[Federal Register Volume 60, Number 131 (Monday, July 10, 1995)]
[Rules and Regulations]
[Pages 35674-35687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16563]
[[Page 35673]]
_______________________________________________________________________
Part IV
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 30
Federal Reserve System
12 CFR Parts 208 and 263
Federal Deposit Insurance Corporation
12 CFR Parts 303, 308, and 364
Department of the Treasury
Office of Thrift Supervision
12 CFR Part 570
_______________________________________________________________________
Standards for Safety and Soundness and Interagency Guidelines
Establishing Standards for Safety and Soundness; Final Rule and
Proposed Rule
Federal Register / Vol. 60, No. 131 / Monday, July 10, 1995 / Rules
and Regulations
[[Page 35674]]
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.
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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
[[Page 35675]]
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
[[Page 35676]]
standards established pursuant to section 39 apply to depository
institution holding companies. The Conference Report for the CDRI Act
states, ``The Conferees intend these requirements to apply only to the
depository institutions.'' H.R. Conf. Rep. No. 652, 103rd Cong., 2d
Sess. 175 (1994). Accordingly, the Guidelines do not apply to holding
companies.
B. Operational and Managerial Standards
The agencies' proposed operational and managerial standards did not
specify each procedure an institution must have in place. Instead, the
proposed standards established the objectives that proper operations
and management oversight should achieve, while leaving the methods for
achieving those objectives to each institution. The proposed standards
represented the fundamental standards in use by the agencies to assess
the operational and managerial quality of an institution. The standards
did not represent a change in any of the agencies' policies.
The majority of commenters believed that the proposed standards
were sufficiently flexible and general in nature. Commenters generally
viewed the standards as a realistic balance between the mandates of
section 39 and the objective of avoiding overly burdensome regulation.
Many commenters believed that the standards would ensure that decision-
making responsibility resides with management of the institution.
A few commenters expressed concern that the agencies' examination
process would, in effect, require specific standards, and they asked
that more specific guidance be provided to examiners to ensure
consistent interpretation of the standards. The agencies acknowledge
the importance of consistent interpretation of the Guidelines and are
considering issuing guidance to their examination staffs.
In response to the agencies' proposals, many commenters recommended
that the agencies adopt standards that would apply according to an
institution's asset size. The agencies recognize that smaller, less
complex institutions may require less sophisticated systems and
practices. Therefore, the standards for internal controls and
information systems, internal audit systems, and credit underwriting
state that these standards must be appropriate to the size of the
institution and the nature and scope of its activities. In addition,
the agencies' standard for interest rate exposure states that an
institution must manage its interest rate risk in a manner appropriate
to the size of the institution and the complexity of its assets and
liabilities.
The agencies specifically requested comment on whether the proposed
standards would require institutions to modify their operations. While
many commenters encouraged the agencies to exempt certain institutions
from the standards based on asset size or capital category, the
majority of commenters did not believe that the proposed standards
would require institutions to modify their operations in order to
comply. The agencies believe that well-managed institutions generally
should not find it necessary to modify their operations in order to
comply with the operational and managerial standards in the Guidelines.
The standards adopted by the agencies are based in large measure
upon the standards proposed by the agencies. In determining whether an
institution satisfies the standards, the agencies intend to consider an
institution's overall practices and performance so that an institution
would not fail one of the standards due to an isolated error or
inconsistency.
1. Compliance With Laws and Regulations
The agencies' proposed standards for internal controls and
information systems, loan documentation, credit underwriting, interest
rate exposure and asset growth included a requirement for compliance
with laws and regulations. Several commenters believed that this
requirement was redundant and unnecessary since all institutions must
comply with applicable laws and regulations and violation of a law or
regulation may subject an institution to appropriate supervisory and
enforcement action. The agencies believe that the express requirement
to ensure compliance with applicable laws and regulations is a
necessary standard for internal controls and information systems, but
agree that repeating the requirement in the other standards is
unnecessary. Accordingly, the requirement to ensure compliance with
applicable laws and regulations has been deleted from the standards for
loan documentation, credit underwriting, interest rate exposure and
asset growth.
2. Internal Controls, Information Systems, and Internal Audit Systems
The agencies' proposed standards for internal controls and
information systems were designed to enable each institution to comply
by using control systems tailored to its individual operating
environment. The majority of commenters favored these standards. Some
accounting and auditing firm commenters recommended that the agencies
incorporate into the standards the guidelines prepared by the Committee
of Sponsoring Organizations (COSO) of the Treadway Commission in
``Internal Control: An Integrated Framework''. The agencies believe
that the proposed internal control standards are consistent with the
COSO framework for the structure of control systems. Therefore, using
the COSO framework in developing and evaluating a system of internal
controls is one way an institution could meet the standards proposed by
the agencies.
The agencies' proposal addressed internal audit systems separately.
Internal audit systems are important to the ongoing monitoring of the
effectiveness of the design and execution of any system of internal
controls. The proposal required each institution to have an internal
audit system that provided for adequate testing and review of internal
controls and information systems among other provisions. Commenters
criticized the requirement for an internal audit system because it
seemed to imply that either a full-time internal auditor and staff or
outside consultants would be necessary to perform an internal audit.
Several commenters believed that the costs involved could not be
justified for many smaller institutions.
The proposed audit standard did not explicitly require an internal
audit function. The agencies believe it is management's responsibility
to consider carefully the level of audit activity that will provide
effective monitoring of the internal control system after taking into
account the audit system's costs and benefits. For many banking
organizations that have reached a certain size or complexity of
operations, the benefits derived from an independent internal audit
function more than outweigh its cost. However, for certain smaller
institutions with few employees and less complex operations, the costs
may outweigh these benefits.
Several commenters recommended that the agencies clarify how an
institution, especially a small institution without an internal
auditor, can ensure that its internal audit system provides for the
``independence and objectivity'' of those performing internal audits.
The agencies believe that this standard can be met by ensuring that the
person conducting the review, whether the auditor and/or another
employee, is independent from the function under review and is able to
report findings directly to the board of directors or to a designated
directors' audit committee. The Guidelines adopted by the agencies
clarify the appropriate role of a system
[[Page 35677]]
of independent reviews in an internal audit system.
A few commenters noted that the proposed standard providing for
``verification and review of management actions to address identified
weaknesses'' seemed unnecessarily broad and potentially burdensome if
the standard was interpreted to mean that every weakness, including
minor, technical weaknesses, had to be specifically addressed by
management in a report to the board of directors. To clarify this
standard and to ensure that management's attention is focused on areas
of concern, the agencies have changed ``identified weaknesses'' to
``material weaknesses''.
The agencies are aware that many institutions use data processing
service organizations to execute and record transactions, maintain
related records and process related data. The determination of whether
an institution's independent auditor needs to review a service
organization's operations, as they relate to the institution's internal
controls, should be made in accordance with generally accepted auditing
standards.
3. Loan Documentation
The agencies' proposal specified what an institution's loan
documentation practices must enable the institution to do, instead of
specifying an item-by-item listing of loan documentation
requirements.1 An overwhelming majority of commenters strongly
favored general loan documentation standards. Commenters believed that
the proposed standards were sufficiently general to allow for different
treatment according to loan type and amount.
\1\ The current regulation establishing detailed loan
documentation requirements at 12 CFR 563.170(c) remains in effect
for all savings associations regulated by the OTS.
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In response to numerous comments, the agencies wish to emphasize
that in evaluating an institution's loan documentation practices, they
do not expect an institution to obtain an opinion of legal counsel for
the purpose of demonstrating that a claim against a borrower is legally
enforceable. Rather, an institution must establish loan documentation
practices that provide for proper recording or perfection of the
security interest.
The Guidelines adopt the agencies' standards on loan documentation
as proposed. The agencies believe that the loan documentation standards
provide a gauge against which compliance can be measured, while at the
same time allowing for differing approaches to loan documentation.
Under the Interagency Policy Statement Regarding Documentation of
Small and Medium-sized Business and Farm Loans, (March 30, 1993), well-
managed, well- or adequately capitalized institutions are permitted to
establish a ``basket'' of small- and medium-sized business and farm
loans that will not be subject to examiner criticism based on
documentation. The agencies' Guidelines do not affect the application
of this interagency policy statement.
