12 CFR Part 333

RIN 3064ÄAA55

Extension of Corporate Powers

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

SUMMARY: The FDIC is amending its regulations on extension of corporate powers
to remove a provision that makes certain prohibitions which are applicable to
state chartered savings associations applicable to state banks that are
members of the Savings Association Insurance Fund (SAIF). SAIF member state
banks would thereafter be subject to the restrictions of FDIC regulations on
activities and investments of insured state banks in lieu of the restrictions
presently found in existing regulations on extension of corporate powers. The
FDIC in a related rulemaking published elsewhere in today's Federal Register
is amending its regulations which place restrictions on the activities and
equity investments of insured state banks and their majority-owned
subsidiaries. The effect of this amendment to the extension of corporate
powers regulations is to treat SAIF member state banks and Bank Insurance Fund
(BIF) member state banks the same rather than subject the former to any
additional, or contrary, restrictions based on insurance fund membership.

EFFECTIVE DATE: The final regulation is effective December 8, 1993.

FOR FURTHER INFORMATION CONTACT: Curtis L. Vaughn, Examination Specialist,
(202) 898Ä6759, Shirley K. Basse, Review Examiner, (202) 898Ä6815, or Cheryl
A. Steffen, Review Examiner, (202) 898Ä6768, Division of Supervision, FDIC,
550 17th Street, NW., Washington, DC 20429; Pamela E.F. LeCren, Senior
Counsel, (202) 898Ä3730, or Grovetta N. Gardineer, Senior Attorney, (202)
898Ä3905, Legal Division, FDIC, 550 17th Street, NW., Washington, DC 20429; or
David K. Horne, Financial Economist, (202) 898Ä3981, Division of Research and
Statistics, FDIC, 550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

On April 30, 1991 the FDIC amended its regulations by adding a new  333.3 to
part 333, "Extension of Corporate Powers'' (12 CFR 333.3) (56 FR 20528, May 6,
1991). That section:

(1) Caused state banks that are members of the Savings Association Insurance
Fund (SAIF member state banks) to be subject to the conditions and
restrictions regarding activities and equity investments to which state
savings associations are subject pursuant to  303.13 of the FDIC's
regulations (12 CFR 303.13);

(2) Subjected SAIF member state banks to the loan to one borrower limits found
in section 5(u) of the Home Owners' Loan Act (HOLA, 12 U.S.C. 5(u));

(3) Required SAIF member state banks to deduct from their capital any
investments in a subsidiary if a savings association would be required to do
so under section 5(t)(5) of HOLA (12 U.S.C. 1464(t)(5));

(4) Subjected SAIF member state banks to the additional restrictions on
transactions with affiliates found in section 11 of HOLA (12 U.S.C. 1468);

(5) Required SAIF member state banks to provide the FDIC notice before
acquiring or establishing a subsidiary or engaging in a new activity through
an existing subsidiary (see  303.13(f) of the FDIC's regulations (12 CFR
303.13(f)); and

(6) Required any savings association that converted to a SAIF member state
bank to file a capital plan if upon conversion the bank did not meet the
minimum capital requirements set out in part 325 of the FDIC's regulations (12
CFR part 325).

Section 303.13 was adopted by the FDIC on December 12, 1989 (54 FR 53540,
December 29, 1989) in order to implement section 28 of of the FDI Act (12
U.S.C. 1831e) which placed certain prohibitions on the activities and equity
investments of state savings associations. Section 28 was added to the FDI Act
as part of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA, Pub. L. 101Ä73, 103 Stat. 183 (1989)). Section 28 of the FDI Act
and  303.13 of the FDIC's regulations (12 CFR 303.13) prohibit state
chartered savings associations from acquiring or retaining any equity
investment of a type or in an amount that is not permissible for a federal
savings association. State savings associations are also prohibited from
engaging as principal in any activity that is not permissible for a federal
savings association unless the association meets its fully phased-in capital
requirements and the FDIC determines that the activity will not pose a
significant risk to the deposit insurance fund.

- If a state savings association meets its fully phased-in capital
requirements and the FDIC determines that there is not a significant risk to
the deposit insurance fund, a state savings association may acquire or retain
an equity investment in a service corporation that would not be permissible
for a federal savings association. Equity investments acquired prior to August
8, 1989 that are prohibited investments must be divested as quickly as
prudently possible but in no event later than July 1, 1994. The FDIC may set
conditions and restrictions governing the retention of the prohibited equity
investments during the divestiture period.

The restrictions described above which are found in the various provisions of
HOLA were added to federal statute by FIRREA as was the requirement that
savings associations give the FDIC prior notice before acquiring or
establishing a subsidiary or conducting new activities through a subsidiary
(see section 18(m) of the FDI Act, 12 U.S.C. 1828(m)).

