[Federal Register Volume 62, Number 17 (Monday, January 27, 1997)]
[Rules and Regulations]
[Pages 3779-3781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1811]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 502, 516, 562, 563, 565, 574
[No. 97-6]
RIN 1550-AA99
Regulatory Citations to Uniform Financial Institutions Rating
System
AGENCY: Office of Thrift Supervision, Treasury (OTS).
ACTION: Final rule.
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SUMMARY: In the December 19, 1996 issue of the Federal Register, the
Federal Financial Institutions Examination Council (FFIEC) published
changes to the Uniform Financial Institutions Rating System (UFIRS).
The OTS is making conforming changes to OTS regulations that cross-
reference the UFIRS, confirming that these regulations are intended to
refer to the UFIRS as it is revised from time to time.
EFFECTIVE DATE: February 26, 1997.
FOR FURTHER INFORMATION CONTACT: William J. Magrini, Senior Project
Manager, Supervision Policy, (202) 906-5744, or Karen Osterloh,
Assistant Chief Counsel, Regulations and Legislation Division, (202)
906-6639, Regulations and Legislation Division, Chief Counsel's Office,
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
The UFIRS is a supervisory rating system used by the OTS and other
agencies represented on the FFIEC to evaluate the soundness of
depository institutions on a uniform basis. The agencies have
implemented the UFIRS through CAMEL ratings. Under CAMEL, the agencies
have organized the relevant UFIRS factors into five major areas
(Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity).
In the July 18, 1996 issue of the Federal Register, the FFIEC proposed
to add a sixth component to the UFIRS system, Sensitivity to Market
Risk. Currently, market risk is evaluated within other rating areas.
The FFIEC also proposed to reformat and clarify the rating
descriptions; to revise the rating system to emphasize risk management
processes; and to make other changes. The FFIEC published a notice of
the final text of the UFIRS in the December 19, 1996 issue of the
Federal Register.
Under OTS regulations, CAMEL ratings are currently used: (1) To
define ``troubled savings association'' for purposes of OTS
assessments, 12 CFR 502.1; (2) to determine if a savings association is
eligible for expedited or standard treatment under the application
processing guidelines, 12 CFR part 516; (3) to determine when an
independent audit is required for safety and soundness purposes and to
determine whether the Director may waive this independent audit
requirement, 12 CFR 562.4; (4) to determine when the OTS may require a
savings association and its subsidiaries to provide notification before
entering into transactions with affiliates, 12 CFR 563.41; (5) to
define ``adequately capitalized'' and ``undercapitalized'' under the
prompt corrective action regulation, 12 CFR part 565; (6) to determine
whether a savings association should be reclassified based on
supervisory criteria other than capital for the purposes of the prompt
corrective action regulation, 12 CFR Part 565; and (7) to define a
savings association in ``troubled condition'' under rules requiring
prior notice of the addition of any individual to the board of
directors or the employment of any individual as senior executive
officer, 12 CFR 574.9.
Most of these regulations currently refer to ``CAMEL'' ratings.
Because the proposed changes to UFIRS would make these references
obsolete, the OTS proposed revisions to its regulations on July 23,
1996.1 The OTS proposed to revise its regulations to refer more
generally to the UFIRS as it may exist from time to time or to any
comparable rating system that the OTS may adopt in lieu of UFIRS.
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\1\ 61 FR 38114 (July 23, 1996).
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Two other minor changes were also proposed. First, for the sake of
consistency and to prevent confusion, the OTS proposed to revise each
regulation that will cross reference UFIRS to indicate that the OTS
will use the most recent rating (as determined either on-site or off-
site by the most recent examination) of which the savings association
has been notified in writing. Currently, some of the cited regulations
include this provision, while others do not.
Additionally, the OTS proposed to clarify 12 CFR 562.4. Currently,
that regulation requires, inter alia, all institutions receiving a
rating of 3, 4 or 5 to obtain an independent audit unless the Director
``determines that an audit would not address the safety and soundness
issues that caused the (low) examination rating.'' The OTS proposed to
modify Sec. 562.4 to better reflect when OTS may waive the audit
requirement. As proposed, a waiver may be granted if an audit ``would
not provide further information on safety and soundness issues relevant
to the examination rating.''
