35674 Federal Register / Vol. 60, No. 131 / Monday, July 10, 1995 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. 95–15]
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 263
[Docket No. R–0766]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 308 and 364
RIN 3064–AB13
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 570
[No. 95–113]
RIN 1550–AA54
Standards for Safety and Soundness
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Final rule.
SUMMARY: As required by section 132 of
the Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA), the Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board of Governors), the
Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift
Supervision (OTS) (collectively, the
agencies) have adopted a final rule
establishing deadlines for submission
and review of safety and soundness
compliance plans. The agencies may
require compliance plans to be filed by
an insured depository institution for
failure to meet the safety and soundness
standards prescribed by guideline
pursuant to section 39 of the Federal
Deposit Insurance Act (FDI Act). In
conjunction with this final rule, the
agencies have adopted Interagency
Guidelines Establishing Standards for
Safety and Soundness (Guidelines). The
Guidelines will appear as an appendix
to each of the agencies’ final rule. The
agencies view the final rule and
Guidelines as a realistic balance
between the objectives of section 132 of
FDICIA and avoiding overly
burdensome regulation.
In November 1993, the agencies
published in the Federal Register a joint
notice of proposed rulemaking
prescribing standards for safety and
soundness, including standards for asset
quality and earnings. The agencies are
proposing revised asset quality and
earnings standards. A document
requesting comment on these standards
is published elsewhere in this separate
part of the Federal Register. The
agencies intend to add asset quality and
earnings standards to the Guidelines
after public comments are considered
and final standards are adopted.
EFFECTIVE DATE: August 9, 1995.
FOR FURTHER INFORMATION CONTACT:
OCC: Emily R. McNaughton, National
Bank Examiner (202/874–5170), Office
of the Chief National Bank Examiner;
David Thede, Senior Attorney (202/874–
5210), Securities and Corporate
Practices Division, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board of Governors: David Wright,
Supervisory Financial Analyst (202/
728–5854), Division of Banking
Supervision and Regulation; Scott G.
Alvarez, Associate General Counsel
(202/452–3583), Gregory A. Baer,
Managing Senior Counsel (202/452–
3236), Legal Division, Board of
Governors of the Federal Reserve
System. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202/452–
3544), Board of Governors of the Federal
Reserve System, 20th and C Streets
NW., Washington, DC 20551.
FDIC: Robert W. Walsh, Manager,
Planning and Program Development
(202/898–6911) or Michael D. Jenkins,
Examination Specialist (202/898–6896),
Division of Supervision; Lisa M.
Stanley, Senior Counsel (202/898–7494)
or Nancy L. Alper, Counsel (202/898–
3720), Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429.
OTS: William Magrini, Project
Manager (202/906–5744), Policy Office,
Cathern Smith, Regional Coordinator
(202/906–6614), Regional Operations;
Kevin Corcoran, Assistant Chief Counsel
(202/906–6962), Teri M. Valocchi,
Counsel (Banking and Finance) (202/
906–7299), Chief Counsel’s Office,
Office of Thrift Supervision, 1700 G
Street NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Framework
Section 132 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA), Pub. L. 102–242,
added a new section 39 to the FDI Act
(12 U.S.C. 1831p–1) which required
each Federal banking agency to
establish by regulation certain safety
and soundness standards for the insured
depository institutions and depository
institution holding companies for which
it was the primary Federal regulator.
That portion of section 39 that addresses
compensation was subsequently
amended by section 956 of the Housing
and Community Development Act of
1992, Pub. L. 102–550.
On September 23, 1994, the Riegle
Community Development and
Regulatory Improvement Act of 1994
(CDRI Act), Pub. L. 103–325, was
enacted. Section 318 of the CDRI Act
further amended section 39 of the FDI
Act: (1) To authorize the agencies to
establish safety and soundness
standards by regulation or by guideline
for all insured depository institutions;
(2) to give the agencies greater flexibility
in prescribing asset quality and earnings
standards; and (3) to eliminate the
requirement that standards prescribed
under section 39 apply to depository
institution holding companies. Pursuant
to section 318 of the CDRI Act, these
amendments have the same effective
date as section 39 of the FDI Act, as
provided in section 132(c) of FDICIA.
Section 39(a) requires the agencies to
establish operational and managerial
standards relating to: (1) Internal
controls, information systems and
internal audit systems, in accordance
with section 36 of the FDI Act (12 U.S.C.
