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2000 - Rules and Regulations
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PART 362ACTIVITIES OF INSURED STATE BANKS AND INSURED
SAVINGS ASSOCIATIONS
Subpart AActivities of Insured State Banks
Sec. 362.1
Purpose and scope.
362.2
Definitions.
362.3
Activities of insured state banks.
362.4
Subsidiaries of insured state banks.
362.5
Approvals previously granted.
Subpart BSafety and Soundness Rules Governing Insured State
Nonmember Banks
362.6
Purpose and scope.
362.7
Definitions.
362.8
Restrictions on activities of insured state nonmember banks affiliated
with certain securities companies.
Subpart CActivities of Insured State Savings Associations
362.9
Purpose and scope.
362.10
Definitions.
362.11
Activities of insured state savings associations.
362.12
Service corporations of insured state savings associations.
362.13
Approvals previously granted.
Subpart DAcquiring, Establishing, or Conducting New Activities
Through a Subsidiary by an Insured Savings Association
362.14
Purpose and scope.
362.15
Acquiring or establishing a subsidiary; conducting new activities
through a subsidiary.
Subpart EFinancial Subsidiaries of Insured State Nonmember Banks
362.16
Purpose and scope.
362.17
Definitions.
362.18
Financial subsidiaries of insured state nonmember banks.
Preamble to Part 362
(November 5, 1998)
Preamble to Part 362
(October 27, 1992)
AUTHORITY: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j),
1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l).
SOURCE: The provisions of this Part 362 appear at 63 Fed. Reg.
66326, December 1, 1998, effective January 1, 1999, except as otherwise
noted.
Subpart AActivities of Insured State
Banks
§ 362.1 Purpose and scope.
(a) This subpart, along with the notice and application procedures
in subpart G of part 303 of this chapter, implements the provisions of
section 24 of the Federal Deposit Insurance Act
(12 U.S.C. 1831a) that
restrict and prohibit insured state banks and their subsidiaries from
engaging in activities and investments that are not permissible for
national banks and their subsidiaries. The phrase "activity
permissible for a national bank" means any activity authorized for
national banks under any statute including the National Bank Act (12
U.S.C. 21 et seq.), as well as activities recognized as
permissible for a national bank in regulations, official circulars,
bulletins, orders or written interpretations issued by the Office of
the Comptroller of the Currency (OCC).
(b) This subpart does not cover the following activities:
(1) Activities conducted other than "as principal," defined
for purposes of this subpart as activities conducted as agent for a
customer, conducted in a brokerage, custodial, advisory, or
administrative capacity, or conducted as trustee, or in any
substantially similar capacity. For example, this subpart does not
cover acting solely as agent for the sale of insurance, securities,
real estate, or travel services; nor does it cover acting as trustee,
providing personal financial planning advice, or safekeeping
services;
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(2) Interests in real estate in which the real property is used
or intended in good faith to be used within a reasonable time by an
insured state bank or its subsidiaries as offices or related facilities
for the conduct of its business or future expansion of its business or
used as public welfare investments of a type permissible for national
banks; and
(3) Equity investments acquired in connection with debts
previously contracted (DPC) if the insuredstate bank does not hold the
property for speculation and takes only such actions as would be
permissible for a national bank's DPC. The bank must dispose of the
property within the shorter of the period set by federal law for
national banks or the period allowed under state law. For real estate,
national banks may not hold DPC for more than 10 years. For equity
securities, national banks must generally divest DPC as soon as
possible consistent with obtaining a reasonable return.
(c) A subsidiary of an insured state bank may not engage in real
estate investment activities that are not permissible for a subsidiary
of a national bank unless the bank does so through a subsidiary of
which the bank is a majority owner, is in compliance with applicable
capital standards, and the FDIC has determined that the activity poses
no significant risk to the appropriate deposit insurance fund. This
subpart provides standards for majority-owned subsidiaries of insured
state banks engaging in real estate investment activities that are not
permissible for a subsidiary of a national bank.
(d) The FDIC intends to allow insured state banks and their
subsidiaries to undertake only safe and sound activities and
investments that do not present significant risks to the Deposit
Insurance Fund and that are consistent with the purposes of federal
deposit insurance and other applicable law. This subpart does not
authorize any insured state bank to make investments or to conduct
activities that are not authorized or that are prohibited by either
state or federal law.
[Codified to 12 C.F.R. § 362.1]
[Section 362.1 amended at 66 Fed. Reg. 1028, January 5,
2001; 71 Fed. Reg. 20527, April 21, 2006]
§ 362.2 Definitions.
For the purposes of this subpart, the following definitions will
apply:
(a) Bank, state bank, savings association, state savings
association, depository institution, insured depository institution,
insured state bank, federal savings association, and insured
state nonmember bank shall each have the same respective meaning
contained in section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813).
(b) Activity means the conduct of business by a
state-chartered depository institution, including acquiring or
retaining an equity investment or other investment.
(c) Change in control means any transaction:
(1) By a state bank or its holding company for which a notice is
required to be filed with the FDIC, or the Board of Governors of the
Federal Reserve System (FRB), pursuant to section 7(j) of the Federal
Deposit Insurance Act (12 U.S.C.
1817(j)) except a transaction that is presumed to be an
acquisition of control under the FDIC's or FRB's regulations
implementing section 7(j);
(2) As a result of which a state bank eligible for the exception
described in § 362.3(a)(2)(iii) is acquired by or merged into a
depository institution that is not eligible for the exception, or as a
result of which its holding company is acquired by or merged into a
holding company which controls one or more bank subsidiaries not
eligible for the exception; or
(3) In which control of the state bank is acquired by a bank
holding company in a transaction requiring FRB approval under section 3
of the Bank Holding Company Act (12
U.S.C. 1842), other than a one bank holding company formation
in which all or substantially all of the shares of the holding company
will be owned by persons who were shareholders of the bank.
