[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2012 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 12

        Banks and Banking


________________________
 
           Parts 230 to 299

                         Revised as of January 1, 2012

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2012
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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As of January 1, 2012

Title 12, Parts 220 to 299,

Revised as of January 1, 2011

Is Replaced by

Title 12, Parts 220 to 229

and

Title 12, Parts 230 to 299



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                            Table of Contents



                                                                    Page
  Explanation.................................................     vii

  Title 12:
          Chapter II--Federal Reserve System (Continued)             3
  Finding Aids:
      Table of CFR Titles and Chapters........................     409
      Alphabetical List of Agencies Appearing in the CFR......     429
      List of CFR Sections Affected...........................     439

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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  12 CFR 230.1 refers 
                       to title 12, part 230, 
                       section 1.

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

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2012), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
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EFFECTIVE AND EXPIRATION DATES

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Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
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instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page viii]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
April 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in eleven separate 
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Sections Affected'' is published at the end of each CFR volume.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
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separate volume, revised annually as of January 1, entitled CFR Index 
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this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page ix]]

    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
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the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

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INQUIRIES

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the top of odd-numbered pages.
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    The full text of the Code of Federal Regulations, the LSA (List of 
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register.

    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2012.







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                               THIS TITLE

    Title 12--Banks and Banking is composed of eight volumes. The parts 
in these volumes are arranged in the following order: Parts 1-199, 200-
219, 220-229, 230-299, 300-499, 500-599, part 600-899, and 900-end. The 
first volume containing parts 1-199 is comprised of chapter I--
Comptroller of the Currency, Department of the Treasury. The second, 
third and fourth volumes containing parts 200-299 are comprised of 
chapter II--Federal Reserve System. The fifth volume containing parts 
300-499 is comprised of chapter III--Federal Deposit Insurance 
Corporation and chapter IV--Export-Import Bank of the United States. The 
sixth volume containing parts 500-599 is comprised of chapter V--Office 
of Thrift Supervision, Department of the Treasury. The seventh volume 
containing parts 600-899 is comprised of chapter VI--Farm Credit 
Administration, chapter VII--National Credit Union Administration, 
chapter VIII--Federal Financing Bank. The eighth volume containing part 
900-end is comprised of chapter IX--Federal Housing Finance Board, 
chapter XI--Federal Financial Institutions Examination Council, chapter 
XIV--Farm Credit System Insurance Corporation, chapter XV--Department of 
the Treasury, chapter XVII--Office of Federal Housing Enterprise 
Oversight, Department of Housing and Urban Development and chapter 
XVIII--Community Development Financial Institutions Fund, Department of 
the Treasury. The contents of these volumes represent all of the current 
regulations codified under this title of the CFR as of January 1, 2012.

    For this volume, Jonn Lilyea was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Michael L. 
White, assisted by Ann Worley.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                  (This book contains parts 230 to 299)

  --------------------------------------------------------------------
                                                                    Part

chapter ii--Federal Reserve System (Continued)..............         230

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             CHAPTER II--FEDERAL RESERVE SYSTEM (CONTINUED)




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

     SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Part                                                                Page
230             Truth in savings (Regulation DD)............           5
231             Netting eligibility for financial 
                    institution (Regulation EE).............          43
232             Obtaining and using medical information in 
                    connection with credit (Regulation FF)..          44
233             Prohibition on funding of unlawful internet 
                    gambling (Regulation GG)................          50
235             Debit card interchange fees and routing.....          60
238             Savings and loan holding companies 
                    (Regulation LL).........................          77
239             Mutual holding companies (Regulation MM)....         122
243             Resolution plans............................         196
250             Miscellaneous interpretations...............         206
261             Rules regarding availability of information.         235
261a            Rules regarding access to personal 
                    information under the Privacy Act 1974..         253
261b            Rules regarding public observation of 
                    meetings................................         257
262             Rules of procedure..........................         262
263             Rules of practice for hearings..............         271
264             Employee responsibilities and conduct.......         318
264a            Post-employment restrictions for senior 
                    examiners...............................         318
264b            Rules regarding foreign gifts and 
                    decorations.............................         320
265             Rules regarding delegation of authority.....         323
266             Limitations on activities of former members 
                    and employees of the Board..............         341
267             Rules of organization and procedure of the 
                    Consumer Advisory Council...............         343
268             Rules regarding equal opportunity...........         345
269             Policy on labor relations for the Federal 
                    Reserve banks...........................         380
269a            Definitions.................................         385

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269b            Charges of unfair labor practices...........         385
               SUBCHAPTER B--FEDERAL OPEN MARKET COMMITTEE
270             Open market operations of Federal Reserve 
                    banks...................................         395
271             Rules regarding availability of information.         396
272             Rules of procedure..........................         403
281             Statements of policy........................         405
       SUBCHAPTER C--FEDERAL RESERVE SYSTEM LABOR RELATIONS PANEL
290-299         [Reserved]

Supplementary Publications: The Federal Reserve Act, as amended through 
  December 31, 1976, with an Appendix containing provisions of certain 
  other statutes affecting the Federal Reserve System. Rules of 
  Organization and Procedure--Board of Governors of the Federal Reserve 
  System. Regulations of the Board of Governors of the Federal Reserve 
  System. The Federal Reserve System--Purposes and Functions. Annual 
  Report. Federal Reserve Bulletin. Monthly. Federal Reserve Chart Book 
  Quarterly; Historical Chart Book issued in September.

[[Page 5]]



     SUBCHAPTER A_BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 
                               (CONTINUED)





PART 230_TRUTH IN SAVINGS (REGULATION DD)--Table of Contents



Sec.
230.1 Authority, purpose, coverage, and effect on state laws.
230.2 Definitions.
230.3 General disclosure requirements.
230.4 Account disclosures.
230.5 Subsequent disclosures.
230.6 Periodic statement disclosures.
230.7 Payment of interest.
230.8 Advertising.
230.9 Enforcement and record retention.
230.10 [Reserved]
230.11 Additional disclosure requirements for overdraft services.

Appendix A to Part 230--Annual Percentage Yield Calculation
Appendix B to Part 230--Model Clauses and Sample Forms
Appendix C to Part 230--Effect on State Laws
Appendix D to Part 230--Issuance of Staff Interpretations
Supplement I to Part 230--Official Staff Interpretations

    Authority: 12 U.S.C. 4301 et seq.

    Source: 57 FR 43376, Sept. 21, 1992, unless otherwise noted.



Sec. 230.1  Authority, purpose, coverage, and effect on state laws.

    (a) Authority. This part, known as Regulation DD, is issued by the 
Board of Governors of the Federal Reserve System to implement the Truth 
in Savings Act of 1991 (the act), contained in the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 3201 et seq., 
Pub. L. 102-242, 105 Stat. 2236). Information-collection requirements 
contained in this part have been approved by the Office of Management 
and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB No. 7100-0271.
    (b) Purpose. The purpose of this part is to enable consumers to make 
informed decisions about accounts at depository institutions. This part 
requires depository institutions to provide disclosures so that 
consumers can make meaningful comparisons among depository institutions.
    (c) Coverage. This part applies to depository institutions except 
for credit unions. In addition, the advertising rules in Sec. 230.8 of 
this part apply to any person who advertises an account offered by a 
depository institution, including deposit brokers.
    (d) Effect on state laws. State law requirements that are 
inconsistent with the requirements of the act and this part are 
preempted to the extent of the inconsistency. Additional information on 
inconsistent state laws and the procedures for requesting a preemption 
determination from the Board are set forth in appendix C of this part.

[57 FR 43376, Sept. 21, 1992, as amended at 74 FR 5593, Jan. 29, 2009]



Sec. 230.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Account means a deposit account at a depository institution that 
is held by or offered to a consumer. It includes time, demand, savings, 
and negotiable order of withdrawal accounts. For purposes of the 
advertising requirements in Sec. 230.8 of this part, the term also 
includes an account at a depository institution that is held by or on 
behalf of a deposit broker, if any interest in the account is held by or 
offered to a consumer.
    (b) Advertisement means a commercial message, appearing in any 
medium, that promotes directly or indirectly:
    (1) The availability or terms of, or a deposit in, a new account; 
and
    (2) For purposes of Sec. 230.8(a) and Sec. 230.11 of this part, 
the terms of, or a deposit in, a new or existing account.
    (c) Annual percentage yield means a percentage rate reflecting the 
total amount of interest paid on an account, based on the interest rate 
and the frequency of compounding for a 365-day period and calculated 
according to the rules in appendix A of this part.
    (d) Average daily balance method means the application of a periodic 
rate to the average daily balance in the account for the period. The 
average daily balance is determined by adding

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the full amount of principal in the account for each day of the period 
and dividing that figure by the number of days in the period.
    (e) Board means the Board of Governors of the Federal Reserve 
System.
    (f) Bonus means a premium, gift, award, or other consideration worth 
more than $10 (whether in the form of cash, credit, merchandise, or any 
equivalent) given or offered to a consumer during a year in exchange for 
opening, maintaining, renewing, or increasing an account balance. The 
term does not include interest, other consideration worth $10 or less 
given during a year, the waiver or reduction of a fee, or the absorption 
of expenses.
    (g) Business day means a calendar day other than a Saturday, a 
Sunday, or any of the legal public holidays specified in 5 U.S.C. 
6103(a).
    (h) Consumer means a natural person who holds an account primarily 
for personal, family, or household purposes, or to whom such an account 
is offered. The term does not include a natural person who holds an 
account for another in a professional capacity.
    (i) Daily balance method means the application of a daily periodic 
rate to the full amount of principal in the account each day.
    (j) Depository institution and institution mean an institution 
defined in section 19(b)(1)(A)(i)-(vi) of the Federal Reserve Act (12 
U.S.C. 461), except credit unions defined in section 19(b)(1)(A)(iv).
    (k) Deposit broker means any person who is a deposit broker as 
defined in section 29(g) of the Federal Deposit Insurance Act (12 U.S.C. 
1831f(g)).
    (l) Fixed-rate account means an account for which the institution 
contracts to give at least 30 calendar days advance written notice of 
decreases in the interest rate.
    (m) Grace period means a period following the maturity of an 
automatically renewing time account during which the consumer may 
withdraw funds without being assessed a penalty.
    (n) Interest means any payment to a consumer or to an account for 
the use of funds in an account, calculated by application of a periodic 
rate to the balance. The term does not include the payment of a bonus or 
other consideration worth $10 or less given during a year, the waiver or 
reduction of a fee, or the absorption of expenses.
    (o) Interest rate means the annual rate of interest paid on an 
account which does not reflect compounding. For the purposes of the 
account disclosures in Sec. 230.4(b)(1)(i) of this part, the interest 
rate may, but need not, be referred to as the ``annual percentage rate'' 
in addition to being referred to as the ``interest rate.''
    (p) Passbook savings account means a savings account in which the 
consumer retains a book or other document in which the institution 
records transactions on the account.
    (q) Periodic statement means a statement setting forth information 
about an account (other than a time account or passbook savings account) 
that is provided to a consumer on a regular basis four or more times a 
year.
    (r) State means a state, the District of Columbia, the commonwealth 
of Puerto Rico, and any territory or possession of the United States.
    (s) Stepped-rate account means an account that has two or more 
interest rates that take effect in succeeding periods and are known when 
the account is opened.
    (t) Tiered-rate account means an account that has two or more 
interest rates that are applicable to specified balance levels.
    (u) Time account means an account with a maturity of at least seven 
days in which the consumer generally does not have a right to make 
withdrawals for six days after the account is opened, unless the deposit 
is subject to an early withdrawal penalty of at least seven days' 
interest on amounts withdrawn.
    (v) Variable-rate account means an account in which the interest 
rate may change after the account is opened, unless the institution 
contracts to give at least 30 calendar days advance written notice of 
rate decreases.

[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993; 
59 FR 52658, Oct. 19, 1994; 70 FR 29593, May 24, 2005]



Sec. 230.3  General disclosure requirements.

    (a) Form. Depository institutions shall make the disclosures 
required by

[[Page 7]]

Sec. Sec. 230.4 through 230.6 of this part, as applicable, clearly and 
conspicuously, in writing, and in a form the consumer may keep. The 
disclosures required by this part may be provided to the consumer in 
electronic form, subject to compliance with the consumer consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The 
disclosures required by Sec. Sec. 230.4(a)(2) and 230.8 may be provided 
to the consumer in electronic form without regard to the consumer 
consent or other provisions of the E-Sign Act in the circumstances set 
forth in those sections. Disclosures for each account offered by an 
institution may be presented separately or combined with disclosures for 
the institution's other accounts, as long as it is clear which 
disclosures are applicable to the consumer's account.
    (b) General. The disclosures shall reflect the terms of the legal 
obligation of the account agreement between the consumer and the 
depository institution. Disclosures may be made in languages other than 
English, provided the disclosures are available in English upon request.
    (c) Relation to Regulation E (12 CFR part 205). Disclosures required 
by and provided in accordance with the Electronic Fund Transfer Act (15 
U.S.C. 1601) and its implementing Regulation E (12 CFR part 205) that 
are also required by this part may be substituted for the disclosures 
required by this part.
    (d) Multiple consumers. If an account is held by more than one 
consumer, disclosures may be made to any one of the consumers.
    (e) Oral response to inquiries. In an oral response to a consumer's 
inquiry about interest rates payable on its accounts, the depository 
institution shall state the annual percentage yield. The interest rate 
may be stated in addition to the annual percentage yield. No other rate 
may be stated.
    (f) Rounding and accuracy rules for rates and yields--(1) Rounding. 
The annual percentage yield, the annual percentage yield earned, and the 
interest rate shall be rounded to the nearest one-hundredth of one 
percentage point (.01%) and expressed to two decimal places. For account 
disclosures, the interest rate may be expressed to more than two decimal 
places.
    (2) Accuracy. The annual percentage yield (and the annual percentage 
yield earned) will be considered accurate if not more that one-twentieth 
of one percentage point (.05%) above or below the annual percentage 
yield (and the annual percentage yield earned) determined in accordance 
with the rules in appendix A of this part.

[57 FR 43376, Sept. 21, 1992, as amended by Reg. DD, 66 FR 17802, Apr. 
4, 2001; 72 FR 63483, Nov. 9, 2007]



Sec. 230.4  Account disclosures.

    (a) Delivery of account disclosures--(1) Account opening. (i) 
General. A depository institution shall provide account disclosures to a 
consumer before an account is opened or a service is provided, whichever 
is earlier. An institution is deemed to have provided a service when a 
fee required to be disclosed is assessed. Except as provided in 
paragraph (a)(1)(ii) of this section, if the consumer is not present at 
the institution when the account is opened or the service is provided 
and has not already received the disclosures, the institution shall mail 
or deliver the disclosures no later than 10 business days after the 
account is opened or the service is provided, whichever is earlier.
    (ii) Timing of electronic disclosures. If a consumer who is not 
present at the institution uses electronic means (for example, an 
Internet Web site) to open an account or request a service, the 
disclosures required under paragraph (a)(1) of this section must be 
provided before the account is opened or the service is provided.
    (2) Requests. (i) A depository institution shall provide account 
disclosures to a consumer upon request. If a consumer who is not present 
at the institution makes a request, the institution shall mail or 
deliver the disclosures within a reasonable time after it receives the 
request and may provide the disclosures in paper form, or electronically 
if the consumer agrees.
    (ii) In providing disclosures upon request, the institution may:
    (A) Specify an interest rate and annual percentage yield that were 
offered within the most recent seven calendar

[[Page 8]]

days; state that the rate and yield are accurate as of an identified 
date; and provide a telephone number consumers may call to obtain 
current rate information.
    (B) State the maturity of a time account as a term rather than a 
date.
    (b) Content of account disclosures. Account disclosures shall 
include the following, as applicable:
    (1) Rate information--(i) Annual percentage yield and interest rate. 
The ``annual percentage yield'' and the ``interest rate,'' using those 
terms, and for fixed-rate accounts the period of time the interest rate 
will be in effect.
    (ii) Variable rates. For variable-rate accounts:
    (A) The fact that the interest rate and annual percentage yield may 
change;
    (B) How the interest rate is determined;
    (C) The frequency with which the interest rate may change; and
    (D) Any limitation on the amount the interest rate may change.
    (2) Compounding and crediting--(i) Frequency. The frequency with 
which interest is compounded and credited.
    (ii) Effect of closing an account. If consumers will forfeit 
interest if they close the account before accrued interest is credited, 
a statement that interest will not be paid in such cases.
    (3) Balance information--(i) Minimum balance requirements. Any 
minimum balance required to:
    (A) Open the account;
    (B) Avoid the imposition of a fee; or
    (C) Obtain the annual percentage yield disclosed.

Except for the balance to open the account, the disclosure shall state 
how the balance is determined for these purposes.
    (ii) Balance computation method. An explanation of the balance 
computation method specified in Sec. 230.7 of this part used to 
calculate interest on the account.
    (iii) When interest begins to accrue. A statement of when interest 
begins to accrue on noncash deposits.
    (4) Fees. The amount of any fee that may be imposed in connection 
with the account (or an explanation of how the fee will be determined) 
and the conditions under which the fee may be imposed.
    (5) Transaction limitations. Any limitations on the number or dollar 
amount of withdrawals or deposits.
    (6) Features of time accounts. For time accounts:
    (i) Time requirements. The maturity date.
    (ii) Early withdrawal penalties. A statement that a penalty will or 
may be imposed for early withdrawal, how it is calculated, and the 
conditions for its assessment.
    (iii) Withdrawal of interest prior to maturity. If compounding 
occurs during the term and interest may be withdrawn prior to maturity, 
a statement that the annual percentage yield assumes interest remains on 
deposit until maturity and that a withdrawal will reduce earnings. For 
accounts with a stated maturity greater than one year that do not 
compound interest on an annual or more frequent basis, that require 
interest payouts at least annually, and that disclose an APY determined 
in accordance with section E of appendix A of this part, a statement 
that interest cannot remain on deposit and that payout of interest is 
mandatory.
    (iv) Renewal policies. A statement of whether or not the account 
will renew automatically at maturity. If it will, a statement of whether 
or not a grace period will be provided and, if so, the length of that 
period must be stated. If the account will not renew automatically, a 
statement of whether interest will be paid after maturity if the 
consumer does not renew the account must be stated.
    (7) Bonuses. The amount or type of any bonus, when the bonus will be 
provided, and any minimum balance and time requirements to obtain the 
bonus.
    (c) Notice to existing account holders--(1) Notice of availability 
of disclosures. Depository institutions shall provide a notice to 
consumers who receive periodic statements and who hold existing accounts 
of the type offered by the institution on June 21, 1993. The notice 
shall be included on or with the first periodic statement sent on or 
after June 21, 1993 (or on or with the first periodic statement for a 
statement cycle beginning on or after that date).

[[Page 9]]

The notice shall state that consumers may request account disclosures 
containing terms, fees, and rate information for their account. In 
responding to such a request, institutions shall provide disclosures in 
accordance with paragraph (a)(2) of this section.
    (2) Alternative to notice. As an alternative to the notice described 
in paragraph (c)(1) of this section, institutions may provide account 
disclosures to consumers. The disclosures may be provided either with a 
periodic statement or separately, but must be sent no later than when 
the periodic statement described in paragraph (c)(1) is sent.

[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993; 
Reg. DD, 60 FR 5130, Jan. 26, 1995; 63 FR 40637, July 30, 1998; 66 FR 
17802, Apr. 4, 2001; 72 FR 63483, Nov. 9, 2007]



Sec. 230.5  Subsequent disclosures.

    (a) Change in terms--(1) Advance notice required. A depository 
institution shall give advance notice to affected consumers of any 
change in a term required to be disclosed under Sec. 230.4(b) of this 
part if the change may reduce the annual percentage yield or adversely 
affect the consumer. The notice shall include the effective date of the 
change. The notice shall be mailed or delivered at least 30 calendar 
days before the effective date of the change.
    (2) No notice required. No notice under this section is required 
for:
    (i) Variable-rate changes. Changes in the interest rate and 
corresponding changes in the annual percentage yield in variable-rate 
accounts.
    (ii) Check printing fees. Changes in fees assessed for check 
printing.
    (iii) Short-term time accounts. Changes in any term for time 
accounts with maturities of one month or less.
    (b) Notice before maturity for time accounts longer than one month 
that renew automatically. For time accounts with a maturity longer than 
one month that renew automatically at maturity, institutions shall 
provide the disclosures described below before maturity. The disclosures 
shall be mailed or delivered at least 30 calendar days before maturity 
of the existing account. Alternatively, the disclosures may be mailed or 
delivered at least 20 calendar days before the end of the grace period 
on the existing account, provided a grace period of at least five 
calendar days is allowed.
    (1) Maturities of longer than one year. If the maturity is longer 
than one year, the institution shall provide account disclosures set 
forth in Sec. 230.4(b) of this part for the new account, along with the 
date the existing account matures. If the interest rate and annual 
percentage yield that will be paid for the new account are unknown when 
disclosures are provided, the institution shall state that those rates 
have not yet been determined, the date when they will be determined, and 
a telephone number consumers may call to obtain the interest rate and 
the annual percentage yield that will be paid for the new account.
    (2) Maturities of one year or less but longer than one month. If the 
maturity is one year or less but longer than one month, the institution 
shall either:
    (i) Provide disclosures as set forth in paragraph (b)(1) of this 
section; or
    (ii) Disclose to the consumer:
    (A) The date the existing account matures and the new maturity date 
if the account is renewed;
    (B) The interest rate and the annual percentage yield for the new 
account if they are known (or that those rates have not yet been 
determined, the date when they will be determined, and a telephone 
number the consumer may call to obtain the interest rate and the annual 
percentage yield that will be paid for the new account); and
    (C) Any difference in the terms of the new account as compared to 
the terms required to be disclosed under Sec. 230.4(b) of this part for 
the existing account.
    (c) Notice before maturity for time accounts longer than one year 
that do not renew automatically. For time accounts with a maturity 
longer than one year that do not renew automatically at maturity, 
institutions shall disclose to consumers the maturity date and whether 
interest will be paid after maturity. The disclosures shall be mailed or 
delivered at least 10 calendar days before maturity of the existing 
account.

[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993; 
Reg. DD, 63 FR 52107, Sept. 29, 1998]

[[Page 10]]



Sec. 230.6  Periodic statement disclosures.

    (a) General rule. If a depository institution mails or delivers a 
periodic statement, the statement shall include the following 
disclosures:
    (1) Annual percentage yield earned. The ``annual percentage yield 
earned'' during the statement period, using that term, calculated 
according to the rules in appendix A of this part.
    (2) Amount of interest. The dollar amount of interest earned during 
the statement period.
    (3) Fees imposed. Fees required to be disclosed under Sec. 
230.4(b)(4) of this part that were debited to the account during the 
statement period. The fees shall be itemized by type and dollar amounts. 
Except as provided in Sec. 230.11(a)(1) of this part, when fees of the 
same type are imposed more than once in a statement period, a depository 
institution may itemize each fee separately or group the fees together 
and disclose a total dollar amount for all fees of that type.
    (4) Length of period. The total number of days in the statement 
period, or the beginning and ending dates of the period.
    (5) Aggregate fee disclosure. If applicable, the total overdraft and 
returned item fees required to be disclosed by Sec. 230.11(a).
    (b) Special rule for average daily balance method. In making the 
disclosures described in paragraph (a) of this section, institutions 
that use the average daily balance method and that calculate interest 
for a period other than the statement period shall calculate and 
disclose the annual percentage yield earned and amount of interest 
earned based on that period rather than the statement period. The 
information in paragraph (a)(4) of this section shall be stated for that 
period as well as for the statement period.

[Reg. DD 57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9, 
1992; 64 FR 49848, Sept. 14, 1999; 66 FR 17802, Apr. 4, 2001; 70 FR 
29593, May 24, 2005; 75 FR 31676, June 4, 2010]



Sec. 230.7  Payment of interest.

    (a) Permissible methods--(1) Balance on which interest is 
calculated. Institutions shall calculate interest on the full amount of 
principal in an account for each day by use of either the daily balance 
method or the average daily balance method. \1\
---------------------------------------------------------------------------

    \1\ Institutions shall calculate interest by use of a daily rate of 
at least \1/365\ of the interest rate. In a leap year a daily rate of 
\1/366\ of the interest rate may be used.
---------------------------------------------------------------------------

    (2) Determination of minimum balance to earn interest. An 
institution shall use the same method to determine any minimum balance 
required to earn interest as it uses to determine the balance on which 
interest is calculated. An institution may use an additional method that 
is unequivocally beneficial to the consumer.
    (b) Compounding and crediting policies. This section does not 
require institutions to compound or credit interest at any particular 
frequency.
    (c) Date interest begins to accrue. Interest shall begin to accrue 
not later than the business day specified for interest-bearing accounts 
in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005 
et seq.) and implementing Regulation CC (12 CFR part 229). Interest 
shall accrue until the day funds are withdrawn.



Sec. 230.8  Advertising.

    (a) Misleading or inaccurate advertisements. An advertisement shall 
not:
    (1) Be misleading or inaccurate or misrepresent a depository 
institution's deposit contract; or
    (2) Refer to or describe an account as ``free'' or ``no cost'' (or 
contain a similar term) if any maintenance or activity fee may be 
imposed on the account. The word ``profit'' shall not be used in 
referring to interest paid on an account.
    (b) Permissible rates. If an advertisement states a rate of return, 
it shall state the rate as an ``annual percentage yield'' using that 
term. (The abbreviation ``APY'' may be used provided the term ``annual 
percentage yield'' is stated at least once in the advertisement.) The 
advertisement shall not state any other rate, except that the ``interest 
rate,'' using that term, may be stated in conjunction with, but not more 
conspicuously than, the annual percentage yield to which it relates.
    (c) When additional disclosures are required. Except as provided in 
paragraph

[[Page 11]]

(e) of this section, if the annual percentage yield is stated in an 
advertisement, the advertisement shall state the following information, 
to the extent applicable, clearly and conspicuously:
    (1) Variable rates. For variable-rate accounts, a statement that the 
rate may change after the account is opened.
    (2) Time annual percentage yield is offered. The period of time the 
annual percentage yield will be offered, or a statement that the annual 
percentage yield is accurate as of a specified date.
    (3) Minimum balance. The minimum balance required to obtain the 
advertised annual percentage yield. For tiered-rate accounts, the 
minimum balance required for each tier shall be stated in close 
proximity and with equal prominence to the applicable annual percentage 
yield.
    (4) Minimum opening deposit. The minimum deposit required to open 
the account, if it is greater than the minimum balance necessary to 
obtain the advertised annual percentage yield.
    (5) Effect of fees. A statement that fees could reduce the earnings 
on the account.
    (6) Features of time accounts. For time accounts:
    (i) Time requirements. The term of the account.
    (ii) Early withdrawal penalties: A statement that a penalty will or 
may be imposed for early withdrawal.
    (iii) Required interest payouts. For noncompounding time accounts 
with a stated maturity greater than one year that do not compound 
interest on an annual or more frequent basis, that require interest 
payouts at least annually, and that disclose an APY determined in 
accordance with section E of appendix A of this part, a statement that 
interest cannot remain on deposit and that payout of interest is 
mandatory.
    (d) Bonuses. Except as provided in paragraph (e) of this section, if 
a bonus is stated in an advertisement, the advertisement shall state the 
following information, to the extent applicable, clearly and 
conspicuously:
    (1) The ``annual percentage yield,'' using that term;
    (2) The time requirement to obtain the bonus;
    (3) The minimum balance required to obtain the bonus;
    (4) The minimum balance required to open the account, if it is 
greater than the minimum balance necessary to obtain the bonus; and
    (5) When the bonus will be provided.
    (e) Exemption for certain advertisements--(1) Certain media. If an 
advertisement is made through one of the following media, it need not 
contain the information in paragraphs (c)(1), (c)(2), (c)(4), (c)(5), 
(c)(6)(ii), (d)(4), and (d)(5) of this section:
    (i) Broadcast or electronic media, such as television or radio;
    (ii) Outdoor media, such as billboards; or
    (iii) Telephone response machines.
    (2) Indoor signs. (i) Signs inside the premises of a depository 
institution (or the premises of a deposit broker) are not subject to 
paragraphs (b), (c), (d) or (e)(1) of this section.
    (ii) If a sign exempt by paragraph (e)(2) of this section states a 
rate of return, it shall:
    (A) State the rate as an ``annual percentage yield,'' using that 
term or the term ``APY.'' The sign shall not state any other rate, 
except that the interest rate may be stated in conjunction with the 
annual percentage yield to which it relates.
    (B) Contain a statement advising consumers to contact an employee 
for further information about applicable fees and terms.
    (f) Additional disclosures in connection with the payment of 
overdrafts. Institutions that promote the payment of overdrafts in an 
advertisement shall include in the advertisement the disclosures 
required by Sec. 230.11(b) of this part.

[57 FR 43376, Sept. 21, 1992, as amended at 58 FR 15081, Mar. 19, 1993; 
Reg. DD, 60 FR 5130, Jan. 26, 1995; Reg. DD, 63 FR 40638, July 30, 1998; 
Reg. DD, 63 FR 52107, Sept. 29, 1998; 70 FR 29593, May 24, 2005]



Sec. 230.9  Enforcement and record retention.

    (a) Administrative enforcement. Section 270 of the act contains the 
provisions relating to administrative sanctions

[[Page 12]]

for failure to comply with the requirements of the act and this part. 
Compliance is enforced by the agencies listed in that section.
    (b) Civil liability. Section 271 of the Act contains the provisions 
relating to civil liability for failure to comply with the requirements 
of the act and this part; Section 271 is repealed effective September 
30, 2001.
    (c) Record retention. A depository institution shall retain evidence 
of compliance with this part for a minimum of two years after the date 
disclosures are required to be made or action is required to be taken. 
The administrative agencies responsible for enforcing this part may 
require depository institutions under their jurisdiction to retain 
records for a longer period if necessary to carry out their enforcement 
responsibilities under section 270 of the act.

[57 FR 43376, Sept. 21, 1992, as amended by Reg. DD, 63 FR 52107, Sept. 
29, 1998]



Sec. 230.10  [Reserved]



Sec. 230.11  Additional disclosure requirements for overdraft services.

    (a) Disclosure of total fees on periodic statements--(1) General. A 
depository institution must separately disclose on each periodic 
statement, as applicable:
    (i) The total dollar amount for all fees or charges imposed on the 
account for paying checks or other items when there are insufficient or 
unavailable funds and the account becomes overdrawn, using the term 
``Total Overdraft Fees''; and
    (ii) The total dollar amount for all fees or charges imposed on the 
account for returning items unpaid.
    (2) Totals required. The disclosures required by paragraph (a)(1) of 
this section must be provided for the statement period and for the 
calendar year-to-date;
    (3) Format requirements. The aggregate fee disclosures required by 
paragraph (a) of this section must be disclosed in close proximity to 
fees identified under Sec. 230.6(a)(3), using a format substantially 
similar to Sample Form B-10 in Appendix B to this part.
    (b) Advertising disclosures for overdraft services--(1) Disclosures. 
Except as provided in paragraphs (b)(2),(b)(3), and (b)(4) of this 
section, any advertisement promoting the payment of overdrafts shall 
disclose in a clear and conspicuous manner:
    (i) The fee or fees for the payment of each overdraft;
    (ii) The categories of transactions for which a fee for paying an 
overdraft may be imposed;
    (iii) The time period by which the consumer must repay or cover any 
overdraft; and
    (iv) The circumstances under which the institution will not pay an 
overdraft.
    (2) Communications about the payment of overdrafts not subject to 
additional advertising disclosures. Paragraph (b)(1) of this section 
does not apply to:
    (i) An advertisement promoting a service where the institution's 
payment of overdrafts will be agreed upon in writing and subject to the 
Board's Regulation Z (12 CFR part 226);
    (ii) A communication by an institution about the payment of 
overdrafts in response to a consumer-initiated inquiry about deposit 
accounts or overdrafts. Providing information about the payment of 
overdrafts in response to a balance inquiry made through an automated 
system, such as a telephone response machine, ATM, or an institution's 
Internet site, is not a response to a consumer-initiated inquiry for 
purposes of this paragraph;
    (iii) An advertisement made through broadcast or electronic media, 
such as television or radio;
    (iv) An advertisement made on outdoor media, such as billboards;
    (v) An ATM receipt;
    (vi) An in-person discussion with a consumer;
    (vii) Disclosures required by federal or other applicable law;
    (viii) Information included on a periodic statement or a notice 
informing a consumer about a specific overdrawn item or the amount the 
account is overdrawn;
    (ix) A term in a deposit account agreement discussing the 
institution's right to pay overdrafts;
    (x) A notice provided to a consumer, such as at an ATM, that 
completing a requested transaction may trigger a fee for overdrawing an 
account, or a general notice that items overdrawing an account may 
trigger a fee;

[[Page 13]]

    (xi) Informational or educational materials concerning the payment 
of overdrafts if the materials do not specifically describe the 
institution's overdraft service; or
    (xii) An opt-out or opt-in notice regarding the institution's 
payment of overdrafts or provision of discretionary overdraft services.
    (3) Exception for ATM screens and telephone response machines. The 
disclosures described in paragraphs (b)(1)(ii) and (b)(1)(iv) of this 
section are not required in connection with any advertisement made on an 
ATM screen or using a telephone response machine.
    (4) Exception for indoor signs. Paragraph (b)(1) of this section 
does not apply to advertisements for the payment of overdrafts on indoor 
signs as described by Sec. 230.8(e)(2) of this part, provided that the 
sign contains a clear and conspicuous statement that fees may apply and 
that consumers should contact an employee for further information about 
applicable fees and terms. For purposes of this paragraph (b)(4), an 
indoor sign does not include an ATM screen.
    (c) Disclosure of account balances. If an institution discloses 
balance information to a consumer through an automated system, the 
balance may not include additional amounts that the institution may 
provide to cover an item when there are insufficient or unavailable 
funds in the consumer's account, whether under a service provided in its 
discretion, a service subject to the Board's Regulation Z (12 CFR part 
226), or a service to transfer funds from another account of the 
consumer. The institution may, at its option, disclose additional 
account balances that include such additional amounts, if the 
institution prominently states that any such balance includes such 
additional amounts and, if applicable, that additional amounts are not 
available for all transactions.

[70 FR 29593, May 24, 2005, as amended at 74 FR 5593, Jan. 29, 2009; 75 
FR 31676, June 4, 2010]



    Sec. Appendix A to Part 230--Annual Percentage Yield Calculation

    The annual percentage yield measures the total amount of interest 
paid on an account based on the interest rate and the frequency of 
compounding. \1\ The annual percentage yield is expressed as an 
annualized rate, based on a 365-day year. \2\ Part I of this appendix 
discusses the annual percentage yield calculations for account 
disclosures and advertisements, while Part II discusses annual 
percentage yield earned calculations for periodic statements.
---------------------------------------------------------------------------

    \1\ The annual percentage yield reflects only interest and does not 
include the value of any bonus (or other consideration worth $10 or 
less) that may be provided to the consumer to open, maintain, increase 
or renew an account. Interest or other earnings are not to be included 
in the annual percentage yield if such amounts are determined by 
circumstances that may or may not occur in the future.
    \2\ Institutions may calculate the annual percentage yield based on 
a 365-day or a 366-day year in a leap year.
---------------------------------------------------------------------------

Part I. Annual Percentage Yield for Account Disclosures and Advertising 
                                Purposes

    In general, the annual percentage yield for account disclosures 
under Sec. Sec. 230.4 and 230.5 and for advertising under Sec. 230.8 
is an annualized rate that reflects the relationship between the amount 
of interest that would be earned by the consumer for the term of the 
account and the amount of principal used to calculate that interest. 
Special rules apply to accounts with tiered and stepped interest rates, 
and to certain time accounts with a stated maturity greater than one 
year.

                            A. General Rules

    Except as provided in Part I.E. of this appendix, the annual 
percentage yield shall be calculated by the formula shown below. 
Institutions shall calculate the annual percentage yield based on the 
actual number of days in the term of the account. For accounts without a 
stated maturity date (such as a typical savings or transaction account), 
the calculation shall be based on an assumed term of 365 days. In 
determining the total interest figure to be used in the formula, 
institutions shall assume that all principal and interest remain on 
deposit for the entire term and that no other transactions (deposits or 
withdrawals) occur during the term. \3\ For time accounts that are 
offered in multiples of months, institutions may base the number of days 
on either the actual number of days during the applicable period, or the 
number of days that would occur for any actual sequence of that many 
calendar months.

[[Page 14]]

If institutions choose to use the latter rule, they must use the same 
number of days to calculate the dollar amount of interest earned on the 
account that is used in the annual percentage yield formula (where 
``Interest'' is divided by ``Principal'').
---------------------------------------------------------------------------

    \3\ This assumption shall not be used if an institution requires, as 
a condition of the account, that consumers withdraw interest during the 
term. In such a case, the interest (and annual percentage yield 
calculation) shall reflect that requirement.
---------------------------------------------------------------------------

    The annual percentage yield is calculated by use of the following 
general formula (``APY'' is used for convenience in the formulas):

APY=100 [(1+Interest/Principal)(365/Days in term)-1]

    ``Principal'' is the amount of funds assumed to have been deposited 
at the beginning of the account.
    ``Interest'' is the total dollar amount of interest earned on the 
Principal for the term of the account.
    ``Days in term'' is the actual number of days in the term of the 
account. When the ``days in term'' is 365 (that is, where the stated 
maturity is 365 days or where the account does not have a stated 
maturity), the annual percentage yield can be calculated by use of the 
following simple formula:

APY=100 (Interest/Principal)

                                Examples

    (1) If an institution pays $61.68 in interest for a 365-day year on 
$1,000 deposited into a NOW account, using the general formula above, 
the annual percentage yield is 6.17%:

APY=100[(1+61.68/1,000) (365/365) -1]
APY=6.17%
    Or, using the simple formula above (since, as an account without a 
stated term, the term is deemed to be 365 days):

APY=100(61.68/1,000)
APY=6.17%
    (2) If an institution pays $30.37 in interest on a $1,000 six-month 
certificate of deposit (where the six-month period used by the 
institution contains 182 days), using the general formula above, the 
annual percentage yield is 6.18%:

APY=100[(1+30.37/1,000) (365/182) -1]
APY=6.18%

 B. Stepped-Rate Accounts (Different Rates Apply in Succeeding Periods)

    For accounts with two or more interest rates applied in succeeding 
periods (where the rates are known at the time the account is opened), 
an institution shall assume each interest rate is in effect for the 
length of time provided for in the deposit contract.

                                Examples

    (1) If an institution offers a $1,000 6-month certificate of deposit 
on which it pays a 5% interest rate, compounded daily, for the first 
three months (which contain 91 days), and a 5.5% interest rate, 
compounded daily, for the next three months (which contain 92 days), the 
total interest for six months is $26.68 and, using the general formula 
above, the annual percentage yield is 5.39%:

APY=100[(1+26.68/1,000) (365/183) -1]
APY=5.39%
    (2) If an institution offers a $1,000 two-year certificate of 
deposit on which it pays a 6% interest rate, compounded daily, for the 
first year, and a 6.5% interest rate, compounded daily, for the next 
year, the total interest for two years is $133.13, and, using the 
general formula above, the annual percentage yield is 6.45%:

APY=100[(1+133.13/1,000) (365/730) -1]
APY=6.45%

                        C. Variable-Rate Accounts

    For variable-rate accounts without an introductory premium or 
discounted rate, an institution must base the calculation only on the 
initial interest rate in effect when the account is opened (or 
advertised), and assume that this rate will not change during the year.
    Variable-rate accounts with an introductory premium (or discount) 
rate must be calculated like a stepped-rate account. Thus, an 
institution shall assume that: (1) The introductory interest rate is in 
effect for the length of time provided for in the deposit contract; and 
(2) the variable interest rate that would have been in effect when the 
account is opened or advertised (but for the introductory rate) is in 
effect for the remainder of the year. If the variable rate is tied to an 
index, the index-based rate in effect at the time of disclosure must be 
used for the remainder of the year. If the rate is not tied to an index, 
the rate in effect for existing consumers holding the same account (who 
are not receiving the introductory interest rate) must be used for the 
remainder of the year.
    For example, if an institution offers an account on which it pays a 
7% interest rate, compounded daily, for the first three months (which, 
for example, contain 91 days), while the variable interest rate that 
would have been in effect when the account was opened was 5%, the total 
interest for a 365-day year for a $1,000 deposit is $56.52 (based on 91 
days at 7% followed by 274 days at 5%). Using the simple formula, the 
annual percentage yield is 5.65%:

APY=100(56.52/1,000)
APY=5.65%

  D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance 
                                 Levels)

    For accounts in which two or more interest rates paid on the account 
are applicable to specified balance levels, the institution must 
calculate the annual percentage yield in accordance with the method 
described below that it uses to calculate interest. In all cases, an 
annual percentage yield (or a

[[Page 15]]

range of annual percentage yields, if appropriate) must be disclosed for 
each balance tier.
    For purposes of the examples discussed below, assume the following:

------------------------------------------------------------------------
 Interest
   rate                Deposit balance required to earn rate
(percent)
------------------------------------------------------------------------
     5.25  Up to but not exceeding $2,500.
     5.50  Above $2,500 but not exceeding $15,000.
     5.75  Above $15,000.
------------------------------------------------------------------------

    Tiering Method A. Under this method, an institution pays on the full 
balance in the account the stated interest rate that corresponds to the 
applicable deposit tier. For example, if a consumer deposits $8,000, the 
institution pays the 5.50% interest rate on the entire $8,000.
    When this method is used to determine interest, only one annual 
percentage yield will apply to each tier. Within each tier, the annual 
percentage yield will not vary with the amount of principal assumed to 
have been deposited.
    For the interest rates and deposit balances assumed above, the 
institution will state three annual percentage yields--one corresponding 
to each balance tier. Calculation of each annual percentage yield is 
similar for this type of account as for accounts with a single interest 
rate. Thus, the calculation is based on the total amount of interest 
that would be received by the consumer for each tier of the account for 
a year and the principal assumed to have been deposited to earn that 
amount of interest.
    First tier. Assuming daily compounding, the institution will pay 
$53.90 in interest on a $1,000 deposit. Using the general formula, for 
the first tier, the annual percentage yield is 5.39%:

APY=100[(1+53.90/1,000) (365/365) -1]
APY=5.39%
    Using the simple formula:

APY=100(53.90/1,000)
APY=5.39%
    Second tier. The institution will pay $452.29 in interest on an 
$8,000 deposit. Thus, using the simple formula, the annual percentage 
yield for the second tier is 5.65%:

APY=100(452.29/8,000)
APY=5.65%
    Third tier. The institution will pay $1,183.61 in interest on a 
$20,000 deposit. Thus, using the simple formula, the annual percentage 
yield for the third tier is 5.92%:

APY=100(1,183.61/20,000)
APY=5.92%
    Tiering Method B. Under this method, an institution pays the stated 
interest rate only on that portion of the balance within the specified 
tier. For example, if a consumer deposits $8,000, the institution pays 
5.25% on $2,500 and 5.50% on $5,500 (the difference between $8,000 and 
the first tier cut-off of $2,500).
    The institution that computes interest in this manner must provide a 
range that shows the lowest and the highest annual percentage yields for 
each tier (other than for the first tier, which, like the tiers in 
Method A, has the same annual percentage yield throughout). The low 
figure for an annual percentage yield range is calculated based on the 
total amount of interest earned for a year assuming the minimum 
principal required to earn the interest rate for that tier. The high 
figure for an annual percentage yield range is based on the amount of 
interest the institution would pay on the highest principal that could 
be deposited to earn that same interest rate. If the account does not 
have a limit on the maximum amount that can be deposited, the 
institution may assume any amount.
    For the tiering structure assumed above, the institution would state 
a total of five annual percentage yields--one figure for the first tier 
and two figures stated as a range for the other two tiers.
    First tier. Assuming daily compounding, the institution would pay 
$53.90 in interest on a $1,000 deposit. For this first tier, using the 
simple formula, the annual percentage yield is 5.39%:

APY=100(53.90/1,000)
APY=5.39%
    Second tier. For the second tier, the institution would pay between 
$134.75 and $841.45 in interest, based on assumed balances of $2,500.01 
and $15,000, respectively. For $2,500.01, interest would be figured on 
$2,500 at 5.25% interest rate plus interest on $.01 at 5.50%. For the 
low end of the second tier, therefore, the annual percentage yield is 
5.39%, using the simple formula:

APY=100(134.75/2,500)
APY=5.39%
    For $15,000, interest is figured on $2,500 at 5.25% interest rate 
plus interest on $12,500 at 5.50% interest rate. For the high end of the 
second tier, the annual percentage yield, using the simple formula, is 
5.61%:

APY=100(841.45/15,000)
APY=5.61%
    Thus, the annual percentage yield range for the second tier is 5.39% 
to 5.61%.
    Third tier. For the third tier, the institution would pay $841.45 in 
interest on the low end of the third tier (a balance of $15,000.01). For 
$15,000.01, interest would be figured on $2,500 at 5.25% interest rate, 
plus interest on $12,500 at 5.50% interest rate, plus interest on $.01 
at 5.75% interest rate. For the low end of the third tier, therefore, 
the annual percentage yield (using the simple formula) is 5.61%:

APY=100 (841.45/15,000)
APY=5.61%
    Since the institution does not limit the account balance, it may 
assume any maximum

[[Page 16]]

amount for the purposes of computing the annual percentage yield for the 
high end of the third tier. For an assumed maximum balance amount of 
$100,000, interest would be figured on $2,500 at 5.25% interest rate, 
plus interest on $12,500 at 5.50% interest rate, plus interest on 
$85,000 at 5.75% interest rate. For the high end of the third tier, 
therefore, the annual percentage yield, using the simple formula, is 
5.87%.

APY=100 (5,871.79/100,000)
APY=5.87%
    Thus, the annual percentage yield range that would be stated for the 
third tier is 5.61% to 5.87%.
    If the assumed maximum balance amount is $1,000,000 instead of 
$100,000, the institution would use $985,000 rather than $85,000 in the 
last calculation. In that case, for the high end of the third tier the 
annual percentage yield, using the simple formula, is 5.91%:

APY=100 (59134.22/1,000,000)
APY=5.91%
    Thus, the annual percentage yield range that would be stated for the 
third tier is 5.61% to 5.91%.
    E. Time Accounts with a Stated Maturity Greater than One Year that 
Pay Interest At Least Annually
    1. For time accounts with a stated maturity greater than one year 
that do not compound interest on an annual or more frequent basis, and 
that require the consumer to withdraw interest at least annually, the 
annual percentage yield may be disclosed as equal to the interest rate.

                                 Example

    (1) If an institution offers a $1,000 two-year certificate of 
deposit that does not compound and that pays out interest semi-annually 
by check or transfer at a 6.00% interest rate, the annual percentage 
yield may be disclosed as 6.00%.
    (2) For time accounts covered by this paragraph that are also 
stepped-rate accounts, the annual percentage yield may be disclosed as 
equal to the composite interest rate.

                                 Example

    (1) If an institution offers a $1,000 three-year certificate of 
deposit that does not compound and that pays out interest annually by 
check or transfer at a 5.00% interest rate for the first year, 6.00% 
interest rate for the second year, and 7.00% interest rate for the third 
year, the institution may compute the composite interest rate and APY as 
follows:
    (a) Multiply each interest rate by the number of days it will be in 
effect;
    (b) Add these figures together; and
    (c) Divide by the total number of days in the term.
    (2) Applied to the example, the products of the interest rates and 
days the rates are in effect are (5.00%x365 days) 1825, (6.00%x365 days) 
2190, and (7.00%x365 days) 2555, respectively. The sum of these 
products, 6570, is divided by 1095, the total number of days in the 
term. The composite interest rate and APY are both 6.00%.

     Part II. Annual Percentage Yield Earned for Periodic Statements

    The annual percentage yield earned for periodic statements under 
Sec. 230.6(a) is an annualized rate that reflects the relationship 
between the amount of interest actually earned on the consumer's account 
during the statement period and the average daily balance in the account 
for the statement period. Pursuant to Sec. 230.6(b), however, if an 
institution uses the average daily balance method and calculates 
interest for a period other than the statement period, the annual 
percentage yield earned shall reflect the relationship between the 
amount of interest earned and the average daily balance in the account 
for that other period.
    The annual percentage yield earned shall be calculated by using the 
following formulas (``APY Earned'' is used for convenience in the 
formulas):
    A. General formula.
APY Earned=100 [(1+Interest earned/
Balance)(365/Days in period)-1]

    ``Balance'' is the average daily balance in the account for the 
period.
    ``Interest earned'' is the actual amount of interest earned on the 
account for the period.
    ``Days in period'' is the actual number of days for the period.

                                Examples

    (1) Assume an institution calculates interest for the statement 
period (and uses either the daily balance or the average daily balance 
method), and the account has a balance of $1,500 for 15 days and a 
balance of $500 for the remaining 15 days of a 30-day statement period. 
The average daily balance for the period is $1,000. The interest earned 
(under either balance computation method) is $5.25 during the period. 
The annual percentage yield earned (using the formula above) is 6.58%:

APY Earned=100 [(1+5.25/1,000)(365/30)-1]
APY Earned=6.58%
    (2) Assume an institution calculates interest on the average daily 
balance for the calendar month and provides periodic statements that 
cover the period from the 16th of one month to the 15th of the next 
month. The account has a balance of $2,000 September 1 through September 
15 and a balance of $1,000 for the remaining 15 days of September. The 
average daily balance for the month of September is $1,500, which 
results in $6.50 in interest earned for the month. The annual percentage 
yield earned for the month of September would be shown on the

[[Page 17]]

periodic statement covering September 16 through October 15. The annual 
percentage yield earned (using the formula above) is 5.40%:

APY Earned=100 [(6.50/1,500)(365/30)-1]
APY Earned=5.40%
    (3) Assume an institution calculates interest on the average daily 
balance for a quarter (for example, the calendar months of September 
through November), and provides monthly periodic statements covering 
calendar months. The account has a balance of $1,000 throughout the 30 
days of September, a balance of $2,000 throughout the 31 days of 
October, and a balance of $3,000 throughout the 30 days of November. The 
average daily balance for the quarter is $2,000, which results in $21 in 
interest earned for the quarter. The annual percentage yield earned 
would be shown on the periodic statement for November. The annual 
percentage yield earned (using the formula above) is 4.28%:

APY Earned=100 [(1+21/2,000)(365/91)-1]
APY Earned=4.28%
    B. Special formula for use where periodic statement is sent more 
often than the period for which interest is compounded.
    Institutions that use the daily balance method to accrue interest 
and that issue periodic statements more often than the period for which 
interest is compounded shall use the following special formula:
[GRAPHIC] [TIFF OMITTED] TC27SE91.048

    The following definition applies for use in this formula (all other 
terms are defined under Part II):

``Compounding'' is the number of days in each compounding period.
    Assume an institution calculates interest for the statement period 
using the daily balance method, pays a 5.00% interest rate, compounded 
annually, and provides periodic statements for each monthly cycle. The 
account has a daily balance of $1,000 for a 30-day statement period. The 
interest earned is $4.11 for the period, and the annual percentage yield 
earned (using the special formula above) is 5.00%:
[GRAPHIC] [TIFF OMITTED] TC27SE91.049

APY Earned=5.00%

[57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9, 1992; 
58 FR 15082, Mar. 19, 1993; 60 FR 5130, Jan. 26, 1995; Reg. DD, 63 FR 
40638, July 30, 1998]



       Sec. Appendix B to Part 230--Model Clauses and Sample Forms

                            Table of contents

B-1--Model Clauses for Account Disclosures (Section 230.4(b))
B-2--Model Clauses for Change in Terms (Section 230.5(a))
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts (Section 
          230.5(b)(2) and 230.5(d))
B-4--Sample Form (Multiple Accounts)
B-5--Sample Form (Now Account)
B-6--Sample Form (Tiered Rate Money Market Account)
B-7--Sample Form (Certificate of Deposit)
B-8--Sample Form (Certificate of Deposit Advertisement)
B-9--Sample Form (Money Market Account Advertisement)
B-10--Sample Form (Aggregate Overdraft and Returned Item Fees)

               B-1--Model Clauses for Account Disclosures

    (a) Rate information
    (i) Fixed-rate accounts
    The interest rate on your account is ----% with an annual percentage 
yield of ----%. You will be paid this rate [for (time period)/until 
(date)/ for at least 30 calendar days].
    (ii) Variable-rate accounts
    The interest rate on your account is ----% with an annual percentage 
yield of ----%.
    Your interest rate and annual percentage yield may change.

[[Page 18]]

                          Determination of Rate

    The interest rate on your account is based on (name of index) [plus/
minus a margin of --------].

 or

    At our discretion, we may change the interest rate on your account.

                        Frequency of Rate Changes

    We may change the interest rate on your account [every (time 
period)/at any time].

                       Limitations on Rate Changes

    The interest rate for your account will never change by more than --
--% each (time period).
    The interest rate will never be [less/more] than ----%.

 or

    The interest rate will never [exceed----% above/drop more than ----% 
below] the interest rate initially disclosed to you.
    (iii) Stepped-rate accounts
    The initial interest rate for your account is ----%. You will be 
paid this rate [for (time period)/until (date)]. After that time, the 
interest rate for your account will be ----%, and you will be paid this 
rate [for (time period)/until (date)]. The annual percentage yield for 
your account is ----%.
    (iv) Tiered-rate accounts

                            Tiering Method A

     If your [daily balance/average daily balance] is 
$---- or more, the interest rate paid on the entire balance in your 
account will be ----% with an annual percentage yield of ----%.
     If your [daily balance/average daily balance] is 
more than $----, but less than $----, the interest rate paid on the 
entire balance in your account will be ----% with an annual percentage 
yield of ----%.
     If your [daily balance/average daily balance] is 
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.

                            Tiering Method B

     An interest rate of ----% will be paid only for 
that portion of your [daily balance/average daily balance] that is 
greater than $----. The annual percentage yield for this tier will range 
from ----% to ----%, depending on the balance in the account.
     An interest rate of ----% will be paid only for 
that portion of your [daily balance/average daily balance] that is 
greater than $----, but less than $----. The annual percentage yield for 
this tier will range from ----% to ----%, depending on the balance in 
the account.
     If your [daily balance/average daily balance] is 
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.
    (b) Compounding and crediting

                              (i) Frequency

    Interest will be compounded [on a ---- basis/every (time period)]. 
Interest will be credited to your account [on a ---- basis/every (time 
period)].
    (ii) Effect of closing an account
    If you close your account before interest is credited, you will not 
receive the accrued interest.
    (c) Minimum balance requirements
    (i) To open the account
    You must deposit $------ to open this account.
    (ii) To avoid imposition of fees
    A minimum balance fee of $------ will be imposed every (time period) 
if the balance in the account falls below $------ any day of the (time 
period).
    A minimum balance fee of $------ will be imposed every (time period) 
if the average daily balance for the (time period) falls below $------. 
The average daily balance is calculated by adding the principal in the 
account for each day of the period and dividing that figure by the 
number of days in the period.
    (iii) To obtain the annual percentage yield disclosed
    You must maintain a minimum balance of $------ in the account each 
day to obtain the disclosed annual percentage yield.
    You must maintain a minimum average daily balance of $------ to 
obtain the disclosed annual percentage yield. The average daily balance 
is calculated by adding the principal in the account for each day of the 
period and dividing that figure by the number of days in the period.
    (d) Balance computation method
    (i) Daily balance method
    We use the daily balance method to calculate the interest on your 
account. This method applies a daily periodic rate to the principal in 
the account each day.
    (ii) Average daily balance method
    We use the average daily balance method to calculate interest on 
your account. This method applies a periodic rate to the average daily 
balance in the account for the period. The average daily balance is 
calculated by adding the principal in the account for each day of the 
period and dividing that figure by the number of days in the period.
    (e) Accrual of interest on noncash deposits
    Interest begins to accrue no later than the business day we receive 
credit for the deposit of noncash items (for example, checks).

 or

    Interest begins to accrue on the business day you deposit noncash 
items (for example, checks).
    (f) Fees

[[Page 19]]

    The following fees may be assessed against your account:
    ------------------------------$--------
    ------------------------------$--------
    ------------------------------$--------
    --------(conditions for imposing fee) $--------
    ----------------------------------% of --------.
    (g) Transaction limitations
    The minimum amount you may [withdraw/write a check for] is $------.
    You may make -------- [deposits into/withdrawals from] your account 
each (time period).
    You may not make [deposits into/withdrawals from] your account until 
the maturity date.
    (h) Disclosures relating to time accounts
    (i) Time requirements
    Your account will mature on (date).
    Your account will mature in (time period).
    (ii) Early withdrawal penalties
    We [will/may] impose a penalty if you withdraw [any/all] of the 
[deposited funds/principal] before the maturity date. The fee imposed 
will equal ------ days/week[s]/month[s] of interest.

 or

    We [will/may] impose a penalty of $------ if you withdraw [any/all] 
of the [deposited funds/principal] before the maturity date.
    If you withdraw some of your funds before maturity, the interest 
rate for the remaining funds in your account will be ------% with an 
annual percentage yield of ------%.
    (iii) Withdrawal of interest prior to maturity
    The annual percentage yield assumes interest will remain on deposit 
until maturity. A withdrawal will reduce earnings.
    (iv) Renewal policies
    (1) Automatically renewable time accounts
    This account will automatically renew at maturity.
    You will have [------ calendar/business] days after the maturity 
date to withdraw funds without penalty.

 or

    There is no grace period following the maturity of this account to 
withdraw funds without penalty.
    (2) Non-automatically renewable time accounts
    This account will not renew automatically at maturity. If you do not 
renew the account, your deposit will be placed in [an interest-bearing/a 
noninterest-bearing] account.
    (v) Required interest distribution.
    This account requires the distribution of interest and does not 
allow interest to remain in the account.
    (i) Bonuses
    You will [be paid/receive] [$------ /(description of item)] as a 
bonus [when you open the account/on (date) ------].
    You must maintain a minimum [daily balance/average daily balance] of 
$------ to obtain the bonus.
    To earn the bonus, [$------ /your entire principal] must remain on 
deposit [for (time period)/until (date)------].

                 B-2--Model Clauses for Change in Terms

    On (date), the cost of (type of fee) will increase to $------.
    On (date), the interest rate on your account will decrease to ------
% with an annual percentage yield of ------%.
    On (date), the minimum [daily balance/average daily balance] 
required to avoid imposition of a fee will increase to $------.

      B-3--Model Clauses for Pre-Maturity Notices for Time Accounts

    (a) Automatically renewable time accounts with maturities of one 
year or less but longer than one month
    Your account will mature on (date).
    If the account renews, the new maturity date will be (date).
    The interest rate for the renewed account will be ------% with an 
annual percentage yield of ------%.

 or

    The interest rate and annual percentage yield have not yet been 
determined. They will be available on (date). Please call (phone number) 
to learn the interest rate and annual percentage yield for your new 
account.
    (b) Non-automatically renewable time accounts with maturities longer 
than one year
    Your account will mature on (date).
    If you do not renew the account, interest [will/will not] be paid 
after maturity.

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[GRAPHIC] [TIFF OMITTED] TC27SE91.050


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[GRAPHIC] [TIFF OMITTED] TC27SE91.051


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[GRAPHIC] [TIFF OMITTED] TC27SE91.052


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[GRAPHIC] [TIFF OMITTED] TC27SE91.053


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[GRAPHIC] [TIFF OMITTED] TC27SE91.054


[[Page 25]]


[GRAPHIC] [TIFF OMITTED] TC27SE91.055


[[Page 26]]


[GRAPHIC] [TIFF OMITTED] TC27SE91.056


[[Page 27]]


[GRAPHIC] [TIFF OMITTED] TC27SE91.057


[[Page 28]]


[GRAPHIC] [TIFF OMITTED] TC27SE91.058

[GRAPHIC] [TIFF OMITTED] TR17AP09.009


[57 FR 43376, Sept. 21, 1992, as amended at 57 FR 46480, Oct. 9, 1992; 
Reg. DD, 60 FR 5131, Jan. 26, 1995; 74 FR 5593, Jan. 29, 2009; 74 FR 
17768, Apr. 17, 2009]

[[Page 29]]



            Sec. Appendix C to Part 230--Effect on State Laws

                      (a) Inconsistent Requirements

    State law requirements that are inconsistent with the requirements 
of the act and this part are preempted to the extent of the 
inconsistency. A state law is inconsistent if it requires a depository 
institution to make disclosures or take actions that contradict the 
requirements of the federal law. A state law is also contradictory if it 
requires the use of the same term to represent a different amount or a 
different meaning than the federal law, requires the use of a term 
different from that required in the federal law to describe the same 
item, or permits a method of calculating interest on an account 
different from that required in the federal law.

                      (b) Preemption Determinations

    A depository institution, state, or other interested party may 
request the Board to determine whether a state law requirement is 
inconsistent with the federal requirements. A request for a 
determination shall be in writing and addressed to the Secretary, Board 
of Governors of the Federal Reserve System, Washington, DC 20551. Notice 
that the Board intends to make a determination (either on request or on 
its own motion) will be published in the Federal Register, with an 
opportunity for public comment unless the Board finds that notice and 
opportunity for comment would be impracticable, unnecessary, or contrary 
to the public interest and publishes its reasons for such decision. 
Notice of a final determination will be published in the Federal 
Register and furnished to the party who made the request and to the 
appropriate state official.

                 (c) Effect of Preemption Determinations

    After the Board determines that a state law is inconsistent, a 
depository institution may not make disclosures using the inconsistent 
term or take actions relying on the inconsistent law.

                      (d) Reversal of Determination

    The Board reserves the right to reverse a determination for any 
reason bearing on the coverage or effect of state or federal law. Notice 
of reversal of a determination will be published in the Federal Register 
and a copy furnished to the appropriate state official.



     Sec. Appendix D to Part 230--Issuance of Staff Interpretations

    Officials in the Board's Division of Consumer and Community Affairs 
are authorized to issue official staff interpretations of this part. 
These interpretations provide the protections afforded under section 
271(f) of the act. Except in unusual circumstances, interpretations will 
not be issued separately but will be incorporated in an official 
commentary to this part, which will be amended periodically. No staff 
interpretations will be issued approving depository institutions' forms, 
statements, or calculation tools or methods.



      Sec. Supplement I to Part 230--Official Staff Interpretations

                              Introduction

    1. Official status. This commentary is the means by which the 
Division of Consumer and Community Affairs of the Federal Reserve Board 
issues official staff interpretations of Regulation DD. Good faith 
compliance with this commentary affords protection from liability under 
section 271(f) of the Truth in Savings Act.

Section 230.1 Authority, purpose, coverage, and effect on state laws
    (c) Coverage
    1. Foreign applicability. Regulation DD applies to all depository 
institutions, except credit unions, that offer deposit accounts to 
residents (including resident aliens) of any state as defined in Sec. 
230.2(r). Accounts held in an institution located in a state are 
covered, even if funds are transferred periodically to a location 
outside the United States. Accounts held in an institution located 
outside the United States are not covered, even if held by a U.S. 
resident.
    2. Persons who advertise accounts. Persons who advertise accounts 
are subject to the advertising rules. For example, if a deposit broker 
places an advertisement offering consumers an interest in an account at 
a depository institution, the advertising rules apply to the 
advertisement, whether the account is to be held by the broker or 
directly by the consumer.

Section 230.2 Definitions
    (a) Account
    1. Covered accounts. Examples of accounts subject to the regulation 
are:
    i. Interest-bearing and noninterest-bearing accounts
    ii. Deposit accounts opened as a condition of obtaining a credit 
card
    iii. Accounts denominated in a foreign currency
    iv. Individual retirement accounts (IRAs) and simplified employee 
pension (SEP) accounts
    v. Payable on death (POD) or ``Totten trust'' accounts
    2. Other accounts. Examples of accounts not subject to the 
regulation are:
    i. Mortgage escrow accounts for collecting taxes and property 
insurance premiums
    ii. Accounts established to make periodic disbursements on 
construction loans

[[Page 30]]

    iii. Trust accounts opened by a trustee pursuant to a formal written 
trust agreement (not merely declarations of trust on a signature card 
such as a ``Totten trust,'' or an IRA and SEP account)
    iv. Accounts opened by an executor in the name of a decedent's 
estate
    3. Other investments. The term ``account'' does not apply to all 
products of a depository institution. Examples of products not covered 
are:
    i. Government securities
    ii. Mutual funds
    iii. Annuities
    iv. Securities or obligations of a depository institution
    v. Contractual arrangements such as repurchase agreements, interest 
rate swaps, and bankers acceptances
    (b) Advertisement

    1. Covered messages. Advertisements include commercial messages in 
visual, oral, or print media that invite, offer, or otherwise announce 
generally to prospective customers the availability of consumer 
accounts--such as:
    i. Telephone solicitations
    ii. Messages on automated teller machine (ATM) screens
    iii. Messages on a computer screen in an institution's lobby 
(including any printout) other than a screen viewed solely by the 
institution's employee
    iv. Messages in a newspaper, magazine, or promotional flyer or on 
radio
    v. Messages that are provided along with information about the 
consumer's existing account and that promote another account at the 
institution
    2. Other messages. Examples of messages that are not advertisements 
are:
    i. Rate sheets in a newspaper, periodical, or trade journal (unless 
the depository institution, or a deposit broker offering accounts at the 
institution, pays a fee for or otherwise controls publication)
    ii. In-person discussions with consumers about the terms for a 
specific account
    iii. For purposes of Sec. 230.8(b) of this part through Sec. 
230.8(e) of this part, information given to consumers about existing 
accounts, such as current rates recorded on a voice-response machine or 
notices for automatically renewable time account sent before renewal
    iv. Information about a particular transaction in an existing 
account
    v. Disclosures required by federal or other applicable law
    vi. A deposit account agreement

    (f) Bonus
    1. Examples. Bonuses include items of value, other than interest, 
offered as incentives to consumers, such as an offer to pay the final 
installment deposit for a holiday club account. Items that are not a 
bonus include discount coupons for goods or services at restaurants or 
stores.
    2. De minimis rule. Items with a de minimis value of $10 or less are 
not bonuses. Institutions may rely on the valuation standard used by the 
Internal Revenue Service to determine if the value of the item is de 
minimis. Examples of items of de minimis value are:
    i. Disability insurance premiums valued at an amount of $10 or less 
per year
    ii. Coffee mugs, T-shirts or other merchandise with a market value 
of $10 or less
    3. Aggregation. In determining if an item valued at $10 or less is a 
bonus, institutions must aggregate per account per calendar year items 
that may be given to consumers. In making this determination, 
institutions aggregate per account only the market value of items that 
may be given for a specific promotion. To illustrate, assume an 
institution offers in January to give consumers an item valued at $7 for 
each calendar quarter during the year that the average account balance 
in a negotiable order of withdrawal (NOW) account exceeds $10,000. The 
bonus rules are triggered, since consumers are eligible under the 
promotion to receive up to $28 during the year. However, the bonus rules 
are not triggered if an item valued at $7 is offered to consumers 
opening a NOW account during the month of January, even though in 
November the institution introduces a new promotion that includes, for 
example, an offer to existing NOW account holders for an item valued at 
$8 for maintaining an average balance of $5,000 for the month.
    4. Waiver or reduction of a fee or absorption of expenses. Bonuses 
do not include value that consumers receive through the waiver or 
reduction of fees (even if the fees waived exceed $10) for banking-
related services such as the following:
    i. A safe deposit box rental fee for consumers who open a new 
account
    ii. Fees for travelers checks for account holders
    iii. Discounts on interest rates charged for loans at the 
institution
    (h) Consumer
    1. Professional capacity. Examples of accounts held by a natural 
person in a professional capacity for another are attorney-client trust 
accounts and landlord-tenant security accounts.
    2. Other accounts. Accounts not held in a professional capacity 
include accounts held by an individual for a child under the Uniform 
Gifts to Minors Act.
    3. Sole proprietors. Accounts held by individuals as sole 
proprietors are not covered.
    4. Retirement plans. IRAs and SEP accounts are consumer accounts to 
the extent that funds are invested in covered accounts. But Keogh 
accounts are not subject to the regulation.
    (j) Depository institution and institution

[[Page 31]]

    1. Foreign institutions. Branches of foreign institutions located in 
the United States are subject to the regulation if they offer deposit 
accounts to consumers. Edge Act and Agreement corporations, and agencies 
of foreign institutions, are not depository institutions for purposes of 
this regulation.
    (k) Deposit broker
    1. General. A deposit broker is a person who is in the business of 
placing or facilitating the placement of deposits in an institution, as 
defined by the Federal Deposit Insurance Act (12 U.S.C. 29(g)).

                              (n) Interest

    1. Relation to bonuses. Bonuses are not interest for purposes of 
this regulation.
    (p) Passbook savings account
    1. Relation to Regulation E. Passbook savings accounts include 
accounts accessed by preauthorized electronic fund transfers to the 
account (as defined in 12 CFR Sec. 205.2(j)), such as an account that 
receives direct deposit of social security payments. Accounts permitting 
access by other electronic means are not ``passbook saving accounts'' 
and must comply with the requirements of Sec. 230.6 if statements are 
sent four or more times a year.
    (q) Periodic statement
    1. Examples. Periodic statements do not include:
    i. Additional statements provided solely upon request
    ii. General service information such as a quarterly newsletter or 
other correspondence describing available services and products
    (t) Tiered-rate account
    1. Time accounts. Time accounts paying different rates based solely 
on the amount of the initial deposit are not tiered-rate accounts.
    2. Minimum balance requirements. A requirement to maintain a minimum 
balance to earn interest does not make an account a tiered-rate account.
    (u) Time account
    1. Club accounts. Although club accounts typically have a maturity 
date, they are not time accounts unless they also require a penalty of 
at least seven days' interest for withdrawals during the first six days 
after the account is opened.
    2. Relation to Regulation D. Regulation D permits in limited 
circumstances the withdrawal of funds without penalty during the first 
six days after a ``time deposit'' is opened. (See 12 CFR Sec. 
204.2(c)(1)(i).) But the fact that a consumer makes a withdrawal as 
permitted by Regulation D does not disqualify the account from being a 
time account for purposes of this regulation.
    (v) Variable-rate account
    1. General. A certificate of deposit permitting one or more rate 
adjustments prior to maturity at the consumer's option is a variable-
rate account.

Section 230.3 General disclosure requirements
    (a) Form
    1. Design requirements. Disclosures must be presented in a format 
that allows consumers to readily understand the terms of their account. 
Institutions are not required to use a particular type size or typeface, 
nor are institutions required to state any term more conspicuously than 
any other term. Disclosures may be made:
    i. In any order
    ii. In combination with other disclosures or account terms
    iii. In combination with disclosures for other types of accounts, as 
long as it is clear to consumers which disclosures apply to their 
account
    iv. On more than one page and on the front and reverse sides
    v. By using inserts to a document or filling in blanks
    vi. On more than one document, as long as the documents are provided 
at the same time
    2. Consistent terminology. Institutions must use consistent 
terminology to describe terms or features required to be disclosed. For 
example, if an institution describes a monthly fee (regardless of 
account activity) as a ``monthly service fee'' in account-opening 
disclosures, the periodic statement and change-in-term notices must use 
the same terminology so that consumers can readily identify the fee.
    (b) General
    1. Specificity of legal obligation. Institutions may refer to the 
calendar month or to roughly equivalent intervals during a calendar year 
as a ``month.''
    (c) Relation to Regulation E
    1. General rule. Compliance with Regulation E (12 CFR part 205) is 
deemed to satisfy the disclosure requirements of this regulation, such 
as when:
    i. An institution changes a term that triggers a notice under 
Regulation E, and uses the timing and disclosure rules of Regulation E 
for sending change-in-term notices
    ii. Consumers add an ATM access feature to an account, and the 
institution provides disclosures pursuant to Regulation E, including 
disclosure of fees (See 12 CFR Sec. 205.7.)
    iii. An institution complying with the timing rules of Regulation E 
discloses at the same time fees for electronic services (such as for 
balance inquiry fees at ATMs) required to be disclosed by this 
regulation but not by Regulation E
    iv. An institution relies on Regulation E's rules regarding 
disclosure of limitations on the frequency and amount of electronic fund 
transfers, including security-related exceptions. But any limitations on 
``intra-institutional transfers'' to or from the consumer's other 
accounts during a given time period

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must be disclosed, even though intra-institutional transfers are exempt 
from Regulation E.
    (e) Oral response to inquiries
    1. Application of rule. Institutions are not required to provide 
rate information orally.
    2. Relation to advertising. The advertising rules do not cover an 
oral response to a question about rates.
    3. Existing accounts. This paragraph does not apply to oral 
responses about rate information for existing accounts. For example, if 
a consumer holding a one-year certificate of deposit (CD) requests 
interest rate information about the CD during the term, the institution 
need not disclose the annual percentage yield.
    (f) Rounding and accuracy rules for rates and yields
    (f)(1) Rounding
    1. Permissible rounding. Examples of permissible rounding are an 
annual percentage yield calculated to be 5.644%, rounded down and 
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
    (f)(2) Accuracy
    1. Annual percentage yield and annual percentage yield earned. The 
tolerance for annual percentage yield and annual percentage yield earned 
calculations is designed to accommodate inadvertent errors. Institutions 
may not purposely incorporate the tolerance into their calculation of 
yields.

Section 230.4 Account disclosures

    (a) Delivery of account disclosures
    (a)(1) Account opening
    1. New accounts. New account disclosures must be provided when:
    i. A time account that does not automatically rollover is renewed by 
a consumer
    ii. A consumer changes a term for a renewable time account (see 
Sec. 230.5(b)-5 regarding disclosure alternatives)
    iii. An institution transfers funds from an account to open a new 
account not at the consumer's request, unless the institution previously 
gave account disclosures and any change-in-term notices for the new 
account
    iv. An institution accepts a deposit from a consumer to an account 
that the institution had deemed closed for the purpose of treating 
accrued but uncredited interest as forfeited interest (see Sec. 
230.7(b)-3)
    2. Acquired accounts. New account disclosures need not be given when 
an institution acquires an account through an acquisition of or merger 
with another institution (but see Sec. 230.5(a) regarding advance 
notice requirements if terms are changed).
    (a)(2) Requests
    (a)(2)(i)
    1. Inquiries versus requests. A response to an oral inquiry (by 
telephone or in person) about rates and yields or fees does not trigger 
the duty to provide account disclosures. But when consumers ask for 
written information about an account (whether by telephone, in person, 
or by other means), the institution must provide disclosures unless the 
account is no longer offered to the public.
    2. General requests. When responding to a consumer's general request 
for disclosures about a type of account (a NOW account, for example), an 
institution that offers several variations may provide disclosures for 
any one of them.
    3. Timing for response. Ten business days is a reasonable time for 
responding to requests for account information that consumers do not 
make in person, including requests made by electronic means (such as by 
electronic mail).
    4. Use of electronic means. If a consumer who is not present at the 
institution makes a request for account disclosures, including a request 
made by telephone, e-mail, or via the institution's Web site, the 
institution may send the disclosures in paper form or, if the consumer 
agrees, may provide the disclosures electronically, such as to an e-mail 
address that the consumer provides for that purpose, or on the 
institution's Web site, without regard to the consumer consent or other 
provisions of the E-Sign Act. The regulation does not require an 
institution to provide, nor a consumer to agree to receive, the 
disclosures required by Sec. 230.4(a)(2) in electronic form.
    (a)(2)(ii)(A)
    1. Recent rates. Institutions comply with this paragraph if they 
disclose an interest rate and annual percentage yield accurate within 
the seven calendar days preceding the date they send the disclosures.
    (a)(2)(ii)(B)
    1. Term. Describing the maturity of a time account as ``1 year'' or 
``6 months,'' for example, illustrates a statement of the maturity of a 
time account as a term rather than a date (``January 10, 1995'').
    (b) Content of account disclosures
    (b)(1) Rate information
    (b)(1)(i) Annual percentage yield and interest rate
    1. Rate disclosures. In addition to the interest rate and annual 
percentage yield, institutions may disclose a periodic rate 
corresponding to the interest rate. No other rate or yield (such as 
``tax effective yield'') is permitted. If the annual percentage yield is 
the same as the interest rate, institutions may disclose a single figure 
but must use both terms.
    2. Fixed-rate accounts. For fixed-rate time accounts paying the 
opening rate until maturity, institutions may disclose the period of 
time the interest rate will be in effect by stating the maturity date. 
(See appendix B, B-7--Sample Form.) For other fixed-rate accounts, 
institutions may use a date (``This rate will be in effect through May 
4, 1995'') or a period (``This rate will be in effect for at least 30 
days'').

[[Page 33]]

    3. Tiered-rate accounts. Each interest rate, along with the 
corresponding annual percentage yield for each specified balance level 
(or range of annual percentage yields, if appropriate), must be 
disclosed for tiered-rate accounts. (See appendix A, Part I, Paragraph 
D.)
    4. Stepped-rate accounts. A single composite annual percentage yield 
must be disclosed for stepped-rate accounts. (See appendix A, Part I, 
Paragraph B.) The interest rates and the period of time each will be in 
effect also must be provided. When the initial rate offered for a 
specified time on a variable-rate account is higher or lower than the 
rate that would otherwise be paid on the account, the calculation of the 
annual percentage yield must be made as if for a stepped-rate account. 
(See appendix A, Part I, Paragraph C.)
    (b)(1)(ii) Variable rates
    (b)(1)(ii)(B)
    1. Determining interest rates. To disclose how the interest rate is 
determined, institutions must:
    i. Identify the index and specific margin, if the interest rate is 
tied to an index
    ii. State that rate changes are within the institution's discretion, 
if the institution does not tie changes to an index
    (b)(1)(ii)(C)
    1. Frequency of rate changes. An institution reserving the right to 
change rates at its discretion must state the fact that rates may change 
at any time.
    (b)(1)(ii)(D)
    1. Limitations. A floor or ceiling on rates or on the amount the 
rate may decrease or increase during any time period must be disclosed. 
Institutions need not disclose the absence of limitations on rate 
changes.
    (b)(2) Compounding and crediting
    (b)(2)(ii) Effect of closing an account
    1. Deeming an account closed. An institution may, subject to state 
or other law, provide in its deposit contracts the actions by consumers 
that will be treated as closing the account and that will result in the 
forfeiture of accrued but uncredited interest. An example is the 
withdrawal of all funds from the account prior to the date that interest 
is credited.
    (b)(3) Balance information
    (b)(3)(ii) Balance computation method
    1. Methods and periods. Institutions may use different methods or 
periods to calculate minimum balances for purposes of imposing a fee 
(the daily balance for a calendar month, for example) and accruing 
interest (the average daily balance for a statement period, for 
example). Each method and corresponding period must be disclosed.
    (b)(3)(iii) When interest begins to accrue
    1. Additional information. Institutions may disclose additional 
information such as the time of day after which deposits are treated as 
having been received the following business day, and may use additional 
descriptive terms such as ``ledger'' or ``collected'' balances to 
disclose when interest begins to accrue.
    (b)(4) Fees
    1. Covered fees. The following are types of fees that must be 
disclosed:
    i. Maintenance fees, such as monthly service fees
    ii. Fees to open or to close an account
    iii. Fees related to deposits or withdrawals, such as fees for use 
of the institution's ATMs
    iv. Fees for special services, such as stop-payment fees, fees for 
balance inquiries or verification of deposits, fees associated with 
checks returned unpaid, and fees for regularly sending to consumers 
checks that otherwise would be held by the institution
    2. Other fees. Institutions need not disclose fees such as the 
following:

    i. Fees for services offered to account and nonaccount holders 
alike, such as travelers checks and wire transfers (even if different 
amounts are charged to account and nonaccount holders)
    ii. Incidental fees, such as fees associated with state escheat 
laws, garnishment or attorneys fees, and fees for photocopying
    3. Amount of fees. Institutions must state the amount and conditions 
under which a fee may be imposed. Naming and describing the fee (such as 
``$4.00 monthly service fee'') will typically satisfy these 
requirements.
    4. Tied-accounts. Institutions must state if fees that may be 
assessed against an account are tied to other accounts at the 
institution. For example, if an institution ties the fees payable on a 
NOW account to balances held in the NOW account and a savings account, 
the NOW account disclosures must state that fact and explain how the fee 
is determined.
    5. Fees for overdrawing an account. Under Sec. 230.4(b)(4) of this 
part, institutions must disclose the conditions under which a fee may be 
imposed. In satisfying this requirement institutions must specify the 
categories of transactions for which an overdraft fee may be imposed. An 
exhaustive list of transactions is not required. It is sufficient for an 
institution to state that the fee applies to overdrafts ``created by 
check, in-person withdrawal, ATM withdrawal, or other electronic 
means,'' as applicable. Disclosing a fee ``for overdraft items'' would 
not be sufficient.
    (b)(5) Transaction limitations
    1. General rule. Examples of limitations on the number or dollar 
amount of deposits or withdrawals that institutions must disclose are:

    i. Limits on the number of checks that may be written on an account 
within a given time period
    ii. Limits on withdrawals or deposits during the term of a time 
account
    iii. Limitations required by Regulation D on the number of 
withdrawals permitted

[[Page 34]]

from money market deposit accounts by check to third parties each month. 
Institutions need not disclose reservations of right to require notices 
for withdrawals from accounts required by federal or state law.
    (b)(6) Features of time accounts
    (b)(6)(i) Time requirements
    1. ``Callable'' time accounts. In addition to the maturity date, an 
institution must state the date or the circumstances under which it may 
redeem a time account at the institution's option (a ``callable'' time 
account).
    (b)(6)(ii) Early withdrawal penalties
    1. General. The term ``penalty'' may but need not be used to 
describe the loss of interest that consumers may incur for early 
withdrawal of funds from time accounts.
    2. Examples. Examples of early withdrawal penalties are:
    i. Monetary penalties, such as ``$10.00'' or ``seven days' interest 
plus accrued but uncredited interest''
    ii. Adverse changes to terms such as a lowering of the interest 
rate, annual percentage yield, or compounding frequency for funds 
remaining on deposit
    iii. Reclamation of bonuses
    3. Relation to rules for IRAs or similar plans. Penalties imposed by 
the Internal Revenue Code for certain withdrawals from IRAs or similar 
pension or savings plans are not early withdrawal penalties for purposes 
of this regulation.
    4. Disclosing penalties. Penalties may be stated in months, whether 
institutions assess the penalty using the actual number of days during 
the period or using another method such as a number of days that occurs 
in any actual sequence of the total calendar months involved. For 
example, stating ``one month's interest'' is permissible, whether the 
institution assesses 30 days' interest during the month of April, or 
selects a time period between 28 and 31 days for calculating the 
interest for all early withdrawals regardless of when the penalty is 
assessed.
    (b)(6)(iv) Renewal policies
    1. Rollover time accounts. Institutions offering a grace period on 
time accounts that automatically renew need not state whether interest 
will be paid if the funds are withdrawn during the grace period.
    2. Nonrollover time accounts. Institutions paying interest on funds 
following the maturity of time accounts that do not renew automatically 
need not state the rate (or annual percentage yield) that may be paid. 
(See appendix B, Model Clause B-1(h)(iv)(2).)

Section 230.5 Subsequent disclosures
    (a) Change in terms
    (a)(1) Advance notice required
    1. Form of notice. Institutions may provide a change-in-term notice 
on or with a periodic statement or in another mailing. If an institution 
provides notice through revised account disclosures, the changed term 
must be highlighted in some manner. For example, institutions may note 
that a particular fee has been changed (also specifying the new amount) 
or use an accompanying letter that refers to the changed term.
    2. Effective date. An example of language for disclosing the 
effective date of a change is ``As of November 21, 1994.''
    3. Terms that change upon the occurrence of an event. An institution 
offering terms that will automatically change upon the occurrence of a 
stated event need not send an advance notice of the change provided the 
institution fully describes the conditions of the change in the account 
opening disclosures (and sends any change-in-term notices regardless of 
whether the changed term affects that consumer's account at that time).
    4. Examples. Examples of changes not requiring an advance change-in-
terms notice are:
    i. The termination of employment for consumers for whom account 
maintenance or activity fees were waived during their employment by the 
depository institution
    ii. The expiration of one year in a promotion described in the 
account opening disclosures to ``waive $4.00 monthly service charges for 
one year''
    (a)(2) No notice required
    (a)(2)(ii) Check printing fees
    1. Increase in fees. A notice is not required for an increase in 
fees for printing checks (or deposit and withdrawal slips) even if the 
institution adds some amount to the price charged by the vendor.
    (b) Notice before maturity for time accounts longer than one month 
that renew automatically
    1. Maturity dates on nonbusiness days. In determining the term of a 
time account, institutions may disregard the fact that the term will be 
extended beyond the disclosed number of days because the disclosed 
maturity falls on a nonbusiness day. For example, a holiday or weekend 
may cause a ``one-year'' time account to extend beyond 365 days (or 366, 
in a leap year) or a ``one-month'' time account to extend beyond 31 
days.
    2. Disclosing when rates will be determined. Ways to disclose when 
the annual percentage yield will be available include the use of:
    i. A specific date, such as ``October 28''
    ii. A date that is easily determinable, such as ``the Tuesday before 
the maturity date stated on this notice'' or ``as of the maturity date 
stated on this notice''
    3. Alternative timing rule. Under the alternative timing rule, an 
institution offering a 10-day grace period would have to provide the 
disclosures at least 10 days prior to the scheduled maturity date.
    4. Club accounts. If consumers have agreed to the transfer of 
payments from another account to a club time account for the next club 
period, the institution must comply

[[Page 35]]

with the requirements for automatically renewable time accounts--even 
though consumers may withdraw funds from the club account at the end of 
the current club period.
    5. Renewal of a time account. In the case of a change in terms that 
becomes effective if a rollover time account is subsequently renewed:
    i. If the change is initiated by the institution, the disclosure 
requirements of this paragraph apply. (Paragraph 230.5(a) applies if the 
change becomes effective prior to the maturity of the existing time 
account.)
    ii. If the change is initiated by the consumer, the account opening 
disclosure requirements of Sec. 230.4(b) apply. (If the notice required 
by this paragraph has been provided, institutions may give new account 
disclosures or disclosures highlighting only the new term.)
    6. Example. If a consumer receives a prematurity notice on a one-
year time account and requests a rollover to a six-month account, the 
institution must provide either account opening disclosures including 
the new maturity date or, if all other terms previously disclosed in the 
prematurity notice remain the same, only the new maturity date.
    (b)(1) Maturities of longer than one year
    1. Highlighting changed terms. Institutions need not highlight terms 
that changed since the last account disclosures were provided.
    (c) Notice for time accounts one month or less that renew 
automatically
    (d) Notice before maturity for time accounts longer than one year 
that do not renew automatically
    1. Subsequent account. When funds are transferred following maturity 
of a nonrollover time account, institutions need not provide account 
disclosures unless a new account is established.

Section 230.6 Periodic statement disclosures
    (a) General rule
    1. General. Institutions are not required to provide periodic 
statements. If they do provide statements, disclosures need only be 
furnished to the extent applicable. For example, if no interest is 
earned for a statement period, institutions need not state that fact. 
Or, institutions may disclose ``$0'' interest earned and ``0%'' annual 
percentage yield earned.
    2. Regulation E interim statements. When an institution provides 
regular quarterly statements, and in addition provides a monthly interim 
statement to comply with Regulation E, the interim statement need not 
comply with this section unless it states interest or rate information. 
(See 12 CFR Sec. 205.9(b).)
    3. Combined statements. Institutions may provide information about 
an account (such as an MMDA) on the periodic statement for another 
account (such as a NOW account) without triggering the disclosures 
required by this section, as long as:
    i. The information is limited to the account number, the type of 
account, or balance information, and
    ii. The institution also provides a periodic statement complying 
with this section for each account.
    4. Other information. Additional information that may be given on or 
with a periodic statement includes:
    i. Interest rates and corresponding periodic rates applied to 
balances during the statement period
    ii. The dollar amount of interest earned year-to-date
    iii. Bonuses paid (or any de minimis consideration of $10 or less)
    iv. Fees for products such as safe deposit boxes
    (a)(1) Annual percentage yield earned
    1. Ledger and collected balances. Institutions that accrue interest 
using the collected balance method may use either the ledger or the 
collected balance in determining the annual percentage yield earned.
    (a)(2) Amount of interest
    1. Accrued interest. Institutions must state the amount of interest 
that accrued during the statement period, even if it was not credited.
    2. Terminology. In disclosing interest earned for the period, 
institutions must use the term ``interest'' or terminology such as:
    i. ``Interest paid,'' to describe interest that has been credited
    ii. ``Interest accrued'' or ``interest earned,'' to indicate that 
interest is not yet credited
    3. Closed accounts. If consumers close an account between crediting 
periods and forfeits accrued interest, the institution may not show any 
figures for interest earned or annual percentage yield earned for the 
period (other than zero, at the institution's option).
(a)(3) Fees imposed
    1. General. Periodic statements must state fees disclosed under 
Sec. 230.4(b) that were debited to the account during the statement 
period, even if assessed for an earlier period.
    2. Itemizing fees by type. In itemizing fees imposed more than once 
in the period, institutions may group fees if they are the same type. 
(See Sec. 230.11(a)(1) of this part regarding certain fees that are 
required to be grouped.) When fees of the same type are grouped 
together, the description must make clear that the dollar figure 
represents more than a single fee, for example, ``total fees for checks 
written this period.'' Examples of fees that may not be grouped together 
are--
    i. Monthly maintenance and excess-activity fees
    ii. ``transfer'' fees, if different dollar amounts are imposed'' 
such as $.50 for deposits and $1.00 for withdrawals

[[Page 36]]

    iii. fees for electronic fund transfers and fees for other services, 
such as balance-inquiry or maintenance fees
    iv. fees for paying overdrafts and fees for returning checks or 
other items unpaid

    3. Identifying fees. Statement details must enable consumers to 
identify the specific fee. For example:
    i. Institutions may use a code to identify a particular fee if the 
code is explained on the periodic statement or in documents accompanying 
the statement.
    ii. Institutions using debit slips may disclose the date the fee was 
debited on the periodic statement and show the amount and type of fee on 
the dated debit slip.
    4. Relation to Regulation E. Disclosure of fees in compliance with 
Regulation E complies with this section for fees related to electronic 
fund transfers (for example, totaling all electronic funds transfer fees 
in a single figure).
    (a)(4) Length of period
    1. General. Institutions providing the beginning and ending dates of 
the period must make clear whether both dates are included in the 
period.
    2. Opening or closing an account mid-cycle. If an account is opened 
or closed during the period for which a statement is sent, institutions 
must calculate the annual percentage yield earned based on account 
balances for each day the account was open.
(b) Special rule for average daily balance method
    1. Monthly statements and quarterly compounding. This rule applies, 
for example, when an institution calculates interest on a quarterly 
average daily balance and sends monthly statements. In this case, the 
first two monthly statements would omit annual percentage yield earned 
and interest earned figures; the third monthly statement would reflect 
the interest earned and the annual percentage yield earned for the 
entire quarter.
    2. Length of the period. Institutions must disclose the length of 
both the interest calculation period and the statement period. For 
example, a statement could disclose a statement period of April 16 
through May 15 and further state that ``the interest earned and the 
annual percentage yield earned are based on your average daily balance 
for the period April 1 through April 30.''
    3. Quarterly statements and monthly compounding. Institutions that 
use the average daily balance method to calculate interest on a monthly 
basis and that send statements on a quarterly basis may disclose a 
single interest (and annual percentage yield earned) figure. 
Alternatively, an institution may disclose three interest and three 
annual percentage yield earned figures, one for each month in the 
quarter, as long as the institution states the number of days (or 
beginning and ending dates) in the interest period if different from the 
statement period.

Section 230.7 Payment of interest

    (a)(1) Permissible methods
    1. Prohibited calculation methods. Calculation methods that do not 
comply with the requirement to pay interest on the full amount of 
principal in the account each day include:
    i. Paying interest on the balance in the account at the end of the 
period (the ``ending balance'' method)
    ii. Paying interest for the period based on the lowest balance in 
the account for any day in that period (the ``low balance'' method)
    iii. Paying interest on a percentage of the balance, excluding the 
amount set aside for reserve requirements (the ``investable balance'' 
method)
    2. Use of 365-day basis. Institutions may apply a daily periodic 
rate greater than 1/365 of the interest rate--such as 1/360 of the 
interest rate--as long as it is applied 365 days a year.
    3. Periodic interest payments. An institution can pay interest each 
day on the account and still make uniform interest payments. For 
example, for a one-year certificate of deposit an institution could make 
monthly interest payments equal to 1/12 of the amount of interest that 
will be earned for a 365-day period (or 11 uniform monthly payments--
each equal to roughly 1/12 of the total amount of interest--and one 
payment that accounts for the remainder of the total amount of interest 
earned for the period).
    4. Leap year. Institutions may apply a daily rate of 1/366 or 1/365 
of the interest rate for 366 days in a leap year, if the account will 
earn interest for February 29.
    5. Maturity of time accounts. Institutions are not required to pay 
interest after time accounts mature. Examples include:
    i. During a grace period offered for an automatically renewable time 
account, if consumers decide during that period not to renew the account
    ii. Following the maturity of nonrollover time accounts
    iii. When the maturity date falls on a holiday, and consumers must 
wait until the next business day to obtain the funds
    6. Dormant accounts. Institutions must pay interest on funds in an 
account, even if inactivity or the infrequency of transactions would 
permit the institution to consider the account to be ``inactive'' or 
``dormant'' (or similar status) as defined by state or other law or the 
account contract.
    (a)(2) Determination of minimum balance to earn interest
    1. Daily balance accounts. Institutions that require a minimum 
balance may choose not to pay interest for days when the balance drops 
below the required minimum, if they

[[Page 37]]

use the daily balance method to calculate interest.
    2. Average daily balance accounts. Institutions that require a 
minimum balance may choose not to pay interest for the period in which 
the balance drops below the required minimum, if they use the average 
daily balance method to calculate interest.
    3. Beneficial method. Institutions may not require that consumers 
maintain both a minimum daily balance and a minimum average daily 
balance to earn interest, such as by requiring consumers to maintain a 
$500 daily balance and a prescribed average daily balance (whether 
higher or lower). But an institution could offer a minimum balance to 
earn interest that includes an additional method that is ``unequivocally 
beneficial'' to consumers such as the following: An institution using 
the daily balance method to calculate interest and requiring a $500 
minimum daily balance could offer to pay interest on the account for 
those days the minimum balance is not met as long as consumers maintain 
an average daily balance throughout the month of $400.
    4. Paying on full balance. Institutions must pay interest on the 
full balance in the account that meets the required minimum balance. For 
example, if $300 is the minimum daily balance required to earn interest, 
and a consumer deposits $500, the institution must pay the stated 
interest rate on the full $500 and not just on $200.
    5. Negative balances prohibited. Institutions must treat a negative 
account balance as zero to determine:
    i. The daily or average daily balance on which interest will be paid
    ii. Whether any minimum balance to earn interest is met
    6. Club accounts. Institutions offering club accounts (such as a 
``holiday'' or ``vacation'' club) cannot impose a minimum balance 
requirement for interest based on the total number or dollar amount of 
payments required under the club plan. For example, if a plan calls for 
$10 weekly payments for 50 weeks, the institution cannot set a $500 
``minimum balance'' and then pay interest only if the consumer has made 
all 50 payments.
    7. Minimum balances not affecting interest. Institutions may use the 
daily balance, average daily balance, or any other computation method to 
calculate minimum balance requirements not involving the payment of 
interest--such as to compute minimum balances for assessing fees.
    (b) Compounding and crediting policies
    1. General. Institutions choosing to compound interest may compound 
or credit interest annually, semi-annually, quarterly, monthly, daily, 
continuously, or on any other basis.
    2. Withdrawals prior to crediting date. If consumers withdraw funds 
(without closing the account) prior to a scheduled crediting date, 
institutions may delay paying the accrued interest on the withdrawn 
amount until the scheduled crediting date, but may not avoid paying 
interest.
    3. Closed accounts. Subject to state or other law, an institution 
may choose not to pay accrued interest if consumers close an account 
prior to the date accrued interest is credited, as long as the 
institution has disclosed that fact.
    (c) Date interest begins to accrue
    1. Relation to Regulation CC. Institutions may rely on the Expedited 
Funds Availability Act (EFAA) and Regulation CC (12 CFR part 229) to 
determine, for example, when a deposit is considered made for purposes 
of interest accrual, or when interest need not be paid on funds because 
a deposited check is later returned unpaid.
    2. Ledger and collected balances. Institutions may calculate 
interest by using a ``ledger'' or ``collected'' balance method, as long 
as the crediting requirements of the EFAA are met (12 CFR 229.14).
    3. Withdrawal of principal. Institutions must accrue interest on 
funds until the funds are withdrawn from the account. For example, if a 
check is debited to an account on a Tuesday, the institution must accrue 
interest on those funds through Monday.

