[Federal Register Volume 63, Number 4 (Wednesday, January 7, 1998)]
[Proposed Rules]
[Pages 1044-1050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-205]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 563, 563b
[No. 97-128]
RIN 1550-AA72
Capital Distributions
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of Proposed Rulemaking.
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SUMMARY: The Office of Thrift Supervision (OTS) is proposing amendments
to its capital distributions regulation. Today's rule updates,
simplifies, and streamlines this regulation to reflect OTS's
implementation of the system of prompt corrective action (PCA)
established under the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). The proposal is also designed to conform OTS's
capital distribution requirements to those of the other banking
agencies.
DATES: Comments must be received on or before March 9, 1998.
ADDRESSES: Send comments to Manager, Dissemination Branch, Records
Management and Information Policy, Office of Thrift Supervision, 1700 G
Street, N.W., Washington, DC 20552, Attention Docket No. 97-128. These
submissions may be hand-delivered to 1700 G Street, N.W., from 9:00
a.m. to 5:00 p.m. on business days; they may be sent by facsimile
transmission to FAX Number (202) 906-7755; or they may be sent by e-
mail: public.info@ots.treas.gov. Those commenting by e-mail should
include their name and telephone number. Comments will be available for
inspection at 1700 G Street, N.W., from 9:00 a.m. until 4:00 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT: Edward J. O'Connell, III, Project
Manager, (202) 906-5694; Robyn Dennis, Manager, (202) 906-5751,
Supervision Policy; Evelyne Bonhomme, Counsel (Banking and Finance),
(202) 906-7052; Karen Osterloh, Assistant Chief Counsel, (202) 906-
6639, Regulations and Legislation Division, Chief Counsel's Office,
Office of Thrift Supervision, 1700 G Street NW., Washington, D.C.
20552.
SUPPLEMENTARY INFORMATION:
I. Introduction
The OTS is proposing to update, simplify, and streamline its
capital distributions regulation. This proposal follows a detailed
review of the regulation to determine whether it should be revised,
reduces burden consistent with statutory requirements, and is written
in a clear, straightforward style. Today's proposal is made pursuant to
the Regulatory Reinvention Initiative of the Vice President's National
Performance Review and section 303 of the Community Development and
Regulatory Improvement Act of 1994 (CDRIA). Consistent with section
303, the proposed amendments would bring the OTS's capital
distributions regulation into greater conformity with the requirements
of the Office of the Comptroller of the Currency (OCC), the Federal
Reserve Board (FRB), and the Federal Deposit Insurance Corporation
(FDIC).
The proposal reduces regulatory burden and compliance costs
associated with some capital distributions. Under the existing rules,
all savings associations must file a notice or an application for
approval before making any capital distribution. Under the proposed
rule, however, certain savings associations would not be required to
file with the OTS. Specifically, for savings associations that would
remain at least adequately capitalized following the capital
distribution and meet other specified requirements, the OTS is
proposing to eliminate any requirement
[[Page 1045]]
for notice or application for cash dividends below a specified amount.
An application, however, would always be required for any capital
distribution in excess of the specified amount. In addition, a notice
or application would be required under other circumstances, such as
where a distribution would reduce the amount of or retire common or
preferred stock (including stock repurchases) or debt instruments
included in capital.
II. Background
In 1990, the OTS adopted a capital distributions regulation, 12 CFR
563.134.1 This regulation was designed to apply a uniform
regulatory approach to all capital distributions made by savings
associations, including dividends, stock repurchases, and cash-out
mergers. The rule established a ``tiered'' approach, which permitted a
savings association to make distributions based on its level of
capitalization. Savings associations that met fully phased-in capital
requirements had greater flexibility to make capital distributions than
other savings associations. All savings associations were required to
provide notice to the OTS, or to apply for approval, before making any
capital distribution. When the OTS adopted this rule, the thrift
industry was generally undercapitalized and thrifts were under pressure
to increase capital to meet rapidly rising standards. The regulation
was intended to restrict capital distributions by savings associations
that did not meet the capital requirements imposed in the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989.
