Fiduciary Powers of Federal Savings Associations; Community Reinvestment Act

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 550 and 563e

[No. 97-68]

RIN 1550-AB09

Fiduciary Powers of Federal Savings Associations; Community

Reinvestment Act

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to revise its

fiduciary powers regulations in order to promote the more efficient

operation and supervision of Federal savings associations' fiduciary

activities. The proposed changes are intended to update, clarify, and

streamline OTS regulations, to incorporate significant interpretive

guidance, and to eliminate unnecessary regulatory burden. OTS proposes

these revisions pursuant to the Regulatory Reinvention Initiative of

the Vice President's National Performance Review (Reinvention

Initiative) and section 303 of the Community Development and Regulatory

Improvement Act of 1994 (CDRIA). OTS also proposes to amend its

Community Reinvestment Act (CRA) regulations. The proposed change would

bring the scope of OTS's CRA regulation into accord with the CRA

regulations of the other federal banking agencies. It would exempt from

the CRA regulations savings associations that do not perform commercial

or retail banking services by granting credit to the public in the

ordinary course of business.

DATES: Comments must be received on or before September 22, 1997.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records

Management and Information Policy, Office of Thrift Supervision, 1700 G

Street, N.W., Washington, D.C. 20552, Attention Docket No. 97-68. These

submissions may also be hand-delivered to 1700 G Street, N.W., from

9:00 A.M. to 5:00 P.M. on business days; sent by facsimile transmission

to FAX Number (202) 906-7755; or sent by e-mail to

[email protected]. Those commenting by e-mail should include

their name and telephone number. Comments will be available for

inspection at 1700 G Street, N.W., from 9:00 A.M. until 4:00 P.M. on

business days.

FOR FURTHER INFORMATION CONTACT: Larry Clark, Senior Manager,

Compliance and Trust Programs, Compliance Policy, (202) 906-5628;

Timothy Leary, Counsel (Banking and Finance), (202) 906-7170, or Karen

Osterloh, Assistant Chief Counsel, (202) 906-6639, Regulations and

Legislation Division, Chief Counsel's Office, Office of Thrift

Supervision, 1700 G Street, N.W., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

II. Background

In 1995, pursuant to the Reinvention Initiative and section 303 of

CDRIA, OTS conducted a comprehensive review of its rules and

regulations. As part of that review, OTS identified its trust

regulations at 12 CFR Part 550 for updating and streamlining.

Part 550 is promulgated under Section 5(n) of the Home Owners' Loan

Act (HOLA), 12 U.S.C. 1464(n), which authorizes the Director of OTS to

authorize a Federal savings association to exercise fiduciary powers.

Congress enacted section 5(n) in order to give Federal savings

associations the ``ability to offer trust services on the same basis as

national banks'' and to ``enhance the ability of thrifts to offer

complete financial service to the consumer.''1

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\1\ S. Rep. 96-368 at 13 (1980), reprinted in 1980 U.S.C.C.A.N.

248. Congress further amended Sec. 5(n) in the Financial

Institutions Reform, Recovery and Enforcement Act (``FIRREA'') of

1989. Pub. L. 101-73.

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As originally enacted, section 5(n) of the HOLA empowered the

Federal Home Loan Bank Board (FHLBB), the predecessor agency to OTS, to

issue regulations regarding the proper exercise of Federal association

trust powers.2 Pursuant to that authority, the FHLBB issued

the current part 550 in December, 1980.3 These regulations

have not been substantially changed since their promulgation.

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\2\ 12 U.S.C. 1464(n)(10)(D)(1980).

\3\ 45 FR 82162 (December 15, 1980).

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Since 1980, however, much about Federal savings associations'

fiduciary business has changed. These changes have affected the nature

and scope of the fiduciary services that associations offer, and the

structures and operational methods that associations use to deliver

those services. OTS's primary goals in revising part 550 are to

accommodate these changes, remove unnecessary regulatory burden, and

facilitate the continued development of Federal

[[Page 39478]]

savings associations' fiduciary business consistent with safe and sound

banking practices.

Today's proposal has several themes. First, the proposal recognizes

that the geographic and organizational structure of many Federal

savings associations' fiduciary operations has changed considerably

over the years. Consequently, OTS proposes to adjust part 550 so that

its requirements are workable for both large, multi-state fiduciary

organizations and small institutions that conduct fiduciary activities

primarily on a local basis.

Second, Federal savings associations' fiduciary activities, in

several respects, are subject to State law. In some cases, OTS has the

flexibility to prescribe a uniform Federal standard or to direct

Federal savings associations to follow State law. In the proposal, OTS

has attempted to strike an appropriate balance between Federal and

State law.

Third, over the years, part 550 has been interpreted to apply to

investment advisory activities and related services which do not

involve the association's exercise of investment discretion. In some

cases, savings associations engaged in these activities operate under

different standards than other financial service providers that conduct

the same business.

Finally, consistent with section 303 of CDRIA, the proposal

conforms OTS rules more closely to those rules of other Federal banking

agencies, specifically the rules issued by the Office of the

Comptroller of the Currency (OCC) at 12 CFR Part 9. Section 5(n) of the

HOLA closely resembles 12 U.S.C. 92a, which authorizes the OCC to grant

fiduciary powers to national banks. In December 1996, the OCC

comprehensively revised its rules governing national banks' fiduciary

operations. 61 FR 68543 (December 30, 1996). To promote continuity and

reasonable consistency in the exercise of fiduciary powers by

Federally-chartered financial institutions, OTS's proposal draws

extensively on the OCC's final rule and the comments the OCC received

on its proposed rule. As a consequence, today's proposal more

accurately reflects current legal, regulatory, and business

developments in the area of fiduciary services and activities.

II. Section-by-Section Description of the Proposal

Proposed Sec. 550.1 (Authority and Scope)

Proposed Sec. 550.1 is a new provision. It explicitly states the

statutory authority for, and the purpose and scope of, part 550.

Proposed Sec. 550.2 (Definitions)

The proposal moves the definitions currently found at Sec. 550.1 to

proposed Sec. 550.2. Some definitions are removed and others are added.

Significant changes are highlighted below.

Affiliate

The proposal adds a definition of ``affiliate'' to part 550. The

proposed definition follows the OCC's fiduciary powers regulation by

cross referencing the definition in the Federal Reserve Act at 12

U.S.C. 221a(b). That definition varies from OTS's current default

definition of ``affiliate'' found at 12 CFR 561.4. Specifically, the

Federal Reserve Act definition includes holding companies as

affiliates, whereas OTS's standard definition does not. To reflect the

variety of corporate structures through which Federal savings

associations exercise their fiduciary powers, and to promote regulatory

consistency with the OCC's new Rule 9, OTS proposes to adopt the

Federal Reserve Act definition of ``affiliate.''

Applicable Law

The term ``local law'' is used throughout existing part 550.

Currently, Sec. 550.1(g) defines local law as the law of the State or

other jurisdiction governing the fiduciary relationship. The proposal

would replace the term ``local law'' with ``applicable law.'' This

change would clarify that the legal authority governing a Federal

savings association's fiduciary relationships may include Federal law

and regulations governing fiduciary relationships, State laws governing

these relationships, the terms of the instrument governing a fiduciary

relationship, and any court order pertaining to the

relationship.4 Applicable law would not incorporate any

State law or other body of authority that would not otherwise apply to

a Federal savings association's fiduciary activities, such as

licensing, examination, access to examination reports, and other

matters left to Federal law under this regulation.

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\4\ Relevant Federal law includes the HOLA (12 U.S.C. 1461 et

seq.), the Employee Retirement Income Security Act of 1974 (29

U.S.C. 1001 et seq.), the Securities Act of 1933 (15 U.S.C. 77a et

seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),

the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the

Investment Advisor's Act of 1940 (15 U.S.C. 80b-1 et seq.), the

Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the Internal

Revenue Code of 1986 (26 U.S.C. 1 et seq.), and rules issued

pursuant to those acts.

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Recently, a number of savings associations have asked OTS about how

State law applies to their exercise of fiduciary powers, including when

those fiduciary powers are exercised in an operating subsidiary or

other subsidiary. Section 5(n) of the HOLA recognizes a specific role

for State law in Federal savings associations' exercise of fiduciary

powers, unlike other operations of Federal savings associations.

In a recent legal opinion, OTS determined that State law applies to

Federal savings associations' fiduciary activities to the extent

specifically provided by section 5(n) of the HOLA. This includes the

scope of those powers (Sec. 5(n)(1)), capitalization requirements

(Sec. 5(n)(2)), the deposit of securities with State authorities

(Sec. 5(n)(5)), and provision of an oath or affidavit from trust

fiduciaries (Sec. 5(n)(6)).5 OTS requests comment on the

scope of federal preemption for Federal savings associations and their

subsidiaries in dealing with other State law requirements in this area.

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\5\ OTS Op. Chief Counsel (March 28, 1996) at 8-9.

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Fiduciary Capacity

Under existing Sec. 550.1(c), fiduciary means ``a Federal savings

association undertaking to act alone, through an affiliate, or jointly

with others primarily for the benefit of another in all matters

connected with its undertaking.'' The current definition also lists the

specific fiduciary capacities enumerated in section 5(n) of the HOLA

(trustee, executor, administrator, guardian) and several other

fiduciary capacities in which State banks, trust companies, or other

corporations competing with Federal savings corporations are permitted

to act under State law (receiver, managing agent, registrar of stocks

and bonds, escrow, transfer, or paying agent, and trustee of employee

pension, welfare, and profit sharing trust).

