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Home > News & Events > Financial Institution Letters




Financial Institution Letters


[Federal Register: July 10, 1995 (Volume 60, Number 131)]
[Rules and Regulations]               
[Page 35673-35687]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



[[Page 35673]]

_______________________________________________________________________

Part IV

Department of the Treasury
Office of the Comptroller of the Currency



12 CFR Part 30

Federal Reserve System



12 CFR Parts 208 and 263

Federal Deposit Insurance Corporation



12 CFR Parts 303, 308, and 364

Department of the Treasury
Office of Thrift Supervision



12 CFR Part 570



_______________________________________________________________________



Standards for Safety and Soundness and Interagency Guidelines 
Establishing Standards for Safety and Soundness; Final Rule and 
Proposed Rule


[[Page 35674]]


DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 30

[Docket No. 95-15]

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 263

[Docket No. R-0766]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 308 and 364

RIN 3064-AB13

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 570

[No. 95-113]
RIN 1550-AA54

 
Standards for Safety and Soundness

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; Federal Deposit Insurance 
Corporation; and Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: As required by section 132 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA), the Office of the 
Comptroller of the Currency (OCC), the Board of Governors of the 
Federal Reserve System (Board of Governors), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of Thrift Supervision 
(OTS) (collectively, the agencies) have adopted a final rule 
establishing deadlines for submission and review of safety and 
soundness compliance plans. The agencies may require compliance plans 
to be filed by an insured depository institution for failure to meet 
the safety and soundness standards prescribed by guideline pursuant to 
section 39 of the Federal Deposit Insurance Act (FDI Act). In 
conjunction with this final rule, the agencies have adopted Interagency 
Guidelines Establishing Standards for Safety and Soundness 
(Guidelines). The Guidelines will appear as an appendix to each of the 
agencies' final rule. The agencies view the final rule and Guidelines 
as a realistic balance between the objectives of section 132 of FDICIA 
and avoiding overly burdensome regulation.
    In November 1993, the agencies published in the Federal Register a 
joint notice of proposed rulemaking prescribing standards for safety 
and soundness, including standards for asset quality and earnings. The 
agencies are proposing revised asset quality and earnings standards. A 
document requesting comment on these standards is published elsewhere 
in this separate part of the Federal Register. The agencies intend to 
add asset quality and earnings standards to the Guidelines after public 
comments are considered and final standards are adopted.

EFFECTIVE DATE: August 9, 1995.

FOR FURTHER INFORMATION CONTACT: OCC: Emily R. McNaughton, National 
Bank Examiner (202/874-5170), Office of the Chief National Bank 
Examiner; David Thede, Senior Attorney (202/874-5210), Securities and 
Corporate Practices Division, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219.
    Board of Governors: David Wright, Supervisory Financial Analyst 
(202/728-5854), Division of Banking Supervision and Regulation; Scott 
G. Alvarez, Associate General Counsel (202/452-3583), Gregory A. Baer, 
Managing Senior Counsel (202/452-3236), Legal Division, Board of 
Governors of the Federal Reserve System. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544), Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551.
    FDIC: Robert W. Walsh, Manager, Planning and Program Development 
(202/898-6911) or Michael D. Jenkins, Examination Specialist (202/898-
6896), Division of Supervision; Lisa M. Stanley, Senior Counsel (202/
898-7494) or Nancy L. Alper, Counsel (202/898-3720), Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, 
DC 20429.
    OTS: William Magrini, Project Manager (202/906-5744), Policy 
Office, Cathern Smith, Regional Coordinator (202/906-6614), Regional 
Operations; Kevin Corcoran, Assistant Chief Counsel (202/906-6962), 
Teri M. Valocchi, Counsel (Banking and Finance) (202/906-7299), Chief 
Counsel's Office, Office of Thrift Supervision, 1700 G Street NW., 
Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Framework

    Section 132 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 (FDICIA), Pub. L. 102-242, added a new section 
39 to the FDI Act (12 U.S.C. 1831p-1) which required each Federal 
banking agency to establish by regulation certain safety and soundness 
standards for the insured depository institutions and depository 
institution holding companies for which it was the primary Federal 
regulator. That portion of section 39 that addresses compensation was 
subsequently amended by section 956 of the Housing and Community 
Development Act of 1992, Pub. L. 102-550.
    On September 23, 1994, the Riegle Community Development and 
Regulatory Improvement Act of 1994 (CDRI Act), Pub. L. 103-325, was 
enacted. Section 318 of the CDRI Act further amended section 39 of the 
FDI Act: (1) To authorize the agencies to establish safety and 
soundness standards by regulation or by guideline for all insured 
depository institutions; (2) to give the agencies greater flexibility 
in prescribing asset quality and earnings standards; and (3) to 
eliminate the requirement that standards prescribed under section 39 
apply to depository institution holding companies. Pursuant to section 
318 of the CDRI Act, these amendments have the same effective date as 
section 39 of the FDI Act, as provided in section 132(c) of FDICIA.
    Section 39(a) requires the agencies to establish operational and 
managerial standards relating to: (1) Internal controls, information 
systems and internal audit systems, in accordance with section 36 of 
the FDI Act (12 U.S.C. 1831m); (2) loan documentation; (3) credit 
underwriting; (4) interest rate exposure; (5) asset growth; and (6) 
compensation, fees, and benefits, in accordance with subsection (c) of 
section 39 of the FDI Act. Section 39(b) requires the agencies to 
establish standards relating to asset quality, earnings, and stock 
valuation that the agencies determine to be appropriate.
    Section 39(c) requires the agencies to establish standards 
prohibiting as an unsafe and unsound practice any compensatory 
arrangement that would provide an executive officer, employee, 
director, or principal shareholder of the institution with excessive 
compensation, fees or benefits and any compensatory arrangement that 
could lead to material financial loss to an institution. Section 39(c) 
also requires that the agencies establish standards that specify when 
compensation is excessive. If an agency determines that an institution 
fails to meet any standard established by regulation under subsection 
(a) or (b) of section 39, the institution must submit to the agency an 
acceptable plan to achieve compliance with the standard. Under the CDRI 
Act 

[[Page 35675]]
amendment to section 39, if an agency determines that an institution 
fails to meet any standard established by guideline under subsection 
(a) or (b) of section 39, the agency may require the institution to 
submit to the agency an acceptable plan to achieve compliance with the 
standard.
    Where an agency requires submission of a plan to achieve compliance 
with the standards, if the institution fails to submit an acceptable 
plan within the time allowed by the agency or fails in any material 
respect to implement an accepted plan, the agency must, by order, 
require the institution to correct the deficiency. The agency may, and 
in some cases must, take other supervisory actions until the deficiency 
has been corrected.

B. Agencies' Proposals

    On July 15, 1992, the agencies published a joint advance notice of 
proposed rulemaking (ANPR) in the Federal Register, 57 FR 31336, for a 
60-day comment period. The agencies received over 400 comment letters 
in response to the ANPR, with some letters submitted to more than one 
agency. Commenters strongly recommended that the agencies propose 
general rather than specific standards in order to avoid regulatory 
micromanagement.
    On November 18, 1993, the agencies published a joint notice of 
proposed rulemaking in the Federal Register, 59 FR 60802, for a 45-day 
comment period. Based on comments received in response to the ANPR, the 
agencies proposed general standards designed to identify emerging 
safety and soundness problems in depository institutions.
II. The Final Rule

    Although section 39 of the FDI Act, as amended by the CDRI Act, 
allows the agencies to establish safety and soundness standards by 
regulation or by guideline, section 39(e) of the FDI Act continues to 
require the agencies to establish deadlines for submission and review 
of compliance plans by regulation. For this reason, although the 
agencies have established safety and soundness standards by guideline, 
the agencies have established deadlines and procedures for submission 
and review of compliance plans by regulation.
    The agencies' final rule adopts the procedures proposed for 
submission of compliance plans and issuance of orders, except that, 
under the final rule, the agencies are authorized, rather than 
required, to request a compliance plan for failure to satisfy the 
safety and soundness standards set out in the Guidelines. The 
procedures for issuing orders in the final rule are modelled after 
those adopted by the agencies for issuance of prompt corrective action 
directives pursuant to section 38 of the FDI Act.
    The agencies expect that noncompliance with the standards adopted 
pursuant to section 39 generally will be detected during examinations 
of institutions. Under the final rule, an institution must file a 
compliance plan within 30 days of a request to do so from the 
institution's primary Federal regulator. An agency may extend or 
shorten that time, if necessary. The agency then generally has 30 days 
to review the plan.
    Several commenters requested an extension, from 30 days to 60 days 
or more, of the time period within which an institution must file a 
compliance plan after receiving a request from the agency to do so. The 
agencies' proposal allowed the agencies to require that a compliance 
plan be filed within 30 days or within a time period specified by the 
agencies. The agencies believe that this provision provides sufficient 
flexibility to extend the time period where appropriate or necessary. 
Accordingly, the agencies have decided not to extend the time period 
within which an institution must generally file a compliance plan. 
Although section 39 does not provide for any prior notice or 
administrative review of an agency order, the agencies' final rule 
provides for prior notice of, and an opportunity to respond to, a 
proposed order.
    A few commenters requested that the agencies extend from 14 to 60 
days or more the time period within which an institution must respond 
to the agency's notice of intent to issue an order requiring the 
institution to correct a safety and soundness deficiency or to take or 
refrain from taking other actions. Under the agencies' proposal, the 
agencies could determine that a different time period was appropriate 
in light of the safety and soundness of the institution or other 
relevant considerations. The agencies have decided to adopt the time 
period set forth in the proposal because the agencies believe that time 
period carries out the purpose of section 39 to facilitate early 
identification and correction of safety and soundness deficiencies.
    A compliance plan may, with the permission of the agency, be part 
of a capital restoration plan submitted pursuant to section 38 of the 
FDI Act (prompt corrective action) (12 U.S.C. 1831p), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act (12 
U.S.C. 1818), a formal or informal agreement, or a response to a report 
of examination.
    In conjunction with this rulemaking, the FDIC has amended part 303 
of its regulations regarding delegations of authority to act on 
compliance plans under section 39.