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\1\ 55 FR 17185 (July 2, 1990).
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In September 1992, the OTS promulgated its Prompt Corrective Action
Final Rule (PCA Rule).2 The PCA Rule implemented section 131
of FDICIA, which created a system of supervisory actions indexed to
capital levels.3 Well-capitalized and adequately capitalized
insured depository institutions are generally not subject to PCA
restrictions.4 However, undercapitalized, significantly
undercapitalized, and critically undercapitalized categories are
subject to increasing levels of supervisory restrictions. Under the PCA
Rule, OTS uses the ratio of total capital to risk-weighted assets, the
ratio of core capital to risk-weighted assets, and the ratio of core
capital to total average assets (the leverage ratio) to determine a
thrift's PCA category.5
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\2\ 57 FR 44866 (September 29, 1992).
\3\ Section 131 of FDICIA added a new section 38 to the Federal
Deposit Insurance Act. The provision is codified at 12 U.S.C. 1831o.
The OTS's implementing regulations appear at 12 CFR Part 565 (1997).
\4\ Under certain circumstances, an institution may be
reclassified to a lower capital category or treated as if it were in
a lower capital category. See 12 CFR 565.4(c) (1997).
\5\ Core capital, which is defined in Part 567 of the OTS's
regulations, is the thrift capital measure comparable to Tier 1
capital for banks. 12 CFR Part 567 (1997).
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The PCA statute prohibits an insured depository institution from
making a capital distribution if, after making the distribution, the
institution would be undercapitalized. 12 U.S.C. 1831o(d)(1). In the
preamble to the 1992 PCA rule, the OTS stated ``that the permissibility
of capital distributions will be determined by the [PCA] regulations. A
savings association permitted to make a capital distribution under the
[PCA] regulations may do so if the amount and type of distribution
would be permitted under [the capital distribution regulation,
Sec. 563.134].'' 6 The OTS also indicated that it would
review its capital distributions regulation and consider making
amendments that may be necessary based on the PCA statute.7
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\6\ See 57 FR at 44868, fn.4.
\7\ Id.
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In December 1994, the OTS proposed to revise its capital
distributions regulation to reflect the PCA rule and make other
changes.8 After reconsidering the issues underlying the 1994
proposal, the OTS has decided to make further revisions to the capital
distributions rules. Accordingly, in a separate document, published in
today's Federal Register, the OTS has withdrawn its 1994 proposal in
favor of today's proposed revisions.
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\8\ See 59 FR 62356 (December 5, 1994).
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III. Summary of Proposed Rule
Today's proposal updates, simplifies, and streamlines the OTS
capital distributions rule in light of the OTS implementation of the
PCA requirements. Today's proposal makes changes designed to conform
the OTS capital distributions regulation to the rules of the other
banking agencies.
The proposed rule would add a new subpart E to part 563 to govern
capital distributions by savings associations. The new subpart utilizes
plain language drafting techniques consistent with National Performance
Review instructions and new guidance in the Federal Register Document
Drafting Handbook (January 1997 edition). The primary goal of plain
language drafting is to make regulations easier for users to
understand. The OTS intends to use plain language drafting in other
regulatory projects to the extent possible. The provisions of the
proposed new subpart are discussed below.
Proposed Sec. 563.140--What Does This Subpart Cover?
Section 563.140 of the proposed rule describes the scope of the
regulation. New subpart E would apply to all capital distributions made
by savings associations. Because the application of the capital
distributions rule to operating subsidiaries raises a variety of
questions, the OTS specifically requests comment on this issue.
Proposed Sec. 563.141--What Is a Capital Distribution?
Section 563.141 would define the term ``capital distribution'' to
reflect the PCA statutory definition at 12 U.S.C. 1831o(b)(2)(B). The
proposed rule defines a capital distribution, in part, as a
distribution of cash or other property to a savings association's
owners, made on account of their ownership.9 As provided in
the statute, the proposed definition excludes dividends consisting only
of a savings association's shares or rights to purchase
shares.10
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\9\ A distribution made by a Subchapter S corporation, as
defined in 26 U.S.C. 1361, to its owners, including a distribution
intended to cover a shareholder's personal tax liability for the
shareholder's proportionate share of the taxable income of the
institution, is considered to be a capital distribution under this
rule.
