Assessments and Fees

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 502

[No. 98-74]

RIN 1550-AB20

Assessments and Fees

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to amend

its regulations to more equitably impose assessments on savings

associations. OTS's experience has shown that the current assessment

structure may cause some savings associations to pay assessments over

or under OTS's costs of supervising those savings associations. The

proposal seeks to minimize these disparities. In particular, the

proposal would increase assessments on most institutions with

significant off-balance sheet activities. In the aggregate, the

proposed changes should initially result in decreased assessments with

respect to healthy institutions without significant off-balance sheet

activities. The proposal would also clarify certain other matters

involving assessments and other fees and would revise the entire

assessment and fee regulation using a plain language format.

DATES: Comments must be received on or before October 13, 1998.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records

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

Street, NW., Washington, DC 20552, Attention Docket No. 98-74. These

submissions may be hand-delivered to 1700 G Street, NW., from 9:00 a.m.

to 5:00 p.m. on business days; they may be sent by facsimile

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

[email protected]. Comments will be available for inspection at

1700 G Street, NW., from 9:00 a.m. until 4:00 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Christine Harrington, Counsel (Banking

and Finance), (202) 906-7957, or Karen Osterloh, Assistant Chief

Counsel, (202) 906-6639, Regulations and Legislation Division, Chief

Counsel's Office; or Eric Hirschhorn, Principal Financial Economist,

(202) 906-7350, Research & Analysis; William Brady, Acting Director,

Planning & Budget, (202) 906-7408, Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

OTS is charged with the mission of examining, regulating, and

providing for the safe and sound operation of savings

associations.1 Under 12 U.S.C. 1467, OTS funds these

operations through assessments on savings associations and through

other fees, as necessary and appropriate.

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\1\ 12 U.S.C. 1463(a).

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In the Federal Deposit Insurance Corporation Improvement Act of

1991 (FDICIA), Congress amended OTS's statutory assessment authority by

removing a provision requiring OTS to assess the costs of examining

savings associations and their affiliates in proportion to their assets

or resources. Instead, Congress authorized the Director of OTS to

assess examination costs against savings associations and their

affiliates, and to recover the agency's direct and indirect expenses,

as the Director deems necessary or appropriate. OTS's experience has

shown that the current assessment structure can be improved to more

equitably correlate assessments with OTS's costs. OTS proposes to

exercise FDICIA's added flexibility to better apportion the costs of

OTS regulation among savings associations. The agency has two primary

goals: (1) establishing an assessment structure that keeps the

assessment rates as low as possible while providing the agency the

resources essential to effective supervision of a changing industry,

and (2) more closely tailoring rates to the agency's increased costs in

supervising certain types of institutions. In the aggregate, the

proposed changes should initially result in decreased assessments for

healthy institutions without significant off-balance sheet activities,

that is, for traditional thrift institutions. In the future, OTS's

revenue would increase or decrease as the size, activities, and

condition of institutions it regulates, change.

II. Description of Proposal

Under the proposed rule, OTS will determine a savings association's

assessment by adding together three components that reflect the size of

the institution, its condition, and the complexity of its operations.

As discussed more fully below, in the agency's experience, each of

these factors substantially affects OTS's costs of supervising savings

associations.

A. Asset Size

Under the current OTS regulation, assessments are based on the

savings association's total assets, as reported in the consolidated

Thrift Financial Report. OTS's current regulation uses decreasing

marginal assessment rates for increasingly larger institutions. This

method was intended to reflect economies of scale realized in

supervising and regulating larger institutions. However, OTS's

experience has shown that the current regulation uses marginal

assessment rates that are no longer consistent with OTS's economies of

scale. Further, it omits certain fixed costs that are the same or

nearly the same for institutions of all sizes, such as costs of

drafting regulations and policies, and basic costs of conducting

examinations.

OTS derived information on the magnitude of economies of scale in

thrift supervision and the relationship between other thrift

institution attributes and supervisory expenses from a statistical

analysis of the variation in total examiner hours among thrifts.

Examiner hours are the main component of supervisory expenses that vary

with the size, condition, or other

[[Page 43643]]

attributes of thrift institutions. As such, they are a useful standard

for evaluating the consistency between an assessment schedule and

actual supervision costs.

An analysis of examiner hours at all OTS-supervised thrifts for

1996 and 1997 confirmed that there are substantial economies of scale

in thrift examination and found that the percentage decline in the

number of examiner hours per million dollars of assets is fairly steady

as size increases. OTS used regression analyses to estimate the

marginal increases in examiner hours for different size groups and how

these marginal increases change with size. This analysis further

confirmed the economies of scale in thrift examination and provided

support for the rate of decline in the proposed marginal assessment

rates.

