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Data is current as of April 23, 2008

Title 12:
Banks and Banking

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PART 362—ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS
ASSOCIATIONS

Section Contents

Subpart
A—Activities of Insured State Banks
§ 362.1   Purpose
and scope.
§ 362.2   Definitions.
§ 362.3   Activities
of insured State banks.
§ 362.4   Subsidiaries
of insured State banks.
§ 362.5   Approvals
previously granted.

Subpart
B—Safety and Soundness Rules Governing Insured State Nonmember
Banks
§ 362.6   Purpose
and scope.
§ 362.7   Definitions.
§ 362.8   Restrictions
on activities of insured state nonmember banks affiliated with certain
securities companies.

Subpart
C—Activities of Insured State Savings
Associations
§ 362.9   Purpose
and scope.
§ 362.10   Definitions.
§ 362.11   Activities
of insured State savings associations.
§ 362.12   Service
corporations of insured State savings associations.
§ 362.13   Approvals
previously granted.

Subpart
D—Acquiring, Establishing, or Conducting New Activities Through a
Subsidiary by an Insured Savings
Association
§ 362.14   Purpose
and scope.
§ 362.15   Acquiring
or establishing a subsidiary; conducting new activities through a
subsidiary.

Subpart
E—Financial Subsidiaries of Insured State Nonmember
Banks
§ 362.16   Purpose
and scope.
§ 362.17   Definitions.
§ 362.18   Financial
subsidiaries of insured state nonmember banks.

Authority:   12 U.S.C. 1816, 1818,
1819(a)(Tenth), 1828(j), 1828(m), 1828a, 1831a, 1831e, 1831w,
1843(l).

Source:   63 FR 66326, Dec. 1, 1998,
unless otherwise noted.

Subpart A—Activities of Insured State Banks

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§ 362.1   Purpose and scope.

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(a) This subpart, along with the notice and application procedures in
subpart G of part 303 of this chapter, implements the provisions of
section 24 of the Federal Deposit Insurance Act (12 U.S.C. 1831a) that
restrict and prohibit insured State banks and their subsidiaries from
engaging in activities and investments that are not permissible for
national banks and their subsidiaries. The phrase “activity permissible
for a national bank” means any activity authorized for national banks
under any statute including the National Bank Act (12 U.S.C. 21 et seq.
), as well as activities recognized as permissible for a national bank
in regulations, official circulars, bulletins, orders or written
interpretations issued by the Office of the Comptroller of the Currency
(OCC).

(b) This subpart does not cover the following activities:

(1) Activities conducted other than “as principal,” defined for
purposes of this subpart as activities conducted as agent for a customer,
conducted in a brokerage, custodial, advisory, or administrative capacity,
or conducted as trustee, or in any substantially similar capacity. For
example, this subpart does not cover acting solely as agent for the sale
of insurance, securities, real estate, or travel services; nor does it
cover acting as trustee, providing personal financial planning advice, or
safekeeping services;

(2) Interests in real estate in which the real property is used or
intended in good faith to be used within a reasonable time by an insured
State bank or its subsidiaries as offices or related facilities for the
conduct of its business or future expansion of its business or used as
public welfare investments of a type permissible for national banks;
and

(3) Equity investments acquired in connection with debts previously
contracted (DPC) if the insured State bank does not hold the property for
speculation and takes only such actions as would be permissible for a
national bank's DPC. The bank must dispose of the property within the
shorter of the period set by Federal law for national banks or the period
allowed under State law. For real estate, national banks may not hold DPC
for more than 10 years. For equity securities, national banks must
generally divest DPC as soon as possible consistent with obtaining a
reasonable return.

(c) A subsidiary of an insured state bank may not engage in real estate
investment activities that are not permissible for a subsidiary of a
national bank unless the bank does so through a subsidiary of which the
bank is a majority owner, is in compliance with applicable capital
standards, and the FDIC has determined that the activity poses no
significant risk to the appropriate deposit insurance fund. This subpart
provides standards for majority-owned subsidiaries of insured state banks
engaging in real estate investment activities that are not permissible for
a subsidiary of a national bank.

(d) The FDIC intends to allow insured State banks and their
subsidiaries to undertake only safe and sound activities and investments
that do not present significant risks to the Deposit Insurance Fund and
that are consistent with the purposes of Federal deposit insurance and
other applicable law. This subpart does not authorize any insured State
bank to make investments or to conduct activities that are not authorized
or that are prohibited by either State or Federal law.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71
FR 20527, Apr. 21, 2006]

§ 362.2   Definitions.

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For the purposes of this subpart, the following definitions will
apply:

(a) Bank, State bank, savings association, State savings
association, depository institution, insured depository institution,
insured State bank, Federal savings association, and insured State
nonmember bank shall each have the same respective meaning contained
in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).

(b) Activity means the conduct of business by a state-chartered
depository institution, including acquiring or retaining an equity
investment or other investment.

(c) Change in control means any transaction:

(1) By a State bank or its holding company for which a notice is
required to be filed with the FDIC, or the Board of Governors of the
Federal Reserve System (FRB), pursuant to section 7(j) of the Federal
Deposit Insurance Act (12 U.S.C. 1817(j)) except a transaction that is
presumed to be an acquisition of control under the FDIC's or FRB's
regulations implementing section 7(j);

(2) As a result of which a State bank eligible for the exception
described in §362.3(a)(2)(iii) is acquired by or merged into a depository
institution that is not eligible for the exception, or as a result of
which its holding company is acquired by or merged into a holding company
which controls one or more bank subsidiaries not eligible for the
exception; or

(3) In which control of the State bank is acquired by a bank holding
company in a transaction requiring FRB approval under section 3 of the
Bank Holding Company Act (12 U.S.C. 1842), other than a one bank holding
company formation in which all or substantially all of the shares of the
holding company will be owned by persons who were shareholders of the
bank.

(d) Company means any corporation, partnership, limited
liability company, business trust, association, joint venture, pool,
syndicate or other similar business organization.

(e) Control means the power to vote, directly or indirectly, 25
percent or more of any class of the voting securities of a company, the
ability to control in any manner the election of a majority of a company's
directors or trustees, or the ability to exercise a controlling influence
over the management and policies of a company.

(f) Convert its charter means an insured State bank undergoes
any transaction that causes the bank to operate under a different form of
charter than it had as of December 19, 1991, except a change from mutual
to stock form shall not be considered a charter conversion.

(g) Equity investment means an ownership interest in any
company; any membership interest that includes a voting right in any
company; any interest in real estate; any transaction which in substance
falls into any of these categories even though it may be structured as
some other form of business transaction; and includes an equity security.
The term “equity investment” does not include any of the foregoing if the
interest is taken as security for a loan.

(h) Equity security means any stock (other than adjustable rate
preferred stock, money market (auction rate) preferred stock, or other
newly developed instrument determined by the FDIC to have the character of
debt securities), certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract, or
voting-trust certificate; any security immediately convertible at the
option of the holder without payment of substantial additional
consideration into such a security; any security carrying any warrant or
right to subscribe to or purchase any such security; and any certificate
of interest or participation in, temporary or interim certificate for, or
receipt for any of the foregoing.

(i) Extension of credit, executive officer, director, principal
shareholder, and related interest each has the same respective
meaning as is applicable for the purposes of section 22(h) of the Federal
Reserve Act (12 U.S.C. 375b) and §337.3 of this chapter.

(j) Institution shall have the same meaning as “state-chartered
depository institution.”

(k) Majority-owned subsidiary means any corporation in which the
parent insured State bank owns a majority of the outstanding voting
stock.

(l) National securities exchange means a securities exchange
that is registered as a national securities exchange by the Securities and
Exchange Commission pursuant to section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f) and the National Market System, i.e., the top tier
of the National Association of Securities Dealers Automated Quotation
System.

(m) Real estate investment activity means any interest in real
estate (other than as security for a loan) held directly or indirectly
that is not permissible for a national bank.

(n) Residents of the state includes individuals living in the
State, individuals employed in the State, any person to whom the company
provided insurance as principal without interruption since such person
resided in or was employed in the State, and companies or partnerships
incorporated in, organized under the laws of, licensed to do business in,
or having an office in the State.

(o) Security has the same meaning as it has in part 344 of this
chapter.

(p) Significant risk to the Deposit Insurance Fund shall be
understood to be present whenever the FDIC determines there is a high
probability that the Deposit Insurance Fund administered by the FDIC may
suffer a loss. Such risk may be present either when an activity
contributes or may contribute to the decline in condition of a particular
state-chartered depository institution or when a type of activity is found
by the FDIC to contribute or potentially contribute to the deterioration
of the overall condition of the banking system.

(q) State-chartered depository institution means any State bank
or State savings association insured by the FDIC.

(r) Subsidiary means any company that is owned or controlled
directly or indirectly by one or more insured depository institutions.

(s) Tier one capital has the same meaning as set forth in part
325 of this chapter for an insured State nonmember bank. For other
state-chartered depository institutions, the term “tier one capital” has
the same meaning as set forth in the capital regulations adopted by the
appropriate Federal banking agency.