\10\ 12 U.S.C. 1831o(b)(2)(B)(i)(I).
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The statute also excludes from the definition of capital
distribution any amount paid on deposits of a mutual or cooperative
institution that the OTS determines is not a distribution for the
purposes of 12 U.S.C. 1831o.11 In accordance with section
1831o(b)(2)(B)(i)(II), the OTS has determined that payments that a
mutual savings association is required to make under the terms of a
deposit instrument generally are not considered to be capital
distributions.12 Accordingly, these payments are not subject
to the capital distributions rule unless either the OTS or FDIC finds
that the payment is, in substance, a distribution of capital. See
proposed Sec. 563.141(d), discussed below.
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\11\ 12 U.S.C. 1831o(b)(2)(B)(i)(II). The OTS recently revised
its regulations governing the payment of interest or earnings on
deposits. See 62 FR 54759 (October 22, 1997) (final rule) and 62 FR
15626 (April 2, 1997) (proposed rule).
\12\ Although payments to accountholders may, under certain
circumstances, be capital distributions under the regulation, any
treatment of mutual accountholders as ``owners'' under the capital
distributions regulation should not be construed as having any
effect on the concept of ``ownership'' of a mutual association under
any other statute or regulation.
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Consistent with the statutory definition, the proposed regulatory
[[Page 1046]]
definition includes a savings association's payment to repurchase,
redeem, retire, or otherwise acquire any of its shares or other
ownership interests. In addition, payments to repurchase, redeem, or
otherwise acquire debt instruments included in total capital, and any
extension of credit to finance an affiliate's acquisition of those
shares or interests would be capital distributions under the proposed
rule.13
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\13\ Under this provision, payments from a savings association
to an employee stock option plan (ESOP) trust to make payments on a
loan previously contracted by the ESOP to purchase shares of the
savings association's stock are not considered to be capital
distributions. Rather, such payments would be treated as
compensation by the savings association to its employees.
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Consistent with section 1831o(b)(2)(B)(iii), proposed
Sec. 563.141(d) states that a capital distribution includes any
transaction the OTS or the FDIC determines to be in substance a
distribution of capital. The OTS may make such determinations by order
or by regulation. Pursuant to the authority granted under section
1831o(b)(2)(B)(iii), the proposal would add one provision to the
definition of capital distribution not specifically addressed in the
statutory definition. Any direct or indirect payment of cash or other
property to owners or affiliates made in connection with a corporate
restructuring would be a capital distribution under this provision. The
proposed rule would apply to any corporate restructuring, including,
for example, cash-out mergers and internal reorganizations. Capital
distributions would also include payment to shareholders of an
association or shareholders of a holding company by an acquiring
association to acquire ownership of the association, other than a
distribution of shares. The OTS believes that such payments are in
substance a distribution of capital. This provision is based on the
existing OTS definition of capital distribution at
Sec. 563.134(a)(1)(iv).
In contrast, the OTS does not propose to retain existing
Sec. 563.134(a)(1)(iii), which states that a capital distribution
includes other distributions charged against the capital accounts of an
association. The OTS believes that this provision would be redundant
since the distributions it captures would generally be covered under
the proposed definition of capital distribution.14 The OTS
specifically solicits comments on whether existing
Sec. 563.134(a)(1)(iii) should be added to the final rule.
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\14\ See proposed Sec. 563.141(a)-(c).
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Proposed Sec. 563.142--What Other Definitions Apply to This Subpart?
Proposed Sec. 563.142 sets forth other definitions that apply to
capital distributions. Significant definitions are highlighted below.
