

requirements, Savings associations.

12 CFR Part 552

Reporting and recordkeeping

requirements, Savings associations,

Securities.

12 CFR Part 556

Savings associations.

12 CFR Part 563

Accounting, Advertising, Crime,

Currency, Flood insurance, Investments,

Mortgages, Reporting and recordkeeping

requirements, Savings associations,

Securities, Surety bonds.

12 CFR Part 575

Administrative practice and

procedure, Capital, Holding companies,

Reporting and recordkeeping

requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift

Supervision proposes to amend chapter

V, title 12, Code of Federal Regulations,

as set forth below.

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.

§ 543.1 [Amended]

2. Section 543.1 is amended in

paragraph (b) by removing the phrase ‘‘,

only pursuant to a charter change under

§ 544.3 or § 552.4 of this chapter’’.

§ 543.14 [Amended]

3. Section 543.14 is amended by

removing the phrase ‘‘or under § 544.3

of this chapter’’.

PART 544—CHARTER AND BYLAWS

4. The authority citation for part 544

continues to read as follows:

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

1464, 1467a, 2901 et seq.

ALTERNATIVE ONE

5. Section 544.1 is revised to read as

follows:

§ 544.1 Federal mutual charter.

The Federal mutual charter may be

found in the Application Processing

Regulatory Handbook, available from

any Regional Office of OTS. (See

§ 516.1(b) of this chapter.) Each Federal

mutual association’s charter, including

any amendments thereto, constitutes

conditions imposed in writing by the

agency in connection with the granting

of an application and a written

agreement entered into with the agency

within the meaning of 12 U.S.C.

1818(b).

ALTERNATIVE TWO

5a. Section 544.1 is amended by:

a. Revising the introductory text

preceding the Federal Mutual Charter;

b. Removing in section 1 of the

Federal Mutual Charter the phrase

‘‘hereby chartered’’;

c. Transferring the third and fourth

sentences of section 6 of the charter,

appearing in brackets, to the end of the

introductory text of § 544.1 and by

removing the brackets;

d. Removing the last three sentences

of section 6 of the charter;

e. Removing the third, fourth, and

fifth sentences of the first paragraph,

and all of the second paragraph of

section 7 of the charter;

f. Removing the word ‘‘[Trustees]’’ in

the heading and the words ‘‘[trustee]’’

and ‘‘[trustees]’’ where they appear in

the text of section 7 of the charter; and

g. Revising section 9 of the charter.

The revisions read as follows:

§ 544.1 Federal mutual charter.

A Federal mutual savings association

shall have a charter in the following

form, which may include any of the

additional provisions set forth in

§ 544.2, if such provisions are

specifically requested. A charter for a

Federal mutual savings bank shall

substitute the term ‘‘savings bank’’ for

‘‘association.’’ The term ‘‘trustees’’ may

be substituted for the term ‘‘directors.’’

* * * * *

Section 9. Amendment of charter.

Adoption of any preapproved charter

amendment shall be effective after such

preapproved amendment has been approved

by the members at a legal meeting. Any other

amendment, addition, change, or repeal of

this charter must be approved by the Office

prior to approval by the members at a legal

meeting. Any amendment, addition,

alteration, change, or repeal so acted upon

and approved shall be effective upon filing

with the Office in accordance with regulatory

procedures.

Attest: lllllllllllllllll

Secretary of the Association

By: lllllllllllllllllll

President or Chief Executive Officer of the

Association

Attest: lllllllllllllllll

Secretary of the Office of Thrift Supervision

By: lllllllllllllllllll

Director of the Office of Thrift Supervision

Effective Date: llllllllllllll

6. Section 544.2 is amended by:

a. Removing in paragraphs (a)(2)(i)

and (a)(2)(ii), the phrase ‘‘along with a

certification that the proposed’’ and by

adding in lieu thereof the phrase,

‘‘provided such’’;

b. Removing the phrase ‘‘filing with

the OTS’’ in the third sentence of

paragraph (b), and by adding in lieu

thereof the phrase ‘‘adoption, if adopted

without change and filed with OTS,

within 30 days after adoption’’;

c. Revising paragraph (b)(4); and

d. Removing the word ‘‘shall’’ in the

second sentence of paragraph (c), and by

adding in lieu thereof the phrase

‘‘should be filed in accordance with

§ 516.1(c) of this chapter and’’ and by

removing the last sentence of paragraph

(c).

The revisions read as follows:

§ 544.2 Charter amendments.

* * * * *

(b) * * *

(4) Maximum number of votes. A

Federal mutual savings association may

amend its charter by substituting

...lllll  votes per member in

section 6. [Fill in a number from 50 to

1000.]