1831m); (2) loan documentation; (3)
credit underwriting; (4) interest rate
exposure; (5) asset growth; and (6)
compensation, fees, and benefits, in
accordance with subsection (c) of
section 39 of the FDI Act. Section 39(b)
requires the agencies to establish
standards relating to asset quality,
earnings, and stock valuation that the
agencies determine to be appropriate.
Section 39(c) requires the agencies to
establish standards prohibiting as an
unsafe and unsound practice any
compensatory arrangement that would
provide an executive officer, employee,
director, or principal shareholder of the
institution with excessive
compensation, fees or benefits and any
compensatory arrangement that could
lead to material financial loss to an
institution. Section 39(c) also requires
that the agencies establish standards
that specify when compensation is
excessive. If an agency determines that
an institution fails to meet any standard
established by regulation under
subsection (a) or (b) of section 39, the
institution must submit to the agency an
acceptable plan to achieve compliance
with the standard. Under the CDRI Act
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. 95–15]
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 263
[Docket No. R–0766]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 308 and 364
RIN 3064–AB13
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 570
[No. 95–113]
RIN 1550–AA54
Standards for Safety and Soundness
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Final rule.
SUMMARY: As required by section 132 of
the Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA), the Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board of Governors), the
Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift
Supervision (OTS) (collectively, the
agencies) have adopted a final rule
establishing deadlines for submission
and review of safety and soundness
compliance plans. The agencies may
require compliance plans to be filed by
an insured depository institution for
failure to meet the safety and soundness
standards prescribed by guideline
pursuant to section 39 of the Federal
Deposit Insurance Act (FDI Act). In
conjunction with this final rule, the
agencies have adopted Interagency
Guidelines Establishing Standards for
Safety and Soundness (Guidelines). The
Guidelines will appear as an appendix
to each of the agencies’ final rule. The
agencies view the final rule and
Guidelines as a realistic balance
between the objectives of section 132 of
FDICIA and avoiding overly
burdensome regulation.
In November 1993, the agencies
published in the Federal Register a joint
notice of proposed rulemaking
prescribing standards for safety and
soundness, including standards for asset
quality and earnings. The agencies are
proposing revised asset quality and
earnings standards. A document
requesting comment on these standards
is published elsewhere in this separate
part of the Federal Register. The
agencies intend to add asset quality and
earnings standards to the Guidelines
after public comments are considered
and final standards are adopted.
EFFECTIVE DATE: August 9, 1995.
FOR FURTHER INFORMATION CONTACT:
OCC: Emily R. McNaughton, National
Bank Examiner (202/874–5170), Office
of the Chief National Bank Examiner;
David Thede, Senior Attorney (202/874–
5210), Securities and Corporate
Practices Division, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board of Governors: David Wright,
Supervisory Financial Analyst (202/
728–5854), Division of Banking
Supervision and Regulation; Scott G.
Alvarez, Associate General Counsel
(202/452–3583), Gregory A. Baer,
Managing Senior Counsel (202/452–
3236), Legal Division, Board of
Governors of the Federal Reserve
System. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202/452–
3544), Board of Governors of the Federal
Reserve System, 20th and C Streets
NW., Washington, DC 20551.
FDIC: Robert W. Walsh, Manager,
Planning and Program Development
(202/898–6911) or Michael D. Jenkins,
Examination Specialist (202/898–6896),
Division of Supervision; Lisa M.
Stanley, Senior Counsel (202/898–7494)
or Nancy L. Alper, Counsel (202/898–
3720), Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429.
OTS: William Magrini, Project
Manager (202/906–5744), Policy Office,
Cathern Smith, Regional Coordinator
(202/906–6614), Regional Operations;
Kevin Corcoran, Assistant Chief Counsel
(202/906–6962), Teri M. Valocchi,
Counsel (Banking and Finance) (202/
906–7299), Chief Counsel’s Office,
Office of Thrift Supervision, 1700 G
Street NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Framework
Section 132 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA), Pub. L. 102–242,
added a new section 39 to the FDI Act
(12 U.S.C. 1831p–1) which required
each Federal banking agency to
establish by regulation certain safety
and soundness standards for the insured
depository institutions and depository
institution holding companies for which
it was the primary Federal regulator.
That portion of section 39 that addresses
compensation was subsequently
amended by section 956 of the Housing
and Community Development Act of
1992, Pub. L. 102–550.