Under the proposal, the term ``fiduciary capacity'' would replace

``fiduciary.'' The proposed definition of ``fiduciary capacity''

attempts to establish a clear, objective boundary for the coverage of

Part 550 while retaining the traditional core concept that serving in a

fiduciary capacity involves acting on another's behalf. Under the

proposed definition, fiduciary capacity includes specific fiduciary

activities, such as acting as trustee, executor, administrator,

registrar of stocks and bonds, transfer agent, guardian, assignee,

receiver, or custodian under a uniform gift to minors act. In addition,

fiduciary capacity would include any capacity in which the association

possesses investment discretion on behalf of another, and any other

similar capacity that OTS authorizes under 12 U.S.C. 1464(n).

[[Page 39479]]

The proposed definition also includes a Federal savings association

that acts as an investment advisor for a fee, even though the

association may not act in any traditional fiduciary capacity or

exercise investment discretion.6 This provision recognizes

that when a customer pays a fee in return for investment advice,

whether or not the customer follows that advice, the customer has a

reasonable expectation of receiving advice that is free of conflicts of

interest. It is also consistent with other Federal statutes that

provide enhanced protection to customers of certain investment advisers

who receive a fee.7

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\6\ Part 550 continues to apply to associations acting in the

enumerated fiduciary capacities (e.g., trustee) even though the

association has no investment discretion and receives no fee for

investment advice. OTS notes, however, that a Federal savings

association that acts as trustee of certain stock bonus, pension or

profit sharing plans, IRAs, and fiduciary accounts with no active

fiduciary duties may be exempted from part 550 under proposed

Sec. 550.3.

\7\ See e.g., 29 U.S.C. 1002(21)(A) (fiduciaries of ERISA

accounts); 15 U.S.C. 80b-2(a)(11) (Investment Advisers Act, which

generally applies to any person who, for compensation, engages in

the business of advising others. Although banks are exempt from the

Investment Advisers Act, Federal savings associations are not, and

investment advisers employed by Federal savings associations must

therefore register with the SEC).

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On July 9, 1997, the OCC proposed to issue an interpretive ruling

codifying a recent interpretive letter that clarified how the OCC

intends to apply the term ``acting as an investment adviser for a

fee.'' 8 The OCC interprets the term ``investment adviser''

to generally mean a national bank that provides advice or

recommendations concerning the purchase or sale of specific securities,

such as a national bank engaged in portfolio advisory and management

activities (including acting as investment adviser to a mutual fund).

The qualifying phrase ``if the bank receives a fee for its investment

advice'' excludes those activities in which the investment advice is

merely incidental to other services.

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\8\ 62 FR 36746 (July 9, 1997), codifying Interpretive Letter

No. 769 (January 28, 1997).

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Under the OCC interpretation, a national bank that engages in full-

service brokerage activities may provide investment advice for a fee,

depending upon the commission structure and the specific facts. The OCC

will consider full-service brokerage to involve investment advice for a

fee if a non-bank broker engaged in that activity is considered an

investment adviser under the Investment Advisers Act of

1940.9

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\9\ 15 U.S.C. 80b-1, et seq.

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The OCC also has indicated that certain activities generally will

not entail providing investment advice for a fee. These include

financial advice and counseling, including strategic planning of a

financial nature, merger and acquisition advisory services, advisory

and structuring services related to project finance transactions, and

providing market economic information to customers in general; client-

directed investment activities where the fee does not depend on the

provision of investment advice; investment advice incidental to acting

as a municipal securities dealer; real estate asset management; real

estate consulting; advice concerning bridge loans; services for

homeowners' associations; tax planning and structuring advice; and

investment advice authorized the OCC under 12 U.S.C. 24 (Seventh) as an

incidental power necessary to carry on the business of banking.

OTS agrees with the OCC's interpretation and intends to apply it

when determining whether a Federal savings association is acting as an

``investment adviser.'' OTS invites comment on the OCC interpretation

and whether similar language should be incorporated into the OTS final

rule or guidance.

The OCC, in its December, 1996 revisions to Part 9, considered

relying on State law as an alternative dividing line between fiduciary

and non-fiduciary investment advisory activities. Under a State law

approach, for example, part 550 would apply to an association's

investment advisory activity if that activity, when engaged in by

competing State fiduciaries, would require State authorization and

would be regulated as a fiduciary activity under State law.

While the OCC rejected this approach in its final rule, OTS invites

comment on this and other alternative approaches to defining which

investment advisory activities to include within the definition of

fiduciary capacity.

The adoption of any approach that excludes some types of investment

advisory activities from coverage under part 550 raises the question of

how to oversee ``non-fiduciary'' investment advisory activities. Some

of these activities already are subject to the Interagency Statement on

Retail Sales of Non-deposit Investment Products (February 14,

1994),10 and the anti-fraud provisions of the Securities

Exchange Act of 1934.11 A Federal savings association also

must conduct all its activities, including its investment advisory

activities, in a manner consistent with safe and sound banking

practices.

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\10\ The four Federal banking agencies have issued a

clarification of the Interagency Statement. See Joint Interpretation

of the Interagency Statement on Retail Sales of Nondeposit

Investment Products (Sept. 12, 1995).

\11\ See, e.g., 15 U.S.C. 78i (manipulation of securities

prices), 78j (manipulative and deceptive practices), 78r (liability

for misleading statements), 78z (unlawful representations).

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Finally, OTS notes that employees of banks who engage in certain

securities transactions for customers are subject to various

recordkeeping and confirmation regulations.12 OTS is

considering whether to issue a separate proposed rulemaking adopting

similar rules for employees of savings associations who engage in non-

fiduciary investment advisory services. As such, OTS invites comment on

whether such requirements should be considered in a future rulemaking.

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\12\ 12 CFR Part 12 (OCC); 12 CFR 208.8(k) (FRB); 12 CFR Part

344 (FDIC). These rules are currently being revised by the Federal

banking agencies.

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Fiduciary Officers and Employees

Existing part 550 uses the term ``trust department'' to refer to

the group of employees that are assigned fiduciary responsibilities.

The proposal replaces this term with the term ``fiduciary officers and

employees.'' This proposed change reflects the increasing diffusion of

fiduciary functions throughout a Federal savings association.

Fiduciary Powers

The proposed definition of ``fiduciary powers'' in Sec. 550.2

specifies that the scope of a Federal savings association's fiduciary

powers depends upon the power that the State in which the Federal

savings association is located grants to competing fiduciaries. See 12

U.S.C. 1464(n)(1). This is consistent with the OCC's definition of

fiduciary powers for national banks in new Sec. 9.2(g).

Under OTS's current regulations and past interpretive opinions, a

federal thrift is located, for trust purposes, in each State where it

operates a trust office.13 A trust office may be the

association's home office, any branch office, any agency office, or

alternatively, a fiduciary presence within a State that is the

functional equivalent of operating a brick and mortar trust office--a

so-called de facto trust office.14 Thus, a Federal savings

[[Page 39480]]

association may provide trust services from office located in more than

one State.15

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\13\ 12 CFR 550.2(c)(2); OTS Op. Chief Counsel (June 21, 1996).

\14\ OTS Op. Chief Counsel (March 28, 1996). Conversely, OTS has

found that an association will not be ``located'' in states in which

it only markets its trust services (OTS Op. Chief Counsel (June 21,

1996)), or performs certain activities incidental to serving as a

testamentary trustee or a trustee holding real estate. (OTS Op.

Chief Counsel (August 8, 1996). The interpretive letters reaching

these conclusions were each based on a specific, detailed set of

facts. An institution interested in conducting such operations

should carefully consult those letters and its trust counsel, and

discuss its proposed business plan with the appropriate OTS regional

office.

\15\ OTS Op. Chief Counsel (December 24, 1992). See also 12 CFR

556.5 (authorizing Federal savings association to expand their

branch operations nationwide).

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Investment Discretion

As discussed above, fiduciary capacity would include any capacity

in which the association possesses investment discretion on behalf of

another. With respect to an account, ``investment discretion'' is

defined as the authority ``to determine what securities or other assets

to purchase or sell on behalf of the account.'' This term would apply

whether the investment discretion is sole or shared. Moreover, a

savings association would have investment discretion where it receives

delegated authority over investments and where it delegates this

authority to another.

Proposed Sec. 550.3 (Exempt Activities)

Currently, OTS approval under part 550 is not required for a

Federal savings association to act as trustee or custodian of certain

trusts and accounts. See 12 CFR 545.102. Under this provision, a

savings association may act as a trustee or custodian of an Individual

Retirement Account or a Keogh account, including self directed

accounts. The association may also act as a trustee with no active

fiduciary duties, if applicable law authorizes it to act in that

capacity. Under this provision, however, the association may invest the

funds of the trust or account only: (1) in the association's own

accounts, deposits, obligations or securities, or (2) in such other

assets as the customer may direct, provided that the association does

not exercise any investment discretion or provide any investment advice

with respect to the trust or account assets. Section 545.102 further

requires the Federal savings association to observe principles of sound

trust administration, including those relating to recordkeeping and

segregation of assets, and requires the association to make certain

specific disclosures.

In order to more efficiently organize OTS's fiduciary regulations

and to clarify when applications for fiduciary powers are required, the

proposal would move current 12 CFR 545.102, with slight modifications,

to new Sec. 550.3.