Section 230.8 Advertising

    (a) Misleading or inaccurate advertisements
    1. General. All advertisements are subject to the rule against 
misleading or inaccurate advertisements, even though the disclosures 
applicable to various media differ.
    2. Indoor signs. An indoor sign advertising an annual percentage 
yield is not misleading or inaccurate when:
    i. For a tiered-rate account, it also provides the lower dollar 
amount of the tier corresponding to the advertised annual percentage 
yield
    ii. For a time account, it also provides the term required to obtain 
the advertised annual percentage yield
    3. Fees affecting ``free'' accounts. For purposes of determining 
whether an account can be advertised as ``free'' or ``no cost,'' 
maintenance and activity fees include:
    i. Any fee imposed when a minimum balance requirement is not met, or 
when consumers exceed a specified number of transactions
    ii. Transaction and service fees that consumers reasonably expect to 
be imposed on a regular basis
    iii. A flat fee, such as a monthly service fee
    iv. Fees imposed to deposit, withdraw, or transfer funds, including 
per-check or per-transaction charges (for example, $.25 for each 
withdrawal, whether by check or in person)
    4. Other fees. Examples of fees that are not maintenance or activity 
fees include:

[[Page 38]]

    i. Fees not required to be disclosed under Sec. 230.4(b)(4)
    ii. Check printing fees
    iii. Balance inquiry fees
    iv. Stop-payment fees and fees associated with checks returned 
unpaid
    v. Fees assessed against a dormant account
    vi. Fees for ATM or electronic transfer services (such as 
preauthorized transfers or home banking services) not required to obtain 
an account
    5. Similar terms. An advertisement may not use the term ``fees 
waived'' if a maintenance or activity fee may be imposed because it is 
similar to the terms ``free'' or ``no cost.''
    6. Specific account services. Institutions may advertise a specific 
account service or feature as free if no fee is imposed for that service 
or feature. For example, institutions offering an account that is free 
of deposit or withdrawal fees could advertise that fact, as long as the 
advertisement does not mislead consumers by implying that the account is 
free and that no other fee (a monthly service fee, for example) may be 
charged.
    7. Free for limited time. If an account (or a specific account 
service) is free only for a limited period of time--for example, for one 
year following the account opening--the account (or service) may be 
advertised as free if the time period is also stated.
    8. Conditions not related to deposit accounts. Institutions may 
advertise accounts as ``free'' for consumers meeting conditions not 
related to deposit accounts, such as the consumer's age. For example, 
institutions may advertise a NOW account as ``free for persons over 65 
years old,'' even though a maintenance or activity fee is assessed on 
accounts held by consumers 65 or younger.
    9. Electronic advertising. If an electronic advertisement (such as 
an advertisement appearing on an Internet Web site) displays a 
triggering term (such as a bonus or annual percentage yield) the 
advertisement must clearly refer the consumer to the location where the 
additional required information begins. For example, an advertisement 
that includes a bonus or annual percentage yield may be accompanied by a 
link that directly takes the consumer to the additional information.
    10. Examples. Examples of advertisements that would ordinarily be 
misleading, inaccurate, or misrepresent the deposit contract are:
    i. Representing an overdraft service as a ``line of credit,'' unless 
the service is subject to the Board's Regulation Z, 12 CFR part 226.
    ii. Representing that the institution will honor all checks or 
authorize payment of all transactions that overdraw an account, with or 
without a specified dollar limit, when the institution retains 
discretion at any time not to honor checks or authorize transactions.
    iii. Representing that consumers with an overdrawn account are 
allowed to maintain a negative balance when the terms of the account's 
overdraft service require consumers promptly to return the deposit 
account to a positive balance.
    iv. Describing an institution's overdraft service solely as 
protection against bounced checks when the institution also permits 
overdrafts for a fee for overdrawing their accounts by other means, such 
as ATM withdrawals, debit card transactions, or other electronic fund 
transfers.
    v. Advertising an account-related service for which the institution 
charges a fee in an advertisement that also uses the word ``free'' or 
``no cost'' (or a similar term) to describe the account, unless the 
advertisement clearly and conspicuously indicates that there is a cost 
associated with the service. If the fee is a maintenance or activity fee 
under Sec. 230.8(a)(2) of this part, however, an advertisement may not 
describe the account as ``free'' or ``no cost'' (or contain a similar 
term) even if the fee is disclosed in the advertisement.
    11. Additional disclosures in connection with the payment of 
overdrafts. The rule in Sec. 230.3(a), providing that disclosures 
required by Sec. 230.8 may be provided to the consumer in electronic 
form without regard to E-Sign Act requirements, applies to the 
disclosures described in Sec. 230.11(b), which are incorporated by 
reference in Sec. 230.8(f).
    (b) Permissible rates
    1. Tiered-rate accounts. An advertisement for a tiered-rate account 
that states an annual percentage yield must also state the annual 
percentage yield for each tier, along with corresponding minimum balance 
requirements. Any interest rates stated must appear in conjunction with 
the applicable annual percentage yields for each tier.
    2. Stepped-rate accounts. An advertisement that states an interest 
rate for a stepped-rate account must state all the interest rates and 
the time period that each rate is in effect.
    3. Representative examples. An advertisement that states an annual 
percentage yield for a given type of account (such as a time account for 
a specified term) need not state the annual percentage yield applicable 
to other time accounts offered by the institution or indicate that other 
maturity terms are available. In an advertisement stating that rates for 
an account may vary depending on the amount of the initial deposit or 
the term of a time account, institutions need not list each balance 
level and term offered. Instead, the advertisement may:
    i. Provide a representative example of the annual percentage yields 
offered, clearly described as such. For example, if an institution 
offers a $25 bonus on all time accounts and the annual percentage yield 
will vary depending on the term selected, the institution

[[Page 39]]

may provide a disclosure of the annual percentage yield as follows: 
``For example, our 6-month certificate of deposit currently pays a 3.15% 
annual percentage yield.''
    ii. Indicate that various rates are available, such as by stating 
short-term and longer-term maturities along with the applicable annual 
percentage yields: ``We offer certificates of deposit with annual 
percentage yields that depend on the maturity you choose. For example, 
our one-month CD earns a 2.75% APY. Or, earn a 5.25% APY for a three-
year CD.''
    (c) When additional disclosures are required
    1. Trigger terms. The following are examples of information stated 
in advertisements that are not ``trigger'' terms:
    i. ``One, three, and five year CDs available''
    ii. ``Bonus rates available''
    iii. ``1% over our current rates,'' so long as the rates are not 
determinable from the advertisement
    (2) Time annual percentage yield is offered
    1. Specified date. If an advertisement discloses an annual 
percentage yield as of a specified date, that date must be recent in 
relation to the publication or broadcast frequency of the media used, 
taking into account the particular circumstances or production deadlines 
involved. For example, the printing date of a brochure printed once for 
a deposit account promotion that will be in effect for six months would 
be considered ``recent,'' even though rates change during the six-month 
period. Rates published in a daily newspaper or on television must 
reflect rates offered shortly before (or on) the date the rates are 
published or broadcast.
    2. Reference to date of publication. An advertisement may refer to 
the annual percentage yield as being accurate as of the date of 
publication, if the date is on the publication itself. For instance, an 
advertisement in a periodical may state that a rate is ``current through 
the date of this issue,'' if the periodical shows the date.
    (c)(5) Effect of fees
    1. Scope. This requirement applies only to maintenance or activity 
fees described in paragraph 8(a).
    (c)(6) Features of time accounts
    (c)(6)(i) Time requirements
    1. Club accounts. If a club account has a maturity date but the term 
may vary depending on when the account is opened, institutions may use a 
phrase such as: ``The maturity date of this club account is November 15; 
its term varies depending on when the account is opened.''
    (c)(6)(ii) Early withdrawal penalties
    1. Discretionary penalties. Institutions imposing early withdrawal 
penalties on a case-by-case basis may disclose that they ``may'' (rather 
than ``will'') impose a penalty if such a disclosure accurately 
describes the account terms.
    (d) Bonuses
    1. General reference to ``bonus.'' General statements such as 
``bonus checking'' or ``get a bonus when you open a checking account'' 
do not trigger the bonus disclosures.
    (e) Exemption for certain advertisements
    (e)(1) Certain media
    (e)(1)(i)
    1. Internet advertisements. The exemption for advertisements made 
through broadcast or electronic media does not extend to advertisements 
posted on the Internet or sent by e-mail.
    (e)(1)(iii)
    1. Tiered-rate accounts. Solicitations for a tiered-rate account 
made through telephone response machines must provide the annual 
percentage yields and the balance requirements applicable to each tier.
    (e)(2) Indoor signs
    (e)(2)(i)
    1. General. Indoor signs include advertisements displayed on 
computer screens, banners, preprinted posters, and chalk or peg boards. 
Any advertisement inside the premises that can be retained by a consumer 
(such as a brochure or a printout from a computer) is not an indoor 
sign.

Section 230.9 Enforcement and record retention

    (c) Record retention
    1. Evidence of required actions. Institutions comply with the 
regulation by demonstrating that they have done the following:

    i. Established and maintained procedures for paying interest and 
providing timely disclosures as required by the regulation, and
    ii. Retained sample disclosures for each type of account offered to 
consumers, such as account-opening disclosures, copies of 
advertisements, and change-in-term notices; and information regarding 
the interest rates and annual percentage yields offered.
    2. Methods of retaining evidence. Institutions must be able to 
reconstruct the required disclosures or other actions. They need not 
keep disclosures or other business records in hard copy. Records 
evidencing compliance may be retained on microfilm, microfiche, or by 
other methods that reproduce records accurately (including computer 
files).
    3. Payment of interest. Institutions must retain sufficient rate and 
balance information to permit the verification of interest paid on an 
account, including the payment of interest on the full principal 
balance.

Section 230.10 Electronic Communication [Reserved]

Section 230.11 Additional disclosures regarding the payment of 
          overdrafts
    (a) Disclosure of total fees on periodic statements.
    (a)(1) General.

[[Page 40]]

    1. Transfer services. The overdraft services covered by Sec. 
230.11(a)(1) of this part do not include a service providing for the 
transfer of funds from another deposit account of the consumer to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    2. Fees for paying overdrafts. Institutions must disclose on 
periodic statements a total dollar amount for all fees or charges 
imposed on the account for paying overdrafts. The institution must 
disclose separate totals for the statement period and for the calendar 
year-to-date. The total dollar amount for each of these periods includes 
per-item fees as well as interest charges, daily or other periodic fees, 
or fees charged for maintaining an account in overdraft status, whether 
the overdraft is by check, debit card transaction, or by any other 
transaction type. It also includes fees charged when there are 
insufficient funds because previously deposited funds are subject to a 
hold or are uncollected. It does not include fees for transferring funds 
from another account of the consumer to avoid an overdraft, or fees 
charged under a service subject to the Board's Regulation Z (12 CFR part 
226). See also comment 11(c)-2. Under Sec. 230.11(a)(1)(i), the 
disclosure must describe the total dollar amount for all fees or charges 
imposed on the account for the statement period and calendar year-to-
date for paying overdrafts using the term ``Total Overdraft Fees.'' This 
requirement applies notwithstanding comment 3(a)-2.
    3. Fees for returning items unpaid. The total dollar amount for all 
fees for returning items unpaid must include all fees charged to the 
account for dishonoring or returning checks or other items drawn on the 
account. The institution must disclose separate totals for the statement 
period and for the calendar year-to-date. Fees imposed when deposited 
items are returned are not included. Institutions may use terminology 
such as ``returned item fee'' or ``NSF fee'' to describe fees for 
returning items unpaid.
    4. Waived fees. In some cases, an institution may provide a 
statement for the current period reflecting that fees imposed during a 
previous period were waived and credited to the account. Institutions 
may, but are not required to, reflect the adjustment in the total for 
the calendar year-to-date and in the applicable statement period. For 
example, if an institution assesses a fee in January and refunds the fee 
in February, the institution could disclose a year-to-date total 
reflecting the amount credited, but it should not affect the total 
disclosed for the February statement period, because the fee was not 
assessed in the February statement period. If an institution assesses 
and then waives and credits a fee within the same cycle, the institution 
may, at its option, reflect the adjustment in the total disclosed for 
fees imposed during the current statement period and for the total for 
the calendar year-to-date. Thus, if the institution assesses and waives 
the fee in the February statement period, the February fee total could 
reflect a total net of the waived fee.
    5. Totals for the calendar year to date. Some institutions' 
statement periods do not coincide with the calendar month. In such 
cases, the institution may disclose a calendar year-to-date total by 
aggregating fees for 12 monthly cycles, starting with the period that 
begins during January and finishing with the period that begins during 
December. For example, if statement periods begin on the 10th day of 
each month, the statement covering December 10, 2006 through January 9, 
2007 may disclose the year-to-date total for fees imposed from January 
10, 2006 through January 9, 2007. Alternatively, the institution could 
provide a statement for the cycle ending January 9, 2007 showing the 
year-to-date total for fees imposed January 1, 2006 through December 31, 
2006.
    6. Itemization of fees. An institution may itemize each fee in 
addition to providing the disclosures required by Sec. 230.11(a)(1) of 
this part.
    (a)(3) Time period covered by disclosures
    1. Periodic statement disclosures. The disclosures under section 
230.11(a) must be included on periodic statements provided by an 
institution starting the first statement period that begins after 
January 1, 2010. For example, if a consumer's statement period typically 
closes on the 15th of each month, an institution must provide the 
disclosures required by Sec. 230.11(a)(1) on subsequent periodic 
statements for that consumer beginning with the statement reflecting the 
period from January 16, 2010 to February 15, 2010.

    (b) Advertising Disclosures in Connection With Overdraft Services

    1. Examples of institutions promoting the payment of overdrafts. A 
depository institution would be required to include the advertising 
disclosures in Sec. 230.11(b)(1) of this part if the institution:
    i. Promotes the institution's policy or practice of paying 
overdrafts (unless the service would be subject to the Board's 
Regulation Z (12 CFR part 226)). This includes advertisements using 
print media such as newspapers or brochures, telephone solicitations, 
electronic mail, or messages posted on an Internet site. (But see Sec. 
230.11(b)(2) of this part for communications that are not subject to the 
additional advertising disclosures);
    ii. Includes a message on a periodic statement informing the 
consumer of an overdraft limit or the amount of funds available for 
overdrafts. For example, an institution that includes a message on a 
periodic statement informing the consumer of a $500 overdraft

[[Page 41]]

limit or that the consumer has $300 remaining on the overdraft limit, is 
promoting an overdraft service.
    iii. Discloses an overdraft limit or includes the dollar amount of 
an overdraft limit in a balance disclosed on an automated system, such 
as a telephone response machine, ATM screen or the institution's 
Internet site. (See, however, Sec. 230.11(b)(3) of this part.).
    2. Transfer services. The overdraft services covered by Sec. 
230.11(b)(1) of this part do not include a service providing for the 
transfer of funds from another deposit account of the consumer to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    3. Electronic media. The exception for advertisements made through 
broadcast or electronic media, such as television or radio, does not 
apply to advertisements posted on an institution's Internet site, on an 
ATM screen, provided on telephone response machines, or sent by 
electronic mail.
    4. Fees. The fees that must be disclosed under Sec. 230.11(b)(1) of 
this part include per-item fees as well as interest charges, daily or 
other periodic fees, and fees charged for maintaining an account in 
overdraft status, whether the overdraft is by check or by other means. 
The fees also include fees charged when there are insufficient funds 
because previously deposited funds are subject to a hold or are 
uncollected. The fees do not include fees for transferring funds from 
another account to avoid an overdraft, or fees charged when the 
institution has previously agreed in writing to pay items that overdraw 
the account and the service is subject to the Board's Regulation Z, 12 
CFR part 226.
    5. Categories of transactions. An exhaustive list of transactions is 
not required. Disclosing that a fee may be imposed for covering 
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or 
other electronic means' would satisfy the requirements of Sec. 
230.11(b)(1)(ii) of this part where the fee may be imposed in these 
circumstances. See comment 4(b)(4)-5 of this part.
    6. Time period to repay. If a depository institution reserves the 
right to require a consumer to pay an overdraft immediately or on demand 
instead of affording consumers a specific time period to establish a 
positive balance in the account, an institution may comply with Sec. 
230.11(b)(1)(iii) of this part by disclosing this fact.
    7. Circumstances for nonpayment. An institution must describe the 
circumstances under which it will not pay an overdraft. It is sufficient 
to state, as applicable: ``Whether your overdrafts will be paid is 
discretionary and we reserve the right not to pay. For example, we 
typically do not pay overdrafts if your account is not in good standing, 
or you are not making regular deposits, or you have too many 
overdrafts.''
    8. Advertising an account as ``free.'' If the advertised account-
related service is an overdraft service subject to the requirements of 
Sec. 230.11(b)(1) of this part, institutions must disclose the fee or 
fees for the payment of each overdraft, not merely that a cost is 
associated with the overdraft service, as well as other required 
information. Compliance with comment 8(a)-10.v. is not sufficient.
    (c) Disclosure of account balances
    1. Balance that does not include additional amounts. For purposes of 
the balance disclosure requirement in Sec. 230.11(c), if an institution 
discloses balance information to a consumer through an automated system, 
it must disclose a balance that excludes any funds that the institution 
may provide to cover an overdraft pursuant to a discretionary overdraft 
service, that will be paid by the institution under a service subject to 
the Board's Regulation Z (12 CFR part 226), or that will be transferred 
from another account held individually or jointly by a consumer. The 
balance may, but need not, include funds that are deposited in the 
consumer's account, such as from a check, that are not yet made 
available for withdrawal in accordance with the funds availability rules 
under the Board's Regulation CC (12 CFR part 229). In addition, the 
balance may, but need not, include funds that are held by the 
institution to satisfy a prior obligation of the consumer (for example, 
to cover a hold for an ATM or debit card transaction that has been 
authorized but for which the bank has not settled).
    2. Retail sweep programs. In a retail sweep program, an institution 
establishes two legally distinct subaccounts, a transaction subaccount 
and a savings subaccount, which together make up the consumer's account. 
The institution allocates and transfers funds between the two 
subaccounts in order to maximize the balance in the savings account 
while complying with the monthly limitations on transfers out of savings 
accounts under the Board's Regulation D, 12 CFR 204.2(d)(2). Retail 
sweep programs are generally not established for the purpose of covering 
overdrafts. Rather, institutions typically establish retail sweep 
programs by agreement with the consumer, in order for the institution to 
minimize its transaction account reserve requirements and, in some 
cases, to provide a higher interest rate than the consumer would earn on 
a transaction account alone. Section 230.11(c) does not require an 
institution to exclude from the consumer's balance funds that may be 
transferred from another account pursuant to a retail sweep program that 
is established for such purposes and that has the following 
characteristics:
    i. The account involved complies with the Board's Regulation D, 12 
CFR 204.2(d)(2),

[[Page 42]]

    ii. The consumer does not have direct access to the non-transaction 
subaccount that is part of the retail sweep program, and
    iii. The consumer's periodic statements show the account balance as 
the combined balance in the subaccounts.
    3. Additional balance. The institution may disclose additional 
balances supplemented by funds that may be provided by the institution 
to cover an overdraft, whether pursuant to a discretionary overdraft 
service, a service subject to the Board's Regulation Z (12 CFR part 
226), or a service that transfers funds from another account held 
individually or jointly by the consumer, so long as the institution 
prominently states that any additional balance includes these additional 
overdraft amounts. The institution may not simply state, for instance, 
that the second balance is the consumer's ``available balance,'' or 
contains ``available funds.'' Rather, the institution should provide 
enough information to convey that the second balance includes these 
amounts. For example, the institution may state that the balance 
includes ``overdraft funds.'' Where a consumer has not opted into, or as 
applicable, has opted out of the institution's discretionary overdraft 
service, any additional balance disclosed should not include funds that 
otherwise might be available under that service. Where a consumer has 
not opted into, or as applicable, has opted out of, the institution's 
discretionary overdraft service for some, but not all transactions 
(e.g., the consumer has not opted into overdraft services for ATM and 
one-time debit card transactions), an institution that includes these 
additional overdraft funds in the second balance should convey that the 
overdraft funds are not available for all transactions. For example, the 
institution could state that overdraft funds are not available for ATM 
and one-time (or everyday) debit card transactions. Similarly, if funds 
are not available for all transactions pursuant to a service subject to 
the Board's Regulation Z (12 CFR part 226) or a service that transfers 
funds from another account, a second balance that includes such funds 
should also indicate this fact.
    4. Automated systems. The balance disclosure requirement in Sec. 
230.11(c) applies to any automated system through which the consumer 
requests a balance, including, but not limited to, a telephone response 
system, the institution's Internet site, or an ATM. The requirement 
applies whether the institution discloses a balance through an ATM owned 
or operated by the institution or through an ATM not owned or operated 
by the institution (including an ATM operated by a non-depository 
institution). If the balance is obtained at an ATM, the requirement also 
applies whether the balance is disclosed on the ATM screen or on a paper 
receipt.

       Appendix A to Part 230--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and Advertising 
                                Purposes

    1. Rounding for calculations. The following are examples of 
permissible rounding for calculating interest and the annual percentage 
yield:

    i. The daily rate applied to a balance carried to five or more 
decimal places
    ii. The daily interest earned carried to five or more decimal places

     Part II. Annual Percentage Yield Earned for Periodic Statements

    1. Balance method. The interest figure used in the calculation of 
the annual percentage yield earned may be derived from the daily balance 
method or the average daily balance method. The balance used in the 
formula for the annual percentage yield earned is the sum of the 
balances for each day in the period divided by the number of days in the 
period.
    2. Negative balances prohibited. Institutions must treat a negative 
account balance as zero to determine the balance on which the annual 
percentage yield earned is calculated. (See commentary to Sec. 
230.7(a)(2).)

                           A. General Formula

    1. Accrued but uncredited interest. To calculate the annual 
percentage yield earned, accrued but uncredited interest:

    i. May not be included in the balance for statements issued at the 
same time or less frequently than the account's compounding and 
crediting frequency. For example, if monthly statements are sent for an 
account that compounds interest daily and credits interest monthly, the 
balance may not be increased each day to reflect the effect of daily 
compounding.
    ii. Must be included in the balance for succeeding statements if a 
statement is issued more frequently than compounded interest is credited 
on an account. For example, if monthly statements are sent for an 
account that compounds interest daily and credits interest quarterly, 
the balance for the second monthly statement would include interest that 
had accrued for the prior month.
    2. Rounding. The interest earned figure used to calculate the annual 
percentage yield earned must be rounded to two decimals and reflect the 
amount actually paid. For example, if the interest earned for a 
statement period is $20.074 and the institution pays the consumer 
$20.07, the institution must use $20.07 (not $20.074) to calculate the 
annual percentage yield earned. For accounts paying interest based on 
the daily balance method that compound and credit interest quarterly, 
and send monthly statements, the institution may, but need not,

[[Page 43]]

round accrued interest to two decimals for calculating the annual 
percentage yield earned on the first two monthly statements issued 
during the quarter. However, on the quarterly statement the interest 
earned figure must reflect the amount actually paid.

 B. Special Formula for Use Where Periodic Statement is Sent More Often 
            Than the Period for Which Interest is Compounded

    1. Statements triggered by Regulation E. Institutions may, but need 
not, use this formula to calculate the annual percentage yield earned 
for accounts that receive quarterly statements and are subject to 
Regulation E's rule calling for monthly statements when an electronic 
fund transfer has occurred. They may do so even though no monthly 
statement was issued during a specific quarter. But institutions must 
use this formula for accounts that compound and credit interest 
quarterly and receive monthly statements that, while triggered by 
Regulation E, comply with the provisions of Sec. 230.6.
    2. Days in compounding period. Institutions using the special annual 
percentage yield earned formula must use the actual number of days in 
the compounding period.

         Appendix B to Part 230--Model Clauses and Sample Forms

    1. Modifications. Institutions that modify the model clauses will be 
deemed in compliance as long as they do not delete required information 
or rearrange the format in a way that affects the substance or clarity 
of the disclosures.
    2. Format. Institutions may use inserts to a document (see Sample 
Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-7, which 
use underlining to indicate terms that have been filled in) to show 
current rates, fees, or other terms.
    3. Disclosures for opening accounts. The sample forms illustrate the 
information that must be provided to consumers when an account is 
opened, as required by Sec. 230.4(a)(1). (See Sec. 230.4(a)(2), which 
states the requirements for disclosing the annual percentage yield, the 
interest rate, and the maturity of a time account in responding to a 
consumer's request.)
    4. Compliance with Regulation E. Institutions may satisfy certain 
requirements under Regulation DD with disclosures that meet the 
requirements of Regulation E. (See Sec. 230.3(c).) For disclosures 
covered by both this regulation and Regulation E (such as the amount of 
fees for ATM usage, institutions should consult appendix A to Regulation 
E for appropriate model clauses.
    5. Duplicate disclosures. If a requirement such as a minimum balance 
applies to more than one account term (to obtain a bonus and determine 
the annual percentage yield, for example), institutions need not repeat 
the requirement for each term, as long as it is clear which terms the 
requirement applies to.
    6. Sample forms. The sample forms (B-4 through B-8) serve a purpose 
different from the model clauses. They illustrate ways of adapting the 
model clauses to specific accounts. The clauses shown relate only to the 
specific transactions described.

                B-1 Model Clauses for Account Disclosures

              B-1(h) Disclosures Relating to Time Accounts

    1. Maturity. The disclosure in Clause (h)(i) stating a specific date 
may be used in all cases. The statement describing a time period is 
appropriate only when providing disclosures in response to a consumer's 
request.

                  B-2 Model Clauses for Change in Terms

    1. General. The second clause, describing a future decrease in the 
interest rate and annual percentage yield, applies to fixed-rate 
accounts only.

                   B-4 Sample Form (Multiple Accounts)

    1. Rate sheet insert. In the rate sheet insert, the calculations of 
the annual percentage yield for the three-month and six-month 
certificates are based on 92 days and 181 days respectively. All 
calculations in the insert assume daily compounding.

           B-6 Sample Form (Tiered-Rate Money Market Account)

    1. General. Sample Form B-6 uses Tiering Method A (discussed in 
appendix A and Clause (a)(iv)) to calculate interest. It gives a 
narrative description of a tiered-rate account; institutions may use 
different formats (for example, a chart similar to the one in Sample 
Form B-4), as long as all required information for each tier is clearly 
presented. The form does not contain a separate disclosure of the 
minimum balance required to obtain the annual percentage yield; the 
tiered-rate disclosure provides that information.

[Reg. DD, 59 FR 40221, Aug. 8, 1994, as amended at 59 FR 52658, Oct. 19, 
1994; 63 FR 52107, Sept. 29, 1998; 66 FR 17803, Apr. 4, 2001; 70 FR 
29594, May 24, 2005; 72 FR 63484, Nov. 9, 2007; 74 FR 5594, Jan. 29, 
2009; 75 FR 31676, June 4, 2010; 76 FR 42020, July 18, 2011]



PART 231_NETTING ELIGIBILITY FOR FINANCIAL INSTITUTION (REGULATION EE)
--Table of Contents



Sec.
231.1 Authority, purpose, and scope.
231.2 Definitions.

[[Page 44]]

231.3 Qualification as a financial institution.

    Authority: 12 U.S.C. 4402(1)(B) and 4402(9).

    Source: Reg. EE, 59 FR 4784, Feb. 2, 1994, unless otherwise noted.



Sec. 231.1  Authority, purpose, and scope.

    (a) Authority. This part (Regulation EE; 12 CFR part 231) is issued 
by the Board of Governors of the Federal Reserve System under the 
authority of sections 402(1)(B) and 402(9) of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4402(1)(B) and 
4402(9)).
    (b) Purpose and scope. The purpose of the Act and this part is to 
enhance efficiency and reduce systemic risk in the financial markets. 
This part expands the Act's definition of ``financial institution'' to 
allow more financial market participants to avail themselves of the 
netting provisions set forth in sections 401-407 of the Act (12 U.S.C. 
4401-4407). This part does not affect the status of those financial 
institutions specifically defined in the Act.



Sec. 231.2  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Act means the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (Pub. L. 102-242, 105 Stat. 2236), as amended.
    (b) Affiliate, with respect to a person, means any other person that 
controls, is controlled by, or is under common control with the person.
    (c) Financial contract means a qualified financial contract as 
defined in section 11(e)(8)(D) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(e)(8)(D)), as amended, except that a forward contract 
includes a contract with a maturity date two days or less after the date 
the contract is entered into (i.e., a ``spot'' contract).
    (d) Financial market means a market for a financial contract.
    (e) Gross mark-to-market positions in one or more financial 
contracts means the sum of the absolute values of positions in those 
contracts, adjusted to reflect the market values of those positions in 
accordance with the methods used by the parties to each contract to 
value the contract.
    (f) Person means any legal entity, foreign or domestic, including a 
corporation, unincorporated company, partnership, government unit or 
instrumentality, trust, natural person, or any other entity or 
organization.



Sec. 231.3  Qualification as a financial institution.

    (a) A person qualifies as a financial institution for purposes of 
sections 401-407 of the Act if it represents, orally or in writing, that 
it will engage in financial contracts as a counterparty on both sides of 
one or more financial markets and either--
    (1) Had one or more financial contracts of a total gross dollar 
value of at least $1 billion in notional principal amount outstanding on 
any day during the previous 15-month period with counterparties that are 
not its affiliates; or
    (2) Had total gross mark-to-market positions of at least $100 
million (aggregated across counterparties) in one or more financial 
contracts on any day during the previous 15-month period with 
counterparties that are not its affiliates.
    (b) If a person qualifies as a financial institution under paragraph 
(a) of this section, that person will be considered a financial 
institution for the purposes of any contract entered into during the 
period it qualifies, even if the person subsequently fails to qualify.
    (c) If a person qualifies as a financial institution under paragraph 
(a) of this section on March 7, 1994, that person will be considered a 
financial institution for the purposes of any outstanding contract 
entered into prior to March 7, 1994.

[Reg. EE, 59 FR 4784, Feb. 2, 1994, as amended at 61 FR 1274, Jan. 19, 
1996]



PART 232_OBTAINING AND USING MEDICAL INFORMATION IN CONNECTION WITH 
CREDIT (REGULATION FF)--Table of Contents



Sec.
232.1 Scope, General Prohibition and Definitions
232.2 Rule of Construction for Obtaining and Using Unsolicited Medical 
          Information

[[Page 45]]

232.3 Financial Information Exception for Obtaining and Using Medical 
          Information
232.4 Specific Exceptions for Obtaining and Using Medical Information

    Authority: 15 U.S.C. 1681b.

    Source: 70 FR 70682, Nov. 22, 2005, unless otherwise noted.



Sec. 232.1  Scope, General Prohibition and Definitions

    (a) Scope. This part applies to creditors, as defined in paragraph 
(c)(3) of this section, except for creditors that are subject to 
Sec. Sec. 41.30, 222.30, 334.30, 571.30, or 717.30.
    (b) In general. A creditor may not obtain or use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit, except as 
provided in this section.
    (c) Definitions. (1) Consumer means an individual.
    (2) Credit has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (3) Creditor has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (4) Eligibility, or continued eligibility, for credit means the 
consumer's qualification or fitness to receive, or continue to receive, 
credit, including the terms on which credit is offered. The term does 
not include:
    (i) Any determination of the consumer's qualification or fitness for 
employment, insurance (other than a credit insurance product), or other 
non-credit products or services;
    (ii) Authorizing, processing, or documenting a payment or 
transaction on behalf of the consumer in a manner that does not involve 
a determination of the consumer's eligibility, or continued eligibility, 
for credit; or
    (iii) Maintaining or servicing the consumer's account in a manner 
that does not involve a determination of the consumer's eligibility, or 
continued eligibility, for credit.
    (5) Medical information means:
    (i) Information or data, whether oral or recorded, in any form or 
medium, created by or derived from a health care provider or the 
consumer, that relates to--
    (A) The past, present, or future physical, mental, or behavioral 
health or condition of an individual;
    (B) The provision of health care to an individual; or
    (C) The payment for the provision of health care to an individual.
    (ii) The term does not include:
    (A) The age or gender of a consumer;
    (B) Demographic information about the consumer, including a 
consumer's residence address or e-mail address;
    (C) Any other information about a consumer that does not relate to 
the physical, mental, or behavioral health or condition of a consumer, 
including the existence or value of any insurance policy; or
    (D) Information that does not identify a specific consumer.
    (6) Person means any individual, partnership, corporation, trust, 
estate cooperative, association, government or governmental subdivision 
or agency, or other entity.



Sec. 232.2  Rule of construction for obtaining and using unsolicited
medical information.

    (a) In general. A creditor does not obtain medical information in 
violation of the prohibition if it receives medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit without 
specifically requesting medical information.
    (b) Use of unsolicited medical information. A creditor that receives 
unsolicited medical information in the manner described in paragraph (a) 
of this section may use that information in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit to the extent the creditor can rely on at least one of the 
exceptions in Sec. 232.3 or Sec. 232.4.
    (c) Examples. A creditor does not obtain medical information in 
violation of the prohibition if, for example:
    (1) In response to a general question regarding a consumer's debts 
or expenses, the creditor receives information that the consumer owes a 
debt to a hospital.

[[Page 46]]

    (2) In a conversation with the creditor's loan officer, the consumer 
informs the creditor that the consumer has a particular medical 
condition.
    (3) In connection with a consumer's application for an extension of 
credit, the creditor requests a consumer report from a consumer 
reporting agency and receives medical information in the consumer report 
furnished by the agency even though the creditor did not specifically 
request medical information from the consumer reporting agency.



Sec. 232.3  Financial information exception for obtaining and using
medical information.

    (a) In general. A creditor may obtain and use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit so long as:
    (1) The information is the type of information routinely used in 
making credit eligibility determinations, such as information relating 
to debts, expenses, income, benefits, assets, collateral, or the purpose 
of the loan, including the use of proceeds;
    (2) The creditor uses the medical information in a manner and to an 
extent that is no less favorable than it would use comparable 
information that is not medical information in a credit transaction; and
    (3) The creditor does not take the consumer's physical, mental, or 
behavioral health, condition or history, type of treatment, or prognosis 
into account as part of any such determination.
    (b) Examples--(1) Examples of the types of information routinely 
used in making credit eligibility determinations. Paragraph (a)(1) of 
this section permits a creditor, for example, to obtain and use 
information about:
    (i) The dollar amount, repayment terms, repayment history, and 
similar information regarding medical debts to calculate, measure, or 
verify the repayment ability of the consumer, the use of proceeds, or 
the terms for granting credit;
    (ii) The value, condition, and lien status of a medical device that 
may serve as collateral to secure a loan;
    (iii) The dollar amount and continued eligibility for disability 
income, workers' compensation income, or other benefits related to 
health or a medical condition that is relied on as a source of 
repayment; or
    (iv) The identity of creditors to whom outstanding medical debts are 
owed in connection with an application for credit, including but not 
limited to, a transaction involving the consolidation of medical debts.
    (2) Examples of uses of medical information consistent with the 
exception. (i) A consumer includes on an application for credit 
information about two $20,000 debts. One debt is to a hospital; the 
other debt is to a retailer. The creditor contacts the hospital and the 
retailer to verify the amount and payment status of the debts. The 
creditor learns that both debts are more than 90 days past due. Any two 
debts of this size that are more than 90 days past due would disqualify 
the consumer under the creditor's established underwriting criteria. The 
creditor denies the application on the basis that the consumer has a 
poor repayment history on outstanding debts. The creditor has used 
medical information in a manner and to an extent no less favorable than 
it would use comparable non-medical information.
    (ii) A consumer indicates on an application for a $200,000 mortgage 
loan that she receives $15,000 in long-term disability income each year 
from her former employer and has no other income. Annual income of 
$15,000, regardless of source, would not be sufficient to support the 
requested amount of credit. The creditor denies the application on the 
basis that the projected debt-to-income ratio of the consumer does not 
meet the creditor's underwriting criteria. The creditor has used medical 
information in a manner and to an extent that is no less favorable than 
it would use comparable non-medical information.
    (iii) A consumer includes on an application for a $10,000 home 
equity loan that he has a $50,000 debt to a medical facility that 
specializes in treating a potentially terminal disease. The creditor 
contacts the medical facility to verify the debt and obtain the 
repayment history and current status of the

[[Page 47]]

loan. The creditor learns that the debt is current. The applicant meets 
the income and other requirements of the creditor's underwriting 
guidelines. The creditor grants the application. The creditor has used 
medical information in accordance with the exception.
    (3) Examples of uses of medical information inconsistent with the 
exception. (i) A consumer applies for $25,000 of credit and includes on 
the application information about a $50,000 debt to a hospital. The 
creditor contacts the hospital to verify the amount and payment status 
of the debt, and learns that the debt is current and that the consumer 
has no delinquencies in her repayment history. If the existing debt were 
instead owed to a retail department store, the creditor would approve 
the application and extend credit based on the amount and repayment 
history of the outstanding debt. The creditor, however, denies the 
application because the consumer is indebted to a hospital. The creditor 
has used medical information, here the identity of the medical creditor, 
in a manner and to an extent that is less favorable than it would use 
comparable non-medical information.
    (ii) A consumer meets with a loan officer of a creditor to apply for 
a mortgage loan. While filling out the loan application, the consumer 
informs the loan officer orally that she has a potentially terminal 
disease. The consumer meets the creditor's established requirements for 
the requested mortgage loan. The loan officer recommends to the credit 
committee that the consumer be denied credit because the consumer has 
that disease. The credit committee follows the loan officer's 
recommendation and denies the application because the consumer has a 
potentially terminal disease. The creditor has used medical information 
in a manner inconsistent with the exception by taking into account the 
consumer's physical, mental, or behavioral health, condition, or 
history, type of treatment, or prognosis as part of a determination of 
eligibility or continued eligibility for credit.
    (iii) A consumer who has an apparent medical condition, such as a 
consumer who uses a wheelchair or an oxygen tank, meets with a loan 
officer to apply for a home equity loan. The consumer meets the 
creditor's established requirements for the requested home equity loan 
and the creditor typically does not require consumers to obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product in connection with such loans. However, based on the consumer's 
apparent medical condition, the loan officer recommends to the credit 
committee that credit be extended to the consumer only if the consumer 
obtains a debt cancellation contract, debt suspension agreement, or 
credit insurance product from a nonaffiliated third party. The credit 
committee agrees with the loan officer's recommendation. The loan 
officer informs the consumer that the consumer must obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product from a nonaffiliated third party to qualify for the loan. The 
consumer obtains one of these products and the creditor approves the 
loan. The creditor has used medical information in a manner inconsistent 
with the exception by taking into account the consumer's physical, 
mental, or behavioral health, condition, or history, type of treatment, 
or prognosis in setting conditions on the consumer's eligibility for 
credit.



Sec. 232.4  Specific exceptions for obtaining and using medical 
information.

    (a) In general. A creditor may obtain and use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit:
    (1) To determine whether the use of a power of attorney or legal 
representative that is triggered by a medical condition or event is 
necessary and appropriate or whether the consumer has the legal capacity 
to contract when a person seeks to exercise a power of attorney or act 
as legal representative for a consumer based on an asserted medical 
condition or event;
    (2) To comply with applicable requirements of local, state, or 
Federal laws;
    (3) To determine, at the consumer's request, whether the consumer 
qualifies for a legally permissible special

[[Page 48]]

credit program or credit-related assistance program that is--
    (i) Designed to meet the special needs of consumers with medical 
conditions; and
    (ii) Established and administered pursuant to a written plan that--
    (A) Identifies the class of persons that the program is designed to 
benefit; and
    (B) Sets forth the procedures and standards for extending credit or 
providing other credit-related assistance under the program;
    (4) To the extent necessary for purposes of fraud prevention or 
detection;
    (5) In the case of credit for the purpose of financing medical 
products or services, to determine and verify the medical purpose of a 
loan and the use of proceeds;
    (6) Consistent with safe and sound practices, if the consumer or the 
consumer's legal representative specifically requests that the creditor 
use medical information in determining the consumer's eligibility, or 
continued eligibility, for credit, to accommodate the consumer's 
particular circumstances, and such request is documented by the 
creditor;
    (7) Consistent with safe and sound practices, to determine whether 
the provisions of a forbearance practice or program that is triggered by 
a medical condition or event apply to a consumer;
    (8) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a debt cancellation contract or debt suspension 
agreement if a medical condition or event is a triggering event for the 
provision of benefits under the contract or agreement; or
    (9) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a credit insurance product if a medical condition 
or event is a triggering event for the provision of benefits under the 
product.
    (b) Example of determining eligibility for a special credit program 
or credit assistance program. A not-for-profit organization establishes 
a credit assistance program pursuant to a written plan that is designed 
to assist disabled veterans in purchasing homes by subsidizing the down 
payment for the home purchase mortgage loans of qualifying veterans. The 
organization works through mortgage lenders and requires mortgage 
lenders to obtain medical information about the disability of any 
consumer that seeks to qualify for the program, use that information to 
verify the consumer's eligibility for the program, and forward that 
information to the organization. A consumer who is a veteran applies to 
a creditor for a home purchase mortgage loan. The creditor informs the 
consumer about the credit assistance program for disabled veterans and 
the consumer seeks to qualify for the program. Assuming that the program 
complies with all applicable law, including applicable fair lending 
laws, the creditor may obtain and use medical information about the 
medical condition and disability, if any, of the consumer to determine 
whether the consumer qualifies for the credit assistance program.
    (c) Examples of verifying the medical purpose of the loan or the use 
of proceeds. (1) If a consumer applies for $10,000 of credit for the 
purpose of financing vision correction surgery, the creditor may verify 
with the surgeon that the procedure will be performed. If the surgeon 
reports that surgery will not be performed on the consumer, the creditor 
may use that medical information to deny the consumer's application for 
credit, because the loan would not be used for the stated purpose.
    (2) If a consumer applies for $10,000 of credit for the purpose of 
financing cosmetic surgery, the creditor may confirm the cost of the 
procedure with the surgeon. If the surgeon reports that the cost of the 
procedure is $5,000, the creditor may use that medical information to 
offer the consumer only $5,000 of credit.
    (3) A creditor has an established medical loan program for financing 
particular elective surgical procedures. The creditor receives a loan 
application from a consumer requesting $10,000 of credit under the 
established loan program for an elective surgical procedure. The 
consumer indicates on the application that the purpose of the loan is to 
finance an elective surgical procedure not eligible for funding under 
the guidelines of the established

[[Page 49]]

loan program. The creditor may deny the consumer's application because 
the purpose of the loan is not for a particular procedure funded by the 
established loan program.
    (d) Examples of obtaining and using medical information at the 
request of the consumer. (1) If a consumer applies for a loan and 
specifically requests that the creditor consider the consumer's medical 
disability at the relevant time as an explanation for adverse payment 
history information in his credit report, the creditor may consider such 
medical information in evaluating the consumer's willingness and ability 
to repay the requested loan to accommodate the consumer's particular 
circumstances, consistent with safe and sound practices. The creditor 
may also decline to consider such medical information to accommodate the 
consumer, but may evaluate the consumer's application in accordance with 
its otherwise applicable underwriting criteria. The creditor may not 
deny the consumer's application or otherwise treat the consumer less 
favorably because the consumer specifically requested a medical 
accommodation, if the creditor would have extended the credit or treated 
the consumer more favorably under the creditor's otherwise applicable 
underwriting criteria.
    (2) If a consumer applies for a loan by telephone and explains that 
his income has been and will continue to be interrupted on account of a 
medical condition and that he expects to repay the loan liquidating 
assets, the creditor may, but is not required to, evaluate the 
application using the sale of assets as the primary source of repayment, 
consistent with safe and sound practices, provided that the creditor 
documents the consumer's request by recording the oral conversation or 
making a notation of the request in the consumer's file.
    (3) If a consumer applies for a loan and the application form 
provides a space where the consumer may provide any other information or 
special circumstances, whether medical or non-medical, that the consumer 
would like the creditor to consider in evaluating the consumer's 
application, the creditor may use medical information provided by the 
consumer in that space on that application to accommodate the consumer's 
application for credit, consistent with safe and sound practices, or may 
disregard that information.
    (4) If a consumer specifically requests that the creditor use 
medical information in determining the consumer's eligibility, or 
continued eligibility, for credit and provides the creditor with medical 
information for that purpose, and the creditor determines that it needs 
additional information regarding the consumer's circumstances, the 
creditor may request, obtain, and use additional medical information 
about the consumer as necessary to verify the information provided by 
the consumer or to determine whether to make an accommodation for the 
consumer. The consumer may decline to provide additional information, 
withdraw the request for an accommodation, and have the application 
considered under the creditor's otherwise applicable underwriting 
criteria.
    (5) If a consumer completes and signs a credit application that is 
not for medical purpose credit and the application contains boilerplate 
language that routinely requests medical information from the consumer 
or that indicates that by applying for credit the consumer authorizes or 
consents to the creditor obtaining and using medical information in 
connection with a determination of the consumer's eligibility, or 
continued eligibility, for credit, the consumer has not specifically 
requested that the creditor obtain and use medical information to 
accommodate the consumer's particular circumstances.
    (e) Example of a forbearance practice or program. After an 
appropriate safety and soundness review, a creditor institutes a program 
that allows consumers who are or will be hospitalized to defer payments 
as needed for up to three months, without penalty, if the credit account 
has been open for more than one year and has not previously been in 
default, and the consumer provides confirming documentation at an 
appropriate time. A consumer is hospitalized and does not pay her bill 
for a particular month. This consumer has had a credit account with the 
creditor for more than one year and has not previously been in default. 
The creditor

[[Page 50]]

attempts to contact the consumer and speaks with the consumer's adult 
child, who is not the consumer's legal representative. The adult child 
informs the creditor that the consumer is hospitalized and is unable to 
pay the bill at that time. The creditor defers payments for up to three 
months, without penalty, for the hospitalized consumer and sends the 
consumer a letter confirming this practice and the date on which the 
next payment will be due. The creditor has obtained and used medical 
information to determine whether the provisions of a medically-triggered 
forbearance practice or program apply to a consumer.



PART 233_PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING 
(REGULATION GG)--Table of Contents



Sec.
233.1 Authority, purpose, collection of information, and incorporation 
          by reference.
233.2 Definitions.
233.3 Designated payment systems.
233.4 Exemptions.
233.5 Policies and procedures required.
233.6 Non-exclusive examples of policies and procedures.
233.7 Regulatory enforcement.

Appendix A to Part 233--Model Notice

    Authority: 31 U.S.C. 5364.

    Source: Reg. GG, 73 FR 69405, Nov. 18, 2008, unless otherwise noted.



Sec. 233.1  Authority, purpose, collection of information, and 
incorporation by reference.

    (a) Authority. This part is issued jointly by the Board of Governors 
of the Federal Reserve System (Board) and the Secretary of the 
Department of the Treasury (Treasury) under section 802 of the Unlawful 
Internet Gambling Enforcement Act of 2006 (Act) (enacted as Title VIII 
of the Security and Accountability For Every Port Act of 2006, Pub. L. 
No. 109-347, 120 Stat. 1884, and codified at 31 U.S.C. 5361-5367). The 
Act states that none of its provisions shall be construed as altering, 
limiting, or extending any Federal or State law or Tribal-State compact 
prohibiting, permitting, or regulating gambling within the United 
States. See 31 U.S.C. 5361(b). In addition, the Act states that its 
provisions are not intended to change which activities related to 
horseracing may or may not be allowed under Federal law, are not 
intended to change the existing relationship between the Interstate 
Horseracing Act of 1978 (IHA) (15 U.S.C. 3001 et seq.) and other Federal 
statutes in effect on October 13, 2006, the date of the Act's enactment, 
and are not intended to resolve any existing disagreements over how to 
interpret the relationship between the IHA and other Federal statutes. 
See 31 U.S.C. 5362(10)(D)(iii). This part is intended to be consistent 
with these provisions.
    (b) Purpose. The purpose of this part is to issue implementing 
regulations as required by the Act. The part sets out necessary 
definitions, designates payment systems subject to the requirements of 
this part, exempts certain participants in designated payment systems 
from certain requirements of this part, provides nonexclusive examples 
of policies and procedures reasonably designed to identify and block, or 
otherwise prevent and prohibit, restricted transactions, and sets out 
the Federal entities that have exclusive regulatory enforcement 
authority with respect to the designated payments systems and non-exempt 
participants therein.
    (c) Collection of information. The Office of Management and Budget 
(OMB) has approved the collection of information requirements in this 
part for the Department of the Treasury and assigned OMB control number 
1505-0204. The Board has approved the collection of information 
requirements in this part under the authority delegated to the Board by 
OMB, and assigned OMB control number 7100-0317.
    (d) Incorporation by reference--relevant definitions from ACH rules. 
(1) This part incorporates by reference the relevant definitions of ACH 
terms as published in the ``2008 ACH Rules: A Complete Guide to Rules & 
Regulations Governing the ACH Network'' (the ``ACH Rules''). The 
Director of the Federal Register approves this incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
of the ``2008 ACH Rules'' are available from the National Automated 
Clearing House Association, Suite 100, 13450

[[Page 51]]

Sunrise Valley Drive, Herndon, Virginia 20171, http://nacha.org, (703) 
561-1100. Copies also are available for public inspection at the 
Department of Treasury Library, Room 1428, Main Treasury Building, 1500 
Pennsylvania Avenue, NW., Washington, DC 20220, and the National 
Archives and Records Administration (NARA). Before visiting the Treasury 
library, you must call (202) 622-0990 for an appointment. For 
information on the availability of this material at NARA, call (202) 
741-6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html 20002.
    (2) Any amendment to definitions of the relevant ACH terms in the 
ACH Rules shall not apply to this part unless the Treasury and the Board 
jointly accept such amendment by publishing notice of acceptance of the 
amendment to this part in the Federal Register. An amendment to the 
definition of a relevant ACH term in the ACH Rules that is accepted by 
the Treasury and the Board shall apply to this part on the effective 
date of the rulemaking specified by the Treasury and the Board in the 
joint Federal Register notice expressly accepting such amendment.



Sec. 233.2  Definitions.

    The following definitions apply solely for purposes of this part:
    (a) Actual knowledge with respect to a transaction or commercial 
customer means when a particular fact with respect to that transaction 
or commercial customer is known by or brought to the attention of:
    (1) An individual in the organization responsible for the 
organization's compliance function with respect to that transaction or 
commercial customer; or
    (2) An officer of the organization.
    (b) Automated clearing house system or ACH system means a funds 
transfer system, primarily governed by the ACH Rules, which provides for 
the clearing and settlement of batched electronic entries for 
participating financial institutions. When referring to ACH systems, the 
terms in this regulation (such as ``originating depository financial 
institution,'' ``operator,'' ``originating gateway operator,'' 
``receiving depository financial institution,'' ``receiving gateway 
operator,'' and ``third-party sender'') are defined as those terms are 
defined in the ACH Rules.
    (c) Bet or wager:
    (1) Means the staking or risking by any person of something of value 
upon the outcome of a contest of others, a sporting event, or a game 
subject to chance, upon an agreement or understanding that the person or 
another person will receive something of value in the event of a certain 
outcome;
    (2) Includes the purchase of a chance or opportunity to win a 
lottery or other prize (which opportunity to win is predominantly 
subject to chance);
    (3) Includes any scheme of a type described in 28 U.S.C. 3702;
    (4) Includes any instructions or information pertaining to the 
establishment or movement of funds by the bettor or customer in, to, or 
from an account with the business of betting or wagering (which does not 
include the activities of a financial transaction provider, or any 
interactive computer service or telecommunications service); and
    (5) Does not include--
    (i) Any activity governed by the securities laws (as that term is 
defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(47)) for the purchase or sale of securities (as that term 
is defined in section 3(a)(10) of that act (15 U.S.C. 78c(a)(10));
    (ii) Any transaction conducted on or subject to the rules of a 
registered entity or exempt board of trade under the Commodity Exchange 
Act (7 U.S.C. 1 et seq.);
    (iii) Any over-the-counter derivative instrument;
    (iv) Any other transaction that--
    (A) Is excluded or exempt from regulation under the Commodity 
Exchange Act (7 U.S.C. 1 et seq.); or
    (B) Is exempt from State gaming or bucket shop laws under section 
12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) or section 28(a) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78bb(a));
    (v) Any contract of indemnity or guarantee;
    (vi) Any contract for insurance;
    (vii) Any deposit or other transaction with an insured depository 
institution;

[[Page 52]]

    (viii) Participation in any game or contest in which participants do 
not stake or risk anything of value other than--
    (A) Personal efforts of the participants in playing the game or 
contest or obtaining access to the Internet; or
    (B) Points or credits that the sponsor of the game or contest 
provides to participants free of charge and that can be used or redeemed 
only for participation in games or contests offered by the sponsor; or
    (ix) Participation in any fantasy or simulation sports game or 
educational game or contest in which (if the game or contest involves a 
team or teams) no fantasy or simulation sports team is based on the 
current membership of an actual team that is a member of an amateur or 
professional sports organization (as those terms are defined in 28 
U.S.C. 3701) and that meets the following conditions:
    (A) All prizes and awards offered to winning participants are 
established and made known to the participants in advance of the game or 
contest and their value is not determined by the number of participants 
or the amount of any fees paid by those participants.
    (B) All winning outcomes reflect the relative knowledge and skill of 
the participants and are determined predominantly by accumulated 
statistical results of the performance of individuals (athletes in the 
case of sports events) in multiple real-world sporting or other events.
    (C) No winning outcome is based--
    (1) On the score, point-spread, or any performance or performances 
of any single real-world team or any combination of such teams, or
    (2) Solely on any single performance of an individual athlete in any 
single real-world sporting or other event.
    (d) Block means to reject a particular transaction before or during 
processing, but it does not require freezing or otherwise prohibiting 
subsequent transfers or transactions regarding the proceeds or account.
    (e) Card issuer means any person who issues a credit card, debit 
card, pre-paid card, or stored value card, or the agent of such person 
with respect to such card.
    (f) Card system means a system for authorizing, clearing and 
settling transactions in which credit cards, debit cards, pre-paid 
cards, or stored value cards (such cards being issued or authorized by 
the operator of the system), are used to purchase goods or services or 
to obtain a cash advance. The term includes systems both in which the 
merchant acquirer, card issuer, and system operator are separate 
entities and in which more than one of these roles are performed by the 
same entity.
    (g) Check clearing house means an association of banks or other 
payors that regularly exchange checks for collection or return.
    (h) Check collection system means an interbank system for 
collecting, presenting, returning, and settling for checks or intrabank 
system for settling for checks deposited in and drawn on the same bank. 
When referring to check collection systems, the terms in this regulation 
(such as ``paying bank,'' ``collecting bank,'' ``depositary bank,'' 
``returning bank,'' and ``check'') are defined as those terms are 
defined in 12 CFR 229.2. For purposes of this part, ``check'' also 
includes an electronic representation of a check that a bank agrees to 
handle as a check.
    (i) Commercial customer means a person that is not a consumer and 
that contracts with a non-exempt participant in a designated payment 
system to receive, or otherwise accesses, payment transaction services 
through that non-exempt participant.
    (j) Consumer means a natural person.
    (k) Designated payment system means a system listed in Sec. ----.3.
    (l) Electronic fund transfer has the same meaning given the term in 
section 903 of the Electronic Fund Transfer Act (15 U.S.C. 1693a), 
except that such term includes transfers that would otherwise be 
excluded under section 903(6)(E) of that act (15 U.S.C. 1693a(6)(E)), 
and includes any funds transfer covered by Article 4A of the Uniform 
Commercial Code, as in effect in any State.
    (m) Financial institution means a State or national bank, a State or 
Federal savings and loan association, a

[[Page 53]]

mutual savings bank, a State or Federal credit union, or any other 
person that, directly or indirectly, holds an account belonging to a 
consumer. The term does not include a casino, sports book, or other 
business at or through which bets or wagers may be placed or received.
    (n) Financial transaction provider means a creditor, credit card 
issuer, financial institution, operator of a terminal at which an 
electronic fund transfer may be initiated, money transmitting business, 
or international, national, regional, or local payment network utilized 
to effect a credit transaction, electronic fund transfer, stored value 
product transaction, or money transmitting service, or a participant in 
such network, or other participant in a designated payment system.
    (o) Foreign banking office means:
    (1) Any non-U.S. office of a financial institution; and
    (2) Any non-U.S. office of a foreign bank as described in 12 U.S.C. 
3101(7).
    (p) Interactive computer service means any information service, 
system, or access software provider that provides or enables computer 
access by multiple users to a computer server, including specifically a 
service or system that provides access to the Internet and such systems 
operated or services offered by libraries or educational institutions.
    (q) Internet means the international computer network of 
interoperable packet switched data networks.
    (r) Internet gambling business means the business of placing, 
receiving or otherwise knowingly transmitting a bet or wager by any 
means which involves the use, at least in part, of the Internet, but 
does not include the performance of the customary activities of a 
financial transaction provider, or any interactive computer service or 
telecommunications service.
    (s) Intrastate transaction means placing, receiving, or otherwise 
transmitting a bet or wager where--
    (1) The bet or wager is initiated and received or otherwise made 
exclusively within a single State;
    (2) The bet or wager and the method by which the bet or wager is 
initiated and received or otherwise made is expressly authorized by and 
placed in accordance with the laws of such State, and the State law or 
regulations include--
    (i) Age and location verification requirements reasonably designed 
to block access to minors and persons located out of such State; and
    (ii) Appropriate data security standards to prevent unauthorized 
access by any person whose age and current location has not been 
verified in accordance with such State's law or regulations; and
    (3) The bet or wager does not violate any provision of--
    (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
    (ii) 28 U.S.C. chapter 178 (professional and amateur sports 
protection);
    (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et 
seq.); or
    (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
    (t) Intratribal transaction means placing, receiving or otherwise 
transmitting a bet or wager where--
    (1) The bet or wager is initiated and received or otherwise made 
exclusively--
    (i) Within the Indian lands of a single Indian tribe (as such terms 
are defined under the Indian Gaming Regulatory Act (25 U.S.C. 2703)); or
    (ii) Between the Indian lands of two or more Indian tribes to the 
extent that intertribal gaming is authorized by the Indian Gaming 
Regulatory Act (25 U.S.C. 2701 et seq.);
    (2) The bet or wager and the method by which the bet or wager is 
initiated and received or otherwise made is expressly authorized by and 
complies with the requirements of--
    (i) The applicable tribal ordinance or resolution approved by the 
Chairman of the National Indian Gaming Commission; and
    (ii) With respect to class III gaming, the applicable Tribal-State 
compact;
    (3) The applicable tribal ordinance or resolution or Tribal-State 
compact includes--
    (i) Age and location verification requirements reasonably designed 
to block access to minors and persons located out of the applicable 
Tribal lands; and

[[Page 54]]

    (ii) Appropriate data security standards to prevent unauthorized 
access by any person whose age and current location has not been 
verified in accordance with the applicable tribal ordinance or 
resolution or Tribal-State Compact; and
    (4) The bet or wager does not violate any provision of--
    (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
    (ii) 28 U.S.C. chapter 178 (professional and amateur sports 
protection);
    (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et 
seq.); or
    (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
    (u) Money transmitting business has the meaning given the term in 31 
U.S.C. 5330(d)(1) (determined without regard to any regulations 
prescribed by the Secretary of the Treasury thereunder).
    (v) Operator of a designated payment system means an entity that 
provides centralized clearing and delivery services between participants 
in the designated payment system and maintains the operational framework 
for the system. In the case of an automated clearinghouse system, the 
term ``operator'' has the same meaning as provided in the ACH Rules.
    (w) Participant in a designated payment system means an operator of 
a designated payment system, a financial transaction provider that is a 
member of, or has contracted for financial transaction services with, or 
is otherwise participating in, a designated payment system, or a third-
party processor. This term does not include a customer of the financial 
transaction provider, unless the customer is also a financial 
transaction provider otherwise participating in the designated payment 
system on its own behalf.
    (x) Reasoned legal opinion means a written expression of 
professional judgment by a State-licensed attorney that addresses the 
facts of a particular client's business and the legality of the client's 
provision of its services to relevant customers in the relevant 
jurisdictions under applicable federal and State law, and, in the case 
of intratribal transactions, applicable tribal ordinances, tribal 
resolutions, and Tribal-State compacts. A written legal opinion will not 
be considered ``reasoned'' if it does nothing more than recite the facts 
and express a conclusion.
    (y) Restricted transaction means any of the following transactions 
or transmittals involving any credit, funds, instrument, or proceeds 
that the Act prohibits any person engaged in the business of betting or 
wagering (which does not include the activities of a financial 
transaction provider, or any interactive computer service or 
telecommunications service) from knowingly accepting, in connection with 
the participation of another person in unlawful Internet gambling--
    (1) Credit, or the proceeds of credit, extended to or on behalf of 
such other person (including credit extended through the use of a credit 
card);
    (2) An electronic fund transfer, or funds transmitted by or through 
a money transmitting business, or the proceeds of an electronic fund 
transfer or money transmitting service, from or on behalf of such other 
person; or
    (3) Any check, draft, or similar instrument that is drawn by or on 
behalf of such other person and is drawn on or payable at or through any 
financial institution.
    (z) State means any State of the United States, the District of 
Columbia, or any commonwealth, territory, or other possession of the 
United States, including the Commonwealth of Puerto Rico, the 
Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and 
the Virgin Islands.
    (aa) Third-party processor means a service provider that--
    (1) In the case of a debit transaction payment, such as an ACH debit 
entry or card system transaction, has a direct relationship with the 
commercial customer that is initiating the debit transfer transaction 
and acts as an intermediary between the commercial customer and the 
first depository institution to handle the transaction;
    (2) In the case of a credit transaction payment, such as an ACH 
credit entry, has a direct relationship with the commercial customer 
that is to receive the proceeds of the credit transfer and acts

[[Page 55]]

as an intermediary between the commercial customer and the last 
depository institution to handle the transaction; and
    (3) In the case of a cross-border ACH debit or check collection 
transaction, is the first service provider located within the United 
States to receive the ACH debit instructions or check for collection.
    (bb) Unlawful Internet gambling means to place, receive, or 
otherwise knowingly transmit a bet or wager by any means which involves 
the use, at least in part, of the Internet where such bet or wager is 
unlawful under any applicable Federal or State law in the State or 
Tribal lands in which the bet or wager is initiated, received, or 
otherwise made. The term does not include placing, receiving, or 
otherwise transmitting a bet or wager that is excluded from the 
definition of this term by the Act as an intrastate transaction or an 
intra-tribal transaction, and does not include any activity that is 
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et 
seq.; see Sec. 233.1(a)). The intermediate routing of electronic data 
shall not determine the location or locations in which a bet or wager is 
initiated, received, or otherwise made.
    (cc) Wire transfer system means a system through which an 
unconditional order to a bank to pay a fixed or determinable amount of 
money to a beneficiary upon receipt, or on a day stated in the order, is 
transmitted by electronic or other means through the network, between 
banks, or on the books of a bank. When referring to wire transfer 
systems, the terms in this regulation (such as ``bank,'' ``originator's 
bank,'' ``beneficiary's bank,'' and ``intermediary bank'') are defined 
as those terms are defined in 12 CFR part 210, appendix B.



Sec. 233.3  Designated payment systems.

    The following payment systems could be used by participants in 
connection with, or to facilitate, a restricted transaction:
    (a) Automated clearing house systems;
    (b) Card systems;
    (c) Check collection systems;
    (d) Money transmitting businesses solely to the extent they
    (1) Engage in the transmission of funds, which does not include 
check cashing, currency exchange, or the issuance or redemption of money 
orders, travelers' checks, and other similar instruments; and
    (2) Permit customers to initiate transmission of funds transactions 
remotely from a location other than a physical office of the money 
transmitting business; and
    (e) Wire transfer systems.



Sec. 233.4  Exemptions.

    (a) Automated clearing house systems. The participants processing a 
particular transaction through an automated clearing house system are 
exempt from this regulation's requirements for establishing written 
policies and procedures reasonably designed to prevent or prohibit 
restricted transactions with respect to that transaction, except for--
    (1) The receiving depository financial institution and any third-
party processor receiving the transaction on behalf of the receiver in 
an ACH credit transaction;
    (2) The originating depository financial institution and any third-
party processor initiating the transaction on behalf of the originator 
in an ACH debit transaction; and
    (3) The receiving gateway operator and any third-party processor 
that receives instructions for an ACH debit transaction directly from a 
foreign sender (which could include a foreign banking office, a foreign 
third-party processor, or a foreign originating gateway operator).
    (b) Check collection systems. The participants in a particular check 
collection through a check collection system are exempt from this 
regulation's requirements for establishing written policies and 
procedures reasonably designed to prevent or prohibit restricted 
transactions with respect to that check collection, except for the 
depositary bank.
    (c) Money transmitting businesses. The participants in a money 
transmitting business are exempt from this regulation's requirements for 
establishing

[[Page 56]]

written policies and procedures reasonably designed to prevent or 
prohibit restricted transactions, except for the operator.
    (d) Wire transfer systems. The participants in a particular wire 
transfer through a wire transfer system are exempt from this 
regulation's requirements for establishing written policies and 
procedures reasonably designed to prevent or prohibit restricted 
transactions with respect to that transaction, except for the 
beneficiary's bank.



Sec. 233.5  Policies and procedures required.

    (a) All non-exempt participants in designated payment systems shall 
establish and implement written policies and procedures reasonably 
designed to identify and block or otherwise prevent or prohibit 
restricted transactions.
    (b) A non-exempt financial transaction provider participant in a 
designated payment system shall be considered to be in compliance with 
the requirements of paragraph (a) of this section if--
    (1) It relies on and complies with the written policies and 
procedures of the designated payment system that are reasonably designed 
to--
    (i) Identify and block restricted transactions; or
    (ii) Otherwise prevent or prohibit the acceptance of the products or 
services of the designated payment system or participant in connection 
with restricted transactions; and
    (2) Such policies and procedures of the designated payment system 
comply with the requirements of this part.
    (c) For purposes of paragraph (b)(2) in this section, a participant 
in a designated payment system may rely on a written statement or notice 
by the operator of that designated payment system to its participants 
that states that the operator has designed or structured the system's 
policies and procedures for identifying and blocking or otherwise 
preventing or prohibiting restricted transactions to comply with the 
requirements of this part as conclusive evidence that the system's 
policies and procedures comply with the requirements of this part, 
unless the participant is notified otherwise by its Federal functional 
regulator or, in the case of participants that are not directly 
supervised by a Federal functional regulator, the Federal Trade 
Commission.
    (d) As provided in the Act, a person that identifies and blocks a 
transaction, prevents or prohibits the acceptance of its products or 
services in connection with a transaction, or otherwise refuses to honor 
a transaction, shall not be liable to any party for such action if--
    (1) The transaction is a restricted transaction;
    (2) Such person reasonably believes the transaction to be a 
restricted transaction; or
    (3) The person is a participant in a designated payment system and 
blocks or otherwise prevents the transaction in reliance on the policies 
and procedures of the designated payment system in an effort to comply 
with this regulation.
    (e) Nothing in this part requires or is intended to suggest that 
designated payment systems or participants therein must or should block 
or otherwise prevent or prohibit any transaction in connection with any 
activity that is excluded from the definition of ``unlawful Internet 
gambling'' in the Act as an intrastate transaction, an intratribal 
transaction, or a transaction in connection with any activity that is 
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et 
seq.; see Sec. 233.1(a)).
    (f) Nothing in this part modifies any requirement imposed on a 
participant by other applicable law or regulation to file a suspicious 
activity report to the appropriate authorities.
    (g) The requirement of this part to establish and implement written 
policies and procedures applies only to the U.S. offices of participants 
in designated payment systems.



Sec. 233.6  Non-exclusive examples of policies and procedures.

    (a) In general. The examples of policies and procedures to identify 
and block or otherwise prevent or prohibit restricted transactions set 
out in this section are non-exclusive. In establishing and implementing 
written policies and procedures to identify and

[[Page 57]]

block or otherwise prevent or prohibit restricted transactions, a non-
exempt participant in a designated payment system is permitted to design 
and implement policies and procedures tailored to its business that may 
be different than the examples provided in this section. In addition, 
non-exempt participants may use different policies and procedures with 
respect to different business lines or different parts of the 
organization.
    (b) Due diligence. If a non-exempt participant in a designated 
payment system establishes and implements procedures for due diligence 
of its commercial customer accounts or commercial customer relationships 
in order to comply, in whole or in part, with the requirements of this 
regulation, those due diligence procedures will be deemed to be 
reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if the procedures include the steps set 
out in paragraphs (b)(1), (b)(2), and (b)(3) of this section and subject 
to paragraph (b)(4) of this section.
    (1) At the establishment of the account or relationship, the 
participant conducts due diligence of a commercial customer and its 
activities commensurate with the participant's judgment of the risk of 
restricted transactions presented by the customer's business.
    (2) Based on its due diligence, the participant makes a 
determination regarding the risk the commercial customer presents of 
engaging in an Internet gambling business and follows either paragraph 
(b)(2)(i) or (b)(2)(ii) of this section.
    (i) The participant determines that the commercial customer presents 
a minimal risk of engaging in an Internet gambling business.
    (ii) The participant cannot determine that the commercial customer 
presents a minimal risk of engaging in an Internet gambling business, in 
which case it obtains the documentation in either paragraph 
(b)(2)(ii)(A) or (b)(2)(ii)(B) of this section--
    (A) Certification from the commercial customer that it does not 
engage in an Internet gambling business; or
    (B) If the commercial customer does engage in an Internet gambling 
business, each of the following--
    (1) Evidence of legal authority to engage in the Internet gambling 
business, such as--
    (i) A copy of the commercial customer's license that expressly 
authorizes the customer to engage in the Internet gambling business 
issued by the appropriate State or Tribal authority or, if the 
commercial customer does not have such a license, a reasoned legal 
opinion that demonstrates that the commercial customer's Internet 
gambling business does not involve restricted transactions; and
    (ii) A written commitment by the commercial customer to notify the 
participant of any changes in its legal authority to engage in its 
Internet gambling business.
    (2) A third-party certification that the commercial customer's 
systems for engaging in the Internet gambling business are reasonably 
designed to ensure that the commercial customer's Internet gambling 
business will remain within the licensed or otherwise lawful limits, 
including with respect to age and location verification.
    (3) The participant notifies all of its commercial customers, 
through provisions in the account or commercial customer relationship 
agreement or otherwise, that restricted transactions are prohibited from 
being processed through the account or relationship.
    (4) With respect to the determination in paragraph (b)(2)(i) of this 
section, participants may deem the following commercial customers to 
present a minimal risk of engaging in an Internet gambling business--
    (i) An entity that is directly supervised by a Federal functional 
regulator as set out in Sec. 233.7(a); or
    (ii) An agency, department, or division of the Federal government or 
a State government.
    (c) Automated clearing house system examples. (1) The policies and 
procedures of the originating depository financial institution and any 
third party processor in an ACH debit transaction, and the receiving 
depository financial institution and any third party processor in an ACH 
credit transaction, are deemed to be reasonably designed to identify and 
block or otherwise prevent or prohibit restricted transactions if they--

[[Page 58]]

    (i) Address methods to conduct due diligence in establishing a 
commercial customer account or relationship as set out in Sec. 
233.6(b);
    (ii) Address methods to conduct due diligence as set out in Sec. 
233.6(b)(2)(ii)(B) in the event that the participant has actual 
knowledge that an existing commercial customer of the participant 
engages in an Internet gambling business; and
    (iii) Include procedures to be followed with respect to a commercial 
customer if the originating depository financial institution or third-
party processor has actual knowledge that its commercial customer has 
originated restricted transactions as ACH debit transactions or if the 
receiving depository financial institution or third-party processor has 
actual knowledge that its commercial customer has received restricted 
transactions as ACH credit transactions, such as procedures that 
address--
    (A) The circumstances under which the commercial customer should not 
be allowed to originate ACH debit transactions or receive ACH credit 
transactions; and
    (B) The circumstances under which the account should be closed.
    (2) The policies and procedures of a receiving gateway operator and 
third-party processor that receives instructions to originate an ACH 
debit transaction directly from a foreign sender are deemed to be 
reasonably designed to prevent or prohibit restricted transactions if 
they include procedures to be followed with respect to a foreign sender 
if the receiving gateway operator or third-party processor has actual 
knowledge, obtained through notification by a government entity, such as 
law enforcement or a regulatory agency, that such instructions included 
instructions for restricted transactions. Such procedures may address 
sending notification to the foreign sender, such as in the form of the 
notice contained in appendix A to this part.
    (d) Card system examples. The policies and procedures of a card 
system operator, a merchant acquirer, third-party processor, or a card 
issuer, are deemed to be reasonably designed to identify and block or 
otherwise prevent or prohibit restricted transactions, if the policies 
and procedures--
    (1) Provide for either--
    (i) Methods to conduct due diligence--
    (A) In establishing a commercial customer account or relationship as 
set out in Sec. 233.6(b); and
    (B) As set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
participant has actual knowledge that an existing commercial customer of 
the participant engages in an Internet gambling business; or
    (ii) Implementation of a code system, such as transaction codes and 
merchant/business category codes, that are required to accompany the 
authorization request for a transaction, including--
    (A) The operational functionality to enable the card system operator 
or the card issuer to reasonably identify and deny authorization for a 
transaction that the coding procedure indicates may be a restricted 
transaction; and
    (B) Procedures for ongoing monitoring or testing by the card system 
operator to detect potential restricted transactions, including--
    (1) Conducting testing to ascertain whether transaction 
authorization requests are coded correctly; and
    (2) Monitoring and analyzing payment patterns to detect suspicious 
payment volumes from a merchant customer; and
    (2) For the card system operator, merchant acquirer, or third-party 
processor, include procedures to be followed when the participant has 
actual knowledge that a merchant has received restricted transactions 
through the card system, such as--
    (i) The circumstances under which the access to the card system for 
the merchant, merchant acquirer, or third-party processor should be 
denied; and
    (ii) The circumstances under which the merchant account should be 
closed.
    (e) Check collection system examples. (1) The policies and 
procedures of a depositary bank are deemed to be reasonably designed to 
identify and block or otherwise prevent or prohibit restricted 
transactions, if they--
    (i) Address methods for the depositary bank to conduct due diligence 
in establishing a commercial customer account or relationship as set out 
in Sec. 233.6(b);

[[Page 59]]

    (ii) Address methods for the depositary bank to conduct due 
diligence as set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
depositary bank has actual knowledge that an existing commercial 
customer engages in an Internet gambling business; and
    (iii) Include procedures to be followed if the depositary bank has 
actual knowledge that a commercial customer of the depositary bank has 
deposited checks that are restricted transactions, such as procedures 
that address--
    (A) The circumstances under which check collection services for the 
customer should be denied; and
    (B) The circumstances under which the account should be closed.
    (2) The policies and procedures of a depositary bank that receives 
checks for collection from a foreign banking office are deemed to be 
reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if they include procedures to be 
followed by the depositary bank when it has actual knowledge, obtained 
through notification by a government entity, such as law enforcement or 
a regulatory agency, that a foreign banking office has sent checks to 
the depositary bank that are restricted transactions. Such procedures 
may address sending notification to the foreign banking office, such as 
in the form of the notice contained in the appendix to this part.
    (f) Money transmitting business examples. The policies and 
procedures of an operator of a money transmitting business are deemed to 
be reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if they--
    (1) Address methods for the operator to conduct due diligence in 
establishing a commercial customer relationship as set out in Sec. 
233.6(b);
    (2) Address methods for the operator to conduct due diligence as set 
out in Sec. 233.6(b)(2)(ii)(B) in the event that the operator has 
actual knowledge that an existing commercial customer engages in an 
Internet gambling business;
    (3) Include procedures regarding ongoing monitoring or testing by 
the operator to detect potential restricted transactions, such as 
monitoring and analyzing payment patterns to detect suspicious payment 
volumes to any recipient; and
    (4) Include procedures when the operator has actual knowledge that a 
commercial customer of the operator has received restricted transactions 
through the money transmitting business, that address--
    (i) The circumstances under which money transmitting services should 
be denied to that commercial customer; and
    (ii) The circumstances under which the commercial customer account 
should be closed.
    (g) Wire transfer system examples. The policies and procedures of 
the beneficiary's bank in a wire transfer are deemed to be reasonably 
designed to identify and block or otherwise prevent or prohibit 
restricted transactions if they--
    (1) Address methods for the beneficiary's bank to conduct due 
diligence in establishing a commercial customer account as set out in 
Sec. 233.6(b);
    (2) Address methods for the beneficiary's bank to conduct due 
diligence as set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
beneficiary's bank has actual knowledge that an existing commercial 
customer of the bank engages in an Internet gambling business;
    (3) Include procedures to be followed if the beneficiary's bank 
obtains actual knowledge that a commercial customer of the bank has 
received restricted transactions through the wire transfer system, such 
as procedures that address
    (i) The circumstances under which the beneficiary bank should deny 
wire transfer services to the commercial customer; and
    (ii) The circumstances under which the commercial customer account 
should be closed.



Sec. 233.7  Regulatory enforcement.

    The requirements under this part are subject to the exclusive 
regulatory enforcement of--
    (a) The Federal functional regulators, with respect to the 
designated payment systems and participants therein that are subject to 
the respective jurisdiction of such regulators under section 505(a) of 
the Gramm-

[[Page 60]]

Leach-Bliley Act (15 U.S.C. 6805(a)) and section 5g of the Commodity 
Exchange Act (7 U.S.C. 7b-2); and
    (b) The Federal Trade Commission, with respect to designated payment 
systems and participants therein not otherwise subject to the 
jurisdiction of any Federal functional regulators (including the 
Commission) as described in paragraph (a) of this section.



                Sec. Appendix A to Part 233--Model Notice

[Date]
[Name of foreign sender or foreign banking office]
[Address]
Re: U.S. Unlawful Internet Gambling Enforcement Act Notice

Dear [Name of foreign counterparty]:

    On [date], U.S. government officials informed us that your 
institution processed payments through our facilities for Internet 
gambling transactions restricted by U.S. law on [dates, recipients, and 
other relevant information if available].
    We provide this notice to comply with U.S. Government regulations 
implementing the Unlawful Internet Gambling Enforcement Act of 2006 
(Act), a U.S. federal law. Our policies and procedures established in 
accordance with those regulations provide that we will notify a foreign 
counterparty if we learn that the counterparty has processed payments 
through our facilities for Internet gambling transactions restricted by 
the Act. This notice ensures that you are aware that we have received 
information that your institution has processed payments for Internet 
gambling restricted by the Act.
    The Act is codified in subchapter IV, chapter 53, title 31 of the 
U.S. Code (31 U.S.C. 5361 et seq.). Implementing regulations that 
duplicate one another can be found at part 233 of title 12 of the U.S. 
Code of Federal Regulations (12 CFR part 233) and part 132 of title 31 
of the U.S. Code of Federal Regulations (31 CFR part 132).



PART 235_DEBIT CARD INTERCHANGE FEES AND ROUTING--Table of Contents



Sec.
235.1 Authority and purpose.
235.2 Definitions.
235.3 Reasonable and proportional interchange transaction fees.
235.4 Fraud-prevention adjustment.
235.5 Exemptions.
235.6 Prohibition on circumvention, evasion, and net compensation.
235.7 Limitations on payment card restrictions.
235.8 Reporting requirements and record retention.
235.9 Administrative enforcement.
235.10 Effective and compliance dates.

Appendix A to Part 235--Official Board Commentary on Regulation II

    Authority: 15 U.S.C. 1693o-2.

    Source: 76 FR 43466, July 20, 2011, unless otherwise noted.



Sec. 235.1  Authority and purpose.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (Board) under section 920 of the Electronic Fund 
Transfer Act (EFTA) (15 U.S.C. 1693o-2, as added by section 1075 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 
111-203, 124 Stat. 1376 (2010)).
    (b) Purpose. This part implements the provisions of section 920 of 
the EFTA, including standards for reasonable and proportional 
interchange transaction fees for electronic debit transactions, 
standards for receiving a fraud-prevention adjustment to interchange 
transaction fees, exemptions from the interchange transaction fee 
limitations, prohibitions on evasion and circumvention, prohibitions on 
payment card network exclusivity arrangements and routing restrictions 
for debit card transactions, and reporting requirements for debit card 
issuers and payment card networks.



Sec. 235.2  Definitions.

    For purposes of this part:
    (a) Account (1) Means a transaction, savings, or other asset account 
(other than an occasional or incidental credit balance in a credit plan) 
established for any purpose and that is located in the United States; 
and
    (2) Does not include an account held under a bona fide trust 
agreement that is excluded by section 903(2) of the Electronic Fund 
Transfer Act and rules prescribed thereunder.
    (b) Acquirer means a person that contracts directly or indirectly 
with a merchant to provide settlement for the merchant's electronic 
debit transactions over a payment card network. An acquirer does not 
include a person that acts only as a processor for the services it 
provides to the merchant.

[[Page 61]]

    (c) Affiliate means any company that controls, is controlled by, or 
is under common control with another company.
    (d) Cardholder means the person to whom a debit card is issued.
    (e) Control of a company means--
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of the company, 
directly or indirectly, or acting through one or more other persons;
    (2) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of the company, as the Board 
determines.
    (f) Debit card (1) Means any card, or other payment code or device, 
issued or approved for use through a payment card network to debit an 
account, regardless of whether authorization is based on signature, 
personal identification number (PIN), or other means, and regardless of 
whether the issuer holds the account, and
    (2) Includes any general-use prepaid card; and
    (3) Does not include--
    (i) Any card, or other payment code or device, that is redeemable 
upon presentation at only a single merchant or an affiliated group of 
merchants for goods or services; or
    (ii) A check, draft, or similar paper instrument, or an electronic 
representation thereof.
    (g) Designated automated teller machine (ATM) network means either--
    (1) All ATMs identified in the name of the issuer; or
    (2) Any network of ATMs identified by the issuer that provides 
reasonable and convenient access to the issuer's customers.
    (h) Electronic debit transaction (1) Means the use of a debit card 
by a person as a form of payment in the United States to initiate a 
debit to an account, and
    (2) Does not include transactions initiated at an ATM, including 
cash withdrawals and balance transfers initiated at an ATM.
    (i) General-use prepaid card means a card, or other payment code or 
device, that is--
    (1) Issued on a prepaid basis in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (2) Redeemable upon presentation at multiple, unaffiliated merchants 
for goods or services.
    (j) Interchange transaction fee means any fee established, charged, 
or received by a payment card network and paid by a merchant or an 
acquirer for the purpose of compensating an issuer for its involvement 
in an electronic debit transaction.
    (k) Issuer means any person that authorizes the use of a debit card 
to perform an electronic debit transaction.
    (l) Merchant means any person that accepts debit cards as payment.
    (m) Payment card network means an entity that--
    (1) Directly or indirectly provides the proprietary services, 
infrastructure, and software that route information and data to an 
issuer from an acquirer to conduct the authorization, clearance, and 
settlement of electronic debit transactions; and
    (2) A merchant uses in order to accept as a form of payment a brand 
of debit card or other device that may be used to carry out electronic 
debit transactions.
    (n) Person means a natural person or an organization, including a 
corporation, government agency, estate, trust, partnership, 
proprietorship, cooperative, or association.
    (o) Processor means a person that processes or routes electronic 
debit transactions for issuers, acquirers, or merchants.
    (p) Route means to direct and send information and data to an 
unaffiliated entity or to an affiliated entity acting on behalf of an 
unaffiliated entity.
    (q) United States means the States, territories, and possessions of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, or any political subdivision of any of the foregoing.

[[Page 62]]



Sec. 235.3  Reasonable and proportional interchange transaction fees.

    (a) In general. The amount of any interchange transaction fee that 
an issuer may receive or charge with respect to an electronic debit 
transaction shall be reasonable and proportional to the cost incurred by 
the issuer with respect to the electronic debit transaction.
    (b) Determination of reasonable and proportional fees. An issuer 
complies with the requirements of paragraph (a) of this section only if 
each interchange transaction fee received or charged by the issuer for 
an electronic debit transaction is no more than the sum of--
    (1) 21 cents and;
    (2) 5 basis points multiplied by the value of the transaction.



Sec. 235.4  Fraud-prevention adjustment.

    (a) In general. If an issuer meets the standards set forth in 
paragraph (b) of this section, it may receive or charge an additional 
amount of no more than 1 cent per transaction to any interchange 
transaction fee it receives or charges in accordance with Sec. 235.3.
    (b) Issuer standards. To be eligible to receive the fraud-prevention 
adjustment, an issuer shall--
    (1) Develop and implement policies and procedures reasonably 
designed to--
    (i) Identify and prevent fraudulent electronic debit transactions;
    (ii) Monitor the incidence of, reimbursements received for, and 
losses incurred from fraudulent electronic debit transactions;
    (iii) Respond appropriately to suspicious electronic debit 
transactions so as to limit the fraud losses that may occur and prevent 
the occurrence of future fraudulent electronic debit transactions; and
    (iv) Secure debit card and cardholder data; and
    (2) Review its fraud-prevention policies and procedures at least 
annually, and update them as necessary to address changes in prevalence 
and nature of fraudulent electronic debit transactions and available 
methods of detecting, preventing, and mitigating fraud.
    (c) Certification. To be eligible to receive or charge a fraud-
prevention adjustment, an issuer that meets the standards set forth in 
paragraph (b) of this section must certify such compliance to its 
payment card networks on an annual basis.

[76 FR 43486, July 20, 2011]



Sec. 235.5  Exemptions.

    (a) Exemption for small issuers--(1) In general. Except as provided 
in paragraph (a)(3) of this section, Sec. Sec. 235.3, 235.4, and 235.6 
do not apply to an interchange transaction fee received or charged by an 
issuer with respect to an electronic debit transaction if--
    (i) The issuer holds the account that is debited; and
    (ii) The issuer, together with its affiliates, has assets of less 
than $10 billion as of the end of the calendar year preceding the date 
of the electronic debit transaction.
    (2) Determination of issuer asset size. A person may rely on lists 
published by the Board to determine whether an issuer, together with its 
affiliates, has assets of less than $10 billion as of the end of the 
calendar year preceding the date of the electronic debit transaction.
    (3) Change in status. If an issuer qualifies for the exemption in 
paragraph (a)(1) in a particular calendar year, but, as of the end of 
that calendar year no longer qualifies for the exemption because at that 
time it, together with its affiliates, has assets of $10 billion or 
more, the issuer must begin complying with Sec. Sec. 235.3, 235.4, and 
235.6 no later than July 1 of the succeeding calendar year.
    (b) Exemption for government-administered programs. Except as 
provided in paragraph (d) of this section, Sec. Sec. 235.3, 235.4, and 
235.6 do not apply to an interchange transaction fee received or charged 
by an issuer with respect to an electronic debit transaction if--
    (1) The electronic debit transaction is made using a debit card that 
has been provided to a person pursuant to a Federal, State, or local 
government-administered payment program; and
    (2) The cardholder may use the debit card only to transfer or debit 
funds, monetary value, or other assets that have been provided pursuant 
to such program.

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    (c) Exemption for certain reloadable prepaid cards--(1) In general. 
Except as provided in paragraph (d) of this section, Sec. Sec. 235.3, 
235.4, and 235.6 do not apply to an interchange transaction fee received 
or charged by an issuer with respect to an electronic debit transaction 
using a general-use prepaid card that is--
    (i) Not issued or approved for use to access or debit any account 
held by or for the benefit of the cardholder (other than a subaccount or 
other method of recording or tracking funds purchased or loaded on the 
card on a prepaid basis);
    (ii) Reloadable and not marketed or labeled as a gift card or gift 
certificate; and
    (iii) The only means of access to the underlying funds, except when 
all remaining funds are provided to the cardholder in a single 
transaction.
    (2) Temporary cards. For purposes of this paragraph (c), the term 
``reloadable'' includes a temporary non-reloadable card issued solely in 
connection with a reloadable general-use prepaid card.
    (d) Exception. The exemptions in paragraphs (b) and (c) of this 
section do not apply to any interchange transaction fee received or 
charged by an issuer on or after July 21, 2012, with respect to an 
electronic debit transaction if any of the following fees may be charged 
to a cardholder with respect to the card:
    (1) A fee or charge for an overdraft, including a shortage of funds 
or a transaction processed for an amount exceeding the account balance, 
unless the fee or charge is imposed for transferring funds from another 
asset account to cover a shortfall in the account accessed by the card; 
or
    (2) A fee imposed by the issuer for the first withdrawal per 
calendar month from an ATM that is part of the issuer's designated ATM 
network.



Sec. 235.6  Prohibition on circumvention, evasion, and net compensation.

    (a) Prohibition of circumvention or evasion. No person shall 
circumvent or evade the interchange transaction fee restrictions in 
Sec. Sec. 235.3 and 235.4.
    (b) Prohibition of net compensation. An issuer may not receive net 
compensation from a payment card network with respect to electronic 
debit transactions or debit card-related activities within a calendar 
year. Net compensation occurs when the total amount of payments or 
incentives received by an issuer from a payment card network with 
respect to electronic debit transactions or debit card-related 
activities, other than interchange transaction fees passed through to 
the issuer by the network, during a calendar year exceeds the total 
amount of all fees paid by the issuer to the network with respect to 
electronic debit transactions or debit card-related activities during 
that calendar year. Payments and incentives paid by a network to an 
issuer, and fees paid by an issuer to a network, with respect to 
electronic debit transactions or debit card related activities are not 
limited to volume-based or transaction-specific payments, incentives, or 
fees, but also include other payments, incentives or fees related to an 
issuer's provision of debit card services.



Sec. 235.7  Limitations on payment card restrictions.

    (a) Prohibition on network exclusivity--(1) In general. An issuer or 
payment card network shall not directly or through any agent, processor, 
or licensed member of a payment card network, by contract, requirement, 
condition, penalty, or otherwise, restrict the number of payment card 
networks on which an electronic debit transaction may be processed to 
less than two unaffiliated networks.
    (2) Permitted arrangements. An issuer satisfies the requirements of 
paragraph (a)(1) of this section only if the issuer allows an electronic 
debit transaction to be processed on at least two unaffiliated payment 
card networks, each of which does not, by rule or policy, restrict the 
operation of the network to a limited geographic area, specific 
merchant, or particular type of merchant or transaction, and each of 
which has taken steps reasonably designed to enable the network to 
process the electronic debit transactions that the network would 
reasonably expect will be routed to it, based on expected transaction 
volume.

[[Page 64]]

    (3) Prohibited exclusivity arrangements by networks. For purposes of 
paragraph (a)(1) of this section, a payment card network may not 
restrict or otherwise limit an issuer's ability to contract with any 
other payment card network that may process an electronic debit 
transaction involving the issuer's debit cards.
    (4) Subsequent affiliation. If unaffiliated payment card networks 
become affiliated as a result of a merger or acquisition such that an 
issuer is no longer in compliance with paragraph (a) of this section, 
the issuer must add an unaffiliated payment card network through which 
electronic debit transactions on the relevant debit card may be 
processed no later than six months after the date on which the 
previously unaffiliated payment card networks consummate the 
affiliation.
    (b) Prohibition on routing restrictions. An issuer or payment card 
network shall not, directly or through any agent, processor, or licensed 
member of the network, by contract, requirement, condition, penalty, or 
otherwise, inhibit the ability of any person that accepts or honors 
debit cards for payments to direct the routing of electronic debit 
transactions for processing over any payment card network that may 
process such transactions.
    (c) Compliance dates--(1) General. Except as otherwise provided in 
paragraphs (c)(2), (c)(3), and (c)(4) of this section, the compliance 
date of paragraph (a) of this section is April 1, 2012.
    (2) Restrictions by payment card networks. The compliance date of 
paragraphs (a)(1) and (a)(3) of this section for payment card networks 
is October 1, 2011.
    (3) Debit cards that use transaction qualification or substantiation 
systems. Issuers shall comply with the requirements of paragraph (a) of 
this section by April 1, 2013, for electronic debit transactions using 
debit cards that use point-of-sale transaction qualification or 
substantiation systems for verifying the eligibility of purchased goods 
or services.
    (4) General-use prepaid cards. Issuers shall comply with the 
requirements of paragraph (a) of this section with respect to general-
use prepaid cards as set out below.
    (i) With respect to non-reloadable general-use prepaid cards, the 
compliance date is April 1, 2013. Non-reloadable general-use prepaid 
cards sold prior to April 1, 2013 are not subject to paragraph (a) of 
this section.
    (ii) With respect to reloadable general-use prepaid cards, the 
compliance date is April 1, 2013. Reloadable general-use prepaid cards 
sold prior to April 1, 2013 are not subject to paragraph (a) of this 
section unless and until they are reloaded, in which case the following 
compliance dates apply:
    (A) With respect to reloadable general-use prepaid cards sold and 
reloaded prior to April 1, 2013, the compliance date is May 1, 2013.
    (B) With respect to reloadable general-use prepaid cards sold prior 
to April 1, 2013, and reloaded on or after April 1, 2013, the compliance 
date is 30 days after the date of reloading.



Sec. 235.8  Reporting requirements and record retention.

    (a) Entities required to report. Each issuer that is not otherwise 
exempt from the requirements of this part under Sec. 235.5(a) and each 
payment card network shall file a report with the Board in accordance 
with this section.
    (b) Report. Each entity required to file a report with the Board 
shall submit data in a form prescribed by the Board for that entity. 
Data required to be reported may include, but may not be limited to, 
data regarding costs incurred with respect to an electronic debit 
transaction, interchange transaction fees, network fees, fraud-
prevention costs, fraud losses, and transaction value, volume, and type.
    (c) Record retention. (1) An issuer subject to this part shall 
retain evidence of compliance with the requirements imposed by this part 
for a period of not less than five years after the end of the calendar 
year in which the electronic debit transaction occurred.
    (2) Any person subject to this part having actual notice that it is 
the subject of an investigation or an enforcement proceeding by its 
enforcement agency shall retain the records that pertain to the 
investigation, action, or proceeding until final disposition of the 
matter unless an earlier time is allowed by court or agency order.

[[Page 65]]



Sec. 235.9  Administrative enforcement.

    (a)(1) Compliance with the requirements of this part shall be 
enforced under--
    (i) Section 8 of the Federal Deposit Insurance Act, by the 
appropriate Federal banking agency, as defined in section 3(q) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(q)), with respect to--
    (A) National banks, federal savings associations, and federal 
branches and federal agencies of foreign banks;
    (B) Member banks of the Federal Reserve System (other than national 
banks), branches and agencies of foreign banks (other than federal 
branches, federal Agencies, and insured state branches of foreign 
banks), commercial lending companies owned or controlled by foreign 
banks, and organizations operating under section 25 or 25A of the 
Federal Reserve Act;
    (C) Banks and state savings associations insured by the Federal 
Deposit Insurance Corporation (other than members of the Federal Reserve 
System), and insured state branches of foreign banks;
    (ii) The Federal Credit Union Act (12 U.S.C. 1751 et seq.), by the 
Administrator of the National Credit Union Administration (National 
Credit Union Administration Board) with respect to any federal credit 
union;
    (iii) The Federal Aviation Act of 1958 (49 U.S.C. 40101 et seq.), by 
the Secretary of Transportation, with respect to any air carrier or 
foreign air carrier subject to that Act; and
    (iv) The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), by 
the Securities and Exchange Commission, with respect to any broker or 
dealer subject to that Act.
    (2) The terms used in paragraph (a)(1) of this section that are not 
defined in this part or otherwise defined in section 3(s) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given 
to them in section 1(b) of the International Banking Act of 1978 (12 
U.S.C. 3101).
    (b) Additional powers. (1) For the purpose of the exercise by any 
agency referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of this 
section of its power under any statute referred to in those paragraphs, 
a violation of this part is deemed to be a violation of a requirement 
imposed under that statute.
    (2) In addition to its powers under any provision of law 
specifically referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of 
this section, each of the agencies referred to in those paragraphs may 
exercise, for the purpose of enforcing compliance under this part, any 
other authority conferred on it by law.
    (c) Enforcement authority of Federal Trade Commission. Except to the 
extent that enforcement of the requirements imposed under this title is 
specifically granted to another government agency under paragraphs 
(a)(1)(i) through (a)(1)(iv) of this section, and subject to subtitle B 
of the Consumer Financial Protection Act of 2010, the Federal Trade 
Commission has the authority to enforce such requirements. For the 
purpose of the exercise by the Federal Trade Commission of its functions 
and powers under the Federal Trade Commission Act, a violation of this 
part shall be deemed a violation of a requirement imposed under the 
Federal Trade Commission Act. All of the functions and powers of the 
Federal Trade Commission under the Federal Trade Commission Act are 
available to the Federal Trade Commission to enforce compliance by any 
person subject to the jurisdiction of the Federal Trade Commission with 
the requirements of this part, regardless of whether that person is 
engaged in commerce or meets any other jurisdictional tests under the 
Federal Trade Commission Act.



Sec. 235.10  Effective and compliance dates.

    Except as provided in Sec. 235.7, this part becomes effective and 
compliance is mandatory on October 1, 2011.



 Sec. Appendix A to Part 235--Official Board Commentary on Regulation II

                              Introduction

    The following commentary to Regulation II (12 CFR part 235) provides 
background material to explain the Board's intent in adopting a 
particular part of the regulation. The commentary also provides examples 
to aid in understanding how a particular requirement is to work.

[[Page 66]]

                        Section 235.2 Definitions

                              2(a) Account

    1. Types of accounts. The term ``account'' includes accounts held by 
any person, including consumer accounts (i.e., those established 
primarily for personal, family or household purposes) and business 
accounts. Therefore, the limitations on interchange transaction fees and 
the prohibitions on network exclusivity arrangements and routing 
restrictions apply to all electronic debit transactions, regardless of 
whether the transaction involves a debit card issued primarily for 
personal, family, or household purposes or for business purposes. For 
example, an issuer of a business-purpose debit card is subject to the 
restrictions on interchange transaction fees and is also prohibited from 
restricting the number of payment card networks on which an electronic 
debit transaction may be processed under Sec. 235.7.
    2. Bona fide trusts. This part does not define the term bona fide 
trust agreement; therefore, institutions must look to state or other 
applicable law for interpretation. An account held under a custodial 
agreement that qualifies as a trust under the Internal Revenue Code, 
such as an individual retirement account, is considered to be held under 
a trust agreement for purposes of this part.
    3. Account located in the United States. This part applies only to 
electronic debit transactions that are initiated to debit (or credit, 
for example, in the case of returned goods or cancelled services) an 
account located in the United States. If a cardholder uses a debit card 
to debit an account held outside the United States, then the electronic 
debit transaction is not subject to this part.

                              2(b) Acquirer

    1. In general. The term ``acquirer'' includes only the institution 
that contracts, directly or indirectly, with a merchant to provide 
settlement for the merchant's electronic debit transactions over a 
payment card network (referred to as acquiring the merchant's electronic 
debit transactions). In some acquiring relationships, an institution 
provides processing services to the merchant and is a licensed member of 
the payment card network, but does not settle the transactions with the 
merchant (by crediting the merchant's account) or with the issuer. These 
institutions are not ``acquirers'' because they do not provide credit to 
the merchant for the transactions or settle the merchant's transactions 
with the issuer. These institutions are considered processors and in 
some circumstances may be considered payment card networks for purposes 
of this part (See Sec. Sec. 235.2(m), 235.2(o), and commentary 
thereto).

                             2(c) Affiliate

    1. Types of entities. The term ``affiliate'' includes any bank and 
nonbank affiliates located in the United States or a foreign country.
    2. Other affiliates. For commentary on whether merchants are 
affiliated, see comment 2(f)-7.

                             2(d) Cardholder

    1. Scope. In the case of debit cards that access funds in 
transaction, savings, or other similar asset accounts, ``the person to 
whom a card is issued'' generally will be the named person or persons 
holding the account. If the account is a business account, multiple 
employees (or other persons associated with the business) may have debit 
cards that can access the account. Each employee that has a debit card 
that can access the account is a cardholder. In the case of a prepaid 
card, the cardholder generally is either the purchaser of the card or a 
person to whom the purchaser gave the card, such as a gift recipient.

