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
47969
Vol. 62, No. 177
Friday, September 12, 1997
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 337 and 362
RIN 3064–AC12
Activities of Insured State Banks and
Insured Savings Associations
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: As part of the FDIC’s
systematic review of its regulations and
written policies under section 303(a) of
the Riegle Community Development and
Regulatory Improvement Act of 1994
(CDRI), the FDIC is seeking public
comment on its proposal to revise and
consolidate its rules and regulations
governing activities and investments of
insured state banks and insured savings
associations. The FDIC proposes to
combine its regulations governing the
activities and investments of insured
state banks with those governing
insured savings associations. In
addition, the proposal updates the
FDIC’s regulations governing the safety
and soundness of securities activities of
subsidiaries and affiliates of insured
state nonmember banks. The FDIC’s
proposal modernizes this group of
regulations and harmonizes the
provisions governing activities that are
not permissible for national banks with
those governing the securities activities
of state nonmember banks. The
proposed regulation will make a number
of substantive changes and will revise
the regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, conforming
the treatment of state banks and savings
associations to the extent possible given
the underlying statutory and regulatory
scheme governing the different charters.
The proposal establishes a number of
new exceptions and will allow
institutions to conduct certain activities
after providing the FDIC with notice
rather than filing an application. The
proposal also will revise these
regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, removing a
number of the current restrictions on
those activities and conforming the
disclosures required under the current
regulation to an existing interagency
statement concerning the retail sales of
nondeposit investment products.
DATES: Comments must be received by
December 11, 1997.
ADDRESSES: Send written comments to
Robert E. Feldman, Executive Secretary,
Attention: Comments/OES, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429.
Comments may be hand delivered to the
guard station at the rear of the 17th
Street Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m. (Fax number (202) 898–3838;
Internet Address: comments@fdic.gov).
Comments may be inspected and
photocopied in the FDIC Public
Information Center, Room 100, 801 17th
Street, N.W. Washington, D.C. 20429,
between 9:00 a.m. and 4:30 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
Curtis Vaughn, Examination Specialist,
(202/898–6759) or John Jilovec,
Examination Specialist, (202/898–8958)
Division of Supervision; Linda L.
Stamp, Counsel, (202/ 898–7310) or
Jamey Basham, Counsel, (202/ 898–
7265), Legal Division, FDIC, 550 17th
Street, N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Background
Section 303 of the Riegle Community
Development and Regulatory
Improvement Act of 1994 (RCDRIA)
requires that the FDIC review its
regulations for the purpose of
streamlining those regulations, reducing
any unnecessary costs and eliminating
unwarranted constraints on credit
availability while faithfully
implementing statutory requirements.
Pursuant to that statutory direction the
FDIC has reviewed part 362 ‘‘Activities
and Investments of Insured State
Banks,’’ § 303.13 ‘‘Applications and
Notices by Savings Associations,’’ and
§ 337.4 ‘‘Securities Activities of
Subsidiaries of Insured State Banks:
Bank Transactions with Affiliated
Securities Companies’ and proposes to
make a number of changes to those
regulations. The proposal is described
in more detail below. In brief, however,
the proposal would restructure existing
part 362, placing the substance of the
text of the current regulation into new
subpart A. Subpart A would address the
Activities of Insured State Banks which
implements section 24 of the Federal
Deposit Insurance Act (FDI Act). 12
U.S.C. 1831a. Section 24 restricts and
prohibits insured state banks and their
subsidiaries from engaging in activities
and investments of a type that are not
permissible for national banks and their
subsidiaries. In addition, the proposal
would move the FDIC’s regulations
governing the securities activities of
subsidiaries of insured state nonmember
banks (currently at 12 CFR 337.4) into
subpart A of part 362 and revise those
regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, removing a
number of the obsolete current
restrictions on those activities, and
removing the disclosures required under
the current regulation to conform the
required disclosures to the Interagency
Statement on the Retail Sale of
Nondeposit Investment Products
(Interagency Statement).
Safety and Soundness Rules
Governing Insured State Nonmember
Banks would be set out in new subpart
B. Subpart B would establish modern
standards for insured state nonmember
banks to conduct real estate investment
activities through a subsidiary and for
those insured state nonmember banks
that are not affiliated with a bank
holding company (nonbank banks) to
conduct securities activities in an
affiliated organization. The existing
restrictions on these securities activities
are found in § 337.4 of this chapter.
Existing § 303.13 of this chapter
which relates to activities of state
savings associations and filings by all
savings associations would be revised in
a number of ways and primarily placed
in new subpart C of part 362.