The proposed regulation is designed to make OTS assessments more

equitable for institutions of all sizes. First, as under the current

regulation, the asset size component would impose marginal assessment

rates that decline as asset size increases. Second, OTS would

incorporate some of its fixed costs into the assessment rates schedule

via an explicit fixed charge. The Office of the Comptroller of the

Currency (OCC) has an analogous charge in its assessment schedule in

the form of a very high rate on the first two million dollars of

assets.

In analyzing the effects of various base assessment rates, OTS

found that the proposed changes, while reflecting OTS's costs, could

have a disproportionate impact on assessments for the smallest savings

associations, those with less than $100 million in assets. OTS is

concerned that such a change might impose undue burdens on those

savings associations, which may not be in a position to readily absorb

such increased costs. Therefore, OTS proposes to include an alternative

size component calculation for such institutions. Under the proposal, a

savings association that existed on the effective date of the

regulation and never had more than $100 million in assets at the end of

any quarter would be a ``qualifying savings association.'' Such an

institution would lose its status as a qualifying institution if,

following the effective date of the regulation, its assets exceeded

$100 million at the end of any quarter. Savings associations formed

after the regulation becomes effective would not be considered

qualifying savings associations. The size component for a qualifying

savings association would be the lesser of the amount that would be

required under the proposed regulation, or the amount that would be

required under the current OTS assessment structure. Because this

alternative is designed to minimize the potential burden associated

with changing to a new assessment structure, OTS specifically requests

comment on whether this treatment should be phased out in the future

and, if so, what phase-out method or period would be appropriate.

As proposed, the asset-based assessment would use a chart to

identify base assessment amounts for total assets at a certain levels,

and impose marginal rates on assets above those levels. This is similar

to the treatment under existing part 502. However, unlike the existing

regulation, proposed part 502 would not include specific base

assessment

amounts or marginal rates in the regulatory text. Rather, OTS proposes

to publish the specific base assessment amounts and marginal rates in

Thrift Bulletins.\2\

OTS currently publishes assessment rates in a Thrift Bulletin,

under authority in current Sec. 502.6 to set rates lower than those

published in current Sec. 502.1. Since the early 1990's, thrifts have

been charged assessments that are different from those included in the

regulation. Having outdated rates in the regulation has caused

confusion. Publishing the rates solely in Thrift Bulletins is designed

to eliminate this confusion. In addition to mailing Thrift Bulletins to

every thrift, OTS puts its Thrift Bulletin on its website (http://

www.ots.treas.gov/) for ready public access. OTS believes that

including this information in Thrift Bulletins rather than in a

regulation would also allow more flexibility to match assessments with

costs when OTS's supervisory costs change. As the industry changes, OTS

costs of supervision and examination will continue to fluctuate. OTS

solicits comments on whether this approach is appropriate.

OTS is currently considering a size component initially containing

the base amounts and marginal rates listed in the following chart:

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If the amount of total assets is-- The size component is--

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Over But not over This amount Plus Of excess over

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$0............................. $67 million...... $1,250 .00015424 $0

67 million..................... 215 million...... 11,584 .00010288 67 million.

215 milion..................... 1 billion........ 26,810 .00008230 215 million.

1 billion...................... 6.03 billion..... 91,416 .00006584 1 billion.

6.03 billion................... 18 billion....... 422,591 .00005267 6.03 billion.

18 billion..................... 35 billion....... 1,053,051 .00004214 18 billion.

35 billion..................... ................. 1,769,431 .00003371 35 billion.

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The actual rates contained in the Thrift Bulletin implementing a final

regulation may differ from those in this chart. The chart reflects

OTS's current costs and the assessment structure proposed today.

Because OTS intends the proposed changes to its assessments regulation

to decrease assessments, in the aggregate, for healthy institutions

without significant off-balance sheet activities, and because OTS is

proposing different options for assessment methods, OTS cannot yet

determine with certainty the base assessment amounts and marginal rates

that would be in the initial Thrift Bulletin. For example, if OTS were

to decide against including a complexity component (discussed below),

the agency would charge higher rates under the size component. The

actual amounts and rates therefore may change depending on which

options OTS selects, taking into account comments OTS receives. At the

same time, OTS wants to be as informative as possible about potential

base assessment amounts and marginal rates. Savings associations may

find this chart useful in determining how this proposed regulation may

affect them. As discussed above, OTS will not include specific rates in

the final rule. The rates assessed under an implementing Thrift

Bulletin will reflect the final regulation structure and OTS's

anticipated costs at the time it issues the Thrift Bulletin.

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\2\ This approach is similar to the OCC's long-standing approach

in its assessment regulations at 12 CFR part 8 (1998).