Summary of Comments and Description of the Final Rule
The OTS received one comment on the proposed rule changes. This
commenter suggested that the OTS delay changing references to a rating
system until the FFIEC determines whether the existing rating system
should be modified and designates a new acronym. The commenter
supported all other clarifying changes to the OTS rules.
As noted above, FFIEC has finalized its changes to the UFIRS
system. In any event, under the OTS proposal, the regulations would
refer generally to the UFIRS as it may exist from time to time, or to a
comparable rating system that the
[[Page 3780]]
OTS may adopt in lieu of UFIRS. The proposed rule did not refer
specifically to the then-existing UFIRS system (i.e., CAMEL) or to the
proposed rating system then under consideration by FFIEC (i.e.,
CAMELS). By referring to UFIRS, rather than acronyms adopted from time
to time to describe UFIRS, the proposed rule would obviate the need to
make regulatory amendments if the FFIEC or the OTS proposes changes to
the rating system in the future.
The proposed rule is therefore adopted without substantial
modifications. 2 Since the publication of the proposed regulation,
the OTS has removed former Sec. 563.170(c)(10) as part of its Lending
and Investments regulation, 3 eliminating the need for the
proposed UFIRS change to that section.
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\2\ The OTS previously proposed a revision to the capital
distributions regulation at 12 CFR 563.134 that would define
``troubled condition'' by reference to the examination rating
system. 59 FR 62356 (December 5, 1994). When that regulation is
finalized, it will also include appropriate references to the
revised UFIRS system.
\3\ 61 FR 50951 (September 30, 1996).
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III. Paperwork Reduction Act
Reporting and recordkeeping requirements in this final rule are
currently found in 12 CFR 563.41(e) and 574.9. These requirements are
addressed in the following OMB approved packages: Control Nos. 1550-
0078 and 1550-0047. The reporting burden under this package remains
unchanged under the rule.
IV. Executive Order 12866
The Director of the OTS has determined that this final rule does
not constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
V. Unfunded Mandates Act of 1995
The OTS has determined that the requirements of this final rule
will not result in expenditures by state, local, or tribal governments
or by the private sector of more than $100 million. Accordingly, a
budgetary impact statement is not required under section 202 of the
Unfunded Mandates Act of 1995.
VI. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
OTS certifies that this final rule will not have a significant economic
impact on a substantial number of small entities. The OTS does not
anticipate that the application of the revised UFIRS rating system will
result in a change in composite ratings assigned to depository
institutions. Today's rule will merely reduce confusion by updating the
terminology used in the OTS regulations to reflect the current rating
system.
VII. Effective Date
Section 302 of CDRIA delays the effective date of regulations
promulgated by the Federal banking agencies that impose additional
reporting, disclosure, or new requirements to the first day of the
first calendar quarter following publication of the final rule. OTS
believes that CDRIA does not apply to this final rule because it
imposes no new burden. The revisions will merely reduce confusion by
updating the terminology used in the OTS regulations to reflect the
current rating system.
List of Subjects
12 CFR Part 502
Assessments, Federal Home Loan Banks.
12 CFR Part 516
Administrative practice and procedure, Reporting and recordkeeping
requirements, Savings associations.
12 CFR Part 562
Accounting, Reporting and recordkeeping requirements, Savings
associations.
12 CFR Part 563
Accounting, Advertising, Conflicts of Interest, Corporate
Opportunity, Crime, Currency, Investments, Reporting and recordkeeping
requirements, Savings associations, Securities, Surety bonds.
12 CFR Part 565
Administrative practice and procedure, Capital, Savings
associations.
12 CFR Part 574
Administrative practice and procedure, Holding companies, Reporting
and recordkeeping requirements, Savings associations, Securities.
Authority and Issuance
Accordingly, the Office of Thrift Supervision amends chapter V,
title 12, Code of Federal Regulations, as set forth below.
PART 502--ASSESSMENTS
1. The authority citation for part 502 is revised to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1467, 1467a.
2. Section 502.1 is amended by revising paragraph (f) to read as
follows:
Sec. 502.1 Asset-based assessments.
* * * * *
(f) Definition. For purposes of this section only, a troubled
savings association shall be defined as a savings association with a
composite rating of 4 or 5, as defined in Sec. 516.3(c) of this
chapter. A troubled savings institution also includes a savings
association in conservatorship so long as the association requires
increased supervision and examination by the Office.
