Membership of State Banking Institutions in the Federal Reserve System; Miscellaneous Interpretations
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Federal Register › Vol. 62 › 62 FR 15272
Text
Part III
Federal Reserve System
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12 CFR Parts 208, 209, 216, and 250
State Banking Institutions Federal Reserve System Membership,
Miscellaneous Interpretations; Federal Reserve Bank Capital Stock Issue
and Cancellation; and Security Procedures; Proposed Rules
Proposed Rules
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 250
[Regulation H; Docket No. R-0964]
Membership of State Banking Institutions in the Federal Reserve
System; Miscellaneous Interpretations
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System is
proposing to amend Subpart A of Regulation H, regarding the general
provisions for membership in the Federal Reserve System, and Subpart E
of Regulation H, regarding Interpretations, in order to reduce
regulatory burden and simplify and update requirements. The proposal
would also eliminate several obsolete interpretations. The Board is
also reissuing existing Subparts B and C. Existing Subparts B and C
would not be significantly amended but would be relettered (as Subparts
D and E, respectively) to reflect the fact that existing Subpart A
would be broken into four new Subparts (Subparts A, B, C and F).
Existing Subpart D, regarding safety and soundness standards, would be
incorporated into proposed Subpart A. The proposal would not amend in
any way Appendices A through E to Part 208. This proposal to modernize
Subpart A of Regulation H is in accordance with the Board's policy of
reviewing its regulations as well as the Board's review of regulations
under section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994.
DATES: Comments must be received by May 30, 1997.
art A. The proposal would not amend in
any way Appendices A through E to Part 208. This proposal to modernize
Subpart A of Regulation H is in accordance with the Board's policy of
reviewing its regulations as well as the Board's review of regulations
under section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994.
DATES: Comments must be received by May 30, 1997.
ADDRESSES: Comments, which should refer to Docket No. R-0964, may be
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments addressed to Mr. Wiles also may be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m., and
to the security control room outside of those hours. Both the mail room
and the security control room are accessible from the courtyard
entrance on 20th Street between Constitution Avenue and C Street, N.W.
Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00
p.m. weekdays, except as provided in Sec. 261.8 of the Board of
Governors' Rules Regarding Availability of Information, 12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Jean Anderson, Staff Attorney, Legal
Division (202/452-3707). For the hearing impaired only,
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).
SUPPLEMENTARY INFORMATION:
Background
As part of its policy of reviewing its regulations, and consistent
with section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Riegle Act), Pub. L. 103-328, the Board of
Governors of the Federal Reserve System (Board) is proposing to amend
Subpart A of Regulation H, regarding the general provisions for state
bank membership in the Federal Reserve System (12 CFR part 208)
its policy of reviewing its regulations, and consistent
with section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Riegle Act), Pub. L. 103-328, the Board of
Governors of the Federal Reserve System (Board) is proposing to amend
Subpart A of Regulation H, regarding the general provisions for state
bank membership in the Federal Reserve System (12 CFR part 208).
Section 303 of the Riegle Act requires each Federal banking agency to
review and streamline its regulations and written policies to improve
efficiency, reduce unnecessary costs, and remove inconsistencies and
outmoded and duplicative requirements. The proposed amendments are
designed to reduce regulatory burden and simplify and update the
Regulation.
The principal proposed amendments are described below. In general,
the amendments serve to reorganize, clarify, and reduce the burden of
compliance with Subpart A of Regulation H. The amendments delete
application procedures no longer in effect, reflect the requirements of
the Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) in branch
applications, provide for expedited procedures in certain membership
and branch applications, and eliminate provisions that no longer have a
significant effect. The Board also proposes to eliminate a number of
interpretations in Regulation H and elsewhere; specifically,
interpretations: 12 CFR 208.125, 208.126, 208.127, 208.128, 250.120,
250.121, 250.122, 250.123, 250.140, 250.161, 250.162, 250.220, 250.300,
250.301 and 250.302. The amended Regulation H, when fully effective,
will replace the existing Regulation H in its entirety, except for the
Appendices to Regulation H, which will remain unchanged by the
proposal.
The Board is not proposing to modify substantively existing
Subparts B and C of Regulation H
8.128, 250.120,
250.121, 250.122, 250.123, 250.140, 250.161, 250.162, 250.220, 250.300,
250.301 and 250.302. The amended Regulation H, when fully effective,
will replace the existing Regulation H in its entirety, except for the
Appendices to Regulation H, which will remain unchanged by the
proposal.
The Board is not proposing to modify substantively existing
Subparts B and C of Regulation H. However, existing Subparts B and C
would be reissued and relettered (Subparts D and E, respectively) to
reflect the fact that Subpart A, as proposed, would be broken into four
new Subparts (Subpart A, B, C, and F). In addition, a cross-reference
to real estate appraisal standards in Regulation Y (Part 225--Bank
Holding Companies and Change in Bank Control) would be moved from
existing Sec. 208.18 to proposed Sec. 208.50 (Purpose and Scope),
within proposed Subpart E, which would be renamed ``Real Estate Lending
and Appraisal Standards.'' Existing Subpart D would be incorporated
into Subpart A at proposed Sec. 208.3(e), entitled ``Conditions of
membership.'' The Board is proposing to amend existing Subpart E, which
lists interpretations of Regulation H, in order to eliminate
unnecessary or outdated interpretations and to incorporate certain
interpretations, where noted, into the regulatory language of Subpart A
of Regulation H. Existing Subpart E would be relettered as Subpart G.
As noted above, a number of miscellaneous interpretations would also be
deleted.
Subpart A--General Membership and Branching Requirements
Section 208.2 Definitions
n order to eliminate
unnecessary or outdated interpretations and to incorporate certain
interpretations, where noted, into the regulatory language of Subpart A
of Regulation H. Existing Subpart E would be relettered as Subpart G.
As noted above, a number of miscellaneous interpretations would also be
deleted.
Subpart A--General Membership and Branching Requirements
Section 208.2 Definitions
The definitions would be rearranged and placed in alphabetical
order. The definition of branch would be taken out of footnote seven of
existing Sec. 208.9 and added to the definition section. The definition
section would also include a proposed definition of capital stock and
surplus. The Board is proposing to formalize in Sec. 208.6 its
expedited branch application procedures. Consequently, a definition of
eligible bank is proposed for purposes of determining which banks may
utilize the expedited branch application procedures. The definition of
eligible bank would also be used for purposes of determining which
banks may utilize the Board's newly proposed expedited membership
procedures.
Definition of Branch
Section 9(3) of the Federal Reserve Act (12 U.S.C. 321) in essence
provides that State member banks may establish domestic branches on the
same terms and conditions and subject to the same limitations and
restrictions as are applicable to the establishment of branches by
national banks. The definition of branch incorporates this concept by
providing that a branch includes any branch bank, branch office, branch
agency, additional office, or any branch place of business that
receives deposits, pays checks, or lends money. A branch may include a
temporary, seasonal, or mobile facility.
For purposes of this definition, the Board is proposing that a
branch not include a loan origination facility where the proceeds of
loans are not disbursed. In addition, pursuant to section 2204 of the
Economic Growth and Regulatory
onal office, or any branch place of business that
receives deposits, pays checks, or lends money. A branch may include a
temporary, seasonal, or mobile facility.
For purposes of this definition, the Board is proposing that a
branch not include a loan origination facility where the proceeds of
loans are not disbursed. In addition, pursuant to section 2204 of the
Economic Growth and Regulatory
Paperwork Reduction Act of 1996, Pub. L. 104-208, 110 Stat. 3009,
(Economic Growth Act), the definition excludes automated teller
machines and remote service units as well as offices of an affiliated
depository institution that provide services to customers of a State
member bank on behalf of the State member bank. The Board seeks comment
on whether it also would be appropriate to exclude from the definition
of branch an office of an unaffiliated depository institution that
provides services to customers of the State member bank on behalf of
the State member bank.
The proposal also excludes from the definition of branch a facility
that would otherwise qualify as a branch because it engages in one or
more of these branching functions (receipt of deposits, payment of
withdrawals, or making loans) but which prohibits access to members of
the public for purposes of conducting one or more branching functions.
For example, an office that receives deposits only through the mail
(which does not offer a means to attract customers to the bank or
provide in-person contact with the public) would be excluded. This
exclusion is consistent with existing Board interpretations.
The Office of the Comptroller of the Currency (OCC) has also stated
that it will decide on a case by case basis whether to treat as a
branch a facility that generally provides services, on a
nondiscriminatory basis, to accounts that its customers hold as well as
accounts held by noncustomers in other banks and depository
institutions
clusion is consistent with existing Board interpretations.
The Office of the Comptroller of the Currency (OCC) has also stated
that it will decide on a case by case basis whether to treat as a
branch a facility that generally provides services, on a
nondiscriminatory basis, to accounts that its customers hold as well as
accounts held by noncustomers in other banks and depository
institutions. (Before the passage of the Economic Growth Act that
excludes ATMs from the definition of a branch, an example of such a
facility would have been ATMs that are linked to networks and thus
provide services to bank customers and non-customers alike.) The Board
would also consider on a case-by-case basis, based on the particular
circumstances involved, whether such facilities constitute branches.
Definition of Capital Stock and Surplus
The Federal Reserve Act and the current version of Regulation H
contain various references to a State member bank's ``capital.'' For
example, the guidelines for determining the capital adequacy of State
member banks for risk-based capital purposes and for leverage purposes
are set out in appendices A and B to Regulation H, respectively (these
measures would not change under the proposal). The Federal Reserve Act
contains other references to a State member bank's capital stock and
surplus (or similar terms) in numerous provisions, such as those
related to purchases of investment securities (12 U.S.C. 335), loans on
stock or bond collateral (12 U.S.C. 248(m)), deposits with nonmember
banks (12 U.S.C. 463), bank acceptances (12 U.S.C. 372 and 373), and
limits on the amount of paper of one borrower that may be discounted by
a Federal Reserve Bank for any member bank (12 U.S.C. 330 and 345). The
Board has issued interpretations on how to define ``capital stock and
surplus'' for some of these purposes (12 CFR 250.161 and 250.162)
al (12 U.S.C. 248(m)), deposits with nonmember
banks (12 U.S.C. 463), bank acceptances (12 U.S.C. 372 and 373), and
limits on the amount of paper of one borrower that may be discounted by
a Federal Reserve Bank for any member bank (12 U.S.C. 330 and 345). The
Board has issued interpretations on how to define ``capital stock and
surplus'' for some of these purposes (12 CFR 250.161 and 250.162).
The Board is proposing to define capital stock and surplus in
Regulation H to mean Tier 1 and Tier 2 capital, as calculated under the
risk-based capital guidelines, plus any allowance for loan and lease
losses not already included in Tier 2 capital. This definition would
apply to all references to capital stock and surplus in the Federal
Reserve Act and Regulation H, unless otherwise noted. The new
definition would mirror the definition of capital stock and surplus
that the Board adopted in April 1996 for purposes of section 23A of the
Federal Reserve Act (which governs transactions between insured
depository institutions and their affiliates). This definition is also
used for purposes of Regulation O (12 CFR 215) (which governs insider
lending) and the OCC's limits on loans by a national bank to a single
borrower.1 The Board proposes to rescind its current capital-
related interpretations (12 CFR 250.161 and 250.162).
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\1\ The proposed definition of capital stock and surplus would
not apply to part 209 of this title (Regulation I).
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k to a single
borrower.1 The Board proposes to rescind its current capital-
related interpretations (12 CFR 250.161 and 250.162).
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\1\ The proposed definition of capital stock and surplus would
not apply to part 209 of this title (Regulation I).
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Definition of Eligible Bank
The proposal incorporates a new definition, eligible bank, to serve
as the qualification for expedited treatment of membership and branch
applications. Under the proposal, an eligible bank is a bank that: 1.
is well capitalized; 2. has a Uniform Financial Institutions Rating
System (CAMELS) rating of 1 or 2; 3. has a Community Reinvestment Act
rating of ``Outstanding'' or ``Satisfactory;'' 4. has a compliance
rating of 1 or 2; and 5. has no major unresolved supervisory issues
outstanding as determined by the Board or the appropriate Federal
Reserve Bank. The Board has long used similar criteria for expedited
processing of branch applications. The proposal would incorporate these
criteria into Regulation H and would expand the use to qualification
for expedited processing of membership applications. The proposed
definition of eligible bank is consistent with the definition of
eligible bank adopted by the OCC.
Definition of Mutual Savings Bank and State Bank
The Board proposes deleting the definition of a mutual savings bank
as unnecessary. The Board is proposing to amend the definition of state
bank in order to track more closely the definition of state bank
provided in Section 9 of the Federal Reserve Act.
Section 208.3 Application and Conditions for Membership in Federal
Reserve System
the OCC.
Definition of Mutual Savings Bank and State Bank
The Board proposes deleting the definition of a mutual savings bank
as unnecessary. The Board is proposing to amend the definition of state
bank in order to track more closely the definition of state bank
provided in Section 9 of the Federal Reserve Act.
Section 208.3 Application and Conditions for Membership in Federal
Reserve System
Eligibility Requirements
The proposal eliminates existing Sec. 208.2, entitled ``Eligibility
Requirements,'' since its provisions have been incorporated into the
factors considered in approving applications for membership. The
proposal eliminates existing Sec. 208.2(b), regarding minimum capital
required for membership by national banks, and replaces it with a
cross-reference to the statutory requirements applicable to national
banks.
In addition, the proposal eliminates existing Sec. 208.3,
``Insurance of Deposits.'' Existing Sec. 208.3 reflects prior law that
accorded insured bank status under the Federal Deposit Insurance Act
(FDI Act) (12 U.S.C. 264, 1728, 1811 to 1831) to an uninsured bank upon
becoming a State member bank. Under the Federal Deposit Insurance Act,
banks must apply separately to the Federal Deposit Insurance
Corporation for insured bank status.
Applications for Membership and Stock
The proposal amends existing Sec. 208.4, entitled ``Application for
membership,'' by summarizing in a more succinct fashion the Board's
application procedures. It also provides a cross-reference to the
Board's Rules of Procedure (12 CFR 262.3), which govern the submission
of such applications. Existing Sec. 208.5(b), which covers procedures
for the payment for and issuance of Federal Reserve Bank stock to State
member banks on approval of membership applications, duplicates
Regulation I and, therefore is deleted. A proposed revision of
Regulation I (12 CFR part 209) is published elsewhere in today's
Federal Register
(12 CFR 262.3), which govern the submission
of such applications. Existing Sec. 208.5(b), which covers procedures
for the payment for and issuance of Federal Reserve Bank stock to State
member banks on approval of membership applications, duplicates
Regulation I and, therefore is deleted. A proposed revision of
Regulation I (12 CFR part 209) is published elsewhere in today's
Federal Register.
Public comment on membership applications (including conversions)
is not expressly required by statute and, since membership does not
confer deposit insurance, the CRA does not, by its terms, apply to
membership applications (state or national charters confer deposit-
taking ability not Federal Reserve membership). Although the
publication requirement imposes a
burden on prospective member banks, it may also lead to the Board
obtaining additional information or views relevant to a membership
application. Therefore, the Board solicits comment on whether
publication should be required for membership applications.
If the Board determines publication is not necessary for membership
applications, the final rule would provide that membership applications
would be acted on promptly after receipt of the application.