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OTS specifically seeks comment on how best to match assessments to

OTS's costs of examining and supervising savings associations. While

OTS has proposed to maintain a system of declining marginal assessment

rates, it

[[Page 43644]]

seeks comment on whether any other assessment method may also be

appropriate. OTS also seeks comment on how best to cover fixed costs

that are the same or nearly the same for institutions of all sizes. For

example, should OTS incorporate fixed costs into the assessment rate

schedule or use some other method to cover these costs? OTS also

solicits comments on any aspects of the proposed cap for the size

component for qualifying small institutions. Further, OTS seeks

comments on whether asset-based assessments should be based on total

assets, as under the current regulation, or whether it should be based

on some other measure of assets.

B. Condition

OTS's current regulation includes a 50% premium on the asset-based

assessment for institutions with a composite safety and soundness

examination rating of 4 or 5 because such institutions require more

supervision than higher-rated institutions. Institutions that are rated

in the top three categories are not charged this condition-based

premium. OTS's experience with this assessment structure since 1990 has

shown that the premium rate reflects the higher costs associated with

4- or 5-rated institutions. However, OTS has also found that the

current two-tiered premium structure does not fully reflect supervision

costs for other institutions. Specifically, OTS used regression

analyses of the variation in examiner hours across thrifts to estimate

the percentage differences in examiner hours across thrifts grouped by

safety and soundness examination rating. These analyses show that 3-

rated associations generally require substantially more supervision

than 1-and 2-rated institutions, but not as much as 4- and 5-rated

institutions. Thus, under the current regulation, the higher

supervisory costs for 3-rated institutions may be subsidized by thrifts

with ratings other than 3 since 3-rated institutions pay no additional

premium.

The proposed rule would amend OTS's current premium assessment to

correlate the assessments more closely with OTS's costs. The

statistical analysis of examiner hours found that the added burdens

from 3-rated institutions are approximately half as great as those from

4- and 5-rated institutions. Accordingly, the proposal would impose a

25% premium on the size component of the asset-based assessment for 3-

rated institutions. The proposal would continue to increase the size

component of the asset-based assessment by 50% for 4- and 5-rated

institutions, consistent with OTS's current practice.

OTS encourages comments on any aspects of the proposed condition

component, including whether this component should be based on the

examination ratings or some other factor. OTS further solicits comments

on whether any condition component should be based on total assets, as

under the current regulation, or whether it should be based on some

other measure of assets.

C. Complexity

OTS's current asset-based assessment is based on total assets as

reported on the consolidated Thrift Financial Report. Accordingly, the

asset-based assessment does not reach off-balance sheet assets. OTS

must, however, examine and supervise activities involving off-balance

sheet assets, as well as other assets, to ensure the safety and

soundness of thrift institutions. As a result, OTS incurs expenses

relating to institutions with off-balance sheet assets, and these

expenses can be substantial. Under the current system, these costs are

not assessed directly against the institutions with off-balance sheet

assets, but are shared by all savings associations. Thus, institutions

with minimal or no off-balance sheet assets effectively subsidize the

supervisory costs of institutions with extensive off-balance sheet

assets.

OTS measured the supervisory expenses associated with certain off-

balance sheet activities by extending the regression models of examiner

hours discussed above to determine whether thrifts engaged in these

activities absorb more examiner hours than would be expected based on

asset size and examination ratings. The off-balance sheet activities

included in these analyses were those that impose significant

supervisory burden--trust assets administered by the thrift, loans

serviced for others, and off-balance sheet assets for which the thrift

holds recourse obligations or that are direct credit substitutes. These

analyses found significantly greater supervisory expenses for

institutions with substantial volumes of these activities.

To mitigate the inequities of assessments not matching costs of

supervising complex assets, OTS proposes to amend the assessment

regulation to include a new complexity component. By taking certain

off-balance sheet assets into account, OTS's assessment rates can be

more closely tailored to its expenses in examining institutions. The

proposed complexity component would address trust assets administered

by a savings association, loans serviced for others by a savings

association (including both residential and non-residential loans), and

off-balance sheet assets that are recourse obligations or direct credit

substitutes, as described in the Thrift Financial Report.

OTS is considering whether the complexity component should also

address commercial and non-residential mortgage loans. OTS analyses

have found a high correlation between amounts of these types of loans

and the number of examiner hours and the amount of supervisory

expenses. Savings associations that concentrate on residential mortgage

loans require substantially less examination and supervision than

associations with less traditional loan portfolio concentrations. An

asset-based assessment that treats all loans equally causes traditional

mortgage lenders to subsidize OTS's extra supervisory workload for non-

traditional thrifts. OTS, therefore, seeks comments on whether it

should include commercial and non-residential mortgage loans in the

complexity component.

