Assessments and Fees

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 502

[No. 98-118]

RIN 1550-AB20

Assessments and Fees

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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

SUMMARY: The Office of Thrift Supervision (OTS) is amending 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

final rule is designed to correlate OTS's assessments on savings

associations more closely with the costs associated with supervising

those associations. At the same time, the final rule establishes a

regulatory structure that allows OTS to keep its assessment rates as

low as possible while providing OTS the resources essential to

effectively supervise the industry. The rule also clarifies certain

other matters involving assessments and other fees, and revises the

entire assessment and fee regulation using a plain language format.

EFFECTIVE DATE: January 1, 1999.

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, 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. This section authorizes 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.

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

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

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

Recently, OTS analyzed its operating costs and compared these costs

to its assessments on savings associations under its current

regulation. OTS found that its assessments could be more closely

correlated to its costs in certain respects. For these reasons, on

August 14, 1998, OTS proposed to amend its assessment

regulation.2 The proposed rule based assessments on three

components: the savings association's asset size, its condition, and

its complexity. The proposed rule also streamlined and clarified OTS's

regulation concerning fees, and clarified administrative matters.

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

\2\ 63 FR 43642 (Aug. 14, 1998).

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

Today, OTS is issuing a final assessments rule. Briefly, this final

rule is substantially identical to the proposal, but with certain

changes to the complexity component. OTS limits its trust examinations

fee to those associations not subject to the complexity component's

coverage of trust assets. Additionally, OTS has decided to adopt a

structure that will permit OTS to use one or more different assessment

rates for each of the different activities covered by the complexity

component. Currently, for trust assets and recourse obligations and

direct credit substitutes, OTS will use flat rates. In contrast, for

loans serviced for others, OTS will initially use two rates to reflect

economies of scale in examining these activities. Additionally, the

final rule clarifies which assets and activities are covered by each of

the three categories within the complexity component. The final rule is

described more specifically below.

II. General Discussion of Comments

The comment period on the proposed rule closed on October 13, 1998.

OTS received thirteen comments from eight savings associations, four

trade associations, and one holding company. The comments were mixed,

with most commenters supporting some parts of the proposal while

opposing others. Several commenters opposed the complexity component as

proposed, but expressed no opinions on other aspects of the proposal.

One commenter supported the proposal, but suggested alternatives. One

commenter discussed the proposal but did not take a position. All

others had mixed reactions.

In the proposed rule, OTS indicated that it has two goals with

respect to the assessment rule. First, OTS wants to establish an

assessment structure that keeps assessment rates as low as possible

while providing the resources essential to effective supervision of a

changing industry. One commenter opposed the proposal to the extent

that it would result in an overall increase in assessments. The final

rule adopted today is designed to correlate OTS assessments to the

costs of supervision of the thrift industry. As the industry's size,

condition, and complexity change in the future, OTS's costs will also

change. The final rule will enable OTS's revenues to move along with

these changes in its supervisory expenses. OTS believes the approach in

the final rule is appropriate and should not result in overcharging the

thrift industry.

As its second goal, OTS wants to more closely tailor assessments

with OTS's supervisory costs. To do so, OTS used statistical analyses

of examiner hours to correlate its proposed assessments with

supervisory costs. Two commenters supported basing assessments on

examination costs, while one opposed this method, believing examiner

hours are excessive. Examiner hours are the main component of OTS's

supervisory expenses that vary with the size, condition, or other

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

for evaluating consistency between an assessment schedule and actual

supervision. OTS has not found, and no one has proposed, a better

alternative. OTS, therefore, will continue to base its assessments on

its statistical analyses of examination costs.

Commenters specifically argued that OTS did not provide empirical

evidence supporting its assertions regarding examination time and

costs. One commenter noted that OTS did not provide details regarding

the actual supervision costs, the structure of the quantitative model

used to analyze costs, or the variables in the model.

While OTS studied examination costs and examination hours devoted

to different tasks, it did not publish these studies in the Federal

Register because they are too voluminous. Instead, OTS provided

adequate details through other means. First, OTS summarized its

findings in the notice of proposed rulemaking. In addition, OTS placed

a paper providing background analysis in the public comment file. This

paper has been available for inspection in the OTS public reading room.

Moreover, the Principal Financial Economist who conducted the studies

was listed as an

[[Page 65664]]

contact person in the proposed rule. Finally, OTS's financial

statements, including information about OTS's expenses, are available

on OTS's web site.

Several commenters noted that the proposed assessments rule would

place OTS-regulated institutions at a competitive disadvantage with

regard to national banks and other entities. For example, these

commenters pointed out that the Office of the Comptroller of the

Currency (OCC), which regulates national banks, does not impose a

complexity component, charges a lower condition premium for 4- and 5-

rated institutions, and does not charge for trust examinations.

Commenters argued that the proposed complexity component would

discourage thrifts from engaging in the certain activities,

particularly where profit margins are low, as in the loan servicing

field. Other commenters predicted that new or existing institutions may

reconsider their charter choice.

Competitive disparities are inevitable in any assessment structure.

Savings associations compete with many institutions that are subject to

differing assessments structures and other entities that are not

subject to any assessments. For example, thrifts compete with credit

unions, and with state chartered commercial and savings banks who do

not pay Federal assessments. Thrifts also compete with entities that

are not regulated by a federal banking agency, such as mutual funds.

Moreover, eliminating the aspects of this rule that are different

from the OCC assessments model would not eliminate all competitive

inequities. Rather, such a change would merely move a competitive

disparity from one thrift to another. For example, if OTS were to

eliminate the assessment on trust activities or on loan servicing, it

would necessarily transfer the costs of supervising those activities

from the institutions that cause them to other savings associations.