Proposed Sec. 550.4 (Approval Requirements)

Proposed Sec. 550.4 would clarify and streamline the requirements

governing applications for fiduciary powers. The current requirements

are found at Sec. 550.2.

Proposed Sec. 550.5 (Administration of Fiduciary Powers)

Proposed Sec. 550.5 would govern the administration of fiduciary

powers. Paragraph (a) of the proposal would continue to place the

primary responsibility for the proper exercise of a Federal savings

association's fiduciary activities on its board of directors. The board

may continue to assign functions related to the exercise of fiduciary

powers to any director, officer, employee, or to a committee of

directors, officers or employees. Compare existing Sec. 550.5(a)(1).

Paragraph (b) would address the use of personnel and facilities.

Under this provision, a Federal savings association may use its

personnel and facilities to perform services related to the exercise of

its fiduciary powers. Moreover, any department of the association may

use fiduciary officers, employees, and facilities to perform services

unrelated to the exercise of fiduciary powers, to the extent not

prohibited by applicable law. See existing Sec. 550.5(b). The proposed

rule would also permit a Federal savings association to use the

facilities of an affiliate to perform services related to its fiduciary

activities, and allow an affiliate to use fiduciary officers,

employees, and facilities to perform services unrelated to the exercise

of fiduciary powers. Such authority does not, of course, restrict OTS's

ability to impose conditions on a Federal savings association's

relationship with its affiliates.

Proposed Sec. 550.5(c) is a new provision addressing agency

agreements. This provision would clarify that a Federal savings

association may enter into a written agency agreement with another

entity to purchase or sell services related to the exercise of

fiduciary powers. This provision provides Federal savings associations

with greater flexibility and is consistent with recent agency

guidance.16 As with an association's relationships with its

affiliates, this provision does not restrict OTS's ability to impose

conditions on an association's agency agreements. Finally, proposed

paragraph (d) retains the existing requirement that all fiduciary

officers and employees must be adequately bonded. See existing

Sec. 550.5(e).

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\16\ Op. Chief Counsel, Office of Thrift Supervision (November

22, 1995).

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Proposed Sec. 550.6 (General Standards for the Exercise of Fiduciary

Powers)

Proposed Sec. 550.6 sets out general standards that a Federal

savings associations must meet in exercising its fiduciary powers. The

proposal specifies that a Federal savings associations must exercise

its fiduciary powers prudently and in compliance with applicable law.

Proposed Sec. 550.6 further specifies that a Federal savings

association must use standards in exercising its fiduciary powers that

are consistent with safety and soundness, promote sound fiduciary

administration, and enable the association to monitor the conditions of

its fiduciary operations. The standards should also take into account

an association's size, the nature and scope of its fiduciary

operations, and the conditions in the market in which it exercises

fiduciary powers.

In its recent revisions of its fiduciary powers regulation, the OCC

included a provision, 12 CFR 9.5, requiring national banks to maintain

and follow written policies and procedures in certain areas. Several of

those areas, such as brokerage placement practices, the use of material

inside information when buying or selling securities, the selection and

retention of readily available legal counsel, and the investment of

funds held as fiduciary, were drawn from various existing sections of

the OCC's prior fiduciary powers regulation. The new final OCC rule

gathered those separate requirements into one section, and added a

requirement that national banks adopt and follow written policies and

procedures addressing methods for preventing self-dealing and conflicts

of interest.

After consideration, OTS has decided not to specifically require

written policies and procedures in its regulation. Adopting a provision

similar to 12 CFR 9.5 would require Federal savings associations to

adopt and follow written policies and procedures in four areas not

found in current Part 550: brokerage placement services, methods for

preventing self-dealing and conflicts of interest, selection and

retention of readily available legal counsel, and the investment of

funds held as fiduciary. Proposing similar requirements for Federal

savings associations would impose an additional regulatory burden by

expanding the areas in which Federal savings associations must maintain

and follow written policies and procedures.

OTS has opted for a less rigid approach that will still require

associations to exercise their fiduciary

[[Page 39481]]

powers prudently and in compliance with applicable law. We believe this

is consistent with the intent of section 2242 of the Economic Growth

and Regulatory Paperwork Reduction Act of 1996, 110 Stat. 3009-418,

which amended section 303(a) of the CDRIA, 12 U.S.C. 4803(a), by

requiring each Federal banking agency to ``review the extent to which

existing regulations require insured depository institutions . . . to

produce unnecessary internal written policies and eliminate such

requirements, where appropriate.''

The only provision in current Part 550 relating to written policies

and procedures is current Sec. 550.5(c), which requires a Federal

savings association to adopt and follow written policies and procedures

to ensure compliance with the Federal securities laws. That section

further specifies that those policies and procedures should ensure that

fiduciary departments not use material inside information in connection

with the sale or purchase of securities.17

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\17\ The current 12 CFR 9.5 requires that a national bank adopt

and follow written policies and procedures only in preventing the

use of inside information, not the broader requirement in current

Sec. 550.5(c) that those policies and procedures more generally

ensure compliance with the federal securities laws.

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By deleting current Sec. 550.5(c), OTS does not intend to remove

the requirement that Federal savings associations comply with the

Federal securities laws. In this regard, proposed Sec. 550.6 states

that a Federal savings association must exercise its fiduciary powers

``in compliance with applicable law.'' As noted above, the term

``applicable law'' includes all the relevant Federal securities laws.

Federal savings associations may find that adapting written policies

and procedures will enhance their ability to comply with applicable

laws and operate prudently.

Federal savings associations can find additional guidance regarding

standards for the exercise of fiduciary powers in Section 210 of the

Trust Activities Handbook. Section 210 discusses the advantages of

maintaining and following written policies and procedures and provides

illustrative examples of the areas those policies and procedures should

cover. Those examples include conflicts of interest, asset and account

administration, operations, personnel, and business development and

profitability. See Trust Activities Handbook at 97-98.

Proposed Sec. 550.7 (Review of Assets of Fiduciary Accounts)

Currently, Sec. 550.5(a)(2) addresses the review of assets

contained in fiduciary accounts. Proposed Sec. 550.7 incorporates the

requirements of this existing regulation, but reorganizes, clarifies

and streamlines the text.

Under the proposed rule, a Federal savings association must conduct

three types of reviews of fiduciary accounts--a pre-acceptance review,

an initial post-acceptance review, and an annual review. In a pre-

acceptance review, an association must review a prospective account

prior to its acceptance to determine whether the association can

properly administer the account. In the initial post-acceptance review,

an association must conduct a prompt review of all assets of a

fiduciary account for which it has investment discretion to evaluate

whether the assets are appropriate for the account. At least once

during every calendar year thereafter, the association must conduct a

similar review of assets of each fiduciary account for which it has

investment discretion.

Existing Sec. 550.5(a)(2) requires that each annual review must

occur within 15 months of the prior annual review. OTS believes that

this requirement is too rigid, raises timing issues, and may not

contribute to safety and soundness. Accordingly, the OTS proposal does

not retain this requirement.

Proposed Sec. 550.8 (Recordkeeping)

Under proposed Sec. 550.8, a Federal savings association would be

required to maintain adequate records for all fiduciary accounts

(including adequate documentation of the establishment and termination

of each fiduciary account) 18 for all fiduciary accounts for

a specified period, and ensure that fiduciary records are kept separate

and distinct from other records of the association. These requirements

implement section 5(n)(2) of the HOLA and reflect the substance of

existing Secs. 550.5(a)(2) and 550.6.

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\18\ The adequacy of an association's records may be determined

only on a case-by-case basis. Section 5(n)(2) of the HOLA, however,

provides some guidance. It requires the association to maintain a

separate set of books and records ``showing in proper detail all

transactions. . . .''

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Under existing Sec. 550.6, a Federal savings association must

retain fiduciary records ``for such time as to enable the Federal

savings association to furnish such information or reports with respect

thereto as may be required by the [OTS].'' By contrast, the proposed

rule would require an association to retain fiduciary records for three

years from the later of the termination of the account or termination

of litigation relating to the account. OTS believes that the proposed

three-year retention period is easier to apply and understand.

Proposed Sec. 550.9 (Audit of Fiduciary Activities)

Under existing Sec. 550.7, a Federal savings association must

perform a suitable annual audit of its fiduciary operations. Proposed

Sec. 550.9 retains the substance of this section with certain

clarifications of current OTS policy.

Proposed Sec. 550.9(a) requires the association to conduct a

suitable audit of all significant fiduciary activities at least once

during each calendar year and to report the results of the audit

(including all significant actions taken as a result of the audit) in

the minutes of the board of directors. The proposal clarifies that the

audit requirement applies to all significant fiduciary activities.

Thus, an association would not be required to audit de minimis

activities. OTS intends the de minimis standard to apply in very

limited circumstances, such as where an association has only one small

account under a particular fiduciary activity.

Paragraph (b) of the proposed rule clarifies that the required

audit program may be implemented either through an annual or a

continuous audit.19 Under a continuous audit system, the

association may perform discrete audits of specific activities at

intervals appropriate for the nature and risk of that activity. For

example, an association may determine that it is appropriate to audit

certain low-risk fiduciary activities every 18 months. An association

that adopts a continuous audit system must report the results of any

discrete audits performed since the last audit report (including all

actions taken as a result of the audits) in the minutes of the board of

directors at least once during each calendar year.