* * * * *

§ 544.3 [Removed]

7. Section 544.3 is removed.

8. Section 544.5 is amended by:

a. Adding, between the words

‘‘majority’’ and ‘‘of’’ in the second

sentence of paragraph (a), the phrase ‘‘of

the votes cast by the members at a legal

meeting or a majority’’, and by adding

two new sentences at the end of

paragraph (a);

b. Removing the words ‘‘[trustee]’’

and ‘‘[trustees]’’ wherever they appear

in paragraph (b);

c. Revising the second sentence of

paragraph (b)(1);

d. Adding a sentence at the end of

paragraph (b)(2);
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32723

e. Adding a sentence at the end of

paragraph (b)(3);

f. Adding a sentence at the end of

paragraph (b)(4);

g. Redesignating paragraphs (b)(5)

through (b)(17) as paragraphs (b)(6)

through (b)(18), respectively;

h. Adding a new paragraph (b)(5);

i. Adding to newly designated

paragraph (b)(6), a sentence between the

first and second sentences, and three

new sentences at the end;

j. Revising newly designated

paragraph (b)(7);

k. Revising newly designated

paragraph (b)(8);

l. Adding after the word ‘‘treasurer’’

in newly designated paragraph

(b)(10)(i), the words ‘‘or comptroller’’;

m. Adding a sentence at the end of

newly designated paragraph (b)(10)(ii);

n. Revising newly designated

paragraph (b)(11);

o. Adding, between the words

‘‘secretary’’ and ‘‘and’’ in the second

sentence of newly designated paragraph

(b)(14), the phrase ‘‘, except in the case

of a nominee substituted as a result of

death or other incapacity,’’;

p. Removing, in the first sentence of

newly designated paragraph (b)(17), the

phrase ‘‘pursuant to § 544.5 of the

Office’s regulations, as long as any such

amendment’’, and by adding in lieu

thereof the word ‘‘that’’, and by adding

a sentence at the end of paragraph

(b)(17);

q. Removing, in newly designated

paragraph (b)(18), the phrase

‘‘emergency preparedness,’’;

r. Removing in paragraph (c)(1)

introductory text, the phrase ‘‘along

with a certification that the proposed’’,

and by adding in lieu thereof the phrase

‘‘, provided such’’;

s. Removing, in the concluding text of

paragraph (c)(1), the phrase ‘‘shall be

deemed to comply with the

requirements of this section’’, and by

adding in lieu thereof the phrase ‘‘, if

adopted without change, and filed

within 30 days after adoption, are

effective upon adoption’’;

t. Amending the heading of paragraph

(c)(2) by removing the word ‘‘Notice’’,

and by adding in lieu thereof the word

‘‘Filing’’, and by removing, in paragraph

(c)(2), the phrase ‘‘together with a

certification’’, and by adding in lieu

thereof the word ‘‘provided’’; and

u. Removing, in the second sentence

of paragraph (d), the phrase ‘‘raises a

significant issue of law or policy’’, and

by adding in lieu thereof the phrase

‘‘requires an application to be filed

pursuant to paragraph (c)(1) of this

section’’,.

The additions and revisions read as

follows:

§ 544.5 Federal mutual savings

association bylaws.

(a) * * * The bylaws for a Federal

mutual savings bank may substitute the

term ‘‘savings bank’’ for ‘‘association.’’

The term ‘‘trustees’’ may be substituted

for the term ‘‘directors.’’

(b) * * *

(1) * * * Such meeting shall be held,

as designated by its board of directors,

at a location within the state that

constitutes the principal place of

business of the association, or at any

other convenient place the board of

directors may designate, and at a date

and time within 150 days after the end

of the association’s fiscal year. * * *

(2) * * * For purposes of this section,

‘‘voting capital’’ means FDIC-insured

deposits.

(3) * * * When any meeting is

adjourned for 30 days or more, notice of

the adjournment and reconvening of the

meeting shall be given as in the case of

the original meeting.

(4) * * * The same determination

shall apply to any adjourned meeting.

(5) Member quorum. Any number of

members present and voting,

represented in person or by proxy, at a

regular or special meeting of the

members shall constitute a quorum. A

majority of all votes cast at any meeting

of the members shall determine any

question. At any adjourned meeting any

business may be transacted which might

have been transacted at the meeting as

originally called. Members present at a

duly constituted meeting may continue

to transact business until adjournment.

(6) * * * Proxies may be given

telephonically or electronically as long

as the holder uses a procedure for

verifying the identity of the member.

* * * Accounts held by an

administrator, executor, guardian,

conservator or receiver may be voted in

person or by proxy by such person.

Accounts held by a trustee may be voted

by such trustee either in person or by

proxy, in accordance with the terms of

the trust agreement, but no trustee shall

be entitled to vote accounts without a

transfer of such accounts into the trustee

name. Joint accounts shall be entitled to

no more than 1,000 votes, split as the

joint owners may agree, in writing.

(7) Communications between

members. Provisions relating to

communications between members

shall be consistent with § 544.8 of the

Office’s regulations. No member,

however, shall have the right to inspect

or copy any portion of any books or

records of a Federal mutual savings

association containing:

(i) A list of depositors in or borrowers

from such association;

(ii) Their addresses;

(iii) Individual deposit or loan

balances or records; or

(iv) Any data from which such

information could be reasonably

constructed.

(8) Number of directors, membership.

The bylaws shall set forth a specific

number of directors, not a range. The

number of directors shall be not fewer

than five nor more than fifteen, unless

a higher or lower number has been

authorized by the Director of the Office

or his or her designee. Each director of

the association shall be a member of the

association. Directors shall be elected

for periods of three years and until their

successors are elected and qualified, but

provision shall be made for the election

of approximately one-third of the board

each year. [State-chartered savings

banks converting to Federal savings

banks may include alternative

provisions for the election and term of

office of directors so long as such

provisions are authorized by the Office,

and provide for compliance with the

standard provisions of this section no

later than six years after the conversion

to a Federal savings association.]

* * * * *

(10) * * *

(ii) * * * Any officer may be removed

by the board of directors with or

without cause, but such removal, other

than for cause, shall be without

prejudice to the contractual rights, if

any, of the person so removed.