4. Credit Underwriting
The agencies' proposed standards for credit underwriting
established general parameters of safe and sound credit underwriting
practices. Commenters overwhelmingly favored general credit
underwriting standards rather than a detailed listing of requirements
that must be met for each extension of credit. Based on the comments
received, the agencies have adopted the credit underwriting standards
as proposed, in guideline form.
5. Interest Rate Exposure
The agencies proposed to require an institution to manage interest
rate risk in a manner appropriate to the size of the institution and
the complexity of its assets and liabilities and to provide for
periodic reporting to management and the board of directors regarding
interest rate risk. A majority of commenters supported this standard.
Based on these comments, the agencies' Guidelines adopt this standard
without change.
Section 305 of FDICIA requires amendment of the agencies' risk-
based capital standards to take account of interest rate risk. The
final regulation implementing section 305 may require some institutions
to quantify interest rate risk.2
\2\ The OTS regulation implementing section 305 requires
additional capital from institutions that have ``above normal''
interest rate risk. See 58 FR 45299 (August 31, 1993).
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6. Asset Growth
The agencies' proposal required an institution to base its asset
growth on a plan that fully considered the source of the institution's
growth, the risks presented by such growth, and the effect of growth on
the institution's capital. Commenters overwhelmingly favored this
approach rather than a quantitative limit on asset growth which the
commenters believed would be overly restrictive and inconsistent with
safety and soundness. The agencies do not believe that asset growth
necessarily causes safety and soundness problems. The agencies,
however, do find that unplanned or poorly managed asset growth can be a
cause for concern.
Based on the comments received, the agencies' Guidelines adopt the
asset growth standard as proposed. The agencies will evaluate asset
growth against an institution's overall strategic plan for growth.
7. Compensation, Fees and Benefits
Section 39(a) requires the agencies to establish operational and
managerial standards relating to compensation, fees and benefits. As
noted in the agencies' proposal, this mandate is distinguishable from
that of section 39(c), which requires the agencies to prohibit as an
unsafe and unsound practice any compensation that is excessive or that
could lead to material financial loss to an institution.
The agencies' proposal required each institution to maintain
safeguards to prevent the payment of compensation, fees, or benefits
that are excessive or that could lead to material financial loss. A
majority of commenters supported the agencies' proposed rules, although
many commenters recommended that the rules exempt healthy institutions
from the compensation standards.
Section 39 does not allow for any exemptions from this standard.
Moreover, the agencies do not believe that exemptions are necessary in
view of the flexibility of this standard. For these reasons and based
on the comments received, the agencies' Guidelines incorporate the
proposed operational and managerial standards relating to compensation,
fees and benefits without change.
C. Standards Relating to Stock Valuation
The agencies believe that establishing stock valuation standards
for publicly traded institutions is not appropriate. As indicated in
the agencies' proposal, in the long run the market value of an
organization is dependent on an institution's financial condition and
performance, but over shorter and more operationally relevant time
horizons, market value is also affected by factors such as the
attractiveness of financial institution stocks relative to other
competitors and industries, the performance of the general stock
market, industry conditions and random fluctuations. Therefore, over
any practical period of time, institutions do not have direct control
over the marketplace's evaluation of their stock's value. An additional
consideration is the appropriateness of applying a standard that
affects only a subset of banking and thrift organizations and
[[Page 35678]]
could operate to discourage depository institutions from becoming
publicly traded. The agencies intend to continue their existing policy
of augmenting their overall examinations and ongoing monitoring of
publicly-traded institutions through the review of stock price changes,
market price to book value ratios, bond ratings and other indicators of
the market's assessment of an institution's performance. To the extent
that an institution's market to book ratio appears to significantly
contradict the agencies' assessment of its condition, the agencies
intend to continue to scrutinize carefully such institutions for
developing problems.
D. Prohibition on Compensation That is Excessive or That Could Lead to
Material Financial Loss
Section 39(c) of the FDI Act, as amended by the CDRI Act, continues
to require the agencies to establish standards (1) prohibiting as an
unsafe and unsound practice the payment of excessive compensation or
compensation that could lead to material financial loss to an
institution; and (2) specifying when compensation, fees, or benefits
are excessive.
The agencies' joint proposal relied upon the statutory language in
formulating the standards required under section 39(c). Commenters
strongly supported the use of the factors set forth in section 39(c) as
the sole standard in defining excessive compensation. Commenters
believed that more detailed standards would constitute micro-management
of an institution's management practices. Accordingly, the agencies'
Guidelines include the compensation standards as proposed.
In the Guidelines, as under the proposal, compensation is
considered excessive if it is unreasonable or disproportionate to the
services actually performed by the executive officer, employee,
director, or principal shareholder being compensated. In making that
determination, the agencies will consider all relevant factors,
including those set out in section 39(c).
E. Effect on Agencies' Existing Authority
Compliance with the standards set out in the Guidelines does not
preclude the agencies from finding that an institution is engaged in an
unsafe and unsound practice or is in an unsafe and unsound condition.
Conversely, failure to comply with the standards set out in the
Guidelines does not necessarily constitute an unsafe or unsound
practice or an unsafe and unsound condition, except for failure to
comply with the standard prohibiting payment of excessive compensation
or compensation that could lead to material financial loss.
The agencies may take supervisory action against an institution
that has not been requested to submit a safety and soundness compliance
plan. In addition, the agencies may request submission of a compliance
plan without taking any other supervisory or enforcement action.
IV. Regulatory Flexibility Act
The agencies have concluded that the final rule will not impose a
significant economic hardship on small institutions. The rule
establishes deadlines for submission and review of compliance plans
requested by the agencies of any insured depository institution which
fails to meet the standards adopted by the agencies in the Interagency
Guidelines Establishing Standards for Safety and Soundness. The impact
of the final rule on small institutions should be proportionate to its
impact on larger institutions. Accordingly, pursuant to section 605(b)
of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the agencies hereby
certify that the final rule will not have a significant economic impact
on a substantial number of small entities.
V. OCC and OTS: Unfunded Mandates Reform Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act) (signed into law on March 22, 1995)
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, the final rule establishes
deadlines and procedures for submission and review of safety and
soundness plans and establishes standards for safety and soundness, as
prescribed by section 132 of the Federal Deposit Insurance Corporation
Improvement Act of 1991, Pub. L. 102-242. The standards represent the
fundamental standards in use by the agencies, represent no change in
the agencies' policies and impose minimal new Federal requirements.
Thus, no additional costs to State, local or tribal governments or to
the private sector of $100 million or more in any one year result from
this rule. Accordingly, the OCC and OTS have not prepared a budgetary
impact statement nor specifically addressed any regulatory
alternatives.
VI. Effective Date
The agencies have determined that pursuant to section 302 of the
Riegle Community Development and Regulatory Improvement Act of 1994
(CDRI), Pub. L. 104-4, there is good cause for the final rule on safety
and soundness to be effective 30 days after publication in the Federal
Register. The implementation of this final regulation has been delayed
because of changes required due to changes in the statute. CDRI amended
12 U.S.C. 1831p-1 to allow the agencies to implement the standards for
safety and soundness by guideline rather than regulation. Under the
guidelines the agencies may require an institution that fails to meet
the standards to file a compliance plan. However, that action would be
taken on a case-by-case basis after adequate notice to the institution.
Therefore, the agencies believe that further delay is unnecessary.
VII. Executive Order 12866
The OCC and the OTS have determined that this final rule is not a
``significant regulatory action'' for purposes of Executive Order
12866.
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Text of Final Common Rule
The text of the agencies' final common rule appears below:
Appendix ____ to Part ____--Interagency Guidelines Establishing
Standards for Safety and Soundness
Table of Contents
I. Introduction
A. Preservation of existing authority.
B. Definitions.
II. Operational and Managerial Standards
A. Internal controls and information systems.
B. Internal audit system.
C. Loan documentation.
D. Credit underwriting.
E. Interest rate exposure.
F. Asset growth.
G. [Reserved].
H. [Reserved].
I. Compensation, fees and benefits.
III. Prohibition on Compensation That Constitutes an Unsafe and
Unsound Practice
A. Excessive compensation.
B. Compensation leading to material financial loss.
[[Page 35679]]
I. Introduction
i. Section 39 of the Federal Deposit Insurance Act 1 (FDI
Act) requires each Federal banking agency (collectively, the
agencies) to establish certain safety and soundness standards by
regulation or by guideline for all insured depository institutions.