(t) Well-capitalized has the same meaning set forth in part 325
of this chapter for an insured State nonmember bank. For other
state-chartered depository institutions, the term “well-capitalized” has
the same meaning as set forth in the capital regulations adopted by the
appropriate Federal banking agency.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71
FR 20527, Apr. 21, 2006]

§ 362.3   Activities of insured State
banks.

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(a) Equity investments —(1) Prohibited equity investments.
No insured State bank may directly or indirectly acquire or retain as
principal any equity investment of a type that is not permissible for a
national bank unless one of the exceptions in paragraph (a)(2) of this
section applies.

(2) Exceptions. (i) Equity investment in majority-owned
subsidiaries. An insured State bank may acquire or retain an equity
investment in a subsidiary of which the bank is a majority owner, provided
that the subsidiary is engaging in activities that are allowed pursuant to
the provisions of or by application under §362.4(b).

(ii) Investments in qualified housing projects. An insured State
bank may invest as a limited partner in a partnership, or as a
noncontrolling interest holder of a limited liability company, the sole
purpose of which is to invest in the acquisition, rehabilitation, or new
construction of a qualified housing project, provided that the bank's
aggregate investment (including legally binding commitments) does not
exceed, when made, 2 percent of total assets as of the date of the bank's
most recent consolidated report of condition prior to making the
investment. For the purposes of this paragraph (a)(2)(ii), Aggregate
investment means the total book value of the bank's investment in the
real estate calculated in accordance with the instructions for the
preparation of the consolidated report of condition. Qualified housing
project means residential real estate intended to primarily benefit
lower income persons throughout the period of the bank's investment
including any project that has received an award of low income housing tax
credits under section 42 of the Internal Revenue Code (26 U.S.C. 42) (such
as a reservation or allocation of credits) from a State or local housing
credit agency. A residential real estate project that does not qualify for
the tax credit under section 42 of the Internal Revenue Code will qualify
under this exception if 50 percent or more of the housing units are to be
occupied by lower income persons. A project will be considered residential
despite the fact that some portion of the total square footage of the
project is utilized for commercial purposes, provided that such commercial
use is not the primary purpose of the project. Lower income has the
same meaning as “low income” and “moderate income” as defined for the
purposes of §345.12(n) (1) and (2) of this chapter.

(iii) Grandfathered investments in common or preferred stock; shares
of investment companies. (A) General. An insured State bank
that is located in a State which as of September 30, 1991, authorized
investment in:

( 1 )( i ) Common or preferred stock listed on a national
securities exchange (listed stock); or

( ii ) Shares of an investment company registered under the
Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq. )
(registered shares); and

( 2 ) Which during the period beginning on September 30, 1990,
and ending on November 26, 1991, made or maintained an investment in
listed stock or registered shares, may retain whatever lawfully acquired
listed stock or registered shares it held and may continue to acquire
listed stock and/or registered shares, provided that the bank files a
notice in accordance with section 24(f)(6) of the Federal Deposit
Insurance Act in compliance with §303.121 of this chapter and the FDIC
processes the notice without objection under §303.122 of this chapter.
Approval will be granted only if the FDIC determines that acquiring or
retaining the stock or shares does not pose a significant risk to the
Deposit Insurance Fund. Approval may be subject to whatever conditions or
restrictions the FDIC determines are necessary or appropriate.

(B) Loss of grandfather exception. The exception for
grandfathered investments under paragraph (a)(2)(iii)(A) of this section
shall no longer apply if the bank converts its charter or the bank or its
parent holding company undergoes a change in control. If any of these
events occur, the bank may retain its existing investments unless directed
by the FDIC or other applicable authority to divest the listed stock or
registered shares.

(C) Maximum permissible investment. A bank's aggregate
investment in listed stock and registered shares under paragraph
(a)(2)(iii)(A) of this section shall in no event exceed, when made, 100
percent of the bank's tier one capital as measured on the bank's most
recent consolidated report of condition (call report) prior to making any
such investment. The lower of the bank's cost as determined in accordance
with call report instructions or the market value of the listed stock and
shares shall be used to determine compliance. The FDIC may determine when
acting upon a notice filed in accordance with paragraph (a)(2)(iii)(A)(
2 ) of this section that the permissible limit for any particular
insured State bank is something less than 100 percent of tier one
capital.

(iv) Stock investment in insured depository institutions owned
exclusively by other banks and savings associations. An insured State
bank may acquire or retain the stock of an insured depository institution
if the insured depository institution engages only in activities
permissible for national banks; the insured depository institution is
subject to examination and regulation by a State bank supervisor; the
voting stock is owned by 20 or more insured depository institutions, but
no one institution owns more than 15 percent of the voting stock; and the
insured depository institution's stock (other than directors' qualifying
shares or shares held under or acquired through a plan established for the
benefit of the officers and employees) is owned only by insured depository
institutions.

(v) Stock investment in insurance companies —(A) Stock of
director and officer liability insurance company. An insured State
bank may acquire and retain up to 10 percent of the outstanding stock of a
corporation that solely provides or reinsures directors', trustees', and
officers' liability insurance coverage or bankers' blanket bond group
insurance coverage for insured depository institutions.

(B) Stock of savings bank life insurance company. An insured
State bank located in Massachusetts, New York, or Connecticut may own
stock in a savings bank life insurance company, provided that the savings
bank life insurance company provides written disclosures to purchasers or
potential purchasers of life insurance policies, other insurance products,
and annuities that are consistent with the disclosures described in the
Interagency Statement on the Retail Sale of Nondeposit Investment Products
(FIL–9–94,1 February 17, 1994) or any successor
requirement which indicates that the policies, products, and annuities are
not FDIC insured deposits, are not guaranteed by the bank and are subject
to investment risks, including possible loss of the principal amount
invested.

1 Financial institution letters (FILs) are available in the
FDIC Public Information Center, room 100, 801 17th Street, N.W.,
Washington, D.C. 20429.

(b) Activities other than equity investments —(1) Prohibited
activities. An insured State bank may not directly or indirectly
engage as principal in any activity, that is not an equity investment, and
is of a type not permissible for a national bank unless one of the
exceptions in paragraph (b)(2) of this section applies.

(2) Exceptions —(i) Consent obtained through application.
An insured State bank that meets and continues to meet the applicable
capital standards set by the appropriate Federal banking agency may
conduct activities prohibited by paragraph (b)(1) of this section if the
bank obtains the FDIC's prior written consent. Consent will be given only
if the FDIC determines that the activity poses no significant risk to the
Deposit Insurance Fund. Applications for consent should be filed in
accordance with §303.121 of this chapter and will be processed under
§303.122(b) of this chapter. Approvals granted under §303.122(b) of this
chapter may be made subject to any conditions or restrictions found by the
FDIC to be necessary to protect the Deposit Insurance Fund from risk, to
prevent unsafe or unsound banking practices, and/or to ensure that the
activity is consistent with the purposes of Federal deposit insurance and
other applicable law.

(ii) Insurance underwriting —(A) Savings bank life insurance.
An insured State bank that is located in Massachusetts, New York or
Connecticut may provide as principal savings bank life insurance through a
department of the bank, provided that the department meets the core
standards of paragraph (c) of this section or submits an application in
compliance with §303.121 of this chapter and the FDIC grants its consent
under the procedures in §303.122(b) of this chapter, and the department
provides purchasers or potential purchasers of life insurance policies,
other insurance products and annuities written disclosures that are
consistent with the disclosures described in the Interagency Statement on
the Retail Sale of Nondeposit Investment Products (FIL–9–94, February 17,
1994) and any successor requirement which indicates that the policies,
products and annuities are not FDIC insured deposits, are not guaranteed
by the bank, and are subject to investment risks, including the possible
loss of the principal amount invested.

(B) Federal crop insurance. Any insured State bank that was
providing insurance as principal on or before September 30, 1991, which
was reinsured in whole or in part by the Federal Crop Insurance
Corporation, may continue to do so.

(C) Grandfathered insurance underwriting. A well-capitalized
insured State bank that on November 21, 1991, was lawfully providing
insurance as principal through a department of the bank may continue to
provide the same types of insurance as principal to the residents of the
State or States in which the bank did so on such date provided that the
bank's department meets the core standards of paragraph (c) of this
section, or submits an application in compliance with §303.121 of this
chapter and the FDIC grants its consent under the procedures in
§303.122(b) of this chapter.

(iii) Acquiring and retaining adjustable rate and money market
preferred stock. (A) An insured State bank's investment of up to 15
percent of the bank's tier one capital in adjustable rate preferred stock
or money market (auction rate) preferred stock does not represent a
significant risk to the Deposit Insurance Fund. An insured State bank may
conduct this activity without first obtaining the FDIC's consent, provided
that the bank meets and continues to meet the applicable capital standards
as prescribed by the appropriate Federal banking agency. The fact that
prior consent is not required by this subpart does not preclude the FDIC
from taking any appropriate action with respect to the activities if the
facts and circumstances warrant such action.