Factors Considered in Approving Applications for Membership
The matters given special consideration in membership applications
would be modified to reflect that insurance coverage under the Federal
Deposit Insurance Act is no longer a requirement for membership. In
addition, the membership considerations would be modified to clarify
that the capital necessary for membership is that required under
proposed Sec. 208.4. If the proposed changes are adopted, the Board
would change its Rules Regarding Delegation of Authority (Delegation
Rules), at 12 CFR 265.11(e)(1), to reflect the changes to Regulation H
since the Delegation Rules also list the factors the Board takes into
consideration in approving membership applications
that the capital necessary for membership is that required under
proposed Sec. 208.4. If the proposed changes are adopted, the Board
would change its Rules Regarding Delegation of Authority (Delegation
Rules), at 12 CFR 265.11(e)(1), to reflect the changes to Regulation H
since the Delegation Rules also list the factors the Board takes into
consideration in approving membership applications.
Expedited Membership Approval for Eligible Banks and Bank Holding
Companies
The Board's proposal would provide expedited treatment for
membership applications from de novo state banks that are sponsored by
bank holding companies that meet the criteria for expedited processing
under Sec. 225.14(c) of Regulation Y (12 CFR 225.14(c)). In addition,
the Board's proposal would grant expedited treatment to state non-
member banks applying for membership and national banks seeking to
convert to State member banks if the applying bank is an eligible
bank.2
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\2\ The OCC provides expedited treatment for de novo national
bank charters for affiliates of lead banks that are eligible
national banks (12 CFR 5.20(j)) as well as for eligible State member
banks seeking to convert to national banks 12 CFR 5.24(d)(4)).
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An application for membership by an eligible bank would be deemed
approved by the Board or the appropriate Reserve Bank five business
days after the close of the public comment period, unless the Board or
the appropriate Reserve Bank notifies the bank that the application is
approved prior to that date (but in no case will an application be
approved before the third day after the close of the public comment
period) or that the bank is not eligible for expedited processing
because: 1
e appropriate Reserve Bank five business
days after the close of the public comment period, unless the Board or
the appropriate Reserve Bank notifies the bank that the application is
approved prior to that date (but in no case will an application be
approved before the third day after the close of the public comment
period) or that the bank is not eligible for expedited processing
because: 1. The bank will offer banking services that are materially
different from those presently offered by the bank, or those offered by
affiliates in the case of membership applications by de novo banks; or
2. The existing bank is not an eligible bank or the bank holding
company is not eligible for expedited treatment under Sec. 225.14(c) of
Regulation Y; or 3. The application contains a material error or is
otherwise deficient; or 4. The application or notice required under the
Board's Rules of Procedure (12 CFR 262.3), raises significant
supervisory, Community Reinvestment Act, compliance, policy, or legal
issues that have not been resolved, or a timely substantive adverse
comment is submitted. If the proposed changes are adopted, the Board
will amend it's Rules of Procedure accordingly.
If the Board determines publication is not necessary for membership
applications, the final rule would provide that expedited membership
applications are deemed approved 30 days after receipt of the
application, unless the applicant is notified it is not eligible for
expedited review.3
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Rules of Procedure accordingly.
If the Board determines publication is not necessary for membership
applications, the final rule would provide that expedited membership
applications are deemed approved 30 days after receipt of the
application, unless the applicant is notified it is not eligible for
expedited review.3
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\3\ In addition, if publication for membership applications is
retained, the Board will be proposing amendments to its Rules of
Procedure in the future to allow banks to submit membership
applications within 15 days of publication, rather than the current
7 day requirement. This would provide greater consistency in the
processing procedures under Regulation H and Regulation Y (12 CFR
part 225).
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In addition, the Board will be eliminating the pre-acceptance
period from its internal processing of all membership applications,
which will generally reduce processing times. The Board believes that
the expedited application procedures, by establishing criteria which,
if met, presume approval, will provide greater assurance of the timing
and outcome of membership applications. The Board solicits comments on
the benefits of the proposed expedited membership application
procedure.
Conditions of Membership
A new Sec. 208.3(d) would combine and condense former Secs. 208.6
and 208.7 concerning the general conditions and requirements of
membership. The former requirement that the capital and surplus of a
State member bank be adequate in relation to its existing and
prospective deposit liabilities has been modified and placed in
proposed Sec. 208.4. Proposed Sec. 208.3(d) would also incorporate the
provisions of existing Subpart D, ``Standards for Safety and
Soundness.''
Existing Sec. 208.6(a), which points out that State member banks
retain all charter and statutory rights under state law not preempted
by Federal law, and Sec
ation to its existing and
prospective deposit liabilities has been modified and placed in
proposed Sec. 208.4. Proposed Sec. 208.3(d) would also incorporate the
provisions of existing Subpart D, ``Standards for Safety and
Soundness.''
Existing Sec. 208.6(a), which points out that State member banks
retain all charter and statutory rights under state law not preempted
by Federal law, and Sec. 208.6(b), which states that State member banks
are entitled to all the privileges of membership afforded them under
the Federal Reserve Act and other acts of Congress, and must observe
all requirements of Federal law, would be deleted, as the Board
believes these propositions to be self-evident and, therefore, do not
need to be explicitly stated.
Existing Sec. 208.7(b) requires specific notification to the
appropriate Reserve Bank in the event a State member bank acquires the
assets of another institution through merger, consolidation, or
purchase, because the acquisition may result in a change in the general
character of the bank's business or in the scope of its corporate
powers. The Board proposes to delete this provision because the Bank
Merger Act (12 U.S.C. 1828(c)) already requires an application under
these circumstances. Filing an application under the Bank Merger Act
(12 U.S.C. 1828(c)) fulfills the requirement to notify the appropriate
Reserve Bank of any change requiring such a filing.
Waivers of Conditions of Membership
Existing Sec. 208.8(b) provides for waivers of conditions contained
within existing Sec. 208.8 and existing Sec. 208.10, provides for
waivers of reports of affiliates. The proposal would provide for a
waiver of any condition of membership upon a showing of good cause and
for an automatic waiver of the requirement to file reports of
affiliates, unless such reports are specifically requested by the
Board.
Voluntary Withdrawal From Membership
The provisions of existing Sec
ing Sec. 208.8 and existing Sec. 208.10, provides for
waivers of reports of affiliates. The proposal would provide for a
waiver of any condition of membership upon a showing of good cause and
for an automatic waiver of the requirement to file reports of
affiliates, unless such reports are specifically requested by the
Board.
Voluntary Withdrawal From Membership
The provisions of existing Sec. 208.11, as they relate to the
effective date of withdrawal from membership, would be moved to
proposed Sec. 208.3(f). The provisions in existing Sec. 208.11, which
relate to surrendering Reserve Bank stock, are duplicative of
Regulation I (12 CFR part 209) and therefore would be eliminated, and
instead, proposed Sec. 208.3(f) would cross-reference Regulation I.
Section 208.4 Capital Adequacy
Existing Sec. 208.13, entitled ``Capital adequacy,'' and other
provisions concerning capital requirements, would be moved to proposed
Sec. 208.4. The substance of existing requirements would not change but
the language would be amended to provide greater clarity to State
member banks regarding
their ongoing obligation to ensure that the bank's capital is adequate.
The Board will be considering streamlining amendments to Appendices A
and B separately from this proposal.
Section 208.5 Dividends and Other Distributions
Proposed Sec. 208.5 revises the existing provisions concerning
payment of dividends and withdrawal of capital, currently found at
Sec. 208.19, in order to clarify the application of these requirements
to State member banks. The interpretations currently found at
Sec. 208.125 through Sec. 208.127 would be incorporated into proposed
Sec. 208.5.
Section 208.6 Establishment and Maintenance of Branches
ed Sec. 208.5 revises the existing provisions concerning
payment of dividends and withdrawal of capital, currently found at
Sec. 208.19, in order to clarify the application of these requirements
to State member banks. The interpretations currently found at
Sec. 208.125 through Sec. 208.127 would be incorporated into proposed
Sec. 208.5.
Section 208.6 Establishment and Maintenance of Branches
The proposal would restructure existing Sec. 208.9 and replace it
with proposed new Sec. 208.6 which is designed to improve clarity and
provide more streamlined procedures.
Branching
Existing Sec. 208.9(a) states that State member banks may establish
domestic branches subject to the same limitations and restrictions as
applied to national banks, unless restrained by State law, and contains
a detailed summary of geographic restrictions on branching within a
State, which generally restrict national banks to the same rules as
those that apply to State banks under state law. Statewide branching is
now permitted in many States under State law; interstate branching
through acquisition is now permitted for national banks except in a few
States which have opted out; and interstate branching de novo is now
permitted in States in which out-of-state banks generally are permitted
to establish branches. Rather than summarizing the underlying statutes,
proposed Sec. 208.6(a)(1) provides cross-references to the statutes
governing branching.
Branch Applications Generally
Proposed Sec. 208.6(a)(2) contains a condensed version of existing
Sec. 208.9(e), which refers State member banks to the Board's
Regulation K (12 CFR part 211) for matters related to branches in
foreign countries, their dependencies and possessions, dependencies and
possessions of the United States, and the Commonwealth of Puerto Rico.
For matters related to domestic branch applications, proposed
Sec
Sec. 208.6(a)(2) contains a condensed version of existing
Sec. 208.9(e), which refers State member banks to the Board's
Regulation K (12 CFR part 211) for matters related to branches in
foreign countries, their dependencies and possessions, dependencies and
possessions of the United States, and the Commonwealth of Puerto Rico.
For matters related to domestic branch applications, proposed
Sec. 208.6(a)(2) contains a cross-reference to the Board's Rules of
Procedure (12 CFR 262.3) which govern the submission of domestic branch
applications. The Board is requesting comment on whether it should
shorten the public comment period applicable to branch applications
from the 30 days that is currently required to 15 days.4
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\4\ The Board could shorten the comment period either by
amending Regulation H or by amending the Board's Rules of Procedure.
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Proposed Sec. 208.6(b) modifies the Board's requirements for
approving branch applications currently contained within the Board's
Delegation Rules (12 CFR 265.11(e)(3)). Proposed Sec. 208.6(b)
eliminates consideration of factors found at Sec. 265.11(e)(3)(iv),
regarding the competitive situation and Sec. 265.11(e)(3)(v), regarding
the branch's prospects for profitable operation, and adds to the
factors for consideration the bank's performance under the CRA in cases
where the bank is establishing a branch with deposit-taking ability. If
the proposed changes are adopted the Board will amend its Delegation
Rules accordingly.
Expedited Branch Applications
Existing Sec. 208.9(b) would be replaced by proposed Sec
regarding
the branch's prospects for profitable operation, and adds to the
factors for consideration the bank's performance under the CRA in cases
where the bank is establishing a branch with deposit-taking ability. If
the proposed changes are adopted the Board will amend its Delegation
Rules accordingly.
Expedited Branch Applications
Existing Sec. 208.9(b) would be replaced by proposed Sec. 208.6(c),
which sets forth the Board's expedited procedures for eligible banks
establishing branches.5 Under the proposed procedures, which
modify slightly the Board's existing procedures, located in
Administrative Letter 92-82 (November 5, 1992), a branch application by
an eligible bank would be deemed approved by the Board or the
appropriate Reserve Bank five business days after the close of the
public comment period, unless the Board or the appropriate Reserve Bank
notifies the bank that the application is approved prior to that date
(but in no case will an application be approved before the third day
after the close of the public comment period) or that the bank is not
eligible for expedited processing because: (1) It is not an eligible
bank; (2) The application contains a material error or is otherwise
deficient; or (3) The application or notice required under the Board's
Rules of Procedure (12 CFR 262.3), raises significant supervisory,
Community Reinvestment Act, compliance, policy or legal issues that
have not been resolved, or a timely substantive adverse comment is
submitted. If the proposed changes are adopted the Board will amend its
Rules of Procedure accordingly.
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\5\ The Board's Rules of Procedure (12 CFR part 262) set forth
general procedures for applications at 12 CFR 262.3.
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tive adverse comment is
submitted. If the proposed changes are adopted the Board will amend its
Rules of Procedure accordingly.
---------------------------------------------------------------------------
\5\ The Board's Rules of Procedure (12 CFR part 262) set forth
general procedures for applications at 12 CFR 262.3.
---------------------------------------------------------------------------
Consolidated Branch Applications
Proposed Sec. 208.6(d) would authorize explicitly a single
consolidated application for branches that a State member bank plans to
establish in a one-year period. At present, such an application is
permissible because the Board's branch approvals are valid for one
year, provided the bank notifies the appropriate Reserve Bank before
opening any branch covered by the approval. Moreover, there is no
requirement that a particular branch be opened once it is approved.
Under the proposal to codify such procedures, approvals would remain
valid for one year unless the Board notifies the bank of the approval's
suspension as a result of a change in the bank's condition.
Branch Closings
Proposed Sec. 208.6(e) is a new section requiring branch closings
to comply with section 42 of the FDI Act (12 U.S.C. 1831r-1), which
requires notice to both customers and, in the case of insured State
member banks, the Board, of proposed branch closings. A branch
relocation is not a closing for purposes of Sec. 42(e) of the FDI Act.
Under section 42(e) of the FDI Act, a branch relocation is a movement
that occurs within the immediate neighborhood and that does not
substantially affect the nature of the business or customers served.
Branch Relocations
Currently Sec. 208.9(b)(7) of Regulation H states that no branch
application is required for a relocation of an existing branch. A
branch relocation, for purposes of filing a branch application, is a
movement that does not substantially affect the nature of the branch's
business or customers served. Proposed Sec
ntially affect the nature of the business or customers served.
Branch Relocations
Currently Sec. 208.9(b)(7) of Regulation H states that no branch
application is required for a relocation of an existing branch. A
branch relocation, for purposes of filing a branch application, is a
movement that does not substantially affect the nature of the branch's
business or customers served. Proposed Sec. 208.6(f) would continue
this standard.
Section 208.7 Prohibition Against Using Interstate Branches Primarily
for Deposit Production
The proposal includes a place holder for existing Sec. 208.28. The
Board requested public comment on existing Sec. 208.28 on March 17,
1997 (62 FR 12730). Existing Sec. 208.28 will be incorporated at
proposed Sec. 208.7 once it is finalized.
Subpart B Investments and Loans
Section 208.21 Investments in Premises and Securities
A new proposed Sec. 208.21, entitled ``Investments in Premises and
Securities,'' would be created to provide guidance to State member
banks with regard to investments in bank premises and securities.
Existing interpretation Sec. 208.124, entitled, ``Purchase of
investment company stock by a State member bank,'' would remain as an
interpretation of Regulation H but would be renumbered as Sec. 208.102
and entitled ``Investments in Shares of an Investment Company.''
Existing interpretation 12 CFR 208.128, entitled ``Commodity- or
equity-linked transactions,'' would be eliminated under the proposal.
Since the adoption of the interpretation found at Sec. 208.128, in
which the Board determined that certain commodity- and equity-linked
transactions constituted a change in the nature of a bank's business
for which Board approval was required under Regulation H, more
comprehensive examination guidance and procedures have been developed
to address trading activities and market risk
proposal.
Since the adoption of the interpretation found at Sec. 208.128, in
which the Board determined that certain commodity- and equity-linked
transactions constituted a change in the nature of a bank's business
for which Board approval was required under Regulation H, more
comprehensive examination guidance and procedures have been developed
to address trading activities and market risk. For this reason, the
Board no longer believes it is necessary to treat commodity- and
equity-linked transactions differently from transactions involving
interest rate or foreign exchange risk.