* * * * *
PART 516--APPLICATION PROCESSING GUIDELINES AND PROCEDURES
3. The authority citation for part 516 continues to read as
follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.
4. Section 516.3 is amended by revising paragraphs (a)(1)(i),
(b)(1)(i), and (c) to read as follows:
Sec. 516.3 Definitions.
(a) * * *
(1) * * *
(i) The savings association has a composite rating of 1 or 2;
* * * * *
(b) * * * (1) * * *
(i) The savings association has a composite rating of 3, 4 or 5;
* * * * *
(c) Composite rating. Composite rating means the composite
numerical rating assigned to the savings association by the OTS under
the Uniform Financial Institutions Rating System 1 or an
equivalent rating under a comparable rating system adopted by the OTS,
and refers to the most recent rating (as determined either on-site or
off-site by the most recent examination) of which the savings
association has been notified in writing.
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\1\ Copies are available at the address specified in Sec. 516.1
of this part.
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* * * * *
PART 562--REGULATORY REPORTING STANDARDS
5. The authority citation for part 562 continues to read as
follows:
Authority: 12 U.S.C. 1463.
6. Section 562.4 is amended by revising paragraphs (b)(1) and
(c)(2) to read as follows:
Sec. 562.4 Audit of savings associations and savings association
holding companies.
* * * * *
(b) * * *
[[Page 3781]]
(1) If a savings association has received a composite rating of 3,
4 or 5, as defined at Sec. 516.3(c) of this chapter; or
* * * * *
(c) * * *
(2) The Director may waive the independent audit requirement
described at paragraph (b)(1) of this section, if the Director
determines that an audit would not provide further information on
safety and soundness issues relevant to the examination rating.
* * * * *
PART 563--OPERATIONS
7. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1828, 3806.
8. Section 563.41 is amended by revising paragraph (e)(2)(ii)(A) to
read as follows:
Sec. 563.41 Loans and other transactions with affiliates and
subsidiaries.
* * * * *
(e) * * *
(2) * * *
(ii) * * *
(A) Has a composite rating of 4 or 5, as defined in Sec. 516.3(c)
of this chapter;
* * * * *
PART 565--PROMPT CORRECTIVE ACTION
9. The authority citation for part 565 continues to read as
follows:
Authority: 12 U.S.C. 1831o.
10. Section 565.4 is amended by revising paragraphs (b)(2)(iii)(B),
(b)(3)(iii)(B), and (c)(2) to read as follows:
Sec. 565.4 Capital measures and capital category definitions.
* * * * *
(b) * * *
(2) * * *
(iii) * * *
(B) A leverage ratio of 3.0 percent or greater if the savings
association is assigned a composite rating of 1, as defined in
Sec. 516.3(c ) of this chapter; and
* * * * *
(3) * * *
(iii)(A) * * *
(B) Has a leverage ratio that is less than 3.0 percent if the
savings association is assigned a composite rating of 1, as defined in
Sec. 516.3(c) of this chapter.
* * * * *
(c) * * *
(2) Unsafe or unsound practice. The OTS has determined, after
notice and an opportunity for hearing pursuant to Sec. 565.8(a) of this
part, that the savings association received a less-than-satisfactory
rating for any rating category (other than in a rating category
specifically addressing capital adequacy) under the Uniform Financial
Institutions Rating System,1 or an equivalent rating under a
comparable rating system adopted by the OTS; and has not corrected the
conditions that served as the basis for the less than satisfactory
rating. Ratings under this paragraph (c)(2) refer to the most recent
ratings (as determined either on-site or off-site by the most recent
examination) of which the savings association has been notified in
writing.
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\1\ Copies are available at the address specified in Sec. 516.1
of this chapter.
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PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS
11. The authority citation for part 574 continues to read as
follows:
Authority: 12 U.S.C. 1467a, 1817, 1831i.
12. Section 574.9 is amended by revising paragraph (a)(5)(i)(A) to
read as follows:
Sec. 574.9 Additions of directors and employment of senior executive
officers of savings associations and savings and loan holding
companies.
(a) * * *
(5) * * *
(i) * * *
(A) Has a composite rating of 4 or 5, as defined in Sec. 516.3(c)
of this chapter;
* * * * *
Dated: January 15, 1997.
By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-1811 Filed 1-24-97; 8:45 am]
BILLING CODE 6720-01-P