---------------------------------------------------------------------------

\19\ This change is consistent with current OTS policy. See

Trust Activities Regulatory Handbook (1992) at 142.

---------------------------------------------------------------------------

The proposed audit standards at Sec. 550.9(c) restate the existing

requirements in Sec. 550.7. This paragraph provides that an audit must

ascertain whether the association's internal control policies and

procedures provide reasonable assurance that fiduciary activities are

administered in accordance with applicable law, fiduciary assets are

properly safeguarded, and transactions are accurately recorded in the

appropriate accounts in a timely manner. In addition, proposed

paragraph (c) requires audits to be conducted in accordance with

generally accepted standards for attestation engagements (and other

standards established by OTS). An audit may be conducted by

[[Page 39482]]

external or internal auditors, or other qualified persons who are

responsible only to the association's board of directors.

All audits, whether annual or continuous, must be performed under

the direction of the association's fiduciary audit committee. Under the

proposed rule, the audit committee may consist of a committee of the

association's directors or an audit committee of an affiliate of the

association. By contrast, the current rule does not expressly permit an

audit committee of an affiliate to conduct audits. Compare existing

Sec. 550.7(a).

The proposed change will allow a savings and loan holding company

to audit the fiduciary activities of its subsidiary Federal savings

association through a central audit committee. This will facilitate the

consolidation of functions within a holding company structure. Even

where the audit is performed under the direction of an affiliate's

audit committee, the Federal savings association's board of directors

is still ultimately responsible for the association's fiduciary

activities. See proposed Sec. 550.5(a).

Existing Sec. 550.7(a) requires the audit committee to be

independent of management. The proposal provides guidance regarding the

independence of the audit committee. Specifically, proposed

Sec. 550.9(d) states that the audit committee may not include any

officers of the association or an affiliate who participate

significantly in the administration of the association's fiduciary

activities. Additionally, a majority of the members of the audit

committee may not also be members of a committee to which the board of

directors has delegated power to manage and control the fiduciary

activities of the association.

OTS invites comment on the relationship between the audit

requirement and OTS's fiduciary examination process. In particular,

commenters should address the extent to which OTS examiners should rely

on an association's internal or external fiduciary audits.

Proposed Sec. 550.10 (Fiduciary Funds Awaiting Investment or

Distribution)

Under current Sec. 550.8(a), a Federal savings association may not

allow fiduciary funds to remain uninvested and undistributed any longer

than reasonable for proper account management. Proposed Sec. 550.10(a)

clarifies this requirement in two ways. First, the proposal explicitly

recognizes that applicable law may limit the amount of time that funds

may remain uninvested. Second, it clarifies that the prohibition

applies only to fiduciary accounts over which the association has

investment discretion or discretion over distributions.

With respect to a fiduciary account for which a Federal savings

association has investment discretion, proposed Sec. 550.10(a) requires

the association to obtain a rate of return for funds awaiting

investment or distribution that is consistent with applicable law. This

provision prescribes a uniform policy for the investment of all idle

funds and recognizes the role that applicable law may play in

prescribing standards in this area. Compare existing Sec. 550.8(b)(3)

(funds waiting investment or distribution ``shall be made

productive.'')

Proposed Sec. 550.10(b) addresses self deposits. Like the existing

regulation at Sec. 550.8(b), the proposed rule permits a Federal

savings association to deposit fiduciary funds awaiting investment or

distribution in other departments of the Federal savings association,

unless the deposit is prohibited by applicable law. To the extent that

funds are not FDIC-insured, the association would be required to secure

the deposit with collateral.

Under the existing rule, acceptable collateral includes direct

obligations of the United States, other fully guaranteed obligations of

the United States, readily marketable securities of the classes in

which State-chartered corporate fiduciaries may invest under State law,

and other readily marketable securities as OTS may determine.

The proposal would add two new classes of acceptable collateral for

self-deposits--assets that qualify under State law as appropriate

security for deposits of fiduciary funds and surety bonds unless they

are prohibited by applicable law. OTS believes that a surety bond is

comparable to other forms of security permitted as collateral for self-

deposits. OTS believes that this interpretation will promote the

interests of beneficiaries while ensuring that Federal savings

associations are not disadvantaged in States that permit state-

chartered institutions to secure deposits of idle fiduciary funds with

surety bonds. OTS is considering whether to adopt a uniform national

standard that would allow Federal savings associations to use surety

bonds as collateral, without regard to State prohibitions. OTS invites

public comment on this issue.

The proposed rule includes a new provision at Sec. 550.10(c) which

addresses the deposit of idle fiduciary funds with affiliates. Section

5(n)(3) of the HOLA authorizes a Federal savings association to pledge

assets to secure self deposits of fiduciary funds. This provision,

thus, accommodates an association with a trust department and a savings

department, the organizational structure prevalent in 1980. However,

the statutory language does not address the evolution of Federal

savings association organizational structures in recent years.

Today, some Federal savings associations do not operate departments

that accept deposits of idle fiduciary funds. In some cases, however,

these associations may be affiliated with other depository institutions

that will accept such deposits. Other Federal savings associations

operate as part of a large system of affiliated financial institutions

and wish, for reasons of efficiency, to consolidate their fiduciary

payment and disbursement functions in a single entity.

In these situations, a Federal savings association may wish to

deposit idle fiduciary funds with an affiliated entity.

Consequently, OTS proposes to allow a Federal savings association

to deposit idle fiduciary funds with an affiliate, if not prohibited by

applicable law. A Federal savings association must set aside acceptable

collateral, as described above, as security for a deposit by or with an

affiliate, unless prohibited by applicable law. This change is

consistent with the position taken in OCC's revised part 9, and should

facilitate more efficient fiduciary operations in multi-entity holding

companies.

Proposed Sec. 550.11 (Investment of Fiduciary Funds)

Proposed Sec. 550.11 simply directs a Federal savings association

to invest funds in a fiduciary account in a manner consistent with

applicable law. This section condenses the existing provisions on the

investment of fiduciary funds without any change in substance. Compare

existing Sec. 550.9.

Proposed Sec. 550.12 (Collective Investment Funds)

Proposed Sec. 550.12 governs the establishment and operation of

common trust funds and other collective investment funds by Federal

savings associations. Common trust funds maintained for the investment

and reinvestment of funds held in a fiduciary capacity may be exempted

from taxation under section 584 of the Internal Revenue Code of 1986,

as amended (26 U.S.C. 584). Section 584 requires the funds to meet the

standards for collective investment under the OCC's regulations (12 CFR

9.18), regardless of the identity of the financial institution

fiduciary. Thus, Federal savings associations maintaining section

[[Page 39483]]

584 common trust funds are bound by the OCC regulations.

Accordingly, the proposed rule requires Federal savings

associations to observe the requirements of 12 CFR 9.18 in

administering any common fund. Compare existing Sec. 550.13(b). In its

recent rulemaking, the OCC promulgated various rule changes designed to

lift unnecessary regulatory burdens on institutions that administer

collective investment funds, while preserving appropriate protections

to beneficiaries (and other interested parties). The OTS proposed rule

continues to cross-reference the OCC regulation, as recently amended.

Proposed Sec. 550.13 (Self-dealing and Conflicts of Interest)

Proposed Sec. 550.13 addresses self-dealing and conflicts of

interest. This section retains much of the substance of existing

Sec. 550.10.

Unless authorized by applicable law, proposed Sec. 550.13(a)(1)

would prohibit a Federal savings association from investing funds in

stocks or obligations of, or assets acquired from, the association or

any of its directors, officers or employees; affiliates of the

association or any of their directors, officers or employees; or

individuals or organizations with whom there exists an interest that

might affect the exercise of the best judgment of the association. The

proposed rule would clarify that the general prohibition against self-

dealing and conflicts of interests only applies to those fiduciary

accounts for which the Federal savings association has investment

discretion. Proposed Sec. 550.13(a)(2) specifically sets forth the

conditions under which a Federal savings association may exercise the

right to purchase additional stock or fractional shares of stock.

Proposed Sec. 550.13(b) restates the existing prohibitions against

loans, sales or other transfers from fiduciary accounts. See existing

Sec. 550.10(b). Under the proposal, a Federal savings association may

not lend, sell, or otherwise transfer assets held in a fiduciary

account for which the association has investment discretion to the

association or any of its directors, officers, or employees; to

affiliates of the association or any of their directors, officers, or

employees; or to individuals or organizations with whom there exists an

interest that might affect the exercise of the best judgment of the

association. Proposed Sec. 550.13(b)(1)(i) through (iv) retain the

existing exceptions to this general prohibition, with one

clarification. Section 5(n)(7) of the HOLA prohibits a Federal savings

association from lending funds held in fiduciary accounts to its

directors, officers, or employees. For ease of reference, proposed

Sec. 550.13(b)(2) restates this statutory prohibition.20

---------------------------------------------------------------------------

\20\ The proposed rule permits an association to make these

loans with respect to employee benefit plans in accordance with the

exemptions found at section 408 of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1108). Section 408 specifically

authorizes loans to participants and beneficiaries of such plans

under certain circumstances. Under these exemptions, the association

may make loans to directors, officers, or employees that are

participants or beneficiaries in the association's own ERISA plan or

in ERISA plans that the association administers for other employers.