III. Interagency Guidelines Establishing Standards for Safety and 
Soundness

    The agencies have adopted Interagency Guidelines Establishing 
Standards for Safety and Soundness (Guidelines) pursuant to section 39 
of the FDI Act. By adopting the standards as guidelines, the agencies 
retain the authority to require an institution to submit an acceptable 
compliance plan as well as the flexibility to pursue other more 
appropriate or effective courses of action given the specific 
circumstances and severity of an institution's noncompliance with one 
or more standards. Failure to submit or adhere to a compliance plan 
will subject an institution to the sanctions under section 39.
    The agencies expect to request a compliance plan from an 
institution whose failure to meet one or more of the standards is of 
such severity that it could threaten the safe and sound operation of 
the institution. The agencies may elect to rely on an existing plan or 
enforcement action to ensure that an institution achieves compliance 
with the Guidelines, rather than requiring the submission of a separate 
safety and soundness compliance plan.
    The Guidelines set out the safety and soundness standards that the 
agencies will use to identify and address problems at institutions 
before capital becomes impaired. The agencies believe that the 
standards adopted in the Guidelines serve this end without dictating 
how institutions must be managed and operated. Adoption of these 
Guidelines is consistent with the overwhelming majority of commenters' 
recommendations that the standards established under section 39 be 
general and flexible in nature. The agencies have decided to use the 
flexibility provided by the CDRI Act to propose new asset quality and 
earnings standards which the agencies believe are more appropriate. 
Therefore, the agencies have not included these standards in the final 
Guidelines, but are seeking comment on these standards elsewhere in 
this separate part of the Federal Register. The agencies intend to add 
revised asset quality and earnings standards to the Guidelines after 
comments are considered and final standards are adopted.

A. Holding Company Coverage
    Section 318 of the CDRI Act eliminates the requirement that the 

[[Page 35676]]
    standards established pursuant to section 39 apply to depository 
institution holding companies. The Conference Report for the CDRI Act 
states, ``The Conferees intend these requirements to apply only to the 
depository institutions.'' H.R. Conf. Rep. No. 652, 103rd Cong., 2d 
Sess. 175 (1994). Accordingly, the Guidelines do not apply to holding 
companies.

B. Operational and Managerial Standards

    The agencies' proposed operational and managerial standards did not 
specify each procedure an institution must have in place. Instead, the 
proposed standards established the objectives that proper operations 
and management oversight should achieve, while leaving the methods for 
achieving those objectives to each institution. The proposed standards 
represented the fundamental standards in use by the agencies to assess 
the operational and managerial quality of an institution. The standards 
did not represent a change in any of the agencies' policies.
    The majority of commenters believed that the proposed standards 
were sufficiently flexible and general in nature. Commenters generally 
viewed the standards as a realistic balance between the mandates of 
section 39 and the objective of avoiding overly burdensome regulation. 
Many commenters believed that the standards would ensure that decision-
making responsibility resides with management of the institution.
    A few commenters expressed concern that the agencies' examination 
process would, in effect, require specific standards, and they asked 
that more specific guidance be provided to examiners to ensure 
consistent interpretation of the standards. The agencies acknowledge 
the importance of consistent interpretation of the Guidelines and are 
considering issuing guidance to their examination staffs.
    In response to the agencies' proposals, many commenters recommended 
that the agencies adopt standards that would apply according to an 
institution's asset size. The agencies recognize that smaller, less 
complex institutions may require less sophisticated systems and 
practices. Therefore, the standards for internal controls and 
information systems, internal audit systems, and credit underwriting 
state that these standards must be appropriate to the size of the 
institution and the nature and scope of its activities. In addition, 
the agencies' standard for interest rate exposure states that an 
institution must manage its interest rate risk in a manner appropriate 
to the size of the institution and the complexity of its assets and 
liabilities.
    The agencies specifically requested comment on whether the proposed 
standards would require institutions to modify their operations. While 
many commenters encouraged the agencies to exempt certain institutions 
from the standards based on asset size or capital category, the 
majority of commenters did not believe that the proposed standards 
would require institutions to modify their operations in order to 
comply. The agencies believe that well-managed institutions generally 
should not find it necessary to modify their operations in order to 
comply with the operational and managerial standards in the Guidelines.
    The standards adopted by the agencies are based in large measure 
upon the standards proposed by the agencies. In determining whether an 
institution satisfies the standards, the agencies intend to consider an 
institution's overall practices and performance so that an institution 
would not fail one of the standards due to an isolated error or 
inconsistency.
1. Compliance With Laws and Regulations
    The agencies' proposed standards for internal controls and 
information systems, loan documentation, credit underwriting, interest 
rate exposure and asset growth included a requirement for compliance 
with laws and regulations. Several commenters believed that this 
requirement was redundant and unnecessary since all institutions must 
comply with applicable laws and regulations and violation of a law or 
regulation may subject an institution to appropriate supervisory and 
enforcement action. The agencies believe that the express requirement 
to ensure compliance with applicable laws and regulations is a 
necessary standard for internal controls and information systems, but 
agree that repeating the requirement in the other standards is 
unnecessary. Accordingly, the requirement to ensure compliance with 
applicable laws and regulations has been deleted from the standards for 
loan documentation, credit underwriting, interest rate exposure and 
asset growth.
2. Internal Controls, Information Systems, and Internal Audit Systems
    The agencies' proposed standards for internal controls and 
information systems were designed to enable each institution to comply 
by using control systems tailored to its individual operating 
environment. The majority of commenters favored these standards. Some 
accounting and auditing firm commenters recommended that the agencies 
incorporate into the standards the guidelines prepared by the Committee 
of Sponsoring Organizations (COSO) of the Treadway Commission in 
``Internal Control: An Integrated Framework''. The agencies believe 
that the proposed internal control standards are consistent with the 
COSO framework for the structure of control systems. Therefore, using 
the COSO framework in developing and evaluating a system of internal 
controls is one way an institution could meet the standards proposed by 
the agencies.
    The agencies' proposal addressed internal audit systems separately. 
Internal audit systems are important to the ongoing monitoring of the 
effectiveness of the design and execution of any system of internal 
controls. The proposal required each institution to have an internal 
audit system that provided for adequate testing and review of internal 
controls and information systems among other provisions. Commenters 
criticized the requirement for an internal audit system because it 
seemed to imply that either a full-time internal auditor and staff or 
outside consultants would be necessary to perform an internal audit. 
Several commenters believed that the costs involved could not be 
justified for many smaller institutions.
    The proposed audit standard did not explicitly require an internal 
audit function. The agencies believe it is management's responsibility 
to consider carefully the level of audit activity that will provide 
effective monitoring of the internal control system after taking into 
account the audit system's costs and benefits. For many banking 
organizations that have reached a certain size or complexity of 
operations, the benefits derived from an independent internal audit 
function more than outweigh its cost. However, for certain smaller 
institutions with few employees and less complex operations, the costs 
may outweigh these benefits.
    Several commenters recommended that the agencies clarify how an 
institution, especially a small institution without an internal 
auditor, can ensure that its internal audit system provides for the 
``independence and objectivity'' of those performing internal audits. 
The agencies believe that this standard can be met by ensuring that the 
person conducting the review, whether the auditor and/or another 
employee, is independent from the function under review and is able to 
report findings directly to the board of directors or to a designated 
directors' audit committee. The Guidelines adopted by the agencies 
clarify the appropriate role of a system 

[[Page 35677]]
of independent reviews in an internal audit system.
    A few commenters noted that the proposed standard providing for 
``verification and review of management actions to address identified 
weaknesses'' seemed unnecessarily broad and potentially burdensome if 
the standard was interpreted to mean that every weakness, including 
minor, technical weaknesses, had to be specifically addressed by 
management in a report to the board of directors. To clarify this 
standard and to ensure that management's attention is focused on areas 
of concern, the agencies have changed ``identified weaknesses'' to 
``material weaknesses''.
    The agencies are aware that many institutions use data processing 
service organizations to execute and record transactions, maintain 
related records and process related data. The determination of whether 
an institution's independent auditor needs to review a service 
organization's operations, as they relate to the institution's internal 
controls, should be made in accordance with generally accepted auditing 
standards.
3. Loan Documentation
    The agencies' proposal specified what an institution's loan 
documentation practices must enable the institution to do, instead of 
specifying an item-by-item listing of loan documentation 
requirements.1 An overwhelming majority of commenters strongly 
favored general loan documentation standards. Commenters believed that 
the proposed standards were sufficiently general to allow for different 
treatment according to loan type and amount.