                         2(e) Control [Reserved]

                             2(f) Debit Card

    1. Card, or other payment code or device. The term ``debit card'' as 
defined in Sec. 235.2(f) applies to any card, or other payment code or 
device, even if it is not issued in a physical form. Debit cards 
include, for example, an account number or code that can be used to 
access funds in an account to make Internet purchases. Similarly, the 
term ``debit card'' includes a device with a chip or other embedded 
mechanism, such as a mobile phone or sticker containing a contactless 
chip that links the device to funds stored in an account, and enables an 
account to be debited. The term ``debit card,'' however, does not 
include a one-time password or other code if such password or code is 
used for the purposes of authenticating the cardholder and is used in 
addition to another card, or other payment code or device, rather than 
as the payment code or device.
    2. Deferred debit cards. The term ``debit card'' includes a card, or 
other payment code or device, that is used in connection with deferred 
debit card arrangements in which transactions are not immediately posted 
to and funds are not debited from the underlying transaction, savings, 
or other asset account upon settlement of the transaction. Instead, the 
funds in the account typically are held and made unavailable for other 
transactions for a period of time specified in the issuer-cardholder 
agreement. After the expiration of the time period, the cardholder's 
account is debited for the value of all transactions made using the card 
that have been submitted to the issuer for settlement during that time 
period. For example,

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under some deferred debit card arrangements, the issuer may debit the 
consumer's account for all debit card transactions that occurred during 
a particular month at the end of the month. Regardless of the time 
period between the transaction and account posting, a card, or other 
payment code or device, that is used in connection with a deferred debit 
arrangement is considered a debit card for purposes of the requirements 
of this part.
    3. Decoupled debit cards. Decoupled debit cards are issued by an 
entity other than the financial institution holding the cardholder's 
account. In a decoupled debit arrangement, transactions that are 
authorized by the card issuer settle against the cardholder's account 
held by an entity other than the issuer, generally via a subsequent ACH 
debit to that account. The term ``debit card'' includes any card, or 
other payment code or device, issued or approved for use through a 
payment card network to debit an account, regardless of whether the 
issuer holds the account. Therefore, decoupled debit cards are debit 
cards for purposes of this part.
    4. Hybrid cards.
    i. Some cards, or other payment codes or devices, may have both 
credit- and debit-like features (``hybrid cards''). For example, these 
cards may enable a cardholder to access a line of credit, but select 
certain transactions for immediate repayment (i.e., prior to the end of 
a billing cycle) via a debit to the cardholder's account, as the term is 
defined in Sec. 235.2(a), held either with the issuer or at another 
institution. If a card permits a cardholder to initiate transactions 
that debit an account or funds underlying a prepaid card, the card is 
considered a debit card for purposes of this part. Not all transactions 
initiated by such a hybrid card, however, are electronic debit 
transactions. Rather, only those transactions that debit an account as 
defined in this part or funds underlying a prepaid card are electronic 
debit transactions. If the transaction posts to a line of credit, then 
the transaction is a credit transaction.
    ii. If an issuer conditions the availability of a credit or charge 
card that permits pre-authorized repayment of some or all transactions 
on the cardholder maintaining an account at the issuer, such a card is 
considered a debit card for purposes of this part.
    5. Virtual wallets. A virtual wallet is a device (e.g., a mobile 
phone) that stores several different payment codes or devices (``virtual 
cards'') that access different accounts, funds underlying the card, or 
lines of credit. At the point of sale, the cardholder may select from 
the virtual wallet the virtual card he or she wishes to use for payment. 
The virtual card that the cardholder uses for payment is considered a 
debit card under this part if the virtual card that initiates a 
transaction meets the definition of debit card, notwithstanding the fact 
that other cards in the wallet may not be debit cards.
    6. General-use prepaid card. The term ``debit card'' includes 
general-use prepaid cards. See Sec. 235.2(i) and related commentary for 
information on general-use prepaid cards.
    7. Store cards. The term ``debit card'' does not include prepaid 
cards that may be used at a single merchant or affiliated merchants. Two 
or more merchants are affiliated if they are related by either common 
ownership or by common corporate control. For purposes of the ``debit 
card'' definition, franchisees are considered to be under common 
corporate control if they are subject to a common set of corporate 
policies or practices under the terms of their franchise licenses.
    8. Checks, drafts, and similar instruments. The term ``debit card'' 
does not include a check, draft, or similar paper instrument or a 
transaction in which the check is used as a source of information to 
initiate an electronic payment. For example, if an account holder 
provides a check to buy goods or services and the merchant takes the 
account number and routing number information from the MICR line at the 
bottom of a check to initiate an ACH debit transfer from the 
cardholder's account, the check is not a debit card, and such a 
transaction is not considered an electronic debit transaction. Likewise, 
the term ``debit card'' does not include an electronic representation of 
a check, draft, or similar paper instrument.
    9. ACH transactions. The term ``debit card'' does not include an 
account number when it is used by a person to initiate an ACH 
transaction that debits that person's account. For example, if an 
account holder buys goods or services over the Internet using an account 
number and routing number to initiate an ACH debit, the account number 
is not a debit card, and such a transaction is not considered an 
electronic debit transaction. However, the use of a card to purchase 
goods or services that debits the cardholder's account that is settled 
by means of a subsequent ACH debit initiated by the card issuer to the 
cardholder's account, as in the case of a decoupled debit card 
arrangement, involves the use of a debit card for purposes of this part.

         2(g) Designated Automated Teller Machine (ATM) Network

    1. Reasonable and convenient access clarified. Under Sec. 
235.2(g)(2), a designated ATM network includes any network of ATMs 
identified by the issuer that provides reasonable and convenient access 
to the issuer's cardholders. Whether a network provides reasonable and 
convenient access depends on the facts and circumstances, including the 
distance between ATMs in the designated network and each cardholder's 
last known home

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or work address, or if a home or work address is not known, where the 
card was first issued.

                    2(h) Electronic Debit Transaction

    1. Debit an account. The term ``electronic debit transaction'' 
includes the use of a card to debit an account. The account debited 
could be, for example, the cardholder's asset account or the account 
that holds the funds used to settle prepaid card transactions.
    2. Form of payment. The term ``electronic debit transaction'' 
includes the use of a card as a form of payment that may be made in 
exchange for goods or services, as a charitable contribution, to satisfy 
an obligation (e.g., tax liability), or for other purposes.
    3. Subsequent transactions. The term ``electronic debit 
transaction'' includes both the cardholder's use of a debit card for the 
initial payment and any subsequent use by the cardholder of the debit 
card in connection with the initial payment. For example, the term 
``electronic debit transaction'' includes using the debit card to return 
merchandise or cancel a service that then results in a debit to the 
merchant's account and a credit to the cardholder's account.
    4. Cash withdrawal at the point of sale. The term ``electronic debit 
transaction'' includes a transaction in which a cardholder uses the 
debit card both to make a purchase and to withdraw cash (known as a 
``cash-back transaction'').
    5. Geographic limitation. This regulation applies only to electronic 
debit transactions that are initiated at a merchant located in the 
United States. If a cardholder uses a debit card at a merchant located 
outside the United States to debit an account held in the United States, 
the electronic debit transaction is not subject to this part.

                      2(i) General-Use Prepaid Card

    1. Redeemable upon presentation at multiple, unaffiliated merchants. 
A prepaid card is redeemable upon presentation at multiple, unaffiliated 
merchants if such merchants agree to honor the card.
    2. Selective authorization cards. Selective authorization cards, 
(e.g., mall cards) are generally intended to be used or redeemed for 
goods or services at participating retailers within a shopping mall or 
other limited geographic area. Selective authorization cards are 
considered general-use prepaid cards, regardless of whether they carry 
the mark, logo, or brand of a payment card network, if they are 
redeemable at multiple, unaffiliated merchants.

                    2(j) Interchange Transaction fee

    1. In general. Generally, the payment card network is the entity 
that establishes and charges the interchange transaction fee to the 
acquirers or merchants. The acquirers then pay to the issuers any 
interchange transaction fee established and charged by the network. 
Acquirers typically pass the interchange transaction fee through to 
merchant-customers.
    2. Compensating an issuer. The term ``interchange transaction fee'' 
is limited to those fees that a payment card network establishes, 
charges, or receives to compensate the issuer for its role in the 
electronic debit transaction. By contrast, payment card networks 
generally charge issuers and acquirers fees for services the network 
performs. Such fees are not interchange transaction fees because the 
payment card network is charging and receiving the fee as compensation 
for services it provides.
    3. Established, charged, or received. Interchange transaction fees 
are not limited to those fees for which a payment card network sets the 
value. A fee that compensates an issuer is an interchange transaction 
fee if the fee is set by the issuer but charged to acquirers by virtue 
of the network determining each participant's net settlement position.

                               2(k) Issuer

    1. In general. A person issues a debit card by authorizing the use 
of debit card by a cardholder to perform electronic debit transactions. 
That person may provide the card directly to the cardholder or 
indirectly by using a third party (such as a processor, or a telephone 
network or manufacturer) to provide the card, or other payment code or 
device, to the cardholder. The following examples illustrate the entity 
that is the issuer under various card program arrangements. For purposes 
of determining whether an issuer is exempted under Sec. 235.5(a), 
however, the term issuer is limited to the entity that holds the account 
being debited.
    2. Traditional debit card arrangements. In a traditional debit card 
arrangement, the bank or other entity holds the cardholder's funds and 
authorizes the cardholder to use the debit card to access those funds 
through electronic debit transactions, and the cardholder receives the 
card directly or indirectly (e.g., through an agent) from the bank or 
other entity that holds the funds (except for decoupled debit cards, 
discussed below). In this system, the bank or entity holding the 
cardholder's funds is the issuer.
    3. BIN-sponsor arrangements. Payment card networks assign Bank 
Identification Numbers (BINs) to member-institutions for purposes of 
issuing cards, authorizing, clearing, settling, and other processes. In 
exchange for a fee or other financial considerations, some members of 
payment card networks permit other entities to issue debit cards using 
the member's BIN. The entity permitting the use of its BIN is referred 
to as the ``BIN sponsor'' and the entity that uses the BIN to issue 
cards is often referred to as the ``affiliate

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member.'' BIN sponsor arrangements can follow at least two different 
models:
    i. Sponsored debit card model. In some cases, a community bank or 
credit union may provide debit cards to its account holders through a 
BIN sponsor arrangement with a member institution. In general, the bank 
or credit union will authorize its account holders to use debit cards to 
perform electronic debit transactions that access funds in accounts at 
the bank or credit union. The bank or credit union's name typically will 
appear on the debit card. The bank or credit union may directly or 
indirectly provide the cards to cardholders. Under these circumstances, 
the bank or credit union is the issuer for purposes of this part. If 
that bank or credit union, together with its affiliates, has assets of 
less than $10 billion, then that bank or credit union is exempt from the 
interchange transaction fee restrictions. Although the bank or credit 
union may distribute cards through the BIN sponsors, the BIN sponsor 
does not enter into the agreement with the cardholder that authorizes 
the cardholder to use the card to perform electronic debit transactions 
that access funds in the account at the bank or credit union, and 
therefore the BIN sponsor is not the issuer.
    ii. Prepaid card model. A member institution may also serve as the 
BIN sponsor for a prepaid card program. Under these arrangements, a 
program manager distributes prepaid cards to the cardholders and the 
BIN-sponsoring institution generally holds the funds for the prepaid 
card program in an omnibus or pooled account. Either the BIN sponsor or 
the prepaid card program manager may keep track of the underlying funds 
for each individual prepaid card through subaccounts. While the 
cardholder may receive the card directly from the program manager or at 
a retailer, the BIN sponsor authorizes the cardholder to use the card to 
perform electronic debit transactions that access the funds in the 
pooled account and the cardholder's relationship generally is with the 
BIN sponsor. Accordingly, under these circumstances, the BIN sponsor, or 
the bank holding the pooled account, is the issuer.
    4. Decoupled debit cards. In the case of decoupled debit cards, an 
entity other than the bank holding the cardholder's account enters into 
a relationship with the cardholder authorizing the use of the card to 
perform electronic debit transactions. The entity authorizing the use of 
the card to perform electronic debit transaction typically arranges for 
the card to be provided directly or indirectly to the cardholder and has 
a direct relationship with the cardholder with respect to the card. The 
bank holding the cardholder's account has agreed generally to permit ACH 
debits to the account, but has not authorized the use of the debit card 
to access the funds through electronic debit transactions. Under these 
circumstances, the entity authorizing the use of the debit card, and not 
the account-holding institution, is considered the issuer. An issuer of 
a decoupled debit card is not exempt under Sec. 235.5(a), even if, 
together with its affiliates, it has assets of less than $10 billion, 
because it is not the entity holding the account to be debited.

                        2(l) Merchant [Reserved]

                        2(m) Payment Card Network

    1. In general. An entity is a considered a payment card network with 
respect to an electronic debit transaction for purposes of this rule if 
it routes information and data to the issuer from the acquirer to 
conduct authorization, clearance, and settlement of the electronic debit 
transaction. By contrast, if an entity receives transaction information 
and data from a merchant and authorizes and settles the transaction 
without routing the information and data to another entity (i.e., the 
issuer or the issuer's processor) for authorization, clearance, or 
settlement, that entity is not considered a payment card network with 
respect to the electronic debit transaction.
    2. Three-party systems. In the case of a three-party system, 
electronic debit transactions are processed by an entity that acts as 
system operator and issuer, and may also act as the acquirer. The entity 
acting as system operator and issuer that receives the transaction 
information from the merchant or acquirer also holds the cardholder's 
funds. Therefore, rather than directing the transaction information to a 
separate issuer, the entity authorizes and settles the transaction based 
on the information received from the merchant. As these entities do not 
connect (or ``network'') multiple issuers and do not route information 
to conduct the transaction, they are not ``payment card networks'' with 
respect to these transactions.
    3. Processors as payment card networks. A processor is considered a 
payment card network if, in addition to acting as processor for an 
acquirer and issuer, the processor routes transaction information and 
data received from a merchant or the merchant's acquirer to an issuer. 
For example, if a merchant uses a processor in order to accept any, 
some, or all brands of debit cards and the processor routes transaction 
information and data to the issuer or issuer's processor, the merchant's 
processor is considered a payment card network with respect to the 
electronic debit transaction. If the processor establishes, charges, or 
receives a fee for the purpose of compensating an issuer, that fee is 
considered an interchange transaction fee for purposes of this part.
    4. Automated clearing house (ACH) operators. An ACH operator is not 
considered a payment card network for purposes of this part. While an 
ACH operator processes transactions that debit an account and provides

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for interbank clearing and settlement of such transactions, a person 
does not use the ACH system to accept as a form of payment a brand of 
debit card.
    5. ATM networks. An ATM network is not considered a payment card 
network for purposes of this part. While ATM networks process 
transactions that debit an account and provide for interbank clearing 
and settlement of such transactions, a cash withdrawal from an ATM is 
not a payment because there is no exchange of money for goods or 
services, or payment made as a charitable contribution, to satisfy an 
obligation (e.g., tax liability), or for other purposes.

                         2(n) Person [Reserved]

                             2(o) Processor

    1. Distinction from acquirers. A processor may perform all 
transaction-processing functions for a merchant or acquirer, but if it 
does not acquire (that is, settle with the merchant for the 
transactions), it is not an acquirer. The entity that acquirers 
electronic debit transactions is the entity that is responsible to other 
parties to the electronic debit transaction for the amount of the 
transaction.
    2. Issuers. A processor may perform services related to 
authorization, clearance, and settlement of transactions for an issuer 
without being considered to be an issuer for purposes of this part.

                               2(p) Route

    1. An entity routes information if it both directs and sends the 
information to an unaffiliated entity (or affiliated entity acting on 
behalf of the unaffiliated entity). This other entity may be a payment 
card network or processor (if the entity directing and sending the 
information is a merchant or an acquirer) or an issuer or processor (if 
the entity directing and sending the information is a payment card 
network).

                      2(q) United States [Reserved]

 Section 235.3 Reasonable and Proportional Interchange Transaction Fees

                             3(a) [Reserved]

            3(b) Determining Reasonable and Proportional Fees

    1. Two components. The standard for the maximum permissible 
interchange transaction fee that an issuer may receive consists of two 
components: a base component that does not vary with a transaction's 
value and an ad valorem component. The amount of any interchange 
transaction fee received or charged by an issuer may not exceed the sum 
of the maximum permissible amounts of each component and any fraud-
prevention adjustment the issuer is permitted to receive under Sec. 
235.4 of this part.
    2. Variation in interchange fees. An issuer is permitted to charge 
or receive, and a network is permitted to establish, interchange 
transaction fees that vary in their base component and ad valorem 
component based on, for example, the type of transaction or merchant, 
provided the amount of any interchange transaction fee for any 
transaction does not exceed the sum of the maximum permissible base 
component of 21 cents and 5 basis points of the value of the 
transaction.
    3. Example. For a $39 transaction, the maximum permissible 
interchange transaction fee is 22.95 cents (21 cents plus 5 basis points 
of $39). A payment card network may, for example, establish an 
interchange transaction fee of 22 cents without any ad valorem 
component.

                Section 235.4 Fraud-Prevention Adjustment

                          4(b) Issuer Standards

    1. In general. Section 235.4(b) does not specify particular policies 
and procedures that an issuer must implement. Rather, an issuer must 
determine which policies and procedures are reasonably designed to 
achieve the objectives set forth in the standards. An issuer's policies 
and procedures must include fraud-prevention technologies and other 
methods or practices reasonably designed to detect, prevent, and 
mitigate fraudulent electronic debit transactions. An issuer does not 
satisfy the standards in Sec. 235.4(b) if it merely develops policies 
and procedures; the issuer also must implement those policies and 
procedures. Implementing an issuer's fraud-prevention policies and 
procedures should include training the issuer's employees and agents, as 
appropriate.
    2. An issuer's policies and procedures should address, among other 
things, fraud related to debit card use by unauthorized persons, which 
is a type of fraud that can be effectively addressed by the issuer, as 
the entity with the direct relationship with the cardholder and that 
authorizes the transaction. Examples of use by unauthorized persons 
include the following:
    i. A thief steals a cardholder's wallet and uses the debit card to 
purchase goods, without the authority of the cardholder.
    ii. A cardholder makes a $100 purchase at a merchant. Subsequently, 
the merchant's employee uses information from the debit card to initiate 
a subsequent transaction for an additional $100, without the authority 
of the cardholder.
    iii. A hacker steals cardholder account information from a merchant 
processor and uses that information to make unauthorized purchases of 
goods or services.
    Paragraph 4(b)(1)(i). Identify and prevent fraudulent debit card 
transactions.

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    1. In general. An issuer shall develop and implement policies and 
procedures reasonably designed to identify and prevent fraudulent 
electronic debit transactions. These policies and procedures should 
include activities to prevent, detect, and mitigate fraud even if the 
costs of these activities are not recoverable as part of the fraud-
prevention adjustment. The issuer's policies and procedures may include 
the following:
    i. An automated mechanism to assess the risk that a particular 
electronic debit transaction is fraudulent during the authorization 
process (i.e., before the issuer approves or declines an authorization 
request). For example, an issuer may use neural networks to identify 
transactions that present increased risk of fraud. As a result of this 
analysis, the issuer may decide to decline to authorize these 
transactions. An issuer may not be able to determine whether a given 
transaction in isolation is fraudulent at the time of authorization, and 
therefore may have policies and procedures that monitor sets of 
transactions initiated with a cardholder's debit card. For example, an 
issuer could compare a set of transactions initiated with the card to a 
customer's typical transactions in order to determine whether a 
transaction is likely to be fraudulent. Similarly, an issuer could 
compare a set of transactions initiated with a debit card and common 
fraud patterns in order to determine whether a transaction or future 
transaction is likely to be fraudulent.
    ii. Practices to support reporting of lost and stolen cards or 
suspected incidences of fraud by cardholders or other parties to a 
transaction. As an example, an issuer may promote customer awareness by 
providing text alerts of transactions in order to detect fraudulent 
transactions in a timely manner. An issuer may also report debit cards 
suspected of being fraudulent to their networks for inclusion in a 
database of compromised cards.
    iii. Practices to help determine whether a user is authorized to use 
the card at the time of a transaction. For example, an issuer may 
specify the use of particular technologies or methods, such as dynamic 
data, to better authenticate a cardholder at the point of sale.
    2. Review of authentication methods. The issuer's policies and 
procedures should include an assessment of the effectiveness of the 
different authentication methods that the issuer enables its cardholders 
to use, including a review of the rate of fraudulent transactions for 
each authentication method. If one method of authentication results in 
significantly lower fraud losses than other method(s) of authentication 
enabled on the issuer's debit cards, the issuer should consider 
practices to encourage its cardholders to use the more effective 
authentication method. It should also consider methods for reducing 
fraud related to the authentication method that experiences higher fraud 
rates. In addition, the issuer should monitor industry developments and 
consider adopting, where practical, new method(s) of authentication that 
are materially more effective than the methods currently available to 
its cardholders.
    Paragraph 4(b)(1)(ii). Monitor the incidence of, reimbursements 
received for, and losses incurred from fraudulent electronic debit 
transactions.
    1. In order to inform its policies and procedures, an issuer must be 
able to track its fraudulent electronic debit transactions over time. 
Accordingly, an issuer must have policies and procedures designed to 
monitor the types, number, and value of fraudulent electronic debit 
transactions. In addition, an issuer must track its and its cardholders' 
losses from fraudulent electronic debit transactions, its fraud-related 
chargebacks to acquirers, and any reimbursements from other parties. 
Other reimbursements could include payments made to issuers as a result 
of fines assessed to merchants for noncompliance with Payment Card 
Industry (PCI) Data Security Standards or other industry standards.
    Paragraph 4(b)(1)(iii). Respond to suspicious electronic debit 
transactions.
    1. An issuer may identify transactions that it suspects to be 
fraudulent after it has authorized or settled the transaction. For 
example, a cardholder may inform the issuer that the cardholder did not 
authorize a transaction or transactions, or the issuer may learn of a 
fraudulent transaction or possibly compromised debit cards from the 
network, the acquirer, or other parties. An issuer must have policies 
and procedures in place designed to implement an appropriate response 
once an issuer has identified suspicious transactions or transactions 
likely to be fraudulent. The appropriate response is likely to differ 
depending on the circumstances and the risk of future fraudulent 
electronic debit transactions. For example, in some circumstances, it 
may be sufficient for an issuer to monitor more closely the account with 
the suspicious transactions. In other circumstances, it may be necessary 
to reissue cards or close the account. An appropriate response may also 
require coordination with industry organizations, law enforcement 
agencies, and other parties, such as payment card networks, merchants, 
and issuer or merchant processors. An appropriate response would be 
reasonably designed to mitigate fraud losses due to suspicious 
transactions and transactions alleged to be fraudulent across all 
parties to such transactions.
    2. An issuer's policies and procedures do not provide an appropriate 
response if they merely shift the loss to another party, other than the 
party that committed the fraud.

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    Paragraph 4(b)(1)(iv). Secure debit card and cardholder data.
    1. An issuer must have policies and procedures designed to secure 
debit card and cardholder data that are transmitted by the issuer (or 
its service provider) during transaction processing, that are stored by 
the issuer (or its service provider), and that are carried on media 
(e.g., laptops, transportable data storage devices) by employees or 
agents of the issuer. This standard may be incorporated into an issuer's 
information security program, as required by Section 501(b) of the 
Gramm-Leach-Bliley Act.
    Paragraph 4(b)(2) Annual review
    1. Periodic updates of policies and procedures. In general, an 
issuer must review its policies and procedures at least annually. In 
certain circumstances, however, an issuer may need to review and update 
its policies and procedures more frequently than once a year. For 
example, during a particular year, there may be significant changes in 
fraud types, fraud patterns, or fraud-prevention methods or 
technologies. If a significant change occurs, an issuer must review and, 
if necessary, update its fraud-prevention policies and procedures to 
address the significant change, even if the issuer has reviewed its 
policies and procedures within the preceding year.

                           4(c) Certification.

    1. To be eligible to receive the fraud-prevention adjustment, each 
issuer must certify its compliance with the Board's fraud-prevention 
standards to the payment card networks in which it participates on an 
annual basis. Payment card networks that plan to allow issuers to 
receive or charge a fraud-prevention adjustment will develop their own 
processes for identifying issuers eligible for this adjustment. An 
issuer need not certify if it chooses not to receive any fraud-
prevention adjustment available through a network.

   Section 235.5 Exemptions for Certain Electronic Debit Transactions

    1. Eligibility for multiple exemptions. An electronic debit 
transaction may qualify for one or more exemptions. For example, a debit 
card that has been provided to a person pursuant to a Federal, State, or 
local government-administered payment program may be issued by an entity 
that, together with its affiliates, has assets of less than $10 billion 
as of the end of the preceding calendar year. In this case, an 
electronic debit transaction made using that card may qualify for the 
exemption under Sec. 235.5(a) for small issuers or for the exemption 
under Sec. 235.5(b) for government-administered payment programs. A 
payment card network establishing interchange fees for transactions that 
qualify for more than one exemption need only satisfy itself that the 
issuer's transactions qualify for at least one of the exemptions in 
order to exempt the electronic debit transaction from the interchange 
fee restrictions.
    2. Certification process. Payment card networks that plan to allow 
issuers to receive higher interchange fees than permitted under 
Sec. Sec. 235.3 and 235.4 pursuant to one of the exemptions in Sec. 
235.5 could develop their own processes for identifying issuers and 
products eligible for such exemptions. Section 235.5(a)(2) permits 
payment card networks to rely on lists published by the Board to help 
determine eligibility for the small issuer exemption set forth in Sec. 
235.5(a)(1).

                    5(a) Exemption for Small Issuers

    1. Asset size determination. An issuer would qualify for the small-
issuer exemption if its total worldwide banking and nonbanking assets, 
including assets of affiliates, other than trust assets under 
management, are less than $10 billion, as of December 31 of the 
preceding calendar year.
    2. Change in status. If an exempt issuer becomes covered based on 
its and its affiliates assets at the end of a calendar year, that issuer 
must begin complying with the interchange fee standards (Sec. 235.3), 
the fraud-prevention adjustment standards (to the extent the issuer 
wishes to receive a fraud-prevention adjustment) (Sec. 235.4), and the 
provisions prohibiting circumvention, evasion, and net compensation 
(Sec. 235.6) no later than July 1.

       5(b) Exemption for Government-Administered Payment Programs

    1. Government-administered payment program. A program is considered 
government-administered regardless of whether a Federal, State, or local 
government agency operates the program or outsources some or all 
functions to third parties so long as the program is operated on behalf 
of the government agency. In addition, a program may be government-
administered even if a Federal, State, or local government agency is not 
the source of funds for the program it administers. For example, child 
support programs are government-administered programs even though a 
Federal, State, or local government agency is not the source of funds. A 
tribal government is considered a local government for purposes of this 
exemption.

           5(c) Exemption for Certain Reloadable Prepaid Cards

    1. Subaccount clarified. A subaccount is an account within an 
account, opened in the name of an agent, nominee, or custodian for the 
benefit of two or more cardholders, where the transactions and balances 
of individual cardholders are tracked in such subaccounts. An account 
that is opened solely in the name of a single cardholder is not a 
subaccount.

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    2. Reloadable. A general-use prepaid card is ``reloadable'' if the 
terms and conditions of the agreement permit funds to be added to the 
general-use prepaid card at any time after the initial purchase or 
issuance. A general-use prepaid card is not ``reloadable'' merely 
because the issuer or processor is technically able to add functionality 
that would otherwise enable the general-use prepaid card to be reloaded.
    3. Marketed or labeled as a gift card or gift certificate. i. 
Electronic debit transactions made using a reloadable general-use 
prepaid card are not exempt from the interchange fee restrictions if the 
card is marketed or labeled as a gift card or gift certificate. The term 
``marketed or labeled as a gift card or gift certificate'' means 
directly or indirectly offering, advertising or otherwise suggesting the 
potential use of a general-use prepaid card as a gift for another 
person. Whether the exclusion applies generally does not depend on the 
type of entity that makes the promotional message. For example, a card 
may be marketed or labeled as a gift card or gift certificate if anyone 
(other than the purchaser of the card), including the issuer, the 
retailer, the program manager that may distribute the card, or the 
payment network on which a card is used, promotes the use of the card as 
a gift card or gift certificate. A general-use prepaid card is marketed 
or labeled as a gift card or gift certificate even if it is only 
occasionally marketed as a gift card or gift certificate. For example, a 
network-branded general purpose reloadable card would be marketed or 
labeled as a gift card or gift certificate if the issuer principally 
advertises the card as a less costly alternative to a bank account but 
promotes the card in a television, radio, newspaper, or Internet 
advertisement, or on signage as ``the perfect gift'' during the holiday 
season.
    ii. The mere mention of the availability of gift cards or gift 
certificates in an advertisement or on a sign that also indicates the 
availability of exempted general-use prepaid cards does not by itself 
cause the general-use prepaid card to be marketed as a gift card or a 
gift certificate. For example, the posting of a sign in a store that 
refers to the availability of gift cards does not by itself constitute 
the marketing of otherwise exempted general-use prepaid cards that may 
also be sold in the store along with gift cards or gift certificates, 
provided that a person acting reasonably under the circumstances would 
not be led to believe that the sign applies to all cards sold in the 
store. (See, however, comment 5(c)-4.ii.)
    4. Examples of marketed or labeled as a gift card or gift 
certificate.
    i. The following are examples of marketed or labeled as a gift card 
or gift certificate:
    A. Using the word ``gift'' or ``present'' on a card or accompanying 
material, including documentation, packaging and promotional displays;
    B. Representing or suggesting that a card can be given to another 
person, for example, as a ``token of appreciation'' or a ``stocking 
stuffer,'' or displaying a congratulatory message on the card or 
accompanying material;
    C. Incorporating gift-giving or celebratory imagery or motifs, such 
as a bow, ribbon, wrapped present, candle, or a holiday or 
congratulatory message, on a card, accompanying documentation, or 
promotional material;
    ii. The term does not include the following:
    A. Representing that a card can be used as a substitute for a 
checking, savings, or deposit account;
    B. Representing that a card can be used to pay for a consumer's 
health-related expenses--for example, a card tied to a health savings 
account;
    C. Representing that a card can be used as a substitute for 
travelers checks or cash;
    D. Representing that a card can be used as a budgetary tool, for 
example, by teenagers, or to cover emergency expenses.
    5. Reasonable policies and procedures to avoid marketing as a gift 
card. The exemption for a general-use prepaid card that is reloadable 
and not marketed or labeled as a gift card or gift certificate in Sec. 
235.5(c) applies if a reloadable general-use prepaid card is not 
marketed or labeled as a gift card or gift certificate and if persons 
involved in the distribution or sale of the card, including issuers, 
program managers, and retailers, maintain policies and procedures 
reasonably designed to avoid such marketing. Such policies and 
procedures may include contractual provisions prohibiting a reloadable 
general-use prepaid card from being marketed or labeled as a gift card 
or gift certificate, merchandising guidelines or plans regarding how the 
product must be displayed in a retail outlet, and controls to regularly 
monitor or otherwise verify that the general-use prepaid card is not 
being marketed as a gift card. Whether a general-use prepaid card has 
been marketed as a gift card or gift certificate will depend on the 
facts and circumstances, including whether a reasonable person would be 
led to believe that the general-use prepaid card is a gift card or gift 
certificate. The following examples illustrate the application of Sec. 
235.5(c):
    i. An issuer or program manager of prepaid cards agrees to sell 
general-purpose reloadable cards through a retailer. The contract 
between the issuer or program manager and the retailer establishes the 
terms and conditions under which the cards may be sold and marketed at 
the retailer. The terms and conditions prohibit the general-purpose 
reloadable cards from being marketed as a gift card or gift certificate, 
and require policies and procedures to regularly monitor or otherwise 
verify that the cards are not being

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marketed as such. The issuer or program manager sets up one promotional 
display at the retailer for gift cards and another physically separated 
display for exempted products under Sec. 235.5(c), including general-
purpose reloadable cards, such that a reasonable person would not 
believe that the exempted cards are gift cards. The exemption in Sec. 
235.5(c) applies because policies and procedures reasonably designed to 
avoid the marketing of the general-purpose reloadable cards as gift 
cards or gift certificates are maintained, even if a retail clerk 
inadvertently stocks or a consumer inadvertently places a general-
purpose reloadable card on the gift card display.
    ii. Same facts as in comment 5(c)-5.i, except that the issuer or 
program manager sets up a single promotional display at the retailer on 
which a variety of prepaid cards are sold, including store gift cards 
and general-purpose reloadable cards. A sign stating ``Gift Cards'' 
appears prominently at the top of the display. The exemption in Sec. 
235.5(c) does not apply with respect to the general-purpose reloadable 
cards because policies and procedures reasonably designed to avoid the 
marketing of exempted cards as gift cards or gift certificates are not 
maintained.
    iii. Same facts as in comment 5(c)-5.i, except that the issuer or 
program manager sets up a single promotional multi-sided display at the 
retailer on which a variety of prepaid card products, including store 
gift cards and general-purpose reloadable cards are sold. Gift cards are 
segregated from exempted cards, with gift cards on one side of the 
display and exempted cards on a different side of a display. Signs of 
equal prominence at the top of each side of the display clearly 
differentiate between gift cards and the other types of prepaid cards 
that are available for sale. The retailer does not use any more 
conspicuous signage suggesting the general availability of gift cards, 
such as a large sign stating ``Gift Cards'' at the top of the display or 
located near the display. The exemption in Sec. 235.5(c) applies 
because policies and procedures reasonably designed to avoid the 
marketing of the general-purpose reloadable cards as gift cards or gift 
certificates are maintained, even if a retail clerk inadvertently stocks 
or a consumer inadvertently places a general-purpose reloadable card on 
the gift card display.
    iv. Same facts as in comment 5(c)-5.i, except that the retailer 
sells a variety of prepaid card products, including store gift cards and 
general-purpose reloadable cards, arranged side-by-side in the same 
checkout lane. The retailer does not affirmatively indicate or represent 
that gift cards are available, such as by displaying any signage or 
other indicia at the checkout lane suggesting the general availability 
of gift cards. The exemption in Sec. 235.5(c) applies because policies 
and procedures reasonably designed to avoid marketing the general-
purpose reloadable cards as gift cards or gift certificates are 
maintained.
    6. On-line sales of prepaid cards. Some web sites may prominently 
advertise or promote the availability of gift cards or gift certificates 
in a manner that suggests to a consumer that the web site exclusively 
sells gift cards or gift certificates. For example, a web site may 
display a banner advertisement or a graphic on the home page that 
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language 
without mention of other available products, or use a web address that 
includes only a reference to gift cards or gift certificates in the 
address. In such a case, a consumer acting reasonably under the 
circumstances could be led to believe that all prepaid products sold on 
the web site are gift cards or gift certificates. Under these facts, the 
web site has marketed all such products as gift cards or gift 
certificates, and the exemption in Sec. 235.5(c) does not apply to any 
products sold on the web site.
    7. Temporary non-reloadable cards issued in connection with a 
general-use reloadable card. Certain general-purpose prepaid cards that 
are typically marketed as an account substitute initially may be sold or 
issued in the form of a temporary non-reloadable card. After the card is 
purchased, the cardholder is typically required to call the issuer to 
register the card and to provide identifying information in order to 
obtain a reloadable replacement card. In most cases, the temporary non-
reloadable card can be used for purchases until the replacement 
reloadable card arrives and is activated by the cardholder. Because the 
temporary non-reloadable card may only be obtained in connection with 
the reloadable card, the exemption in Sec. 235.5(c) applies so long as 
the card is not marketed as a gift card or gift certificate.

                             5(d) Exception

    1. Additional ATM access. Some debit cards may be used to withdraw 
cash from ATMs that are not part of the issuer's designated ATM network. 
An electronic debit card transaction may still qualify for the exemption 
under Sec. Sec. 235.5(b) or (c) with a respect to a card for which a 
fee may be imposed for a withdrawal from an ATM that is outside of the 
issuer's designated ATM network as long as the card complies with the 
condition set forth in Sec. 235.5(d)(2) for withdrawals within the 
issuer's designated ATM network. The condition with respect to ATM fees 
does not apply to cards that do not provide ATM access.

      Section 235.6 Prohibition on Circumvention, Evasion, and Net 
                              Compensation

    1. No applicability to exempt issuers or electronic debit 
transactions. The prohibition

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against circumventing or evading the interchange transaction fee 
restrictions or against net compensation does not apply to issuers or 
electronic debit transactions that qualify for an exemption under Sec. 
235.5 from the interchange transaction fee restrictions.

              6(a) Prohibition of Circumvention or Evasion

    1. Finding of circumvention or evasion. A finding of evasion or 
circumvention will depend on all relevant facts and circumstances. 
Although net compensation may be one form of circumvention or evasion 
prohibited under Sec. 235.6(a), it is not the only form.
    2. Examples of circumstances that may constitute circumvention or 
evasion.
    The following examples do not constitute per se circumvention or 
evasion, but may warrant additional supervisory scrutiny to determine 
whether the totality of the facts and circumstances constitute 
circumvention or evasion:
    i. A payment card network decreases network processing fees paid by 
issuers for electronic debit transactions by 50 percent and increases 
the network processing fees charged to merchants or acquirers with 
respect to electronic debit transactions by a similar amount. Because 
the requirements of this subpart do not restrict or otherwise establish 
the amount of fees that a network may charge for its services, the 
increase in network fees charged to merchants or acquirers and decrease 
in fees charged to issuers is not a per se circumvention or evasion of 
the interchange transaction fee standards, but may warrant additional 
supervisory scrutiny to determine whether the facts and circumstances 
constitute circumvention or evasion.
    ii. An issuer replaces its debit cards with prepaid cards that are 
exempt from the interchange limits of Sec. Sec. 235.3 and 235.4. The 
exempt prepaid cards are linked to its customers' transaction accounts 
and funds are swept from the transaction accounts to the prepaid 
accounts as needed to cover transactions made. Again, this arrangement 
is not per se circumvention or evasion, but may warrant additional 
supervisory scrutiny to determine whether the facts and circumstances 
constitute circumvention or evasion.

                  6(b) Prohibition of Net Compensation

    1. Net compensation. Net compensation to an issuer through the use 
of network fees is prohibited.
    2. Consideration of payments or incentives provided by the network 
in net compensation determination.
    i. For purposes of the net compensation determination, payments or 
incentives paid by a payment card network to an issuer with respect to 
electronic debit transactions or debit card related activities could 
include, but are not limited to, marketing incentives; payments or 
rebates for meeting or exceeding a specific transaction volume, 
percentage share, or dollar amount of transactions processed; or other 
payments for debit card related activities. For example, signing bonuses 
paid by a network to an issuer for the issuer's debit card portfolio 
would also be included in the total amount of payments or incentives 
received by an issuer from a payment card network with respect to 
electronic debit transactions. A signing bonus for an entire card 
portfolio, including credit cards, may be allocated to the issuer's 
debit card business based on the proportion of the cards or transactions 
that are debit cards or electronic debit transactions, as appropriate to 
the situation, for purposes of the net compensation determination.
    ii. Incentives paid by the network with respect to multiple-year 
contracts may be allocated over the life of the contract.
    iii. For purposes of the net compensation determination, payments or 
incentives paid by a payment card network with respect to electronic 
debit transactions or debit card-related activities do not include 
interchange transaction fees that are passed through to the issuer by 
the network, or discounts or rebates provided by the network or an 
affiliate of the network for issuer-processor services. In addition, 
funds received by an issuer from a payment card network as a result of 
chargebacks, fines paid by merchants or acquirers for violations of 
network rules, or settlements or recoveries from merchants or acquirers 
to offset the costs of fraudulent transactions or a data security breach 
do not constitute incentives or payments made by a payment card network.
    3. Consideration of fees paid by an issuer in net compensation 
determination.
    i. For purposes of the net compensation determination, fees paid by 
an issuer to a payment card network with respect to electronic debit 
transactions or debit card related activities include, but are not 
limited to, membership or licensing fees, network administration fees, 
and fees for optional network services, such as risk management 
services.
    ii. For purposes of the net compensation determination, fees paid by 
an issuer to a payment card network with respect to electronic debit 
transactions or debit card-related activities do not include network 
processing fees (such as switch fees and network connectivity fees) or 
fees paid to an issuer processor affiliated with the network for 
authorizing, clearing, or settling an electronic debit transaction.
    4. Example of circumstances not involving net compensation to the 
issuer. The following example illustrates circumstances that would not 
indicate net compensation by the payment card network to the issuer:

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    i. Because of an increase in debit card transactions that are 
processed through a payment card network during a calendar year, an 
issuer receives an additional volume-based incentive payment from the 
network for that period. Over the same period, however, the total 
network fees (other than processing fees) the issuer pays the payment 
card network with respect to debit card transactions also increase so 
that the total amount of fees paid by the issuer to the network continue 
to exceed incentive payments by the network to the issuer. Under these 
circumstances, the issuer does not receive net compensation from the 
network for electronic debit transactions or debit card related 
activities.

         Section 235.7 Limitations on Payment Card Restrictions

    1. Application of small issuer, government-administered payment 
program, and reloadable card exemptions to payment card network 
restrictions. The exemptions under Sec. 235.5 for small issuers, cards 
issued pursuant to government-administered payment programs, and certain 
reloadable prepaid cards do not apply to the limitations on payment card 
network restrictions. For example, debit cards for government-
administered payment programs, although exempt from the restrictions on 
interchange transaction fees, are subject to the requirement that 
electronic debit transactions made using such cards must be capable of 
being processed on at least two unaffiliated payment card networks and 
to the prohibition on inhibiting a merchant's ability to determine the 
routing for electronic debit transactions.

                 7(a) Prohibition on Network Exclusivity

    1. Scope of restriction. Section 235.7(a) requires a debit card 
subject to the regulation to be enabled on at least two unaffiliated 
payment card networks. This paragraph does not, however, require an 
issuer to have two or more unaffiliated networks available for each 
method of cardholder authentication. For example, it is sufficient for 
an issuer to issue a debit card that operates on one signature-based 
card network and on one PIN-based card network, as long as the two card 
networks are not affiliated. Alternatively, an issuer may issue a debit 
card that is accepted on two unaffiliated signature-based card networks 
or on two unaffiliated PIN-based card networks. See also, comment 7(a)-
7.
    2. Permitted networks. i. A smaller payment card network could be 
used to help satisfy the requirement that an issuer enable two 
unaffiliated networks if the network was willing to expand its coverage 
in response to increased merchant demand for access to its network and 
it meets the other requirements for a permitted arrangement, including 
taking steps reasonably designed to enable it to process the electronic 
debit transactions that it would reasonably expect to be routed to it. 
If, however, the network's policy or practice is to limit such 
expansion, it would not qualify as one of the two unaffiliated networks.
    ii. A payment card network that is accepted only at a limited 
category of merchants (such as a particular grocery store chain, 
merchants located in a particular shopping mall, or a single class of 
merchants, such as grocery stores or gas stations) would not satisfy the 
rule.
    iii. One of the steps a network can take to form a reasonable 
expectation of transaction volume is to consider factors such as the 
number of cards expected to be issued that are enabled on the network 
and expected card usage patterns.
    3. Examples of prohibited network restrictions on an issuer's 
ability to contract. The following are examples of prohibited network 
restrictions on an issuer's ability to contract with other payment card 
networks:
    i. Network rules or contract provisions limiting or otherwise 
restricting the other payment card networks that may be enabled on a 
particular debit card, or network rules or contract provisions that 
specify the other networks that may be enabled on a particular debit 
card.
    ii. Network rules or guidelines that allow only that network's (or 
its affiliated network's) brand, mark, or logo to be displayed on a 
particular debit card, or that otherwise limit the ability of brands, 
marks, or logos of other payment card networks to appear on the debit 
card.
    4. Network logos or symbols on card not required. Section 235.7(a) 
does not require that a debit card display the brand, mark, or logo of 
each payment card network over which an electronic debit transaction may 
be processed. For example, this rule does not require a debit card that 
is enabled for two or more unaffiliated payment card networks to bear 
the brand, mark, or logo for each card network.
    5. Voluntary exclusivity arrangements prohibited. Section 235.7(a) 
requires the issuance of debit cards that are enabled on at least two 
unaffiliated payment card networks, even if the issuer is not subject to 
any rule of, or contract or other agreement with, a payment card network 
requiring that all or a specified minimum percentage of electronic debit 
transactions be processed on the network or its affiliated networks.
    6. Affiliated payment card networks. Section 235.7(a) does not 
prohibit an issuer from including an affiliated payment card network 
among the networks that may process an electronic debit transaction with 
respect to a particular debit card, as long as at least two of the 
networks that are enabled on the card are unaffiliated. For example, an 
issuer

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may offer debit cards that are accepted on a payment card network for 
signature debit transactions and on an affiliated payment card network 
for PIN debit transactions as long as those debit cards may also be 
accepted on another unaffiliated payment card network.
    7. Application of rule regardless of form factor. The network 
exclusivity provisions in Sec. 235.7(a) require that all debit cards be 
enabled on at least two unaffiliated payment card networks for 
electronic debit transactions, regardless of whether the debit card is 
issued in card form. This applies to any supplemental device, such as a 
fob or token, or chip or application in a mobile phone, that is issued 
in connection with a plastic card, even if that plastic card fully 
complies with the rule.

                7(b) Prohibition on Routing Restrictions

    1. Relationship to the network exclusivity restrictions. An issuer 
or payment card network is prohibited from inhibiting a merchant's 
ability to route or direct an electronic debit transaction over any of 
the payment card networks that the issuer has enabled to process an 
electronic debit transaction for that particular debit card. This rule 
does not permit a merchant to route the transaction over a network that 
the issuer did not enable to process transactions using that debit card.
    2. Examples of prohibited merchant restrictions. The following are 
examples of issuer or network practices that would inhibit a merchant's 
ability to direct the routing of an electronic debit transaction that 
are prohibited under Sec. 235.7(b):
    i. Prohibiting a merchant from encouraging or discouraging a 
cardholder's use of a particular method of debit card authorization, 
such as rules prohibiting merchants from favoring a cardholder's use of 
PIN debit over signature debit, or from discouraging the cardholder's 
use of signature debit.
    ii. Establishing network rules or designating issuer priorities 
directing the processing of an electronic debit transaction on a 
specified payment card network or its affiliated networks, or directing 
the processing of the transaction away from a specified network or its 
affiliates, except as a default rule in the event the merchant, or its 
acquirer or processor, does not designate a routing preference, or if 
required by state law.
    iii. Requiring a specific payment card network based on the type of 
access device provided to the cardholder by the issuer.
    3. Merchant payments not prohibited. A payment card network does not 
restrict a merchant's ability to route transactions over available 
payment card networks in violation of Sec. 235.7(b) by offering 
payments or other incentives to encourage the merchant to route 
electronic debit card transactions to the network for processing.
    4. Real-time routing decision not required. A merchant need not make 
network routing decisions on a transaction-by-transaction basis. A 
merchant and its acquirer or processor may agree to a pre-determined set 
of routing choices that apply to all electronic debit transactions that 
are processed by the acquirer or processor on behalf of the merchant.
    5. No effect on network rules governing the routing of subsequent 
transactions. Section 235.7 does not supersede a network rule that 
requires a chargeback or return of an electronic debit transaction to be 
processed on the same network that processed the original transaction.

                           7(c) Effective Date

    1. Health care and employee benefit cards. Section 235.7(c)(1) 
delays the effective date of the network exclusivity provisions for 
certain debit cards issued in connection with a health care or employee 
benefit account to the extent such cards use (even if not required) 
transaction substantiation or qualification authorization systems at 
point of sale to verify that the card is only used for eligible goods 
and services for purposes of qualifying for favorable tax treatment 
under Internal Revenue Code requirements. Debit cards that may qualify 
for the delayed effective date include, but may not be limited to, cards 
issued in connection with flexible spending accounts established under 
section 125 of the Internal Revenue Code for health care related 
expenses and health reimbursement accounts established under section 105 
of the Internal Revenue Code.

        Section 235.8 Reporting Requirements and Record Retention

    [Reserved]

                Section 235.9 Administrative Enforcement

    [Reserved]

              Section 235.10 Effective and Compliance Dates

    [Reserved]

[76 FR 43466, July 20, 2011, as amended at 76 FR 43487, July 20, 2011]



PART 238_SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)--
Table of Contents



                      Subpart A_General Provisions

Sec.
238.1 Authority, purpose and scope.
238.2 Definitions.
238.3 Administration.
238.4 Records, reports, and inspections.

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238.5 Audit of savings association holding companies.
238.6 Penalties for violations.
238.7 Tying restriction exception.
238.8 Safe and sound operations.

   Subpart B_Acquisitions of Savings Association Securities or Assets

238.11 Transactions requiring Board approval.
238.12 Transactions not requiring Board approval.
238.13 Prohibited acquisitions.
238.14 Procedural requirements.
238.15 Factors considered in acting on applications.

                      Subpart C_Control Proceedings

238.21 Control proceedings.

                    Subpart D_Change in Bank Control

238.31 Transactions requiring prior notice.
238.32 Transactions not requiring prior notice.
238.33 Procedures for filing, processing, publishing, and acting on 
          notices.

                   Subpart E_Qualified Stock Issuances

238.41 Qualified stock issuances by undercapitalized savings 
          associations or holding companies.

 Subpart F_Savings and Loan Holding Company Activities and Acquisitions

238.51 Prohibited activities.
238.52 Exempt savings and loan holding companies and grandfathered 
          activities.
238.53 Prescribed services and activities of savings and loan holding 
          companies.
238.54 Permissible bank holding company activities of savings and loan 
          holding companies.

             Subpart G_Financial Holding Company Activities

238.61 Scope.
238.62 Definitions.
238.63 Requirements to engage in financial holding company activities.
238.64 Election required.
238.65 Election procedures.
238.66 Ongoing requirements.

   Subpart H_Notice of Change of Director or Senior Executive Officer

238.71 Purpose.
238.72 Definitions.
238.73 Prior notice requirements.
238.74 Filing and processing procedures.
238.75 Standards for review.
238.76 Waiting period.
238.77 Waiver of prior notice requirement.

   Subpart I_Prohibited Service at Savings and Loan Holding Companies

238.81 Purpose.
238.82 Definitions.
238.83 Prohibited actions.
238.84 Covered convictions or agreements to enter into pre-trial 
          diversions or similar programs.
238.85 Adjudications and offenses not covered.
238.86 Exemptions.
238.87 Filing procedures.
238.88 Factors for review.
238.89 Board action.
239.90 Hearings.

                Subpart J_Management Official Interlocks

238.91 Authority, purpose, and scope.
238.92 Definitions.
238.93 Prohibitions.
238.94 Interlocking relationships permitted by statute.
238.95 Small market share exemption.
238.96 General exemption.
238.97 Change in circumstances.
238.98 Enforcement.
238.99 Interlocking relationships permitted pursuant to Federal Deposit 
          Insurance Act.

         Subpart K_Dividends by Subsidiary Savings Associations

238.101 Authority and purpose.
238.102 Definitions.
238.103 Filing requirement.
238.104 Board action and criteria for review.

 Subpart L_Investigative Proceedings and Formal Examination Proceedings

238.111 Scope.
238.112 Definitions.
238.113 Confidentiality of proceedings.
238.114 Transcripts.
238.115 Rights of witnesses.
238.116 Obstruction of proceedings.
238.117 Subpoenas.

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 
1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 78 l.

    Source: Regulation LL, 76 FR 56532, Sept. 13, 2011, unless otherwise 
noted.



                      Subpart A_General Provisions



Sec. 238.1  Authority, purpose and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (Board) under section 10(g) of the Home Owners' 
Loan Act

[[Page 79]]

(HOLA); section 7(j)(13) of the Federal Deposit Insurance Act, as 
amended by the Change in Bank Control Act of 1978 (12 U.S.C. 
1817(j)(13)) (Bank Control Act ); sections 8(b), 19 and 32 of the 
Federal Deposit Insurance Act (12 U.S.C. 1818(b), 1829, and 1831i); and 
section 914 of the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (12 U.S.C. 1831i) and the Depository Institution 
Management Interlocks Act (12 U.S.C. 3201 et seq.).
    (b) Purpose. The principal purposes of this part are to:
    (1) Regulate the acquisition of control of savings associations by 
companies and individuals;
    (2) Define and regulate the activities in which savings and loan 
holding companies may engage;
    (3) Set forth the procedures for securing approval for these 
transactions and activities; and
    (4) Set forth the procedures under which directors and executive 
officers may be appointed or employed by savings and loan holding 
companies in certain circumstances.



Sec. 238.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Affiliate means any person or company which controls, is 
controlled by or is under common control with a person, savings 
association or company.
    (b) Bank means any national bank, state bank, state-chartered 
savings bank, cooperative bank, or industrial bank, the deposits of 
which are insured by the Deposit Insurance Fund.
    (c) Bank holding company has the meaning found in the Board's 
Regulation Y (12 CFR 225.2(c)).
    (d) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (o) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, or any Federal Home Loan Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State,
    (ii) An officer of the United States or any State in his or her 
official capacity, or
    (iii) An instrumentality of the United States or any State.
    (e) A person shall be deemed to have control of:
    (1) A savings association if the person directly or indirectly or 
acting in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares of such 
savings association, or controls in any manner the election of a 
majority of the directors of such association;
    (2) Any other company if the person directly or indirectly or acting 
in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares or 
rights of such other company, or controls in any manner the election or 
appointment of a majority of the directors or trustees of such other 
company, or is a general partner in or has contributed more than 25 
percent of the capital of such other company;
    (3) A trust if the person is a trustee thereof; or
    (4) A savings association or any other company if the Board 
determines, after reasonable notice and opportunity for hearing, that 
such person directly or indirectly exercises a controlling influence 
over the management or policies of such association or other company.
    (f) Director means any director of a corporation or any individual 
who performs similar functions in respect of any company, including a 
trustee under a trust.
    (g) Management official means any president, chief executive 
officer, chief operating officer, vice president, director, partner, or 
trustee, or any other person who performs or has a representative or 
nominee performing similar policymaking functions, including executive 
officers of principal business units or divisions or subsidiaries who 
perform policymaking functions, for a savings association or a company, 
whether or not incorporated.

[[Page 80]]

    (h) Multiple savings and loan holding company means any savings and 
loan holding company which directly or indirectly controls two or more 
savings associations.
    (i) Officer means the chairman of the board, president, vice 
president, treasurer, secretary, or comptroller of any company, or any 
other person who participates in its major policy decisions.
    (j) Person includes an individual, bank, corporation, partnership, 
trust, association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, or any other form of entity.
    (k) Qualified thrift lender means a financial institution that meets 
the appropriate qualified thrift lender test set forth in 12 U.S.C. 
1467a(m).
    (l) Savings Association means a Federal savings and loan association 
or a Federal savings bank chartered under section 5 of the Home Owners' 
Loan Act, a building and loan, savings and loan or homestead association 
or a cooperative bank (other than a cooperative bank described in 12 
U.S.C. 1813(a)(2)) the deposits of which are insured by the Federal 
Deposit Insurance Corporation, and any corporation (other than a bank) 
the deposits of which are insured by the Federal Deposit Insurance 
Corporation that the Office of the Comptroller of the Currency and the 
Federal Deposit Insurance Corporation jointly determine to be operating 
in substantially the same manner as a savings association, and shall 
include any savings bank or any cooperative bank which is deemed by the 
Office of the Comptroller of the Currency to be a savings association 
under 12 U.S.C. 1467a(1).
    (m) Savings and loan holding company means any company (including a 
savings association) that directly or indirectly controls a savings 
association, but does not include:
    (1) Any company by virtue of its ownership or control of voting 
stock of a savings association acquired in connection with the 
underwriting of securities if such stock is held only for such period of 
time (not exceeding 120 days unless extended by the Board) as will 
permit the sale thereof on a reasonable basis;
    (2) Any trust (other than a pension, profit-sharing, stockholders', 
voting, or business trust) which controls a savings association if such 
trust by its terms must terminate within 25 years or not later than 21 
years and 10 months after the death of individuals living on the 
effective date of the trust, and:
    (i) Was in existence and in control of a savings association on June 
26, 1967, or
    (ii) Is a testamentary trust;
    (3) A bank holding company that is registered under, and subject to, 
the Bank Holding Company Act of 1956, or any company directly or 
indirectly controlled by such company (other than a savings 
association);
    (4) A company that controls a savings association that functions 
solely in a trust or fiduciary capacity as provided in section 
2(c)(2)(D) of the Bank Holding Company Act; or
    (5) A company described in section 10(c)(9)(C) of HOLA solely by 
virtue of such company's control of an intermediate holding company 
established under section 10A of the Home Owners' Loan Act.
    (n) Shareholder--(1) Controlling shareholder means a person that 
owns or control, directly or indirectly, more than 25 percent of any 
class of voting securities of a savings association or other company.
    (2) Principal shareholder means a person that owns or controls, 
directly or indirectly, 10 percent or more of any class of voting 
securities of a savings association or other company, or any person that 
the Board determines has the power, directly or indirectly, to exercise 
a controlling influence over the management or policies of a savings 
association or other company.
    (o) Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    (p) Subsidiary means any company which is owned or controlled 
directly or indirectly by a person, and includes any service corporation 
owned in whole or in part by a savings association, or a subsidiary of 
such service corporation.
    (q) Uninsured institution means any financial institution the 
deposits of

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which are not insured by the Federal Deposit Insurance Corporation.
    (r)(1) Voting securities means shares of common or preferred stock, 
general or limited partnership shares or interests, or similar interests 
if the shares or interest, by statute, charter, or in any manner, 
entitle the holder:
    (i) To vote for or to select directors, trustees, or partners (or 
persons exercising similar functions of the issuing company); or
    (ii) To vote on or to direct the conduct of the operations or other 
significant policies of the issuing company.
    (2) Nonvoting shares. Preferred shares, limited partnership shares 
or interests, or similar interests are not voting securities if:
    (i) Any voting rights associated with the shares or interest are 
limited solely to the type customarily provided by statute with regard 
to matters that would significantly and adversely affect the rights or 
preference of the security or other interest, such as the issuance of 
additional amounts or classes of senior securities, the modification of 
the terms of the security or interest, the dissolution of the issuing 
company, or the payment of dividends by the issuing company when 
preferred dividends are in arrears;
    (ii) The shares or interest represent an essentially passive 
investment or financing device and do not otherwise provide the holder 
with control over the issuing company; and
    (iii) The shares or interest do not entitle the holder, by statute, 
charter, or in any manner, to select or to vote for the selection of 
directors, trustees, or partners (or persons exercising similar 
functions) of the issuing company.
    (3) Class of voting shares. Shares of stock issued by a single 
issuer are deemed to be the same class of voting shares, regardless of 
differences in dividend rights or liquidation preference, if the shares 
are voted together as a single class on all matters for which the shares 
have voting rights other than matters described in paragraph (r)(2)(i) 
of this section that affect solely the rights or preferences of the 
shares.
    (s) Well capitalized. (1) A savings and loan holding company is well 
capitalized if:
    (i) Each of the savings and loan holding company's depository 
institutions is well capitalized; and
    (ii) The savings and loan holding company is not subject to any 
written agreement, order, capital directive, or prompt corrective action 
directive issued by the Board to meet and maintain a specific capital 
level for any capital measure.
    (2) In the case of a savings association, ``well capitalized'' takes 
the meaning provided in Sec. 225.2(r)(2) of this chapter.
    (t) Well managed. The term ``well managed'' takes the meaning 
provided in Sec. 225.2(s) of this chapter except that a ``satisfactory 
rating for management'' refers to a management rating, if such rating is 
given, or otherwise a risk-management rating, if such rating is given.
    (u) Depository institution. For purposes of this part, the term 
``depository institution'' has the same meaning as in section 3(c) of 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).



Sec. 238.3  Administration.

    (a) Delegation of authority. Designated Board members and officers 
and the Federal Reserve Banks are authorized by the Board to exercise 
various functions prescribed in this regulation, in the Board's Rules 
Regarding Delegation of Authority (12 CFR part 265), the Board's Rules 
of Procedure (12 CFR part 262), and in Board orders.
    (b) Appropriate Federal Reserve Bank. In administering this 
regulation, unless a different Federal Reserve Bank is designated by the 
Board, the appropriate Federal Reserve Bank is as follows:
    (1) For a savings and loan holding company (or a company applying to 
become a savings and loan holding company): the Reserve Bank of the 
Federal Reserve district in which the company's banking operations are 
principally conducted, as measured by total domestic deposits in its 
subsidiary savings association on the date it became (or will become) a 
savings and loan holding company;
    (2) For an individual or company submitting a notice under subpart D 
of this part: The Reserve Bank of the Federal Reserve district in which 
the

[[Page 82]]

banking operations of the savings and loan holding company to be 
acquired are principally conducted, as measured by total domestic 
deposits on the date the notice is filed.



Sec. 238.4  Records, reports, and inspections.

    (a) Records. Each savings and loan holding company shall maintain 
such books and records as may be prescribed by the Board. Each savings 
and loan holding company and its non-depository affiliates shall 
maintain accurate and complete records of all business transactions. 
Such records shall support and be readily reconcilable to any regulatory 
reports submitted to the Board and financial reports prepared in 
accordance with GAAP. The records shall be maintained in the United 
States and be readily accessible for examination and other supervisory 
purposes within 5 business days upon request by the Board, at a location 
acceptable to the Board.
    (b) Reports. Each savings and loan holding company and each 
subsidiary thereof, other than a savings association, shall file with 
the Board such reports as may be required by the Board. Such reports 
shall be made under oath or otherwise, and shall be in such form and for 
such periods, as the Board may prescribe. Each report shall contain 
information concerning the operations of such savings and loan holding 
company and its subsidiaries as the Board may require.
    (c) Registration statement--(1) Filing of registration statement. 
Not later than 90 days after becoming a savings and loan holding 
company, each savings and loan holding company shall register with the 
Board by furnishing information in the manner and form prescribed by the 
Board.
    (2) Date of registration. The date of registration of a savings and 
loan holding company shall be the date on which its registration 
statement is received by the Board.
    (3) Extension of time for registration. For timely and good cause 
shown, the Board may extend the time within which a savings and loan 
holding company shall register.
    (d) Release from registration. The Board may at any time, upon its 
own motion or upon application, release a registered savings and loan 
holding company from any registration theretofore made by such company, 
if the Board shall determine that such company no longer has control of 
any savings association or no longer qualifies as a savings and loan 
holding company.
    (e) Examinations. Each savings and loan holding company and each 
subsidiary thereof shall be subject to such examinations as the Board 
may prescribe. The Board shall, to the extent deemed feasible, use for 
the purposes of this section reports filed with or examinations made by 
other Federal agencies or the appropriate State supervisory authority.
    (f) Appointment of agent. The Board may require any savings and loan 
holding company, or persons connected therewith if it is not a 
corporation, to execute and file a prescribed form of irrevocable 
appointment of agent for service of process.



Sec. 238.5  Audit of savings association holding companies.

    (a) General. The Board may require, at any time, an independent 
audit of the financial statements of, or the application of procedures 
agreed upon by the Board to a savings and loan holding company, or 
nondepository affiliate by qualified independent public accountants when 
needed for any safety and soundness reason identified by the Board.
    (b) Audits required for safety and soundness purposes. The Board 
requires an independent audit for safety and soundness purposes if, as 
of the beginning of its fiscal year, a savings and loan holding company 
controls savings association subsidiary(ies) with aggregate consolidated 
assets of $500 million or more.
    (c) Procedures. (1) When the Board requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
Board shall determine whether the audit was conducted and filed in a 
manner satisfactory to the Board.
    (2) When the Board requires the application of procedures agreed 
upon by the Board for safety and soundness purposes, the Board shall 
identify the procedures to be performed. The Board

[[Page 83]]

shall also determine whether the agreed upon procedures were conducted 
and filed in a manner satisfactory to the Board.
    (d) Qualifications for independent public accountants. The audit 
shall be conducted by an independent public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the savings association's or 
holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the Board with access 
to and copies of any work papers, policies, and procedures relating to 
the services performed;
    (3)(i) Is in compliance with the American Institute of Certified 
Public Accountants' (AICPA) Code of Professional Conduct; and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff; and
    (4) Has received, or is enrolled in, a peer review program that 
meets guidelines acceptable to the Board.
    (e) Voluntary audits. When a savings and loan holding company or 
nondepository affiliate obtains an independent audit voluntarily, it 
must be performed by an independent public accountant who satisfies the 
requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this 
section.



Sec. 238.6  Penalties for violations.

    (a) Criminal and civil penalties. (1) Section 10 of the HOLA 
provides criminal penalties for willful violation, and civil penalties 
for violation, by any company or individual, of HOLA or any regulation 
or order issued under it, or for making a false entry in any book, 
report, or statement of a savings and loan holding company.
    (2) Civil money penalty assessments for violations of HOLA shall be 
made in accordance with subpart C of the Board's Rules of Practice for 
Hearings (12 CFR part 263, subpart C). For any willful violation of the 
Bank Control Act or any regulation or order issued under it, the Board 
may assess a civil penalty as provided in 12 U.S.C. 1817(j)(15).
    (b) Cease-and-desist proceedings. For any violation of HOLA, the 
Bank Control Act, this regulation, or any order or notice issued 
thereunder, the Board may institute a cease-and-desist proceeding in 
accordance with the Financial Institutions Supervisory Act of 1966, as 
amended (12 U.S.C. 1818(b) et seq.).



Sec. 238.7  Tying restriction exception.

    (a) Safe harbor for combined-balance discounts. A savings and loan 
holding company or any savings association or any affiliate of either 
may vary the consideration for any product or package of products based 
on a customer's maintaining a combined minimum balance in certain 
products specified by the company varying the consideration (eligible 
products), if:
    (1) That company (if it is a savings association) or a savings 
association affiliate of that company (if it is not a savings 
association) offers deposits, and all such deposits are eligible 
products; and
    (2) Balances in deposits count at least as much as non-deposit 
products toward the minimum balance.
    (b) Limitations on exception. This exception shall terminate upon a 
finding by the Board that the arrangement is resulting in anti-
competitive practices. The eligibility of a savings and loan holding 
company or savings association or affiliate of either to operate under 
this exception shall terminate upon a finding by the Board that its 
exercise of this authority is resulting in anti-competitive practices.



Sec. 238.8  Safe and sound operations.

    (a) Savings and loan holding company policy and operations. (1) A 
savings and loan holding company shall serve as a source of financial 
and managerial strength to its subsidiary savings associations and shall 
not conduct its operations in an unsafe or unsound manner.
    (2) Whenever the Board believes an activity of a savings and loan 
holding company or control of a nonbank subsidiary (other than a nonbank 
subsidiary of a savings association) constitutes a serious risk to the 
financial

[[Page 84]]

safety, soundness, or stability of a subsidiary savings association of 
the savings and loan holding company and is inconsistent with sound 
banking principles or the purposes of HOLA or the Financial Institutions 
Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq.), the 
Board may require the savings and loan holding company to terminate the 
activity or to terminate control of the subsidiary, as provided in 
section 10(g)(5) of the HOLA.
    (b) [Reserved]



    Subpart B_Acquisitions of Saving Association Securities or Assets



Sec. 238.11  Transactions requiring Board approval.

    The following transactions require the Board's prior approval under 
section 10 of HOLA except as exempted under Sec. 238.12:
    (a) Formation of savings and loan holding company. Any action that 
causes a savings association or other company to become a savings and 
loan holding company.
    (b) Acquisition of subsidiary savings association. Any action that 
causes a savings association to become a subsidiary of a savings and 
loan holding company.
    (c) Acquisition of control of savings association or savings and 
loan holding company securities. (1) The acquisition by a savings and 
loan holding company of direct or indirect ownership or control of any 
voting securities of a savings association or savings and loan holding 
company, that is not a subsidiary, if the acquisition results in the 
company's control of more than 5 percent of the outstanding shares of 
any class of voting securities of the savings association or savings and 
loan holding company.
    (2) An acquisition includes the purchase of additional securities 
through the exercise of preemptive rights, but does not include 
securities received in a stock dividend or stock split that does not 
alter the savings and loan holding company's proportional share of any 
class of voting securities.
    (3) In the case of a multiple savings and loan holding company, 
acquisition of direct or indirect ownership or control of any voting 
securities of a savings association or savings and loan holding company, 
that is not a subsidiary, if the acquisition results in the company's 
control of more than 5 percent of the outstanding shares of any class of 
voting securities of the savings association or savings and loan holding 
company that is engaged in any business activity other than those 
specified in Sec. 238.51 of this part.
    (d) Acquisition of savings association or savings and loan holding 
company assets. The acquisition by a savings and loan holding company or 
by a subsidiary thereof (other than a savings association) of all or 
substantially all of the assets of a savings association, or savings and 
loan holding company.
    (e) Merger of savings and loan holding companies. The merger or 
consolidation of savings and loan holding companies, and the acquisition 
of a savings association through a merger or consolidation.
    (f) Acquisition of control by certain individuals. The acquisition, 
by a director or officer of a savings and loan holding company, or by 
any individual who owns, controls, or holds the power to vote (or holds 
proxies representing) more than 25 percent of the voting shares of such 
savings and loan holding company, of control of any savings association 
that is not a subsidiary of such savings and loan holding company.



Sec. 238.12  Transactions not requiring Board approval.

    (a) The requirements of Sec. 238.11(a), (b), (d), (e) and (f) do 
not apply to:
    (1) Control of a savings association acquired by devise under the 
terms of a will creating a trust which is excluded from the definition 
of savings and loan holding company;
    (2) Control of a savings association acquired in connection with a 
reorganization that involves solely the acquisition of control of that 
association by a newly formed company that is controlled by the same 
acquirors that controlled the savings association for the immediately 
preceding three years, and entails no other transactions, such as an 
assumption of the acquirors' debt by the newly formed company: Provided, 
that the acquirors have filed the designated form with the appropriate

[[Page 85]]

Reserve Bank and have provided all additional information requested by 
the Board or Reserve Bank, and the Board nor the appropriate Reserve 
Bank object to the acquisition within 30 days of the filing date;
    (3) Control of a savings association acquired by a bank holding 
company that is registered under and subject to, the Bank Holding 
Company Act of 1956, or any company controlled by such bank holding 
company;
    (4) Control of a savings association acquired solely as a result of 
a pledge or hypothecation of stock to secure a loan contracted for in 
good faith or the liquidation of a loan contracted for in good faith, in 
either case where such loan was made in the ordinary course of the 
business of the lender: Provided, further, That acquisition of control 
pursuant to such pledge, hypothecation or liquidation is reported to the 
Board within 30 days, and Provided, further, That the acquiror shall not 
retain such control for more than one year from the date on which such 
control was acquired; however, the Board may, upon application by an 
acquiror, extend such one-year period from year to year, for an 
additional period of time not exceeding three years, if the Board finds 
such extension is warranted and would not be detrimental to the public 
interest;
    (5) Control of a savings association acquired through a percentage 
increase in stock ownership following a pro rata stock dividend or stock 
split, if the proportional interests of the recipients remain 
substantially the same;
    (6) Acquisitions of up to twenty-five percent (25%) of a class of 
stock by a tax-qualified employee stock benefit plan; and
    (7) Acquisitions of up to 15 percent of the voting stock of any 
savings association by a savings and loan holding company (other than a 
bank holding company) in connection with a qualified stock issuance if 
such acquisition is approved by the Board pursuant to subpart E.
    (b) The requirements of Sec. 238.11(c) do not apply to voting 
shares of a savings association or of a savings and loan holding 
company--
    (1) Held as a bona fide fiduciary (whether with or without the sole 
discretion to vote such shares);
    (2) Held temporarily pursuant to an underwriting commitment in the 
normal course of an underwriting business;
    (3) Held in an account solely for trading purposes or over which no 
control is held other than control of voting rights acquired in the 
normal course of a proxy solicitation;
    (4) Acquired in securing or collecting a debt previously contracted 
in good faith, for two years after the date of acquisition or for such 
additional time (not exceeding three years) as the Board may permit if, 
in the Board's judgment, such an extension would not be detrimental to 
the public interest;
    (5) Acquired under section 13(k)(1)(A)(i) of the Federal Deposit 
Insurance Act (or section 408(m) of the National Housing Act as in 
effect immediately prior to the enactment of the Financial Institutions 
Reform, Recovery and Enforcement Act of 1989);
    (6) Held by any insurance companies as defined in section 2(a)(17) 
of the Investment Company Act of 1940: Provided, That all shares held by 
all insurance company affiliates of such savings association or savings 
and loan holding company may not, in the aggregate, exceed five percent 
of all outstanding shares or of the voting power of the savings 
association or savings and loan holding company, and such shares are not 
acquired or retained with a view to acquiring, exercising, or 
transferring control of the savings association or savings and loan 
holding company; and
    (7) Acquired pursuant to a qualified stock issuance if such a 
purchase is approved pursuant to subpart E of this part.
    (c) The aggregate amount of shares held under paragraph (b) of this 
section (other than pursuant to paragraphs (b)(1) through (4) and 
(b)(6)) may not exceed 15 percent of all outstanding shares or the 
voting power of a savings association or savings and loan holding 
company.
    (d) Acquisitions involving savings association mergers and internal 
corporate reorganizations--The requirements of Sec. 238.11 do not apply 
to:

[[Page 86]]

    (1) Certain transactions subject to the Bank Merger Act. The 
acquisition by a savings and loan holding company of shares of a savings 
association or company controlling a savings association or the merger 
of a company controlling a savings association with the savings and loan 
holding company, if the transaction is part of the merger or 
consolidation of the savings association with a subsidiary savings 
association (other than a nonoperating subsidiary savings association) 
of the acquiring savings and loan holding company, or is part of the 
purchase of substantially all of the assets of the savings association 
by a subsidiary savings association (other than a nonoperating 
subsidiary savings association) of the acquiring savings and loan 
holding company, and if:
    (i) The savings association merger, consolidation, or asset purchase 
occurs simultaneously with the acquisition of the shares of the savings 
association or savings and loan holding company or the merger of holding 
companies, and the savings association is not operated by the acquiring 
savings and loan holding company as a separate entity other than as the 
survivor of the merger, consolidation, or asset purchase;
    (ii) The transaction requires the prior approval of a federal 
supervisory agency under the Bank Merger Act (12 U.S.C. 1828(c));
    (iii) The transaction does not involve the acquisition of any 
company that would require prior notice or approval under section 10(c) 
of the HOLA;
    (iv) The transaction does not involve a depository institution 
organized in mutual form, a savings and loan holding company organized 
in mutual form, a subsidiary holding company of a savings and loan 
holding company organized in mutual form, or a bank holding company 
organized in mutual form;
    (v) The transaction will not have a material adverse impact on the 
financial condition of the acquiring savings and loan holding company;
    (vi) At least 10 days prior to the transaction, the acquiring 
savings and loan holding company has provided to the Reserve Bank 
written notice of the transaction that contains:
    (A) A copy of the filing made to the appropriate federal banking 
agency under the Bank Merger Act; and
    (B) A description of the holding company's involvement in the 
transaction, the purchase price, and the source of funding for the 
purchase price; and
    (vii) Prior to expiration of the period provided in paragraph 
(d)(1)(vi) of this section, neither the Board nor the Reserve Bank has 
informed the savings and loan holding company that an application under 
Sec. 238.11 is required.
    (2) Internal corporate reorganizations. (i) Subject to paragraph 
(d)(2)(ii) of this section, any of the following transactions performed 
in the United States by a savings and loan holding company:
    (A) The merger of holding companies that are subsidiaries of the 
savings and loan holding company;
    (B) The formation of a subsidiary holding company; \1\
---------------------------------------------------------------------------

    \1\ In the case of a transaction that results in the formation or 
designation of a new savings and loan holding company, the new savings 
and loan holding company must complete the registration requirements 
described in section 238.11.
---------------------------------------------------------------------------

    (C) The transfer of control or ownership of a subsidiary savings 
association or a subsidiary holding company between one subsidiary 
holding company and another subsidiary holding company or the savings 
and loan holding company.
    (ii) A transaction described in paragraph (d)(2)(i) of this section 
qualifies for this exception if--
    (A) The transaction represents solely a corporate reorganization 
involving companies and insured depository institutions that, both 
preceding and following the transaction, are lawfully controlled and 
operated by the savings and loan holding company;
    (B) The transaction does not involve the acquisition of additional 
voting shares of an insured depository institution that, prior to the 
transaction, was less than majority owned by the savings and loan 
holding company;
    (C) The transaction does not involve a savings and loan holding 
company organized in mutual form, a subsidiary holding company of a 
savings and loan holding company organized in mutual form, or a bank 
holding company organized in mutual form; and

[[Page 87]]

    (D) The transaction will not have a material adverse impact on the 
financial condition of the holding company.



Sec. 238.13  Prohibited acquisitions.

    (a) No savings and loan holding company may, directly or indirectly, 
or through one or more subsidiaries or through one or more transactions, 
acquire control of an uninsured institution or retain, for more than one 
year after the date any savings association subsidiary becomes 
uninsured, control of such association.
    (b) Control of mutual savings association. No savings and loan 
holding company or any subsidiary thereof, or any director, officer, or 
employee of a savings and loan holding company or subsidiary thereof, or 
person owning, controlling, or holding with power to vote, or holding 
proxies representing, more than 25 percent of the voting shares of such 
holding company or subsidiary, may hold, solicit, or exercise any 
proxies in respect of any voting rights in a mutual savings association.



Sec. 238.14  Procedural requirements.

    (a) Filing application. An application for the Board's prior 
approval under Sec. 238.11 shall be governed by the provisions of this 
section and shall be filed with the appropriate Reserve Bank on the 
designated form.
    (b) Request for confidential treatment. An applicant may request 
confidential treatment for portions of its application pursuant to 12 
CFR 261.15.
    (c) Public notice--(1) Newspaper publication--(i) Location of 
publication. In the case of each application, the applicant shall 
publish a notice in a newspaper of general circulation, in the form and 
at the locations specified in Sec. 262.3 of the Rules of Procedure (12 
CFR 262.3) in this chapter;
    (ii) Contents of notice. A newspaper notice under this paragraph 
shall provide an opportunity for interested persons to comment on the 
proposal for a period of at least 30 calendar days;
    (iii) Timing of publication. Each newspaper notice published in 
connection with a proposal under this paragraph shall be published no 
more than 15 calendar days before and no later than 7 calendar days 
following the date that an application is filed with the appropriate 
Reserve Bank.
    (2) Federal Register notice--(i) Publication by Board. Upon receipt 
of an application, the Board shall promptly publish notice of the 
proposal in the Federal Register and shall provide an opportunity for 
interested persons to comment on the proposal for a period of no more 
than 30 days;
    (ii) Request for advance publication. An applicant may request that, 
during the 15-day period prior to filing an application, the Board 
publish notice of a proposal in the Federal Register. A request for 
advance Federal Register Notice publication shall be made in writing to 
the appropriate Reserve Bank and shall contain the identifying 
information prescribed by the Board for Federal Register Notice 
publication.
    (3) Waiver or shortening of notice. The Board may waive or shorten 
the required notice periods under this section if the Board determines 
that an emergency exists requiring expeditious action on the proposal, 
or if the Board finds that immediate action is necessary to prevent the 
probable failure of an insured depository institution.
    (d) Public comment--(1) Timely comments. Interested persons may 
submit information and comments regarding a proposal filed under this 
subpart. A comment shall be considered timely for purposes of this 
subpart if the comment, together with all supplemental information, is 
submitted in writing in accordance with the Board's Rules of Procedure 
and received by the Board or the appropriate Reserve Bank prior to the 
expiration of the latest public comment period provided in paragraph (c) 
of this section.
    (2) Extension of comment period--(i) In general. The Board may, in 
its discretion, extend the public comment period regarding any proposal 
submitted under this subpart.
    (ii) Requests in connection with obtaining application or notice. In 
the event that an interested person has requested a copy of a notice or 
application submitted under this subpart, the Board may, in its 
discretion and based on the facts and circumstances, grant such person 
an extension of the comment period for up to 15 calendar days.

[[Page 88]]

    (iii) Joint requests by interested person and applicant. The Board 
will grant a joint request by an interested person and the applicant for 
an extension of the comment period for a reasonable period for a purpose 
related to the statutory factors the Board must consider under this 
subpart.
    (3) Substantive comment. A comment will be considered substantive 
for purposes of this subpart unless it involves individual complaints, 
or raises frivolous, previously-considered or wholly unsubstantiated 
claims or irrelevant issues.
    (e) Hearings. The Board may order a formal or informal hearing or 
other proceeding on the application, as provided in Sec. 262.3(i)(2) of 
this chapter. Any request for a hearing (other than from the primary 
supervisor) shall comply with Sec. 262.3(e) in this chapter.
    (f) Accepting application for processing. Within 7 calendar days 
after the Reserve Bank receives an application under this section, the 
Reserve Bank shall accept it for processing as of the date the 
application was filed or return the application if it is substantially 
incomplete. Upon accepting an application, the Reserve Bank shall 
immediately send copies to the Board and to the primary banking 
supervisor of the savings association to be acquired and to the Attorney 
General, and shall request from the Attorney General a report on the 
competitive factors involved. The Reserve Bank or the Board may request 
additional information necessary to complete the record of an 
application at any time after accepting the application for processing.
    (g) Action on applications--(1) Action under delegated authority. 
Except as provided in paragraph (g)(4) of this section, unless the 
Reserve Bank, upon notice to the applicant, refers the application to 
the Board for decision because action under delegated authority is not 
appropriate, the Reserve Bank shall approve an application under this 
section:
    (i) Not earlier than the third business day following the close of 
the public comment period; and
    (ii) Not later than the later of the fifth business day following 
the close of the public comment period or the 30th calendar day after 
the acceptance date for the application.
    (2) Board action. The Board shall act on an application under this 
section that is referred to it for decision within 60 calendar days 
after the acceptance date for the application, unless the Board notifies 
the applicant that the 60-day period is being extended for a specified 
period and states the reasons for the extension. The Board may, at any 
time, request additional information that it believes is necessary for 
its decision.
    (3) Approval through failure to act--(i) Ninety-one day rule. An 
application shall be deemed approved if the Board fails to act on the 
application within 91 calendar days after the date of submission to the 
Board of the complete record on the application. For this purpose, the 
Board acts when it issues an order stating that the Board has approved 
or denied the application or notice, reflecting the votes of the members 
of the Board, and indicating that a statement of the reasons for the 
decision will follow promptly.
    (ii) Complete record. For the purpose of computing the commencement 
of the 91-day period, the record is complete on the latest of:
    (A) The date of receipt by the Board of an application that has been 
accepted by the Reserve Bank;
    (B) The last day provided in any notice for receipt of comments and 
hearing requests on the application or notice;
    (C) The date of receipt by the Board of the last relevant material 
regarding the application that is needed for the Board's decision, if 
the material is received from a source outside of the Federal Reserve 
System; or
    (D) The date of completion of any hearing or other proceeding.
    (4) Expedited reorganization--(i) In general. The Board or the 
appropriate Reserve Bank shall act on an application of a reorganization 
that meets the requirements of Sec. 238.15(f):
    (A) Not earlier than the third business day following the close of 
the public comment period; and
    (B) Not later than the fifth business day following the close of the 
public comment period, except that the Board may extend the period for 
action under

[[Page 89]]

this paragraph (g)(4) for up to 5 business days.
    (ii) Acceptance of notice in event expedited procedure not 
available. In the event that the Board or the Reserve Bank determines 
that an application filed pursuant to 238.15(f) does not meet one or 
more of the requirements of Sec. 238.15(f), paragraph (g)(4) of this 
section shall not apply and the Board or Reserve Bank will act on the 
application according to the other provisions of paragraph (g) of this 
section.



Sec. 238.15  Factors considered in acting on applications.

    (a) Generally. The Board may not approve any application under this 
subpart if:
    (1) The transaction would result in a monopoly or would further any 
combination or conspiracy to monopolize, or to attempt to monopolize, 
the savings and loan business in any part of the United States;
    (2) The effect of the transaction may be substantially to lessen 
competition in any section of the country, tend to create a monopoly, or 
in any other manner be in restraint of trade, unless the Board finds 
that the transaction's anti-competitive effects are clearly outweighed 
by its probable effect in meeting the convenience and needs of the 
community;
    (3) The applicant has failed to provide the Board with adequate 
assurances that it will make available such information on its 
operations or activities, and the operations or activities of any 
affiliate of the applicant, that the Board deems appropriate to 
determine and enforce compliance with HOLA and other applicable federal 
banking statutes, and any regulations thereunder; or
    (4) In the case of an application involving a foreign banking 
organization, the foreign banking organization is not subject to 
comprehensive supervision or regulation on a consolidated basis by the 
appropriate authorities in its home country, as provided in Sec. 
211.24(c)(1)(ii) of the Board's Regulation K (12 CFR 211.24(c)(1)(ii)).
    (5) In the case of an application by a savings and loan holding 
company to acquire an insured depository institution, section 
10(e)(2)(E) of HOLA prohibits the Board from approving the transaction.
    (b) Other factors. In deciding applications under this subpart, the 
Board also considers the following factors with respect to the acquiror, 
its subsidiaries, any savings associations or banks related to the 
acquiror through common ownership or management, and the savings 
association or associations to be acquired:
    (1) Financial condition. Their financial condition and future 
prospects, including whether current and projected capital positions and 
levels of indebtedness conform to standards and policies established by 
the Board.
    (2) Managerial resources. The competence, experience, and integrity 
of the officers, directors, and principal shareholders of the acquiror, 
its subsidiaries, and the savings association and savings and loan 
holding companies concerned; their record of compliance with laws and 
regulations; and the record of the applicant and its affiliates of 
fulfilling any commitments to, and any conditions imposed by, the Board 
in connection with prior applications.
    (3) Convenience and needs of community. In the case of an 
application required under Sec. 238.11(c), (d), or (e), (or an 
application by a savings and loan holding company under Sec. 
238.11(b)), the convenience and needs of the communities to be served, 
including the record of performance under the Community Reinvestment Act 
of 1977 (12 U.S.C. 2901 et seq.) and regulations issued thereunder, 
including the Board's Regulation BB (12 CFR part 228).
    (c) Presumptive disqualifiers--(1) Integrity factors. The following 
factors shall give rise to a rebuttable presumption that an acquiror may 
fail to satisfy the managerial resources and future prospects tests of 
paragraph (b) of this section:
    (i) During the 10-year period immediately preceding filing of the 
application or notice, criminal, civil or administrative judgments, 
consents or orders, and any indictments, formal investigations, 
examinations, or civil or administrative proceedings (excluding

[[Page 90]]

routine or customary audits, inspections and investigations) that 
terminated in any agreements, undertakings, consents or orders, issued 
against, entered into by, or involving the acquiror or affiliates of the 
acquiror by any federal or state court, any department, agency, or 
commission of the U.S. Government, any state or municipality, any 
Federal Home Loan Bank, any self-regulatory trade or professional 
organization, or any foreign government or governmental entity, which 
involve:
    (A) Fraud, moral turpitude, dishonesty, breach of trust or fiduciary 
duties, organized crime or racketeering;
    (B) Violation of securities or commodities laws or regulations;
    (C) Violation of depository institution laws or regulations;
    (D) Violation of housing authority laws or regulations; or
    (E) Violation of the rules, regulations, codes of conduct or ethics 
of a self-regulatory trade or professional organization;
    (ii) Denial, or withdrawal after receipt of formal or informal 
notice of an intent to deny, by the acquiror or affiliates of the 
acquiror, of
    (A) Any application relating to the organization of a financial 
institution,
    (B) An application to acquire any financial institution or holding 
company thereof under HOLA or the Bank Holding Company Act or otherwise,
    (C) A notice relating to a change in control of any of the foregoing 
under the CIC Act; or
    (D) An application or notice under a state holding company or change 
in control statute;
    (iii) The acquiror or affiliates of the acquiror were placed in 
receivership or conservatorship during the preceding 10 years, or any 
management official of the acquiror was a management official or 
director (other than an official or director serving at the request of 
the Board, the Federal Deposit Insurance Corporation, the Resolution 
Trust Corporation, the former Federal Savings and Loan Insurance 
Corporation, or their predecessors) or principal shareholder of a 
company or savings association that was placed into receivership, 
conservatorship, or a management consignment program, or was liquidated 
during his or her tenure or control or within two years thereafter;
    (iv) Felony conviction of the acquiror, an affiliate of the acquiror 
or a management official of the acquiror or an affiliate of the 
acquiror;
    (v) Knowingly making any written or oral statement to the Board or 
any predecessor agency (or its delegate) in connection with an 
application, notice or other filing under this part that is false or 
misleading with respect to a material fact or omits to state a material 
fact with respect to information furnished or requested in connection 
with such an application, notice or other filing;
    (vi) Acquisition and retention at the time of submission of an 
application or notice, of stock in the savings association by the 
acquiror in violation of this part or its predecessor regulations.
    (2) Financial factors. The following shall give rise to a rebuttable 
presumption that an acquiror may fail to satisfy the financial-resources 
and future-prospects tests of paragraph (c) of this section:
    (i) Liability for amounts of debt which, in the opinion of the 
Board, create excessive risks of default and pressure on the savings 
association to be acquired; or
    (ii) Failure to furnish a business plan or furnishing a business 
plan projecting activities which are inconsistent with economical home 
financing.
    (d) Competitive factor. Before approving any such acquisition, 
except a transaction under section 13(k) of the Federal Deposit 
Insurance Act, the Board shall consider any report rendered by the 
Attorney General within 30 days of such request under Sec. 238.14(f) on 
the competitive factors involved.
    (e) Expedited reorganizations. An application by a savings 
association solely for the purpose of obtaining approval for the 
creation of a savings and loan holding company by such savings 
association shall be eligible for expedited processing under Sec. 
238.14(g)(4) if it satisfies the following criteria:
    (1) The holding company shall not be capitalized initially in an 
amount exceeding the amount the savings association is permitted to pay 
in dividends to its holding company as of the date

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of the reorganization pursuant to applicable regulations or, in the 
absence thereof, pursuant to the then current policy guidelines;
    (2) The creation of the savings and loan holding company by the 
association is the sole transaction contained in the application, and 
there are no other transactions requiring approval incident to the 
creation of the holding company (other than the creation of an interim 
association that will disappear upon consummation of the reorganization 
and the merger of the savings association with such interim association 
to effect the reorganization), and the holding company is not also 
seeking any regulatory waivers, regulatory forbearances, or resolution 
of legal or supervisory issues;
    (3) The board of directors and executive officers of the holding 
company are composed of persons who, at the time of acquisition, are 
executive officers and directors of the association;
    (4) The acquisition raises no significant issues of law or policy;
    (5) Prior to consummation of the reorganization transaction, the 
holding company shall enter into any dividend limitation, regulatory 
capital maintenance, or prenuptial agreement required by Board 
regulations, or in the absence thereof, required pursuant to policy 
guidelines issued by the Board; and
    (f) Conditional approvals. The Board may impose conditions on any 
approval, including conditions to address competitive, financial, 
managerial, safety and soundness, convenience and needs, compliance or 
other concerns, to ensure that approval is consistent with the relevant 
statutory factors and other provisions of HOLA.
    (g) No acquisition shall be approved by the Board pursuant to Sec. 
238.11 which would result in the formation by any company, through one 
or more subsidiaries or through one or more transactions, of a multiple 
savings and loan holding company controlling savings associations in 
more than one state where the acquisition causes a savings association 
to become an affiliate of another savings association with which it was 
not previously affiliated unless:
    (1) Such company, or a savings association subsidiary of such 
company, is authorized to acquire control of a savings association 
subsidiary, or to operate a home or branch office, in the additional 
state or states pursuant to section 13(k) of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823(k) (or section 408(m) of the National 
Housing Act as in effect immediately prior to enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989);
    (2) Such company controls a savings association subsidiary which 
operated a home or branch office in the additional state or states as of 
March 5, 1987; or
    (3) The statute laws of the state in which the savings association, 
control of which is to be acquired, is located are such that a savings 
association chartered by such state could be acquired by a savings 
association chartered by the state where the acquiring savings 
association or savings and loan holding company is located (or by a 
holding company that controls such a state chartered savings 
association), and such statute laws specifically authorize such an 
acquisition by language to that effect and not merely by implication.



                      Subpart C_Control Proceedings



Sec. 238.21  Control proceedings.

    (a) Preliminary determination of control. (1) The Board may issue a 
preliminary determination of control under the procedures set forth in 
this section in any case in which:
    (i) Any of the presumptions of control set forth in paragraph (d) of 
this section is present; or
    (ii) It otherwise appears that a company has the power to exercise a 
controlling influence over the management or policies of a savings 
association or other company.
    (2) If the Board makes a preliminary determination of control under 
this section, the Board shall send notice to the controlling company 
containing a statement of the facts upon which the preliminary 
determination is based.
    (b) Response to preliminary determination of control. Within 30 
calendar days of issuance by the Board of a preliminary determination of 
control or such longer period permitted by the Board,

[[Page 92]]

the company against whom the determination has been made shall:
    (1) Submit for the Board's approval a specific plan for the prompt 
termination of the control relationship;
    (2) File an application under this regulation to retain the control 
relationship; or
    (3) Contest the preliminary determination by filing a response, 
setting forth the facts and circumstances in support of its position 
that no control exists, and, if desired, requesting a hearing or other 
proceeding.
    (c) Hearing and final determination. (1) The Board shall order a 
formal hearing or other appropriate proceeding upon the request of a 
company that contests a preliminary determination that the company has 
the power to exercise a controlling influence over the management or 
policies of a savings association or other company, if the Board finds 
that material facts are in dispute. The Board may also in its discretion 
order a formal hearing or other proceeding with respect to a preliminary 
determination that the company controls voting securities of the savings 
association or other company under the presumptions in paragraph (d)(1) 
of this section.
    (2) At a hearing or other proceeding, any applicable presumptions 
established by paragraph (d) of this section shall be considered in 
accordance with the Federal Rules of Evidence and the Board's Rules of 
Practice for Formal Hearings (12 CFR part 263).
    (3) After considering the submissions of the company and other 
evidence, including the record of any hearing or other proceeding, the 
Board shall issue a final order determining whether the company controls 
voting securities, or has the power to exercise a controlling influence 
over the management or policies, of the savings association or other 
company. If a control relationship is found, the Board may direct the 
company to terminate the control relationship or to file an application 
for the Board's approval to retain the control relationship under 
subpart B of this part.
    (d) Rebuttable presumptions of control. The following rebuttable 
presumptions shall be used in any proceeding under this section:
    (1) Control of voting securities--(i) Securities convertible into 
voting securities. A company that owns, controls, or holds securities 
that are immediately convertible, at the option of the holder or owner, 
into voting securities of a bank or other company, controls the voting 
securities.
    (ii) Option or restriction on voting securities. A company that 
enters into an agreement or understanding under which the rights of a 
holder of voting securities of a savings association or other company 
are restricted in any manner controls the securities. This presumption 
does not apply where the agreement or understanding:
    (A) Is a mutual agreement among shareholders granting to each other 
a right of first refusal with respect to their shares;
    (B) Is incident to a bona fide loan transaction; or
    (C) Relates to restrictions on transferability and continues only 
for the time necessary to obtain approval from the appropriate Federal 
supervisory authority with respect to acquisition by the company of the 
securities.
    (2) Control over company--(i) Management agreement. A company that 
enters into any agreement or understanding with a savings association or 
other company (other than an investment advisory agreement), such as a 
management contract, under which the first company or any of its 
subsidiaries directs or exercises significant influence over the general 
management or overall operations of the savings association or other 
company controls the savings association or other company.
    (ii) Shares controlled by company and associated individuals. A 
company that, together with its management officials or principal 
shareholders (including members of the immediate families of either), 
owns, controls, or holds with power to vote 25 percent or more of the 
outstanding shares of any class of voting securities of a savings 
association or other company controls the savings association or other 
company, if the first company owns, controls, or holds with power to 
vote more than 5 percent of the outstanding shares of any class of 
voting securities of the savings association or other company.

[[Page 93]]

    (iii) Common management officials. A company that has one or more 
management officials in common with a savings association or other 
company controls the savings association or other company, if the first 
company owns, controls or holds with power to vote more than 5 percent 
of the outstanding shares of any class of voting securities of the 
savings association or other company, and no other person controls as 
much as 5 percent of the outstanding shares of any class of voting 
securities of the savings association or other company.
    (e) Presumption of non-control--(1) In any proceeding under this 
section, there is a presumption that any company that directly or 
indirectly owns, controls, or has power to vote less than 5 percent of 
the outstanding shares of any class of voting securities of a savings 
association or other company does not have control over that savings 
association or other company.
    (2) In any proceeding under this section, or judicial proceeding 
under the Home Owners' Loan Act, other than a proceeding in which the 
Board has made a preliminary determination that a company has the power 
to exercise a controlling influence over the management or policies of 
the savings association or other company, a company may not be held to 
have had control over the savings association or other company at any 
given time, unless that company, at the time in question, directly or 
indirectly owned, controlled, or had power to vote 5 percent or more of 
the outstanding shares of any class of voting securities of the savings 
association or other company, or had already been found to have control 
on the basis of the existence of a controlling influence relationship.



                    Subpart D_Change in Bank Control



Sec. 238.31  Transactions requiring prior notice.