(B) An insured State bank may acquire or retain other instruments of a
type determined by the FDIC to have the character of debt securities and
not to represent a significant risk to the Deposit Insurance Fund. Such
instruments shall be included in the 15 percent of tier one capital limit
imposed in paragraph (b)(2)(iii)(A) of this section. An insured State bank
may conduct this activity without first obtaining the FDIC's consent,
provided that the bank meets and continues to meet the applicable capital
standards as prescribed by the appropriate Federal banking agency. The
fact that prior consent is not required by this subpart does not preclude
the FDIC from taking any appropriate action with respect to the activities
if the facts and circumstances warrant such action.

(c) Core standards. For any insured State bank to be eligible to
conduct insurance activities listed in paragraph (b)(2)(ii)(A) or (C) of
this section, the bank must conduct the activities in a department that
meets the following core separation and operating standards:

(1) The department is physically distinct from the remainder of the
bank;

(2) The department maintains separate accounting and other records;

(3) The department has assets, liabilities, obligations and expenses
that are separate and distinct from those of the remainder of the
bank;

(4) The department is subject to State statute that requires its
obligations, liabilities and expenses be satisfied only with the assets of
the department; and

(5) The department informs its customers that only the assets of the
department may be used to satisfy the obligations of the department.

[63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21,
2006]

§ 362.4   Subsidiaries of insured State
banks.

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(a) Prohibition. A subsidiary of an insured State bank may not
engage as principal in any activity that is not of a type permissible for
a subsidiary of a national bank, unless it meets one of the exceptions in
paragraph (b) of this section.

(b) Exceptions —(1) Consent obtained through application.
A subsidiary of an insured State bank may conduct otherwise prohibited
activities if the bank obtains the FDIC's prior written consent and the
insured State bank meets and continues to meet the applicable capital
standards set by the appropriate Federal banking agency. Consent will be
given only if the FDIC determines that the activity poses no significant
risk to the Deposit Insurance Fund. Applications for consent should be
filed in accordance with §303.121 of this chapter and will be processed
under §303.122(b) of this chapter. Approvals granted under §303.122(b) of
this chapter may be made subject to any conditions or restrictions found
by the FDIC to be necessary to protect the Deposit Insurance Fund from
risk, to prevent unsafe or unsound banking practices, and/or to ensure
that the activity is consistent with the purposes of Federal deposit
insurance and other applicable law.

(2) Grandfathered insurance underwriting subsidiaries. A
subsidiary of an insured State bank may:

(i) Engage in grandfathered insurance underwriting if the insured State
bank or its subsidiary on November 21, 1991, was lawfully providing
insurance as principal. The subsidiary may continue to provide the same
types of insurance as principal to the residents of the State or states in
which the bank or subsidiary did so on such date provided that:

(A)( 1 ) The bank meets the capital requirements of paragraph
(e) of this section; and

( 2 ) The subsidiary is an “eligible subsidiary” as described in
paragraph (c)(2) of this section; or

(B) The bank submits an application in compliance with §303.121 of this
chapter and the FDIC grants its consent under the procedures in
§303.122(b) of this chapter.

(ii) Continue to provide as principal title insurance, provided the
bank was required before June 1, 1991, to provide title insurance as a
condition of the bank's initial chartering under State law and neither the
bank nor its parent holding company undergoes a change in control.

(iii) May continue to provide as principal insurance which is reinsured
in whole or in part by the Federal Crop Insurance Corporation if the
subsidiary was engaged in the activity on or before September 30,
1991.

(3) Majority-owned subsidiaries' ownership of equity investments
that represent a control interest in a company. The FDIC has
determined that investment in the following by a majority-owned subsidiary
of an insured State bank does not represent a significant risk to the
Deposit Insurance Fund:

(i) Equity investment in a company engaged in real estate or securities
activities authorized in paragraph (b)(5) of this section if the bank
complies with the following restrictions and files a notice in compliance
with §303.121 of this chapter and the FDIC processes the notice without
objection under §303.122(a) of this chapter. The FDIC is not precluded
from taking any appropriate action or imposing additional requirements
with respect to the activity if the facts and circumstances warrant such
action. If changes to the management or business plan of the company at
any time result in material changes to the nature of the company's
business or the manner in which its business is conducted, the insured
State bank shall advise the appropriate regional director (DSC) in writing
within 10 business days after such change. Investment under this paragraph
is authorized if:

(A) The majority-owned subsidiary controls the company;

(B) The bank meets the core eligibility criteria of paragraph (c)(1) of
this section;

(C) The majority-owned subsidiary meets the core eligibility criteria
of paragraph (c)(2) of this section (including any modifications thereof
applicable under paragraph (b)(5)(i) of this section), or the company is a
corporation meeting such criteria;

(D) The bank's transactions with the majority-owned subsidiary, and the
bank's transactions with the company, comply with the investment and
transaction limits of paragraph (d) of this section;

(E) The bank complies with the capital requirements of paragraph (e) of
this section with respect to the majority-owned subsidiary and the
company; and

(F) To the extent the company is engaged in securities activities
authorized by paragraph (b)(5)(ii) of this section, the bank and the
company comply with the additional requirements therein as if the company
were a majority-owned subsidiary.

(ii) Equity securities of a company engaged in the following
activities, if the majority-owned subsidiary controls the company or the
company is controlled by insured depository institutions, and the bank
meets and continues to meet the applicable capital standards as prescribed
by the appropriate Federal banking agency. The FDIC consents that a
majority-owned subsidiary may conduct such activity without first
obtaining the FDIC's consent. The fact that prior consent is not required
by this subpart does not preclude the FDIC from taking any appropriate
action with respect to the activity if the facts and circumstances warrant
such action:

(A) Any activity that is permissible for a national bank, including
such permissible activities that may require the company to register as a
securities broker;

(B) Acting as an insurance agency;

(C) Engaging in any activity permissible for an insured State bank
under §362.3(b)(2)(iii) to the same extent permissible for the insured
bank thereunder, so long as instruments held under this paragraph
(b)(3)(ii)(C), paragraph (b)(7) of this section, and §362.3(b)(2)(iii) in
the aggregate do not exceed the limit set by §362.3(b)(2)(iii);

(D) Engaging in any activity permissible for a majority-owned
subsidiary of an insured State bank under paragraph (b)(6) of this section
to the same extent and manner permissible for the majority-owned
subsidiary thereunder; and

(4) Majority-owned subsidiary's ownership of certain securities that
do not represent a control interest —(i) Grandfathered investments
in common or preferred stock and shares of investment companies. Any
insured State bank that has received approval to invest in common or
preferred stock or shares of an investment company pursuant to
§362.3(a)(2)(iii) may conduct the approved investment activities through a
majority-owned subsidiary of the bank without any additional approval from
the FDIC provided that any conditions or restrictions imposed with regard
to the approval granted under §362.3(a)(2)(iii) are met.

(ii) Bank stock. An insured State bank may indirectly through a
majority-owned subsidiary organized for such purpose invest in up to ten
percent of the outstanding stock of another insured bank.

(5) Majority-owned subsidiaries conducting real estate investment
activities and securities underwriting. The FDIC has determined that
the following activities do not represent a significant risk to the
Deposit Insurance Fund, provided that the activities are conducted by a
majority-owned subsidiary of an insured State bank in compliance with the
core eligibility requirements listed in paragraph (c) of this section; any
additional requirements listed in paragraph (b)(5) (i) or (ii) of this
section; the bank complies with the investment and transaction limitations
of paragraph (d) of this section; and the bank meets the capital
requirements of paragraph (e) of this section. The FDIC consents that
these listed activities may be conducted by a majority-owned subsidiary of
an insured State bank if the bank files a notice in compliance with
§303.121 of this chapter and the FDIC processes the notice without
objection under §303.122(a) of this chapter. The FDIC is not precluded
from taking any appropriate action or imposing additional requirements
with respect to the activities if the facts and circumstances warrant such
action. If changes to the management or business plan of the
majority-owned subsidiary at any time result in material changes to the
nature of the majority-owned subsidiary's business or the manner in which
its business is conducted, the insured State bank shall advise the
appropriate regional director (DSC) in writing within 10 business days
after such change. Such a majority-owned subsidiary may:

(i) Real estate investment activities. Engage in real estate
investment activities. However, the requirements of paragraph (c)(2) (ii),
(v), (vi), and (xi) of this section need not be met if the bank's
investment in the equity securities of the subsidiary does not exceed 2
percent of the bank's tier one capital; the bank has only one subsidiary
engaging in real estate investment activities; and the bank's total
investment in the subsidiary does not include any extensions of credit
from the bank to the subsidiary, any debt instruments issued by the
subsidiary, or any other transaction originated by the bank that is used
to benefit the subsidiary.