Under section 39, the agencies must establish three types of
standards: (1) Operational and managerial standards; (2)
compensation standards; and (3) such standards relating to asset
quality, earnings, and stock valuation as they determine to be
appropriate.
\1\ Section 39 of the Federal Deposit Insurance Act (12 U.S.C.
1831p-1) was added by section 132 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA), Pub. L. 102-242, 105
Stat. 2236 (1991), and amended by section 956 of the Housing and
Community Development Act of 1992, Pub. L. 102-550, 106 Stat. 3895
(1992) and section 318 of the Riegle Community Development and
Regulatory Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160
(1994).
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ii. 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. Section 39(b) requires the agencies to
establish standards relating to asset quality, earnings, and stock
valuation that the agencies determine to be appropriate.
iii. Section 39(c) requires the agencies to establish standards
prohibiting as an unsafe and unsound practice any compensatory
arrangement that would provide any 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.
iv. 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.
In the event that an 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.
v. The agencies have adopted amendments to their rules and
regulations to establish deadlines for submission and review of
compliance plans.2
\2\ For the Office of the Comptroller of the Currency, these
regulations appear at 12 CFR Part 30; for the Board of Governors of
the Federal Reserve System, these regulations appear at 12 CFR Part
263; for the Federal Deposit Insurance Corporation, these
regulations appear at 12 CFR Part 308, subpart R, and for the Office
of Thrift Supervision, these regulations appear at 12 CFR Part 570.
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vi. The following Guidelines set out the safety and soundness
standards that the agencies use to identify and address problems at
insured depository institutions before capital becomes impaired. The
agencies believe that the standards adopted in these Guidelines
serve this end without dictating how institutions must be managed
and operated. These standards are designed to identify potential
safety and soundness concerns and ensure that action is taken to
address those concerns before they pose a risk to the deposit
insurance funds.
A. Preservation of Existing Authority
Neither section 39 nor these Guidelines in any way limits the
authority of the agencies to address unsafe or unsound practices,
violations of law, unsafe or unsound conditions, or other practices.
Action under section 39 and these Guidelines may be taken
independently of, in conjunction with, or in addition to any other
enforcement action available to the agencies. Nothing in these
Guidelines limits the authority of the FDIC pursuant to section
38(i)(2)(F) of the FDI Act (12 U.S.C. 1831(o)) and Part 325 of Title
12 of the Code of Federal Regulations.
B. Definitions
1. In general. For purposes of these Guidelines, except as
modified in the Guidelines or unless the context otherwise requires,
the terms used have the same meanings as set forth in sections 3 and
39 of the FDI Act (12 U.S.C. 1813 and 1831p-1).
2. Board of directors, in the case of a state-licensed insured
branch of a foreign bank and in the case of a federal branch of a
foreign bank, means the managing official in charge of the insured
foreign branch.
3. Compensation means all direct and indirect payments or
benefits, both cash and non-cash, granted to or for the benefit of
any executive officer, employee, director, or principal shareholder,
including but not limited to payments or benefits derived from an
employment contract, compensation or benefit agreement, fee
arrangement, perquisite, stock option plan, postemployment benefit,
or other compensatory arrangement.
4. Director shall have the meaning described in 12 CFR
215.2(c).3
\3\ In applying these definitions for savings associations,
pursuant to 12 U.S.C. 1464, savings associations shall use the terms
``savings association'' and ``insured savings association'' in place
of the terms ``member bank'' and ``insured bank''.
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5. Executive officer shall have the meaning described in 12 CFR
215.2(d).4
\4\ See footnote 3 in section I.B.4. of this appendix.
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6. Principal shareholder shall have the meaning described in 12
CFR 215.2(l).5
\5\ See footnote 3 in section I.B.4. of this appendix.
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II. Operational and Managerial Standards
A. Internal controls and information systems. An institution
should have internal controls and information systems that are
appropriate to the size of the institution and the nature, scope and
risk of its activities and that provide for:
1. An organizational structure that establishes clear lines of
authority and responsibility for monitoring adherence to established
policies;
2. Effective risk assessment;
3. Timely and accurate financial, operational and regulatory
reports;
4. Adequate procedures to safeguard and manage assets; and
5. Compliance with applicable laws and regulations.
B. Internal audit system. An institution should have an internal
audit system that is appropriate to the size of the institution and
the nature and scope of its activities and that provides for:
1. Adequate monitoring of the system of internal controls
through an internal audit function. For an institution whose size,
complexity or scope of operations does not warrant a full scale
internal audit function, a system of independent reviews of key
internal controls may be used;
2. Independence and objectivity;
3. Qualified persons;
4. Adequate testing and review of information systems;
5. Adequate documentation of tests and findings and any
corrective actions;
6. Verification and review of management actions to address
material weaknesses; and
7. Review by the institution's audit committee or board of
directors of the effectiveness of the internal audit systems.
C. Loan documentation. An institution should establish and
maintain loan documentation practices that:
1. Enable the institution to make an informed lending decision
and to assess risk, as necessary, on an ongoing basis;
2. Identify the purpose of a loan and the source of repayment,
and assess the ability of the borrower to repay the indebtedness in
a timely manner;
3. Ensure that any claim against a borrower is legally
enforceable;
4. Demonstrate appropriate administration and monitoring of a
loan; and
5. Take account of the size and complexity of a loan.
D. Credit underwriting. An institution should establish and
maintain prudent credit underwriting practices that:
1. Are commensurate with the types of loans the institution will
make and consider the terms and conditions under which they will be
made;
2. Consider the nature of the markets in which loans will be
made;
3. Provide for consideration, prior to credit commitment, of the
borrower's overall financial condition and resources, the financial
responsibility of any guarantor, the nature and value of any
underlying collateral, and the borrower's character and willingness
to repay as agreed;
4. Establish a system of independent, ongoing credit review and
appropriate communication to management and to the board of
directors;
5. Take adequate account of concentration of credit risk; and
6. Are appropriate to the size of the institution and the nature
and scope of its activities.
E. Interest rate exposure. An institution should:
1. Manage interest rate risk in a manner that is appropriate to
the size of the
[[Page 35680]]
institution and the complexity of its assets and liabilities; and
2. Provide for periodic reporting to management and the board of
directors regarding interest rate risk with adequate information for
management and the board of directors to assess the level of risk.
F. Asset growth. An institution's asset growth should be prudent
and consider:
1. The source, volatility and use of the funds that support
asset growth;
2. Any increase in credit risk or interest rate risk as a result
of growth; and
3. The effect of growth on the institution's capital.
G. [Reserved].
H. [Reserved].
I. Compensation, fees and benefits. An institution should
maintain safeguards to prevent the payment of compensation, fees,
and benefits that are excessive or that could lead to material
financial loss to the institution.
III. Prohibition on Compensation That Constitutes an Unsafe and Unsound
Practice
A. Excessive Compensation
Excessive compensation is prohibited as an unsafe and unsound
practice. Compensation shall be considered excessive when amounts
paid are unreasonable or disproportionate to the services performed
by an executive officer, employee, director, or principal
shareholder, considering the following:
1. The combined value of all cash and non-cash benefits provided
to the individual;
2. The compensation history of the individual and other
individuals with comparable expertise at the institution;
3. The financial condition of the institution;
4. Comparable compensation practices at comparable institutions,
based upon such factors as asset size, geographic location, and the
complexity of the loan portfolio or other assets;
5. For postemployment benefits, the projected total cost and
benefit to the institution;
6. Any connection between the individual and any fraudulent act
or omission, breach of trust or fiduciary duty, or insider abuse
with regard to the institution; and
7. Any other factors the agencies determines to be relevant.
B. Compensation Leading to Material Financial Loss
Compensation that could lead to material financial loss to an
institution is prohibited as an unsafe and unsound practice.
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DEPARTMENT OF THE TREASURY
Adoption of Final Common Rule
The agency specific adoption of the final common rule, which
appears at the end of the common preamble, appears below.