To implement the proposed definition of capital distribution at
Sec. 563.141(b) and (c), which includes certain payments to affiliates,
the proposed rule would add a definition of affiliate. Under the
proposed rule, an affiliate would be any company that controls, is
controlled by, or is under common control with, another company. The
terms ``control'' and ``company'' would have the meaning given to those
terms in 12 U.S.C. 1841(a)(2) and (b) respectively.
The proposed rule would also add a definition of retained net
income. This definition would be introduced in connection with a new
provision requiring an application whenever a proposed capital
distribution exceeds a specified amount. As discussed below, an
application is required whenever the total amount of a capital
distribution exceeds a prescribed limit based on net income for the
year to date plus retained net income for the preceding two
years.15
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\15\ See proposed Sec. 563.143(a)(2).
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Proposed Sec. 563.142 would retain the current regulation's
definitions of capital, net income, and shares with minor
modifications.16 Moreover, the proposed rule would eliminate
definitions related to capital tier thresholds.17 These
thresholds have become obsolete as the thrift industry raised its
capital to required levels and the phase-in of capital requirements was
completed on December 30, 1992.
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\16\ See existing 12 CFR 563.134(a)(2), (5) and (6) (1997).
\17\ See existing 12 CFR 563.134(a)(3), (4), (7), (8), (9) and
(10) (1997).
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Proposed Sec. 563.143--Must I File With the OTS?
The current rule requires all savings associations to file either a
notice or an application with the OTS before making a capital
distribution. Today's proposal would allow savings associations to make
certain capital distributions without filing a notice or application
under certain circumstances. For savings associations that would remain
at least adequately capitalized following the capital distribution and
that meet other specified requirements, the OTS is proposing to
eliminate any requirement for notice or application for cash dividends
below specified amounts.
Section 563.143(a) would describe when a savings association must
file an application. Under this proposed provision, a savings
association must file an application if the association is not eligible
for expedited treatment under OTS's Application Processing Regulation
at 12 CFR 516.3(a), or if the capital distribution exceeds specified
amounts.
Under Sec. 516.3(a), a savings association is eligible for
expedited treatment if it: (1) has a composite rating of 1 or 2 under
the Uniform Financial Institutions Rating System (UFIRS), as revised by
the Federal Financial Institutions Examination Council;18
(2) has a CRA rating of satisfactory or better; (3) has a Compliance
rating of 1 or 2; (4) is meeting all of its capital requirements under
part 567; and (5) has not been notified by supervisory personnel that
it is a problem association or a savings association in troubled
condition. Under existing Sec. 563.134(b)(5), the OTS may notify an
association that it is ``in need of more than normal supervision,'' and
subject it to more rigorous capital distribution requirements. For
example, such an association may be required to file an application for
prior approval of a distribution, rather than a notice of the
distribution. The phrase ``in need of more than normal supervision,''
however, is not defined in existing Sec. 563.134 nor used elsewhere in
OTS regulations. The proposed rule would retain similar OTS discretion
on this point by requiring an application from any institution that
does not meet the requirements for expedited treatment (including the
problem association or troubled condition restrictions).19
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\18\ 61 FR 67021, 67024-67029 (December 19, 1996). The OTS
issued a final rule making conforming changes to its regulations
that cross-reference the UFIRS. 62 FR 3779, 3780 (January 27, 1997).
\19\ See proposed Secs. 563.143(a)(1).
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A savings association must also file an application with the OTS if
the amount of the capital distribution exceeds a specified amount.
Under proposed Sec. 563.143(a)(2), an application would be required if
the total amount of all capital distributions, including the proposed
capital distribution, for the applicable calendar year would exceed an
amount equal to the savings association's net income for that year to
date plus the savings association's retained net income for the
preceding two years. Thus, without prior application to the OTS, only
undistributed net income for the prior two years may be distributed in
addition to the current year's undistributed net income. This proposed
restriction is similar to
[[Page 1047]]
limitations imposed upon banks and should promote interagency
regulatory conformity consistent with section 303 of CDRIA. It is based
on the requirement currently imposed upon national banks under 12
U.S.C. 60 and OCC regulations at 12 CFR 5.64.20 FRB
regulations at 12 CFR 208.19(b) impose a similar requirement on state
member banks.