(ii) Securities activities. Engage in the public sale,
distribution or underwriting of securities that are not permissible for a
national bank under section 16 of the Banking Act of 1933 (12 U.S.C. 24
Seventh), provided that the insured state nonmember bank lawfully
controlled or acquired the subsidiary and had an approved notice or order
from the FDIC prior to November 12, 1999 and provided that the following
additional conditions are, and continue to be, met:

(A) The state-chartered depository institution adopts policies and
procedures, including appropriate limits on exposure, to govern the
institution's participation in financing transactions underwritten or
arranged by an underwriting majority-owned subsidiary;

(B) The state-chartered depository institution may not express an
opinion on the value or the advisability of the purchase or sale of
securities underwritten or dealt in by a majority-owned subsidiary unless
the state-chartered depository institution notifies the customer that the
majority-owned subsidiary is underwriting or distributing the
security;

(C) The majority-owned subsidiary is registered with the Securities and
Exchange Commission, is a member in good standing with the appropriate
self-regulatory organization, and promptly informs the appropriate
regional director (DSC) in writing of any material actions taken against
the majority-owned subsidiary or any of its employees by the State, the
appropriate self-regulatory organizations or the Securities and Exchange
Commission; and

(D) The state-chartered depository institution does not knowingly
purchase as principal or fiduciary during the existence of any
underwriting or selling syndicate any securities underwritten by the
majority-owned subsidiary unless the purchase is approved by the
state-chartered depository institution's board of directors before the
securities are initially offered for sale to the public.

(6) Real estate leasing. A majority-owned subsidiary of an
insured State bank acting as lessor under a real property lease which is
the equivalent of a financing transaction, meeting the lease criteria of
paragraph (b)(6)(i) of this section and the underlying real estate
requirements of paragraph (b)(6)(ii) of this section, does not represent a
significant risk to the Deposit Insurance Fund. A majority-owned
subsidiary may conduct this activity without first obtaining the FDIC's
consent, provided that the bank meets and continues to meet the applicable
capital standards as prescribed by the appropriate Federal banking agency.
The fact that prior consent is not required by this subpart does not
preclude the FDIC from taking any appropriate action with respect to the
activity if the facts and circumstances warrant such action.

(i) Lease criteria —(A) Capital lease. The lease must
qualify as a capital lease as to the lessor under generally accepted
accounting principles.

(B) Nonoperating basis. The bank and the majority-owned
subsidiary shall not, directly or indirectly, provide or be obligated to
provide servicing, repair, or maintenance to the property, except that the
lease may include provisions permitting the subsidiary to protect the
value of the leased property in the event of a change in circumstances
that increases the subsidiary's exposure to loss, or the subsidiary may
take reasonable and appropriate action to salvage or protect the value of
the leased property in such circumstances.

(ii) Underlying real property requirements —(A) Acquisition.
The majority-owned subsidiary may acquire specific real estate to be
leased only after the subsidiary has entered into:

( 1 ) A lease meeting the requirements of paragraph (b)(6)(i) of
this section;

( 2 ) A legally binding written commitment to enter into such a
lease; or

( 3 ) A legally binding written agreement that indemnifies the
subsidiary against loss in connection with its acquisition of the
property.

(B) Improvements. Any expenditures by the majority-owned
subsidiary to make reasonable repairs, renovations, and improvements
necessary to render the property suitable to the lessee shall not exceed
25 percent of the majority-owned subsidiary's full investment in the real
estate.

(C) Divestiture. At the expiration of the initial lease
(including any renewals or extensions thereof), the majority-owned
subsidiary shall, as soon as practicable but in any event no less than two
years, either:

( 1 ) Re-lease the property under a lease meeting the
requirement of paragraph (b)(6)(i)(B) of this section; or

( 2 ) Divest itself of all interest in the property.

(7) Acquiring and retaining adjustable rate and money market
preferred stock and similar instruments. The FDIC has determined it
does not present a significant risk to the Deposit Insurance Fund for a
majority-owned subsidiary of an insured State bank to engage in any
activity permissible for an insured State bank under §362.3(b)(2)(iii), so
long as instruments held under this paragraph, paragraph (b)(3)(ii)(C) of
this section, and §362.3(b)(2)(iii) in the aggregate do not exceed the
limit set by §362.3(b)(2)(iii). A majority-owned subsidiary may conduct
this activity without first obtaining the FDIC's consent, provided that
the bank meets and continues to meet the applicable capital standards as
prescribed by the appropriate Federal banking agency. The fact that prior
consent is not required by this subpart does not preclude the FDIC from
taking any appropriate action with respect to the activity if the facts
and circumstances warrant such action.

(c) Core eligibility requirements. If specifically required by
this part or by FDIC order, any state-chartered depository institution
that wishes to be eligible and continue to be eligible to conduct as
principal activities through a subsidiary that are not permissible for a
subsidiary of a national bank must be an “eligible depository institution”
and the subsidiary must be an “eligible subsidiary”.

(1) A state-chartered depository institution is an “eligible depository
institution” if it:

(i) Has been chartered and operating for three or more years, unless
the appropriate regional director (DSC) finds that the state-chartered
depository institution is owned by an established, well-capitalized,
well-managed holding company or is managed by seasoned management;

(ii) Has an FDIC-assigned composite rating of 1 or 2 assigned under the
Uniform Financial Institutions Rating System (UFIRS) (or such other
comparable rating system as may be adopted in the future) as a result of
its most recent Federal or State examination for which the FDIC assigned a
rating;

(iii) Received a rating of 1 or 2 under the “management” component of
the UFIRS as assigned by the institution's appropriate Federal banking
agency;

(iv) Has a satisfactory or better Community Reinvestment Act rating at
its most recent examination conducted by the institution's appropriate
Federal banking agency;

(v) Has a compliance rating of 1 or 2 at its most recent examination
conducted by the institution's appropriate Federal banking agency; and

(vi) Is not subject to a cease and desist order, consent order, prompt
corrective action directive, formal or informal written agreement, or
other administrative agreement with its appropriate Federal banking agency
or chartering authority.

(2) A subsidiary of a state-chartered depository institution is an
“eligible subsidiary” if it:

(i) Meets applicable statutory or regulatory capital requirements and
has sufficient operating capital in light of the normal obligations that
are reasonably foreseeable for a business of its size and character within
the industry;

(ii) Is physically separate and distinct in its operations from the
operations of the state-chartered depository institution, provided that
this requirement shall not be construed to prohibit the state-chartered
depository institution and its subsidiary from sharing the same facility
if the area where the subsidiary conducts business with the public is
clearly distinct from the area where customers of the state-chartered
depository institution conduct business with the institution. The extent
of the separation will vary according to the type and frequency of
customer contact;

(iii) Maintains separate accounting and other business records;

(iv) Observes separate business entity formalities such as separate
board of directors' meetings;

(v) Has a chief executive officer of the subsidiary who is not an
employee of the institution;

(vi) Has a majority of its board of directors who are neither directors
nor executive officers of the state-chartered depository institution;

(vii) Conducts business pursuant to independent policies and procedures
designed to inform customers and prospective customers of the subsidiary
that the subsidiary is a separate organization from the state-chartered
depository institution and that the state-chartered depository institution
is not responsible for and does not guarantee the obligations of the
subsidiary;

(viii) Has only one business purpose within the types described in
paragraphs (b)(2) and (b)(5) of this section;

(ix) Has a current written business plan that is appropriate to the
type and scope of business conducted by the subsidiary;

(x) Has qualified management and employees for the type of activity
contemplated, including all required licenses and memberships, and
complies with industry standards; and

(xi) Establishes policies and procedures to ensure adequate computer,
audit and accounting systems, internal risk management controls, and has
necessary operational and managerial infrastructure to implement the
business plan.

(d) Investment and transaction limits —(1) General. If
specifically required by this part or FDIC order, the following conditions
and restrictions apply to an insured State bank and its subsidiaries that
engage in and wish to continue to engage in activities which are not
permissible for a national bank subsidiary.

(2) Investment limits —(i) Aggregate investment in
subsidiaries. An insured state bank's aggregate investment in all
subsidiaries conducting activities subject to this paragraph (d) shall not
exceed 20 percent of the insured State bank's tier one capital.

(ii) Definition of investment. (A) For purposes of this
paragraph (d), the term “investment” means:

( 1 ) Any extension of credit to the subsidiary by the insured
State bank;

( 2 ) Any debt securities, as such term is defined in part 344
of this chapter, issued by the subsidiary held by the insured State
bank;

( 3 ) The acceptance by the insured State bank of securities
issued by the subsidiary as collateral for an extension of credit to any
person or company; and

( 4 ) Any extensions of credit by the insured State bank to any
third party for the purpose of making a direct investment in the
subsidiary, making any investment in which the subsidiary has an interest,
or which is used for the benefit of, or transferred to, the
subsidiary.

(B) For the purposes of this paragraph (d), the term “investment” does
not include:

( 1 ) Extensions of credit by the insured State bank to finance
sales of assets by the subsidiary which do not involve more than the
normal degree of risk of repayment and are extended on terms that are
substantially similar to those prevailing at the time for comparable
transactions with or involving unaffiliated persons or companies;

( 2 ) An extension of credit by the insured State bank to the
subsidiary that is fully collateralized by government securities, as such
term is defined in §344.3 of this chapter; or

( 3 ) An extension of credit by the insured State bank to the
subsidiary that is fully collateralized by a segregated deposit in the
insured State bank.

(3) Transaction requirements —(i) Arm's length transaction
requirement. With the exception of giving the subsidiary immediate
credit for uncollected items received in the ordinary course of business,
an insured State bank may not carry out any of the following transactions
with a subsidiary subject to this paragraph (d) unless the transaction is
on terms and conditions that are substantially the same as those
prevailing at the time for comparable transactions with unaffiliated
parties:

(A) Make an investment in the subsidiary;

(B) Purchase from or sell to the subsidiary any assets (including
securities);

(C) Enter into a contract, lease, or other type of agreement with the
subsidiary;

(D) Pay compensation to a majority-owned subsidiary or any person or
company who has an interest in the subsidiary; or

(E) Engage in any such transaction in which the proceeds thereof are
used for the benefit of, or are transferred to, the subsidiary.