Section 208.22 Community Development and Public Welfare Investments
Section 208.21 of Regulation H (proposed to be renumbered as
Sec. 208.22, within proposed Subpart B) contains limitations and
procedures regarding public welfare investments by State member banks.
Among other things, the regulation sets out the conditions under which
a State member bank may make public welfare investments without prior
Board approval. One of those conditions is that any investment in a
particular project may not exceed 2 percent of the bank's capital stock
and surplus. The Board is proposing to eliminate the 2 percent limit.
(The OCC eliminated a similar 2 percent limit for national banks, 61 FR
49654, September 23, 1996.) The aggregate public welfare investments of
a State member bank would continue to be limited to 5 percent of the
bank's capital stock and surplus.
In addition, to make a public welfare investment without prior
approval, a State member bank must have an overall rating of ``at least
satisfactory'' as of its most recent consumer compliance examination.
The term ``at least satisfactory'' equates to a rating of ``1'' or
``2'' in the consumer compliance examination rating system
e limited to 5 percent of the
bank's capital stock and surplus.
In addition, to make a public welfare investment without prior
approval, a State member bank must have an overall rating of ``at least
satisfactory'' as of its most recent consumer compliance examination.
The term ``at least satisfactory'' equates to a rating of ``1'' or
``2'' in the consumer compliance examination rating system. The Board
is proposing to substitute the numerical ratings for the term ``at
least satisfactory.''
The final paragraph of the public welfare investment section sets
out procedures regarding preexisting public welfare investments as of
the effective date of the rule (January 9, 1995). The latest date for
complying with any action required by this paragraph was January 9,
1996. As this paragraph is now obsolete, the Board is proposing to
delete it.
Finally, as discussed above, the Board is proposing to define
``capital stock and surplus'' for purposes of Regulation H. The
proposed definition would also apply to the capital limitations
associated with public welfare investments.
Section 208.23 Agricultural Loan Loss Amortization
Proposed Sec. 208.23 would have a sunset date of January 1, 1999,
because the enabling statute provides that banks may only use this
amortization provision through 1998.6 Because the terms of
proposed Sec. 208.23 expire on January 1, 1999, banks are no longer
able to establish new capital restoration plans. Since the terms of
Sec. 208.23 apply only to existing capital restoration plans, proposed
Sec. 208.23 eliminates all references relating to establishing new
capital restoration plans, such as the requirements for submitting
proposals to establish capital restoration plans and the eligibility
requirements for establishing plans.
---------------------------------------------------------------------------
terms of
Sec. 208.23 apply only to existing capital restoration plans, proposed
Sec. 208.23 eliminates all references relating to establishing new
capital restoration plans, such as the requirements for submitting
proposals to establish capital restoration plans and the eligibility
requirements for establishing plans.
---------------------------------------------------------------------------
\6\ The Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC) have adopted this same
sunset date for their agricultural loan loss rules (60 FR 27401, May
24, 1995)(OCC); (61 FR 33842, July 1, 1996)(FDIC).
---------------------------------------------------------------------------
Section 208.24 Letters of Credit and Acceptances
The proposal does not substantively amend existing Sec. 208.8(d),
entitled ``Letters of credit and acceptances.''
Section 208.25 Loans in Areas having Special Flood Hazards
Existing Sec. 208.23, relating to loans by State member banks in
identified flood hazard areas, was recently amended by the Board and
issued as a joint final rule on August 16, 1996.7 The current
proposal does not propose to modify the language of the flood insurance
provisions. The sample form of notice included in the final rule will
be located at the end of Subpart B as Appendix A to proposed
Sec. 208.25.
---------------------------------------------------------------------------
\7\ 61 FR 45683 (August 29, 1996). The final rule, which became
effective October 1, 1996, replaced the provisions of Sec. 208.8(e)
with a new Sec. 208.23 (now proposed Sec. 208.25).
---------------------------------------------------------------------------
Subpart C Bank Securities and Securities-Related Activities
Section 208.31 State Member Banks as Transfer Agents
----------------------
\7\ 61 FR 45683 (August 29, 1996). The final rule, which became
effective October 1, 1996, replaced the provisions of Sec. 208.8(e)
with a new Sec. 208.23 (now proposed Sec. 208.25).
---------------------------------------------------------------------------
Subpart C Bank Securities and Securities-Related Activities
Section 208.31 State Member Banks as Transfer Agents
Current Sec. 208.8(f) would be revised and replaced by proposed
Sec. 208.31. Proposed Sec. 208.31 incorporates by reference the rules
of the Securities and Exchange Commission (SEC) prescribing procedures
for registration of transfer agents for which the SEC is the
appropriate regulatory agency (12 CFR 240.17Ac2-1). Although section
17(a)(d)(1) of the Securities Exchange Act of 1934 (the 1934 Act) (15
U.S.C. 78q-l(d)(1)) generally subjects all transfer agents to SEC
rules, section 17A(c) (15 U.S.C. 78q-1(c)) provides that transfer
agents shall register with their appropriate regulatory agencies.
Current Sec. 208.8(f) sets forth procedural requirements for State
member banks that register as transfer agents, which are virtually
identical to the SEC's registration rules. Because the Board does not
need to maintain separate procedures, the proposal incorporates, by
reference, the SEC's rule, substituting the ``Board'' for the ``SEC''
or ``Commission.'' The proposal also clarifies that State member bank
transfer agents must comply with the SEC's rules prescribing
operational and reporting requirements applicable to all transfer
agents (17 CFR 240.17Ac2-2 and 240.17Ad-1 et seq.), adopted by the SEC
pursuant to section 17A of the 1934 Act (15 U.S.C. 78q-1).
Section 208.32 Notice of Disciplinary Sanctions Imposed by Registered
Clearing Agency
The proposal also clarifies that State member bank
transfer agents must comply with the SEC's rules prescribing
operational and reporting requirements applicable to all transfer
agents (17 CFR 240.17Ac2-2 and 240.17Ad-1 et seq.), adopted by the SEC
pursuant to section 17A of the 1934 Act (15 U.S.C. 78q-1).
Section 208.32 Notice of Disciplinary Sanctions Imposed by Registered
Clearing Agency
Existing Sec. 208.8(g) is renumbered as proposed Sec. 208.32, with
minor clarifications and subheadings added. The 1934 Act requires the
registration of clearing agencies and authorizes a registered clearing
agency to deny participation in the clearing agency or to impose
certain disciplinary sanctions upon participants, including limiting
access to the clearing agency's services. 15 U.S.C. 78q-1(b)(3)(G) and
(b)(5)(C). Proposed Sec. 208.32 covers notices by registered clearing
agencies of such adverse actions. The Board considered incorporating
the SEC's regulations by reference but decided instead to retain its
existing regulation because it is limited to State member banks and
their subsidiaries, which makes it simpler and clearer than the
corresponding SEC rule.
Section 208.33 Application for Stay or Review of Disciplinary
Sanctions Imposed by Registered Clearing Agency
Under the proposal, Sec. 208.8(h) and Sec. 208.8(i) would be
revised and replaced by proposed Sec. 208.33. The resulting new section
would incorporate, by reference, the SEC's rules regarding applications
by persons for whom the SEC is the appropriate regulatory agency for
stays and reviews of disciplinary sanctions, thereby making these rules
applicable to such applications by State member banks and their
subsidiaries. Persons aggrieved by clearing agency action that denies
them participation in the
resulting new section
would incorporate, by reference, the SEC's rules regarding applications
by persons for whom the SEC is the appropriate regulatory agency for
stays and reviews of disciplinary sanctions, thereby making these rules
applicable to such applications by State member banks and their
subsidiaries. Persons aggrieved by clearing agency action that denies
them participation in the
clearing agency or imposes certain disciplinary sanctions upon
participants, including limiting access to the clearing agency's
services, may request a stay of such action or appeal such action to
the appropriate regulatory agency. The Board is the appropriate
regulatory agency with respect to State member banks that are clearing
agencies. The Board's current rules on stays in Sec. 208.8(h) and on
review in Sec. 208.8(i) are virtually identical to the SEC's rules.
Therefore, the Board does not need to maintain separate rules. The
proposal simply incorporates the SEC's rules, with the Board
substituted for the SEC.
Section 208.34 Recordkeeping and Confirmation of Certain Securities
Transactions Effected by State Member Banks
The proposal includes a place holder for existing Sec. 208.24 at
proposed new Sec. 208.34. Existing Sec. 208.24 was issued as a final
rule on March 5, 1997 (62 FR 9909), with an effective date of April 1,
1997. The text of existing Sec. 208.24 will be incorporated in its
entirety at Sec. 208.34 when this proposal is issued as a final rule.
Section 208.35 Qualification Requirements for the Recommendation or
Sale of Certain Securities
The proposal includes a place holder for proposed new Sec. 208.35.
The Board is seeking public comment on proposed Sec. 208.35 separately
from this proposal.
Section 208.36 Reporting Requirements for State Member Banks Subject to
the Securities Exchange Act of 1934
Existing Sec. 208.16 has not been substantively modified but has
been moved to proposed Sec. 208.36.
Section 208.37 Government Securities Sales Practices
ce holder for proposed new Sec. 208.35.
The Board is seeking public comment on proposed Sec. 208.35 separately
from this proposal.
Section 208.36 Reporting Requirements for State Member Banks Subject to
the Securities Exchange Act of 1934
Existing Sec. 208.16 has not been substantively modified but has
been moved to proposed Sec. 208.36.
Section 208.37 Government Securities Sales Practices
The proposal includes a place holder for Sec. 208.25 at proposed
Sec. 208.37. Section 208.25 was issued as a final rule on March 19,
1997 (62 FR 13276). The text of existing Sec. 208.25 will be
incorporated in its entirety at Sec. 208.37 when this proposal is
issued as a final rule.
Subpart D Prompt Corrective Action
The proposal does not significantly amend the terms of existing
Subpart B other than to redesignate it as Subpart D and to amend
Sec. 208.41 to provide the Federal Reserve with the option of using
period-end total assets rather than average total assets for purposes
of defining total assets. This option will allow the use, in certain
circumstances, of a definition of total assets that more accurately
reflects the true asset base of an institution for determining whether
it is critically undercapitalized. This should be helpful in working
with banks with rapidly shrinking asset bases.
Subpart E Real Estate Lending and Appraisal Standards
The proposal does not substantively amend the terms of existing
Subpart C but merely redesignates Subpart C as Subpart E. In addition,
existing Sec. 208.18 of existing Subpart A would not be substantively
amended but would be added to proposed Subpart E as new Sec. 208.50,
entitled ``Real Estate Lending and Appraisal Standards.''
Subpart F Miscellaneous Requirements
Section 208.61 Bank Security Procedures
Regulation P (12 CFR part 216), as amended by the Board on May 1,
1991, is proposed to be incorporated into Regulation H at Sec. 208.61.
A proposed rule to remove 12 CFR part 216 is found elsewhere in today's
Federal Register.
Subpart E as new Sec. 208.50,
entitled ``Real Estate Lending and Appraisal Standards.''
Subpart F Miscellaneous Requirements
Section 208.61 Bank Security Procedures
Regulation P (12 CFR part 216), as amended by the Board on May 1,
1991, is proposed to be incorporated into Regulation H at Sec. 208.61.
A proposed rule to remove 12 CFR part 216 is found elsewhere in today's
Federal Register.
Section 208.62 Suspicious Activity Reports
Existing Sec. 208.20 was amended by the Board and was issued as a
final rule on February 5, 1996; therefore, it would not be amended
substantively by this proposal but would be moved to new Sec. 208.62.
Section 208.63 Procedures for Monitoring Bank Secrecy Act Compliance
Existing Sec. 208.14 is not being substantively amended under the
proposal, but is being redesignated as Sec. 208.63.
Section 208.64 Frequency of examination
The proposal includes a place holder for existing Sec. 208.26. The
Board issued existing Sec. 208.26 as an interim rule with request for
public comment on February 12, 1997 (62 FR 6449). Existing Sec. 208.26
will be incorporated in its entirety at proposed Sec. 208.64 once it is
finalized.
Subpart G Interpretations
The proposal eliminates interpretations 208.125-208.128, reletters
existing Subpart E as Subpart G, and renumbers the remaining
interpretations. In addition, the Board is seeking comment as to
whether it should amend proposed interpretation Sec. 208.102, entitled
``Investments in Shares of an Investment Company,'' to provide for an
alternative limit for diversified investment companies
ions
The proposal eliminates interpretations 208.125-208.128, reletters
existing Subpart E as Subpart G, and renumbers the remaining
interpretations. In addition, the Board is seeking comment as to
whether it should amend proposed interpretation Sec. 208.102, entitled
``Investments in Shares of an Investment Company,'' to provide for an
alternative limit for diversified investment companies. The Board is
seeking comment on whether, like the OCC, it should allow a bank to
elect not to combine its pro rata interest in a particular security in
an investment company with the bank's direct holdings of that security
if: (1) The investment company's holdings of the securities of any one
issuer do not exceed 5 percent of its total portfolio; and (2) if the
bank's total holdings of the investment company's shares do not exceed
the most stringent investment limitation that would apply to any of the
securities in the company's portfolio if those securities were
purchased directly by the bank.
The proposal also deletes three miscellaneous interpretations (12
CFR 250.300-250.302) under the Bank Service Company Act (12 U.S.C. 1861
et seq.). The Board believes that these interpretations are no longer
necessary because the substance of the interpretations is now covered
by the express requirements of the Bank Service Company Act.
In addition, the proposal includes a place holder for Sec. 208.129,
an interpretation, entitled ``Obligations concerning institutional
customers.'' Section 208.129 was issued as a final rule on March 19,
1997 (62 FR 13276). The text of existing Sec. 208.129 will be
incorporated in its entirety at Sec. 208.103 when this proposal is
issued as a final rule.
Sections Proposed To Be Eliminated
.
In addition, the proposal includes a place holder for Sec. 208.129,
an interpretation, entitled ``Obligations concerning institutional
customers.'' Section 208.129 was issued as a final rule on March 19,
1997 (62 FR 13276). The text of existing Sec. 208.129 will be
incorporated in its entirety at Sec. 208.103 when this proposal is
issued as a final rule.
Sections Proposed To Be Eliminated
Banking Practices
Existing Sec. 208.8 is proposed to be eliminated in its current
form. The parts of existing Sec. 208.8 that address the requirements of
State member banks as transfer agents (existing Sec. 208.8(f)) and
registered clearing agencies (existing Sec. 208.8(g)-(i)), along with
the corresponding recordkeeping rules (existing Sec. 208.8(k)), would
be amended (except for 208.8(g)) and relocated to proposed Subpart C,
entitled ``Bank Securities and Securities Related Activities.''
Existing Sec. 208.8(j), relating to municipal securities dealers, would
be deleted in its entirety. This amendment is described in greater
detail below. The requirements for letters of credit and acceptances,
existing Sec. 208.8(d), would not be significantly amended but would be
moved to proposed new Sec. 208.24, entitled ``Letters of Credit and
Acceptances,'' located within proposed Subpart B, entitled
``Investments and Loans.''
The general requirements of existing Sec. 208.8(a), which requires
State member banks to conduct their business in a safe and sound
manner, would be amended to provide greater clarity and moved to
se reasonable means at their
disposal to inform the public of the availability of this information.
The Board previously indicated in the Joint Report to Congress on
Streamlining Regulatory Requirements (September 23, 1996) that it would
reconsider the need for this provision when Call Reports, or other
financial information on State member banks, become more readily
available electronically. Since summary financial information derived
from Call Reports is now available through the Internet (from the FDIC
for all insured depository institutions, including State member banks
8), the Board is requesting comment as to whether existing
Sec. 208.17 should be eliminated.