On September 23, 1994, the Riegle
Community Development and
Regulatory Improvement Act of 1994
(CDRI Act), Pub. L. 103–325, was
enacted. Section 318 of the CDRI Act
further amended section 39 of the FDI
Act: (1) To authorize the agencies to
establish safety and soundness
standards by regulation or by guideline
for all insured depository institutions;
(2) to give the agencies greater flexibility
in prescribing asset quality and earnings
standards; and (3) to eliminate the
requirement that standards prescribed
under section 39 apply to depository
institution holding companies. Pursuant
to section 318 of the CDRI Act, these
amendments have the same effective
date as section 39 of the FDI Act, as
provided in section 132(c) of FDICIA.
Section 39(a) requires the agencies to
establish operational and managerial
standards relating to: (1) Internal
controls, information systems and
internal audit systems, in accordance
with section 36 of the FDI Act (12 U.S.C.
1831m); (2) loan documentation; (3)
credit underwriting; (4) interest rate
exposure; (5) asset growth; and (6)
compensation, fees, and benefits, in
accordance with subsection (c) of
section 39 of the FDI Act. Section 39(b)
requires the agencies to establish
standards relating to asset quality,
earnings, and stock valuation that the
agencies determine to be appropriate.
Section 39(c) requires the agencies to
establish standards prohibiting as an
unsafe and unsound practice any
compensatory arrangement that would
provide an executive officer, employee,
director, or principal shareholder of the
institution with excessive
compensation, fees or benefits and any
compensatory arrangement that could
lead to material financial loss to an
institution. Section 39(c) also requires
that the agencies establish standards
that specify when compensation is
excessive. If an agency determines that
an institution fails to meet any standard
established by regulation under
subsection (a) or (b) of section 39, the
institution must submit to the agency an
acceptable plan to achieve compliance
with the standard. Under the CDRI Act
35675Federal Register / Vol. 60, No. 131 / Monday, July 10, 1995 / Rules and Regulations
amendment to section 39, if an agency
determines that an institution fails to
meet any standard established by
guideline under subsection (a) or (b) of
section 39, the agency may require the
institution to submit to the agency an
acceptable plan to achieve compliance
with the standard.
Where an agency requires submission
of a plan to achieve compliance with the
standards, if the institution fails to
submit an acceptable plan within the
time allowed by the agency or fails in
any material respect to implement an
accepted plan, the agency must, by
order, require the institution to correct
the deficiency. The agency may, and in
some cases must, take other supervisory
actions until the deficiency has been
corrected.
B. Agencies’ Proposals
On July 15, 1992, the agencies
published a joint advance notice of
proposed rulemaking (ANPR) in the
Federal Register, 57 FR 31336, for a 60-
day comment period. The agencies
received over 400 comment letters in
response to the ANPR, with some letters
submitted to more than one agency.
Commenters strongly recommended that
the agencies propose general rather than
specific standards in order to avoid
regulatory micromanagement.
On November 18, 1993, the agencies
published a joint notice of proposed
rulemaking in the Federal Register, 59
FR 60802, for a 45-day comment period.
Based on comments received in
response to the ANPR, the agencies
proposed general standards designed to
identify emerging safety and soundness
problems in depository institutions.
II. The Final Rule
Although section 39 of the FDI Act, as
amended by the CDRI Act, allows the
agencies to establish safety and
soundness standards by regulation or by
guideline, section 39(e) of the FDI Act
continues to require the agencies to
establish deadlines for submission and
review of compliance plans by
regulation. For this reason, although the
agencies have established safety and
soundness standards by guideline, the
agencies have established deadlines and
procedures for submission and review
of compliance plans by regulation.
The agencies’ final rule adopts the
procedures proposed for submission of
compliance plans and issuance of
orders, except that, under the final rule,
the agencies are authorized, rather than
required, to request a compliance plan
for failure to satisfy the safety and
soundness standards set out in the
Guidelines. The procedures for issuing
orders in the final rule are modelled
after those adopted by the agencies for
issuance of prompt corrective action
directives pursuant to section 38 of the
FDI Act.
The agencies expect that
noncompliance with the standards
adopted pursuant to section 39
generally will be detected during
examinations of institutions. Under the
final rule, an institution must file a
compliance plan within 30 days of a
request to do so from the institution’s
primary Federal regulator. An agency
may extend or shorten that time, if
necessary. The agency then generally
has 30 days to review the plan.
Several commenters requested an
extension, from 30 days to 60 days or
more, of the time period within which
an institution must file a compliance
plan after receiving a request from the
agency to do so. The agencies’ proposal
allowed the agencies to require that a
compliance plan be filed within 30 days
or within a time period specified by the
agencies. The agencies believe that this
provision provides sufficient flexibility
to extend the time period where
appropriate or necessary. Accordingly,
the agencies have decided not to extend
the time period within which an
institution must generally file a
compliance plan. Although section 39
does not provide for any prior notice or
administrative review of an agency
order, the agencies’ final rule provides
for prior notice of, and an opportunity
to respond to, a proposed order.