Procedures to be used by all savings
associations when Acquiring,
Establishing, or Conducting New
Activities through a Subsidiary would
be placed in new subpart D. Subpart E
would contain the revised provisions
concerning application and notice
procedures as well as delegations for
insured state banks. Subpart F would
contain the revised provisions
concerning application and notice
procedures as well as delegations for
insured savings associations.
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
47969
Vol. 62, No. 177
Friday, September 12, 1997
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 337 and 362
RIN 3064–AC12
Activities of Insured State Banks and
Insured Savings Associations
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: As part of the FDIC’s
systematic review of its regulations and
written policies under section 303(a) of
the Riegle Community Development and
Regulatory Improvement Act of 1994
(CDRI), the FDIC is seeking public
comment on its proposal to revise and
consolidate its rules and regulations
governing activities and investments of
insured state banks and insured savings
associations. The FDIC proposes to
combine its regulations governing the
activities and investments of insured
state banks with those governing
insured savings associations. In
addition, the proposal updates the
FDIC’s regulations governing the safety
and soundness of securities activities of
subsidiaries and affiliates of insured
state nonmember banks. The FDIC’s
proposal modernizes this group of
regulations and harmonizes the
provisions governing activities that are
not permissible for national banks with
those governing the securities activities
of state nonmember banks. The
proposed regulation will make a number
of substantive changes and will revise
the regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, conforming
the treatment of state banks and savings
associations to the extent possible given
the underlying statutory and regulatory
scheme governing the different charters.
The proposal establishes a number of
new exceptions and will allow
institutions to conduct certain activities
after providing the FDIC with notice
rather than filing an application. The
proposal also will revise these
regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, removing a
number of the current restrictions on
those activities and conforming the
disclosures required under the current
regulation to an existing interagency
statement concerning the retail sales of
nondeposit investment products.
DATES: Comments must be received by
December 11, 1997.
ADDRESSES: Send written comments to
Robert E. Feldman, Executive Secretary,
Attention: Comments/OES, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429.
Comments may be hand delivered to the
guard station at the rear of the 17th
Street Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m. (Fax number (202) 898–3838;
Internet Address: comments@fdic.gov).
Comments may be inspected and
photocopied in the FDIC Public
Information Center, Room 100, 801 17th
Street, N.W. Washington, D.C. 20429,
between 9:00 a.m. and 4:30 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
Curtis Vaughn, Examination Specialist,
(202/898–6759) or John Jilovec,
Examination Specialist, (202/898–8958)
Division of Supervision; Linda L.
Stamp, Counsel, (202/ 898–7310) or
Jamey Basham, Counsel, (202/ 898–
7265), Legal Division, FDIC, 550 17th
Street, N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Background
Section 303 of the Riegle Community
Development and Regulatory
Improvement Act of 1994 (RCDRIA)
requires that the FDIC review its
regulations for the purpose of
streamlining those regulations, reducing
any unnecessary costs and eliminating
unwarranted constraints on credit
availability while faithfully
implementing statutory requirements.
Pursuant to that statutory direction the
FDIC has reviewed part 362 ‘‘Activities
and Investments of Insured State
Banks,’’ § 303.13 ‘‘Applications and
Notices by Savings Associations,’’ and
§ 337.4 ‘‘Securities Activities of
Subsidiaries of Insured State Banks:
Bank Transactions with Affiliated
Securities Companies’ and proposes to
make a number of changes to those
regulations. The proposal is described
in more detail below. In brief, however,
the proposal would restructure existing
part 362, placing the substance of the
text of the current regulation into new
subpart A. Subpart A would address the
Activities of Insured State Banks which
implements section 24 of the Federal
Deposit Insurance Act (FDI Act). 12
U.S.C. 1831a. Section 24 restricts and
prohibits insured state banks and their
subsidiaries from engaging in activities
and investments of a type that are not
permissible for national banks and their
subsidiaries. In addition, the proposal
would move the FDIC’s regulations
governing the securities activities of
subsidiaries of insured state nonmember
banks (currently at 12 CFR 337.4) into
subpart A of part 362 and revise those
regulations by deleting obsolete
provisions, rewriting the regulatory text
to make it more readable, removing a
number of the obsolete current
restrictions on those activities, and
removing the disclosures required under
the current regulation to conform the
required disclosures to the Interagency
Statement on the Retail Sale of
Nondeposit Investment Products
(Interagency Statement).