* * * * *

(11) Vacancies, resignation or removal

of directors. Members of the association

shall elect directors by ballot: Provided,

that in the event of a vacancy on the

board, the board of directors may, by

their affirmative vote, fill such vacancy,

even if the remaining directors

constitute less than a quorum. A

director elected to fill a vacancy shall be

elected to serve only until the next

election of directors by the members.

The bylaws shall set out the procedure

for the resignation of a director, which

shall be by written notice or by any

other procedure established in the

bylaws. Directors may be removed only

for cause as defined in § 563.39 of this

chapter, by a vote of the holders of a

majority of the shares then entitled to

vote at an election of directors.

* * * * *

(17) * * * When an association fails

to meet its quorum requirement, solely

due to vacancies on the board, the

bylaws may be amended by an

affirmative vote of a majority of the

sitting board.

* * * * *
32724 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

§§ 544.8 and 544.9 [Removed]

9. Sections 544.8 and 544.9 are

removed.

ALTERNATIVE ONE

10. The Appendix to Part 544 is

revised to read as follows:

Appendix to Part 544—Model Bylaws

for Mutual Savings Associations

The Federal mutual bylaws may be found

in the Application Processing Regulatory

Handbook, available from any Regional

Office of OTS (see § 516.1(b) of this chapter).

Each Federal mutual association’s bylaws,

including any amendments thereto,

constitutes conditions imposed in writing by

the agency in connection with the granting of

an application and a written agreement

entered into with the agency within the

meaning of 12 U.S.C. 1818(b).

ALTERNATIVE TWO

10a. The Appendix to Part 544 is

amended by:

a. Removing section 18;

b. Removing the words ‘‘[trustee]’’,

‘‘[trustees]’’, and ‘‘[Trustees]’’ wherever

they appear in the appendix;

c. Adding introductory text between

the heading of the appendix and Section

1;

d. Amending the first sentence of

Section 1 by removing the phrase ‘‘at

(insert date and time within 120 days’’,

and by adding in lieu thereof the phrase

‘‘or at any other convenient place the

board of directors may designate, at

(insert date and time within 150 days’’;

e. Amending Section 2 by adding a

sentence between the second and third

sentences and by revising the last

sentence;

f. Amending Section 3 by removing

paragraph (b) and the paragraph

designation (a), by removing the word

‘‘annual’’ wherever it appears in Section

3, and by adding a sentence at the end

of Section 3;

g. Adding a sentence at the end of

Section 4;

h. Redesignating Sections 5 through

17 as Sections 6 through 18,

respectively, and adding a new Section

5;

i. Adding to newly designated Section

6, a sentence between the first and

second sentences, and three new

sentences at the end;

j. Adding new text at the end of newly

designated Section 7;

k. Revising newly designated Section

8;

l. Amending newly designated

Section 10 by adding the phrase ‘‘or

comptroller’’ in the first sentence of the

first paragraph, between the word

‘‘treasurer’’ and the colon and at the end

of the sentence, and by adding a

sentence at the end of the first

paragraph;

m. Amending newly designated

Section 11 by revising the heading,

adding two sentences at the beginning

of the first paragraph following the

heading, and adding the phrase ‘‘as

defined in the regulations in § 563.39 of

this chapter’’ after the word ‘‘cause’’ in

the second paragraph;

n. Amending newly designated

Section 14 by adding the phrase ‘‘,

except in the case of a nominee

substituted as a result of death or other

incapacity’’ at the end of the second and

third sentences;

o. Amending newly designated

Section 17 by adding a new sentence at

the end of the section; and

p. Amending newly designated

Section 18 by adding one sentence of

introductory text preceding paragraph

(a), and by removing the phrase ‘‘of at

least llllllllll (must be in

accordance with ERISA)’’ in paragraph

(b).

The additions and revisions read as

follows:

Appendix to Part 544—Model Bylaws

for Mutual Savings Associations

The bylaws for a Federal mutual savings

bank may substitute the term ‘‘savings bank’’

for ‘‘association.’’ The term ‘‘trustees’’ may be

substituted for the term ‘‘directors.’’

* * * * *

2. * * * For purposes of this section,

‘‘capital’’ means FDIC-insured deposits.

Annual and special meetings shall be

conducted in accordance with the most

current edition of Robert’s Rules of Order or

any other set of procedures agreed to by the

board of directors.

3. * * * When any meeting is adjourned

for 30 days or more, notice of the

adjournment shall be given as in the case of

the original meeting.

4. * * * The same determination shall

apply to any adjourned meeting.

5. Member quorum. Any number of

members present and voting, represented in

person or by proxy, at a regular or special

meeting of the members shall constitute a

quorum. A majority of all votes cast at any

meeting of the members shall determine any

question. At any adjourned meeting any

business may be transacted which might

have been transacted at the meeting as

originally called. Members present at a duly

constituted meeting may continue to transact

business until adjournment.

6. * * * Proxies may be given

telephonically or electronically as long as the

holder uses a procedure for verifying the

identity of the member. * * * Accounts held

by an administrator, executor, guardian,

conservator or receiver may be voted in

person or by proxy by such person. Accounts

held by a trustee may be voted by such

trustee either in person or by proxy, in

accordance with the terms of the trust

agreement, but no trustee shall be entitled to

vote accounts without a transfer of such

accounts into the trustee name. Joint

accounts shall be entitled to no more than

1,000 votes, split as the joint owners may

agree, in writing.