---------------------------------------------------------------------------

Finally, consistent with current Sec. 550.10(d), the proposed rule

would permit a Federal savings association to make loans to fiduciary

accounts, sell assets between fiduciary accounts and make loans between

fiduciary accounts. See proposed Secs. 550.13(c), (d) and (e). Such

loans and sales would be permitted if the transactions are fair to the

fiduciary accounts and are not prohibited by applicable law.

Proposed Sec. 550.14 (Custody of Fiduciary Funds)

Proposed Sec. 550.14 retains the substance of existing Sec. 550.11,

which addresses custody of fiduciary assets. The proposal continues to

require the association to place assets of fiduciary accounts in the

joint custody or control of not fewer than two fiduciary officers or

employees. The proposal also continues to allow a Federal savings

association to maintain fiduciary assets off-premises, if consistent

with applicable law. Consistent with section 5(n)(2) of the HOLA, a

Federal savings association must keep fiduciary assets separate from

the assets of the association. Further, the proposed rule would require

the association to keep assets in each fiduciary account separate from

all other accounts or to identify the investments as the property of a

particular account (except when assets are invested in collective

investment funds).

Proposed Sec. 550.15 (Deposit of Securities With State Authorities)

Under section 5(n)(5) of the HOLA and current Sec. 550.4, whenever

local law requires corporations acting as fiduciaries to deposit

securities with State authorities for the protection of trust accounts,

a Federal savings association must make a similar deposit before it can

act in a fiduciary capacity.21 Proposed Sec. 550.15 restates

this general requirement with two clarifications.

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\21\ 12 U.S.C. 1464(n)(5).

---------------------------------------------------------------------------

First, the proposed rule would require a deposit only if the laws

of the state in which the Federal savings association is located

require the deposit.22 In addition, the current rule does

not address how to calculate the required deposit when an association

administers trust assets from offices located in more than one State.

The current rule is unclear whether the association must compute the

deposit based on the amount of trust assets held in the State or the

amount of all trust assets.

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\22\ See Op. Chief Counsel, Office of Thrift Supervision

(December 24, 1992) (concluding that a Federal savings association

should compute the amount of a required State deposit based on the

amount of trust assets administered from offices located in that

State, rather than on the amount of its nationwide trust assets).

---------------------------------------------------------------------------

Consistent with current agency guidance, the proposed rule does not

require a Federal savings association with multi-state trust operations

to compute the State deposit based on its nationwide trust assets. To

do so would go far beyond the deposit requirement's purpose of

protecting trust assets in a particular State, and would unnecessarily

burden an association with multi-state fiduciary

operations.23 Accordingly, the proposed rule would permit a

Federal savings association to calculate the deposit requirement in

each State based on the amount of trust assets administered primarily

from offices located in that State.

---------------------------------------------------------------------------

\23\ Id.

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Proposed Sec. 550.16 (Fiduciary Compensation)

Proposed Sec. 550.16 retains the substance of current Sec. 550.12,

which addresses fiduciary compensation. Under the proposal, a Federal

savings association may charge a reasonable fee for its fiduciary

services if the amount of the compensation is not set or governed by

applicable law. The proposal further prohibits an officer or an

employee of a Federal savings association from retaining any

compensation for acting as a co-fiduciary with the association in the

administration of a fiduciary account, except with the specific

approval of the board of directors. Finally, the proposal prohibits a

Federal savings association from permitting a fiduciary officer or

employee from accepting a bequest or gift of trust assets, unless the

bequest or gift is directed or made by a relative of the officer or

employee or is specifically approved by the association's board of

directors.

Proposed Sec. 550.17 (Receivership or Voluntary Liquidation)

The proposal retains the substance of current Sec. 550.15, which

addresses receivership and voluntary liquidation.

[[Page 39484]]

Proposed Sec. 550.17 directs a receiver, conservator, or liquidating

agent of a Federal savings association to promptly close, or transfer

to a substitute fiduciary, all fiduciary accounts, in accordance with

OTS instructions and the orders of the court having jurisdiction.

Proposed Sec. 550.18 (Surrender of Fiduciary Powers)

Proposed Sec. 550.18 sets forth the procedures that apply when a

Federal savings association seeks to surrender its fiduciary powers.

Specifically, paragraph (a) requires a Federal savings association to

file a certified copy of a resolution of its board of directors

evidencing its intent to surrender its fiduciary powers. If, after an

appropriate investigation, the Regional Director is satisfied that the

Federal savings association has been discharged from all fiduciary

duties, the Regional Director will notify the association that it is no

longer authorized to exercise its fiduciary powers. See proposed

Sec. 550.18(b). The proposal incorporates the OTS practice of providing

a written notice rather than a certificate that the association is no

longer authorized to exercise trust powers. Compare existing

Sec. 550.14(b).

Existing Sec. 550.14 states that upon surrender of fiduciary

powers, a Federal savings association is no longer subject to part 550,

cannot exercise fiduciary powers, and is entitled to return of any

deposit with State authorities. Except for the return of the State

deposit, OTS believes that these provisions are self-evident and

unnecessary. Accordingly, the proposed rule does not include these

provisions.

Proposed Sec. 550.19 (Revocation of Fiduciary Powers)

Proposed Sec. 550.19 sets forth standards and procedures for the

revocation of fiduciary powers. This section retains the standards

currently set forth in existing Sec. 550.16(a), pursuant to which OTS

may revoke fiduciary powers if the association has unlawfully or

unsoundly exercised its fiduciary powers, has failed to exercise its

fiduciary powers for five consecutive years, or has otherwise failed to

comply with part 550.

Existing Sec. 550.16(b) details the procedural requirements

governing the revocation of fiduciary powers. This rule generally

repeats the statutory requirements for a hearing contained in the HOLA.

Because the requirements are already set out in the statute, proposed

Sec. 550.19(b) simply states that OTS revocation procedures are set

forth at 12 U.S.C. 1464(n)(10) and that the hearing required under 12

U.S.C. 1464(n)(10)(B) will be conducted in accordance with 12 CFR Part

509 (OTS regulations governing administrative hearings).

III. Miscellaneous Fiduciary Powers Provisions

Consolidation or Merger

In its recent rulemaking, the OCC deleted, without discussion, its

regulation dealing with the consolidation or merger of two or more

national banks. OTS's regulation dealing with that situation is

currently found at Sec. 550.3. This provision states that when two or

more Federal savings associations merge, and one of those associations

is authorized to exercise fiduciary powers, the resulting association

is also authorized to exercise fiduciary powers. No new application to

exercise those powers is necessary. OTS believes that this proposition

is self-evident and not likely to be the subject of dispute.

Accordingly, the proposal does not contain a provision that corresponds

to existing Sec. 550.3.

Transfer Agents

Also in its recent rulemaking, the OCC adopted Sec. 9.20, which

specified that the rules adopted by the Securities and Exchange

Commission (SEC) under section 17A of the Securities and Exchange Act

of 1934 (1934 Act) (15 U.S.C. 78q-1, et seq.) apply to the domestic

activities of national bank transfer agents. Those rules are found at

17 CFR 240.17Ac2-2 and 240.17Ad-1 through 16.

Section 17A(c) of the 1934 Act (15 U.S.C. 78q-1(c)) provides, inter

alia, that transfer agents must register with their appropriate

regulatory agencies. Under section 3(a)(34)(B) of the 1934 Act (15

U.S.C. 78c-3), the appropriate regulatory agency for banks is the OCC,

the Board of Governors of the Federal Reserve Board, or the Federal

Deposit Insurance Corporation.

The appropriate regulator for Federal savings association transfer

agents, however, has always been the SEC. Thus, Federal savings

association transfer agents are already subject to the SEC rules

adopted under section 17A of the 1934 Act. Consequently, while a

transfer agent is within the definition of fiduciary capacity for

Federal savings associations, review of compliance with the SEC's

registration and associated transfer agent rules and regulations lies

with the SEC. Accordingly, the proposal does not include a provision

that corresponds to Sec. 9.20.

IV. Community Reinvestment Act Revisions

OTS also proposes to revise its regulations implementing the

Community Reinvestment Act (CRA), located at 12 CFR Part 563e.

Specifically, OTS proposes to amend Sec. 563e.11(c), which outlines the

scope of the CRA regulations.

Existing Sec. 563e.11(c) provides that the CRA regulations apply to

``all savings associations as defined in * * * this chapter.'' By

contrast, the CRA regulations of the other banking agencies exempt

institutions that do not perform commercial or retail banking

services.24 These institutions, including trust companies,

are not in the business of providing commercial or retail banking

services by extending credit to the public in the ordinary course of

business. Accordingly, they are not subject to CRA requirements.

---------------------------------------------------------------------------

\24\ See 12 CFR 25.11(c) (OCC); 12 CFR 228.11(c) (FRB); 12 CFR

345.11(c) (FDIC).

---------------------------------------------------------------------------

Because there were no such institutions chartered as savings

associations when Sec. 563e.11(c) was adopted, OTS did not exclude them

from the scope of the CRA regulations. Recently, however, some savings

and loan holding companies have acquired or created savings

associations that operate solely as trust companies, or that otherwise

do not provide commercial or retail banking services by extending

credit to the general public in the ordinary course of business. OTS

anticipates that there may be similar institutions chartered in the

future.

Accordingly, OTS proposes to amend Sec. 563e.11(c) to clarify that

part 563e is not intended to apply to savings associations that do not

perform commercial or retail banking services by granting credit to the

public in the ordinary course of business, other than as incident to

their specialized operations. The proposal includes several examples of

such institutions, such as trust companies, clearing agents,

correspondent associations, and companies that provide cash management

controlled disbursement services.