---------------------------------------------------------------------------
\8\ Additionally, the Board anticipates that more comprehensive
public Call Report data will become available through the Internet
in the future.
---------------------------------------------------------------------------
If the Board chooses not to eliminate Sec. 208.17, the Board would
amend the language of Sec. 208.17 to provide greater clarity as to the
information that must be disclosed to the public by State member banks
and to incorporate in Regulation K the portions of existing Sec. 208.17
that relate to foreign banks or state licensed branches of foreign
banks.
Municipal Securities Dealers
Existing Sec. 208.8(j) would be deleted under the proposal. Section
15B(b) of the 1934 Act (15 U.S.C. 78o-4(b)) creates the Municipal
Securities Rulemaking Board (MSRB) and requires MSRB regulations to
mandate standards of training, experience, competence, and other
qualifications for municipal securities brokers and dealers and any
natural persons associated with them
pal Securities Dealers
Existing Sec. 208.8(j) would be deleted under the proposal. Section
15B(b) of the 1934 Act (15 U.S.C. 78o-4(b)) creates the Municipal
Securities Rulemaking Board (MSRB) and requires MSRB regulations to
mandate standards of training, experience, competence, and other
qualifications for municipal securities brokers and dealers and any
natural persons associated with them. The MSRB has issued Rule G-7
(Information Concerning Associated Persons) requiring principals and
representatives associated with bank municipal securities dealers to
file Form MSD-4 (Uniform Application for Municipal Securities Principal
or Municipal Securities Representative Associated with a Bank Municipal
Securities Dealer) with the dealer. In turn, the dealer shall verify
the accuracy and completeness of such form and file it with the
appropriate regulatory authority. If a principal or representative is
terminated, the broker or dealer must file Form MSD-5 (Uniform
Termination Notice for Municipal Securities Principal or Municipal
Securities Representative Associated with a Bank Municipal Securities
Dealer) with the appropriate regulatory authority.
Section 208.8(j) contains a Board rule virtually identical to the
MSRB rule in these matters. As such, it is duplicative and unnecessary,
and the Board proposes to remove it. The Board notes that section
15B(a) of the 1934 Act (15 U.S.C. 78o-4(a)) and the rules of the SEC
thereunder (17 CFR 240.15Ba2-1) similarly require municipal securities
dealers that are banks, or separately identifiable departments or
divisions of banks (as defined by the MSRB), to register with the SEC
on Form MSD. The Board has never found a need to duplicate these SEC
regulations, and proposes to follow the same approach for principals
and representatives as for dealers.
Initial Regulatory Flexibility Analysis
a2-1) similarly require municipal securities
dealers that are banks, or separately identifiable departments or
divisions of banks (as defined by the MSRB), to register with the SEC
on Form MSD. The Board has never found a need to duplicate these SEC
regulations, and proposes to follow the same approach for principals
and representatives as for dealers.
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish an initial regulatory flexibility analysis with any
notice of proposed rulemaking. The initial regulatory flexibility
analysis (5 U.S.C. 603(b)) requires an agency to describe the reasons
why the proposed rule is being considered and a statement of the
objectives of, and legal basis for, the proposed rule. The
``Supplementary Information,'' above, contains this information. The
proposed rules require no additional reporting or recordkeeping
requirements and do not overlap with other federal rules.
The initial regulatory flexibility analysis also requires a
description of and, where feasible, an estimate of the number of small
entities to which the proposed rule will apply. The proposal will apply
to all depository institutions regardless of size. The proposal will
apply to all State member banks, which numbered 1,021 as of September
30, 1996.
The Board expects that the proposed changes will reduce regulatory
filings, reduce the paperwork burden and processing time associated
with regulatory filings, reduce the costs associated with complying
with regulation, and improve the ability of banks to conduct business
on a more cost-efficient basis. For example, the proposal is generally
designed to reduce burden by removing out-dated material and by re-
organizing the remaining material so it is easier to locate and to
read
aperwork burden and processing time associated
with regulatory filings, reduce the costs associated with complying
with regulation, and improve the ability of banks to conduct business
on a more cost-efficient basis. For example, the proposal is generally
designed to reduce burden by removing out-dated material and by re-
organizing the remaining material so it is easier to locate and to
read.
The proposal also seeks to reduce burden by incorporating expedited
procedures for membership and branch applications for certain banks and
by reducing the processing period for expedited applications from 5 to
3 days after the close of the public comment period. In addition, the
proposal expands the circumstances under which the Board will consider
waivers of conditions of membership, eliminates existing requirements
regarding disclosure of financial condition, and eliminates the
requirement that banks obtain deposit insurance in order to become
State member banks. The proposal also provides for an alternate
definition of total assets for institutions with rapidly declining
asset bases. The Board invites public comment on whether the proposal
serves to reduce regulatory burden.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule
under the authority delegated to the Board by the Office of Management
and Budget. Comments on the collections of information should be sent
to the Office of Management and Budget, Paperwork Reduction Project
(7100-0046, 7100-0091, 7100-0097, 7100-0112, 7100-0139, 7100-0196,
7100-0212, 7100-0250, 7100-0261, 7100-0264, 7100-0278, or 7100-0280),
Washington, DC 20503, with copies of such comments to be sent to Mary
M. McLaughlin, Chief, Financial Reports Section, Division of Research
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve
System, Washington, DC 20551
eduction Project
(7100-0046, 7100-0091, 7100-0097, 7100-0112, 7100-0139, 7100-0196,
7100-0212, 7100-0250, 7100-0261, 7100-0264, 7100-0278, or 7100-0280),
Washington, DC 20503, with copies of such comments to be sent to Mary
M. McLaughlin, Chief, Financial Reports Section, Division of Research
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
The collection of information requirements in this proposed
regulation are found in 12 CFR part 208.
The respondents and recordkeepers are state member banks.
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, these information collections unless
they display currently valid OMB control numbers.
The following table shows the current Regulation H burden by
Federal Reserve report, along with a notation on whether and how the
burden might be affected by the proposed changes. Based on an hourly
cost of $20 for the H reports, the FR 2230, and the FR 4004, and $30
for the remaining FR reports, the annual cost to the public is
estimated to be $5,378,650. The Federal Reserve believes that the
proposed changes would result in a net decrease in annual burden for
this regulation of less than 100 hours.
Burden for Regulation H: State Member Banks (SMBs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
OMB No. Annual
Report (7100- Report name burden Burden type Effect of proposed Reg H changes on burden
______) hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
H1....................... 0091 Securities Activities of SMBs 2,835 Reporting.............. None.
H2....................... 0280 Loans Secured by Real Estate 17,172 Reporting.............. None.
in Flood Hazard Areas. 8,586 Disclosure............ None.
1,042 Recordkeeping......... None
-------------------------------------------------------------------------------------------------------------
H1....................... 0091 Securities Activities of SMBs 2,835 Reporting.............. None.
H2....................... 0280 Loans Secured by Real Estate 17,172 Reporting.............. None.
in Flood Hazard Areas. 8,586 Disclosure............ None.
1,042 Recordkeeping......... None.
H3....................... 0196 Securities Transactions made 165,520 Recordkeeping and None.
Pursuant to Section disclosure.
208.8(k)(2,3,&5).
H4....................... 0250 Real Estate Appraisal \1\ 29,71 Recordkeeping.......... None.
Standards for Federally 0
Related Transactions.
H5....................... 0261 Real Estate Lending Standards 39,000 Recordkeeping.......... None.
H6....................... 0278 Public Welfare Investments of 118 Recordkeeping and No effect on burden/respondent. Total burden
SMBs. disclosure. would increase by an estimated 10%
resulting from the proposal to liberalize
the limitation on a project's value as a
percent of capital & surplus.
FR 2083.................. 0046 Membership Application....... 1,988 Reporting.............. Minimal burden reduction from broadened
authority of Board to grant waivers.
FR 2230.................. 0212 Suspicious Activity Report... \2\ 7,200 Reporting and None.
recordkeeping.
FR 4001.................. 0097 Domestic Branch Notification. 415 Reporting.............. Burden reduction estimated at 20% if branch
applications are no longer required for
ATMs, remote service units, offices of
affiliated depository institutions, or for
loan origination facilities where the
proceeds of the loan are not disbursed.
Also, fewer notifications may be submitted,
for 2 reasons: the clarification of the
interpretation of ``relocation,'' and the
single notification for all branches SMBs
plan to establish in a 1-year period.
FR 4004.................. 0112 Written Security Program for 484 Recordkeeping.........
tutions, or for
loan origination facilities where the
proceeds of the loan are not disbursed.
Also, fewer notifications may be submitted,
for 2 reasons: the clarification of the
interpretation of ``relocation,'' and the
single notification for all branches SMBs
plan to establish in a 1-year period.
FR 4004.................. 0112 Written Security Program for 484 Recordkeeping.......... No effect on the burden for this information
SMBs. collection; however, burden would be
transferred from Regulation P.
FR 4014.................. 0139 Investment in Bank Premises.. 75 Reporting.............. None.
FR 4031.................. 0264 Branch Closing Notification.. 612 Reporting.............. None.
307 Disclosure............ None.
280 Recordkeeping......... None.
-------------- -----------
Total.................. ............ ............................. 275,344 ....................... ............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 8250 hours (27.8%) of this burden is attributable to Regulation Y.
\2\ In addition to the burden for SMBs and their nonbank affiliates, the burden for this report includes burden for Edge corporations (Regulation K),
bank holding companies and their nonbank subsidiaries (Regulation Y), and branches, agencies, and nonbank subsidiaries of foreign banks (Regulation
K).
No issues of confidentiality under the provisions of the Freedom of
Information Act normally arise for any of these information collections
other than for FR 2230; however, that report is not affected by these
proposed changes.
Comments are invited on: a. whether the collections of information
are necessary for the proper performance of the Federal Reserve's
functions;
s (Regulation
K).
No issues of confidentiality under the provisions of the Freedom of
Information Act normally arise for any of these information collections
other than for FR 2230; however, that report is not affected by these
proposed changes.
Comments are invited on: a. whether the collections of information
are necessary for the proper performance of the Federal Reserve's
functions;
including whether the information has practical utility; b. the
accuracy of the Federal Reserve's estimate of the burden of the
information collections, including the cost of compliance; c. ways to
enhance the quality, utility, and clarity of the information to be
collected; and d. ways to minimize the burden of information collection
on respondents, including through the use of automated collection
techniques or other forms of information technology.
Derivation Table
[This table directs readers to the provision(s) of existing Regulation
H, if any, upon which the proposed provision is based.]
------------------------------------------------------------------------
Revised provision Original provision
------------------------------------------------------------------------
208.1............................... None.
208.2............................... 208.1.
208.3(a)............................ 208.2.
208.3(b)............................ 208.4, 208.5.
208.3(c)............................ 208.5.
208.3(d)............................ Added.
208.3(e)............................ 208.7.
208.3(f)............................ 208.10.
208.3(g)............................ 208.11.
208.4............................... 208.13.
208.5............................... 208.19.
208.6(a)............................ 208.9.
208.6(b)............................ None.
208.6(c)............................ None.
208.6(d)............................ None.
208.6(e)............................ 208.9(b)(7).
208.6(f)............................ None.
208.7............................... 208.28
............................. 208.13.
208.5............................... 208.19.
208.6(a)............................ 208.9.
208.6(b)............................ None.
208.6(c)............................ None.
208.6(d)............................ None.
208.6(e)............................ 208.9(b)(7).
208.6(f)............................ None.
208.7............................... 208.28.
208.20.............................. None.
208.21.............................. None.
208.22.............................. 208.21.
208.23.............................. 208.15.
208.24.............................. 208.8(d).
208.25.............................. 208.23.
208.30.............................. None.
208.31.............................. 208.8(f).
208.32.............................. 208.8(h), 208.8(i).
208.33.............................. 208.8(g).
208.34.............................. 208.24.
208.35.............................. None.
208.36.............................. 208.16.
208.37.............................. 208.25.
208.40.............................. 208.30.
208.41.............................. 208.31.
208.42.............................. 208.32.
208.43.............................. 208.33.
208.44.............................. 208.34.
208.45.............................. 208.35.
208.50.............................. 208.51.
208.51.............................. 208.52.
208.60.............................. None.
208.61.............................. None.
208.62.............................. 208.20.
208.63.............................. 208.14.
208.64.............................. 208.26.
208.100............................. 208.116.
208.101............................. None.
208.102............................. 208.124.
208.103............................. 208.129.
------------------------------------------------------------------------
List of Subjects
12 CFR Part 208
...... 208.20.
208.63.............................. 208.14.
208.64.............................. 208.26.
208.100............................. 208.116.
208.101............................. None.
208.102............................. 208.124.
208.103............................. 208.129.
------------------------------------------------------------------------
List of Subjects
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Mortgages,
Reporting and recordkeeping requirements, Securities.
12 CFR Part 250
Federal Reserve System.
For the reasons set forth in the preamble, the Board proposes to
amend chapter II of title 12 of the Code of Federal Regulations as
follows:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for Part 208 is revised to read as
follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a,
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),
1828(o), 1831o, 1831p-1, 1831r-1, 1835a, 1882, 2901-2907, 3105,
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C.
4012a, 4104a, 4104b, 4106 and 4128.
2. The table of contents to part 208 is revised to read as follows:
Subpart A--General Membership and Branching Requirements
Sec.
208.1 Authority, purpose, and scope.
208.2 Definitions.
208.3 Application and conditions for membership in the Federal
Reserve System.
208.4 Capital adequacy.
208.5 Dividends and other distributions.
208.6 Establishment and maintenance of branches.
208.7 Prohibition against use of interstate branches primarily for
deposit production. [Reserved]
Subpart B--Investments and Loans
equirements
Sec.
208.1 Authority, purpose, and scope.
208.2 Definitions.
208.3 Application and conditions for membership in the Federal
Reserve System.
208.4 Capital adequacy.
208.5 Dividends and other distributions.
208.6 Establishment and maintenance of branches.
208.7 Prohibition against use of interstate branches primarily for
deposit production. [Reserved]
Subpart B--Investments and Loans
208.20 Authority, purpose, and scope.
208.21 Investments in premises and securities.
208.22 Community development and public welfare investments.
208.23 Agricultural loan loss amortization.
208.24 Letters of credit and acceptances.
208.25 Loans in areas having special flood hazards.
Subpart C--Bank Securities and Securities-Related Activities
208.30 Authority, purpose, and scope.
208.31 State member banks as transfer agents.
208.32 Notice of disciplinary sanctions imposed by registered
clearing agency.
208.33 Application for stay or review of disciplinary sanctions
imposed by registered clearing agency.
208.34 Recordkeeping and confirmation of certain securities
transactions effected by State member banks. [Reserved]
208.35 Qualification requirements for transactions in certain
securities. [Reserved]
208.36 Reporting requirements for State member banks subject to the
Securities Exchange Act of 1934.
208.37 Government securities sales practices. [Reserved]
Subpart D--Prompt Corrective Action
208.40 Authority, purpose, scope, other supervisory authority, and
disclosure of capital categories.
208.41 Definitions for purposes of this subpart.
208.42 Notice of capital category.
208.43 Capital measures and capital category definitions.
208.44 Capital restoration plans.
208.45 Mandatory and discretionary supervisory actions under
section 38.