7. * * * No member, however, shall have

the right to inspect or copy any portion of

any books or records of a Federal mutual

savings association containing:

(i) A list of depositors in or borrowers from

such association;

(ii) Their addresses;

(iii) Individual deposit or loan balances or

records; or

(iv) Any data from which such information

could be reasonably constructed.

8. Number of directors, membership. The

number of directors shall be llll [not

fewer than five nor more than fifteen], except

where authorized by the Director of the

Office or his or her designee. Each director

of the association shall be a member of the

association. Directors shall be elected for

periods of three years and until their

successors are elected and qualified, but

provision shall be made for the election of

approximately one-third of the board each

year. [State-chartered savings banks

converting to Federal savings banks may

include alternative provisions for the election

and term of office of directors so long as such

provisions are authorized by the Office, and

provide for compliance with the standard

provisions of this section no later than six

years after the conversion to a Federal

savings association.]

* * * * *

10. * * * Any officer may be removed by

the board of directors with or without cause,

but such removal, other than for cause, shall

be without prejudice to the contractual

rights, if any, of the person so removed.

* * * * *

11. Vacancies, resignation, or removal of

directors. Members of the association shall

elect directors by ballot: Provided, that in the

event of a vacancy on the board, the board

of directors may, by their affirmative vote, fill

such vacancy, even if the remaining directors

constitute less than a quorum. A director

elected to fill a vacancy shall be elected to

serve only until the next election of directors

by the members. * * *

* * * * *

17. * * * When an association fails to

meet its quorum requirement, solely due to

vacancies on the board, the bylaws may be

amended by an affirmative vote of a majority

of the sitting board.

18. Age limitations. [Bylaws on age

limitations must comply with all Federal

laws, such as the Age Discrimination in

Employment Act and the Employee

Retirement Income Security Act.] (a) * * *

* * * * *

PART 545—OPERATIONS

11. The authority citation for part 545

continues to read as follows:

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

1828.

§ 545.131 [Redesignated as § 544.8]

12. Section 545.131 is redesignated as

§ 544.8.
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32725

PART 552—INCORPORATION,

ORGANIZATION, AND CONVERSION

OF FEDERAL STOCK ASSOCIATIONS

13. The authority citation for part 552

continues to read as follows:

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

1464, 1467a.

§§ 552.1 and 552.2 [Removed]

14. Sections 552.1 and 552.2 are

removed.

§ 552.2–5 [Removed]

15. Section 552.2–5 is removed.

ALTERNATIVE ONE

16. Section 552.3 is revised to read as

follows:

§ 552.3 Charters for Federal stock

associations.

The Federal stock charter may be

found in the Application Processing

Regulatory Handbook, available from

any Regional Office of OTS. (see

§ 516.1(b) of this chapter.) Each Federal

stock association’s charter, including

any amendments thereto, constitutes

conditions imposed in writing by the

agency in connection with the granting

of an application and a written

agreement entered into with the agency

within the meaning of 12 U.S.C.

1818(b).

ALTERNATIVE TWO

16a. Section 552.3 is amended in the

Federal Stock Charter by:

a. Removing, in Section 2, the word

‘‘in’’, and by adding in lieu thereof the

word ‘‘at’’;

b. Amending Section 5 by adding

between the words ‘‘or’’ and ‘‘stated’’

appearing in brackets in the first

sentence, the phrase ‘‘if no par is

specified then shares shall have a’’, by

revising the last sentence in the first

paragraph;

c. Amending Section 5 by removing in

the first sentence of the second

paragraph the phrases ‘‘issuable in’’ and

‘‘common stock’’, and by adding in lieu

thereof the phrases ‘‘issued in the initial

organization of the association or’’ and

‘‘capital stock’’, respectively;

d. Amending Section 5 by adding the

phrase ‘‘, unless the charter otherwise

provides that there shall be no such

cumulative voting’’ at the end of the

second sentence in the third paragraph;

e. Amending Section 7 by adding the

phrase ‘‘, or his or her delegate’’ at the

end of the last sentence; and

f. Revising Section 8.

The revisions read as follows:

§ 552.3 Charters for Federal stock

associations.

* * * * *

Federal Stock Charter

* * * * *

Section 5. * * * In the case of a stock

dividend, that part of the retained earnings

of the association that is transferred to

common stock or paid-in capital accounts

upon the issuance of shares as a stock

dividend shall be deemed to be the

consideration for their issuance.

* * * * *

Section 8. Amendment of charter. Except

as provided in Section 5, no amendment,

addition, alteration, change or repeal of this

charter shall be made, unless such is first

proposed by the board of directors of the

association, then approved by the Office,

provided that preapproved charter

amendments shall be effective after such

preapproved amendment has been approved

by the board of directors and by the

shareholders at a legal meeting. Amendments

shall be approved by the shareholders by a

majority of the votes eligible to be cast at a

legal meeting, unless a higher vote is

otherwise required. Any amendment,

addition, alteration, change, or repeal so

acted upon shall be effective upon filing with

the Office in accordance with regulatory

procedures.