V. Disposition of Existing Regulations

The following chart gives of an overview of the changes made to

part 550.

[[Page 39485]]

----------------------------------------------------------------------------------------------------------------

Revised provision Former provision Comments

----------------------------------------------------------------------------------------------------------------

Sec. 550.1.......................... ............................. Added.

Sec. 550.2..........................

Affiliate............................ ............................. Added.

Applicable law....................... Sec. 550.1(g)............... Significantly modified.

Custodian under a uniform gifts to Sec. 550.1(b)............... Modified.

minors act.

Fiduciary account.................... Sec. 550.1(a)............... Modified.

Fiduciary capacity................... Sec. 550.1(c) and (h)....... Significantly modified.

Fiduciary officers and employees..... Sec. 550.1(j)............... Modified.

Fiduciary powers..................... Sec. 550.1(k)............... Modified.

Guardian............................. Sec. 550.1(e)............... Modified.

Sec. 550.3.......................... Sec. 545.102................ Modified and added.

Sec. 550.4.......................... Sec. 550.2.................. Modified.

Sec. 550.5.......................... Sec. 550.5(a)(1), (b) and Significantly modified.

(e).

Sec. 550.6.......................... ............................. Added.

Sec. 550.7.......................... Sec. 550.5(a)(2)............ Significantly modified.

Sec. 550.8.......................... Secs. 550.5(a)(2) and 550.6. Significantly modified.

Sec. 550.9.......................... Sec. 550.7.................. Significantly modified.

Sec. 550.10......................... Sec. 550.8.................. Significantly modified.

Sec. 550.11......................... Sec. 550.9.................. Significantly modified.

Sec. 550.12......................... Sec. 550.13................. Modified.

Sec. 550.13......................... Sec. 550.10................. Modified.

Sec. 550.14......................... Sec. 550.11................. Modified.

Sec. 550.15......................... Sec. 550.4.................. Significantly modified.

Sec. 550.16......................... Sec. 550.12................. Modified.

Sec. 550.17......................... Sec. 550.15................. Modified.

Sec. 550.18......................... Sec. 550.14................. Modified.

Sec. 550.19......................... Sec. 550.16................. Modified.

----------------------------------------------------------------------------------------------------------------

VI. Reporting and Recordkeeping Requirements

OTS invites comment on:

Whether the proposed information collection contained in this

proposal is necessary for the proper performance of OTS's functions,

including whether the information has practical utility;

(1) The accuracy of OTS's estimate of the burden of the proposed

information collection;

(2) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(3) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology; and

(4) Estimates of capital and start-up costs of operation,

maintenance and purchases of services to provide information.

Respondents/recordkeepers are not required to respond to this

collection of information unless it displays a currently valid OMB

control number.

The collection of information requirements contained in this

proposal have been submitted to the Office of Management and Budget for

review in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)). Comments on the collections of information should be

sent to the Office of Management and Budget, Paperwork Reduction

Project (1550-0037), Washington, DC 20503, with copies to the

Regulations and Legislation Division (1550-0037), Chief Counsel's

Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,

DC 20552.

The collection of information requirements in this proposed rule

are found in 12 CFR 550.2, 550.8, 550.9, 550.12 and 550.18. OTS

requires this information for the proper supervision of Federal savings

associations' fiduciary activities. The likely respondents/

recordkeepers are Federal savings associations.

Estimated average annual burden hours per respondent/recordkeeper: 10.5

Estimated number of respondents:

Applications for fiduciary powers: 13

Documentation and audit of fiduciary activities: 75

Surrender of fiduciary powers: 1

Estimated total annual reporting and recordkeeping burden: 155.5

Start up costs to respondents: 0

VII. Executive Order 12866

The Director of OTS has determined that this proposed rule does not

constitute a ``significant regulatory action'' for the purposes of

Executive Order 12866.

VIII. Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating a rule includes a

Federal mandate that may result in expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, Section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. OTS has determined that the

proposed rule will not result in expenditures by State, local, or

tribal governments or by the private sector of $100 million or more.

Accordingly, a budgetary impact statement is not required under section

202 of the Unfunded Mandates Act of 1995.

IX. Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS

certifies that this proposed rule will not have a significant economic

impact on a substantial number of small entities. The proposal

liberalizes requirements and reduces burdens for Federal savings

associations that exercise fiduciary powers, regardless of size.

Accordingly, a regulatory flexibility analysis is not required.

List of Subjects

12 CFR Part 545

Accounting, Consumer Protection, Credit, Electronic funds

transfers, Investments, Reporting and recordkeeping requirements,

Savings associations.

[[Page 39486]]

12 CFR Part 550

Accounting, Reporting and recordkeeping requirements, Savings

associations, Trusts and trustees.

12 CFR Part 563e

Community development, Credit, Investments, Reporting and

recordkeeping requirements, Savings associations.

Authority and Issuance

Accordingly, the Office of Thrift Supervision proposes to amend

chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 545--OPERATIONS

1. The authority citation for part 545 continues to read as

follows:

Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.

Sec. 545.102 [Removed]

2. Section 545.102 is removed.

3. Part 550 is revised to read as follows:

PART 550--FIDUCIARY POWERS OF FEDERAL SAVINGS ASSOCIATIONS

Sec.

550.1 Authority and scope.

550.2 Definitions.

550.3 Exempt activities.

550.4 Approval requirements.

550.5 Administration of fiduciary powers.

550.6 General standards for the exercise of fiduciary powers.

550.7 Review of assets of fiduciary accounts.

550.8 Recordkeeping.

550.9 Audit of fiduciary activities.

550.10 Fiduciary funds awaiting investment or distribution.

550.11 Investment of fiduciary funds.

550.12 Collective investment funds.

550.13 Self-dealing and conflict of interest.

550.14 Custody of fiduciary funds.

550.15 Deposit of securities with State authorities.

550.16 Fiduciary compensation.

550.17 Receivership or voluntary liquidation.

550.18 Surrender of fiduciary powers.

550.19 Revocation of fiduciary powers.

Authority: 12 U.S.C. 1462a, 1463, 1464.

Sec. 550.1 Authority and scope.

This part is issued pursuant to 12 U.S.C. 1464(n). It sets forth

the standards that apply to the fiduciary activities of Federal savings

associations.

Sec. 550.2 Definitions.

For the purposes of this part:

Affiliate has the same meaning as in 12 U.S.C. 221a(b).

Applicable law means the law of a State or other jurisdiction

governing a Federal savings association's fiduciary relationships, any

applicable Federal law governing those relationships, the terms of the

instrument governing a fiduciary relationship, or any court order

pertaining to the relationship.

Custodian under a uniform gifts to minors act means a fiduciary

relationship established pursuant to a State law substantially similar

to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors

Act as published by the American Law Institute.

Fiduciary account means an account administered by a Federal

savings association acting in a fiduciary capacity.

Fiduciary capacity means acting as a trustee, executor,

administrator, registrar of stocks and bonds, transfer agent, guardian,

assignee, receiver, or custodian under a uniform gifts to minors act;

investment adviser, if the Federal savings association receives a fee

for its investment advice; any capacity in which the Federal savings

association possesses investment discretion on behalf of another; or

any other similar capacity that OTS authorizes under 12 U.S.C. 1464(n).

Fiduciary officers and employees means all officers and employees

of a Federal savings association to whom the board of directors or its

designee has assigned functions involving the exercise of the

association's fiduciary

Fiduciary powers means the authority that the OTS permits a Federal

savings association to exercise pursuant to 12 U.S.C. 1464(n). The

scope of the Federal savings association's fiduciary powers depends

upon the powers that the State grants to competing fiduciaries in the

State in which the Federal savings association is located.

Guardian means the guardian or conservator, by whatever name used

by State law, of the estate of a minor, an incompetent person, an

absent person, or a person over whose estate a court has taken

jurisdiction, other than under bankruptcy or insolvency laws.

Investment discretion means, with respect to an account, the sole

or shared authority (whether or not that authority is exercised) to

determine what securities or other assets to purchase or sell on behalf

of that account. A savings association that delegates its authority

over investments or a savings association that receives delegated

authority over investments are both deemed to have investment

discretion.

Sec. 550.3 Exempt activities.

(a) Activities exempted. A Federal savings association is not

subject to this part if it acts solely in the following fiduciary

capacities:

(1) Trustee of a trust created or organized in the United States

and forming part of a stock bonus, pension, or profit-sharing plan

qualifying for specific tax treatment under section 401(d) of the

Internal Revenue Code of 1954 (26 U.S.C. 401(d));

(2) Trustee or custodian of a Individual Retirement Account within

the meaning of section 408(a) of the Internal Revenue Code (26 U.S.C.

408(a)); or

(3) Trustee of a fiduciary account that involves no active

fiduciary duties provided that the applicable law authorizes the

savings association to act in this capacity.

(b) Investment authority. A Federal savings association acting in

the fiduciary capacities listed in paragraph (a) of this section may

invest the funds of the fiduciary account solely in the following

instruments:

(1) The Federal savings association's accounts, deposits,

obligations or securities; and

(2) Such other assets as the customer may direct, provided the

Federal savings association does not exercise any investment discretion

and does not directly or indirectly provide any investment advice with

respect to the fiduciary account.

