Standards for Safety and Soundness

Federal RegisterJul 10, 1995

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Text

[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

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.

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.

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]]

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.