    \1\ The current regulation establishing detailed loan 
documentation requirements at 12 CFR 563.170(c) remains in effect 
for all savings associations regulated by the OTS.
---------------------------------------------------------------------------

    In response to numerous comments, the agencies wish to emphasize 
that in evaluating an institution's loan documentation practices, they 
do not expect an institution to obtain an opinion of legal counsel for 
the purpose of demonstrating that a claim against a borrower is legally 
enforceable. Rather, an institution must establish loan documentation 
practices that provide for proper recording or perfection of the 
security interest.
    The Guidelines adopt the agencies' standards on loan documentation 
as proposed. The agencies believe that the loan documentation standards 
provide a gauge against which compliance can be measured, while at the 
same time allowing for differing approaches to loan documentation.
    Under the Interagency Policy Statement Regarding Documentation of 
Small and Medium-sized Business and Farm Loans, (March 30, 1993), well-
managed, well- or adequately capitalized institutions are permitted to 
establish a ``basket'' of small- and medium-sized business and farm 
loans that will not be subject to examiner criticism based on 
documentation. The agencies' Guidelines do not affect the application 
of this interagency policy statement.
4. Credit Underwriting
    The agencies' proposed standards for credit underwriting 
established general parameters of safe and sound credit underwriting 
practices. Commenters overwhelmingly favored general credit 
underwriting standards rather than a detailed listing of requirements 
that must be met for each extension of credit. Based on the comments 
received, the agencies have adopted the credit underwriting standards 
as proposed, in guideline form.
5. Interest Rate Exposure
    The agencies proposed to require an institution to manage interest 
rate risk in a manner appropriate to the size of the institution and 
the complexity of its assets and liabilities and to provide for 
periodic reporting to management and the board of directors regarding 
interest rate risk. A majority of commenters supported this standard. 
Based on these comments, the agencies' Guidelines adopt this standard 
without change.
    Section 305 of FDICIA requires amendment of the agencies' risk-
based capital standards to take account of interest rate risk. The 
final regulation implementing section 305 may require some institutions 
to quantify interest rate risk.2

    \2\ The OTS regulation implementing section 305 requires 
additional capital from institutions that have ``above normal'' 
interest rate risk. See 58 FR 45299 (August 31, 1993).
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6. Asset Growth
    The agencies' proposal required an institution to base its asset 
growth on a plan that fully considered the source of the institution's 
growth, the risks presented by such growth, and the effect of growth on 
the institution's capital. Commenters overwhelmingly favored this 
approach rather than a quantitative limit on asset growth which the 
commenters believed would be overly restrictive and inconsistent with 
safety and soundness. The agencies do not believe that asset growth 
necessarily causes safety and soundness problems. The agencies, 
however, do find that unplanned or poorly managed asset growth can be a 
cause for concern.
    Based on the comments received, the agencies' Guidelines adopt the 
asset growth standard as proposed. The agencies will evaluate asset 
growth against an institution's overall strategic plan for growth.
7. Compensation, Fees and Benefits
    Section 39(a) requires the agencies to establish operational and 
managerial standards relating to compensation, fees and benefits. As 
noted in the agencies' proposal, this mandate is distinguishable from 
that of section 39(c), which requires the agencies to prohibit as an 
unsafe and unsound practice any compensation that is excessive or that 
could lead to material financial loss to an institution.
    The agencies' proposal required each institution to maintain 
safeguards to prevent the payment of compensation, fees, or benefits 
that are excessive or that could lead to material financial loss. A 
majority of commenters supported the agencies' proposed rules, although 
many commenters recommended that the rules exempt healthy institutions 
from the compensation standards.
    Section 39 does not allow for any exemptions from this standard. 
Moreover, the agencies do not believe that exemptions are necessary in 
view of the flexibility of this standard. For these reasons and based 
on the comments received, the agencies' Guidelines incorporate the 
proposed operational and managerial standards relating to compensation, 
fees and benefits without change.

C. Standards Relating to Stock Valuation

    The agencies believe that establishing stock valuation standards 
for publicly traded institutions is not appropriate. As indicated in 
the agencies' proposal, in the long run the market value of an 
organization is dependent on an institution's financial condition and 
performance, but over shorter and more operationally relevant time 
horizons, market value is also affected by factors such as the 
attractiveness of financial institution stocks relative to other 
competitors and industries, the performance of the general stock 
market, industry conditions and random fluctuations. Therefore, over 
any practical period of time, institutions do not have direct control 
over the marketplace's evaluation of their stock's value. An additional 
consideration is the appropriateness of applying a standard that 
affects only a subset of banking and thrift organizations and 

[[Page 35678]]
could operate to discourage depository institutions from becoming 
publicly traded. The agencies intend to continue their existing policy 
of augmenting their overall examinations and ongoing monitoring of 
publicly-traded institutions through the review of stock price changes, 
market price to book value ratios, bond ratings and other indicators of 
the market's assessment of an institution's performance. To the extent 
that an institution's market to book ratio appears to significantly 
contradict the agencies' assessment of its condition, the agencies 
intend to continue to scrutinize carefully such institutions for 
developing problems.

D. Prohibition on Compensation That is Excessive or That Could Lead to 
Material Financial Loss

    Section 39(c) of the FDI Act, as amended by the CDRI Act, continues 
to require the agencies to establish standards (1) prohibiting as an 
unsafe and unsound practice the payment of excessive compensation or 
compensation that could lead to material financial loss to an 
institution; and (2) specifying when compensation, fees, or benefits 
are excessive.
    The agencies' joint proposal relied upon the statutory language in 
formulating the standards required under section 39(c). Commenters 
strongly supported the use of the factors set forth in section 39(c) as 
the sole standard in defining excessive compensation. Commenters 
believed that more detailed standards would constitute micro-management 
of an institution's management practices. Accordingly, the agencies' 
Guidelines include the compensation standards as proposed.
    In the Guidelines, as under the proposal, compensation is 
considered excessive if it is unreasonable or disproportionate to the 
services actually performed by the executive officer, employee, 
director, or principal shareholder being compensated. In making that 
determination, the agencies will consider all relevant factors, 
including those set out in section 39(c).

E. Effect on Agencies' Existing Authority

    Compliance with the standards set out in the Guidelines does not 
preclude the agencies from finding that an institution is engaged in an 
unsafe and unsound practice or is in an unsafe and unsound condition. 
Conversely, failure to comply with the standards set out in the 
Guidelines does not necessarily constitute an unsafe or unsound 
practice or an unsafe and unsound condition, except for failure to 
comply with the standard prohibiting payment of excessive compensation 
or compensation that could lead to material financial loss.
    The agencies may take supervisory action against an institution 
that has not been requested to submit a safety and soundness compliance 
plan. In addition, the agencies may request submission of a compliance 
plan without taking any other supervisory or enforcement action.

IV. Regulatory Flexibility Act

    The agencies have concluded that the final rule will not impose a 
significant economic hardship on small institutions. The rule 
establishes deadlines for submission and review of compliance plans 
requested by the agencies of any insured depository institution which 
fails to meet the standards adopted by the agencies in the Interagency 
Guidelines Establishing Standards for Safety and Soundness. The impact 
of the final rule on small institutions should be proportionate to its 
impact on larger institutions. Accordingly, pursuant to section 605(b) 
of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the agencies hereby 
certify that the final rule will not have a significant economic impact 
on a substantial number of small entities.

V. OCC and OTS: Unfunded Mandates Reform Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act) (signed into law on March 22, 1995) 
requires that an agency prepare a budgetary impact statement before 
promulgating a rule that includes a Federal mandate that may result in 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. As discussed in the preamble, the final rule establishes 
deadlines and procedures for submission and review of safety and 
soundness plans and establishes standards for safety and soundness, as 
prescribed by section 132 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991, Pub. L. 102-242. The standards represent the 
fundamental standards in use by the agencies, represent no change in 
the agencies' policies and impose minimal new Federal requirements. 
Thus, no additional costs to State, local or tribal governments or to 
the private sector of $100 million or more in any one year result from 
this rule. Accordingly, the OCC and OTS have not prepared a budgetary 
impact statement nor specifically addressed any regulatory 
alternatives.

VI. Effective Date

    The agencies have determined that pursuant to section 302 of the 
Riegle Community Development and Regulatory Improvement Act of 1994 
(CDRI), Pub. L. 104-4, there is good cause for the final rule on safety 
and soundness to be effective 30 days after publication in the Federal 
Register. The implementation of this final regulation has been delayed 
because of changes required due to changes in the statute. CDRI amended 
12 U.S.C. 1831p-1 to allow the agencies to implement the standards for 
safety and soundness by guideline rather than regulation. Under the 
guidelines the agencies may require an institution that fails to meet 
the standards to file a compliance plan. However, that action would be 
taken on a case-by-case basis after adequate notice to the institution. 
Therefore, the agencies believe that further delay is unnecessary.

VII. Executive Order 12866

    The OCC and the OTS have determined that this final rule is not a 
``significant regulatory action'' for purposes of Executive Order 
12866.