(ii) Prohibition on purchase of low quality assets. An insured
State bank is prohibited from purchasing a low quality asset from a
subsidiary subject to this paragraph (d). For purposes of this subsection,
“low quality asset” means:

(A) An asset classified as “substandard”, “doubtful”, or “loss” or
treated as “other assets especially mentioned” in the most recent report
of examination of the bank;

(B) An asset in a nonaccrual status;

(C) An asset on which principal or interest payments are more than 30
days past due; or

(D) An asset whose terms have been renegotiated or compromised due to
the deteriorating financial condition of the obligor.

(iii) Insider transaction restriction. Neither the insured State
bank nor the subsidiary subject to this paragraph (d) may enter into any
transaction (exclusive of those covered by §337.3 of this chapter) with
the bank's executive officers, directors, principal shareholders or
related interests of such persons which relate to the subsidiary's
activities unless:

(A) The transactions are on terms and conditions that are substantially
the same as those prevailing at the time for comparable transactions with
persons not affiliated with the insured State bank; or

(B) The transactions are pursuant to a benefit or compensation program
that is widely available to employees of the bank, and that does not give
preference to the bank's executive officers, directors, principal
shareholders or related interests of such persons over other bank
employees.

(iv) Anti-tying restriction. Neither the insured State bank nor
the majority-owned subsidiary may require a customer to either buy any
product or use any service from the other as a condition of entering into
a transaction.

(4) Collateralization requirements. (i) An insured State bank is
prohibited from making an investment in a subsidiary subject to this
paragraph (d) unless such transaction is fully-collateralized at the time
the transaction is entered into. No insured State bank may accept a low
quality asset as collateral. An extension of credit is fully
collateralized if it is secured at the time of the transaction by
collateral having a market value equal to at least:

(A) 100 percent of the amount of the transaction if the collateral is
composed of:

( 1 ) Obligations of the United States or its agencies;

( 2 ) Obligations fully guaranteed by the United States or its
agencies as to principal and interest;

( 3 ) Notes, drafts, bills of exchange or bankers acceptances
that are eligible for rediscount or purchase by the Federal Reserve Bank;
or

( 4 ) A segregated, earmarked deposit account with the insured
State bank;

(B) 110 percent of the amount of the transaction if the collateral is
composed of obligations of any State or political subdivision of any
State;

(C) 120 percent of the amount of the transaction if the collateral is
composed of other debt instruments, including receivables; or

(D) 130 percent of the amount of the transaction if the collateral is
composed of stock, leases, or other real or personal property.

(ii) An insured State bank may not release collateral prior to
proportional payment of the extension of credit; however, collateral may
be substituted if there is no diminution of collateral coverage.

(5) Investment and transaction limits extended to insured State bank
subsidiaries. For purposes of applying paragraphs (d)(2) through
(d)(4) of this section, any reference to “insured State bank” means the
insured State bank and any subsidiaries of the insured State bank which
are not themselves subject under this part or FDIC order to the
restrictions of this paragraph (d).

(e) Capital requirements. If specifically required by this part
or by FDIC order, any insured State bank that wishes to conduct or
continue to conduct as principal activities through a subsidiary that are
not permissible for a subsidiary of a national bank must:

(1) Be well-capitalized after deducting from its tier one capital the
investment in equity securities of the subsidiary as well as the bank's
pro rata share of any retained earnings of the subsidiary;

(2) Reflect this deduction on the appropriate schedule of the bank's
consolidated report of income and condition; and

(3) Use such regulatory capital amount for the purposes of the bank's
assessment risk classification under part 327 of this chapter and its
categorization as a “well-capitalized”, an “adequately capitalized”, an
“undercapitalized”, or a “significantly undercapitalized” institution as
defined in §325.103(b) of this chapter, provided that the capital
deduction shall not be used for purposes of determining whether the bank
is “critically undercapitalized” under part 325 of this chapter.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71
FR 20527, Apr. 21, 2006]

§ 362.5   Approvals previously granted.

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(a) FDIC consent by order or notice. An insured State bank that
previously filed an application or notice under part 362 in effect prior
to January 1, 1999 (see 12 CFR part 362 revised as of January 1, 1998),
and obtained the FDIC's consent to engage in an activity or to acquire or
retain a majority-owned subsidiary engaging as principal in an activity or
acquiring and retaining any investment that is prohibited under this
subpart may continue that activity or retain that investment without
seeking the FDIC's consent, provided that the insured State bank and its
subsidiary, if applicable, continue to meet the conditions and
restrictions of the approval. An insured State bank which was granted
approval based on conditions which differ from the requirements of
§362.4(c)(2), (d) and (e) will be considered to meet the conditions and
restrictions of the approval relating to being an eligible subsidiary,
meeting investment and transactions limits, and meeting capital
requirements if the insured State bank and subsidiary meet the
requirements of §362.4(c)(2), (d) and (e). If the majority-owned
subsidiary is engaged in real estate investment activities not exceeding 2
percent of the tier one capital of a bank and meeting the other conditions
of §362.4(b)(5)(i), the majority-owned subsidiary's compliance with
§362.4(c)(2) under the preceding sentence may be pursuant to the
modifications authorized by §362.4(b)(5)(i). Once an insured State bank
elects to comply with §362.4 (c)(2), (d), and (e), it may not revert to
the corresponding provisions of the approval order.

(b) Approvals by regulation—

(1)–(5) [Reserved]

(6) Adjustable rate or money market preferred stock. An insured
State bank owning adjustable rate or money market (auction rate) preferred
stock pursuant to §362.4(c)(3)(v) in effect prior to January 1, 1999 (see
12 CFR part 362 revised as of January 1, 1998), in excess of the amount
limit in §362.3(b)(2)(iii) may continue to hold any overlimit shares of
such stock acquired before January 1, 1999, until redeemed or repurchased
by the issuer, but such stock shall be included as part of the amount
limit in §362.3(b)(2)(iii) when determining whether the bank may acquire
new stock thereunder.

(c) Charter conversions. (1) An insured State bank that has
converted its charter from an insured state savings association may
continue activities through a majority-owned subsidiary that were
permissible prior to the time it converted its charter only if the insured
State bank receives the FDIC's consent. Except as provided in paragraph
(c)(2) of this section, the insured State bank should apply under
§362.4(b)(1), submit any notice required under §362.4(b) (4) or (5), or
comply with the provisions of §362.4(b) (3), (6), or (7) if applicable, to
continue the activity.

(2) Exception for prior consent. If the FDIC had granted consent
to the savings association under section 28 of the Federal Deposit
Insurance Act (12 U.S.C. 1831(e)) prior to the time the savings
association converted its charter, the insured State bank may continue the
activities without providing notice or making application to the FDIC,
provided that the bank and its subsidiary as applicable are in compliance
with:

(i) The terms of the FDIC approval order; and

(ii) The provisions of §362.4(c)(2), (d), and (e) regarding operating
as an “eligible subsidiary”, “investment and transaction limits”, and
“capital requirements'.

(3) Divestiture. An insured State bank that does not receive
FDIC consent shall divest of the nonconforming investment as soon as
practical but in no event later than two years from the date of charter
conversion.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5,
2001]

Subpart B—Safety and Soundness Rules Governing Insured State Nonmember
Banks

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§ 362.6   Purpose and scope.

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This subpart, along with the notice and application procedures in
subpart G of part 303 of this chapter apply to certain banking practices
that may have adverse effects on the safety and soundness of insured state
nonmember banks. This subpart contains the required prudential separations
between certain securities underwriting affiliates and insured state
nonmember banks. The standards only will apply to affiliates of insured
state nonmember banks that are not controlled by an entity that is
supervised by a federal banking agency.

[66 FR 1028, Jan. 5, 2001]

§ 362.7   Definitions.

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For the purposes of this subpart, the following definitions apply:

(a) Affiliate has the same meaning contained in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813).

(b) Activity, company, control, equity security, insured state
nonmember bank, security and subsidiary have the same meaning as
provided in subpart A of this part.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5,
2001]

§ 362.8   Restrictions on activities of insured
state nonmember banks affiliated with certain securities
companies.

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(a) The FDIC has found that an unrestricted affiliation between an
insured state nonmember bank and certain companies may have adverse
effects on the safety and soundness of insured state nonmember banks.