(d) Company means any corporation, partnership, limited
liability company, business trust, association, joint venture, pool,
syndicate or other similar business organization.
(e) Control means the power to vote, directly or
indirectly, 25 percent or more of any class of the voting securities of
a company, the ability to control in any manner the
election
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directors or trustees, or the ability to exercise a controlling
influence over the management and policies of a company.
(f) Convert its charter means an insured state bank
undergoes any transaction that causes the bank to operate under a
different form of charter than it had as of December 19, 1991, except a
change from mutual to stock form shall not be considered a charter
conversion.
(g) Equity investment means an ownership interest in any
company; any membership interest that includes a voting right in any
company; any interest in real estate; any transaction which in
substance falls into any of these categories even though it may be
structured as some other form of business transaction; and includes an
equity security. The term "equity investment" does not include
any of the foregoing if the interest is taken as security for a loan.
(h) Equity security means any stock (other than
adjustable rate preferred stock, money market (auction rate) preferred
stock, or other newly developed instrument determined by the FDIC to
have the character of debt securities), certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, or voting-trust certificate; any security
immediately convertible at the option of the holder without payment of
substantial additional consideration into such a security; any security
carrying any warrant or right to subscribe to or purchase any such
security; and any certificate of interest or participation in,
temporary or interim certificate for, or receipt for any of the
foregoing.
(i) Extension of credit, executive officer, director,
principal shareholder, and related interest each has
the same respective meaning as is applicable for the purposes of
section 22(h) of the Federal Reserve Act
(12 U.S.C. 375b) and
§ 337.3 of this chapter.
(j) Institution shall have the same meaning as
"state-chartered depository institution."
(k) Majority-owned subsidiary means any corporation in
which the parent insured state bank owns a majority of the outstanding
voting stock.
(l) National securities exchange means a securities
exchange that is registered as a national securities exchange by the
Securities and Exchange Commission pursuant to section 6 of the
Securities Exchange Act of 1934 (15
U.S.C. 78f) and the National Market System, i.e., the top tier
of the National Association of Securities Dealers Automated Quotation
System.
(m) Real estate investment activity means any interest
in real estate (other than as security for a loan) held directly or
indirectly that is not permissible for a national bank.
(n) Residents of the state includes individuals living
in the state, individuals employed in the state, any person to whom the
company provided insurance as principal without interruption since such
person resided in or was employed in the state, and companies or
partnerships incorporated in, organized under the laws of, licensed to
do business in, or having an office in the state.
(o) Security has the same meaning as it has in
part 344 of this chapter.
(p) Significant risk to the Deposit Insurance Fund shall
be understood to be present whenever the FDIC determines there is a
high probability that the Deposit Insurance Fund administered by the
FDIC may suffer a loss. Such risk may be present either when an
activity contributes or may contribute to the decline in condition of a
particular state-chartered depository institution or when a type of
activity is found by the FDIC to contribute or potentially contribute
to the deterioration of the overall condition of the banking system.
(q) State-chartered depository institution means any
state bank or state savings association insured by the FDIC.
(r) Subsidiary means any company that is owned or
controlled directly or indirectly by one or more insured depository
institutions.
(s) Tier one capital has the same meaning as set forth
in part 325 of this chapter
for an insured state nonmember bank. For other state-chartered
depository institutions, the term "tier one capital" has the same
meaning as set forth in the capital regulations adopted by the
appropriate federal banking agency.
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(t) Well-capitalized has the same meaning set forth in
part 325 of this chapter for an insured state nonmember bank. For other
state-chartered depository institutions, the term
"well-capitalized" has the same meaning as set forth in the
capital regulations adopted by the appropriate federal banking agency.
[Codified to 12 C.F.R. § 362.2]
[Section 362.2 amended at 66 Fed. Reg. 1028, January 5,
2001; 71 Fed. Reg. 20527, April 21, 2006]
§ 362.3 Activities of insured state banks.
(a) Equity investments. (1) Prohibited equity
investments. No insured state bank may directly or indirectly
acquire or retain as principal any equity investment of a type that is
not permissible for a national bank unless one of the exceptions in
paragraph (a)(2) of this section applies.
(2) Exceptions. (i) Equity investment in
majority-owned subsidiaries. An insured state bank may acquire or
retain an equity investment in a subsidiary of which the bank is a
majority owner, provided that the subsidiary is engaging in activities
that are allowed pursuant to the provisions of or by application under
§ 362.4(b).
(ii) Investments in qualified housing projects. An
insured state bank may invest as a limited partner in a partnership, or
as a noncontrolling interest holder of a limited liability company, the
sole purpose of which is to invest in the aquisition rehabilitation, or
new construction of a qualified housing project, provided that the
bank's aggregate investment (including legally binding commitments)
does not exceed, when made, 2 percent of total assets as of the date of
the bank's most recent consolidated report of condition prior to
making the investment. For the purposes of this paragraph (a)(2)(ii),
Aggregate investment means the total book value of the
bank's investment in the real estate calculated in accordance with the
instructions for the preparation of the consolidated report of
condition. Qualified housing project means residential real
estate intended to primarily benefit lower income persons throughout
the period of the bank's investment including any project that has
received an award of low income housing tax credits under section 42 of
the Internal Revenue Code (26 U.S.C. 42) (such as a reservation or
allocation of credits) from a state or local housing credit agency. A
residential real estate project that does not qualify for the tax
credit under section 42 of the Internal Revenue Code will qualify under
this exception if 50 percent or more of the housing units are to be
occupied by lower income persons. A project will be considered
residential despite the fact that some portion of the total square
footage of the project is utilized for commercial purposes, provided
that such commercial use is not the primary purpose of the project.