As proposed, the complexity component would apply only to the

extent that assets included in each category of complex assets (trust

assets, loans serviced for others, and recourse obligations or direct

credit substitutes) exceed a threshold of $1 billion. OTS's experience

shows that the added supervisory workload for institutions with such

complex assets does not become significant until the assets reach

relatively high levels. Therefore, OTS proposes a minimum level of

assets below which OTS would not consider complexity. OTS would compute

the $1 billion threshold separately for each class of complex assets.

OTS currently expects that the assessment rate for complexity

components would be 0.0015% of the amount of assets covered by each

element of the complexity component over the $1 billion threshold,

based on the proposed assessment provisions and OTS's costs. OTS would

publish the assessment rate for the complexity component in a Thrift

Bulletin, available on OTS's website, rather than in a regulation. This

would allow OTS the flexibility to match assessments with fluctuating

supervisory costs. Depending on the assessment structure of any final

rule, the actual complexity component and the threshold may be

different than the proposal.

OTS solicits comments on whether it is appropriate to consider off-

balance sheet assets of any type, including the proposed types, for

purposes of the assessment. OTS specifically requests

[[Page 43645]]

comments on how to treat off-balance sheet assets held by subsidiaries

owned or controlled by the savings association. For example, where a

savings association owns or controls a subsidiary that is a trust

company, how should the trust assets administered by that trust company

be considered under the complexity component? OTS also specifically

seeks comments on whether, and if so, how best, to include commercial

and non-residential mortgage loans or other on-balance sheet assets in

any complexity component.

Further, OTS seeks comments on whether the complexity component

should have a threshold below which complex assets should not be

considered and, if so, whether the proposed $1 billion threshold is too

high or too low. Additionally, OTS seeks comments on whether the

threshold for any particular category should be expressed in dollar

terms, as a percentage of assets (e.g. for commercial loans and non-

residential real estate loans), or in any other terms. OTS also asks

whether there should be any cap on the amount of the complexity

component. Commenters who favor a cap should address how OTS should set

the cap. OTS additionally seeks comments on whether the proposed

assessment rate for any complexity component would be appropriate.

D. Consolidation

Under the current regulation, OTS assessments are based on the

savings association's total assets, as reported in the consolidated

Thrift Financial Report. OTS specifically requests comment on whether

this continues to be the proper approach for subsidiaries that are

other depository institutions or regulated entities. This issue affects

all three proposed components of the assessment calculation. For

example, if Savings Association A directly owns Savings Association B,

looking at the size component by itself would usually make

consolidation result in a lower assessment. However, if Savings

Association A were rated ``1'' while Savings Association B were rated

``3'', the issue arises of what condition component should be assigned

to the consolidated entity. For the complexity component, if Savings

Association A had trust assets of $750 million and Savings Association

B also had trust assets of $750 million, consolidation would result in

the consolidated entity being assessed a complexity component, while

neither thrift would be assessed that component if considered

separately.

Therefore, OTS solicits comments on whether, when a savings

association owns or controls another OTS-regulated savings association,

the two should be considered one entity for assessment purposes. Would

a discount be appropriate? The OCC recently amended its assessment

regulation to give a discount to national banks that are in a holding

company with other national banks but are not the ``lead bank'' in that

structure.See 12 CFR 8.2(a)(6) (1998). Should the OTS consider a

similar approach for savings associations that are in a savings and

loan holding company structure with other OTS-regulated savings

associations? What if the thrift owns or controls another depository

institution, such as a state bank, that is not regulated by OTS?

Similarly, where a savings association owns or controls a non-

depository institution that is regulated by a non-bank regulator (e.g.,

a state-supervised insurance company), should the assets of the

subordinate organization be included in the assets of the parent

savings association?

E. Other Matters

OTS seeks comment on other proposed amendments to the assessments

regulation. First, the existing regulation provides for quarterly or

semi-annual assessments. Under the proposed rule, all assessments would

be semi-annual. OTS has found that semi-annual assessments impose less

regulatory and administrative burden than quarterly assessments and

therefore has imposed semi-annual assessments since January 1992.

The proposed rule would clarify the existing regulation and

incorporate OTS's long-standing practice concerning requests for

refunds or proration of assessments paid by institutions that cease to

be savings associations. The proposed rule would explicitly state that

assessments will not be prorated or refundable to institutions that

cease to be savings associations. The proposal would also clarify an

ambiguity in the existing regulation about the date as of which OTS

determines assessments. Under the proposed rule, and consistent with

current practice, an assessment would not change, either up or down,

due to events that occur after the date of the Thrift Financial Report

upon which the assessment is based.3 Further, the proposed

rule would clarify that the composite rating upon which an

institution's condition component would be based would be the most

recent composite rating of which the savings association has been

notified in writing, as defined in 12 CFR part 516, before an

assessment's due date.

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\3\ Consistent with OTS's current practice, an assessment could

be adjusted to reflect corrections to errors contained in the

applicable Thrift Financial Report.

