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e-CFR
Data is current as of May 22, 2008

Title 12:
Banks and Banking
PART 563—SAVINGS ASSOCIATIONS—OPERATIONS

Subpart B—Operation and Structure

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§ 563.41   Transactions with affiliates.

(a) Scope. (1) This section implements section 11(a) of the Home
Owners' Loan Act (12 U.S.C. 1468(a)). Section 11(a) applies sections 23A
and 23B of the FRA (12 U.S.C. 371c and 371c1) to every savings association
in the same manner and to the same extent as if the association were a
member bank; prohibits certain types of transactions with affiliates; and
authorizes OTS to impose additional restrictions on a savings
association's transactions with affiliates.

(2) For the purposes of this section, “savings association” is defined
at section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), and
also includes any savings bank or any cooperative bank that is a savings
association under 12 U.S.C. 1467a(l). A non-affiliate subsidiary of a
savings association as described in paragraph (b)(11) of this section is
treated as part of the savings association.

(b) Sections 23A and 23B of the FRA/Regulation W. A savings
association must comply with sections 23A and 23B of the Federal Reserve
Act and the implementing regulations at 12 CFR part 223 (Regulation W) as
if it were a member bank, except as described in the following chart. In
addition, a savings association should read all references to “the Board”
or “appropriate federal banking agency” to refer only to “OTS,” except for
references at 12 CFR 223.2(a)(9)(iv), 223.3(h), 223.3(z), 223.14(c)(4),
223.43, and 223.55.

Provision of Regulation W

Application

(1) 12 CFR
223.1—Authority, purpose, and scope

Does not apply. Section 563.41(a)
addresses these matters.

(2) 12 CFR
223.2(a)(8)—“Affiliate” includes a financial subsidiary

Does not apply. Savings association
subsidiaries do not meet the statutory definition of financial
subsidiary.

(3) 12 CFR
223.2(a)(12)—Determination that “affiliate” includes other types of
companies

Read to include the following
statement: “Affiliate also includes any company that OTS determines,
by order or regulation, to present a risk to the safety and
soundness of the savings association.”

(4) 12 CFR
223.2(b)(1)(ii)—“Affiliate” includes a subsidiary that is a
financial subsidiary

Does not apply. Savings association
subsidiaries do not meet the statutory definition of financial
subsidiary.

(5) 12 CFR
223.3(d)—Definition of “capital stock and surplus.”

Does not apply. Capital stock and
surplus means “unimpaired capital and unimpaired surplus,” as
defined in 12 CFR 560.93(b)(11).

(6) 12 CFR
223.3(h)(1)—Section 23A covered transactions include an extension of
credit to the affiliate

Read to incorporate §563.41(c)(1),
which prohibits loans or extensions of credit to an affiliate,
unless the affiliate is engaged only in the activities described at
12 U.S.C. 1467a(c)(2)(F)(i), as defined in §584.2–2 of this
chapter.

(7) 12 CFR
223.3(h)(2)—Section 23A covered transactions include a purchase of
or investment in securities issued by an affiliate

Read to incorporate §563.41(c)(2),
which prohibits purchases and investments in securities issued by an
affiliate, other than with respect to shares of a subsidiary.

(8) 12 CFR
223.3(k)—Definition of “depository institution.”

Read to include the following
statement: “For the purposes of this definition, a non-affiliate
subsidiary of a savings association is treated as part of the
depository institution.”

(9) 12 CFR
223.3(p)—Definition of “financial subsidiary.”

Does not apply. Savings association
subsidiaries do not meet the statutory definition of financial
subsidiary.

(10) 12 CFR
223.3(w)—Definition of “member bank.”

Read to include the following
statement: “Member bank also includes a savings association. For
purposes of this definition, a non-affiliate subsidiary of a savings
association is treated as part of the savings association.”

(11) 12 CFR
223.3(aa)—Definition of “operating subsidiary.”

Does not apply. Other OTS
regulations include a conflicting definition of this same term.
Instead, OTS uses the phrase “non-affiliate subsidiary.” A
non-affiliate subsidiary is a subsidiary of a savings association
other than a subsidiary described at 12 CFR 223.2(b)(1)(i), (iii)
through (v).

(12) 12 CFR
223.3(ii)—Definition of “subsidiary.”

Read to include the following
statement: “A subsidiary of a savings association means a company
that is controlled by the savings association.”

(13) 12 CFR
223.3(kk)—Definition of “well capitalized.”

Read to include the following
statement: “For a savings and loan holding company, however,
well-capitalized means that the holding company significantly
exceeds OTS expectations for the amount of capital needed to
adequately support the holding company's risk profile, as determined
by OTS on a case-by-case basis.”