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\20\ Under 12 U.S.C. 60 and 12 CFR 5.64(1997), a national bank
may not declare a dividend if the total amount of all dividends
(common and preferred), including the proposed dividend, declared by
the national bank in any calendar year exceeds the total of the
national bank's retained net income of that year to date, combined
with its retained net income of the preceding two years, unless the
dividend is approved by the OCC.
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Proposed Sec. 563.143(b) describes when a savings association must
file a notice of a capital distribution. This proposed section would
apply whenever an application is not otherwise required under
Sec. 563.143(a). A savings association would be required to file a
notice if it meets any one of four criteria.
First, a notice would be required if the savings association would
not be at least adequately capitalized following the distribution. This
requirement ensures that a savings association will not violate the PCA
provision prohibiting a savings association from declaring any dividend
or making any other capital distribution if, following the
distribution, the institution would be undercapitalized.21
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\21\ 12 U.S.C. 1831o(d)(1)(A).
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The second criterion is similar to restrictions imposed on upon
banks and should promote interagency regulatory conformity consistent
with section 303 of CDRIA. Section 563.143(b)(2) is based on section
18(i) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1828(i)).
Under this statute, no insured state nonmember bank may, without the
FDIC's prior consent, reduce the amount, or retire any part of its
common or preferred capital stock, or retire any part of its capital
notes and debentures.22 Section 563.143(b)(2) would place a
comparable restraint on savings associations by requiring a notice
where a capital distribution would reduce the amount of, or retire any
part of the savings association's common or preferred stock, or retire
any part of debt instruments such as notes or debentures included in
capital under part 567. Under the proposed rule, the reduction of the
amount of stock would include the repurchase of outstanding stock as
treasury stock. The OTS specifically requests comment on whether a
savings association should be required to file a notice for such stock
repurchases.
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\22\ A similar, but not identical, provision applies to national
banks. See 12 U.S.C. 56 and 59.
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Proposed Sec. 563.143 would include a limited exception to the
FDIA-based requirement. If a notice or application is not otherwise
required under Sec. 563.143(a) and (b), a savings association would not
be required to file if the savings association is making a regular
payment under a debt instrument approved by the OTS under 12 CFR
563.81.
Under the third criterion, a savings association would be required
to file a notice if the proposed distribution violates a prohibition
contained in any applicable statute, regulation, or agreement between
the savings association and the OTS (or the FDIC), or a condition
imposed on the savings association in an OTS-approved application or
notice.
Finally, under Sec. 563.143(b)(4), a savings association that is a
subsidiary of a savings and loan holding company would be required to
file a notice, unless an application is otherwise required. This
provision implements 12 U.S.C. 1467a(f), which requires such savings
associations to notify OTS at least 30 days before the proposed
declaration of any dividend.
If neither the savings association nor the proposed capital
distribution meet any of the criteria listed in Sec. 563.143(a) or (b),
the savings association is not required to file a notice or an
application before making a distribution. See proposed Sec. 563.143(c).
Proposed Sec. 563.144--How Do I File With the OTS?
Proposed Sec. 563.144 contains the requirements governing the
filing of capital distribution notices or applications with the OTS.
Under this proposed section, an application or notice must be in
narrative form, include all relevant information concerning the
proposed capital distribution, including the amount, timing, and type
of distribution, and demonstrate compliance with Sec. 563.146, which
addresses the criteria for OTS disapproval of notices and denial of
applications. In addition, an application must demonstrate compliance
with OTS approval standards at Sec. 516.3(b)(2). See proposed
Sec. 563.144(a).
Current Sec. 563.134(c) permits savings associations to seek
approval or provide notice by submitting schedules of proposed capital
distributions. Proposed Sec. 563.144(b) would permit a savings
association to file schedules of capital distributions it proposes to
make over a period not to exceed 12 months.
All notices and applications must be filed at least 30 days before
the proposed declaration of dividend or approval of the proposed
capital distribution by the savings association's board of directors.