    (a) Prior notice requirement. Any person acting directly or 
indirectly, or through or in concert with one or more persons, shall 
give the Board 60 days' written notice, as specified in Sec. 238.33 of 
this subpart, before acquiring control of a savings and loan holding 
company, unless the acquisition is exempt under Sec. 238.32.
    (b) Definitions. For purposes of this subpart:
    (1) Acquisition includes a purchase, assignment, transfer, or pledge 
of voting securities, or an increase in percentage ownership of a 
savings and loan holding company resulting from a redemption of voting 
securities.
    (2) Acting in concert includes knowing participation in a joint 
activity or parallel action towards a common goal of acquiring control 
of a savings and loan holding company whether or not pursuant to an 
express agreement.
    (3) Immediate family includes a person's father, mother, stepfather, 
stepmother, brother, sister, stepbrother, stepsister, son, daughter, 
stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-
law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-
in-law, the spouse of any of the foregoing, and the person's spouse.
    (c) Acquisitions requiring prior notice--(1) Acquisition of control. 
The acquisition of voting securities of a savings and loan holding 
company constitutes the acquisition of control under the Bank Control 
Act, requiring prior notice to the Board, if, immediately after the 
transaction, the acquiring person (or persons acting in concert) will 
own, control, or hold with power to vote 25 percent or more of any class 
of voting securities of the institution.
    (2) Rebuttable presumption of control. The Board presumes that an 
acquisition of voting securities of a savings and loan holding company 
constitutes the acquisition of control under the Bank Control Act, 
requiring prior notice to the Board, if, immediately after the 
transaction, the acquiring person (or persons acting in concert) will 
own, control, or hold with power to vote 10 percent or more of any class 
of voting securities of the institution, and if:
    (i) The institution has registered securities under section 12 of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l); or

[[Page 94]]

    (ii) No other person will own, control, or hold the power to vote a 
greater percentage of that class of voting securities immediately after 
the transaction.\2\
---------------------------------------------------------------------------

    \2\ If two or more persons, not acting in concert, each propose to 
acquire simultaneously equal percentages of 10 percent or more of a 
class of voting securities of the savings and loan holding company, each 
person must file prior notice to the Board.
---------------------------------------------------------------------------

    (d) Rebuttable presumption of concerted action. The following 
persons shall be presumed to be acting in concert for purposes of this 
subpart:
    (1) A company and any principal shareholder, partner, trustee, or 
management official of the company, if both the company and the person 
own voting securities of the savings and loan holding company;
    (2) An individual and the individual's immediate family;
    (3) Companies under common control;
    (4) Persons that are parties to any agreement, contract, 
understanding, relationship, or other arrangement, whether written or 
otherwise, regarding the acquisition, voting, or transfer of control of 
voting securities of a savings and loan holding company, other than 
through a revocable proxy as described in Sec. 238.32(a)(5) of this 
subpart;
    (5) Persons that have made, or propose to make, a joint filing under 
sections 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78m 
or 78n), and the rules promulgated thereunder by the Securities and 
Exchange Commission; and
    (6) A person and any trust for which the person serves as trustee.
    (e) Acquisitions of loans in default. The Board presumes an 
acquisition of a loan in default that is secured by voting securities of 
a savings and loan holding company to be an acquisition of the 
underlying securities for purposes of this section.
    (f) Other transactions. Transactions other than those set forth in 
paragraph (c) of this section resulting in a person's control of less 
than 25 percent of a class of voting securities of a savings and loan 
holding company are not deemed by the Board to constitute control for 
purposes of the Bank Control Act.
    (g) Rebuttal of presumptions. Prior notice to the Board is not 
required for any acquisition of voting securities under the presumption 
of control set forth in this section, if the Board finds that the 
acquisition will not result in control. The Board shall afford any 
person seeking to rebut a presumption in this section an opportunity to 
present views in writing or, if appropriate, orally before its 
designated representatives at an informal conference.



Sec. 238.32  Transactions not requiring prior notice.

    (a) Exempt transactions. The following transactions do not require 
notice to the Board under this subpart:
    (1) Existing control relationships. The acquisition of additional 
voting securities of a savings and loan holding company by a person who:
    (i) Continuously since March 9, 1979 (or since the institution 
commenced business, if later), held power to vote 25 percent or more of 
any class of voting securities of the institution; or
    (ii) Is presumed, under Sec. 238.31(c)(2), to have controlled the 
institution continuously since March 9, 1979, if the aggregate amount of 
voting securities held does not exceed 25 percent or more of any class 
of voting securities of the institution or, in other cases, where the 
Board determines that the person has controlled the institution 
continuously since March 9, 1979;
    (2) Increase of previously authorized acquisitions. Unless the Board 
or the Reserve Bank otherwise provides in writing, the acquisition of 
additional shares of a class of voting securities of a savings and loan 
holding company by any person (or persons acting in concert) who has 
lawfully acquired and maintained control of the institution (for 
purposes of Sec. 238.31(c)), after complying with the procedures and 
receiving approval to acquire voting securities of the institution under 
this subpart, or in connection with an application approved under 
section 10(e) of HOLA (12 U.S.C. 1467a(e) and Sec. 238.11 or section 
18(c) of the Federal Deposit Insurance Act (Bank Merger Act, 12 U.S.C. 
1828(c));
    (3) Acquisitions subject to approval under HOLA or Bank Merger Act. 
Any acquisition of voting securities subject

[[Page 95]]

to approval under section 10(e) of HOLA (12 U.S.C. 1467a(e) and Sec. 
238.11), or section 18(c) of the Federal Deposit Insurance Act (Bank 
Merger Act, 12 U.S.C. 1828(c));
    (4) Transactions exempt under HOLA. Any transaction described in 
sections 10(a)(3)(A) or 10(e)(1)(B)(ii) of HOLA by a person described in 
those provisions;
    (5) Proxy solicitation. The acquisition of the power to vote 
securities of a savings and loan holding company through receipt of a 
revocable proxy in connection with a proxy solicitation for the purposes 
of conducting business at a regular or special meeting of the 
institution, if the proxy terminates within a reasonable period after 
the meeting;
    (6) Stock dividends. The receipt of voting securities of a savings 
and loan holding company through a stock dividend or stock split if the 
proportional interest of the recipient in the institution remains 
substantially the same; and
    (7) Acquisition of foreign banking organization. The acquisition of 
voting securities of a qualifying foreign banking organization. (This 
exemption does not extend to the reports and information required under 
paragraphs 9, 10, and 12 of the Bank Control Act (12 U.S.C. 1817(j) (9), 
(10), and (12)) and Sec. 238.34.)
    (b) Prior notice exemption. (1) The following acquisitions of voting 
securities of a savings and loan holding company, which would otherwise 
require prior notice under this subpart, are not subject to the prior 
notice requirements if the acquiring person notifies the appropriate 
Reserve Bank within 90 calendar days after the acquisition and provides 
any relevant information requested by the Reserve Bank:
    (i) Acquisition of voting securities through inheritance;
    (ii) Acquisition of voting securities as a bona fide gift; and
    (iii) Acquisition of voting securities in satisfaction of a debt 
previously contracted (DPC) in good faith.
    (2) The following acquisitions of voting securities of a savings and 
loan holding company, which would otherwise require prior notice under 
this subpart, are not subject to the prior notice requirements if the 
acquiring person does not reasonably have advance knowledge of the 
transaction, and provides the written notice required under Sec. 238.33 
to the appropriate Reserve Bank within 90 calendar days after the 
transaction occurs:
    (i) Acquisition of voting securities resulting from a redemption of 
voting securities by the issuing savings and loan holding company; and
    (ii) Acquisition of voting securities as a result of actions 
(including the sale of securities) by any third party that is not within 
the control of the acquiror.
    (3) Nothing in paragraphs (b)(1) or (b)(2) of this section limits 
the authority of the Board to disapprove a notice pursuant to Sec. 
238.33(h).



Sec. 238.33  Procedures for filing, processing, publishing, and acting
on notices.

    (a) Filing notice. (1) A notice required under this subpart shall be 
filed with the appropriate Reserve Bank and shall contain all the 
information required by paragraph 6 of the Bank Control Act (12 U.S.C. 
1817(j)(6)), or prescribed in the designated Board form.
    (2) The Board may waive any of the informational requirements of the 
notice if the Board determines that it is in the public interest.
    (3) A notificant shall notify the appropriate Reserve Bank or the 
Board immediately of any material changes in a notice submitted to the 
Reserve Bank, including changes in financial or other conditions.
    (4) When the acquiring person is an individual, or group of 
individuals acting in concert, the requirement to provide personal 
financial data may be satisfied by a current statement of assets and 
liabilities and an income summary, as required in the designated Board 
form, together with a statement of any material changes since the date 
of the statement or summary. The Reserve Bank or the Board, 
nevertheless, may request additional information, if appropriate.
    (b) Acceptance of notice. The 60-day notice period specified in 
Sec. 238.31 of this subpart begins on the date of receipt of a complete 
notice. The Reserve Bank shall notify the person or persons submitting a 
notice under this subpart in writing of the date the notice is or was 
complete and thereby accepted for

[[Page 96]]

processing. The Reserve Bank or the Board may request additional 
relevant information at any time after the date of acceptance.
    (c) Publication--(1) Newspaper announcement. Any person(s) filing a 
notice under this subpart shall publish, in a form prescribed by the 
Board, an announcement soliciting public comment on the proposed 
acquisition. The announcement shall be published in a newspaper of 
general circulation in the community in which the head office of the 
savings and loan holding company is located and in the community in 
which the head office of each of its subsidiary savings associations is 
located. The announcement shall be published no earlier than 15 calendar 
days before the filing of the notice with the appropriate Reserve Bank 
and no later than 10 calendar days after the filing date; and the 
publisher's affidavit of a publication shall be provided to the 
appropriate Reserve Bank.
    (2) Contents of newspaper announcement. The newspaper announcement 
shall state:
    (i) The name of each person identified in the notice as a proposed 
acquiror of the savings and loan holding company;
    (ii) The name of the savings and loan holding company to be 
acquired, including the name of each of the savings and loan holding 
company's subsidiary savings association; and
    (iii) A statement that interested persons may submit comments on the 
notice to the Board or the appropriate Reserve Bank for a period of 20 
days, or such shorter period as may be provided, pursuant to paragraph 
(c)(5) of this section.
    (3) Federal Register announcement. The Board shall, upon filing of a 
notice under this subpart, publish announcement in the Federal Register 
of receipt of the notice. The Federal Register announcement shall 
contain the information required under paragraphs (c)(2)(i) and 
(c)(2)(ii) of this section and a statement that interested persons may 
submit comments on the proposed acquisition for a period of 15 calendar 
days, or such shorter period as may be provided, pursuant to paragraph 
(c)(5) of this section. The Board may waive publication in the Federal 
Register if the Board determines that such action is appropriate.
    (4) Delay of publication. The Board may permit delay in the 
publication required under paragraphs (c)(1) and (c)(3) of this section 
if the Board determines, for good cause shown, that it is in the public 
interest to grant such delay. Requests for delay of publication may be 
submitted to the appropriate Reserve Bank.
    (5) Shortening or waiving notice. The Board may shorten or waive the 
public comment or newspaper publication requirements of this paragraph, 
or act on a notice before the expiration of a public comment period, if 
it determines in writing that an emergency exists, or that disclosure of 
the notice, solicitation of public comment, or delay until expiration of 
the public comment period would seriously threaten the safety or 
soundness of the savings and loan holding company to be acquired.
    (6) Consideration of public comments. In acting upon a notice filed 
under this subpart, the Board shall consider all public comments 
received in writing within the period specified in the newspaper or 
Federal Register announcement, whichever is later. At the Board's 
option, comments received after this period may, but need not, be 
considered.
    (7) Standing. No person (other than the acquiring person) who 
submits comments or information on a notice filed under this subpart 
shall thereby become a party to the proceeding or acquire any standing 
or right to participate in the Board's consideration of the notice or to 
appeal or otherwise contest the notice or the Board's action regarding 
the notice.
    (d) Time period for Board action--(1) Consummation of acquisition--
(i) The notificant(s) may consummate the proposed acquisition 60 days 
after submission to the Reserve Bank of a complete notice under 
paragraph (a) of this section, unless within that period the Board 
disapproves the proposed acquisition or extends the 60-day period, as 
provided under paragraph (d)(2) of this section.
    (ii) The notificant(s) may consummate the proposed transaction 
before the expiration of the 60-day period if the Board notifies the 
notificant(s) in

[[Page 97]]

writing of the Board's intention not to disapprove the acquisition.
    (2) Extensions of time period. (i) The Board may extend the 60-day 
period in paragraph (d)(1) of this section for an additional 30 days by 
notifying the acquiring person(s).
    (ii) The Board may further extend the period during which it may 
disapprove a notice for two additional periods of not more than 45 days 
each, if the Board determines that:
    (A) Any acquiring person has not furnished all the information 
required under paragraph (a) of this section;
    (B) Any material information submitted is substantially inaccurate;
    (C) The Board is unable to complete the investigation of an 
acquiring person because of inadequate cooperation or delay by that 
person; or
    (D) Additional time is needed to investigate and determine that no 
acquiring person has a record of failing to comply with the requirements 
of the Bank Secrecy Act, subchapter II of Chapter 53 of Title 31, United 
States Code.
    (iii) If the Board extends the time period under this paragraph, it 
shall notify the acquiring person(s) of the reasons therefor and shall 
include a statement of the information, if any, deemed incomplete or 
inaccurate.
    (e) Advice to bank supervisory agencies. The Reserve Bank shall send 
a copy of any notice to the Comptroller of the Currency and the Federal 
Deposit Insurance Corporation.
    (f) Investigation and report. (1) After receiving a notice under 
this subpart, the Board or the appropriate Reserve Bank shall conduct an 
investigation of the competence, experience, integrity, and financial 
ability of each person by and for whom an acquisition is to be made. The 
Board shall also make an independent determination of the accuracy and 
completeness of any information required to be contained in a notice 
under paragraph (a) of this section. In investigating any notice 
accepted under this subpart, the Board or Reserve Bank may solicit 
information or views from any person, including any savings and loan 
holding company involved in the notice, and any appropriate state, 
federal, or foreign governmental authority.
    (2) The Board or the appropriate Reserve Bank shall prepare a 
written report of its investigation, which shall contain, at a minimum, 
a summary of the results of the investigation.
    (g) Factors considered in acting on notices. In reviewing a notice 
filed under this subpart, the Board shall consider the information in 
the record, the views and recommendations of the appropriate bank 
supervisor, and any other relevant information obtained during any 
investigation of the notice.
    (h) Disapproval and hearing--(1) Disapproval of notice. The Board 
may disapprove an acquisition if it finds adverse effects with respect 
to any of the factors set forth in paragraph 7 of the Bank Control Act 
(12 U.S.C. 1817(j)(7)) (i.e., competitive, financial, managerial, 
banking, or incompleteness of information).
    (2) Disapproval notification. Within three days after its decision 
to issue a notice of intent to disapprove any proposed acquisition, the 
Board shall notify the acquiring person in writing of the reasons for 
the action.
    (3) Hearing. Within 10 calendar days of receipt of the notice of the 
Board's intent to disapprove, the acquiring person may submit a written 
request for a hearing. Any hearing conducted under this paragraph shall 
be in accordance with the Rules of Practice for Formal Hearings (12 CFR 
part 263). At the conclusion of the hearing, the Board shall, by order, 
approve or disapprove the proposed acquisition on the basis of the 
record of the hearing. If the acquiring person does not request a 
hearing, the notice of intent to disapprove becomes final and 
unappealable.



                   Subpart E_Qualified Stock Issuances



Sec. 238.41  Qualified stock issuances by undercapitalized savings 
associations or holding companies.

    (a) Acquisitions by savings and loan holding companies. No savings 
and loan holding company shall be deemed to control a savings 
association solely by reason of the purchase by such savings and loan 
holding company of shares issued by such savings association, or issued 
by any savings and loan holding company (other than a bank holding

[[Page 98]]

company) which controls such savings association, in connection with a 
qualified stock issuance if prior approval of such acquisition is 
granted by the Board under this subpart, unless the acquiring savings 
and loan holding company, directly or indirectly, or acting in concert 
with 1 or more other persons, or through one or more subsidiaries, owns, 
controls, or holds with power to vote, or holds proxies representing, 
more than 15 percent of the voting shares of such savings association or 
holding company.
    (b) Qualification. For purposes of this section, any issuance of 
shares of stock shall be treated as a qualified stock issuance if the 
following conditions are met:
    (1) The shares of stock are issued by--
    (i) An undercapitalized savings association, which for purposes of 
this paragraph (b)(1)(i) shall mean any savings association--
    (A) The assets of which exceed the liabilities of such association; 
and
    (B) Which does not comply with one or more of the capital standards 
in effect under section 5(t) of HOLA; or
    (ii) A savings and loan holding company which is not a bank holding 
company but which controls an undercapitalized savings association if, 
at the time of issuance, the savings and loan holding company is legally 
obligated to contribute the net proceeds from the issuance of such stock 
to the capital of an undercapitalized savings association subsidiary of 
such holding company.
    (2) All shares of stock issued consist of previously unissued stock 
or treasury shares.
    (3) All shares of stock issued are purchased by a savings and loan 
holding company that is registered, as of the date of purchase, with the 
Board in accordance with the provisions of section 10(b) of the HOLA and 
the Board's regulations promulgated thereunder.
    (4) Subject to paragraph (c) of this section, the Board approves the 
purchase of the shares of stock by the acquiring savings and loan 
holding company.
    (5) The entire consideration for the stock issued is paid in cash by 
the acquiring savings and loan holding company.
    (6) At the time of the stock issuance, each savings association 
subsidiary of the acquiring savings and loan holding company (other than 
an association acquired in a transaction pursuant to section 13(c) or 
13(k) of the Federal Deposit Insurance Act, or section 408(m) of the 
National Housing Act, as in effect immediately prior to enactment of the 
Financial Institutions Reform, Recovery and Enforcement Act of 1989) has 
capital (after deducting any subordinated debt, intangible assets, and 
deferred, unamortized gains or losses) of not less than 6\1/2\ percent 
of the total assets of such savings association.
    (7) Immediately after the stock issuance, the acquiring savings and 
loan holding company holds not more than 15 percent of the outstanding 
voting stock of the issuing undercapitalized savings association or 
savings and loan holding company.
    (8) Not more than one of the directors of the issuing association or 
company is an officer, director, employee, or other representative of 
the acquiring company or any of its affiliates.
    (9) Transactions between the savings association or savings and loan 
holding company that issues the shares pursuant to this section and the 
acquiring company and any of its affiliates shall be subject to the 
provisions of section 11 of HOLA and the Board's regulations promulgated 
thereunder.
    (c) Approval of acquisitions--(1) Criteria. The Board, in deciding 
whether to approve or deny an application filed on the basis that it is 
a qualified stock issuance, shall apply the application criteria set 
forth in Sec. 238.15(a), (b), and (c).
    (2) Additional capital commitments not required. The Board shall not 
disapprove any application for the purchase of stock in connection with 
a qualified stock issuance on the grounds that the acquiring savings and 
loan holding company has failed to undertake to make subsequent 
additional capital contributions to maintain the capital of the 
undercapitalized savings association at or above the minimum level 
required by the Board or any other Federal agency having jurisdiction.

[[Page 99]]

    (3) Other conditions. The Board shall impose such conditions on any 
approval of an application for the purchase of stock in connection with 
a qualified stock issuance as the Board determines to be appropriate, 
including--
    (i) A requirement that any savings association subsidiary of the 
acquiring savings and loan holding company limit dividends paid to such 
holding company for such period of time as the Board may require; and
    (ii) Such other conditions as the Board deems necessary or 
appropriate to prevent evasions of this section.
    (4) Application deemed approved if not disapproved within 90 days. 
(i) An application for approval of a purchase of stock in connection 
with a qualified stock issuance shall be deemed to have been approved by 
the Board if such application has not been disapproved by the Board 
before the end of the 90-day period beginning on the date of submission 
to the Board of the complete record on the application as defined in 
Sec. 238.14(g)(3)(ii).
    (ii) [Reserved]
    (d) No limitation on class of stock issued. The shares of stock 
issued in connection with a qualified stock issuance may be shares of 
any class.
    (e) Application form. A savings and loan holding company making 
application to acquire a qualified stock issuance pursuant to this 
subpart shall submit the appropriate form to the appropriate Reserve 
Bank.



 Subpart F_Savings and Loan Holding Company Activities and Acquisitions



Sec. 238.51  Prohibited activities.

    (a) Evasion of law or regulation. No savings and loan holding 
company or subsidiary thereof which is not a savings association shall, 
for or on behalf of a subsidiary savings association, engage in any 
activity or render any services for the purpose or with the effect of 
evading any law or regulation applicable to such savings association.
    (b) Unrelated business activity. No savings and loan holding company 
or subsidiary thereof that is not a savings association shall commence 
any business activity at any time, or continue any business activity 
after the end of the two-year period beginning on the date on which such 
company received approval to become a savings and loan holding company 
that is subject to the limitations of this paragraph (b), except (in 
either case) the following:
    (1) Furnishing or performing management services for a savings 
association subsidiary of such company;
    (2) Conducting an insurance agency or an escrow business;
    (3) Holding, managing, or liquidating assets owned by or acquired 
from a subsidiary savings association of such company;
    (4) Holding or managing properties used or occupied by a subsidiary 
savings association of such company;
    (5) Acting as trustee under deed of trust;
    (6) Any other activity:
    (i) That the Board of Governors of the Federal Reserve System has 
permitted for bank holding companies pursuant to regulations promulgated 
under section 4(c) of the Bank Holding Company Act; or
    (ii) Is set forth in Sec. 238.53, subject to the limitations 
therein; or
    (7)(i) In the case of a savings and loan holding company, 
purchasing, holding, or disposing of stock acquired in connection with a 
qualified stock issuance if prior approval for the acquisition of such 
stock by such savings and loan holding company is granted by the Board 
pursuant to Sec. 238.41.
    (ii) Notwithstanding the provisions of this paragraph (b), any 
savings and loan holding company that, between March 5, 1987 and August 
10, 1987, received approval pursuant to 12 U.S.C. 1730a(e), as then in 
effect, to acquire control of a savings association shall not continue 
any business activity other than those activities set forth in this 
paragraph (b) after August 10, 1987.
    (c) Treatment of certain holding companies. If a director or officer 
of a savings and loan holding company, or an individual who owns, 
controls, or holds with the power to vote (or proxies representing) more 
than 25 percent of the voting shares of a savings and loan holding 
company, directly or indirectly controls more than one savings 
association, any savings and loan holding company controlled by such 
individual

[[Page 100]]

shall be subject to the activities limitations contained in paragraph 
(b) of this section, to the same extent such limitations apply to 
multiple savings and loan holding companies pursuant to Sec. Sec. 
238.51, 238.52, 238.53, and 238.54.



Sec. 238.52  Exempt savings and loan holding companies and 
grandfathered activities.

    (a) Exempt savings and loan holding companies. (1) The following 
savings and loan holding companies are exempt from the limitations of 
Sec. 238.51(b):
    (i) Any savings and loan holding company (or subsidiary of such 
company) that controls only one savings association, if the savings 
association subsidiary of such company is a qualified thrift lender as 
defined in Sec. 238.2(k).
    (ii) Any savings and loan holding company (or subsidiary thereof) 
that controls more than one savings association if all, or all but one 
of the savings association subsidiaries of such company were acquired 
pursuant to an acquisition under section 13(c) or 13(k) of the Federal 
Deposit Insurance Act, or section 408(m) of the National Housing Act, as 
in effect immediately prior to the date of enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989, and all of 
the savings association subsidiaries of such company are qualified 
thrift lenders as defined in Sec. 238.2(k).
    (2) Any savings and loan holding company whose subsidiary savings 
association(s) fails to qualify as a qualified thrift lender pursuant to 
12 U.S.C. 1467a(m) may not commence, or continue, any service or 
activity other than those permitted under Sec. 238.51(b) of this part, 
except that, the Board may allow, for good cause shown, such company (or 
subsidiary of such company which is not a savings association) up to 3 
years to comply with the limitations set forth in Sec. 238.51(b) of 
this part: Provided, That effective August 9, 1990, any company that 
controls a savings association that should have become or ceases to be a 
qualified thrift lender, except a savings association that requalified 
as a qualified thrift lender pursuant to section 10(m)(3)(D) of the Home 
Owners' Loan Act, shall within one year after the date on which the 
savings association fails to qualify as a qualified thrift lender, 
register as and be deemed to be a bank holding company, subject to all 
of the provisions of the Bank Holding Company Act, section 8 of the 
Federal Deposit Insurance Act, and other statutes applicable to bank 
holding companies in the same manner and to the same extent as if the 
company were a bank holding company and the savings association were a 
bank, as those terms are defined in the Bank Holding Company Act.
    (b) Grandfathered activities for certain savings and loan holding 
companies. Notwithstanding Sec. 238.51(b) and subject to paragraph (c) 
of this section, any savings and loan holding company that received 
approval prior to March 5, 1987 to acquire control of a savings 
association may engage, directly or indirectly or through any subsidiary 
(other than a subsidiary savings association of such company) in any 
activity in which it was lawfully engaged on March 5, 1987, provided, 
that:
    (1) The holding company does not, after August 10, 1987, acquire 
control of a bank or an additional savings association, other than a 
savings association acquired pursuant to section 13(c) or 13(k) of the 
Federal Deposit Insurance Act, or section 406(f) or 408(m) of the 
National Housing Act, as in effect immediately prior to the date of 
enactment of the Financial Institutions Reform, Recovery and Enforcement 
Act of 1989;
    (2) Any savings association subsidiary of the holding company 
continues to qualify as a domestic building and loan association under 
section 7701(a)(19) of the Internal Revenue Code of 1986 after August 
10, 1987;
    (3) The holding company does not engage in any business activity 
other than those permitted under Sec. 238.51(b) or in which it was 
engaged on March 5, 1987;
    (4) Any savings association subsidiary of the holding company does 
not increase the number of locations from which such savings association 
conducts business after March 5, 1987, other than an increase due to a 
transaction under section 13(c) or 13(k) of the Federal Deposit 
Insurance Act, or under section 408(m) of the National Housing Act, as 
in effect immediately

[[Page 101]]

prior to the date of enactment of the Financial Institutions Reform, 
Recovery and Enforcement Act of 1989; and
    (5) Any savings association subsidiary of the holding company does 
not permit any overdraft (including an intra-day overdraft) or incur any 
such overdraft in its account at a Federal Reserve bank, on behalf of an 
affiliate, unless such overdraft results from an inadvertent computer or 
accounting error that is beyond the control of both the savings 
association subsidiary and the affiliate.
    (c) Termination by the Board of grandfathered activities. 
Notwithstanding the provisions of paragraph (b) of this section, the 
Board may, after opportunity for hearing, terminate any activity engaged 
in under paragraph (b) of this section upon determination that such 
action is necessary:
    (1) To prevent conflicts of interest;
    (2) To prevent unsafe or unsound practices; or
    (3) To protect the public interest.
    (d) Foreign holding company. Any savings and loan holding company 
organized under the laws of a foreign country as of June 1, 1984 
(including any subsidiary thereof that is not a savings association) 
that controlled a single savings association on August 10, 1987, shall 
not be subject to the restrictions set forth in Sec. 238.51(b) with 
respect to any activities of such holding company that are conducted 
exclusively in a foreign country.



Sec. 238.53  Prescribed services and activities of savings and loan
holding companies.

    (a) General. For the purpose of Sec. 238.51(b)(6)(ii), the 
activities set forth in paragraph (b) of this section are, and were as 
of March 5, 1987, permissible services and activities for savings and 
loan holding companies or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations. Services and activities of service corporation 
subsidiaries of savings and loan holding company subsidiary savings 
associations are prescribed by paragraph (d) of this section.
    (b) Prescribed services and activities. Subject to the provisions of 
paragraph (c) of this section, a savings and loan holding company 
subject to restrictions on its activities pursuant to Sec. 238.51(b), 
or a subsidiary thereof which is neither a savings association nor a 
service corporation of a subsidiary savings association, may furnish or 
perform the following services and engage in the following activities to 
the extent that it has legal power to do so:
    (1) Originating, purchasing, selling and servicing any of the 
following:
    (i) Loans, and participation interests in loans, on a prudent basis 
and secured by real estate, including brokerage and warehousing of such 
real estate loans, except that such a company or subsidiary shall not 
invest in a loan secured by real estate as to which a subsidiary savings 
association of such company has a security interest;
    (ii) Manufactured home chattel paper (written evidence of both a 
monetary obligation and a security interest of first priority in one or 
more manufactured homes, and any equipment installed or to be installed 
therein), including brokerage and warehousing of such chattel paper;
    (iii) Loans, with or without security, for the altering, repairing, 
improving, equipping or furnishing of any residential real estate;
    (iv) Educational loans; and
    (v) Consumer loans, as defined in Sec. 160.3 of this title, 
Provided, That, no subsidiary savings association of such holding 
company or service corporation of such savings association shall engage 
directly or indirectly, in any transaction with any affiliate involving 
the purchase or sale, in whole or in part, of any consumer loan.
    (2) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing clerical accounting and internal audit services primarily for 
its affiliates;
    (3) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing the following services primarily for its affiliates, and for 
any savings association and service corporation subsidiary thereof, and 
for other multiple holding companies and affiliates thereof:
    (i) Data processing;
    (ii) Credit information, appraisals, construction loan inspections, 
and abstracting;

[[Page 102]]

    (iii) Development and administration of personnel benefit programs, 
including life insurance, health insurance, and pension or retirement 
plans;
    (iv) Research, studies, and surveys;
    (v) Purchase of office supplies, furniture and equipment;
    (vi) Development and operation of storage facilities for microfilm 
or other duplicate records; and
    (vii) Advertising and other services to procure and retain both 
savings accounts and loans;
    (4) Acquisition of unimproved real estate lots, and acquisition of 
other unimproved real estate for the purpose of prompt development and 
subdivision, for:
    (i) Construction of improvements,
    (ii) Resale to others for such construction, or
    (iii) Use as mobile home sites;
    (5) Development, subdivision and construction of improvements on 
real estate acquired pursuant to paragraph (b)(4) of this section, for 
sale or rental;
    (6) Acquisition of improved real estate and mobile homes to be held 
for rental;
    (7) Acquisition of improved real estate for remodeling, 
rehabilitation, modernization, renovation, or demolition and rebuilding 
for sale or for rental;
    (8) Maintenance and management of improved real estate;
    (9) Underwriting or reinsuring contract of credit life or credit 
health and accident insurance in connection with extensions of credit by 
the savings and loan holding company or any of its subsidiaries, or 
extensions of credit by any savings association or service corporation 
subsidiary thereof, or any other savings and loan holding company or 
subsidiary thereof;
    (10) Preparation of State and Federal tax returns for accountholders 
of or borrowers from (including immediate family members of such 
accountholders or borrowers but not including an accountholder or 
borrower which is a corporation operated for profit) an affiliated 
savings association;
    (11) Purchase and sale of gold coins minted and issued by the United 
States Treasury pursuant to Public Law 99-185, 99 Stat. 1177 (1985), and 
activities reasonably incident thereto; and
    (12) Any services or activities approved by order of the former 
Federal Savings and Loan Insurance Corporation prior to March 5, 1987, 
pursuant to its authority under section 408(c)(2)(F) of the National 
Housing Act, as in effect at the time.
    (c) Procedures for commencing services or activities. A notice to 
engage in or acquire a company engaged in a service or activity 
prescribed by paragraph (b) of this section (other than purchase or sale 
of a government debt security) shall be filed by a savings and loan 
holding company (including a company seeking to become a savings and 
loan holding company) with the appropriate Reserve Bank in accordance 
with this paragraph and the Board's Rules of Procedure (12 CFR 262.3).
    (1) Engaging de novo in services or activities. A savings and loan 
holding company seeking to commence or to engage de novo in a service or 
activity pursuant to this section, either directly or through a 
subsidiary, shall file a notice containing a description of the 
activities to be conducted and the identity of the company that will 
conduct the activity.
    (2) Acquiring company engaged in services or activities. A savings 
and loan holding company seeking to acquire or control voting securities 
or assets of a company engaged in a service or activity pursuant to this 
section, shall file a notice containing the following:
    (i) A description of the proposal, including a description of each 
proposed service or activity;
    (ii) The identity of any entity involved in the proposal, and, if 
the notificant proposes to conduct the service or activity through an 
existing subsidiary, a description of the existing activities of the 
subsidiary;
    (iii) If the savings and loan holding company has consolidated 
assets of $150 million or more:
    (A) Parent company and consolidated pro forma balance sheets for the 
acquiring savings and loan holding company as of the most recent quarter 
showing credit and debit adjustments that reflect the proposed 
transaction;

[[Page 103]]

    (B) Consolidated pro forma risk-based capital and leverage ratio 
calculations for the acquiring savings and loan holding company as of 
the most recent quarter; and
    (C) A description of the purchase price and the terms and sources of 
funding for the transaction;
    (iv) If the savings and loan holding company has consolidated assets 
of less than $150 million:
    (A) A pro forma parent-only balance sheet as of the most recent 
quarter showing credit and debit adjustments that reflect the proposed 
transaction; and
    (B) A description of the purchase price and the terms and sources of 
funding for the transaction and, if the transaction is debt funded, one-
year income statement and cash flow projections for the parent company, 
and the sources and schedule for retiring any debt incurred in the 
transaction;
    (v) For each insured depository institution whose Tier 1 capital, 
total capital, total assets or risk-weighted assets change as a result 
of the transaction, the total risk-weighted assets, total assets, Tier 1 
capital and total capital of the institution on a pro forma basis; and
    (vi) A description of the management expertise, internal controls 
and risk management systems that will be utilized in the conduct of the 
proposed service or activity; and
    (vii) A copy of the purchase agreements, and balance sheet and 
income statements for the most recent quarter and year-end for any 
company to be acquired.
    (d) Notice provided to Board. The Reserve Bank shall immediately 
send to the Board a copy of any notice received under paragraphs (c)(1) 
or (c)(2) of this section.
    (e) Notice to public--(1) the Reserve Bank shall notify the Board 
for publication in the Federal Register immediately upon receipt by the 
Reserve Bank of:
    (i) A notice under paragraph (c) of this section or
    (ii) A written request that notice of a proposal under paragraph (c) 
of this section be published in the Federal Register. Such a request may 
request that Federal Register publication occur up to 15 calendar days 
prior to submission of a notice under this subpart.
    (2) The Federal Register notice published under this paragraph (e) 
shall invite public comment on the proposal, generally for a period of 
15 days.
    (f) Action on notices--(1) Reserve Bank action--(i) In general. 
Within 30 calendar days after receipt by the Reserve Bank of a notice 
filed pursuant to paragraphs (c)(1) or (c)(2) of this section, the 
Reserve Banks shall:
    (A) Approve the notice; or
    (B) Refer the notice to the Board for decision because action under 
delegated authority is not appropriate.
    (ii) Return of incomplete notice. Within 7 calendar days of receipt, 
the Reserve Bank may return any notice as informationally incomplete 
that does not contain all of the information required by this section. 
The return of such a notice shall be deemed action on the notice.
    (iii) Notice of action. The Reserve Bank shall promptly notify the 
savings and loan holding company of any action or referral under this 
paragraph.
    (iv) Close of public comment period. The Reserve Bank shall not 
approve any notice under this paragraph (e)(1) of this section prior to 
the third business day after the close of the public comment period, 
unless an emergency exists that requires expedited or immediate action.
    (2) Board action; internal schedule. The Board seeks to act on every 
notice referred to it for decision within 60 days of the date that the 
notice is filed with the Reserve Bank. If the Board is unable to act 
within this period, the Board shall notify the notificant and explain 
the reasons and the date by which the Board expects to act.
    (3)(i) Required time limit for System action. The Board or the 
Reserve Bank shall act on any notice under this section within 60 days 
after the submission of a complete notice.
    (ii) Extension of required period for action. The Board may extend 
the 60-day period required for Board action under paragraph (e)(3)(i) of 
this section for an additional 30 days upon notice to the notificant.
    (4) Requests for additional information. The Board or the Reserve 
Bank may

[[Page 104]]

modify the information requirements under this section or at any time 
request any additional information that either believes is needed for a 
decision on any notice under this section.
    (5) Tolling of period. The Board or the Reserve Bank may at any time 
extend or toll the time period for action on a notice for any period 
with the consent of the notificant.
    (g) Modification or termination of service or activity. The Board 
may require a savings and loan holding company or subsidiary thereof 
which has commenced a service or activity pursuant to this section to 
modify or terminate, in whole or in part, such service or activity as 
the Board finds necessary in order to ensure compliance with the 
provisions and purposes of this part and of section 10 of the Home 
Owners' Loan Act, as amended, or to prevent evasions thereof.
    (h) Alterations. Except as may be otherwise provided in a resolution 
by or on behalf of the Board in a particular case, a service or activity 
commenced pursuant to this section shall not be altered in any material 
respect from that described in the notice filed under paragraph (c)(1) 
of this section, unless before making such alteration notice of intent 
to do so is filed in compliance with the appropriate procedures of said 
paragraph (c)(1) of this section.
    (i) Service corporation subsidiaries of savings associations. The 
Board hereby approves without application the furnishing or performing 
of such services or engaging in such activities as permitted by the OTS 
pursuant to Sec. 545.74 of this title, as in effect on March 5, 1987, 
if such service or activity is conducted by a service corporation 
subsidiary of a subsidiary savings association of a savings and loan 
holding company and if such service corporation has legal power to do 
so.



Sec. 238.54  Permissible bank holding company activities of savings
and loan holding companies.

    (a) General. For purposes of Sec. 238.51(b)(6)(i), the services and 
activities permissible for bank holding companies pursuant to 
regulations that the Board has promulgated pursuant to section 4(c) of 
the Bank Holding Company Act are permissible for savings and loan 
holding companies, or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations: Provided, That no savings and loan holding company shall 
commence any activity described in this paragraph (a) without the prior 
approval of this Board pursuant to paragraph (b) of this section, 
unless--
    (1) The holding company received a rating of satisfactory or above 
prior to January 1, 2008, or a composite rating of ``1'' or ``2'' 
thereafter, in its most recent examination, and is not in a troubled 
condition as defined in Sec. 238.72, and the holding company does not 
propose to commence the activity by an acquisition (in whole or in part) 
of a going concern; or
    (2) The activity is permissible under authority other than section 
10(c)(2)(F)(i) of the HOLA without prior notice or approval. Where an 
activity is within the scope of both Sec. 238.53 and this section, the 
procedures of Sec. 238.53 shall govern.
    (b) Procedures for applications. Applications to commence any 
activity prescribed under paragraph (a) of this section shall be filed 
with the appropriate Reserve Bank on the designated form. The Board must 
act upon such application according to the procedures of Sec. 
238.53(d), (e), and (f).
    (c) Factors considered in acting on applications. In evaluating an 
application filed under paragraph (b) of this section, the Board shall 
consider whether the performance by the applicant of the activity can 
reasonably be expected to produce benefits to the public (such as 
greater convenience, increased competition, or gains in efficiency) that 
outweigh possible adverse effects (such as undue concentration of 
resources, decreased or unfair competition, conflicts of interest, or 
unsound financial practices). This consideration includes an evaluation 
of the financial and managerial resources of the applicant, including 
its subsidiaries, and of any company to be acquired, and the effect of 
the proposed transaction on those resources.

[[Page 105]]



             Subpart G_Financial Holding Company Activities



Sec. 238.61  Scope.

    Section 10(c)(2)(H) of the HOLA (12 U.S.C. 1467a(c)(2)(H)) permits a 
savings and loan holding company to engage in activities that are 
permissible for a financial holding company if the savings and holding 
company meets the criteria to qualify as a financial holding company and 
complies with all of the requirements applicable to a financial holding 
company under sections 4(l) and 4(m) of the BHC Act as if the savings 
and loan holding company was a bank holding company. This subpart 
provides the requirements and restrictions for a savings and holding 
company to be treated as a financial holding company for the purpose of 
engaging in financial holding company activities. This subpart does not 
apply to savings and loan holding companies described in section 
10(c)(9)(C) of the HOLA (12 U.S.C. 1467a(c)(9)(C)).



Sec. 238.62  Definitions.

    For the purposes of this subpart:
    (a) Financial holding company activities refers to activities 
permissible under section 4(k) of the Bank Holding Company Act of 1956 
(12 U.S.C. 1843(k)) and Sec. 225.86 of this chapter.
    (b) [Reserved]



Sec. 238.63  Requirements to engage in financial holding company activities.

    (a) In general. In order for a savings and loan holding company to 
engage in financial holding company activities:
    (1) The savings and loan holding company and all depository 
institutions controlled by the savings and loan holding company must be 
and remain well capitalized;
    (2) The savings and loan holding company and all depository 
institutions controlled by the savings and loan company must be and 
remain well managed; and
    (3) The savings and loan holding company must have made an effective 
election to be treated as a financial holding company.
    (b) [Reserved]



Sec. 238.64  Election required.

    (a) In general. Except as provided below, a savings and loan holding 
company that wishes to engage in financial holding company activities 
must have an effective election to be treated as a financial holding 
company.
    (b) Activities performed under separate HOLA authority. A savings 
and loan holding company that conducts only the following activities is 
not required to elect to be treated as a financial holding company:
    (1) BHC Act section 4(c)(8) activities. Activities permissible under 
section 10(c)(2)(F)(i) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(i)).
    (2) Insurance agency or escrow business activities. Activities 
permissible under section 10(c)(2)(B) of the HOLA (12 U.S.C. 
1467a(c)(2)(B)).
    (3) ``1987 List'' activities. Activities permissible under section 
10(c)(2)(F)(ii) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(ii)).
    (c) Existing requirements apply. A savings and loan holding company 
that has not made an effective election to be treated as a financial 
holding company and that conducts the activities described in paragraphs 
(b)(1) through (3) of this section remains subject to any rules and 
requirements applicable to the conduct of such activities.



Sec. 238.65  Election procedures.

    (a) Filing requirement. A savings and loan holding company may elect 
to be treated as a financial holding company by filing a written 
declaration with the appropriate Reserve Bank. A declaration by a 
savings and loan holding company is considered to be filed on the date 
that all information required by paragraph (b) of this section is 
received by the appropriate Reserve Bank.
    (b) Contents of declaration. To be deemed complete, a declaration 
must:
    (1) State that the savings and loan holding company elects to be 
treated as a financial holding company in order to engage in financial 
holding company activities;
    (2) Provide the name and head office address of the savings and loan 
holding company and of each depository institution controlled by the 
savings and loan holding company;

[[Page 106]]

    (3) Certify that the savings and loan holding company and each 
depository institution controlled by the savings and loan holding 
company is well capitalized as of the date the savings and loan holding 
company submits its declaration;
    (4) Certify that the savings and loan holding company and each 
savings association controlled by the savings and loan holding company 
is well managed as of the date the savings and loan holding company 
submits its declaration;
    (c) Effectiveness of election. An election by a savings and loan 
holding company to be treated as a financial holding company shall not 
be effective if, during the period provided in paragraph (d) of this 
section, the Board finds that, as of the date the declaration was filed 
with the appropriate Reserve Bank:
    (1) Any insured depository institution controlled by the savings and 
loan holding company (except an institution excluded under paragraph (d) 
of this section) has not achieved at least a rating of ``satisfactory 
record of meeting community credit needs'' under the Community 
Reinvestment Act at the savings association's most recent examination; 
or
    (2) Any depository institution controlled by the bank holding 
company is not both well capitalized and well managed.
    (d) Consideration of the CRA performance of a recently acquired 
savings association. Except as provided in paragraph (f) of this 
section, a savings association will be excluded for purposes of the 
review of the Community Reinvestment Act rating provisions of paragraph 
(c)(1) of this section if:
    (1) The savings and loan holding company acquired the savings 
association during the 12-month period preceding the filing of an 
election under paragraph (a) of this section;
    (2) The savings and loan holding company has submitted an 
affirmative plan to the appropriate Federal banking agency for the 
savings association to take actions necessary for the institution to 
achieve at least a rating of ``satisfactory record of meeting community 
credit needs'' under the Community Reinvestment Act at the next 
examination of the savings association; and
    (3) The appropriate Federal banking agency for the savings 
association has accepted the plan described in paragraph (d)(2) of this 
section.
    (e) Effective date of election--(1) In general. An election filed by 
a savings and loan holding company under paragraph (a) of this section 
is effective on the 31st calendar day after the date that a complete 
declaration was filed with the appropriate Reserve Bank, unless the 
Board notifies the savings and loan holding company prior to that time 
that the election is ineffective.
    (2) Earlier notification that an election is effective. The Board or 
the appropriate Reserve Bank may notify a savings and loan holding 
company that its election to be treated as a financial holding company 
is effective prior to the 31st day after the date that a complete 
declaration was filed with the appropriate Reserve Bank. Such a 
notification must be in writing.
    (3) Special effective date rules for the OTS transfer date--(i) 
Deadline for filing declaration. For savings and loan holding companies 
that meet the requirements of Sec. 238.63 and that are engaged in 
financial holding company activities pursuant to existing authority as 
of July 21, 2011, an election under paragraph (a) must be filed with the 
appropriate Reserve Bank by December 31, 2011. The election must be 
accompanied by a description of the financial holding company activities 
conducted by the savings and loan holding company.
    (ii) Effective date of election. An election filed under paragraph 
(e)(3)(i) of this section is effective on the 61st calendar day after 
the date that a complete declaration was filed with the appropriate 
Reserve Bank, unless the Board notifies the savings and loan holding 
company prior to that time that the election is ineffective.
    (iii) Earlier notification that an election is effective. The Board 
or the appropriate Reserve Bank may notify a savings and loan holding 
company that its election under paragraph (e)(3)(i) of this section to 
be treated as a financial holding company is effective prior to

[[Page 107]]

the 61st day after the date that a complete declaration was filed with 
the appropriate Reserve Bank. Such notification must be in writing.
    (iv) Filings by savings and loan holding companies that do not meet 
requirements. (A) For savings and loan holding companies that are 
engaged in financial holding company activities as of July 21, 2011 but 
do not meet the requirements of Sec. 238.63, a declaration must be 
filed with the appropriate Reserve Bank by December 31, 2011, 
specifying:
    (1) The name and head office address of the savings and loan holding 
company and of each despoitory institution controlled by the savings and 
loan holding company;
    (2) The financial holding company activities that the savings and 
loan holding company is engaged in;
    (3) The requirements of Sec. 238.63 that the savings and loan 
holding company does not meet; and
    (4) A description of how the savings and loan holding company will 
achieve compliance with Sec. 238.63 prior to June 30, 2012.
    (B) A savings and loan holding company covered by this subparagraph 
will be subject to:
    (1) The notice, remediation agreement, divestiture, and any other 
requirements described in Sec. 225.83 of this chapter; or
    (2) The activities limitations and any other requirements described 
in Sec. 225.84 of this chapter, depending on which requirements of 
Sec. 238.63 the savings and loan holding company does not meet.
    (f) Requests to be treated as a financial holding company submitted 
as part of an application to become a savings and loan holding company. 
A company that is not a savings and loan holding company and has applied 
for the Board's approval to become a savings and loan holding company 
under section 10(e) of the HOLA (12 U.S.C. 1467a(e)) may as part of that 
application submit a request to be treated as a financial holding 
company. Such requests shall be made and reviewed by the Board as 
described in Sec. 225.82(f) of this chapter.
    (g) Board's authority to exercise supervisory authority over a 
savings and loan holding company treated as a financial holding company. 
An effective election to be treated as a financial holding company does 
not in any way limit the Board's statutory authority under the HOLA, the 
Federal Deposit Insurance Act, or any other relevant Federal statute to 
take appropriate action, including imposing supervisory limitations, 
restrictions, or prohibitions on the activities and acquisitions of a 
savings and loan holding company that has elected to be treated as a 
financial holding company, or enforcing compliance with applicable law.



Sec. 238.66  Ongoing requirements.

    (a) In general. A savings and loan holding company with an effective 
election to be treated as a financial holding company is subject to the 
same requirements applicable to a financial holding company, under 
sections 4(l) and 4(m) of the Bank Holding Company Act and section 
804(c) of the Community Reinvestment Act of 1977 (12 U.S.C. 2903(c)) as 
if the savings and loan holding company was a bank holding company.
    (b) Consequences of failing to continue to meet applicable capital 
and management requirements. A savings and loan holding company with an 
effective election to be treated as a financial holding company that 
fails to meet applicable capital and management requirements at Sec. 
238.63 is subject to the notice, remediation agreement, divestiture, and 
any other requirements described in Sec. 225.83 of this chapter.
    (c) Consequences of failing to continue to maintain a satisfactory 
or better rating under the Community Reinvestment Act at all insured 
depository institution subsidiaries. A savings and loan holding company 
with an effective election to be treated as a financial holding company 
that fails to maintain a satisfactory or better rating under the 
Community Reinvestment Act at all insured deposit institution 
subsidiaries is subject to the activities limitations and any other 
requirements described in Sec. 225.84 of this chapter.
    (d) Notice and approval requirements for conducting financial 
holding company activities; permissible activities. A savings and loan 
holding company with an effective election to be treated as a financial 
holding company may conduct the activities listed in Sec. 225.86 of 
this chapter subject to the notice, approval,

[[Page 108]]

and any other requirements described in Sec. Sec. 225.85 through 225.89 
of this chapter.



   Subpart H_Notice of Change of Director or Senior Executive Officer



Sec. 238.71  Purpose.

    This subpart implements 12 U.S.C. 1831i, which requires certain 
savings and loan holding companies to notify the Board before appointing 
or employing directors and senior executive officers.



Sec. 238.72  Definitions.

    The following definitions apply to this subpart:
    (a) Director means an individual who serves on the board of 
directors of a savings and loan holding company. This term does not 
include an advisory director who:
    (1) Is not elected by the shareholders;
    (2) Is not authorized to vote on any matters before the board of 
directors or any committee of the board of directors;
    (3) Provides only general policy advice to the board of directors or 
any committee of the board of directors; and
    (4) Has not been identified by the Board or Reserve Bank in writing 
as an individual who performs the functions of a director, or who 
exercises significant influence over, or participates in, major 
policymaking decisions of the board of directors.
    (b) Senior executive officer means an individual who holds the title 
or performs the function of one or more of the following positions 
(without regard to title, salary, or compensation): president, chief 
executive officer, chief operating officer, chief financial officer, 
chief lending officer, or chief investment officer. Senior executive 
officer also includes any other person identified by the Board or 
Reserve Bank in writing as an individual who exercises significant 
influence over, or participates in, major policymaking decisions, 
whether or not hired as an employee.
    (c) Troubled condition means:
    (1) A savings and loan holding company that has an unsatisfactory 
rating under the applicable holding company rating system, or that is 
informed in writing by the Board or Reserve Bank that it has an adverse 
effect on its subsidiary savings association.
    (2) A savings and loan holding company that is subject to a capital 
directive, a cease-and-desist order, a consent order, a formal written 
agreement, or a prompt corrective action directive relating to the 
safety and soundness or financial viability of the savings association, 
unless otherwise informed in writing by the Board or Reserve Bank; or
    (3) A savings and loan holding company that is informed in writing 
by the Board or Reserve Bank that it is in troubled condition based on 
information available to the Board or Reserve Bank.



Sec. 238.73  Prior notice requirements.

    (a) Savings and loan holding company. Except as provided under Sec. 
238.78, a savings and loan holding company must give the Board 30 days' 
written notice, as specified in Sec. 238.74, before adding or replacing 
any member of its board of directors, employing any person as a senior 
executive officer, or changing the responsibilities of any senior 
executive officer so that the person would assume a different senior 
executive position if the savings and loan holding company is in 
troubled condition.
    (b) Notice by individual. An individual seeking election to the 
board of directors of a savings and loan holding company described in 
paragraph (a) of this section that has not been nominated by management, 
must either provide the prior notice required under paragraph (a) of 
this section or follow the process under Sec. 238.78(b).



Sec. 238.74  Filing and processing procedures.

    (a) Filing notice--(1) Content. The notice required in Sec. 238.73 
shall be filed with the appropriate Reserve Bank and shall contain:
    (i) The information required by paragraph 6(A) of the Change in Bank 
Control Act (12 U.S.C. 1817(j)(6)(A)) as may be prescribed in the 
designated Board form;

[[Page 109]]

    (ii) Additional information consistent with the Federal Financial 
Institutions Examination Council's Joint Statement of Guidelines on 
Conducting Background Checks and Change in Control Investigations, as 
set forth in the designated Board form; and
    (iii) Such other information as may be required by the Board or 
Reserve Bank.
    (2) Modification. The Reserve Bank may modify or accept other 
information in place of the requirements of this section for a notice 
filed under this subpart.
    (3) Acceptance and processing of notice. The 30-day notice period 
specified in section 238.73 shall begin on the date all information 
required to be submitted by the notificant pursuant to this section is 
received by the appropriate Reserve Bank. The Reserve Bank shall notify 
the savings and loan holding company or individual submitting the notice 
of the date on which all required information is received and the notice 
is accepted for processing, and of the date on which the 30-day notice 
period will expire. The Board or Reserve Bank may extend the 30-day 
notice period for an additional period of not more than 60 days by 
notifying the savings and loan holding company or individual filing the 
notice that the period has been extended and stating the reason for not 
processing the notice within the 30-day notice period.
    (b) [Reserved]



Sec. 238.75  Standards for review.

    (a) Notice of disapproval. The Board or Reserve Bank will disapprove 
a notice if, pursuant to the standard set forth in 12 U.S.C. 1831i(e), 
the Board or Reserve Bank finds that the competence, experience, 
character, or integrity of the proposed individual indicates that it 
would not be in the best interests of the depositors of the savings and 
loan holding company or of the public to permit the individual to be 
employed by, or associated with, the savings and loan holding company. 
If the Board or Reserve Bank disapproves a notice, it will issue a 
written notice that explains why the Board or Reserve Bank disapproved 
the notice. The Board or Reserve Bank will send the notice to the 
savings and loan holding company and the individual.
    (b) Appeal of a notice of disapproval. (1) A disapproved individual 
or a regulated institution that has submitted a notice that is 
disapproved under this section may appeal the disapproval to the Board 
within 15 days of the effective date of the notice of disapproval. An 
appeal shall be in writing and explain the reasons for the appeal and 
include all facts, documents, and arguments that the appealing party 
wishes to be considered in the appeal, and state whether the appealing 
party is requesting an informal hearing.
    (2) Written notice of the final decision of the Board shall be sent 
to the appealing party within 60 days of the receipt of an appeal, 
unless the appealing party's request for an informal hearing is granted.
    (3) The disapproved individual may not serve as a director or senior 
executive officer of the state member bank or bank holding company while 
the appeal is pending.
    (c) Informal hearing. (1) An individual or regulated institution 
whose notice under this section has been disapproved may request an 
informal hearing on the notice. A request for an informal hearing shall 
be in writing and shall be submitted within 15 days of a notice of 
disapproval. The Board may, in its sole discretion, order an informal 
hearing if the Board finds that oral argument is appropriate or 
necessary to resolve disputes regarding material issues of fact.
    (2) An informal hearing shall be held within 30 days of a request, 
if granted, unless the requesting party agrees to a later date.
    (3) Written notice of the final decision of the Board shall be given 
to the individual and the regulated institution within 60 days of the 
conclusion of any informal hearing ordered by the Board, unless the 
requesting party agrees to a later date.



Sec. 238.76  Waiting period.

    (a) At expiration of period. A proposed director or senior executive 
officer may begin service at the end of the 30-day period and any 
extension as provided under Sec. 238.74 unless the Board or Reserve 
Bank notifies you that it has

[[Page 110]]

disapproved the notice before the end of the period.
    (b) Prior to expiration of period. A proposed director or senior 
executive officer may begin service before the end of the 30-day period 
and any extension as provided under section 238.74 of this section, if 
the Board or the Reserve Bank notifies in writing the savings and loan 
holding company or individual submitting the notice of the Board's or 
Reserve Bank's intention not to disapprove the notice.



Sec. 238.77  Waiver of prior notice requirement.

    (a) Waiver request. An individual may serve as a director or senior 
executive officer before filing a notice under this subpart if the Board 
or Reserve Bank finds that:
    (1) Delay would threaten the safety or soundness of the savings and 
loan holding company;
    (2) Delay would not be in the public interest; or
    (3) Other extraordinary circumstances exist that justify waiver of 
prior notice.
    (b) Automatic waiver. An individual may serve as a director upon 
election to the board of directors before filing a notice under this 
subpart, if the individual:
    (1) Is not proposed by the management of the savings and loan 
holding company;
    (2) Is elected as a new member of the board of directors at a 
meeting of the savings and loan holding company; and
    (3) Provides to the appropriate Reserve Bank all the information 
required in Sec. 238.74 within two (2) business days after the 
individual's election.
    (c) Subsequent Board or Reserve Bank action. The Board or Reserve 
Bank may disapprove a notice within 30 days after the Board or Reserve 
Bank issues a waiver under paragraph (a) of this section or within 30 
days after the election of an individual who has filed a notice and is 
serving pursuant to an automatic waiver under paragraph (b) of this 
section.



   Subpart I_Prohibited Service at Savings and Loan Holding Companies



Sec. 238.81  Purpose.

    This subpart implements section 19(e)(1) of the Federal Deposit 
Insurance Act (FDIA), which prohibits persons who have been convicted of 
certain criminal offenses or who have agreed to enter into a pre-trial 
diversion or similar program in connection with a prosecution for such 
criminal offenses from occupying various positions with a savings and 
loan holding company. This part also implements section 19(e)(2) of the 
FDIA, which permits the Board to provide exemptions, by regulation or 
order, from the application of the prohibition. This subpart provides an 
exemption for savings and loan holding company employees whose 
activities and responsibilities are limited solely to agriculture, 
forestry, retail merchandising, manufacturing, or public utilities 
operations, and a temporary exemption for certain persons who held 
positions with respect to a savings and loan holding company as of 
October 13, 2006. The subpart also describes procedures for applying to 
the Board for an exemption.



Sec. 238.82  Definitions.

    The following definitions apply to this subpart:
    (a) Institution-affiliated party is defined at 12 U.S.C. 1813(u), 
except that the phrase ``savings and loan holding company'' is 
substituted for ``insured depository institution'' each place that it 
appears in that definition.
    (b) Enforcement Counsel means any individual who files a notice of 
appearance to serve as counsel on behalf of the Board in the proceeding.
    (c) Person means an individual and does not include a corporation, 
firm or other business entity.
    (d) Savings and loan holding company is defined at Sec. 238.2(m), 
but excludes a subsidiary of a savings and loan holding company that is 
not itself a savings and loan holding company.



Sec. 238.83  Prohibited actions.

    (a) Person. If a person was convicted of a criminal offense 
described in

[[Page 111]]

Sec. 238.84, or agreed to enter into a pretrial diversion or similar 
program in connection with a prosecution for such a criminal offense, he 
or she may not:
    (1) Become, or continue as, an institution-affiliated party with 
respect to any savings and loan holding company.
    (2) Own or control, directly or indirectly, any savings and loan 
holding company. A person will own or control a savings and loan holding 
company if he or she owns or controls that company under subpart D of 
this part.
    (3) Otherwise participate, directly or indirectly, in the conduct of 
the affairs of any savings and loan holding company.
    (b) Savings and loan holding company. A savings and loan holding 
company may not permit any person described in paragraph (a) of this 
section to engage in any conduct or to continue any relationship 
prohibited under that paragraph.



Sec. 238.84  Covered convictions or agreements to enter into pre-trial
diversions or similar programs.

    (a) Covered convictions and agreements. Except as described in Sec. 
238.85, this subpart covers:
    (1) Any conviction of a criminal offense involving dishonesty, 
breach of trust, or money laundering. Convictions do not cover arrests, 
pending cases not brought to trial, acquittals, convictions reversed on 
appeal, pardoned convictions, or expunged convictions.
    (2) Any agreement to enter into a pretrial diversion or similar 
program in connection with a prosecution for a criminal offense 
involving dishonesty, breach of trust or money laundering. A pretrial 
diversion or similar program is a program involving a suspension or 
eventual dismissal of charges or of a criminal prosecution based upon an 
agreement for treatment, rehabilitation, restitution, or other non-
criminal or non-punitive alternative.
    (b) Dishonesty or breach of trust. A determination whether a 
criminal offense involves dishonesty or breach of trust is based on the 
statutory elements of the crime.
    (1) ``Dishonesty'' means directly or indirectly to cheat or defraud, 
to cheat or defraud for monetary gain or its equivalent, or to 
wrongfully take property belonging to another in violation of any 
criminal statute. Dishonesty includes acts involving a want of 
integrity, lack of probity, or a disposition to distort, cheat, or act 
deceitfully or fraudulently, and may include crimes which federal, state 
or local laws define as dishonest.
    (2) ``Breach of trust'' means a wrongful act, use, misappropriation, 
or omission with respect to any property or fund which has been 
committed to a person in a fiduciary or official capacity, or the misuse 
of one's official or fiduciary position to engage in a wrongful act, 
use, misappropriation, or omission.



Sec. 238.85  Adjudications and offenses not covered.

    (a) Youthful offender or juvenile delinquent. This subpart does not 
cover any adjudication by a court against a person as:
    (1) A youthful offender under any youthful offender law; or
    (2) A juvenile delinquent by a court with jurisdiction over minors 
as defined by state law.
    (b) De minimis criminal offense. This subpart does not cover de 
minimis criminal offenses. A criminal offense is de minimis if:
    (1) The person has only one conviction or pretrial diversion or 
similar program of record;
    (2) The offense was punishable by imprisonment for a term of less 
than one year, a fine of less than $1,000, or both, and the person did 
not serve time in jail.
    (3) The conviction or program was entered at least five years before 
the date the person first held a position described in Sec. 238.83(a); 
and
    (4) The offense did not involve an insured depository institution, 
insured credit union, or other banking organization (including a savings 
and loan holding company, bank holding company, or financial holding 
company).
    (5) The person must disclose the conviction or pretrial diversion or 
similar program to all insured depository institutions and other banking 
organizations the affairs of which he or she participates.

[[Page 112]]

    (6) The person must be covered by a fidelity bond to the same extent 
as others in similar positions with the savings and loan holding 
company.



Sec. 238.86  Exemptions.

    (a) Employees. An employee of a savings and loan holding company is 
exempt from the prohibition in Sec. 238.83, if all of the following 
conditions are met:
    (1) The employee's responsibilities and activities are limited 
solely to agriculture, forestry, retail merchandising, manufacturing, or 
public utilities operations.
    (2) The savings and loan holding company maintains a list of all 
policymaking positions and reviews this list annually.
    (3) The employee's position does not appear on the savings and loan 
holding company's list of policymaking positions, and the employee does 
not, in fact, exercise any policymaking function with the savings and 
loan holding company.
    (4) The employee:
    (i) Is not an institution-affiliated party of the savings and loan 
holding company other than by virtue of the employment described in 
paragraph (a) of this section.
    (ii) Does not own or control, directly or indirectly, the savings 
and loan holding company; and
    (iii) Does not participate, directly or indirectly, in the conduct 
of the affairs of the savings and loan holding company.
    (b) Temporary exemption. (1) Any prohibited person who was an 
institution affiliated party with respect to a savings and loan holding 
company, who owned or controlled, directly or indirectly a savings and 
loan holding company, or who otherwise participated directly or 
indirectly in the conduct of the affairs of a savings and loan holding 
company on October 13, 2006, may continue to hold the position with the 
savings and loan holding company.
    (2) This exemption expires on December 31, 2012, unless the savings 
and loan holding company or the person files an application seeking a 
case-by-case exemption for the person under Sec. 238.87 by that date. 
If the savings and loan holding company or the person files such an 
application, the temporary exemption expires on:
    (i) The date of issuance of a Board approval of the application 
under Sec. 238.89(a);
    (ii) The expiration of the 20-day period for filing a request for 
hearing under Sec. 238.90(a) provided there is no timely request for 
hearing following the issuance by the Board of a denial of the 
application under that section;
    (iii) The date that the Board denies a timely request for hearing 
under Sec. 238.90(b) following the issuance of a Board denial of the 
application under Sec. 238.89(b);
    (iv) The date that the Board issues a decision under Sec. 
238.90(d); or
    (v) The date an applicant withdraws the application.



Sec. 238.87  Filing procedures.

    (a) Who may file. (1) A savings and loan holding company or a person 
who was convicted of a criminal offense described in Sec. 238.84 or who 
has agreed to enter into a pre-trial diversion or similar program in 
connection with a prosecution for such a criminal offense may file an 
application with the Board seeking an exemption from the prohibitions in 
this subpart.
    (2) A savings and loan holding company or a person may seek an 
exemption only for a designated position (or positions) with respect to 
a named savings and loan holding company.
    (3) A savings and loan holding company or a person may not file an 
application less than one year after the latter of the date of a denial 
of the same exemption under Sec. 238.89(b), Sec. 238.90(a) or Sec. 
238.90(d).
    (b) Prohibition pending Board action. Unless a savings and loan 
holding company or a person is exempt under Sec. 238.86(b), the 
prohibitions in Sec. 238.83 continue to apply pending Board action on 
the application.



Sec. 238.88  Factors for review.

    (a) Board review. (1) In determining whether to approve an exemption 
application filed under Sec. 238.87, the Board will consider the extent 
to which the position that is the subject of the application enables a 
person to:

[[Page 113]]

    (i) Participate in the major policymaking functions of the savings 
and loan holding company; or
    (ii) Threaten the safety and soundness of any insured depository 
institution that is controlled by the savings and loan holding company, 
the interests of its depositors, or the public confidence in the insured 
depository institution.
    (2) The Board will also consider whether the applicant has 
demonstrated the person's fitness to hold the described position. Some 
positions may be approved without an extensive review of a person's 
fitness because the position does not enable a person to take the 
actions described in paragraph (a)(1) of this section.
    (b) Factors. In making the determinations under paragraph (a) of 
this section, the Board will consider the following factors:
    (1) The position;
    (2) The amount of influence and control a person holding the 
position will be able to exercise over the affairs and operations of the 
savings and loan holding company and the insured depository institution;
    (3) The ability of the management of the savings and loan holding 
company to supervise and control the activities of a person holding the 
position;
    (4) The level of ownership that the person will have at the savings 
and loan holding company;
    (5) The specific nature and circumstances of the criminal offense. 
The question whether a person who was convicted of a crime or who agreed 
to enter into a pretrial diversion or similar program for a crime was 
guilty of that crime is not relevant;
    (6) Evidence of rehabilitation; and
    (7) Any other relevant factor.



Sec. 238.89  Board action.

    (a) Approval. The Board will notify an applicant if an application 
under this subpart is approved. An approval by the Board may include 
such conditions as the Board determines to be appropriate.
    (b) Denial. If Board denies an application, the Board will notify an 
applicant promptly.



Sec. 238.90  Hearings.

    (a) Hearing requests. Within 20 days of the date of issuance of a 
denial of an application filed under this subpart, a savings and loan 
holding company or a person whose application the Board has denied may 
file a written request demonstrating good cause for a hearing on the 
denial.
    (b) Board review of hearing request. The Board will review the 
hearing request to determine if the savings and loan holding company or 
person has demonstrated good cause for a hearing on the application. 
Within 30 days after the filing of a timely request for a hearing, the 
Board will notify the savings and loan holding company or person in 
writing of its decision to grant or deny the hearing request. If the 
Board grants the request for a hearing, it will order a hearing to be 
commenced within 60 days of the issuance of the notification. Upon the 
request of a party, the Board may at its discretion order a later 
hearing date.
    (c) Hearing procedures. The following procedures apply to hearings 
under this subpart.
    (1) The hearing shall be held in Washington, DC, or at another 
designated place, before a presiding officer designated by the Board.
    (2) An applicant may elect in writing to have the matter determined 
on the basis of written submissions, rather than an oral hearing.
    (3) The parties to the hearing are Enforcement Counsel and the 
applicant.
    (4) The provisions of Sec. Sec. 263.2, 263.4, 263.6 through 263.12, 
and 263.16 of this chapter apply to the hearing.
    (5) Discovery is not permitted.
    (6) A party may introduce relevant and material documents and make 
oral argument at the hearing.
    (7) At the discretion of the presiding officer, witnesses may be 
presented within specified time limits, provided that a list of 
witnesses is furnished to the presiding officer and to all other parties 
prior to the hearing. Witnesses must be sworn, unless otherwise directed 
by the presiding officer. The presiding officer may ask questions of any 
witness. Each party may cross-examine any witness presented by the 
opposing

[[Page 114]]

party. The Board will furnish a transcript of the proceedings upon an 
applicant's request and upon the payment of the costs of the transcript.
    (8) The presiding officer has the power to administer oaths and 
affirmations, to take or cause to be taken depositions of unavailable 
witnesses, and to issue, revoke, quash, or modify subpoenas and 
subpoenas duces tecum. If the presentation of witnesses is permitted, 
the presiding officer may require the attendance of witnesses from any 
state, territory, or other place subject to the jurisdiction of the 
United States at any location where the proceeding is being conducted. 
Witness fees are paid in accordance with section 263.14 of this chapter.
    (9) Upon the request of a party, the record will remain open for 
five business days following the hearing for additional submissions to 
the record.
    (10) Enforcement Counsel has the burden of proving a prima facie 
case that a person is prohibited from a position under section 19(e) of 
the FDIA. The applicant has the burden of proof on all other matters.
    (11) The presiding officer must make recommendations to the Board, 
where possible, within 20 days after the last day for the parties to 
submit additions to the record.
    (12) The presiding officer must forward his or her recommendation to 
the Board who shall promptly certify the entire record, including the 
presiding officer's recommendations. The Board's certification will 
close the record.
    (d) Decision. After the certification of the record, the Board will 
notify the parties of its decision by issuing an order approving or 
denying the application.
    (1) An approval order will require fidelity bond coverage for the 
position to the same extent as similar positions with the savings and 
loan holding company. The approval order may include such other 
conditions as may be appropriate.
    (2) A denial order will include a summary of the relevant factors 
under Sec. 238.88(b).



                Subpart J_Management Official Interlocks



Sec. 238.91  Authority, purpose, and scope.

    (a) Authority. This subpart is issued under the provisions of the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended.
    (b) Purpose. The purpose of the Interlocks Act and this subpart is 
to foster competition by generally prohibiting a management official 
from serving two nonaffiliated depository organizations in situations 
where the management interlock likely would have an anticompetitive 
effect.
    (c) Scope. This subpart applies to management officials of savings 
and loan holding companies, and their affiliates.



Sec. 238.92  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of that 
section 202, shares held by an individual include shares held by members 
of his or her immediate family. ``Immediate family'' means spouse, 
mother, father, child, grandchild, sister, brother, or any of their 
spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a savings and 
loan holding company based on common ownership does not exist if the 
Board determines, after giving the affected persons the opportunity to 
respond, that the asserted affiliation was established in order to avoid 
the prohibitions of the Interlocks Act and does not represent a true 
commonality of interest between the depository organizations. In making 
this determination, the Board considers, among other things, whether a 
person, including members of his or her immediate family, whose shares 
are necessary to constitute the group owns a nominal percentage of the 
shares of one of the organizations and the percentage is substantially 
disproportionate to that person's ownership of shares in the other 
organization.

[[Page 115]]

    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or
    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.
    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road miles of each other at their closest points. The property 
line of an office located in an unincorporated city, town, or village is 
the boundary line of that city, town, or village for the purpose of this 
definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank, or a credit union, chartered under 
the laws of the United States and having a principal office located in 
the United States. Additionally, a United States office, including a 
branch or agency, of a foreign commercial bank is a depository 
institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.
    (j) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in Sec. 
225.71(c) of this chapter;
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragraph (j)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (k) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
Primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (n) Representative or nominee means a natural person who serves as a 
management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The Board will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management responsibilities. 
The Board will determine,

[[Page 116]]

after giving the affected persons an opportunity to respond, whether a 
person is a representative or nominee.
    (o) Savings association means:
    (1) Any Federal savings association (as defined in section 3(b)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2)));
    (2) Any state savings association (as defined in section 3(b)(3) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3))) the deposits 
of which are insured by the Federal Deposit Insurance Corporation; and
    (3) Any corporation (other than a bank as defined in section 3(a)(1) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1))) the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation, that the Board of Directors of the Federal Deposit 
Insurance Corporation and the Comptroller of the Currency jointly 
determine to be operating in substantially the same manner as a savings 
association.
    (p) Total assets. (1) The term total assets means assets measured on 
a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) other than the assets of its depository institution 
affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.



Sec. 238.93  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices in 
the same community.
    (b) RMSA. A management official of a depository organization may not 
serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $50 million or 
more.
    (c) Major assets. A management official of a depository organization 
with total assets exceeding $2.5 billion (or any affiliate of such an 
organization) may not serve at the same time as a management official of 
an unaffiliated depository organization with total assets exceeding $1.5 
billion (or any affiliate of such an organization), regardless of the 
location of the two depository organizations. The Board will adjust 
these thresholds, as necessary, based on the year-to-year change in the 
average of the Consumer Price Index for the Urban Wage Earners and 
Clerical Workers, not seasonally adjusted, with rounding to the nearest 
$100 million. The Board will announce the revised thresholds by 
publishing a final rule without notice and comment in the Federal 
Register.



Sec. 238.94  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 238.93 do not apply in the case of any one 
or more of the following organizations or to a subsidiary thereof:
    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United

[[Page 117]]

States except as an incident to its activities outside the United 
States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository institutions 
regulatory agency and is acquired by another depository organization. 
This exemption lasts for five years, beginning on the date the 
depository organization is acquired;
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository institutions regulatory agency at least 60 days before the 
dual service is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The Board may disapprove a notice of proposed service if it 
finds that:
    (i) The service cannot be structured or limited so as to preclude an 
anticompetitive effect in financial services in any part of the United 
States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the Board.
    (3) The Board may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the notice 
period; and
    (i) Any savings association or any savings and loan holding company 
(as defined in section 10(a)(1)(D) of the Home Owners' Loan Act) which 
has issued stock in connection with a qualified stock issuance pursuant 
to section 10(q) of such Act, except that this paragraph (i) shall apply 
only with regard to service by a single management official of such 
savings association or holding company, or any subsidiary of such 
savings association or holding company, by a single management official 
of the savings and loan holding company which purchased the stock issued 
in connection with such qualified stock issuance, and shall apply only 
when the Board has determined that such service is consistent with the 
purposes of the Interlocks Act and the Home Owners' Loan Act.



Sec. 238.95  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec. 
238.93 is permissible, if:
    (1) The interlock is not prohibited by Sec. 238.93(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have offices. 
The amount of deposits shall be determined by reference to the most 
recent annual Summary of Deposits published by the FDIC for the RMSA or 
community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.



Sec. 238.96  General exemption.

    (a) Exemption. The Board may by agency order exempt an interlock 
from the prohibitions in Sec. 238.93 if the Board finds that the 
interlock would not result in a monopoly or substantial lessening of 
competition and would not present safety and soundness concerns. A 
depository organization may apply to the Board for an exemption.

[[Page 118]]

    (b) Presumptions. In reviewing an application for an exemption under 
this section, the Board will apply a rebuttable presumption that an 
interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low- and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in Sec. 
238.72.
    (c) Duration. Unless a shorter expiration period is provided in the 
Board approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the Board grants 
an interlock exemption in reliance upon a presumption under paragraph 
(b) of this section, the interlock may continue for three years, unless 
otherwise provided by the Board in writing.



Sec. 238.97  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in asset size of an organization, a change in the 
delineation of the RMSA or community, the establishment of an office, an 
increase in the aggregate deposits of the depository organization, or an 
acquisition, merger, consolidation, or reorganization of the ownership 
structure of a depository organization that causes a previously 
permissible interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the change 
in circumstances. The Board may shorten this period under appropriate 
circumstances.



Sec. 238.98  Enforcement.

    Except as provided in this section, the Board administers and 
enforces the Interlocks Act with respect to savings and loan holding 
companies and its affiliates, and may refer any case of a prohibited 
interlocking relationship involving these entities to the Attorney 
General of the United States to enforce compliance with the Interlocks 
Act and this part. If an affiliate of a savings and loan holding company 
is subject to the primary regulation of another Federal depository 
organization supervisory agency, then the Board does not administer and 
enforce the Interlocks Act with respect to that affiliate.



Sec. 238.99  Interlocking relationships permitted pursuant to Federal
Deposit Insurance Act.

    A management official or prospective management official of a 
depository organization may enter into an otherwise prohibited 
interlocking relationship with another depository organization for a 
period of up to 10 years if such relationship is approved by the Federal 
Deposit Insurance Corporation pursuant to section 13(k)(1)(A)(v) of the 
Federal Deposit Insurance Act, as amended (12 U.S.C. 1823(k)(1)(A)(v)).



         Subpart K_Dividends by Subsidiary Savings Associations



Sec. 238.101  Authority and purpose.

    This subpart implements section 10(f) of HOLA which requires savings 
associations with holding companies to provide the Board not less than 
30 days' notice of a proposed declaration of a dividend. This subpart 
applies to all declarations of dividends by a subsidiary savings 
association of a savings and loan holding company.



Sec. 238.102  Definitions.

    The following definitions apply to this subpart:
    (a) Appropriate Federal banking agency has the same meaning as in 12 
U.S.C. 1813(q) and includes, with respect to agreements entered into and 
conditions imposed prior to July 21, 2011, the Office of Thrift 
Supervision.
    (b) Dividend means:

[[Page 119]]

    (1) A distribution of cash or other property to owners of a savings 
association made on account of their ownership, but not any dividend 
consisting only of shares or rights to purchase shares; or
    (2) Any transaction that the Board determines, by order or 
regulation, to be in substance a dividend.
    (c) Shares means common and preferred stock, and any options, 
warrants, or other rights for the acquisition of such stock. The term 
``share'' also includes convertible securities upon their conversion 
into common or preferred stock. The term does not include convertible 
debt securities prior to their conversion into common or preferred stock 
or other securities that are not equity securities at the time of a 
dividend.



Sec. 238.103  Filing requirement.

    (a) Filing. A subsidiary savings association of a savings and loan 
holding company must file a notice with the appropriate Reserve Bank on 
the designated form at least 30 days before the proposed declaration of 
a dividend by its board of directors.
    (b) Schedules. A notice may include a schedule proposing dividends 
over a specified period, not to exceed 12 months.



Sec. 238.104  Board action and criteria for review.

    (a) Board action. (1) A subsidiary savings association of a savings 
and loan holding company may declare a proposed dividend after the end 
of a 30-day review period commencing on the date of submission to the 
Federal Reserve System of the complete record on the notice, unless the 
Board or Reserve Bank disapproves the notice before the end of the 
period.
    (2) A subsidiary savings association of a savings and loan holding 
company may declare a proposed dividend before the end of the 30-day 
period if the Board or Reserve Bank notifies the applicant in writing of 
the Board's or Reserve Bank's intention not to disapprove the notice.
    (b) Criteria. The Board or Reserve Bank may disapprove a notice, in 
whole or in part, if the Board or Reserve Bank makes any of the 
following determinations.
    (1) Following the dividend the subsidiary savings association will 
be undercapitalized, significantly undercapitalized, or critically 
undercapitalized as set forth in applicable regulations under 12 U.S.C. 
1831o.
    (2) The proposed dividend raises safety or soundness concerns.
    (3) The proposed dividend violates a prohibition contained in any 
statute, regulation, enforcement action, or agreement between the 
subsidiary savings association or any savings and loan holding company 
of which it is a subsidiary and an appropriate Federal banking agency, a 
condition imposed on the subsidiary savings association or any savings 
and loan holding company of which it is a subsidiary in an application 
or notice approved by an appropriate Federal banking agency, or any 
formal or informal enforcement action involving the subsidiary savings 
association or any savings and loan holding company of which it is a 
subsidiary. If so, the Board will determine whether it may permit the 
dividend notwithstanding the prohibition, condition, or enforcement 
action.



 Subpart L_Investigative Proceedings and Formal Examination Proceedings



Sec. 238.111  Scope.

    This part prescribes rules of practice and procedure applicable to 
the conduct of investigative proceedings under section 10(g)(2) of the 
Home Owners' Loan Act, as amended, 12 U.S.C. 1467a(g)(2) (``HOLA'') and 
to the conduct of formal examination proceedings with respect to savings 
and loan holding companies and their affiliates under section 5(d)(1)(B) 
of the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or section 7(j)(15) of 
the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) 
(``FDIA''), section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 
10(c) of the FDIA, 12 U.S.C. 1820(c). This part does not apply to 
adjudicatory proceedings as to which hearings are required by statute, 
the rules for which are contained in part 262 of this chapter.

[[Page 120]]



Sec. 238.112  Definitions.

    As used in this part:
    (a) Investigative proceeding means an investigation conducted under 
section 10(g)(2) of the HOLA;
    (b) Formal examination proceeding means the administration of oaths 
and affirmations, taking and preserving of testimony, requiring the 
production of books, papers, correspondence, memoranda, and all other 
records, the issuance of subpoenas, and all related activities in 
connection with examination of savings and loan holding companies and 
their affiliates conducted pursuant to section 5(d)(1)(B) of the HOLA, 
section 7(j)(15) of the FDIA, section 8(n) of the FDIA or section 10(c) 
of the FDIA; and
    (c) Designated representative means the person or persons empowered 
by the Board to conduct an investigative proceeding or a formal 
examination proceeding.



Sec. 238.113  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the Board, all investigative proceedings shall also 
be private. Unless otherwise ordered or permitted by the Board, or 
required by law, and except as provided in Sec. Sec. 238.114 and 
238.115, the entire record of any investigative proceeding or formal 
examination proceeding, including the resolution of the Board or its 
delegate(s) authorizing the proceeding, the transcript of such 
proceeding, and all documents and information obtained by the designated 
representative(s) during the course of said proceedings shall be 
confidential.



Sec. 238.114  Transcripts.

    Transcripts or other recordings, if any, of investigative 
proceedings or formal examination proceedings shall be prepared solely 
by an official reporter or by any other person or means authorized by 
the designated representative. A person who has submitted documentary 
evidence or given testimony in an investigative proceeding or formal 
examination proceeding may procure a copy of his own documentary 
evidence or transcript of his own testimony upon payment of the cost 
thereof; provided, that a person seeking a transcript of his own 
testimony must file a written request with the Board stating the reason 
he desires to procure such transcript, and the Board may for good cause 
deny such request. In any event, any witness (or his counsel) shall have 
the right to inspect the transcript of the witness' own testimony.



Sec. 238.115  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish documentary 
evidence or give testimony at an investigative proceeding or formal 
examination proceeding shall have the right to examine, upon request, 
the Board resolution authorizing such proceeding. Copies of such 
resolution shall be furnished, for their retention, to such persons only 
with the written approval of the Board.
    (b) Any witness at an investigative proceeding or formal examination 
proceeding may be accompanied and advised by an attorney personally 
representing that witness.
    (1) Such attorney shall be a member in good standing of the bar of 
the highest court of any state, Commonwealth, possession, territory, or 
the District of Columbia, who has not been suspended or debarred from 
practice by the bar of any such political entity or before the Board in 
accordance with the provisions of part 263 of this chapter and has not 
been excluded from the particular investigative proceeding or formal 
examination proceeding in accordance with paragraph (b)(3) of this 
section.
    (2) Such attorney may advise the witness before, during, and after 
the taking of his testimony and may briefly question the witness, on the 
record, at the conclusion of his testimony, for the sole purpose of 
clarifying any of the answers the witness has given. During the taking 
of the testimony of a witness, such attorney may make summary notes 
solely for his use in representing his client. All witnesses shall be 
sequestered, and, unless permitted in the discretion of the designated 
representative, no witness or accompanying attorney may be permitted to 
be present during the taking of testimony of any other witness called in 
such proceeding. Neither attorney(s)

[[Page 121]]

for the association(s) that are the subjects of the investigative 
proceedings or formal examination proceedings, nor attorneys for any 
other interested persons, shall have any right to be present during the 
testimony of any witness not personally being represented by such 
attorney.
    (3) The Board, for good cause, may exclude a particular attorney 
from further participation in any investigation in which the Board has 
found the attorney to have engaged in dilatory, obstructionist, 
egregious, contemptuous or contumacious conduct. The person conducting 
an investigation may report to the Board instances of apparently 
dilatory, obstructionist, egregious, contemptuous or contumacious 
conduct on the part of an attorney. After due notice to the attorney, 
the Board may take such action as the circumstances warrant based upon a 
written record evidencing the conduct of the attorney in that 
investigation or such other or additional written or oral presentation 
as the Board may permit or direct.



Sec. 238.116  Obstruction of proceedings.

    The designated representative shall report to the Board any 
instances where any witness or counsel has engaged in dilatory, 
obstructionist, or contumacious conduct or has otherwise violated any 
provision of this part during the course of an investigative proceeding 
or formal examination proceeding; and the Board may take such action as 
the circumstances warrant, including the exclusion of counsel from 
further participation in such proceeding.



Sec. 238.117  Subpoenas.

    (a) Service. Service of a subpoena in connection with any 
investigative proceeding or formal examination proceeding shall be 
effected in the following manner:
    (1) Service upon a natural person. Service of a subpoena upon a 
natural person may be effected by handing it to such person; by leaving 
it at his office with the person in charge thereof, or, if there is no 
one in charge, by leaving it in a conspicuous place therein; by leaving 
it at his dwelling place or usual place of abode with some person of 
suitable age and discretion then residing therein; by mailing it to him 
by registered or certified mail or by an express delivery service at his 
last known address; or by any method whereby actual notice is given to 
him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, service of the subpoena may be effected by handing the 
subpoena to a registered agent for service, or to any officer, director, 
or agent in charge of any office of such person; by mailing it to any 
such representative by registered or certified mail or by an express 
delivery service at his last known address; or by any method whereby 
actual notice is given to such person.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance, but in no event more 
than 10 days after the date of service of such subpoena, apply to the 
Board or its designee to quash or modify such subpoena, accompanying 
such application with a statement of the reasons therefore. The Board or 
its designee, as appropriate, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
Board or its designee determines to be just, reasonable, and proper.
    (c) Attendance of witnesses. Subpoenas issued in connection with an 
investigative proceeding or formal examination proceeding may require 
the attendance and/or testimony of witnesses from any State or territory 
of the United States and the production by such witnesses of documentary 
or other tangible evidence at any designated place where the proceeding 
is being (or is to be) conducted. Foreign nationals are subject to such 
subpoenas if such service is made upon a duly authorized agent located 
in the United States.
    (d) Witness fees and mileage. Witnesses summoned in any proceeding 
under this part shall be paid the same fees and mileage that are paid 
witnesses in the district courts of the United States. Such fees and 
mileage need not be tendered when the subpoena is issued on behalf of 
the Board by any of its designated representatives.

[[Page 122]]



PART 239_MUTUAL HOLDING COMPANIES (REGULATION MM)--
Table of Contents



                      Subpart A_General Provisions

Sec.
239.1 Authority, purpose, and scope.
239.2 Definitions.

                   Subpart B_Mutual Holding Companies

239.3 Mutual holding company reorganizations.
239.4 Grounds for disapproval of reorganizations.
239.5 Membership rights.
239.6 Contents of Reorganization Plans.
239.7 Acquisition and disposition of savings associations, savings and 
          loan holding companies, and other corporations by mutual 
          holding companies.
239.8 Operating restrictions.
239.9 Conversion or liquidation of mutual holding companies.
239.10 Procedural requirements.
239.11 Subsidiary holding companies.
239.12 Communication between members of a mutual holding company.
239.13 Charters.
239.14 Charter amendments.
239.15 Bylaws.
239.16 Voluntary dissolution.

                 Subpart C_Subsidiary Holding Companies

239.20 Scope.
239.21 Charters.
239.22 Charter amendments.
239.23 Bylaws.
239.24 Issuances of stock by subsidiary holding companies of mutual 
          holding companies.
239.25 Contents of Stock Issuance Plans.
239.26 Shareholders.
239.27 Board of directors.
239.28 Officers.
239.29 Certificates for shares and their transfer.
239.30 Annual reports; books and records.
239.31 Indemnification; employment contracts.

             Subpart D_Indemnification; Employment Contracts

239.40 Indemnification of directors, officers and employees.
239.41 Employment contracts.

             Subpart E_Conversions from Mutual to Stock Form

239.50 Purpose and scope.
239.51 Acquiring another insured stock depository institution as part of 
          a conversion.
239.52 Definitions.
239.53 Prior to conversion.
239.54 Plan of conversion.
239.55 Filing requirements.
239.56 Vote by members.
239.57 Proxy solicitation.
239.58 Offering circular.
239.59 Offers and sales of stock.
239.60 Completion of the offering.
239.61 Completion of the conversion.
239.62 Liquidation accounts.
239.63 Post-conversion.
239.64 Contributions to charitable organizations.
239.65 Voluntary supervisory conversions.
239.66 Board review of the voluntary supervisory conversion application.

Appendix A to Part 239--Mutual Holding Company Model Charter
Appendix B to Part 239--Subsidiary Holding Company of a Mutual Holding 
          Company Model Charter
Appendix C to Part 239--Mutual Holding Company Model Bylaws
Appendix D to Part 239--Subsidiary Holding Company of a Mutual Holding 
          Company Model Bylaws

    Authority: 12 U.S.C. 1462, 1462a, 1464, 1467a, 1828, and 2901.

    Source: Regulation MM, 76 FR 56357, Sept. 13, 2011, unless otherwise 
noted.



                      Subpart A_General Provisions



Sec. 239.1  Authority, purpose, and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (``Board'') under section 10(g) and (o) of the 
Home Owners' Loan Act (``HOLA'').
    (b) Purpose. The principal purposes of this part are to:
    (1) Regulate the reorganization of mutual savings associations to 
mutual holding companies and the creation of subsidiary holding 
companies of mutual holding companies;
    (2) Define and regulate the operations of mutual holding companies 
and subsidiary holding companies of mutual holding companies; and
    (3) Set forth the procedures for securing approval for these 
transactions.
    (c) Scope. Except as the Board may otherwise determine, the 
reorganization of mutual savings associations into mutual holding 
companies, any related stock issuances by subsidiary holding companies, 
and the conversion of mutual holding companies into stock form are 
exclusively governed by

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the provisions of this part, and no mutual savings association shall 
reorganize to a mutual holding company, no subsidiary holding company of 
a mutual holding company shall issue minority stock, and no mutual 
holding company shall convert into stock form without the prior written 
approval of the Board. The Board may grant a waiver in writing from any 
requirement of this part for good cause shown.



Sec. 239.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Acquiree association means any savings association, other than a 
resulting association, that:
    (1) Is acquired by a mutual holding company as part of, and 
concurrently with, a mutual holding company reorganization; and
    (2) Is in the mutual form immediately prior to such acquisition.
    (b) Acting in concert has the same meaning as in Sec. 238.31(b) of 
this chapter.
    (c) Affiliate has the same meaning as in Sec. 238.2(a) of this 
chapter.
    (d) Associate of a person is:
    (1) A corporation or organization (other than the mutual holding 
company, subsidiary holding company, or any majority-owned subsidiaries 
of such holding companies), if the person is a senior officer or 
partner, or beneficially owns, directly or indirectly, 10 percent or 
more of any class of equity securities of the corporation or 
organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Sec. Sec. 239.59(k), 239.59(m), 
239.59(n), 239.59(o), 239.59(p), 239.63(b), a person who has a 
substantial beneficial interest in the mutual holding company or 
subsidiary holding company's tax-qualified or non-tax-qualified employee 
stock benefit plan, or who is a trustee or a fiduciary of the plan, is 
not an associate of the plan. For the purposes of Sec. 239.59(k), the 
mutual holding company or subsidiary holding company's tax-qualified 
employee stock benefit plan is not an associate of a person.
    (3) Any natural person who is related by blood or marriage to such 
person and:
    (i) Who lives in the same home as the person; or
    (ii) Who is a director or senior officer of the mutual holding 
company, subsidiary holding company, or other subsidiary.
    (e) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (u) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, or any Federal Home Loan Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State,
    (ii) An officer of the United States or any State in his or her 
official capacity, or
    (iii) An instrumentality of the United States or any State.
    (f) Control has the same meaning as in Sec. 238.2(e) of this 
chapter.
    (g) Default means any adjudication or other official determination 
of a court of competent jurisdiction or other public authority pursuant 
to which a conservator, receiver, or other legal custodian is appointed 
for a mutual holding company or subsidiary savings association of a 
mutual holding company.
    (h) Demand accounts mean non-interest-bearing demand deposits that 
are subject to check or to withdrawal or transfer on negotiable or 
transferable order to the savings association and that are permitted to 
be issued by statute, regulation, or otherwise and are payable on 
demand.
    (i) Insider means any officer or director of a company or of any 
affiliate of such company, and any person acting in concert with any 
such officer or director.
    (j) Member means any depositor or borrower of a mutual savings 
association that is entitled, under the charter of the savings 
association, to vote on matters affecting the association, and any 
depositor or borrower of a subsidiary savings association of a mutual 
holding company that is entitled,

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under the charter of the mutual holding company, to vote on matters 
affecting the mutual holding company.
    (k) Mutual holding company means a holding company organized in 
mutual form under this part, and unless otherwise indicated, a 
subsidiary holding company controlled by a mutual holding company, 
organized under this part.
    (l) Parent means any company which directly or indirectly controls 
any other company or companies.
    (m) Person includes an individual, bank, corporation, partnership, 
trust, association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, or any other form of entity.
    (n) Reorganization Notice means a notice of a proposed mutual 
holding company reorganization that is in the form and contains the 
information required by the Board.
    (o) Reorganization Plan means a plan to reorganize into the mutual 
holding company format containing the information required by Sec. 
239.6.
    (p) Reorganizing association means a mutual savings association that 
proposes to reorganize to become a mutual holding company pursuant to 
this part.
    (q) Resulting association means a savings association in the stock 
form that is organized as a subsidiary of a reorganizing association to 
receive the substantial part of the assets and liabilities (including 
all deposit accounts) of the reorganizing association upon consummation 
of the reorganization.
    (r) Savings account means any withdrawable account, except a demand 
account, a tax and loan account, a note account, a United States 
Treasury general account, or a United States Treasury time deposit-open 
account.
    (s) Savings Association has the same meaning as in Sec. 238.2(l) of 
this chapter.
    (t) Savings and loan holding company has the same meaning as 
specified in section 10(a)(1) of the HOLA and Sec. 238.2(m) of this 
chapter.
    (u) Similar organization for purposes of paragraph (e) of this 
section means a combination of parties with the potential for or 
practical likelihood of continuing rather than temporary existence, 
where the parties thereto have knowingly and voluntarily associated for 
a common purpose pursuant to identifiable and binding relationships 
which govern the parties with respect to either:
    (1) The transferability and voting of any stock or other indicia of 
participation in another entity, or
    (2) Achievement of a common or shared objective, such as to 
collectively manage or control another entity.
    (v) Stock means common or preferred stock, or any other type of 
equity security, including (without limitation) warrants or options to 
acquire common or preferred stock, or other securities that are 
convertible into common or preferred stock.
    (w) Stock Issuance Plan means a plan, submitted pursuant to Sec. 
239.24 and containing the information required by Sec. 239.25, 
providing for the issuance of stock by a subsidiary holding company.
    (x) Subsidiary means any company which is owned or controlled 
directly or indirectly by a person, and includes any service corporation 
owned in whole or in part by a savings association, or a subsidiary of 
such service corporation.
    (y) Subsidiary holding company means a federally chartered stock 
holding company controlled by a mutual holding company that owns the 
stock of a savings association whose depositors have membership rights 
in the parent mutual holding company.
    (z) Tax and loan account means an account, the balance of which is 
subject to the right of immediate withdrawal, established for receipt of 
payments of Federal taxes and certain United States obligations. Such 
accounts are not savings accounts or savings deposits.
    (aa) Tax-qualified employee stock benefit plan means any defined 
benefit plan or defined contribution plan, such as an employee stock 
ownership plan, stock bonus plan, profit-sharing plan, or other plan, 
and a related trust, that is qualified under sec. 401 of the Internal 
Revenue Code (26 U.S.C. 401).
    (bb) United States Treasury General Account means an account 
maintained in the name of the United States Treasury the balance of 
which is subject to the right of immediate withdrawal, except in the 
case of the closure of the

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member, and in which a zero balance may be maintained. Such accounts are 
not savings accounts or savings deposits.
    (cc) United States Treasury Time Deposit Open Account means a non-
interest-bearing account maintained in the name of the United States 
Treasury which may not be withdrawn prior to the expiration of 30 days' 
written notice from the United States Treasury, or such other period of 
notice as the Treasury may require. Such accounts are not savings 
accounts or savings deposits.



                   Subpart B_Mutual Holding Companies



Sec. 239.3  Mutual holding company reorganizations.

    (a) A mutual savings association may not reorganize to become a 
mutual holding company, or join in a mutual holding company 
reorganization as an acquiree association, unless it satisfies the 
following conditions:
    (1) A Reorganization Plan is approved by a majority of the board of 
directors of the reorganizing association and any acquiree association;
    (2) A Reorganization Notice is filed with the Board pursuant to 
Sec. 238.14 of this chapter;
    (3) The Reorganization Plan is submitted to the members of the 
reorganizing association and any acquiree association pursuant and is 
approved by a majority of the total votes of the members of each 
association eligible to be cast at a meeting held at the call of each 
association's directors in accordance with the procedures prescribed by 
each association's charter and bylaws; and
    (4) All necessary regulatory approvals have been obtained and all 
conditions imposed by the Board have been satisfied.
    (b) Upon receipt of an application under this section, the Reserve 
Bank will promptly furnish notice and a copy of the Reorganization Plan 
to the primary federal supervisor of any savings association involved in 
the transaction. The primary supervisor will have 30 calendar days from 
the date of the letter giving notice in which to submit its views and 
recommendations to the Board.



Sec. 239.4  Grounds for disapproval of reorganizations.