(b) An insured state nonmember bank is prohibited from becoming or
remaining affiliated with any securities underwriting affiliate company
that directly engages in the public sale, distribution or underwriting of
stocks, bonds, debentures, notes, or other securities activity, of a type
not permissible for a national bank directly, unless the company is
controlled by an entity that is supervised by a federal banking agency or
the state nonmember bank submits an application in compliance with
§303.121 of this chapter and the FDIC grants its consent under the
procedure in §303.122(b) of this chapter, or the state nonmember bank and
the securities underwriting affiliate company comply with the following
requirements:

(1) The securities business of the affiliate is physically separate and
distinct in its operations from the operations of the bank, provided that
this requirement shall not be construed to prohibit the bank and its
affiliate from sharing the same facility if the area where the affiliate
conducts retail sales activity with the public is physically distinct from
the routine deposit taking area of the bank;

(2) The affiliate conducts business pursuant to independent policies
and procedures designed to inform customers and prospective customers of
the affiliate that the affiliate is a separate organization from the bank
and the state-chartered depository institution is not responsible for and
does not guarantee the obligations of the affiliate;

(3) The bank adopts policies and procedures, including appropriate
limits on exposure, to govern its participation in financing transactions
underwritten by an underwriting affiliate;

(4) The bank does not express an opinion on the value or the
advisability of the purchase or sale of securities underwritten or dealt
in by an affiliate unless it notifies the customer that the entity
underwriting, making a market, distributing or dealing in the securities
is an affiliate of the bank; and

(5) The bank complies with the investment and transaction limitations
in sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and
371c–1) with respect to the affiliate.

[66 FR 1028, Jan. 5, 2001]

Subpart C—Activities of Insured State Savings Associations

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§ 362.9   Purpose and scope.

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(a) This subpart, along with the notice and application procedures in
subpart H of part 303 of this chapter, implements the provisions of
section 28 of the Federal Deposit Insurance Act (12 U.S.C. 1831e) that
restrict and prohibit insured state savings associations and their service
corporations from engaging in activities and investments of a type that
are not permissible for Federal savings associations and their service
corporations. The phrase “activity permissible for a Federal savings
association” means any activity authorized for Federal savings
associations under any statute including the Home Owners' Loan Act (HOLA,
12 U.S.C. 1464 et seq. ), as well as activities recognized as
permissible for a Federal savings association in regulations, official
thrift bulletins, orders or written interpretations issued by the Office
of Thrift Supervision (OTS), or its predecessor, the Federal Home Loan
Bank Board.

(b) This subpart does not cover the following activities:

(1) Activities conducted by the insured state savings association other
than “as principal”, defined for purposes of this subpart as activities
conducted as agent for a customer, conducted in a brokerage, custodial,
advisory, or administrative capacity, or conducted as trustee, or in any
substantially similar capacity. For example, this subpart does not cover
acting solely as agent for the sale of insurance, securities, real estate,
or travel services; nor does it cover acting as trustee, providing
personal financial planning advice, or safekeeping services.

(2) Interests in real estate in which the real property is used or
intended in good faith to be used within a reasonable time by an insured
savings association or its service corporations as offices or related
facilities for the conduct of its business or future expansion of its
business or used as public welfare investments of a type and in an amount
permissible for Federal savings associations.

(3) Equity investments acquired in connection with debts previously
contracted (DPC) if the insured savings association or its service
corporation takes only such actions as would be permissible for a Federal
savings association's or its service corporation's DPC holdings.

(c) The FDIC intends to allow insured state savings associations and
their service corporations to undertake only safe and sound activities and
investments that do not present significant risks to the Deposit Insurance
Fund and that are consistent with the purposes of Federal deposit
insurance and other applicable law. This subpart does not authorize any
insured state savings association to make investments or conduct
activities that are not authorized or that are prohibited by either
Federal or state law.

[63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21,
2006]

§ 362.10   Definitions.

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For the purposes of this subpart, the definitions provided in §362.2
apply. Additionally, the following definitions apply to this subpart:

(a) Affiliate has the same meaning as provided in subpart B of
this part.

(b) Corporate debt securities not of investment grade means any
corporate debt security that when acquired was not rated among the four
highest rating categories by at least one nationally recognized
statistical rating organization. The term shall not include any obligation
issued or guaranteed by a corporation that may be held by a Federal
savings association without limitation as to percentage of assets under
subparagraphs (D), (E), or (F) of section 5(c)(1) of HOLA (12 U.S.C.
1464(c)(1) (D), (E), (F)).

(c) Insured state savings association means any state-chartered
savings association insured by the FDIC.

(d) Qualified affiliate means, in the case of a stock insured
state savings association, an affiliate other than a subsidiary or an
insured depository institution. In the case of a mutual savings
association, “qualified affiliate” means a subsidiary other than an
insured depository institution provided that all of the savings
association's investments in, and extensions of credit to, the subsidiary
are deducted from the savings association's capital.

(e) Service corporation means any corporation the capital stock
of which is available for purchase by savings associations.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1029, Jan. 5,
2001]

§ 362.11   Activities of insured State savings
associations.

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(a) Equity investments —(1) Prohibited investments. No
insured state savings association may directly acquire or retain as
principal any equity investment of a type, or in an amount, that is not
permissible for a Federal savings association unless the exception in
paragraph (a)(2) of this section applies.

(2) Exception: Equity investment in service corporations. An
insured state savings association that is and continues to be in
compliance with the applicable capital standards as prescribed by the
appropriate Federal banking agency may acquire or retain an equity
investment in a service corporation:

(i) Not permissible for a Federal savings association to the extent the
service corporation is engaging in activities that are allowed pursuant to
the provisions of or an application under §362.12(b); or

(ii) Of a type permissible for a Federal savings association, but in an
amount exceeding the investment limits applicable to Federal savings
associations, if the insured state savings association obtains the FDIC's
prior consent. Consent will be given only if the FDIC determines that the
amount of the investment in a service corporation engaged in such
activities does not present a significant risk to the Deposit Insurance
Fund. Applications should be filed in accordance with §303.141 of this
chapter and will be processed under §303.142(b) of this chapter. Approvals
granted under §303.142(b) of this chapter may be made subject to any
conditions or restrictions found by the FDIC to be necessary to protect
the Deposit Insurance Fund from significant risk, to prevent unsafe or
unsound practices, and/or to ensure that the activity is consistent with
the purposes of Federal deposit insurance and other applicable law.

(b) Activities other than equity investments —(1) Prohibited
activities. An insured state savings association may not directly
engage as principal in any activity, that is not an equity investment, of
a type not permissible for a Federal savings association, and an insured
state savings association shall not make nonresidential real property
loans in an amount exceeding that described in section 5(c)(2)(B) of HOLA
(12 U.S.C. 1464(c)(2)(B)), unless one of the exceptions in paragraph
(b)(2) of this section applies. This section shall not be read to require
the divestiture of any asset (including a nonresidential real estate
loan), if the asset was acquired prior to August 9, 1989; however, any
activity conducted with such asset must be conducted in accordance with
this subpart. After August 9, 1989, an insured state savings association
directly or through a subsidiary (other than, in the case of a mutual
savings association, a subsidiary that is a qualified affiliate), may not
acquire or retain any corporate debt securities not of investment
grade.

(2) Exceptions —(i) Consent obtained through application.
An insured state savings association that meets and continues to meet
the applicable capital standards set by the appropriate Federal banking
agency may directly conduct activities prohibited by paragraph (b)(1) of
this section if the savings association obtains the FDIC's prior consent.
Consent will be given only if the FDIC determines that conducting the
activity designated poses no significant risk to the Deposit Insurance
Fund. Applications should be filed in accordance with §303.141 of this
chapter and will be processed under §303.142(b) of this chapter. Approvals
granted under §303.142(b) of this chapter may be made subject to any
conditions or restrictions found by the FDIC to be necessary to protect
the Deposit Insurance Fund from significant risk, to prevent unsafe or
unsound practices, and/or to ensure that the activity is consistent with
the purposes of Federal deposit insurance and other applicable law.

(ii) Nonresidential realty loans permissible for a Federal savings
association conducted in an amount not permissible. An insured state
savings association that meets and continues to meet the applicable
capital standards set by the appropriate Federal banking agency may make
nonresidential real property loans in an amount exceeding the amount
described in section 5(c)(2)(B) of HOLA, if the savings association files
a notice in compliance with §303.141 of this chapter and the FDIC
processes the notice without objection under §303.142(a) of this chapter.
Consent will be given only if the FDIC determines that engaging in such
lending in the amount designated poses no significant risk to the Deposit
Insurance Fund.

(iii) Acquiring and retaining adjustable rate and money market
preferred stock. (A) An insured state savings association's investment
of up to 15 percent of the association's tier one capital in adjustable
rate preferred stock or money market (auction rate) preferred stock does
not represent a significant risk to the Deposit Insurance Fund. An insured
state savings association may conduct this activity without first
obtaining the FDIC's consent, provided that the association meets and
continues to meet the applicable capital standards as prescribed by the
appropriate Federal banking agency. The fact that prior consent is not
required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activities if the facts and
circumstances warrant such action.

(B) An insured state savings association may acquire or retain other
instruments of a type determined by the FDIC to have the character of debt
securities and not to represent a significant risk to the Deposit
Insurance Fund. Such instruments shall be included in the 15 percent of
tier one capital limit imposed in paragraph (b)(2)(iii)(A) of this
section. An insured state savings association may conduct this activity
without first obtaining the FDIC's consent, provided that the association
meets and continues to meet the applicable capital standards as prescribed
by the appropriate Federal banking agency. The fact that prior consent is
not required by this subpart does not preclude the FDIC from taking any
appropriate action with respect to the activities if the facts and
circumstances warrant such action.