A few commenters requested that the
agencies extend from 14 to 60 days or
more the time period within which an
institution must respond to the agency’s
notice of intent to issue an order
requiring the institution to correct a
safety and soundness deficiency or to
take or refrain from taking other actions.
Under the agencies’ proposal, the
agencies could determine that a
different time period was appropriate in
light of the safety and soundness of the
institution or other relevant
considerations. The agencies have
decided to adopt the time period set
forth in the proposal because the
agencies believe that time period carries
out the purpose of section 39 to
facilitate early identification and
correction of safety and soundness
deficiencies.
A compliance plan may, with the
permission of the agency, be part of a
capital restoration plan submitted
pursuant to section 38 of the FDI Act
(prompt corrective action) (12 U.S.C.
1831p), a cease-and-desist order entered
into pursuant to section 8 of the FDI Act
(12 U.S.C. 1818), a formal or informal
agreement, or a response to a report of
examination.
In conjunction with this rulemaking,
the FDIC has amended part 303 of its
regulations regarding delegations of
authority to act on compliance plans
under section 39.
III. Interagency Guidelines Establishing
Standards for Safety and Soundness
The agencies have adopted
Interagency Guidelines Establishing
Standards for Safety and Soundness
(Guidelines) pursuant to section 39 of
the FDI Act. By adopting the standards
as guidelines, the agencies retain the
authority to require an institution to
submit an acceptable compliance plan
as well as the flexibility to pursue other
more appropriate or effective courses of
action given the specific circumstances
and severity of an institution’s
noncompliance with one or more
standards. Failure to submit or adhere to
a compliance plan will subject an
institution to the sanctions under
section 39.
The agencies expect to request a
compliance plan from an institution
whose failure to meet one or more of the
standards is of such severity that it
could threaten the safe and sound
operation of the institution. The
agencies may elect to rely on an existing
plan or enforcement action to ensure
that an institution achieves compliance
with the Guidelines, rather than
requiring the submission of a separate
safety and soundness compliance plan.
The Guidelines set out the safety and
soundness standards that the agencies
will use to identify and address
problems at institutions before capital
becomes impaired. The agencies believe
that the standards adopted in the
Guidelines serve this end without
dictating how institutions must be
managed and operated. Adoption of
these Guidelines is consistent with the
overwhelming majority of commenters’
recommendations that the standards
established under section 39 be general
and flexible in nature. The agencies
have decided to use the flexibility
provided by the CDRI Act to propose
new asset quality and earnings
standards which the agencies believe
are more appropriate. Therefore, the
agencies have not included these
standards in the final Guidelines, but
are seeking comment on these standards
elsewhere in this separate part of the
Federal Register. The agencies intend to
add revised asset quality and earnings
standards to the Guidelines after
comments are considered and final
standards are adopted.
A. Holding Company Coverage
Section 318 of the CDRI Act
eliminates the requirement that the
amendment to section 39, if an agency
determines that an institution fails to
meet any standard established by
guideline under subsection (a) or (b) of
section 39, the agency may require the
institution to submit to the agency an
acceptable plan to achieve compliance
with the standard.
Where an agency requires submission
of a plan to achieve compliance with the
standards, if the institution fails to
submit an acceptable plan within the
time allowed by the agency or fails in
any material respect to implement an
accepted plan, the agency must, by
order, require the institution to correct
the deficiency. The agency may, and in
some cases must, take other supervisory
actions until the deficiency has been
corrected.
B. Agencies’ Proposals
On July 15, 1992, the agencies
published a joint advance notice of
proposed rulemaking (ANPR) in the
Federal Register, 57 FR 31336, for a 60-
day comment period. The agencies
received over 400 comment letters in
response to the ANPR, with some letters
submitted to more than one agency.
Commenters strongly recommended that
the agencies propose general rather than
specific standards in order to avoid
regulatory micromanagement.
On November 18, 1993, the agencies
published a joint notice of proposed
rulemaking in the Federal Register, 59
FR 60802, for a 45-day comment period.
Based on comments received in
response to the ANPR, the agencies
proposed general standards designed to
identify emerging safety and soundness
problems in depository institutions.