    (a) Basic standards. The Board may disapprove a proposed mutual 
holding company reorganization filed pursuant to Sec. 239.3(a) if:
    (1) Disapproval is necessary to prevent unsafe or unsound practices;
    (2) The financial or managerial resources of the reorganizing 
association or any acquiree association warrant disapproval;
    (3) The proposed capitalization of the mutual holding company fails 
to meet the requirements of paragraph (b) of this section;
    (4) A stock issuance is proposed in connection with the 
reorganization pursuant to Sec. 239.24 that fails to meet the standards 
established by that section;
    (5) The reorganizing association or any acquiree association fails 
to furnish the information required to be included in the Reorganization 
Notice or any other information requested by the Board in connection 
with the proposed reorganization; or
    (6) The proposed reorganization would violate any provision of law, 
including (without limitation) Sec. 239.3(a) and (c) (regarding board 
of directors and membership approval) or Sec. 239.5(a) (regarding 
continuity of membership rights).
    (b) Capitalization. (1) The Board shall disapprove a proposal by a 
reorganizing association or any acquiree association to capitalize a 
mutual holding company in an amount in excess of a nominal amount if 
immediately following the reorganization, the resulting association or 
the acquiree association would fail to be ``adequately capitalized'' 
under the regulatory capital requirements applicable to the savings 
association.
    (2) Proposals by reorganizing associations and acquiree associations 
to capitalize mutual holding companies shall also comply with any 
applicable statutes, and with regulations or written policies of the 
Comptroller of the Currency or the Federal Deposit Insurance 
Corporation, as applicable, governing

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capital distributions by savings associations in effect at the time of 
the reorganization.
    (c) Presumptive disqualifiers--(1) Managerial resources. The factors 
specified in Sec. 238.15(d)(1)(i) through (vi) of this chapter shall 
give rise to a rebuttable presumption that the managerial resources test 
of paragraph (a)(2) of this section is not met. For this purpose, each 
place the term acquiror appears in Sec. 238.15(d)(1)(i) through (vi) of 
this chapter, it shall be read to mean the reorganizing association or 
any acquiree association, and the reference in Sec. 238.15(d)(1)(v) of 
this chapter to filings under this part shall be deemed to include 
filings under either part 238 of this chapter or this part.
    (2) Safety and soundness and financial resources. Failure by a 
reorganizing association and any acquiree association to submit a 
business plan in connection with a Reorganization Notice, or submission 
of a business plan that projects activities that are inconsistent with 
the credit and lending needs of the reorganizing association or acquiree 
association's proposed market area or that fails to demonstrate that the 
capital of the mutual holding company will be deployed in a safe and 
sound manner, shall give rise to a rebuttable presumption that the 
safety and soundness and financial resources tests of paragraphs (a)(1) 
and (a)(2) of this section are not met.
    (d) Failure of the Board to act on a Reorganization Notice within 
the prescribed time period. A proposed reorganization that obtains 
regulatory clearance from the Board due to the operation of Sec. 238.14 
of this chapter may take place in the manner proposed, subject to the 
following conditions:
    (1) The reorganization shall be consummated within one year of the 
date of the expiration of the Board's review period under Sec. 238.14 
of this chapter;
    (2) The mutual holding company shall not be capitalized in an amount 
in excess of what is permissible under Sec. 239.4(b);
    (3) No request for regulatory waivers or forbearances shall be 
deemed granted;
    (4) The following information shall be submitted within the 
specified time frames:
    (i) On the business day prior to the date of the reorganization, the 
chief financial officers of the reorganizing association and any 
acquiree association shall certify to the Board in writing that no 
material adverse events or material adverse changes have occurred with 
respect to the financial condition or operations of their respective 
associations since the date of the financial statements submitted with 
the Reorganization Notice;
    (ii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board a certification by legal 
counsel stating the effective date of the reorganization, the exact 
number of shares of stock of the resulting association and any acquiree 
association acquired by the mutual holding company and by any other 
persons, and that the reorganization has been consummated in accordance 
with Sec. 239.3 and all other applicable laws and regulations and the 
Reorganization Notice;
    (iii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board an opinion from its 
independent auditors certifying that the reorganization was consummated 
in accordance with generally accepted accounting principles; and
    (iv) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board a certification stating that 
the mutual holding company will not deviate materially, or cause its 
subsidiary savings associations to deviate materially, from the business 
plan submitted in connection with the Reorganization Notice, unless 
prior written approval from the Board is obtained.



Sec. 239.5  Membership rights.

    (a) Depositors and borrowers of resulting associations, acquiree 
associations, and associations in mutual form when acquired. The charter 
of a mutual holding company must:
    (1) Confer upon existing and future depositors of the resulting 
association the same membership rights in the mutual holding company as 
were conferred upon depositors by the charter

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of the reorganizing association as in effect immediately prior to the 
reorganization;
    (2) Confer upon existing and future depositors of any acquiree 
association or any association that is in the mutual form when acquired 
by the mutual holding company the same membership rights in the mutual 
holding company as were conferred upon depositors by the charter of the 
acquired association immediately prior to acquisition, provided that if 
the acquired association is merged into another association from which 
the mutual holding company draws members, the depositors of the acquired 
association shall receive the same membership rights as the depositors 
of the association into which the acquired association is merged;
    (3) Confer upon the borrowers of the resulting association who are 
borrowers at the time of reorganization the same membership rights in 
the mutual holding company as were conferred upon them by the charter of 
the reorganizing association immediately prior to reorganization, but 
shall not confer any membership rights in connection with any borrowings 
made after the reorganization; and
    (4) Confer upon the borrowers of any acquiree association or any 
association that is in the mutual form when acquired by the mutual 
holding company who are borrowers at the time of the acquisition the 
same membership rights in the mutual holding company as were conferred 
upon them by the charter of the acquired association immediately prior 
to acquisition, but shall not confer any membership rights in connection 
with any borrowings made after the acquisition, provided that if the 
acquired association is merged into another association from which the 
mutual holding company draws members, the borrowers of the acquired 
association shall instead receive the same grandfathered membership 
rights as the borrowers of the association into which the acquired 
association is merged received at the time that association became a 
subsidiary of the mutual holding company.
    (b) Depositors and borrowers of associations in the stock form when 
acquired. A mutual holding company that acquires a savings association 
in the stock form, other than a resulting association or an acquiree 
association, shall not confer any membership rights upon the depositors 
and borrowers of such association, unless such association is merged 
into an association from which the mutual holding company draws members, 
in which case the depositors of the stock association shall receive the 
same membership rights as other depositors of the association into which 
the stock association is merged.



Sec. 239.6  Contents of Reorganization Plans.

    Each Reorganization Plan shall contain a complete description of all 
significant terms of the proposed reorganization, shall attach and 
incorporate any Stock Issuance Plan proposed in connection with the 
Reorganization Plan, and shall:
    (a) Provide for amendment of the charter and bylaws of the 
reorganizing association to read in the form of the charter and bylaws 
of a mutual holding company, and attach and incorporate such charter and 
bylaws;
    (b) Provide for the organization of the resulting association, which 
shall be an interim federal or state subsidiary savings association of 
the reorganizing association, and attach and incorporate the proposed 
charter and bylaws of such association;
    (c) If the reorganizing association proposes to form a subsidiary 
holding company, provide for the organization of a subsidiary holding 
company and attach and incorporate the proposed charter and bylaws of 
such subsidiary holding company.
    (d) Provide for amendment of the charter and bylaws of any acquiree 
association to read in the form of the charter and bylaws of a state or 
federal savings association in the stock form, and attach and 
incorporate such charter and bylaws;
    (e) Provide that, upon consummation of the reorganization, 
substantially all of the assets and liabilities (including all savings 
accounts, demand accounts, tax and loan accounts, United States Treasury 
General Accounts, or United States Treasury Time Deposit Open Accounts, 
as those terms are defined in

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this part) of the reorganizing association shall be transferred to the 
resulting association, which shall thereupon become an operating 
subsidiary savings association of the mutual holding company;
    (f) Provide that all assets, rights, obligations, and liabilities of 
whatever nature of the reorganizing association that are not expressly 
retained by the mutual holding company shall be deemed transferred to 
the resulting association;
    (g) Provide that each depositor in the reorganizing association or 
any acquiree association immediately prior to the reorganization shall 
upon consummation of the reorganization receive, without payment, an 
identical account in the resulting association or the acquiree 
association, as the case may be (Appropriate modifications should be 
made to this provision if savings associations are being merged as a 
part of the reorganization);
    (h) Provide that the Reorganization Plan as adopted by the boards of 
directors of the reorganizing association and any acquiree association 
may be substantively amended by those boards of directors as a result of 
comments from regulatory authorities or otherwise prior to the 
solicitation of proxies from the members of the reorganizing association 
and any acquiree association to vote on the Reorganization Plan and at 
any time thereafter with the concurrence of the Board; and that the 
reorganization may be terminated by the board of directors of the 
reorganizing association or any acquiree association at any time prior 
to the meeting of the members of the association called to consider the 
Reorganization Plan and at any time thereafter with the concurrence of 
the Board;
    (i) Provide that the Reorganization Plan shall be terminated if not 
completed within a specified period of time (The time period shall not 
be more than 24 months from the date upon which the members of the 
reorganizing association or the date upon which the members of any 
acquiree association, whichever is earlier, approve the Reorganization 
Plan and may not be extended by the reorganizing or acquiree 
association); and
    (j) Provide that the expenses incurred in connection with the 
reorganization shall be reasonable.



Sec. 239.7  Acquisition and disposition of savings associations,
savings and loan holding companies, and other corporations by mutual

holding companies.

    (a) Acquisitions--(1) Stock savings associations. A mutual holding 
company may not acquire control of a savings association that is in the 
stock form unless the necessary approvals are obtained from the Board, 
including approval pursuant to Sec. 238.11 of this chapter.
    (2) Mutual savings associations. A mutual holding company may not 
acquire a savings association in the mutual form by merger of such 
association into any subsidiary savings association of such holding 
company from which the parent mutual holding company draws members or 
into an interim subsidiary savings association of the mutual holding 
company, unless:
    (i) The proposed acquisition is approved by a majority of the board 
of directors of the mutual association;
    (ii) The proposed acquisition is submitted to the mutual 
association's members and is approved by a majority of the total votes 
of the association's members eligible to be cast at a meeting held at 
the call of the association's directors in accordance with the 
procedures prescribed by the association's charter and bylaws;
    (iii) The necessary approvals are obtained from the Board, including 
approval pursuant to Sec. 238.11 of this chapter, and any other 
approvals required to form an interim association, to amend the charter 
and bylaws of the association being acquired, and/or to amend the 
charter and bylaws of the mutual holding company consistent with Sec. 
239.6(a); and
    (iv) The approval of the members of the mutual holding company is 
obtained, if the Board advises the mutual holding company in writing 
that such approval will be required.
    (3) Mutual holding companies. A mutual holding company that is not a 
subsidiary holding company may not acquire control of another mutual 
holding company, including a subsidiary holding company, by merging with 
or

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into such company, unless the necessary approvals are obtained from the 
Board, including approval pursuant to Sec. 238.11 of this chapter. The 
approval of the members of the mutual holding companies shall also be 
obtained if the Board advises the mutual holding companies in writing 
that such approval will be required.
    (4) Stock holding companies. A mutual holding company may not 
acquire control of a savings and loan holding company in the stock form 
that is not a subsidiary holding company, unless the necessary approvals 
are obtained from the Board, including approval pursuant to Sec. 238.11 
of this chapter. The acquired holding company may be held as a 
subsidiary of the mutual holding company or merged into the mutual 
holding company.
    (5) Non-controlling acquisitions of savings association stock. A 
mutual holding company may acquire non-controlling amounts of the stock 
of savings associations and savings and loan holding companies subject 
to the restrictions imposed by 12 U.S.C. 1467a(e) and (q) and Sec. Sec. 
238.41 and 238.11 of this chapter.
    (6) Other corporations. A mutual holding company may not acquire 
control of, or make non-controlling investments in the stock of, any 
corporation other than a savings association or savings and loan holding 
company unless:
    (i)(A) Such corporation is engaged exclusively in activities that 
are permissible for mutual holding companies pursuant to Sec. 239.8(a); 
or
    (B) It is lawful for the stock of such corporation to be purchased 
by a federal savings association under the applicable regulations of the 
Comptroller of the Currency or by a state savings association under the 
applicable regulations of the Federal Deposit Insurance Corporation and 
the laws of any state where any subsidiary savings association of the 
mutual holding company has its home office; and
    (ii) Such corporation is not controlled, directly or indirectly, by 
a subsidiary savings association of the mutual holding company.
    (b) Dispositions. (1) A mutual holding company shall provide written 
notice to the appropriate Reserve Bank at least 30 days prior to the 
effective date of any direct or indirect transfer of any of the stock 
that it holds in a subsidiary holding company, a resulting association, 
an acquiree association, or any subsidiary savings association that was 
in the mutual form when acquired by the mutual holding company, 
including stock transferred in connection with a pledge pursuant to 
Sec. 239.8(b) or any transfer of all or a substantial portion of the 
assets or liabilities of any such subsidiary holding company or 
association. Any such disposition shall comply with the requirements of 
this part, as appropriate, and with any other applicable statute or 
regulation.
    (2) A mutual holding company may, subject to applicable laws and 
regulations, transfer any or all of the stock or cause or permit the 
transfer of any or all of the assets and liabilities of:
    (i) Any subsidiary savings association that was in the stock form 
when acquired, provided such association is not a resulting association 
or an acquiree association;
    (ii) Any subsidiary holding company acquired pursuant to paragraph 
(a)(4) of this section; or
    (iii) Any corporation other than a savings association or savings 
and loan holding company.
    (3) A mutual holding company may, subject to applicable laws and 
regulations, transfer any stock acquired pursuant to paragraph (a)(5) of 
this section.
    (4) No transfer authorized by this section may be made to any 
insider of the mutual holding company, any associate of an insider of 
the mutual holding company, or any tax-qualified or non-tax-qualified 
employee stock benefit plan of the mutual holding company unless the 
mutual holding company provides notice to the appropriate Reserve Bank 
at least 30 days prior to the effective date of the proposed transfer. 
This notice shall be in addition to any other application or notice 
required under applicable laws or regulations, including those imposed 
by this part or Regulation LL.



Sec. 239.8  Operating restrictions.

    (a) Activities restrictions. A mutual holding company may engage in 
any business activity specified in 12 U.S.C. 1467a(c)(2) or 
(c)(9)(A)(ii). In addition,

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the business activities of subsidiaries of mutual holding companies may 
include the activities specified in Sec. 239.7(a)(6). A mutual holding 
company or its subsidiaries may engage in the foregoing activities only 
upon compliance with the procedures specified in Sec. Sec. 238.53(c) or 
238.54(b) of this chapter.
    (b) Pledging stock. (1) No mutual holding company may pledge the 
stock of its resulting association, an acquiree association, or any 
subsidiary savings association that was in the mutual form when acquired 
by the mutual holding company (or its parent mutual holding company), 
unless the proceeds of the loan secured by the pledge are infused into 
the association whose stock is pledged. No mutual holding company may 
pledge the stock of its subsidiary holding company unless the proceeds 
of the loan secured by the pledge are infused into any subsidiary 
savings association of the subsidiary holding company that is a 
resulting association, an acquiree association, or a subsidiary savings 
association that was in the mutual form when acquired by the subsidiary 
holding company (or its parent mutual holding company). In the event the 
subsidiary holding company has more than one subsidiary savings 
association, the loan proceeds shall, unless otherwise approved by the 
Board, be infused in equal amounts to each subsidiary savings 
association. Any amount of the stock of such association or subsidiary 
holding company may be pledged for these purposes. Nothing in this 
paragraph shall be deemed to prohibit:
    (i) The payment of dividends from a subsidiary savings association 
to its mutual holding company parent to the extent otherwise 
permissible; or
    (ii) The payment of dividends from a subsidiary holding company to 
its mutual holding company parent to the extent otherwise permissible; 
or
    (iii) A mutual holding company from pledging the stock of more than 
one subsidiary savings association provided that the stock pledged of 
each such subsidiary association is proportionate to the proceeds of the 
loan infused into each subsidiary association.
    (2) Any mutual holding company that fails to make any payment on a 
loan secured by the pledge of stock pursuant to paragraph (b)(1) of this 
section on or before the date on which such payment is due shall, on the 
first day after such payment is due, provide written notice of 
nonpayment to the appropriate Reserve Bank.
    (c) Restrictions on stock repurchases. (1) No subsidiary holding 
company that has any stockholders other than its parent mutual holding 
company may repurchase any share of stock within one year of its date of 
issuance (which may include the time period the shares issued by the 
savings association were outstanding if the subsidiary holding company 
was formed after the initial issuance by the savings association), 
unless the repurchase:
    (i) Is in compliance with the requirements set forth in Sec. 
239.63;
    (ii) Is part of a general repurchase made on a pro rata basis 
pursuant to an offer approved by the Board and made to all stockholders 
of the association or subsidiary holding company (except that the parent 
mutual holding company may be excluded from the repurchase with the 
Board's approval);
    (iii) Is limited to the repurchase of qualifying shares of a 
director; or
    (iv) Is purchased in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the savings association (or of 
a subsidiary holding company) in an amount reasonable and appropriate to 
fund such plan.
    (2) No mutual holding company may purchase shares of its subsidiary 
savings association or subsidiary holding company within one year after 
a stock issuance, except if the purchase complies with Sec. 239.63. For 
purposes of this section, the reference in Sec. 239.63 to five percent 
refers to minority shareholders.
    (d) Restrictions on waiver of dividends. (1) A mutual holding 
company may waive the right to receive any dividend declared by a 
subsidiary of the mutual holding company, if--
    (i) No insider of the mutual holding company, associate of an 
insider, or tax-qualified or non-tax-qualified employee stock benefit 
plan of the mutual holding company holds any share of the stock in the 
class of stock to which the waiver would apply; or

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    (ii) The mutual holding company gives written notice to the Board of 
the intent of the mutual holding company to waive the right to receive 
dividends, not later than 30 days before the date of the proposed date 
of payment of the dividend, and the Board does not object to the waiver.
    (2) A notice of a waiver under paragraph (d)(1)(ii) of this section 
shall include a copy of the resolution of the board of directors of the 
mutual holding company together with any supporting materials relied 
upon by the board of directors of the mutual holding company, concluding 
that the proposed dividend waiver is consistent with the fiduciary 
duties of the board of directors to the mutual members of the mutual 
holding company. The resolution shall include:
    (i) A description of the conflict of interest that exists because of 
a mutual holding company director's ownership of stock in the subsidiary 
declaring dividends and any actions the mutual holding company and board 
of directors have taken to eliminate the conflict of interest, such as 
waiver by the directors of their right to receive dividends;
    (ii) A finding by the mutual holding company's board of directors 
that the waiver of dividends is consistent with the board of directors' 
fiduciary duties despite any conflict of interest;
    (iii) If the mutual holding company has pledged the stock of a 
subsidiary holding company or subsidiary savings association as 
collateral for a loan made to the mutual holding company, or is subject 
to any other loan agreement, an affirmation that the mutual holding 
company is able to meet the terms of the loan agreement; and
    (iv) An affirmation that a majority of the mutual members of the 
mutual holding company eligible to vote have, within the 12 months prior 
to the declaration date of the dividend by the subsidiary of the mutual 
holding company, approved a waiver of dividends by the mutual holding 
company, and any proxy statement used in connection with the member vote 
contained--
    (A) A detailed description of the proposed waiver of dividends by 
the mutual holding company and the reasons the board of directors 
requested the waiver of dividends;
    (B) The disclosure of any mutual holding company director's 
ownership of stock in the subsidiary declaring dividends and any actions 
the mutual holding company and board of directors have taken to 
eliminate the conflict of interest, such as the directors waiving their 
right to receive dividends; and
    (C) A provision providing that the proxy concerning the waiver of 
dividends given by the mutual members may be used for no more than 12 
months from the date it is given.
    (3) The Board may not object to a waiver of dividends under 
paragraph (d)(1)(ii) of this section if:
    (i) The waiver would not be detrimental to the safe and sound 
operation of the savings association;
    (ii) The board of directors of the mutual holding company expressly 
determines that a waiver of the dividend by the mutual holding company 
is consistent with the fiduciary duties of the board of directors to the 
mutual members of the mutual holding company; and
    (iii) The mutual holding company has, prior to December 1, 2009--
    (A) Reorganized into a mutual holding company under section 10(o) of 
HOLA;
    (B) Issued minority stock either from its mid-tier stock holding 
company or its subsidiary stock savings association; and
    (C) Waived dividends it had a right to receive from the subsidiary 
stock savings association.
    (4) For a mutual holding company that does not meet each of the 
conditions in paragraph (d)(3) of this section, the Board will not 
object to a waiver of dividends under paragraph (d)(1)(ii) of this 
section if--:
    (i) The savings association currently operates in a manner 
consistent with the safe and sound operation of a savings association, 
and the waiver is not detrimental to the safe and sound operation of the 
savings association;
    (ii) If the mutual holding company has pledged the stock of a 
subsidiary holding company or subsidiary savings association as 
collateral for a loan made to the mutual holding company, or is subject 
to any other loan agreement, an affirmation that the mutual

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holding company is able to meet the terms of the loan agreement;
    (iii) Within the 12 months prior to the declaration date of the 
dividend by the subsidiary of the mutual holding company, a majority of 
the mutual members of the mutual holding company has approved the waiver 
of dividends by the mutual holding company. Any proxy statement used in 
connection with the member vote must contain--
    (A) A detailed description of the proposed waiver of dividends by 
the mutual holding company and the reasons the board of directors 
requested the waiver of dividends;
    (B) The disclosure of any mutual holding company director's 
ownership of stock in the subsidiary declaring dividends and any actions 
the mutual holding company and board of directors have taken to 
eliminate the conflict of interest, such as the directors waiving their 
right to receive dividends; and
    (C) A provision providing that the proxy concerning the waiver of 
dividends given by the mutual members may be used for no more than 12 
months from the date it is given;
    (iv) The board of directors of the mutual holding company expressly 
determines that the waiver of dividends is consistent with the board of 
directors' fiduciary duties despite any conflict of interest;
    (v)(A) A majority of the entire board of directors of the mutual 
holding company approves the waiver of dividends and any director with 
direct or indirect ownership, control, or the power to vote shares of 
the subsidiary declaring the dividend, or who otherwise directly or 
indirectly benefits through an associate from the waiver of dividends, 
has abstained from the board vote; or
    (B) Each officer or director of the mutual holding company or its 
affiliates, associate of such officer or director, and any tax-qualified 
or non-tax-qualified employee stock benefit plan in which such officer 
or director participates that holds any share of the stock in the class 
of stock to which the waiver would apply waives the right to receive any 
dividend declared by a subsidiary of the mutual holding company;
    (vi) The Board does not object to the amount of dividends declared 
by a subsidiary of the mutual holding company. In reviewing whether a 
declaration by a subsidiary of the mutual holding company is 
appropriate, the Board may consider, among other factors, the 
reasonableness of the entire dividend distribution declared if the 
waiver is not approved;
    (vii) The waived dividends are excluded from the capital accounts of 
the subsidiary holding company or savings association, as applicable, 
for purposes of calculating any future dividend payments;
    (viii) The mutual holding company appropriately accounts for all 
waived dividends in a manner that permits the Board to consider the 
waived dividends in evaluating the proposed exchange ratio in the event 
of a full conversion of the mutual holding company to stock form; and
    (ix) The mutual holding company complies with such other conditions 
as the Board may require to prevent conflicts of interest or actions 
detrimental to the safe and sound operation of the savings association.
    (5) Valuation. (i) The Board will consider waived dividends in 
determining an appropriate exchange ratio in the event of a full 
conversion to stock form.
    (ii) In the case of a savings association that has reorganized into 
a mutual holding company, has issued minority stock from a mid-tier 
stock holding company or a subsidiary stock savings association of the 
mutual holding company, and has waived dividends it had a right to 
receive from a subsidiary savings association before December 1, 2009, 
the Board shall not consider waived dividends in determining an 
appropriate exchange ratio in the event of a full conversion to stock 
form.
    (e) Restrictions on issuance of stock to insiders. A subsidiary of a 
mutual holding company that is not a savings association or subsidiary 
holding company may issue stock to any insider, associate of an insider 
or tax-qualified or non-tax-qualified employee stock benefit plan of the 
mutual holding company or any subsidiary of the mutual holding company, 
provided that such persons or plans provide written notice to the 
appropriate Reserve Bank at

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least 30 days prior to the stock issuance, and the Reserve Bank or the 
Board does not object to the subsequent stock issuance. Subsidiary 
holding companies may issue stock to such persons only in accordance 
with Sec. 239.24.
    (f) Applicability of rules governing savings and loan holding 
companies. Except as expressly provided in this part, mutual holding 
companies shall be subject to the provisions of 12 U.S.C. 1467a and 3201 
et seq. and the provisions of parts 207, 228, and 238 of this chapter.
    (g) Separate vote for charitable organization contribution. In a 
mutual holding company stock issuance, a separate vote of a majority of 
the outstanding shares of common stock held by stockholders other than 
the mutual holding company or subsidiary holding company must approve 
any charitable organization contribution.



Sec. 239.9  Conversion or liquidation of mutual holding companies.

    (a) Conversion--(1) Generally. A mutual holding company may convert 
to the stock form in accordance with the rules and regulations set forth 
in subpart E of this part.
    (2) Exchange of subsidiary savings association or subsidiary holding 
company stock. Any stock issued by a subsidiary savings association, or 
by a subsidiary holding company pursuant to Sec. 239.24, of a mutual 
holding company to persons other than the parent mutual holding company 
may be exchanged for the stock issued by the successor to parent mutual 
holding company in connection with the conversion of the parent mutual 
holding company to stock form. The parent mutual holding company and the 
subsidiary holding company must demonstrate to the satisfaction of the 
Board that the basis for the exchange is fair and reasonable.
    (3) If a subsidiary holding company or subsidiary savings 
association has issued shares to an entity other than the mutual holding 
company, the conversion of the mutual holding company to stock form may 
not be consummated unless a majority of the shares issued to entities 
other than the mutual holding company vote in favor of the conversion. 
This requirement applies in addition to any otherwise required account 
holder or shareholder votes.
    (b) Involuntary liquidation. (1) The Board may file a petition with 
the federal bankruptcy courts requesting the liquidation of a mutual 
holding company pursuant to 12 U.S.C. 1467a(o)(9) and title 11, United 
States Code, upon the occurrence of any of the following events:
    (i) The default of the resulting association, any acquiree 
association, or any subsidiary savings association of the mutual holding 
company that was in the mutual form when acquired by the mutual holding 
company;
    (ii) The default of the parent mutual holding company or its 
subsidiary holding company; or
    (iii) Foreclosure on any pledge by the mutual holding company of 
subsidiary savings association stock or subsidiary holding company 
stock.
    (2) Except as provided in paragraph (b)(3) of this section, the net 
proceeds of any liquidation of any mutual holding company shall be 
transferred to the members of the mutual holding company and, if 
applicable, the stock holders of the subsidiary holding company in 
accordance with the charter of the mutual holding company and, if 
applicable, the charter of the subsidiary holding company.
    (3) If the FDIC incurs a loss as a result of the default of any 
subsidiary savings association of a mutual holding company and that 
mutual holding company is liquidated pursuant to paragraph (b)(1) of 
this section, the FDIC shall succeed to the membership interests of the 
depositors of such savings association in the mutual holding company to 
the extent of the FDIC's loss.
    (c) Voluntary liquidation. The provisions of Sec. 239.16 shall 
apply to mutual holding companies.



Sec. 239.10  Procedural requirements.

    (a) Proxies and proxy statements--(1) Solicitation of proxies. The 
provisions of Sec. Sec. 239.56 and 239.57(a) through (d) and (f) 
through (h) shall apply to all solicitations of proxies by any person in 
connection with any membership vote required by this part. Proxy 
materials must be in the form specified by the Board and contain the 
information

[[Page 134]]

specified in Sec. Sec. 239.57(b) and 239.57(d), to the extent such 
information is relevant to the action that members are being asked to 
approve, with such additions, deletions, and other modifications as are 
required under this part, or as are necessary or appropriate under the 
disclosure standard set forth in Sec. 239.57(f). File proxies and proxy 
statements in accordance with Sec. 239.55(c) and address them to the 
appropriate Reserve Bank. For purposes of this paragraph, the term 
conversion, as it appears in the provisions of part subpart E of this 
part, refers to the reorganization, the stock issuance, or other 
corporate action, as appropriate.
    (2) Additional proxy disclosure requirements. In addition to the 
requirements in paragraph (a) of this section, all proxies requesting 
accountholder approval of a mutual holding company reorganization shall 
address in detail:
    (i) The reasons for the reorganization, including the relative 
advantages and disadvantages of undertaking the transaction proposed 
instead of a standard conversion;
    (ii) Whether management believes the reorganization is in the best 
interests of the association and its accountholders and the basis of 
that belief;
    (iii) The fiduciary duties owed to accountholders by the 
association's officers and directors and why the reorganization is in 
accord with those duties and is otherwise equitable to the 
accountholders and the association;
    (iv) Any compensation agreements that will be entered into by 
management in connection with the reorganization; and
    (v) Whether the mutual holding company intends to waive dividends, 
the implications to accountholders, and the reasons such waivers are 
consistent with the fiduciary duties of the directors of the mutual 
holding company.
    (3) Nonconforming minority stock issuances. Subsidiary holding 
companies proposing non-conforming minority stock issuances pursuant to 
Sec. 239.24(c)(6)(ii) must include in the proxy materials to 
accountholders seeking approval of a proposed reorganization an 
additional disclosure statement that serves as a cover sheet that 
clearly addresses:
    (i) The consequences to accountholders of voting to approve a 
reorganization in which their subscription rights are prioritized 
differently and potentially eliminated; and
    (ii) Any intent by the mutual holding company to waive dividends, 
and the implications to accountholders.
    (4) Use of ``running'' proxies. Unless otherwise prohibited, a 
mutual holding company may make use of any proxy conferring general 
authority to vote on any and all matters at any meeting of members, 
provided that the member granting such proxy has been furnished a proxy 
statement regarding the matters and the member does not grant a later-
dated proxy to vote at the meeting at which the matter will be 
considered or attend such meeting and vote in person, and further 
provided that ``running'' proxies or similar proxies may not be used to 
vote for a mutual holding company reorganization, mutual-to-stock 
conversion undertaken by a mutual holding company, dividend waiver, or 
any other material transaction. Subject to the limitations set forth in 
this paragraph, any proxy conferring on the board of directors or 
officers of a mutual savings association general authority to cast a 
member's votes on any and all matters presented to the members shall be 
deemed to cover the member's votes as a member of the mutual holding 
company and such authority shall be conferred on the board of directors 
or officers of a mutual holding company.
    (b) Applications under this part. Except as provided in paragraph 
(c) of this section, any application, notice or certification required 
to be filed with the Board under this part must be filed in accordance 
with Sec. 238.14 of this chapter. The Board will review any filing made 
under this part in accordance with Sec. 238.14 of this chapter.
    (c) Reorganization Notices and stock issuance applications--(1) 
Contents. Each Reorganization Notice submitted to the appropriate 
Reserve Bank pursuant to Sec. 239.3(a) and each application for 
approval of the issuance of stock submitted to the appropriate Reserve 
Bank pursuant to Sec. 239.24(a) shall be in the form and contain the 
information specified by the Board.

[[Page 135]]

    (2) Filing instructions. Any Reorganization Notice submitted under 
Sec. 239.3(a) must be filed in accordance with Sec. 238.14 of this 
chapter. Any stock issuance application submitted pursuant to Sec. 
239.24(a) shall be filed in accordance with Sec. 239.55.
    (3) Public notice, public comment, and meetings. Mutual holding 
company reorganizations are subject to applicable public notice, public 
comment, and meeting requirements under the Bank Merger Act regulations 
at Sec. 238.11(e) of this chapter and the Savings and Loan Holding 
Company Act regulations at Sec. 238.14 of this chapter.
    (d) Amendments. Any mutual holding company may amend any notice or 
application submitted pursuant to this part or file additional 
information with respect thereto upon request of the Board or upon the 
mutual holding company's own initiative.
    (e) Time-frames. All Reorganization Notices and applications filed 
pursuant to this part must be processed in accordance with the 
processing procedures at Sec. 238.14 of this chapter. Any related 
approvals requested in connection with Reorganization Notices or 
applications for approval of stock issuances (including, without 
limitation, requests for approval to transfer assets to resulting 
associations, to acquire acquiree associations, and to organize 
resulting associations or interim associations, and requests for 
approval of charters, bylaws, and stock forms) shall be processed 
pursuant to the procedures specified in this section in conjunction with 
the Reorganization Notice or stock issuance application to which they 
pertain, rather than pursuant to any inconsistent procedures specified 
elsewhere in this chapter. The approval standards for all such related 
applications, however, shall remain unchanged. The review by the Board 
of any materials used in connection with the issuance of stock under 
Sec. 239.24 must not be subject to the applications processing time-
frames set forth in Sec. Sec. 238.14(f) and (g) of this chapter.
    (f) Disclosure. The rules governing disclosure of any notice or 
application submitted pursuant to this part, or any public comment 
submitted pursuant to paragraph (c) of this section, shall be the same 
as set forth in Sec. 238.14(b) of this chapter for notices, 
applications, and public comments filed under Sec. 238.14 of this 
chapter.
    (g) Appeals. Any party aggrieved by a final action by the Board 
which approves or disapproves any application or notice pursuant to this 
part may obtain review of such action in accordance with 12 U.S.C. 
1467a(j).
    (h) Federal preemption. This part preempts state law with regard to 
the creation and regulation of mutual holding companies.



Sec. 239.11  Subsidiary holding companies.

    (a) Subsidiary holding companies. A mutual holding company may 
establish a subsidiary holding company as a direct subsidiary to hold 
100 percent of the stock of its subsidiary savings association. The 
formation and operation of the subsidiary holding company may not be 
utilized as a means to evade or frustrate the purposes of this part. The 
subsidiary holding company may be established either at the time of the 
initial mutual holding company reorganization or at a subsequent date, 
subject to the approval of the Board.
    (b) Stock issuances. Sec. Sec. 239.24 and 239.25 apply to issuance 
of stock by a subsidiary holding company. In the case of a stock 
issuance by a subsidiary holding company, the aggregate amount of 
outstanding common stock of the association owned or controlled by 
persons other than the subsidiary holding company's mutual holding 
company parent at the close of the proposed issuance shall be less than 
50 percent of the subsidiary holding company's total outstanding common 
stock.
    (c) Charters and bylaws for subsidiary holding companies. The 
charter and bylaws of a subsidiary holding company shall be in the form 
set forth in appendices B and D, respectively.



Sec. 239.12  Communication between members of a mutual holding company.

    (a) Right of communication with other members. A member of a mutual 
holding company has the right to communicate, as prescribed in paragraph 
(b) of this section, with other members of the mutual holding company 
regarding any matter related to the mutual holding company's affairs, 
except for ``improper'' communications, as defined in

[[Page 136]]

paragraph (c) of this section. The mutual holding company may not defeat 
that right by redeeming a savings member's savings account in the 
subsidiary savings association.
    (b) Member communication procedures. If a member of a mutual holding 
company desires to communicate with other members, the following 
procedures shall be followed:
    (1) The member shall give the mutual holding company a written 
request to communicate;
    (2) If the proposed communication is in connection with a meeting of 
the mutual holding company's members, the request shall be given at 
least thirty days before the annual meeting or 10 days before a special 
meeting;
    (3) The request shall contain--
    (i) The member's full name and address;
    (ii) The nature and extent of the member's interest in the mutual 
holding company at the time the information is given;
    (iii) A copy of the proposed communication; and
    (iv) If the communication is in connection with a meeting of the 
members, the date of the meeting;
    (4) The mutual holding company shall reply to the request within 
either--
    (i) Fourteen days;
    (ii) Ten days, if the communication is in connection with the annual 
meeting; or
    (iii) Three days, if the communication is in connection with a 
special meeting;
    (5) The reply shall provide either--
    (i) The number of the mutual holding company's members and the 
estimated reasonable cost to the mutual holding company of mailing to 
them the proposed communication; or
    (ii) Notification that the mutual holding company has determined not 
to mail the communication because it is ``improper'', as defined in 
paragraph (c) of this section;
    (6) After receiving the amount of the estimated costs of mailing and 
sufficient copies of the communication, the mutual holding company shall 
mail the communication to all members, by a class of mail specified by 
the requesting member, either--
    (i) Within fourteen days;
    (ii) Within seven days, if the communication is in connection with 
the annual meeting;
    (iii) As soon as practicable before the meeting, if the 
communication is in connection with a special meeting; or
    (iv) On a later date specified by the member;
    (7) If the mutual holding company refuses to mail the proposed 
communication, it shall return the requesting member's materials 
together with a written statement of the specific reasons for refusal, 
and shall simultaneously send to the appropriate Reserve Bank a copy of 
each of the requesting member's materials, the mutual holding company's 
written statement, and any other relevant material. The materials shall 
be sent within:
    (i) Fourteen days,
    (ii) Ten days if the communication is in connection with the annual 
meeting, or
    (iii) Three days, if the communication is in connection with a 
special meeting, after the mutual holding company receives the request 
for communication.
    (c) Improper communication. A communication is an ``improper 
communication'' if it contains material which:
    (1) At the time and in the light of the circumstances under which it 
is made:
    (i) Is false or misleading with respect to any material fact; or
    (ii) Omits a material fact necessary to make the statements therein 
not false or misleading, or necessary to correct a statement in an 
earlier communication on the same subject which has become false or 
misleading;
    (2) Relates to a personal claim or a personal grievance, or is 
solicitous of personal gain or business advantage by or on behalf of any 
party;
    (3) Relates to any matter, including a general economic, political, 
racial, religious, social, or similar cause, that is not significantly 
related to the business of the mutual holding company or is not within 
the control of the mutual holding company; or
    (4) Directly or indirectly and without expressed factual foundation:
    (i) Impugns character, integrity, or personal reputation,

[[Page 137]]

    (ii) Makes charges concerning improper, illegal, or immoral conduct, 
or
    (iii) Makes statements impugning the stability and soundness of the 
mutual holding company.



Sec. 239.13  Charters.

    (a) Charters. The charter of a mutual holding company shall be in 
the form set forth in appendix A of this part and may be amended 
pursuant to this paragraph. The Board may amend the form of charter set 
forth in appendix A to this part.
    (b) Corporate title. The corporate title of each mutual holding 
company shall include the term ``mutual'' or the abbreviation ``M.H.C.''
    (c) Availability of charter. A mutual holding company shall make 
available to its members at all times in the offices of each subsidiary 
savings association from which the mutual holding company draws members 
a true copy of its charter, including any amendments, and shall deliver 
such a copy to any member upon request.



Sec. 239.14  Charter amendments.

    (a) General. In order to adopt a charter amendment, a mutual holding 
company must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
mutual holding company must adopt a resolution proposing the charter 
amendment that states the text of such amendment;
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
proxy contest, the assumption of control by a mutual account holder of 
the mutual holding company, or the removal of incumbent management; or 
involve a significant issue of law or policy; then, the mutual holding 
shall submit the charter amendment to the appropriate Reserve Bank for 
approval. Applications submitted under this paragraph are subject to the 
processing procedures at Sec. 238.14 of this chapter.
    (ii) Notice requirement. If the proposed charter amendment does not 
implicate paragraph (a)(2)(i) of this section and is permissible under 
all applicable laws, rules and regulations, the mutual holding company 
shall submit the proposed amendment to the appropriate Reserve Bank at 
least 30 days prior to the effective date of the proposed charter 
amendment.
    (b) Approval--Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment with the appropriate Reserve Bank, 
provided that the mutual holding company follows the requirements of its 
charter in adopting such amendment, unless the Reserve Bank or the Board 
notifies the mutual holding company prior to the expiration of such 30-
day period that such amendment is rejected or is deemed to be filed 
under the provisions of paragraph (a)(2)(i) of this section. 
Notwithstanding anything in paragraph (a) of this section to the 
contrary, the following charter amendments, including the adoption of 
the Federal mutual holding company charter as set forth in appendix A, 
shall be effective and deemed approved at the time of adoption, if 
adopted without change and filed with Board, within 30 days after 
adoption, provided the mutual holding company follows the requirements 
of its charter in adopting such amendments.
    (1) Title change. (i) Subject to Sec. 239.13 and this paragraph 
(b), a mutual holding company may amend its charter by substituting a 
new corporate title in section 1 of its charter.
    (ii) Prior to changing its corporate title, a mutual holding company 
must file with the Board a written notice indicating the intended 
change. The Board shall provide to the mutual holding company a timely 
written acknowledgment stating when the notice was received. If, within 
30 days of receipt of notice, the Board does not notify the mutual 
holding company of its objection to the corporate title change on the 
grounds that the title misrepresents the nature of the institution or 
the services it offers, the mutual holding company may change its title 
by amending its charter in accordance with Sec. 239.14(b) or Sec. 
239.22 and the amendment provisions of its charter.
    (2) Maximum number of votes. A mutual holding company may amend 
section 5 of its charter by substituting the

[[Page 138]]

maximum number of votes per member to any number from 1 to 1000.
    (c) Reissuance of charter. A mutual holding company that has amended 
its charter may apply to have its charter, including the amendments, 
reissued by the Board. Such request for reissuance should be filed with 
the appropriate Reserve Bank.



Sec. 239.15  Bylaws.

    (a) General. A mutual holding company shall operate under bylaws 
that contain provisions that comply with all requirements specified by 
the Board, the provisions of this section, the mutual holding company's 
charter, and all other applicable laws, rules, and regulations provided 
that, a bylaw provision inconsistent with the provisions of this section 
may be adopted with the approval of the Board. Bylaws may be adopted, 
amended or repealed by a majority of the votes cast by the members at a 
legal meeting or a majority of the mutual holding company's board of 
directors. Throughout this section, the term ``trustee'' may be 
substituted for the term ``director'' as relevant.
    (b) The following requirements are applicable to mutual holding 
companies:
    (1) Annual meetings of members. A mutual holding company shall 
provide for and conduct an annual meeting of its members for the 
election of directors and at which any other business of the mutual 
holding company may be conducted. Such meeting shall be held, as 
designated by its board of directors, at a location within the state 
that constitutes the principal place of business of the subsidiary 
savings association, or at any other convenient place the board of 
directors may designate, and at a date and time within 150 days after 
the end of the mutual holding company's fiscal year. At each annual 
meeting, the officers shall make a full report of the financial 
condition of the mutual holding company and of its progress for the 
preceding year and shall outline a program for the succeeding year.
    (2) Special meetings of members. Procedures for calling any special 
meeting of the members and for conducting such a meeting shall be set 
forth in the bylaws. The subject matter of such special meeting must be 
established in the notice for such meeting. The board of directors of 
the mutual holding company or the holders of 10 percent or more of the 
voting capital shall be entitled to call a special meeting. For purposes 
of this section, ``voting capital'' means FDIC-insured deposits as of 
the voting record date.
    (3) Notice of meeting of members. Notice specifying the date, time, 
and place of the annual or any special meeting and adequately describing 
any business to be conducted shall be published for two successive weeks 
immediately prior to the week in which such meeting shall convene in a 
newspaper of general circulation in the city or county in which the 
principal place of business of the subsidiary savings association is 
located, or mailed postage prepaid at least 15 days and not more than 45 
days prior to the date on which such meeting shall convene to each of 
its members of record at the last address appearing on the books of the 
mutual holding company. A similar notice shall be posted in a 
conspicuous place in each of the offices of the subsidiary savings 
association during the 14 days immediately preceding the date on which 
such meeting shall convene. The bylaws may permit a member to waive in 
writing any right to receive personal delivery of the notice. When any 
meeting is adjourned for 30 days or more, notice of the adjournment and 
reconvening of the meeting shall be given as in the case of the original 
meeting.
    (4) Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the bylaws shall provide for the fixing of a 
record date and a method for determining from the books of the 
subsidiary savings association the members entitled to vote. Such date 
shall be not more than 60 days or fewer than 10 days prior to the date 
on which the action, requiring such determination of members, is to be 
taken. The same determination shall apply to any adjourned meeting.

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    (5) Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. At any adjourned meeting, any business 
may be transacted that might have been transacted at the meeting as 
originally called. Members present at a duly constituted meeting may 
continue to transact business until adjournment.
    (6) Voting by proxy. Procedures shall be established for voting at 
any annual or special meeting of the members by proxy pursuant to the 
rules and regulations of the Board, including the placing of such 
proxies on file with the secretary of the mutual holding company, for 
verification, prior to the convening of such meeting. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the member. All proxies with a 
term greater than eleven months or solicited at the expense of the 
subsidiary savings association must run to the board of directors as a 
whole, or to a committee appointed by a majority of such board.
    (7) Communications between members. Provisions relating to 
communications between members shall be consistent with Sec. 239.12. No 
member, however, shall have the right to inspect or copy any portion of 
any books or records of a mutual holding company containing:
    (i) A list of depositors in or borrowers from the subsidiary savings 
association;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.
    (8) Number of directors, membership. The bylaws shall set forth a 
specific number of directors, not a range. The number of directors shall 
be not fewer than five nor more than fifteen, unless a higher or lower 
number has been authorized by the Board. Each director of the mutual 
holding company shall be a member of the mutual holding company. 
Directors may be elected for periods of one to three years and until 
their successors are elected and qualified, but if a staggered board is 
chosen, provision shall be made for the election of approximately one-
third or one-half of the board each year, as appropriate.
    (9) Meetings of the board. The board of directors shall determine 
the place, frequency, time, procedure for notice, which shall be at 
least 24 hours unless waived by the directors, and waiver of notice for 
all regular and special meetings. The meetings shall be under the 
direction of a chairman, appointed annually by the board; or in the 
absence of the chairman, the meetings shall be under the direction of 
the president. The board also may permit telephonic participation at 
meetings. The bylaws may provide for action to be taken without a 
meeting if unanimous written consent is obtained for such action. A 
majority of the authorized directors shall constitute a quorum for the 
transaction of business. The act of a majority of the directors present 
at any meeting at which there is a quorum shall be the act of the board.
    (10) Officers, employees, and agents. (i) The bylaws shall contain 
provisions regarding the officers of the mutual holding company, their 
functions, duties, and powers. The officers of the mutual holding 
company shall consist of a president, one or more vice presidents, a 
secretary, and a treasurer or comptroller, each of whom shall be elected 
annually by the board of directors. Such other officers and assistant 
officers and agents as may be deemed necessary may be elected or 
appointed by the board of directors or chosen in such other manner as 
may be prescribed in the bylaws. Any two or more offices may be held by 
the same person, except the offices of president and secretary.
    (ii) All officers and agents of the mutual holding company, as 
between themselves and the mutual holding company, shall have such 
authority and perform such duties in the management of the mutual 
holding company as may be provided in the bylaws, or as may be 
determined by resolution of the board of directors not inconsistent with 
the bylaws. In the absence of any such provision, officers shall have 
such powers and duties as generally pertain to their respective offices. 
Any officer

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may be removed by the board of directors with or without cause, but such 
removal, other than for cause, shall be without prejudice to the 
contractual rights, if any, of the officer so removed.
    (iii) Any indemnification provision must provide that any 
indemnification is subject to applicable Federal law, rules, and 
regulations.
    (11) Vacancies, resignation or removal of directors. Members of the 
mutual holding company shall elect directors by ballot: Provided, that 
in the event of a vacancy on the board, the board of directors may, by 
their affirmative vote, fill such vacancy, even if the remaining 
directors constitute less than a quorum. A director elected to fill a 
vacancy shall be elected to serve only until the next election of 
directors by the members. The bylaws shall set out the procedure for the 
resignation of a director, which shall be by written notice or by any 
other procedure established in the bylaws. Directors may be removed only 
for cause as defined in Sec. 239.41, by a vote of the holders of a 
majority of the shares then entitled to vote at an election of 
directors.
    (12) Powers of the board. The board of directors shall have the 
power:
    (i) By resolution, to appoint from among its members and remove an 
executive committee and one or more other committees, which committee[s] 
shall have and may exercise all the powers of the board between the 
meetings or the board; but no such committee shall have the authority of 
the board to amend the charter or bylaws, adopt a plan of merger, 
consolidation, dissolution, or provide for the disposition of all or 
substantially all the property and assets of the mutual holding company. 
Such committee shall not operate to relieve the board, or any member 
thereof, of any responsibility imposed by law;
    (ii) To fix the compensation of directors, officers, and employees; 
and to remove any officer or employee at any time with or without cause;
    (iii) To exercise any and all of the powers of the mutual holding 
company not expressly reserved by the charter to the members.
    (13) Nominations for directors. The bylaws shall provide that 
nominations for directors may be made at the annual meeting by any 
member and shall be voted upon, except, however, the bylaws may require 
that nominations by a member must be submitted to the secretary and then 
prominently posted in the principal place of business, at least 10 days 
prior to the date of the annual meeting. However, if such provision is 
made for prior submission of nominations by a member, then the bylaws 
must provide for a nominating committee, which, except in the case of a 
nominee substituted as a result of death or other incapacity, must 
submit nominations to the secretary and have such nominations similarly 
posted at least 15 days prior to the date of the annual meeting.
    (14) New business. The bylaws shall provide procedures for the 
introduction of new business at the annual meeting. Those provisions may 
require that such new business be stated in writing and filed with the 
secretary prior to the annual meeting at least 30 days prior to the date 
of the annual meeting.
    (15) Amendment. Bylaws may include any provision for their amendment 
that would be consistent with applicable law, rules, and regulations and 
adequately addresses its subject and purpose.
    (i) Amendments shall be effective:
    (A) After approval by a majority vote of the authorized board, or by 
a majority of the vote cast by the members of the mutual holding company 
at a legal meeting; and
    (B) After receipt of any applicable regulatory approval.
    (ii) When a mutual holding company fails to meet its quorum 
requirement, solely due to vacancies on the board, the bylaws may be 
amended by an affirmative vote of a majority of the sitting board.
    (16) Miscellaneous. The bylaws may also address the subject of age 
limitations for directors or officers as long as they are consistent 
with applicable Federal law, rules or regulations, and any other 
subjects necessary or appropriate for effective operation of the mutual 
holding company.
    (c) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate Reserve Bank for 
approval if it would:

[[Page 141]]

    (A) Render more difficult or discourage a merger, proxy contest, the 
assumption of control by a mutual account holder of the mutual holding 
company, or the removal of incumbent management;
    (B) Involve a significant issue of law or policy, including 
indemnification, conflicts of interest, and limitations on director or 
officer liability; or
    (C) Be inconsistent with the requirements of this section or with 
applicable laws, rules, regulations, or the mutual holding company's 
charter.
    (ii) Applications submitted under paragraph (c)(1)(i) of this 
section are subject to the processing procedures at Sec. 238.14 of this 
chapter.
    (iii) For purposes of this paragraph (c), bylaw provisions that 
adopt the language of the model bylaws contained in appendix C to this 
part, if adopted without change, and filed with Board within 30 days 
after adoption, are effective upon adoption. The Board may amend the 
model bylaws provided in appendix C to this part.
    (2) Filing requirement. If the proposed bylaw amendment does not 
implicate paragraph (c)(1) or (c)(3) of this section, then the mutual 
holding company shall submit the amendment to the appropriate Reserve 
Bank at least 30 days prior to the date the bylaw amendment is to be 
adopted by the mutual holding company.
    (3) Corporate governance procedures. A mutual holding company may 
elect to follow the corporate governance procedures of the laws of the 
state where the main office of the institution is located, provided that 
such procedures may be elected only to the extent not inconsistent with 
applicable Federal statutes, regulations, and safety and soundness, and 
such procedures are not of the type described in paragraph (c)(1)(i) of 
this section. If this election is selected, a mutual holding company 
shall designate in its bylaws the provision or provisions from the body 
of law selected for its corporate governance procedures, and shall file 
a copy of such bylaws, which are effective upon adoption, within 30 days 
after adoption. The submission shall indicate, where not obvious, why 
the bylaw provisions do not require an application under paragraph 
(c)(1)(i) of this section.
    (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(c)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the mutual holding 
company follows the requirements of its charter and bylaws in adopting 
such amendment, unless the Board notifies the mutual holding company 
prior to the expiration of the 30-day period that such amendment is 
rejected or that such amendment requires an application to be filed 
pursuant to paragraph (c)(1) of this section.
    (e) Availability of bylaws. A mutual holding company shall make 
available to its members at all times in the offices of each subsidiary 
savings association from which the mutual holding company draws members 
a true copy of its bylaws, including any amendments, and shall deliver 
such a copy to any member upon request.



Sec. 239.16  Voluntary dissolution.

    (a) A mutual holding company's board of directors may propose a plan 
for dissolution of the mutual holding company. All references in this 
section to mutual holding company shall also apply to a subsidiary 
holding company organized under this part. The plan may provide for 
either:
    (1) Transfer of all the mutual holding company's assets to another 
mutual holding company or home-financing institutions under Federal 
charter either for cash sufficient to pay all obligations of the mutual 
holding company and retire all outstanding accounts or in exchange for 
that mutual holding company's payment of all the mutual holding 
company's outstanding obligations and issuance of share accounts or 
other evidence of interest to the mutual holding company's members on a 
pro rata basis; or
    (2) Dissolution in a manner proposed by the directors which they 
consider best for all concerned.
    (b) The plan, and a statement of reasons for proposing dissolution 
and for proposing the plan, shall be submitted to the appropriate 
Reserve Bank for approval. The Board will approve the plan if the Board 
believes dissolution is advisable and the plan is best for all

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concerned. If the Board considers the plan inadvisable, the Board may 
either make recommendations to the mutual holding company concerning the 
plan or disapprove it. When the plan is approved by the mutual holding 
company's board of directors and by the Board, it shall be submitted to 
the mutual holding company's members at a duly called meeting and, when 
approved by a majority of votes cast at that meeting, shall become 
effective. After dissolution in accordance with the plan, a certificate 
evidencing dissolution, supported by such evidence as the Board may 
require, shall immediately be filed with the Board. When the Board 
receives such evidence satisfactory to the Board, it will terminate the 
corporate existence of the dissolved mutual holding company and the 
mutual holding company's charter shall thereby be canceled.



                 Subpart C_Subsidiary Holding Companies



Sec. 239.20  Scope.

    This subpart applies only to a subsidiary holding company of a 
mutual holding company.



Sec. 239.21  Charters.

    (a) Charters. The charter of a subsidiary holding company of a 
mutual holding company shall be in the form set forth in appendix B of 
this part and may be amended pursuant to Sec. 239.22. The Board may 
amend the form of charter provided in appendix B.
    (b) Optional charter provision limiting minority stock ownership. 
(1) A subsidiary holding company that engages in its initial minority 
stock issuance after October 1, 2008 may, before it conducts its initial 
minority stock issuance, at the time it conducts its initial minority 
stock issuance, or, subject to the condition below, at any time during 
the five years following a minority stock issuance that such subsidiary 
holding company conducts in accordance with the purchase priorities set 
forth in subpart E of this part, include in its charter the provision 
set forth in paragraph (b)(2) of this section. For purposes of the 
charter provision set forth in paragraph (b)(2), the definitions set 
forth at Sec. 239.22(b)(8) apply. This charter provision expires a 
maximum of five years from the date of the minority stock issuance. The 
subsidiary holding company may adopt the charter provision set forth in 
paragraph (b)(2) of this section after a minority stock issuance only if 
it provided, in the offering materials related to its previous minority 
stock issuance or issuances, full disclosure of the possibility that the 
subsidiary holding company might adopt such a charter provision.
    (2) Beneficial ownership limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of the outstanding stock of any class of voting stock of 
the subsidiary holding company held by persons other than the subsidiary 
holding company's mutual holding company parent. This limitation expires 
on [insert date within five years of minority stock issuance] and does 
not apply to a transaction in which an underwriter purchases stock in 
connection with a public offering, or the purchase of stock by an 
employee stock ownership plan or other tax-qualified employee stock 
benefit plan which is exempt from the approval requirements under Sec. 
238.12(a)(7) of this chapter.
    (c) In the event a person acquires stock in violation of this 
section, all stock beneficially owned in excess of 10 percent shall be 
considered ``excess stock'' and shall not be counted as stock entitled 
to vote and shall not be voted by any person or counted as voting stock 
in connection with any matters submitted to the stockholders for a vote.



Sec. 239.22  Charter amendments.

    (a) General. In order to adopt a charter amendment, a subsidiary 
holding company must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
subsidiary holding company must adopt a resolution proposing the charter 
amendment that states the text of such amendment.
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
tender

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offer, or proxy contest, the assumption of control by a holder of a 
block of the subsidiary holding company's stock, the removal of 
incumbent management, or involve a significant issue of law or policy, 
the subsidiary holding company shall file the proposed amendment with 
and shall obtain the prior approval of the Board pursuant to Sec. 
238.14 of this chapter; and
    (ii) Notice requirement. If the proposed charter amendment does not 
implicate paragraph (a)(2)(i) of this section and such amendment is 
permissible under all applicable laws, rules or regulations, the 
subsidiary holding company shall submit the proposed amendments to the 
appropriate Reserve Bank, at least 30 days prior to the date the 
proposed charter amendment is to be mailed for consideration by the 
subsidiary holding company's shareholders.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the subsidiary 
holding company follows the requirements of its charter in adopting such 
amendment, unless the Board notifies the mutual holding company prior to 
the expiration of such 30-day period that such amendment is rejected or 
is deemed to be filed under the provisions of paragraph (a)(2)(i) of 
this section. In addition, the following charter amendments, including 
the adoption of the charter as set forth in Appendix B of this part, 
shall be approved at the time of adoption, if adopted without change and 
filed with the Board within 30 days after adoption, provided the 
subsidiary holding company follows the requirements of its charter in 
adopting such amendments.
    (1) Title change. Prior to changing its corporate title, a 
subsidiary holding company must file with the appropriate Reserve Bank a 
written notice indicating the intended change. The Reserve Bank shall 
provide to the subsidiary holding company a timely written 
acknowledgment stating when the notice was received. If, within 30 days 
of receipt of notice, the Reserve Bank or the Board does not notify the 
subsidiary holding company of its objection on the grounds that the 
title misrepresents the nature of the institution or the services it 
offers, the subsidiary holding company may change its title by amending 
section 1 of its charter in accordance with this section and the 
amendment provisions of its charter.
    (2) Home office. A subsidiary holding company may amend its charter 
by substituting a new domicile in section 2 of its charter.
    (3) Number of shares of stock and par value. A subsidiary holding 
company may amend Section 5 of its charter to change the number of 
authorized shares of stock, the number of shares within each class of 
stock, and the par or stated value of such shares.
    (4) Capital stock. A subsidiary holding company may amend its 
charter by revising Section 5 to read as follows:

    Section 5. Capital stock. The total number of shares of all classes 
of capital stock that the subsidiary holding company has the authority 
to issue is ------, of which ------ shall be common stock of par [or if 
no par value is specified the stated] value of ------ per share and of 
which [list the number of each class of preferred and the par or if no 
par value is specified the stated value per share of each such class]. 
The shares may be issued from time to time as authorized by the board of 
directors without further approval of shareholders, except as otherwise 
provided in this Section 5 or to the extent that such approval is 
required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither promissory 
notes nor future services shall constitute payment or part payment for 
the issuance of shares of the subsidiary holding company. The 
consideration for the shares shall be cash, tangible or intangible 
property (to the extent direct investment in such property would be 
permitted), labor, or services actually performed for the subsidiary 
holding company, or any combination of the foregoing. In the absence of 
actual fraud in the transaction, the value of such property, labor, or 
services, as determined by the board of directors of the subsidiary 
holding company, shall be conclusive. Upon payment of such 
consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the subsidiary holding company that is transferred 
to common stock or paid-in capital accounts upon the issuance of shares 
as a stock dividend shall be deemed to be the consideration for their 
issuance.

[[Page 144]]

    Except for shares issued in the initial organization of the 
subsidiary holding company, no shares of capital stock (including shares 
issuable upon conversion, exchange, or exercise of other securities) 
shall be issued, directly or indirectly, to officers, directors, or 
controlling persons of the association or subsidiary holding company 
other than as part of a general public offering or as qualifying shares 
to a director, unless their issuance or the plan under which they would 
be issued has been approved by a majority of the total votes eligible to 
be cast at a legal meeting.
    Nothing contained in this Section 5 (or in any supplementary 
sections hereto) shall entitle the holders of any class of a series of 
capital stock to vote as a separate class or series or to more than one 
vote per share, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting: Provided, That this restriction on voting 
separately by class or series shall not apply:
    (i) To any provision which would authorize the holders of preferred 
stock, voting as a class or series, to elect some members of the board 
of directors, less than a majority thereof, in the event of default in 
the payment of dividends on any class or series of preferred stock;
    (ii) To any provision that would require the holders of preferred 
stock, voting as a class or series, to approve the merger or 
consolidation of the subsidiary holding company with another corporation 
or the sale, lease, or conveyance (other than by mortgage or pledge) of 
properties or business in exchange for securities of a corporation other 
than the subsidiary holding company if the preferred stock is exchanged 
for securities of such other corporation: Provided, That no provision 
may require such approval for transactions undertaken with the 
assistance or pursuant to the direction of the Board or the Federal 
Deposit Insurance Corporation;
    (iii) To any amendment which would adversely change the specific 
terms of any class or series of capital stock as set forth in this 
Section 5 (or in any supplementary sections hereto), including any 
amendment which would create or enlarge any class or series ranking 
prior thereto in rights and preferences. An amendment which increases 
the number of authorized shares of any class or series of capital stock, 
or substitutes the surviving subsidiary holding company in a merger or 
consolidation for the subsidiary holding company, shall not be 
considered to be such an adverse change.
    A description of the different classes and series (if any) of the 
subsidiary holding company's capital stock and a statement of the 
designations, and the relative rights, preferences, and limitations of 
the shares of each class of and series (if any) of capital stock are as 
follows:
    A. Common stock. Except as provided in this Section 5 (or in any 
supplementary sections thereto) the holders of the common stock shall 
exclusively possess all voting power. Each holder of shares of the 
common stock shall be entitled to one vote for each share held by each 
holder, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting.
    Whenever there shall have been paid, or declared and set aside for 
payment, to the holders of the outstanding shares of any class of stock 
having preference over the common stock as to the payment of dividends, 
the full amount of dividends and of sinking fund, retirement fund, or 
other retirement payments, if any, to which such holders are 
respectively entitled in preference to the common stock, then dividends 
may be paid on the common stock and on any class or series of stock 
entitled to participate therewith as to dividends out of any assets 
legally available for the payment of dividends.
    In the event of any liquidation, dissolution, or winding up of the 
subsidiary holding company, the holders of the common stock (and the 
holders of any class or series of stock entitled to participate with the 
common stock in the distribution of assets) shall be entitled to 
receive, in cash or in kind, the assets of the subsidiary holding 
company available for distribution remaining after: (i) Payment or 
provision for payment of the subsidiary holding company's debts and 
liabilities; (ii) distributions or provision for distributions in 
settlement of its liquidation account; and (iii) distributions or 
provision for distributions to holders of any class or series of stock 
having preference over the common stock in the liquidation, dissolution, 
or winding up of the subsidiary holding company. Each share of common 
stock shall have the same relative rights as and be identical in all 
respects with all the other shares of common stock.
    B. Preferred stock. The subsidiary holding company may provide in 
supplementary sections to its charter for one or more classes of 
preferred stock, which shall be separately identified. The shares of any 
class may be divided into and issued in series, with each series 
separately designated so as to distinguish the shares thereof from the 
shares of all other series and classes. The terms of each series shall 
be set forth in a supplementary section to the charter. All shares of 
the same class shall be identical except as to the following relative 
rights and preferences, as to which there may be variations between 
different series:
    (a) The distinctive serial designation and the number of shares 
constituting such series;

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    (b) The dividend rate or the amount of dividends to be paid on the 
shares of such series, whether dividends shall be cumulative and, if so, 
from which date(s), the payment date(s) for dividends, and the 
participating or other special rights, if any, with respect to 
dividends;
    (c) The voting powers, full or limited, if any, of shares of such 
series;
    (d) Whether the shares of such series shall be redeemable and, if 
so, the price(s) at which, and the terms and conditions on which, such 
shares may be redeemed;
    (e) The amount(s) payable upon the shares of such series in the 
event of voluntary or involuntary liquidation, dissolution, or winding 
up of the subsidiary holding company;
    (f) Whether the shares of such series shall be entitled to the 
benefit of a sinking or retirement fund to be applied to the purchase or 
redemption of such shares, and if so entitled, the amount of such fund 
and the manner of its application, including the price(s) at which such 
shares may be redeemed or purchased through the application of such 
fund;
    (g) Whether the shares of such series shall be convertible into, or 
exchangeable for, shares of any other class or classes of stock of the 
subsidiary holding company and, if so, the conversion price(s) or the 
rate(s) of exchange, and the adjustments thereof, if any, at which such 
conversion or exchange may be made, and any other terms and conditions 
of such conversion or exchange.
    (h) The price or other consideration for which the shares of such 
series shall be issued; and
    (i) Whether the shares of such series which are redeemed or 
converted shall have the status of authorized but unissued shares of 
serial preferred stock and whether such shares may be reissued as shares 
of the same or any other series of serial preferred stock.
    Each share of each series of serial preferred stock shall have the 
same relative rights as and be identical in all respects with all the 
other shares of the same series.
    The board of directors shall have authority to divide, by the 
adoption of supplementary charter sections, any authorized class of 
preferred stock into series, and, within the limitations set forth in 
this section and the remainder of this charter, fix and determine the 
relative rights and preferences of the shares of any series so 
established.
    Prior to the issuance of any preferred shares of a series 
established by a supplementary charter section adopted by the board of 
directors, the subsidiary holding company shall file with the 
appropriate Reserve Bank a dated copy of that supplementary section of 
this charter established and designating the series and fixing and 
determining the relative rights and preferences thereof.
    (5) Limitations on subsequent issuances. A subsidiary holding 
company may amend its charter to require shareholder approval of the 
issuance or reservation of common stock or securities convertible into 
common stock under circumstances which would require shareholder 
approval under the rules of the New York or American Stock Exchange if 
the shares were then listed on the New York or American Stock Exchange.
    (6) Cumulative voting. A subsidiary holding company may amend its 
charter by substituting the following sentence for the second sentence 
in the third paragraph of Section 5: ``Each holder of shares of common 
stock shall be entitled to one vote for each share held by such holder 
and there shall be no right to cumulate votes in an election of 
directors.''
    (7) [Reserved]
    (8) Anti-takeover provisions following mutual to stock conversion. 
Notwithstanding the law of the state in which the subsidiary holding 
company is located, a subsidiary holding company may amend its charter 
by renumbering existing sections as appropriate and adding a new section 
8 as follows:

    Section 8. Certain Provisions Applicable for Five Years. 
Notwithstanding anything contained in the subsidiary holding company's 
charter or bylaws to the contrary, for a period of [specify number of 
years up to five] years from the date of completion of the conversion of 
the subsidiary holding company from mutual to stock form, the following 
provisions shall apply:
    A. Beneficial Ownership Limitation. No person shall directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of any class of an equity security of the subsidiary 
holding company. This limitation shall not apply to a transaction in 
which the subsidiary holding company forms a holding company without 
change in the respective beneficial ownership interests of its 
stockholders other than pursuant to the exercise of any dissenter and 
appraisal rights, the purchase of shares by underwriters in connection 
with a public offering, or the purchase of shares by a tax-qualified 
employee stock benefit plan which is exempt from the approval 
requirements under Sec. 238.12(a) of this chapter.
    In the event shares are acquired in violation of this section 8, all 
shares beneficially owned by any person in excess of 10 percent shall be 
considered ``excess shares'' and shall not be counted as shares entitled 
to vote and

[[Page 146]]

shall not be voted by any person or counted as voting shares in 
connection with any matters submitted to the stockholders for a vote.
    For purposes of this section 8, the following definitions apply:
    (1) The term ``person'' includes an individual, a group acting in 
concert, a corporation, a partnership, an association, a joint stock 
company, a trust, an unincorporated organization or similar company, a 
syndicate or any other group formed for the purpose of acquiring, 
holding or disposing of the equity securities of the subsidiary holding 
company.
    (2) The term ``offer'' includes every offer to buy or otherwise 
acquire, solicitation of an offer to sell, tender offer for, or request 
or invitation for tenders of, a security or interest in a security for 
value.
    (3) The term ``acquire'' includes every type of acquisition, whether 
effected by purchase, exchange, operation of law or otherwise.
    (4) The term ``acting in concert'' means (a) knowing participation 
in a joint activity or conscious parallel action towards a common goal 
whether or not pursuant to an express agreement, or (b) a combination or 
pooling of voting or other interests in the securities of an issuer for 
a common purpose pursuant to any contract, understanding, relationship, 
agreement or other arrangements, whether written or otherwise.
    B. Cumulative Voting Limitation. Stockholders shall not be permitted 
to cumulate their votes for election of directors.
    C. Call for Special Meetings. Special meetings of stockholders 
relating to changes in control of the subsidiary holding company or 
amendments to its charter shall be called only upon direction of the 
board of directors.

    (c) Anti-takeover provisions. The Board may grant approval to a 
charter amendment not listed in paragraph (b) of this section regarding 
the acquisition by any person or persons of its equity securities 
provided that the subsidiary holding company shall file as part of its 
application for approval an opinion, acceptable to the Board, of counsel 
independent from the subsidiary holding company that the proposed 
charter provision would be permitted to be adopted by a corporation 
chartered by the state in which the principal office of the subsidiary 
holding company is located. Any such provision must be consistent with 
applicable statutes, regulations, and Board policies. Further, any such 
provision that would have the effect of rendering more difficult a 
change in control of the subsidiary holding company and would require 
for any corporate action (other than the removal of directors) the 
affirmative vote of a larger percentage of shareholders than is required 
by this part, shall not be effective unless adopted by a percentage of 
shareholder vote at least equal to the highest percentage that would be 
required to take any action under such provision.
    (d) Reissuance of charter. A subsidiary holding company that has 
amended its charter may apply to have its charter, including the 
amendments, reissued by the Board. Such requests for reissuance should 
be filed with the appropriate Reserve Bank, and contain signatures 
required by the charter in appendix B to this part, together with such 
supporting documents as needed to demonstrate that the amendments were 
properly adopted.



Sec. 239.23  Bylaws.

    (a) General. At its first organizational meeting, the board of 
directors of a subsidiary holding company shall adopt a set of bylaws 
for the administration and regulation of its affairs. Bylaws may be 
adopted, amended or repealed by either a majority of the votes cast by 
the shareholders at a legal meeting or a majority of the board of 
directors. The bylaws shall contain sufficient provisions to govern the 
subsidiary holding company in accordance with the requirements of 
Sec. Sec. 239.26, 239.27, 239.28, and 239.29 and shall not contain any 
provision that is inconsistent with those sections or with applicable 
laws, rules, regulations or the subsidiary holding company's charter, 
except that a bylaw provision inconsistent with Sec. Sec. 239.26, 
239.27, 239.28, and 239.29 may be adopted with the approval of the 
Board.
    (b) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate Reserve Bank for 
approval if it would:
    (A) Render more difficult or discourage a merger, tender offer, or 
proxy contest, the assumption of control by a holder of a large block of 
the subsidiary holding company's stock, or the removal of incumbent 
management; or
    (B) Be inconsistent with Sec. Sec. 239.26, 239.27, 239.28, and 
239.29, with applicable

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laws, rules, regulations or the subsidiary holding company's charter or 
involve a significant issue of law or policy, including indemnification, 
conflicts of interest, and limitations on director or officer liability.
    (ii) Applications submitted under paragraph (b)(1)(i) of this 
section are subject to the processing procedures under Sec. 238.14 of 
this chapter;
    (iii) For purposes of this paragraph (b), bylaw provisions that 
adopt the language of the model bylaws contained in appendix D to this 
part, if adopted without change and filed with Board within 30 days 
after adoption, are effective upon adoption. The Board may amend the 
model bylaws provided in appendix D.
    (2) Filing requirement. If the proposed bylaw amendment does not 
implicate paragraph (b)(1) or (b)(3) of this section and is permissible 
under all applicable laws, rules, or regulations, the subsidiary holding 
company shall submit the amendment to the appropriate Reserve Bank at 
least 30 days prior to the date the bylaw amendment is to be adopted by 
the subsidiary holding company.
    (3) Corporate governance procedures. A subsidiary holding company 
may elect to follow the corporate governance procedures of: The laws of 
the state where the main office of the subsidiary holding company is 
located; Delaware General Corporation law; or The Model Business 
Corporation Act, provided that such procedures may be elected to the 
extent not inconsistent with applicable Federal statutes and regulations 
and safety and soundness, and such procedures are not of the type 
described in paragraph (b)(1)(i) of this section. If this election is 
selected, a subsidiary holding company shall designate in its bylaws the 
provision or provisions from the body or bodies of law selected for its 
corporate governance procedures, and shall file a copy of such bylaws, 
which are effective upon adoption, within 30 days after adoption. The 
submission shall indicate, where not obvious, why the bylaw provisions 
do not require an application under paragraph (b)(1)(i) of this section.
    (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(b)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the subsidiary holding 
company follows the requirements of its charter and bylaws in adopting 
such amendment, unless the Board notifies the subsidiary holding company 
prior to the expiration of such 30-day period that such amendment is 
rejected or requires an application to be filed pursuant to paragraph 
(b)(1) of this section.
    (d) Effect of subsequent charter or bylaw change. Notwithstanding 
any subsequent change to its charter or bylaws, the authority of a 
subsidiary holding company to engage in any transaction shall be 
determined only by the subsidiary holding company's charter or bylaws 
then in effect, unless otherwise provided by Federal law or regulation.



Sec. 239.24  Issuances of stock by subsidiary holding companies of
mutual holding companies.

    (a) Requirements. No subsidiary holding company of a mutual holding 
company may issue stock to persons other than its mutual holding company 
parent in connection with a mutual holding company reorganization, or at 
any time subsequent to the subsidiary holding company's acquisition by 
the mutual holding company, unless the subsidiary holding company 
obtains advance approval of each such issuance from the Board. Approval 
of a mutual holding company reorganization filed pursuant to Sec. 
239.3(a) shall be deemed to constitute approval of any stock issuance 
specifically applied for pursuant to this section in connection with the 
reorganization, unless otherwise specified by the Board. The Board shall 
approve any proposed issuance that meets each of the criteria set forth 
below in paragraphs (a)(1) through (a)(7) of this section.
    (1) The proposed issuance is to be made pursuant to a Stock Issuance 
Plan that contains all the provisions required by Sec. 239.25.
    (2) The Stock Issuance Plan is consistent with the terms of the 
subsidiary holding company's charter (or any proposed amendments 
thereto), including terms governing the type and amount of stock that 
may be issued.

[[Page 148]]

    (3) The Stock Issuance Plan would provide the subsidiary holding 
company, its mutual holding company parent, and any subsidiary savings 
associations of the subsidiary holding company with fully sufficient 
capital and would not be inequitable or detrimental to the subsidiary 
holding company or its mutual holding company parent or to members of 
the mutual holding company parent.
    (4) The proposed price or price range of the stock to be issued is 
reasonable. The Board shall review the reasonableness of the proposed 
price or price range.
    (5) The aggregate amount of outstanding common stock of the 
subsidiary holding company owned or controlled by persons other than the 
subsidiary holding company's mutual holding company parent at the close 
of the proposed issuance shall be less than 50 percent of the subsidiary 
holding company's total outstanding common stock, unless the subsidiary 
holding company was a stock holding company when acquired by the mutual 
holding company, in which case the foregoing restriction shall not 
apply. Any amount of preferred stock may be issued by any subsidiary 
holding company of a mutual holding company to persons other than the 
subsidiary holding company's mutual holding company, consistent with any 
other applicable laws and regulations.
    (6) The subsidiary holding company furnishes the information 
required by the Board in connection with the proposed issuance.
    (7) The proposed stock issuance meets the convenience and needs 
standard of Sec. 239.55(g).
    (8) The proposed issuance complies with all other applicable laws 
and regulations.
    (9) Unless otherwise determined by the Board, the limitations on the 
minimum and maximum amounts of the estimated price range required by 
Sec. 239.59(c) shall apply.
    (b) Related approvals. Approval by the Board of any stock issuance 
pursuant to this section shall also be deemed to constitute:
    (1) Approval of the form of stock certificate proposed to be 
utilized in connection with the stock issuance, provided such form was 
included in the application materials filed pursuant to this section; 
and
    (2) Approval of any charter or bylaw amendment required to authorize 
issuance of the stock, provided such amendment was proposed in the 
application materials filed pursuant to this section.
    (c) Offering restrictions. (1) No representations may be made in any 
manner in connection with the offer or sale of any stock issued pursuant 
to this section that the price, price range or any other pricing 
information related to such stock issuance has been approved by the 
Board or that the stock has been approved or disapproved by the Board or 
that the Board has endorsed the accuracy or adequacy of any securities 
offering documents disseminated in connection with such stock.
    (2) The sale of minority stock of the subsidiary holding company to 
be made under the minority stock issuance plan, including any sale in a 
public offering or direct community marketing, shall be completed as 
promptly as possible and within 45 calendar days after the last day of 
the subscription period, unless extended by the Board.
    (3) In the offer, sale, or purchase of stock issued pursuant to this 
section, no person shall:
    (i) Employ any device, scheme, or artifice to defraud;
    (ii) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in the 
light of the circumstances under which they were made, not misleading; 
or
    (iii) Engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (4) Prior to the completion of a stock issuance pursuant to this 
section, no person shall transfer, or enter into any agreement or 
understanding to transfer, the legal or beneficial ownership of the 
stock to be issued to any other person.
    (5) Prior to the completion of a stock issuance pursuant to this 
section, no person shall make any offer, or any announcement of any 
offer, to purchase any stock to be issued, or knowingly acquire any 
stock in the issuance, in

[[Page 149]]

excess of the maximum purchase limitations established in the Stock 
Issuance Plan.
    (6) All stock issuances pursuant to this section must:
    (i) Comply with Sec. 239.59 and, to the extent applicable, the form 
or forms specified by the Board; and
    (ii) Provide that the offering be structured in a manner similar to 
a standard conversion under subpart E of this part, including the stock 
purchase priorities accorded members of the issuing subsidiary holding 
company's mutual holding company, unless the subsidiary holding company 
would qualify for a supervisory conversion if it were to undertake a 
conversion under subpart E of this part; or demonstrates to the 
satisfaction of the Board that a non-conforming issuance would be more 
beneficial to the savings association and subsidiary holding company 
compared to a conforming offering, considering, in the aggregate, the 
effect of each on the savings association and subsidiary holding 
company's financial and managerial resources and future prospects, the 
effect of the issuance upon the savings association and subsidiary 
holding company, the insurance risk to the Deposit Insurance Fund, and 
the convenience and needs of the community to be served.
    (7) Notwithstanding the restrictions in paragraph (c)(6)(ii) of this 
section, a subsidiary holding company of a mutual holding company may 
issue stock as part of a stock benefit plan to any insider, associate of 
an insider, or tax qualified or non-tax qualified employee stock benefit 
plan of the mutual holding company or subsidiary of the mutual holding 
company without including the purchase priorities of subpart E of this 
part.
    (8) As part of a reorganization, a reasonable amount of shares or 
proceeds may be contributed to a charitable organization that complies 
with Sec. Sec. 239.64(b) to 239.64(f), provided such contribution does 
not result in any taxes on excess business holdings under section 4943 
of the Internal Revenue Code (26 U.S.C. 4943).
    (d) Procedural and substantive requirements. The procedural and 
substantive requirements of subpart E of this part shall apply to all 
mutual holding company stock issuances and subsidiary holding company 
stock issuances under this section, unless clearly inapplicable, as 
determined by the Board. For purposes of this paragraph, the term 
conversion as it appears in the provisions of subpart E of this part 
shall refer to the stock issuance, and the term mutual holding company 
shall refer to the subsidiary holding company undertaking the stock 
issuance.



Sec. 239.25  Contents of Stock Issuance Plans.

    (a) Mandatory provisions. Each of the provisions mandatory for all 
stock issuance plans under this paragraph (a) shall be deemed regulatory 
requirements. Each Stock Issuance Plan shall contain a complete 
description of all significant terms of the proposed stock issuance 
(including the information specified in Sec. 239.65(f) to the extent 
known), shall attach and incorporate the proposed form of stock 
certificate, the proposed stock order form, and any agreements or other 
documents defining the rights of the stockholders, and shall:
    (1) Provide that the stock shall be sold at a total price equal to 
the estimated pro forma market value of such stock, based upon an 
independent valuation;
    (2) Provide that the aggregate amount of outstanding common stock of 
the subsidiary holding company owned or controlled by persons other than 
the subsidiary holding company's mutual holding company parent at the 
close of the proposed issuance shall be less than fifty percent of the 
subsidiary holding company's total outstanding common stock (This 
provision may be omitted if the proposed issuance will be conducted by a 
subsidiary holding company that was in the stock form when acquired by 
its mutual holding company parent);
    (3) Provide that all employee stock ownership plans or other tax-
qualified employee stock benefit plans (collectively, ESOPs) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
outstanding shares of the subsidiary holding company's common stock or 
4.9 percent of the subsidiary

[[Page 150]]

holding company's stockholders' equity at the close of the proposed 
issuance;
    (4) Provide that all ESOPs and management recognition plans (MRPs) 
must not encompass, in the aggregate, more than either 4.9 percent of 
the outstanding shares of the subsidiary holding company's common stock 
or 4.9 percent of the subsidiary holding company's stockholders' equity 
at the close of the proposed issuance. However, if the subsidiary 
holding company's tangible capital equals at least ten percent at the 
time of implementation of the plan, the Board may permit such ESOPs and 
MRPs to encompass, in the aggregate, up to 5.88 percent of the 
outstanding common stock or stockholders' equity at the close of the 
proposed issuance;
    (5) Provide that all MRPs must not encompass, in the aggregate, more 
than either 1.47 percent of the common stock of the subsidiary holding 
company or 1.47 percent of the subsidiary holding company's 
stockholders' equity at the close of the proposed issuance. However, if 
the subsidiary holding company's tangible capital is at least ten 
percent at the time of implementation of the plan, the Board may permit 
MRPs to encompass, in the aggregate, up to 1.96 percent of the 
outstanding shares of the subsidiary holding company's common stock or 
1.96 percent of the savings subsidiary holding company's stockholders' 
equity at the close of the proposed issuance;
    (6) Provide that all stock option plans (Option Plans) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
subsidiary holding company's outstanding common stock at the close of 
the proposed issuance or 4.9 percent of the subsidiary holding company's 
stockholders' equity at the close of the proposed issuance;
    (7) Provide that an ESOP, a MRP or an Option Plan modified or 
adopted no earlier than one year after the close of: the proposed 
issuance, or any subsequent issuance that is made in substantial 
conformity with the purchase priorities Sec. 239.59(a) set forth in 
subpart E of this part, may exceed the percentage limitations contained 
in paragraphs (a)(3) through (6) of this section (plan expansion), 
subject to the following two requirements. First, all common stock 
awarded in connection with any plan expansion must be acquired for such 
awards in the secondary market. Second, such acquisitions must begin no 
earlier than when such plan expansion is permitted to be made;
    (8)(i) Provide that the aggregate amount of common stock that may be 
encompassed under all Option Plans and MRPs, or acquired by all insiders 
of the subsidiary holding company and subsidiary savings association and 
associates of insiders of the subsidiary holding company and subsidiary 
savings association, must not exceed the following percentages of common 
stock or stockholders' equity of the subsidiary holding company, held by 
persons other than the subsidiary holding company's mutual holding 
company parent at the close of the proposed issuance:

------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$ 50,000,000 or less....................................              35
$ 50,000,001-100,000,000................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (ii) The percentage limitations contained in paragraph 8(i) of this 
section may be exceeded provided that all stock acquired by insiders and 
associates of insiders or awarded under all MRPs and Option Plans in 
excess of those limitations is acquired in the secondary market. If 
acquired for such awards on the secondary market, such acquisitions must 
begin no earlier than one year after the close of the proposed issuance 
or any subsequent issuance that is made in substantial conformity with 
the purchase priorities set forth in subpart E of this part.
    (iii) In calculating the number of shares held by insiders and their 
associates under this provision, shares awarded but not delivered under 
an ESOP, MRP, or Option Plan that are attributable to such persons shall 
not

[[Page 151]]

be counted as being acquired by such persons.
    (9) Provide that the amount of common stock that may be encompassed 
under all Option Plans and MRPs must not exceed, in the aggregate, 25 
percent of the outstanding common stock held by persons other than the 
subsidiary holding company's mutual holding company parent at the close 
of the proposed issuance;
    (10) Provide that the issuance shall be conducted in compliance 
with, to the extent applicable, the forms required by the Board;
    (11) Provide that the sales price of the shares of stock to be sold 
in the issuance shall be a uniform price determined in accordance with 
Sec. 239.24;
    (12) Provide that, if at the close of the stock issuance the 
subsidiary holding company has more than thirty-five shareholders of any 
class of stock, the subsidiary holding company shall promptly register 
that class of stock pursuant to the Securities Exchange Act of 1934, as 
amended (15 U.S.C. 78a-78jj), and undertake not to deregister such stock 
for a period of three years thereafter;
    (13) Provide that, if at the close of the stock issuance the 
subsidiary holding company has more than one hundred shareholders of any 
class of stock, the subsidiary holding company shall use its best 
efforts to:
    (i) Encourage and assist a market maker to establish and maintain a 
market for that class of stock; and
    (ii) List that class of stock on a national or regional securities 
exchange or on the NASDAQ quotation system;
    (14) Provide that, for a period of three years following the 
proposed issuance, no insider of the subsidiary holding company or his 
or her associates shall purchase, without the prior written approval of 
the Board, any stock of the subsidiary holding company except from a 
broker dealer registered with the Securities and Exchange Commission, 
except that the foregoing restriction shall not apply to:
    (i) Negotiated transactions involving more than one percent of the 
outstanding stock in the class of stock; or
    (ii) Purchases of stock made by and held by any tax-qualified or 
non-tax-qualified employee stock benefit plan of the subsidiary holding 
company even if such stock is attributable to insiders of the subsidiary 
holding company and subsidiary savings association or their associates;
    (15) Provide that stock purchased by insiders of the subsidiary 
holding company and subsidiary savings association and their associates 
in the proposed issuance shall not be sold for a period of at least one 
year following the date of purchase, except in the case of death of the 
insider or associate;
    (16) Provide that, in connection with stock subject to restriction 
on sale for a period of time:
    (i) Each certificate for such stock shall bear a legend giving 
appropriate notice of such restriction;
    (ii) Appropriate instructions shall be issued to the subsidiary 
holding company's transfer agent with respect to applicable restrictions 
on transfer of such stock; and
    (iii) Any shares issued as a stock dividend, stock split, or 
otherwise with respect to any such restricted stock shall be subject to 
the same restrictions as apply to the restricted stock;
    (17) Provide that the subsidiary holding company will not offer or 
sell any of the stock proposed to be issued to any person whose purchase 
would be financed by funds loaned, directly or indirectly, to the person 
by the subsidiary holding company;
    (18) Provide that, if necessary, the subsidiary holding company's 
charter will be amended to authorize issuance of the stock and attach 
and incorporate by reference the text of any such amendment;
    (19) Provide that the expenses incurred in connection with the 
issuance shall be reasonable;
    (20) Provide that the Stock Issuance Plan, if proposed as part of a 
Reorganization Plan, may be amended or terminated in the same manner as 
the Reorganization Plan. Otherwise, the Stock Issuance Plan shall 
provide that it may be substantively amended by the board of directors 
of the issuing subsidiary holding company as a result of comments from 
regulatory authorities or otherwise prior to approval of the Plan by the 
Board, and at any time thereafter with the concurrence of the

[[Page 152]]

Board; and that the Stock Issuance Plan may be terminated by the board 
of directors at any time prior to approval of the Plan by the Board, and 
at any time thereafter with the concurrence of the Board;
    (21) Provide that, unless an extension is granted by the Board, the 
Stock Issuance Plan shall be terminated if not completed within 90 days 
of the date of such approval; or
    (22) Provide that the subsidiary holding company may make scheduled 
discretionary contributions to a tax-qualified employee stock benefit 
plan provided such contributions do not cause the subsidiary holding 
company to fail to meet any of its regulatory capital requirements.
    (b) Optional provisions. A Stock Issuance Plan may:
    (1) Provide that, in the event the proposed stock issuance is part 
of a Reorganization Plan, the stock offering may be commenced 
concurrently with or at any time after the mailing to the members of the 
reorganizing association and any acquiree association of any proxy 
statement(s). The offering may be closed before the required membership 
vote(s), provided the offer and sale of the stock shall be conditioned 
upon the approval of the Reorganization Plan and Stock Issuance Plan by 
the members of the reorganizing association and any acquiree 
association;
    (2) Provide that any insignificant residue of stock of the 
subsidiary holding company not sold in the offering may be sold in such 
other manner as provided in the Stock Issuance Plan, with the Board's 
approval;
    (3) Provide that the subsidiary holding company may issue and sell, 
in lieu of shares of its stock, units of securities consisting of stock 
and long-term warrants or other equity securities, in which event any 
reference in the provisions of this section and in Sec. 239.24 to stock 
shall apply to such units of equity securities unless the context 
otherwise requires; or
    (4) Provide that the subsidiary holding company may reserve shares 
representing up to ten percent of the proposed offering for issuance in 
connection with an employee stock benefit plan.
    (c) Applicability of provisions of Sec. 239.63(a)(1) to minority 
stock issuances. Notwithstanding Sec. 239.24(d), Sec. 239.63(a)(1)(ii) 
do not apply to minority stock issuances, because the permissible sizes 
of ESOPs, MRPs, and Option Plans in minority stock issuances are subject 
to each of the requirements set forth at paragraphs (a)(3) through 
(a)(9) of this section. Section 239.63(a)(4) through (a)(14), apply for 
one year after the subsidiary holding company engages in a minority 
stock issuance that is conducted in accordance with the purchase 
priorities set forth in subpart E of this part. In addition to the 
shareholder vote requirement for Option Plans and MRPs set forth at 
Sec. 239.63(a)(1)(vi), any Option Plans and MRPs put to a shareholder 
vote after a minority stock issuance that is conducted in accordance 
with the purchase priorities set forth in subpart E of this part must be 
approved by a majority of the votes cast by stockholders other than the 
mutual holding company.



Sec. 239.26  Shareholders.

    (a) Shareholder meetings. An annual meeting of the shareholders of 
the subsidiary holding company for the election of directors and for the 
transaction of any other business of the subsidiary holding company 
shall be held annually within 150 days after the end of the subsidiary 
holding company's fiscal year. Unless otherwise provided in the 
subsidiary holding company's charter, special meetings of the 
shareholders may be called by the board of directors or on the request 
of the holders of 10 percent or more of the shares entitled to vote at 
the meeting, or by such other persons as may be specified in the bylaws 
of the subsidiary holding company. All annual and special meetings of 
shareholders shall be held at such place as the board of directors may 
determine in the state in which the subsidiary savings association has 
its principal place of business, or at any other convenient place the 
board of directors may designate.
    (b) Notice of shareholder meetings. Written notice stating the 
place, day, and hour of the meeting and the purpose or purposes for 
which the meeting is called shall be delivered not fewer

[[Page 153]]

than 20 nor more than 50 days before the date of the meeting, either 
personally or by mail, by or at the direction of the chairman of the 
board, the president, the secretary, or the directors, or other natural 
persons calling the meeting, to each shareholder of record entitled to 
vote at such meeting. If mailed, such notice shall be deemed to be 
delivered when deposited in the mail, addressed to the shareholder at 
the address appearing on the stock transfer books or records of the 
subsidiary holding company as of the record date prescribed in paragraph 
(c) of this section, with postage thereon prepaid. When any 
shareholders' meeting, either annual or special, is adjourned for 30 
days or more, notice of the adjourned meeting shall be given as in the 
case of an original meeting. Notwithstanding anything in this section, 
however, a subsidiary holding company that is wholly owned shall not be 
subject to the shareholder notice requirement.
    (c) Fixing of record date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment thereof, or shareholders entitled to 
receive payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not less than 10 days prior to the 
date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment thereof.
    (d) Voting lists. (1) At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for the shares of the subsidiary holding company shall make a 
complete list of the stockholders of record entitled to vote at such 
meeting, or any adjournments thereof, arranged in alphabetical order, 
with the address and the number of shares held by each. This list of 
shareholders shall be kept on file at the home office of the subsidiary 
holding company and shall be subject to inspection by any shareholder of 
record or the stockholder's agent during the entire time of the meeting. 
The original stock transfer book shall constitute prima facie evidence 
of the stockholders entitled to examine such list or transfer books or 
to vote at any meeting of stockholders. Notwithstanding anything in this 
section, however, a subsidiary holding company that is wholly owned 
shall not be subject to the voting list requirements.
    (2) In lieu of making the shareholders list available for inspection 
by any shareholders as provided in paragraph (d)(1) of this section, the 
board of directors may perform such acts as required by paragraphs (a) 
and (b) of Rule 14a-7 of the General Rules and Regulations under the 
Securities and Exchange Act of 1934 (17 CFR 240.14a-7) as may be duly 
requested in writing, with respect to any matter which may be properly 
considered at a meeting of shareholders, by any shareholder who is 
entitled to vote on such matter and who shall defray the reasonable 
expenses to be incurred by the subsidiary holding company in performance 
of the act or acts required.
    (e) Shareholder quorum. A majority of the outstanding shares of the 
subsidiary holding company entitled to vote, represented in person or by 
proxy, shall constitute a quorum at a meeting of shareholders. The 
shareholders present at a duly organized meeting may continue to 
transact business until adjournment, notwithstanding the withdrawal of 
enough shareholders to leave less than a quorum. If a quorum is present, 
the affirmative vote of the majority of the shares represented at the 
meeting and entitled to vote on the subject matter shall be the act of 
the stockholders, unless the vote of a greater number of stockholders 
voting together or voting by classes is required by law or the charter. 
Directors, however, are elected by a plurality of the votes cast at an 
election of directors.
    (f) Shareholder voting-- (1) Proxies. Unless otherwise provided in 
the subsidiary holding company's charter, at

[[Page 154]]

all meetings of shareholders, a shareholder may vote in person or by 
proxy executed in writing by the shareholder or by a duly authorized 
attorney in fact. Proxies may be given telephonically or electronically 
as long as the holder uses a procedure for verifying the identity of the 
shareholder. A proxy may designate as holder a corporation, partnership 
or company, or other person. Proxies solicited on behalf of the 
management shall be voted as directed by the shareholder or, in the 
absence of such direction, as determined by a majority of the board of 
directors. No proxy shall be valid more than eleven months from the date 
of its execution except for a proxy coupled with an interest.
    (2) Shares controlled by subsidiary holding company. Neither 
treasury shares of its own stock held by the subsidiary holding company 
nor shares held by another corporation, if a majority of the shares 
entitled to vote for the election of directors of such other corporation 
are held by the subsidiary holding company, shall be voted at any 
meeting or counted in determining the total number of outstanding shares 
at any given time for purposes of any meeting.
    (g) Nominations and new business submitted by shareholders. 
Nominations for directors and new business submitted by shareholders 
shall be voted upon at the annual meeting if such nominations or new 
business are submitted in writing and delivered to the secretary of the 
subsidiary holding company at least five days prior to the date of the 
annual meeting. Ballots bearing the names of all the natural persons 
nominated shall be provided for use at the annual meeting.
    (h) Informal action by stockholders. If the bylaws of the subsidiary 
holding company so provide, any action required to be taken at a meeting 
of the stockholders, or any other action that may be taken at a meeting 
of the stockholders, may be taken without a meeting if consent in 
writing has been given by all the stockholders entitled to vote with 
respect to the subject matter.



Sec. 239.27  Board of directors.

    (a) General powers and duties. The business and affairs of the 
subsidiary holding company shall be under the direction of its board of 
directors. The board of directors shall annually elect a chairman of the 
board from among its members and shall designate the chairman of the 
board, when present, to preside at its meeting. Directors need not be 
stockholders unless the bylaws so require.
    (b) Number and term. The bylaws shall set forth a specific number of 
directors, not a range. The number of directors shall be not fewer than 
five nor more than fifteen, unless a higher or lower number has been 
authorized by the Board. Directors shall be elected for a term of one to 
three years and until their successors are elected and qualified. If a 
staggered board is chosen, the directors shall be divided into two or 
three classes as nearly equal in number as possible and one class shall 
be elected by ballot annually. In the case of a converting or newly 
chartered subsidiary holding company where all directors shall be 
elected at the first election of directors, if a staggered board is 
chosen, the terms shall be staggered in length from one to three years.
    (c) Regular meetings. A regular meeting of the board of directors 
shall be held immediately after, and at the same place as, the annual 
meeting of shareholders. The board of directors shall determine the 
place, frequency, time and procedure for notice of regular meetings.
    (d) Quorum. A majority of the number of directors shall constitute a 
quorum for the transaction of business at any meeting of the board of 
directors. The act of the majority of the directors present at a meeting 
at which a quorum is present shall be the act of the board of directors, 
unless a greater number is prescribed by regulation of the Board.
    (e) Vacancies. Any vacancy occurring in the board of directors may 
be filled by the affirmative vote of a majority of the remaining 
directors although less than a quorum of the board of directors. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the shareholders. Any directorship to 
be filled by reason of an increase in the number of directors may be 
filled by

[[Page 155]]

election by the board of directors for a term of office continuing only 
until the next election of directors by the shareholders.
    (f) Removal or resignation of directors. (1) At a meeting of 
shareholders called expressly for that purpose, any director may be 
removed only for cause, as defined in Sec. 239.41, by a vote of the 
holders of a majority of the shares then entitled to vote at an election 
of directors. Subsidiary holding companies may provide for procedures 
regarding resignations in the bylaws.
    (2) If less than the entire board is to be removed, no one of the 
directors may be removed if the votes cast against the removal would be 
sufficient to elect a director if then cumulatively voted at an election 
of the class of directors of which such director is a part.
    (3) Whenever the holders of the shares of any class are entitled to 
elect one or more directors by the provisions of the charter or 
supplemental sections thereto, the provisions of this section shall 
apply, in respect to the removal of a director or directors so elected, 
to the vote of the holders of the outstanding shares of that class and 
not to the vote of the outstanding shares as a whole.
    (g) Executive and other committees. The board of directors, by 
resolution adopted by a majority of the full board, may designate from 
among its members an executive committee and one or more other 
committees each of which, to the extent provided in the resolution or 
bylaws of the subsidiary holding company, shall have and may exercise 
all of the authority of the board of directors, except no committee 
shall have the authority of the board of directors with reference to: 
the declaration of dividends; the amendment of the charter or bylaws of 
the subsidiary holding company; recommending to the stockholders a plan 
of merger, consolidation, or conversion; the sale, lease, or other 
disposition of all, or substantially all, of the property and assets of 
the subsidiary holding company otherwise than in the usual and regular 
course of its business; a voluntary dissolution of the subsidiary 
holding company; a revocation of any of the foregoing; or the approval 
of a transaction in which any member of the executive committee, 
directly or indirectly, has any material beneficial interest. The 
designation of any committee and the delegation of authority thereto 
shall not operate to relieve the board of directors, or any director, of 
any responsibility imposed by law or regulation.
    (h) Notice of special meetings. Written notice of at least 24 hours 
regarding any special meeting of the board of directors or of any 
committee designated thereby shall be given to each director in 
accordance with the bylaws, although such notice may be waived by the 
director. The attendance of a director at a meeting shall constitute a 
waiver of notice of such meeting, except where a director attends a 
meeting for the express purpose of objecting to the transaction of any 
business because the meeting is not lawfully called or convened. Neither 
the business to be transacted at, nor the purpose of, any meeting need 
be specified in the notice or waiver of notice of such meeting. The 
bylaws may provide for telephonic participation at a meeting.
    (i) Action without a meeting. Any action required or permitted to be 
taken by the board of directors at a meeting may be taken without a 
meeting if a consent in writing, setting forth the actions so taken, 
shall be signed by all of the directors.
    (j) Presumption of assent. A director of the subsidiary holding 
company who is present at a meeting of the board of directors at which 
action on any subsidiary holding company matter is taken shall be 
presumed to have assented to the action taken unless his or her dissent 
or abstention shall be entered in the minutes of the meeting or unless a 
written dissent to such action shall be filed with the individual acting 
as the secretary of the meeting before the adjournment thereof or shall 
be forwarded by registered mail to the secretary of the subsidiary 
holding company within five days after the date on which a copy of the 
minutes of the meeting is received. Such right to dissent shall not 
apply to a director who voted in favor of such action.
    (k) Age limitation on directors. A subsidiary holding company may 
provide a bylaw on age limitation for directors.