(c) Administration. A Federal savings association acting in the

fiduciary capacities described in paragraph (a) of this section must

observe principles of sound fiduciary administration, including those

related to recordkeeping and segregation of assets.

(d) Compensation. A Federal savings association may receive

reasonable compensation for acting in any fiduciary capacity authorized

by this section.

(e) Disclosure. Unless fiduciary investments are limited to

accounts or deposits insured by the FDIC, a Federal savings association

acting in the capacities described in paragraph (a) of this section

must include the following language in bold type on the first page of

any contract documents:

Funds invested pursuant to this agreement are not insured by the

Federal Deposit Insurance Corporation (``FDIC'') merely because the

trustee or custodian is a Federal savings association the accounts

of which are covered by such insurance. Only investments in the

accounts of such a Federal savings association are insured by the

FDIC, subject to its rules and regulations.

Sec. 550.4 Approval requirements.

(a) OTS approval required. A Federal savings association may not

exercise fiduciary powers unless it obtains prior approval from the OTS

under this

[[Page 39487]]

section. A Federal savings association may exercise only those

fiduciary powers specified in the OTS approval. Unless otherwise

provided in the approval, a Federal savings association may exercise

fiduciary powers only from those offices listed in the application.

(b) Application requirements. A Federal savings association must

file an application under Sec. 516.1(c) of this chapter in order to

exercise fiduciary powers through fiduciary officers and employees or

through an affiliate. The application must describe the fiduciary

powers that the Federal savings association or affiliate will exercise

and include the additional information necessary to enable the OTS to

make the determinations under paragraph (c) of this section.

(c) Factors considered. In reviewing an application filed under

paragraph (b) of this section, the OTS will consider:

(1) The Federal savings association's financial condition;

(2) The Federal savings association's capital, and whether that

capital is sufficient under the circumstances;

(3) The Federal savings association's overall performance;

(4) The fiduciary powers the Federal savings association proposes

to exercise;

(5) Its proposed supervision of those powers;

(6) The availability of legal counsel;

(7) The needs of the community to be served; and

(8) Any other facts or circumstances that the OTS considers proper.

(d) OTS action. The Director may approve or disapprove any

application filed under this section. The Regional Director is

specifically authorized to approve or disapprove any application filed

under this section that does not raise any significant issues of law or

policy on which the OTS has not taken a formal position.

(e) Conditions of approval. The OTS may impose appropriate

conditions to its approval of the application to ensure that the

requirements of this part are met, or it may deny the application.

Sec. 550.5 Administration of fiduciary powers.

(a) Responsibilities of the board of directors. A Federal savings

association's fiduciary activities must be managed by or under the

direction of its board of directors. In discharging its

responsibilities, the board may assign any function related to the

exercise of fiduciary powers to any director, officer, employee, or

committee of directors, officers or employees.

(b) Use of personnel and facilities. The Federal savings

association may use any qualified personnel and facilities of the

association or its affiliates to perform services related to the

exercise of its fiduciary powers. Any department of the association or

its affiliates may use fiduciary officers, employees, and facilities to

perform services unrelated to the exercise of fiduciary powers, to the

extent not prohibited by applicable law.

(c) Agency agreements. Pursuant to a written agreement, a Federal

savings association exercising fiduciary powers may perform services

related to the exercise of fiduciary powers for another association or

other entity, and may purchase services related to the exercise of

fiduciary powers from another association or other entity.

(d) Bond requirement. A Federal savings association must ensure

that all fiduciary officers and employees are adequately bonded.

Sec. 550.6 General standards for the exercise of fiduciary powers.

Each Federal savings association must exercise its fiduciary powers

prudently and in compliance with applicable law. Each Federal savings

association must use standards in exercising its fiduciary powers that

are consistent with safety and soundness, promote sound fiduciary

administration, and enable the Federal savings association to

adequately monitor the condition of its fiduciary operations. The

standards should be appropriate for the size and condition of the

Federal savings association, the nature and scope of its fiduciary

operations, and the conditions in the market in which it exercises

fiduciary powers.

Sec. 550.7 Review of assets of fiduciary accounts.

(a) Pre-acceptance review. Before accepting a fiduciary account, a

Federal savings association must review the prospective account to

determine whether it can properly administer the account.

(b) Initial post-acceptance review. Upon the acceptance of a

fiduciary account for which a Federal savings association has

investment discretion, the association must conduct a prompt review of

all assets of the account to evaluate whether they are appropriate for

the account.

(c) Annual review. At least once during every calendar year, a

Federal savings association must conduct a review of all assets of each

fiduciary account for which the association has investment discretion

to evaluate whether they are appropriate, individually and

collectively, for the account.

Sec. 550.8 Recordkeeping.

(a) Documentation of accounts. A Federal savings association must

maintain adequate records for all fiduciary accounts. Adequate records

include, but are not limited to, documentation of the establishment and

termination of each fiduciary account.

(b) Retention of records. A Federal savings association must retain

the records described in paragraph (a) of this section for a period of

three years from the later of the termination of the account or the

termination of any litigation relating to the account.

(c) Separation of records. A Federal savings association must

ensure that the records described in paragraph (a) of this section are

separate and distinct from other records of the association.

Sec. 550.9 Audit of fiduciary activities.

(a) Annual audit. At least once during each calendar year, a

Federal savings association must arrange for a suitable audit of all

significant fiduciary activities, under the direction of its fiduciary

audit committee, unless the association adopts a continuous audit

system in accordance with paragraph (b) of this section. The

association must note the results of the audit (including significant

actions taken as a result of the audit) in the minutes of the board of

directors.

(b) Continuous audit. In lieu of performing annual audits under

paragraph (a) of this section, a Federal savings association may adopt

a continuous audit system under which the association arranges for a

discrete audit of each significant fiduciary activity (i.e., on an

activity-by-activity basis), under the direction of its fiduciary audit

committee, at an interval commensurate with the nature and risk of that

activity. Certain fiduciary activities may receive audits at intervals

greater or less than one year, as appropriate. An association that

adopts a continuous audit system must note the results of all discrete

audits performed since the last audit report (including significant

actions taken as a result of the audits) in the minutes of the board of

directors at least once during each calendar year.

(c) Audit standards. (1) An audit must ascertain whether the

association's internal control policies and procedures provide

reasonable assurance that:

(i) Fiduciary activities are administered in accordance with

applicable law;

(ii) Fiduciary assets are properly safeguarded; and

(iii) Transactions are accurately recorded in appropriate accounts

in a timely manner.

[[Page 39488]]

(2) An audit must be conducted in accordance with generally

accepted standards for attestation engagements and other standards

established by the OTS.

(3) An audit may be conducted by internal auditors, external

auditors or other qualified persons who are responsible only to the

board of directors.

(d) Fiduciary audit committee. A Federal savings association's

fiduciary audit committee must consist of a committee of the

association's directors or an audit committee of an affiliate of the

association. The committee:

(1) May not include any officers of the association or an affiliate

who participate significantly in the administration of the

association's fiduciary activities; and

(2) Must consist of a majority of members who are not members of

any committee to which the board of directors has delegated power to

manage and control the fiduciary activities of the association.

Sec. 550.10 Fiduciary funds awaiting investment or distribution.

(a) In general. With respect to a fiduciary account for which a

Federal savings association has investment discretion or discretion

over distributions, the association may not allow funds awaiting

investment or distribution to remain uninvested and undistributed any

longer than is reasonable for the proper management of the account and

consistent with applicable law. With respect to a fiduciary account for

which a Federal savings association has investment discretion, the

association must obtain for funds awaiting investment or distribution a

rate of return that is consistent with applicable law.

(b) Self-deposits--(1) In general. A Federal savings association

may deposit funds of a fiduciary account that are awaiting investment

or distribution in the commercial, savings, or another department of

the association, unless prohibited by applicable law. To the extent

that the funds are not insured by the FDIC, the association must set

aside collateral as security, under the control of appropriate

fiduciary officers and employees, in accordance with paragraph (b)(2)

of this section. The market value of the collateral set aside must at

all times equal or exceed the amount of the uninsured fiduciary funds.

(2) Acceptable collateral. A Federal savings association may

satisfy the collateral requirement of paragraph (b)(1) of this section

with any of the following:

(i) Direct obligations of the United States, or other obligations

fully guaranteed by the United States as to principal and interest;

(ii) Readily marketable securities of the classes in which State-

chartered corporate fiduciaries are permitted to invest fiduciary funds

under applicable state law;

(iii) Other readily marketable securities as the OTS may determine;

(iv) Surety bonds, to the extent they provide adequate security,

unless prohibited by applicable law; and

(v) Any other assets that qualify under applicable State law as

appropriate security for deposits of fiduciary funds.

(c) Affiliate deposits. A Federal savings association, acting in

its fiduciary capacity, may deposit funds of a fiduciary account that

are awaiting investment or distribution with an affiliated insured

depository institution, unless prohibited by applicable law. A Federal

savings association must set aside collateral consistent with the

requirements of paragraph (b)(2) of this section, as security for a

deposit by or with an affiliate of fiduciary funds awaiting investment

or distribution, unless prohibited by applicable law.

Sec. 550.11 Investment of fiduciary funds.

A Federal savings association must invest funds of a fiduciary

account in a manner consistent with applicable law.

Sec. 550.12 Collective investment funds.