Lower income has the same meaning as "low income" and
"moderate income" as defined for the purposes of
§ 345.12(n)(1) and (2)
of this chapter.
(iii) Grandfathered investments in common or preferred
stock; shares of investment companies. (A) General. An
insured state bank that is located in a state which as of September 30,
1991, authorized investment in:
(1)(i) Common or preferred stock listed on
a national securities exchange (listed stock); or
(ii) Shares of an investment company registered
under the Investment Company Act of 1940 (15 U.S.C. 80a--1 et seq.)
(registered shares); and
(2) Which during the period beginning on September 30,
1990, and ending on November 26, 1991, made or maintained an investment
in listed stock or registered shares, may retain whatever lawfully
acquired listed stock or registered shares it held and may continue to
acquire listed stock and/or registered shares, provided that the bank
files a notice in accordance with section 24(f)(6) of the Federal
Deposit Insurance Act in compliance with
§ 303.121 of this
chapter and the FDIC processes the notice without objection under
§ 303.122 of this
chapter. Approval will be granted only if the FDIC determines that
acquiring or retaining the stock or shares does not pose a significant
risk to the Deposit Insurance Fund. Approval may be subject to whatever
conditions or restrictions the FDIC determines are necessary or
appropriate.
{{4-28-06 p.3121}}
(B) Loss of grandfather exception. The exception for
grandfathered investments under paragraph (a)(2)(iii)(A) of this
section shall no longer apply if the bank converts its charter or the
bank or its parent holding company undergoes a change in control. If
any of these events occur, the bank may retain its existing investments
unless directed by the FDIC or other applicable authority to divest the
listed stock or registered shares.
(C) Maximum permissible investment. A bank's
aggregate investment in listed stock and registered shares under
paragraph (a)(2)(iii)(A) of this section shall in no event exceed, when
made, 100 percent of the bank's tier one capital as measured on the
bank's most recent consolidated report of condition (call report)
prior to making any such investment. The lower of the bank's cost as
determined in accordance with call report instructions or the market
value of the listed stock and shares shall be used to determine
compliance. The FDIC may determine when acting upon a notice filed in
accordance with paragraph (a)(2)(iii)(A)(2) of this section
that the permissible limit for any particular insured state bank is
something less than 100 percent of tier one capital.
(iv) Stock investment in insured depository institutions
owned exclusively by other banks and savings associations. An
insured state bank may acquire or retain the stock of an insured
depository institution if the insured depository institution engages
only in activities permissible for national banks; the insured
depository institution is subject to examination and regulation by a
state bank supervisor; the voting stock is owned by 20 or more insured
depository institutions, but no one institution owns more than 15
percent of the voting stock; and the insured depository institution's
stock (other than directors' qualifying shares or shares held under or
acquired through a plan established for the benefit of the officers and
employees) is owned only by insured depository institutions.
(v) Stock investment in insurance companies--(A)
Stock of director and officer liability insurance company. An
insured state bank may acquire and retain up to 10 percent of the
outstanding stock of a corporation that solely provides or reinsures
directors', trustees', and officers' liability insurance coverage or
bankers' blanket bond group insurance coverage for insured depository
institutions.
(B) Stock of savings bank life insurance company. An
insured state bank located in Massachusetts, New York, or Connecticut
may own stock in a savings bank life insurance company, provided that
the savings bank life insurance company provides written disclosures to
purchasers or potential purchasers of life insurance policies, other
insurance products, and annuities that are consistent with the
disclosures described in the
Interagency Statement on the
Retail Sale of Nondeposit Investment Products
(FIL--9--94, 1
February 17, 1994) or any successor requirement which indicates that
the policies, products, and annuities are not FDIC insured deposits,
are not guaranteed by the bank and are subject to investment risks,
including possible loss of the principal amount invested.
(b) Activities other than equity investments--(1)
Prohibited activities. An insured state bank may not
directly or indirectly engage as principal in any activity, that is not
an equity investment, and is of a type not permissible for a national
bank unless one of the exceptions is paragraph (b)(2) of this section
applies.
(2) Exceptions--(i) Consent obtained through
application. An insured state bank that meets and continues to
meet the applicable capital standards set by the appropriate federal
banking agency may conduct activities prohibited by paragraph (b)(1) of
this section if the bank obtains the FDIC's prior written consent.
Consent will be given only if the FDIC determines that the activity
poses no significant risk to the Deposit Insurance Fund. Applications
for consent should be filed in accordance with
§ 303.121 of this
chapter and will be processed under
§ 303.122(b) of this
chapter. Approvals granted under § 303.122(b) of this chapter may be
made subject to any conditions or restrictions found by the FDIC to be
necessary to protect the Deposit Insurance Fund from risk, to prevent
unsafe or unsound banking practices, and/or to ensure that the activity
is consistent with the purposes of federal deposit insurance and other
applicable law.
{{4-28-06 p.3122}}
(ii) Insurance underwriting--(A) Savings bank
life insurance. An insured state bank that is located in
Massachusetts, New York or Connecticut may provide as principal savings
bank life insurance through a department of the bank, provided that the
department meets the core standards of paragraph (c) of this section or
submits an application in compliance with § 303.121 of this chapter
and the FDIC grants its consent under the procedures in § 303.122(b)
of this chapter, and the department provides purchasers or potential
purchasers of life insurance policies, other insurance products and
annuities written disclosures that are consistent with the disclosures
described in the Interagency Statement on the Retail Sale of Nondeposit
Investment Products (FIL--9--94, February 17, 1994) and any successor
requirement which indicates that the policies, products and annuities
are not FDIC insured deposits, are not guaranteed by the bank, and are
subject to investment risks, including the possible loss of the
principal amount invested.