[[Page 156]]

Bylaws on age limitations must comply with all Federal laws, rules and 
regulations.



Sec. 239.28  Officers.

    (a) Positions. The officers of the subsidiary holding company shall 
be a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller, each of whom shall be elected by the board of 
directors. The board of directors may also designate the chairman of the 
board as an officer. The offices of the secretary and treasurer or 
comptroller may be held by the same individual and the vice president 
may also be either the secretary or the treasurer or comptroller. The 
board of directors may designate one or more vice presidents as 
executive vice president or senior vice president. The board of 
directors may also elect or authorize the appointment of such other 
officers as the business of the subsidiary holding company may require. 
The officers shall have such authority and perform such duties as the 
board of directors may from time to time authorize or determine. In the 
absence of action by the board of directors, the officers shall have 
such powers and duties as generally pertain to their respective offices.
    (b) Removal. Any officer may be removed by the board of directors 
whenever in its judgment the best interests of the subsidiary holding 
company will be served thereby; but such removal, other than for cause, 
shall be without prejudice to the contractual rights, if any, of the 
individual so removed. Employment contracts shall conform with Sec. 
239.41.
    (c) Age limitation on officers. A subsidiary holding company may 
provide a bylaw on age limitation for officers. Bylaws on age 
limitations must comply with all Federal laws, rules, and regulations.



Sec. 239.29  Certificates for shares and their transfer.

    (a) Certificates for shares. Certificates representing shares of 
capital stock of the subsidiary holding company shall be in such form as 
shall be determined by the board of directors and approved by the Board. 
The certificates shall be signed by the chief executive officer or by 
any other officer of the subsidiary holding company authorized by the 
board of directors, attested by the secretary or an assistant secretary, 
and sealed with the corporate seal or a facsimile thereof. The 
signatures of such officers upon a certificate may be facsimiles if the 
certificate is manually signed on behalf of a transfer agent or a 
registrar other than the subsidiary holding company itself or one of its 
employees. Each certificate for shares of capital stock shall be 
consecutively numbered or otherwise identified. The name and address of 
the person to whom the shares are issued, with the number of shares and 
date of issue, shall be entered on the stock transfer books of the 
subsidiary holding company. All certificates surrendered to the 
subsidiary holding company for transfer shall be cancelled and no new 
certificate shall be issued until the former certificate for a like 
number of shares shall have been surrendered and cancelled, except that 
in the case of a lost or destroyed certificate a new certificate may be 
issued upon such terms and indemnity to the subsidiary holding company 
as the board of directors may prescribe.
    (b) Transfer of shares. Transfer of shares of capital stock of the 
subsidiary holding company shall be made only on its stock transfer 
books. Authority for such transfer shall be given only by the holder of 
record or by a legal representative, who shall furnish proper evidence 
of such authority, or by an attorney authorized by a duly executed power 
of attorney and filed with the subsidiary holding company. The transfer 
shall be made only on surrender for cancellation of the certificate for 
the shares. The person in whose name shares of capital stock stand on 
the books of the subsidiary holding company shall be deemed by the 
subsidiary holding company to be the owner for all purposes.



Sec. 239.30  Annual reports; books and records.

    (a) Annual reports to stockholders. A subsidiary holding company not 
wholly-owned by a holding company shall, within 130 days after the end 
of its fiscal year, mail to each of its stockholders entitled to vote at 
its annual

[[Page 157]]

meeting an annual report containing financial statements that satisfy 
the requirements of rule 14a-3 under the Securities Exchange Act of 
1934. (17 CFR 240.14a-3). Concurrently with such mailing a certification 
of such mailing signed by the chairman of the board, the president or a 
vice president of the subsidiary holding company, together with a copy 
of the report, shall be transmitted by the subsidiary holding company to 
the appropriate Reserve Bank.
    (b) Books and records. (1) Each subsidiary holding company shall 
keep correct and complete books and records of account; shall keep 
minutes of the proceedings of its stockholders, board of directors, and 
committees of directors; and shall keep at its home office or at the 
office of its transfer agent or registrar, a record of its stockholders, 
giving the names and addresses of all stockholders, and the number, 
class and series, if any, of the shares held by each.
    (2) Any stockholder or group of stockholders of a subsidiary holding 
company, holding of record the number of voting shares of such 
subsidiary holding company specified below, upon making written demand 
stating a proper purpose, shall have the right to examine, in person or 
by agent or attorney, at any reasonable time or times, nonconfidential 
portions of its books and records of account, minutes and record of 
stockholders and to make extracts therefrom. Such right of examination 
is limited to a stockholder or group of stockholders holding of record:
    (i) Voting shares having a cost of not less than $100,000 or 
constituting not less than one percent of the total outstanding voting 
shares, provided in either case such stockholder or group of 
stockholders have held of record such voting shares for a period of at 
least six months before making such written demand, or
    (ii) Not less than five percent of the total outstanding voting 
shares. No stockholder or group of stockholders of a subsidiary holding 
company shall have any other right under this section or common law to 
examine its books and records of account, minutes and record of 
stockholders, except as provided in its bylaws with respect to 
inspection of a list of stockholders.
    (3) The right to examination authorized by paragraph (b)(2) of this 
section and the right to inspect the list of stockholders provided by a 
subsidiary holding company's bylaws may be denied to any stockholder or 
group of stockholders upon the refusal of any such stockholder or group 
of stockholders to furnish such subsidiary holding company, its transfer 
agent or registrar an affidavit that such examination or inspection is 
not desired for any purpose which is in the interest of a business or 
object other than the business of the subsidiary holding company, that 
such stockholder has not within the five years preceding the date of the 
affidavit sold or offered for sale, and does not now intend to sell or 
offer for sale, any list of stockholders of the subsidiary holding 
company or of any other corporation, and that such stockholder has not 
within said five-year period aided or abetted any other person in 
procuring any list of stockholders for purposes of selling or offering 
for sale such list.
    (4) Notwithstanding any provision of this section or common law, no 
stockholder or group of stockholders shall have the right to obtain, 
inspect or copy any portion of any books or records of a subsidiary 
holding company containing:
    (i) A list of depositors in or borrowers from such subsidiary 
holding company;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.



Sec. 239.31  Indemnification; employment contracts.

    (a) Restrictions on indemnification. The provisions of Sec. 239.40 
shall apply to subsidiary holding companies.
    (b) Restrictions on employment contracts. The provisions of Sec. 
239.41 and any policies of the Board thereunder shall apply to 
subsidiary holding companies.

[[Page 158]]



             Subpart D_Indemnification; Employment Contracts



Sec. 239.40  Indemnification of directors, officers and employees.

    A mutual holding company shall indemnify its directors, officers, 
and employees in accordance with the following requirements:
    (a) Definitions and rules of construction. (1) Definitions for 
purposes of this section.
    (i) Action means any judicial or administrative proceeding, or 
threatened proceeding, whether civil, criminal, or otherwise, including 
any appeal or other proceeding for review;
    (ii) Court includes, without limitation, any court to which or in 
which any appeal or any proceeding for review is brought.
    (iii) Final judgment means a judgment, decree, or order which is not 
appealable or as to which the period for appeal has expired with no 
appeal taken.
    (iv) Settlement includes entry of a judgment by consent or 
confession or a plea of guilty or nolo contendere.
    (2) References in this section to any individual or other person, 
including any mutual holding company, shall include legal 
representatives, successors, and assigns thereof.
    (b) General. Subject to paragraphs (c) and (g) of this section, a 
mutual holding company shall indemnify any person against whom an action 
is brought or threatened because that person is or was a director, 
officer, or employee of the mutual holding company, for:
    (1) Any amount for which that person becomes liable under a judgment 
if such action; and
    (2) Reasonable costs and expenses, including reasonable attorney's 
fees, actually paid or incurred by that person in defending or settling 
such action, or in enforcing his or her rights under this section if he 
or she attains a favorable judgment in such enforcement action.
    (c) Requirements. Indemnification shall be made to such period under 
paragraph (b) of this section only if:
    (1) Final judgment on the merits is in his or her favor; or
    (2) In case of:
    (i) Settlement,
    (ii) Final judgment against him or her, or
    (iii) Final judgment in his or her favor, other than on the merits, 
if a majority of the disinterested directors of the mutual holding 
company determine that he or she was acting in good faith within the 
scope of his or her employment or authority as he or she could 
reasonably have perceived it under the circumstances and for a purpose 
he or she could reasonably have believed under the circumstances was in 
the best interests of the mutual holding company or its members. 
However, no indemnification shall be made unless the mutual holding 
company gives the Board at least 60 days' notice of its intention to 
make such indemnification. Such notice shall state the facts on which 
the action arose, the terms of any settlement, and any disposition of 
the action by a court. Such notice, a copy thereof, and a certified copy 
of the resolution containing the required determination by the board of 
directors shall be sent to the appropriate Reserve Bank, who shall 
promptly acknowledge receipt thereof. The notice period shall run from 
the date of such receipt. No such indemnification shall be made if the 
Board advises the mutual holding company in writing, within such notice 
period, of its objection to the indemnification.
    (d) Insurance. A mutual holding company may obtain insurance to 
protect it and its directors, officers, and employees from potential 
losses arising from claims against any of them for alleged wrongful 
acts, or wrongful acts, committed in their capacity as directors, 
officers, or employees. However, no mutual holding company may obtain 
insurance which provides for payment of losses of any individual 
incurred as a consequence of his or her willful or criminal misconduct.
    (e) Payment of expenses. If a majority of the directors of a mutual 
holding company concludes that, in connection with an action, any person 
ultimately may become entitled to indemnification under this section, 
the directors may authorize payment of reasonable costs and expenses, 
including reasonable attorneys' fees, arising from the defense or 
settlement of such action.

[[Page 159]]

Nothing in this paragraph shall prevent the directors of a mutual 
holding company from imposing such conditions on a payment of expenses 
as they deem warranted and in the interests of the mutual holding 
company. Before making advance payment of expenses under this paragraph, 
the mutual holding company shall obtain an agreement that the mutual 
holding company will be repaid if the person on whose behalf payment is 
made is later determined not to be entitled to such indemnification.
    (f) Exclusiveness of provisions. No mutual holding company shall 
indemnify any person referred to in paragraph (b) of this section or 
obtain insurance referred to in paragraph (d) of the section other than 
in accordance with this section. However, a mutual holding company which 
has a bylaw in effect relating to indemnification of its personnel shall 
be governed solely by that bylaw, except that its authority to obtain 
insurance shall be governed by paragraph (d) of this section.
    (g) The indemnification provided for in paragraph (b) of this 
section is subject to and qualified by 12 U.S.C. 1821(k).



Sec. 239.41  Employment contracts.

    (a) General. A mutual holding company may enter into an employment 
contract with its officers and other employees only in accordance with 
the requirements of this section. All employment contracts shall be in 
writing and shall be approved specifically by the respective mutual 
holding company's board of directors. A mutual holding company shall not 
enter into an employment contract with any of its officers or other 
employees if such contract would constitute an unsafe or unsound 
practice. The making of such an employment contract would be an unsafe 
or unsound practice if such contract could lead to material financial 
loss or damage to the mutual holding company or could interfere 
materially with the exercise by the members of its board of directors of 
their duty or discretion provided by law, charter, bylaw or regulation 
as to the employment or termination of employment of an officer or 
employee of the mutual holding company. This may occur, depending upon 
the circumstances of the case, where an employment contract provides for 
an excessive term.
    (b) Required provisions. Each employment contract shall provide 
that:
    (1) The mutual holding company's board of directors may terminate 
the officer or employee's employment at any time, but any termination by 
the mutual holding company's board of directors other than termination 
for cause, shall not prejudice the officer or employee's right to 
compensation or other benefits under the contract. The officer or 
employee shall have no right to receive compensation or other benefits 
for any period after termination for cause. Termination for cause shall 
include termination because of the officer or employee's personal 
dishonesty, incompetence, willful misconduct, breach of fiduciary duty 
involving personal profit, intentional failure to perform stated duties, 
willful violation of any law, rule, or regulation (other than traffic 
violations or similar offenses) or final cease-and-desist order, or 
material breach of any provision of the contract.
    (2) If the officer or employee is suspended and/or temporarily 
prohibited from participating in the conduct of the mutual holding 
company's affairs by a notice served under section 8 (e)(3) or (g)(1) of 
Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) the 
mutual holding company's obligations under the contract shall be 
suspended as of the date of service unless stayed by appropriate 
proceedings. If the charges in the notice are dismissed, the mutual 
holding company may in its discretion:
    (i) Pay the officer or employee all or part of the compensation 
withheld while its contract obligations were suspended, and
    (ii) Reinstate (in whole or in part) any of its obligations which 
were suspended.
    (3) If the officer or employee is removed and/or permanently 
prohibited from participating in the conduct of the mutual holding 
company's affairs by an order issued under section 8 (e)(4) or (g)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all 
obligations of the mutual holding

[[Page 160]]

company under the contract shall terminate as of the effective date of 
the order, but vested rights of the contracting parties shall not be 
affected.
    (4) If the subsidiary savings association is in default (as defined 
in section 3(x)(1) of the Federal Deposit Insurance Act), all 
obligations under the contract shall terminate as of the date of 
default, but this paragraph (b) shall not affect any vested rights of 
the contracting parties: Provided, that this paragraph (b) need not be 
included in an employment contract if prior written approval is secured 
from the Board.
    (5) If the mutual holding company is subject to bankruptcy 
proceedings under title 11 of the United States Code, all obligations of 
the mutual holding company under the contract shall terminate as of the 
date that the petition is filed, but vested rights of the contracting 
parties shall not be affected: Provided, that this paragraph (b) need 
not be included in an employment contract if prior written approval is 
secured from the Board.
    (6) All obligations under the contract shall be terminated, except 
to the extent determined that continuation of the contract is necessary 
to the continued operation of the mutual holding company--
    (i) By the Board, at the time the Federal Deposit Insurance 
Corporation enters into an agreement to provide assistance to or on 
behalf of the subsidiary savings association under the authority 
contained in 13(c) of the Federal Deposit Insurance Act; or
    (ii) By the Board, at the time the Board approves a supervisory 
merger to resolve problems related to operation of the mutual holding 
company or when the mutual holding company is determined by the Board to 
be in an unsafe or unsound condition.



             Subpart E_Conversions from Mutual to Stock Form



Sec. 239.50  Purpose and scope.

    (a) General. This subpart governs how a mutual holding company may 
convert from the mutual to the stock form of ownership. This subpart 
supersedes all inconsistent charter and bylaw provisions of mutual 
holding companies converting to stock form.
    (b) Prescribed forms. A mutual holding company must use the forms 
prescribed under this subpart and provide such information as the Board 
may require under the forms by regulation or otherwise. The forms 
required under this subpart include: Form AC (Application for 
Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); and 
Form OF (Order Form).
    (c) Waivers. The Board may waive any requirement of this subpart or 
a provision in any prescribed form. To obtain a waiver, a mutual holding 
company must file a written request with the Board that:
    (1) Specifies the requirement(s) or provision(s) that the mutual 
holding company wants the Board to waive;
    (2) Demonstrates that the waiver is equitable; is not detrimental to 
the mutual holding company, mutual members, or other mutual holding 
companies or savings associations; and is not contrary to the public 
interest; and
    (3) Includes an opinion of counsel demonstrating that applicable law 
does not conflict with the waiver of the requirement or provision.



Sec. 239.51  Acquiring another insured stock depository institution as
part of a conversion.

    When a mutual holding company converts to stock form, the subsidiary 
savings association may acquire for cash or stock another insured 
depository institution that is already in the stock form of ownership.



Sec. 239.52  Definitions.

    The following definitions apply to this subpart and the forms 
prescribed under this subpart:
    (a) Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.
    (b) Eligibility record date is the date for determining eligible 
account holders. The eligibility record date must be at least one year 
before the date that the board of directors adopts the plan of 
conversion.
    (c) Eligible account holders are any persons holding qualifying 
deposits on the eligibility record date.

[[Page 161]]

    (d) IRS is the United States Internal Revenue Service.
    (e) Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which the mutual holding company has a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in the mutual holding company's Community 
Reinvestment Act assessment area; and
    (4) Any other area or category the mutual holding company sets out 
in its plan of conversion, as approved by the Board.
    (f) Mutual holding company has the same meaning in this subpart as 
that term is given in subpart A. For purposes of this subpart, 
references to mutual holding company shall also include a resulting 
stock holding company, where applicable.
    (g) Offer, offer to sell, or offer for sale is an attempt or offer 
to dispose of, or a solicitation of an offer to buy, a security or 
interest in a security for value. Preliminary negotiations or agreements 
with an underwriter, or among underwriters who are or will be in privity 
of contract with the mutual holding company or resulting stock holding 
company, are not offers, offers to sell, or offers for sale.
    (h) Proxy soliciting material includes a proxy statement, form of 
proxy, or other written or oral communication regarding the conversion.
    (i) Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    (j) Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. The mutual holding company's plan 
of conversion may provide that only savings accounts with total deposit 
balances of $50 or more will qualify.
    (k) Resulting stock holding company means the stock savings and loan 
holding company that is issuing stock in connection with conversion of a 
mutual holding company pursuant to this subpart.
    (l) Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by the Board is not a sale.
    (m) Solicitation and solicit is a request for a proxy, whether or 
not accompanied by or included in a form of proxy; a request to execute, 
not execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause the members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    (n) Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec. 239.59(h);
    (2) Tax-qualified employee stock ownership plans under Sec. 
239.59(m);
    (3) Supplemental eligible account holders under Sec. 239.59(h); and
    (4) Other voting members under Sec. 239.59(j).
    (o) Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before the Board 
approves the conversion and will occur only if the Board has not 
approved the conversion within 15 months of the eligibility record date.
    (p) Supplemental eligible account holders are any persons, except 
officers, directors, and their associates of the mutual holding company 
or subsidiary savings association, holding qualifying deposits on the 
supplemental eligibility record date.
    (q) Underwriter is any person who purchases any securities from the 
mutual holding company or resulting stock holding company with a view to 
distributing the securities, offers or sells securities for the mutual 
stock holding company or resulting stock holding company in connection 
with the securities' distribution, or participates or has a direct or 
indirect participation in the direct or indirect underwriting of any 
such undertaking. Underwriter does not include a person whose interest 
is limited to a usual and customary

[[Page 162]]

distributor's or seller's commission from an underwriter or dealer.



Sec. 239.53  Prior to conversion.

    (a) Pre-filing meeting and consultation. (1) The mutual holding 
company's board, or a subcommittee of the board, may meet with the staff 
of the appropriate Reserve Bank or Board staff before the mutual holding 
company's board of directors votes on the plan of conversion. At that 
meeting the mutual holding company may provide the Reserve Bank or Board 
staff with a written strategic plan that outlines the objectives of the 
proposed conversion and the intended use of the conversion proceeds.
    (2) The mutual holding company should also consult with the Board or 
appropriate Reserve Bank before it files its application for conversion. 
The Reserve Bank or Board will discuss the information that the mutual 
holding company must include in the application for conversion, general 
issues that the mutual holding company may confront in the conversion 
process, and any other pertinent issues.
    (b) Business plan. (1) Prior to filing an application for 
conversion, the mutual holding company must adopt a business plan 
reflecting the mutual holding company's intended plans for deployment of 
the proposed conversion proceeds. The business plan is required, under 
Sec. 239.55(b), to be included in the mutual holding company's 
conversion application. At a minimum, the business plan must address:
    (i) The subsidiary savings association's projected operations and 
activities for three years following the conversion. The business plan 
must describe how the conversion proceeds will be deployed at the 
savings association (and holding company, if applicable), what 
opportunities are available to reasonably achieve the planned deployment 
of conversion proceeds in the relevant proposed market areas, and how 
its deployment will provide a reasonable return on investment 
commensurate with investment risk, investor expectations, and industry 
norms, by the final year of the business plan. The business plan must 
include three years of projected financial statements. The business plan 
must provide that the subsidiary savings associations receive at least 
50 percent of the net conversion proceeds. The Board may require that a 
larger percentage of proceeds be contributed to the subsidiary savings 
associations.
    (ii) The mutual holding company's plan for deploying conversion 
proceeds to meet credit and lending needs in the proposed market areas. 
The Board strongly discourages business plans that provide for a 
substantial investment in mortgage securities or other securities, 
except as an interim measure to facilitate orderly, prudent deployment 
of proceeds during the three years following the conversion, or as part 
of a properly managed leverage strategy.
    (iii) The risks associated with the plan for deployment of 
conversion proceeds, and the effect of this plan on management 
resources, staffing, and facilities.
    (iv) The expertise of the mutual holding company and saving 
association subsidiary's management and board of directors, or that the 
mutual holding company has planned for adequate staffing and controls to 
prudently manage the growth, expansion, new investment, and other 
operations and activities proposed in its business plan.
    (2) The mutual holding company may not project returns of capital or 
special dividends in any part of the business plan. A newly converted 
company may not plan on stock repurchases in the first year of the 
business plan.
    (c) Management and board review of business plan. (1) The chief 
executive officer and members of the board of directors of the mutual 
holding company must review, and at least two-thirds of the board of 
directors must approve, the business plan.
    (2) The chief executive officer and at least two-thirds of the board 
of directors of the mutual holding company must certify that the 
business plan accurately reflects the intended plans for deployment of 
conversion proceeds, and that any new initiatives reflected in the 
business plan are reasonably achievable. The mutual holding company must 
submit these certifications with its business plan, as part of the 
conversion application under paragraph (b) of this section.

[[Page 163]]

    (d) Board review of the business plan. g(1) The Board will review 
the business plan to determine whether it demonstrates a safe and sound 
deployment of conversion proceeds, as part of its review of the 
conversion application. In making its determination, the Board will 
consider how the mutual holding company has addressed the applicable 
factors of paragraph (b) of this section. No single factor will be 
determinative. The Board will review every case on its merits.
    (2) The mutual holding company must file its business plan with the 
appropriate Reserve Bank. The Board or appropriate Reserve Bank may 
request additional information, if necessary, to support its 
determination under paragraph (d)(1) of this section. The mutual holding 
company must file its business plan as a confidential exhibit to the 
Form AC.
    (3) If the Board approves the application for conversion and the 
mutual holding company completes the conversion, the resulting stock 
holding company must operate within the parameters of the business plan. 
The Board must approve any material deviation from the business plan in 
writing prior to such material deviation.
    (e) Disclosure of business plan. (1) The mutual holding company may 
discuss information about the conversion with individuals that it 
authorizes to prepare documents for the conversion.
    (2) Except as permitted under paragraph (e)(1) of this section, the 
mutual holding company must keep all information about the conversion 
confidential until the board of directors adopts the plan of conversion.
    (3) If the mutual holding company violates this section, the Board 
may require it to take remedial action. For example, the Board may 
require the mutual holding company to take any or all of the following 
actions:
    (i) Publicly announce that the mutual holding company is considering 
a conversion;
    (ii) Set an eligibility record date acceptable to the Board;
    (iii) Limit the subscription rights of any person who violates or 
aids in a violation of this section; or
    (iv) Take any other action to ensure that the conversion is fair and 
equitable.



Sec. 239.54  Plan of conversion.

    (a) Adoption by the board of directors. Prior to filing an 
application for conversion, the board of directors of the mutual holding 
company must adopt a plan of conversion that conforms to Sec. Sec. 
239.59 through 239.62 and 239.63(b). The board of directors must adopt 
the plan by at least a two-thirds vote. The plan of conversion is 
required, under Sec. 239.55(b), to be included in the conversion 
application.
    (b) Contents of the plan of conversion. The mutual holding company 
must include the information included in Sec. Sec. 239.59 through 
239.62 and 239.63(b) in the plan of conversion. The Board may require 
the mutual holding company to delete or revise any provision in the plan 
of conversion if the Board determines the provision is inequitable; is 
detrimental to the mutual holding company, the account holders, other 
mutual holding companies, or other savings associations; or is contrary 
to public interest.
    (c) Notice of board of directors' approval of the plan of 
conversion--(1) Notice. The mutual holding company must promptly notify 
its members that the board of directors adopted a plan of conversion and 
that a copy of the plan is available for the members' inspection in the 
mutual holding company's home office and in each of the subsidiary 
savings association's branch offices. The mutual holding company must 
mail a letter to each member or publish a notice in the local newspaper 
in every local community where the savings association has an office. 
The mutual holding company may also issue a press release. The Board may 
require broader publication, if necessary, to ensure adequate notice to 
the members.
    (2) Contents of notice. The mutual holding company may include any 
of the following statements and descriptions in the letter, notice, or 
press release.
    (i) The board of directors adopted a proposed plan to convert from 
mutual to stock form.

[[Page 164]]

    (ii) The mutual holding company will send its members a proxy 
statement with detailed information on the proposed conversion before 
the mutual holding company convenes a members' meeting to vote on the 
conversion.
    (iii) The members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (iv) The mutual holding company will not vote existing proxies to 
approve or disapprove the conversion. The mutual holding company will 
solicit new proxies for voting on the proposed conversion.
    (v) The Board must approve the conversion before the conversion will 
be effective. The members will have an opportunity to file written 
comments, including objections and materials supporting the objections, 
with the Board.
    (vi) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of the 
conversion before the Board will approve the conversion. The ruling or 
opinion must indicate the conversion will be a tax-free reorganization.
    (vii) The Board might not approve the conversion, and the IRS or a 
tax expert might not issue a favorable tax ruling or tax opinion.
    (viii) Savings account holders will continue to hold accounts in the 
savings association with the same dollar amounts, rates of return, and 
general terms as existing deposits. The FDIC will continue to insure the 
accounts.
    (ix) The mutual holding company's conversion will not affect 
borrowers' loans, including the amount, rate, maturity, security, and 
other contractual terms.
    (x) The savings association's business of accepting deposits and 
making loans will continue without interruption.
    (xi) The current management and staff will continue to conduct 
current services for depositors and borrowers under current policies and 
in existing offices.
    (xii) The subsidiary savings association may continue to be a member 
of the Federal Home Loan Bank System.
    (xiii) The mutual holding company may substantively amend the 
proposed plan of conversion before the members' meeting.
    (xiv) The mutual holding company may terminate the proposed 
conversion.
    (xv) After the Board approves the proposed conversion, the mutual 
holding company will send proxy materials providing additional 
information. After the mutual holding company sends proxy materials, 
members may telephone or write to the mutual holding company with 
additional questions.
    (xvi) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase the 
shares.
    (xvii) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase the shares.
    (xviii) A brief description of how voting members may participate in 
the conversion.
    (xix) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (xx) A brief description of the proposed plan of conversion.
    (xxi) The par value (if any) and approximate number of shares that 
will be issued and sold in the conversion.
    (3) Other requirements. (i) The mutual holding company may not 
solicit proxies, provide financial statements, describe the benefits of 
conversion, or estimate the value of the shares upon conversion in the 
letter, notice, or press release.
    (ii) If the mutual holding company responds to inquiries about the 
conversion, it may address only the matters listed in paragraph (c)(2) 
of this section.
    (d) Amending a plan of conversion. The mutual holding company may 
amend its plan of conversion before it solicits proxies. After the 
mutual holding company solicits proxies, it may amend the plan of 
conversion only if the Board concurs.



Sec. 239.55  Filing requirements.

    (a) Applications under this subpart. Any filing with the Board 
required under this subpart must be filed in accordance with Sec. 
238.14 of this chapter. The Board will review any filing made

[[Page 165]]

under this subpart in accordance with Sec. 238.14 of this chapter.
    (b) Requirements.(1) The application for conversion must include all 
of the following information.
    (i) A plan of conversion meeting the requirements of Sec. 
239.54(b).
    (ii) Pricing materials meeting the requirements paragraph (g)(2) of 
this section.
    (iii) Proxy soliciting materials under Sec. 239.57(d), including:
    (A) A preliminary proxy statement with signed financial statements;
    (B) A form of proxy meeting the requirements of Sec. 239.57(b); and
    (C) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions, radio or television 
scripts that the mutual holding company plans to use or furnish to the 
members, and a legal opinion indicating that any marketing materials 
comply with all applicable securities laws.
    (iv) An offering circular described in Sec. 239.58(a).
    (v) The documents and information required by Form AC. The mutual 
holding company may obtain Form AC from the appropriate Reserve Bank and 
the Board's Web site (http://www.federalreserve.gov).
    (vi) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (vii) The business plan, submitted as a separately bound, 
confidential exhibit. See paragraph (c) of this section.
    (viii) Any additional information the Board requests.
    (2) The Board will not accept for filing, and will return, any 
application for conversion that is improperly executed, materially 
deficient, substantially incomplete, or that provides for unreasonable 
conversion expenses.
    (c) Filing an application for conversion. (1) The mutual holding 
company must file the application for conversion on Form AC with the 
appropriate Reserve Bank.
    (2) Upon receipt of an application under this subpart, the Reserve 
Bank will promptly furnish notice and a copy of the application to the 
primary federal supervisor of any subsidiary savings association. The 
primary supervisor will have 30 calendar days from the date of the 
letter giving notice in which to submit its views and recommendations to 
the Board.
    (d) Confidential treatment of portions of an application for 
conversion. (1) The Board makes all filings under this subpart available 
to the public, but may keep portions of the application for conversion 
confidential under paragraph (d)(2) of this section.
    (2) The mutual holding company may request the Board keep portions 
of the application confidential. To do so, the mutual holding company 
must separately bind and clearly designate as ``confidential'' any 
portion of the application for conversion that the mutual holding 
company deems confidential. The mutual holding company must provide a 
written statement specifying the grounds supporting the request for 
confidentiality. The Board will not treat as confidential the portion of 
the application describing how the mutual holding company plans to meet 
the Community Reinvestment Act (CRA) objectives. The CRA portion of the 
application may not incorporate by reference information contained in 
the confidential portion of the application.
    (3) The Board will determine whether confidential information must 
be made available to the public under 5 U.S.C. 552 and part 261 of this 
chapter. The Board will advise the mutual holding company before it 
makes information the mutual holding company designated as 
``confidential'' available to the public.
    (e) Amending an application for conversion. To amend an application 
for conversion, the mutual holding company must:
    (1) File an amendment with an appropriate facing sheet;
    (2) Number each amendment consecutively;
    (3) Respond to all issues raised by the Board; and
    (4) Demonstrate that the amendment conforms to all applicable 
regulations.
    (f) Notice of filing of application and comment process--(1) Public 
notice of an

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application for conversion. (i) The mutual holding company must publish 
a public notice of the application for conversion in accordance with the 
procedures in Sec. 238.14 of this chapter. The mutual holding company 
must simultaneously prominently post the notice in its home office and 
in all of the branch offices of its subsidiary savings associations.
    (ii) Promptly after publication, the mutual holding company must 
file a copy of any public notice and an affidavit of publication from 
each publisher with the appropriate Reserve Bank.
    (iii) If the Board does not accept the application for conversion 
under Sec. 239.55(g) and requires the mutual holding company to file a 
new application, the mutual holding company must publish and post a new 
notice and allow an additional 30 days for comment.
    (2) Public comments. Commenters may submit comments on the 
application in accordance with the procedures in Sec. 238.14 of this 
chapter. A commenter must file any comments with the appropriate Reserve 
Bank.
    (g) Board review of the application for conversion--(1) Board action 
on a conversion application. The Board may approve an application for 
conversion only if:
    (i) The conversion complies with this subpart;
    (ii) The mutual holding company will meet all applicable regulatory 
capital requirements after the conversion; and
    (iii) The conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (2) Board review of appraisal. The Board will review the appraisal 
required by paragraph (b)(1)(ii) of this section in determining whether 
to approve the application. The Board will review the appraisal under 
the following requirements.
    (i) Independent persons experienced and expert in corporate 
appraisal, and acceptable to the Board, must prepare the appraisal 
report.
    (ii) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if the mutual holding company ensures that the appraiser 
is separate from the underwriter or selling agent affiliate and the 
underwriter or selling agent affiliate does not make recommendations or 
affect the appraisal.
    (iii) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.
    (iv) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (v) If the appraisal is based on a capitalization of the pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (vi) If the appraisal is based on a comparison of the shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (vii) The Board may decline to process the application for 
conversion and deem it materially deficient or substantially incomplete 
if the initial appraisal report is materially deficient or substantially 
incomplete.
    (viii) The mutual holding company may not represent or imply that 
the Board has approved the appraisal.
    (3) Board review of compliance record. The Board will review the 
compliance record of the subsidiary savings association under the 
regulations applicable to the savings association and the business plan 
to determine how the conversion will affect the convenience and needs of 
its communities.
    (i) Based on this review, the Board may approve the application, 
deny the application, or approve the application on the condition that 
the resulting stock holding company will improve the CRA performance or 
will address the particular credit or lending needs of the communities 
that it will serve.
    (ii) The Board may deny the application if the business plan does 
not demonstrate that the proposed use of conversion proceeds will help 
the resulting stock holding company to meet the

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credit and lending needs of the communities that the resulting stock 
holding company will serve.
    (4) The Board may request that the mutual holding company amend the 
application if further explanation is necessary, material is missing, or 
material must be corrected.
    (5) The Board will deny the application if the application does not 
meet the requirements of this subpart, unless the Board waives the 
requirement under Sec. 239.50(c).
    (h) Judicial review. (1) Any person aggrieved by the Board's final 
action on the application for conversion may ask the court of appeals of 
the United States for the circuit in which the principal office or 
residence of such person is located, or the U.S. Court of Appeals for 
the District of Columbia Circuit, to review the action under 12 U.S.C. 
1467a(j), which provisions shall apply in all respects as if such final 
action were an order, subject to paragraph (h)(2) of this section.
    (2) To obtain court review of the action, the aggrieved person must 
file a written petition requesting that the court modify, terminate, or 
set aside the final Board action. The aggrieved person must file the 
petition with the court within the later of 30 days after the Board 
publishes notice of its final action in the Federal Register or 30 days 
after the mutual holding company mails the proxy statement to its 
members under Sec. 239.56(c).



Sec. 239.56  Vote by members.

    (a) Mutual member approval of the plan of conversion. (1) After the 
Board approves the plan of conversion, the mutual holding company must 
submit the plan of conversion to its members for approval. The mutual 
holding company must obtain this approval at a meeting of its members.
    (2) The members must approve the plan of conversion by a majority of 
the total outstanding votes.
    (3) The members may vote in person or by proxy.
    (4) The mutual holding company may notify eligible account holders 
or supplemental eligible account holders who are not voting members of 
the proposed conversion. The mutual holding company may include only the 
information in Sec. 239.54(c) in the notice.
    (b) Eligibility to vote for the plan of conversion. The mutual 
holding company determines members' eligibility to vote by setting a 
voting record date. The mutual holding company must set a voting record 
date that is not more than 60 days nor less than 20 days before the 
meeting.
    (c) Notifying members of the meeting. (1) The mutual holding company 
must notify the members of the meeting to consider the conversion by 
sending the members a proxy statement.
    (2) The mutual holding company must notify its members 20 to 45 days 
before the meeting.
    (3) The mutual holding company must also notify each beneficial 
holder of an account at any subsidiary savings association held in a 
fiduciary capacity:
    (i) If the subsidiary savings association is a federal association 
and the name of the beneficial holder is disclosed on the records of the 
subsidiary savings association; or
    (ii) If the subsidiary savings association is a state-chartered 
association and the beneficial holder possesses voting rights under 
state law.
    (d) Submissions to the Board after the members' meeting. (1) 
Promptly after the members' meeting, the mutual holding company must 
file all of the following information with the appropriate Reserve Bank:
    (i) A certified copy of each adopted resolution on the conversion.
    (ii) The total votes eligible to be cast.
    (iii) The total votes represented in person or by proxy.
    (iv) The total votes cast in favor of and against each matter.
    (v) The percentage of votes necessary to approve each matter.
    (vi) An opinion of counsel that the mutual holding company conducted 
the members' meeting in compliance with all applicable state or federal 
laws and regulations.
    (2) Promptly after completion of the conversion, the mutual holding 
company must submit to the appropriate Reserve Bank an opinion of 
counsel that the mutual holding company has

[[Page 168]]

complied with all laws applicable to the conversion.



Sec. 239.57  Proxy solicitation.

    (a) Applicability of proxy solicitation provisions. (1) The mutual 
holding company must comply with these proxy solicitation provisions 
when the mutual holding company provides proxy solicitation material to 
members for the meeting to vote on the plan of conversion.
    (2) Members of the mutual holding company must comply with these 
proxy solicitation provisions when they provide proxy solicitation 
materials to members for the meeting to vote on the conversion, pursuant 
to paragraph (f) of this section except where:
    (i) The member solicits 50 people or fewer and does not solicit 
proxies on behalf of the mutual holding company; or
    (ii) The member solicits proxies through newspaper advertisements 
after the board of directors adopts the plan of conversion. Any 
newspaper advertisements may include only the following information:
    (A) The name of the mutual holding company;
    (B) The reason for the advertisement;
    (C) The proposal or proposals to be voted upon;
    (D) Where a member may obtain a copy of the proxy solicitation 
material; and
    (E) A request for the members of the mutual holding company to vote 
at the meeting.
    (b) Form of proxy. The form of proxy must include all of the 
following:
    (1) A statement in bold face type stating that management is 
soliciting the proxy.
    (2) Blank spaces where the member must date and sign the proxy.
    (3) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. It must include any 
proposed charitable contribution as an item to be voted on separately.
    (4) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (5) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (6) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (7) The date, time, and the place of the meeting, when available.
    (8) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (9) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (10) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.
    (c) Permissible use of proxies. (1) The mutual holding company may 
not use previously executed proxies for the plan of conversion vote. If 
members consider the plan of conversion at an annual meeting, the mutual 
holding company may vote proxies obtained through other proxy 
solicitations only on matters not related to the plan of conversion.
    (2) The mutual holding company may vote a proxy obtained under this 
subpart on matters that are incidental to the conduct of the meeting. 
The mutual holding company or its management may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on the plan of conversion.
    (d) Proxy statement requirements--(1) Content requirements. The 
mutual holding company must prepare the proxy statement in compliance 
with this subpart and Form PS. The mutual holding company may obtain 
Form PS from the appropriate Reserve Bank and the Board's Web site 
(http://www.federalreserve.gov).
    (2) Other requirements. (i) The Board will review the proxy 
solicitation material in its review of the application for conversion.
    (ii) The mutual holding company must provide a written proxy 
statement to the members before or at the same time the mutual holding 
company provides any other soliciting material. The mutual holding 
company must mail proxy solicitation material to the members no later 
than ten days after the Board approves the conversion.

[[Page 169]]

    (e) Filing revised proxy materials. (1) The mutual holding company 
must file revised proxy materials as an amendment to the application for 
conversion.
    (2) To revise the proxy solicitation materials, the mutual holding 
company must file:
    (i) Revised proxy materials as required by Form PS;
    (ii) Revised form of proxy, if applicable; and
    (iii) Any additional proxy solicitation material subject to 
paragraph (d) of this section.
    (3) The mutual holding company must clearly indicate changes from 
the prior filing.
    (4) The mutual holding company must file a definitive copy of all 
proxy solicitation material, in the form in which the mutual holding 
company furnishes the material to the members. The mutual holding 
company must file no later than the date that it sends or gives the 
proxy solicitation material to the members. The mutual holding company 
must indicate the date that it plans to release the materials.
    (5) Unless the Board requests the mutual holding company to do so, 
the mutual holding company does not have to file copies of replies to 
inquiries from the members or copies of communications that merely 
request members to sign and return proxy forms.
    (f) Mailing proxy solicitation material. (1) The mutual holding 
company must mail the member's proxy solicitation material if:
    (i) The board of directors adopted a plan of conversion;
    (ii) A member requests in writing that the mutual holding company 
mail the proxy solicitation material; and
    (iii) The member agrees to defray reasonable expenses of the mutual 
holding company.
    (2) As soon as practicable after the mutual holding company receives 
a request under paragraph (f)(1) of this section, the mutual holding 
company must mail or otherwise furnish the following information to the 
member:
    (i) The approximate number of members that the mutual holding 
company solicited or will solicit, or the approximate number of members 
of any group of account holders that the member designates; and
    (ii) The estimated cost of mailing the proxy solicitation material 
for the member.
    (3) The mutual holding company must mail proxy solicitation material 
to the designated members promptly after the member furnishes the 
materials, envelopes (or other containers), and postage (or payment for 
postage) to the mutual holding company.
    (4) The mutual holding company is not responsible for the content of 
a member's proxy solicitation material.
    (5) A member may furnish other members its own proxy solicitation 
material, subject to the rules in this section.
    (g) Prohibited solicitations--(1) False or misleading statements. 
(i) No one may use proxy solicitation material for the members' meeting 
if the material contains any statement which, considering the time and 
the circumstances of the statement:
    (A) Is false or misleading with respect to any material fact;
    (B) Omits any material fact that is necessary to make the statements 
not false or misleading; or
    (C) Omits any material fact that is necessary to correct a statement 
in an earlier communication that has become false or misleading.
    (ii) No one may represent or imply that the Board determined that 
the proxy solicitation material is accurate, complete, not false or not 
misleading, or passed upon the merits of or approved any proposal.
    (2) Other prohibited solicitations. No person may solicit:
    (i) An undated or post-dated proxy;
    (ii) A proxy that states it will be dated after the date it is 
signed by a member;
    (iii) A proxy that is not revocable at will by the member; or
    (iv) A proxy that is part of another document or instrument.
    (3) If a solicitation violates this section, the Board may require 
remedial measures, including:
    (i) Correction of the violation by a retraction and a new 
solicitation;
    (ii) Rescheduling the members' meeting; or
    (iii) Any other actions necessary to ensure a fair vote.

[[Page 170]]

    (4) The Board may also bring an enforcement action against the 
violator for violations of this section.
    (h) Re-soliciting proxies. If the mutual holding company amends its 
application for conversion, the Board may require it to re-solicit 
proxies for the members' meeting as a condition of approval of the 
amendment.



Sec. 239.58  Offering circular.

    (a) Filing requirements. (1) The mutual holding company must prepare 
and file the offering circular with the appropriate Reserve Bank in 
compliance with this subpart and Form OC. The mutual holding company may 
obtain Form OC from the Reserve Bank and the Board's Web site (http://
www.federalreserve.gov).
    (2) The mutual holding company must condition the stock offering 
upon member approval of the plan of conversion.
    (3) The Board will review the Form OC and may comment on the 
included disclosures and financial statements.
    (4) The mutual holding company must file a revised offering 
circular, final offering circular, and any post-effective amendment to 
the final offering circular.
    (5) The Board will not approve the adequacy or accuracy of the 
offering circular or the disclosures.
    (b) Distribution of the offering circular. (1) The mutual holding 
company may distribute a preliminary offering circular at the same time 
as or after the mutual holding company mails the proxy statement to its 
members.
    (2) The mutual holding company must distribute the offering circular 
in accordance with this subpart and with all applicable securities laws.
    (3) The mutual holding company must distribute the offering circular 
to persons listed in the plan of conversion no later than ten days after 
the Board approves the conversion.
    (c) Post-effective amendments to the offering circular. (1) The 
mutual holding company must file a post-effective amendment to the 
offering circular with the Board when a material event or change of 
circumstance occurs.
    (2) After the Securities and Exchange Commission declares the post-
effective amendment effective, the mutual holding company must 
immediately deliver the amendment to each person who subscribed for or 
ordered shares in the offering.
    (3) The post-effective amendment must indicate that each person may 
increase, decrease, or rescind their subscription or order.
    (4) The post-effective offering period must remain open no less than 
10 days nor more than 20 days, unless the Board approves a longer 
rescission period.



Sec. 239.59  Offers and sales of stock.

    (a) Purchase priorities. The mutual holding company must offer to 
sell the conversion shares in the following order:
    (1) Eligible account holders.
    (2) Tax-qualified employee stock ownership plans.
    (3) Supplemental eligible account holders.
    (4) Other voting members who have subscription rights.
    (5) The community, the community and the general public, or the 
general public.
    (b) Offering conversion shares. (1) The mutual holding company may 
offer to sell the conversion shares if the Board approves the 
conversion, subject to compliance with requirements of the Securities 
and Exchange Commission.
    (2) The offer may commence at the same time as the proxy 
solicitation of the members begins.
    (c) Pricing conversion shares. (1) The conversion shares must be 
sold at a uniform price per share and at a total price that is equal to 
the estimated pro forma market value of the shares after conversion.
    (2) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in the offering circular.
    (3) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in the offering circular.
    (4) If the Board permits, the maximum price of conversion shares 
sold may be increased. The maximum price, as adjusted, must be no more 
than 15 percent above the maximum price computed under paragraph (c)(2) 
of this section.

[[Page 171]]

    (5) The maximum price must be between $5 and $50 per share.
    (6) The mutual holding company must include the estimated price in 
any preliminary offering circular.
    (d) Selling conversion shares. (1) The mutual holding company must 
distribute order forms to all eligible account holders, supplemental 
eligible account holders, and other voting members to enable them to 
subscribe for the conversion shares they are permitted under the plan of 
conversion. The mutual holding company may either send the order forms 
with the offering circular or after it distributes the offering 
circular.
    (2) The mutual holding company may sell the conversion shares in a 
community offering, a public offering, or both. The mutual holding 
company may begin the community offering, the public offering, or both 
at any time during the subscription offering or upon conclusion of the 
subscription offering.
    (3) The mutual holding company may pay underwriting commissions 
(including underwriting discounts). The Board may object to the payment 
of unreasonable commissions. The mutual holding company may reimburse an 
underwriter for accountable expenses in a subscription offering if the 
public offering is limited. If no public offering occurs, the mutual 
holding company may pay an underwriter a consulting fee. The Board may 
object to the payment of unreasonable consulting fees.
    (4) If the mutual holding company conducts the community offering, 
the public offering, or both at the same time as the subscription 
offering, it must fill all subscription orders first.
    (5) The mutual holding company must prepare the order form in 
compliance with this subpart and Form OF. The mutual holding company may 
obtain Form OF from the Reserve Bank and from the Board's Web site 
(www.federalreserve.gov).
    (e) Prohibited sales practices. (1) In connection with offers, 
sales, or purchases of conversion shares under this subpart, the mutual 
holding company and its directors, officers, agents, or employees may 
not:
    (i) Employ any device, scheme, or artifice to defraud;
    (ii) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or
    (iii) Engage in any act, transaction, practice, or course of 
business that operates or would operate as a fraud or deceit upon a 
purchaser or seller.
    (2) During the conversion, no person may:
    (i) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
the conversion shares or the underlying securities to the account of 
another;
    (ii) Make any offer, or any announcement of an offer, to purchase 
any of the conversion shares from anyone but the mutual holding company; 
or
    (iii) Knowingly acquire more than the maximum purchase allowable 
under the plan of conversion.
    (3) The restrictions in paragraphs (e)(2)(i) and (e)(2)(ii) of this 
section do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (i) An underwriter or a selling group, acting on behalf of the 
mutual holding company or resulting stock holding company, that makes 
the offer with a view toward public resale; or
    (ii) One or more of the tax-qualified employee stock ownership plans 
so long as the plan or plans do not beneficially own more than 25 
percent of any class of the equity securities in the aggregate.
    (4) Any person that violates the restrictions in paragraphs 
(e)(2)(i) and (e)(2)(ii) of this section may face prosecution or other 
legal action.
    (f) Payment for conversion shares. (1) A subscriber may purchase 
conversion shares with cash, by a withdrawal from a savings account, or 
a withdrawal from a certificate of deposit. If a subscriber purchases 
conversion shares by a withdrawal from a certificate of deposit, the 
mutual holding company or its subsidiary savings association may not 
assess a penalty for the withdrawal.

[[Page 172]]

    (2) The mutual holding company may not extend credit to any person 
to purchase the conversion shares.
    (g) Interest on payments for conversion shares. (1) The mutual 
holding company or its subsidiary savings association must pay interest 
from the date it receives a payment for conversion shares until the date 
it completes or terminates the conversion. The mutual holding company or 
its subsidiary savings association must pay interest at no less than the 
passbook rate for amounts paid in cash, check, or money order.
    (2) If a subscriber withdraws money from a savings account to 
purchase conversion shares, the mutual holding company or its subsidiary 
savings association must pay interest on the payment until the mutual 
holding company completes or terminates the conversion as if the 
withdrawn amount remained in the account.
    (3) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, the mutual holding company or its 
subsidiary savings association may cancel the certificate and pay 
interest at no less than the passbook rate on any remaining balance.
    (h) Subscription rights for each eligible account holder and each 
supplemental eligible account holder. (1) The mutual holding company 
must give each eligible account holder subscription rights to purchase 
conversion shares in an amount equal to the greater of:
    (i) The maximum purchase limitation established for the community 
offering or the public offering under paragraph (p) of this section;
    (ii) One-tenth of one percent of the total stock offering; or
    (iii) Fifteen times the following number: The total number of 
conversion shares that the mutual holding company will issue, multiplied 
by the following fraction: the numerator is the total qualifying deposit 
of the eligible account holder, and the denominator is the total 
qualifying deposits of all eligible account holders. The mutual holding 
company must round down the product of this multiplied fraction to the 
next whole number.
    (2) The mutual holding company must give subscription rights to 
purchase shares to each supplemental eligible account holder in the same 
amount as described in paragraph (h)(1) of this section, except that the 
mutual holding company must compute the fraction described in paragraph 
(h)(1)(iii) of this section as follows: the numerator is the total 
qualifying deposit of the supplemental eligible account holder, and the 
denominator is the total qualifying deposits of all supplemental 
eligible account holders.
    (i) Officers, directors, and their associates as eligible account 
holders. The officers, directors, and their associates of the mutual 
holding company and subsidiary savings association may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, the mutual holding company 
must subordinate subscription rights for these deposits to subscription 
rights exercised by other eligible account holders.
    (j) Other voting members eligible to purchase conversion shares. (1) 
The mutual holding company must give rights to purchase the conversion 
shares in the conversion to voting members who are neither eligible 
account holders nor supplemental eligible account holders. The mutual 
holding company must allocate rights to each voting member that are 
equal to the greater of:
    (i) The maximum purchase limitation established for the community 
offering and the public offering under paragraph (p) of this section; or
    (ii) One-tenth of one percent of the total stock offering.
    (2) The mutual holding company must subordinate the voting members' 
rights to the rights of eligible account holders, tax-qualified employee 
stock ownership plans, and supplemental eligible account holders.
    (k) Purchase limitations for officers, directors, and their 
associates. (1) When the mutual holding company converts, the officers, 
directors, and their associates of the mutual holding company and 
subsidiary savings association may not purchase, in the aggregate, more 
than the following percentage of the total stock offering:

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------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$50,000,000 or less.....................................              35
$50,000,001-100,000,000.................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (2) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are attributable 
to the officers, directors, and their associates.
    (l) Allocating conversion shares in the event of oversubscription. 
(1) If the conversion shares are oversubscribed by the eligible account 
holders, the mutual holding company must allocate shares among the 
eligible account holders so that each, to the extent possible, may 
purchase 100 shares.
    (2) If the conversion shares are oversubscribed by the supplemental 
eligible account holders, the mutual holding company must allocate 
shares among the supplemental eligible account holders so that each, to 
the extent possible, may purchase 100 shares.
    (3) If a person is an eligible account holder and a supplemental 
eligible account holder, the mutual holding company must include the 
eligible account holder's allocation in determining the number of 
conversion shares that the mutual holding company may allocate to the 
person as a supplemental eligible account holder.
    (4) For conversion shares that the mutual holding company does not 
allocate under paragraphs (l)(1) and (l)(2) of this section, the mutual 
holding company must allocate the shares among the eligible or 
supplemental eligible account holders equitably, based on the amounts of 
qualifying deposits. The mutual holding company must describe this 
method of allocation in its plan of conversion.
    (5) If shares remain after the mutual holding company has allocated 
shares as provided in paragraphs (l)(1) and (l)(2) of this section, and 
if the voting members oversubscribe, the mutual holding company must 
allocate the conversion shares among those members equitably. The mutual 
holding company must describe the method of allocation in its plan of 
conversion.
    (m) Employee stock ownership plan purchase of conversion shares. (1) 
The tax-qualified employee stock ownership plan of the mutual holding 
company may purchase up to 10 percent of the total offering of the 
conversion shares.
    (2) If the Board approves a revised stock valuation range as 
described in paragraph (c)(5) of this section, and the final conversion 
stock valuation range exceeds the former maximum stock offering range, 
the mutual holding company may allocate conversion shares to the tax-
qualified employee stock ownership plan, up to the 10 percent limit in 
paragraph (m)(1) of this section.
    (3) If the tax-qualified employee stock ownership plan is not able 
to or chooses not to purchase stock in the offering, it may, with prior 
Board approval and appropriate disclosure in the offering circular, 
purchase stock in the open market, or purchase authorized but unissued 
conversion shares.
    (4) The mutual holding company may include stock contributed to a 
charitable organization in the conversion in the calculation of the 
total offering of conversion shares under paragraphs (m)(1) and (m)(2) 
of this section, unless the Board objects on supervisory grounds.
    (n) Purchase limitations. (1) The mutual holding company may limit 
the number of shares that any person, group of associated persons, or 
persons otherwise acting in concert, may subscribe to up to five percent 
of the total stock sold.
    (2) If the mutual holding company sets a limit of five percent under 
paragraph (n)(1) of this section, it may modify that limit with Board 
approval to provide that any person, group of associated persons, or 
persons otherwise acting in concert subscribing for five percent, may 
purchase between five and ten percent as long as the aggregate amount 
that the subscribers purchase does not exceed 10 percent of the total 
stock offering.
    (3) The mutual holding company may require persons exercising 
subscription rights to purchase a minimum number

[[Page 174]]

of conversion shares. The minimum number of shares must equal the lesser 
of the number of shares obtained by a $500 subscription or 25 shares.
    (4) In setting purchase limitations under this section, the mutual 
holding company may not aggregate conversion shares attributed to a 
person in the tax-qualified employee stock ownership plan with shares 
purchased directly by, or otherwise attributable to, that person.
    (o) Purchase preference for persons in the local community. (1) In 
the subscription offering, subject to the purchase priorities set forth 
in paragraph (a) of this section, the mutual holding company may give a 
purchase preference to eligible account holders, supplemental eligible 
account holders, and voting members residing in the local community.
    (2) In the community offering, the mutual holding company must give 
a purchase preference to natural persons residing in the local 
community.
    (p) Conditions on community offerings and public offerings. (1) If 
the mutual holding company offers conversion shares in a community 
offering, a public offering, or both, it must offer and sell the stock 
to achieve a widespread distribution of the stock.
    (2) If the mutual holding company offers shares in a community 
offering, a public offering, or both, it must first fill orders for the 
stock up to a maximum of two percent of the conversion stock on a basis 
that will promote a widespread distribution of stock. The mutual holding 
company must allocate any remaining shares on an equal number of shares 
per order basis until it fills all orders.



Sec. 239.60  Completion of the offering.

    (a) Deadline for completing the sale of stock. The mutual holding 
company must complete all sales of the stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under paragraph (b) of this section.
    (b) Offering period extension. (1) The mutual holding company must 
request, in writing, an extension of any offering period.
    (2) The Board may grant extensions of time to sell the shares. The 
Board will not grant any single extension of more than 90 days.
    (3) If the Board grants the request for an extension of time, the 
mutual holding company must provide a post-effective amendment to the 
offering circular under Sec. 239.58(c) to each person who subscribed 
for or ordered stock. The amendment must indicate that the Board 
extended the offering period and that each person who subscribed for or 
ordered stock may increase, decrease, or rescind their subscription or 
order within the time remaining in the extension period.



Sec. 239.61  Completion of the conversion.

    (a) Completion of the conversion. (1) In the plan of conversion, the 
mutual holding company must set a date by which the conversion must be 
completed. This date must not be more than 24 months from the date that 
the members approve the plan of conversion. The date, once set, may not 
be extended by the mutual holding company or by the Board. The mutual 
holding company must terminate the conversion if it is not completed by 
that date.
    (2) The conversion is complete on the date that the mutual holding 
company accepts the offers for stock of the resulting stock holding 
company.
    (b) Termination of the conversion. (1) The members may terminate the 
conversion by failing to approve the conversion at the members' meeting.
    (2) The mutual holding company may terminate the conversion before 
the members' meeting.
    (3) The mutual holding company may terminate the conversion after 
the members' meeting only if the Board concurs.
    (c) Voting rights for stockholders following conversion. The 
resulting stock holding company must provide the stockholders with 
exclusive voting rights.
    (d) Rights of savings account holders. The resulting stock holding 
company must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec. 239.62(a)(1)-(3).



Sec. 239.62  Liquidation accounts.

    (a) Liquidation account. (1) A liquidation account represents the 
potential interest of eligible account holders and

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supplemental eligible account holders in the mutual holding company's 
net worth at the time of conversion. The resulting stock holding company 
must maintain a sub-account to reflect the interest of each account 
holder.
    (2) Before the resulting stock holding company may provide a 
liquidation distribution to common stockholders, the resulting stock 
holding company must give a liquidation distribution to those eligible 
account holders and supplemental eligible account holders who hold 
savings accounts from the time of conversion until liquidation.
    (3) The resulting stock holding company may not record the 
liquidation account in the financial statements. The resulting stock 
holding company must disclose the liquidation account in the footnotes 
to the financial statements.
    (4) The initial balance of the liquidation account is the net worth 
in the statement of financial condition included in the final offering 
circular.
    (b) Liquidation sub-accounts. (1)(i) The resulting stock holding 
company determines the initial sub-account balance for a savings account 
held by an eligible account holder by multiplying the initial balance of 
the liquidation account by the following fraction: The numerator is the 
qualifying deposit in the savings account on the eligibility record 
date. The denominator is total qualifying deposits of all eligible 
account holders on that date.
    (ii) The resulting stock holding company determines the initial sub-
account balance for a savings account held by a supplemental eligible 
account holder by multiplying the initial balance of the liquidation 
account by the following fraction: The numerator is the qualifying 
deposit in the savings account on the supplemental eligibility record 
date. The denominator is total qualifying deposits of all supplemental 
eligible account holders on that date.
    (iii) If an account holder holds a savings account on the 
eligibility record date and a separate savings account on the 
supplemental eligibility record date, the resulting stock holding 
company must compute separate sub-accounts for the qualifying deposits 
in the savings account on each record date.
    (2) The resulting stock holding company may not increase the initial 
sub-account balances. The resulting stock holding company must decrease 
the initial balance under Sec. 239.62(d) as depositors reduce or close 
their accounts.
    (c) Retention of voting rights based on liquidation sub-accounts. 
Eligible account holders or supplemental eligible account holders do not 
retain any voting rights based on their liquidation sub-accounts.
    (d) Adjusting liquidation sub-accounts. (1)(i) The resulting stock 
holding company must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of business 
on any annual closing date, which for purposes of this section is the 
fiscal year end, after the relevant eligibility record dates is less 
than:
    (A) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (B) The qualifying deposits in the account holder's savings account 
on the relevant eligibility record date.
    (ii) The reduction must be proportionate to the reduction in the 
deposit balance.
    (2) If the resulting stock holding company reduces the balance of a 
liquidation sub-account, the resulting stock holding company may not 
subsequently increase it if the deposit balance increases.
    (3) The resulting stock holding company is not required to adjust 
the liquidation account and sub-account balances at each annual closing 
date if it maintains sufficient records to make the computations if a 
liquidation subsequently occurs.
    (4) The resulting stock holding company must maintain the 
liquidation sub-account for each account holder as long as the account 
holder maintains an account with the same social security number or tax 
identification number, as applicable.
    (5) If there is a complete liquidation, the resulting stock holding 
company must provide each account holder with a liquidation distribution 
in the amount of the sub-account balance.

[[Page 176]]

    (e) Liquidation defined. (1) For purposes of this subpart, a 
liquidation is a sale of the assets and settlement of the liabilities 
with the intent to cease operations and close. Upon liquidation, the 
resulting stock holding company must return the charter to the 
governmental agency that issued it. The government agency must cancel 
the charter.
    (2) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If the 
resulting stock holding company is involved in such a transaction, the 
surviving institution must assume the liquidation account.
    (f) Effect of liquidation on net worth. The liquidation account does 
not affect the net worth.



Sec. 239.63  Post-conversion.

    (a) Management stock benefit plans. (1) During the 12 months after 
the conversion, the resulting stock holding company may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan (collectively, ESOP), 
and a management recognition plan (MRP), provided the resulting stock 
holding company meets all of the following requirements.
    (i) The resulting stock holding company discloses the plans in the 
proxy statement and offering circular and indicates in the offering 
circular that there will be a separate shareholder vote on the Option 
Plan and the MRP at least six months after the conversion. No 
shareholder vote is required to implement the ESOP. The ESOP must be 
tax-qualified.
    (ii) The Option Plan does not exceed more than ten percent of the 
number of shares that the resulting stock holding company issued in the 
conversion.
    (iii)(A) The ESOP and MRP do not exceed, in the aggregate, more than 
ten percent of the number of shares that the resulting stock holding 
company issued in the conversion. If the resulting stock holding company 
has tangible capital of ten percent or more following the conversion, 
the Board may permit the ESOP and MRP to represent, in the aggregate, up 
to 12 percent of the number of shares issued in the conversion; and
    (B) The MRP does not exceed more than three percent of the number of 
shares that the resulting stock holding company issued in the 
conversion. If the resulting stock holding company has tangible capital 
of ten percent or more after the conversion, the Board may permit the 
MRP to represent up to four percent of the number of shares that the 
resulting stock holding company issued in the conversion.
    (iv) No individual receives more than 25 percent of the shares under 
any plan.
    (v) The directors who are not the officers do not receive more than 
five percent of the shares of the MRP or Option Plan individually, or 30 
percent of any such plan in the aggregate.
    (vi) The shareholders approve each of the Option Plan and the MRP by 
a majority of the total votes eligible to be cast at a duly called 
meeting before the resulting stock holding company establishes or 
implements the plan. The resulting stock holding company may not hold 
this meeting until six months after the conversion.
    (vii) When the resulting stock holding company distributes proxies 
or related material to shareholders in connection with the vote on a 
plan, the resulting stock holding company states that the plan complies 
with Board regulations and that the Board does not endorse or approve 
the plan in any way. The resulting stock holding company may not make 
any written or oral representations to the contrary.
    (viii) The resulting stock holding company does not grant stock 
options at less than the market price at the time of grant.
    (ix) The resulting stock holding company does not fund the Option 
Plan or the MRP at the time of the conversion.
    (x) The plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.
    (xi) The plan permits accelerated vesting only for disability or 
death, or if the resulting stock holding company undergoes a change of 
control.
    (xii) The plan provides that the executive officers or directors 
must exercise or forfeit their options in the

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event the institution becomes critically undercapitalized under the 
applicable regulatory capital requirements, is subject to Board 
enforcement action, or receives a capital directive under Sec. 263.83 
of this chapter.
    (xiii) The resulting stock holding company files a copy of the 
proposed Option Plan or MRP with the Board and certifies to the Board 
that the plan approved by the shareholders is the same plan that the 
resulting stock holding company filed with, and disclosed in, the proxy 
materials distributed to shareholders in connection with the vote on the 
plan.
    (xiv) The resulting stock holding company files the plan and the 
certification with the Board within five calendar days after the 
shareholders approve the plan.
    (2) The resulting stock holding company may provide dividend 
equivalent rights or dividend adjustment rights to allow for stock 
splits or other adjustments to the stock in the ESOP, MRP, and Option 
Plan.
    (3) The restrictions in paragraph (a)(1) of this section do not 
apply to plans implemented more than 12 months after the conversion, 
provided that materials pertaining to any shareholder vote regarding 
such plans are not distributed within the 12 months after the 
conversion. If a plan adopted in conformity with paragraph (a)(1) of 
this section is amended more than 12 months following the conversion, 
the shareholders must ratify any material deviations to the requirements 
in paragraph (a)(1) of this section.
    (b) Restrictions on the sale of conversion shares by directors, 
officers, and their associates. (1) Directors and officers who purchase 
conversion shares may not sell the shares for one year after the date of 
purchase, except that in the event of the death of the officer or 
director, the successor in interest may sell the shares.
    (2) The resulting stock holding company must include notice of the 
restriction described in paragraph (b)(1) of this section on each 
certificate of stock that a director or officer purchases during the 
conversion or receives in connection with a stock dividend, stock split, 
or otherwise with respect to such restricted shares.
    (3) The resulting stock holding company must instruct the stock 
transfer agent about the transfer restrictions in this section.
    (4) For three years after the resulting stock holding company 
converts, the officers, directors, and their associates may purchase 
stock of the resulting stock holding company only from a broker or 
dealer registered with the Securities and Exchange Commission. However, 
the officers, directors, and their associates may engage in a negotiated 
transaction involving more than one percent of the outstanding stock, 
and may purchase stock through any of the management or employee stock 
benefit plans.
    (c) Repurchase of conversion shares. (1) The resulting stock holding 
company may not repurchase its shares in the first year after the 
conversion except:
    (i) In extraordinary circumstances, the resulting stock holding 
company may make open market repurchases of up to five percent of the 
outstanding stock in the first year after the conversion if the 
resulting stock holding company files a notice under paragraph (d)(1) of 
this section and the Board does not disapprove the repurchase. The Board 
will not approve such repurchases unless the repurchase meets the 
standards in paragraph (d)(3) of this section, and the repurchase is 
consistent with paragraph (c)(3) of this section.
    (ii) The resulting stock holding company may repurchase qualifying 
shares of a director or conduct a Board approved repurchase pursuant to 
an offer made to all shareholders of the stock holding company.
    (iii) Repurchases to fund management recognition plans that have 
been ratified by shareholders do not count toward the repurchase 
limitations in this section. Repurchases in the first year to fund such 
plans require prior written notification to the Board.
    (iv) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.
    (2) After the first year, the resulting stock holding company may 
repurchase

[[Page 178]]

the shares, subject to all other applicable regulatory and supervisory 
restrictions and paragraph (c)(3) of this section.
    (3) All stock repurchases are subject to the following restrictions.
    (i) The resulting stock holding company may not repurchase the 
shares if the repurchase will reduce its applicable capital levels below 
the amount required for the liquidation account under Sec. 239.62(a). 
The resulting stock holding company must comply with the capital 
distribution requirements of this subpart.
    (ii) The restrictions on share repurchases apply to a charitable 
organization under Sec. 239.64(b). The resulting stock holding company 
must aggregate purchases of shares by the charitable organization with 
the repurchases.
    (d) Board review of repurchase of conversion shares. (1) To 
repurchase stock in the first year following conversion, other than 
repurchases under paragraphs (c)(1)(iii) or (c)(1)(iv) of this section, 
the resulting stock holding company must file a written notice with the 
appropriate Reserve Bank. The resulting stock holding company must 
provide the following information:
    (i) The proposed repurchase program;
    (ii) The effect of the repurchases on the regulatory capital and 
other capital levels; and
    (iii) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (2) The resulting stock holding company must file the notice with 
the appropriate Reserve Bank at least thirty days before the resulting 
stock holding company begins the repurchase program. The Board may 
extend its review of the notice for an additional sixty days.
    (3) The resulting stock holding company may not repurchase the 
shares if the Board objects to the repurchase program. The Board will 
not object to the repurchase program if:
    (i) The repurchase program will not adversely affect the financial 
condition of the resulting savings association;
    (ii) The resulting stock holding company submits sufficient 
information to evaluate the proposed repurchases;
    (iii) The resulting stock holding company demonstrate extraordinary 
circumstances and a compelling and valid business purpose for the share 
repurchases; and
    (iv) The repurchase program would not be contrary to other 
applicable regulations.
    (e) Declaring and paying dividends following conversion. The 
resulting stock holding company may declare or pay a dividend on its 
shares after it converts if:
    (1) The dividend will not reduce the regulatory capital below the 
amount required for the liquidation account under Sec. 239.62(a);
    (2) The resulting stock holding company complies with all applicable 
regulatory capital requirements after it declares or pays dividends;
    (3) The resulting stock holding company complies with the capital 
distribution requirements under this subpart; and
    (4) The resulting stock holding company does not return any capital, 
other than ordinary dividends, to purchasers during the term of the 
business plan submitted with the conversion.
    (f) Eligibility to acquire shares after conversion. (1) For three 
years after the resulting stock holding company converts, no person may, 
directly or indirectly, acquire or offer to acquire the beneficial 
ownership of more than ten percent of any class of the equity securities 
without the Board's prior written approval. If a person violates this 
prohibition, the resulting stock holding company may not permit the 
person to vote shares in excess of ten percent, and may not count the 
shares in excess of ten percent in any shareholder vote.
    (2) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of the stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Sec. Sec. 238.21(a) and (d) of this chapter. The 
Board will presume that a person has acquired shares if the acquiror 
entered into a binding written agreement for the transfer of shares. For 
purposes of this section, an offer is made when it is

[[Page 179]]

communicated. An offer does not include non-binding expressions of 
understanding or letters of intent regarding the terms of a potential 
acquisition.
    (3) Notwithstanding the restrictions in this section:
    (i) Paragraphs (f)(1) and (f)(2) of this section do not apply to any 
offer with a view toward public resale made exclusively to the resulting 
stock holding company, to the underwriters, or to a selling group acting 
on behalf of the resulting savings association.
    (ii) Unless the Board objects in writing, any person may offer or 
announce an offer to acquire up to one percent of any class of shares. 
In computing the one percent limit, the person must include all of his 
or her acquisitions of the same class of shares during the prior 12 
months.
    (iii) A corporation whose ownership is, or will be, substantially 
the same as the ownership may acquire or offer to acquire more than ten 
percent of the common stock, if it makes the offer or acquisition more 
than one year after the resulting stock holding company converts.
    (iv) One or more of the tax-qualified employee stock benefit plans 
may acquire the shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of shares of the resulting savings 
association in the aggregate.
    (v) An acquiror does not have to file a separate application to 
obtain Board approval under paragraph (f)(1) of this section, if the 
acquiror files an application under part 238 of this chapter that 
specifically addresses the criteria listed under paragraph (f)(4) of 
this section and the resulting stock holding company does not oppose the 
proposed acquisition.
    (4) The Board may deny an application under paragraph (f)(1) of this 
section if the proposed acquisition:
    (i) Is contrary to the purposes of this subpart;
    (ii) Is manipulative or deceptive;
    (iii) Subverts the fairness of the conversion;
    (iv) Is likely to injure the resulting stock holding company;
    (v) Is inconsistent with the plan to meet the credit and lending 
needs of the proposed market area;
    (vi) Otherwise violates laws or regulations; or
    (vii) Does not prudently deploy the conversion proceeds.
    (g) Additional requirements that apply following conversion. After 
conversion, the resulting stock holding company must:
    (1) Promptly register the shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). The resulting stock holding 
company may not deregister the shares for three years.
    (2) Encourage and assist a market maker to establish and to maintain 
a market for the shares. A market maker for a security is a dealer who:
    (i) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (ii) Furnishes bona fide competitive bid and offer quotations for 
the security on request; or
    (iii) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (3) Use the best efforts to list the shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (4) File all post-conversion reports that the Board requires.



Sec. 239.64  Contributions to charitable organizations.

    (a) Forming a charitable organization as part of a conversion. When 
a mutual holding company converts to the stock form, it may form a 
charitable organization. Its contributions to the charitable 
organization are governed by the requirements of paragraphs (b) through 
(f) of this section.
    (b) Donating conversion shares or conversion proceeds to a 
charitable organization. Some of the conversion shares or proceeds may 
be contributed to a charitable organization if:
    (1) The plan of conversion provides for the proposed contribution;
    (2) The members approve the proposed contribution; and
    (3) The IRS either has approved, or approves within two years after 
formation, the charitable organization as a

[[Page 180]]

tax-exempt charitable organization under the Internal Revenue Code.
    (c) Member approval of charitable contributions. At the meeting to 
consider conversion of the mutual holding company, the members must 
separately approve by at least a majority of the total eligible votes, a 
contribution of conversion shares or proceeds. If the mutual holding 
company has a subsidiary holding company with minority shareholders, or 
if the subsidiary savings association has minority shareholders, and the 
mutual holding company is adding a charitable contribution as part of a 
second step stock conversion, it must also have the minority 
shareholders separately approve the charitable contribution by a 
majority of their total eligible votes.
    (d) Charitable organization contribution limits. A reasonable amount 
of conversion shares or proceeds may be contributed to a charitable 
organization, if the contribution will not exceed limits for charitable 
deductions under the Internal Revenue Code and the Board does not object 
on supervisory grounds. If the mutual holding company or resulting stock 
holding company is well-capitalized pursuant to Sec. 238.62 of this 
chapter, the Board generally will not object if it contributes an 
aggregate amount of eight percent or less of the conversion shares or 
proceeds.
    (e) Charitable organization requirements. The charitable 
organization's charter (or trust agreement) and gift instrument must 
provide that:
    (1) The charitable organization's primary purpose is to serve and 
make grants in the local community;
    (2) As long as the charitable organization controls shares, it must 
vote those shares in the same ratio as all other shares voted on each 
proposal considered by the shareholders;
    (3) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from the local 
community. This director may not be the officer, director, or employee, 
or the affiliate's officer, director, or employee, and should have 
experience with local community charitable organizations and grant 
making; and
    (4) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from the board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of the organization.
    (5) The Board may examine the charitable organization at the 
charitable organization's expense;
    (6) The charitable organization must comply with all supervisory 
directives that the Board imposes;
    (7) The charitable organization must annually provide the Board with 
a copy of the annual report that the charitable organization submitted 
to the IRS;
    (8) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (9) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.
    (f) Conflicts of interest involving the directors of the mutual 
holding company or resulting stock holding company. (1) An individual 
who is the director, officer, or employee, or a person who has the power 
to direct the management or policies, or otherwise owes a fiduciary duty 
to the mutual holding company or resulting stock holding company and who 
will serve as an officer, director, or employee of the charitable 
organization, is subject to the following obligations:
    (i) The individual must not advance their own personal or business 
interests, or those of others with whom the individual has a personal or 
business relationship, at the expense of the mutual holding company or 
resulting stock holding company;
    (ii) If the individual has an interest in a matter or transaction 
before the board of directors, the individual must:
    (A) Disclose to the board all material nonprivileged information 
relevant to the board's decision on the matter or transaction, including 
the existence, nature and extent of the individual's interests, and the 
facts known to the

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individual as to the matter or transaction under consideration;
    (B) Refrain from participating in the board's discussion of the 
matter or transaction; and
    (C) Recuse themselves from voting on the matter or transaction (if 
the individual is a director). See Form AC, which provides further 
information or operating plans and conflict of interest plans. The 
mutual holding company may obtain Form AC from the appropriate Reserve 
Bank and the Board's Web site at http://www.federalreserve.gov.
    (2) Before the board of directors may adopt a plan of conversion 
that includes a charitable organization, the mutual holding company must 
identify the directors that will serve on the charitable organization's 
board. These directors may not participate in the board's discussions 
concerning contributions to the charitable organization, and may not 
vote on the matter.
    (3) The stock certificates of shares contributed to the charitable 
organization or that the charitable organization otherwise acquires must 
bear the following legend: ``The board of directors must consider the 
shares that this stock certificate represents as voted in the same ratio 
as all other shares voted on each proposal considered by the 
shareholders, as long as the shares are controlled by the charitable 
organization.''
    (4) As long as the charitable organization controls shares, the 
resulting stock holding company must consider those shares as voted in 
the same ratio as all of the shares voted on each proposal considered by 
the shareholders.
    (5) After the stock offering is complete, the resulting stock 
holding company must submit an executed copy of the following documents 
to the appropriate Reserve Bank: the charitable organization's charter 
and bylaws (or trust agreement), operating plan (within six months after 
the stock offering), conflict of interest policy, and the gift 
instrument for the contributions of either stock or cash to the 
charitable organization.



Sec. 239.65  Voluntary supervisory conversions.

    (a) Voluntary supervisory conversion. (1) The mutual holding company 
must comply with this section and Sec. 239.66 to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under sections 10(o)(7) and 10(p) of the Home 
Owners' Loan Act (12 U.S.C. 1467a(o) and (p)).
    (2) Sections 239.50 through 239.64 also apply to a voluntary 
supervisory conversion, unless a requirement is clearly inapplicable.
    (b) Conducting a voluntary supervisory conversion. In conducting a 
voluntary supervisory conversion, the mutual holding company may:
    (1) Sell its shares to the public;
    (2) Convert into stock form by merging into a state-chartered 
corporation; or
    (3) Sell its shares directly to an acquiror, who may be an 
individual, company, depository institution, or depository institution 
holding company.
    (c) Member rights in a voluntary supervisory conversion. Members of 
the mutual holding company do not have the right to approve or 
participate in a voluntary supervisory conversion, and will not have any 
legal or beneficial ownership interests in the converted association, 
unless the Board provides otherwise. The members may have interests in a 
liquidation account, if one is established.
    (d) Eligibility for a voluntary supervisory conversion. A mutual 
holding company may be eligible to engage in a voluntary supervisory 
conversion if:
    (1) Either the mutual holding company or its subsidiary savings 
association is significantly undercapitalized under applicable 
regulatory capital requirements (or the mutual holding company or its 
subsidiary savings association is undercapitalized under applicable 
regulatory capital requirements and a standard conversion that would 
make it adequately capitalized is not feasible) and will be a viable 
entity following the conversion;
    (2) Severe financial conditions threaten stability of the mutual 
holding company, and a conversion is likely to improve its financial 
condition.

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    (e) A mutual holding company or its subsidiary savings association 
will be a viable entity following the conversion if it satisfies all of 
the following:
    (1) It will be adequately capitalized as a result of the conversion;
    (2) It, the proposed conversion, and its acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in the best interest of the mutual holding 
company and its subsidiary savings associations, and the best interest 
of the Deposit Insurance Fund and the public; and
    (4) The transaction will not injure or be detrimental to the mutual 
holding company and its subsidiary savings associations, the Deposit 
Insurance Fund, or the public interest.
    (f) Plan of voluntary supervisory conversion. A majority of the 
board of directors of the mutual holding company must approve a plan of 
voluntary supervisory conversion. The mutual holding company must 
include all of the following information in the plan of voluntary 
supervisory conversion.
    (1) The name and address of the mutual holding company.
    (2) The name, address, date and place of birth, and social security 
number or tax identification number, as applicable, of each proposed 
purchaser of conversion shares and a description of that purchaser's 
relationship to the mutual holding company.
    (3) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that the mutual holding company will 
issue.
    (4) The number and percentage of shares that each investor will 
purchase.
    (5) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (6) A description of any liquidation account.
    (7) Certified copies of all resolutions of the board of directors 
relating to the conversion.
    (g) Voluntary supervisory conversion application. The mutual holding 
company must include all of the following information and documents in a 
voluntary supervisory conversion application to the Board under this 
subpart:
    (1) Eligibility. (i) Evidence establishing that the mutual holding 
company meets the eligibility requirements under paragraph (d) of this 
section.
    (ii) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (2) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with paragraph (e) of this section.
    (3) Business plan. A business plan that complies with Sec. 
239.53(b), when required by the Board.
    (4) Financial data. (i) The most recent audited financial statements 
and Thrift Financial Report. The mutual holding company must explain how 
its current capital levels or the capital levels of its subsidiary 
savings associations make it eligible to engage in a voluntary 
supervisory conversion under paragraph (d) of this section.
    (ii) A description of the estimated conversion expenses.
    (iii) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to the Board and the non-
cash asset must meet all other Board policy guidelines.
    (iv) Pro forma financial statements that reflect the effects of the 
transaction. The mutual holding company must identify the tangible, 
core, and risk-based capital levels and show the adjustments necessary 
to compute the capital levels. The mutual holding company must prepare 
the pro forma statements in conformance with Board regulations and 
policy.
    (5) Proposed documents. (i) The proposed charter and bylaws.
    (ii) The proposed stock certificate form.
    (6) Agreements. (i) A copy of any agreements between the mutual 
holding company and proposed purchasers.
    (ii) A copy and description of all existing and proposed employment 
contracts. The mutual holding company must describe the term, salary, 
and severance provisions of the contract, the identity and background of 
the officer or employee to be employed, and

[[Page 183]]

the amount of any conversion shares to be purchased by the officer or 
employee or his or her affiliates or associates.
    (7) Related applications. (i) All filings required under the 
securities offering rules of subpart E of this part.
    (ii) Any required Holding Company Act application or Control Act 
notice under part 238 of this chapter.
    (iii) A subordinated debt application, if applicable.
    (iv) Applications for permission to organize a stock savings and 
loan holding company and for approval of a merger.
    (v) A statement describing any other applications required under 
federal or state banking laws for all transactions related to the 
conversion, copies of all dispositive documents issued by regulatory 
authorities relating to the applications, and, if requested by the 
Board, copies of the applications and related documents.
    (8) Waiver request. A description of any of the features of the 
application that do not conform to the requirements of this subpart, 
including any request for waiver of any of these requirements.
    (h) Offers and sales of stock. If the mutual holding company 
converts under this subpart, the conversion shares must be offered and 
sold in compliance with Sec. 239.59.
    (i) Post-conversion acquisition of shares. For three years after the 
completion of a voluntary supervisory conversion, neither the resulting 
stock holding company nor the principal shareholder(s) may acquire 
shares from minority shareholders without the Board's prior approval.



Sec. 239.66  Board review of the voluntary supervisory conversion 
application.

    (a) Board review of a voluntary supervisory conversion application. 
The Board will generally approve the application to engage in a 
voluntary supervisory conversion unless it determines:
    (1) The mutual holding company does not meet the eligibility 
requirements for a voluntary supervisory conversion under Sec. Sec. 
239.65(d) or because the proceeds from the sale of the conversion stock, 
less the expenses of the conversion, would be insufficient to satisfy 
any applicable viability requirement;
    (2) The transaction is detrimental to or would cause potential 
injury to the mutual holding company, its subsidiary savings 
association, or the Deposit Insurance Fund or is contrary to the public 
interest;
    (3) The mutual holding company or the acquiror, or the controlling 
parties or directors and officers of the mutual holding company or the 
acquiror, have engaged in unsafe or unsound practices in connection with 
the voluntary supervisory conversion; or
    (4) The mutual holding company fails to justify an employment 
contract incidental to the conversion, or the employment contract will 
be an unsafe or unsound practice or represent a sale of control. In a 
voluntary supervisory conversion, the Board generally will not approve 
employment contracts of more than one year for the existing management.
    (b) Conditions the Board may impose on an approval. (1) The Board 
will condition approval of a voluntary supervisory conversion 
application on all of the following.
    (i) The conversion stock sale must be complete within three months 
after the Board approves the application. The Board may grant an 
extension for good cause.
    (ii) The mutual holding company and the resulting stock holding 
company must comply with all filing requirements of subpart E of this 
part.
    (iii) The mutual holding company must submit an opinion of 
independent legal counsel indicating that the sale of the shares 
complies with all applicable state securities law requirements.
    (iv) The mutual holding company and the resulting stock holding 
company must comply with all applicable laws, rules, and regulations.
    (v) The mutual holding company and the resulting stock holding 
company must satisfy any other requirements or conditions the Board may 
impose.
    (2) The Board may condition approval of a voluntary supervisory 
conversion application on either of the following:
    (i) The mutual holding company and the resulting stock holding 
company must satisfy any conditions and restrictions the Board imposes 
to prevent

[[Page 184]]

unsafe or unsound practices, to protect the Deposit Insurance Fund and 
the public interest, and to prevent potential injury or detriment to the 
mutual holding company before and after the conversion. The Board may 
impose these conditions and restrictions on the mutual holding company 
and the resulting stock holding company (before and after the 
conversion), the acquiror, controlling parties, or directors and 
officers of the mutual holding company or the acquiror; or
    (ii) The mutual holding company or the resulting stock holding 
company must infuse a larger amount of capital, if necessary, for safety 
and soundness reasons.



    Sec. Appendix A to Part 239--Mutual Holding Company Model Charter

                 FEDERAL MUTUAL HOLDING COMPANY CHARTER

    Section 1: Corporate title. The name of the mutual holding company 
is ----(the ``Mutual Holding Company'').
    Section 2: Duration. The duration of the Mutual Holding Company is 
perpetual.
    Section 3: Purpose and powers. The purpose of the Mutual Holding 
Company is to pursue any or all of the lawful objectives of a federal 
mutual savings and loan holding company chartered under section 10(o) of 
the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of 
the express, implied, and incidental powers conferred thereby and all 
acts amendatory thereof and supplemental thereto, subject to the 
Constitution and the laws of the United States as they are now in 
effect, or as they may hereafter be amended, and subject to all lawful 
and applicable rules, regulations, and orders of the Federal Reserve 
Board (``Board'').
    Section 4: Capital. The Mutual Holding Company shall have no capital 
stock.
    Section 5: Members. [The content of this section 5 shall be 
identical to the content of the parallel section in the charter of the 
reorganizing association, with the following exceptions: (A) Any 
provisions conferring membership rights upon borrowers of the 
reorganizing association shall be eliminated and replaced with 
provisions grandfathering those rights in accordance with 12 CFR 239.5; 
and (B) appropriate changes shall be made to indicate that membership 
rights in the mutual holding company derive from deposit accounts in 
and, to the extent of any grandfather provisions, borrowings from the 
resulting association. Set forth below is an example of how section 5 
should appear in the charter of a mutual holding company formed by a 
reorganizing association whose charter conforms to the model charter 
prescribed for federal mutual savings associations for calendar year 
1989. Additional changes to this section 5 may be required whenever a 
mutual holding company reorganization involves an acquiree association, 
or a mutual holding company makes a post-reorganization acquisition of a 
mutual savings association, so as to preserve the membership rights of 
the members of the acquired association consistent with 12 CFR 239.5.]
    All holders of the savings, demand, or other authorized accounts of 
----[insert the name of the resulting association] (the ``Association'') 
are members of the Mutual Holding Company. With respect to all questions 
requiring action by the members of the Mutual Holding Company, each 
holder of an account in the Association shall be permitted to cast one 
vote for each $100, or fraction thereof, of the withdrawal value of the 
member's account. In addition, borrowers from the Association as of ----
[insert the date of the reorganization or any earlier date as of which 
new borrowings ceased to result in membership rights] shall be entitled 
to one vote for the period of time during which such borrowings are in 
existence. [The foregoing sentence should be included only if the 
charter of the reorganizing association confers voting rights on any 
borrowers.] No member, however, shall cast more than one thousand votes. 
All accounts shall be nonassessable.
    Section 6. Directors. The Mutual Holding Company shall be under the 
direction of a board of directors. The authorized number of directors 
shall not be fewer than five nor more than fifteen, as fixed in the 
Mutual Holding Company's bylaws, except that the number of directors may 
be decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the Board.
    Section 7: Capital, surplus, and distribution of earnings. [The 
content of this section 7 shall be identical to the content of the 
parallel section in the charter of the reorganizing association, except 
for changes made to indicate that distribution rights in the mutual 
holding company derive from deposit accounts in the resulting 
association, any changes required to provide that the Board shall be the 
approving authority in instances where the charter requires regulatory 
approval of distributions, and any other changes necessary to 
accommodate the mutual holding company format. Set forth below is an 
example of how section 7 should appear in the charter of a mutual 
holding company formed by a reorganizing association whose charter 
conforms to the model charter prescribed for federal mutual savings 
associations for calendar year 1989. Additional changes to this section 
7 may be required whenever a mutual holding company reorganization 
involves an acquiree association, or a mutual holding company makes a

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post-reorganization acquisition of a mutual savings association, so as 
to preserve the membership rights of the members of the acquired 
association consistent with 12 CFR 239.5].
    The Mutual Holding Company shall distribute net earnings to account 
holders of the Association on such basis and in accordance with such 
terms and conditions as may from time to time be authorized by the 
Board, provided that the Mutual Holding Company may establish minimum 
account balance requirements for account holders to be eligible for 
distributions of earnings.
    All holders of accounts of the Association shall be entitled to 
equal distribution of the assets of the Mutual Holding Company, pro rata 
to the value of their accounts in the Association, in the event of 
voluntary or involuntary liquidation, dissolution, or winding up of the 
Mutual Holding Company.
    Section 8. Amendment. Adoption of any preapproved charter amendment 
shall be effective after such preapproved amendment has been approved by 
the members at a legal meeting. Any other amendment, addition, change, 
or repeal of this charter must be approved by the Board prior to 
approval by the members at a legal meeting and shall be effective upon 
filing with the Board in accordance with regulatory procedures.
 Attest:________________________________________________________________
Secretary of the Association
 By:____________________________________________________________________
President or Chief Executive Officer of the Association
 By:____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
 Effective Date:________________________________________________________



  Sec. Appendix B to Part 239--Subsidiary Holding Company of a Mutual 
                      Holding Company Model Charter

             FEDERAL MHC SUBSIDIARY HOLDING COMPANY CHARTER

    Section 1. Corporate title. The full corporate title of the mutual 
holding company (``MHC'') subsidiary holding company is XXX.
    Section 2. Domicile. The domicile of the MHC subsidiary holding 
company shall be in the city of --, in the State of --.
    Section 3. Duration. The duration of the MHC subsidiary holding 
company is perpetual.
    Section 4. Purpose and powers. The purpose of the MHC subsidiary 
holding company is to pursue any or all of the lawful objectives of a 
federal mutual holding company chartered under section 10(o) of the Home 
Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of the 
express, implied, and incidental powers conferred thereby and by all 
acts amendatory thereof and supplemental thereto, subject to the 
Constitution and laws of the United States as they are now in effect, or 
as they may hereafter be amended, and subject to all lawful and 
applicable rules, regulations, and orders of the Board of Governors of 
the Federal Reserve System (``Board'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the MHC subsidiary holding company has the 
authority to issue is --, all of which shall be common stock of par [or 
if no par is specified then shares shall have a stated] value of -- per 
share. The shares may be issued from time to time as authorized by the 
board of directors without the approval of its shareholders, except as 
otherwise provided in this section 5 or to the extent that such approval 
is required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither promissory 
notes nor future services shall constitute payment or part payment for 
the issuance of shares of the MHC subsidiary holding company. The 
consideration for the shares shall be cash, tangible or intangible 
property (to the extent direct investment in such property would be 
permitted to the MHC subsidiary holding company), labor, or services 
actually performed for the MHC subsidiary holding company, or any 
combination of the foregoing. In the absence of actual fraud in the 
transaction, the value of such property, labor, or services, as 
determined by the board of directors of the MHC subsidiary holding 
company, shall be conclusive. Upon payment of such consideration, such 
shares shall be deemed to be fully paid and nonassessable. In the case 
of a stock dividend, that part of the retained earnings of the MHC 
subsidiary holding company that is transferred to common stock or paid-
in capital accounts upon the issuance of shares as a stock dividend 
shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the MHC 
subsidiary holding company, no shares of capital stock (including shares 
issuable upon conversion, exchange, or exercise of other securities) 
shall be issued, directly or indirectly, to officers, directors, or 
controlling persons (except for shares issued to the parent mutual 
holding company) of the MHC subsidiary holding company other than as 
part of a general public offering or as qualifying shares to a director, 
unless the issuance or the plan under which they would be issued has 
been approved by a majority of the total votes eligible to be cast at a 
legal meeting.
    The holders of the common stock shall exclusively possess all voting 
power. Each holder of shares of common stock shall be entitled to one 
vote for each share held by such holder, except as to the cumulation of

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votes for the election of directors, unless the charter provides that 
there shall be no such cumulative voting. Subject to any provision for a 
liquidation account, in the event of any liquidation, dissolution, or 
winding up of the MHC subsidiary holding company, the holders of the 
common stock shall be entitled, after payment or provision for payment 
of all debts and liabilities of the MHC subsidiary holding company, to 
receive the remaining assets of the MHC subsidiary holding company 
available for distribution, in cash or in kind. Each share of common 
stock shall have the same relative rights as and be identical in all 
respects with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
MHC subsidiary holding company shall not be entitled to preemptive 
rights with respect to any shares of the MHC subsidiary holding company 
which may be issued.
    Section 7. Directors. The MHC subsidiary holding company shall be 
under the direction of a board of directors. The authorized number of 
directors, as stated in the MHC subsidiary holding company's bylaws, 
shall not be fewer than five nor more than fifteen except when a greater 
or lesser number is approved by the Board, or his or her delegate.
    Section 8. Amendment of charter. Except as provided in Section 5, no 
amendment, addition, alteration, change or repeal of this charter shall 
be made, unless such is proposed by the board of directors of the MHC 
subsidiary holding company, approved by the shareholders by a majority 
of the votes eligible to be cast at a legal meeting, unless a higher 
vote is otherwise required, and approved or preapproved by the Board.