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Text of Final Common Rule

    The text of the agencies' final common rule appears below:

Appendix ____ to Part ____--Interagency Guidelines Establishing 
Standards for Safety and Soundness

Table of Contents

I. Introduction

    A. Preservation of existing authority.
    B. Definitions.

II. Operational and Managerial Standards

    A. Internal controls and information systems.
    B. Internal audit system.
    C. Loan documentation.
    D. Credit underwriting.
    E. Interest rate exposure.
    F. Asset growth.
    G. [Reserved].
    H. [Reserved].
    I. Compensation, fees and benefits.

III. Prohibition on Compensation That Constitutes an Unsafe and 
Unsound Practice

    A. Excessive compensation.
    B. Compensation leading to material financial loss. 

[[Page 35679]]


I. Introduction

    i. Section 39 of the Federal Deposit Insurance Act 1 (FDI 
Act) requires each Federal banking agency (collectively, the 
agencies) to establish certain safety and soundness standards by 
regulation or by guideline for all insured depository institutions. 
Under section 39, the agencies must establish three types of 
standards: (1) Operational and managerial standards; (2) 
compensation standards; and (3) such standards relating to asset 
quality, earnings, and stock valuation as they determine to be 
appropriate.

    \1\ Section 39 of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1) was added by section 132 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA), Pub. L. 102-242, 105 
Stat. 2236 (1991), and amended by section 956 of the Housing and 
Community Development Act of 1992, Pub. L. 102-550, 106 Stat. 3895 
(1992) and section 318 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 
(1994).
---------------------------------------------------------------------------

    ii. Section 39(a) requires the agencies to establish operational 
and managerial standards relating to: (1) Internal controls, 
information systems and internal audit systems, in accordance with 
section 36 of the FDI Act (12 U.S.C. 1831m); (2) loan documentation; 
(3) credit underwriting; (4) interest rate exposure; (5) asset 
growth; and (6) compensation, fees, and benefits, in accordance with 
subsection (c) of section 39. Section 39(b) requires the agencies to 
establish standards relating to asset quality, earnings, and stock 
valuation that the agencies determine to be appropriate.
    iii. Section 39(c) requires the agencies to establish standards 
prohibiting as an unsafe and unsound practice any compensatory 
arrangement that would provide any executive officer, employee, 
director, or principal shareholder of the institution with excessive 
compensation, fees or benefits and any compensatory arrangement that 
could lead to material financial loss to an institution. Section 
39(c) also requires that the agencies establish standards that 
specify when compensation is excessive.
    iv. If an agency determines that an institution fails to meet 
any standard established by guideline under subsection (a) or (b) of 
section 39, the agency may require the institution to submit to the 
agency an acceptable plan to achieve compliance with the standard. 
In the event that an institution fails to submit an acceptable plan 
within the time allowed by the agency or fails in any material 
respect to implement an accepted plan, the agency must, by order, 
require the institution to correct the deficiency. The agency may, 
and in some cases must, take other supervisory actions until the 
deficiency has been corrected.
    v. The agencies have adopted amendments to their rules and 
regulations to establish deadlines for submission and review of 
compliance plans.2

    \2\ For the Office of the Comptroller of the Currency, these 
regulations appear at 12 CFR Part 30; for the Board of Governors of 
the Federal Reserve System, these regulations appear at 12 CFR Part 
263; for the Federal Deposit Insurance Corporation, these 
regulations appear at 12 CFR Part 308, subpart R, and for the Office 
of Thrift Supervision, these regulations appear at 12 CFR Part 570.
---------------------------------------------------------------------------

    vi. The following Guidelines set out the safety and soundness 
standards that the agencies use to identify and address problems at 
insured depository institutions before capital becomes impaired. The 
agencies believe that the standards adopted in these Guidelines 
serve this end without dictating how institutions must be managed 
and operated. These standards are designed to identify potential 
safety and soundness concerns and ensure that action is taken to 
address those concerns before they pose a risk to the deposit 
insurance funds.

A. Preservation of Existing Authority

    Neither section 39 nor these Guidelines in any way limits the 
authority of the agencies to address unsafe or unsound practices, 
violations of law, unsafe or unsound conditions, or other practices. 
Action under section 39 and these Guidelines may be taken 
independently of, in conjunction with, or in addition to any other 
enforcement action available to the agencies. Nothing in these 
Guidelines limits the authority of the FDIC pursuant to section 
38(i)(2)(F) of the FDI Act (12 U.S.C. 1831(o)) and Part 325 of Title 
12 of the Code of Federal Regulations.

B. Definitions

    1. In general. For purposes of these Guidelines, except as 
modified in the Guidelines or unless the context otherwise requires, 
the terms used have the same meanings as set forth in sections 3 and 
39 of the FDI Act (12 U.S.C. 1813 and 1831p-1).
    2. Board of directors, in the case of a state-licensed insured 
branch of a foreign bank and in the case of a federal branch of a 
foreign bank, means the managing official in charge of the insured 
foreign branch.
    3. Compensation means all direct and indirect payments or 
benefits, both cash and non-cash, granted to or for the benefit of 
any executive officer, employee, director, or principal shareholder, 
including but not limited to payments or benefits derived from an 
employment contract, compensation or benefit agreement, fee 
arrangement, perquisite, stock option plan, postemployment benefit, 
or other compensatory arrangement.
    4. Director shall have the meaning described in 12 CFR 
215.2(c).3

    \3\ In applying these definitions for savings associations, 
pursuant to 12 U.S.C. 1464, savings associations shall use the terms 
``savings association'' and ``insured savings association'' in place 
of the terms ``member bank'' and ``insured bank''.
---------------------------------------------------------------------------

    5. Executive officer shall have the meaning described in 12 CFR 
215.2(d).4

    \4\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

    6. Principal shareholder shall have the meaning described in 12 
CFR 215.2(l).5

    \5\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

II. Operational and Managerial Standards

    A. Internal controls and information systems. An institution 
should have internal controls and information systems that are 
appropriate to the size of the institution and the nature, scope and 
risk of its activities and that provide for:
    1. An organizational structure that establishes clear lines of 
authority and responsibility for monitoring adherence to established 
policies;
    2. Effective risk assessment;
    3. Timely and accurate financial, operational and regulatory 
reports;
    4. Adequate procedures to safeguard and manage assets; and
    5. Compliance with applicable laws and regulations.
    B. Internal audit system. An institution should have an internal 
audit system that is appropriate to the size of the institution and 
the nature and scope of its activities and that provides for:
    1. Adequate monitoring of the system of internal controls 
through an internal audit function. For an institution whose size, 
complexity or scope of operations does not warrant a full scale 
internal audit function, a system of independent reviews of key 
internal controls may be used;
    2. Independence and objectivity;
    3. Qualified persons;
    4. Adequate testing and review of information systems;
    5. Adequate documentation of tests and findings and any 
corrective actions;
    6. Verification and review of management actions to address 
material weaknesses; and
    7. Review by the institution's audit committee or board of 
directors of the effectiveness of the internal audit systems.
    C. Loan documentation. An institution should establish and 
maintain loan documentation practices that:
    1. Enable the institution to make an informed lending decision 
and to assess risk, as necessary, on an ongoing basis;
    2. Identify the purpose of a loan and the source of repayment, 
and assess the ability of the borrower to repay the indebtedness in 
a timely manner;
    3. Ensure that any claim against a borrower is legally 
enforceable;
    4. Demonstrate appropriate administration and monitoring of a 
loan; and
    5. Take account of the size and complexity of a loan.
    D. Credit underwriting. An institution should establish and 
maintain prudent credit underwriting practices that:
    1. Are commensurate with the types of loans the institution will 
make and consider the terms and conditions under which they will be 
made;
    2. Consider the nature of the markets in which loans will be 
made;
    3. Provide for consideration, prior to credit commitment, of the 
borrower's overall financial condition and resources, the financial 
responsibility of any guarantor, the nature and value of any 
underlying collateral, and the borrower's character and willingness 
to repay as agreed;
    4. Establish a system of independent, ongoing credit review and 
appropriate communication to management and to the board of 
directors;
    5. Take adequate account of concentration of credit risk; and
    6. Are appropriate to the size of the institution and the nature 
and scope of its activities.
    E. Interest rate exposure. An institution should:
    1. Manage interest rate risk in a manner that is appropriate to 
the size of the 

[[Page 35680]]
institution and the complexity of its assets and liabilities; and
    2. Provide for periodic reporting to management and the board of 
directors regarding interest rate risk with adequate information for 
management and the board of directors to assess the level of risk.
    F. Asset growth. An institution's asset growth should be prudent 
and consider:
    1. The source, volatility and use of the funds that support 
asset growth;
    2. Any increase in credit risk or interest rate risk as a result 
of growth; and
    3. The effect of growth on the institution's capital.
    G. [Reserved].
    H. [Reserved].
    I. Compensation, fees and benefits. An institution should 
maintain safeguards to prevent the payment of compensation, fees, 
and benefits that are excessive or that could lead to material 
financial loss to the institution.