(B) Federal crop insurance. Any insured state bank
that was providing insurance as principal on or before September 30,
1991, which was reinsured in whole or in part by the Federal Crop
Insurance Corporation, may continue to do so.
(C) Grandfathered insurance underwriting. A
well-capitalized insured state bank that on November 21, 1991, was
lawfully providing insurance as principal through a department of the
bank may continue to provide the same types of insurance as principal
to the residents of the state or states in which the bank did so on
such date provided that the bank's department meets the core standards
of paragraph (c) of this section, or submits an application in
compliance with § 303.121 of this chapter and the FDIC grants its
consent under the procedures in § 303.122(b) of this chapter.
(iii) Acquiring and retaining adjustable rate and money
market preferred stock. (A) An insured state bank's investment of
up to 15 percent of the bank's tier one capital in adjustable rate
preferred stock or money market (auction rate) preferred stock does not
represent a significant risk to the Deposit Insurance Fund. An insured
state bank may conduct this activity without first obtaining the
FDIC's consent, provided that the bank meets and continues to meet the
applicable capital standards as prescribed by the appropriate federal
banking agency. The fact that prior consent is not required by this
subpart does not preclude the FDIC from taking any appropriate action
with respect to the activities if the facts and circumstances warrant
such action.
(B) An insured state bank may acquire or retain other instruments
of a type determined by the FDIC to have the character of debt
securities and not to represent a significant risk to the Deposit
Insurance Fund. Such instruments shall be included in the 15 percent of
tier one capital limit imposed in paragraph (b)(2)(iii)(A) of this
section. An insured state bank may conduct this activity without first
obtaining the FDIC's consent, provided that the bank meets and
continues to meet the applicable capital standards as prescribed by the
appropriate federal banking agency. The fact that prior consent is not
required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activities if the facts and
circumstances warrant such action.
(c) Core standards. For any insured state bank to be
eligible to conduct insurance activities listed in paragraph
(b)(2)(ii)(A) or (C) of this section, the bank must conduct the
activities in a department that meets the following core separation and
operating standards:
(1) The department is physically distinct from the remainder of
the bank;
(2) The department maintains separate accounting and other
records;
(3) The department has assets, liabilities, obligations and
expenses that are separate and distinct from those of the remainder of
the bank;
(4) The department is subject to state statute that requires its
obligations, liabilities and expenses be satisfied only with the assets
of the department; and
(5) The department informs its customers that only the assets of
the department may be used to satisfy the obligations of the
department.
[Codified to 12 C.F.R. § 362.3]
[Section 362.3 amended at 71 Fed. Reg. 20527, April 21,
2006]
{{4-28-06 p.3123}}
§ 362.4 Subsidiaries of insured state banks.
(a) Prohibition. A subsidiary of an insured state bank
may not engage as principal in any activity that is not of a type
permissible for a subsidiary of a national bank, unless it meets one of
the exceptions in paragraph (b) of this section.
(b) Exceptions--(1) Consent obtained through
application. A subsidiary of an insured state bank may conduct
otherwise prohibited activities if the bank obtains the FDIC's prior
written consent and the insured state bank meets and continues to meet
the applicable capital standards set by the appropriate federal banking
agency. Consent will be given only if the FDIC determines that the
activity poses no significant risk to the Deposit Insurance Fund.
Applications for consent should be filed in accordance with
§ 303.121 of this
chapter and will be processed under § 303.122(b) of this chapter.
Approvals granted under
§ 303.122(b) of this
chapter may be made subject to any conditions or restrictions found by
the FDIC to be necessary to protect the Deposit Insurance Fund from
risk, to prevent unsafe or unsound banking practices, and/or to ensure
that the activity is consistent with the purposes of federal deposit
insurance and other applicable law.
(2) Grandfathered insurance underwriting subsidiaries.
A subsidiary of an insured state bank may:
(i) Engage in grandfathered insurance underwriting if the insured
state bank or its subsidiary on November 21, 1991, was lawfully
providing insurance as principal. The subsidiary may continue to
provide the same types of insurance as principal to the residents of
the state or states in which the bank or subsidiary did so on such date
provided that:
(A)(1) The bank meets the capital requirements of
paragraph (e) of this section; and
(2) The subsidiary is an "eligible subsidiary"
as described in paragraph (c)(2) of this section; or
(B) The bank submits an application in compliance with
§ 303.121 of this chapter and the FDIC grants its consent under the
procedures in § 303.122(b) of this chapter.
(ii) Continue to provide as principal title insurance, provided
the bank was required before June 1, 1991, to provide title insurance
as a condition of the bank's initial chartering under state law and
neither the bank nor its parent holding company undergoes a change in
control.
(iii) May continue to provide as principal insurance which is
reinsured in whole or in part by the Federal Crop Insurance Corporation
if the subsidiary was engaged in the activity on or before September
30, 1991.