 Attest:________________________________________________________________
Secretary of the Subsidiary Holding Company
 By:____________________________________________________________________
President or Chief Executive Officer of the Subsidiary Holding Company
 By:____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
 Effective Date:________________________________________________________



    Sec. Appendix C to Part 239--Mutual Holding Company Model Bylaws

                MODEL BYLAWS FOR MUTUAL HOLDING COMPANIES

    The term ``trustees'' may be substituted for the term ``directors.''
    1. Annual meeting of members. The annual meeting of the members of 
the mutual holding company for the election of directors and for the 
transaction of any other business of the mutual holding company shall be 
held, as designated by the board of directors, at a location within the 
state that constitutes the principal place of business of the mutual 
holding company, or at any other convenient place the board of directors 
may designate, at (insert date and time within 150 days after the end of 
the mutual holding company's fiscal year, if not a legal holiday, or if 
a legal holiday then on the next succeeding day not a legal holiday). At 
each annual meeting, the officers shall make a full report of the 
financial condition of the mutual holding company and of its progress 
for the preceding year and shall outline a program for the succeeding 
year.
    2. Special meetings of members. Special meetings of the members of 
the mutual holding company may be called at any time by the president or 
the board of directors and shall be called by the president, a vice 
president, or the secretary upon the written request of members of 
record, holding in the aggregate at least one-tenth of the voting 
capital of the mutual holding company. Such written request shall state 
the purpose of the meeting and shall be delivered at the principal place 
of business of the mutual holding company addressed to the president. 
For purposes of this section, ``voting capital'' means FDIC-insured 
deposits as of the voting record date. Annual and special meetings shall 
be conducted in accordance with the most current edition of Robert's 
Rules of Order or any other set of written procedures agreed to by the 
board of directors.
    3. Notice of meeting of members. Notice of each meeting shall be 
either published once a week for the two successive calendar weeks (in 
each instance on any day of the week) immediately prior to the week in 
which such meeting shall convene, in a newspaper printed in the English 
language and of general circulation in the city or county in which the 
principal place of business of the mutual holding company is located, or 
mailed postage prepaid at least (insert number no less than 15) days and 
not more than (insert number not more than 45) days prior to the date on 
which such meeting shall convene, to each of its members of record at 
the last address appearing on the books of the mutual holding company. 
Such notice shall state the name of the mutual holding company, the 
place of the meeting, the date and time when it shall convene, and the 
matters to be considered. A similar notice shall be posted in a 
conspicuous place in each of the offices of the mutual holding company 
during the 14 days immediately preceding the date on which such meeting 
shall convene. If any member, in person or by authorized attorney, shall 
waive in writing notice of any meeting of members, notice thereof need 
not be given to such member. When any meeting is adjourned for 30 days 
or more, notice of the adjournment and reconvening of the meeting shall 
be given as in the case of the original meeting.
    4. Fixing of record date. For the purpose of determining members 
entitled to notice of or

[[Page 187]]

to vote at any meeting of members or any adjournment thereof, or in 
order to make a determination of members for any other proper purpose, 
the board of directors shall fix in advance a record date for any such 
determination of members. Such date shall be not more than 60 days nor 
fewer than 10 days prior to the date on which the action, requiring such 
determination of members, is to be taken. The member entitled to 
participate in any such action shall be the member of record on the 
books of the mutual holding company on such record date. The number of 
votes which each member shall be entitled to cast at any meeting of the 
members shall be determined from the books of the mutual holding company 
as of such record date. Any member of such record date who ceases to be 
a member prior to such meeting shall not be entitled to vote at that 
meeting. The same determination shall apply to any adjourned meeting.
    5. Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. Directors, however, are elected by a 
plurality of the votes cast at an election of directors. At any 
adjourned meeting any business may be transacted which might have been 
transacted at the meeting as originally called. Members present at a 
duly constituted meeting may continue to transact business until 
adjournment.
    6. Voting by proxy. Voting at any annual or special meeting of the 
members may be by proxy pursuant to the rules and regulations of the 
Board of Governors of the Federal Reserve System (Board), provided, that 
no proxies shall be voted at any meeting unless such proxies shall have 
been placed on file with the secretary of the mutual holding company, 
for verification, prior to the convening of such meeting. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the member. All proxies with a 
term greater than eleven months or solicited at the expense of the 
mutual holding company must run to the board of directors as a whole, or 
to a committee appointed by a majority of such board. Accounts held by 
an administrator, executor, guardian, conservator or receiver may be 
voted in person or by proxy by such person. Accounts held by a trustee 
may be voted by such trustee either in person or by proxy, in accordance 
with the terms of the trust agreement, but no trustee shall be entitled 
to vote accounts without a transfer of such accounts into the trustee 
name. Accounts held in trust in an IRA or Keogh Account, however, may be 
voted by the mutual holding company if no other instructions are 
received. Joint accounts shall be entitled to no more than 1000 votes, 
and any owner may cast all the votes unless the mutual holding company 
has otherwise been notified in writing.
    7. Communication between members. Communication between members 
shall be subject to any applicable rules or regulations of the Board. No 
member, however, shall have the right to inspect or copy any portion of 
any books or records of a mutual holding company containing: (i) a list 
of depositors in or borrowers from such mutual holding company; (ii) 
their addresses; (iii) individual deposit or loan balances or records; 
or (iv) any data from which such information could reasonably be 
constructed.
    8. Number of directors, membership. The number of directors shall be 
----[not fewer than five nor more than fifteen], except where authorized 
by the Board. Each director shall be a member of the mutual holding 
company. Directors shall be elected for periods of one to three years 
and until their successors are elected and qualified, but if a staggered 
board is chosen, provision shall be made for the election of 
approximately one-third or one-half of the board each year, as 
appropriate.
    9. Meetings of the board. The board of directors shall meet 
regularly without notice at the principal place of business of the 
mutual holding company at least once each month at an hour and date 
fixed by resolution of the board, provided that the place of meeting may 
be changed by the directors. Special meetings of the board may be held 
at any place specified in a notice of such meeting and shall be called 
by the secretary upon the written request of the chairman or of three 
directors. All special meetings shall be held upon at least 24 hours 
written notice to each director unless notice is waived in writing 
before or after such meeting. Such notice shall state the place, date, 
time, and purposes of such meeting. A majority of the authorized 
directors shall constitute a quorum for the transaction of business. The 
act of a majority of the directors present at any meeting at which there 
is a quorum shall be the act of the board. Action may be taken without a 
meeting if unanimous written consent is obtained for such action. The 
board may also permit telephonic participation at meetings. The meetings 
shall be under the direction of a chairman, appointed annually by the 
board, or in the absence of the chairman, the meetings shall be under 
the direction of the president.
    10. Officers, employees, and agents. Annually at the meeting of the 
board of directors of the mutual holding company following the annual 
meeting of the members of the mutual holding company, the board shall 
elect a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller: Provided, that the offices of president and

[[Page 188]]

secretary may not be held by the same person and a vice president may 
also be the treasurer or comptroller. The board may appoint such 
additional officers, employees, and agents as it may from time to time 
determine. The term of office of all officers shall be one year or until 
their respective successors are elected and qualified. Any officer may 
be removed at any time by the board with or without cause, but such 
removal, other than for cause, shall be without prejudice to the 
contractual rights, if any, of the person so removed. In the absence of 
designation from time to time of powers and duties by the board, the 
officers shall have such powers and duties as generally pertain to their 
respective offices. Any indemnification by the mutual holding company of 
the mutual holding company's personnel is subject to any applicable 
rules or regulations of the Board.
    11. Vacancies, resignation or removal of directors. Members of the 
mutual holding company shall elect directors by ballot: Provided, that 
in the event of a vacancy on the board between meetings of members, the 
board of directors may, by their affirmative vote, fill such vacancy, 
even if the remaining directors constitute less than a quorum. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the members. Any director may resign 
at any time by sending a written notice of such resignation to the 
mutual holding company delivered to the secretary. Unless otherwise 
specified therein such resignation shall take effect upon receipt by the 
secretary. More than three consecutive absences from regular meetings of 
the board, unless excused by resolution of the board, shall 
automatically constitute a resignation, effective when such resignation 
is accepted by the board. At a meeting of members called expressly for 
that purpose, directors or the entire board may be removed, only with 
cause, by a vote of the holders of a majority of the shares then 
entitled to vote at an election of directors.
    12. Powers of the board. The board of directors shall have the 
power: (a) By resolution, to appoint from among its members and remove 
an executive committee, which committee shall have and may exercise the 
powers of the board between the meetings of the board, but no such 
committee shall have the authority of the board to amend the charter or 
bylaws, adopt a plan of merger, consolidation, dissolution, or provide 
for the disposition of all or substantially all the property and assets 
of the mutual holding company. Such committee shall not operate to 
relieve the board, or any member thereof, of any responsibility imposed 
by law; (b) To appoint and remove by resolution the members of such 
other committees as may be deemed necessary and prescribe the duties 
thereof; (c) To fix the compensation of directors, officers, and 
employees; and to remove any officer or employee at any time with or 
without cause; (d) To limit payments on capital which may be accepted; 
and (e) To exercise any and all of the powers of the mutual holding 
company not expressly reserved by the charter to the members.
    13. Execution of instruments, generally. All documents and 
instruments or writings of any nature shall be signed, executed, 
verified, acknowledged, and delivered by such officers, agents, or 
employees of the mutual holding company or any one of them and in such 
manner as from time to time may be determined by resolution of the 
board. All notes, drafts, acceptances, checks, endorsements, and all 
evidences of indebtedness of the mutual holding company whatsoever shall 
be signed by such officer or officers or such agent or agents of the 
mutual holding company and in such manner as the board may from time to 
time determine. Endorsements for deposit to the credit of the mutual 
holding company in any of its duly authorized depositories shall be made 
in such manner as the board may from time to time determine. Proxies to 
vote with respect to shares or accounts of other mutual holding 
companies or stock of other corporations owned by, or standing in the 
name of, the mutual holding company may be executed and delivered from 
time to time on behalf of the mutual holding company by the president or 
a vice president and the secretary or an assistant secretary of the 
mutual holding company or by any other persons so authorized by the 
board.
    14. Nominating committee. The chairman, at least 30 days prior to 
the date of each annual meeting, shall appoint a nominating committee of 
three individuals who are members of the mutual holding company. Such 
committee shall make nominations for directors in writing and deliver to 
the secretary such written nominations at least 15 days prior to the 
date of the annual meeting, which nominations shall then be posted in a 
prominent place in the principal place of business for the 15-day period 
prior to the date of the annual meeting, except in the case of a nominee 
substituted as a result of death or other incapacity. Provided such 
committee is appointed and makes such nominations, no nominations for 
directors except those made by the nominating committee shall be voted 
upon at the annual meeting unless other nominations by members are made 
in writing and delivered to the secretary of the mutual holding company 
at least 10 days prior to the date of the annual meeting, which 
nominations shall then be posted in a prominent place in the principal 
place of business for the 10-day period prior to the date of the annual 
meeting, except in the case of a nominee substituted as a result of 
death or other incapacity. Ballots bearing the names of all individuals 
nominated by

[[Page 189]]

the nominating committee and by other members prior to the annual 
meeting shall be provided for use by the members at the annual meeting. 
If at any time the chairman shall fail to appoint such nominating 
committee, or the nominating committee shall fail or refuse to act at 
least 15 days prior to the annual meeting, nominations for directors may 
be made at the annual meeting by any member and shall be voted upon.
    15. New business. Any new business to be taken up at the annual 
meeting, including any proposal to increase or decrease the number of 
directors of the mutual holding company, shall be stated in writing and 
filed with the secretary of the mutual holding company at least 30 days 
before the date of the annual meeting, and all business so stated, 
proposed, and filed shall be considered at the annual meeting; but no 
other proposal shall be acted upon at the annual meeting. Any member may 
make any other proposal at the annual meeting and the same may be 
discussed and considered; but unless stated in writing and filed with 
the secretary 30 days before the meeting, such proposal shall be laid 
over for action at an adjourned, special, or regular meeting of the 
members taking place at least 30 days thereafter. This provision shall 
not prevent the consideration and approval or disapproval at the annual 
meeting of the reports of officers and committees, but in connection 
with such reports no new business shall be acted upon at such annual 
meeting unless stated and filed as herein provided.
    16. Seal. The seal shall be two concentric circles between which 
shall be the name of the mutual holding company. The year of 
incorporation, the word ``Incorporated'' or an emblem may appear in the 
center.
    17. Amendment. Adoption of any bylaw amendment pursuant to Sec. 
239.15 of the Board's regulations, as long as consistent with applicable 
law, rules and regulations, and which adequately addresses the subject 
and purpose of the stated by law section, shall be effective after (i) 
approval of the amendment by a majority vote of the authorized board, or 
by a vote of the members of the mutual holding company at a legal 
meeting; and (ii) receipt of any applicable regulatory approval. When a 
mutual holding company fails to meet its quorum requirement solely due 
to vacancies on the board, the bylaws may be amended by an affirmative 
vote of a majority of the sitting board.
    18. Age limitations. [Bylaws on age limitations must comply with all 
Federal laws, such as the Age Discrimination in Employment Act and the 
Employee Retirement Income Security Act.]
    (a) Directors. No individual ---- years of age shall be eligible for 
election, reelection, appointment, or reappointment to the board of the 
mutual holding company. No director shall serve as such beyond the 
annual meeting of the mutual holding company immediately following the 
director becoming ----(fill in age used above), except that a director 
serving on ----(fill in bylaw adoption date) may complete the term as 
director. This age limitation does not apply to an advisory director.
    (b) Officers. No individual ---- years of age shall be eligible for 
election, reelection, appointment, or reappointment as an officer of the 
mutual holding company. No officer shall serve beyond the annual meeting 
of the mutual holding company immediately following the officer becoming 
----(fill in age used above), except that an officer serving on ----
(fill in bylaw adoption date) may complete the term. However, an officer 
shall, at the option of the board, retire at age ---- if the officer has 
served in an executive or high policy-making post for at least two years 
immediately prior to retirement and is immediately entitled to 
nonforfeitable annual retirement benefits of at least ----.



  Sec. Appendix D to Part 239--Subsidiary Holding Company of a Mutual 
                      Holding Company Model Bylaws

                  MHC Subsidiary Holding Company Bylaws

                         Article I--Home Office

    The home office of the Subsidiary Holding Company shall be at ------
---------- . [set forth the full address] in the County of ------------
---- , in the State of ---------------- .

                        Article II--Shareholders

    Section 1. Place of Meetings. All annual and special meetings of 
shareholders shall be held at the home office of the Subsidiary Holding 
Company or at such other convenient place as the board of directors may 
determine.
    Section 2. Annual Meeting. A meeting of the shareholders of the 
Subsidiary Holding Company for the election of directors and for the 
transaction of any other business of the Subsidiary Holding Company 
shall be held annually within 150 days after the end of the Subsidiary 
Holding Company's fiscal year on the ----of ---- if not a legal holiday, 
and if a legal holiday, then on the next day following which is not a 
legal holiday, at ----, or at such other date and time within such 150-
day period as the board of directors may determine.
    Section 3. Special Meetings. Special meetings of the shareholders 
for any purpose or purposes, unless otherwise prescribed by the 
regulations of the Board of Governors of the Federal Reserve System 
(``Board''), may be called at any time by the chairman of the board, the 
president, or a majority of the board of directors, and shall be called 
by the chairman of the board, the president, or the

[[Page 190]]

secretary upon the written request of the holders of not less than one-
tenth of all of the outstanding capital stock of the Subsidiary Holding 
Company entitled to vote at the meeting. Such written request shall 
state the purpose or purposes of the meeting and shall be delivered to 
the home office of the Subsidiary Holding Company addressed to the 
chairman of the board, the president, or the secretary.
    Section 4. Conduct of Meetings. Annual and special meetings shall be 
conducted in accordance with the most current edition of Robert's Rules 
of Order unless otherwise prescribed by regulations of the Board or 
these bylaws or the board of directors adopts another written procedure 
for the conduct of meetings. The board of directors shall designate, 
when present, either the chairman of the board or president to preside 
at such meetings.
    Section 5. Notice of Meetings. Written notice stating the place, 
day, and hour of the meeting and the purpose(s) for which the meeting is 
called shall be delivered not fewer than 20 nor more than 50 days before 
the date of the meeting, either personally or by mail, by or at the 
direction of the chairman of the board, the president, or the secretary, 
or the directors calling the meeting, to each shareholder of record 
entitled to vote at such meeting. If mailed, such notice shall be deemed 
to be delivered when deposited in the mail, addressed to the shareholder 
at the address as it appears on the stock transfer books or records of 
the Subsidiary Holding Company as of the record date prescribed in 
section 6 of this article II with postage prepaid. When any 
shareholders' meeting, either annual or special, is adjourned for 30 
days or more, notice of the adjourned meeting shall be given as in the 
case of an original meeting. It shall not be necessary to give any 
notice of the time and place of any meeting adjourned for less than 30 
days or of the business to be transacted at the meeting, other than an 
announcement at the meeting at which such adjournment is taken.
    Section 6. Fixing of Record Date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment, or shareholders entitled to receive 
payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not fewer than 10 days prior to 
the date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment.
    Section 7. Voting Lists. At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for shares of the Subsidiary Holding Company shall make a complete 
list of the shareholders of record entitled to vote at such meeting, or 
any adjournment thereof, arranged in alphabetical order, with the 
address and the number of shares held by each. This list of shareholders 
shall be kept on file at the home office of the Subsidiary Holding 
Company and shall be subject to inspection by any shareholder of record 
or the shareholder's agent at any time during usual business hours for a 
period of 20 days prior to such meeting. Such list shall also be 
produced and kept open at the time and place of the meeting and shall be 
subject to inspection by any shareholder of record or any shareholder's 
agent during the entire time of the meeting. The original stock transfer 
book shall constitute prima facie evidence of the shareholders entitled 
to examine such list or transfer books or to vote at any meeting of 
shareholders. In lieu of making the shareholder list available for 
inspection by shareholders as provided in the preceding paragraph, the 
board of directors may elect to follow the procedures prescribed in 
Sec. 239.26(d) of the Board's regulations as now or hereafter in 
effect.
    Section 8. Quorum. A majority of the outstanding shares of the 
Subsidiary Holding Company entitled to vote, represented in person or by 
proxy, shall constitute a quorum at a meeting of shareholders. If less 
than a majority of the outstanding shares is represented at a meeting, a 
majority of the shares so represented may adjourn the meeting from time 
to time without further notice. At such adjourned meeting at which a 
quorum shall be present or represented, any business may be transacted 
which might have been transacted at the meeting as originally notified. 
The shareholders present at a duly organized meeting may continue to 
transact business until adjournment, notwithstanding the withdrawal of 
enough shareholders to constitute less than a quorum. If a quorum is 
present, the affirmative vote of the majority of the shares represented 
at the meeting and entitled to vote on the subject matter shall be the 
act of the shareholders, unless the vote of a greater number of 
shareholders voting together or voting by classes is required by law or 
the charter. Directors, however, are elected by a plurality of the votes 
cast at an election of directors.
    Section 9. Proxies. At all meetings of shareholders, a shareholder 
may vote by proxy executed in writing by the shareholder or by his or 
her duly authorized attorney in fact. Proxies may be given 
telephonically or electronically as long as the holder uses a

[[Page 191]]

procedure for verifying the identity of the shareholder. Proxies 
solicited on behalf of the management shall be voted as directed by the 
shareholder or, in the absence of such direction, as determined by a 
majority of the board of directors. No proxy shall be valid more than 
eleven months from the date of its execution except for a proxy coupled 
with an interest.
    Section 10. Voting of Shares in the Name of Two or More Persons. 
When ownership stands in the name of two or more persons, in the absence 
of written directions to the Subsidiary Holding Company to the contrary, 
at any meeting of the shareholders of the Subsidiary Holding Company any 
one or more of such shareholders may cast, in person or by proxy, all 
votes to which such ownership is entitled. In the event an attempt is 
made to cast conflicting votes, in person or by proxy, by the several 
persons in whose names shares of stock stand, the vote or votes to which 
those persons are entitled shall be cast as directed by a majority of 
those holding such and present in person or by proxy at such meeting, 
but no votes shall be cast for such stock if a majority cannot agree.
    Section 11. Voting of Shares by Certain Holders. Shares standing in 
the name of another corporation may be voted by any officer, agent, or 
proxy as the bylaws of such corporation may prescribe, or, in the 
absence of such provision, as the board of directors of such corporation 
may determine. Shares held by an administrator, executor, guardian, or 
conservator may be voted by him or her, either in person or by proxy, 
without a transfer of such shares into his or her name. Shares standing 
in the name of a trustee may be voted by him or her, either in person or 
by proxy, but no trustee shall be entitled to vote shares held by him or 
her without a transfer of such shares into his or her name. Shares held 
in trust in an IRA or Keogh Account, however, may by voted by the 
Subsidiary Holding Company if no other instructions are received. Shares 
standing in the name of a receiver may be voted by such receiver, and 
shares held by or under the control of a receiver may be voted by such 
receiver without the transfer into his or her name if authority to do so 
is contained in an appropriate order of the court or other public 
authority by which such receiver was appointed. A shareholder whose 
shares are pledged shall be entitled to vote such shares until the 
shares have been transferred into the name of the pledgee, and 
thereafter the pledgee shall be entitled to vote the shares so 
transferred. Neither treasury shares of its own stock held by the 
Subsidiary Holding Company nor shares held by another corporation, if a 
majority of the shares entitled to vote for the election of directors of 
such other corporation are held by the Subsidiary Holding Company, shall 
be voted at any meeting or counted in determining the total number of 
outstanding shares at any given time for purposes of any meeting. [If 
charter authorizes cumulative voting, the following Section 12 shall 
apply, otherwise renumber Sections 13-16 as Sections 12-15.]
    Section 12. Cumulative Voting. Every shareholder entitled to vote at 
an election for directors shall have the right to vote, in person or by 
proxy, the number of shares owned by the shareholder for as many persons 
as there are directors to be elected and for whose election the 
shareholder has a right to vote, or to cumulate the votes by giving one 
candidate as many votes as the number of such directors to be elected 
multiplied by the number of shares shall equal or by distributing such 
votes on the same principle among any number of candidates.
    Section 13. Inspectors of Election. In advance of any meeting of 
shareholders, the board of directors may appoint any individual other 
than nominees for office as inspectors of election to act at such 
meeting or any adjournment. The number of inspectors shall be either one 
or three. Any such appointment shall not be altered at the meeting. If 
inspectors of election are not so appointed, the chairman of the board 
or the president may, or on the request of not fewer than 10 percent of 
the votes represented at the meeting shall, make such appointment at the 
meeting. If appointed at the meeting, the majority of the votes present 
shall determine whether one or three inspectors are to be appointed. In 
case any individual appointed as inspector fails to appear or fails or 
refuses to act, the vacancy may be filled by appointment by the board of 
directors in advance of the meeting or at the meeting by the chairman of 
the board or the president. Unless otherwise prescribed by regulations 
of the Board, the duties of such inspectors shall include: determining 
the number of shares and the voting power of each share, the shares 
represented at the meeting, the existence of a quorum, and the 
authenticity, validity and effect of proxies; receiving votes, ballots, 
or consents; hearing and determining all challenges and questions in any 
way arising in connection with the rights to vote; counting and 
tabulating all votes or consents; determining the result; and such acts 
as may be proper to conduct the election or vote with fairness to all 
shareholders.
    Section 14. Nominating Committee. The board of directors shall act 
as a nominating committee for selecting the management nominees for 
election as directors. Except in the case of a nominee substituted as a 
result of the death or other incapacity of a management nominee, the 
nominating committee shall deliver written nominations to the secretary 
at least 20 days prior to the date of the annual meeting. Upon delivery, 
such nominations shall be posted in a conspicuous

[[Page 192]]

place in each office of the Subsidiary Holding Company. No nominations 
for directors except those made by the nominating committee shall be 
voted upon at the annual meeting unless other nominations by 
shareholders are made in writing and delivered to the secretary of the 
Subsidiary Holding Company at least five days prior to the date of the 
annual meeting. Upon delivery, such nominations shall be posted in a 
conspicuous place in each office of the Subsidiary Holding Company. 
Ballots bearing the names of all persons nominated by the nominating 
committee and by shareholders shall be provided for use at the annual 
meeting. However, if the nominating committee shall fail or refuse to 
act at least 20 days prior to the annual meeting, nominations for 
directors may be made at the annual meeting by any shareholder entitled 
to vote and shall be voted upon.
    Section 15. New Business. Any new business to be taken up at the 
annual meeting shall be stated in writing and filed with the secretary 
of the Subsidiary Holding Company at least five days before the date of 
the annual meeting, and all business so stated, proposed, and filed 
shall be considered at the annual meeting; but no other proposal shall 
be acted upon at the annual meeting. Any shareholder may make any other 
proposal at the annual meeting and the same may be discussed and 
considered, but unless stated in writing and filed with the secretary at 
least five days before the meeting, such proposal shall be laid over for 
action at an adjourned, special, or annual meeting of the shareholders 
taking place 30 days or more thereafter. This provision shall not 
prevent the consideration and approval or disapproval at the annual 
meeting of reports of officers, directors, and committees; but in 
connection with such reports, no new business shall be acted upon at 
such annual meeting unless stated and filed as herein provided.
    Section 16. Informal Action by Shareholders. Any action required to 
be taken at a meeting of the shareholders, or any other action which may 
be taken at a meeting of shareholders, may be taken without a meeting if 
consent in writing, setting forth the action so taken, shall be given by 
all of the shareholders entitled to vote with respect to the subject 
matter.

                     Article III--Board of Directors

    Section 1. General Powers. The business and affairs of the 
Subsidiary Holding Company shall be under the direction of its board of 
directors. The board of directors shall annually elect a chairman of the 
board and a president from among its members and shall designate, when 
present, either the chairman of the board or the president to preside at 
its meetings.
    Section 2. Number and Term. The board of directors shall consist of 
---- [not fewer than five nor more than fifteen] members, and shall be 
divided into three classes as nearly equal in number as possible. The 
members of each class shall be elected for a term of three years and 
until their successors are elected and qualified. One class shall be 
elected by ballot annually.
    Section 3. Regular Meetings. A regular meeting of the board of 
directors shall be held without other notice than this bylaw following 
the annual meeting of shareholders. The board of directors may provide, 
by resolution, the time and place, for the holding of additional regular 
meetings without other notice than such resolution. Directors may 
participate in a meeting by means of a conference telephone or similar 
communications device through which all individuals participating can 
hear each other at the same time. Participation by such means shall 
constitute presence in person for all purposes.
    Section 4. Qualification. Each director shall at all times be the 
beneficial owner of not less than 100 shares of capital stock of the 
Subsidiary Holding Company unless the Subsidiary Holding Company is a 
wholly owned subsidiary of a holding company.
    Section 5. Special Meetings. Special meetings of the board of 
directors may be called by or at the request of the chairman of the 
board, the president, or one-third of the directors. The persons 
authorized to call special meetings of the board of directors may fix 
any place, within the Subsidiary Holding Company's normal lending 
territory, as the place for holding any special meeting of the board of 
directors called by such persons. Members of the board of directors may 
participate in special meetings by means of conference telephone or 
similar communications equipment by which all persons participating in 
the meeting can hear each other. Such participation shall constitute 
presence in person for all purposes.
    Section 6. Notice. Written notice of any special meeting shall be 
given to each director at least 24 hours prior thereto when delivered 
personally or by telegram or at least five days prior thereto when 
delivered by mail at the address at which the director is most likely to 
be reached. Such notice shall be deemed to be delivered when deposited 
in the mail so addressed, with postage prepaid if mailed, when delivered 
to the telegraph company if sent by telegram, or when the Subsidiary 
Holding Company receives notice of delivery if electronically 
transmitted. Any director may waive notice of any meeting by a writing 
filed with the secretary. The attendance of a director at a meeting 
shall constitute a waiver of notice of such meeting, except where a 
director attends a meeting for the express purpose of objecting to the 
transaction of any business because the meeting is not lawfully called 
or convened. Neither the business to be transacted at, nor

[[Page 193]]

the purpose of, any meeting of the board of directors need be specified 
in the notice of waiver of notice of such meeting.
    Section 7. Quorum. A majority of the number of directors fixed by 
section 2 of this article III shall constitute a quorum for the 
transaction of business at any meeting of the board of directors; but if 
less than such majority is present at a meeting, a majority of the 
directors present may adjourn the meeting from time to time. Notice of 
any adjourned meeting shall be given in the same manner as prescribed by 
section 5 of this article III.
    Section 8. Manner of Acting. The act of the majority of the 
directors present at a meeting at which a quorum is present shall be the 
act of the board of directors, unless a greater number is prescribed by 
regulation of the Board or by these bylaws.
    Section 9. Action Without a Meeting. Any action required or 
permitted to be taken by the board of directors at a meeting may be 
taken without a meeting if a consent in writing, setting forth the 
action so taken, shall be signed by all of the directors.
    Section 10. Resignation. Any director may resign at any time by 
sending a written notice of such resignation to the home office of the 
Subsidiary Holding Company addressed to the chairman of the board or the 
president. Unless otherwise specified, such resignation shall take 
effect upon receipt by the chairman of the board or the president. More 
than three consecutive absences from regular meetings of the board of 
directors, unless excused by resolution of the board of directors, shall 
automatically constitute a resignation, effective when such resignation 
is accepted by the board of directors.
    Section 11. Vacancies. Any vacancy occurring on the board of 
directors may be filled by the affirmative vote of a majority of the 
remaining directors although less than a quorum of the board of 
directors. A director elected to fill a vacancy shall be elected to 
serve only until the next election of directors by the shareholders. Any 
directorship to be filled by reason of an increase in the number of 
directors may be filled by election by the board of directors for a term 
of office continuing only until the next election of directors by the 
shareholders.
    Section 12. Compensation. Directors, as such, may receive a stated 
salary for their services. By resolution of the board of directors, a 
reasonable fixed sum, and reasonable expenses of attendance, if any, may 
be allowed for attendance at each regular or special meeting of the 
board of directors. Members of either standing or special committees may 
be allowed such compensation for attendance at committee meetings as the 
board of directors may determine.
    Section 13. Presumption of Assent. A director of the Subsidiary 
Holding Company who is present at a meeting of the board of directors at 
which action on any Subsidiary Holding Company matter is taken shall be 
presumed to have assented to the action taken unless his or her dissent 
or abstention shall be entered in the minutes of the meeting or unless 
he or she shall file a written dissent to such action with the 
individual acting as the secretary of the meeting before the adjournment 
thereof or shall forward such dissent by registered mail to the 
secretary of the Subsidiary Holding Company within five days after the 
date a copy of the minutes of the meeting is received. Such right to 
dissent shall not apply to a director who voted in favor of such action.
    Section 14. Removal of Directors. At a meeting of shareholders 
called expressly for that purpose, any director may be removed only for 
cause by a vote of the holders of a majority of the shares then entitled 
to vote at an election of directors. If less than the entire board is to 
be removed, no one of the directors may be removed if the votes cast 
against the removal would be sufficient to elect a director if then 
cumulatively voted at an election of the class of directors of which 
such director is a part. [If cumulative voting has been deleted, the 
preceding sentence should be deleted.] Whenever the holders of the 
shares of any class are entitled to elect one or more directors by the 
provisions of the charter or supplemental sections thereto, the 
provisions of this section shall apply, in respect to the removal of a 
director or directors so elected, to the vote of the holders of the 
outstanding shares of that class and not to the vote of the outstanding 
shares as a whole.

               Article IV--Executive and Other Committees

    Section 1. Appointment. The board of directors, by resolution 
adopted by a majority of the full board, may designate the chief 
executive officer and two or more of the other directors to constitute 
an executive committee. The designation of any committee pursuant to 
this Article IV and the delegation of authority shall not operate to 
relieve the board of directors, or any director, of any responsibility 
imposed by law or regulation.
    Section 2. Authority. The executive committee, when the board of 
directors is not in session, shall have and may exercise all of the 
authority of the board of directors except to the extent, if any, that 
such authority shall be limited by the resolution appointing the 
executive committee; and except also that the executive committee shall 
not have the authority of the board of directors with reference to: the 
declaration of dividends; the amendment of the charter or bylaws of the 
Subsidiary Holding Company, or recommending to the shareholders a plan 
of merger, consolidation, or conversion; the

[[Page 194]]

sale, lease, or other disposition of all or substantially all of the 
property and assets of the Subsidiary Holding Company otherwise than in 
the usual and regular course of its business; a voluntary dissolution of 
the Subsidiary Holding Company; a revocation of any of the foregoing; or 
the approval of a transaction in which any member of the executive 
committee, directly or indirectly, has any material beneficial interest.
    Section 3. Tenure. Subject to the provisions of section 8 of this 
article IV, each member of the executive committee shall hold office 
until the next regular annual meeting of the board of directors 
following his or her designation and until a successor is designated as 
a member of the executive committee.
    Section 4. Meetings. Regular meetings of the executive committee may 
be held without notice at such times and places as the executive 
committee may fix from time to time by resolution. Special meetings of 
the executive committee may be called by any member thereof upon not 
less than one day's notice stating the place, date, and hour of the 
meeting, which notice may be written or oral. Any member of the 
executive committee may waive notice of any meeting and no notice of any 
meeting need be given to any member thereof who attends in person. The 
notice of a meeting of the executive committee need not state the 
business proposed to be transacted at the meeting.
    Section 5. Quorum. A majority of the members of the executive 
committee shall constitute a quorum for the transaction of business at 
any meeting thereof, and action of the executive committee must be 
authorized by the affirmative vote of a majority of the members present 
at a meeting at which a quorum is present.
    Section 6. Action Without a Meeting. Any action required or 
permitted to be taken by the executive committee at a meeting may be 
taken without a meeting if a consent in writing, setting forth the 
action so taken, shall be signed by all of the members of the executive 
committee.
    Section 7. Vacancies. Any vacancy in the executive committee may be 
filled by a resolution adopted by a majority of the full board of 
directors.
    Section 8. Resignations and Removal. Any member of the executive 
committee may be removed at any time with or without cause by resolution 
adopted by a majority of the full board of directors. Any member of the 
executive committee may resign from the executive committee at any time 
by giving written notice to the president or secretary of the Subsidiary 
Holding Company. Unless otherwise specified, such resignation shall take 
effect upon its receipt; the acceptance of such resignation shall not be 
necessary to make it effective. No notice of any meeting need be given 
to any member thereof who attends in person. The notice of a meeting of 
the executive committee need not state the business proposed to be 
transacted at the meeting.
    Section 9. Procedure. The executive committee shall elect a 
presiding officer from its members and may fix its own rules of 
procedure, which shall not be inconsistent with these bylaws. It shall 
keep regular minutes of its proceedings and report the same to the board 
of directors for its information at the meeting held next after the 
proceedings shall have occurred.
    Section 10. Other Committees. The board of directors may by 
resolution establish an audit, loan, or other committee composed of 
directors as they may determine to be necessary or appropriate for the 
conduct of the business of the Subsidiary Holding Company and may 
prescribe the duties, constitution, and procedures thereof.

                           Article V--Officers

    Section 1. Positions. The officers of the Subsidiary Holding Company 
shall be a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller, each of whom shall be elected by the board of 
directors. The board of directors may also designate the chairman of the 
board as an officer. The offices of the secretary and treasurer or 
comptroller may be held by the same individual and a vice president may 
also be either the secretary or the treasurer or comptroller. The board 
of directors may designate one or more vice presidents as executive vice 
president or senior vice president. The board of directors may also 
elect or authorize the appointment of such other officers as the 
business of the Subsidiary Holding Company may require. The officers 
shall have such authority and perform such duties as the board of 
directors may from time to time authorize or determine. In the absence 
of action by the board of directors, the officers shall have such powers 
and duties as generally pertain to their respective offices.
    Section 2. Election and Term of Office. The officers of the 
Subsidiary Holding Company shall be elected annually at the first 
meeting of the board of directors held after each annual meeting of the 
shareholders. If the election of officers is not held at such meeting, 
such election shall be held as soon thereafter as possible. Each officer 
shall hold office until a successor has been duly elected and qualified 
or until the officer's death, resignation, or removal in the manner 
hereinafter provided. Election or appointment of an officer, employee, 
or agent shall not of itself create contractual rights. The board of 
directors may authorize the Subsidiary Holding Company to enter into an 
employment contract with any officer in accordance with regulations of 
the Board; but no such contract shall impair the right of the board of 
directors to remove any officer at any time

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in accordance with section 3 of this article V.
    Section 3. Removal. Any officer may be removed by the board of 
directors whenever in its judgment the best interests of the Subsidiary 
Holding Company will be served thereby, but such removal, other than for 
cause, shall be without prejudice to the contractual rights, if any, of 
the officer so removed.
    Section 4. Vacancies. A vacancy in any office because of death, 
resignation, removal, disqualification, or otherwise may be filled by 
the board of directors for the unexpired portion of the term.
    Section 5. Remuneration. The remuneration of the officers shall be 
fixed from time to time by the board of directors.

           Article VI--Contracts, Loans, Checks, and Deposits

    Section 1. Contracts. To the extent permitted by regulations of the 
Board, and except as otherwise prescribed by these bylaws with respect 
to certificates for shares, the board of directors may authorize any 
officer, employee, or agent of the Subsidiary Holding Company to enter 
into any contract or execute and deliver any instrument in the name of 
and on behalf of the Subsidiary Holding Company. Such authority may be 
general or confined to specific instances.
    Section 2. Loans. No loans shall be contracted on behalf of the 
Subsidiary Holding Company and no evidence of indebtedness shall be 
issued in its name unless authorized by the board of directors. Such 
authority may be general or confined to specific instances.
    Section 3. Checks; Drafts. etc. All checks, drafts, or other orders 
for the payment of money, notes, or other evidences of indebtedness 
issued in the name of the Subsidiary Holding Company shall be signed by 
one or more officers, employees or agents of the Subsidiary Holding 
Company in such manner as shall from time to time be determined by the 
board of directors.
    Section 4. Deposits. All funds of the Subsidiary Holding Company not 
otherwise employed shall be deposited from time to time to the credit of 
the Subsidiary Holding Company in any duly authorized depositories as 
the board of directors may select.

         Article VII--Certificates for Shares and Their Transfer

    Section 1. Certificates for Shares. Certificates representing shares 
of capital stock of the Subsidiary Holding Company shall be in such form 
as shall be determined by the board of directors and approved by the 
Board. Such certificates shall be signed by the chief executive officer 
or by any other officer of the Subsidiary Holding Company authorized by 
the board of directors, attested by the secretary or an assistant 
secretary, and sealed with the corporate seal or a facsimile thereof. 
The signatures of such officers upon a certificate may be facsimiles if 
the certificate is manually signed on behalf of a transfer agent or a 
registrar other than the Subsidiary Holding Company itself or one of its 
employees. Each certificate for shares of capital stock shall be 
consecutively numbered or otherwise identified. The name and address of 
the person to whom the shares are issued, with the number of shares and 
date of issue, shall be entered on the stock transfer books of the 
Subsidiary Holding Company. All certificates surrendered to the 
Subsidiary Holding Company for transfer shall be canceled and no new 
certificate shall be issued until the former certificate for a like 
number of shares has been surrendered and canceled, except that in the 
case of a lost or destroyed certificate, a new certificate may be issued 
upon such terms and indemnity to the Subsidiary Holding Company as the 
board of directors may prescribe.
    Section 2. Transfer of Shares. Transfer of shares of capital stock 
of the Subsidiary Holding Company shall be made only on its stock 
transfer books. Authority for such transfer shall be given only by the 
holder of record or by his or her legal representative, who shall 
furnish proper evidence of such authority, or by his or her attorney 
authorized by a duly executed power of attorney and filed with the 
Subsidiary Holding Company. Such transfer shall be made only on 
surrender for cancellation of the certificate for such shares. The 
person in whose name shares of capital stock stand on the books of the 
Subsidiary Holding Company shall be deemed by the Subsidiary Holding 
Company to be the owner for all purposes.

                        Article VIII--Fiscal Year

    The fiscal year of the Subsidiary Holding Company shall end on the 
----------------of----------------each year. The appointment of 
accountants shall be subject to annual ratification by the shareholders.

                          Article IX--Dividends

    Subject to the terms of the Subsidiary Holding Company's charter and 
the regulations and orders of the Board, the board of directors may, 
from time to time, declare, and the Subsidiary Holding Company may pay, 
dividends on its outstanding shares of capital stock.

                        Article X--Corporate Seal

    The board of directors shall provide a Subsidiary Holding Company 
seal, which shall be two concentric circles between which shall be the 
name of the Subsidiary Holding Company. The year of incorporation or an 
emblem may appear in the center.

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                         Article XI--Amendments

    These bylaws may be amended in a manner consistent with regulations 
of the Board and shall be effective after: (i) approval of the amendment 
by a majority vote of the authorized board of directors, or by a 
majority vote of the votes cast by the shareholders of the Subsidiary 
Holding Company at any legal meeting, and (ii) receipt of any applicable 
regulatory approval. When a Subsidiary Holding Company fails to meet its 
quorum requirements, solely due to vacancies on the board, then the 
affirmative vote of a majority of the sitting board will be required to 
amend the bylaws.



PART 243_RESOLUTION PLANS--Table of Contents



Sec.
243.1 Authority and scope.
243.2 Definitions.
243.3 Resolution plan required.
243.4 Informational content of a resolution plan.
243.5 Review of resolution plans; resubmission of deficient resolution 
          plans.
243.6 Failure to cure deficiencies on resubmission of a resolution plan.
243.7 Consultation.
243.8 No limiting effect or private right of action; confidentiality of 
          resolution plans.
243.9 Enforcement.

    Authority: 12 U.S.C. 5365.

    Source: 76 FR 67340, Nov. 1, 2011, unless otherwise noted.



Sec. 243.1  Authority and scope.

    (a) Authority. This part is issued pursuant to section 165(d)(8) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1426-1427), 12 U.S.C. 
5365(d)(8), which requires the Board of Governors of the Federal Reserve 
System (Board) and the Federal Deposit Insurance Corporation 
(Corporation) to jointly issue rules implementing the provisions of 
section 165(d) of the Dodd-Frank Act.
    (b) Scope. This part applies to each covered company and establishes 
rules and requirements regarding the submission and content of a 
resolution plan, as well as procedures for review by the Board and 
Corporation of a resolution plan.



Sec. 243.2  Definitions.

    For purposes of this part:
    (a) Bankruptcy Code means Title 11 of the United States Code.
    (b) Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose entity, 
association, or similar organization, but does not include any 
organization, the majority of the voting securities of which are owned 
by the United States.
    (c) Control. A company controls another company when the first 
company, directly or indirectly, owns, or holds with power to vote, 25 
percent or more of any class of the second company's outstanding voting 
securities.
    (d) Core business lines means those business lines of the covered 
company, including associated operations, services, functions and 
support, that, in the view of the covered company, upon failure would 
result in a material loss of revenue, profit, or franchise value.
    (e) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (f) Covered company--(1) In general. A ``covered company'' means:
    (i) Any nonbank financial company supervised by the Board;
    (ii) Any bank holding company, as that term is defined in section 2 
of the Bank Holding Company Act, as amended (12 U.S.C. 1841), and the 
Board's Regulation Y (12 CFR part 225), that has $50 billion or more in 
total consolidated assets, as determined based on the average of the 
company's four most recent Consolidated Financial Statements for Bank 
Holding Companies as reported on the Federal Reserve's Form FR Y-9C 
(``FR Y-9C''); and
    (iii) Any foreign bank or company that is a bank holding company or 
is treated as a bank holding company under section 8(a) of the 
International Banking Act of 1978 (12 U.S.C. 3106(a)), and that has $50 
billion or more in total consolidated assets, as determined based on the 
foreign bank's or company's most recent annual or, as applicable, the 
average of the four most recent quarterly Capital and Asset Reports for 
Foreign Banking Organizations as reported on the Federal Reserve's Form 
FR Y-7Q (``FR Y-7Q'').

[[Page 197]]

    (2) Once a covered company meets the requirements described in 
paragraph (f)(1)(ii) or (iii) of this section, the company shall remain 
a covered company for purposes of this part unless and until the company 
has less than $45 billion in total consolidated assets, as determined 
based on the--
    (i) Average total consolidated assets as reported on the company's 
four most recent FR Y-9Cs, in the case of a covered company described in 
paragraph (f)(1)(ii) of this section; or
    (ii) Total consolidated assets as reported on the company's most 
recent annual FR Y-7Q, or, as applicable, average total consolidated 
assets as reported on the company's four most recent quarterly FR Y-7Qs, 
in the case of a covered company described in paragraph (f)(1)(iii) of 
this section. Nothing in this paragraph (f)(2) shall preclude a company 
from becoming a covered company pursuant to paragraph (f)(1) of this 
section.
    (3) Multi-tiered holding company. In a multi-tiered holding company 
structure, covered company means the top-tier of the multi-tiered 
holding company only.
    (4) Asset threshold for bank holding companies and foreign banking 
organizations. The Board may, pursuant to a recommendation of the 
Council, raise any asset threshold specified in paragraph (f)(1)(ii) or 
(iii) of this section.
    (5) Exclusion. A bridge financial company chartered pursuant to 12 
U.S.C. 5390(h) shall not be deemed to be a covered company hereunder.
    (g) Critical operations means those operations of the covered 
company, including associated services, functions and support, the 
failure or discontinuance of which, in the view of the covered company 
or as jointly directed by the Board and the Corporation, would pose a 
threat to the financial stability of the United States.
    (h) Depository institution has the same meaning as in section 
3(c)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(1)) and 
includes a state-licensed uninsured branch, agency, or commercial 
lending subsidiary of a foreign bank.
    (i) Foreign banking organization means--
    (1) A foreign bank, as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)), that:
    (i) Operates a branch, agency, or commercial lending company 
subsidiary in the United States;
    (ii) Controls a bank in the United States; or
    (iii) Controls an Edge corporation acquired after March 5, 1987; and
    (2) Any company of which the foreign bank is a subsidiary.
    (j) Foreign-based company means any covered company that is not 
incorporated or organized under the laws of the United States.
    (k) Functionally regulated subsidiary has the same meaning as in 
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C. 
1844(c)(5)).
    (l) Material entity means a subsidiary or foreign office of the 
covered company that is significant to the activities of a critical 
operation or core business line (as defined in this part).
    (m) Material financial distress with regard to a covered company 
means that:
    (1) The covered company has incurred, or is likely to incur, losses 
that will deplete all or substantially all of its capital, and there is 
no reasonable prospect for the company to avoid such depletion;
    (2) The assets of the covered company are, or are likely to be, less 
than its obligations to creditors and others; or
    (3) The covered company is, or is likely to be, unable to pay its 
obligations (other than those subject to a bona fide dispute) in the 
normal course of business.
    (n) Nonbank financial company supervised by the Board means a 
nonbank financial company or other company that the Council has 
determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) 
shall be supervised by the Board and for which such determination is 
still in effect.
    (o) Rapid and orderly resolution means a reorganization or 
liquidation of the covered company (or, in the case of a covered company 
that is incorporated or organized in a jurisdiction other than the 
United States, the subsidiaries and operations of such foreign company 
that are domiciled in the United States) under the Bankruptcy Code that 
can be accomplished within a

[[Page 198]]

reasonable period of time and in a manner that substantially mitigates 
the risk that the failure of the covered company would have serious 
adverse effects on financial stability in the United States.
    (p) Subsidiary means a company that is controlled by another 
company, and an indirect subsidiary is a company that is controlled by a 
subsidiary of a company.
    (q) United States means the United States and includes any state of 
the United States, the District of Columbia, any territory of the United 
States, Puerto Rico, Guam, American Samoa, and the Virgin Islands.



Sec. 243.3  Resolution plan required.

    (a) Initial and annual resolution plans required. (1) Each covered 
company shall submit its initial resolution plan to the Board and the 
Corporation on or before the date set forth below (``Initial Submission 
Date''):
    (i) July 1, 2012, with respect to any covered company that, as of 
the effective date of this part, had $250 billion or more in total 
nonbank assets (or, in the case of a covered company that is a foreign-
based company, in total U.S. nonbank assets);
    (ii) July 1, 2013, with respect to any covered company that is not 
described in paragraph (a)(1)(i) of this section, and that, as of the 
effective date of this part had $100 billion or more in total nonbank 
assets (or, in the case of a covered company that is a foreign-based 
company, in total U.S. nonbank assets); and
    (iii) December 31, 2013, with respect to any other covered company 
that is a covered company as of the effective date of this part but that 
is not described in paragraph (a)(1)(i) or (ii) of this section.
    (2) A company that becomes a covered company after the effective 
date of this part shall submit its initial resolution plan no later than 
the next July 1 following the date the company becomes a covered 
company, provided such date occurs no earlier than 270 days after the 
date on which the company became a covered company.
    (3) After filing its initial resolution plan pursuant to paragraph 
(a)(1) or (2) of this section, each covered company shall annually 
submit a resolution plan to the Board and the Corporation on or before 
each anniversary date of its Initial Submission Date.
    (4) Notwithstanding anything to the contrary in this paragraph (a), 
the Board and Corporation may jointly determine that a covered company 
shall file its initial or annual resolution plan by a date other than as 
provided in this paragraph (a). The Board and the Corporation shall 
provide a covered company with written notice of a determination under 
this paragraph (a)(4) no later than 180 days prior to the date on which 
the Board and Corporation jointly determined to require the covered 
company to submit its resolution plan.
    (b) Authority to require interim updates and notice of material 
events--(1) In general. The Board and the Corporation may jointly 
require that a covered company file an update to a resolution plan 
submitted under paragraph (a) of this section, within a reasonable 
amount of time, as jointly determined by the Board and Corporation. The 
Board and the Corporation shall make a request pursuant to this 
paragraph (b)(1) in writing, and shall specify the portions or aspects 
of the resolution plan the covered company shall update.
    (2) Notice of material events. Each covered company shall provide 
the Board and the Corporation with a notice no later than 45 days after 
any event, occurrence, change in conditions or circumstances, or other 
change that results in, or could reasonably be foreseen to have, a 
material effect on the resolution plan of the covered company. Such 
notice should describe the event, occurrence or change and explain why 
the event, occurrence or change may require changes to the resolution 
plan. The covered company shall address any event, occurrence or change 
with respect to which it has provided notice pursuant to this paragraph 
(b)(2) in the following resolution plan submitted by the covered 
company.
    (3) Exception. A covered company shall not be required to file a 
notice under paragraph (b)(2) of this section if the date on which the 
covered company would be required to submit the notice under paragraph 
(b)(2) would be within 90 days prior to the date on which the

[[Page 199]]

covered company is required to file an annual resolution plan under 
paragraph (a) of this section.
    (c) Authority to require more frequent submissions or extend time 
period. The Board and Corporation may jointly:
    (1) Require that a covered company submit a resolution plan more 
frequently than required pursuant to paragraph (a) of this section; and
    (2) Extend the time period that a covered company has to submit a 
resolution plan or a notice following material events under paragraphs 
(a) and (b) of this section.
    (d) Access to information. In order to allow evaluation of the 
resolution plan, each covered company must provide the Board and the 
Corporation such information and access to personnel of the covered 
company as the Board and the Corporation jointly determine during the 
period for reviewing the resolution plan is necessary to assess the 
credibility of the resolution plan and the ability of the covered 
company to implement the resolution plan. The Board and the Corporation 
will rely to the fullest extent possible on examinations conducted by or 
on behalf of the appropriate Federal banking agency for the relevant 
company.
    (e) Board of directors approval of resolution plan. Prior to 
submission of a resolution plan under paragraph (a) of this section, the 
resolution plan of a covered company shall be approved by:
    (1) The board of directors of the covered company and noted in the 
minutes; or
    (2) In the case of a foreign-based covered company only, a delegee 
acting under the express authority of the board of directors of the 
covered company to approve the resolution plan.
    (f) Resolution plans provided to the Council. The Board shall make 
the resolution plans and updates submitted by the covered company 
pursuant to this section available to the Council upon request.



Sec. 243.4  Informational content of a resolution plan.

    (a) In general--(1) Domestic covered companies. Except as otherwise 
provided in paragraph (a)(3) of this section, the resolution plan of a 
covered company that is organized or incorporated in the United States 
shall include the information specified in paragraphs (b) through (i) of 
this section with respect to the subsidiaries and operations that are 
domiciled in the United States as well as the foreign subsidiaries, 
offices, and operations of the covered company.
    (2) Foreign-based covered companies. Except as otherwise provided in 
paragraph (a)(3) of the section, the resolution plan of a covered 
company that is organized or incorporated in a jurisdiction other than 
the United States (other than a bank holding company) or that is a 
foreign banking organization shall include:
    (i) The information specified in paragraphs (b) through (i) of this 
section with respect to the subsidiaries, branches and agencies, and 
critical operations and core business lines, as applicable, that are 
domiciled in the United States or conducted in whole or material part in 
the United States. With respect to the information specified in 
paragraph (g) of this section, the resolution plan of a foreign-based 
covered company shall also identify, describe in detail, and map to 
legal entity the interconnections and interdependencies among the U.S. 
subsidiaries, branches and agencies, and critical operations and core 
business lines of the foreign-based covered company and any foreign-
based affiliate; and
    (ii) A detailed explanation of how resolution planning for the 
subsidiaries, branches and agencies, and critical operations and core 
business lines of the foreign-based covered company that are domiciled 
in the United States or conducted in whole or material part in the 
United States is integrated into the foreign-based covered company's 
overall resolution or other contingency planning process.
    (3) Tailored resolution plan--(i) Eligible covered company.--
Paragraph (a)(3)(ii) of this section applies to any covered company that 
as of December 31 of the calendar year prior to the date its resolution 
plan is required to be submitted under this part--
    (A) Has less than $100 billion in total nonbank assets (or, in the 
case of a covered company that is a foreign-based company, in total U.S. 
nonbank assets); and

[[Page 200]]

    (B) The total insured depository institution assets of which 
comprise 85 percent or more of the covered company's total consolidated 
assets (or, in the case of a covered company that is a foreign-based 
company, the assets of the U.S. insured depository institution 
operations, branches, and agencies of which comprise 85 percent or more 
of such covered company's U.S. total consolidated assets).
    (ii) Tailored resolution plan elements. A covered company described 
in paragraph (a)(3)(i) of this section may file a resolution plan that 
is limited to the following items--
    (A) An executive summary, as specified in paragraph (b) of this 
section;
    (B) The information specified in paragraphs (c) through (f) and 
paragraph (h) of this section, but only with respect to the covered 
company and its nonbanking material entities and operations;
    (C) The information specified in paragraphs (g) and (i) of this 
section with respect to the covered company and all of its insured 
depository institutions (or, in the case of a covered company that is a 
foreign-based company, the U.S. insured depository institutions, 
branches, and agencies) and nonbank material entities and operations. 
The interconnections and interdependencies identified pursuant to (g) of 
this section shall be included in the analysis provided pursuant to 
paragraph (c) of this section.
    (iii) Notice. A covered company that meets the requirements of 
paragraph (a)(3)(i) of this section and that intends to submit a 
resolution plan pursuant to this paragraph (a)(3), shall provide the 
Board and Corporation with written notice of such intent and its 
eligibility under paragraph (a)(3)(i) no later than 270 days prior to 
the date on which the covered company is required to submit its 
resolution plan. Within 90 of receiving such notice, the Board and 
Corporation may jointly determine that the covered company must submit a 
resolution plan that meets some or all of the requirements as set forth 
in paragraph (a)(1) or (2) of this section, as applicable.
    (4) Required and prohibited assumptions. In preparing its plan for 
rapid and orderly resolution in the event of material financial distress 
or failure required by this part, a covered company shall:
    (i) Take into account that such material financial distress or 
failure of the covered company may occur under the baseline, adverse and 
severely adverse economic conditions provided to the covered company by 
the Board pursuant to 12 U.S.C. 5365(i)(1)(B); provided, however, a 
covered company may submit its initial resolution plan assuming the 
baseline conditions only, or, if a baseline scenario is not then 
available, a reasonable substitute developed by the covered company; and
    (ii) Not rely on the provision of extraordinary support by the 
United States or any other government to the covered company or its 
subsidiaries to prevent the failure of the covered company.
    (b) Executive summary. Each resolution plan of a covered company 
shall include an executive summary describing:
    (1) The key elements of the covered company's strategic plan for 
rapid and orderly resolution in the event of material financial distress 
at or failure of the covered company.
    (2) Material changes to the covered company's resolution plan from 
the company's most recently filed resolution plan (including any notices 
following a material event or updates to the resolution plan).
    (3) Any actions taken by the covered company since filing of the 
previous resolution plan to improve the effectiveness of the covered 
company's resolution plan or remediate or otherwise mitigate any 
material weaknesses or impediments to effective and timely execution of 
the resolution plan.
    (c) Strategic analysis. Each resolution plan shall include a 
strategic analysis describing the covered company's plan for rapid and 
orderly resolution in the event of material financial distress or 
failure of the covered company. Such analysis shall--
    (1) Include detailed descriptions of the--
    (i) Key assumptions and supporting analysis underlying the covered 
company's resolution plan, including any assumptions made concerning the 
economic or financial conditions that

[[Page 201]]

would be present at the time the covered company sought to implement 
such plan;
    (ii) Range of specific actions to be taken by the covered company to 
facilitate a rapid and orderly resolution of the covered company, its 
material entities, and its critical operations and core business lines 
in the event of material financial distress or failure of the covered 
company;
    (iii) Funding, liquidity and capital needs of, and resources 
available to, the covered company and its material entities, which shall 
be mapped to its critical operations and core business lines, in the 
ordinary course of business and in the event of material financial 
distress at or failure of the covered company;
    (iv) Covered company's strategy for maintaining operations of, and 
funding for, the covered company and its material entities, which shall 
be mapped to its critical operations and core business lines;
    (v) Covered company's strategy in the event of a failure or 
discontinuation of a material entity, core business line or critical 
operation, and the actions that will be taken by the covered company to 
prevent or mitigate any adverse effects of such failure or 
discontinuation on the financial stability of the United States; 
provided, however, if any such material entity is subject to an 
insolvency regime other than the Bankruptcy Code, a covered company may 
exclude that entity from its strategic analysis unless that entity 
either has $50 billion or more in total assets or conducts a critical 
operation; and
    (vi) Covered company's strategy for ensuring that any insured 
depository institution subsidiary of the covered company will be 
adequately protected from risks arising from the activities of any 
nonbank subsidiaries of the covered company (other than those that are 
subsidiaries of an insured depository institution);
    (2) Identify the time period(s) the covered company expects would be 
needed for the covered company to successfully execute each material 
aspect and step of the covered company's plan;
    (3) Identify and describe any potential material weaknesses or 
impediments to effective and timely execution of the covered company's 
plan;
    (4) Discuss the actions and steps the covered company has taken or 
proposes to take to remediate or otherwise mitigate the weaknesses or 
impediments identified by the covered company, including a timeline for 
the remedial or other mitigatory action; and
    (5) Provide a detailed description of the processes the covered 
company employs for:
    (i) Determining the current market values and marketability of the 
core business lines, critical operations, and material asset holdings of 
the covered company;
    (ii) Assessing the feasibility of the covered company's plans 
(including timeframes) for executing any sales, divestitures, 
restructurings, recapitalizations, or other similar actions contemplated 
in the covered company's resolution plan; and
    (iii) Assessing the impact of any sales, divestitures, 
restructurings, recapitalizations, or other similar actions on the 
value, funding, and operations of the covered company, its material 
entities, critical operations and core business lines.
    (d) Corporate governance relating to resolution planning. Each 
resolution plan shall:
    (1) Include a detailed description of:
    (i) How resolution planning is integrated into the corporate 
governance structure and processes of the covered company;
    (ii) The covered company's policies, procedures, and internal 
controls governing preparation and approval of the covered company's 
resolution plan;
    (iii) The identity and position of the senior management official(s) 
of the covered company that is primarily responsible for overseeing the 
development, maintenance, implementation, and filing of the covered 
company's resolution plan and for the covered company's compliance with 
this part; and
    (iv) The nature, extent, and frequency of reporting to senior 
executive officers and the board of directors of

[[Page 202]]

the covered company regarding the development, maintenance, and 
implementation of the covered company's resolution plan;
    (2) Describe the nature, extent, and results of any contingency 
planning or similar exercise conducted by the covered company since the 
date of the covered company's most recently filed resolution plan to 
assess the viability of or improve the resolution plan of the covered 
company; and
    (3) Identify and describe the relevant risk measures used by the 
covered company to report credit risk exposures both internally to its 
senior management and board of directors, as well as any relevant risk 
measures reported externally to investors or to the covered company's 
appropriate Federal regulator.
    (e) Organizational structure and related information. Each 
resolution plan shall--
    (1) Provide a detailed description of the covered company's 
organizational structure, including:
    (i) A hierarchical list of all material entities within the covered 
company's organization (including legal entities that directly or 
indirectly hold such material entities) that:
    (A) Identifies the direct holder and the percentage of voting and 
nonvoting equity of each legal entity and foreign office listed; and
    (B) The location, jurisdiction of incorporation, licensing, and key 
management associated with each material legal entity and foreign office 
identified;
    (ii) A mapping of the covered company's critical operations and core 
business lines, including material asset holdings and liabilities 
related to such critical operations and core business lines, to material 
entities;
    (2) Provide an unconsolidated balance sheet for the covered company 
and a consolidating schedule for all material entities that are subject 
to consolidation by the covered company;
    (3) Include a description of the material components of the 
liabilities of the covered company, its material entities, critical 
operations and core business lines that, at a minimum, separately 
identifies types and amounts of the short-term and long-term 
liabilities, the secured and unsecured liabilities, and subordinated 
liabilities;
    (4) Identify and describe the processes used by the covered company 
to:
    (i) Determine to whom the covered company has pledged collateral;
    (ii) Identify the person or entity that holds such collateral; and
    (iii) Identify the jurisdiction in which the collateral is located, 
and, if different, the jurisdiction in which the security interest in 
the collateral is enforceable against the covered company;
    (5) Describe any material off-balance sheet exposures (including 
guarantees and contractual obligations) of the covered company and its 
material entities, including a mapping to its critical operations and 
core business lines;
    (6) Describe the practices of the covered company, its material 
entities and its core business lines related to the booking of trading 
and derivatives activities;
    (7) Identify material hedges of the covered company, its material 
entities, and its core business lines related to trading and derivative 
activities, including a mapping to legal entity;
    (8) Describe the hedging strategies of the covered company;
    (9) Describe the process undertaken by the covered company to 
establish exposure limits;
    (10) Identify the major counterparties of the covered company and 
describe the interconnections, interdependencies and relationships with 
such major counterparties;
    (11) Analyze whether the failure of each major counterparty would 
likely have an adverse impact on or result in the material financial 
distress or failure of the covered company; and
    (12) Identify each trading, payment, clearing, or settlement system 
of which the covered company, directly or indirectly, is a member and on 
which the covered company conducts a material number or value amount of 
trades or transactions. Map membership in each such system to the 
covered company's material entities, critical operations and core 
business lines.
    (f) Management information systems. (1) Each resolution plan shall 
include--

[[Page 203]]

    (i) A detailed inventory and description of the key management 
information systems and applications, including systems and applications 
for risk management, accounting, and financial and regulatory reporting, 
used by the covered company and its material entities. The description 
of each system or application provided shall identify the legal owner or 
licensor, the use or function of the system or application, service 
level agreements related thereto, any software and system licenses, and 
any intellectual property associated therewith;
    (ii) A mapping of the key management information systems and 
applications to the material entities, critical operations and core 
business lines of the covered company that use or rely on such systems 
and applications;
    (iii) An identification of the scope, content, and frequency of the 
key internal reports that senior management of the covered company, its 
material entities, critical operations and core business lines use to 
monitor the financial health, risks, and operation of the covered 
company, its material entities, critical operations and core business 
lines; and
    (iv) A description of the process for the appropriate supervisory or 
regulatory agencies to access the management information systems and 
applications identified in paragraph (f) of this section; and
    (v) A description and analysis of--
    (A) The capabilities of the covered company's management information 
systems to collect, maintain, and report, in a timely manner to 
management of the covered company, and to the Board, the information and 
data underlying the resolution plan; and
    (B) Any deficiencies, gaps or weaknesses in such capabilities, and a 
description of the actions the covered company intends to take to 
promptly address such deficiencies, gaps, or weaknesses, and the time 
frame for implementing such actions.
    (2) The Board will use its examination authority to review the 
demonstrated capabilities of each covered company to satisfy the 
requirements of paragraph (f)(1)(v) of this section. The Board will 
share with the Corporation information regarding the capabilities of the 
covered company to collect, maintain, and report in a timely manner 
information and data underlying the resolution plan.
    (g) Interconnections and interdependencies. To the extent not 
elsewhere provided, identify and map to the material entities the 
interconnections and interdependencies among the covered company and its 
material entities, and among the critical operations and core business 
lines of the covered company that, if disrupted, would materially affect 
the funding or operations of the covered company, its material entities, 
or its critical operations or core business lines. Such interconnections 
and interdependencies may include:
    (1) Common or shared personnel, facilities, or systems (including 
information technology platforms, management information systems, risk 
management systems, and accounting and recordkeeping systems);
    (2) Capital, funding, or liquidity arrangements;
    (3) Existing or contingent credit exposures;
    (4) Cross-guarantee arrangements, cross-collateral arrangements, 
cross-default provisions, and cross-affiliate netting agreements;
    (5) Risk transfers; and
    (6) Service level agreements.
    (h) Supervisory and regulatory information. Each resolution plan 
shall--
    (1) Identify any:
    (i) Federal, state, or foreign agency or authority (other than a 
Federal banking agency) with supervisory authority or responsibility for 
ensuring the safety and soundness of the covered company, its material 
entities, critical operations and core business lines; and
    (ii) Other Federal, state, or foreign agency or authority (other 
than a Federal banking agency) with significant supervisory or 
regulatory authority over the covered company, and its material entities 
and critical operations and core business lines.
    (2) Identify any foreign agency or authority responsible for 
resolving a foreign-based material entity and critical operations or 
core business lines of the covered company; and
    (3) Include contact information for each agency identified in 
paragraphs (h)(1) and (2) of this section.

[[Page 204]]

    (i) Contact information. Each resolution plan shall identify a 
senior management official at the covered company responsible for 
serving as a point of contact regarding the resolution plan of the 
covered company, and include contact information (including phone 
number, email address, and physical address) for a senior management 
official of the material entities of the covered company.
    (j) Inclusion of previously submitted resolution plan informational 
elements by reference. An annual submission of or update to a resolution 
plan submitted by a covered company may include by reference 
informational elements (but not strategic analysis or executive summary 
elements) from a resolution plan previously submitted by the covered 
company to the Board and the Corporation, provided that:
    (1) The resolution plan seeking to include informational elements by 
reference clearly indicates:
    (i) The informational element the covered company is including by 
reference; and
    (ii) Which of the covered company's previously submitted resolution 
plan(s) originally contained the information the covered company is 
including by reference; and
    (2) The covered company certifies that the information the covered 
company is including by reference remains accurate.
    (k) Exemptions. The Board and the Corporation may jointly exempt a 
covered company from one or more of the requirements of this section.



Sec. 243.5  Review of resolution plans; resubmission of deficient
resolution plans.

    (a) Acceptance of submission and review. (1) The Board and 
Corporation shall review a resolution plan submitted under section this 
subpart within 60 days.
    (2) If the Board and Corporation jointly determine within the time 
described in paragraph (a)(1) of this section that a resolution plan is 
informationally incomplete or that substantial additional information is 
necessary to facilitate review of the resolution plan:
    (i) The Board and Corporation shall jointly inform the covered 
company in writing of the area(s) in which the resolution plan is 
informationally incomplete or with respect to which additional 
information is required; and
    (ii) The covered company shall resubmit an informationally complete 
resolution plan or such additional information as jointly requested to 
facilitate review of the resolution plan no later than 30 days after 
receiving the notice described in paragraph (a)(2)(i) of this section, 
or such other time period as the Board and Corporation may jointly 
determine.
    (b) Joint determination regarding deficient resolution plans. If the 
Board and Corporation jointly determine that the resolution plan of a 
covered company submitted under Sec. 243.3(a) is not credible or would 
not facilitate an orderly resolution of the covered company under the 
Bankruptcy Code, the Board and Corporation shall jointly notify the 
covered company in writing of such determination. Any joint notice 
provided under this paragraph shall identify the aspects of the 
resolution plan that the Board and Corporation jointly determined to be 
deficient.
    (c) Resubmission of a resolution plan. Within 90 days of receiving a 
notice of deficiencies issued pursuant to paragraph (b) of this section, 
or such shorter or longer period as the Board and Corporation may 
jointly determine, a covered company shall submit a revised resolution 
plan to the Board and Corporation that addresses the deficiencies 
jointly identified by the Board and Corporation, and that discusses in 
detail:
    (1) The revisions made by the covered company to address the 
deficiencies jointly identified by the Board and the Corporation;
    (2) Any changes to the covered company's business operations and 
corporate structure that the covered company proposes to undertake to 
facilitate implementation of the revised resolution plan (including a 
timeline for the execution of such planned changes); and
    (3) Why the covered company believes that the revised resolution 
plan

[[Page 205]]

is credible and would result in an orderly resolution of the covered 
company under the Bankruptcy Code.
    (d) Extensions of time. Upon their own initiative or a written 
request by a covered company, the Board and Corporation may jointly 
extend any time period under this section. Each extension request shall 
be supported by a written statement of the covered company describing 
the basis and justification for the request.



Sec. 243.6  Failure to cure deficiencies on resubmission of a 
resolution plan.

    (a) In general. The Board and Corporation may jointly determine that 
a covered company or any subsidiary of a covered company shall be 
subject to more stringent capital, leverage, or liquidity requirements, 
or restrictions on the growth, activities, or operations of the covered 
company or the subsidiary if:
    (1) The covered company fails to submit a revised resolution plan 
under Sec. 243.5(c) within the required time period; or
    (2) The Board and the Corporation jointly determine that a revised 
resolution plan submitted under Sec. 243.5(c) does not adequately 
remedy the deficiencies jointly identified by the Board and the 
Corporation under Sec. 243.5(b).
    (b) Duration of requirements or restrictions. Any requirements or 
restrictions imposed on a covered company or a subsidiary thereof 
pursuant to paragraph (a) of this section shall cease to apply to the 
covered company or subsidiary, respectively, on the date that the Board 
and the Corporation jointly determine the covered company has submitted 
a revised resolution plan that adequately remedies the deficiencies 
jointly identified by the Board and the Corporation under Sec. 
243.5(b).
    (c) Divestiture. The Board and Corporation, in consultation with the 
Council, may jointly, by order, direct the covered company to divest 
such assets or operations as are jointly identified by the Board and 
Corporation if:
    (1) The Board and Corporation have jointly determined that the 
covered company or a subsidiary thereof shall be subject to requirements 
or restrictions pursuant to paragraph (a) of this section; and
    (2) The covered company has failed, within the 2-year period 
beginning on the date on which the determination to impose such 
requirements or restrictions under paragraph (a) of this section was 
made, to submit a revised resolution plan that adequately remedies the 
deficiencies jointly identified by the Board and the Corporation under 
Sec. 243.5(b); and
    (3) The Board and Corporation jointly determine that the divestiture 
of such assets or operations is necessary to facilitate an orderly 
resolution of the covered company under the Bankruptcy Code in the event 
the company was to fail.



Sec. 243.7  Consultation.

    Prior to issuing any notice of deficiencies under Sec. 243.5(b), 
determining to impose requirements or restrictions under Sec. 243.6(a), 
or issuing a divestiture order pursuant to Sec. 243.6(c) with respect 
to a covered company that is likely to have a significant impact on a 
functionally regulated subsidiary or a depository institution subsidiary 
of the covered company, the Board--
    (a) Shall consult with each Council member that primarily supervises 
any such subsidiary; and
    (b) May consult with any other Federal, state, or foreign supervisor 
as the Board considers appropriate.



Sec. 243.8  No limiting effect or private right of action; 
confidentiality of resolution plans.

    (a) No limiting effect on bankruptcy or other resolution 
proceedings. A resolution plan submitted pursuant to this part shall not 
have any binding effect on:
    (1) A court or trustee in a proceeding commenced under the 
Bankruptcy Code;
    (2) A receiver appointed under Title II of the Dodd-Frank Act (12 
U.S.C. 5381 et seq.);
    (3) A bridge financial company chartered pursuant to 12 U.S.C. 
5390(h); or
    (4) Any other authority that is authorized or required to resolve a 
covered company (including any subsidiary or affiliate thereof) under 
any other provision of Federal, state, or foreign law.

[[Page 206]]

    (b) No private right of action. Nothing in this part creates or is 
intended to create a private right of action based on a resolution plan 
prepared or submitted under this part or based on any action taken by 
the Board or the Corporation with respect to any resolution plan 
submitted under this part.
    (c) Form of resolution plans. Each resolution plan of a covered 
company shall be divided into a public section and a confidential 
section. Each covered company shall segregate and separately identify 
the public section from the confidential section. The public section 
shall consist of an executive summary of the resolution plan that 
describes the business of the covered company and includes, to the 
extent material to an understanding of the covered company:
    (1) The names of material entities;
    (2) A description of core business lines;
    (3) Consolidated or segment financial information regarding assets, 
liabilities, capital and major funding sources;
    (4) A description of derivative activities and hedging activities;
    (5) A list of memberships in material payment, clearing and 
settlement systems;
    (6) A description of foreign operations;
    (7) The identities of material supervisory authorities;
    (8) The identities of the principal officers;
    (9) A description of the corporate governance structure and 
processes related to resolution planning;
    (10) A description of material management information systems; and
    (11) A description, at a high level, of the covered company's 
resolution strategy, covering such items as the range of potential 
purchasers of the covered company, its material entities and core 
business lines.
    (d) Confidential treatment of resolution plans. (1) The 
confidentiality of resolution plans and related materials shall be 
determined in accordance with applicable exemptions under the Freedom of 
Information Act (5 U.S.C. 552(b)) and the Board's Rules Regarding 
Availability of Information (12 CFR part 261), and the Corporation's 
Disclosure of Information Rules (12 CFR part 309).
    (2) Any covered company submitting a resolution plan or related 
materials pursuant to this part that desires confidential treatment of 
the information under 5 U.S.C. 552(b)(4), the Board's Rules Regarding 
Availability of Information (12 CFR part 261), and the Corporation's 
Disclosure of Information Rules (12 CFR part 309) may file a request for 
confidential treatment in accordance with those rules.
    (3) To the extent permitted by law, information comprising the 
Confidential Section of a resolution plan will be treated as 
confidential.
    (4) To the extent permitted by law, the submission of any nonpublic 
data or information under this part shall not constitute a waiver of, or 
otherwise affect, any privilege arising under Federal or state law 
(including the rules of any Federal or state court) to which the data or 
information is otherwise subject. Privileges that apply to resolution 
plans and related materials are protected pursuant to Section 18(x) of 
the FDI Act, 12 U.S.C. 1828(x).



Sec. 243.9  Enforcement.

    The Board and Corporation may jointly enforce an order jointly 
issued by the Board and Corporation under Sec. 243.6(a) or 243.6(c) of 
this part. The Board, in consultation with the Corporation, may take any 
action to address any violation of this part by a covered company under 
section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818).



PART 250_MISCELLANEOUS INTERPRETATIONS--Table of Contents



                             Interpretations

Sec.
250.141 Member bank purchase of stock of ``operations subsidiaries.''
250.142 Meaning of ``obligor or maker'' in determining limitation on 
          securities investments by member State banks.
250.143 Member bank purchase of stock of foreign operations 
          subsidiaries.
250.160 Federal funds transactions.
250.163 Inapplicability of amount limitations to ``ineligible 
          acceptances.''
250.164 Bankers' acceptances.
250.165 Bankers' acceptances: definition of participations.

[[Page 207]]

250.166 Treatment of mandatory convertible debt and subordinated notes 
          of state member banks and bank holding companies as 
          ``capital''.
250.180 Reports of changes in control of management.
250.181 Reports of change in control of bank management incident to a 
          merger.
250.182 Terms defining competitive effects of proposed mergers.
250.200 Investment in bank premises by holding company banks.
250.220 Whether member bank acting as trustee is prohibited by section 
          20 of the Banking Act of 1933 from acquiring majority of 
          shares of mutual fund.
250.221 Issuance and sale of short-term debt obligations by bank holding 
          companies.
250.260 Miscellaneous interpretations; gold coin and bullion.

         Interpretations of Section 32 of the Glass-Steagall Act

250.400 Service of open-end investment company.
250.401 Director serving member bank and closed-end investment company 
          being organized.
250.402 Service as officer, director, or employee of licensee 
          corporation under the Small Business Investment Act of 1958.
250.403 Service of member bank and real estate investment company.
250.404 Serving as director of member bank and corporation selling own 
          stock.
250.405 No exception granted a special or limited partner.
250.406 Serving member bank and investment advisor with mutual fund 
          affiliation.
250.407 Interlocking relationship involving securities affiliate of 
          brokerage firm.
250.408 Short-term negotiable notes of banks not securities under 
          section 32, Banking Act of 1933.
250.409 Investment for own account affects applicability of section 32.
250.410 Interlocking relationships between bank and its commingled 
          investment account.
250.411 Interlocking relationships between member bank and variable 
          annuity insurance company.
250.412 Interlocking relationships between member bank and insurance 
          company-mutual fund complex.
250.413 ``Bank-eligible'' securities activities.

    Authority: 12 U.S.C. 78, 248(i), 371c(f) and 371c-1(e).

    Source: 33 FR 9866, July 10, 1968, unless otherwise noted.

                             Interpretations



Sec. 250.141  Member bank purchase of stock of ``operations subsidiaries.''

    (a) The Board of Governors has reexamined its position that the so-
called ``stock-purchase prohibition'' of section 5136 of the Revised 
Statutes (12 U.S.C. 24), which is made applicable to member State banks 
by the 20th paragraph of section 9 of the Federal Reserve Act (12 U.S.C. 
335), forbids the purchase by a member bank ``for its own account of any 
shares of stock of any corporation'' (the statutory language), except as 
specifically permitted by provisions of Federal law or as comprised 
within the concept of ``such incidental powers as shall be necessary to 
carry on the business of banking'', referred to in the first sentence of 
paragraph ``Seventh'' of R.S. 5136.
    (b) In 1966 the Board expressed the view that said incidental powers 
do not permit member banks to purchase stock of ``operations 
subsidiaries''--that is, organizations designed to serve, in effect, as 
separately-incorporated departments of the bank, performing, at 
locations at which the bank is authorized to engage in business, 
functions that the bank is empowered to perform directly. (See 1966 
Federal Reserve Bulletin 1151.)
    (c) The Board now considers that the incidental powers clause 
permits a bank to organize its operations in the manner that it believes 
best facilitates the performance thereof. One method of organization is 
through departments; another is through separate incorporation of 
particular operations. In other words, a wholly owned subsidiary 
corporation engaged in activities that the bank itself may perform is 
simply a convenient alternative organizational arrangement.
    (d) Reexamination of the apparent purposes and legislative history 
of the stock-purchase prohibition referred to above has led the Board to 
conclude that such prohibition should not be interpreted to preclude a 
member bank from adopting such an organizational arrangement unless its 
use would be inconsistent with other Federal law, either statutory or 
judicial.

[[Page 208]]

    (e) In view of the relationship between the operation of certain 
subsidiaries and the branch banking laws, the Board has also reexamined 
its rulings on what constitutes ``money lent'' for the purposes of 
section 5155 of the Revised Statutes (12 U.S.C. 36), which provides that 
``The termbranch * * * shall be held to include any branch bank, branch 
office, branch agency, additional office, or any branch place of 
business * * * at which deposits are received, or checks paid, or money 
lent.'' \1\
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    \1\ In the Board's judgment, the statutory enumeration of three 
specific functions that establish branch status is not meant to be 
exclusive but to assure that offices at which any of these functions is 
performed are regarded as branches by the bank regulatory authorities. 
In applying the statute the emphasis should be to assure that 
significant banking functions are made available to the public only at 
governmentally authorized offices.
---------------------------------------------------------------------------

    (f) The Board noted in its 1967 interpretation that offices that are 
open to the public and staffed by employees of the bank who regularly 
engage in soliciting borrowers, negotiating terms, and processing 
applications for loans (so-called loan production offices) constitute 
branches. (1967 Federal Reserve Bulletin 1334.) The Board also noted 
that later in that year it considered the question whether a bank 
holding company may acquire the stock of a so-called mortgage company on 
the basis that the company would be engaged in ``furnishing services to 
or performing services for such bank holding company or its banking 
subsidiaries'' (the so-called servicing exemption of section 4(c)(1)(C) 
of the Bank Holding Company Act; 12 U.S.C. 1843). In concluding 
affirmatively, the Board stated that ``the appropriate test for 
determining whether the company may be considered as within the 
servicing exemption is whether the company will perform as principal any 
banking activities--such as receiving deposits, paying checks, extending 
credit, conducting a trust department, and the like. In other words, if 
the mortgage company is to act merely as an adjunct to a bank for the 
purpose of facilitating the bank's operations, the company may 
appropriately be considered as within the scope of the servicing 
exemption.'' (1967 Federal Reserve Bulletin 1911; 12 CFR 225.122.)
    (g) The Board believes that the purposes of the branch banking laws 
and the servicing exemption are related. Generally, what constitutes a 
branch does not constitute a servicing organization and, vice versa, an 
office that only performs servicing functions should not be considered a 
branch. (See 1958 Federal Reserve Bulletin 431, last paragraph; 12 CFR 
225.104(e).) When viewed together, the above-cited interpretations on 
loan production offices and mortgage companies represent a departure 
from this principle. In reconsidering the laws involved, the Board has 
concluded that a test similar to that adopted with respect to the 
servicing exemption under the Bank Holding Company Act is appropriate 
for use in determining whether or not what constitutes money [is] lent 
at a particular office, for the purpose of the Federal branch banking 
laws.
    (h) Accordingly, the Board considers that the following activities, 
individually or collectively, do not constitute the lending of money 
within the meaning of section 5155 of the revised statutes: Soliciting 
loans on behalf of a bank (or a branch thereof), assembling credit 
information, making property inspections and appraisals, securing title 
information, preparing applications for loans (including making 
recommendations with respect to action thereon), soliciting investors to 
purchase loans from the bank, seeking to have such investors contract 
with the bank for the servicing of such loans, and other similar agent-
type activities. When loans are approved and funds disbursed solely at 
the main office or a branch of the bank, an office at which only 
preliminary and servicing steps are taken is not a place where money 
[is] lent. Because preliminary and servicing steps of the kinds 
described do not constitute the performance of significant banking 
functions of the type that Congress contemplated should be performed 
only at governmentally approved offices, such office is accordingly not 
a branch.
    (i) To summarize the foregoing, the Board has concluded that, 
insofar as Federal law is concerned, a member

[[Page 209]]

bank may purchase for its own account shares of a corporation to 
perform, at locations at which the bank is authorized to engage in 
business, functions that the bank is empowered to perform directly. 
Also, a member bank may establish and operate, at any location in the 
United States, a loan production office of the type described herein. 
Such offices may be established and operated by the bank either 
directly, or indirectly through a wholly-owned subsidiary corporation.
    (j) This interpretation supersedes both the Board's 1966 ruling on 
operations subsidiaries and its 1967 ruling on loan production offices, 
referred to above.

(12 U.S.C. 24, 36, 321, 335)

[33 FR 11813, Aug. 21, 1968; 43 FR 53414, Nov. 16, 1978]



Sec. 250.142  Meaning of ``obligor or maker'' in determining limitation
on securities investments by member State banks.

    (a) From time to time the New York State Dormitory Authority offers 
issues of bonds with respect to each of which a different educational 
institution enters into an agreement to make rental payments to the 
Authority sufficient to cover interest and principal thereon when due. 
The Board of Governors of the Federal Reserve System has been asked 
whether a member State bank may invest up to 10 percent of its capital 
and surplus in each such issue.
    (b) Paragraph Seventh of section 5136 of the U.S. Revised Statutes 
(12 U.S.C. 24) provides that ``In no event shall the total amount of the 
investment securities of any one obligor or maker, held by [a national 
bank] for its own account, exceed at any time 10 per centum of its 
capital stock * * * and surplus fund''. That limitation is made 
applicable to member State banks by the 20th paragraph of section 9 of 
the Federal Reserve Act (12 U.S.C. 335).
    (c) The Board considers that, within the meaning of these provisions 
of law, obligor does not include any person that acts solely as a 
conduit for transmission of funds received from another source, 
irrespective of a promise by such person to pay principal or interest on 
the obligation. While an obligor does not cease to be such merely 
because a third person has agreed to pay the obligor amounts sufficient 
to cover principal and interest on the obligations when due, a person 
that promises to pay an obligation, but as a practical matter has no 
resources with which to assume payment of the obligation except the 
amounts received from such third person, is not an obligor within the 
meaning of section 5136.
    (d) Review of the New York Dormitory Authority Act (N.Y. Public 
Authorities Law sections 1675-1690), the Authority's interpretation 
thereof, and materials with respect to the Authority's ``Revenue Bonds, 
Mills College of Education Issue, Series A'' indicates that the 
Authority is not an obligor on those and similar bonds. Although the 
Authority promises to make all payments of principal and interest, a 
bank that invests in such bonds cannot be reasonably considered as doing 
so in reliance on the promise and responsibility of the Authority. 
Despite the Authority's obligation to make payments on the bonds, if the 
particular college fails to perform its agreement to make rental 
payments to the Authority sufficient to cover all payments of bond 
principal and interest when due, as a practical matter the sole source 
of funds for payments to the bondholder is the particular college. The 
Authority has general borrowing power but no resources from which to 
assure repayment of any borrowing except from the particular colleges, 
and rentals received from one college may not be used to service bonds 
issued for another.
    (e) Accordingly, the Board has concluded that each college for which 
the Authority issues obligations is the sole obligor thereon. A member 
State bank may therefore invest an amount up to 10 percent of its 
capital and surplus in the bonds of a particular college that are 
eligible investments under the Investment Securities Regulation of the 
Comptroller of the Currency (12 CFR Part 1), whether issued directly or 
indirectly through the Dormitory Authority.

(12 U.S.C. 24, 335)

[[Page 210]]



Sec. 250.143  Member bank purchase of stock of foreign operations
subsidiaries.

    (a) In a previous interpretation, the Board determined that a State 
member bank would not violate the ``stock-purchase prohibition'' of 
section 5136 of the Revised Statutes (12 U.S.C. 24 ] 7) by purchasing 
and holding the shares of a corporation which performs ``at locations at 
which the bank is authorized to engage in business, functions that the 
bank is empowered to perform directly''. \1\ (1968 Federal Reserve 
Bulletin 681, 12 CFR 250.141). The Board of Governors has been asked by 
a State member bank whether, under that interpretation, the bank may 
establish such a so-called operations subsidiary outside the United 
States.
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    \1\ National banking associations are prohibited by section 5136 of 
the Revised Statutes from purchasing and holding shares of any 
corporation except those corporations whose shares are specifically made 
eligible by statute. This prohibition is made applicable to State member 
banks by section 9 ] 20 of the Federal Reserve Act (12 U.S.C. 335).
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    (b) In the above interpretation the Board viewed the creation of a 
wholly-owned subsidiary which engaged in activities that the bank itself 
could perform directly as an alternative organizational arrangement that 
would be permissible for member banks unless ``its use would be 
inconsistent with other Federal law, either statutory or judicial''.
    (c) In the Board's judgment, the use by member banks of operations 
subsidiaries outside the United States would be clearly inconsistent 
with the statutory scheme of the Federal Reserve Act governing the 
foreign investments and operations of member banks. It is clear that 
Congress has given member banks the authority to conduct operations and 
make investments outside the United States only through gradually 
adopting a series of specific statutory amendments to the Federal 
Reserve Act, each of which has been carefully drawn to give the Board 
approval, supervisory, and regulatory authority over those operations 
and investments.
    (d) As part of the original Federal Reserve Act, national banks 
were, with the Board's permission, given the power to establish foreign 
branches. \2\ In 1916, Congress amended the Federal Reserve Act to 
permit national banks to invest in international or foreign banking 
corporations known as Agreement Corporations, because such corporations 
were required to enter into an agreement or understanding with the Board 
to restrict their operations. Subject to such limitations or 
restrictions as the Board may prescribe, such Agreement corporations may 
principally engage in international or foreign banking, or banking in a 
dependency or insular possession of the United States, either directly 
or through the agency, ownership or control of local institutions in 
foreign countries, or in such dependencies or insular possessions of the 
United States. In 1919 the enactment of section 25(a) of the Federal 
Reserve Act (the ``Edge Act'') permitted national banks to invest in 
federally chartered international or foreign banking corporations (so-
called Edge Corporations) which may engage in international or foreign 
banking or other international or foreign financial operations, or in 
banking or other financial operations in a dependency or insular 
possession of the United States, either directly or through the 
ownership or control of local institutions in foreign countries, or in 
such dependencies or insular possessions. Edge Corporations may only 
purchase and hold stock in certain foreign subsidiaries with the consent 
of the Board. And in 1966, Congress amended section 25 of the Federal 
Reserve Act to allow national banks to invest directly in the shares of 
a foreign bank. In the Board's judgment,

[[Page 211]]

the above statutory scheme of the Federal Reserve Act evidences a clear 
Congressional intent that member banks may only purchase and hold stock 
in subsidiaries located outside the United States through the prescribed 
statutory provisions of sections 25 and 25(a) of the Federal Reserve 
Act. It is through these statutorily prescribed forms of organization 
that member banks must conduct their operations outside the United 
States.
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    \2\ Under section 9 of the Federal Reserve Act, State member banks, 
subject, of course, to any necessary approval from their State banking 
authority, may establish foreign branches on the same terms and subject 
to the same limitations and restrictions as are applicable to the 
establishment of branches by national banks (12 U.S.C. 321). State 
member banks may also purchase and hold shares of stock in Edge or 
Agreement Corporations and foreign banks because national banks, as a 
result of specific statutory exceptions to the stock purchase 
prohibitions of section 5136, can purchase and hold stock in these 
Corporations or banks.
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    (e) To summarize, the Board has concluded that a member bank may 
only organize and operate operations subsidiaries at locations in the 
United States. Investments by member banks in foreign subsidiaries must 
be made either with the Board's permission under section 25 of the 
Federal Reserve Act or, with the Board's consent, through an Edge 
Corporation subsidiary under section 25(a) of the Federal Reserve Act or 
through an Agreement Corporation subsidiary under section 25 of the 
Federal Reserve Act. In addition, it should be noted that bank holding 
companies may acquire the shares of certain foreign subsidiaries with 
the Board's approval under section 4(c)(13) of the Bank Holding Company 
Act. These statutory sections taken together already give member banks a 
great deal of organizational flexibility in conducting their operations 
abroad.

(Interprets and applies 12 U.S.C. 24, 335)

[40 FR 12252, Mar. 18, 1975]



Sec. 250.160  Federal funds transactions.

    (a) It is the position of the Board of Governors of the Federal 
Reserve System that, for purposes of provisions of law administered by 
the Board, a transaction in Federal funds involves a loan on the part of 
the selling bank and a borrowing on the part of the purchasing bank.
    (b) [Reserved]

(12 U.S.C. 371c)

[33 FR 9866, July 10, 1968, as amended at 67 FR 76622, Dec. 12, 2002]



Sec. 250.163  Inapplicability of amount limitations to 
``ineligible acceptances.''

    (a) Since 1923, the Board has been of the view that ``the acceptance 
power of State member banks is not necessarily confined to the 
provisions of section 13 (of the Federal Reserve Act), inasmuch as the 
laws of many States confer broader acceptance powers upon their State 
banks, and certain State member banks may, therefore, legally make 
acceptances of kinds which are not eligible for rediscount, but which 
may be eligible for purchase by Federal reserve banks under section 
14.'' 1923 FR bulletin 316, 317.
    (b) In 1963, the Comptroller of the Currency ruled that ``[n]ational 
banks are not limited in the character of acceptances which they may 
make in financing credit transactions, and bankers' acceptances may be 
used for such purpose, since the making of acceptances is an essential 
part of banking authorized by 12 U.S.C. 24.'' Comptroller's manual 
7.7420. Therefore, national banks are authorized by the Comptroller to 
make acceptances under 12 U.S.C. 24, although the acceptances are not 
the type described in section 13 of the Federal Reserve Act.
    (c) A review of the legislative history surrounding the enactment of 
the acceptance provisions of section 13, reveals that Congress believed 
in 1913, that it was granting to national banks a power which they would 
not otherwise possess and had not previously possessed. See remarks of 
Congressmen Phelan, Helvering, Saunders, and Glass, 51 Cong. Rec. 4676, 
4798, 4885, and 5064 (September 10, 12, 13, and 17 of 1913). 
Nevertheless, the courts have long recognized the evolutionary nature of 
banking and of the scope of the ``incidental powers'' clause of 12 
U.S.C. 24. See Merchants Bank v. State Bank, 77 U.S. 604 (1870) 
(upholding the power of a national bank to certify a check under the 
``incidental powers'' clause of 12 U.S.C. 24).
    (d) It now appears that, based on the Board's 1923 ruling, and the 
Comptroller's 1963 ruling, both State member banks and national banks 
may make acceptances which are not of the type described in section 13 
of the Federal Reserve Act. Yet, this appears to be a development that 
Congress did not contemplate when it drafted the acceptance provisions 
of section 13.
    (e) The question is presented whether the amount limitations of 
section 13 should apply to acceptances made by a

[[Page 212]]

member bank that are not of the type described in section 13. (The 
amount limitations are of two kinds:
    (1) A limitation on the amount that may be accepted for any one 
customer, and
    (2) A limitation on the aggregate amount of acceptances that a 
member bank may make.)


In interpreting any Federal statutory provision, the primary guide is 
the intent of Congress, yet, as noted earlier, Congress did not 
contemplate in 1913, the development of so-called ``ineligible 
acceptances.'' (Although there is some indication that Congress did 
contemplate State member banks' making acceptances of a type not 
described in section 13 [remarks of Congressman Glass, 51 Cong. Rec. 
5064], the primary focus of congressional attention was on the 
acceptance powers of national banks.) In the absence of an indication of 
congressional intent, we are left to reach an interpretation that is in 
harmony with the language of the statutory provisions and with the 
purposes of the Federal Reserve Act.
    (f) Section 13 authorizes acceptances of two types. The seventh 
paragraph of section 13 (12 U.S.C. 372) authorizes certain acceptances 
that arise out of specific transactions in goods. (These acceptances are 
sometimes referred to as ``commercial acceptances.'') The 12th paragraph 
of section 13 authorizes member banks to make acceptances ``for the 
purpose of furnishing dollar exchange as required by the usages of 
trade'' in foreign transactions. (Such acceptances are referred to as 
``dollar exchange acceptances.'') In the 12th paragraph, there is a 10 
percent limit on the amount of dollar exchange acceptances that may be 
accepted for any one customer (unless adequately secured) and a 
limitation on the aggregate amount of dollar exchange acceptances that a 
member bank may make. (The 12th paragraph, in imposing these 
limitations, refers to the acceptance of ``such drafts or bills of 
exchange referred to (in) this paragraph.'') Similarly, the seventh 
paragraph imposes on commercial acceptances a parallel 10 percent per-
customer limitation, and limitations on the aggregate amount of 
commercial acceptances. (In the case of the aggregate limitations, the 
seventh paragraph states that ``no bank shall accept such bills to an 
amount'' in excess of the aggregate limit; the reference to ``such 
bills'' makes clear that the limitation is only in respect of drafts or 
bills of exchange of the specific type described in the seventh 
paragraph.)
    (g) Based on the language and parallel structure of the 7th and 12th 
paragraphs of section 13, and in the absence of a statement of 
congressional intent in the legislative history, the Board concludes 
that the per-customer and aggregate limitations of the 12th paragraph 
apply only to acceptances of the type described in that paragraph 
(dollar exchange acceptances), and the per-customer and aggregate 
limitations of the 7th paragraph (12 U.S.C. 372) apply only to 
acceptances of the type described in that paragraph.

(Interprets and applies 12 U.S.C. 372 and the 12th paragraph of sec. 13 
of the Federal Reserve Act, which paragraph is omitted from the United 
States Code)

[38 FR 13728, May 25, 1973]



Sec. 250.164  Bankers' acceptances.

    (a) Section 207 of the Bank Export Services Act (title II of Pub. L. 
97-290) (``BESA'') raised the limits on the aggregate amount of eligible 
bankers' acceptances (``BAs'') that may be created by an individual 
member bank from 50 per cent (or 100 per cent with the permission of the 
Board) of its paid up and unimpaired capital stock and surplus 
(``capital'') to 150 per cent (or 200 per cent with the permission of 
the Board) of its capital. Section 207 also prohibits a member bank from 
creating eligible BAs for any one person in the aggregate in excess of 
10 per cent of the institution's capital. This section of the BESA 
applies the same limits applicable to member banks to U.S. branches and 
agencies of foreign banks that are subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (12 U.S.C. 3105). The 
Board is clarifying the proper meaning of the seventh paragraph of 
section 13 of the Federal Reserve Act, as amended by the BESA.
    (b)(1) This section of the BESA provides that any portion of an 
eligible BA created by an institution subject to the BA limitations 
contained therein

[[Page 213]]

(``covered bank'') that is conveyed through a participation to another 
covered bank shall not be included in the calculation of the creating 
bank's BA limits. The amount of the participation is to be applied to 
the calculation of the BA limits applicable to the covered bank 
receiving the participation. Although a covered bank that has reached 
its 150 or 200 percent limit can continue to create eligible acceptances 
by conveying participations to other covered banks, Congress has in 
effect imposed an aggregate limit on the eligible acceptances that may 
be created by all covered banks equal to the sum of 150 or 200 percent 
of the capital of all covered banks.
    (2) The Board has clarified that under the statute an eligible BA 
created by a covered bank that is conveyed through a participation to an 
institution that is not subject to the limitations of this section of 
the BESA continues to be included in the calculation of the limits 
applicable to the creating covered bank. This will ensure that the total 
amount of eligible BAs that may be created by covered banks does not 
exceed the limitations established by Congress. In addition, this 
ensures that participations in acceptances are not used as a device for 
the avoidance of reserve requirements. Finally, this promotes the 
Congressional intent, with respect to covered banks, that foreign and 
domestic banks be on an equal footing and under the same legal 
requirements.
    (3) In addition, the amount of a participation received by a covered 
bank from an institution not covered by the limitations of the Act is to 
be included in the calculation of the limits applicable to the covered 
bank receiving the participation. This result is based upon the language 
of the statute which includes within a covered bank's limits on eligible 
BAs outstanding the amount of participations received by the covered 
bank. This provision reflects Congressional intent that a covered bank 
not be obligated on eligible bankers' acceptances, and participations 
therein, for an amount in excess of 150 or 200 percent of the 
institution's capital.
    (c) The statute also provides that eligible acceptances growing out 
of domestic transactions are not to exceed 50 percent of the aggregate 
of all eligible acceptances authorized for covered banks. The Board has 
clarified that this 50 percent limitation is applicable to the maximum 
permissible amount of eligible BAs (150 or 200 percent of capital), 
regardless of the bank's amount of eligible acceptances outstanding. The 
statutory language prior to the BESA amendment made clear that covered 
banks could issue eligible acceptances growing out of domestic 
transactions up to 50 percent of the amount of the total permissible 
eligible acceptances the bank could issue. The legislative history of 
the BESA indicates no intent to change this domestic acceptance 
limitation.
    (d) The statute also provides that for the purpose of the 
limitations applicable to U.S. branches and agencies of foreign banks, a 
branch's or agency's capital is to be calculated as the dollar 
equivalent of the capital stock and surplus of the parent foreign bank 
as determined by the Board. The Board has clarified that for purposes of 
calculating the BA limits applicable to U.S. branches and agencies of 
foreign banks, the identity of the parent foreign bank is generally the 
same as for reserve requirement purposes; that is, the bank entity that 
owns the branch or agency most directly. The Board has also clarified 
that the procedures currently used for purposes of reporting to the 
Board on the Annual Report of Foreign Banking Organizations, Form FR Y-
7, are also to be used in the calculation of the acceptance limits 
applicable to U.S. branches and agencies of foreign banks. (The FR Y-7 
generally requires financial statements prepared in accordance with 
local accounting practices and an explanation of the accounting 
terminology and the major features of the accounting standards used in 
the preparation of the financial statements.) Conversions to the dollar 
equivalent of the worldwide capital of the foreign bank should be made 
periodically, but in no event less frequently than quarterly. In this 
regard, the Board recognizes the need to be flexible in dealing with the 
effect of foreign exchange rate fluctuations on the calculation of the 
worldwide capital of the parent foreign bank. Each

[[Page 214]]

foreign bank is to be responsible for coordinating the BA activity of 
its U.S. branches and agencies (including the aggregation of such 
activity) and establishing procedures that ensure that examiners will be 
able readily to determine compliance with the BESA limits.

(Sec. 13, Federal Reserve Act (12 U.S.C. 372))

[48 FR 28975, June 24, 1983]



Sec. 250.165  Bankers' acceptances: definition of participations.