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The proposed rule also addresses several matters relating to the

imposition of other fees (e.g., application, examination, and

investigation fees). Currently, the regulation includes a formula for

calculating these fees, with the actual fees published annually in a

Thrift Bulletin. The proposed rule, like the long-standing OCC

regulation, would not include such a formula. Fees would continue to be

announced in a Thrift Bulletin available on OTS's website.

The proposed regulation would also clarify that OTS may charge fees

for extraordinary expenses relating to examining, regulating, or

supervising savings associations and their affiliates. While OTS

expects that any such fees would be unusual, they may be necessary or

appropriate in some circumstances. Such extraordinary fees may be

appropriate for recovering supervisory costs from institutions that

pose extraordinary burdens, or of obtaining expert advice in areas

beyond those that OTS normally encounters. Under the proposed rule, OTS

would be able to adjust, add, waive, or eliminate fees in unusual

circumstances.

Finally, OTS proposes to revise all of part 502 using the plain

language format, consistent with the Vice President's National

Performance Review Initiative and guidance in the Federal Register

Document Drafting Handbook (April 1997 edition). This would not affect

the substance of the regulation, but should help to make it easier to

understand.

III. 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.

IV. Regulatory Flexibility Act Analysis

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

1980,4 OTS has evaluated the effects this proposed

rulemaking would have on small businesses, small organizations, and

small governmental jurisdictions. As required, OTS has prepared the

following initial regulatory flexibility analysis.

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\4\ 5 U.S.C. 605(b).

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OTS proposes this rulemaking to revise its current assessments

system to match assessments more closely with

[[Page 43646]]

OTS's costs. The Director of OTS is authorized by statute to impose

assessments.5 As described in this preamble, OTS has found

that under its current assessment system OTS's costs of supervising

some institutions are higher or lower than those associations pay in

assessments. Therefore, OTS is attempting, through this proposed

rulemaking, to more closely associate its costs with assessments.

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\5\ 12 U.S.C. 1462a, 1463, 1467, 1467a.

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OTS has two primary objectives for this proposed rulemaking: (1)

establishing an assessment structure that keeps the assessment rates as

low as possible while providing the agency the resources essential to

effective supervision of a changing industry, and (2) more closely

tailoring rates to the agency's increased costs in supervising certain

types of institutions.

The proposed rule could affect small savings associations through

the proposed condition, size, or complexity components. The proposal

would have no effect on small businesses or small organizations other

than small savings associations and, indirectly, small holding

companies, and would not affect small governmental jurisdictions. Small

savings associations are generally defined, for Regulatory Flexibility

Act purposes, as those with assets under $100 million.6

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\6\ 13 CFR 121.201, Division H (1998).

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A. Impact of Proposed Condition Component.

The proposed condition component would affect small savings

associations. As discussed earlier in this preamble, it would impose an

assessment equal to 25% of an association's size component for each 3-

rated association, regardless of its size. Currently, there are 44

savings associations that are 3-rated and that have assets under $100

million. If a small 3-rated association, for example, were to have $10

million in assets, its assessment would increase $864 annually due to

the condition component (basing its size component on Thrift Bulletin

48-9, December 21, 1992). If its assets were $100 million and its

rating were 3, its assessment would increase $5,462 annually due to the

condition component. Other small, 3-rated savings associations would

see their assessments increase depending on their size.

As discussed earlier, 3-rated savings associations require more

supervisory attention than 1- or 2-rated associations. OTS therefore

has three alternatives: impose extra assessments on all 3-rated

associations; require institutions not rated 3 to subsidize the extra

supervisory costs of 3-rated institutions; or, require some but not all

3-rated institutions to cover those costs. OTS believes it is most

equitable to relate assessments to OTS's supervisory costs, and

therefore proposes a condition component for 3-rated associations.

Furthermore, OTS believes that requiring 3-rated institutions to pay

for their extra supervisory costs would provide an incentive for those

institutions to improve their condition and their ratings. OTS believes

that the proposed condition component best accomplishes OTS's objective

of closely tailoring assessment rates to OTS's increased costs in

supervising 3-rated institutions while keeping assessment rates as low

as possible.

B. Impact of Proposed Size Component.

OTS believes the proposed size component would not have a

significant economic impact on a substantial number of small entities.

OTS specifically designed the proposed rule to allow qualifying savings

associations, generally those with assets under $100 million, to choose

between calculating their size components under either the existing

regulation or the proposed regulation. These institutions can therefore

avoid any increases in their size component.

For an institution that increases above $100 million in assets then

shrinks below $100 million, or a savings association that is formed

after the rule's effective date, this choice would not be available.