These other institutions would be forced to bear these costs while, at

the same time, they are trying to compete with other institutions who

do not have to cover such costs. OTS sees no benefit in such an

approach. OTS's goal in amending its assessment regulation is to more

closely tailor its assessments to its costs, which this regulation

does. OTS believes this is the most equitable approach.

One commenter encouraged OTS to meet with the OCC to discuss the

disparities between the assessments for thrifts and national banks.

Specifically, this commenter urged OTS to evaluate the merits of the

complexity component with the OCC before implementing the proposed

rule. This commenter encouraged OTS to work toward a uniform regulation

with the OCC. Another commenter noted that section 303(a)(2) of the

Riegle Community Development Act requires OTS to work toward uniform

regulation with the other federal banking agencies.3

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

\3\ 12 U.S.C. 4803(a)(2). This statute required Federal banking

agencies to work jointly toward uniform regulations in common areas.

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

OTS considered the OCC's assessment structure in developing its

proposed and final rules, just as the OCC considered the OTS structure

in adding a surcharge on its assessments for national banks requiring

additional supervisory resources.4 However, because the

thrift industry and the national bank industry differ in certain

respects, identical rules are not necessarily the most equitable. For

example, thrifts concentrate on mortgage lending operations, such as

mortgage servicing, more than national banks. As a result, an

assessment that does not cover mortgage loan servicing would have a

more inequitable impact on institutions in the thrift industry than in

the banking industry. OTS's system will reduce the cross-subsidies

between thrifts. While this system is different than the OCC's, OTS

believes it is more equitable for the thrift industry.

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

\4\ See 62 FR 54147 n.5 (Oct. 21, 1997).

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

III. Description of the Final Rule

A. Size Component

OTS proposed to base the first component of the assessment

calculation on asset size, as reported in the Thrift Financial Report

(TFR). Like the current regulation, the size component would use

marginal assessment rates that decline as asset size increases. Second,

OTS would incorporate some fixed costs into the assessment rate

schedule via an explicit charge. Commenters generally supported the

size component, and one noted that this method is easy to understand

and to plan for. Specific comments regarding the size component are

discussed below.

1. Declining Rate Schedule

The proposed assessment structure uses assessment rates that

decline as asset size increases because OTS realizes economies of scale

in supervising and regulating larger savings associations. Because

OTS's experience indicated that the current marginal assessment rates

are no longer consistent with existing economies of scale, the

projected marginal rates in the preamble to the proposed rule differed

from the rates OTS had been using for assessments. Four commenters

supported this system of declining rates.

Like the current rule, the proposed graduated schedule included

seven asset size classes. The highest class included institutions with

over $35 billion in assets. One commenter urged OTS to add more asset

size classes. This commenter believed that the largest asset size

category, $35 billion and larger, denies economies of scale to the

largest institutions.5 Another commenter suggested that OTS

reexamine whether the proposed asset size categories are appropriate.

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

\5\ Alternatively, the commenter proposed that OTS base

assessments on a per hour charge for examiners' actual time at each

institution. While this method would correlate assessments with

OTS's supervisory costs, it would also result in fluctuating and

unpredictable assessments. OTS does not always examine thrifts at

regular intervals. Some are examined more or less frequently in

response to marketplace or other events. Currently, for example, OTS

is conducting Year 2000 examinations, which are a temporary cost.

OTS believes that the final assessments rule offers savings

associations a measure of predictability as to the amount due at the

time of each assessment. This will aid both institutions and the

agency in the budgetary process. Further, this assessment scheme is

simpler and less burdensome for the agency to administer.

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

OTS considered altering the asset size categories in its

assessments regulation, but declines to amend them at this time. There

currently are not enough savings institutions significantly over $35

billion in size to justify a new, larger, size category. OTS believes

the seven asset size categories, along with an adjustable marginal

assessment rate for each category, will permit OTS to appropriately

recognize existing economies of scale in the size component. If those

economies of scale change over time, OTS can incorporate those changes

by adjusting the rates, for each appropriate class, accordingly.

2. Fixed Charge

OTS proposed to incorporate fixed supervision costs into the

assessment rate schedule via an explicit charge assessed on all savings

associations. Two commenters supported this proposal.6 One

commenter, however, suggested that OTS should include a lower fixed

cost in the schedule to cover only the ``basic'' cost of examination

and impose the fixed cost of other activities (e.g., rule drafting)

directly on those institutions that are affected by the specific

regulatory activity.

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

\6\ Three commenters argued that the fixed charge could be

burdensome to small institutions. These comments are discussed below

in connection with the alternate fee calculation for small

institutions.

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

The commenter's proposed alternative would impose excessive and

unnecessary administrative burdens on

[[Page 65665]]

OTS. It would be impractical administratively to charge each affected

institution for specific supervision costs on a rule by rule or policy

by policy basis. It is impossible to determine all the thrifts affected

by any rule or policy. It would also increase OTS's costs and create

uncertainty over the assessments that thrifts would pay from one year

to the next. Accordingly, OTS declines to adopts the commenter's

alternative proposal. The final rule continues to incorporate the fixed

cost aspect of the size component, as proposed.

3. Alternate Calculation for Certain Small Institutions

OTS recognized that the size component could have a

disproportionate impact on the smallest savings associations--those

with less than $100 million in assets. Accordingly, OTS proposed to

base the size component for certain qualifying savings associations on

the lesser of the new size component or the assessment calculated under

the current general assessment table. This grandfather provision would

not be available to savings associations formed after this rule's

effective date, or to institutions whose assets have exceeded $100

million at the end of any quarter. Three commenters supported the

grandfather provision.