    (a)(1) Section 207 of the Bank Export Services Act (Title II of Pub. 
L. 97-290) (``BESA'') raised the limits on the aggregate amount of 
eligible bankers' acceptances (``BAs'') that may be created by a member 
bank from 50 percent (or 100 percent with the permission of the Board) 
of its paid up and unimpaired capital stock and surplus (``capital'') to 
150 percent (or 200 percent with the permission of the Board) of its 
capital. Section 207 also prohibits a member bank from creating eligible 
BAs for any one person in the aggregate in excess of 10 percent of the 
institution's capital. Eligible BAs growing out of domestic transactions 
are not to exceed 50 percent of the aggregate of all eligible 
acceptances authorized for a member bank. This section of the BESA 
applies the same limits applicable to member banks to U.S. branches and 
agencies of foreign banks that are subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (12 U.S.C. 3105). \1\
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    \1\ The institutions subject to the BA limitations of BESA will 
hereinafter be referred to as ``covered banks.''
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    (2) This section of the BESA also provides that any portion of an 
eligible BA created by a covered bank (``senior bank'') that is conveyed 
through a ``participation agreement'' to another covered bank (``junior 
bank'') shall not be included in the calculation of the senior bank's 
bankers' acceptance limits established by section 207 of BESA. \2\ 
However, the amount of the participation is to be included in the BA 
limits applicable to the junior bank. The language of the statute does 
not define what constitutes a participation agreement for purposes of 
the applicability of the BESA limitations. However, the statute does 
authorize the Board to further define any of the terms used in section 
207 of the BESA (12 U.S.C. 372(g)). The Board is clarifying the term 
participation for purposes of the BA limitations of the BESA.
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    \2\ The use of the terms senior bank and junior bank has no 
implications regarding priority of claims. These terms merely represent 
a shorthand method of identifying the depository institution that has 
created the acceptance and conveyed the participation (senior bank) and 
the depository institution that has received the participation (junior 
bank).
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    (b) The legislative history of section 207 of the BESA indicates 
that Congress intended that the junior bank be obligated to the senior 
bank in the event that the account party defaults on its obligation to 
pay, but that the junior bank need not also be obligated to pay the 
holder of the acceptance at the time the BA is presented for payment. H. 
Rep. No. 97-629, 97th Cong., 2nd Sess. 15 (1982); 128 Cong. Rec. H 4647 
(daily ed. July 27, 1982) (remarks by Rep. Barnard): and 128 Cong. Rec. 
H 8462 (daily ed. October 1, 1982) (remarks by Rep. Barnard). The 
legislative history also indicates that Congress intended that eligible 
BAs in which participations had been conveyed not be required to 
indicate the name(s) (or interest(s)) of the junior bank(s) on the 
acceptance in order for the BA to be excluded from the BESA limitations 
applicable to the senior bank. 128 Cong. Rec. S 12237 (daily ed. 
September 24, 1982) (remarks of Senators Heinz and Garn): and 128 Cong. 
Rec. H 4647 (daily ed. July 27, 1982) (remarks of Rep. Barnard).
    (c)(1) In view of Congressional intent with regard to what 
constitutes a participation in an eligible BA, the Board has determined 
that, for purposes of the BESA limits, a participation must satisfy the 
following two minimum requirements:
    (i) A written agreement entered into between the junior and senior 
bank under which the junior bank acquires the senior bank's claim 
against the account party to the extent of the amount of the 
participation that is enforceable in the event that the account

[[Page 215]]

party fails to perform in accordance with the terms of the acceptance; 
and
    (ii) The agreement between the junior and senior bank provides that 
the senior bank obtains a claim against the junior bank to the extent of 
the amount of the participation that is enforceable in the event the 
account party fails to perform in accordance with the terms of the 
acceptance.
    (2) Consistent with Congressional intent, the minimum requirements 
do not require the junior bank to be obligated to pay the holder of the 
acceptance at the time the BA is presented for payment. Similarly, the 
minimum requirements do not require the name(s) or interest(s) of the 
junior bank(s) to appear on the face of the acceptance.
    (3) An eligible BA that is conveyed through a participation that 
does not satisfy these minimum requirements would continue to be 
included in the BA limits applicable to the senior bank. Further, an 
eligible BA conveyed to a covered bank through a participation that 
provided for additional rights and obligations among the parties would 
be excluded from the BESA limitations of the senior bank provided the 
minimum requirements were satisfied.
    (4) A participation structured pursuant to these minimum 
requirements would be as follows: Upon the conveyance of the 
participation, the senior bank retains its entire obligation to pay the 
holder of the BA at maturity. The senior bank has a claim against the 
junior bank to the extent of the amount of the participation that is 
enforceable in the event the account party fails to perform in 
accordance with the terms of the acceptance. Similarly, the junior bank 
has a corresponding claim against the account party to the extent of the 
amount of the participation that is enforceable in the event the account 
party fails to perform in accordance with the terms of the acceptance.
    (d)(1) The Board is not requiring the senior bank and the account 
party specifically to agree that the senior bank's rights are assignable 
because the Board believes such rights to be assignable even in the 
absence of an explicit agreement.
    (2) The junior and senior banks may contract among themselves as to 
which party(ies) have the responsibility for administering the 
arrangement, enforcing claims, or exercising remedies.
    (e) The Board recognizes that both the junior bank's claim on the 
account party and the senior bank's claim on the junior bank involve 
risk. Therefore, it is essential that these risks be assessed by the 
banks involved in accordance with prudent and sound banking practices. 
The examiners will in the normal course of the examination process 
review the risk assessment procedures instituted by the banks. The 
junior bank should review the creditworthiness of each account party 
when the junior bank acquires a participation and the senior bank should 
review on an ongoing basis the creditworthiness of the junior bank. 
Junior bank agreement to rely exclusively upon the credit judgment of 
the senior bank and purchase on an ongoing basis from the senior bank 
all participations in BAs regardless of the identity of the account 
party is not appropriate in view of the risks involved. However, in 
those cases involving a participation between a parent bank and its Edge 
affiliate where the credit review for both entities is performed by the 
parent bank, the Edge Corporation should maintain documentation 
indicating that it concurs with the parent bank's analysis and that the 
acceptance participation is appropriate for inclusion in the Edge 
Corporation's portfolio.
    (f) Similarly, the Board has determined that it is appropriate to 
include the risks incurred by the senior bank in assessing the senior 
bank's capital and the risks incurred by the junior bank in assessing 
the junior bank's capital.
    (g) In view of this clarification of the issues relating to 
participations in BAs, the Board encourages the private sector to 
develop standardized forms for BAs and participations therein that 
clearly delineate the rights and responsibilities of the relevant 
parties.

(Sec. 13, Federal Reserve Act (12 U.S.C. 372))

[48 FR 57109, Dec. 28, 1983]

[[Page 216]]



Sec. 250.166  Treatment of mandatory convertible debt and subordinated
notes of state member banks and bank holding companies as ``capital''.

    (a) General. Under the Board's risk-based capital guidelines, state 
member banks and bank holding companies may include in Tier 2 capital 
subordinated debt and mandatory convertible debt that meets certain 
criteria. The purpose of this interpretation is to clarify these 
criteria. This interpretation should be read with those guidelines, 
particularly with paragraphs II.c. through II.e. of appendix A of 12 CFR 
part 208 if the issuer is a state member bank and with paragraphs 
II.A.2.c. and II.A.2.d. of appendix A of 12 CFR part 225 if the issuer 
is a bank holding company.
    (b) Criteria for subordinated debt included in capital--(1) 
Characteristics. To be included in Tier 2 capital under the Board's 
risk-based capital guidelines for state member banks and bank holding 
companies, subordinated debt must be subordinated in right of payment to 
the claims of the issuer's general creditors \1\ and, for banks, to the 
claims of depositors as well; must be unsecured; must state clearly on 
its face that it is not a deposit and is not insured by a federal 
agency; must have a minimum average maturity of five years; \2\ must not 
contain provisions that permit debtholders to accelerate payment of 
principal prior to maturity except in the event of bankruptcy of or the 
appointment of a receiver for the issuing organization; must not contain 
or be covered by any covenants, terms, or restrictions that are 
inconsistent with safe and sound banking practice; and must not be 
credit sensitive.
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    \1\ The risk-based capital guidelines for bank holding companies 
state that bank holding company debt must be subordinated to all senior 
indebtedness of the company. To meet this requirement, the debt should 
be subordinated to all general creditors.
    \2\ The ``average maturity'' of an obligation or issue repayable in 
scheduled periodic payments shall be the weighted average of the 
maturities of all such scheduled payments.
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    (2) Acceleration clauses--(i) In order to be included in Tier 2 
capital, the appendices provide that subordinated debt instruments must 
have an original weighted average maturity of at least five years. For 
this purpose, maturity is defined as the earliest possible date on which 
the holder can put the instrument back to the issuing banking 
organization. Since acceleration clauses permit the holder to put the 
debt back upon the occurrence of certain events, which could happen at 
any time after the instrument is issued, subordinated debt that includes 
provisions permitting acceleration upon events other than bankruptcy or 
reorganization under Chapters 7 (Liquidation) and 11 (Reorganization) of 
the Bankruptcy Code, in the case of a bank holding company, or 
insolvency--i.e., the appointment of a receiver--in the case of a state 
member bank, does not qualify for inclusion in Tier 2 capital.
    (ii) Further, subordinated debt whose terms provide for acceleration 
upon the occurrence of events other than bankruptcy or the appointment 
of a receiver does not qualify as Tier 2 capital. For example, the terms 
of some subordinated debt issues would permit debtholders to accelerate 
repayment if the issuer failed to pay principal or interest on the 
subordinated debt issue when due (or within a certain timeframe after 
the due date), failed to make mandatory sinking fund deposits, defaulted 
on any other debt, failed to honor covenants, or if an institution 
affiliated with the issuer entered into bankruptcy or receivership. Some 
banking organizations have also issued, or proposed to issue, 
subordinated debt that would allow debtholders to accelerate repayment 
if, for example, the banking organization failed to maintain certain 
prescribed minimum capital ratios or rates of return, or if the amount 
of nonperforming assets or charge-offs of the banking organization 
exceeded a certain level.
    (iii) These and other similar acceleration clauses raise significant 
supervisory concerns because repayment of the debt could be accelerated 
at a time when an organization may be experiencing financial 
difficulties. Acceleration of the debt could restrict the ability of the 
organization to resolve its problems in the normal course of business 
and could cause the organization involuntarily to enter into bankruptcy 
or receivership. Furthermore, since

[[Page 217]]

such acceleration clauses could allow the holders of subordinated debt 
to be paid ahead of general creditors or depositors, their inclusion in 
a debt issue throws into question whether the debt is, in fact, 
subordinated.
    (iv) Subordinated debt issues whose terms state that the debtholders 
may accelerate the repayment of principal only in the event of 
bankruptcy or receivership of the issuer do not permit the holders of 
the debt to be paid before general creditors or depositors and do not 
raise supervisory concerns because the acceleration does not occur until 
the institution has failed. Accordingly, debt issues that permit 
acceleration of principal only in the event of bankruptcy (liquidation 
or reorganization) in the case of bank holding companies and 
receivership in the case of banks may generally be classified as 
capital.
    (3) Provisions inconsistent with safe and sound banking practices--
(i) The risk-based capital guidelines state that instruments included in 
capital may not contain or be covered by any covenants, terms, or 
restrictions that are inconsistent with safe and sound banking practice. 
As a general matter, capital instruments should not contain terms that 
could adversely affect liquidity or unduly restrict management's 
flexibility to run the organization, particularly in times of financial 
difficulty, or that could limit the regulator's ability to resolve 
problem bank situations. For example, some subordinated debt includes 
covenants that would not allow the banking organization to make 
additional secured or senior borrowings. Other covenants would prohibit 
a banking organization from disposing of a major subsidiary or 
undergoing a change in control. Such covenants could restrict the 
banking organization's ability to raise funds to meet its liquidity 
needs. In addition, such terms or conditions limit the ability of bank 
supervisors to resolve problem bank situations through a change in 
control.
    (ii) Certain other provisions found in subordinated debt may provide 
protection to investors in subordinated debt without adversely affecting 
the overall benefits of the instrument to the organization. For example, 
some instruments include covenants that may require the banking 
organization to:
    (A) Maintain an office or agency where securities may be presented,
    (B) Hold payments on the securities in trust,
    (C) Preserve the rights and franchises of the company,
    (D) Pay taxes and assessments before they become delinquent,
    (E) Provide an annual statement of compliance on whether the company 
has observed all conditions of the debt agreement, or
    (F) Maintain its properties in good condition. Such covenants, as 
long as they do not unduly restrict the activity of the banking 
organization, generally would be acceptable in qualifying subordinated 
debt, provided that failure to meet them does not give the holders of 
the debt the right to accelerate the debt. \3\
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    \3\ This notice does not attempt to list or address all clauses 
included in subordinated debt; rather, it is intended to give general 
supervisory guidance regarding the types of clauses that could raise 
supervisory concerns. Issuers of subordinated debt may need to consult 
further with Federal Reserve staff about other subordinated debt 
provisions not specifically discussed above to determine whether such 
provisions are appropriate in a debt capital instrument.
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    (4) Credit sensitive features. Credit sensitive subordinated debt 
(including mandatory convertible securities) where payments are tied to 
the financial condition of the borrower generally do not qualify for 
inclusion in capital. Interest rate payments may be linked to the 
financial condition of an institution through various ways, such as 
through an auction rate mechanism, a preset schedule that either 
mandates interest rate increases as the credit rating of the institution 
declines or automatically increases them over the passage of time, \4\ 
or that raises the interest rate if payment is not made in a

[[Page 218]]

timely fashion. \5\ As the financial condition of an organization 
declines, it is faced with higher and higher payments on its credit 
sensitive subordinated debt at a time when it most needs to conserve its 
resources. Thus, credit sensitive debt does not provide the support 
expected of a capital instrument to an institution whose financial 
condition is deteriorating; rather, the credit sensitive feature can 
accelerate depletion of the institution's resources and increase the 
likelihood of default on the debt.
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    \4\ Although payments on debt whose interest rate increases over 
time on the surface may not appear to be directly linked to the 
financial condition of the issuing organization, such debt (sometimes 
referred to as expanding or exploding rate debt) has a strong potential 
to be credit sensitive in substance. Organizations whose financial 
condition has strengthened are more likely to be able to refinance the 
debt at a rate lower than that mandated by the preset increase, whereas 
institutions whose condition has deteriorated are less likely to be able 
to do so. Moreover, just when these latter institutions would be in the 
most need of conserving capital, they would be under strong pressure to 
redeem the debt as an alternative to paying higher rates and, thus, 
would accelerate depletion of their resources.
    \5\ While such terms may be acceptable in perpetual preferred stock 
qualifying as Tier 2 capital, it would be inconsistent with safe and 
sound banking practice to include debt with such terms in Tier 2 
capital. The organization does not have the option, as it does with 
auction rate preferred stock issues, of eliminating the higher payments 
on the subordinated debt without going into default.
---------------------------------------------------------------------------

    (c) Criteria for mandatory convertible debt included in capital. 
Mandatory convertible debt included in capital must meet all the 
criteria cited above for subordinated debt with the exception of the 
minimum maturity requirement. \6\ Since mandatory convertible debt 
eventually converts to an equity instrument, it has no minimum maturity 
requirement. Such debt, however, is subject to a maximum maturity 
requirement of 12 years.
---------------------------------------------------------------------------

    \6\ Mandatory convertible debt is subordinated debt that contains 
provisions committing the issuing organization to repay the principal 
from the proceeds of future equity issues.
---------------------------------------------------------------------------

    (d) Previously issued subordinated debt. Subordinated debt including 
mandatory convertible debt that has been issued prior to the date of 
this interpretation and that contains provisions permitting acceleration 
for reasons other than bankruptcy or receivership of the issuing 
institution; includes other questionable terms or conditions; or that is 
credit sensitive will not automatically be excluded from capital. 
Rather, such debt will be considered on a case-by-case basis to 
determine whether it qualifies as Tier 2 capital. As a general matter, 
subordinated debt issued prior to the release of this interpretation and 
containing such provisions or features may qualify as Tier 2 capital so 
long as these terms:
    (1) have been commonly used by banking organizations,
    (2) do not provide an unreasonably high degree of protection to the 
holder in cases not involving bankruptcy or receivership, and
    (3) do not effectively allow the holder to stand ahead of the 
general creditors of the issuing institution in cases of bankruptcy or 
receivership.
    Subordinated debt containing provisions that permit the holders of 
the debt to accelerate payment of principal when the banking 
organization begins to experience difficulties, for example, when it 
fails to meet certain financial ratios, such as capital ratios or rates 
of return, does not meet these three criteria. Consequently, 
subordinated debt issued prior to the release of this interpretation 
containing such provisions may not be included within Tier 2 capital.
    (e) Limitations on the amount of subordinated debt in capital--(1) 
Basic limitation. The amount of subordinated debt an institution may 
include in Tier 2 capital is limited to 50 percent of the amount of the 
institution's Tier 1 capital. The amount of a subordinated debt issue 
that may be included in Tier 2 capital is discounted as it approaches 
maturity; one-fifth of the original amount of the instrument, less any 
redemptions, is excluded each year from Tier 2 capital during the last 
five years prior to maturity. If the instrument has a serial redemption 
feature such that, for example, half matures in seven years and half 
matures in ten years, the issuing organization should begin discounting 
the seven-year portion after two years and the ten-year portion after 
five years.
    (2) Treatment of debt with dedicated proceeds. If a banking 
organization has issued common or preferred stock and dedicated the 
proceeds to the redemption of a mandatory convertible debt security, 
that portion of the security covered by the amount of the proceeds

[[Page 219]]

so dedicated is considered to be ordinary subordinated debt for capital 
purposes, provided the proceeds are not placed in a sinking fund, trust 
fund, or similar segregated account or are not used in the interim for 
some other purpose. Thus, dedicated portions of mandatory convertible 
debt securities are subject, like other subordinated debt, to the 50 
percent sublimit within Tier 2 capital, as well as to discounting in the 
last five years of life. Undedicated portions of mandatory convertible 
debt may be included in Tier 2 capital without any sublimit and are not 
subject to discounting.
    (3) Treatment of debt with segregated funds. In some cases, the 
provisions in mandatory convertible debt issues may require the issuing 
banking organization to set up a sinking fund, trust fund, or similar 
segregated account to hold the proceeds from the sale of equity 
securities dedicated to pay off the principal of the mandatory 
convertible debt at maturity. The portion of mandatory convertibles 
covered by the amount of proceeds deposited in such a segregated fund is 
considered secured and, thus, may not be included in capital at all, let 
alone be treated as subordinated debt that is subject to the 50 percent 
sublimit within Tier 2 capital. The maintenance of such separate 
segregated funds for the redemption of mandatory convertible debt 
exceeds the requirements of appendix B to Regulation Y. Accordingly, if 
a banking organization, with the agreement of its debtholders, seeks 
Federal Reserve approval to eliminate such a fund, approval normally 
would be given unless supervisory concerns warrant otherwise.
    (f) Redemption of subordinated debt prior to maturity--(1) By state 
member banks. State member banks must obtain approval from the 
appropriate Reserve Bank prior to redeeming before maturity subordinated 
debt or mandatory convertible debt included in capital. \7\ A Reserve 
Bank will not approve such early redemption unless it is satisfied that 
the capital position of the bank will be adequate after the proposed 
redemption.
---------------------------------------------------------------------------

    \7\ Some agreements governing mandatory convertible debt issued 
prior to the risk-based capital guidelines provide that the bank may 
redeem the notes if they no longer count as primary capital as defined 
in appendix B to Regulation Y. Such a provision does not obviate the 
requirement to receive Federal Reserve approval prior to redemption.
---------------------------------------------------------------------------

    (2) By bank holding companies. While bank holding companies are not 
formally required to obtain approval prior to redeeming subordinated 
debt, the risk-based capital guidelines state that bank holding 
companies should consult with the Federal Reserve before redeeming any 
capital instruments prior to stated maturity. This also applies to any 
redemption of mandatory convertible debt with proceeds of an equity 
issuance that were dedicated to the redemption of that debt. 
Accordingly, a bank holding company should consult with its Reserve Bank 
prior to redeeming subordinated debt or dedicated portions of mandatory 
convertible debt included in capital. A Reserve Bank generally will not 
acquiesce to such a redemption unless it is satisfied that the capital 
position of the bank holding company would be adequate after the 
proposed redemption.
    (3) Special concerns involving mandatory convertible debt. 
Consistent with appendix B to Regulation Y, bank holding companies 
wishing to redeem before maturity undedicated portions of mandatory 
convertible debt included in capital are required to receive prior 
Federal Reserve approval, unless the redemption is effected with the 
proceeds from the sale or common or perpetual preferred stock. An 
organization planning to effect such a redemption with the proceeds from 
the sale of common or perpetual preferred stock is advised to consult 
informally with its Reserve Bank in order to avoid the possibility of 
taking an action that could result in weakening its capital position. A 
Reserve Bank will not approve the redemption of mandatory convertible 
securities, or acquiesce in such a redemption effected with the sale of 
common or perpetual preferred stock, unless it is satisfied that the 
capital position of the bank holding company

[[Page 220]]

will be satisfactory after the redemption. \8\
---------------------------------------------------------------------------

    \8\ The guidance contained in this paragraph applies to mandatory 
convertible debt issued prior to the risk-based capital guidelines that 
state that the banking organization may redeem the notes if they no 
longer count as primary capital as defined in appendix B to Regulation 
Y. Such provisions do not obviate the need to consult with, or obtain 
approval from, the Federal Reserve prior to redemption of the debt.

[57 FR 40598, Sept. 4, 1992]



Sec. 250.180  Reports of changes in control of management.

    (a) Under a statute enacted September 12, 1964 (Pub. L. 88-593; 78 
Stat. 940) all insured banks are required to report promptly (1) changes 
in the outstanding voting stock of the bank which will result in control 
or in a change in control of the bank and (2) any instances where the 
bank makes a loan or loans, secured, or to be secured, by 25 percent or 
more of the outstanding voting stock of an insured bank.
    (b) Reports concerning changes in control of a State member bank are 
to be made by the president or other chief executive officer of the 
bank, and shall be submitted to the Federal Reserve Bank of its 
district.
    (c) Reports concerning loans by an insured bank on the stock of a 
State member bank are to be made by the president or other chief 
executive officer of the lending bank, and shall be submitted to the 
Federal Reserve Bank of the State member bank on the stock of which the 
loan was made.
    (d) Paragraphs 3 and 4 of this legislation specify the information 
required in the reports which, in cases involving State member banks, 
should be addressed to the Vice President in Charge of Examinations of 
the appropriate Federal Reserve Bank.

(12 U.S.C. 1817)



Sec. 250.181  Reports of change in control of bank management 
incident to a merger.

    (a) A State member bank has inquired whether Pub. L. 88-593 (78 
Stat. 940) requires reports of change in control of bank management in 
situations where the change occurs as an incident in a merger.
    (b) Under the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), no bank 
with Federal deposit insurance may merge or consolidate with, or acquire 
the assets of, or assume the liability to pay deposits in, any other 
insured bank without prior approval of the appropriate Federal bank 
supervisory agency. Where the bank resulting from any such transaction 
is a State member bank, the Board of Governors is the agency that must 
pass on the transaction. In the course of consideration of such an 
application, the Board would, of necessity, acquire knowledge of any 
change in control of management that might result. Information 
concerning any such change in control of management is supplied with 
each merger application and, in the circumstances, it is the view of the 
Board that the receipt of such information in connection with a merger 
application constitutes compliance with Pub. L. 88-593. However, once a 
merger has been approved and completely effectuated, the resulting bank 
would thereafter be subject to the reporting requirements of Pub. L. 88-
593.

(12 U.S.C. 1817)



Sec. 250.182  Terms defining competitive effects of proposed mergers.

    Under the Bank Merger Act (12 U.S.C. 1828(c)), a Federal Banking 
agency receiving a merger application must request the views of the 
other two banking agencies and the Department of Justice on the 
competitive factors involved. Standard descriptive terms are used by the 
Board, the Federal Deposit Insurance Corporation, and the Comptroller of 
the Currency. The terms and their definitions are as follows:
    (a) The term monopoly means that the proposed transaction must be 
disapproved in accordance with 12 U.S.C. 1828(c)(5)(A).
    (b) The term substantially adverse means that the proposed 
transaction would have anticompetitive effects which preclude approval 
unless the anticompetitive effects are clearly outweighed in the public 
interest by the probable effect of the transaction in meeting the 
convenience and needs of

[[Page 221]]

the community to be served as specified in 12 U.S.C. 1828(c)(5)(B).
    (c) The term adverse means that proposed transaction would have 
anticompetitive effects which would be material to the decision but 
which would not preclude approval.
    (d) The term no significant effect means that the anticompetitive 
effects of the proposed transaction, if any, would not be material to 
the decision.

(12 U.S.C. 1828(c))

[45 FR 45257, July 3, 1980]



Sec. 250.200  Investment in bank premises by holding company banks.

    (a) The Board of Governors has been asked whether, in determining 
under section 24A of the Federal Reserve Act (12 U.S.C. 371d) how much 
may be invested in bank premises without prior Board approval, a State 
member bank, which is owned by a registered bank holding company, is 
required to include indebtedness of a corporation, wholly owned by the 
holding company, that is engaged in holding premises of banks in the 
holding company system.
    (b) Section 24A provides, in part, as follows:

    Hereafter * * * no State member bank, without the approval of the 
Board of Governors of the Federal Reserve System, shall (1) invest in 
bank premises, or in the stock, bonds, debentures, or other such 
obligations of any corporation holding the premises of such bank or (2) 
make loans to or upon the security of the stock of any such corporation, 
if the aggregate of all such investments and loans, together with the 
amount of any indebtedness incurred by any such corporation which is an 
affiliate of the bank, as defined in section 2 of the Banking Act of 
1933, as amended [12 U.S.C. 221a], will exceed the amount of the capital 
stock of such banks.

    (c) A corporation that is owned by a holding company is an 
``affiliate of each of the holding company's majority-owned banks as 
that term is defined in said section 2. Therefore, under the explicit 
provisions of section 24A, each State member bank, any part of whose 
premises is owned by such an affiliate, must include the affiliate's 
total indebtedness in determining whether a proposed premises investment 
by the bank would cause the aggregate figure to exceed the amount of the 
bank's capital stock, so that the Board's prior approval would be 
required. Where the affiliate holds the premises of a number of the 
holding company's banks, the amount of the affiliate's indebtedness may 
be so large that Board approval is required for every proposed 
investment in bank premises by each majority-owned State member bank, to 
which the entire indebtedness of the affiliate is required to be 
attributed. The Board believes that, in these circumstances, individual 
approvals are not essential to effectuate the purpose of section 24A, 
which is to safeguard the soundness and liquidity of member banks, and 
that the protection sought by Congress can be achieved by a suitably 
circumscribed general approval.
    (d) Accordingly the Board hereby grants general approval for any 
investment or loan (as described in section 24A) by any State member 
bank, the majority of the stock of which is owned by a registered bank 
holding company, if the proposed investment or loan will not cause 
either (1) all such investments and loans by the member bank (together 
with the indebtedness of any bank premises subsidiary thereof) to exceed 
100 percent of the bank's capital stock, or (2) the aggregate of such 
investments and loans by all of the holding company's subsidiary banks 
(together with the indebtedness of any bank premises affiliates thereof) 
to exceed 100 percent of the aggregate capital stock of said banks.

(12 U.S.C. 221a, 371d)



Sec. 250.220  Whether member bank acting as trustee is prohibited by
section 20 of the Banking Act of 1933 from acquiring majority of 

shares of mutual fund.

    (a) The Board recently considered whether section 20 of the Banking 
Act of 1933 (12 U.S.C. 377) would prohibit a member bank, while acting 
as trustee of a tax exempt employee benefit trust or trusts, from, under 
the following circumstances, acquiring a majority of the shares of an 
open-end investment company (``Fund'') registered under the Investment 
Company Act of 1940, or more than 50 percent of the number of Fund's 
shares voted at the preceding election of directors of the Fund.

[[Page 222]]

    (b) The bank has acted as trustee, since December 1963, pursuant to 
a trust agreement with a county medical society to administer its group 
retirement program, under which individual members of the society could 
participate in accordance with the provisions of the Self-Employed 
Individuals Tax Retirement Act of 1962 (commonly referred to as ``H.R. 
10'').
    (c) Under the trust agreement as presently constituted, each 
employer, who is a participating member of the medical society, directs 
the bank to invest his contributions to the retirement plan in such 
proportions as he may elect in insurance or annuity contracts or in a 
diversified portfolio of securities and other property. The diversified 
portfolio held by the bank is invested and administered by the bank 
solely at the direction of a committee of the medical society.
    (d) It has now been proposed that the trust agreement be amended to 
provide that all investments constituting the trust fund, apart from 
insurance and annuity contracts, will be made exclusively in shares of a 
single open-end investment company to be named in the trust agreement 
and that the assets constituting the diversified portfolio now held by 
the bank, as trustee, will be exchanged for the Fund's shares. The bank 
will, in addition to holding the shares of the Fund, allocate income and 
dividends to the accounts of the various participants in the retirement 
program, invest and reinvest income and dividends, and perform other 
ministerial functions.
    (e) In addition, it is proposed to amend the trust agreement so that 
voting of the shares held by the bank as trustee will be controlled 
exclusively by the participants. Under the proposed amendment, the bank 
will sign all proxies prior to mailing them to the participants,

    it being intended that the Participant(s) shall vote the proxies 
notwithstanding the fact that the Trustee is the owner of the shares * * 
*.

    (f) The bank believes that amendments are now under consideration 
that will also require investment of the assets of these plans 
exclusively in the Fund's shares. Accordingly, the bank may eventually 
own the Fund's shares in several separate trust accounts and in an 
aggregate amount equal to a majority of the Fund's shares.
    (g) Section 20 of the Banking Act of 1933 provides in relevant part 
that

    no member bank shall be affiliated in any manner described in 
section 2(b) hereof with any corporation * * * engaged principally in 
the issue, flotation, underwriting, public sale, or distribution at 
wholesale or retail or through syndicate participation of stocks * * * 
or other securities: * * *.

    (h) Section 2(b) defines the term affiliate to include

    any corporation, business trust, association or other similar 
organization (1) Of which a member bank, directly or indirectly, owns or 
controls either a majority of the voting shares or more than 50 per 
centum of the number of shares voted for the election of its directors, 
trustees, or other persons exercising similar functions at the preceding 
election, or controls in any manner the election of a majority of its 
directors, trustees, or other persons exercising similar functions; * * 
*.

    (i) The Board has previously taken the position, in an 
interpretation involving the term affiliate under the Banking Act of 
1933, that it would not require a member bank to obtain and publish a 
report of a corporation the majority of the stock of which is held by 
the member bank as executor or trustee, provided that the member bank 
holds such stock subject to control by a court or by a beneficiary or 
other principal and that the member bank may not lawfully exercise 
control of such stock independently of any order or direction of a 
court, beneficiary or other principal. 1933 Federal Reserve Bulletin 
651. The rationale of that interpretation--which was reaffirmed by the 
Board in 1957--would appear to be equally applicable to the facts in the 
present case. In the circumstances, and on the basis of the Board's 
understanding that the bank will not vote any of Fund's shares or 
control in any manner the election of any of its directors, trustees, or 
other persons exercising similar functions, the Board has concluded that 
the situation in question would not fall within the purpose or coverage 
of section 20 of the Banking Act of 1933 and, therefore, would not 
involve a violation of the statute.

[[Page 223]]



Sec. 250.221  Issuance and sale of short-term debt obligations by 
bank holding companies.

    (a) The opinion of the Board of Governors of the Federal Reserve 
System has been requested recently with respect to the proposed sale of 
``thrift notes'' by a bank holding company for the purpose of supplying 
capital to its wholly-owned nonbanking subsidiaries.
    (b) The thrift notes would bear the name of the holding company, 
which in the case presented, was substantially similar to the name of 
its affiliated banks. It was proposed that they be issued in 
denominations of $50 to $100 and initially be of 12-month or less 
maturities. There would be no maximum amount of the issue. Interest 
rates would be variable according to money market conditions but would 
presumably be at rates somewhat above those permitted by Regulation Q 
ceilings. There would be no guarantee or indemnity of the notes by any 
of the banks in the holding company system and, if required to do so, 
the holding company would place on the face of the notes a negative 
representation that the purchase price was not a deposit, nor an 
indirect obligation of banks in the holding company system, nor covered 
by deposit insurance.
    (c) The notes would be generally available for sale to members of 
the public, but only at offices of the holding company and its 
nonbanking subsidiaries. Although offices of the holding company may be 
in the same building or quarters as its banking offices, they would be 
physically separated from the banking offices. Sales would be made only 
by officers or employees of the holding company and its nonbanking 
subsidiaries. Initially, the notes would only be offered in the State in 
which the holding company was principally doing business, thereby 
complying with the exemption provided by section 3(a)(11) of the 
Securities Act of 1933 (15 U.S.C. 77c) for ``intra-state'' offerings. If 
it was decided to offer the notes on an interstate basis, steps would be 
taken to register the notes under the Securities Act of 1933. Funds from 
the sale of the notes would be used only to supply the financial needs 
of the nonbanking subsidiaries of the holding company. These nonbank 
subsidiaries are, at present, a small loan company, a mortgage banking 
company and a factoring company. In no instance would the proceeds from 
the sale of the notes be used in the bank subsidiaries of the holding 
company nor to maintain the availability of funds in its bank 
subsidiaries.
    (d) The sale of the thrift notes, in the specific manner proposed, 
is an activity described in section 20 of the Banking Act of 1933 (12 
U.S.C. 377), that is, ``the issue, flotation, underwriting, public sale 
or distribution * * * of * * * notes, or other securities''. Briefly 
stated, this statute prohibits a member bank to be affiliated with a 
company ``engaged principally'' in such activity. Since the continued 
issuance and sale of such securities would be necessary to permit 
maintenance of the holding company's activities without substantial 
contraction and would be an integral part of its operations, the Board 
concluded that the issuance and sale of such notes would constitute a 
principal activity of a holding company within the spirit and purpose of 
the statute. (For prior Board decisions in this connection, see 1934 
Federal Reserve Bulletin 485, 12 CFR 218.104, 12 CFR 218.105 and 12 CFR 
218.101.)
    (e) In reaching this conclusion, the Board distinguished the 
proposed activity from the sale of short-term notes commonly known as 
commercial paper, which is a recognized form of financing for bank 
holding companies. For purposes of this interpretation, commercial paper 
may be defined as notes, with maturities not exceeding nine months, the 
proceeds of which are to be used for current transactions, which are 
usually sold to sophisticated institutional investors, rather than to 
members of the general public, in minimum denominations of $10,000 
(although sometimes they may be sold in minimum denominations of 
$5,000). Commercial paper is exempt from registration under the 
Securities Act of 1933 by reason of the exemption provided by section 
3(a)(3) thereof (15 U.S.C. 77c). That exemption is inapplicable where 
the securities are sold to the general public (17 CFR 231.4412). The 
reasons for such exemption, taken together with the abuses that gave 
rise to the passage of the Banking Act of 1933 (``the Glass-

[[Page 224]]

Steagall Act''), have led the Board to conclude that the issuance of 
commercial paper by a bank holding company is not an activity intended 
to be included within the scope of section 20.

(Interprets and applies 12 U.S.C. 377 and 1843)

[Reg. Y, 38 FR 35231, Dec. 26, 1973]



Sec. 250.260  Miscellaneous interpretations; gold coin and bullion.

    The Board has received numerous inquiries from member banks relating 
to the repeal of the ban on ownership of gold by United States citizens. 
Listed below are questions and answers which affect member banks and 
relate to the responsibilities of the Federal Reserve System.
    (a) May gold in the form of coins or bullion be counted as vault 
cash in order to satisfy reserve requirements? No. Section 19(c) of the 
Federal Reserve Act requires that reserve balances be satisfied either 
by a balance maintained at the Federal Reserve Bank or by vault cash, 
consisting of United States currency and coin. Gold in bullion form is 
not United States currency. Since the bullion value of United States 
gold coins far exceeds their face value, member banks would not in 
practice distribute them over the counter at face value to satisfy 
customer demands.
    (b) Will the Federal Reserve Banks perform services for member banks 
with respect to gold, such as safekeeping or assaying? No.
    (c) Will a Federal Reserve Bank accept gold as collateral for an 
advance to a member bank under section 10(b) of the Federal Reserve Act? 
No.

[39 FR 45254, Dec. 31, 1974]

         Interpretations of Section 32 of the Glass-Steagall Act



Sec. 250.400  Service of open-end investment company.

    An open-end investment company is defined in section 5(a)(1) of the 
Investment Company Act of 1940 as a company ``which is offering for sale 
or has outstanding any redeemable security of which it is the issuer.'' 
Section 2(a)(31) of said act provides that a redeemable security means 
``any security, other than short-term paper, under the terms of which 
the holder, upon its presentation to the issuer or to a person 
designated by the issuer, is entitled (whether absolutely or only out of 
surplus) to receive approximately his proportionate share of the 
issuer's current net assets, or the cash equivalent thereof.''


It is customary for such companies to have but one class of securities, 
namely, capital stock, and it is apparent that the more or less 
continued process of redemption of the stock issued by such a company 
would restrict and contract its activities if it did not continue to 
issue its stock. Thus, the issuance and sale of its stock is essential 
to the maintenance of the company's size and to the continuance of 
operations without substantial contraction, and therefore the issue and 
sale of its stock constitutes one of the primary activities of such a 
company.


Accordingly, it is the opinion of the Board that if such a company is 
issuing or offering its redeemable stock for sale, it is ``primarily 
engaged in the issue * * * public sale, or distribution, * * * of 
securities'' and that section 32 of the Banking Act of 1933, as amended, 
prohibits an officer, director or employee of any such company from 
serving at the same time as an officer, director or employee of any 
member bank. It is the Board's view that this is true even though the 
shares are sold to the public through independent organizations with the 
result that the investment company does not derive any direct profit 
from the sales.


If, however, the company has ceased to issue or offer any of its stock 
for sale, the company would not be engaged in the issue or distribution 
of its stock, and, therefore, the prohibition contained in section 32 
would be inapplicable unless the company were primarily engaged in the 
underwriting, public sale or distribution of securities other than its 
own stock.

[16 FR 4963, May 26, 1951. Redesignated at 61 FR 57289, Nov. 6, 1996]

[[Page 225]]



Sec. 250.401  Director serving member bank and closed-end investment 
company being organized.

    (a) The Board has previously expressed the opinion (Sec. 218.101) 
that section 32 of the Banking Act of 1933 (12 U.S.C. 78) is applicable 
to a director of a member bank serving as a director of an open-end 
investment company, because the more or less continued process of 
redemption of the stock issued by such company makes the issuance and 
sale of its stock essential to the maintenance of the company's size and 
to the continuance of operations, with the result that the issuance and 
sale of its stock constitutes one of the primary activities of such a 
company. The Board also stated that if the company had ceased to issue 
or offer any of its stock for sale, the company would not be engaged in 
the issuance or distribution of its stock and therefore the prohibitions 
of section 32 would not be applicable. Subsequently, the Board expressed 
the opinion that section 32 would not be applicable in the case of a 
closed-end investment company.
    (b) The Board has recently stated that it believed that a closed-end 
company which was in process of organization and was actively engaged in 
issuing and selling its shares was in the same position relative to 
section 32 as an open-end company, and that the section would be 
applicable while this activity continued.

[25 FR 3464, Apr. 21, 1960. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.402  Service as officer, director, or employee of licensee 
corporation under the Small Business Investment Act of 1958.

    (a) The Board of Governors has been requested to express an opinion 
whether Sec. 218.1 would prohibit an officer, director, or employee of 
a member bank from serving at the same time as an officer, director, or 
employee of a Licensee corporation under the Small Business Investment 
Act of 1958 (15 U.S.C. 661 et seq.). It is understood that a Licensee 
would be authorized to engage only in the activities set forth in the 
statute, namely, to provide capital and long-term loan funds to small 
business concerns.
    (b) In the opinion of the Board, a corporation engaged exclusively 
in the enumerated activities would not be ``primarily engaged in the 
issue, flotation, underwriting, public sale, or distribution, at 
wholesale or retail, or through syndicate participation, of stocks, 
bonds, or other similar securities.'' Accordingly, the prohibition of 
Sec. 218.1 would not apply to serving as an officer, director, or 
employee of either a small business investment company organized under 
the Small Business Investment Act of 1958, or an investment company 
chartered under the laws of a State solely for the purpose of operating 
under the Small Business Investment Act of 1958.

[25 FR 4427, May 19, 1960. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.403  Service of member bank and real estate investment company.

    (a) The Board recently considered two inquiries regarding the 
question whether proposed real estate investment companies would be 
subject to the provisions of sections 20 and 32 of the Banking Act of 
1933 (12 U.S.C. 377 and 78). These sections relate to affiliations 
between member banks and companies engaged principally in the issue, 
flotation, underwriting, public sale or distribution of stocks, bonds, 
or similar securities, and interlocking directorates between member 
banks and companies primarily so engaged. In both instances the 
companies, after their organization, would engage only in the business 
of financing real estate development or investing in real estate 
interests, and not in the type of business described in the statute. 
However, each of the companies, in the process of its organization, 
would issue its own stock. In one instance, it appeared that the stock 
would be issued over a period of from 30 to 60 days; in the other 
instance it was stated that the stock would be sold by a firm of 
underwriters and that distribution was expected to be completed in not 
more than a few days.
    (b) On the basis of the facts stated, the Board concluded that the 
companies involved would not be subject to sections 20 and 32 of the 
Banking Act of 1933, since they would not be principally or primarily 
engaged in the

[[Page 226]]

business of issuing or distributing securities but would only be issuing 
their own stock for a period ordinarily required for corporate 
organization. The Board stated, however, that if either of the companies 
should subsequently issue additional shares frequently and in 
substantial amounts relative to the size of the company's capital 
structure, it would be necessary for the Board to reconsider the matter.
    (c) Apart from the legal question, the Board noted that an 
arrangement of the kind proposed could involve some dangers to an 
affiliated bank because the relationship might tend to impair the 
independent judgment that should be exercised by the bank in appraising 
its credits and might cause the company to be so identified in the minds 
of the public with the bank that any financial reverses suffered by the 
company might affect the confidence of the public in the bank.
    (d) Because of the foregoing conclusion that the companies would not 
be subject to sections 20 and 32, it seems advisable to clarify Sec. 
218.102, in which the Board took the position that a closed-end 
investment company which was in process of organization and was actively 
engaged in issuing and selling its shares was subject to section 32 as 
long as this activity continued. That interpretation should be regarded 
as applicable only where the circumstances are such as to indicate that 
the issuance of the company's stock is a primary or principal activity 
of the company. For example, such circumstances might exist where the 
initial stock of a company is actively issued over a period of time 
longer than that ordinarily required for corporate organization, or 
where, subsequent to organization, the company issues its own stock 
frequently and in substantial amounts relative to the total amount of 
shares outstanding.

[26 FR 868, Jan. 28, 1961. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.404  Serving as director of member bank and corporation
selling own stock.

    (a) The Board recently considered the question whether section 32 of 
the Banking Act of 1933 (12 U.S.C. 78) would be applicable to the 
service of a director of a corporation which planned to acquire or 
organize, as proceeds from the sale of stock became available, 
subsidiaries to operate in a wide variety of fields, including 
manufacturing, foreign trade, leasing of heavy equipment, and real 
estate development. The corporation had a paid-in capital of about 
$60,000 and planned to sell additional shares at a price totaling $10 
million, with the proviso that if less than $3 million worth were sold 
by March 1962, the funds subscribed would be refunded. It thus appeared 
to be contemplated that the sale of stock would take at least a year, 
and there appeared to be no reason for believing that, if the venture 
proved successful, additional shares would not be offered so that the 
corporation could continue to expand.
    (b) The Board concluded that section 32 would be applicable, stating 
that although Sec. 218.102, as clarified by Sec. 218.104, related to 
closed-end investment companies, the rationale of that interpretation is 
applicable to corporations generally.

[26 FR 2456, Mar. 23, 1961. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.405  No exception granted a special or limited partner.

    (a) The Board has been asked on several occasions whether section 32 
of the Banking Act of 1933 (12 U.S.C. 78) is applicable to a director, 
officer, or employee of a member bank who is a special or limited 
partner in a firm primarily engaged in the business described in that 
section.
    (b) Since the Board cannot issue an individual permit, it can exempt 
a limited or special partner only by amending part 218 (Regulation R). 
After the statute was amended in 1935 so as to make it applicable to a 
partner, the Board carefully considered the desirability of making such 
an exception. On several subsequent occasions it has reconsidered the 
question. In each instance the Board has decided that in view of a 
limited partner's interest in the underwriting and distributing 
business, it should not make the exception.

[27 FR 7954, Aug. 10, 1962. Redesignated at 61 FR 57289, Nov. 6, 1996]

[[Page 227]]



Sec. 250.406  Serving member bank and investment advisor with mutual
fund affiliation.

    (a) The opinion of the Board of Governors of the Federal Reserve 
System has been requested with respect to service as vice president of a 
corporation engaged in supplying investment advice and management 
services to mutual funds and others (``Manager'') and as director of a 
member bank.
    (b) Section 32 of the Banking Act of 1933 (12 U.S.C. 78), forbids 
any officer, director, or employee of any corporation ``primarily 
engaged in the issue, flotation, underwriting, public sale, or 
distribution, at wholesale or retail, or through syndicate 
participation, of stocks, bonds, or other similar securities * * *'' to 
serve at the same time as an officer, director, or employee of a member 
bank.
    (c) Manager has for several years served a number of different open-
end or mutual funds, as well as individuals, institutions, and other 
clients, as an investment advisor and manager. However, it appears that 
Manager has a close relationship with two of the mutual funds which it 
serves. A wholly owned subsidiary of Manager (``Distributors''), serves 
as distributor for the two mutual funds and has no other function. In 
addition, the chairman and treasurer of Manager, as well as the 
president, assistant treasurer, and a director of Manager, are officers 
and directors of Distributors and trustees of both funds. It appears 
also that a director of Manager is president and director of 
Distributors, while the clerk of Manager is also clerk of Distributors. 
Manager, Distributors and both funds are listed at the same address in 
the local telephone directory.
    (d) While the greater part of the total annual income of Manager 
during the past five years has derived from ``individuals, institutions, 
and other clients'', it appears that a substantial portion has been 
attributable to the involvement with the two funds in question. During 
each of the last four years, that portion has exceeded a third of the 
total income of Manager, and in 1962 it reached nearly 40 percent.
    (e) The Board has consistently held that an open-end or mutual fund 
is engaged in the activities described in section 32, so long as it is 
issuing its securities for sale, since it is apparent that the more or 
less continued process of redemption of the stock issued by such a 
company would restrict and contract its activities if it did not 
continue to issue the stock. Clearly, a corporation that is engaged in 
underwriting or selling open-end shares, is so engaged.
    (f) In connection with incorporated manager-advisors to open-end or 
mutual funds, the Board has expressed the view in a number of cases that 
where the corporation served a number of different clients, and the 
corporate structure was not interlocked with that of mutual fund and 
underwriter in such a way that it could be regarded as being controlled 
by or substantially one with them, it should not be held to be 
``primarily engaged'' in section 32 activities. On the other hand, where 
a manager-advisor was created for the sole purpose of serving a 
particular fund, and its activities were limited to that function, the 
Board has regarded the group as a single entity for purposes of section 
32.
    (g) In the present case, the selling organization is a wholly-owned 
subsidiary of the advisor-manager, hence subject to the parent's 
control. Stock of the subsidiary will be voted according to decisions by 
the parent's board of directors, and presumably will be voted for a 
board of directors of the subsidiary which is responsive to policy lines 
laid down by the parent. Financial interests of the parent are obviously 
best served by an aggressive selling policy, and, in fact, both the 
share and the absolute amount of the parent's income provided by the two 
funds have shown a steady increase over recent years. The fact that 
dividends from Distributors have represented a relatively small 
proportion of the income of Manager, and that there were, indeed, no 
dividends in 1961 or 1962, does not support a contrary argument, in view 
of the steady increase in total income of Manager from the funds and 
Distributors taken as a whole.
    (h) In view of all these facts, the Board has concluded that the 
separate corporate entities of Manager and Distributors should be 
disregarded and Distributors viewed as essentially a

[[Page 228]]

selling arm of Manager. As a result of this conclusion, section 32 would 
forbid interlocking service as an officer of Manager and a director of a 
member bank.

[28 FR 13437, Dec. 12, 1963. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.407  Interlocking relationship involving securities affiliate 
of brokerage firm.

    (a) The Board of Governors was asked recently whether section 32 of 
the Banking Act of 1933 (``section 32''), 12 U.S.C. 78, prohibits the 
interlocking service of X as a director of a member bank of the Federal 
Reserve System and as a partner in a New York City brokerage firm 
(``Partnership'') having a corporation affiliate (``Corporation'') 
engaged in business of the kinds described in section 32 (``section 32 
business'').
    (b) Section 32, subject to an exception not applicable here, 
provides that

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve the same time as an officer, director, or 
employee of any member bank * * *.

    (c) From the information submitted it appears that Partnership, a 
member firm of the New York Stock Exchange, is the successor of two 
prior partnerships, in one of which X had been a partner. This prior 
partnership had been found not to be ``primarily engaged'' in section 32 
business. The other prior partnership, however, had been so engaged. By 
arrangement between the two prior firms, Corporation was formed chiefly 
for the purpose of carrying on the section 32 business of the prior firm 
that had been ``primarily engaged'' in that business, which business was 
transferred to Corporation. The two prior firms were then merged and the 
stock of Corporation was acquired by all the partners of Partnership, 
other than X, in proportion to the respective partnership interests of 
the stockholding partners. The information submitted indicated also that 
two of the three directors and ``some'' of the principal officers of 
Corporation are partners in Partnership, although X is not a director or 
officer of Corporation.
    (d) It is understood that the practice of forming corporate 
affiliates of brokerage firms, in order that the affiliate may carry on 
the securities business (such as section 32 business) with limited 
liability and other advantages, has become rather widespread in recent 
years. Accordingly, other cases may arise where a partner in such a firm 
may desire to serve at the same time as director of a member bank.
    (e) On the basis of the information presented the Board concluded 
that X in his capacity as an ``individual'', was not engaged in section 
32 business. However, as that information showed Corporation to be 
``primarily engaged'' in section 32 business, the Board stated that a 
finding that Partnership and Corporation were one entity for the 
purposes of the statute would mean that X would be forbidden to serve 
both the member bank and Partnership, if the one entity were so engaged.
    (f) Paragraph .15 of Rule 321 of the New York Stock Exchange 
governing the formation and conduct of affiliated companies of member 
organizations states that:

    Since Rule 314 provides that each member and allied member in a 
member organization must have a fixed interest in its entire business, 
it follows that the fixed interest of each member and allied member must 
extend to the member organization's corporate affiliate. When any of the 
corporate affiliate's participating stock is owned by the members and 
allied members in the member organization, such holdings must at all 
times be distributed among such members and allied members in 
approximately the same proportions as their respective interests in the 
profits of the member organization. When a member or allied member's 
interest in the member organization is changed, a corresponding change 
must be made in his participating interest in the affiliate.

    (g) Although it was understood that X had received special 
permission from the Exchange not to own any of the stock of Corporation, 
it appeared to the Board that Rule 321.15 would apply to the remaining 
partners. Moreover, other paragraphs of the rule forbid transfers of the 
stock, except under

[[Page 229]]

certain circumstances to limited classes of persons, such as employees 
of the organization or estates of decedent partners, without permission 
of the Exchange.
    (h) The information supplied to the Board clearly indicated that 
Corporation was formed in order to provide Partnership with an 
``underwriting arm''. Under Rule 321 of the Exchange, the partners 
(other than X) are required to own stock in Corporation because of their 
partnership interest, would be required to surrender that stock on 
leaving the partnership, and incoming partners would be required to 
acquire such stock. Furthermore, Rule 321 speaks of a corporate 
affiliate, such as Corporation, as a part of the ``entire business'' of 
a member organization.
    (i) On the basis of the foregoing, the Board concluded that 
Partnership and Corporation must be regarded as a single entity or 
enterprise for purposes of section 32.
    (j) The remaining question was whether the enterprise, as a whole, 
should be regarded as ``primarily engaged'' in section 32 business. The 
Information presented stated that the total dollar volume of section 32 
business of Corporation during the first eleven months of its operation 
was $89 million. The gross income from section 32 business was less than 
half a million, and represented about 7.9 percent of the income of 
Partnership. The Board was advised that the relatively low amount of 
income from section 32 business of Corporation as due to special costs, 
and to the condition of the market for municipal and State bonds during 
the past year, a field in which Corporation specializes. Corporation is 
listed in a standard directory of securities dealers, and holds itself 
out as having separate departments to deal with the principal 
underwriting areas in which it functions.
    (k) In view of the above information, the Board concluded that the 
enterprise consisting of Partnership and Corporation was ``primarily 
engaged'' in section 32 business. Accordingly, the Board stated that the 
partners in Partnership, including X, were forbidden by that section and 
by this part 218 (Reg. R), issued pursuant to the statute, to serve as 
officers, directors, or employees of any member banks.

[29 FR 5315, Apr. 18, 1964. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.408  Short-term negotiable notes of banks not securities 
under section 32, Banking Act of 1933.

    (a) The Board of Governors has been asked whether short-term 
unsecured negotiable notes of the kinds issued by some of the large 
banks in this country as a means of obtaining funds are ``other similar 
securities'' within the meaning of section 32, Banking Act of 1933 (12 
U.S.C. 78) and this part.
    (b) Section 32 forbids certain interlocking relationships between 
banks which are members of the Federal Reserve System and individuals or 
organizations ``primarily engaged in the issue, flotation, underwriting, 
public sale, or distribution, at wholesale or retail, or through 
syndicate participation, of stocks, bonds, or other similar securities * 
* *.'' Therefore, if such notes are securities similar to stocks or 
bonds, any dealing therein would be an activity covered in section 32 
and would have to be taken into consideration in determining whether the 
individual or organization involved was ``primarily engaged'' in such 
activities.
    (c) The Board has concluded that such short-term notes of the kind 
described above are not ``other similar securities'' within the meaning 
of section 32 and this part.

[29 FR 16065, Dec. 2, 1964. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.409  Investment for own account affects applicability of section 32.

    (a) The Board of Governors has been presented with the question 
whether a certain firm is primarily engaged in the activities described 
in section 32 of the Banking Act of 1933. If the firm is so engaged, 
then the prohibitions of section 32 forbids a limited partner to serve 
as employee of a member bank.
    (b) The firm describes the bulk of its business, producing roughly 
60 percent of its income, as ``investing for its own account.'' However, 
it has a seat on the local stock exchange, and acts as specialist and 
odd-lot dealer on the floor of the exchange, an activity responsible for 
some 30 percent of its volume

[[Page 230]]

and profits. The firm's ``off-post trading,'' apart from the investment 
account, gives rise to about 5 percent of its total volume and 10 
percent of its profits. Gross volume has risen from $4 to $10 million 
over the past 3 years, but underwriting has accounted for no more than 
one-half of 1 percent of that amount.
    (c) Section 32 provides that

    No officer, director, or employee of any corporation or 
unincorporated association, no partner, or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale, or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve the same time (sic) as an officer, director, or 
employee of any member bank * * *

    (d) In interpreting this language, the Board has consistently held 
that underwriting, acting as a dealer, or generally speaking, selling, 
or distributing securities as a principal, is covered by the section, 
while acting as broker or agent is not.
    (e) In one type of situation, however, although a firm was engaged 
in selling securities as principal, on its own behalf, the Board held 
that section 32 did not apply. In these cases, the firm alleged that it 
bought and sold securities purely for investment purposes. Typically, 
those cases involved personal holding companies or small family 
investment companies. Securities had been purchased only for members of 
a restricted family group, and had been held for relatively long periods 
of time.
    (f) The question now before the Board is whether a similar exception 
can apply in the case of the investment account of a professional 
dealer. In order to answer this question, it is necessary to analyze, in 
the light of applicable principles under the statute, the three main 
types of activity in which the firm has been engaged, (1) acting as 
specialist and odd-lot dealer, (2) off-post trading as an ordinary 
dealer, and (3) investing for its own account.
    (g) On several occasions, the Board has held that, to the extent the 
trading of a specialist or odd-lot dealer is limited to that required 
for him to perform his function on the floor of the exchange, he is 
acting essentially in an agency capacity. In a letter of September 13, 
1934, the Board held that the business of a specialist was not of the 
kind described in the (unamended) section on the understanding that

    * * * in acting as specialists on the New York Curb Exchange, it is 
necessary for the firm to buy and sell odd lots and * * * in order to 
protect its position after such transactions have been made, the firm 
sells or buys shares in lots of 100 or multiples thereof in order to 
reduce its position in the stock in question to the smallest amount 
possible by this method. It appears therefore that, in connection with 
these transactions, the firm is neither trading in the stock in question 
or taking a position in it except to the extent made necessary by the 
fact that it deals in odd lots and cannot complete the transactions by 
purchases and sales on the floor of the exchange except to the nearest 
100 share amount.

    (h) While subsequent amendments to section 32 to some extent changed 
the definition of the kinds of securities business that would be covered 
by the section, the amendments were designed so far as is relevant to 
the present question, to embody existing interpretations of the Board. 
Accordingly, to the extent that the firm's business is described by the 
above letter of the Board, it should not be considered to be of a kind 
described in section 32.
    (i) Turning to the firm's off-post trading, the Board is inclined to 
agree with the view that this is sufficient to make the case a 
borderline one under the statute. In the circumstances, the Board might 
prefer to postpone making a determination until figures for 1965 could 
be reviewed, particularly in the light of the recent increase in total 
volume, if it were not for the third category, the firm's own investment 
account.
    (j) While this question has not been squarely presented to it in the 
past, the Board is of the opinion that when a firm is doing any 
significant amount of business as a dealer or underwriter, then 
investments for the firm's own account should be taken into 
consideration in determining whether the firm is ``primarily engaged'' 
in the activities described in section 32. The division into dealing for 
one's own account, and dealing with customers, is a highly subjective 
one, and although a particular firm or individual may be quite 
scrupulous in separating the two,

[[Page 231]]

the opportunity necessarily exists for the kind of abuse at which the 
statute is directed. The Act is designed to prevent situations from 
arising in which a bank director, officer, or employee could influence 
the bank or its customers to invest in securities in which his firm has 
an interest, regardless of whether he, as an individual, is likely to do 
so. In the present case, when these activities are added to the firm's 
``off-post trading'', the firm clearly falls within the statutory 
definition.
    (k) For the reasons just discussed, the Board concludes that the 
firm must be considered to be primarily engaged in activities described 
in section 32, and that the prohibitions of the section forbid a limited 
partner in that firm to serve as employee of a member bank.

(12 U.S.C. 248(i))

[30 FR 7743, June 16, 1965. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.410  Interlocking relationships between bank and its
commingled investment account.

    (a) The Board of Governors was asked recently whether the 
establishment of a proposed ``Commingled Investment Account'' 
(``Account'') by a national bank would involve a violation of section 32 
of the Banking Act of 1933 in view of the interlocking relationships 
that would exist between the bank and Account.
    (b) From the information submitted, it was understood that Account 
would comprise a commingled fund, to be operated under the effective 
control of the bank, for the collective investment of sums of money that 
might otherwise be handled individually by the bank as managing agent. 
It was understood further that the Comptroller of the Currency had taken 
the position that Account would be an eligible operation for a national 
bank under his Regulation 9, ``Fiduciary Powers of National Banks and 
Collective Investment Funds'' (part 9 of this title). The bank had 
advised the Board that the Securities and Exchange Commission was of the 
view that Account would be a ``registered investment company'' within 
the meaning of the Investment Company Act of 1940, and that 
participating interests in Account would be ``securities'' subject to 
the registration requirements of the Securities Act of 1933.
    (c) The information submitted showed also that the minimum 
individual participation that would be permitted in Account would be 
$10,000, while the maximum acceptable individual investment would be 
half a million dollars; that there would be no ``load'' or payment by 
customers for the privilege of investing in Account; and that:

    The availability of the Commingled Account would not be given 
publicity by the Bank except in connection with the promotion of its 
fiduciary services in general and the Bank would not advertise or 
publicize the Commingled Account as such. Participations in the 
Commingled Account are to be made available only on the premises of the 
Bank (including its branches), or to persons who are already customers 
of the Bank in other connections, or in response to unsolicited 
requests.

    (d) Such information indicated further that participations would be 
received by the bank as agent, under a broad authorization signed by the 
customer, substantially equivalent to the power of attorney under which 
customers currently deposit their funds for individual investment, and 
that the participations would not be received ``in trust.''
    (e) The Board understood that Account would be required to comply 
with certain requirements of the Federal securities laws not applicable 
to an ordinary common trust fund operated by a bank. In particular, 
supervision of Account would be in the hands of a committee to be 
initially appointed by the bank, but subsequently elected by 
participants having a majority of the units of participation in Account. 
At least one member of the committee would be entirely independent of 
the bank, but the remaining members would be officers in the trust 
department of the bank.
    (f) The committee would make a management agreement with the bank 
under which the bank would be responsible for managing Account's 
investments, have custody of its assets, and maintain its books and 
records. The management agreement would be renewed annually if approved 
by the committee, including a ``majority'' of the independent members, 
or by a vote

[[Page 232]]

of participants having a majority of the units of participation. The 
agreement would be terminable on 60 days' notice by the committee, by 
such a majority of the participants, or by the bank, and would terminate 
automatically if assigned by the bank.
    (g) It was understood also that the bank would receive as annual 
compensation for its services one-half of one percent of Account's 
average net assets. Account would also pay for its own independent 
professional services, including legal, auditing, and accounting 
services, as well as the cost of maintaining its registration and 
qualification under the Federal securities laws.
    (h) Initially, the assets of Account would be divided into units of 
participation of an arbitrary value, and each customer would be credited 
with a number of units proportionate to his investment. Subsequently, 
the assets of Account would be valued at regular intervals, and divided 
by the number of units outstanding. New investors would receive units at 
their current value, determined in this way, according to the amount 
invested. Each customer would receive a receipt evidencing the number of 
units to which he was entitled. The receipts themselves would be 
nontransferable, but it would be possible for a customer to arrange with 
Account for the transfer of his units to someone else. A customer could 
terminate his participation at any time and withdraw the current value 
of his units.
    (i) Section 32 of the Banking Act of 1933 provides in relevant part 
that:

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve [at] the same time as an officer, director, or 
employee of any member bank * * *.

    (j) The Board concluded, based on its understanding of the proposal 
and on the general principles that have been developed in respect to the 
application of section 32, that the bank and Account would constitute a 
single entity for the purposes of section 32, at least so long as the 
operation of Account conformed to the representations made by the bank 
and outlined herein. Accordingly, the Board said that section 32 would 
not forbid officers of the bank to serve on Account's committee, since 
Account would be regarded as nothing more than an arm or department of 
the bank.
    (k) In conclusion, the Board called attention to section 21 of the 
Banking Act of 1933 which, briefly, forbids a securities firm or 
organization to engage in the business of receiving deposits, subject to 
certain exceptions. However, since section 21 is a criminal statute, the 
Board has followed the policy of not expressing views as to its meaning. 
(1934 Federal Reserve Bulletin 41, 543.) The Board, therefore, expressed 
no position with respect to whether the section might be held applicable 
to the establishment and operation of the proposed ``Commingled 
Investment Account.''

(12 U.S.C. 248(i))

[30 FR 12836, Oct. 8, 1965. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.411  Interlocking relationships between member bank and variable
annuity insurance company.

    (a) The Board has recently been asked to consider whether section 32 
of the Banking Act of 1933 (12 U.S.C. 78) and this part prohibit 
interlocking service between member banks and (1) the board of managers 
of an accumulation fund, registered under the Investment Company Act of 
1940 (15 U.S.C. 80), that sells variable annuities and (2) the board of 
directors of the insurance company, of which the accumulation fund is a 
``separate account,'' but as to which the insurance company is the 
sponsor, investment advisor, underwriter, and distributor. Briefly, a 
variable annuity is one providing for annuity payment varying in 
accordance with the changing values of a portfolio of securities.
    (b) Section 32 provides in relevant part that:

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or

[[Page 233]]

through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve [at] the same time as an officer, director, or 
employee of any member bank * * *.

    (c) For many years, the Board's position has been that an open-end 
investment company (or mutual fund) is ``primarily engaged in the issue 
* * * public sale, or distribution * * * of securities'' since the 
issuance and sale of its stock is essential to the maintenance of the 
company's size and to the continuance of its operations without 
substantial contraction, and that section 32 of the Banking Act of 1933 
prohibits an officer, director, or employee of any such company from 
serving at the same time as an officer, director, or employee of any 
member bank. (1951 Federal Reserve Bulletin 645; Sec. 218.101.)
    (d) For reasons similar to those stated by the U.S. Supreme Court in 
Securities and Exchange Commission v. Variable Annuity Life Insurance 
Company of America, 359 U.S. 65 (1959), the Board concluded that there 
is no meaningful basis for distinguishing a variable annuity interest 
from a mutual fund share for section 32 purposes and that, therefore, 
variable annuity interests should also be regarded as ``other similar 
securities'' within the prohibition of the statute and regulation.
    (e) The Board concluded also that, since the accumulation fund, like 
a mutual fund, must continually issue and sell its investment units in 
order to avoid the inevitable contraction of its activities as it makes 
annuity payments or redeems variable annuity units, the accumulation 
fund is ``primarily engaged'' for section 32 purposes. The Board further 
concluded that the insurance company was likewise ``primarily engaged'' 
for the purposes of the statute since it had no significant revenue 
producing operations other than as underwriter and distributor of the 
accumulation fund's units and investment advisor to the fund.
    (f) Although it was clear, therefore, that section 32 prohibits any 
officers, directors, and employees of member banks from serving in any 
such capacity with the insurance company or accumulation fund, the Board 
also considered whether members of the board of managers of the 
accumulation fund are ``officers, directors, or employees'' within such 
prohibition. The functions of the board of managers, who are elected by 
the variable annuity contract owners, are, with the approval of the 
variable annuity contract owners, to select annually an independent 
public accountant, execute annually an agreement providing for 
investment advisory services, and recommend any changes in the 
fundamental investment policy of the accumulation fund. In addition, the 
Board of managers has sole authority to execute an agreement providing 
for sales and administrative services and to authorize all investments 
of the assets of the accumulation fund in accordance with its 
fundamental investment policy. In the opinion of the Board of Governors, 
the board of managers of the accumulation fund performs functions 
essentially the same as those performed by classes of persons as to whom 
the prohibition of section 32 was specifically directed and, 
accordingly, are within the prohibitions of the statute.

(12 U.S.C. 248(i))

[33 FR 12886, Sept. 12, 1968. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.412  Interlocking relationships between member bank and 
insurance company-mutual fund complex.

    (a) The Board has been asked whether section 32 of the Banking Act 
of 1933 and this part prohibited interlocking service between member 
banks and (1) the advisory board of a newly organized open-end 
investment company (mutual fund), (2) the fund's incorporated investment 
manager-advisor, (3) the insurance company sponsoring and apparently 
controlling the fund.
    (b) X Fund, Inc. (``Fund''), the mutual fund, was closely related to 
X Life Insurance Company (``Insurance Company''), as well as to the 
incorporated manager and investment advisor to Fund (``Advisors''), and 
the corporation serving as underwriter for Fund (``Underwriters''). The 
same persons served as principal officers and directors of Insurance 
Company, Fund, Advisors, and Underwriters. In addition, several 
directors of member banks served as directors of Insurance Company and 
of

[[Page 234]]

Advisors and as members of the Advisory Board of Fund, and additional 
directors of member banks had been named only as members of the Advisory 
Board. All outstanding shares of Advisors and of Underwriters were 
apparently owned by Insurance Company.
    (c) Section 32 provides in relevant part that:

    No officer, director, or employee of any corporation * * * primarily 
engaged in the issue, flotation, underwriting, public sale, or 
distribution at wholesale or retail, or through syndicate participation, 
of stocks, bonds, or other similar securities, shall serve [at] the same 
time as an officer, director, or employee of any member bank * * *.

    (d) The Board of Governors reaffirmed its earlier position that an 
open-end investment company is ``primarily engaged'' in activities 
described in section 32 ``even though the shares are sold to the public 
through independent organizations with the result that the investment 
company does not derive any direct profit from the sales.'' (1951 
Federal Reserve Bulletin 654, Sec. 218.101.) Accordingly, the Board 
concluded that Fund must be regarded as so engaged, even though its 
shares were underwritten and distributed by Underwriters.
    (e) As directors of the member banks involved in the inquiry were 
not officers, directors, or employees of either Fund or Underwriters, 
the relevant questions were whether--(1) Advisors, and (2) Insurance 
Company, should be regarded as being functionally and structurally so 
closely allied with Fund that they should be treated as one with it in 
determining the applicability of section 32. An additional question was 
whether members of the Advisory Board are ``officers, directors, or 
employees'' of Fund within the prohibition of the statute.
    (f) Interlocking service with Advisory Board: The function of the 
Advisory Board was merely to make suggestions and to counsel with Fund's 
Board of Directors in regard to investment policy. The Advisory Board 
had no authority to make binding recommendations in any area, and it did 
not serve in any sense as a check on the authority of the Board of 
Directors. Indeed, the Fund's bylaws provided that the Advisory Board 
``shall have no power or authority to make any contract or incur any 
liability whatever or to take any action binding upon the Corporation, 
the Officers, the Board of Directors or the Stockholders.'' Members of 
the Advisory Board were appointed by the Board of Directors of Fund, 
which could remove any member of the Advisory Board at any time. None of 
the principal officers of Fund or of Underwriters were members of the 
Advisory Board; and the compensation of its members was expected to be 
nominal.
    (g) The Board of Governors concluded that members of the Advisory 
Board need not be regarded as ``officers, directors, or employees'' of 
Fund or of Underwriters for purposes of section 32, and that the 
statute, therefore, did not prohibit officers, directors, or employees 
of member banks from serving as members of the Advisory Board.
    (h) Interlocking service with Advisors: The principal officers and 
several of the directors of Advisors were identical with both those of 
Fund and of Underwriters. Entire management and investment 
responsibility for Fund had been placed, by contract, with Advisors, 
subject only to a review authority in the Board of Directors of Fund. 
Advisors also supplied office space for the conduct of Fund's affairs, 
and compensated members of the Advisory Board who are also officers or 
directors of Advisors. Moreover, it appeared that Advisors was created 
for the sole purpose of servicing Fund, and its activities were to be 
limited to that function.
    (i) In the view of the Board of Governors, the structural and 
functional identity of Fund and Advisors was such that they were to be 
regarded as a single entity for purposes of section 32, and, 
accordingly, officers, directors, and employees of member banks were 
prohibited by section 32 from serving in any such capacity with such 
entity.
    (j) Interlocking service with Insurance Company: It was clear that 
Insurance Company was not as yet ``primarily engaged'' in business of a 
kind described in section 32 with respect to the shares of the newly 
created Fund sponsored by Insurance Company, since the issue and sale of 
such shares had not yet commenced. Nor did it appear that Insurance 
Company would be so

[[Page 235]]

engaged in the preliminary stages of Fund's existence, when the 
disproportion between the insurance business of Insurance Company and 
the sale of Fund shares would be very great. However, it was also clear 
that if Fund was successfully launched, its activities would rather 
quickly reach a stage where a serious question would arise as to the 
applicability of the section 32 prohibition.
    (k) An estimate supplied to the Board indicated that 100,000 shares 
of Fund might be sold annually to produce, based on then current values, 
annual gross sales receipts of over $1 million. Insurance Company's 
total gross income for its last fiscal year was almost $10 million. On 
this basis, about one-tenth of the annual gross income of the Insurance 
Company-Fund complex (more than one-tenth, if income from investments of 
Insurance Company was eliminated) would be derived from sales of Fund 
shares. Although total sales of shares of Fund during the first year 
might not approximate expectations, it was assumed that if the estimate 
or projection was correct, the annual rate of sale might well rise to 
that level before the end of the first year of operation.
    (l) It appeared that net income of Insurance Company from Fund's 
operations would be minimal for the foreseeable future. However, it was 
understood that Insurance Company's chief reason for launching Fund was 
to provide salesmen for Insurance Company (who were to be the only 
sellers of shares of Fund, and most of whom, Insurance Company hoped, 
would qualify to sell those shares), with a ``package'' of mutual fund 
shares and life insurance policies that would provide increased 
competitive strength in a highly competitive field.
    (m) The Board concluded that Insurance Company would be ``primarily 
engaged'' in issuing or distributing shares of Fund within the meaning 
of section 32 by not later than the time of realization of the 
aforementioned estimated annual rate of sale, and possibly before. As 
indicated in Board of Governors v. Agnew, 329 U.S. 441 at 446, the 
prohibition of the statute applies if the section 32 business involved 
is a ``substantial'' activity of the company.
    (n) This, the Board observed, was not to suggest that officers, 
directors, or employees of Insurance Company who are also directors of 
member banks would be likely, as individuals, to use their positions 
with the banks to further sales of Fund's shares. However, as the 
Supreme Court pointed out in the Agnew case, section 32 is a 
``preventive or prophylactic measure.'' The fact that the individuals 
involved ``have been scrupulous in their relationships'' to the banks in 
question ``is immaterial.''

(12 U.S.C. 248(i))

[33 FR 13001, Sept. 14, 1968. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.413  ``Bank-eligible'' securities activities.

    Section 32 of the Glass-Steagall Act (12 U.S.C. 78) prohibits any 
officer, director, or employee of any corporation or unincorporated 
association, any partner or employee of any partnership, and any 
individual, primarily engaged in the issue, flotation, underwriting, 
public sale, or distribution, at wholesale or retail, or through 
syndicate participation, of stocks, bonds, or other similar securities, 
from serving at the same time as an officer, director, or employee of 
any member bank of the Federal Reserve System. The Board is of the 
opinion that to the extent that a company, other entity or person is 
engaged in securities activities that are expressly authorized for a 
state member bank under section 16 of the Glass-Steagall Act (12 U.S.C. 
24(7), 335), the company, other entity or individual is not engaged in 
the types of activities described in section 32. In addition, a 
securities broker who is engaged solely in executing orders for the 
purchase and sale of securities on behalf of others in the open market 
is not engaged in the business referred to in section 32.

[Reg. R, 61 FR 57289, Nov. 6, 1996]



PART 261_RULES REGARDING AVAILABILITY OF INFORMATION--
Table of Contents



                      Subpart A_General Provisions

Sec.
261.1 Authority, purpose, and scope.

[[Page 236]]

261.2 Definitions.
261.3 Custodian of records; certification; service; alternative 
          authority.

    Subpart B_Published Information and Records Available to Public; 
                         Procedures for Requests

261.10 Published information.
261.11 Records available for public inspection and copying.
261.12 Records available to public upon request.
261.13 Processing requests.
261.14 Exemptions from disclosure.
261.15 Request for confidential treatment.
261.16 Request for access to confidential commercial or financial 
          information.
261.17 Fee schedules; waiver of fees.

    Subpart C_Confidential Information Made Available to Supervised 
     Institutions, Financial Institution Supervisory Agencies, Law 
        Enforcement Agencies, and Others in Certain Circumstances

261.20 Confidential supervisory information made available to supervised 
          financial institutions and financial institution supervisory 
          agencies.
261.21 Confidential information made available to law enforcement 
          agencies and other nonfinancial institution supervisory 
          agencies.
261.22 Other disclosure of confidential supervisory information.
261.23 Subpoenas, orders compelling production and other process.

    Authority: 5 U.S.C. 552; 12 U.S.C. 248(i) and (k), 321 et seq., 611 
et seq., 1442, 1467a, 1817(a)(2)(A), 1817(a)(8), 1818(u) and (v), 
1821(o), 1821(t), 1830, 1844, 1951 et seq., 2601, 2801 et seq., 2901 et 
seq., 3101 et seq., 3401 et seq.; 15 U.S.C. 77uuu(b), 78q(c)(3); 29 
U.S.C. 1204; 31 U.S.C. 5301 et seq.; 42 U.S.C. 3601; 44 U.S.C. 3510.

    Source: 53 FR 20815, June 7, 1988, unless otherwise noted.



                      Subpart A_General Provisions

    Source: 62 FR 54359, Oct. 20, 1997, unless otherwise noted.



Sec. 261.1  Authority, purpose, and scope.

    (a) Authority. (1) This part is issued by the Board of Governors of 
the Federal Reserve System (the Board) pursuant to the Freedom of 
Information Act, 5 U.S.C. 552; Sections 9, 11, and 25A of the Federal 
Reserve Act, 12 U.S.C. 248(i) and (k), 321 et seq., (including 326), 611 
et seq.; Section 22 of the Federal Home Loan Bank Act, 12 U.S.C 1442; 
section 10 of the Home Owners' Loan Act, 12 U.S.C. 1467a; the Federal 
Deposit Insurance Act, 12 U.S.C. 1817(a)(2)(A), 1817(a)(8), 1818(u) and 
(v), 1821(o); section 5 of the Bank Holding Company Act, 12 U.S.C. 1844; 
the Bank Secrecy Act, 12 U.S.C. 1951 et seq., and Chapter 53 of Title 
31; the Home Mortgage Disclosure Act, 12 U.S.C. 2801 et seq.; the 
Community Reinvestment Act, 12 U.S.C. 2901 et seq.; the International 
Banking Act, 12 U.S.C. 3101 et seq.; the Right to Financial Privacy Act, 
12 U.S.C. 3401 et seq.; the Securities and Exchange Commission 
Authorization Act, 15 U.S.C. 77uuu(b), 78q(c)(3); the Employee 
Retirement Income Security Act, 29 U.S.C. 1204; the Money Laundering 
Suppression Act, 31 U.S.C. 5301, the Fair Housing Act, 42 U.S.C. 3601; 
the Paperwork Reduction Act, 44 U.S.C. 3510; and any other applicable 
law that establishes a basis for the exercise of governmental authority 
by the Board.
    (2) This part establishes mechanisms for carrying out the Board's 
statutory responsibilities under statutes in paragraph (a)(1) of this 
section to the extent those responsibilities require the disclosure, 
production, or withholding of information. In this regard, the Board has 
determined that the Board, or its delegees, may disclose exempt 
information of the Board, in accordance with the procedures set forth in 
this part, whenever it is necessary or appropriate to do so in the 
exercise of any of the Board's supervisory or regulatory authorities, 
including but not limited to, authority granted to the Board in the 
Federal Reserve Act, 12 U.S.C. 221 et seq., the Bank Holding Company 
Act, 12 U.S.C. 1841 et seq., the Home Owners' Loan Act, 12 U.S.C. 1461 
et seq., and the International Banking Act, 12 U.S.C. 3101 et seq. The 
Board has determined that all such disclosures, made in accordance with 
the rules and procedures specified in this part, are authorized by law.
    (3) The Board has also determined that it is authorized by law to 
disclose information to a law enforcement or other federal or state 
government agency that has the authority to request and receive such 
information in

[[Page 237]]

carrying out its own statutory responsibilities, or in response to a 
valid order of a court of competent jurisdiction or of a duly 
constituted administrative tribunal.
    (b) Purpose. This part sets forth the categories of information made 
available to the public, the procedures for obtaining documents and 
records, the procedures for limited release of exempt and confidential 
supervisory information, and the procedures for protecting confidential 
business information.
    (c) Scope. (1) This subpart A contains general provisions and 
definitions of terms used in this part.
    (2) Subpart B of this part implements the Freedom of Information Act 
(FOIA) (5 U.S.C. 552).
    (3) Subpart C of this part sets forth:
    (i) The kinds of exempt information made available to supervised 
institutions, supervisory agencies, law enforcement agencies, and others 
in certain circumstances;
    (ii) The procedures for disclosure; and
    (iii) The procedures with respect to subpoenas, orders compelling 
production, and other process.

[62 FR 54359, Oct. 20, 1997; 62 FR 62508, Nov. 24, 1997, as amended at 
76 FR 56600, Sept. 13, 2011]



Sec. 261.2  Definitions.

    For purposes of this part:
    (a) Board's official files means the Board's central records.
    (b) Commercial use request refers to a request from or on behalf of 
one who seeks information for a use or purpose that furthers the 
commercial, trade, or profit interests of the requester or the person on 
whose behalf the request is made.
    (c)(1) Confidential supervisory information means:
    (i) Exempt information consisting of reports of examination, 
inspection and visitation, confidential operating and condition reports, 
and any information derived from, related to, or contained in such 
reports;
    (ii) Information gathered by the Board in the course of any 
investigation, suspicious activity report, cease-and-desist orders, 
civil money penalty enforcement orders, suspension, removal or 
prohibition orders, or other orders or actions under the Financial 
Institutions Supervisory Act of 1966, Public Law 89-695, 80 Stat. 1028 
(codified as amended in scattered sections of 12 U.S.C.), the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq., the Home Owners' 
Loan Act, 12 U.S.C. 1461 et seq., the Federal Reserve Act, 12 U.S.C. 221 
et seq., the International Banking Act of 1978, Public Law 95-369, 92 
Stat. 607 (codified as amended in scattered sections of 12 U.S.C.), and 
the International Lending Supervision Act of 1983, 12 U.S.C. 3901 et 
seq.; except--
    (A) Such final orders, amendments, or modifications of final orders, 
or other actions or documents that are specifically required to be 
published or made available to the public pursuant to 12 U.S.C. 1818(u), 
or other applicable law, including the record of litigated proceedings; 
and
    (B) The public section of Community Reinvestment Act examination 
reports, pursuant to 12 U.S.C. 2906(b); and
    (iii) Any documents prepared by, on behalf of, or for the use of the 
Board, a Federal Reserve Bank, a federal or state financial institutions 
supervisory agency, or a bank or bank holding company or other 
supervised financial institution.
    (2) Confidential supervisory information does not include documents 
prepared by a supervised financial institution for its own business 
purposes and that are in its possession.
    (d) Direct costs mean those expenditures that the Board actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under Sec. 261.12.
    (e) Duplication refers to the process of making a copy of a document 
in response to a request for disclosure of records or for inspection of 
original records that contain exempt material or that otherwise cannot 
be inspected directly. Among others, such copies may take the form of 
paper, microform, audiovisual materials, or machine-readable 
documentation (e.g., magnetic tape or disk).
    (f) Educational institution refers to a preschool, a public or 
private elementary or secondary school, or an institution of 
undergraduate higher education, graduate higher education, professional 
education, or an institution

[[Page 238]]

of vocational education, which operates a program of scholarly research.
    (g) Exempt information means information that is exempt from 
disclosure under Sec. 261.14.
    (h) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and that is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (i)(1) Records of the Board include:
    (i) In written form, or in nonwritten or machine-readable form; all 
information coming into the possession and under the control of the 
Board, any Board member, any Federal Reserve Bank, or any officer, 
employee, or agent of the Board or of any Federal Reserve Bank, in the 
performance of functions for or on behalf of the Board that constitute 
part of the Board's official files; or
    (ii) That are maintained for administrative reasons in the regular 
course of business in official files in any division or office of the 
Board or any Federal Reserve Bank in connection with the transaction of 
any official business.
    (2) Records of the Board does not include personal files of Board 
members and employees; tangible exhibits, formulas, designs, or other 
items of valuable intellectual property; extra copies of documents and 
library and museum materials kept solely for reference or exhibition 
purposes; unaltered publications otherwise available to the public in 
Board publications, libraries, or established distribution systems.
    (j) Report of examination means the report prepared by the Board, or 
other federal or state financial institution supervisory agency, 
concerning the examination of a financial institution, and includes 
reports of inspection and reports of examination of U.S. branches or 
agencies of foreign banks and representative offices of foreign 
organizations, and other institutions examined by the Federal Reserve 
System.
    (k) Report of inspection means a report prepared by the Board 
concerning its inspection of a bank holding company and its bank and 
nonbank subsidiaries or other supervised financial institution.
    (l) Representative of the news media refers to any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public.
    (1) The term ``news'' means information that is about current events 
or that would be of current interest to the public.
    (2) Examples of news media entities include, but are not limited to, 
television or radio stations broadcasting to the public at large, and 
publishers of periodicals (but only in those instances when they can 
qualify as disseminators of ``news'') who make their products available 
for purchase or subscription by the general public.
    (3) ``Freelance'' journalists may be regarded as working for a news 
organization if they can demonstrate a solid basis for expecting 
publication through that organization, even though they are not actually 
employed by it.
    (m)(1) Review refers to the process of examining documents, located 
in response to a request for access, to determine whether any portion of 
a document is exempt information. It includes doing all that is 
necessary to excise the documents and otherwise to prepare them for 
release.
    (2) Review does not include time spent resolving general legal or 
policy issues regarding the application of exemptions.
    (n)(1) Search means a reasonable search, by manual or automated 
means, of the Board's official files and any other files containing 
Board records as seem reasonably likely in the particular circumstances 
to contain information of the kind requested. For purposes of computing 
fees under Sec. 261.17, search time includes all time spent looking for 
material that is responsive to a request, including line-by-line 
identification of material within documents. Such activity is distinct 
from ``review'' of material to determine whether the material is exempt 
from disclosure.
    (2) Search does not mean or include research, creation of any 
document, or extensive modification of an existing program or system 
that would significantly interfere with the operation of

[[Page 239]]

the Board's automated information systems.
    (o) Supervised financial institution includes a bank, bank holding 
company (including subsidiaries), savings and loan holding company 
(including non-depository subsidiaries), U.S. branch or agency of a 
foreign bank, or any other institution that is supervised by the Board.

[62 FR 54359, Oct. 20, 1997, as amended at 76 FR 56601, Sept. 13, 2011]



Sec. 261.3  Custodian of records; certification; service; 
alternative authority.

    (a) Custodian of records. The Secretary of the Board (Secretary) is 
the official custodian of all Board records, including records that are 
in the possession or control of the Board, any Federal Reserve Bank, or 
any Board or Reserve Bank employee.
    (b) Certification of record. The Secretary may certify the 
authenticity of any Board record, or any copy of such record, for any 
purpose, and for or before any duly constituted federal or state court, 
tribunal, or agency.
    (c) Service of subpoenas or other process. Subpoenas or other 
judicial or administrative process, demanding access to any Board 
records or making any claim against the Board, shall be addressed to and 
served upon the Secretary of the Board at the Board's office at 20th and 
C Streets, N.W., Washington, D.C. 20551. Neither the Board nor the 
Secretary are agents for service of process on behalf of any employee in 
respect of purely private legal disputes, except as specifically 
provided by law.
    (d) Alternative authority. Any action or determination required or 
permitted by this part to be done by the Secretary, the General Counsel, 
or the Director of any Division may be done by any employee who has been 
duly designated for this purpose by the Secretary, General Counsel, or 
the appropriate Director.



    Subpart B_Published Information and Records Available to Public; 
                         Procedures for Requests

    Source: 62 FR 54359, 54361, Oct. 20, 1997, unless otherwise noted.



Sec. 261.10  Published information.

    (a) Federal Register. The Board publishes in the Federal Register 
for the guidance of the public:
    (1) Descriptions of the Board's central and field organization;
    (2) Statements of the general course and method by which the Board's 
functions are channeled and determined, including the nature and 
requirements of procedures;
    (3) Rules of procedure, descriptions of forms available and the 
place where they may be obtained, and instructions on the scope and 
contents of all papers, reports, and examinations;
    (4) Substantive rules, interpretations of general applicability, and 
statements of general policy;
    (5) Every amendment, revision, or repeal of the foregoing in 
paragraphs (a)(1) through (a)(4) of this section;
    (6) Notices of proposed rulemaking;
    (7) Notices of applications received under the Bank Holding Company 
Act of 1956 (12 U.S.C. 1841 et seq.), the Home Owners' Loan Act (12 
U.S.C. 1461 et seq.), and the Change in Bank Control Act (12 U.S.C. 
1817);
    (8) Notices of all Board meetings, pursuant to the Government in the 
Sunshine Act (5 U.S.C. 552b);
    (9) Notices identifying the Board's systems of records, pursuant to 
the Privacy Act of 1974 (5 U.S.C. 552a); and
    (10) Notices of agency data collection forms being reviewed under 
the Paperwork Reduction Act (5 U.S.C. 3501 et seq.).
    (b) Board's Reports to Congress. The Board's annual report to 
Congress pursuant to the Federal Reserve Act (12 U.S.C. 247), which is 
made public upon its submission to Congress, contains a full account of 
the Board's operations during the year, the policy actions by the 
Federal Open Market Committee, an economic review of the year, and 
legislative recommendations to Congress. The Board also makes periodic

[[Page 240]]

reports to Congress under certain statutes, including but not limited to 
the Freedom of Information Act (5 U.S.C. 552); the Government in the 
Sunshine Act (5 U.S.C. 552b); the Full Employment and Balanced Growth 
Act of 1978 (12 U.S.C. 225a); and the Privacy Act (5 U.S.C. 552a).
    (c) Federal Reserve Bulletin. This publication is issued monthly and 
contains economic and statistical information, articles relating to the 
economy or Board activities, and descriptions of recent actions by the 
Board.
    (d) Other published information. Among other things, the Board 
publishes the following information:
    (1) Weekly publications. The Board issues the following publications 
weekly:
    (i) A statement showing the condition of each Federal Reserve Bank 
and a consolidated statement of the condition of all Federal Reserve 
Banks, pursuant to 12 U.S.C. 248(a);
    (ii) An index of applications received and the actions taken on the 
applications, as well as other matters issued, adopted, or promulgated 
by the Board; and
    (iii) A statement showing changes in the structure of the banking 
industry resulting from mergers and the establishment of branches.
    (2) Press releases. The Board frequently issues statements to the 
press and public regarding monetary and credit actions, regulatory 
actions, actions taken on certain types of applications, and other 
matters.
    (3) Call Report and other data. Certain data from Reports of 
Condition and Income submitted to the Board are available through the 
National Technical Information Service and may be obtained by the 
procedure described in Sec. 261.11(c)(2).
    (4) Federal Reserve Regulatory Service. This is a multivolume 
looseleaf service published by the Board, containing statutes, 
regulations, interpretations, rulings, staff opinions, and procedural 
rules under which the Board operates. Portions of the service are also 
published as separate looseleaf handbooks relating to consumer and 
community affairs, monetary policy and reserve requirements, payments 
systems, and securities credit transactions. The service and each 
handbook contain subject and citation indexes, are updated monthly, and 
may be subscribed to on a yearly basis.
    (e) Index to Board actions. The Board's Freedom of Information 
Office maintains an index to Board actions, which is updated weekly and 
provides identifying information about any matters issued, adopted, and 
promulgated by the Board since July 4, 1967. Copies of the index may be 
obtained upon request to the Freedom of Information Office subject to 
the current schedule of fees in Sec. 261.17.
    (f) Obtaining Board publications. The Publications Services Section 
maintains a list of Board publications that are available to the public. 
In addition, a partial list of publications is published in the Federal 
Reserve Bulletin. All publications issued by the Board, including 
available back issues, may be obtained from Publications Services, Board 
of Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, N.W., Washington, D.C. 20551 (pedestrian entrance is on C 
Street, N.W.). Subscription or other charges may apply to some 
publications.

[62 FR 54359, 54361, Oct. 20, 1997, as amended at 76 FR 56601, Sept. 13, 
2011]



Sec. 261.11  Records available for public inspection and copying.

    (a) Types of records made available. Unless they were published 
promptly and made available for sale or without charge, the following 
records shall be made available for inspection and copying at the 
Freedom of Information Office:
    (1) Final opinions, including concurring and dissenting opinions, as 
well as final orders and written agreements, made in the adjudication of 
cases;
    (2) Statements of policy and interpretations adopted by the Board 
that are not published in the Federal Register;
    (3) Administrative staff manuals and instructions to staff that 
affect the public;
    (4) Copies of all records released to any person under Sec. 261.12 
that, because of the nature of their subject matter, the Board has 
determined are likely to be requested again;

[[Page 241]]

    (5) A general index of the records referred to in paragraph (a)(4) 
of this section; and
    (6) The public section of Community Reinvestment Act examination 
reports.
    (b) Reading room procedures. (1) Information available under this 
section is available for inspection and copying, from 9:00 a.m. to 5:00 
p.m. weekdays, at the Freedom of Information Office of the Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, N.W., Washington, D.C. 20551 (the pedestrian entrance is on C 
Street, N.W.).
    (2) The Board may determine that certain classes of publicly 
available filings shall be made available for inspection and copying 
only at the Federal Reserve Bank where those records are filed.
    (c) Electronic records. (1) Except as set forth in paragraph (c)(2) 
of this section, information available under this section that was 
created by the Board on or after November 1, 1996, shall also be 
available on the Board's internet site (which can be found at http://
www.bog.frb.fed.us).
    (2) NTIS. The publicly available portions of Reports of Condition 
and Income of individual banks and certain other data files produced by 
the Board are distributed by the National Technical Information Service. 
Requests for these public reports should be addressed to: Sales Office, 
National Technical Information Service, U.S. Department of Commerce, 
5285 Port Royal Road, Springfield, Virginia 22161, (703) 487-4650.
    (3) Privacy protection. The Board may delete identifying details 
from any record to prevent a clearly unwarranted invasion of personal 
privacy.



Sec. 261.12  Records available to public upon request.

    (a) Types of records made available. All records of the Board that 
are not available under Sec. Sec. 261.10 and 261.11 shall be made 
available upon request, pursuant to the procedures and exceptions in 
this Subpart B.
    (b) Procedures for requesting records. (1) A request for 
identifiable records shall reasonably describe the records in a way that 
enables the Board's staff to identify and produce the records with 
reasonable effort and without unduly burdening or significantly 
interfering with any of the Board's operations.
    (2) The request shall be submitted in writing to the Freedom of 
Information Office, Board of Governors of the Federal Reserve System, 
20th & C Street, N.W., Washington, D.C. 20551; or sent by facsimile to 
the Freedom of Information Office, (202) 872-7562 or 7565. The request 
shall be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (3) A request may not be combined with any other request to the 
Board except for a request under 12 CFR 261a.3(a) (Rules Regarding 
Access to and Review of Personal Information under the Privacy Act of 
1974) and a request made under Sec. 261.22(b).
    (c) Contents of request. The request shall contain the following 
information:
    (1) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (2) Whether the requested information is intended for commercial 
use, and whether the requester is an educational or noncommercial 
scientific institution, or news media representative;
    (3) A statement agreeing to pay the applicable fees, or a statement 
identifying any desired fee limitation, or a request for a waiver or 
reduction of fees that satisfies Sec. 261.17(f); and
    (4) If the request is being made in connection with on-going 
litigation, a statement indicating whether the requester will seek 
discretionary release of exempt information from the General Counsel 
upon denial of the request by the Secretary. A requester who intends to 
make such a request to the General Counsel may also address the factors 
set forth in Sec. 261.22(b).
    (d) Defective requests. The Board need not accept or process a 
request that does not reasonably describe the records requested or that 
does not otherwise comply with the requirements of this section. The 
Board may return a defective request, specifying the deficiency. The 
requester may submit a corrected request, which will be treated as a new 
request.

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    (e) Oral requests. The Freedom of Information Office may honor an 
oral request for records, but if the requester is dissatisfied with the 
Board's response and wishes to seek review, the requester must submit a 
written request, which shall be treated as an initial request.

[62 FR 54362, Oct. 20, 1997; 62 FR 62508, Nov. 24, 1997]



Sec. 261.13  Processing requests.

    (a) Receipt of requests. Upon receipt of any request that satisfies 
Sec. 261.12(b), the Freedom of Information Office shall assign the 
request to the appropriate processing schedule, pursuant to paragraph 
(b) of this section. The date of receipt for any request, including one 
that is addressed incorrectly or that is referred to the Board by 
another agency or by a Federal Reserve Bank, is the date the Freedom of 
Information Office actually receives the request.
    (b) Multitrack processing. (1) The Board provides different levels 
of processing for categories of requests under this section. Requests 
for records that are readily identifiable by the Freedom of Information 
Office and that have already been cleared for public release may qualify 
for fast-track processing. All other requests shall be handled under 
normal processing procedures, unless expedited processing has been 
granted pursuant to paragraph (c)(2) of this section.
    (2) The Freedom of Information Office will make the determination 
whether a request qualifies for fast-track processing. A requester may 
contact the Freedom of Information Office to learn whether a particular 
request has been assigned to fast-track processing. If the request has 
not qualified for fast-track processing, the requester will be given an 
opportunity to limit the request in order to qualify for fast-track 
processing. Limitations of requests must be in writing.
    (c) Expedited processing. When a person requesting expedited access 
to records has demonstrated a compelling need for the records, or when 
the Board has determined to expedite the response, the Board shall 
process the request as soon as practicable.
    (1) To demonstrate a compelling need for expedited processing, the 
requester shall provide a certified statement, a sample of which may be 
obtained from the Freedom of Information Office. The statement, which 
must be certified to be true and correct to the best of the requester's 
knowledge and belief, shall demonstrate that:
    (i) The failure to obtain the records on an expedited basis could 
reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual; or
    (ii) The requester is a representative of the news media, as defined 
in Sec. 261.2, and there is urgency to inform the public concerning 
actual or alleged Board activity.
    (2) In response to a request for expedited processing, the Secretary 
shall notify a requester of the determination within ten calendar days 
of receipt of the request. If the Secretary denies a request for 
expedited processing, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (i) of this section, and the Board 
shall respond to the appeal within ten working days after the appeal was 
received by the Board.
    (d) Priority of responses. The Secretary will assign responsible 
staff to process particular requests. The Freedom of Information Office 
will normally process requests in the order they are received in the 
separate processing tracks, except when expedited processing is granted. 
However, in the Secretary's discretion, or upon a court order in a 
matter to which the Board is a party, a particular request may be 
processed out of turn.
    (e) Time limits. The time for response to requests shall be 20 
working days, except:
    (1) In the case of expedited treatment under paragraph (c) of this 
section;
    (2) Where the running of such time is suspended for payment of fees 
pursuant to Sec. 261.17(b)(2);
    (3) In unusual circumstances, as defined in 5 U.S.C. 552(a)(6)(B). 
In such circumstances, the time limit may be extended for a period of 
time not to exceed:
    (i) 10 working days as provided by written notice to the requester, 
setting forth the reasons for the extension and

[[Page 243]]

the date on which a determination is expected to be dispatched; or
    (ii) Such alternative time period as mutually agreed to by the 
Freedom of Information Office and the requester when the Freedom of 
Information Office notifies the requester that the request cannot be 
processed in the specified time limit.
    (f) Response to request. In response to a request that satisfies 
Sec. 261.12(b), an appropriate search shall be conducted of records of 
the Board in existence on the date of receipt of the request, and a 
review made of any responsive information located. The Secretary shall 
notify the requester of:
    (1) The Board's determination of the request;
    (2) The reasons for the determination;
    (3) The amount of information withheld;
    (4) The right of the requester to appeal to the Board any denial or 
partial denial, as specified in paragraph (i) of this section; and
    (5) In the case of a denial of a request, the name and title or 
position of the person responsible for the denial.
    (g) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, or classified by another 
agency, the Board may refer the request to that agency for a response 
and inform the requester promptly of the referral.
    (h) Providing responsive records. (1) Copies of requested records 
shall be sent to the requester by regular U.S. mail to the address 
indicated in the request, unless the requester elects to take delivery 
of the documents at the Freedom of Information Office or makes other 
acceptable arrangements, or the Board deems it appropriate to send the 
documents by another means.
    (2) The Board shall provide a copy of the record in any form or 
format requested if the record is readily reproducible by the Board in 
that form or format, but the Board need not provide more than one copy 
of any record to a requester.
    (i) Appeal of denial of request. Any person denied access to Board 
records requested under Sec. 261.12 may file a written appeal with the 
Board, as follows:
    (1) The appeal shall prominently display the phrase FREEDOM OF 
INFORMATION ACT APPEAL on the first page, and shall be addressed to the 
Freedom of Information Office, Board of Governors of the Federal Reserve 
System, 20th & C Street, N.W., Washington, D.C. 20551; or sent by 
facsimile to the Freedom of Information Office, (202) 872-7562 or 7565.
    (2) An initial request for records may not be combined in the same 
l