List of Subjects
OCC
12 CFR Part 30
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Safety and soundness.
Board
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Mortgages,
Reporting and recordkeeping requirements, Safety and soundness,
Securities.
12 CFR Part 263
Administrative practice and procedure, Claims, Crime, Equal Access
to justice, Federal Reserve System, Lawyers, Penalties.
FDIC
12 CFR Part 303
Administrative practice and procedure, Authority delegations
(Government agencies), Bank deposit insurance, Banks, banking,
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 308
Administrative practice and procedure, Claims, Crime, Equal access
to justice, Investigations, Lawyers, Penalties.
12 CFR Part 364
Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Reporting and recordkeeping requirements, Safety and
soundness.
OTS
12 CFR Part 570
Accounting, Administrative practices and procedures, Bank deposit
insurance, Holding companies, Reporting and recordkeeping requirements,
Savings associations, Safety and soundness.
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DEPARTMENT OF THE TREASURY
OFFICE OF THE COMPTROLLER OF THE CURRENCY
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the preamble, chapter I of title 12 of
the Code of Federal Regulations is amended as follows:
1. A new part 30 is added to read as follows:
PART 30--SAFETY AND SOUNDNESS STANDARDS
Sec.
30.1 Scope.
30.2 Purpose.
30.3 Determination and notification of failure to meet safety and
soundness standard and request for compliance plan.
30.4 Filing of safety and soundness compliance plan.
30.5 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
30.6 Enforcement of orders.
Authority: 12 U.S.C. 1831p-1.
Sec. 30.1 Scope.
The rules and procedures set forth in this part apply to national
banks and federal branches of foreign banks, that are subject to the
provisions of section 39 of the Federal Deposit Insurance Act (section
39) (12 U.S.C. 1831p-1).
Sec. 30.2 Purpose.
Section 39 of the FDI Act, 12 U.S.C. 1831p-1, requires the Office
of the Comptroller of the Currency (OCC) to establish safety and
soundness standards. Pursuant to section 39, a bank may be required to
submit a compliance plan if it is not in compliance with a safety and
soundness standard prescribed by guideline under section 39(a) or (b).
An enforceable order under section 8 of the FDI Act, 12 U.S.C. 1818(b),
may be issued if, after being notified that it is in violation of a
safety and soundness standard prescribed under section 39, the bank
fails to submit an acceptable compliance plan or fails in any material
respect to implement an accepted plan. This part establishes procedures
for requiring submission of a compliance plan and issuing an
enforceable order pursuant to section 39. The Interagency Guidelines
Establishing Standards for Safety and Soundness are set forth in
appendix A to this part.
Sec. 30.3 Determination and notification of failure to meet safety and
soundness standard and request for compliance plan.
(a) Determination. The OCC may, based upon an examination,
inspection, or any other information that becomes available to the OCC,
determine that a bank has failed to satisfy the safety and soundness
standards contained in the Interagency Guidelines Establishing
Standards for Safety and Soundness set forth in Appendix A to this
part.
(b) Request for compliance plan. If the OCC determines that a bank
has failed a safety and soundness standard pursuant to paragraph (a) of
this section, the OCC may request, by letter or through a report of
examination, the submission of a compliance plan and the bank shall be
deemed to have notice of the deficiency three days after mailing of the
letter by the OCC or delivery of the report of examination.
[[Page 35681]]
Sec. 30.4 Filing of safety and soundness compliance plan.
(a) Schedule for filing compliance plan--(1) In general. A bank
shall file a written safety and soundness compliance plan with the OCC
within 30 days of receiving a request for a compliance plan pursuant to
Sec. 30.3(b) unless the OCC notifies the bank in writing that the plan
is to be filed within a different period.
(2) Other plans. If a bank is obligated to file, or is currently
operating under, a capital restoration plan submitted pursuant to
section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order
entered into pursuant to section 8 of the FDI Act (12 U.S.C. 1818(b)),
a formal or informal agreement, or a response to a report of
examination or report of inspection, it may, with the permission of the
OCC, submit a compliance plan under this section as part of that plan,
order, agreement, or response, subject to the deadline provided in
paragraph (a) of this section.
(b) Contents of plan. The compliance plan shall include a
description of the steps the bank will take to correct the deficiency
and the time within which those steps will be taken.
(c) Review of safety and soundness compliance plans. Within 30 days
after receiving a safety and soundness compliance plan under this part,
the OCC shall provide written notice to the bank of whether the plan
has been approved or seek additional information from the bank
regarding the plan. The OCC may extend the time within which notice
regarding approval of a plan will be provided.
(d) Failure to submit or implement a compliance plan--(1)
Supervisory actions. If a bank fails to submit an acceptable plan
within the time specified by the OCC or fails in any material respect
to implement a compliance plan, then the OCC shall, by order, require
the bank to correct the deficiency and may take further actions
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the OCC
may be required to take certain actions if the bank commenced
operations or experienced a change in control within the previous 24-
month period, or the bank experienced extraordinary growth during the
previous 18-month period.
(2) Extraordinary growth. For purposes of paragraph (d)(1) of this
section, extraordinary growth means an increase in assets of more than
7.5 percent during any quarter within the 18-month period preceding the
issuance of a request for submission of a compliance plan, by a bank
that is not well capitalized for purposes of section 38 of the FDI Act.
For purposes of calculating an increase in assets, assets acquired
through merger or acquisition approved pursuant to the Bank Merger Act
(12 U.S.C. 1828(c)) will be excluded.
(e) Amendment of compliance plan. A bank that has filed an approved
compliance plan may, after prior written notice to and approval by the
OCC, amend the plan to reflect a change in circumstance. Until such
time as a proposed amendment has been approved, the bank shall
implement the compliance plan as previously approved.
Sec. 30.5 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
(a) Notice of intent to issue order--(1) In general. The OCC shall
provide a bank prior written notice of the OCC's intention to issue an
order requiring the bank to correct a safety and soundness deficiency
or to take or refrain from taking other actions pursuant to section 39
of the FDI Act. The bank shall have such time to respond to a proposed
order as provided by the OCC under paragraph (c) of this section.
(2) Immediate issuance of final order. If the OCC finds it
necessary in order to carry out the purposes of section 39 of the FDI
Act, the OCC may, without providing the notice prescribed in paragraph
(a)(1) of this section, issue an order requiring a bank immediately to
take actions to correct a safety and soundness deficiency or take or
refrain from taking other actions pursuant to section 39. A bank that
is subject to such an immediately effective order may submit a written
appeal of the order to the OCC. Such an appeal must be received by the
OCC within 14 calendar days of the issuance of the order, unless the
OCC permits a longer period. The OCC shall consider any such appeal, if
filed in a timely matter, within 60 days of receiving the appeal.
During such period of review, the order shall remain in effect unless
the OCC, in its sole discretion, stays the effectiveness of the order.
(b) Content of notice. A notice of intent to issue an order shall
include:
(1) A statement of the safety and soundness deficiency or
deficiencies that have been identified at the bank;
(2) A description of any restrictions, prohibitions, or affirmative
actions that the OCC proposes to impose or require;
(3) The proposed date when such restrictions or prohibitions would
be effective or the proposed date for completion of any required
action; and
(4) The date by which the bank subject to the order may file with
the OCC a written response to the notice.
(c) Response to notice--(1) Time for response. A bank may file a
written response to a notice of intent to issue an order within the
time period set by the OCC. Such a response must be received by the OCC
within 14 calendar days from the date of the notice unless the OCC
determines that a different period is appropriate in light of the
safety and soundness of the bank or other relevant circumstances.
(2) Content of response. The response should include:
(i) An explanation why the action proposed by the OCC is not an
appropriate exercise of discretion under section 39;
(ii) Any recommended modification of the proposed order; and
(iii) Any other relevant information, mitigating circumstances,
documentation, or other evidence in support of the position of the bank
regarding the proposed order.
(d) Agency consideration of response. After considering the
response, the OCC may:
(1) Issue the order as proposed or in modified form;
(2) Determine not to issue the order and so notify the bank; or
(3) Seek additional information or clarification of the response
from the bank, or any other relevant source.