OTS cannot predict the number of savings associations that will exceed

then shrink below $100 million in assets, and cannot predict the number

of savings associations that will be formed in the future. OTS cannot

predict the economic impact of the proposed regulation on such

institutions because OTS's assessment rates, as proposed, will vary as

OTS's supervisory costs change.

OTS has considered, as an alternative to the proposed size

component with protection for small institutions, leaving its

assessment system as it is. OTS believes this alternative would not

meet OTS's objective of more closely tailoring assessment rates to

OTS's increased supervisory costs, while minimizing significant

economic impacts on small savings associations.

C. Impact of Proposed Complexity Component.

The proposed complexity component would apply only to savings

associations that have more than $1 billion in certain off balance

sheet assets. For Regulatory Flexibility Act purposes, a small savings

association is generally defined as one having less than $100 million

in assets on its balance sheet. There are currently only four savings

associations that have less than $100 million in balance sheet assets

that would be subject to the proposed complexity component. OTS

believes that four savings associations is not a substantial number of

small savings associations. For purposes of this initial regulatory

flexibility analysis regarding the proposed complexity component, OTS

defines small savings association as one with less than $100 million in

assets including off-balance sheet assets.7 The Regulatory

Flexibility Act is designed to protect the interests of small

businesses, while the proposed complexity component would only affect

savings associations that own or administer assets in excess of $1

billion. OTS does not believe that institutions that own or administer

assets exceeding $1 billion need any special protection from the

proposed complexity component.

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\7\ OTS has established this definition of small savings

association for the sole purpose of this regulatory flexibility

analysis, after consultation with the Small Business

Administration's Office of Advocacy.

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In any event, OTS has considered alternatives to the proposed

complexity component. OTS has considered using no such component, or

including different complex assets in the component, such as commercial

and non-residential mortgage loans. As discussed earlier, OTS is

seeking comment on all aspects of the proposed complexity component.

OTS tentatively believes the component, as proposed, best accomplishes

OTS's objective of tailoring assessments to better match OTS's

supervisory costs, while minimizing significant economic impacts on

small savings associations.

D. Other Matters

The proposed rule would streamline the existing regulation and put

it in a plain language format. It would state that the Director's

statutory authority to charge fees for appropriate expenses would be

used only for extraordinary expenses. OTS believes these changes would

have no significant impact on small savings associations. Under the

proposed rule, assessments would continue to be based on Thrift

Financial Reports that savings associations are otherwise required to

file with OTS, and OTS would continue to collect assessments by its

current procedures. Therefore, the proposed rule would impose no new or

additional reporting, recordkeeping, or compliance requirements.

[[Page 43647]]

Finally, there are no federal rules that duplicate, overlap, or

conflict with this proposed rule.

OTS encourages comments on all aspects of this initial regulatory

flexibility analysis, including any significant economic impacts the

proposed rule would have on small entities.

V. Unfunded Mandates 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 that includes a

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

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

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

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

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. 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, this rulemaking is not subject to section 202 of the

Unfunded Mandates Act.

VI. Paperwork Reduction Act

This proposed rule contains no new information collection

requirements. The information collection requirements in proposed

Sec. 502.70 are the same as those in the current assessments

regulation, 12 CFR 502.3 (1998), which the Office of Management and

Budget has previously received and approved in accordance with the

Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under OMB Control

No. 1550-0053.

List of Subjects in 12 CFR Part 502

Assessments, Federal home loan banks, Reporting and recordkeeping

requirements, Savings associations.

Accordingly, the Office of Thrift Supervision proposes to amend

chapter V, title 12, Code of Federal Regulations by revising part 502

to read as follows:

PART 502--ASSESSMENTS AND FEES

Sec.

502.5 Who must pay assessments and fees?

Subpart A--Assessments

502.10 How does OTS calculate my assessment?

502.15 How does OTS determine my size component?

502.20 How does OTS determine my condition component?

502.25 How does OTS determine my complexity component?

502.30 When must I pay my assessment?

502.35 How must I pay my assessment?

502.40 Can I get a refund or proration of my assessment?

502.45 What if I do not pay my assessment on time?

Subpart B--Fees

502.50 What fees does OTS charge?

502.55 Where can I find OTS's fee schedule?

502.60 When will OTS adjust, add, waive, or eliminate a fee?

502.65 When is an application fee due?

502.70 How must I pay an application fee?

502.75 What if I do not pay my fees on time?

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

Sec. 502.5 Who must pay assessments and fees?

(a) Authority. Section 9 of the HOLA, 12 U.S.C. 1467, authorizes

the Director to charge assessments to recover the costs of examining

savings associations and their affiliates, to charge fees to recover

the costs of processing applications and other filings, and to charge

fees to cover OTS's direct and indirect expenses in regulating savings

associations and their affiliates.