Three commenters suggested modifications to the grandfather

provisions. These commenters suggested that institutions with less than

$100 million in assets should qualify for the grandfather provision,

even if they had more that $100 million in assets at the end of a prior

quarter. Another commenter believed that institutions should qualify

for the grandfather clause if their asset size is $150 million or less.

These suggested approaches would have little effect. For the

January 1999 assessment, the size component for institutions with over

$67.5 million in assets will be lower under the new assessment schedule

than under the existing general assessment schedule. Thus, even if

these institutions qualified for the special treatment afforded small

institutions, OTS would use the new size component to compute their

assessment, rather than the grandfather provision. Institutions under

$67.5 million in assets will find little difference between the two

assessments. OTS acknowledges that if supervisory expenses increase in

the future, this may no longer be true. However, if OTS needs to

increase its rates, it will consider the effects of an increase on

small institutions before increasing the marginal rates under the size

component.

Finally, one commenter urged that institutions that become savings

associations after the rule's effective date should qualify for the

small institution exemption. In proposing the small institution

exemption, OTS was concerned that the new size component would impose

undue burdens on existing savings associations, which may not be in a

position to absorb the new burden. It is not necessary to minimize the

potential burden of a changing regulatory structure for newly created

institutions because those institutions will be able to plan for and

take into account the new assessment schedule as they make their

initial business decisions.

4. Assessment Rates

In its proposed rulemaking, OTS included a chart indicating the

base assessment amounts and marginal assessment rates it was

considering for the initial size component. OTS, however, also

indicated that these amounts and rates could change depending on

changes to the final rule. For example, OTS noted that if it were to

decide against imposing a complexity component, it would charge higher

rates under the size component.

As discussed below, OTS has adopted different assessment rates for

the activities within the complexity component. As a result, the rates

for the initial size component are different than those listed in the

notice of proposed rulemaking. The rates OTS will apply for the January

31, 1999 semi-annual assessment are set forth in a Thrift Bulletin

issued simultaneously with this rulemaking and available on OTS's web

site.

B. Condition Component

Under the second component of the assessment calculation, OTS

proposed to impose an additional 25% premium on the size component for

3-rated institutions and to continue its current 50% premium on 4- and

5-rated institutions. Commenters addressing the condition component

generally favored it. One commenter, however, opposed the 25%

surcharge, arguing that OTS's examination rating system is arbitrary

and may pressure examiners to generate income through the rating

system.

The CAMELS rating system that OTS uses was developed jointly by all

of the Federal banking regulators in an effort to establish a uniform

rating system using standard criteria and definitions for rating in six

different ratings areas. The CAMELS rating system, with its correlation

to increased supervisory attention, is well suited to distinguish

between savings associations whose performance is consonant with safe

and sound operations (1- and 2-rated institutions), those whose

performance is flawed in certain respects (3-rated institutions), and

those whose performance is poor or unsatisfactory (4- and 5-rated

institutions). Over the years, this rating system has proven to be an

effective supervisory tool for evaluating the soundness of financial

institutions on a uniform basis and for identifying those institutions

requiring special supervisory attention or concerns.7

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

\7\ See 61 FR 67021 (Dec. 19, 1996) (Uniform Financial

Institutions Rating System).

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

Moreover, OTS does not believe that the surcharge for 3-rated

thrifts will place pressure on examiners to generate income. OTS's

experience with its surcharge for 4- and 5-rated thrifts has shown no

pressure to lower ratings to generate revenue. On the contrary, the

number of 4- and 5-rated savings associations has steadily decreased

since OTS began imposing a premium for lower rated associations. For

example, there were 203 institutions rated 4 or 5 in 1992, which

dropped to 101 in 1993, and plummeted to only 18 by June 1998.

Two commenters were concerned that the condition component would

take capital away from struggling institutions. While OTS agrees with

these commenters' concerns, its analyses demonstrate that examiners

devote substantially more hours to 3-rated institutions than 1-or 2-

rated institutions, although not as many hours as 4- and 5-rated

institutions. In other words, 3-rated institutions cause OTS to incur

extra supervisory costs. OTS must, therefore, pass along those costs

either to 3-rated associations or to other institutions. Passing the

costs to 4- and 5-rated institutions would worsen their condition.

Passing the costs to 1- and 2-rated institutions would unfairly burden

them. OTS believes the 25% surcharge for three-rated institutions in

the condition component is the most fair and appropriate solution

overall, and therefore adopts it as proposed.

To alleviate some of the burden on 3-rated institutions, one

commenter suggested a sliding scale within the 3-rated category. Under

this alternative, some institutions would not incur a full 25% premium.

OTS considered the commenter's suggestion, but believes that it would

be impossible to administer fairly. OTS does not assign ``high'' and

``low'' three-ratings and does not track its examiners' hours on this

basis. Accordingly, OTS declines to adopt this suggestion.

[[Page 65666]]

C. Complexity Component

OTS proposed to include a new complexity component in its

assessment regulation. This component would impose an assessment based

on a percentage of the value of certain complex assets or activities

that require OTS to expend supervisory resources beyond those at

institutions of similar size and condition. OTS proposed that the

complexity component cover loans serviced for others, trust assets, and

recourse obligations and direct credit substitutes, to the extent that

any of these categories exceed $1 billion. OTS solicited comments on

whether commercial loans and non-residential real estate loans should

also be included in the basis for the complexity component.

The complexity component drew the most public comment. One

commenter agreed that the component was logical, and another supported

the complexity component for larger institutions with complex

operations but not for local community institutions that make consumer

and commercial loans. Ten others opposed at least one aspect of the

proposed complexity component. As detailed below, OTS adopts much of

the complexity component as proposed, but makes certain changes and

clarifications in response to the comments.