(e) Failure to file response. Failure by a bank to file with the
OCC, within the specified time period, a written response to a proposed
order shall constitute a waiver of the opportunity to respond and shall
constitute consent to the issuance of the order.
(f) Request for modification or rescission of order. Any bank that
is subject to an order under this part may, upon a change in
circumstances, request in writing that the OCC reconsider the terms of
the order, and may propose that the order be rescinded or modified.
Unless otherwise ordered by the OCC, the order shall continue in place
while such request is pending before the OCC.
Sec. 30.6 Enforcement of orders.
(a) Judicial remedies. Whenever a bank fails to comply with an
order issued under section 39, the OCC may seek enforcement of the
order in the appropriate United States district court pursuant to
section 8(i)(1) of the FDI Act.
(b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of
the FDI Act, the OCC may assess a civil money penalty against any bank
that violates or otherwise fails to comply with any final order issued
under section 39 and against any institution-affiliated party who
participates in such violation or noncompliance.
[[Page 35682]]
(c) Other enforcement action. In addition to the actions described
in paragraphs (a) and (b) of this section, the OCC may seek enforcement
of the provisions of section 39 or this part through any other judicial
or administrative proceeding authorized by law.
2. A new appendix A is added to part 30 as set forth at the end of
the common preamble:
Appendix A to Part 30--Interagency Guidelines Establishing
Standards for Safety and Soundness
Dated: April 13, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
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DEPARTMENT OF THE TREASURY
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
For the reasons outlined in the preamble, the Board hereby amends
12 CFR parts 208 and 263 as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for 12 CFR Part 208 is revised to read as
follows:
Authority: 12 U.S.C. 36, 248(a) and (c), 321-338, 461, 481, 486,
601, and 611, 1814, 1823(j), 1831o, 1831p-1, 3906, 3909, 3310, 3331-
3351; 15 U.S.C. 78b, 78o-4(c)(5), 78q, 78q-1, 78w, 781(b), 781(i),
and 1781(g).
2. A new subpart D, comprising Sec. 208.60, is added to part 208 to
read as follows:
Subpart D--Standards for Safety and Soundness
Sec. 208.60 Standards for safety and soundness.
The Interagency Guidelines Establishing Standards for Safety and
Soundness prescribed pursuant to section 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1831p-1), as set forth as appendix D to this
part apply to all state member banks.
3. A new appendix D is added to part 208 as set forth at the end of
the common preamble:
Appendix D to Part 208--Interagency Guidelines Establishing Standards
for Safety and Soundness
PART 263--RULES OF PRACTICE FOR HEARINGS
1. The authority citation for 12 CFR Part 263 is revised to read as
follows:
Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 505, 1817(j),
1818, 1828(c), 1831o, 1831p-1, 1847(b), 1847(d), 1884(b),
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, and 78u-2.
2. A new subpart I, comprising Secs. 263.300 through 263.305, is
added to part 263 to read as follows:
Subpart I--Submission and Review of Safety and Soundness Compliance
Plans and Issuance of Orders To Correct Safety and Soundness
Deficiencies
Sec.
263.300 Scope.
263.301 Purpose.
263.302 Determination and notification of failure to meet safety
and soundness standard and request for compliance plan.
263.303 Filing of safety and soundness compliance plan.
263.304 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
263.305 Enforcement of orders.
Subpart I--Submission and Review of Safety and Soundness Compliance
Plans and Issuance of Orders To Correct Safety and Soundness
Deficiencies
Sec. 263.300 Scope.
The rules and procedures set forth in this subpart apply to State
member banks that are subject to the provisions of section 39 of the
Federal Deposit Insurance Act (section 39) (12 U.S.C. 1831p-1).
Sec. 263.301 Purpose.
Section 39 of the FDI Act requires the Board to establish safety
and soundness standards. Pursuant to section 39, a bank may be required
to submit a compliance plan if it is not in compliance with a safety
and soundness standard established by guideline under section 39(a) or
(b). An enforceable order under section 8 may be issued if, after being
notified that it is in violation of a safety and soundness standard
established under section 39, the bank fails to submit an acceptable
compliance plan or fails in any material respect to implement an
accepted plan. This subpart establishes procedures for requiring
submission of a compliance plan and issuing an enforceable order
pursuant to section 39.
Sec. 263.302 Determination and notification of failure to meet safety
and soundness standard and request for compliance plan.
(a) Determination. The Board may, based upon an examination,
inspection, or any other information that becomes available to the
Board, determine that a bank has failed to satisfy the safety and
soundness standards contained in the Interagency Guidelines
Establishing Standards for Safety and Soundness set out in appendix D
to part 208 of this chapter.
(b) Request for compliance plan. If the Board determines that a
State member bank has failed a safety and soundness standard pursuant
to paragraph (a) of this section, the Board may request, by letter or
through a report of examination, the submission of a compliance plan,
and the bank shall be deemed to have notice of the request three days
after mailing of the letter by the Board or delivery of the report of
examination.
Sec. 263.303 Filing of safety and soundness compliance plan.
(a) Schedule for filing compliance plan--(1) In general. A State
member bank shall file a written safety and soundness compliance plan
with the Board within 30 days of receiving a request for a compliance
plan pursuant to Sec. 263.302(b), unless the Board notifies the bank in
writing that the plan is to be filed within a different period.
(2) Other plans. If a State member bank is obligated to file, or is
currently operating under, a capital restoration plan submitted
pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act, a
formal or informal agreement, or a response to a report of examination
or report of inspection, it may, with the permission of the Board,
submit a compliance plan under this section as part of that plan,
order, agreement, or response, subject to the deadline provided in
paragraph (a)(1) of this section.
(b) Contents of plan. The compliance plan shall include a
description of the steps the State member bank will take to correct the
deficiency and the time within which those steps will be taken.
(c) Review of safety and soundness compliance plans. Within 30 days
after receiving a safety and soundness compliance plan under this
subpart, the Board shall provide written notice to the bank of whether
the plan has been approved or seek additional information from the bank
regarding the plan. The Board may extend the time within which notice
regarding approval of a plan will be provided.
(d) Failure to submit or implement a compliance plan. (1)
Supervisory actions. If a State member bank fails to submit an
acceptable plan within the time specified by the Board or fails in any
material respect to implement a compliance plan, then the Board shall,
by order, require the bank to correct the deficiency and may take
further actions
[[Page 35683]]
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the
Board may be required to take certain actions if the bank commenced
operations or experienced a change in control within the previous 24-
month period, or the bank experienced extraordinary growth during the
previous 18-month period.
(2) Extraordinary growth. For purposes of paragraph (d)(1) of this
section, extraordinary growth means an increase in assets of more than
7.5 percent during any quarter within the 18-month period preceding the
issuance of a request for submission of a compliance plan, by a bank
that is not well capitalized for purposes of section 38 of the FDI Act.
For purposes of calculating an increase in assets, assets acquired
through merger or acquisition approved pursuant to the Bank Merger Act
(12 U.S.C. 1828(c)) will be excluded.
(e) Amendment of compliance plan. A State member bank that has
filed an approved compliance plan may, after prior written notice to
and approval by the Board, amend the plan to reflect a change in
circumstance. Until such time as a proposed amendment has been
approved, the bank shall implement the compliance plan as previously
approved.
Sec. 263.304 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
(a) Notice of intent to issue order--(1) In general. The Board
shall provide a bank prior written notice of the Board's intention to
issue an order requiring the bank to correct a safety and soundness
deficiency or to take or refrain from taking other actions pursuant to
section 39 of the FDI Act. The bank shall have such time to respond to
a proposed order as provided by the Board under paragraph (c) of this
section.
(2) Immediate issuance of final order. If the Board finds it
necessary in order to carry out the purposes of section 39 of the FDI
Act, the Board may, without providing the notice prescribed in
paragraph (a)(1) of this section, issue an order requiring a bank
immediately to take actions to correct a safety and soundness
deficiency or take or refrain from taking other actions pursuant to
section 39. A State member bank that is subject to such an immediately
effective order may submit a written appeal of the order to the Board.
Such an appeal must be received by the Board within 14 calendar days of
the issuance of the order, unless the Board permits a longer period.
The Board shall consider any such appeal, if filed in a timely matter,
within 60 days of receiving the appeal. During such period of review,
the order shall remain in effect unless the Board, in its sole
discretion, stays the effectiveness of the order.