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
Practice

A. Excessive Compensation

    Excessive compensation is prohibited as an unsafe and unsound 
practice. Compensation shall be considered excessive when amounts 
paid are unreasonable or disproportionate to the services performed 
by an executive officer, employee, director, or principal 
shareholder, considering the following:
    1. The combined value of all cash and non-cash benefits provided 
to the individual;
    2. The compensation history of the individual and other 
individuals with comparable expertise at the institution;
    3. The financial condition of the institution;
    4. Comparable compensation practices at comparable institutions, 
based upon such factors as asset size, geographic location, and the 
complexity of the loan portfolio or other assets;
    5. For postemployment benefits, the projected total cost and 
benefit to the institution;
    6. Any connection between the individual and any fraudulent act 
or omission, breach of trust or fiduciary duty, or insider abuse 
with regard to the institution; and
    7. Any other factors the agencies determines to be relevant.

B. Compensation Leading to Material Financial Loss

    Compensation that could lead to material financial loss to an 
institution is prohibited as an unsafe and unsound practice.

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DEPARTMENT OF THE TREASURY
Adoption of Final Common Rule

    The agency specific adoption of the final common rule, which 
appears at the end of the common preamble, appears below.

List of Subjects

OCC

12 CFR Part 30

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Safety and soundness.

Board

12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Crime, Currency, Federal Reserve System, Mortgages, 
Reporting and recordkeeping requirements, Safety and soundness, 
Securities.

12 CFR Part 263

    Administrative practice and procedure, Claims, Crime, Equal Access 
to justice, Federal Reserve System, Lawyers, Penalties.

FDIC

12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 308

    Administrative practice and procedure, Claims, Crime, Equal access 
to justice, Investigations, Lawyers, Penalties.

12 CFR Part 364

    Administrative practice and procedure, Bank deposit insurance, 
Banks, banking, Reporting and recordkeeping requirements, Safety and 
soundness.

OTS

12 CFR Part 570

    Accounting, Administrative practices and procedures, Bank deposit 
insurance, Holding companies, Reporting and recordkeeping requirements, 
Savings associations, Safety and soundness.

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DEPARTMENT OF THE TREASURY
OFFICE OF THE COMPTROLLER OF THE CURRENCY

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is amended as follows:
    1. A new part 30 is added to read as follows:

PART 30--SAFETY AND SOUNDNESS STANDARDS

Sec.
30.1  Scope.
30.2  Purpose.
30.3  Determination and notification of failure to meet safety and 
soundness standard and request for compliance plan.
30.4  Filing of safety and soundness compliance plan.
30.5  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
30.6  Enforcement of orders.

    Authority: 12 U.S.C. 1831p-1.


Sec. 30.1  Scope.

    The rules and procedures set forth in this part apply to national 
banks and federal branches of foreign banks, that are subject to the 
provisions of section 39 of the Federal Deposit Insurance Act (section 
39) (12 U.S.C. 1831p-1).


Sec. 30.2  Purpose.

    Section 39 of the FDI Act, 12 U.S.C. 1831p-1, requires the Office 
of the Comptroller of the Currency (OCC) to establish safety and 
soundness standards. Pursuant to section 39, a bank may be required to 
submit a compliance plan if it is not in compliance with a safety and 
soundness standard prescribed by guideline under section 39(a) or (b). 
An enforceable order under section 8 of the FDI Act, 12 U.S.C. 1818(b), 
may be issued if, after being notified that it is in violation of a 
safety and soundness standard prescribed under section 39, the bank 
fails to submit an acceptable compliance plan or fails in any material 
respect to implement an accepted plan. This part establishes procedures 
for requiring submission of a compliance plan and issuing an 
enforceable order pursuant to section 39. The Interagency Guidelines 
Establishing Standards for Safety and Soundness are set forth in 
appendix A to this part.


Sec. 30.3  Determination and notification of failure to meet safety and 
soundness standard and request for compliance plan.

    (a) Determination. The OCC may, based upon an examination, 
inspection, or any other information that becomes available to the OCC, 
determine that a bank has failed to satisfy the safety and soundness 
standards contained in the Interagency Guidelines Establishing 
Standards for Safety and Soundness set forth in Appendix A to this 
part.
    (b) Request for compliance plan. If the OCC determines that a bank 
has failed a safety and soundness standard pursuant to paragraph (a) of 
this section, the OCC may request, by letter or through a report of 
examination, the submission of a compliance plan and the bank shall be 
deemed to have notice of the deficiency three days after mailing of the 
letter by the OCC or delivery of the report of examination. 

[[Page 35681]]



Sec. 30.4  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A bank 
shall file a written safety and soundness compliance plan with the OCC 
within 30 days of receiving a request for a compliance plan pursuant to 
Sec. 30.3(b) unless the OCC notifies the bank in writing that the plan 
is to be filed within a different period.
    (2) Other plans. If a bank is obligated to file, or is currently 
operating under, a capital restoration plan submitted pursuant to 
section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order 
entered into pursuant to section 8 of the FDI Act (12 U.S.C. 1818(b)), 
a formal or informal agreement, or a response to a report of 
examination or report of inspection, it may, with the permission of the 
OCC, submit a compliance plan under this section as part of that plan, 
order, agreement, or response, subject to the deadline provided in 
paragraph (a) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the bank will take to correct the deficiency 
and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this part, 
the OCC shall provide written notice to the bank of whether the plan 
has been approved or seek additional information from the bank 
regarding the plan. The OCC may extend the time within which notice 
regarding approval of a plan will be provided.
    (d) Failure to submit or implement a compliance plan--(1) 
Supervisory actions. If a bank fails to submit an acceptable plan 
within the time specified by the OCC or fails in any material respect 
to implement a compliance plan, then the OCC shall, by order, require 
the bank to correct the deficiency and may take further actions 
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the OCC 
may be required to take certain actions if the bank commenced 
operations or experienced a change in control within the previous 24-
month period, or the bank experienced extraordinary growth during the 
previous 18-month period.
    (2) Extraordinary growth. For purposes of paragraph (d)(1) of this 
section, extraordinary growth means an increase in assets of more than 
7.5 percent during any quarter within the 18-month period preceding the 
issuance of a request for submission of a compliance plan, by a bank 
that is not well capitalized for purposes of section 38 of the FDI Act. 
For purposes of calculating an increase in assets, assets acquired 
through merger or acquisition approved pursuant to the Bank Merger Act 
(12 U.S.C. 1828(c)) will be excluded.
    (e) Amendment of compliance plan. A bank that has filed an approved 
compliance plan may, after prior written notice to and approval by the 
OCC, amend the plan to reflect a change in circumstance. Until such 
time as a proposed amendment has been approved, the bank shall 
implement the compliance plan as previously approved.


Sec. 30.5  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The OCC shall 
provide a bank prior written notice of the OCC's intention to issue an 
order requiring the bank to correct a safety and soundness deficiency 
or to take or refrain from taking other actions pursuant to section 39 
of the FDI Act. The bank shall have such time to respond to a proposed 
order as provided by the OCC under paragraph (c) of this section.
    (2) Immediate issuance of final order. If the OCC finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the OCC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a bank immediately to 
take actions to correct a safety and soundness deficiency or take or 
refrain from taking other actions pursuant to section 39. A bank that 
is subject to such an immediately effective order may submit a written 
appeal of the order to the OCC. Such an appeal must be received by the 
OCC within 14 calendar days of the issuance of the order, unless the 
OCC permits a longer period. The OCC shall consider any such appeal, if 
filed in a timely matter, within 60 days of receiving the appeal. 
During such period of review, the order shall remain in effect unless 
the OCC, in its sole discretion, stays the effectiveness of the order.
    (b) Content of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the bank;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the OCC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required 
action; and
    (4) The date by which the bank subject to the order may file with 
the OCC a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank may file a 
written response to a notice of intent to issue an order within the 
time period set by the OCC. Such a response must be received by the OCC 
within 14 calendar days from the date of the notice unless the OCC 
determines that a different period is appropriate in light of the 
safety and soundness of the bank or other relevant circumstances.
    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the OCC is not an 
appropriate exercise of discretion under section 39;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed order.
    (d) Agency consideration of response. After considering the 
response, the OCC may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (e) Failure to file response. Failure by a bank to file with the 
OCC, within the specified time period, a written response to a proposed 
order shall constitute a waiver of the opportunity to respond and shall 
constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any bank that 
is subject to an order under this part may, upon a change in 
circumstances, request in writing that the OCC reconsider the terms of 
the order, and may propose that the order be rescinded or modified. 
Unless otherwise ordered by the OCC, the order shall continue in place 
while such request is pending before the OCC.


Sec. 30.6  Enforcement of orders.

    (a) Judicial remedies. Whenever a bank fails to comply with an 
order issued under section 39, the OCC may seek enforcement of the 
order in the appropriate United States district court pursuant to 
section 8(i)(1) of the FDI Act.
    (b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of 
the FDI Act, the OCC may assess a civil money penalty against any bank 
that violates or otherwise fails to comply with any final order issued 
under section 39 and against any institution-affiliated party who 
participates in such violation or noncompliance.

[[Page 35682]]

    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OCC may seek enforcement 
of the provisions of section 39 or this part through any other judicial 
or administrative proceeding authorized by law.
    2. A new appendix A is added to part 30 as set forth at the end of 
the common preamble:

Appendix A to Part 30--Interagency Guidelines Establishing 
Standards for Safety and Soundness

    Dated: April 13, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
-----------------------------------------------------------------------


DEPARTMENT OF THE TREASURY
FEDERAL RESERVE SYSTEM

12 CFR Chapter II

    For the reasons outlined in the preamble, the Board hereby amends 
12 CFR parts 208 and 263 as set forth below:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

    1. The authority citation for 12 CFR Part 208 is revised to read as 
follows:

    Authority: 12 U.S.C. 36, 248(a) and (c), 321-338, 461, 481, 486, 
601, and 611, 1814, 1823(j), 1831o, 1831p-1, 3906, 3909, 3310, 3331-
3351; 15 U.S.C. 78b, 78o-4(c)(5), 78q, 78q-1, 78w, 781(b), 781(i), 
and 1781(g).