See proposed Sec. 563.144(c). All notices and applications would be
processed under 12 CFR Secs. 516.1 through 516.3.
Proposed Sec. 563.145--May I Combine My Notice or Application With
Other Notices or Applications?
Consistent with the current regulation, the proposed rule would
allow a savings association to combine a capital distribution notice or
application with any related notice or application filed with the OTS
under any regulation. To combine notices, the association must state
that the related notice or application is intended to serve as a notice
or application under the capital distributions regulation.
Additionally, the savings association must submit the combined notice
or application in a timely manner.
Proposed Sec. 563.146--Will the OTS Permit My Capital Distribution?
Section 563.146 would state that the OTS may disapprove a notice or
deny an application submitted under Sec. 563.143 under three
circumstances. First, Sec. 563.146(a) would state that the OTS may
disapprove a notice or deny an application if, following the
distribution, the savings association would be undercapitalized. This
provision reflects the PCA prohibition at 12 U.S.C. 1831o(d)(1)(B). If
the savings association would be undercapitalized, the OTS would
determine whether the capital distribution falls within the limited
statutory exception permitting the OTS, in consultation with the FDIC,
to approve an undercapitalized institution's repurchase, redemption,
retirement or acquisition of shares or ownership interests. To be
exempted, the distribution must be made in connection with the issuance
of additional shares in at least an equivalent amount, and must reduce
the institution's financial obligations or otherwise improve its
financial condition. 12 U.S.C. 1831o(d)(1)(B).
Second, under proposed Sec. 563.146(b) the OTS may disapprove a
notice or deny an application where the OTS determines that the
proposed capital distribution raises safety or soundness concerns. The
OTS will consider the amount of the capital distribution in determining
whether the distribution raises safety and soundness concerns. Under
today's proposal, a savings association would not be required to file a
notice or application for a cash distribution if, in addition to
satisfying other regulatory requirements, the total
[[Page 1048]]
amount of all distributions (including the proposed distributions) for
the applicable calendar year does not exceed net income for that year
to date plus the retained net income for the preceding two years. The
OTS may permit a capital distribution in excess of this standard upon
application, but may deny an application for such a distribution if it
raises safety and soundness concerns.
Finally, Sec. 563.146(c) would retain the existing provision that a
savings association may not make a distribution that violates a
prohibition contained in any statute, regulation, or agreement between
the savings association and the OTS or the FDIC or condition imposed on
the savings association in an OTS-approved application or
notice.23 If there is such a violation, the OTS would
determine whether it may and should permit the capital distribution
notwithstanding the prohibition.
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\23\ See current 12 CFR 563.134(b)(6) (1997).
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Miscellaneous
The current regulation at 12 CFR 563.134(e)(2) and (3) addresses
the effect of the capital distributions rule on more stringent and less
stringent provisions or conditions imposed in written agreements
between a savings association and the OTS, or imposed on a savings
association in an OTS-approved application or notice. The OTS believes
that these provisions would have a limited application, and has not
included them in the proposed rule. The OTS specifically requests
comments on whether these provisions should be retained in the final
rule.
The proposed rule includes appropriate revisions modifying cross
citations to existing Sec. 563.134.
IV. Executive Order 12866
The Director of the OTS has determined that this proposed
regulation does not constitute a ``significant regulatory action'' for
purposes of Executive Order 12866.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this proposed regulation will not have a significant
economic impact on a substantial number of small entities. The proposal
merely conforms the capital distributions regulation to standards
already in place for all institutions as a result of PCA and makes
other revisions designed to lower paperwork and other burdens on
savings associations.
VI. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
federal mandate that may result in expenditure by state, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. OTS has determined that the
proposed rule will not result in expenditures by state, local, or
tribal governments or by the private sector of $100 million or more. As
discussed in the preamble, the proposal merely conforms the capital
distributions regulation to standards already in place for all
institutions as a result of PCA and makes other revisions designed to
lower paperwork and other burdens on savings associations. Accordingly,
this rulemaking is not subject to section 202 of the Unfunded Mandates
Act.