Attest: lllllllllllllllll

Secretary of the Association

By: lllllllllllllllllll

President or Chief Executive Officer of the

Association

Attest: lllllllllllllllll

Secretary of the Office of Thrift Supervision

By: lllllllllllllllllll

Director of the Office of Thrift Supervision

Effective Date: llllllllllllll

17. Section 552.4 is amended by:

a. Removing at the end of paragraph

(a)(1) the semicolon and the word

‘‘and’’, and by adding in lieu thereof a

period;

b. Removing in paragraph (a)(2)(i) the

phrase ‘‘with a certification that the

proposed’’ and in paragraph (a)(2)(ii) the

phrase ‘‘, together with a certification

that the’’, and by adding in both places

the phrase ‘‘, provided such’’;

c. Removing the phrase ‘‘filing with

the OTS’’ in the second sentence of

paragraph (b) introductory text, and by

adding in lieu thereof the phrase

‘‘adoption, if adopted without change

and filed with OTS, within 30 days after

adoption’’;

d. Adding headings to paragraphs

(b)(1) and (b)(2);

e. Removing paragraph (b)(3);

f. Redesignating paragraph (b)(4) as

paragraph (b)(3) and revising it;

g. Redesignating paragraph (b)(5) as

paragraph (b)(4) and adding a paragraph

heading, and revising the introductory

text;

h. Amending newly redesignated

paragraph (b)(4) in Section 5 by adding

between the words ‘‘or’’ and ‘‘stated’’

appearing in brackets in the first

sentence, the phrase ‘‘if no par value is

specified the’’, and by revising the last

sentence in the first paragraph;

i. Amending paragraph (b)(4) in

Section 5 by removing in the first

sentence of the second paragraph the

phrase ‘‘issuable in’’ and by adding in

lieu thereof the phrase ‘‘issued in the

initial organization of the association

or’’;

j. Amending paragraph (b)(4) in

Section 5 by adding the phrase ‘‘, unless

the charter otherwise provides that there

shall be no such cumulative voting’’ in

the introductory text of the third

paragraph between the words

‘‘directors:’’ and ‘‘Provided’’;

k. Amending paragraph (b)(4) in

paragraph (ii) of the third paragraph of

Section 5 by removing the phrase ‘‘, the

Federal Deposit Insurance Corporation,

or the Resolution Trust Corporation’’,

and by adding in lieu thereof the phrase

‘‘or the Federal Deposit Insurance

Corporation’’;

l. Amending paragraph (b)(4) in

paragraph A. of the fourth paragraph by

adding the phrase ‘‘, unless the charter

otherwise provides that there shall be

no such cumulative voting’’ at the end

of the second sentence;

m. Redesignating paragraph (b)(6) as

paragraph (b)(5), adding a heading, and

removing the phrase ‘‘Amend the

charter of a Federal stock association’’,

and by adding in lieu thereof the phrase

‘‘A Federal stock association may

amend its charter’’;

n. Adding a new paragraph (b)(6);

o. Adding a heading to paragraph

(b)(8); and

p. Amending paragraph (c) by

removing the word ‘‘preliminary’’

wherever it appears, and by adding a

second sentence.

The additions and revisions read as

follows:

§ 552.4 Charter amendments.

* * * * *

(b) * * *

(1) Title change. * * *

(2) Home office. * * *

(3) Number of shares of stock and par

value. A Federal stock association may

amend Section 5 of its charter to change

the number of authorized shares of

stock, the number of shares within each

class of stock, and the par or stated

value of such shares.

(4) Capital stock. A Federal stock

association may amend its charter by

revising Section 5 to read as follows:

Section 5. * * * In the case of a stock

dividend, that part of the retained earnings

of the association that is transferred to

common stock or paid-in capital accounts

upon the issuance of shares as a stock

dividend shall be deemed to be the

consideration for their issuance.

* * * * *
32726 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

(5) Limitations on subsequent

issuances. * * *

(6) Cumulative voting. A Federal stock

association may amend its charter by

substituting the following sentence for

the second sentence in the third

paragraph of Section 5: ‘‘Each holder of

shares of common stock shall be entitled

to one vote for each share held by such

holder and there shall be no right to

cumulate votes in an election of

directors.’’

* * * * *

(8) Antitakeover provisions following

conversion. * * *

(c) * * * Any such provision must be

consistent with applicable statutes,

regulations, and OTS policies; and

Provided Further, that any such

provision having the effect of rendering

more difficult a change in control of the

association which requires for any

corporate action (other than the removal

of directors) the affirmative vote of a

larger percentage of shareholders than is

required by this part, shall not be

effective unless adopted by a percentage

of shareholder vote at least equal to the

highest percentage that would be

required to take any action under such

provision.

* * * * *

18. Section 552.5 is amended by:

a. Revising the second sentence of

paragraph (a);

b. Removing, in paragraphs (b)(1)

introductory text and (b)(2), the phrase

‘‘together with a certification’’, and by

adding in lieu thereof the word

‘‘provided’’;

c. Removing, in the concluding text of

paragraph (b)(1), the phrase ‘‘shall be

deemed to comply with the

requirements of this section’’, and by

adding in lieu thereof the phrase’’, if

adopted without change, and filed

within 30 days after adoption, are

effective upon adoption’’;

d. Amending the heading of

paragraph (b)(2) by removing the word

‘‘Notice’’, and by adding in lieu thereof

the word ‘‘Filing’’; and

e. Adding paragraph (d).

The additions and revisions read as

follows:

§ 552.5 Bylaws.

(a) * * * Bylaws may be adopted,

amended or repealed by either a

majority of the votes cast by the

shareholders at a legal meeting or a

majority of the board of directors. * * *

* * * * *

(d) Effect of subsequent charter or

bylaw change. Notwithstanding any

subsequent change to its charter or

bylaws, the authority of a Federal stock

association to engage in any transaction

shall be determined only by the

association’s charter or bylaws then in

effect, unless otherwise provided by

Federal law or regulation.