Subpart E--Real Estate Lending and Appraisal Standards
208.50 Authority, purpose, and scope.
208.51 Real estate lending standards.
Subpart F--Miscellaneous Requirements
r purposes of this subpart.
208.42 Notice of capital category.
208.43 Capital measures and capital category definitions.
208.44 Capital restoration plans.
208.45 Mandatory and discretionary supervisory actions under
section 38.
Subpart E--Real Estate Lending and Appraisal Standards
208.50 Authority, purpose, and scope.
208.51 Real estate lending standards.
Subpart F--Miscellaneous Requirements
208.60 Authority, purpose, and scope.
208.61 Bank security procedures.
208.62 Suspicious activity reports.
208.63 Procedures for monitoring Bank Secrecy Act compliance.
208.64 Frequency of examination. [Reserved]
Subpart G--Interpretations
208.100 Sale of bank's money orders off premises as establishment
of branch office.
208.101 Investments in Federal Agricultural Mortgage Corporation
(Farmer Mac) stock.
208.102 Investments in shares of an investment company.
208.103 Obligations concerning institutional customers. [Reserved]
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
Appendix B to Part 208--Capital Adequacy Guidelines for State Member
Banks: Tier 1 Leverage Measure
Appendix C to Part 208--Interagency Guidelines for Real Estate Lending
Policies
Appendix D to Part 208--Interagency Guidelines Establishing Standards
for Safety and Soundness
Appendix E to Part 208--Capital Adequacy Guidelines for State Member
Banks; Market Risk Measure
3. Subparts A through E are revised and subparts F and G are added
to read as follows:
Subpart A--General Membership and Branching Requirements
Sec. 208.1 Authority, purpose, and scope.
Lending
Policies
Appendix D to Part 208--Interagency Guidelines Establishing Standards
for Safety and Soundness
Appendix E to Part 208--Capital Adequacy Guidelines for State Member
Banks; Market Risk Measure
3. Subparts A through E are revised and subparts F and G are added
to read as follows:
Subpart A--General Membership and Branching Requirements
Sec. 208.1 Authority, purpose, and scope.
(a) Authority. Subpart A of Regulation H (12 CFR part 208, Subpart
A) is issued by the Board of Governors of the Federal Reserve System
(Board) under 12 U.S.C. 24, 36; sections 9, 11, 21, 25 and 25A of the
Federal Reserve Act (12 U.S.C. 321-338a, 248(a), 248(c), 481-486, 601
and 611); sections 1814, 1816, 1818, 1820(d)(8), 1831o, 1831p-1, 1831r-
1 and 1835a of the Federal Deposit Insurance Act (12 U.S.C. 1814, 1816,
1818, 1831o, 1831p-1, 1831r-1, and 1835); and 12 U.S.C. 3906-3909.
(b) Purpose and Scope. (1) The requirements of this part 208 govern
State member banks and state banks eligible for admission to membership
in the Federal Reserve System (System) under section 9 of the Federal
Reserve Act (Act). This part 208 does not govern banks eligible for
membership under section 2 or 19 of the Act.1 Any bank desiring to
be admitted to the System under the provisions of section 2 or 19
should communicate with the Federal Reserve Bank with which it desires
to do business.
---------------------------------------------------------------------------
under section 9 of the Federal
Reserve Act (Act). This part 208 does not govern banks eligible for
membership under section 2 or 19 of the Act.1 Any bank desiring to
be admitted to the System under the provisions of section 2 or 19
should communicate with the Federal Reserve Bank with which it desires
to do business.
---------------------------------------------------------------------------
\1\ Under section 2 of the Federal Reserve Act, every national
bank in any state shall, upon commencing business, or within 90 days
after admission into the Union of the State in which it is located,
become a member of the System. Under section 19 of the Federal
Reserve Act, national banks and banks organized under local laws,
located in a dependency or insular possession or any part of the
United States outside of the States of the United States and the
District of Columbia, are not required to become members of the
System but may, with the consent of the board, become members of the
System.
---------------------------------------------------------------------------
(2) This subpart A describes the eligibility requirements for
membership of state-chartered banking institutions in the System, the
general conditions imposed upon members, including capital and dividend
requirements, as well as the requirements for establishing and
maintaining branches.
Sec. 208.2 Definitions.
For the purposes of this part:
(a) Board of Directors means the governing board of any institution
performing the usual functions of a board of directors.
(b) Board means the Board of Governors of the Federal Reserve
System.
(c) Branch (1) Branch includes any branch bank, branch office,
branch agency, additional office, or any branch place of business that
receives deposits, pays checks, or lends money. A branch may include a
temporary, seasonal, or mobile facility that meets these criteria.
(2) Branch does not include:
a board of directors.
(b) Board means the Board of Governors of the Federal Reserve
System.
(c) Branch (1) Branch includes any branch bank, branch office,
branch agency, additional office, or any branch place of business that
receives deposits, pays checks, or lends money. A branch may include a
temporary, seasonal, or mobile facility that meets these criteria.
(2) Branch does not include:
(i) A loan origination facility where the proceeds of loans are not
disbursed;
(ii) An office of an affiliated depository institution that
provides services to customers of the member bank on behalf of the
member bank;
(iii) An automated teller machine;
(iv) A remote service unit;
(v) A facility to which the bank does not permit members of the
public to have physical access for purposes of making deposits, paying
checks, or borrowing money (such as an office established by the bank
that receives deposits only through the mail); or
(vi) A facility that is located at the site of, or is an extension
of, an approved main office or branch. The Board determines whether a
facility is an extension of an existing main or branch office on a
case-by-case basis.
(d) Capital stock and surplus means, unless otherwise provided in
this part, or by statute, Tier 1 and Tier 2 capital included in a
member bank's risk-based capital (under the guidelines in appendix A of
this part) and the balance of a member bank's allowance for loan and
lease losses not included in its Tier 2 capital for calculation of
risk-based capital, based on the bank's most recent consolidated Report
of Condition and Income filed under 12 U.S.C. 324.
his part, or by statute, Tier 1 and Tier 2 capital included in a
member bank's risk-based capital (under the guidelines in appendix A of
this part) and the balance of a member bank's allowance for loan and
lease losses not included in its Tier 2 capital for calculation of
risk-based capital, based on the bank's most recent consolidated Report
of Condition and Income filed under 12 U.S.C. 324.
(e) Eligible bank means a member bank that:
(1) Is well-capitalized as defined in Subpart D of this part;
(2) Has a composite Uniform Financial Institutions Rating System
(CAMELS) rating of 1 or 2;
(3) Has a Community Reinvestment Act (CRA) (12 U.S.C. 2906) rating
of ``Outstanding'' or ``Satisfactory;''
(4) Has a compliance rating of 1 or 2; and
(5) Has no major unresolved supervisory issues outstanding (as
determined by the Board and appropriate Federal Reserve Bank in its
discretion).
(f) State bank means any bank incorporated by special law of any
State, or organized under the general laws of any State, or of the
United States, including a Morris Plan bank, or other incorporated
banking institution engaged in a similar business.
(g) State member bank or member bank means a state bank that is a
member of the Federal Reserve System.
Sec. 208.3 Application and conditions for membership in the Federal
Reserve System.
(a) Applications for membership and stock--(1) State banks applying
for membership in the Federal Reserve System shall file with the
appropriate Federal Reserve Bank an application for membership in the
Federal Reserve System and for stock in the Reserve Bank2 in
accordance with the Rules of Procedure governing such applications,
located at 12 CFR 262.3.
---------------------------------------------------------------------------
tock--(1) State banks applying
for membership in the Federal Reserve System shall file with the
appropriate Federal Reserve Bank an application for membership in the
Federal Reserve System and for stock in the Reserve Bank2 in
accordance with the Rules of Procedure governing such applications,
located at 12 CFR 262.3.
---------------------------------------------------------------------------
\2\ A mutual savings bank not authorized to purchase Federal
Reserve Bank stock may apply for membership evidenced initially by a
deposit, but if the laws under which the bank is organized are not
amended at the first session of the legislature after its admission
to authorize the purchase, or if the bank fails to purchase the
stock within six months of the amendment, its membership shall be
terminated.
---------------------------------------------------------------------------
(2) Board approval. If an applying bank conforms to all the
requirements of the Federal Reserve Act and this section, and is
otherwise qualified for membership, the Board may approve its
application subject to such conditions as the Board may prescribe.
(3) Effective date of membership. A State bank becomes a member of
the Federal Reserve System on the date its Federal Reserve Bank stock
is credited to its account (or its deposit is accepted, if it is a
mutual savings bank not authorized to purchase Reserve Bank stock) in
accordance with the Board's Regulation I (12 CFR part 209).
cation subject to such conditions as the Board may prescribe.
(3) Effective date of membership. A State bank becomes a member of
the Federal Reserve System on the date its Federal Reserve Bank stock
is credited to its account (or its deposit is accepted, if it is a
mutual savings bank not authorized to purchase Reserve Bank stock) in
accordance with the Board's Regulation I (12 CFR part 209).
(b) Factors considered in approving applications for membership.
Factors given special consideration by the Board in passing upon an
application are:
(1) Financial condition and management. The financial history and
condition of the applying bank and the general character of its
management.
(2) Capital. The adequacy of the bank's capital in accordance with
Sec. 208.4, and its future earnings prospects.
(3) Convenience and needs. The convenience and needs of the
community.
(4) Corporate powers. Whether the bank's corporate powers are
consistent with the purposes of the Federal Reserve Act.
(c) Expedited approval for eligible banks and bank holding
companies--(1) Availability of expedited treatment. The expedited
membership procedures described in paragraph (c)(2) of this section are
available to:
(i) An existing state bank seeking membership, or national bank
converting to a state bank and seeking membership, if the existing bank
is an eligible bank; and to
(ii) A de novo state bank seeking membership if the bank holding
company meets the criteria for expedited processing under
Sec. 225.14(c) of Regulation Y (12 CFR 225.14(c)).
(2) Expedited procedures. The membership application of a bank will
be deemed approved on the fifth day after the close of the comment
period, required by the Board's Rules of Procedure (12 CFR 262.3),
unless the Board or the appropriate Federal Reserve Bank notifies the
bank that the
application is approved prior to that date or that it is not eligible
for expedited review for any reason, including, without limitation,
that:
ship application of a bank will
be deemed approved on the fifth day after the close of the comment
period, required by the Board's Rules of Procedure (12 CFR 262.3),
unless the Board or the appropriate Federal Reserve Bank notifies the
bank that the
application is approved prior to that date or that it is not eligible
for expedited review for any reason, including, without limitation,
that:
(i) The bank will offer banking services that are materially
different from those currently offered by the bank, or by the
affiliates of the proposed bank;
(ii) The bank is not an eligible bank under Sec. 208.2(e) or the
Bank Holding Company does not meet the criteria for expedited
processing under 12 CFR 225.14(c);
(iii) The application contains a material error or is otherwise
deficient; or
(iv) The application or notice required under the Board's Rules of
Procedure (12 CFR 262.3), raises significant supervisory, Community
Reinvestment Act, compliance, policy or legal issues that have not been
resolved, or a timely substantive adverse comment is submitted.
(d) Conditions of membership--(1) Safety and soundness. (i) Each
member bank shall at all times conduct its business and exercise its
powers with due regard to safety and soundness. (The Interagency
Guidelines Establishing Standards for Safety and Soundness prescribed
pursuant to section 39 of the Federal Deposit Insurance Act (12 U.S.C.
1831p-1), as set forth as appendix D to this part apply to all member
banks.)
(2) General character of bank's business. A member bank may not,
without the permission of the Board, cause or permit any change in the
general character of its business or in the scope of the corporate
powers it exercises at the time of admission to membership.
(3) Compliance with conditions of membership. Each member bank
shall comply at all times with this Regulation H (12 CFR part 208) and
any other conditions of membership prescribed by the Board.
t,
without the permission of the Board, cause or permit any change in the
general character of its business or in the scope of the corporate
powers it exercises at the time of admission to membership.
(3) Compliance with conditions of membership. Each member bank
shall comply at all times with this Regulation H (12 CFR part 208) and
any other conditions of membership prescribed by the Board.
(e) Waivers--(1) Conditions of membership. A member bank may
petition the Board to waive a condition of membership. The Board may
grant a waiver of a condition of membership upon a showing of good
cause and, in its discretion, may limit, among other items, the scope,
duration, and timing of the waiver.
(2) Reports of affiliates. Pursuant to section 21 of the Federal
Reserve Act (12 U.S.C. 486), the Board waives the requirement for the
submission of reports of affiliates of member banks, unless such
reports are specifically requested by the Board.
(f) Voluntary withdrawal from membership. Voluntary withdrawal from
membership becomes effective upon cancellation of the Federal Reserve
Bank stock held by the member bank, and after the bank has made due
provision to pay any indebtedness due or to become due to the Federal
Reserve Bank in accordance with the Board's Regulation I (12 CFR part
209).
Sec. 208.4 Capital adequacy.
(a) Adequacy. A member bank's capital, as defined in Section II of
Appendix A to this part, shall be at all times adequate in relation to
the character and condition of its assets and to its existing and
prospective liabilities and other corporate responsibilities. If at any
time, in light of all the circumstances, the bank's capital appears
inadequate in relation to its assets, liabilities, and
responsibilities, the bank shall increase the amount of its capital,
within such period as the Board deems reasonable, to an amount which,
in the judgement of the Board, shall be adequate.
isting and
prospective liabilities and other corporate responsibilities. If at any
time, in light of all the circumstances, the bank's capital appears
inadequate in relation to its assets, liabilities, and
responsibilities, the bank shall increase the amount of its capital,
within such period as the Board deems reasonable, to an amount which,
in the judgement of the Board, shall be adequate.
(b) Standards for evaluating capital adequacy. Standards and
guidelines by which the Board evaluates the capital adequacy of member
banks include those in appendices A and E to this part for risk-based
capital purposes and appendix B to this part for leverage measurement
purposes.
Sec. 208.5 Dividends and other distributions.
(a) Definitions. For the purposes of this section:
(1) Capital surplus means the total of surplus as reportable in the
bank's Reports of Condition and Income and surplus on perpetual
preferred stock.
(2) Permanent capital means the total of the bank's perpetual
preferred stock and related surplus, common stock and surplus, and
minority interest in consolidated subsidiaries, as reportable in the
Reports of Condition and Income.
(b) Limitations. The limitations in this section on the payment of
dividends and withdrawal of capital apply to all cash and property
dividends or distributions on common or preferred stock. The
limitations do not apply to dividends paid in the form of common stock.
on stock and surplus, and
minority interest in consolidated subsidiaries, as reportable in the
Reports of Condition and Income.
(b) Limitations. The limitations in this section on the payment of
dividends and withdrawal of capital apply to all cash and property
dividends or distributions on common or preferred stock. The
limitations do not apply to dividends paid in the form of common stock.
(c) Earnings limitations on payment of dividends. (1) A member bank
may not declare or pay a dividend if the total of all dividends
declared during the calendar year, including the proposed dividend,
exceeds the sum of the bank's net income (as reportable in its Reports
of Condition and Income) during the current calendar year and the
retained net income of the prior two calendar years, unless the
dividend has been approved by the Board.
(2) ``Retained net income'' is equal to the bank's reported net
income, less any dividends declared during the period. The bank's net
income during the current year and its retained net income from the
prior two calendar years is reduced by any net losses incurred in the
current or prior two years and any required transfers to surplus or to
a fund for the retirement of preferred stock.3
---------------------------------------------------------------------------
\3\ State member banks are required to comply with state law
provisions concerning the maintenance of surplus funds in addition
to common capital. Where the surplus of a State member bank is less
than what applicable state law requires the bank to maintain
relative to its capital stock account, the bank may be required to
transfer amounts from its undivided profits account to surplus.