II. The Final Rule
Although section 39 of the FDI Act, as
amended by the CDRI Act, allows the
agencies to establish safety and
soundness standards by regulation or by
guideline, section 39(e) of the FDI Act
continues to require the agencies to
establish deadlines for submission and
review of compliance plans by
regulation. For this reason, although the
agencies have established safety and
soundness standards by guideline, the
agencies have established deadlines and
procedures for submission and review
of compliance plans by regulation.
The agencies’ final rule adopts the
procedures proposed for submission of
compliance plans and issuance of
orders, except that, under the final rule,
the agencies are authorized, rather than
required, to request a compliance plan
for failure to satisfy the safety and
soundness standards set out in the
Guidelines. The procedures for issuing
orders in the final rule are modelled
after those adopted by the agencies for
issuance of prompt corrective action
directives pursuant to section 38 of the
FDI Act.
The agencies expect that
noncompliance with the standards
adopted pursuant to section 39
generally will be detected during
examinations of institutions. Under the
final rule, an institution must file a
compliance plan within 30 days of a
request to do so from the institution’s
primary Federal regulator. An agency
may extend or shorten that time, if
necessary. The agency then generally
has 30 days to review the plan.
Several commenters requested an
extension, from 30 days to 60 days or
more, of the time period within which
an institution must file a compliance
plan after receiving a request from the
agency to do so. The agencies’ proposal
allowed the agencies to require that a
compliance plan be filed within 30 days
or within a time period specified by the
agencies. The agencies believe that this
provision provides sufficient flexibility
to extend the time period where
appropriate or necessary. Accordingly,
the agencies have decided not to extend
the time period within which an
institution must generally file a
compliance plan. Although section 39
does not provide for any prior notice or
administrative review of an agency
order, the agencies’ final rule provides
for prior notice of, and an opportunity
to respond to, a proposed order.
A few commenters requested that the
agencies extend from 14 to 60 days or
more the time period within which an
institution must respond to the agency’s
notice of intent to issue an order
requiring the institution to correct a
safety and soundness deficiency or to
take or refrain from taking other actions.
Under the agencies’ proposal, the
agencies could determine that a
different time period was appropriate in
light of the safety and soundness of the
institution or other relevant
considerations. The agencies have
decided to adopt the time period set
forth in the proposal because the
agencies believe that time period carries
out the purpose of section 39 to
facilitate early identification and
correction of safety and soundness
deficiencies.
A compliance plan may, with the
permission of the agency, be part of a
capital restoration plan submitted
pursuant to section 38 of the FDI Act
(prompt corrective action) (12 U.S.C.
1831p), a cease-and-desist order entered
into pursuant to section 8 of the FDI Act
(12 U.S.C. 1818), a formal or informal
agreement, or a response to a report of
examination.
In conjunction with this rulemaking,
the FDIC has amended part 303 of its
regulations regarding delegations of
authority to act on compliance plans
under section 39.
III. Interagency Guidelines Establishing
Standards for Safety and Soundness
The agencies have adopted
Interagency Guidelines Establishing
Standards for Safety and Soundness
(Guidelines) pursuant to section 39 of
the FDI Act. By adopting the standards
as guidelines, the agencies retain the
authority to require an institution to
submit an acceptable compliance plan
as well as the flexibility to pursue other
more appropriate or effective courses of
action given the specific circumstances
and severity of an institution’s
noncompliance with one or more
standards. Failure to submit or adhere to
a compliance plan will subject an
institution to the sanctions under
section 39.
The agencies expect to request a
compliance plan from an institution
whose failure to meet one or more of the
standards is of such severity that it
could threaten the safe and sound
operation of the institution. The
agencies may elect to rely on an existing
plan or enforcement action to ensure
that an institution achieves compliance
with the Guidelines, rather than
requiring the submission of a separate
safety and soundness compliance plan.
The Guidelines set out the safety and
soundness standards that the agencies
will use to identify and address
problems at institutions before capital
becomes impaired. The agencies believe
that the standards adopted in the
Guidelines serve this end without
dictating how institutions must be
managed and operated. Adoption of
these Guidelines is consistent with the
overwhelming majority of commenters’
recommendations that the standards
established under section 39 be general
and flexible in nature. The agencies
have decided to use the flexibility
provided by the CDRI Act to propose
new asset quality and earnings
standards which the agencies believe
are more appropriate. Therefore, the
agencies have not included these
standards in the final Guidelines, but
are seeking comment on these standards
elsewhere in this separate part of the
Federal Register. The agencies intend to
add revised asset quality and earnings
standards to the Guidelines after
comments are considered and final
standards are adopted.
A. Holding Company Coverage
Section 318 of the CDRI Act
eliminates the requirement that the