(b) Assessments. If you are a savings association that OTS

regulates on the last day of January or on the last day of July of each

year, you must pay a semi-annual assessment due on that day. Subpart A

of this part describes OTS's assessment procedures and requirements.

(c) Fees. Whether or not you are a savings association, if you make

any filings with OTS or use OTS services, the Director may require you

to pay a fee to cover the costs of processing your submission or

providing those services. The filings for which the Director may charge

a fee include notices, applications, and securities filings. Among the

services for which the Director may charge a fee are publications,

seminars, certifications for official copies of agency documents, and

records or services requested by other agencies. The Director also

assesses fees for examining and investigating affiliates of savings

associations. If you are a savings association and you or any of your

affiliates cause OTS to incur extraordinary expenses related to your

examination, investigation, regulation, or supervision, the Director

may charge you a fee to fund those expenses. Subpart B of this part

describes OTS's fee procedures and requirements.

Subpart A--Assessments

Sec. 502.10 How does OTS calculate my assessment?

OTS determines your semi-annual assessment by totaling three

components: your size, your condition, and the complexity of your

business. For the size and complexity components, OTS uses the

September 30 Thrift Financial Report to determine amounts due at the

January 31 assessment; and the March 31 Thrift Financial Report to

determine amounts due at the July 31 assessment. For purposes of this

subpart, total assets are your total assets as reported on Thrift

Financial Reports filed with OTS. For the condition component, OTS uses

the most recent composite rating, as defined in 12 CFR part 516 of this

chapter, of which you have been notified in writing before an

assessment's due date.

Sec. 502.15 How does OTS determine my size component?

(a) General. (1) Unless you are a qualifying savings association

under paragraph (b) of this section, OTS uses the following chart to

calculate your size component:

If your total assets are:-- Your size component is--

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

This amount--

Base assessment Plus--Marginal Of assets over--Class

Over-- But not over-- amount rate floor

Column A Column B.......... Column C Column D Column E

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

0.............................. $67 million....... C1 D1 0

$67 million.................... 215 million....... C2 D2 $67 million.

215 million.................... 1 billion......... C3 D3 215 million.

1 billion...................... 6.03 billion...... C4 D4 1 billion.

6.03 billion................... 18 billion........ C5 D5 6.03 billion.

[[Page 43648]]

18 billion..................... 35 billion........ C6 D6 18 billion.

35 billion..................... .................. C7 D7 35 billion.

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

(2) To calculate your size component, find the row in Columns A and

B that describes your total assets. Reading across in that same row,

find your base assessment amount in Column C, your marginal rate in

Column D, and your class floor in Column E. Calculate how much your

total assets exceed your Column E class floor. Multiply this number by

your Column D marginal rate. Add this number to your Column C base

assessment amount. The total is your size component. OTS will establish

the base assessment amounts and the marginal rates in columns C and D

in a Thrift Bulletin.

(b) Special size component calculation for qualifying savings

associations. If you meet all of the criteria set forth in paragraph

(b)(1) of this section, you are a qualifying savings association and

OTS will calculate your size component in accordance with paragraph

(b)(2) of this section.

(1) Criteria for qualifying savings association status. (i) You

were a savings association as of [effective date of final rule].

(ii) Your total assets have never exceeded $100 million at the end

of any quarter.

(2) Size component for qualifying savings associations. If you are

a qualifying savings association, your size component is the lesser of:

(i) Your size component calculated under paragraph (a) of this

section; or

(ii) Your assessment calculated using the general assessment table

at 12 CFR 502.1(c) as contained in the 12 CFR, parts 500 to 599,

edition revised as of January 1, 1998, as implemented in Thrift

Bulletin 48-9, dated December 21, 1992.

Sec. 502.20 How does OTS determine my condition component?

OTS uses the following chart to determine your condition component:

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

Then your condition

If your composite rating is-- component is--

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

1 or 2.................................... zero.

3......................................... 25 percent of your size

component.

4 or 5.................................... 50 percent of your size

component.

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

Sec. 502.25 How does OTS determine my complexity component?

If your portfolio exceeds any of the thresholds set forth in

paragraph (a) of this section, OTS will calculate your complexity

component as set forth in paragraph (b) of this section. If your

portfolio does not exceed any of the thresholds set forth in paragraph

(a) of this section, your complexity component is zero.

(a) Thresholds for complexity component. (1) You administer trust

assets valued at over $1 billion.

(2) You service loans for others and the total amount of the loans

exceeds $1 billion.

(3) You have off-balance sheet assets that are recourse obligations

or direct credit substitutes, as described in the Thrift Financial

Report, and the total amount of these off-balance sheet assets exceeds

$1 billion.