(3) Activities permissible for a Federal savings association
conducted in an amount not permissible. Except as provided in
paragraph (b)(2)(ii) of this section, an insured state savings association
may engage as principal in any activity, which is not an equity investment
of a type permissible for a Federal savings association, in an amount in
excess of that permissible for a Federal savings association, if the
savings association meets and continues to meet the applicable capital
standards set by the appropriate Federal banking agency, the institution
has advised the appropriate regional director (DSC) under the procedure in
§303.142(c) of this chapter within thirty days before engaging in the
activity, and the FDIC has not advised the insured state savings
association that conducting the activity in the amount indicated poses a
significant risk to the Deposit Insurance Fund. This section shall not be
read to require the divestiture of any asset if the asset was acquired
prior to August 9, 1989; however, any activity conducted with such asset
must be conducted in accordance with this subpart.

[63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21,
2006]

§ 362.12   Service corporations of insured State
savings associations.

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(a) Prohibition. A service corporation of an insured state
savings association may not engage in any activity that is not permissible
for a service corporation of a Federal savings association, unless it
meets one of the exceptions in paragraph (b) of this section.

(b) Exceptions —(1) Consent obtained through application.
A service corporation of an insured state savings association may
conduct activities prohibited by paragraph (a) of this section if the
savings association obtains the FDIC's prior written consent and the
insured state savings association meets and continues to meet the
applicable capital standards set by the appropriate Federal banking
agency. Consent will be given only if the FDIC determines that the
activity poses no significant risk to the Deposit Insurance Fund.
Applications for consent should be filed in accordance with §303.141 of
this chapter and will be processed under §303.142(b) of this chapter.
Approvals granted under §303.142(b) of this chapter may be made subject to
any conditions or restrictions found by the FDIC to be necessary to
protect the Deposit Insurance Fund from risk, to prevent unsafe or unsound
banking practices, and/or to ensure that the activity is consistent with
the purposes of Federal deposit insurance and other applicable law. The
activities covered by this paragraph may include, but are not limited to,
acquiring and retaining equity securities of a company engaged in the
public sale distribution or underwriting of securities.

(2) Service corporations conducting unrestricted activities. The
FDIC has determined that the following activities do not represent a
significant risk to the Deposit Insurance Fund:

(i) [Reserved]

(ii) A service corporation of an insured state savings association may
acquire and retain equity securities of a company engaged in the following
activities, if the service corporation controls the company or the company
is controlled by insured depository institutions, and the association
continues to meet the applicable capital standards as prescribed by the
appropriate Federal banking agency. The FDIC consents that such activity
may be conducted by a service corporation of an insured state savings
association without first obtaining the FDIC's consent. The fact that
prior consent is not required by this subpart does not preclude the FDIC
from taking any appropriate action with respect to the activities if the
facts and circumstances warrant such action.

(A) Equity securities of a company that engages in permissible
activities. A service corporation may own the equity securities of a
company that engages in any activity permissible for a Federal savings
association.

(B) Equity securities of a company that acquires and retains
adjustable-rate and money market preferred stock. A service
corporation may own the equity securities of a company that engages in any
activity permissible for an insured state savings association under
§362.11(b)(2)(iii) so long as instruments held under this paragraph
(b)(2)(ii)(B), paragraph (b)(2)(iv) of this section, and
§362.11(b)(2)(iii) in the aggregate do not exceed the limit set by
§362.11(b)(2)(iii).

(C) Equity securities of a company acting as an insurance agency.
A service corporation may own the equity securities of a company that
acts as an insurance agency.

(iii) Activities that are not conducted “as principal ”. A
service corporation controlled by the insured state savings association
may engage in activities which are not conducted “as principal” such as
acting as an agent for a customer, acting in a brokerage, custodial,
advisory, or administrative capacity, or acting as trustee, or in any
substantially similar capacity.

(iv) Acquiring and retaining adjustable-rate and money market
preferred stock. A service corporation may engage in any activity
permissible for an insured state savings association under
§362.11(b)(2)(iii) so long as instruments held under this paragraph
(b)(2)(iv), paragraph (b)(2)(ii)(B) of this section, and
§362.11(b)(2)(iii) in the aggregate do not exceed the limit set by
§362.11(b)(2)(iii).

(3)–(4) [Reserved]

(c) Investment and transaction limits. The restrictions detailed
in §362.4(d) apply to transactions between an insured state savings
association and any service corporation engaging in activities which are
not permissible for a service corporation of a Federal savings association
if specifically required by this part or FDIC order. For purposes of
applying the investment limits in §362.4(d)(2), the term “investment”
includes only those items described in §362.4(d)(2)(ii)(A) ( 3 )
and ( 4 ). For purposes of applying §362.4(d) (2), (3), and (4) to
this paragraph (c), references to the terms “insured State bank” and
“subsidiary” in §362.4(d)(2), (3), and (4), shall be deemed to refer,
respectively, to the insured state savings association and the service
corporation. For purposes of applying §362.4(d)(5), references to the
terms “insured State bank” and “subsidiary” in §362.4(d)(5) shall be
deemed to refer, respectively, to the insured state savings association
and the service corporations or subsidiaries.

(d) Capital requirements. If specifically required by this part
or by FDIC order, an insured state savings association that wishes to
conduct as principal activities through a service corporation which are
not permissible for a service corporation of a Federal savings association
must:

(1) Be well-capitalized after deducting from its capital any investment
in the service corporation, both equity and debt.

(2) Use such regulatory capital amount for the purposes of the insured
state savings association's assessment risk classification under part 327
of this chapter.

[63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1029, Jan. 5, 2001; 71
FR 20527, Apr. 21, 2006]]

§ 362.13   Approvals previously
granted.

top

FDIC consent by order or notice. An insured state savings
association that previously filed an application and obtained the FDIC's
consent to engage in an activity or to acquire or retain an investment in
a service corporation engaging as principal in an activity or acquiring
and retaining any investment that is prohibited under this subpart may
continue that activity or retain that investment without seeking the
FDIC's consent, provided the insured state savings association and the
service corporation, if applicable, continue to meet the conditions and
restrictions of approval. An insured state savings association which was
granted approval based on conditions which differ from the requirements of
§§362.4(c)(2) and 362.12 (c) and (d) will be considered to meet the
conditions and restrictions of the approval if the insured state savings
association and any applicable service corporation meet the requirements
of §§362.4(c)(2) and 362.12 (c) and (d). For the purposes of applying
§362.4(c)(2), references to the terms “eligible subsidiary” and
“subsidiary” in §362.4(c)(2) shall be deemed to refer, respectively, to
the eligible service corporation and the service corporation.

Subpart D—Acquiring, Establishing, or Conducting New Activities
Through a Subsidiary by an Insured Savings Association

top

§ 362.14   Purpose and scope.

top

This subpart implements section 18(m) of the Federal Deposit Insurance
Act (12 U.S.C. 1828(m)) which requires that prior notice be given the FDIC
when an insured savings association establishes or acquires a subsidiary
or engages in any new activity in a subsidiary. For the purposes of this
subpart, the term “subsidiary” does not include any insured depository
institution as that term is defined in the Federal Deposit Insurance Act.
Unless otherwise indicated, the definitions provided in §362.2 apply to
this subpart.

§ 362.15   Acquiring or establishing a subsidiary;
conducting new activities through a subsidiary.

top

No state or Federal insured savings association may establish or
acquire a subsidiary, or conduct any new activity through a subsidiary,
unless it files a notice in compliance with §303.142(c) of this chapter at
least 30 days prior to establishment of the subsidiary or commencement of
the activity and the FDIC does not object to the notice. This requirement
does not apply to any Federal savings bank that was chartered prior to
October 15, 1982, as a savings bank under State law or any savings
association that acquired its principal assets from such an
institution.

Subpart E—Financial Subsidiaries of Insured State Nonmember
Banks

top

Source:   66 FR 1029, Jan. 5, 2001,
unless otherwise noted.

§ 362.16   Purpose and scope.

top

(a) This subpart, along with the notice and application procedures in
subpart G of part 303 of this chapter, implements section 46 of the
Federal Deposit Insurance Act (12 U.S.C. 1831w) and requires that an
insured state nonmember bank certify certain facts and file a notice with
the FDIC before the insured state nonmember bank may control or hold an
interest in a financial subsidiary under section 46(a) of the Federal
Deposit Insurance Act. This subpart also implements the statutory
Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq. )
requirement set forth in subsection (4)(l)(2) of the Bank Holding Company
Act (12 U.S.C. 1843(l)(2)), which is applicable to state nonmember banks
that commence new activities through a financial subsidiary or directly or
indirectly acquire control of a company engaged in an activity under
section 46(a).

(b) This subpart does not cover activities conducted other than “as
principal”. For purposes of this subpart, activities conducted other than
“as principal” are defined as activities conducted as agent for a
customer, conducted in a brokerage, custodial, advisory, or administrative
capacity, or conducted as trustee, or in any substantially similar
capacity. For example, this subpart does not cover acting solely as agent
for the sale of insurance, securities, real estate, or travel services;
nor does it cover acting as trustee, providing personal financial planning
advice, or safekeeping services.