1. Assets or Activities Subject to the Complexity Component

(a) Loan serviced for others. The proposed rule would include loans

serviced for others as part of the base for the complexity component.

Three commenters asked how OTS would interpret ``loans serviced for

others.'' Loans serviced for others, as clarified in the final rule,

means the principal amount of loans serviced for others, as currently

reported in the TFR on line SI390.8 This definition is

familiar to all thrifts that service loans for others because they

routinely use it in completing TFRs. OTS, therefore, believes this is

the most appropriate definition to use.

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

\8\ This definition covers loans and securities that a savings

association or its consolidated subsidiary services but does not

own. It excludes loans and securities for which the savings

association or its consolidated subsidiary owns the servicing rights

but for which it has subcontracted subservicing to a third party. It

also excludes loans and securities serviced for a savings

association by its consolidated subsidiary or a subsidiary

depository institution.

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

Four commenters noted that loans serviced for others are reflected

on the balance sheet under some circumstances (i.e., mortgage servicing

rights and asset backed securities), and are therefore covered by the

size component. At the same time, these assets would also be covered by

the complexity component. Commenters urged OTS to either remove the

asset from the complexity component base or from the size component

base.

OTS's statistical analyses of examiner hours showed that

institutions that service loans for others require more examiner hours

than institutions of similar size and condition without such

activities. Thus, even to the extent that some assets related to these

activities are also covered by the size component, the analyses

demonstrates that the size component alone does not cover the

supervisory costs for such activities.9

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

\9\ OTS recognizes that servicing rights are covered by the size

component. However, the value of those rights, within the size

component, is a very small percentage of the loan size. For example,

in June 1998, no thrift reported servicing rights assets over 2.25%

of loans serviced for others. Therefore, even to the extent that

loan servicing is counted in two components, the amount counted

twice is very small. Because the amount involved is so small, OTS

does not believe that the deduction of these amounts is warranted.

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

One commenter observed that there could also be inconsistent

counting on an industry-wide basis. For example, loans included under

one association's size component could also be covered by another

association's complexity component as loans serviced for others. By

contrast, if an originator retained both the loans and the servicing,

the loans would be included in the originator's size component, but the

servicing would not be assessed under the complexity component. This

commenter questioned why OTS should collect more revenue in the first

instance than in the second.

When loans are split into their components and spread between

institutions, it is appropriate to assess under different components to

correlate to OTS's costs. Separating loans from their servicing

increases OTS's supervisory workload because both the loans and the

loan servicing require OTS's review, sometimes by different groups of

examiners. To the extent that loan servicing for others exceeds $1

billion, OTS has found that this activity increases OTS's examination

costs independently of an institution's size and condition.

Finally, one commenter noted that complex assets are often

supported by other related on-balance sheet assets (e.g., fixed assets

to generate cash flow) and that these related assets are also assessed

under the size component. Such fixed assets are not included in the

complexity component, so they are not assessed twice. Rather, they are

included only in the size component, as are all fixed assets. OTS sees

no reason to treat these assets differently than the fixed assets that

support any lines of business.

Two commenters suggested that mortgage loans serviced for

government sponsored entities (GSEs) should be excluded from the

complexity component because GSEs already supervise their servicers.

GSEs, however, do not always examine servicing for the same purposes as

OTS, so OTS oversight is also necessary. The complexity component is

based on, and reflects, OTS's examination costs. If OTS did not assess

for those costs through the complexity component, the same costs would

necessarily be imposed on other savings associations.

One commenter urged OTS to distinguish between loan servicing and

subservicing. This commenter argued that subservicing does not raise

the same safety and soundness concerns that servicing does, and that

subservicing should therefore be excluded from the complexity

component. In this rulemaking, OTS is seeking to correlate assessments

with its costs of supervision rather than with the safety and soundness

of activities. Nevertheless, OTS did consider this concern about

subservicing. The agency's workload analyses are based on TFRs, which

do not distinguish between servicing and subservicing. Therefore, the

agency's statistical analysis cannot separate examination time spent on

subservicing specifically. However, the agency's experience is that

supervising loan servicing and subservicing are quite similar and

require substantially the same amount of examiner time. With both

servicing and subservicing, examiners look at the quality of

operations, and they analyze future expected income and costs.

Subservicing may require slightly less examiner time than

servicing. However, this is counterbalanced by the fact that direct

servicing is assessed under the size component because a small

percentage of the loan value does appear on the balance sheet as a

servicing asset. Thus, while subservicing may require slightly less

examining than direct servicing, subservicing is assessed less under

this rule than direct servicing.

Current information demonstrates that subservicing should be

covered by the complexity component. OTS will monitor the amount of its

time examiners spend on subservicing. If, over time, OTS determines

that subservicing requires less examination than direct servicing, OTS

may partially or wholly exclude subservicing from assessments.

(b) Trust assets administered by the association.

[[Page 65667]]

The proposed rule would include an assessment under the complexity

component on trust assets administered by a savings association. For

purposes of this rule, OTS uses the trust assets identified in Line

SI350 of the TFR. This covers assets in both discretionary and

nondiscretionary accounts.

Two commenters pointed out that OTS currently charges an hourly

examination fee for trust examinations. Commenters argued that this fee

in addition to the complexity component's assessment of trust assets

would be too burdensome. One, a state-chartered trust company, noted

that it is subject to both state and OTS charges for trust

examinations.10 Another commenter argued that OTS should

impose only a trust examination fee and should not impose any

complexity component on trust assets.