VII. Paperwork Reduction Act
OTS invites comment on:
(1) Whether the proposed information collection contained in this
proposal is necessary for the proper performance of OTS's functions,
including whether the information has practical utility;
(2) The accuracy of OTS's estimate of the burden of the proposed
information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(5) Estimates of capital and start-up costs of operation,
maintenance and purchases of services to provide information.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
The collection of information requirements contained in this
proposal have been submitted to the Office of Management and Budget for
review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collections of information should be
sent to the Office of Management and Budget, Paperwork Reduction
Project (1550-0059), Washington, D.C. 20503, with copies to the
Regulations and Legislation Division (1550-0059), Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, N.W., Washington,
D.C. 20552.
The collection of information requirements in this proposed rule
are found in 12 CFR 563.143-563.146. OTS requires this information for
the proper supervision of capital distributions by Federal savings
associations. The likely respondents/recordkeepers are Federal savings
associations.
Estimated average annual burden hours per respondent/recordkeeper:
4.
Estimated number of respondents: 688.
Estimated total annual reporting and recordkeeping burden: 2752.
Start up costs to respondents: none.
List of Subjects
12 CFR Part 563
Accounting, Advertising, Crime, Currency, Investments, Reporting
and recordkeeping requirements, Savings associations, Securities,
Security bonds.
12 CFR Part 563b
Reporting and recordkeeping requirements, Savings associations,
Securities.
Accordingly, the Office of Thrift Supervision hereby proposes to
amend chapter V, title 12 of the Code of Federal Regulations as set
forth below.
PART 563--OPERATIONS
1. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1820, 1828, 3806; 42 U.S.C. 4106.
Sec. 563.134 [Removed]
2. Section 563.134 is removed.
3. Subpart E is revised to read as follows:
Subpart E--Capital Distributions
Sec.
563.140 What does this subpart cover?
563.141 What is a capital distribution?
563.142 What other definitions apply to this subpart?
563.143 Must I file with the OTS?
563.144 How do I file with the OTS?
563.145 May I combine my notice or application with other notices
or applications?
563.146 Will the OTS permit my capital distribution?
[[Page 1049]]
Subpart E--Capital Distributions
Sec. 563.140 What does this subpart cover?
This subpart applies to all capital distributions made by a savings
association (``you'').
Sec. 563.141 What is a capital distribution?
A capital distribution is:
(a) A distribution of cash or other property to your owners made on
account of their ownership, but excludes:
(1) Any dividend consisting only of your shares or rights to
purchase your shares; or
(2) If you are a mutual savings association, any payment that you
are required to make under the terms of a deposit instrument and any
other amount paid on deposits that the OTS determines is not a
distribution for the purposes of this section.
(b) Your payment to repurchase, redeem, retire or otherwise acquire
any of your shares or other ownership interests, any payment to
repurchase, redeem, retire, or otherwise acquire debt instruments
included in your total capital under Sec. 567.5 of this chapter, and
any extension of credit to finance an affiliate's acquisition of your
shares or interests.
(c) Any direct or indirect payment of cash or other property to
owners or affiliates made in connection with a corporate restructuring.
This includes a payment to shareholders of an association or
shareholders of a holding company by an acquiring association to
acquire ownership of the association, other than a distribution of
shares.
(d) Any transaction that the OTS or the Corporation determines, by
order or regulation, to be in substance a distribution of capital.
Sec. 563.142 What other definitions apply to this subpart?
The following definitions apply to this subpart:
Affiliate means any company that controls, is controlled by, or is
under common control with another company. The terms ``control'' and
``company'' have the meaning given to those terms in 12 U.S.C.
1841(a)(2) and (b) respectively.
Capital means total capital as defined under Sec. 567.5(c) of this
chapter.
Net income means your net income computed in accordance with
generally accepted accounting principles.
Retained net income means your net income for a specified period
less total capital distributions declared in that period.
Shares means common and preferred stock, and any options, warrants,
or other rights for the acquisition of such stock. The term ``share''
also includes convertible securities upon their conversion into common
or preferred stock. The term does not include convertible debt
securities prior to their conversion into common or preferred stock or
other securities that are not equity securities at the time of a
capital distribution.