(b) Calculation of complexity component. OTS calculates your

complexity component by separately determining the amount(s) by which

you exceed each of the thresholds under paragraph (a) of this section,

adding these excess amounts together, and multiplying this total by a

percentage published in a Thrift Bulletin.

Sec. 502.30 When must I pay my assessment?

OTS will bill you semiannually for your assessments. Assessments

are due January 31 and July 31 of each year. At least seven days before

your assessment is due, the Director will mail you a notice that

indicates the amount of your assessment, explains how OTS calculated

the amount, and specifies when payment is due.

Sec. 502.35 How must I pay my assessment?

(a) Debit at Federal Home Loan Banks. If you are a member of a

Federal Home Loan Bank, you must maintain a demand deposit account at

your Federal Home Loan Bank with sufficient funds to pay your

assessment when due. OTS will notify your Federal Home Loan Bank of the

amount of your assessment. OTS will debit your account for your

assessments.

(b) Direct billing. If you are not a member of a Federal Home Loan

Bank, OTS will directly debit an account you must maintain at your

association.

Sec. 502.40 Can I get a refund or proration of my assessment?

OTS will not refund or prorate your assessment, even if you cease

to be a savings association. If you are a savings association for whom

a conservator or receiver has been appointed, you must continue to pay

assessments in accordance with this part. OTS will not increase or

decrease your assessment based on events that occur after the date of

the Thrift Financial Report upon which your assessment is based.

Sec. 502.45 What if I do not pay my assessment on time?

The Director will charge interest on delinquent assessments.

Interest will accrue at a rate (that OTS will determine quarterly)

equal to 150 percent of the average of the bond-equivalent rates of 13-

week Treasury bills auctioned during the preceding calendar quarter.

Assessments under this subpart A are delinquent if you do not pay them

when required by Sec. 502.30.

Subpart B--Fees

Sec. 502.50 What fees does OTS charge?

(a) The Director assesses fees for examining or investigating

savings association affiliates. ``Affiliate'' has the meaning in 12

U.S.C. 1462(9), except that, for this part only, ``affiliate'' does not

include any entity that is consolidated with a savings association on

the Consolidated Statement of the Thrift Financial Report.

(b) The Director assesses fees for processing notices,

applications, securities filings, and requests, and for providing other

services.

[[Page 43649]]

Sec. 502.55 Where can I find OTS's fee schedule?

OTS will periodically publish a schedule of its fees in a Thrift

Bulletin. OTS will publish these fees at least thirty days before they

are effective.

Sec. 502.60 When will OTS adjust, add, waive, or eliminate a fee?

Under unusual circumstances, the Director may deem it necessary or

appropriate to adjust, add, waive, or eliminate a fee. For example, the

Director may:

(a) Reduce any fee to adjust for any inequities, efficiencies, or

changed procedures that OTS projects will reduce its applications

processing costs but that OTS did not consider in determining its fees;

(b) Reduce or waive any fee if OTS determines that the fee would

unduly or unjustifiably discourage particular types of applications or

applications for particular categories of transactions;

(c) Add a fee for a new type of application;

(d) Increase a fee for an application that presents unusual or

particularly complex issues of law or policy or otherwise causes the

agency to incur unusually high processing costs; or

(e) Charge a fee to recover extraordinary expenses related to

examination, investigation, regulation, or supervision of savings

associations or their affiliates.

Sec. 502.65 When is an application fee due?

(a) You must pay the application fee when you file an application.

OTS will not process your application if you do not include the

required fee.

(b) If OTS cannot complete its review of your application because

the application is materially deficient and it refuses to accept your

application for processing, you must pay a new application fee upon

filing a revised application.

(c) If a transaction involves multiple applications, you must pay

the appropriate fee for each application, unless OTS specifies

otherwise by Thrift Bulletin.

Sec. 502.70 How must I pay an application fee?

You must pay an application fee to the Office of Thrift

Supervision. You must include a statement of the fee and how you

calculated the fee.

Sec. 502.75 What if I do not pay my fees on time?

(a) Interest. An examination or investigation fee is delinquent if

OTS does not receive the fee within 30 days of the date specified in a

bill. The Director will charge interest on a delinquent examination or

investigation fee. Interest will accrue at a rate (that OTS will

determine quarterly) equal to 150 percent of the average of the bond-

equivalent rates of 13-week Treasury bills auctioned during the

preceding calendar quarter.

(b) Failure to pay. If your holding company, affiliate, or

subsidiary fails to pay any examination or investigation fee within 60

days of the date specified in a bill, the Director may assess that fee,

with interest, against you and collect it from you. If any such entity

is a holding company, affiliate, or subsidiary of more than one savings

association, the Director may assess the fee against and collect it

from each savings association as the Director may prescribe.

Dated: August 7, 1998.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98-21866 Filed 8-13-98; 8:45 am]

BILLING CODE 6720-01-U