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

\10\ This commenter felt that, while state and federal agencies

acknowledge the desirability of working together, they generally do

not coordinate trust examinations. The commenter would prefer to see

a proposal aimed at finding remedies for these inefficiencies. OTS

agrees that regulators should avoid duplicative examinations when

possible. As a policy matter, OTS makes every effort to coordinate

examinations with state regulators, but it is not always possible to

do so. OTS will continue its efforts to coordinate examinations

where appropriate.

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

OTS agrees that coverage of trust assets under the complexity

component, when combined with the trust examination fee, is

duplicative. OTS will not assess both against the same institution.

Under the final rule, the complexity component will only apply when

trust assets administered by an association exceed $1 billion. The

trust examination fee, on the other hand, as set forth in a Thrift

Bulletin issued today, will apply only to trust examinations of savings

associations that administer $1 billion or less in trust assets. The

final rule, at Secs. 502.5(c) and 502.50(a), states that trust

examination fees do not apply to associations that administer more than

$1 billion in trust assets. This approach should alleviate concerns

about overly burdensome assessments on savings associations that

administer trust assets. At the same time, it will keep assessments and

fees correlated to OTS's costs of supervising associations that

administer trust assets.

(c) Recourse obligations and direct credit substitutes.

The proposed rule would impose an assessment, as part of the

complexity component, on off-balance sheet activities that are recourse

obligations and direct credit substitutes, if those activities exceed

$1 billion. One commenter asked OTS to clarify what this assessment

covers. For purposes of this rule, OTS uses the same definitions for

recourse obligations and direct credit substitutes that OTS uses for

the TFR line CC455. This definition includes the full value of assets

covered, fully or partially, by a savings association's recourse

obligations or direct credit substitutes. The final rule, at

Sec. 502.25(a)(3), contains this clarification. Generally, recourse

obligations are arrangements by which an association retains credit

risk on assets that it sells to a third party. Direct credit

substitutes are arrangements by which an association assumes credit

risk on assets that another institution sells to a third party.

One commenter specifically requested that OTS clarify its use of

the phrase ``off-balance sheet assets.'' This commenter noted that that

some off-balance sheet assets, such as routine interest rate swaps,

require less OTS oversight than other types, such as complex hedging

strategies. The complexity component would not be assessed against all

off-balance sheet activities, but only those identified in the

regulation. To avoid confusion with other types of off-balance sheet

activities, however, OTS has revised the rule text to delete the phrase

``off-balance sheet assets.''

Another commenter observed that some direct credit substitutes and

recourse obligations are also on-balance sheet assets, and are subject

to assessment twice, under the size and the complexity components.

However, these items have an independent significant effect on OTS's

costs. OTS's statistical analyses of examiner hours showed that

institutions with recourse obligations or direct credit substitutes

require more examiner hours than institutions of similar size and

condition without such activities. Thus, even to the extent that some

recourse obligations and direct credit substitutes are covered by the

size component, the analysis demonstrates that the size component alone

does not cover the supervisory costs for such activities.

(d) Commercial and non-residential real estate loans.

OTS asked for comment whether commercial and non-residential real

estate loans should be included in the complexity component. The four

commenters addressing this question advocated excluding these loan

types from the complexity component's coverage. One pointed out that

while these are more complex than other loans, they have higher

balances and produce economies of scale in the examination process.

Another commenter believed that all on-balance sheet assets should be

subject to the same assessment rate no matter their complexity.

Finally, one commenter believed that commercial and non-residential

mortgages should not be included in the complexity component without

sound empirical evidence that this lending entails more examination

costs.11

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

\11\ One commenter believed that commercial and non-residential

mortgage loans only require extra supervisory efforts if they suffer

from credit problems. This commenter argued that OTS's extra costs

for such credit problem would be covered by the condition component

and that covering the costs in the complexity component is

unnecessary. OTS agrees that credit risk is a part of commercial

lending, but it does not follow that savings associations exposed to

some credit risk are necessarily rated a 3, 4, or 5. Thus, the

condition component may not apply to associations with commercial

loans that require extra supervision.

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

OTS has decided against including commercial loans and non-

residential real estate loans in the complexity component. OTS wishes

to encourage thrifts to diversify their operations where they can do so

safely and soundly. Additionally, commercial and non-residential real

estate lending is currently a relatively minor part of the industry's

overall activities. However, OTS will continue to collect empirical

data on this lending activity. If in the future, OTS determines that

its costs of supervision warrant the addition of commercial and non-

residential loans to the complexity component, it will propose

appropriate revisions to the assessment rule.

(e) Loans sold with servicing released.

OTS considered including another type of asset in the complexity

component--loans sold with servicing released. Some savings

associations originate large volumes of loans and immediately sell the

loans and the servicing. Because the originators sell these loans

quickly, only a portion of the loans appear on the savings

association's September or March TFR and are subject to assessment

under the size component. These associations, however, can incur

serious risks to their safety and soundness and significant compliance

obligations in producing and selling large volumes of these loans. As a

consequence, examiners must expend considerable amounts of time

examining these operations.

The final rule does not specifically address loans sold with

servicing released. However, if OTS determines that a particular

savings association is taking on additional risks with this type of

activity, thus requiring OTS to incur extraordinary expenses to examine

and supervise the activity, the agency may impose a fee under

Secs. 502.5(c) and 502.60(c).12 If in the future, the risks

[[Page 65668]]

from this activity become more commonplace or more severe, OTS may

consider amending this rule to specifically cover the activity.