19. Section 552.6 is amended by:

a. Removing in paragraph (a) the

number ‘‘120’’, and by adding in lieu

thereof the number ‘‘150’’, and by

adding the phrase ‘‘, or at any other

convenient place the board of directors

may designate’’ at the end of the

paragraph;

b. Adding a sentence at the end of

paragraph (b);

c. Revising paragraph (d)(1);

d. Adding a sentence at the end of

paragraph (e);

e. Adding two sentences after the first

sentence in paragraph (f)(1);

f. Adding paragraph (f)(4); and

g. Adding paragraph (h).

The additions and revisions read as

follows:

§ 552.6 Shareholders.

* * * * *

(b) * * * Notwithstanding anything

in this section, however, a Federal stock

association that is wholly owned shall

not be subject to the stockholder notice

requirement.

* * * * *

(d) Voting lists. (1) At least 20 days

before each meeting of the shareholders,

the officer or agent having charge of the

stock transfer books for the shares of the

association shall make a complete list of

the stockholders of record entitled to

vote at such meeting, or any

adjournments thereof, including the

names of beneficial owners furnished to

the association pursuant to the rules of

the Securities Exchange Commission,

arranged in alphabetical order, with the

address and the number of shares held

by each. This list of shareholders shall

be kept on file at the home office of the

association and shall be subject to

inspection by any stockholder of record

or the stockholder’s agent during the

entire time of the meeting. The original

stock transfer book shall constitute

prima facie evidence of the shareholders

entitled to examine such list or transfer

books or to vote at any meeting of

shareholders. Notwithstanding anything

in this section, however, a Federal stock

association that is wholly owned shall

not be subject to the voting list

requirements.

* * * * *

(e) * * * If a quorum is present, the

affirmative vote of the majority of the

shares represented at the meeting and

entitled to vote on the subject matter

shall be the act of the stockholders,

unless the vote of a greater number of

stockholders voting together or voting

by classes is required by law or the

charter.

(f) Shareholder voting (1) * * *

Proxies may be given telephonically or

electronically as long as the holder uses

a procedure for verifying the identity of

the stockholder. Notwithstanding part

569 of this chapter, a proxy may

designate as holder a corporation,

partnership, company as defined in part

574 of this chapter, or other person.

* * *

* * * * *

(4) Shares held by others. Shares held

by an administrator, executor, guardian,

conservator or receiver may be voted in

person or by proxy by such person.

Stock standing in the name of a trustee

may be voted by such trustee either in

person or by proxy, but only in

accordance with the terms of the trust

agreement.

* * * * *

(h) Informal action by stockholders. If

the bylaws of the association so provide,

any action required to be taken at a

meeting of the stockholders, or any

other action that may be taken at a

meeting of the stockholders, may be

taken without a meeting if consent in

writing has been given by all the

stockholders entitled to vote with

respect to the subject matter.

20. Section 552.6–1 is amended by:

a. Adding a sentence at the end of

paragraph (a);

b. Revising paragraph (b);

c. Adding a sentence at the end of

paragraph (c);

d. Adding the word ‘‘only’’ in

paragraph (e) between the words

‘‘serve’’ and ‘‘until’’ in the second

sentence;

e. Revising the heading of paragraph

(f), adding the word ‘‘only’’ between the

words ‘‘removed’’ and ‘‘for’’ and the

words ‘‘as defined in § 563.39 of this

chapter,’’ after the word ‘‘cause’’ in the

first sentence of paragraph (f)(1), and

adding a sentence at the end of

paragraph (f)(1); and

f. Adding a sentence at the end of

paragraph (k).

The additions and revisions read as

follows:

§ 552.6–1 Board of directors.

(a) * * * Directors need not be

stockholders unless the bylaws so

require.

(b) Number and term. The bylaws

shall set forth a specific number of

directors, not a range. The number of

directors shall be not fewer than five nor

more than fifteen, unless a higher or

lower number has been authorized by

the Director of the Office or his or her

delegate. The directors shall be divided
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules 32727

into three classes as nearly equal in

number as possible. The members of

each class shall be elected for a term of

three years and until their successors

are elected and qualified. One class

shall be elected by ballot annually,

except in the case of a converting or

newly chartered association where all

directors shall be elected at the first

election of directors for terms which

shall be staggered in length from one to

three years. Notwithstanding anything

in this section, however, a Federal stock

association that is wholly owned shall

not be subject to the staggered board

requirement.

(c) * * * The board of directors shall

determine the place, frequency, time

and procedure for notice of such

meetings.

* * * * *

(f) Removal or resignation of directors.

(1) * * * Associations may provide for

procedures regarding resignations in the

bylaws.

* * * * *

(k) * * * [Bylaws on age limitations

must comply with all Federal laws, such

as the Age Discrimination in

Employment Act and the Employee

Retirement Income Security Act.]

21. Section 552.6–2 is amended by:

a. Adding in paragraph (a) the phrase

‘‘or comptroller’’ after the word

‘‘treasurer’’ in the first and fifth

sentences, and by removing the third

and fourth sentences; and

b. Adding a sentence at the end of

paragraph (c).

The additions read as follows:

§ 552.6–2 Officers.