---------------------------------------------------------------------------
ions concerning the maintenance of surplus funds in addition
to common capital. Where the surplus of a State member bank is less
than what applicable state law requires the bank to maintain
relative to its capital stock account, the bank may be required to
transfer amounts from its undivided profits account to surplus.
---------------------------------------------------------------------------
(d) Limitation on withdrawal of capital by dividend or otherwise.
(1) A member bank may not declare or pay a dividend if the dividend
would exceed the bank's undivided profits as reportable on its Reports
of Condition and Income, unless the bank has received the prior
approval of the Board and of at least two-thirds of the shareholders of
each class of stock outstanding.
(2) A member bank may not permit any portion of its permanent
capital to be withdrawn unless the withdrawal has been approved by the
Board and by at least two-thirds of the shareholders of each class of
stock outstanding.
(3) If a member bank has capital surplus in excess of that required
by law, the excess amount may be transferred to the bank's undivided
profits account and be available for the payment of dividends if:
(i) The amount transferred came from the earnings of prior periods,
excluding earnings transferred as a result of stock dividends;
(ii) The bank's board of directors approves the transfer of funds;
and
(iii) The transfer has been approved by the Board.
(e) Payment of capital distributions. All member banks also are
subject to the restrictions on payment of capital distributions
contained in subpart D of this part.
(f) Compliance. A member bank shall use the date a dividend is
declared to determine compliance with this section.
Sec. 208.6 Establishment and maintenance of branches.
ds;
and
(iii) The transfer has been approved by the Board.
(e) Payment of capital distributions. All member banks also are
subject to the restrictions on payment of capital distributions
contained in subpart D of this part.
(f) Compliance. A member bank shall use the date a dividend is
declared to determine compliance with this section.
Sec. 208.6 Establishment and maintenance of branches.
(a) Branching. (1) To the extent authorized by state law, a member
bank may establish and maintain branches (including inter-state
branches) subject to the same limitations and restrictions that apply
to the establishment and maintenance of national bank branches (12
U.S.C. 36 and 1831u), except that approval of such branches shall be
obtained from the Board rather than from the Comptroller of the
Currency.
(2) Branch applications. A State member bank wishing to establish a
branch in the United States or its territories must file an application
in accordance with the Board's Rules of Procedure (12 CFR 262.3).
Branches of member banks located in foreign nations, in the overseas
territories, dependencies, and insular possessions of those nations and
of the United States, and in the Commonwealth of Puerto Rico, are
subject to 12 CFR part 211 (Regulation K).
(b) Factors considered in approving domestic branch applications.
Factors given special consideration by the Board in passing upon a
branch application are:
(1) Financial condition and management. The financial history and
condition of the applying bank and the general character of its
management;
(2) Capital. The adequacy of the bank's capital in accordance with
Sec. 208.4, and its future earnings prospects;
(3) Convenience and needs. The convenience and needs of the
community to be served by the branch;
(4) CRA performance. In the case of branches with deposit-taking
capability, the bank's performance under the Community Reinvestment Act
(12 U.S.C. 2901 et seq.); and
s
management;
(2) Capital. The adequacy of the bank's capital in accordance with
Sec. 208.4, and its future earnings prospects;
(3) Convenience and needs. The convenience and needs of the
community to be served by the branch;
(4) CRA performance. In the case of branches with deposit-taking
capability, the bank's performance under the Community Reinvestment Act
(12 U.S.C. 2901 et seq.); and
(5) Investment in bank premises. Whether the bank's investment in
bank premises in establishing the branch will comply with Sec. 208.21.
(c) Expedited approval for eligible banks. An application by an
eligible bank to establish a domestic branch is deemed approved on the
fifth day after the close of the comment period, required by the
Board's Rules of Procedure (12 CFR 262.3), unless the Board or the
appropriate Federal Reserve Bank notifies the bank that the application
is approved prior to that date or that it is not eligible for expedited
review for any reason, including, without limitation, that:
(1) The bank is not an eligible bank as defined by Sec. 208.2(e);
(2) The application contains a material error or is otherwise
deficient; or
(3) The application or notice required under the Board's Rules of
Procedure (12 CFR 262.3), raises significant supervisory, Community
Reinvestment Act, compliance, policy or legal issues that have not been
resolved, or a timely substantive adverse comment is submitted.
ot an eligible bank as defined by Sec. 208.2(e);
(2) The application contains a material error or is otherwise
deficient; or
(3) The application or notice required under the Board's Rules of
Procedure (12 CFR 262.3), raises significant supervisory, Community
Reinvestment Act, compliance, policy or legal issues that have not been
resolved, or a timely substantive adverse comment is submitted.
(d) Consolidated applications--(1) Proposed branches; prior notice
of branch opening. A member bank may seek approval in a single
application or notice for any branches that it proposes to establish
within one year after the approval date. The bank shall, unless
notification is waived, notify the appropriate Reserve Bank one week
before opening any branch approved under a consolidated application. A
bank is not required to open a branch approved under either a
consolidated or single branch application.
(2) Duration of branch approval. Branch approvals remain valid for
one year unless the Board or the appropriate Reserve Bank notifies the
bank that in its judgement, based on reports of condition,
examinations, or other information, there has been a change in the
bank's condition, financial or otherwise, that warrants reconsideration
of the approval.
(e) Branch closings. A member bank shall comply with section 42 of
the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1831r-1, with
regard to branch closings.
(f) Branch relocations. A relocation of an existing branch does not
require filing a branch application. A relocation of an existing
branch, for purposes of determining whether to file a branch
application, is a movement that does not substantially affect the
nature of the branch's business or customers served.
Sec. 208.7 Prohibition against use of interstate branches primarily
for deposit production. [Reserved]
Subpart B--Investments and Loans
Sec. 208.20 Authority, purpose, and scope.
ation. A relocation of an existing
branch, for purposes of determining whether to file a branch
application, is a movement that does not substantially affect the
nature of the branch's business or customers served.
Sec. 208.7 Prohibition against use of interstate branches primarily
for deposit production. [Reserved]
Subpart B--Investments and Loans
Sec. 208.20 Authority, purpose, and scope.
(a) Authority. Subpart B of Regulation H (12 CFR part 208, subpart
B) is issued by the Board of Governors of the Federal Reserve System
under 12 U.S.C. 24; sections 9, 11 and 21 of the Federal Reserve Act
(12 U.S.C. 321-338a, 248(a), 248(c), and 481-486); sections 1814, 1816,
1818, 1823(j), 1831o, 1831p-1 and 1831r-1 of the Federal Deposit
Insurance Act (12 U.S.C. 1814, 1816, 1818, 1823(j), 1831o, 1831p-1 and
1831r-1); and the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(b) Purpose and scope. This subpart B describes certain investment
limitations on member banks, statutory requirements for amortizing
losses on agricultural loans and extending credit in areas having
special flood hazards, as well as the requirements for issuing letters
of credit and acceptances.
Sec. 208.21 Investments in premises and securities.
(a) Investment in bank premises. No state member bank shall invest
in bank premises, or in the stock, bonds, debentures, or other such
obligations of any corporation holding the premises of such bank, or
make loans to or upon the security of any such corporation unless:
(1) The bank receives the prior approval of the Board;
(2) The aggregate of all such investments and loans, together with
the amount of any indebtedness incurred by any such corporation that is
an affiliate of the bank (as defined in section 2 of the Banking Act of
1933, as amended, 12 U.S.C. 221a), is less than or equal to the amount
of the capital stock and surplus of such bank; or
unless:
(1) The bank receives the prior approval of the Board;
(2) The aggregate of all such investments and loans, together with
the amount of any indebtedness incurred by any such corporation that is
an affiliate of the bank (as defined in section 2 of the Banking Act of
1933, as amended, 12 U.S.C. 221a), is less than or equal to the amount
of the capital stock and surplus of such bank; or
(3)(i) The aggregate of all such investments and loans, together
with the amount of any indebtedness incurred by any such corporation
that is an affiliate of the bank, is less than or equal to 150 percent
of the capital stock and surplus of the bank; and
(ii) The bank:
(A) Has a CAMELS composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System (or an equivalent rating under a
comparable rating system) as of the most recent examination of the
bank;
(B) Is well-capitalized and will continue to be well-capitalized,
in accordance with subpart D of this part, after the investment or
loan; and
(C) Provides notification to the Board not later than 30 days after
making the investment or loan.
(b) Investments in securities. Member banks are subject to the same
limitations and conditions with respect to purchasing, selling,
underwriting, and holding investment securities and stocks as are
national banks under 12 U.S.C. 24, para. 7th.4
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\4\ A member bank, acting as executor or trustee, may hold the
stock of any corporation so long as the bank will not vote any of
the shares or control in any manner the election of any directors,
trustees, or other persons exercising similar functions.
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Sec. 208.22 Community development and public welfare investments.
(a) Definitions. For purposes of this section:
(1) Low- or moderate-income area means:
so long as the bank will not vote any of
the shares or control in any manner the election of any directors,
trustees, or other persons exercising similar functions.
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Sec. 208.22 Community development and public welfare investments.
(a) Definitions. For purposes of this section:
(1) Low- or moderate-income area means:
(i) One or more census tracts in a Metropolitan Statistical Area
where the median family income adjusted for family size in each census
tract is less than 80 percent of the median family income adjusted for
family size of the Metropolitan Statistical Area; or
(ii) If not in a Metropolitan Statistical Area, one or more census
tracts or block-numbered areas where the median family income adjusted
for family size in each census tract or block-numbered
area is less than 80 percent of the median family income adjusted for
family size of the State.
(2) Low- and moderate-income persons has the same meaning as low-
and moderate-income persons as defined in 42 U.S.C. 5302(a)(20)(A).
(3) Small business means a business that meets the size-eligibility
standards of 13 CFR 121.802(a)(2).
(b) Investments not requiring prior Board approval. Notwithstanding
the provisions of section 5136 of the Revised Statutes (12 U.S.C. 24
(Seventh)) made applicable to member banks by paragraph 20 of section 9
of the Federal Reserve Act (12 U.S.C. 335), a member bank may make an
investment, without prior Board approval, if the following conditions
are met:
(1) The investment is in a corporation, limited partnership, or
other entity, and:
val. Notwithstanding
the provisions of section 5136 of the Revised Statutes (12 U.S.C. 24
(Seventh)) made applicable to member banks by paragraph 20 of section 9
of the Federal Reserve Act (12 U.S.C. 335), a member bank may make an
investment, without prior Board approval, if the following conditions
are met:
(1) The investment is in a corporation, limited partnership, or
other entity, and:
(i) The Board has determined that an investment in that entity or
class of entities is a public welfare investment under paragraph 23 of
section 9 of the Federal Reserve Act (12 U.S.C. 338a), or a community
development investment under Regulation Y (12 CFR 225.25(b)(6)); or
(ii) The Comptroller of the Currency has determined, by order or
regulation, that an investment in that entity by a national bank is a
public welfare investment under section 5136 of the Revised Statutes
(12 U.S.C. 24 (Eleventh)); or
(iii) The entity is a community development financial institution
as defined in section 103(5) of the Community Development Banking and
Financial Institutions Act of 1994 (12 U.S.C. 4702(5)); or
(iv) The entity, directly or indirectly, engages solely in or makes
loans solely for the purposes of one or more of the following community
development activities:
(A) Investing in, developing, rehabilitating, managing, selling, or
renting residential property if a majority of the units will be
occupied by low- and moderate-income persons, or if the property is a
``qualified low-income building'' as defined in section 42(c)(2) of the
Internal Revenue Code (26 U.S.C
olely for the purposes of one or more of the following community
development activities:
(A) Investing in, developing, rehabilitating, managing, selling, or
renting residential property if a majority of the units will be
occupied by low- and moderate-income persons, or if the property is a
``qualified low-income building'' as defined in section 42(c)(2) of the
Internal Revenue Code (26 U.S.C. 42(c)(2));
(B) Investing in, developing, rehabilitating, managing, selling, or
renting nonresidential real property or other assets located in a low-
or moderate-income area and targeted towards low- and moderate-income
persons;
(C) Investing in one or more small businesses located in a low- or
moderate-income area to stimulate economic development;
(D) Investing in, developing, or otherwise assisting job training
or placement facilities or programs that will be targeted towards low-
and moderate-income persons;
(E) Investing in an entity located in a low- or moderate-income
area if the entity creates long-term employment opportunities, a
majority of which (based on full-time equivalent positions) will be
held by low- and moderate-income persons; and
(F) Providing technical assistance, credit counseling, research,
and program development assistance to low-and moderate-income persons,
small businesses, or nonprofit corporations to help achieve community
development;
(2) The investment is permitted by state law;
(3) The investment will not expose the member bank to liability
beyond the amount of the investment;
(4) The aggregate of all such investments of the member bank does
not exceed the sum of five percent of its capital stock and surplus;
(5) The member bank is well capitalized or adequately capitalized
under Secs. 208.43(b) (1) and (2);
velopment;
(2) The investment is permitted by state law;
(3) The investment will not expose the member bank to liability
beyond the amount of the investment;
(4) The aggregate of all such investments of the member bank does
not exceed the sum of five percent of its capital stock and surplus;
(5) The member bank is well capitalized or adequately capitalized
under Secs. 208.43(b) (1) and (2);
(6) The member bank received a composite CAMELS rating of ``1'' or
``2'' under the Uniform Financial Institutions Rating System as of its
most recent examination and an overall rating of ``1'' or ``2'' as of
its most recent consumer compliance examination; and
(7) The member bank is not subject to any written agreement, cease-
and-desist order, capital directive, prompt-corrective-action
directive, or memorandum of understanding issued by the Board or a
Federal Reserve Bank.
(c) Notice to Federal Reserve Bank. Not more than 30 days after
making an investment under paragraph (b) of this section, the member
bank shall advise its Federal Reserve Bank of the investment, including
the amount of the investment and the identity of the entity in which
the investment is made.
(d) Investments requiring Board approval. (1) With prior Board
approval, a member bank may make public welfare investments under
paragraph 23 of section 9 of the Federal Reserve Act (12 U.S.C. 338a),
other than those specified in paragraph (b) of this section.
(2) Requests for Board approval under this paragraph (d) shall
include, at a minimum:
(i) The amount of the proposed investment;
(ii) A description of the entity in which the investment is to be
made;
(iii) An explanation of why the investment is a public welfare
investment under paragraph 23 of section 9 of the Federal Reserve Act
(12 U.S.C. 338a);
(iv) A description of the member bank's potential liability under
the proposed investment;
h (d) shall
include, at a minimum:
(i) The amount of the proposed investment;
(ii) A description of the entity in which the investment is to be
made;
(iii) An explanation of why the investment is a public welfare
investment under paragraph 23 of section 9 of the Federal Reserve Act
(12 U.S.C. 338a);
(iv) A description of the member bank's potential liability under
the proposed investment;
(v) The amount of the member bank's aggregate outstanding public
welfare investments under paragraph 23 of section 9 of the Federal
Reserve Act;
(vi) The amount of the member bank's capital stock and surplus; and
(vii) If the bank investment is not eligible under paragraph (b) of
this section, explain the reason or reasons why it is ineligible.