(3) Majority-owned subsidiaries' ownership of equity
investments that represent a control interest in a company. The
FDIC has determined that investment in the following by a
majority-owned subsidiary of an insured state bank does not represent a
significant risk to the Deposit Insurance Fund:
(i) Equity investment in a company engaged in real estate or
securities activities authorized in paragraph (b)(5) of this section if
the bank complies with the following restrictions and files a notice in
compliance with § 303.121 of this chapter and the FDIC processes the
notice without objection under § 303.122(a) of this chapter. The FDIC
is not precluded from taking any appropriate action or imposing
additional requirements with respect to the activity if the facts and
circumstances warrant such action. If changes to the management or
business plan of the company at any time result in material changes to
the nature of the company's business or the manner in which its
business is conducted, the insured state bank shall advise the
appropriate regional director (DOS) in writing within 10 business days
after such change. Investment under this paragraph is authorized if:
(A) The majority-owned subsidiary controls the company;
(B) The bank meets the core eligibility criteria of paragraph
(c)(1) of this section;
{{4-28-06 p.3124}}
(C) The majority-owned subsidiary meets the core eligibility
criteria of paragraph (c)(2) of this section (including any
modifications thereof applicable under paragraph (b)(5)(i) of this
section), or the company is a corporation meeting such criteria;
(D) The bank's transactions with the majority-owned subsidiary,
and the bank's transactions with the company, comply with the
investment and transaction limits of paragraph (d) of this section;
(E) The bank complies with the capital requirements of paragraph
(e) of this section with respect to the majority-owned subsidiary and
the company; and
(F) To the extent the company is engaged in securities activities
authorized by paragraph (b)(5)(ii) of this section, the bank and the
company comply with the additional requirements therein as if the
company were a majority-owned subsidiary.
(ii) Equity securities of a company engaged in the following
activities, if the majority-owned subsidiary controls the company or
the company is controlled by insured depository institutions, and the
bank meets and continues to meet the applicable capital standards as
prescribed by the appropriate federal banking agency. The FDIC consents
that a majority-owned subsidiary may conduct such activity without
first obtaining the FDIC's consent. The fact that prior consent is not
required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activity if the facts and
circumstances warrant such action:
(A) Any activity that is permissible for a national bank,
including such permissible activities that may require the company to
register as a securities broker;
(B) Acting as an insurance agency;
(C) Engaging in any activity permissible for an insured state
bank under § 362.3(b)(2)(iii) to the same extent permissible for the
insured bank thereunder, so long as instruments held under this
paragraph (b)(3)(ii)(C), paragraph (b)(7) of this section, and
§ 362.3(b)(2)(iii) in the aggregate do not exceed the limit set by
§ 362.3(b)(2)(iii);
(D) Engaging in any activity permissible for a majority-owned
subsidiary of an insured state bank under paragraph (b)(6) of this
section to the same extent and manner permissible for the
majority-owned subsidiary thereunder; and
(4) Majority-owned subsidiary's ownership of certain
securities that do not represent a control interest. (i)
Grandfathered investments in common or preferred stock and shares
of investment companies. Any insured state bank that has received
approval to invest in common or preferred stock or shares of an
investment company pursuant to § 362.3(a)(2)(iii) may conduct the
approved investment activities through a majority-owned subsidiary of
the bank without any additional approval from the FDIC provided that
any conditions or restrictions imposed with regard to the approval
granted under § 362.3(a)(2)(iii) are met.
(ii) Bank stock. An insured state bank may indirectly
through a majority-owned subsidiary organized for such purpose invest
in up to ten percent of the outstanding stock of another insured bank.
(5) Majority-owned subsidiaries conducting real estate
investment activities and securities underwriting. The FDIC has
determined that the following activities do not represent a significant
risk to the Deposit Insurance Fund, provided that the activities are
conducted by a majority-owned subsidiary of an insured state bank in
compliance with the core eligibility requirements listed in paragraph
(c) of this section; any additional requirements listed in paragraph
(b)(5)(i) or (ii) of this section; the bank complies with the
investment and transaction limitations of paragraph (d) of this
section; and the bank meets the capital requirements of paragraph (e)
of this section. The FDIC consents that these listed activities may be
conducted by a majority-owned subsidiary of an insured state bank if
the bank files a notice in compliance with
§ 303.121 of this
chapter and the FDIC processes the notice without objection under
§ 303.122(a) of this
chapter. The FDIC is not precluded from taking any appropriate action
or imposing additional requirements with respect to the activities if
the facts and circumstances warrant such action. If changes to the
management or business plan of the majority-owned subsidiary at any
time result in material changes to the nature of the majority-owned
subsidiary's business or the manner in
{{4-28-06 p.3124.01}}which its business or the
manner in which its business is conducted, the insured state bank shall
advise the appropriate regional director (DOS) in writing within 10
business days after such change. Such a majority-owned subsidiary may:
(i) Real estate investment activities. Engage in real
estate investment activities. However, the requirements of paragraph
(c)(2)(ii), (v), (vi), and (xi) of this section need not be met if the
bank's investment in the equity securities of the subsidiary does not
exceed 2 percent of the bank's tier one capital; the bank has only one
subsidiary engaging in real estate investment activities; and the
bank's total investment in the subsidiary does not include any
extensions of credit from the bank to the subsidiary, any debt
instruments issued by the subsidiary, or any other transaction
originated by the bank that is used to benefit the subsidiary.
(ii) Securities activities. Engage in the public sale,
distribution or underwriting of securities that are not permissible for
a national bank under section 16 of the Banking Act of 1933 (12 U.S.C.
24 Seventh), provided that the insured state nonmember bank lawfully
controlled or acquired the subsidiary and had an approved notice or
order from the FDIC prior to November 12, 1999 and provided that the
following additional conditions are, and continue to be, met:
(A) The state-chartered depository institution adopts
policies and procedures, including appropriate limits on exposure, to
govern the institution's participation in financing transactions
underwritten or arranged by an underwriting majority-owned subsidiary;
(B) The state-chartered depository institution may not express an
opinion on the value or the advisability of the purchase or sale of
securities underwritten or dealt in by a majority-owned subsidiary
unless the state-chartered depository institution notifies the customer
that the majority-owned subsidiary is underwriting or distributing the
security;
(C) The majority-owned subsidiary is registered with the
Securities and Exchange Commission, is a member in good standing with
the appropriate self-regulatory organization, and promptly informs the
appropriate regional director (DOS) in writing of any material actions
taken against the majority-owned subsidiary or any of its employees by
the state, the appropriate self-regulatory organizations or the
Securities and Exchange Commission; and
(D) The state-chartered depository institution does not knowingly
purchase as principal or fiduciary during the existence of any
underwriting or selling syndicate any securities underwritten by the
majority-owned subsidiary unless the purchase is approved by the
state-chartered depository institution's board of directors before the
securities are initially offered for sale to the public.