* * * * *

(c) * * * [Bylaws on age limitations

must comply with all Federal laws, such

as the Age Discrimination in

Employment Act and the Employee

Retirement Income Security Act.]

§ 552.8 [Removed]

22. Section 552.8 is removed.

§ 552.11 [Amended]

23. Section 552.11 is amended by

adding the phrase ‘‘nonconfidential

portions of’’ in paragraph (b)

introductory text between the words

‘‘times,’’ and ‘‘its’’ in the first sentence.

ALTERNATIVE ONE

24. The Appendix to part 552 is

revised to read as follows:

Appendix to Part 552—Model Bylaws

for Stock Associations

The Federal stock bylaws may be found in

the Application Processing Regulatory

Handbook, available from any Regional

Office of OTS. (See § 516.1(b) of this chapter.)

Each Federal stock association’s bylaws,

including any amendments thereto,

constitutes conditions imposed in writing by

the agency in connection with the granting of

an application and a written agreement

entered into with the agency within the

meaning of 12 U.S.C. 1818(b).

ALTERNATIVE TWO

24a. The Appendix to Part 552 is

amended:

a. In Article II, Section 1, by removing

the phrase ‘‘place in the State in which

the principal place of business of the

association is located’’, and by adding in

lieu thereof the phrase ‘‘convenient

place’’;

b. In Article II, Section 2, by removing

the number ‘‘120’’ wherever it appears,

and by adding in lieu thereof the

number ‘‘150’’;

c. In Article II, Section 4, by adding

at the end of the first sentence the

phrase ‘‘or the board of directors adopts

another procedure for the conduct of

meetings’’;

d. In Article II, Section 5, by removing

the number ‘‘10’’ in the first sentence,

and by adding in lieu thereof the

number ‘‘20’’;

e. In Article II, Section 7, by removing

the word ‘‘shareholders’’ in the first

sentence and adding the phrase

‘‘stockholders of record’’ in lieu thereof,

adding at the end of the first sentence

the phrase ‘‘, including the names of

beneficial owners furnished pursuant to

the rules of the Securities and Exchange

Commission’’, removing in the second

and third sentences the words ‘‘any

shareholder’’ and adding in lieu thereof

the phrase ‘‘any stockholders of record

or the stockholder’s agent’’, and

removing in the fourth sentence the

phrase ‘‘shareholders entitled’’ and

adding in lieu thereof the phrase

‘‘stockholders of record entitled’’;

f. In Article II, Section 8, by adding a

sentence at the end;

g. In Article II, Section 9, by adding

a sentence after the first sentence;

h. In Article III, Section 3, by adding

two sentences at the end;

i. In Article III, Section 11, by adding

in the second sentence, the word ‘‘only’’

between the words ‘‘serve’’ and ‘‘until’’;

j. In Article III, Section 14, by adding

in the first sentence, the word ‘‘only’’

between the words ‘‘removed’’ and

‘‘for’’ and the words ‘‘as defined in the

regulations in § 563.39 of this chapter’’

after the word ‘‘cause’’;

k. In Article V, Section 1, by adding,

in first, and fifth sentences, the phrase

‘‘or comptroller’’ after the word

‘‘treasurer’’ each place it appears, and

removing the third and fourth

sentences; and

l. In Article XI, by adding a sentence

at the end.

The additions read as follows:

Appendix to Part 552—Model Bylaws

for Stock Associations

* * * * *

Article II—Shareholders

* * * * *

Section 8. Quorum. * * * If a quorum is

present, the affirmative vote of the majority

of the shares represented at the meeting and

entitled to vote on the subject matter shall be

the act of the stockholders, unless the vote

of a greater number of stockholders voting

together or voting by classes is required by

law or the charter.

Section 9. Proxies. * * * Proxies may be

given telephonically or electronically as long

as the holder uses a procedure for verifying

the identity of the stockholder. * * *

* * * * *

Article III—Board of Directors

* * * * *

Section 3. Regular Meetings. * * *

Directors may participate in a meeting by

means of a conference telephone or similar

communications device through which all

persons participating can hear each other at

the same time. Participation by such means

shall constitute presence in person for all

purposes.

* * * * *

Article XI—Amendments

* * * When an association fails to meet its

quorum requirement, solely due to vacancies

on the board, then the affirmative vote of a

majority of the sitting board will be required

to amend the bylaws.

PART 556—STATEMENTS OF POLICY

25. The authority citation for part 556

continues to read as follows:

Authority: 5 U.S.C. 552, 559; 12 U.S.C.

1464, 1701j-3; 15 U.S.C. 1693–1693r.

§§ 556.1, 556.17 [Removed]

26. Sections 556.1 and 556.17 are

removed.

PART 563—OPERATIONS

27. The authority citation for part 563

continues to read as follows:

Authority: 12 U.S.C. 375b, 1462, 1462a,

1463, 1464, 1467a, 1468, 1817, 1828, 3806;

42 U.S.C. 4106.

28. Section 563.74 is amended by

revising paragraph (d) to read as

follows:

§ 563.74 Mutual capital certificates.

* * * * *

(d) Charter amendment. No

application for approval of the issuance

of mutual capital certificates pursuant to

this section may be filed unless the

mutual association amends its charter to

authorize issuance, or as may otherwise

be required by applicable law.

* * * * *
32728 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Proposed Rules

PART 575—MUTUAL SAVINGS AND

LOAN HOLDING COMPANIES

29. The authority citation for part 575

continues to read as follows:

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

1464, 1467a, 1828, 2901.