Safety and Soundness Rules
Governing Insured State Nonmember
Banks would be set out in new subpart
B. Subpart B would establish modern
standards for insured state nonmember
banks to conduct real estate investment
activities through a subsidiary and for
those insured state nonmember banks
that are not affiliated with a bank
holding company (nonbank banks) to
conduct securities activities in an
affiliated organization. The existing
restrictions on these securities activities
are found in § 337.4 of this chapter.
Existing § 303.13 of this chapter
which relates to activities of state
savings associations and filings by all
savings associations would be revised in
a number of ways and primarily placed
in new subpart C of part 362.
Procedures to be used by all savings
associations when Acquiring,
Establishing, or Conducting New
Activities through a Subsidiary would
be placed in new subpart D. Subpart E
would contain the revised provisions
concerning application and notice
procedures as well as delegations for
insured state banks. Subpart F would
contain the revised provisions
concerning application and notice
procedures as well as delegations for
insured savings associations.
47970 Federal Register / Vol. 62, No. 177 / Friday, September 12, 1997 / Proposed Rules
In addition, the FDIC is processing a
complete revision of part 303 of the
FDIC’s rules and regulations. Part 303
contains the FDIC’s applications
procedures and delegations of authority.
As a part of that process and for ease of
reference, the FDIC is proposing to
remove the applications procedures
relating to activities and investments of
insured state banks from part 362 and
place them in subpart G of part 303. The
procedures applicable to insured
savings associations will be
consolidated in subpart H of part 303.
We anticipate that the proposed changes
to part 303 will be published for
comment within 90 days of today’s
publication. At that time, subparts G
and H of part 303 will be designated as
the place where the text of subparts E
and F of this proposed rule eventually
will be located.
Part 362 of the FDIC’s regulations
implements the provisions of section 24
of the FDI Act (12 U.S.C. 1831a). Section
24 was added to the FDI Act by the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA).
With certain exceptions, section 24
limits the direct equity investments of
state chartered insured banks to equity
investments of a type permissible for
national banks. In addition, section 24
prohibits an insured state bank from
directly, or indirectly through a
subsidiary, engaging as principal in any
activity that is not permissible for a
national bank unless the bank meets its
capital requirements and the FDIC
determines that the activity will not
pose a significant risk to the appropriate
deposit insurance fund. The FDIC may
make such determinations by regulation
or order. The statute requires
institutions that held equity investments
not conforming to the new requirements
to divest no later than December 19,
1996. The statute also requires that
banks file certain notices with the FDIC
concerning grandfathered investments.
Part 362 was adopted in two stages.
The provisions of the current regulation
concerning equity investments appeared
in the Federal Register on November 9,
1992, at 57 FR 53234. The provisions of
the current regulation concerning
activities of insured state banks and
their majority-owned subsidiaries
appeared in the Federal Register on
December 8, 1993, at 58 FR 64455.
Section 303.13 of the FDIC’s
regulations (12 CFR 303.13) implements
sections 28 and 18(m) of the FDI Act.
Both sections were added to the FDI Act
by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(FIRREA). While section 28 of the FDI
Act and section 24 of the FDI Act are
similar, there are a number of
fundamental differences in the two
provisions which caused the
implementing regulations to differ in
some respects.
Section 18(m) of the FDI Act (12
U.S.C. 1828(m)) requires state and
federal savings associations to provide
the FDIC with notice 30 days before
establishing or acquiring a subsidiary or
engaging in any new activity through a
subsidiary. Section 28 (12 U.S.C. 1831e)
governs the activities and equity
investments of state savings associations
and provides that no state savings
association may engage as principal in
any activity of a type or in an amount
that is impermissible for a federal
savings association unless the FDIC
determines that the activity will not
pose a significant risk to the affected
deposit insurance fund and the savings
association is in compliance with the
fully phased-in capital requirements
prescribed under section 5(t) of the
Home Owners’ Loan Act (HOLA, 12
U.S.C. 1464(t)). Except for its
investment in service corporations, a
state savings association is prohibited
from acquiring or retaining any equity
investment that is not permissible for a
federal savings association. A state
savings association may acquire or
retain an investment in a service
corporation of a type or in an amount
not permissible for a federal savings
association if the FDIC determines that
neither the amount invested in the
service corporation nor the activities of
the service corporation pose a
significant risk to the affected deposit
insurance fund and the savings
association continues to meet the fully
phased-in capital requirements. A
savings association was required to
divest itself of prohibited equity
investments no later than July 1, 1994.