(14) 12 CFR
223.31—Application of section 23A to an acquisition of an affiliate
that becomes an operating subsidiary

Read to refer to “a non-affiliate
subsidiary” instead of “operating subsidiary.”

(15) 12 CFR 223.32—Rules
that apply to financial subsidiaries of a bank

Does not apply. Savings association
subsidiaries do not meet the statutory definition of financial
subsidiary.

(16) 12 CFR
223.42(f)(2)—Exemption for purchasing certain marketable
securities

Read to refer to “Thrift Financial
Report” instead of “Call Report.” References to “state member bank”
are unchanged.

(17) 12 CFR
223.42(g)(2)—Exemption for purchasing municipal securities

Read to refer to “Thrift Financial
Report” instead of “Call Report.” References to “state member bank”
are unchanged.

(18) 12 CFR
223.61—Application of sections 23A and 23B to U.S. branches and
agencies of foreign banks

Does not apply to savings
associations or their subsidiaries.

(c) Additional prohibitions and restrictions. A savings
association must comply with the additional prohibitions and restrictions
in this paragraph. Except as described in paragraph (b) of this section,
the definitions in 12 CFR part 223 apply to these additional prohibitions
and restrictions.

(1) Loans and extensions of credit. (i) A savings association
may not make a loan or other extension of credit to an affiliate, unless
the affiliate is solely engaged in the activities described at 12 U.S.C.
1467a(c)(2)(F)(i), as defined in §584.2–2 of this chapter. A loan or
extension of credit to a third party is not prohibited merely because
proceeds of the transaction are used for the benefit of, or are
transferred to, an affiliate.

(ii) If OTS determines that a particular transaction is, in substance,
a loan or extension of credit to an affiliate that is engaged in
activities other than those described at 12 U.S.C. 1467a(c)(2)(F)(i), as
defined in §584.2–2 of this chapter, or OTS has other supervisory concerns
concerning the transaction, OTS may inform the savings association that
the transaction is prohibited under this paragraph (c)(1), and require the
savings association to divest the loan, unwind the transaction, or take
other appropriate action.

(2) Purchases or investments in securities. A savings
association may not purchase or invest in securities issued by any
affiliate other than with respect to shares of a subsidiary. For the
purposes of this paragraph (c)(2), subsidiary includes a bank and a
savings association.

(3) Recordkeeping. A savings association must make and retain
records that reflect, in reasonable detail, all transactions between the
savings association and its affiliates and any other person to the extent
that the proceeds of a transaction are used for the benefit of, or
transferred to, an affiliate. At a minimum, these records must:

(i) Identify the affiliate;

(ii) Specify the dollar amount of the transaction and demonstrate that
this amount is within the quantitative limits in 12 CFR 223.11 and 223.12,
or that the transaction is not subject to those limits;

(iii) Indicate whether the transaction involves a low-quality
asset;

(iv) Identify the type and amount of any collateral involved in the
transaction and demonstrate that this collateral meets the requirements in
12 CFR 223.14 or that the transaction is not subject to those
requirements;

(v) Demonstrate that the transaction complies with 12 CFR part 223,
subpart F or that the transaction is not subject to those
requirements;

(vi) Demonstrate that all loans and extensions of credit to affiliates
comply with paragraph (c)(1) of this section; and

(vii) Be readily accessible for examination and supervisory
purposes.

(4) Notice requirement. (i) OTS may require a savings
association to notify the agency before the savings association may engage
in a transaction with an affiliate or a subsidiary (other than exempt
transactions under 12 CFR part 223). OTS may impose this requirement
if:

(A) The savings association is in troubled condition as defined at
§563.555 of this part;

(B) The savings association does not meet its regulatory capital
requirements;

(C) The savings association commenced de novo operations within
the past two years;

(D) OTS approved an application or notice under 12 CFR part 574
involving the savings association or its holding company within the past
two years;

(E) The savings association entered into a consent to merge or a
supervisory agreement within the past two years; or

(F) OTS or another banking agency initiated a formal enforcement
proceeding against the savings association and the proceeding is
pending.

(ii) OTS must notify the savings association in writing that it has
imposed the notice requirement and must identify the circumstance listed
in paragraph (c)(4)(i) of this section that supports the imposition of the
notice requirement.

(iii) If OTS has imposed the notice requirement under this paragraph, a
savings association must provide a written notice to OTS at least 30 days
before the savings association may enter into a transaction with an
affiliate or a subsidiary. The written notice must include a full
description of the transaction. If OTS does not object during the 30-day
period, the savings association may proceed with the proposed
transaction.

[68 FR 57797, Oct. 7, 2003, as amended at 68 FR 75110, Dec. 30,
2003]

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