(3) The Board shall act on a request under this paragraph (d)
within 60 calendar days of receipt of a request that meets the
requirements of paragraph (d)(2) of this section, unless the Board
notifies the requesting member bank that a longer time period will be
required.
(e) Divestiture of investments. A member bank shall divest itself
of an investment made under paragraph (b) or (d) of this section to the
extent that the investment exceeds the scope of, or ceases to meet, the
requirements of paragraphs (b)(1) through (b)(4) or paragraph (d) of
this section. The divestiture shall be made in the manner specified in
12 CFR 225.140, Regulation Y, for interests acquired by a lending
subsidiary of a bank holding company or the bank holding company itself
in satisfaction of a debt previously contracted.
Sec. 208.23 Agricultural loan loss amortization.
(a) Definitions. For purposes of this section:
(1) Accepting official means:
h (d) of
this section. The divestiture shall be made in the manner specified in
12 CFR 225.140, Regulation Y, for interests acquired by a lending
subsidiary of a bank holding company or the bank holding company itself
in satisfaction of a debt previously contracted.
Sec. 208.23 Agricultural loan loss amortization.
(a) Definitions. For purposes of this section:
(1) Accepting official means:
(i) The Reserve Bank in whose district the bank is located; or
(ii) The Director of the Division of Banking Supervision and
Regulation in cases in which the Reserve Bank cannot determine that the
bank qualifies.
(2) Agriculturally related other property means any property, real
or personal, that the bank owned on January 1, 1983, and any additional
property that it acquired prior to January 1, 1992, in connection with
a qualified agricultural loan. For the purposes of paragraph (d) of
this section, the value of such property shall include the amount
previously charged off as a loss.
(3) Participating bank means an agricultural bank (as defined in 12
U.S.C. 1823(j)(4)(A)) that, as of January 1, 1992, had a proposal for a
capital restoration plan accepted by an accepting official and received
permission from the accepting official, subject to paragraphs (d) and
(e) of this
section, to amortize losses in accordance with paragraphs (b) and (c)
of this section.
(4) Qualified agricultural loan means:
(i) Loans that finance agricultural production or are secured by
farm land for purposes of Schedule RC-C of the FFIEC Consolidated
Report of Condition or such other comparable schedule;
(ii) Loans secured by farm machinery;
(iii) Other loans that a bank proves to be sufficiently related to
agriculture for classification as an agricultural loan by the Board;
and
(iv) The remaining unpaid balance of any loans described in
paragraphs (a)(4) (i), (ii) and (iii) of this section that have been
charged off since January 1, 1984, and that qualify for deferral under
this section.
(ii) Loans secured by farm machinery;
(iii) Other loans that a bank proves to be sufficiently related to
agriculture for classification as an agricultural loan by the Board;
and
(iv) The remaining unpaid balance of any loans described in
paragraphs (a)(4) (i), (ii) and (iii) of this section that have been
charged off since January 1, 1984, and that qualify for deferral under
this section.
(b)(1) Provided there is no evidence that the loss resulted from
fraud or criminal abuse on the part of the bank, the officers,
directors, or principal shareholders, a participating bank may amortize
in its Reports of Condition and Income:
(i) Any loss on a qualified agricultural loan that the bank would
be required to reflect in its financial statements for any period
between and including 1984 and 1991; or
(ii) Any loss that the bank would be required to reflect in its
financial statements for any period between and including 1983 and 1991
resulting from a reappraisal or sale of agriculturally-related other
property.
(2) Amortization under this section shall be computed over a period
not to exceed seven years on a quarterly straight-line basis commencing
in the first quarter after the loan was or is charged off so as to be
fully amortized not later than December 31, 1998.
(c) Accounting for amortization. Any bank that is permitted to
amortize losses in accordance with paragraph (b) of this section may
restate its capital and other relevant accounts and account for future
authorized deferrals and authorizations in accordance with the
instructions to the FFIEC Consolidated Reports of Condition and Income.
Any resulting increase in the capital account shall be included in
qualifying capital pursuant to Appendix A of this part.
ortize losses in accordance with paragraph (b) of this section may
restate its capital and other relevant accounts and account for future
authorized deferrals and authorizations in accordance with the
instructions to the FFIEC Consolidated Reports of Condition and Income.
Any resulting increase in the capital account shall be included in
qualifying capital pursuant to Appendix A of this part.
(d) Conditions of participation. In order for a bank to maintain
its status as a participating bank, it shall:
(1) Adhere to the approved capital plan and obtain the prior
approval of the accepting official before making any modifications to
the plan;
(2) Maintain accounting records for each asset subject to loss
deferral under the program that document the amount and timing of the
deferrals, repayments, and authorizations;
(3) Maintain the financial condition of the bank so that it does
not deteriorate to the point where it is no longer a viable,
fundamentally sound institution;
(4) Make a reasonable effort, consistent with safe and sound
banking practices, to maintain in its loan portfolio a percentage of
agricultural loans, including agriculturally-related other property,
not less than the percentage of such loans in its loan portfolio on
January 1, 1986; and
(5) Provide the accepting official, upon request, with any
information the accepting official deems necessary to monitor the
bank's amortization, its compliance with the conditions of
participation, and its continued eligibility.
(e) Revocation of eligibility for loss amortization. The failure to
comply with any condition in an acceptance, with the capital
restoration plan, or with the conditions stated in paragraph (d) of
this section, is grounds for revocation of acceptance for loss
amortization and for an administrative action against the bank under 12
U.S.C. 1818(b). In addition, acceptance of a bank for loss amortization
shall not foreclose any administrative action against the bank that the
Board may deem appropriate.
e, with the capital
restoration plan, or with the conditions stated in paragraph (d) of
this section, is grounds for revocation of acceptance for loss
amortization and for an administrative action against the bank under 12
U.S.C. 1818(b). In addition, acceptance of a bank for loss amortization
shall not foreclose any administrative action against the bank that the
Board may deem appropriate.
(f) Expiration date. The terms of this section will no longer be in
effect as of January 1, 1999.
Sec. 208.24 Letters of credit and acceptances.
(a) Standby letters of credit. For the purpose of this section,
standby letters of credit include every letter of credit (or similar
arrangement however named or designated) that represents an obligation
to the beneficiary on the part of the issuer:
(1) To repay money borrowed by or advanced to or for the account of
the account party; or
(2) To make payment on account of any evidence of indebtedness
undertaken by the account party; or
(3) To make payment on account of any default by the party
procuring the issuance of the letter of credit in the performance of an
obligation.5
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\5\ A standby letter of credit does not include: (1) Commercial
letters of credit and similar instruments, where the issuing bank
expects the beneficiary to draw upon the issuer, and which do not
guaranty payment of a money obligation; or (2) a guaranty or similar
obligation issued by a foreign branch in accordance with and subject
to the limitations of 12 CFR part 211 (Regulation K).
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(b) Ineligible acceptance. An ineligible acceptance is a time draft
accepted by a bank, which does not meet the requirements for discount
with a Federal Reserve Bank.
(c) Bank's lending limits. Standby letters of credit and ineligible
acceptances count toward member banks' lending limits imposed by state
law.
on K).
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(b) Ineligible acceptance. An ineligible acceptance is a time draft
accepted by a bank, which does not meet the requirements for discount
with a Federal Reserve Bank.
(c) Bank's lending limits. Standby letters of credit and ineligible
acceptances count toward member banks' lending limits imposed by state
law.
(d) Exceptions. A standby letter of credit or ineligible acceptance
is not subject to the restrictions set forth in paragraph (c) of this
section if prior to or at the time of issuance of the credit:
(1) The issuing bank is paid an amount equal to the bank's maximum
liability under the standby letter of credit; or
(2) The party procuring the issuance of a letter of credit or
ineligible acceptance has set aside sufficient funds in a segregated,
clearly earmarked deposit account to cover the bank's maximum liability
under the standby letter of credit or ineligible acceptance.
Sec. 208.25 Loans in areas having special flood hazards.
(a) Purpose and scope--(1) Purpose. The purpose of this section is
to implement the requirements of the National Flood Insurance Act of
1968 and the Flood Disaster Protection Act of 1973, as amended (42
U.S.C. 4001-4129).
(2) Scope. This section, except for paragraphs (f) and (h) of this
section, applies to loans secured by buildings or mobile homes located
or to be located in areas determined by the Director of the Federal
Emergency Management Agency to have special flood hazards. Paragraphs
(f) and (h) of this section apply to loans secured by buildings or
mobile homes, regardless of location.
. 4001-4129).
(2) Scope. This section, except for paragraphs (f) and (h) of this
section, applies to loans secured by buildings or mobile homes located
or to be located in areas determined by the Director of the Federal
Emergency Management Agency to have special flood hazards. Paragraphs
(f) and (h) of this section apply to loans secured by buildings or
mobile homes, regardless of location.
(b) Definitions. For purposes of this section:
(1) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(2) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(3) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(4) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(5) Director of FEMA means the Director of the Federal Emergency
Management Agency.
(6) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to
the required utilities. The term mobile home does not include a
recreational vehicle. For purposes of this section, the term mobile
home means a mobile home on a permanent foundation. The term mobile
home includes a manufactured home as that term is used in the National
Flood Insurance Program.
(7) NFIP means the National Flood Insurance Program authorized
under the Act.
(8) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(9) Servicer means the person responsible for:
a permanent foundation. The term mobile
home includes a manufactured home as that term is used in the National
Flood Insurance Program.
(7) NFIP means the National Flood Insurance Program authorized
under the Act.
(8) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(9) Servicer means the person responsible for:
(i) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(ii) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(10) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director of FEMA.
(11) Table funding means a settlement at which a loan is funded by
a contemporaneous advance of loan funds and an assignment of the loan
to the person advancing the funds.
(c) Requirement to purchase flood insurance where available.--(1)
In general. A member bank shall not make, increase, extend, or renew
any designated loan unless the building or mobile home and any personal
property securing the loan is covered by flood insurance for the term
of the loan. The amount of insurance must be at least equal to the
lesser of the outstanding principal balance of the designated loan or
the maximum limit of coverage available for the particular type of
property under the Act. Flood insurance coverage under the Act is
limited to the overall value of the property securing the designated
loan minus the value of the land on which the property is located.
(2) Table funded loans. A member bank that acquires a loan from a
mortgage broker or other entity through table funding shall be
considered to be making a loan for the purposes of this section.
property under the Act. Flood insurance coverage under the Act is
limited to the overall value of the property securing the designated
loan minus the value of the land on which the property is located.
(2) Table funded loans. A member bank that acquires a loan from a
mortgage broker or other entity through table funding shall be
considered to be making a loan for the purposes of this section.
(d) Exemptions. The flood insurance requirement prescribed by
paragraph (c) of this section does not apply with respect to:
(1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and
periodically revises the list of States falling within this exemption;
or
(2) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
(e) Escrow requirement. If a member bank requires the escrow of
taxes, insurance premiums, fees, or any other charges for a loan
secured by residential improved real estate or a mobile home that is
made, increased, extended, or renewed after October 1, 1996, the member
bank shall also require the escrow of all premiums and fees for any
flood insurance required under paragraph (c) of this section. The
member bank, or a servicer acting on its behalf, shall deposit the
flood insurance premiums on behalf of the borrower in an escrow
account. This escrow account will be subject to escrow requirements
adopted pursuant to section 10 of the Real Estate Settlement Procedures
Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount
that may be maintained in escrow accounts for certain types of loans
and requires escrow account statements for those accounts, only if the
loan is otherwise subject to RESPA
escrow
account. This escrow account will be subject to escrow requirements
adopted pursuant to section 10 of the Real Estate Settlement Procedures
Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount
that may be maintained in escrow accounts for certain types of loans
and requires escrow account statements for those accounts, only if the
loan is otherwise subject to RESPA. Following receipt of a notice from
the Director of FEMA or other provider of flood insurance that premiums
are due, the member bank, or a servicer acting on its behalf, shall pay
the amount owed to the insurance provider from the escrow account by
the date when such premiums are due.
(f) Required use of standard flood hazard determination form.--(1)
Use of form. A member bank shall use the standard flood hazard
determination form developed by the Director of FEMA (as set forth in
Appendix A of 44 CFR part 65) when determining whether the building or
mobile home offered as collateral security for a loan is or will be
located in a special flood hazard area in which flood insurance is
available under the Act. The standard flood hazard determination form
may be used in a printed, computerized, or electronic manner.
(2) Retention of form. A member bank shall retain a copy of the
completed standard flood hazard determination form, in either hard copy
or electronic form, for the period of time the bank owns the loan.
d in a special flood hazard area in which flood insurance is
available under the Act. The standard flood hazard determination form
may be used in a printed, computerized, or electronic manner.
(2) Retention of form. A member bank shall retain a copy of the
completed standard flood hazard determination form, in either hard copy
or electronic form, for the period of time the bank owns the loan.
(g) Forced placement of flood insurance. If a member bank, or a
servicer acting on behalf of the bank, determines at any time during
the term of a designated loan that the building or mobile home and any
personal property securing the designated loan is not covered by flood
insurance or is covered by flood insurance in an amount less than the
amount required under paragraph (c) of this section, then the bank or
its servicer shall notify the borrower that the borrower should obtain
flood insurance, at the borrower's expense, in an amount at least equal
to the amount required under paragraph (c) of this section, for the
remaining term of the loan. If the borrower fails to obtain flood
insurance within 45 days after notification, then the member bank or
its servicer shall purchase insurance on the borrower's behalf. The
member bank or its servicer may charge the borrower for the cost of
premiums and fees incurred in purchasing the insurance.
(h) Determination fees.--(1) General. Notwithstanding any Federal
or State law other than the Flood Disaster Protection Act of 1973, as
amended (42 U.S.C. 4001-4129), any member bank, or a servicer acting on
behalf of the bank, may charge a reasonable fee for determining whether
the building or mobile home securing the loan is located or will be
located in a special flood hazard area. A determination fee may also
include, but is not limited to, a fee for life-of-loan monitoring.
(2) Borrower fee. The determination fee authorized by paragraph
(h)(1) of this section may be charged to the borrower if the
determination:
ay charge a reasonable fee for determining whether
the building or mobile home securing the loan is located or will be
located in a special flood hazard area. A determination fee may also
include, but is not limited to, a fee for life-of-loan monitoring.
(2) Borrower fee. The determination fee authorized by paragraph
(h)(1) of this section may be charged to the borrower if the
determination:
(i) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(ii) Reflects the Director of FEMA's revision or updating of
floodplain areas or flood-risk zones;
(iii) Reflects the Director of FEMA's publication of a notice or
compendium that:
(A) Affects the area in which the building or mobile home securing
the loan is located; or
(B) By determination of the Director of FEMA, may reasonably
require a determination whether the building or mobile home securing
the loan is located in a special flood hazard area;
(iv) Results in the purchase of flood insurance coverage by the
lender or its servicer on behalf of the borrower under paragraph (g) of
this section.
(3) Purchaser or transferee fee. The determination fee authorized
by paragraph (h)(1) of this section may be charged to the purchaser or
transferee of a loan in the case of the sale or transfer of the loan.
(i) Notice of special flood hazards and availability of Federal
disaster relief assistance. When a member bank makes, increases,
extends, or renews a loan secured by a building or a mobile home
located or to be located in a
special flood hazard area, the bank shall mail or deliver a written
notice to the borrower and to the servicer in all cases whether or not
flood insurance is available under the Act for the collateral securing
the loan.