(b) Contents of notice. A notice of intent to issue an order shall
include:
(1) A statement of the safety and soundness deficiency or
deficiencies that have been identified at the bank;
(2) A description of any restrictions, prohibitions, or affirmative
actions that the Board proposes to impose or require;
(3) The proposed date when such restrictions or prohibitions would
be effective or the proposed date for completion of any required
action; and
(4) The date by which the bank subject to the order may file with
the Board a written response to the notice.
(c) Response to notice--(1) Time for response. A bank may file a
written response to a notice of intent to issue an order within the
time period set by the Board. Such a response must be received by the
Board within 14 calendar days from the date of the notice unless the
Board determines that a different period is appropriate in light of the
safety and soundness of the bank or other relevant circumstances.
(2) Contents of response. The response should include:
(i) An explanation why the action proposed by the Board is not an
appropriate exercise of discretion under section 39;
(ii) Any recommended modification of the proposed order; and
(iii) Any other relevant information, mitigating circumstances,
documentation, or other evidence in support of the position of the bank
regarding the proposed order.
(d) Agency consideration of response. After considering the
response, the Board may:
(1) Issue the order as proposed or in modified form;
(2) Determine not to issue the order and so notify the bank; or
(3) Seek additional information or clarification of the response
from the bank, or any other relevant source.
(e) Failure to file response. Failure by a bank to file with the
Board, within the specified time period, a written response to a
proposed order shall constitute a waiver of the opportunity to respond
and shall constitute consent to the issuance of the order.
(f) Request for modification or rescission of order. Any bank that
is subject to an order under this subpart may, upon a change in
circumstances, request in writing that the Board reconsider the terms
of the order, and may propose that the order be rescinded or modified.
Unless otherwise ordered by the Board, the order shall continue in
place while such request is pending before the Board.
Sec. 263.305 Enforcement of orders.
(a) Judicial remedies. Whenever a State member bank fails to comply
with an order issued under section 39, the Board may seek enforcement
of the order in the appropriate United States district court pursuant
to section 8(i)(1) of the FDI Act.
(b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of
the FDI Act, the Board may assess a civil money penalty against any
State member bank that violates or otherwise fails to comply with any
final order issued under section 39 and against any institution-
affiliated party who participates in such violation or noncompliance.
(c) Other enforcement action. In addition to the actions described
in paragraphs (a) and (b) of this section, the Board may seek
enforcement of the provisions of section 39 or this part through any
other judicial or administrative proceeding authorized by law.
By Order of the Board of Governors of the Federal Reserve
System, June 6, 1995.
William W. Wiles,
Secretary of the Board.
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DEPARTMENT OF THE TREASURY
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
For the reasons set forth in the preamble, the Board of Directors
of the Federal Deposit Insurance Corporation hereby amends chapter III
of title 12 of the Code of Federal Regulations as follows:
PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF
AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR
REGULATION
1. The authority citation for part 303 is revised to read as
follows:
Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(j), 1818, 1819
(Seventh and Tenth), 1828, 1831e, 1831o, 1831p-1; 15 U.S.C. 1607.
2. In Sec. 303.9, a new paragraph (o) is added to read as follows:
Sec. 303.9 Delegation of authority to act on certain enforcement
matters.
* * * * *
(o) Compliance plans under section 39 of the Act (standards for
safety and soundness) and part 308 of this chapter. (1) Authority is
delegated to the Director, and where confirmed in writing by the
Director, to an associate director, or to the appropriate regional
director or deputy regional director, to accept, to reject, to require
new or
[[Page 35684]]
revised compliance plans or to make any other determinations with
respect to the implementation of compliance plans pursuant to subpart R
of part 308 of this chapter.
(2) Authority is delegated to the Director, and where confirmed in
writing by the Director, to an associate director, to:
(i) Issue notices of intent to issue an order requiring the bank to
correct a safety and soundness deficiency or to take or refrain from
taking other actions pursuant to section 39 of the Act (12 U.S.C.
1831p-1) and in accordance with the requirements contained in
Sec. 308.304(a)(1) of this chapter;
(ii) Issue an order requiring the bank immediately to correct a
safety and soundness deficiency or to take or refrain from taking other
actions pursuant to section 39 of the Act (12 U.S.C. 1831p-1) and in
accordance with the requirements contained in Sec. 308.304(a)(2) of
this chapter; and
(iii) Act on requests for modification or rescission of an order.
(3) The authority delegated under paragraph (o)(1) of this section
shall be exercised only upon the concurrent certification by the
Associate General Counsel for Compliance and Enforcement, or in cases
where a regional director or deputy regional director accepts, rejects
or requires new or revised compliance plans or makes any other
determinations with respect to compliance plans, by the appropriate
regional counsel, that the action taken is not inconsistent with the
Act.
(4) The authority delegated under paragraph (o)(2) of this section
shall be exercised only upon the concurrent certification by the
Associate General Counsel for Compliance and Enforcement that the
allegations contained in the notice of intent, if proven, constitute a
basis for the issuance of a final order pursuant to section 39 of the
Act or that the issuance of a final order is not inconsistent with
section 39 of the Act or that the stipulated section 39 order is not
inconsistent with section 39 and is an order which has become final for
purposes of enforcement pursuant to the Act.
PART 308--RULES OF PRACTICE AND PROCEDURE
3. The authority citation for part 308 is revised to read as
follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1815(e), 1817(a) and
1818(j), 1818, 1828(j), 1829, 1831i, 1831o, 1831p-1; 15 U.S.C.
78l(h), 78(m), 78n(a), 78n(c), 78n(d), 78n(f), 78(o), 78o-4(c)(5),
78(p), 78(q), 78q-1, 78s.
4. A new subpart R, comprising Secs. 308.300 through 308.305, is
added to part 308 to read as follows:
Subpart R--Submission and Review of Safety and Soundness Compliance
Plans and Issuance of Orders To Correct Safety and Soundness
Deficiencies
Sec.
308.300 Scope.
308.301 Purpose.
308.302 Determination and notification of failure to meet a safety
and soundness standard and request for compliance plan.
308.303 Filing of safety and soundness compliance plan.
308.304 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
308.305 Enforcement of orders.
Subpart R--Submission and Review of Safety and Soundness Compliance
Plans and Issuance of Orders To Correct Safety and Soundness
Deficiencies
Sec. 308.300 Scope.
The rules and procedures set forth in this subpart apply to insured
state nonmember banks and to state-licensed insured branches of foreign
banks, that are subject to the provisions of section 39 of the Federal
Deposit Insurance Act (section 39) (12 U.S.C. 1831p-1).
Sec. 308.301 Purpose.
Section 39 of the FDI Act requires the FDIC to establish safety and
soundness standards. Pursuant to section 39, a bank may be required to
submit a compliance plan if it is not in compliance with a safety and
soundness standard established by guideline under section 39(a) or (b).
An enforceable order under section 8 of the FDI Act may be issued if,
after being notified that it is in violation of a safety and soundness
standard established under section 39, the bank fails to submit an
acceptable compliance plan or fails in any material respect to
implement an accepted plan. This subpart establishes procedures for
requiring submission of a compliance plan and issuing an enforceable
order pursuant to section 39.
Sec. 308.302 Determination and notification of failure to meet a
safety and soundness standard and request for compliance plan.
(a) Determination. The FDIC may, based upon an examination,
inspection, or any other information that becomes available to the
FDIC, determine that a bank has failed to satisfy the safety and
soundness standards set out in part 364 of this chapter and in the
Interagency Guidelines Establishing Standards for Safety and Soundness
set forth in appendix A to part 364 of this chapter.
(b) Request for compliance plan. If the FDIC determines that a bank
has failed a safety and soundness standard pursuant to paragraph (a) of
this section, the FDIC may request, by letter or through a report of
examination, the submission of a compliance plan and the bank shall be
deemed to have notice of the request three days after mailing of the
letter by the FDIC or delivery of the report of examination.
Sec. 308.303 Filing of safety and soundness compliance plan.