(6) Real estate leasing. A majority-owned subsidiary
of an insured state bank acting as lessor under a real property lease
which is the equivalent of a financing transaction, meeting the lease
criteria of paragraph (b)(6)(i) of this section and the underlying real
estate requirements of paragraph (b)(6)(ii) of this section, does not
represent a significant risk to the Deposit Insurance Fund. A
majority-owned subsidiary may conduct this activity without first
obtaining the FDIC's consent, provided that the bank meets and
continues to meet the applicable capital standards as prescribed by the
appropriate federal banking agency. The fact that prior consent is not
required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activity if the facts and
circumstances warrant such action.
(i) Lease criteria--(A) Capital lease. The
lease must qualify as a capital lease as to the lessor under generally
accepted accounting principles.
(B) Nonoperating basis. The bank and the
majority-owned subsidiary shall not, directly or indirectly, provide or
be obligated to provide servicing, repair, or maintenance to the
property, except that the lease may include provisions permitting the
subsidiary to protect the value of the leased property in the event of
a change in circumstances that increases the subsidiary's exposure to
loss, or the subsidiary may take reasonable and appropriate action to
salvage or protect the value of the leased property in such
circumstances.
(ii) Underlying real property
requirements--(A) Acquisition. The majority-owned
subsidiary may acquire specific real estate to be leased only after the
subsidiary has entered into:
(1) A lease meeting the requirements of paragraph
(b)(6)(i) of this section;
(2) A legally binding written commitment to enter into
such a lease; or
(3) A legally binding written agreement that
indemnifies the subsidiary against loss in connection with its
acquisition of the property.
{{4-28-06 p.3124.02}}
(B) Improvements. Any expenditures by the
majority-owned subsidiary to make reasonable repairs, renovations, and
improvements necessary to render the property suitable to the lessee
shall not exceed 25 percent of the majority-owned subsidiary's full
investment in the real estate.
(C) Divestiture. At the expiration of the initial
lease (including any renewals or extensions thereof), the
majority-owned subsidiary shall, as soon as practicable but in any
event no less than two years, either:
(1) Re-lease the property under a lease meeting the
requirement of paragraph (b)(6)(i)(B) of this section; or
(2) Divest itself of all interest in the property.
(7) Acquiring and retaining adjustable rate and
money market preferred stock and similar instruments. The FDIC
has determined it does not present a significant risk to the Deposit
Insurance Fund for a majority-owned subsidiary of an insured state bank
to engage in any activity permissible for an insured state bank under
§ 362.3(b)(2)(iii), so long as instruments held under this paragraph,
paragraph (b)(3)(ii)(C) of this section, and § 362.3(b)(2)(iii) in
the aggregate do not exceed the limit set by § 362.3(b)(2)(iii). A
majority-owned subsidiary may conduct this activity without first
obtaining the FDIC's consent, provided that the bank meets and
continues to meet the applicable capital standards as prescribed by the
appropriate federal banking agency. The fact that prior consent is not
required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activity if the facts and
circumstances warrant such action.
(c) Core eligibility requirements. If specifically
required by this part or by FDIC order, any state-chartered depository
institution that wishes to be eligible and continue to be eligible to
conduct as principal activities through a subsidiary that are not
permissible for a subsidiary of a national bank must be an "eligible
depository institution" and the subsidiary must be an "eligible
subsidiary".
(1) A state-chartered depository institution is an "eligible
depository institution" if it:
(i) Has been chartered and operating for three or more years,
unless the appropriate regional director (DOS) finds that the
state-chartered depository institution is owned by an established,
well-capitalized, well-managed holding company or is managed by
seasoned management;
(ii) Has an FDIC-assigned composite rating of 1 or 2 assigned
under the Uniform Financial Institutions Rating System (UFIRS) (or such
other comparable rating system as may be adopted in the future) as a
result of its most recent federal or state examination for which the
FDIC assigned a rating;
(iii) Received a rating of 1 or 2 under the "management"
component of the UFIRS as assigned by the institution's appropriate
federal banking agency;
(iv) Has a satisfactory or better Community Reinvestment Act
rating at its most recent examination conducted by the institution's
appropriate federal banking agency;
(v) Has a compliance rating of 1 or 2 at its most recent
examination conducted by the institution's appropriate federal banking
agency; and
(vi) Is not subject to a cease and desist order, consent order,
prompt corrective action directive, formal or informal written
agreement, or other administrative agreement with its appropriate
federal banking agency or chartering authority.