§ 362.17   Definitions.

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For the purposes of this subpart, the following definitions will
apply:

(a) Activity, company, control, insured depository institution,
insured state bank, insured state nonmember bank and subsidiary have
the same meaning as provided in subpart A of this part.

(b) Affiliate has the same meaning provided in subpart B of this
part.

(c) Financial subsidiary means any company that is controlled by
one or more insured depository institutions other than:

(1) A subsidiary that only engages in activities that the state
nonmember bank is permitted to engage in directly and that are conducted
on the same terms and conditions that govern the conduct of the activities
by the state nonmember bank; or

(2) A subsidiary that the state nonmember bank is specifically
authorized to control by the express terms of a federal statute (other
than section 46(a) of the Federal Deposit Insurance Act (12 U.S.C.
1831w)), and not by implication or interpretation, such as the Bank
Service Company Act (12 U.S.C. 1861 et seq. ).

(d) Tangible equity and Tier 2 capital have the same meaning as
set forth in part 325 of this chapter.

(e) Well-managed means:

(1) Unless otherwise determined in writing by the appropriate federal
banking agency, the institution has received a composite rating of 1 or 2
under the Uniform Financial Institutions Rating System (or an equivalent
rating under an equivalent rating system) in connection with the most
recent state or federal examination or subsequent review of the depository
institution and at least a rating of 2 for management, if such a rating is
given; or

(2) In the case of any depository institution that has not been
examined by its appropriate federal banking agency, the existence and use
of managerial resources that the appropriate federal banking agency
determines are satisfactory.

§ 362.18   Financial subsidiaries of insured state
nonmember banks.

top

(a) “As principal” activities. An insured state nonmember bank
may not obtain control of or hold an interest in a financial subsidiary
that engages in activities as principal or commence any such new activity
pursuant to section 46(a) of the Federal Deposit Insurance Act (12 U.S.C.
1831w) unless the insured state nonmember bank files a notice containing
the information required in §303.121(b) of this chapter and certifies
that:

(1) The insured state nonmember bank is well-managed;

(2) The insured state nonmember bank and all of its insured depository
institution affiliates are well-capitalized as defined in the appropriate
capital regulation and guidance of each institution's primary federal
regulator; and

(3) The insured state nonmember bank will deduct the aggregate amount
of its outstanding equity investment, including retained earnings, in all
financial subsidiaries that engage in activities as principal pursuant to
section 46(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831w), from
the bank's total assets and tangible equity and deduct such investment
from its total risk-based capital (this deduction shall be made equally
from Tier 1 and Tier 2 capital).

(b) Community Reinvestment Act (CRA). An insured state nonmember
bank may not commence any new activity subject to section 46(a) of the
Federal Deposit Insurance Act (12 U.S.C. 1831w) or directly or indirectly
acquire control of a company engaged in any such activity pursuant to
§362.18(a)(1), if the bank or any of its insured depository institution
affiliates received a CRA rating of less than “satisfactory record of
meeting community credit needs” in its most recent CRA examination.

(c) Other requirements. An insured state nonmember bank
controlling or holding an interest in a financial subsidiary under section
46(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831w) must meet and
continue to meet the requirements set forth in paragraph (a) of this
section as long as the insured state nonmember bank holds the financial
subsidiary and:

(1) Disclose and continue to disclose the capital separation required
in paragraph (a)(3) in any published financial statements;

(2) Comply and continue to comply with sections 23A and 23B of the
Federal Reserve Act (12 U.S.C. 371c and 371c–1) as if the subsidiary were
a financial subsidiary of a national bank; and

(3) Comply and continue to comply with the financial and operational
standards provided by section 5136A(d) of the Revised Statutes of the
United States (12 U.S.C. 24A(d)), unless otherwise determined by the
FDIC.

(d) Securities underwriting. If the financial subsidiary of the
insured state nonmember bank will engage in the public sale, distribution
or underwriting of stocks, bonds, debentures, notes, or other securities
activity of a type permissible for a national bank only through a
financial subsidiary, then the state nonmember bank and the financial
subsidiary also must comply and continue to comply with the following
additional requirements:

(1) The securities business of the financial subsidiary must be
physically separate and distinct in its operations from the operations of
the bank, provided that this requirement shall not be construed to
prohibit the bank and its financial subsidiary from sharing the same
facility if the area where the financial subsidiary conducts securities
business with the public is physically distinct from the routine deposit
taking area of the bank;

(2) The financial subsidiary must conduct its securities business
pursuant to independent policies and procedures designed to inform
customers and prospective customers of the financial subsidiary that the
financial subsidiary is a separate organization from the insured state
nonmember bank and that the insured state nonmember bank is not
responsible for and does not guarantee the obligations of the financial
subsidiary;

(3) The bank must adopt policies and procedures, including appropriate
limits on exposure, to govern its participation in financing transactions
underwritten by its financial subsidiary; and

(4) The bank must not express an opinion on the value or the
advisability of the purchase or sale of securities underwritten or dealt
in by its financial subsidiary unless the bank notifies the customer that
the entity underwriting, making a market, distributing or dealing in the
securities is a financial subsidiary of the bank.

(e) Applications for exceptions to certain requirements. Any
insured state nonmember bank that is unable to comply with the
well-managed requirement of §362.18(a)(1) and (c)(1), any state nonmember
bank that has appropriate reasons for not meeting the financial and
operational standards applicable to a financial subsidiary of a national
bank conducting the same activities as provided in §362.18(c)(3) or any
state nonmember bank and its financial subsidiary subject to the
securities underwriting activities requirements in §362.18(d) that is
unable to meet such requirements may submit an application in compliance
with §303.121 of this chapter to seek a waiver or modification of such
requirements under the procedure in §303.122(b) of this chapter. The FDIC
may impose additional prudential safeguards as are necessary as a
condition of its consent.

(f) Failure to meet requirements —(1) Notification by FDIC.
The FDIC will notify the insured state nonmember bank in writing and
identify the areas of noncompliance, if:

(i) The FDIC finds that an insured state nonmember bank or any of its
insured depository institution affiliates is not in compliance with the
CRA requirement of §362.18(b) at the time any new activity is commenced or
control of the financial subsidiary is acquired;

(ii) The FDIC finds that the facts to which an insured state nonmember
bank certified under §362.18(a) are not accurate in whole or in part;
or

(iii) The FDIC finds that the insured state nonmember bank or any of
its insured depository institution affiliates or the financial subsidiary
fails to meet or continue to comply with the requirements of §362.18(c)
and (d), if applicable, and the FDIC has not granted an exception under
the procedures set forth in §362.18(e) and in §303.122(b) of this
chapter.

(2) Notification by state nonmember bank. An insured state
nonmember bank that controls or holds an interest in a financial
subsidiary must promptly notify the FDIC if the bank becomes aware that
any depository institution affiliate of the bank has ceased to be
well-capitalized.

(3) Subsequent action by FDIC. The FDIC may take any appropriate
action or impose any limitations, including requiring that the insured
state nonmember bank to divest control of any such financial subsidiary,
on the conduct or activities of the insured state nonmember bank or any
financial subsidiary of the insured state bank that fails to:

(i) Meet the requirements listed in §362.18(a) and (b) at the time that
any new section 46 activity is commenced or control of a financial
subsidiary is acquired by an insured state nonmember bank; or

(ii) Meet and continue to meet the requirements listed in §362.18(c)
and (d), as applicable.

(g) Coordination with section 24 of the Federal Deposit Insurance
Act —(1) Continuing authority under section 24. Notwithstanding
§362.18(a) through (f), an insured state bank may retain its interest in
any subsidiary:

(i) That was conducting a financial activity with authorization in
accordance with section 24 of the Federal Deposit Insurance Act (12 U.S.C.
1831a) and the applicable implementing regulation found in subpart A of
this part 362 before the date on which any such activity became for the
first time permissible for a financial subsidiary of a national bank;
and

(ii) Which insured state nonmember bank and its subsidiary continue to
meet the conditions and restrictions of the section 24 order or regulation
approving the activity as well as other applicable law.

(2) Continuing authority under section 24(f) of the Federal Deposit
Insurance Act. Notwithstanding §362.18(a) through (f), an insured
state bank with authority under section 24(f) of the Federal Deposit
Insurance Act (12 U.S.C. 1831a(f)) to hold equity securities may continue
to establish new subsidiaries to engage in that investment activity.

(3) Relief from conditions. Any state nonmember bank that meets
the requirements of paragraph (g)(1) of this section or that is subject to
section 46(b) of the Federal Deposit Insurance Act (12 U.S.C. 1831w(b))
may submit an application in compliance with §303.121 of this chapter and
seek the consent of the FDIC under the procedure in §303.122(b) of this
chapter for modification of any conditions or restrictions the FDIC
previously imposed in connection with a section 24 order or regulation
approving the activity.

(4) New financial subsidiaries. Notwithstanding subpart A of
this part 362, an insured state bank may not, on or after November 12,
1999, acquire control of, or acquire an interest in, a financial
subsidiary that engages in activities as principal or commences any new
activity under section 46(a) of the Federal Deposit Insurance Act (12
U.S.C. 1831w) other than as provided in this section.

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