It was the determination of the FDIC's Board of Directors when  333.3 was
adopted that savings associations which convert to state chartered banks and
retain their membership in SAIF should continue to be subject to the
safeguards enacted by FIRREA. The action was found necessary by the Board of
Directors to protect SAIF from harm in view of state laws which might be lax.
At the same time, however, the Board of Directors indicated that it was not
its intent to permanently establish two classes of state banks that would be
treated differently based upon their membership in a particular deposit
insurance fund. The FDIC subsequently undertook a review of the issue of
expanded bank powers with the hopes of proposing a regulation applicable to
all state banks. Before the FDIC could publish a proposal, however, Congress
enacted the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA, Public Law 102Ä242, 105 Stat. 2236). Section 303 of FDICIA added
section 24 to the Federal Deposit Insurance Act (FDI Act, 12 U.S.C. 1831a,
"Activities of Insured State Banks''). With certain exceptions, section 24 of
the FDI Act limits the activities and equity investments of state chartered
insured banks to the activities and equity investments that are permissible
for national banks.

The FDIC recently adopted a new part 362 of its regulations implementing the
equity investment restrictions of section 24 (57 FR 53213, November 9, 1992)
and is today, elsewhere in the Federal Register, publishing a final amendment
to part 362 that would add a number of provisions to part 362 addressing the
activities of insured state banks and their majority-owned subsidiaries. In
light of the enactment of section 24 of the FDI Act, the FDIC amended  333.3
to allow state banks to be governed by the equity investment provisions of
that section and any regulations adopted by the FDIC pursuant thereto (57 FR
53211, November 9, 1992). That amendment did not address the issue of bank
activities nor the other restrictions imposed by  333.3 which are based
primarily on sections of HOLA.

On January 29, 1993 (58 FR 6450) the FDIC proposed to amend part 333 by
removing  333.3 in its entirety. The following explanation was given for the
proposal at the time it was published for comment. It was at that time (and
still is) the FDIC's considered opinion that it was the intent of Congress to
treat all banks alike regardless of which insurance fund they are a member. By
removing  333.3, the FDIC would be implementing that intent. As to the other
restrictions that would be eliminated if  333.3 is removed (i.e., those
rooted in the provisions of HOLA and section 18(m) of the FDI Act) Congress
could have imposed on all state banks a loan to one borrower limit, additional
affiliate transactions restrictions, prior notice of the acquisition or
establishment of any subsidiary, and capital deductions on investments in
certain subsidiaries but did not do so when it enacted FDICIA. That Congress
did not require that such restrictions be imposed does not preclude the FDIC
from imposing those, or similar, restrictions, provided that there is a safety
or soundness basis to do so. (In fact, when the FDIC proposed to amend part
362 of the FDIC's regulations, the proposal required banks to deduct their
investments in subsidiaries in certain instances.) The preamble accompanying
the proposal to delete  333.3 in its entirety went on to indicate that the
Board of Directors is presently of the opinion given the enactment of section
24 and the various regulatory reforms such as the prompt corrective action
provisions of the FDI Act (12 U.S.C. 38) which were part of FDICIA, that
removing the additional restrictions on SAIF member state banks should not
pose a threat to the SAIF fund. In fact, SAIF member state banks can be
expected to benefit from the amendment as it will alleviate an existing
competitive disparity and remove certain additional compliance burdens.

      The FDIC received four comments in response to the proposal all of which
urged the FDIC to remove  333.3 from the FDIC's regulations in its entirety.
As all of the comments were favorable, the FDIC is adopting the proposal in
final without any change. The final amendment is effective immediately upon
publication in the Federal Register. The requirement under the Administrative
Procedure Act (5 U.S.C. 553) to publish a substantive rule not less than 30
days prior to its effective date is being waived pursuant to the authority of
section 553(d)(1) which allows such waiver in the case of a substantive rule
which relieves a restriction.

Regulatory Flexibility Analysis

The Board of Directors has determined that the final amendment will not have a
significant economic impact on a substantial number of small entities. The
amendment will not necessitate the development of sophisticated recordkeeping
and reporting systems by small institutions nor the expertise of specialized
staff accountants, lawyers or managers that small institutions are less likely
to have absent hiring additional employees or obtaining these services from
outside vendors. On the contrary, the final amendment will relieve what may be
perceived as a burden on SAIF member state banks (both large and small) in
that they are currently subject to a different set of rules regarding their
activities than that to which BIF member state banks are subject. As a result
of that fact SAIF member state banks are currently subject to a number of
additional restrictions and compliance burdens to which BIF member state banks
are not subject. SAIF member state banks are presently required to comply with
the most restrictive rule and therefore must determine which rule is in fact
the more restrictive. This amendment relieves that burden and places SAIF
member state banks on a par with BIF member state banks.

As the final amendment will not have a disparate economic impact on small
institutions, the FDIC was not required to conduct a Regulatory Flexibility
Act analysis. (See section 605 of the Regulatory Flexibility Act (5 U.S.C.
605)).

List of Subjects in 12 CFR Part 333

Banks, banking, Corporate powers, Trusts and trustees.

In consideration of the foregoing, the FDIC hereby amends chapter III, title
12 of the Code of Federal Regulations by amending part 333 as follows:

PART 333 EXTENSION OF CORPORATE POWERS

1. The authority citation for part 333 is revised to read as follows:

Authority: 12 U.S.C. 1816, 1818, 1819.

 333.3 [Removed]

2. Section 333.3 is removed.

By Order of the Board of Directors.

Dated at Washington, DC this 30th day of November, 1993.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 93Ä29773 Filed 12Ä7Ä93; 8:45 am]

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