(2) A subsidiary of a state-chartered depository institution is
an "eligible subsidiary" if it:
(i) Meets applicable statutory or regulatory capital requirements
and has sufficient operating capital in light of the normal obligations
that are reasonably foreseeable for a business of its size and
character within the industry;
(ii) Is physically separate and distinct in its operations from
the operations of the state-chartered depository institution, provided
that this requirement shall not be construed to prohibit the
state-chartered depository institution and its subsidiary from sharing
the same facility if the area where the subsidiary conducts business
with the public is clearly distinct from the area where customers of
the state-chartered depository institution conduct business with the
institution. The extent of the separation will vary according to the
type and frequency of customer contact;
(iii) Maintains separate accounting and other business records;
(iv) Observes separate business entity formalities such as
separate board of directors' meetings;
(v) Has a chief executive officer of the subsidiary who is not an
employee of the institution;
{{4-28-06 p.3124.03}}
(vi) Has a majority of its board of directors who are neither
directors nor executive officers of the state-chartered depository
institution;
(vii) Conducts business pursuant to independent policies and
procedures designed to inform customers and prospective customers of
the subsidiary that the subsidiary is a separate organization from the
state-chartered depository institution and that the state-chartered
depository institution is not responsible for and does not guarantee
the obligations of the subsidiary;
(viii) Has only one business purpose within the types described
in paragraphs (b)(2) and (b)(5) of this section;
(ix) Has a current written business plan that is appropriate to
the type and scope of business conducted by the subsidiary;
(x) Has qualified management and employees for the type of
activity contemplated, including all required licenses and memberships,
and complies with industry standards; and
(xi) Establishes policies and procedures to ensure adequate
computer, audit and accounting systems, internal risk management
controls, and has necessary operational and managerial infrastructure
to implement the business plan.
(d) Investment and transaction
limits--(1) General. If specifically required by this
part or FDIC order, the following conditions and restrictions apply to
an insured state bank and its subsidiaries that engage in and wish to
continue to engage in activities which are not permissible for a
national bank subsidiary.
(2) Investment limits--(i) Aggregate investment
in subsidiaries. An insured state bank's aggregate investment in
all subsidiaries conducting activities subject to this paragraph (d)
shall not exceed 20 percent of the insured state bank's tier one
capital.
(ii) Definition of investment. (A) For purposes of
this paragraph (d), the term "investment" means:
(1) Any extension of credit to the subsidiary by the
insured state bank;
(2) Any debt securities, as such term is defined in
part 344 of this chapter, issued by the subsidiary held by the insured
state bank;
(3) The acceptance by the insured state bank of
securities issued by the subsidiary as collateral for an extension of
credit to any person or company; and
(4) Any extensions of credit by the insured state bank
to any third party for the purpose of making a direct investment in the
subsidiary, making any investment in which the subsidiary has an
interest, or which is used for the benefit of, or transferred to, the
subsidiary.
(B) For the purposes of this paragraph (d), the term
"investment" does not include:
(1) Extensions of credit by the insured state bank to
finance sales of assets by the subsidiary which do not involve more
than the normal degree of risk of repayment and are extended on terms
that are substantially similar to those prevailing at the time for
comparable transactions with or involving unaffiliated persons or
companies;
(2) An extension of credit by the insured state bank
to the subsidiary that is fully collateralized by government
securities, as such term is defined in
§ 344.3 of this chapter;
or
(3) An extension of credit by the insured state bank
to the subsidiary that is fully collateralized by a segregated deposit
in the insured state bank.
(3) Transaction requirements--(i) Arm's length
transaction requirement. With the exception of giving the
subsidiary immediate credit for uncollected items received in the
ordinary course of business, an insured state bank may not carry out
any of the following transactions with a subsidiary subject to this
paragraph (d) unless the transaction is on terms and conditions that
are substantially the same as those prevailing at the time for
comparable transactions with unaffiliated parties:
(A) Make an investment in the subsidiary;
(B) Purchase from or sell to the subsidiary any assets (including
securities);
(C) Enter into a contract, lease, or other type of agreement with
the subsidiary;
(D) Pay compensation to a majority-owned subsidiary or any person
or company who has an interest in the subsidiary; or
(E) Engage in any such transaction in which the proceeds thereof
are used for the benefit of, or are transferred to, the subsidiary.
(ii) Prohibition on purchase of low quality assets. An
insured state bank is prohibited from purchasing a low quality asset
from a subsidiary subject to this paragraph (d). For purposes of this
subsection, "low quality asset" means:
{{4-28-06 p.3124.04}}
(A) An asset classified as "substandard", "doubtful",
or "loss" or treated as "other assets especially mentioned"
in the most recent report of examination of the bank;
(B) An asset in a nonaccrual status;
(C) An asset on which principal or interest payments are more
than 30 days past due; or
(D) An asset whose terms have been renegotiated or compromised
due to the deteriorating financial condition of the obligor.
(iii) Insider transaction restriction. Neither the
insured state bank nor the subsidiary subject to this paragraph (d) may
enter into any transaction (exclusive of those covered by
§ 337.3 of this chapter)
with the bank's executive officers, directors, principal shareholders
or related interests of such persons which relate to the subsidiary's
activities unless:
(A) The transactions are on terms and conditions that are
substantially the same as those prevailing at the time for comparable
transactions with persons not affiliated with the insured state bank;
or
(B) The transactions are pursuant to a benefit or compensation
program that is widely available to employees of the bank, and that
does not give preference to the bank's executive officers, directors,
principal shareholders or related interests of such persons over other
bank employees.
(iv) Anti-tying restriction. Neither the insured state
bank nor the majority-owned subsidiary may require a customer to either
buy any product or use any service from the other as a condition of
entering into a transaction.
(4) Collateralization requirements. (i) An insured
state bank is prohibited from making an investment in a subsidiary
subject to this paragraph (d) unless such transaction is
fully-collateralized at the time the transaction is entered into. No
insured state bank may accept a low quality asset as collateral. An
extension of credit is fully collateralized if it is secured at the
time of the transaction by collateral having a market value equal to at
least:
(A) 100 percent of the amount of the transaction if the
collateral is composed of:
(1) Obligations of the United States or its agencies;
(2) Obligations fully guaranteed by the United States
or its agencies as to principal and interest;
(3) Notes, drafts, bills of exchange or bankers
acceptances that are eligible for rediscount or purchase by the Federal
Reserve Bank; or
(4) A segregated, earmarked deposit account with the
insured state bank;
(B) 110 percent of the amount of the transaction if the
collateral is composed of obligations of any state or political
subdivision of any state;
(C) 120 percent of the amount of the transaction if the
collateral is composed of other debt instruments, including
receivables; or
(D) 130 percent of the amount of the transaction if the
collateral is composed of stock, leases, or other real or personal
property.