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

\12\ One commenter opposed proposed Secs. 502.5(c) and 502.60,

arguing that the condition component should cover all extraordinary

expenses. OTS continues to believe that the most appropriate

treatment of extraordinary expenses is to charge the institution

that causes OTS to incur the expenses. Contrary to the commenter's

assertion, OTS does not always incur such costs in examining 3-, 4-

or 5-rated institutions. Rather, extraordinary fees may be

appropriate for recovering supervisory costs from any institution

that poses an extraordinary burden, or requires OTS to obtain expert

advice in areas beyond those that OTS normally encounters. Such

costs might, for example, include the cost of an interpreter where

numerous documents are in a foreign language. OTS might also assess

a fee for extraordinary expenses if assets are nominally transferred

to on affiliate to avoid assessments, but the savings association

retains the risks and responsibilities of those assets. For these

reasons, OTS adopts Secs. 502.5(c) and 502.60(e) as proposed.

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

2. $1 Billion Threshold

OTS proposed to assess the complexity component only when assets

included in each category of complex assets (trust assets, loans

serviced for others, and recourse obligations and direct credit

substitutes) exceed $1 billion. OTS solicited comments on this proposed

$1 billion threshold. One commenter believed the $1 billion proposed

threshold is reasonable, while another thought it is too high. One

commenter opined that complex assets require less supervisory attention

in larger institutions than in smaller institutions. This commenter

argued that the complexity component should apply when complex assets

exceed a specified percentage of assets.

OTS's statistical analyses found that a $1 billion threshold is

better correlated with the agency's examination workload than a

percentage-of-assets threshold. Additionally, a threshold based on a

percentage of assets would be more difficult to administer, and would

be more uncertain for thrifts. For these reasons, OTS adopts the $1

billion threshold as proposed.

3. Assessment Rates for Complexity Component

OTS proposed to use the same assessment rate for all assets subject

to the complexity component. The preamble to the proposed rule

indicated that OTS expected to apply a flat rate of 0.0015% to all

complex assets that exceed the $1 billion thresholds.

Several commenters questioned whether all complex assets warrant

the same assessment rate. Commenters argued that different off-balance

sheet assets may require differing levels of supervision.

In response to these comments, OTS reviewed its cost statistics.

OTS found that loans serviced for others, trust assets, and recourse

obligations and direct credit substitutes do not all have identical

effects on examination hours. More specifically, OTS found that

recourse obligations and direct credit substitutes have a greater

effect on examiner hours than trust assets administered by a savings

association, which, in turn, have a greater effect on examiner hours

than loans serviced for others. OTS therefore believes different

assessment rates should apply to the different activities within the

complexity component. Initially, OTS will assess trust assets at a rate

of 0.0015%, and recourse obligations and direct credit substitutes at

0.0030%. For loans serviced for others, OTS will use two different

assessment rates to recognize economies of scale, as discussed

immediately below.

OTS proposed no upper limit on the complexity component, but

requested comment on whether there should be a cap on this component.

Five commenters discussed economies of scale in administering or

supervising complex activities. One thought a cap of $3 billion would

avoid penalizing thrifts who have achieved economies of scale in their

operations. Three favored a declining marginal assessment rate as asset

size increases, and one of these suggested a flat fee together with a

declining assessment rate. The fifth commenter did not suggest a

specific method for addressing economies of scale. In addition, two

commenters suggested some unspecified cap on the complexity component.

In response to comments, OTS reviewed its data, focusing on the

extent to which economies of scale affect examiner workload for complex

activities. The analysis demonstrates that OTS may realize some

economies of scale in supervising loans serviced for others for

portfolios above $10 billion.

OTS's experience with the examination of trust assets, recourse

obligations and direct credit substitutes, on the other hand, does not

support a conclusion that the economies of scale for these activities

should be reflected in the assessment rates. Therefore, the agency

continues to use a flat rate for each of these activities above the $1

billion threshold. OTS will continue to collect and analyze data

concerning these activities to determine whether it should recognize

economies of scale in the future.

Therefore, OTS has revised Sec. 502.25 to indicate that it may

establish one or more assessment rates for activities under the

complexity component. OTS will set forth all assessment rates for the

complexity component in a Thrift Bulletin and will revise theses rates

periodically. Initially, OTS will use the following rates:

Assessment

Complexity component category rate

(percent)

Loans serviced for others, over $1 billion, up to $10

billion.................................................... 0.0010

Loans serviced for others, over $10 billion................. 0.0005

Trust assets administered................................... 0.0015

Recourse obligations and direct credit substitutes.......... 0.0030

D. Consolidation

OTS solicited comments on how it should assess savings associations

that own depository institutions or non-depository institutions, or

multiple savings associations owned by one holding company. Four

commenters favored consolidating thrifts that own thrifts for

assessment purposes, while one opposed this approach. One commenter

opposed aggregating off-balance sheet activities of a thrift's

consolidated subsidiary with the parent's off-balance sheet activities,

believing that the parent-subsidiary structure insulates the thrift

from risk. Two commenters thought OTS should adjust assessments to

reflect economies of scale in supervising institutions within the same

family structure. Finally, two commenters believed that non-lead

thrifts owned by a multiple savings and loan holding company should get

a discount on their assessments.

OTS will continue to include consolidated depository institution or

other regulated subsidiaries in the assessment calculations for parent

thrifts on the same basis as all other consolidated subsidiaries. This

will incorporate economies of scale into the assessment of consolidated

companies through the decreased assessment rates for larger

associations. OTS believes recognizing these economies of scale is

appropriate because it reflects OTS's costs of supervising consolidated

entities. OTS will not, at this time, incorporate any discount for a

non-lead thrift owned by a multiple savings and loan holding company,

but will continue its practice of treating the sister thrifts as

separate corporations. Because sister thrifts do not necessarily

operate as one company, and can have very different operations and

different types or amounts of risk, OTS does not realize the same

economies of scale as it does with one larger thrift.