ALTERNATIVE ONE

30. Section 575.9(a)(1) is revised to

read as follows:

§ 575.9 Charters and bylaws for mutual

holding companies and their savings

association subsidiaries.

(a) * * * (1) Charter. The Federal

mutual holding company charter may be

found in the Application Processing

Regulatory Handbook, available from

any Regional Office of OTS. (See

§ 516.1(b) of this chapter). Each Federal

mutual holding company’s charter,

including any amendments thereto,

constitutes conditions imposed in

writing by the agency in connection

with the granting of an application and

a written agreement entered into with

the agency within the meaning of 12

U.S.C. 1818(b).

* * * * *

ALTERNATIVE TWO

30a. Section 575.9 is amended by:

a. Removing, in Section 1 of the

Charter in paragraph (a)(1), the phrase

‘‘hereby chartered’’;

b. Removing, in Section 5 of the

Charter in paragraph (a)(1), the sixth,

seventh, and eighth sentences in the last

paragraph;

c. Removing, in Section 6 of the

Charter in paragraph (a)(1), the word

‘‘OTS’’ in the second sentence, and by

adding in lieu thereof the phrase ‘‘the

Director of the Office or his or her

delegate’’, and by removing the third,

fourth and fifth sentences;

d. Revising Section 8 of the Charter in

paragraph (a)(1);

e. Removing in paragraph (a)(2) the

phrase ‘‘references to ‘association’ in the

text of the mutual capital certificate

charter provision in § 544.2(b)(4) shall

be replaced with references to the

‘Mutual Company’,’’ and

f. Removing the number ‘‘545.131’’ in

paragraph (a)(5), and by adding in lieu

thereof the number ‘‘544.8’’.

The revisions read as follows:

§ 575.9 Charters and bylaws for mutual

holding companies and their savings

association subsidiaries.

(a) Charters and bylaws for mutual

holding companies—(1) Charters. * * *

CHARTER

* * * * *

Section 8. Amendment. Adoption of any

preapproved charter amendment shall be

effective after such preapproved amendment

has been approved by the members at a legal

meeting. Any other amendment, addition,

change, or repeal of this charter must be

approved by the Office prior to approval by

the members at a legal meeting. Any

amendment, addition, alteration, change, or

repeal so acted upon and approved shall be

effective upon filing with the Office in

accordance with regulatory procedures.

Attest: lllllllllllllllll

Secretary of the Association

By: lllllllllllllllllll

President or Chief Executive Officer of the

Association

Attest: lllllllllllllllll

Secretary of the Office of Thrift Supervision

By: lllllllllllllllllll

Director of the Office of Thrift Supervision

Effective Date: llllllllllllll

* * * * *

Dated: May 31, 1996.

By the Office of Thrift Supervision.

Jonathan L. Fiechter,

Acting Director.

[FR Doc. 96–14441 Filed 6–24–96; 8:45 am]

BILLING CODE 6720–01–P

Internal Revenue Service

26 CFR Part 1

[FI–59–94]

RIN 1545–AT08

Modifications of Bad Debts and Dealer

Assignments of Notional Principal

Contracts

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

by cross-reference to temporary

regulations.

SUMMARY: In the Rules and Regulations

section of this issue of the Federal

Register, the IRS is issuing temporary

regulations relating to the allowance of

a deduction for a partially worthless

debt when the terms of a debt

instrument have been modified. The

temporary regulations provide relief to

certain taxpayers that are required to

recognize gain as the result of modifying

a debt instrument, when a portion of the

gain is in part caused by a reduction of

the debt’s basis attributable to a bad

debt deduction claimed in a prior

taxable year. The temporary regulations

provide guidance to taxpayers that

modify the terms of a debt instrument

after deducting an amount for partial

worthlessness.

In the Rules and Regulations section

of this issue of the Federal Register, the

IRS is also issuing temporary

regulations relating to certain

assignments of notional principal

contracts by dealers in those contracts.

The temporary regulations provide

guidance to taxpayers relating to

consequences of these assignments.

The text of those temporary

regulations also serves as the text of

these proposed regulations.

DATES: Written comments and requests

for a public hearing must be received by

September 23, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (FI–59–94), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:R (FI–59–94),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW.,

Washington, D.C.

FOR FURTHER INFORMATION CONTACT:

Craig R. Wojay, Office of Assistant Chief

Counsel, Financial Institutions and

Products, (202) 622–3920 (not a toll-free

number) concerning the modifications

of bad debts, and Thomas J. Kelly,

Office of Assistant Chief Counsel,

Financial Institutions and Products,

(202) 622–3940 (not a toll-free number)

concerning dealer assignments of

notional principal contracts.

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in the Rules

and Regulations section of this issue of

the Federal Register amend the Income

Tax Regulations (26 CFR part 1) relating

to section 166. The temporary

regulations contain rules relating to the

requirement that a debt be charged off

before a deduction on account of partial

worthlessness is allowed. The rules

apply to certain taxpayers who are

required to recognize gain as the result

of a significant modification of a debt

instrument.

Temporary regulations in the Rules

and Regulations section of this issue of

the Federal Register amend the Income

Tax Regulations (26 CFR part 1) relating

to section 1001. The temporary

regulations contain rules relating to

certain assignments of notional

principal contracts by dealers in those

contracts.

The text of those temporary

regulations also serves as the text of

these proposed regulations. The

preamble to the temporary regulations

explains the temporary regulations.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It also has