(1) Contents of notice. The written notice must include the
following information:
nds, or renews a loan secured by a building or a mobile home
located or to be located in a
special flood hazard area, the bank shall mail or deliver a written
notice to the borrower and to the servicer in all cases whether or not
flood insurance is available under the Act for the collateral securing
the loan.
(1) Contents of notice. The written notice must include the
following information:
(i) A warning, in a form approved by the Director of FEMA, that the
building or the mobile home is or will be located in a special flood
hazard area;
(ii) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(iii) A statement, where applicable, that flood insurance coverage
is available under the NFIP and may also be available from private
insurers; and
(iv) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally declared disaster.
(2) Timing of notice. The member bank shall provide the notice
required by paragraph (i)(1) of this section to the borrower within a
reasonable time before the completion of the transaction, and to the
servicer as promptly as practicable after the bank provides notice to
the borrower and in any event no later than the time the bank provides
other similar notices to the servicer concerning hazard insurance and
taxes. Notice to the servicer may be made electronically or may take
the form of a copy of the notice to the borrower.
(3) Record of receipt. The member bank shall retain a record of the
receipt of the notices by the borrower and the servicer for the period
of time the bank owns the loan.
er than the time the bank provides
other similar notices to the servicer concerning hazard insurance and
taxes. Notice to the servicer may be made electronically or may take
the form of a copy of the notice to the borrower.
(3) Record of receipt. The member bank shall retain a record of the
receipt of the notices by the borrower and the servicer for the period
of time the bank owns the loan.
(4) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (i)(1) of this section, a member
bank may obtain satisfactory written assurance from a seller or lessor
that, within a reasonable time before the completion of the sale or
lease transaction, the seller or lessor has provided such notice to the
purchaser or lessee. The member bank shall retain a record of the
written assurance from the seller or lessor for the period of time the
bank owns the loan.
(5) Use of prescribed form of notice. A member bank will be
considered to be in compliance with the requirement for notice to the
borrower of this paragraph (i) by providing written notice to the
borrower containing the language presented in appendix A of this
section within a reasonable time before the completion of the
transaction. The notice presented in appendix A of this section
satisfies the borrower notice requirements of the Act.
(j) Notice of servicer's identity--(1) Notice requirement. When a
member bank makes, increases, extends, renews, sells, or transfers a
loan secured by a building or mobile home located or to be located in a
special flood hazard area, the bank shall notify the Director of FEMA
(or the Director's designee) in writing of the identity of the servicer
of the loan. The Director of FEMA has designated the insurance provider
to receive the member bank's notice of the servicer's identity. This
notice may be provided electronically if electronic transmission is
satisfactory to the Director of FEMA's designee.
ial flood hazard area, the bank shall notify the Director of FEMA
(or the Director's designee) in writing of the identity of the servicer
of the loan. The Director of FEMA has designated the insurance provider
to receive the member bank's notice of the servicer's identity. This
notice may be provided electronically if electronic transmission is
satisfactory to the Director of FEMA's designee.
(2) Transfer of servicing rights. The member bank shall notify the
Director of FEMA (or the Director's designee) of any change in the
servicer of a loan described in paragraph (j)(1) of this section within
60 days after the effective date of the change. This notice may be
provided electronically if electronic transmission is satisfactory to
the Director of FEMA's designee. Upon any change in the servicing of a
loan described in paragraph (j)(1) of this section, the duty to provide
notice under this paragraph (j)(2) shall transfer to the transferee
servicer.
Appendix A to Sec. 208.25 Sample Form of Notice
Notice of Special Flood Hazards and Availability of Federal
Disaster Relief Assistance
We are giving you this notice to inform you that:
The building or mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community: ______________. This area has a one
percent (1%) chance of a flood equal to or exceeding the base flood
elevation (a 100-year flood) in any given year. During the life of a
30-year mortgage loan, the risk of a 100-year flood in a special
flood hazard area is 26 percent (26%).
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area
or exceeding the base flood
elevation (a 100-year flood) in any given year. During the life of a
30-year mortgage loan, the risk of a 100-year flood in a special
flood hazard area is 26 percent (26%).
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan. If you fail
to purchase or renew flood insurance on the property, Federal law
authorizes and requires us to purchase the flood insurance for you
at your expense.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal balance of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Flood insurance coverage under the NFIP is limited to the
overall value of the property securing the loan minus the value of
the land on which the property is located.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements
ance coverage under the NFIP is limited to the
overall value of the property securing the loan minus the value of
the land on which the property is located.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______ Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally declared
flood disaster.
Subpart C--Bank Securities and Securities-Related Activities
Sec. 208.30 Authority, purpose, and scope.
(a) Authority. Subpart C of Regulation H (12 CFR part 208, subpart
C) is issued by the Board of Governors of the Federal Reserve System
under 12 U.S.C. 24, 92a, 93a; sections 1818 and 1831p-1(a)(2) of the
Federal Deposit Insurance Act (12 U.S.C. 1818, 1831p-1(a)(2)); and
sections 78b, 78l(b), 78l(g), 78l(i), 78o-4(c)(5), 78o-5, 78q, 78q-1,
and 78w of the Securities Exchange Act of 1934 (15 U.S.C. 78b, 78l(b),
78l(g), 78l(i), 78o-4(c)(5), 78o-5, 78q, 78q-1, 78w).
(b) Purpose and scope. This subpart C describes the requirements
imposed upon member banks acting as transfer agents, registered
clearing agencies, or sellers of securities under the Securities
Exchange Act of 1934. This subpart C also describes the reporting
requirements imposed on member banks whose securities are subject to
registration under the Securities Exchange Act of 1934.
Sec. 208.31 State member banks as transfer agents.
cribes the requirements
imposed upon member banks acting as transfer agents, registered
clearing agencies, or sellers of securities under the Securities
Exchange Act of 1934. This subpart C also describes the reporting
requirements imposed on member banks whose securities are subject to
registration under the Securities Exchange Act of 1934.
Sec. 208.31 State member banks as transfer agents.
(a) The rules adopted by the Securities and Exchange Commission
(SEC) pursuant to section 17A of the Securities Exchange Act of 1934
(15 U.S.C. 78q-1) prescribing procedures for registration of transfer
agents for which the SEC is the appropriate regulatory agency (17 CFR
240.17Ac2-1) apply to member bank transfer agents. References to the
``Commission'' are deemed to refer to the Board.
(b) The rules adopted by the SEC pursuant to section 17A
prescribing operational and reporting requirements for transfer agents
(17 CFR 240.17Ac2-2 and 240.17Ad-1 through 240.17Ad-16) apply to member
bank transfer agents.
Sec. 208.32 Notice of disciplinary sanctions imposed by registered
clearing agency.
(a) Notice requirement. Any member bank or any of its subsidiaries
that is a registered clearing agency pursuant to section 17A(b) of the
Securities Exchange Act of 1934 (the Act), and that:
(1) Imposes any final disciplinary sanction on any participant
therein;
(2) Denies participation to any applicant; or
(3) Prohibits or limits any person in respect to access to services
offered by the clearing agency, shall file with the Board (and the
appropriate regulatory agency, if other than the Board, for a
participant or applicant) notice thereof in the manner prescribed in
this section.
Imposes any final disciplinary sanction on any participant
therein;
(2) Denies participation to any applicant; or
(3) Prohibits or limits any person in respect to access to services
offered by the clearing agency, shall file with the Board (and the
appropriate regulatory agency, if other than the Board, for a
participant or applicant) notice thereof in the manner prescribed in
this section.
(b) Notice of final disciplinary actions. (1) Any registered
clearing agency for which the Board is the appropriate regulatory
agency that takes any final disciplinary action with respect to any
participant shall promptly file a notice thereof with the Board in
accordance with paragraph (c) of this section. For the purposes of this
paragraph (b), final disciplinary action means the imposition of any
disciplinary sanction pursuant to section 17A(b)(3)(G) of the Act, or
other action of a registered clearing agency which, after notice and
opportunity for hearing, results in final disposition of charges of:
(i) One or more violations of the rules of the registered clearing
agency; or
(ii) Acts or practices constituting a statutory disqualification of
a type defined in paragraph (iv) or (v) (except prior convictions) of
section 3(a)(39) of the Act.
(2) However, if a registered clearing agency fee schedule specifies
certain charges for errors made by its participants in giving
instructions to the registered clearing agency which are de minimis on
a per error basis, and whose purpose is, in part, to provide revenues
to the clearing agency to compensate it for effort expended in
beginning to process an erroneous instruction, such error charges shall
not be considered a final disciplinary action for purposes of this
paragraph (b).
s made by its participants in giving
instructions to the registered clearing agency which are de minimis on
a per error basis, and whose purpose is, in part, to provide revenues
to the clearing agency to compensate it for effort expended in
beginning to process an erroneous instruction, such error charges shall
not be considered a final disciplinary action for purposes of this
paragraph (b).
(c) Contents of final disciplinary action notice. Any notice filed
pursuant to paragraph (b) of this section shall consist of the
following, as appropriate:
(1) The name of the respondent and the respondent's last known
address, as reflected on the records of the clearing agency, and the
name of the person, committee, or other organizational unit that
brought the charges. However, identifying information as to any
respondent found not to have violated a provision covered by a charge
may be deleted insofar as the notice reports the disposition of that
charge and, prior to the filing of the notice, the respondent does not
request that identifying information be included in the notice;
(2) A statement describing the investigative or other origin of the
action;
(3) As charged in the proceeding, the specific provision or
provisions of the rules of the clearing agency violated by the
respondent, or the statutory disqualification referred to in paragraph
(b)(2) of this section, and a statement describing the answer of the
respondent to the charges;
(4) A statement setting forth findings of fact with respect to any
act or practice in which the respondent was charged with having engaged
in or omitted; the conclusion of the clearing agency as to whether the
respondent violated any rule or was subject to a statutory
disqualification as charged; and a statement of the clearing agency in
support of its resolution of the principal issues raised in the
proceedings;
g forth findings of fact with respect to any
act or practice in which the respondent was charged with having engaged
in or omitted; the conclusion of the clearing agency as to whether the
respondent violated any rule or was subject to a statutory
disqualification as charged; and a statement of the clearing agency in
support of its resolution of the principal issues raised in the
proceedings;
(5) A statement describing any sanction imposed, the reasons
therefor, and the date upon which the sanction became or will become
effective; and
(6) Such other matters as the clearing agency may deem relevant.
(d) Notice of final denial, prohibition, termination or limitation
based on qualification or administrative rules. (1) Any registered
clearing agency, for which the Board is the appropriate regulatory
agency, that takes any final action that denies or conditions the
participation of any person, or prohibits or limits access, to services
offered by the clearing agency, shall promptly file notice thereof with
the Board (and the appropriate regulatory agency, if other than the
Board, for the affected person) in accordance with paragraph (e) of
this section; but such action shall not be considered a final
disciplinary action for purposes of paragraph (b) of this section where
the action is based on an alleged failure of such person to:
(i) Comply with the qualification standards prescribed by the rules
of the registered clearing agency pursuant to section 17A(b)(4)(B) of
the Act; or
(ii) Comply with any administrative requirements of the registered
clearing agency (including failure to pay entry or other dues or fees,
or to file prescribed forms or reports) not involving charges of
violations that may lead to a disciplinary sanction.
with the qualification standards prescribed by the rules
of the registered clearing agency pursuant to section 17A(b)(4)(B) of
the Act; or
(ii) Comply with any administrative requirements of the registered
clearing agency (including failure to pay entry or other dues or fees,
or to file prescribed forms or reports) not involving charges of
violations that may lead to a disciplinary sanction.
(2) However, no such action shall be considered final pursuant to
this paragraph (d) that results merely from a notice of such failure to
comply to the person affected, if such person has not sought an
adjudication of the matter, including a hearing, or otherwise exhausted
the administrative remedies within the registered clearing agency with
respect to such a matter.
(e) Contents of notice required by paragraph (d) of this section.
Any notice filed pursuant to paragraph (d) of this section shall
consist of the following, as appropriate:
(1) The name of each person concerned and each person's last known
address, as reflected in the records of the clearing agency;
(2) The specific grounds upon which the action of the clearing
agency was based, and a statement describing the answer of the person
concerned;
(3) A statement setting forth findings of fact and conclusions as
to each alleged failure of the person to comply with qualification
standards or administrative obligations, and a statement of the
clearing agency in support of its resolution of the principal issues
raised in the proceeding;
(4) The date upon which such action became or will become
effective; and
(5) Such other matters as the clearing agency deems relevant.
dings of fact and conclusions as
to each alleged failure of the person to comply with qualification
standards or administrative obligations, and a statement of the
clearing agency in support of its resolution of the principal issues
raised in the proceeding;
(4) The date upon which such action became or will become
effective; and
(5) Such other matters as the clearing agency deems relevant.
(f) Notice of final action based on prior adjudicated statutory
disqualifications. Any registered clearing agency for which the Board
is the appropriate regulatory agency that takes any final action shall
promptly file notice thereof with the Board (and the appropriate
regulatory agency, if other than the Board, for the affected person) in
accordance with paragraph (g) of this section, where the final action:
(1) Denies or conditions participation to any person, or prohibits
or limits access to services offered by the clearing agency; and
(2) Is based upon a statutory disqualification of a type defined in
paragraph (A), (B) or (C) of section 3(a)(39) of the Act, consisting of
a prior
conviction, as described in subparagraph (E) of section 3(a)(39) of the
Act. However, no such action shall be considered final pursuant to this
paragraph (f) that results merely from a notice of such
disqualification to the person affected, if such person has not sought
an adjudication of the matter, including a hearing, or otherwise
exhausted the administrative remedies within the clearing agency with
respect to such a matter.
aph (E) of section 3(a)(39) of the
Act. However, no such action shall be considered final pursuant to this
paragraph (f) that results merely from a notice of such
disqualification to the person affected, if such person has not sought
an adjudication of the matter, including a hearing, or otherwise
exhausted the administrative remedies within the clearing agency with
respect to such a matter.
(g) Contents of notice required by paragraph (f) of this section.
Any notice filed pursuant to paragraph (f) of this section shall
consist of the following, as appropriate:
(1) The name of each person concerned and each person's last known
address, as reflected in the records of the clearing agency;
(2) A statement setting forth the principal issues raised, the
answer of any person concerned, and a statement of the clearing agency
in support of its resolution of the principal issues raised in the
proceeding;
(3) Any description furnished by or on behalf of the person
concerned of the activities engaged in by the person since the
adjudication upon which the disqualification is based;
(4) A copy of the order or decision of the court, appropriate
regulatory agency, or self-regulatory organization that adjudicated the
matter giving rise to the statutory disqualification;
(5) The nature of the action taken and the date upon which such
action is to be made effective; and
(6) Such other matters as the clearing agency deems relevant.
(h) Notice of summary suspension of participation. Any registered
clearing agency for which the Board is the appropriate regulatory
agency that summarily suspends or closes the accounts of a participant
pursuant to the provisions of section 17A(b)(5)(C) of the Act shall,
within one business day after such action becomes effective, file
notice thereof with the Board and the appropriate regulatory agency for
the participant, if other than the Board, of such action in accordance
with paragraph (i) of this section.
egulatory
agency that summarily suspends or closes the accounts of a participant
pursuant to the provisions of section 17A(b)(5)(C) of the Act shall,
within one business day after such action becomes effective, file
notice thereof with the Board and the appropriate regulatory agency for
the participant, if other than the Board, of such action in accordance
with paragraph (i) of this section.
(i) Contents of notice of summary suspension. Any notice pursuant
to paragraph (h)
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