(ii) An insured state bank may not release collateral prior to
proportional payment of the extension of credit; however, collateral
may be substituted if there is no diminution of collateral coverage.
(5) Investment and transaction limits extended to insured
state bank subsidiaries. For purposes of applying paragraphs
(d)(2) through (d)(4) of this section, any reference to "insured
state bank" means the insured state bank and any subsidiaries of the
insured state bank which are not themselves subject under this part or
FDIC order to the restrictions of this paragraph (d).
(e) Capital requirements. If specifically required by
this part or by FDIC order, any insured state bank that wishes to
conduct or continue to conduct as principal activities through a
subsidiary that are not permissible for a subsidiary of a national bank
must:
(1) Be well-capitalized after deducting from its tier one capital
the investment in equity securities of the subsidiary as well as the
bank's pro rata share of any retained earnings of the subsidiary;
(2) Reflect this deduction in the appropriate schedule of the
bank's consolidated report of income and condition; and
(3) Use such regulatory capital amount for the purposes of the
bank's assessment risk classification under
part 327 of this chapter and
its categorization as a "well-capitalized", an "adequately
capitalized", an "undercapitalized", or a "significantly
undercapitalized" institution as defined in
§ 325.103(b) of this
chapter, provided that the capital deduction
{{4-28-06 p.3124.05}}shall not be used for purposes
of determining whether the bank is "critically undercapitalized"
under part 325 of this chapter.
[Codified to 12 C.F.R. § 362.4]
[Section 362.4 amended at 66 Fed. Reg. 1028, January 5, 2001; 71
Fed. Reg. 20527, April 21, 2006]
§ 362.5 Approvals previously granted.
(a) FDIC consent by order or notice. An insured state
bank that previously filed an application or notice under part 362 in
effect prior to January 1, 1999 (see 12 CFR part 362 revised as of
January 1, 1998), and obtained the FDIC's consent to engage in an
activity or to acquire or retain a majority-owned subsidiary engaging
as principal in an activity or acquiring and retaining any investment
that is prohibited under this subpart may continue that activity or
retain that investment without seeking the FDIC's consent, provided
that the insured state bank and its subsidiary, if applicable, continue
to meet the conditions and restrictions of the approval. An insured
state bank which was granted approval based on conditions which differ
from the requirements of § 362.4(c)(2), (d) and (e) will be
considered to meet the conditions and restrictions of the approval
relating to being an eligible subsidiary, meeting investment and
transaction limits, and meeting capital requirements if the insured
state bank and subsidiary meet the requirements of § 362.4(c)(2), (d)
and (e). If the majority-owned subsidiary is engaged in real estate
investment activities not exceeding 2 percent of the tier one capital
of a bank and meeting the other conditions of § 362.4(b)(5)(i), the
majority-owned subsidiary's compliance with § 362.4(c)(2) under the
preceding sentence may be pursuant to the modifications authorized by
§ 362.4(b)(5)(i). Once an insured state bank elects to comply with
§ 362.4(c)(2), (d), and (e), it may not revert to the corresponding
provisions of the approval order.
(b)(1)--(5) [Reserved]
(6) Adjustable rate or money market preferred stock.
An insured state bank owning adjustable rate or money market
(auction rate) preferred stock pursuant to § 362.4(c)(3)(v) in effect
prior to January 1, 1999 (see 12 CFR part 362 revised as of January 1,
1998), in excess of the amount limit in § 362.3(b)(2)(iii) may
continue to hold any overlimit shares of such stock acquired before
January 1, 1999, until redeemed or repurchased by the issuer, but such
stock shall be included as part of the amount limit in
§ 362.3(b)(2)(iii) when determining whether the bank may acquire new
stock thereunder.
(c) Charter conversions. (1) An insured state bank that
has converted its charter from an insured state savings association may
continue activities through a majority-owned subsidiary that were
permissible prior to the time it converted its charter only if the
insured state bank receives the FDIC's consent. Except as provided in
paragraph (c)(2) of this section, the insured state bank should apply
under § 362.4(b)(1), submit any notice required under § 362.4(b)(4)
or (5), or comply with the provisions of § 362.4(b)(3), (6), or (7)
if applicable, to continue the activity.
(2) Exception for prior consent. If the FDIC had
granted consent to the savings association under section 28 of the
Federal Deposit Insurance Act (12 U.S.C. 1831(e)) prior to the time the
savings association converted its charter, the insured state bank may
continue the activities without providing notice or making application
to the FDIC, provided that the bank and its subsidiary as applicable
are in compliance with:
(i) The terms of the FDIC approval order; and
(ii) The provisions of § 362.4(c)(2), (d), and (e) regarding
operating as an "eligible subsidiary", "investment and
transaction limits", and "capital requirements".
(3) Divestiture. An insured state bank that does not
receive FDIC consent shall divest of the nonconforming investment as
soon as practical but in no event later than two years from the date of
charter conversion.
[Codified to 12 C.F.R. § 362.5]
[Section 362.5 amended at 66 Fed. Reg. 1028, January 5,
2001]
1Financial institution letters (FILs) are available in the FDIC
Public
Information Center, room 100, 801 17th Street, N.W.,
Washington, D.C. 20429. Go Back to Text
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