E. Other Matters

1. Semi-annual Assessment

Unlike the current rule, which provides for quarterly or semi-

annual

[[Page 65669]]

assessments, the proposed rule would collect all assessments on a semi-

annual basis. Three commenters supported the semi-annual assessment,

and none opposed it. OTS believes that a semi-annual assessment will

impose the least burden on the thrift industry and the agency.

Accordingly, the final rule requires semi-annual assessments.

One commenter requested that OTS clarify whether the complexity

component would be imposed on a semiannual basis. The proposed rule

stated, at Sec. 502.10, ``OTS determines your semiannual assessment by

totaling three components: your size, your condition and the complexity

of your business.'' OTS calculates each component semiannually.

2. Publication of Assessment Schedules

The size component would use a chart to identify base assessment

amounts for total assets at certain levels, and would impose marginal

rates on assets above those levels. This is similar to the treatment

under existing part 502. However, unlike the existing regulation, the

proposed rule would not include specific base assessment amounts or

marginal rates in the regulatory text. Rather, OTS proposed to publish

the specific base amounts and marginal rates in publicly available

Thrift Bulletins and on its web site. Similarly, OTS proposed to

publish the assessment rate for the complexity component in the Thrift

Bulletin and on its web site.

Three commenters agreed that this approach is reasonable. These

commenters argued that this system eliminates delays, is more flexible,

and will make rates more easily available. One commenter, however,

argued that OTS should not increase the assessment rate schedule

without publishing a proposal in the Federal Register for notice and

comment. This commenter, however, would not object to the current

system where the regulation reflects higher assessment levels that are

subject to a reduction in a Thrift Bulletin. This commenter also argued

that OTS may be required to publish a new proposal if the rates in the

final regulation differ significantly from the proposal.

OTS currently publishes assessment rates in a Thrift Bulletin,

under the authority in existing Sec. 502.6 to set rates lower than

those published in its regulation. Thus, since the early 1990s, thrift

have been charged assessments that are different from those included in

the regulation. Having outdated rates in the regulation has caused

confusion. For this reason, OTS does not want to codify rates in a

regulation that will quickly become obsolete.

Additionally, OTS's goals in this rulemaking are to keep its rates

as low as it can while still providing OTS with essential resources,

and to more closely tailor its rates to its costs. With actual rates in

a Thrift Bulletin rather than in a regulation, OTS can readily revise

the rates to lower them when it is appropriate, and can more readily

align them to changes in OTS's costs of supervising the thrift

industry. The industry has received an opportunity to comment on the

structure through this rulemaking. Conducting new rulemakings for

adjustments in rates would impede the agency's ability to adjust its

rates to reflect increases in its supervisory workload, and thus could

impair its ability to regulate the industry. For these reasons, OTS

will announce the rates in Thrift Bulletins.

3. Refund and Proration of Assessments

In the proposed rule, OTS clarified the existing regulation and

incorporated OTS's long-standing practice by stating that it will not

refund or prorate assessments, even if an entity ceases to be a savings

association. Further, OTS stated that it would not increase or decrease

assessments based on events that occur after the date of the TFR upon

which the assessment is based, except for errors in the TFR. One

commenter believed that this approach avoids burden.

OTS believes that changing assessments for events after the

relevant TFR date complicates the assessment process without adding any

benefit. Accordingly, OTS adopts proposed Sec. 502.40 without

amendment. At the same time, however, assessments must be calculated

accurately and should not be based on errors in the TFR. Therefore,

consistent with its current practice, OTS will, where necessary,

continue to adjust assessment to reflect corrections to errors

contained in the TFR.

IV. Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601 et. seq., applies to

this rulemaking. Accordingly, OTS included in its notice of proposed

rulemaking an initial regulatory flexibility analysis (IRFA). With this

final rule, OTS includes the following final regulatory flexibility

analysis, as required by section 604(a) of the Regulatory Flexibility

Act, 5 U.S.C. 604(a). In the IRFA, OTS solicited comments on all

aspects of the IRFA, including any significant impacts the proposed

rule would have on small entities. OTS received no comments on its

IRFA. However, OTS did receive comments discussing small savings

associations and the proposed rule's special size component calculation

for qualifying associations. These comments are discussed earlier in

this preamble.

Reasons for rulemaking. OTS is issuing this final rule to revise

its current assessments system to match assessments more closely with

OTS's costs. As described in this preamble and in the notice of

proposed rulemaking, OTS has found that, under its prior assessment

system, OTS's costs of supervising some institutions are higher or

lower than those associations pay in assessments. OTS believes it is

inappropriate for some savings associations to subsidize the costs of

others. Therefore, OTS is attempting, through this rule, to more

closely associate its costs with assessments.

Objectives of and legal basis for the final rule. OTS has two

primary objectives for this final rule: (1) establishing an assessment

structure that keeps the agency's rates as low as possible, and (2)

more closely tailoring rates to the agency's increased costs in

supervising certain types of institutions. The Director of OTS is

authorized by statute to impose assessments.13

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

\13\ 12 U.S.C. 1462a, 1463, 1467, 1467a.

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

Effect of the final rule on small savings associations. This final

rule could affect small savings associations through its condition,

size, or complexity components. The rule will have no effect on small

businesses or small organizations other than small savings

associations, and will not affect small governmental jurisdictions.

Small savings associations are generally defined, for Regulatory

Flexibility Act purposes, as those with assets under $100

million.14

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

\14\ 13 CFR 121.201 Division H (1998).