    2. A new subpart D, comprising Sec. 208.60, is added to part 208 to 
read as follows:

Subpart D--Standards for Safety and Soundness


Sec. 208.60  Standards for 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 state member banks.
    3. A new appendix D is added to part 208 as set forth at the end of 
the common preamble:

Appendix D to Part 208--Interagency Guidelines Establishing Standards 
for Safety and Soundness

PART 263--RULES OF PRACTICE FOR HEARINGS

    1. The authority citation for 12 CFR Part 263 is revised to read as 
follows:

    Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 505, 1817(j), 
1818, 1828(c), 1831o, 1831p-1, 1847(b), 1847(d), 1884(b), 
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, and 78u-2.

    2. A new subpart I, comprising Secs. 263.300 through 263.305, is 
added to part 263 to read as follows:

Subpart I--Submission and Review of Safety and Soundness Compliance 
Plans and Issuance of Orders To Correct Safety and Soundness 
Deficiencies

Sec.
263.300  Scope.
263.301  Purpose.
263.302  Determination and notification of failure to meet safety 
and soundness standard and request for compliance plan.
263.303  Filing of safety and soundness compliance plan.
263.304  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
263.305  Enforcement of orders.

Subpart I--Submission and Review of Safety and Soundness Compliance 
Plans and Issuance of Orders To Correct Safety and Soundness 
Deficiencies


Sec. 263.300  Scope.

    The rules and procedures set forth in this subpart apply to State 
member banks that are subject to the provisions of section 39 of the 
Federal Deposit Insurance Act (section 39) (12 U.S.C. 1831p-1).


Sec. 263.301  Purpose.

    Section 39 of the FDI Act requires the Board to establish safety 
and soundness standards. Pursuant to section 39, a bank may be required 
to submit a compliance plan if it is not in compliance with a safety 
and soundness standard established by guideline under section 39(a) or 
(b). An enforceable order under section 8 may be issued if, after being 
notified that it is in violation of a safety and soundness standard 
established under section 39, the bank fails to submit an acceptable 
compliance plan or fails in any material respect to implement an 
accepted plan. This subpart establishes procedures for requiring 
submission of a compliance plan and issuing an enforceable order 
pursuant to section 39.


Sec. 263.302  Determination and notification of failure to meet safety 
and soundness standard and request for compliance plan.

    (a) Determination. The Board may, based upon an examination, 
inspection, or any other information that becomes available to the 
Board, determine that a bank has failed to satisfy the safety and 
soundness standards contained in the Interagency Guidelines 
Establishing Standards for Safety and Soundness set out in appendix D 
to part 208 of this chapter.
    (b) Request for compliance plan. If the Board determines that a 
State member bank has failed a safety and soundness standard pursuant 
to paragraph (a) of this section, the Board may request, by letter or 
through a report of examination, the submission of a compliance plan, 
and the bank shall be deemed to have notice of the request three days 
after mailing of the letter by the Board or delivery of the report of 
examination.


Sec. 263.303  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A State 
member bank shall file a written safety and soundness compliance plan 
with the Board within 30 days of receiving a request for a compliance 
plan pursuant to Sec. 263.302(b), unless the Board notifies the bank in 
writing that the plan is to be filed within a different period.
    (2) Other plans. If a State member bank is obligated to file, or is 
currently operating under, a capital restoration plan submitted 
pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act, a 
formal or informal agreement, or a response to a report of examination 
or report of inspection, it may, with the permission of the Board, 
submit a compliance plan under this section as part of that plan, 
order, agreement, or response, subject to the deadline provided in 
paragraph (a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the State member bank will take to correct the 
deficiency and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the Board shall provide written notice to the bank of whether 
the plan has been approved or seek additional information from the bank 
regarding the plan. The Board may extend the time within which notice 
regarding approval of a plan will be provided.
    (d) Failure to submit or implement a compliance plan. (1) 
Supervisory actions. If a State member bank fails to submit an 
acceptable plan within the time specified by the Board or fails in any 
material respect to implement a compliance plan, then the Board shall, 
by order, require the bank to correct the deficiency and may take 
further actions 

[[Page 35683]]
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the 
Board may be required to take certain actions if the bank commenced 
operations or experienced a change in control within the previous 24-
month period, or the bank experienced extraordinary growth during the 
previous 18-month period.
    (2) Extraordinary growth. For purposes of paragraph (d)(1) of this 
section, extraordinary growth means an increase in assets of more than 
7.5 percent during any quarter within the 18-month period preceding the 
issuance of a request for submission of a compliance plan, by a bank 
that is not well capitalized for purposes of section 38 of the FDI Act. 
For purposes of calculating an increase in assets, assets acquired 
through merger or acquisition approved pursuant to the Bank Merger Act 
(12 U.S.C. 1828(c)) will be excluded.
    (e) Amendment of compliance plan. A State member bank that has 
filed an approved compliance plan may, after prior written notice to 
and approval by the Board, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been 
approved, the bank shall implement the compliance plan as previously 
approved.


Sec. 263.304  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The Board 
shall provide a bank prior written notice of the Board's intention to 
issue an order requiring the bank to correct a safety and soundness 
deficiency or to take or refrain from taking other actions pursuant to 
section 39 of the FDI Act. The bank shall have such time to respond to 
a proposed order as provided by the Board under paragraph (c) of this 
section.
    (2) Immediate issuance of final order. If the Board finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the Board may, without providing the notice prescribed in 
paragraph (a)(1) of this section, issue an order requiring a bank 
immediately to take actions to correct a safety and soundness 
deficiency or take or refrain from taking other actions pursuant to 
section 39. A State member bank that is subject to such an immediately 
effective order may submit a written appeal of the order to the Board. 
Such an appeal must be received by the Board within 14 calendar days of 
the issuance of the order, unless the Board permits a longer period. 
The Board shall consider any such appeal, if filed in a timely matter, 
within 60 days of receiving the appeal. During such period of review, 
the order shall remain in effect unless the Board, in its sole 
discretion, stays the effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the bank;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the Board proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required 
action; and
    (4) The date by which the bank subject to the order may file with 
the Board a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank may file a 
written response to a notice of intent to issue an order within the 
time period set by the Board. Such a response must be received by the 
Board within 14 calendar days from the date of the notice unless the 
Board determines that a different period is appropriate in light of the 
safety and soundness of the bank or other relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the Board is not an 
appropriate exercise of discretion under section 39;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed order.
    (d) Agency consideration of response. After considering the 
response, the Board may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (e) Failure to file response. Failure by a bank to file with the 
Board, within the specified time period, a written response to a 
proposed order shall constitute a waiver of the opportunity to respond 
and shall constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any bank that 
is subject to an order under this subpart may, upon a change in 
circumstances, request in writing that the Board reconsider the terms 
of the order, and may propose that the order be rescinded or modified. 
Unless otherwise ordered by the Board, the order shall continue in 
place while such request is pending before the Board.


Sec. 263.305  Enforcement of orders.

    (a) Judicial remedies. Whenever a State member bank fails to comply 
with an order issued under section 39, the Board may seek enforcement 
of the order in the appropriate United States district court pursuant 
to section 8(i)(1) of the FDI Act.
    (b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of 
the FDI Act, the Board may assess a civil money penalty against any 
State member bank that violates or otherwise fails to comply with any 
final order issued under section 39 and against any institution-
affiliated party who participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the Board may seek 
enforcement of the provisions of section 39 or this part through any 
other judicial or administrative proceeding authorized by law.

    By Order of the Board of Governors of the Federal Reserve 
System, June 6, 1995.
William W. Wiles,
Secretary of the Board.
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DEPARTMENT OF THE TREASURY
FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

    For the reasons set forth in the preamble, the Board of Directors 
of the Federal Deposit Insurance Corporation hereby amends chapter III 
of title 12 of the Code of Federal Regulations as follows:

PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF 
AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR 
REGULATION

    1. The authority citation for part 303 is revised to read as 
follows:

    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(j), 1818, 1819 
(Seventh and Tenth), 1828, 1831e, 1831o, 1831p-1; 15 U.S.C. 1607.

    2. In Sec. 303.9, a new paragraph (o) is added to read as follows:


Sec. 303.9  Delegation of authority to act on certain enforcement 
matters.

