Incorporation, Organization, and Conversion of Federal Mutual Associations

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 543

[No. 97-83]

RIN 1550-AB06

Incorporation, Organization, and Conversion of Federal Mutual

Associations

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is issuing a final rule

amending its regulations governing conversions to federal mutual

savings associations. The final rule permits the direct conversion of

all types of mutual depository institutions into federal mutual savings

associations. This final rule simplifies the conversion process.

EFFECTIVE DATE: August 27, 1997.

FOR FURTHER INFORMATION CONTACT: David A. Permut, Counsel (Banking and

Finance) Business Transactions Division (202/906-7505); Scott Ciardi,

Senior Analyst, Corporate Activities Division (202/906-6960); or Kevin

A. Corcoran, Assistant Chief Counsel for Business Transactions (202/

906-6962), Business Transactions Division, Chief Counsel's Office,

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

20552.

SUPPLEMENTARY INFORMATION:

I. Background

The OTS is issuing a final regulation that permits all types of

mutual depository institutions to convert directly to a federal mutual

savings association charter.1 The regulation is consistent

with OTS's long-standing position that depository institutions should

be free to operate under whatever charter best suits their business

needs, consistent with safety and soundness. The OTS previously has

granted federal savings associations explicit authority to convert

directly to a bank charter,2 and has promulgated regulations

enabling stock depository institutions to convert directly to a federal

stock savings association charter.3

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\1\ Section 2(5) of the Home Owners' Loan Act defines ``federal

savings associations'' to include federal savings associations and

federal savings banks. Accordingly, references herein to federal

savings associations include federal savings banks.

\2\ 12 CFR 552.2-7.

\3\ 12 CFR 552.2-6.

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The OTS published a notice of proposed rulemaking regarding direct

[[Page 45308]]

conversions of mutual depository institutions to federal mutual

charters in the Federal Register on April 2, 1997.4 The

public comment period closed on June 9, 1997. The OTS received two

comments regarding the proposal, both from trade associations. Both

commenters supported the proposal generally, without commenting on

specific aspects of the proposed regulation. In light of the

commenters' support and the OTS's continuing belief that this approach

will promote efficiency and reduce regulatory burden, today's final

regulation adopts the proposed regulation without changes.

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\4\ 62 FR 17115 (April 9, 1997).

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II. Description of the Final Rule

Pursuant to its authority under section 5(a) of the Home Owners'

Loan Act (``HOLA''), the OTS is amending Secs. 543.8 and 543.9 as

proposed, to permit any type of mutual depository institution to

convert directly to a federal mutual savings association.5

Previously, mutual depository institutions could convert to a federal

mutual charter indirectly, by chartering a federal mutual association,

and combining the other depository institution with the new federal

association in a merger or purchase and assumption transaction. The

final regulation eliminates unnecessary regulatory burdens associated

with indirect conversions. The rule applies all existing regulatory

requirements currently applicable to direct conversions by state mutual

associations and savings banks to this expanded class of applicants and

revises Secs. 543.8 and 543.9 as described below.

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\5\ As discussed in the proposal, section 5(a) of the HOLA gives

the OTS plenary authority to provide for the organization and

regulation of federal savings associations, consistent with the

``best practices'' of thrift institutions in the United States and

for the purpose of encouraging such institutions to provide credit

for housing safely and soundly.

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Section 543.8 permits conversions of mutual depository institutions

to federal mutual associations, subject to three requirements. First,

the institution must, upon consummation of the conversion, have its

deposits insured by the Federal Deposit Insurance Corporation

(``FDIC''). See also Sec. 543.9(c)(3).

Second, the depository institution, in accomplishing the

conversion, must comply with all applicable state and federal statutes

and regulations, and OTS policies, and must obtain all necessary

regulatory and member approvals. This provision requires, among other

things, that the converting depository institution have the authority

to convert to a federal association under the statutes and regulations

applicable to the converting institution and that the conversion be

approved by a vote of its members pursuant to the laws applicable to

the converting institution.

Third, a depository institution converting to a federal mutual

association charter must conform with the investment limitations of

Section 5(c) of the HOLA 6 within a time frame prescribed by

the OTS. Section 552.2-6 of the OTS regulations already contains this

requirement for federal stock associations.

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\6\ 12 U.S.C. 1464(c).

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The rule also revises Section 543.9(a) to set forth the filing

requirements. Section 543.9(c) is revised to eliminate the statement

that the OTS will not consider the application of a converting

institution not insured by the FDIC until the FDIC completes an

eligibility examination. The OTS does not believe it is necessary to

delay consideration of an application until the eligibility examination

has been completed. Moreover, the OTS has the ability to deem a

conversion application incomplete, if processing of the application

hinges on the final results of the eligibility examination, under the

application processing procedures at Section 516.2.