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

The condition component will affect small savings associations. As

discussed earlier in this preamble and in the notice of proposed

rulemaking, the condition component imposes an assessment equal to 25%

of an association's size component for each 3-rated association,

regardless of its size. Currently, there are 43 savings associations

that are 3-rated and that have assets under $100 million. The smallest

of these has assets of approximately $5 million, and the largest has

approximately $100 million. Their assessments will increase due to the

condition component by approximately $422 and $5464 annually,

respectively. Other 3-rated small savings associations will see their

assessments increase, depending on their size. The largest increase

will be $5792 for a thrift with $69 million in assets. (Thrifts between

$69 million and

[[Page 65670]]

$100 million will realize a smaller asset-based assessment under the

new rule, while thrifts below $69 million will see no change in their

asset-based assessment. Because the condition component is a percentage

of the asset-based assessment, it will be greater for a $69 million

thrift than for a $100 million thrift.)

As discussed more fully in the notice of proposed rulemaking, 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 match assessments

with OTS's supervisory costs, and therefore adopts a condition

component for 3-rated associations. Furthermore, OTS believes that

requiring 3-rated institutions to pay for their extra supervisory costs

will provide an incentive for those institutions to improve their

condition and their ratings. OTS believes that the 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.

OTS believes the size component will not have a significant

economic impact on a small number of small entities. OTS specifically

designed this rule to allow qualifying savings associations, generally

those with assets under $100 million, to choose between calculating

their size components under either the old regulation or the new

regulation. These institutions can therefore avoid any increases in

their size components.

If an institution increases above $100 million in assets then

shrinks below $100 million, or for savings associations that are not

yet formed, 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. Likewise, OTS cannot

predict the economic impact of the final rule on such institutions.

That is because OTS's assessment rates will vary in the future, as

OTS's supervisory costs change.

OTS considered, as an alternative to the size component with

protection for small institutions, leaving its assessment system

unchanged. OTS believes this alternative would not meet OTS's objective

of closely tailoring assessment rates to OTS's increased supervisory

costs while keeping assessment rates as low as possible, while

minimizing significant economic impacts on small savings associations.

The complexity component applies only to savings associations that

have more than $1 billion in certain activities, mostly off balance

sheet. 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 five savings associations

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

subject to the complexity component. OTS believes that a regulatory

flexibility analysis is not necessary regarding the complexity

component for two reasons. First, OTS believes that five savings

associations is not a substantial number of small savings associations.

Second, for purposes of the regulatory flexibility analysis regarding

the complexity component, OTS defines a small savings association as

one with less than $100 million in assets including off-balance sheet

assets. OTS received no public comments on this definition of small

savings association. The Regulatory Flexibility Act is designed to

protect the interests of small businesses, while the complexity

component only affects savings associations with assets or activities

in excess of $1 billion. OTS does not believe that institutions whose

activities involve more than $1 billion in off-balance sheet assets

need any particular protection from the complexity component.

In any event, OTS considered alternatives to the complexity

component. OTS considered using no such component, and considered

including different complex assets in the component, such as commercial

and non-residential mortgage loans. With no complexity component, less

complex thrifts would have to subsidize OTS's costs of supervising

complex institutions. OTS believes the complexity component best

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

supervisory costs and keeping assessments as low as possible, while

minimizing significant economic impacts on small savings associations.

Other matters. The final rule imposes no reporting, recordkeeping,

or other compliance requirements. Assessments will continue to be based

on Thrift Financial Reports that savings associations are otherwise

required to file with OTS, and OTS will continue to collect assessments

by its current procedures. Therefore, the final rule will impose no new

or additional reporting, recordkeeping, or compliance requirements.

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

conflict with this rule.

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. This 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.

VI. Paperwork Reduction Act of 1995

This final rule contains no new information collection

requirements. The information collection requirements in Sec. 502.70

are the same as those in the prior 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.

VII. Executive Order 12866

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

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

Executive Order 12866.

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 amends 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?

[[Page 65671]]

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 savings associations that

administer trust assets of $1 billion or less, and 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

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 Plus-- Marginal

Over-- But not over-- assessment amount rate Of assets over-- Class floor

Column A Column B.................... Column C ColColumn 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.

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 January 1, 1999.

(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:

If your composite rating is: Then your condition component is:

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

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

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

[[Page 65672]]

Sec. 502.25 How does OTS determine my complexity component?

If your portfolio exceeds any of the thresholds in paragraph (a) of

this section, OTS will calculate your complexity component according to

paragraph (c) of this section. If your portfolio does not exceed any of

the thresholds in paragraph (a) of this section, your complexity

component is zero.

(a) Thresholds for complexity component. OTS uses three separate

thresholds in calculating your complexity component. You exceed a

threshold if you have more than $1 billion in any of the following:

(1) Trust assets you administer.

(2) The outstanding principal balance of assets covered, fully or

partially, by your recourse obligations or direct credit substitutes.

(3) The principal amount of loans that you service for others.

(b) Assessment rates. OTS will establish one or more assessment

rates for each of the types of activities listed in paragraph (a) of

this section. OTS will publish those assessment rates in a Thrift

Bulletin.

(c) Calculation of complexity component. OTS separately considers

each of the thresholds in paragraph (a) of this section in calculating

your complexity component. OTS first calculates the amount by which you

exceed any of those thresholds. OTS multiplies the amount by which you

exceed any threshold in paragraph (a) of this section by the applicable

assessment rate(s) under paragraph (b) of this section. OTS then totals

the results. This total is your complexity component.

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 associations that administer trust assets of $1 billion or

less, and 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.

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: November 20, 1998.

[[Page 65673]]

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98-31745 Filed 11-27-98; 8:45 am]

BILLING CODE 6720-01-P