Section 28 also prohibits state and
federal savings associations from
acquiring any corporate debt security
that is not of investment grade
(commonly known as ‘‘junk bonds’’).
Section 303.13 of the FDIC’s
regulations was adopted as an interim
final rule on December 29, 1989 (54 FR
53548). The FDIC revised the rule after
reviewing the comments and the
regulation as adopted appeared in the
Federal Register on September 17, 1990
(55 FR 38042). The regulation
establishes application and notice
procedures governing requests by a state
savings association to directly, or
through a service corporation, engage in
activities that are not permissible for a
federal savings association; the intent of
a state savings association to engage in
permissible activities in an amount
exceeding that permissible for a federal
savings association; or the intent of a
state savings association to divest
corporate debt securities not of
investment grade. The regulation also
establishes procedures to give prior
notice for the establishment or
acquisition of a subsidiary or the
conduct of new activities through a
subsidiary.
Section 337.4 of the FDIC’s
regulations (12 CFR 337.4) governs
securities activities of subsidiaries of
insured state nonmember banks as well
as transactions between insured state
nonmember banks and their securities
subsidiaries and affiliates. The
regulation was adopted in 1984 (49 FR
46723) and is designed to promote the
safety and soundness of insured state
nonmember banks that have
subsidiaries which engage in securities
activities that are impermissible for
national banks under section 16 of the
Banking Act of 1933 (12 U.S.C. section
24 seventh), commonly known as the
Glass-Steagall Act. It requires that these
subsidiaries qualify as bona fide
subsidiaries, establishes transaction
restrictions between a bank and its
subsidiaries or other affiliates that
engage in securities activities that are
prohibited for national banks, requires
that an insured state nonmember bank
give prior notice to the FDIC before
establishing or acquiring any securities
subsidiary, requires that disclosures be
provided to securities customers in
certain instances, and requires that a
bank’s investment in a securities
subsidiary engaging in activities that are
impermissible for a national bank be
deducted from the bank’s capital.
On August 23, 1996, the FDIC
published a notice of proposed
rulemaking (61 FR 43486, August 23,
1996) (August proposed rule) to amend
part 362. Under the proposed rule a
notice procedure would have replaced
the application currently required in the
case of real estate investment, life
insurance and annuity investment
activities provided certain conditions
and restrictions were met. The proposed
rule set forth notice processing
procedures for real estate, life insurance
policies and annuity contract
investments for well-capitalized, well-
managed insured state banks. Under the
proposal, all real estate activities would
be required to be conducted in a
majority-owned subsidiary, while life
insurance policies and annuity contracts
could be held directly or through a
majority-owned subsidiary. Notices
would have been filed with the
appropriate FDIC regional office. The
FDIC regional office would have had 60
days to process a notice under the
proposal, with a possible extension of
30 days. If the FDIC did not object to the
In addition, the FDIC is processing a
complete revision of part 303 of the
FDIC’s rules and regulations. Part 303
contains the FDIC’s applications
procedures and delegations of authority.
As a part of that process and for ease of
reference, the FDIC is proposing to
remove the applications procedures
relating to activities and investments of
insured state banks from part 362 and
place them in subpart G of part 303. The
procedures applicable to insured
savings associations will be
consolidated in subpart H of part 303.
We anticipate that the proposed changes
to part 303 will be published for
comment within 90 days of today’s
publication. At that time, subparts G
and H of part 303 will be designated as
the place where the text of subparts E
and F of this proposed rule eventually
will be located.
Part 362 of the FDIC’s regulations
implements the provisions of section 24
of the FDI Act (12 U.S.C. 1831a). Section
24 was added to the FDI Act by the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA).
With certain exceptions, section 24
limits the direct equity investments of
state chartered insured banks to equity
investments of a type permissible for
national banks. In addition, section 24
prohibits an insured state bank from
directly, or indirectly through a
subsidiary, engaging as principal in any
activity that is not permissible for a
national bank unless the bank meets its
capital requirements and the FDIC
determines that the activity will not
pose a significant risk to the appropriate
deposit insurance fund. The FDIC may
make such determinations by regulation
or order. The statute requires
institutions that held equity investments
not conforming to the new requirements
to divest no later than December 19,
1996. The statute also requires that
banks file certain notices with the FDIC
concerning grandfathered investments.
Part 362 was adopted in two stages.
The provisions of the current regulation
concerning equity investments appeared
in the Federal Register on November 9,
1992, at 57 FR 53234. The provisions of
the current regulation concerning
activities of insured state banks and
their majority-owned subsidiaries
appeared in the Federal Register on
December 8, 1993, at 58 FR 64455.