In addition, Section 543.9(c) now explicitly provides that the OTS

will consider applications to convert to a federal mutual charter under

the standards set forth at section 5(e) of the HOLA, as well as Section

543.2(g). The revised regulation explicitly states that converting

institutions that have been in existence as depository institutions for

less than three years will be subject to all approval criteria and

other requirements applicable to de novo federal

associations.7

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\7\ See 12 CFR 543.3, added by 62 FR 27177, May 19, 1997.

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The OTS notes that applicants utilizing the provisions of the new

direct conversion regulation should file their applications on OTS Form

number 1582.

IV. Executive Order 12866

The Director of the OTS has determined that this final rule does

not constitute a ``significant regulatory action'' for the purposes of

Executive Order 12866.

V. Regulatory Flexibility Act Analysis

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

OTS certifies that this rule, which will reduce regulatory burdens,

will not have a significant economic impact on a substantial number of

small entities. The final regulation merely reduces regulatory burden

for all institutions, including small entities that convert from a

mutual charter to a federal mutual charter. Accordingly, a Regulatory

Flexibility Analysis is not required.

VI. Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law

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

budgetary impact statement before promulgating a rule that includes a

federal mandate that may result in expenditures by state, local, and

tribal governments, in the aggregate, or by the private sector, or $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. The OTS has determined that

the final rule will not result in expenditures by state, local or

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

Accordingly, this rulemaking is not subject to Section 202 of the

Unfunded Mandates Act.

VII. Effective Date

The OTS finds good cause for dispensing with the 30-day delayed

effective date ordinarily prescribed by the Administrative Procedure

Act (5 U.S.C. 553(d)). This rule confers a benefit on any institution

wishing to convert to a federal mutual charter by reducing the number

of steps required for conversion.

In addition, section 302 of the Community Development and

Regulatory Improvement Act of 1994 (12 U.S.C. 4802(b)(1)) (CDRIA)

delays the effective date of regulations promulgated by the Federal

banking agencies that impose additional reporting, disclosure, or new

requirements, to the first day of the first calendar quarter following

publication of the final rule. OTS believes that CDRIA does not apply

to this final rule because it imposes no new burden.

List of Subjects in 12 CFR Part 543

Conversions, Reporting and recordkeeping requirements, Savings

associations.

Accordingly, the Office of Thrift Supervision amends chapter V,

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

[[Page 45309]]

PART 543--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL

MUTUAL ASSOCIATIONS

1. The authority citation for part 543 continues to read as

follows:

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et

seq.

2. Section 543.8 is amended by revising the heading and paragraph

(a) to read as follows:

Sec. 543.8 Conversion of depository institutions to Federal mutual

charter.

(a) With the approval of the OTS, any depository institution, as

defined in Sec. 552.13 of this chapter, that is in mutual form, may

convert into a Federal mutual savings association, provided that:

(1) The depository institution, upon conversion, will have its

deposits insured by the Federal Deposit Insurance Corporation;

(2) The depository institution, in accomplishing the conversion,

complies with all applicable state and federal statutes and

regulations, and OTS policies, and obtains all necessary regulatory and

member approvals; and

(3) The resulting Federal mutual association conforms, within the

time prescribed by the OTS, to the requirements of section 5(c) of the

Home Owners' Loan Act.

* * * * *

3. Section 543.9 is amended by revising paragraph (a) and the

introductory text of paragraph (c) to read as follows:

Sec. 543.9 Application for conversion to Federal mutual charter.

(a) Filing. Any depository institution that proposes to convert to

a Federal mutual association as provided in Sec. 543.8 shall, after

approval by its board of directors, file in accordance with Sec. 516.1

of this chapter an application on forms obtained from the OTS. The

applicant shall submit any financial statements or other information

the OTS may require.

* * * * *

(c) Action on application. The OTS will consider such application

and any information submitted with the application, and may approve the

application in accordance with section 5(e) of the Home Owners' Loan

Act and Sec. 543.2(g)(1). Converting depository institutions that have

been in existence less than three years will be subject to all approval

criteria and other requirements applicable to de novo Federal

associations. Approval of an application and issuance by the OTS of a

charter will be subject to:

* * * * *

Dated: August 19, 1997.

By the Office of Thrift Supervision.

Nicolas P. Retsinas,

Director.

[FR Doc. 97-22798 Filed 8-26-97; 8:45 am]

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