(a) In general. Where consistent with applicable law, a Federal

savings association may invest assets that it holds as fiduciary in the

following collective investment funds:1

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\1\ In determining whether investing fiduciary assets in a

collective investment fund is proper, the Federal savings

association may consider the fund as a whole and, for example, shall

not be prohibited from making that investment because any particular

asset is non-income producing.

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(1) A fund maintained by the association, or by one or more

affiliated depository institutions 2 exclusively for the

collective investment and reinvestment of money contributed to the fund

by the association, or by one or more affiliated depository

institutions, in its capacity as trustee, executor, administrator,

guardian, or custodian under a uniform gifts to minors act.

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\2\ A fund established pursuant to this paragraph (a)(1) that

includes money contributed by entities that are affiliates as

defined in Sec. 550.2, but are not members of the same affiliated

group as defined at 26 U.S.C. 1504, may fail to qualify for tax-

exempt status under the Internal Revenue Code. See 26 U.S.C. 584.

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(2) A fund consisting solely of assets of retirement, pension,

profit sharing, stock bonus, or other trusts that are exempt from

Federal income tax.

(i) A Federal savings association may invest assets of retirement,

pension, profit sharing, stock bonus or other trusts that are exempt

from Federal income tax and that the association holds in its capacity

as trustee in a collective investment fund established under paragraph

(a)(1) or (a)(2) of this section.

(ii) A Federal savings association may invest assets of retirement,

pension, profit sharing, stock bonus, or other employee benefit trusts

that are exempt from Federal income tax and that the association holds

in any capacity (including agent), in a collective investment fund

established under this paragraph (a)(2) if the fund itself qualifies

for exemption from Federal income tax.

(3) Other collective investments authorized for national banks

under 12 CFR 9.18.

(b) Requirements. Collective investment funds held by a Federal

savings association under paragraph (a) of this section must be

administered in accordance with 12 CFR 9.18. Any document required to

be filed with the Comptroller of the Currency under 12 CFR 9.18 must

also be filed with the OTS in accordance with the filing instructions

in Sec. 516.1(c) of this chapter. The OTS may review such documents for

compliance with this part and other laws and regulations.

Sec. 550.13 Self-dealing and conflict of interest.

(a) Investments for fiduciary accounts--(1) In general. Unless

authorized by applicable law, a Federal savings association may not

invest funds of a fiduciary account for which an association has

investment discretion in the stock or obligations of, or in assets

acquired from the association or any of its directors, officers, or

employees; affiliates of the association or any of their directors,

officers, or employees; or individuals or organizations with whom there

exists an interest that might affect the exercise of the best judgment

of the association.

(2) Additional securities investments. If retention of stock or

obligations of the association or its affiliates is consistent with

applicable law, the association may:

(i) Exercise rights to purchase additional stock (or securities

convertible into additional stock) when offered pro rata to

stockholders; and

(ii) Purchase fractional shares to complement fractional shares

acquired through the exercise of rights or the receipt of a stock

dividend resulting in fractional share holdings.

[[Page 39489]]

(b) Loans, sales, or other transfers from fiduciary accounts--(1)

In general. A Federal savings association may not lend, sell, or

otherwise transfer assets of a fiduciary account for which the

association has investment discretion to the association or any of its

directors, officers, or employees, or to affiliates of the association

or any of their directors, officers, or employees, or to individuals or

organizations with whom there exists an interest that might affect the

exercise of the best judgment of the association, unless:

(i) The transaction is authorized by applicable law;

(ii) Legal counsel advises the association in writing that the

association has incurred, in its fiduciary capacity, a contingent or

potential liability, in which case the association, upon the sale or

transfer of assets, must reimburse the fiduciary account in cash at the

greater of book or market value of the assets;

(iii) As provided in 12 CFR 9.18 for defaulted fixed-income

investments; or

(iv) Required in writing by the OTS.

(2) Loans of funds held in trust. Notwithstanding paragraph (b)(1)

of this section, a Federal savings association may not lend to any of

its directors, officers, or employees any funds held in trust, except

with respect to employee benefit plans in accordance with the

exemptions found at section 408 of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1108).

(c) Loans to fiduciary accounts. A Federal savings association may

make a loan to a fiduciary account and may hold a security interest in

assets of the account if the transaction is fair to the account and is

not prohibited by applicable law.

(d) Sales between fiduciary accounts. A Federal savings association

may sell assets between any of its fiduciary accounts if the

transaction is fair to both accounts and is not prohibited by

applicable law.

(e) Loans between fiduciary accounts. A Federal savings association

may make a loan between any of its fiduciary accounts if the

transaction is fair to both accounts and is not prohibited by

applicable law.

Sec. 550.14 Custody of fiduciary funds.

(a) Control of fiduciary assets. A Federal savings association must

place assets of fiduciary accounts in the joint custody or control of

not fewer than two of the fiduciary officers or employees designated

for that purpose by the board of directors. A Federal savings

association may maintain the investments of a fiduciary account off-

premises, if consistent with applicable law and if the association

maintains adequate safeguards and controls.

(b) Separation of fiduciary assets. A Federal savings association

must keep the assets of fiduciary accounts separate from the assets of

the association. A Federal savings association must keep the assets of

each fiduciary account separate from all other accounts or must

identify the investments as the property of a particular account,

except as provided in Sec. 550.12.

Sec. 550.15 Deposit of securities with State authorities.

(a) In general. If the law of the State in which the Federal

savings association is located requires corporations acting in a

fiduciary capacity to deposit securities with State authorities for the

protection of private or court trusts, then a Federal savings

association that acts as a private or court-appointed trustee must make

such a deposit with that State. If the State authorities refuse to

accept the deposit, the association must deposit the securities with

the Federal Home Loan Bank of which the Federal savings association is

a member, to be held for the protection of private or court trusts to

the same extent as if the securities had been deposited with State

authorities.

(b) Assets held in more than one State. If a Federal savings

association administers trust assets in more than one State, the

association may compute the amount of deposit required for each State

on the basis of trust assets that the association administers primarily

from offices located in that State.

Sec. 550.16 Fiduciary compensation.

(a) Compensation of association. If the amount of a Federal savings

association's compensation for acting in a fiduciary capacity is not

set or governed by applicable law, the association may charge a

reasonable fee for its services.

(b) Compensation of co-fiduciary officers and employees. A Federal

savings association may not permit any officer or employee to retain

any compensation for acting as a co-fiduciary with the association in

the administration of a fiduciary account, except with the specific

approval of the association's board of directors.

(c) Bequests or gifts to trust officers and employees. A Federal

savings association may not permit any fiduciary officer or employee to

accept a bequest or gift of fiduciary assets, unless the bequest or

gift is directed or made by a relative of the officer or employee or is

specifically approved by the association's board of directors.

Sec. 550.17 Receivership or voluntary liquidation.

If the OTS appoints a conservator or receiver for a Federal savings

association under part 558 of this chapter, or if a Federal savings

association places itself in voluntary liquidation, the receiver,

conservator, or liquidating agent must promptly close or transfer to a

substitute fiduciary, all fiduciary accounts, in accordance with OTS

instructions and the orders of the court having jurisdiction.

Sec. 550.18 Surrender of fiduciary powers.

(a) Filing of board resolution. A Federal savings association

seeking to surrender its fiduciary powers must file with the OTS a

certified copy of the resolution of its board of directors evidencing

that intent. The resolution must be filed in accordance with Sec. 516.1

of this chapter.

(b) Issuance of OTS notice. If, after appropriate investigation,

the Regional Director is satisfied that the Federal savings association

has been discharged from all fiduciary duties, the Regional Director

will issue a written notice to the association indicating that the

association is no longer authorized to exercise fiduciary powers.

(c) Recovery of securities deposited with State authorities. Upon

issuance of the OTS written notice, the Federal savings association may

recover any securities deposited under Sec. 550.15.

Sec. 550.19 Revocation of fiduciary powers.

(a) Revocation standards. The OTS may revoke a Federal savings

association's authority to exercise fiduciary powers under this part,

if the OTS determines that the association:

(1) Has unlawfully or unsoundly exercised those fiduciary powers;

(2) Has failed to exercise those fiduciary powers for five

consecutive years; or

(3) Has otherwise failed to comply with the requirements of this

part.

(b) Revocation procedures. Revocation procedures are set forth in

12 U.S.C. 1464(n)(10). The hearing required under 12 U.S.C.

1464(n)(10)(B) will be conducted in accordance with part 509 of this

chapter.

PART 563e--COMMUNITY REINVESTMENT

4. The authority citation for part 563e continues to read as

follows:

Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816,

1828(c) and 2901 through 2907.

5. Section 563e.11 is amended by revising paragraph (c) to read as

follows:

[[Page 39490]]

Sec. 563e.11 Authority, purposes and scope.

* * * * *

(c) Scope--(1) General. This part applies to all savings

associations except as provided in paragraph (c)(2) of this section.

(2) Certain special purpose savings associations. This part does

not apply to special purpose savings associations that do not perform

commercial or retail banking services by granting credit to the public

in the ordinary course of business, other than as incident to their

specialized operations. These associations include banker's banks, as

defined in 12 U.S.C. 24 (Seventh), and associations that engage only in

one or more of the following activities: providing cash management

controlled disbursement services or serving as correspondent

associations, trust companies or clearing agents.

Dated: July 14, 1997.

By the Office of Thrift Supervision.

Nicolas P. Retsinas,

Director.

[FR Doc. 97-19157 Filed 7-22-97; 8:45 am]

BILLING CODE 6720-01-P