(a) Schedule for filing compliance plan--(1) In general. A bank
shall file a written safety and soundness compliance plan with the FDIC
within 30 days of receiving a request for a compliance plan pursuant to
Sec. 308.302(b), unless the FDIC notifies the bank in writing that the
plan is to be filed within a different period.
(2) Other plans. If a bank is obligated to file, or is currently
operating under, a capital restoration plan submitted pursuant to
section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order
entered into pursuant to section 8 of the FDI Act, a formal or informal
agreement, or a response to a report of examination or report of
inspection, it may, with the permission of the FDIC, submit a
compliance plan under this section as part of that plan, order,
agreement, or response, subject to the deadline provided in paragraph
(a)(1) of this section.
(b) Contents of plan. The compliance plan shall include a
description of the steps the bank will take to correct the deficiency
and the time within which those steps will be taken.
(c) Review of safety and soundness compliance plans. Within 30 days
after receiving a safety and soundness compliance plan under this
subpart, the FDIC shall provide written notice to the bank of whether
the plan has been approved or seek additional information from the bank
regarding the plan. The FDIC may extend the time within which notice
regarding approval of a plan will be provided.
(d) Failure to submit or implement a compliance plan--(1)
Supervisory actions. If a bank fails to submit an acceptable plan
within the time specified by the FDIC or fails in any material respect
to implement a compliance plan, then the FDIC shall, by order, require
the bank to correct the deficiency and may take further actions
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the FDIC
may be required to take certain actions if the bank commenced
operations or experienced a change in control within the previous 24-
month period, or the
[[Page 35685]]
bank experienced extraordinary growth during the previous 18-month
period.
(2) Extraordinary growth. For purposes of paragraph (d)(1) of this
section, extraordinary growth means an increase in assets of more than
7.5 percent during any quarter within the 18-month period preceding the
issuance of a request for submission of a compliance plan, by a bank
that is not well capitalized for purposes of section 38 of the FDI Act.
For purposes of calculating an increase in assets, assets acquired
through merger or acquisition approved pursuant to the Bank Merger Act
(12 U.S.C. 1828(c)) will be excluded.
(e) Amendment of compliance plan. A bank that has filed an approved
compliance plan may, after prior written notice to and approval by the
FDIC, amend the plan to reflect a change in circumstance. Until such
time as a proposed amendment has been approved, the bank shall
implement the compliance plan as previously approved.
Sec. 308.304 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
(a) Notice of intent to issue order--.(1) In general. The FDIC
shall provide a bank prior written notice of the FDIC's intention to
issue an order requiring the bank to correct a safety and soundness
deficiency or to take or refrain from taking other actions pursuant to
section 39 of the FDI Act. The bank shall have such time to respond to
a proposed order as provided by the FDIC under paragraph (c) of this
section.
(2) Immediate issuance of final order. If the FDIC finds it
necessary in order to carry out the purposes of section 39 of the FDI
Act, the FDIC may, without providing the notice prescribed in paragraph
(a)(1) of this section, issue an order requiring a bank immediately to
take actions to correct a safety and soundness deficiency or take or
refrain from taking other actions pursuant to section 39. A bank that
is subject to such an immediately effective order may submit a written
appeal of the order to the FDIC. Such an appeal must be received by the
FDIC within 14 calendar days of the issuance of the order, unless the
FDIC permits a longer period. The FDIC shall consider any such appeal,
if filed in a timely matter, within 60 days of receiving the appeal.
During such period of review, the order shall remain in effect unless
the FDIC, in its sole discretion, stays the effectiveness of the order.
(b) Contents of notice. A notice of intent to issue an order shall
include:
(1) A statement of the safety and soundness deficiency or
deficiencies that have been identified at the bank;
(2) A description of any restrictions, prohibitions, or affirmative
actions that the FDIC proposes to impose or require;
(3) The proposed date when such restrictions or prohibitions would
be effective or the proposed date for completion of any required
action; and
(4) The date by which the bank subject to the order may file with
the FDIC a written response to the notice.
(c) Response to notice--(1) Time for response. A bank may file a
written response to a notice of intent to issue an order within the
time period set by the FDIC. Such a response must be received by the
FDIC within 14 calendar days from the date of the notice unless the
FDIC determines that a different period is appropriate in light of the
safety and soundness of the bank or other relevant circumstances.
(2) Contents of response. The response should include:
(i) An explanation why the action proposed by the FDIC is not an
appropriate exercise of discretion under section 39;
(ii) Any recommended modification of the proposed order; and
(iii) Any other relevant information, mitigating circumstances,
documentation, or other evidence in support of the position of the bank
regarding the proposed order.
(d) Agency consideration of response. After considering the
response, the FDIC may:
(1) Issue the order as proposed or in modified form;
(2) Determine not to issue the order and so notify the bank; or
(3) Seek additional information or clarification of the response
from the bank, or any other relevant source.
(e) Failure to file response. Failure by a bank to file with the
FDIC, within the specified time period, a written response to a
proposed order shall constitute a waiver of the opportunity to respond
and shall constitute consent to the issuance of the order.
(f) Request for modification or rescission of order. Any bank that
is subject to an order under this subpart may, upon a change in
circumstances, request in writing that the FDIC reconsider the terms of
the order, and may propose that the order be rescinded or modified.
Unless otherwise ordered by the FDIC, the order shall continue in place
while such request is pending before the FDIC.
Sec. 308.305 Enforcement of orders.
(a) Judicial remedies. Whenever a bank fails to comply with an
order issued under section 39, the FDIC may seek enforcement of the
order in the appropriate United States district court pursuant to
section 8(i)(1) of the FDI Act.
(b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of
the FDI Act, the FDIC may assess a civil money penalty against any bank
that violates or otherwise fails to comply with any final order issued
under section 39 and against any institution-affiliated party who
participates in such violation or noncompliance.
(c) Other enforcement action. In addition to the actions described
in paragraphs (a) and (b) of this section, the FDIC may seek
enforcement of the provisions of section 39 or this part through any
other judicial or administrative proceeding authorized by law.
5. A new part 364 is added to read as follows:
PART 364--STANDARDS FOR SAFETY AND SOUNDNESS
Sec.
364.100 Purpose.
364.101 Standards for safety and soundness.
Authority: 12 U.S.C. 1819(Tenth), 1831p-1.
Sec. 364.100 Purpose.
Section 39 of the Federal Deposit Insurance Act requires the
Federal Deposit Insurance Corporation to establish safety and soundness
standards. Pursuant to section 39, this part establishes safety and
soundness standards by guideline.
Sec. 364.101 Standards for safety and soundness.
The Interagency Guidelines Establishing Standards for Safety and
Soundness prescribed pursuant to section 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1831p-1), as set forth as appendix A to this
part apply to all insured state nonmember banks and to state-licensed
insured branches of foreign banks, that are subject to the provisions
of section 39 of the Federal Deposit Insurance Act.
6. A new appendix A is added to part 364 as set forth at the end of
the common preamble:
Appendix A to Part 364--Interagency Guidelines Establishing
Standards for Safety and Soundness
By order of the Board of Directors.
Dated at Washington, DC, this 21st day of March, 1995.
[[Page 35686]]
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
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DEPARTMENT OF THE TREASURY
OFFICE OF THRIFT SUPERVISION
12 CFR Chapter V
For the reasons set out in the preamble, chapter V of title 12 of
the Code of Federal Regulations is amended as follows:
1. A new part 570 is added to read as follows:
PART 570--SUBMISSION AND REVIEW OF SAFETY AND SOUNDNESS COMPLIANCE
PLANS AND ISSUANCE OF ORDERS TO CORRECT SAFETY AND SOUNDNESS
DEFICIENCIES
Sec.
570.1 Authority, purpose, scope and preservation of existing
authority.
570.2 Determination and notification of failure to meet safety and
soundness standards and request for compliance plan.
570.3 Filing of safety and soundness compliance plan.
570.4 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
570.5 Enforcement of orders.
Authority: 12 U.S.C. 1831p-1.
Sec. 570.1 Authority, purpose, scope and preservation of existing
authority.
(a) Authority. This part and the Guidelines in Appendix A to this
part are issued by the OTS pursuant to section 39 (section 39) of the
Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1) as added by
section 132 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA) (Pub. L. 102-242, 105 Stat. 2236 (1991)), and as
amended by section 956 of the Housing and Community Development Act of
1992 (Pub. L. 102-550, 106 Stat. 3895 (1992)), and as amended by
section 318 of the Community Development Banking Act of 1994 (Pub. L.