* * * * *
    (o) Compliance plans under section 39 of the Act (standards for 
safety and soundness) and part 308 of this chapter. (1) Authority is 
delegated to the Director, and where confirmed in writing by the 
Director, to an associate director, or to the appropriate regional 
director or deputy regional director, to accept, to reject, to require 
new or 

[[Page 35684]]
revised compliance plans or to make any other determinations with 
respect to the implementation of compliance plans pursuant to subpart R 
of part 308 of this chapter.
    (2) Authority is delegated to the Director, and where confirmed in 
writing by the Director, to an associate director, to:
    (i) Issue notices of intent to issue an order requiring the bank to 
correct a safety and soundness deficiency or to take or refrain from 
taking other actions pursuant to section 39 of the Act (12 U.S.C. 
1831p-1) and in accordance with the requirements contained in 
Sec. 308.304(a)(1) of this chapter;
    (ii) Issue an order requiring the bank immediately to correct a 
safety and soundness deficiency or to take or refrain from taking other 
actions pursuant to section 39 of the Act (12 U.S.C. 1831p-1) and in 
accordance with the requirements contained in Sec. 308.304(a)(2) of 
this chapter; and
    (iii) Act on requests for modification or rescission of an order.
    (3) The authority delegated under paragraph (o)(1) of this section 
shall be exercised only upon the concurrent certification by the 
Associate General Counsel for Compliance and Enforcement, or in cases 
where a regional director or deputy regional director accepts, rejects 
or requires new or revised compliance plans or makes any other 
determinations with respect to compliance plans, by the appropriate 
regional counsel, that the action taken is not inconsistent with the 
Act.
    (4) The authority delegated under paragraph (o)(2) of this section 
shall be exercised only upon the concurrent certification by the 
Associate General Counsel for Compliance and Enforcement that the 
allegations contained in the notice of intent, if proven, constitute a 
basis for the issuance of a final order pursuant to section 39 of the 
Act or that the issuance of a final order is not inconsistent with 
section 39 of the Act or that the stipulated section 39 order is not 
inconsistent with section 39 and is an order which has become final for 
purposes of enforcement pursuant to the Act.

PART 308--RULES OF PRACTICE AND PROCEDURE

    3. The authority citation for part 308 is revised to read as 
follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1815(e), 1817(a) and 
1818(j), 1818, 1828(j), 1829, 1831i, 1831o, 1831p-1; 15 U.S.C. 
78l(h), 78(m), 78n(a), 78n(c), 78n(d), 78n(f), 78(o), 78o-4(c)(5), 
78(p), 78(q), 78q-1, 78s.
    4. A new subpart R, comprising Secs. 308.300 through 308.305, is 
added to part 308 to read as follows:

Subpart R--Submission and Review of Safety and Soundness Compliance 
Plans and Issuance of Orders To Correct Safety and Soundness 
Deficiencies

Sec.
308.300  Scope.
308.301  Purpose.
308.302  Determination and notification of failure to meet a safety 
and soundness standard and request for compliance plan.
308.303  Filing of safety and soundness compliance plan.
308.304  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
308.305  Enforcement of orders.

Subpart R--Submission and Review of Safety and Soundness Compliance 
Plans and Issuance of Orders To Correct Safety and Soundness 
Deficiencies


Sec. 308.300  Scope.

    The rules and procedures set forth in this subpart apply to insured 
state nonmember banks and to state-licensed insured branches of foreign 
banks, that are subject to the provisions of section 39 of the Federal 
Deposit Insurance Act (section 39) (12 U.S.C. 1831p-1).


Sec. 308.301  Purpose.

    Section 39 of the FDI Act requires the FDIC to establish safety and 
soundness standards. Pursuant to section 39, a bank may be required to 
submit a compliance plan if it is not in compliance with a safety and 
soundness standard established by guideline under section 39(a) or (b). 
An enforceable order under section 8 of the FDI Act may be issued if, 
after being notified that it is in violation of a safety and soundness 
standard established under section 39, the bank fails to submit an 
acceptable compliance plan or fails in any material respect to 
implement an accepted plan. This subpart establishes procedures for 
requiring submission of a compliance plan and issuing an enforceable 
order pursuant to section 39.


Sec. 308.302  Determination and notification of failure to meet a 
safety and soundness standard and request for compliance plan.

    (a) Determination. The FDIC may, based upon an examination, 
inspection, or any other information that becomes available to the 
FDIC, determine that a bank has failed to satisfy the safety and 
soundness standards set out in part 364 of this chapter and in the 
Interagency Guidelines Establishing Standards for Safety and Soundness 
set forth in appendix A to part 364 of this chapter.
    (b) Request for compliance plan. If the FDIC determines that a bank 
has failed a safety and soundness standard pursuant to paragraph (a) of 
this section, the FDIC may request, by letter or through a report of 
examination, the submission of a compliance plan and the bank shall be 
deemed to have notice of the request three days after mailing of the 
letter by the FDIC or delivery of the report of examination.


Sec. 308.303  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A bank 
shall file a written safety and soundness compliance plan with the FDIC 
within 30 days of receiving a request for a compliance plan pursuant to 
Sec. 308.302(b), unless the FDIC notifies the bank in writing that the 
plan is to be filed within a different period.
    (2) Other plans. If a bank is obligated to file, or is currently 
operating under, a capital restoration plan submitted pursuant to 
section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order 
entered into pursuant to section 8 of the FDI Act, a formal or informal 
agreement, or a response to a report of examination or report of 
inspection, it may, with the permission of the FDIC, submit a 
compliance plan under this section as part of that plan, order, 
agreement, or response, subject to the deadline provided in paragraph 
(a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the bank will take to correct the deficiency 
and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the FDIC shall provide written notice to the bank of whether 
the plan has been approved or seek additional information from the bank 
regarding the plan. The FDIC may extend the time within which notice 
regarding approval of a plan will be provided.
    (d) Failure to submit or implement a compliance plan--(1) 
Supervisory actions. If a bank fails to submit an acceptable plan 
within the time specified by the FDIC or fails in any material respect 
to implement a compliance plan, then the FDIC shall, by order, require 
the bank to correct the deficiency and may take further actions 
provided in section 39(e)(2)(B). Pursuant to section 39(e)(3), the FDIC 
may be required to take certain actions if the bank commenced 
operations or experienced a change in control within the previous 24-
month period, or the 

[[Page 35685]]
bank experienced extraordinary growth during the previous 18-month 
period.
    (2) Extraordinary growth. For purposes of paragraph (d)(1) of this 
section, extraordinary growth means an increase in assets of more than 
7.5 percent during any quarter within the 18-month period preceding the 
issuance of a request for submission of a compliance plan, by a bank 
that is not well capitalized for purposes of section 38 of the FDI Act. 
For purposes of calculating an increase in assets, assets acquired 
through merger or acquisition approved pursuant to the Bank Merger Act 
(12 U.S.C. 1828(c)) will be excluded.
    (e) Amendment of compliance plan. A bank that has filed an approved 
compliance plan may, after prior written notice to and approval by the 
FDIC, amend the plan to reflect a change in circumstance. Until such 
time as a proposed amendment has been approved, the bank shall 
implement the compliance plan as previously approved.


Sec. 308.304  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.

    (a) Notice of intent to issue order--.(1) In general. The FDIC 
shall provide a bank prior written notice of the FDIC's intention to 
issue an order requiring the bank to correct a safety and soundness 
deficiency or to take or refrain from taking other actions pursuant to 
section 39 of the FDI Act. The bank shall have such time to respond to 
a proposed order as provided by the FDIC under paragraph (c) of this 
section.
    (2) Immediate issuance of final order. If the FDIC finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the FDIC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a bank immediately to 
take actions to correct a safety and soundness deficiency or take or 
refrain from taking other actions pursuant to section 39. A bank that 
is subject to such an immediately effective order may submit a written 
appeal of the order to the FDIC. Such an appeal must be received by the 
FDIC within 14 calendar days of the issuance of the order, unless the 
FDIC permits a longer period. The FDIC shall consider any such appeal, 
if filed in a timely matter, within 60 days of receiving the appeal. 
During such period of review, the order shall remain in effect unless 
the FDIC, in its sole discretion, stays the effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the bank;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the FDIC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required 
action; and
    (4) The date by which the bank subject to the order may file with 
the FDIC a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank may file a 
written response to a notice of intent to issue an order within the 
time period set by the FDIC. Such a response must be received by the 
FDIC within 14 calendar days from the date of the notice unless the 
FDIC determines that a different period is appropriate in light of the 
safety and soundness of the bank or other relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the FDIC is not an 
appropriate exercise of discretion under section 39;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed order.
    (d) Agency consideration of response. After considering the 
response, the FDIC may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (e) Failure to file response. Failure by a bank to file with the 
FDIC, within the specified time period, a written response to a 
proposed order shall constitute a waiver of the opportunity to respond 
and shall constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any bank that 
is subject to an order under this subpart may, upon a change in 
circumstances, request in writing that the FDIC reconsider the terms of 
the order, and may propose that the order be rescinded or modified. 
Unless otherwise ordered by the FDIC, the order shall continue in place 
while such request is pending before the FDIC.


Sec. 308.305  Enforcement of orders.

    (a) Judicial remedies. Whenever a bank fails to comply with an 
order issued under section 39, the FDIC may seek enforcement of the 
order in the appropriate United States district court pursuant to 
section 8(i)(1) of the FDI Act.
    (b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of 
the FDI Act, the FDIC may assess a civil money penalty against any bank 
that violates or otherwise fails to comply with any final order issued 
under section 39 and against any institution-affiliated party who 
participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the FDIC may seek 
enforcement of the provisions of section 39 or this part through any 
other judicial or administrative proceeding authorized by law.
    5. A new part 364 is added to read as follows:

PART 364--STANDARDS FOR SAFETY AND SOUNDNESS

Sec.
364.100  Purpose.
364.101  Standards for safety and soundness.

