01-17871. Liquidity

AGENCY:

Office of Thrift Supervision, Treasury.

ACTION:

Final rule.

SUMMARY:

The Office of Thrift Supervision (OTS) is adopting as final an interim rule that removed the regulation that required a savings association to maintain an average daily balance of liquid assets of at least four percent of its liquidity base, and retained a provision requiring a savings association to maintain sufficient liquidity to ensure its safe and sound operation. The interim rule implemented the statutory repeal of the percentage liquidity requirement.

DATES:

Effective July 18, 2001.

FOR FURTHER INFORMATION CONTACT:

Josephine Battle, Program Analyst Trainee, Office of Corporate Governance and Controls, Office of Supervision Policy, [phone]; or Sally Warner Watts, Counsel (Banking and Finance), Regulations and Legislation Division, Office of Chief Counsel, [phone], Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. Persons wishing to access any of these telephone numbers by text telephone (TTY) may call the toll-free Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Background

Section 1201 of the Financial Regulatory Relief and Economic Efficiency Act of 2000 (Pub. L. 106-569, 114 Stat. 2944) repealed the statutory liquidity requirement for savings associations. See section 6 of the Home Owners' Loan Act (HOLA), 12 U.S.C. 1465 (1994). OTS published an interim rule implementing this repeal on March 15, 2001 (66 FR 15015). The interim rule removed part 566, which implemented the percentage of assets liquidity requirement of section 6 of the HOLA. The interim rule also moved a general requirement that each savings association must maintain sufficient liquidity to ensure safe and sound operations from part 566 to § 563.161 and made a few conforming changes.

Discussion of Comments

OTS received three public comments: one from a trade association and two from savings associations. The trade association strongly supported the interim rule, noting that the repeal of the percentage requirement will enable savings associations to manage their liquidity risk in a more efficient manner. It also supported the retention of a requirement that savings associations and their service corporations maintain sufficient liquidity to assure safe and sound operation. The trade association observed that it is not necessary to describe in a regulation the types of investments OTS will consider in measuring compliance with this requirement. It did request, however, that OTS make conforming changes to the Thrift Financial Report form and instructions. On February 26, 2001, OTS published the March 2001 Thrift Financial Report changes, which included removal of the entry for regulatory liquidity ratio, on its website.

The two savings associations also praised the elimination of the percentage requirement. However, they requested clarification of whether OTS considers available capacity to borrow from the Federal Home Loan Bank (with same-day access to advances) as a source of liquidity when evaluating whether an institution has “sufficient liquidity.” OTS does consider the availability of access to borrowed money to meet liquidity needs in assessing the adequacy of a savings association's management of liquidity. See OTS Thrift Activities Handbook, Section 530, at pages 530.5 and 530.10 (November 1999). OTS also recognizes FHLB advances as a traditional source of such borrowings for savings associations. In addition, OTS acknowledges that the FHLB system has consistently played an important role in assisting the thrift industry to manage its short- and long-term liquidity needs. OTS Thrift Activities Handbook, at page 530.11. However, certain wholesale borrowings, including Federal Home Loan Bank advances, if not properly evaluated and prudently managed, may significantly increase an institution's sensitivity to interest rate and liquidity risks. Accordingly, savings associations should be fully informed of the risks of these borrowings before engaging in such transactions and should review these risks on an ongoing basis. See OTS Regulatory Bulletin 34, Examiner Guidance on Wholesale Borrowings (June 8, 2001).

Findings and Certifications

Executive Order 12866

The Director of OTS has determined that this final rule does not constitute a significant regulatory action for the purposes of Executive Order 12866.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) requires OTS to prepare Regulatory Flexibility Analyses if the agency must publish a general notice of proposed rulemaking. 5 U.S.C. 603 and 604. In issuing the interim rule, OTS concluded, for good cause, that it was not necessary to publish a notice of proposed rulemaking. Accordingly, OTS concludes that the RFA does not require a final regulatory flexibility analysis of this rule.

Nevertheless, OTS has considered the likely impact of this rule and finds that the rule will not have a significant impact on a substantial number of small entities or create any additional burden on small entities under the RFA. The final rule imposes no new requirements and makes only burden reducing, clarifying, and technical conforming amendments to current OTS regulations.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMA) applies only when an agency issues a general notice of proposed rulemaking or when it publishes a final rule for which a general notice of proposed rulemaking was published. 2 U.S.C. 1532. In issuing the interim rule, OTS determined, for good cause, that it was not required to publish a proposed rule. Accordingly, OTS concludes that the UMA does not require OTS to conduct an unfunded mandates analysis of this final rule.

Moreover, OTS finds that this final rule will not result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. Rather, the rule imposes no new requirements and makes only burden reducing, clarifying, and technical conforming amendments to current OTS regulations. Accordingly, OTS has not prepared a budgetary impact statement for this rule or specifically addressed the regulatory alternatives considered.

Effective Date

For the reasons stated in the interim rule, published on March 15, 2001 (66 FR 15016-15017), OTS is making this final rule effective immediately.

List of Subjects

12 CFR Part 506

• Reporting and recordkeeping requirements

12 CFR Part 560

• Consumer protection
• Investments
• Manufactured homes
• Mortgages
• Reporting and recordkeeping requirements
• Savings associations
• Securities

12 CFR Part 563

• Accounting
• Advertising
• Crime
• Currency
• Investments
• Reporting and recordkeeping requirements
• Savings associations
• Securities
• Surety bonds

12 CFR Part 566

• Liquidity
• Reporting and recordkeeping requirements
• Savings associations

12 CFR Part 584

• Administrative practice and procedure
• Holding companies
• Reporting and recordkeeping requirements
• Savings associations
• Securities

Accordingly, the Office of Thrift Supervision adopts as final, without change, the interim rule published on March 15, 2001 at 66 FR 15015, amending parts 506, 560, 563, 566, and 584 in Title 12, Chapter V, Code of Federal Regulations.

Dated: July 11, 2001.

Ellen Seidman,

Director.