Section 303.13 of the FDIC’s
regulations (12 CFR 303.13) implements
sections 28 and 18(m) of the FDI Act.
Both sections were added to the FDI Act
by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(FIRREA). While section 28 of the FDI
Act and section 24 of the FDI Act are
similar, there are a number of
fundamental differences in the two
provisions which caused the
implementing regulations to differ in
some respects.
Section 18(m) of the FDI Act (12
U.S.C. 1828(m)) requires state and
federal savings associations to provide
the FDIC with notice 30 days before
establishing or acquiring a subsidiary or
engaging in any new activity through a
subsidiary. Section 28 (12 U.S.C. 1831e)
governs the activities and equity
investments of state savings associations
and provides that no state savings
association may engage as principal in
any activity of a type or in an amount
that is impermissible for a federal
savings association unless the FDIC
determines that the activity will not
pose a significant risk to the affected
deposit insurance fund and the savings
association is in compliance with the
fully phased-in capital requirements
prescribed under section 5(t) of the
Home Owners’ Loan Act (HOLA, 12
U.S.C. 1464(t)). Except for its
investment in service corporations, a
state savings association is prohibited
from acquiring or retaining any equity
investment that is not permissible for a
federal savings association. A state
savings association may acquire or
retain an investment in a service
corporation of a type or in an amount
not permissible for a federal savings
association if the FDIC determines that
neither the amount invested in the
service corporation nor the activities of
the service corporation pose a
significant risk to the affected deposit
insurance fund and the savings
association continues to meet the fully
phased-in capital requirements. A
savings association was required to
divest itself of prohibited equity
investments no later than July 1, 1994.
Section 28 also prohibits state and
federal savings associations from
acquiring any corporate debt security
that is not of investment grade
(commonly known as ‘‘junk bonds’’).
Section 303.13 of the FDIC’s
regulations was adopted as an interim
final rule on December 29, 1989 (54 FR
53548). The FDIC revised the rule after
reviewing the comments and the
regulation as adopted appeared in the
Federal Register on September 17, 1990
(55 FR 38042). The regulation
establishes application and notice
procedures governing requests by a state
savings association to directly, or
through a service corporation, engage in
activities that are not permissible for a
federal savings association; the intent of
a state savings association to engage in
permissible activities in an amount
exceeding that permissible for a federal
savings association; or the intent of a
state savings association to divest
corporate debt securities not of
investment grade. The regulation also
establishes procedures to give prior
notice for the establishment or
acquisition of a subsidiary or the
conduct of new activities through a
subsidiary.
Section 337.4 of the FDIC’s
regulations (12 CFR 337.4) governs
securities activities of subsidiaries of
insured state nonmember banks as well
as transactions between insured state
nonmember banks and their securities
subsidiaries and affiliates. The
regulation was adopted in 1984 (49 FR
46723) and is designed to promote the
safety and soundness of insured state
nonmember banks that have
subsidiaries which engage in securities
activities that are impermissible for
national banks under section 16 of the
Banking Act of 1933 (12 U.S.C. section
24 seventh), commonly known as the
Glass-Steagall Act. It requires that these
subsidiaries qualify as bona fide
subsidiaries, establishes transaction
restrictions between a bank and its
subsidiaries or other affiliates that
engage in securities activities that are
prohibited for national banks, requires
that an insured state nonmember bank
give prior notice to the FDIC before
establishing or acquiring any securities
subsidiary, requires that disclosures be
provided to securities customers in
certain instances, and requires that a
bank’s investment in a securities
subsidiary engaging in activities that are
impermissible for a national bank be
deducted from the bank’s capital.
On August 23, 1996, the FDIC
published a notice of proposed
rulemaking (61 FR 43486, August 23,
1996) (August proposed rule) to amend
part 362. Under the proposed rule a
notice procedure would have replaced
the application currently required in the
case of real estate investment, life
insurance and annuity investment
activities provided certain conditions
and restrictions were met. The proposed
rule set forth notice processing
procedures for real estate, life insurance
policies and annuity contract
investments for well-capitalized, well-
managed insured state banks. Under the
proposal, all real estate activities would
be required to be conducted in a
majority-owned subsidiary, while life
insurance policies and annuity contracts
could be held directly or through a
majority-owned subsidiary. Notices
would have been filed with the
appropriate FDIC regional office. The
FDIC regional office would have had 60
days to process a notice under the
proposal, with a possible extension of
30 days. If the FDIC did not object to the