    Authority: 12 U.S.C. 1819(Tenth), 1831p-1.


Sec. 364.100  Purpose.

    Section 39 of the Federal Deposit Insurance Act requires the 
Federal Deposit Insurance Corporation to establish safety and soundness 
standards. Pursuant to section 39, this part establishes safety and 
soundness standards by guideline.


Sec. 364.101  Standards for 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 A to this 
part apply to all insured state nonmember banks and to state-licensed 
insured branches of foreign banks, that are subject to the provisions 
of section 39 of the Federal Deposit Insurance Act.
    6. A new appendix A is added to part 364 as set forth at the end of 
the common preamble:

Appendix A to Part 364--Interagency Guidelines Establishing 
Standards for Safety and Soundness

    By order of the Board of Directors.

    Dated at Washington, DC, this 21st day of March, 1995.


[[Page 35686]]

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY
OFFICE OF THRIFT SUPERVISION
12 CFR Chapter V
    For the reasons set out in the preamble, chapter V of title 12 of 
the Code of Federal Regulations is amended as follows:
    1. A new part 570 is added to read as follows:
PART 570--SUBMISSION AND REVIEW OF SAFETY AND SOUNDNESS COMPLIANCE 
PLANS AND ISSUANCE OF ORDERS TO CORRECT SAFETY AND SOUNDNESS 
DEFICIENCIES
Sec.
570.1  Authority, purpose, scope and preservation of existing 
authority.
570.2  Determination and notification of failure to meet safety and 
soundness standards and request for compliance plan.
570.3  Filing of safety and soundness compliance plan.
570.4  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.
570.5  Enforcement of orders.

    Authority: 12 U.S.C. 1831p-1.
Sec. 570.1  Authority, purpose, scope and preservation of existing 
authority.

    (a) Authority. This part and the Guidelines in Appendix A to this 
part are issued by the OTS pursuant to section 39 (section 39) of the 
Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1) as added by 
section 132 of the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (FDICIA) (Pub. L. 102-242, 105 Stat. 2236 (1991)), and as 
amended by section 956 of the Housing and Community Development Act of 
1992 (Pub. L. 102-550, 106 Stat. 3895 (1992)), and as amended by 
section 318 of the Community Development Banking Act of 1994 (Pub. L. 
103-325, 108 Stat. 2160 (1994)).
    (b) Purpose. Section 39 of the FDI Act requires the OTS to 
establish safety and soundness standards. Pursuant to section 39, a 
savings association may be required to submit a compliance plan if it 
is not in compliance with a safety and soundness standard established 
by guideline under section 39 (a) or (b). An enforceable order under 
section 8 of the FDI Act may be issued if, after being notified that it 
is in violation of a safety and soundness standard prescribed under 
section 39, the savings association fails to submit an acceptable 
compliance plan or fails in any material respect to implement an 
accepted plan. This part establishes procedures for submission and 
review of safety and soundness compliance plans and for issuance and 
review of orders pursuant to section 39. Interagency Guidelines 
Establishing Standards for Safety and Soundness pursuant to section 39 
of the FDI Act are set forth in Appendix A to this part.
    (c) Scope. This part and the Interagency Guidelines Establishing 
Standards for Safety and Soundness in Appendix A to this part implement 
the provisions of section 39 of the FDI Act as they apply to savings 
associations.
    (d) Preservation of existing authority. Neither section 39 of the 
FDI Act nor this part in any way limits the authority of the OTS under 
any other provision of law to take supervisory actions to address 
unsafe or unsound practices, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 39 and this part 
may be taken independently of, in conjunction with, or in addition to 
any other enforcement action available to the OTS.


Sec. 570.2  Determination and notification of failure to meet safety 
and soundness standards and request for compliance plan.

    (a) Determination of failure to meet safety and soundness standard. 
The OTS may, based upon an examination, inspection, or any other 
information that becomes available to the OTS, determine that a savings 
association has failed to satisfy the safety and soundness standards 
contained in the Interagency Guidelines Establishing Standards for 
Safety and Soundness as set forth in Appendix A to this part.
    (b) Request for compliance plan. If the OTS determines that a 
savings association has failed to meet a safety and soundness standard 
pursuant to paragraph (a) of this section, the OTS may request by 
letter or through a report of examination, the submission of a 
compliance plan. The savings association shall be deemed to have notice 
of the request three days after mailing or delivery of the letter or 
report of examination by the OTS.
Sec. 570.3  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A savings 
association shall file a written safety and soundness compliance plan 
with the OTS within 30 days of receiving a request for a compliance 
plan pursuant to Sec. 570.2(b), unless the OTS notifies the savings 
association in writing that the plan is to be filed within a different 
period.
    (2) Other plans. If a savings association is obligated to file, or 
is currently operating under, a capital restoration plan submitted 
pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-
desist order entered into pursuant to section 8 of the FDI Act, a 
formal or informal agreement, or a response to a report of examination, 
it may, with the permission of the OTS, submit a compliance plan under 
this section as part of that plan, order, agreement, or response, 
subject to the deadline provided in paragraph (a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the savings association will take to correct 
the deficiency and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the OTS shall provide written notice to the savings 
association of whether the plan has been approved or seek additional 
information from the savings association regarding the plan. The OTS 
may extend the time within which notice regarding approval of a plan 
will be provided.
    (d) Failure to submit or implement a compliance plan. If a savings 
association fails to submit an acceptable plan within the time 
specified by the OTS or fails in any material respect to implement a 
compliance plan, then the OTS shall, by order, require the savings 
association to correct the deficiency and may take further actions 
provided in section 39(e)(2)(B) of the FDI Act. Pursuant to section 
39(e)(3), the OTS may be required to take certain actions if the 
savings association commenced operations or experienced a change in 
control within the previous 24-month period, or the savings association 
experienced extraordinary growth during the previous 18-month period.
    (e) Amendment of compliance plan. A savings association that has 
filed an approved compliance plan may, after prior written notice to 
and approval by the OTS, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been 
approved, the savings association shall implement the compliance plan 
as previously approved.


Sec. 570.4  Issuance of orders to correct deficiencies and to take or 
refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The OTS shall 
provide a savings association prior written notice of the OTS's 
intention to issue an order requiring the savings association to 
correct a safety and soundness deficiency or to take or refrain from 
taking other actions pursuant to section 

[[Page 35687]]
39 of the FDI Act. The savings association shall have such time to 
respond to a proposed order as provided by the OTS under paragraph (c) 
of this section.
    (2) Immediate issuance of final order. If the OTS finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the OTS may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a savings association 
immediately to take actions to correct a safety and soundness 
deficiency or to take or refrain from taking other actions pursuant to 
section 39. A savings association that is subject to such an 
immediately effective order may submit a written appeal of the order to 
the OTS. Such an appeal must be received by the OTS within 14 calendar 
days of the issuance of the order, unless the OTS permits a longer 
period. The OTS shall consider any such appeal, if filed in a timely 
manner, within 60 days of receiving the appeal. During such period of 
review, the order shall remain in effect unless the OTS, in its sole 
discretion, stays the effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the savings association;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the OTS proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required 
action; and
    (4) The date by which the savings association subject to the order 
may file with the OTS a written response to the notice.
    (c) Response to notice--(1) Time for response. A savings 
association may file a written response to a notice of intent to issue 
an order within the time period set by the OTS. Such a response must be 
received by the OTS within 14 calendar days from the date of the notice 
unless the OTS determines that a different period is appropriate in 
light of the safety and soundness of the savings association or other 
relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the OTS is not an 
appropriate exercise of discretion under section 39 of the FDI Act;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association regarding the proposed order.
    (d) OTS consideration of response. After considering the response, 
the OTS may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the savings 
association; or
    (3) Seek additional information or clarification of the response 
from the savings association, or any other relevant source.
    (e) Failure to file response. Failure by a savings association to 
file with the OTS, within the specified time period, a written response 
to a proposed order shall constitute a waiver of the opportunity to 
respond and shall constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any savings 
association that is subject to an order under this subpart may, upon a 
change in circumstances, request in writing that the OTS reconsider the 
terms of the order, and may propose that the order be rescinded or 
modified. Unless otherwise ordered by the OTS, the order shall continue 
in place while such request is pending before the OTS.


Sec. 570.5  Enforcement of orders.

    (a) Judicial remedies. Whenever a savings association fails to 
comply with an order issued under section 39 of the FDI Act, the OTS 
may seek enforcement of the order in the appropriate United States 
district court pursuant to section 8(i)(1) of the FDI Act.
    (b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the OTS may assess a civil money penalty against any savings 
association that violates or otherwise fails to comply with any final 
order issued under section 39 and against any savings association-
affiliated party who participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OTS may seek enforcement 
of the provisions of section 39 of the FDI Act or this part through any 
other judicial or administrative proceeding authorized by law.
    2. A new appendix A is added to part 570 as set forth at the end of 
the common preamble:

Appendix A to Part 570--Interagency Guidelines Establishing 
Standards for Safety and Soundness

    Dated: May 25, 1995.

    By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 95-16563 Filed 7-7-95; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P
Last Updated 07/17/1999 communications@fdic.gov