Sec. 563.143 Must I file with the OTS?
Whether and what you must file with the OTS depends on whether you
and your proposed capital distribution fall within certain criteria.
(a) Application required.
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If: Then you:
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(1) You are not eligible for expedited treatment under Sec. Must file an application with the OTS.
516.3(a) of this chapter.
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(2) The total amount of all of your capital distributions Must file an application with the OTS.
(including the proposed capital distribution) for the applicable
calendar year exceeds your net income for that year to date plus
your retained net income for the preceding two years.
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(b) Notice required.
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If you are not required to file an application under paragraph (a)
of this section, but: Then you:
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(1) You will not be at least adequately capitalized, as set forth Must file a notice with the OTS.
in Sec. 565.4(b)(2) of this chapter.
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(2) Your proposed capital distribution would reduce the amount of Must file a notice with the OTS.
or retire any part of your common or preferred stock or retire any
part of debt instruments such as notes or debentures included in
capital under part 567 of this chapter (other than regular
payments required under a debt instrument approved under Sec.
563.181).
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(3) Your proposed capital distribution would violate a prohibition Must file a notice with the OTS.
contained in any applicable statute, regulation, or agreement
between you and the OTS (or the Corporation, or violate a
condition imposed on you in an OTS-approved application or notice.
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(4) You are a subsidiary of a savings and loan holding company. Must file a notice with the OTS.
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(c) No prior notice required.
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If neither you nor your proposed capital distribution meet any of Then you do not need to file a notice or an
the criteria listed in paragraphs (a) and (b) of this section. application with the OTS before making a
capital distribution.
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[[Page 1050]]
Sec. 563.144 How do I file with the OTS?
(a) Contents. Your notice or application must:
(1) Be in narrative form.
(2) Include all relevant information concerning the proposed
capital distribution, including the amount, timing, and type of
distribution.
(3) Demonstrate compliance with Sec. 563.146. If you have filed an
application, your application must also demonstrate compliance with the
standards of Sec. 516.3(b)(2) of this chapter.
(b) Schedules. Your notice or application may include a schedule
proposing capital distributions over a specified period, not to exceed
12 months.
(c) Timing. You must file your notice or application at least 30
days before the proposed declaration of dividend or approval of the
proposed capital distribution by your board of directors.
Sec. 563.145 May I combine my notice or application with other notices
or applications?
Yes. You may combine the notice or application required under
Sec. 563.143 with any related notice or application filed with the OTS
under any provision of this chapter, if:
(a) You state that the related notice or application is intended to
serve as a notice or application under this subpart; and
(b) You submit the notice or application in a timely manner.
Sec. 563.146 Will the OTS permit my capital distribution?
The OTS may disapprove your notice or deny your application filed
under Sec. 563.143, if the OTS makes any of the following
determinations.
(a) You will be undercapitalized, significantly undercapitalized,
or critically undercapitalized as set forth in Sec. 565.4(b) of this
chapter, following the capital distribution. If so, the OTS will
determine if your capital distribution is permitted under 12 U.S.C.
1831o(d)(1)(B).
(b) Your proposed capital distribution raises safety or soundness
concerns.
(c) Your proposed capital distribution violates a prohibition
contained in any statute, regulation, agreement between you and the OTS
(or the Corporation), or a condition imposed on you in an OTS-approved
application or notice. If so, the OTS will determine whether it may
permit your capital distribution notwithstanding the prohibition or
condition.
PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM
4. The authority citation for part 563b continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15
U.S.C. 78c, 78l, 78m, 78n, 78w.
Sec. 563b.3 [Amended]
5. Section 563b.3(g)(2) is amended by removing the phrase
``Sec. 563.134'', and by adding in lieu thereof the phrase
``Secs. 563.140-563.146''.
Dated: December 12, 1997.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-205 Filed 1-6-98; 8:45 am]
BILLING CODE 6720-01-P