103-325, 108 Stat. 2160 (1994)).
(b) Purpose. Section 39 of the FDI Act requires the OTS to
establish safety and soundness standards. Pursuant to section 39, a
savings association may be required to submit a compliance plan if it
is not in compliance with a safety and soundness standard established
by guideline under section 39 (a) or (b). An enforceable order under
section 8 of the FDI Act may be issued if, after being notified that it
is in violation of a safety and soundness standard prescribed under
section 39, the savings association fails to submit an acceptable
compliance plan or fails in any material respect to implement an
accepted plan. This part establishes procedures for submission and
review of safety and soundness compliance plans and for issuance and
review of orders pursuant to section 39. Interagency Guidelines
Establishing Standards for Safety and Soundness pursuant to section 39
of the FDI Act are set forth in Appendix A to this part.
(c) Scope. This part and the Interagency Guidelines Establishing
Standards for Safety and Soundness in Appendix A to this part implement
the provisions of section 39 of the FDI Act as they apply to savings
associations.
(d) Preservation of existing authority. Neither section 39 of the
FDI Act nor this part in any way limits the authority of the OTS under
any other provision of law to take supervisory actions to address
unsafe or unsound practices, violations of law, unsafe or unsound
conditions, or other practices. Action under section 39 and this part
may be taken independently of, in conjunction with, or in addition to
any other enforcement action available to the OTS.
Sec. 570.2 Determination and notification of failure to meet safety
and soundness standards and request for compliance plan.
(a) Determination of failure to meet safety and soundness standard.
The OTS may, based upon an examination, inspection, or any other
information that becomes available to the OTS, determine that a savings
association has failed to satisfy the safety and soundness standards
contained in the Interagency Guidelines Establishing Standards for
Safety and Soundness as set forth in Appendix A to this part.
(b) Request for compliance plan. If the OTS determines that a
savings association has failed to meet a safety and soundness standard
pursuant to paragraph (a) of this section, the OTS may request by
letter or through a report of examination, the submission of a
compliance plan. The savings association shall be deemed to have notice
of the request three days after mailing or delivery of the letter or
report of examination by the OTS.
Sec. 570.3 Filing of safety and soundness compliance plan.
(a) Schedule for filing compliance plan--(1) In general. A savings
association shall file a written safety and soundness compliance plan
with the OTS within 30 days of receiving a request for a compliance
plan pursuant to Sec. 570.2(b), unless the OTS notifies the savings
association in writing that the plan is to be filed within a different
period.
(2) Other plans. If a savings association is obligated to file, or
is currently operating under, a capital restoration plan submitted
pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act, a
formal or informal agreement, or a response to a report of examination,
it may, with the permission of the OTS, submit a compliance plan under
this section as part of that plan, order, agreement, or response,
subject to the deadline provided in paragraph (a)(1) of this section.
(b) Contents of plan. The compliance plan shall include a
description of the steps the savings association will take to correct
the deficiency and the time within which those steps will be taken.
(c) Review of safety and soundness compliance plans. Within 30 days
after receiving a safety and soundness compliance plan under this
subpart, the OTS shall provide written notice to the savings
association of whether the plan has been approved or seek additional
information from the savings association regarding the plan. The OTS
may extend the time within which notice regarding approval of a plan
will be provided.
(d) Failure to submit or implement a compliance plan. If a savings
association fails to submit an acceptable plan within the time
specified by the OTS or fails in any material respect to implement a
compliance plan, then the OTS shall, by order, require the savings
association to correct the deficiency and may take further actions
provided in section 39(e)(2)(B) of the FDI Act. Pursuant to section
39(e)(3), the OTS may be required to take certain actions if the
savings association commenced operations or experienced a change in
control within the previous 24-month period, or the savings association
experienced extraordinary growth during the previous 18-month period.
(e) Amendment of compliance plan. A savings association that has
filed an approved compliance plan may, after prior written notice to
and approval by the OTS, amend the plan to reflect a change in
circumstance. Until such time as a proposed amendment has been
approved, the savings association shall implement the compliance plan
as previously approved.
Sec. 570.4 Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.
(a) Notice of intent to issue order--(1) In general. The OTS shall
provide a savings association prior written notice of the OTS's
intention to issue an order requiring the savings association to
correct a safety and soundness deficiency or to take or refrain from
taking other actions pursuant to section
[[Page 35687]]
39 of the FDI Act. The savings association shall have such time to
respond to a proposed order as provided by the OTS under paragraph (c)
of this section.
(2) Immediate issuance of final order. If the OTS finds it
necessary in order to carry out the purposes of section 39 of the FDI
Act, the OTS may, without providing the notice prescribed in paragraph
(a)(1) of this section, issue an order requiring a savings association
immediately to take actions to correct a safety and soundness
deficiency or to take or refrain from taking other actions pursuant to
section 39. A savings association that is subject to such an
immediately effective order may submit a written appeal of the order to
the OTS. Such an appeal must be received by the OTS within 14 calendar
days of the issuance of the order, unless the OTS permits a longer
period. The OTS shall consider any such appeal, if filed in a timely
manner, within 60 days of receiving the appeal. During such period of
review, the order shall remain in effect unless the OTS, in its sole
discretion, stays the effectiveness of the order.
(b) Contents of notice. A notice of intent to issue an order shall
include:
(1) A statement of the safety and soundness deficiency or
deficiencies that have been identified at the savings association;
(2) A description of any restrictions, prohibitions, or affirmative
actions that the OTS proposes to impose or require;
(3) The proposed date when such restrictions or prohibitions would
be effective or the proposed date for completion of any required
action; and
(4) The date by which the savings association subject to the order
may file with the OTS a written response to the notice.
(c) Response to notice--(1) Time for response. A savings
association may file a written response to a notice of intent to issue
an order within the time period set by the OTS. Such a response must be
received by the OTS within 14 calendar days from the date of the notice
unless the OTS determines that a different period is appropriate in
light of the safety and soundness of the savings association or other
relevant circumstances.
(2) Contents of response. The response should include:
(i) An explanation why the action proposed by the OTS is not an
appropriate exercise of discretion under section 39 of the FDI Act;
(ii) Any recommended modification of the proposed order; and
(iii) Any other relevant information, mitigating circumstances,
documentation, or other evidence in support of the position of the
savings association regarding the proposed order.
(d) OTS consideration of response. After considering the response,
the OTS may:
(1) Issue the order as proposed or in modified form;
(2) Determine not to issue the order and so notify the savings
association; or
(3) Seek additional information or clarification of the response
from the savings association, or any other relevant source.
(e) Failure to file response. Failure by a savings association to
file with the OTS, within the specified time period, a written response
to a proposed order shall constitute a waiver of the opportunity to
respond and shall constitute consent to the issuance of the order.
(f) Request for modification or rescission of order. Any savings
association that is subject to an order under this subpart may, upon a
change in circumstances, request in writing that the OTS reconsider the
terms of the order, and may propose that the order be rescinded or
modified. Unless otherwise ordered by the OTS, the order shall continue
in place while such request is pending before the OTS.
Sec. 570.5 Enforcement of orders.
(a) Judicial remedies. Whenever a savings association fails to
comply with an order issued under section 39 of the FDI Act, the OTS
may seek enforcement of the order in the appropriate United States
district court pursuant to section 8(i)(1) of the FDI Act.
(b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the
FDI Act, the OTS may assess a civil money penalty against any savings
association that violates or otherwise fails to comply with any final
order issued under section 39 and against any savings association-
affiliated party who participates in such violation or noncompliance.
(c) Other enforcement action. In addition to the actions described
in paragraphs (a) and (b) of this section, the OTS may seek enforcement
of the provisions of section 39 of the FDI Act or this part through any
other judicial or administrative proceeding authorized by law.
2. A new appendix A is added to part 570 as set forth at the end of
the common preamble:
Appendix A to Part 570--Interagency Guidelines Establishing
Standards for Safety and Soundness
Dated: May 25, 1995.
By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 95-16563 Filed 7-7-95; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P
